<PAGE>
File No. 2-46686
FISCAL YEAR END - July 31
Registrant proposes that this amendment will become effective:
75 days after filing
----
As of the filing date
----
As of December 1, 1997 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 43
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.
Robert A. Kukuljan
Dorsey & Whitney LLP
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 26 , 1997.
<PAGE>
FORTIS INCOME PORTFOLIOS, INC.
POST-EFFECTIVE AMENDMENT NO. 43
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
PART A of this Registration Statement consists of a Prospectus relating
to the Class A, B, C and H shares of the U.S. Government Securities Fund,
Strategic Income Fund and High Yield Portfolio. In addition, the Prospectus
relates to the Class E shares of the U.S. Government Securities Fund.
PART B of this Registration Statement consists of one Statement of
Additional Information which relates to the Prospectus referred to above.
<PAGE>
CROSS REFERENCE SHEET
PROSPECTUS
PART A
ITEM NO. CAPTION IN PROSPECTUS
- -------- ---------------------
1 Cover Page
2 Summary of Fund Expenses
3 Calculation of Performance Data; Financial Highlights
4 Summary of Investment Objectives; Investment Objectives and
Policies; Risk Considerations and Other Investment Practices
5 Management
5A Non Applicable
6 Capital Stock; Valuation of Securities; Dividends and Capital
Gains Distributions; Shareholder Inquiries; Taxation
7 How to Buy Fund Shares; Valuation of Securities; Management;
Redemption
8 Redemption
9 Not Applicable
STATEMENT OF ADDITIONAL INFORMATION
PART B
ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- -------- -----------------------------------------------
10 Cover Page
11 Table of Contents
12 Organization and Classification
13 Investment Objectives and Policies; Investment Practices
Common to the Funds
14 Directors and Executive Officers
15 Capital Stock
16 Investment Advisory and Other Services
17 Portfolio Transactions and Allocation of Brokerage
18 Not Applicable
19 Computation of Net Asset Value and Pricing; Special Purchase
Plans
20 Taxation
21 Investment Advisory and Other Services; Underwriter; Plan of
Distribution
22 Performance
23 Not Applicable
<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 DECEMBER 1, 1997
- ---------------------------------------
U.S. Government Securities
- ----------------------------------
Strategic Income
- ----------------------------------
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 DECEMBER 1, 1997) WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "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. THE COMMISSION MAINTAINS A
WORLD WIDE WEB SITE THAT CONTAINS REPORTS AND INFORMATION REGARDING ISSUERS THAT
FILE ELECTRONICALLY WITH THE COMMISSION. THE ADDRESS OF SUCH SITE IS
"HTTP://WWW.SEC.GOV."
SHARES IN 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 registered FORTIS
servicemarks of Fortis AMEV and Fortis SOLID ANSWERS FOR A CHANGING
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). In addition, investments in bonds issued by foreign
governments and companies expose investors to additional risks associated with
foreign investments such as "currency exchange risk" (a decline in the value of
a particular currency against the U.S. dollar will cause a decline in the value
of bond funds holdings denominated in such security) and other risks relating to
potential adverse political and economic developments in certain countries. 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.
SUMMARY OF INVESTMENT OBJECTIVES
Fortis U.S. Government Securities Fund and Fortis Strategic Income Fund are each
portfolios 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, Strategic Income Fund and the
High Yield Portfolio are collectively referred to as the "Funds" or individually
a "Fund." 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 level of current income consistent with prudent investment
risk.
The STRATEGIC INCOME FUND is a multisector bond fund with an investment
objective to maximize total return (from current income and capital
appreciation) by primarily investing in (a) U.S. Government securities, (b)
investment and non-investment grade fixed-income securities issued by foreign
governments and companies, and (c) non-investment grade fixed income securities
issued by U.S. issuers, which, in the opinion of Fortis Advisers, Inc.
("Advisers"), do not subject Strategic Income Fund to unreasonable investment
risk. Such non-investment grade securities include high-yield, fixed income
securities (sometimes referred to as "junk bonds").
The investment objective of the HIGH YIELD PORTFOLIO is to maximize total return
(from current income and capital appreciation) with a focus on high 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.
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" and "Risk Considerations and Other Investment Practices."
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...................................................... 5
Organization and Classification........................................... 7
Investment Objectives and Policies........................................ 7
- U.S. Government Securities Fund..................................... 7
- Strategic Income Fund............................................... 7
- High Yield Portfolio................................................ 8
Risk Considerations and Other Investment Practices........................ 9
Management................................................................ 15
- Board of Directors.................................................. 15
- The Investment Adviser/Transfer Agent/Dividend Agent................ 15
- The Underwriter and Distribution Expenses........................... 15
- Fund Expenses....................................................... 16
- Brokerage Allocation................................................ 16
Valuation of Securities................................................... 16
Capital Stock............................................................. 17
Dividends and Capital Gains Distributions................................. 17
Taxation.................................................................. 17
How To Buy Fund Shares.................................................... 17
- General Purchase Information........................................ 17
- Alternative Purchase Arrangements................................... 18
- Class A and E Shares Initial Sales Charge Alternative............... 18
- Class B and H Shares--Contingent Deferred Sales Charge
Alternatives...................................................... 20
- Class C Shares--Level Sales Charge Alternative...................... 20
- Special Purchase Plans for all Classes.............................. 20
Redemption................................................................ 21
- Contingent Deferred Sales Charge.................................... 22
Shareholder Inquiries..................................................... 23
Account Application
Systematic Investment Plan Authorization Agreement
</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 a 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.
2
<PAGE>
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 only available to investors who were U.S. Government Securities
Fund shareholders on November 13, 1994. Class E shares have the lowest expenses
and pay the highest dividends.
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 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. 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 do not
convert to Class A shares, they are subject to a lower contingent deferred sales
charge (1.00%) 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 WHICH CLASS OF SHARES TO PURCHASE, 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 (E.G., 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 after eight years.
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..................... .10% .10% .10% .10%
--- --- --- ---
TOTAL FUND OPERATING
EXPENSES...................... 1.06% 1.81% 1.81% .81%
</TABLE>
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B AND CLASS C
SHARES H SHARES SHARES
------------ ------------ ------------
<S> <C> <C> <C>
Management Fees.................... .80% .80% .80%
12b-1 Fees......................... .25% 1.00% 1.00%
Other Expenses..................... .15% .15% .15%
--- --- ---
TOTAL FUND OPERATING
EXPENSES...................... 1.20% 1.95% 1.95%
</TABLE>
HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
CLASS B
CLASS A AND H CLASS C
SHARES SHARES SHARES
------------ ------------ ------------
<S> <C> <C> <C>
Management Fees.................... .73% .73% .73%
12b-1 fees......................... .35% 1.00% 1.00%
Other Expenses..................... .11% .11% .11%
--- --- ---
TOTAL PORTFOLIO OPERATING
EXPENSES...................... 1.19% 1.84% 1.84%
</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."
3
<PAGE>
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 $101 $169
Class B and H Shares............... $54 $84 $116 $193
Class C Shares..................... $28 $57 $ 98 $213
Class E Shares..................... $53 $70 $ 88 $141
</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 $57 $ 98 $193
Class C Shares..................... $18 $57 $ 98 $213
</TABLE>
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Class A Shares..................... $57 $81
Class B and H Shares............... $56 $88
Class C Shares..................... $30 $61
</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
------ -------
<S> <C> <C>
Class B and H Shares............... $20 $61
Class C Shares..................... $20 $61
</TABLE>
HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares..................... $57 $81 $107 $183
Class B and H Shares............... $55 $85 $117 $198
Class C Shares..................... $29 $58 $ 99 $215
</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 $58 $ 99 $198
Class C Shares.............................................. $19 $58 $ 99 $215
</TABLE>
THE ABOVE EXAMPLES USE FISCAL YEAR 1997 HISTORICAL DATA (EXCEPT IN THE CASE OF
STRATEGIC INCOME FUND) AS A BASIS FOR THE ANTICIPATED EXPENSES OF THE TIME
PERIODS INDICATED AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. SINCE STRATEGIC INCOME FUND HAD NOT COMMENCED
OPERATIONS AS OF JULY 31, 1997, THE ABOVE EXAMPLES, WITH RESPECT TO STRATEGIC
INCOME FUND, ARE BASED ON EXPECTED EXPENSES OF THE TIME PERIODS INDICATED.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
The following audited financial statements 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' 1997 Annual Reports to Shareholders,
which may be obtained without charge. Since the Strategic Income Fund had not
commenced operations as of July 31, 1997, no such information is provided.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
NINE- SEVEN-
MONTH MONTH
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED YEAR ENDED
U.S. GOVERNMENT JULY 31, JULY 31, JULY 31, JULY 31, DECEMBER 31,
SECURITIES FUND -------- -------- -------- ----------- ----------------------------------------------------------
CLASS E SHARES 1997 1996 1995 1994*** 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............. $8.87 $9.02 $9.03 $9.87 $9.86 $10.16 $9.76 $9.72 $9.51 $9.72
- ----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income
- net............ .54 .60 .67 .42 .75 .84 .88 .89 .92 .92
Net realized and
unrealized gains
(losses) on
investments...... .32 (.15) (.01) (.84) .05 (.30) .41 .06 .21 (.23)
- ----------------------------------------------------------------------------------------------------------------------------
Total from
operations......... .86 .45 .66 (.42) .80 .54 1.29 .95 1.13 .69
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From investment
income - net..... (.54) (.60) (.67) (.42) (.75) (.84) (.89) (.91) (.92) (.90)
Excess
distributions of
net realized
gains............ (.03) -- -- -- -- -- -- -- -- --
From realized
gains............ -- -- -- -- (.04) -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders.... (.57) (.60) (.67) (.42) (.79) (.84) (.89) (.91) (.92) (.90)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period.......... $9.16 $8.87 $9.02 $9.03 $9.87 $9.86 $10.16 $9.76 $9.72 $9.51
- ----------------------------------------------------------------------------------------------------------------------------
Total Return*....... 10.07% 5.08% 7.71% (4.29)% 8.31% 5.60% 13.90% 10.43% 12.48% 7.33%
Net assets end of
period (000s
omitted)........... $324,643 $388,006 $470,597 $555,275 $641,977 $587,996 $452,222 $208,054 $121,271 $108,370
Ratio of expenses to
average daily net
assets............. .81% .81% .77% .77%** .76% .72% .72% .81% .83% .87%
Ratio of net
investment income
to average daily
net assets......... 6.08% 6.59% 7.51% 7.72%** 7.43% 8.48% 8.88% 9.37% 9.55% 9.39%
Portfolio turnover
rate............... 161% 75% 76% 85% 157% 128% 95% 118% 118% 109%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS H
--------------------------- ------------------------ ------------------------ ------------------------
U.S. GOVERNMENT YEAR ENDED JULY 31,
SECURITIES ------------------------------------------------------------------------------------------------------------
FUND 1997 1996 1995+ 1997 1996 1995+ 1997 1996 1995+ 1997 1996 1995+
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period........ $8.87 $9.02 $8.63 $8.86 $9.02 $8.63 $8.85 $9.01 $8.63 $8.86 $9.02 $8.63
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment
income -
net......... .52 .58 .46 .46 .51 .41 .46 .51 .41 .46 .51 .41
Net realized
and
unrealized
gains
(losses) on
investments.. .32 (.15) .39 .31 (.15) .39 .31 (.15) .38 .31 (.15) .39
- -----------------------------------------------------------------------------------------------------------------------------
Total from
operations.... .84 .43 .85 .77 .36 .80 .77 .36 .79 .77 .36 .80
- -----------------------------------------------------------------------------------------------------------------------------
Distribution to
shareholders:
From
investment
income -
net......... (.52) (.58) (.46) (.47) (.52) (.41) (.47) (.52) (.41) (.47) (.52) (.41)
Excess
distributions
of net
realized
gains....... (.03) -- -- (.02) -- -- (.02) -- -- (.02) -- --
From realized
gains....... -- -- -- -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total
distributions
to
shareholders... (.55) (.58) (.46) (.49) (.52) (.41) (.49) (.52) (.41) (.49) (.52) (.41)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset
value, end of
period........ $9.16 $8.87 $9.02 $9.14 $8.86 $9.02 $9.13 $8.85 $9.01 $9.14 $8.86 $9.02
- -----------------------------------------------------------------------------------------------------------------------------
Total
Return*....... 9.77% 4.78% 10.07% 8.95% 4.00% 9.47% 8.96% 4.00% 9.35% 8.94% 4.00% 9.47 %
Net assets end
of period
(000s
omitted)...... $59,128 $67,707 $4,909 $2,826 $2,314 $ 483 $1,444 $1,057 $ 326 $10,637 $10,120 $4,823
Ratio of
expenses to
average daily
net assets.... 1.06% 1.06% 1.02%** 1.81% 1.81% 1.77%** 1.81% 1.81% 1.77%** 1.81% 1.81% 1.77 %**
Ratio of net
investment
income to
average daily
net assets.... 5.83% 6.34% 7.00%** 5.08% 5.45% 6.24%** 5.07% 5.59% 6.24%** 5.08% 5.52% 6.24 %**
Portfolio
turnover
rate.......... 161% 75% 76% 161% 75% 76% 161% 75% 76% 161% 75% 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).
+ For the period from November 14, 1994 (commencement of operations) to July
31, 1995.
5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
HIGH YIELD PORTFOLIO JULY 31 FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------ -------------------- -----------------------------------------------------------------------
CLASS A SHARES 1997 1996++ 1995 1994 1993 1992 1991 1990 1989 1988**
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $7.56 $7.61 $7.90 $8.65 $8.00 $7.82 $5.72 $8.59 $9.92 $10.00
- ------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net..... .76 .56 .86 .86 .87 .85 .95 1.04 1.22 .92
Net realized and unrealized
gain (loss) on
investments................ .28 (.04) (.25) (.72) .68 .22 2.03 (2.73) (1.35) (.07)
- ------------------------------------------------------------------------------------------------------------------------------
Total from operations......... 1.04 (.52) .61 .14 1.55 1.07 2.98 (1.69) (.13) .85
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income -
net........................ (.75) (.55) (.86) (.89) (.89) (.85) (.88) (1.12) (1.20) (.93)
Excess distributions of net
realized gains............. (.02) (.02) (.04) -- (.01) (.04) -- -- -- --
From net realized gains..... -- -- -- -- -- -- -- (.06) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders................. (.77) (.57) (.90) (.89) (.90) (.89) (.88) (1.18) (1.20) (.93)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period....................... $7.83 $7.56 $7.61 $7.90 $8.65 $8.00 $7.82 $5.72 $8.59 $9.92
- ------------------------------------------------------------------------------------------------------------------------------
Total return@................. 14.51% 6.98% 8.07% 1.48% 20.33% 14.20% 55.78% (21.56)% (1.79)% 8.85 %
Net assets at end of period
(000's omitted).............. $123,115 $109,401 $113,268 $98,611 $73,395 $45,628 $31,250 $17,484 $21,814 $14,709
Ratio of expenses to average
daily net assets............. 1.19% 1.21%* 1.25% 1.23% 1.29% 1.33% 1.51% 1.53% 1.52% 1.35 %*
Ratio of net investment income
to average daily net
assets....................... 9.84% 9.87%* 10.61% 10.18% 10.43% 10.34% 13.80% 14.16% 12.77% 11.55 %*
Portfolio turnover rate....... 331% 146% 101% 63% 95% 80% 61% 65% 52% 63 %
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C CLASS H
-------------------------------- ------------------------------ ---------------------------------
YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO 1997 1996++ 1995+ 1997 1996++ 1995+ 1997 1996++ 1995+
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $7.56 $7.60 $7.87 $7.55 $7.59 $7.87 $7.55 $7.60 $7.87
- ----------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income -
net..................... .71 .53 .78 .71 .53 .78 .71 .52 .78
Net realized and
unrealized gains
(losses) on
investments............. .28 (.04) (.23) .28 (.04) (.24) .28 (.04) (.23)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from operations...... .99 .49 .55 .99 .49 .54 .99 .48 .55
- ----------------------------------------------------------------------------------------------------------------------------------
Distribution to
shareholders:
From investment income -
net..................... (.70) (.51) (.78) (.70) (.51) (.78) (.70) (.51) (.78)
Excess distributions of
net realized gains...... (.02) (.02) (.04) (.02) (.02) (.04) (.02) (.02) (.04)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders.............. (.72) (.53) (.82) (.72) (.53) (.82) (.72) (.53) (.82)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period.................... $7.83 $7.56 $7.60 $7.82 $7.55 $7.59 $7.82 $7.55 $7.60
- ----------------------------------------------------------------------------------------------------------------------------------
Total return@.............. 13.80% 6.62% 7.25% 13.82% 6.63% 7.12% 13.82% 6.48% 7.25%
Net assets at end of period
(000s omitted)............ $20,388 $12,067 $7,530 $7,037 $3,378 $2,180 $63,789 $39,133 $23,862
Ratio of expenses to
average daily net
assets.................... 1.84% 1.86%* 1.90%* 1.84% 1.86%* 1.90%* 1.84% 1.86%* 1.90%*
Ratio of net investment
income to average daily
net assets................ 9.24% 9.20%* 9.66%* 9.26% 9.21%* 9.83%* 9.23% 9.21%* 9.81%*
Portfolio turnover rate.... 331% 146% 101% 331% 146% 101% 331% 146% 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.
+ For the period from November 14, 1994 (commencement of operations) to October
31, 1995.
++ For the nine-month period ended July 31, 1996, effective July 31, 1994, the
Fund changed its fiscal accounting and tax year-end to July 31 (previously
October 31).
6
<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, when
applicable, 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 the applicable Fund's Annual Report to
Shareholders and will be made available without charge upon request.
ORGANIZATION AND CLASSIFICATION
The U.S. Government Securities Fund and Strategic Income Fund are the only
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
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 level of current income consistent with prudent investment
risk. This investment objective and, except as otherwise noted, this Fund's
investment policies, could be changed without shareholder approval. While no
such change is contemplated, such a change could result in the Fund's objectives
differing from those deemed appropriate by an investor at the time of his or her
investment.
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. The Fund may also lend
portfolio securities where such loans are secured by collateral which is
described under "Risk Considerations and Other Investment Practices--Lending of
Portfolio Securities" below.
Securities issued or guaranteed as to principal and interest by the United
States Government include a variety of securities, which differ in their
interest rates, maturities, and dates of issuance and include U.S. Treasury
inflation-protection securities. The value of such inflation-protection
securities is adjusted for inflation and periodic interest payments are in
amounts equal to a fixed percentage of the inflation adjusted value of the
principal. In addition to Treasury obligations, 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.
STRATEGIC INCOME FUND
The investment objective of the Strategic Income Fund, a multisector bond fund,
is to maximize total return (from current income and capital appreciation) by
primarily investing in (a) U.S. Government securities, (b) investment and
non-investment grade fixed income securities issued by foreign governments and
companies, and (c) non-investment grade fixed income securities issued by U.S.
issuers, which, in the opinion of the Advisers, do not subject the Fund to
unreasonable investment risk. Such non-investment grade securities include
high-yield fixed income securities (sometimes referred to as "junk bonds"). This
investment objective and, except as otherwise noted, this Fund's investment
policies, could be changed without shareholder approval. While no such change is
contemplated, such a change could result in the Fund's objectives differing from
those deemed appropriate by an investor at the time of his or her investment.
Under normal circumstances, the Fund will invest at least 65% (exclusive of
collateral in connection with securities lending) of the Fund's total assets in
these three sectors. The Fund will generally have no more than 50% of its total
assets invested in any one of these sectors, and from time to time Advisers will
adjust the amounts the Fund invests in each sector. The Fund's remaining assets
may be held in cash or cash equivalents or invested in investment grade
7
<PAGE>
fixed-income securities (including, but not limited to, the types of securities
as described in "Investment Objectives and Policies--U.S. Government Securities
Fund"), municipal securities, convertible securities, options on debt
securities, interest rate futures contracts and options thereon, common and
preferred stocks, other equity securities and other investment instruments as
described in "Risk Considerations and Other Investment Practices" when these
types of investments are consistent with the Fund's investment objectives.
U.S. GOVERNMENT SECURITIES. The Fund may invest 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) as more particularly described
in "Investment Objectives and Policies--U.S. Government Securities Fund."
FIXED-INCOME SECURITIES OF FOREIGN GOVERNMENTS AND COMPANIES. The Fund may
invest in fixed-income securities issued by foreign governments and companies.
The Fund may invest in fixed-income securities issued or guaranteed by (a)
foreign governments, and their agencies and instrumentalities, (b) government
related issuers, and (c) supranational organizations (such as the World Bank,
The European Economic Community, The Asian Development Bank and The European
Coal and Steel Community). The Fund may also invest in fixed-income securities
issued by foreign companies, certificates of deposit and bankers' acceptances
issued or guaranteed by or time deposits maintained at foreign banks or U.S.
branches of foreign banks, and commercial paper issued by foreign companies. The
Fund's assets may be invested in fixed-income securities issued by foreign
governments and companies that are considered investment grade securities.
However, the Fund may also invest in non-investment grade fixed-income
securities issued by foreign governments and companies (I.E., securities that
are rated lower than BBB- by S&P or lower than Baa(3) by Moody's, or comparably
rated by another nationally recognized rating agency), which, in the opinion of
Advisers, do not subject the Fund to unreasonable investment risk. In addition,
the Fund may invest in unrated fixed-income securities issued by foreign
governments and companies that Advisers believes offer yields and risks
comparable to rated securities. For a description of the risks associated with
investing in foreign securities and lower rated securities, see "Risk
Considerations and Other Investment Practices."
The Fund will not invest more than 25% of its total assets in government
securities of any single foreign country. Otherwise, the Fund is not restricted
in which countries it may invest, and the Fund has no limitations on the
maturity of a security or the capitalization of the issuer of the foreign
fixed-income securities in which it invests.
The Fund may buy or sell foreign currencies and foreign currency forward
contracts to hedge currency risks and to facilitate transactions in foreign
investments. Although currency forward contracts can be used to protect the Fund
from adverse currency exchange rate changes, there is a risk of loss if Advisers
fails to predict currency exchange movements correctly. See "Risk Considerations
and Other Investment Practices."
HIGH YIELDING SECURITIES. The Fund may invest in non-investment grade fixed
income securities issued by U.S. issuers, which, in the opinion of Advisers, do
not subject the Fund to unreasonable investment risk. High yields associated
with these securities are available from non-investment grade securities (I.E.,
securities that are rated lower than BBB- by S&P or lower than Baa(3) by
Moody's, or comparably rated by another nationally recognized rating agency).
The Fund may invest in the securities as described below under "Investment
Objectives and Policies--High Yield Portfolio." In addition, the Fund may invest
in unrated high yielding, fixed income securities that Advisers believes offer
yields and risks comparable to rated securities.
The prices and yields of non-investment grade securities generally fluctuate
more than higher quality securities, and such prices may decline significantly
in periods of general economic difficulty or rising interest rates.
In considering high yield, fixed income investments for the Fund, Advisers will
attempt to identify high yielding securities of issuers whose financial
condition has improved or is expected to improve in the future. Advisers will
not rely exclusively on ratings assigned by Moody's and S&P in this process,
but, in appropriate circumstances, may perform its own credit analysis as well.
Advisers' analysis focuses on relative values, based on such factors as interest
and dividend coverage, asset coverage, earnings prospects, and the experience
and managerial strength of the issuer companies or governments.
Because the Fund invests a portion of its assets in non-investment grade
securities, investors should carefully consider their ability to assume the
risks involved before making an investment in the Fund. See "Risk Considerations
and Other Investment Practices."
The Fund may invest up to 33 1/3% of its total assets (at the time of
investment) in repurchase agreements, variable amount master demand notes,
securities issued on a when-issued or delayed delivery basis, and forward
commitment transactions. In addition, the Fund may also invest in CMOs,
multi-class pass-through securities and other investment companies; and may lend
up to 33 1/3% of its total assets in connection with securities lending
transactions. The Fund will not borrow money except that the Fund (a) may
purchase securities on a when-issued and delayed delivery basis, within the
limitations set forth herein, (b) may obtain such short-term credit as it needs
for the clearance of securities transactions, and (c) may borrow from a bank,
for the account of the Fund, 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 Fund's total assets.
Advisers reserves the right to adopt a defensive approach by temporarily
investing up to 100% of the Fund's assets in investment grade debt securities
and commercial paper, and/or in obligations of banks (foreign or domestic) or
the United States Government.
HIGH YIELD PORTFOLIO
The investment objective of High Yield Portfolio is to maximize total return
(from current income and capital appreciation) by investing
8
<PAGE>
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. This
investment objective and, except as otherwise noted, this Fund's investment
policies, could be changed without shareholder approval. Such changes could
result in the Fund's objectives differing from those deemed appropriate by an
investor at the time of his or her investment.
Under normal circumstances, High Yield Portfolio will be at least 65% (exclusive
of collateral in connection with securities lending) invested in non-investment
grade (as explained below) fixed-income securities. The Fund's remaining assets
may be held in cash or cash equivalents or invested in investment grade fixed
income instruments (including the types of securities in which the U.S.
Government Securities Fund can invest) or invested in 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 Fund's investment objective of high current
income.
The higher yields that High Yield Portfolio seeks are usually available from
non-investment grade securities--those rated lower than Baa(3) by Moody's or
lower than BBB- by S&P, or comparably rated by another nationally recognized
rating agency, and unrated securities of similar quality. This is an aggressive
approach to income investing and is subject to greater risk than investing in
investment grade securities. The Fund may invest without limitation in any
"eligible" rating category. The lowest eligible rating categories in which the
Fund 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 Fund's total 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 non-investment grade securities generally fluctuate
more than investment grade securities, and such prices may decline significantly
in periods of general economic difficulty or rising interest rates. Advisers
reserves the right to adopt a defensive approach by temporarily investing 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.
Advisers' analysis focuses on relative values, based on such factors as interest
or dividend coverage, asset coverage, earnings prospects, and the experience and
managerial strength of the issuer companies.
Because High Yield Portfolio invests primarily in non-investment grade
securities, investors should carefully consider their ability to assume the
risks involved before making an investment in the High Yield Portfolio.
As discussed in "Risk Considerations and Other Investment Practices" below, High
Yield Portfolio may invest in CMOs, multi-class pass-through securities,
repurchase agreements, variable amount master demand notes and up to 10% of its
total assets (at the time of investment) in foreign securities.
RISK CONSIDERATIONS AND OTHER INVESTMENT PRACTICES
PAYMENT-IN-KIND DEBENTURES. High Yield Portfolio and Strategic Income Fund may
invest in debentures the interest on which may be paid in other securities
rather than cash ("PIKs"). Typically, during a specified term prior to the
debenture's maturity, the issuer of a PIK may provide for the option or the
obligation to make interest payments in debentures, common stock, or other
instruments (i.e., "in kind" rather than in cash). The type of instrument in
which interest may or will be paid would be known by the applicable Fund at the
time of the investment. The investment restrictions regarding corporate bond
quality are applicable to the Funds' 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 the Funds 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 issuer developments. During an economic downturn or
substantial period of rising interest rates highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a security
held by a Fund defaulted, the Fund 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 Fund's net asset value. Furthermore, in the case of
high-yielding securities structured as zero coupon or
9
<PAGE>
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, the
Fund 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 Fund's assets. If a Fund experiences unexpected net redemptions,
this may force it to sell its securities (including, but not limited to, high
yielding securities), without regard to their investment merits, thereby
decreasing the asset base upon which such Fund'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 or Fortis Income's Board of Directors to accurately value
high-yielding securities and the Fund's assets and the Fund'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 a Fund may involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties.
Certain risks are associated with applying credit ratings as a method for
evaluating high-yielding securities. For example, credit ratings evaluate the
safety of principal and interest payments, not market value risk of
high-yielding securities. Since credit rating agencies may fail to timely change
the credit ratings to reflect subsequent events, Advisers continuously monitors
the issuers of high-yielding securities held by a Fund to determine if the
issuers will have sufficient cash flow and profits to meet required principal
and interest payments, and to assure the securities' liquidity so such Fund can
meet redemption requests. The achievement of the investment objective of a Fund
may be more dependent upon Advisers' own credit analysis than is the case for
higher quality bonds. Also, a Fund may retain a portfolio security whose rating
has been changed if the security otherwise meets the Fund'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 period ended July 31, 1997,
represented by (1) bonds rated by a nationally recognized statistical rating
organization, separated into each rating category, and (2) all unrated bonds as
a group. Since Strategic Income Fund did not commence operations as of July 31,
1997, no such information is provided with respect to such Fund.
<TABLE>
<CAPTION>
STANDARD & POOR'S RATING PERCENT OF TOTAL
(OR EQUIVALENT) INVESTMENTS
- ------------------------------------------------- ------------------
<S> <C>
AAA.............................................. .7%
AA............................................... 0%
A................................................ 0%
BBB.............................................. .8%
BB............................................... 20.6%
B................................................ 57.4%
CCC.............................................. 9.6%
CC............................................... .1%
C................................................ 0%
D................................................ .5%
All unrated bonds as a group..................... 10.3%
-----
100.0%
</TABLE>
TRANSACTIONS IN OPTIONS, FUTURES, AND FORWARD CONTRACTS. The High Yield
Portfolio and Strategic Income Fund may each, to a limited extent, enter into
options, futures, and forward contracts on a variety of investments, indexes and
currencies, in order to protect against declines in the value of Fund 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 Fund's gross
income. In addition, the Funds may enter into options, futures and forward
contracts to manage the duration of the Funds' investments. Duration is a
measure which reflects estimated price sensitivity to a given change in interest
rates. For example, for an interest rate change of 1%, a portfolio with a
duration of 5 years would be expected to experience a price change of 5%. It is
currently the intention of the High Yield Portfolio and Strategic Income Fund to
limit the investment in options by the Funds so that such investments do not
expose more than 5% of the applicable Fund's total assets to risk of loss.
FOREIGN SECURITIES. The Strategic Income Fund may invest in foreign securities
in accordance with its investment objectives. In addition, 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
issuers involves certain considerations, including those discussed below, which
are not typically associated with investing in United States issuers. Since the
High Yield Portfolio and Strategic Income Fund may invest in securities
denominated in currencies other than U.S. dollars, and since the Funds may
temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, such Funds 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 Fund'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 such Funds. 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.
10
<PAGE>
Foreign securities held by the applicable Fund 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 Fund, 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 a Fund
of market and foreign exchange fluctuations brought about by such delays, and
due to the corresponding negative impact on liquidity, the Fund will avoid
investing in countries which are known to experience settlement delays which may
expose the Fund to unreasonable risk of loss.
The Funds will calculate their 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 Funds' investment securities may be listed on foreign stock exchanges which
may trade on other days (such as a Saturday). As a result, the Funds' net asset
value may be materially affected by such trading on days when a shareholder has
no access to the Funds.
EMERGING MARKETS. The Strategic Income Fund and High Yield Portfolio may invest,
subject to the restrictions set forth above, in debt securities issued by
governments or companies in emerging market countries. Many emerging market
countries have experienced substantial or, in some periods, extremely high rates
of inflation for many years. Inflation and rapid fluctuations in inflation rates
have had and may continue to have adverse effects on the economies and
securities markets of certain of these countries. In an attempt to control
inflation, wage and price controls have been imposed in certain countries. In
many cases, emerging market countries are among the world's largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which has led to defaults on certain obligations and the
restructuring of certain indebtedness. In general, emerging markets tend to be
in the less economically developed regions of the world, and are countries that
have a lower degree of political stability, a high demand for capital
investment, a high dependence on export markets for their major industries, a
need to develop basic economic infrastructures, and rapid economic growth.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS. The Strategic Income Fund and High
Yield Portfolio may purchase or sell foreign currency forward exchange contracts
("forward contracts") to attempt to minimize the risk from adverse changes in
the relationship between the various currencies in which the Funds invest. A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date. The contract is individually negotiated and
privately traded by currency traders and their customers. Each Fund may enter
into a forward contract, for example, when it enters into a contract for the
purchase or sale of a security denominated in a foreign currency in order to
"lock in" the price of the security ("transaction hedge") in a particular
currency. Additionally, when a Fund believes that a foreign currency (for
example, the British pound) may suffer a decline against any other currency or
currencies in the Fund (for example, the U.S. dollar), it may enter into a
forward sale contract to sell an amount of the foreign currency expected to
decline (the British pound) that approximates the value of some or all of the
Fund's investment securities denominated in such foreign currency (the British
pound) (a "position hedge"). In such cases, the Funds also may enter into a
forward sale contract to sell a foreign currency for a fixed amount in another
currency (the U.S. dollar) where the Fund believes that the value of the
currency to be sold pursuant to the forward sale will fall whenever there is a
decline in the value of the currency (other than the U.S. dollar) in which
certain portfolio securities of the Fund are denominated (a "cross hedge").
Under certain conditions, Securities and Exchange Commission (the "Commission")
guidelines require investment companies to set aside cash or any security that
is not considered restricted or illiquid in a segregated account to cover
forward contracts. As required by Commission guidelines, if the Strategic Income
Fund enters into a forward contract for an essentially speculative purpose, it
will, upon entering into such a transaction, segregate assets to cover such
forward contracts. A speculative forward contract is one which, unlike the
hedging situations defined above, does not have an underlying position in a
security or securities. The Funds will not segregate assets to cover forward
contracts entered into for hedging purposes.
RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGY TRANSACTIONS. The use of forward
currency contracts and options and futures strategies involve certain investment
risks and transaction costs. These risks include: dependence on Advisers'
ability to predict movements in the prices of individual securities;
fluctuations in the general securities markets and movements in interest rates
and currency markets; imperfect correlation between movements in the price of
currency, options, futures contracts, or options thereon and movements in the
price of the currency or security hedged or used for cover; unexpected adverse
price movements which could render a Fund's hedging strategy unsuccessful and
could result in losses; the fact that skills and techniques needed to trade
options, futures contracts and options thereon or to use forward currency
contracts
11
<PAGE>
are different from those needed to select the securities in which the Fund
invests, lack of assurance that a liquid secondary market will exist for any
particular option, futures contract or option thereon at any particular time
requiring a Fund to maintain a position until exercise or expiration, which
could result in losses; and the possible need to defer closing out certain
options, futures contracts and options thereon in order to continue to qualify
for the beneficial tax treatment afforded "regulated investment companies" under
the Internal Revenue Code. See "Taxation."
ZERO COUPON OBLIGATIONS. Strategic Income Fund and 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. U.S. Government Securities Fund and Strategic Income Fund
may invest in zero coupon obligations of the U.S. Government and U.S. Government
agencies including the 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 and Strategic Income Fund may invest in either type of zero
coupon obligation.
MORTGAGE-RELATED SECURITIES. The Funds may invest in certain types of
mortgage-related securities. Mortgage-related securities are securities that,
directly or indirectly, represent a participation in (or are secured by and
payable from) mortgage loans on real property. Mortgage-related securities may
represent the right to receive both principal and interest payments on
underlying mortgages or may represent the right to receive varying proportions
of such payments. One type of mortgage-related security includes certificates
which represent pools of mortgage loans assembled for sale to investors by
various governmental and private organizations. Another type of mortgage-related
security includes debt securities which are secured, directly or indirectly, by
mortgages on commercial or residential real estate. The Funds 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
Funds. The ability of the issuer of mortgage-related securities to reinvest
favorably in underlying mortgages may be limited by prevailing economic
conditions or by government regulation. Additionally, although mortgages and
mortgage-related securities are generally supported by some form of government
or private guarantee and/or insurance, there is no assurance that private
guarantors or insurers will be able to meet their obligations.
CMOS AND MULTI-CLASS PASS-THROUGH SECURITIES. 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
12
<PAGE>
Portfolio's and Strategic Income Fund's respective investment in such
instruments, the limits for each Fund 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.
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, 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 will also 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, or any
security that is not considered restricted or illiquid, equal to the value of
the when-issued or forward commitment securities will be established and
maintained with the custodian and will be marked to the market daily. During the
period between a commitment and settlement, no payment is made for the
securities 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 or repurchase similar securities for settlement at a later date
and at a lower purchase price relative to the current market value. 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). With respect to the Strategic Income
13
<PAGE>
Fund, no more than 33 1/3% of its total assets may be invested in when-issued,
delayed delivery or forward commitment transactions, and of such 33 1/3%, no
more than one-half (I.E., 16 2/3% of its total assets) may be invested in
when-issued, delayed delivery or forward commitment transactions without the
intention of actually acquiring securities. 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 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, with respect to all of the Funds, 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. Commercial paper issued
pursuant to the private placement exemption of Section 4(2) of the Securities
Act of 1933 (the "1933 Act") and securities that are eligible for resale under
Rule 144A under the 1933 Act that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid securities
for this purpose. 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.
The U.S. Securities and Exchange Commission adopted Rule 144A under the 1933
Act, which provides a safe harbor exemption from the registration requirements
of the 1933 Act for resales of "restricted securities" to "qualified
institutional buyers," each as defined in the rule. The result of this rule has
been the development of a more liquid and efficient institutional resale market
for restricted securities. 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). With respect to Rule 144A securities, investing in such securities
could have the effect of increasing the level of Fund illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
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 and Strategic
Income Fund to invest or trade for short-term profits, the Funds may dispose of
a security without regard to the time such security has been held when such
action appears advisable to Advisers.
MUNICIPAL SECURITIES. The Strategic Income Fund may invest in municipal
securities such as municipal bonds and other debt obligations. These municipal
bonds and debt obligations are issued by the states and by their local
special-purpose political subdivisions. The term "municipal bonds" includes
short-term municipal notes and other commercial paper issued by the states and
their political subdivisions. The two general classifications of municipal bonds
are "general obligation" bonds and "revenue" bonds. General obligation
14
<PAGE>
bonds are secured by the governmental issuer's pledge of its faith, credit and
taxing power for the payment of principal and interest. Revenue bonds ordinarily
are not backed by the faith, credit or general taxing power of the issuing
governmental entity. The principal and interest on revenue bonds for private
facilities are typically paid out of rents or other specified payments made to
the issuing governmental entity by a private company which uses or operates the
facilities.
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, for the fiscal period ended
July 31, 1997, the annual portfolio turnover rate of the U.S. Government
Securities Fund and High Yield Portfolio exceeded 100%. This was the result of
active portfolio management in recognition of changing economic conditions. In
addition, Advisers estimates the annual portfolio turnover rate of Strategic
Income Fund will also exceed 100% but will generally not exceed 300% (subject to
market conditions). While a higher turnover rate (100% or more) may result in
the Funds incurring higher transaction costs and result in additional tax or
brokerage consequences, 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.
Howard G. Hudson and Christopher J. Woods (both since August, 1995) and
Christopher J. Pagano (since March 1996) manage the U.S. Government Securities
Fund.
Howard G. Hudson, Maroun M. Hayek, Charles J. Dudley, Christopher J. Pagano,
Christopher J. Woods, and Robert C. Lindberg (all since December 1997) manage
the Strategic Income Fund.
Howard G. Hudson, Charles J. Dudley, Robert C. Lindberg and Maroun M. Hayek (all
since August 1995) 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. Pagano, a Vice President of Advisers,
has been involved in management of debt securities for Advisers since March
1996. Prior to that, Mr. Pagano was a Government Strategist for Merrill Lynch in
New York, N.Y. Messrs. Hudson, Woods, Hayek, Dudley, Lindberg and Pagano 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 Funds: Dean C. Kopperud, Robert W. Beltz, Jr. and Carol
M. Houghtby are directors and officers of both; Tamara L. Fagely and John E.
Hite are officers of both Investors and the Funds; James S. Byrd, Robert C.
Lindberg, Dickson Lewis, Peggy Ettestad, Rhonda J. Schwartz, and Scott R.
Plummer are officers of the Funds.
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 and Strategic Income 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 Fund that, coupled with the shares of the Fund
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").
15
<PAGE>
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 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 year ended July 31, 1997, 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>
ADVISORY
FEE
--------
TOTAL
OPERATING EXPENSES(1)
-----------------------------
CLASS B,
CLASS A H AND C CLASS E
------- --------- -------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund......... 1.06% 1.81% .81% .71%
High Yield Portfolio.................... 1.19% 1.84% N/A .73%
</TABLE>
- ------------------------------
(1) Since Strategic Income Fund had not commenced operations as of July 31,
1997, no expense information is provided with respect to such Fund.
While the advisory fee paid on the Funds 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 business
day.
16
<PAGE>
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 Funds 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 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 generally treated as long-term capital
gains by shareholders, regardless of the length of time for which they have held
their shares in the Fund. For individuals, estates and trusts, the Taxpayer
Relief Act of 1997 (the "Relief Act") has created new "mid-term capital gain"
rates that apply to the sale of capital assets held more than one year but not
more than 18 months. Under regulations announced by the Internal Revenue
Service, each Fund will designate the portion of its capital gain dividends that
must be treated by shareholders who are individuals, estates, or trusts as
mid-term capital gains and the portion that must be treated by such shareholders
as long-term capital gains.
A shareholder will recognize a capital gain or loss upon the sale or exchange of
shares in a Fund if, as is normally the case, the shares are capital assets in
the shareholder's hands. For corporate shareholders, the capital gain or loss
will be long-term if the shares have been held for more than one year. For
shareholders that are individuals, the gain or loss will be long-term if the
shareholder has held the shares for more than 18 months and mid-term if the
shareholder has held the shares for more than one year but not more than 18
months.
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.
17
<PAGE>
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:
U.S. 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 compensation to
dealers in connection with selling shares of the Fortis Funds or for their own
company-sponsored sales programs. Additional compensation or assistance may be
provided to dealers and includes payment or reimbursement for educational,
training and sales conferences or programs for their employees. In some cases,
this compensation may only be available to dealers whose representatives have
sold or are expected to sell significant amounts of shares. Investors will make
these payments from its own resources and none of the aforementioned additional
compensation is paid for by the applicable Fund or its shareholders.
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 PERCENTAGE AS 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, provided that the purchase is
made by means which result in economy of sales effort or expenses, whether the
purchases are made through a central administrator, through a single broker-
dealer or by other means and the group has a tax identification number. An
organized group does not include clients of an investment advisor.
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.
18
<PAGE>
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 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;
- Accounts which were in existence and entitled to purchase shares of
the applicable Carnegie Series without a sales charge at the time of
the effectiveness of the acquisition of its assets by the applicable
Fund;
- Beginning January 1, 1998, purchasers of Medical Savings Accounts
("MSAs") from Time Insurance Company who maintain certain minimum
balances in U.S. Government Securities Fund and Strategic Income 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."
19
<PAGE>
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:
3 years -- 3%
4 years -- 3%
5 years -- 2%
6 years -- 1%
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 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
20
<PAGE>
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.
Purchases and exchanges should be made for investment purposes only. The
applicable Fund, Advisers and Investors each reserves the right to reject any
specific purchase order or to restrict purchases by a particular purchaser (or
group of purchasers) at anytime. For instance, if a Fund, Advisers or Investors
believes a certain purchase may be contrary to the best interests of the
applicable Fund's shareholders or would otherwise disrupt the management of the
Fund, the Fund, Advisers or Investors may reject such purchase. The applicable
Fund, Advisers and Investors also reserve the right to restrict, terminate or
impose charges upon exchanges and/or telephone transfer privileges, with 30 days
notice to the shareholder.
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, 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, 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
21
<PAGE>
redemption check may be delayed by up to 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 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
22
<PAGE>
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 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
23
<PAGE>
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.
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.
24
<PAGE>
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 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.
Note: Standard & Poor's Corporation ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
Moody's Investors Service, Inc. applies numerical modifiers 1, 2 and 3 in each
generic rating classification from "Aa" to "B." The modifier "1" indicates that
the applicable company ranks in the higher end of its generic rating category;
the modifier "2" indicates a mid-range ranking; and the modifier "3" indicates
that the applicable company ranks in the lower end of its generic rating
category.
25
<PAGE>
[This page intentionally left blank]
26
<PAGE>
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 customer service at
FORTIS MUTUAL FUNDS 1-800-800-2638, 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; also include a photocopy of first page of the trust agreement.
/ /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 (12/96)
________________________________________________________________________________
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).
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
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 FORWARD THE PAYMENT TO:
<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)
/ / Via U.S. Mail
/ / Via ACH (electronic transfer)
/ / My address of record.
</TABLE>
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 Withdrawal Date __________________________ __________________________
Month Day
<TABLE>
<S> <C> <C> <C>
FREQUENCY: / / Monthly / / Semi-Annually
/ / Quarterly / / Annually
</TABLE>
PLEASE FORWARD THE PAYMENT TO:
<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)
/ / Via U.S. Mail
/ / Via ACH (electronic transfer)
/ / My address of record.
</TABLE>
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 FORWARD THE PAYMENT TO:
<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)
/ / Via U.S. Mail
/ / Via ACH (electronic transfer)
/ / My address of record.
</TABLE>
<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.
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 MUTUAL FUND [LOGO]
AUTOMATED CLEARING HOUSE (ACH) AUTHORIZATION AGREEMENT
Please complete each section below to establish ACH Mail to:FORTIS
capability to your Fortis Mutual Fund Account. MUTUAL FUNDS
For personal service, please call your investment P.O. Box 64284
professional or Fortis at (800) 800-2638, Ext. 3012. St. Paul, MN 55164
For investment options, complete sections (1)(2)(3). For
withdrawal, complete sections (1)(2)(4)(5).
________________________________________________________________________________
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.) Day Time Phone
________________________________________________________________________________
2 BANK/FINANCIAL INSTITUTION INFORMATION
________________________________________________________________________________
<TABLE>
<S> <C> <C>
PLAN TYPE: / / New Plan / / Bank Change
ACCOUNT TYPE: / / Checking / / Savings
(must attach a (must attach a
voided check) deposit slip)
</TABLE>
________________________________________________________________________________
Transit Number
________________________________________________________________________________
Bank Account Number
________________________________________________________________________________
Account Owner(s) (Please Print)
________________________________________________________________________________
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
________________________________________________________________________________
3 INVESTMENT OPTION(S)
________________________________________________________________________________
<TABLE>
<S> <C> <C>
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.
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
C. / / Starting Draft Date:
D. / / Account Number:
</TABLE>
<TABLE>
<CAPTION>
Class Amount
Fund (Circle One) $25.00 per fund minimum
- ------------------------------------------------------ -------------- -----------------------------
<S> <C> <C>
A B C H
A B C H
A B C H
A B C H
</TABLE>
________________________________________________________________________________
4 WITHDRAWAL OPTION(S)
________________________________________________________________________________
<TABLE>
<S> <C> <C>
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 from
Fortis Fund(s) requires account owner(s) signature(s) - see
Section 5
(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
D. / / Beginning Withdrawal Date:
E. / / Account Number:
</TABLE>
<TABLE>
<CAPTION>
Class Amount
Fund (Circle One) $25.00 per fund minimum
- ------------------------------------------------------ -------------- -----------------------------
<S> <C> <C>
A B C H
A B C H
A B C H
A B C H
</TABLE>
________________________________________________________________________________
5 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
[LOGO]
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
98049(8/96)
<PAGE>
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
PROSPECTUS
DECEMBER 1, 1997
FORTIS U.S. GOVERNMENT SECURITIES FUND
FORTIS STRATEGIC INCOME FUND
FORTIS HIGH YIELD PORTFOLIO
98301 (REV. 12/97)
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
FORTIS STRATEGIC INCOME FUND
FORTIS HIGH YIELD PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 1, 1997
Fortis U.S. Government Securities Fund and Fortis Strategic Income Fund are
portfolios 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, Strategic Income 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 December 1, 1997. 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.
27
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ORGANIZATION AND CLASSIFICATION................................................. 29
INVESTMENT OBJECTIVES AND POLICIES.............................................. 29
- U.S. GOVERNMENT SECURITIES FUND........................................... 29
- STRATEGIC INCOME FUND..................................................... 30
- HIGH YIELD PORTFOLIO...................................................... 31
INVESTMENT PRACTICES COMMON TO THE FUNDS........................................ 32
DIRECTORS AND EXECUTIVE OFFICERS................................................ 38
INVESTMENT ADVISORY AND OTHER SERVICES.......................................... 40
- General................................................................... 40
- Control and Management of Advisers and
Investors................................................................. 41
- Investment Advisory and Management Agreement.............................. 41
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE.............................. 42
CAPITAL STOCK................................................................... 44
COMPUTATION OF NET ASSET VALUE AND PRICING...................................... 45
SPECIAL PURCHASE PLANS.......................................................... 46
- Statement of Intention.................................................... 46
- Tax Sheltered Retirement Plans............................................ 46
- Tax Savings and Your IRA--a Fully Taxable Investment Compared to an
Investment Through an IRA................................................. 47
- Gifts or Transfers to Minor Children...................................... 48
- Systematic Investment Plan................................................ 48
- Exchange Privilege........................................................ 48
- Reinvested Dividend/Capital Gains Distributions Between Fortis Funds...... 48
- Purchases by Fortis Income Directors or Officers.......................... 48
- Purchases by Fortis, Inc. (or its Subsidiaries) or Associated Persons..... 48
- Purchases by Representatives or Employees of Broker-Dealers............... 48
- Purchases by Certain Retirement Plans..................................... 48
<CAPTION>
PAGE
<S> <C>
- Purchases by Registered Investment Companies.............................. 48
- Purchases with Proceeds from Redemption of Unrelated Mutual Fund Shares or
Surrender of Certain Fixed Annuity Contracts.............................. 49
- Purchases by Employees of Certain Banks and Other Financial Services
Firms..................................................................... 49
- Purchases by Commercial Banks Offering Self-Directed 401(k) Programs
Containing both Pooled and Individual Investment Options.................. 49
- Purchases by Investment Advisers, Trust Companies, and Bank Trust
Departments Exercising Discretionary Investment Authority or Using a Money
Management/Mutual Fund "Wrap" Program..................................... 49
- Purchases by Certain Persons Associated with the Pathfinder Fund.......... 49
- Purchases by Certain Carnegie Intermediate Government Series (of Carnegie
Government Securities Trust) and Certain Diversified Income Series (of
Carnegie-Capiello Trust) Accounts......................................... 49
REDEMPTION...................................................................... 49
- Systematic Withdrawal Plan................................................ 49
- Reinvestment Privilege.................................................... 50
TAXATION........................................................................ 50
UNDERWRITER..................................................................... 51
PLAN OF DISTRIBUTION............................................................ 52
PERFORMANCE..................................................................... 52
FINANCIAL STATEMENTS............................................................ 58
CUSTODIAN; COUNSEL; ACCOUNTANTS................................................. 58
LIMITATION OF DIRECTOR LIABILITY................................................ 58
ADDITIONAL INFORMATION.......................................................... 58
APPENDIX........................................................................ 59
</TABLE>
28
<PAGE>
ORGANIZATION AND CLASSIFICATION
Fortis Income Portfolios, Inc. ("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. The U.S. Government Securities Fund became a
portfolio of Fortis Income. On October 22, 1997, the Strategic Income 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
INVESTMENT OBJECTIVE
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 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.
(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.
29
<PAGE>
(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.
(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).
STRATEGIC INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Strategic Income Fund, a multisector bond fund,
is to maximize total return (from current income and capital appreciation) by
primarily investing in (a) U.S. Government securities, (b) investment and
non-investment grade fixed-income securities issued by foreign governments and
companies and (c) non-investment grade fixed income securities issued by U.S.
issuers which, in the opinion of Advisers, do not subject the Fund to
unreasonable investment risk. Such non-investment grade securities include
high-yield fixed-income securities (sometimes referred to as "junk bonds").
INVESTMENT RESTRICTIONS
The following investment restrictions are deemed fundamental policies. They may
be changed only by a 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 their outstanding shares are present in person or by proxy or
(ii) more than 50% of the Fund's outstanding shares.
As a result of these fundamental investment restrictions, except as set forth
below, the Fund will not:
(1) Purchase securities on margin or otherwise borrow money
or issue senior securities, except that the Fund, in accordance with its
investment objectives and policies, may purchase securities on a when-issued and
delayed delivery basis, within the limitations set forth in the Prospectus and
Statement of Additional Information. The Fund may also obtain such short-term
credit as it needs for the clearance of securities transactions, and may borrow
from a bank, for the account of the Fund, 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 Fund's total assets. Investment securities will
not be purchased for the Fund while outstanding bank borrowings exceed 5% of the
value of the Fund's total assets.
(2) Purchase or sell physical commodities (such as grains,
livestock, etc.) or futures or option contracts thereon. However, the Fund may
purchase or sell any forms of financial instruments or contracts that might be
deemed commodities.
(3) Act as an underwriter of securities of other issuers, except
to the extent that, in connection with the disposition of portfolio securities,
Fortis Income may be deemed to be an underwriter under applicable laws.
(4) Invest in real estate, except that the Fund may invest in
securities issued by companies owning real estate or interests therein.
(5) Concentrate its investments in any particular industry,
except that (i) it may invest up to 25% of the value of its total assets (at the
time of investment) in the securities of issuers conducting their principal
business activities in the same industry, and (ii) there is no limitation with
respect to investments in obligations issued, guaranteed, insured, or
collateralized by the United States Government or its agencies or
instrumentalities. 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.
30
<PAGE>
While as a fundamental policy the Fund may invest up to 25% of the value of its
total assets in any particular industry, as a nonfundamental policy, the Fund
will invest less than 25% of the value of its total assets in any particular
industry.
(6) Make loans to other persons. Repurchase agreements, the
lending of securities and the acquisition of debt securities in accordance with
the Prospectus and Statement of Additional Information are not considered to be
"loans" for this purpose.
(7) Make short sales, except for sales "against the box." While a
short sale is made by selling a security the Fund does not own, a short sale is
"against the box" to the extent that the Fund 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 Income (the "Board of Directors") without shareholder approval. The
Fund, unless otherwise noted, 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,
consideration, acquisition or reorganization.
(2) Invest in a company for the purpose of exercising control or
management.
(3) Invest in interests (including partnership interests or
leases) in oil, gas, or other mineral exploration or development programs,
except it may purchase or sell securities issued by corporations engaging in
oil, gas, or other mineral exploration or development business.
(4) Invest more than 15% of 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 Income or Advisers subject to the
oversight of such Board of Directors, securities issued pursuant to the private
placement exemption of Section 4(2) of the Securities Act of 1933 (the "1933
Act") and securities eligible for resale under Rule 144A of the 1933 Act will
not be subject to such limitation).
(5) Invest more than 33 1/3% of its total assets in when-issued,
delayed delivery or forward commitment transactions, and of such 33 1/3%, no
more than one-half (i.e., 16 2/3% of total assets) may be invested in
when-issued, delayed delivery or forward commitment transactions without the
intention of actually acquiring securities (i.e., dollar rolls).
HIGH YIELD PORTFOLIO
INVESTMENT OBJECTIVE
The investment objective of High Yield Portfolio is to maximize total return
(from current income and capital appreciation) with a focus on high current
income by investing primarily in high-yielding, fixed-income securities which,
in the opinion of the Fund's investment adviser, do not subject Fund to
unreasonable investment risk. The Fund invests primarily in high-yield,
high-risk securities and therefore may not be suitable for all investors.
INVESTMENT RESTRICTIONS
The following investment restrictions are deemed fundamental policies. They may
be changed only by a 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 their outstanding shares are present in person or by proxy or
(ii) more than 50% of the Fund's outstanding shares.
As a result of these fundamental investment restrictions, except as set forth
below, the Fund will not:
(1) Purchase securities on margin or otherwise borrow money
or issue senior securities, except that the Fund, in accordance with its
investment objectives and policies, may purchase securities on a when-issued and
delayed delivery basis, within the limitations set forth in the Prospectus and
Statement of Additional Information. The Fund may also obtain such short-term
credit as it needs for the clearance of securities transactions, and may borrow
from a bank, for the account of the Fund, 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 Fund's total assets. Investment securities will
not be purchased for the Fund while outstanding bank borrowings exceed 5% of the
value of the Fund's total assets.
(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 Fund 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
31
<PAGE>
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. While
as a fundamental policy the Fund may invest up to 25% of the value of its total
assets in any particular industry, as a nonfundamental policy, the Fund will
invest less than 25% of the value of its total assets in any particular
industry.
(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 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.
The following investment restrictions may be changed by the Board of Directors
of Fortis Advantage (the "Board of Directors") without shareholder approval. The
Fund, unless otherwise noted, 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. (Due to restrictions imposed by
the California Department of Corporations, the Fund 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 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.)
(7) 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.
(8) Invest in real estate limited partnership interests.
(9) 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).
INVESTMENT PRACTICES COMMON TO THE FUNDS
MORTGAGE-RELATED SECURITIES
Consistent with the investment objectives and policies of U.S. Government
Securities Fund, High Yield Portfolio and Strategic Income Fund, as set forth in
the Prospectus, and the investment restrictions set forth below, the Funds may
invest in certain types of mortgage-related securities. One type of
mortgage-related security includes certificates which represent pools of
mortgage loans assembled for sale to investors by various governmental and
private organizations. These securities provide a monthly payment, which
consists of both an interest and a principal payment, which is in effect a
"pass-through" of the monthly payment made by each individual borrower on his or
her residential mortgage loan, net of any fees paid to the issuer or guarantor
of such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying residential property, refinancing, or
foreclosure, net of fees or costs which may be incurred. Some certificates (such
as those issued by the Government National Mortgage Association) are described
as "modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
regardless of whether the mortgagor actually makes the payment.
A major governmental guarantor of pass-through certificates is the Government
National Mortgage Association ("GNMA"). GNMA guarantees, with the full faith and
credit of the United States government, the timely payments of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks, and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. Other governmental guarantors
(but not backed by the full faith and credit of the United States Government)
include the Federal National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC"). FNMA purchases residential mortgages from a
list of approved seller/servicers which include state and federally chartered
savings and loan associations, mutual savings banks, commercial banks, 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
32
<PAGE>
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 applicable Fund would be reduced.
(v) FHLMC SECURITIES. "FHLMC" is a federally chartered corporation created
in 1970 through enactment of Title III of the Emergency Home Finance Act of
1970. Its purpose is to promote development of a nationwide secondary market
in conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through securities, mortgage
participation certificates ("PCS") and guaranteed mortgage certificates
("GMCs"). PCS resemble GNMA Certificates in that each PC represents a pro
rata share of all interest and principal payments made or owed on the
underlying pool. The FHLMC guarantees timely payment of interest on PCS and
the ultimate payment of principal. Like GNMA Certificates, PCS are assumed
to be prepaid fully in their twelfth year.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a
year in guaranteed minimum payments. The expected average life of these
securities is approximately ten years.
(vi) FNMA SECURITIES. "FNMA" is a federally chartered and privately owned
corporation which was established in 1938 to create a secondary market in
mortgages insured by the FHA. It was originally established as a government
agency and was transformed into a private corporation in 1968.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA Certificates").
FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate
represents a pro rata share of all interest and principal payments made or owed
on the underlying pool. FNMA guarantees timely payment of interest on FNMA
certificates and the full return of principal. Like GNMA Certificates, FNMA
Certificates are assumed to be prepaid fully in their twelfth year.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may
in addition be the originators of the underlying mortgage loans as well as the
guarantors of the pass-through certificates. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
governmental pools because there are no direct or indirect governmental
guarantees of payments in the former pools. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool, and hazard insurance. The
insurance and guarantees are issued by government entities, private insurers,
and the mortgage poolers.
Fortis Advantage and Fortis Income expect 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 U.S. Government Securities
Fund's, High Yield Portfolio's and Strategic Income Fund'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
33
<PAGE>
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 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 Funds 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. On the other hand,
if interest rates increase, the value of mortgage-related securities generally
will decrease, borrowers will be less likely to refinance, and the rate of
prepayments will decline. 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 Strategic Income Fund and High
Yield Portfolio. Because investments in mortgage-related securities are interest
sensitive, the ability of the issuer to reinvest favorably in underlying
mortgages may be limited by government regulation or tax policy. For example,
action by the Board of Governors of the Federal Reserve System to limit the
growth of the nation's money supply may cause interest rates to rise and thereby
reduce the volume of new residential mortgages. Additionally, although mortgages
and mortgage-related securities are generally supported by some form of
government or private guarantees and/or insurance, there is no assurance that
private guarantors or insurers will be able to meet their obligations.
FOREIGN SECURITIES
Strategic Income Fund may invest in securities of foreign governments and
companies in accordance with its investment objectives and policies. 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 Strategic Income Fund and 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 Funds. 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 Strategic Income Fund and High Yield Portfolio may
write (sell) covered call and secured put options and purchase call and put
options only on debt securities. Where a Fund writes an option which expires
unexercised or is closed out by the Fund 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 Fund 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 Fund's position, the option may be exercised and the Fund 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 Funds
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 Strategic Income Fund and High Yield 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 a Fund wants to purchase
at a later date. In the event that the expected market fluctuations occur, such
Fund 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
34
<PAGE>
option plus any transaction costs will reduce the benefit, if any, realized by
the Fund upon exercise or liquidation of the option, and, unless the price of
the underlying security changes sufficiently, the option may expire without
value to the Fund.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
FUTURES CONTRACTS. Strategic Income Fund and High Yield Portfolio may enter into
interest rate futures contracts for hedging purposes. The Funds 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
Funds' 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 Fund. The Funds will incur
brokerage fees when it purchases and sells Futures Contracts, and it will be
required to make and maintain margin deposits.
OPTIONS ON FUTURES CONTRACTS. Strategic Income Fund and High Yield Portfolio may
purchase and write options to buy or sell interest rate futures contracts. In
addition, the Funds 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.") Unless otherwise stated in the
Prospectus or in this Statement of Additional Information, 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 Funds 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 portfolio of the Fund
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 Funds may
suffer a loss on the transaction.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Strategic Income Fund and High Yield Portfolio may each 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"). Unless otherwise stated in
the Prospectus or this Statement of Additional Information, the Funds will enter
into Currency Contracts for hedging purposes only, in a manner similar to the
Funds' use of foreign currency futures contracts. These transactions will
include forward purchases or sales of foreign currencies for the purpose of
protecting the dollar value of securities denominated in a foreign currency or
protecting the dollar equivalent of interest or dividends to be paid on such
securities. By entering into such transactions, however, the Funds may be
required to forego the benefits of advantageous changes in exchange rates.
Currency Contracts are traded over-the-counter, and not on organized commodities
or securities exchanges. As a result, such contracts operate in a manner
distinct from exchange-traded instruments, and their use involves certain risks
beyond those associated with transactions in the futures and option contracts
described above.
OPTIONS ON FOREIGN CURRENCIES. The Funds may purchase and write put and call
options on foreign currencies for the purpose of protecting against declines in
the dollar value of foreign portfolio securities and against increases in the
dollar cost of foreign securities to be acquired. As in the case of other types
of options, however, the writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received, and a
Fund could be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may constitute an effective hedge against fluctuations in exchange
rates, although, in the event of rate movements adverse to a Fund's position, it
may forfeit the entire amount of the premium plus related transaction costs. As
in the case of Currency Contracts, certain options on foreign currencies are
traded over-the-counter and involve risks which may not be present in the case
of exchange-traded instruments.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS, AND FORWARD CONTRACTS
Although the Strategic Income Fund and High Yield Portfolio will enter into
transactions in Futures Contracts, Options on Futures Contracts, Currency
Contracts, and certain options solely for hedging purposes, their use does
involve certain risks. For example, a lack of correlation between the index or
instrument underlying an option or Futures Contract and the assets being hedged,
or unexpected adverse price movements, could render the Funds' hedging strategy
unsuccessful and could result in losses. The Funds also may enter into
transactions in futures, forward contracts and options on securities, indexes
and other investments for other than hedging purposes, which involves greater
risk. For example, the Funds may enter into these transactions to manage the
duration of certain of the Funds' investments. Duration is a measure which
reflects estimated price sensitivity to a given change in interest rates. For
example, for an interest rate change of 1%, a portfolio with a duration of 5
years would be expected to experience a price change of 5%. In addition, there
can be no assurance that a liquid secondary market will exist for any contract
purchased or sold, and a Fund may be required to maintain a position until
exercise or expiration, which could result in losses.
35
<PAGE>
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 Funds 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 "Risk
Considerations and Other Investment Practices" in the Prospectus.
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 Strategic Income Fund and High Yield
Portfolio will maintain in a segregated account cash or any security that is not
considered restricted or illiquid 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 Funds
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 applicable Fund, 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 such Fund's total
assets. The Funds 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 each Fund 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 Strategic Income Fund and 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 each applicable Fund's
total assets and no additional investment securities may be purchased by a Fund
while outstanding bank borrowings exceed 5% of the value of the Fund'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 and Strategic
Income Fund at varying market rates of interest pursuant to arrangements between
one of such Funds 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 each Fund has a "same day
withdrawal option," I.E., where it has the unconditional right to demand and
receive payment in full of the principal amount then outstanding together with
interest to the date of payment.
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 Strategic Income Fund may invest up to 33 1/3% of
its total assets in repurchase agreements but will only invest up to 15% of its
net assets in repurchase agreements with a maturity of more than seven days. The
U.S. Government Securities Fund's limit on such investments is 10% of total
assets.
In investing in repurchase agreements, a Fund'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 Fund 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
Fund 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 Fund could suffer a loss. If
the Fund owns underlying securities following a default on the repurchase
agreement, the Fund will be subject to risk associated with changes in the
market value of such securities. The Funds' 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
36
<PAGE>
repurchase agreement (including any accrued interest), the Fund 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 their respective 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. Each Fund may
also be restricted in its ability to sell such securities at a time when it is
advisable to do so. Illiquid securities often sell at a price lower than similar
securities that are not subject to restrictions on resale.
U.S. TREASURY INFLATION-PROTECTION SECURITIES
All of the Funds may invest in U.S. Treasury inflation-protection securities.
Inflation-protection securities are new types of marketable book-entry
securities issued by the United States Department of Treasury ("Treasury") with
a nominal return linked to the inflation rate in prices. Inflation-protection
securities will be auctioned and issued on a quarterly basis on the 15th of
January, April, July, and October, beginning on January 15, 1997. Initially,
they will be issued as 10-year notes, with other maturities added thereafter.
The index used to measure inflation will be the non-seasonally adjusted U.S.
City Average All Items Consumer Price Index for All Urban Consumers ("CPI-U").
The value of the principal will be adjusted for inflation, and every six months
the security will pay interest, which will be an amount equal to a fixed
percentage of the inflation-adjusted value of the principal. The final payment
of principal of the security will not be less than the original par amount of
the security at issuance.
The principal of the inflation-protection security will be indexed to the
non-seasonally adjusted CPI-U. To calculate the inflation-adjusted principal
value for a particular valuation date, the value of the principal at issuance is
multiplied by the index ratio applicable to that valuation date. The index ratio
for any date is the ratio of the reference CPI applicable to such date to the
reference CPI applicable to the original issue date. Semiannual coupon interest
is determined by multiplying the inflation-adjusted principal amount by one-half
of the stated rate of interest on each interest payment date.
Inflation-adjusted principal or the original par amount, whichever is larger,
will be paid on the maturity date as specified in the applicable offering
announcement. If at maturity the inflation-adjusted principal is less than the
original principal value of the security, an additional amount will be paid at
maturity so that the additional amount plus the inflation-adjusted principal
equals the original principal amount. Some inflation-protection securities may
be stripped into principal and interest components. In the case of a stripped
security, the holder of the stripped principal would receive this additional
amount. The final interest payment, however, will be based on the final
inflation-adjusted principal value, not the original par amount.
The reference CPI for the first day of any calendar month is the
CPI-U for the third preceding calendar month. (For example, the reference CPI
for December 1 is the CPI - U reported for September of the same year, which is
released in October.) The reference CPI for any other day of the month is
calculated by a linear interpolation between the reference CPI applicable to the
first day of the month and the reference CPI applicable to the first day of the
following month.
Any revisions the Bureau of Labor Statistics (or successor agency) makes to any
CPI-U number that has been previously released will not be used in calculations
of the value of outstanding inflation-protection securities. In the case that
the CPI-U for a particular month is not reported by the last day of the
following month, the Treasury will announce an index number based on the last
year-over-
37
<PAGE>
year CPI-U inflation rate available. Any calculations of the Treasury's payment
obligations on the inflation-protection security that need that month's CPI-U
number will be based on the index number that the Treasury has announced. If the
CPI-U is rebased to a different year, the Treasury will continue to use the
CPI-U series based on the base reference period in effect when the security was
first issued as long as that series continues to be published. If the CPI-U is
discontinued during the period the inflation-protection security is outstanding,
the Treasury will, in consultation with the Bureau of Labor Statistics (or
successor agency), determine an appropriate substitute index and methodology for
linking the discontinued series with the new price index series. Determinations
of the Secretary of the Treasury in this regard are final.
Inflation-protection securities will be held and transferred in either of two
book-entry systems: the commercial book-entry system (TRADES) and TREASURY
DIRECT. The securities will be maintained and transferred at their original par
amount, i.e., not at their inflation-adjusted value. STRIPS components will be
maintained and transferred in TRADES at their value based on the original par
amount of the fully constituted security.
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>
POSITION WITH PRINCIPAL OCCUPATION AND AFFILIATIONS WITH
NAME & ADDRESS AGE THE FUNDS "AFFILIATED PERSONS" OR INVESTORS (PAST 5 YEARS)
- -------------------------- --- -------------- -----------------------------------------------------------------------
<S> <C> <C> <C>
Richard W. Cutting 66 Director Certified public accountant and financial consultant.
137 Chapin Parkway
Buffalo, New York
Allen R. Freedman* 57 Director Chairman, Chief Executive Officer and President of Fortis, Inc.; a
One Chase Manhattan Plaza Managing Director of Fortis International, N. V.
New York, New York
Dr. Robert M. Gavin 57 Director President, Cranbrook Education Community, Prior to July 1996, President
Office of the President Macalester College.
370 Lancaster Avenue
Haverford, Pennsylvania
Benjamin S. Jaffray 67 Director Chairman of the Sheffield Group, Ltd., a financial consulting group.
4040 IDS Center
Minneapolis, Minnesota
Jean L. King 53 Director President, Communi-King, a communications consulting firm.
12 Evergreen Lane
St. Paul, Minnesota
Dean C. Kopperud* 45 President and Chief Executive Officer and a Director of Fortis Advisors, Inc.
500 Bielenberg Drive Director ("Advisers"), President and a Director of Fortis Investors, Inc.
Woodbury, Minnesota ("Investors"), and President of Fortis Financial Group and a Director
of Fortis Benefits Insurance Company and a Senior Vice President of
Time Insurance Company.
Edward M. Mahoney 67 Director Retired; prior to December, 1994, Chairman and Chief Executive Officer
2760 Pheasant Road and a Director of Advisers and Investors, Senior Vice President and a
Excelsior, Minnesota Director of Fortis Benefits Insurance Company, and Senior Vice
President of Time Insurance Company.
Robb L. Prince 56 Director Financial and Employee Benefit Consultant; prior to July, 1995, Vice
5108 Duggan Plaza President and Treasurer, Jostens, Inc., a producer of products and
Edina, Minnesota services for the youth, education, sports award, and recognition
markets.
Leonard J. Santow 61 Director Principal, Griggs & Santow, Incorporated, economic and financial
75 Wall Street consultants.
21st Floor
New York, New York
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION AND AFFILIATIONS WITH
NAME & ADDRESS AGE THE FUNDS "AFFILIATED PERSONS" OR INVESTORS (PAST 5 YEARS)
- -------------------------- --- -------------- -----------------------------------------------------------------------
<S> <C> <C> <C>
Noel S. Shadko 43 Director Marketing Consultant; prior to May 1996, Senior Vice President of
1908 W. 49th Street Marketing & Strategic Planning, Rollerbade, Inc.
Minneapolis, MN 55409
Joseph M. Wikler 56 Director Investment consultant and private investor; prior to January, 1994,
12520 Davan Drive Director of Research, Chief Investment Officer, Principal, and a
Silver Spring, Maryland Director, The Rothschild Co., Baltimore, Maryland. The Rothschild Co.
is an investment advisory firm.
Gary N. Yalen 55 Vice President President and Chief Investment Officer of Advisers (since August, 1995)
One Chase Manhattan Plaza New York, NY, and Senior Vice President, Investments, Fortis, Inc.,
New York, New York prior to 1996, President and Chief Investment Officer, Fortis Asset
Management, a former division of Fortis, Inc.
James S. Byrd 46 Vice President Executive Vice President of Advisers; prior to 1995, Vice President of
5500 Wayzata Boulevard Advisers and Investors.
Golden Valley, Minnesota
Howard G. Hudson 60 Vice President Executive Vice President and Head of Fixed Income Investments of
One Chase Manhattan Plaza Advisers (since August, 1995) and prior to 1996, Senior Vice President,
New York, New York Fixed Income, Fortis Asset Management.
Charles J. Dudley 38 Vice President Vice President of Advisers; prior to August, 1995, Senior Vice
One Chase Manhattan Plaza President, Sun America Asset Management, Los Angeles, CA.
New York, New York
Maroun M. Hayek 49 Vice President Vice President of Advisers; prior to August 1996, Vice President, Fixed
One Chase Manhattan Plaza Income, Fortis Asset Management, a former division of Fortis, Inc.
New York, New York
Robert C. Lindberg 45 Vice President Vice President of Advisers; prior to July, 1993, Vice President,
One Chase Manhattan Plaza Portfolio Manager, and Chief Securities Trader, COMERICA, Inc.,
New York, New York Detroit, Michigan. COMERCA, Inc. is a bank.
Christopher J. Pagano 34 Vice President Vice President of Advisers; prior to March 1996, Government Strategist
One Chase Manhattan Plaza for Merrill Lynch, New York, N.Y.
New York, N.Y.
Charles L. Mehlhouse 55 Vice President Vice President of Advisers; prior to March 1996, Portfolio Manager to
One Chase Manhattan Plaza Marshall & Ilsley Bank Corporation, Milwaukee, WI.
New York, New York
Christopher J. Woods 37 Vice President Vice President of Advisers (since August, 1995) and prior to 1996, Vice
One Chase Manhattan Plaza President, Fixed Income, Fortis Asset Management.
New York, New York
Robert W. Beltz, Jr. 48 Vice President Vice President--Securities Operations of Advisers and Investors.
500 Bielenberg Drive
Woodbury, Minnesota
David A. Peterson 55 Vice President Vice President and Assistant General Counsel, Fortis Benefits Insurance
500 Bielenberg Drive Company.
Woodbury, Minnesota
Rhonda J. Schwartz 40 Vice President Senior Vice President and General Counsel of Advisers; Senior Vice
500 Bielenberg Drive President and General Counsel, Life and Investment Products, Fortis
Woodbury, Minnesota 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.
Nicholas L.M. de Peyster 30 Vice President Vice President of Advisers
One Chase Manhattan Plaza
Scott R. Plummer 38 Vice President Second Vice President, Corporate Counsel and Assistant Secretary of
500 Bielenberg Drive Advisers; prior to September 1993, attorney, Zelle & Larson,
Woodbury, Minnesota Minneapolis, Minnesota.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION AND AFFILIATIONS WITH
NAME & ADDRESS AGE THE FUNDS "AFFILIATED PERSONS" OR INVESTORS (PAST 5 YEARS)
- -------------------------- --- -------------- -----------------------------------------------------------------------
<S> <C> <C> <C>
Peggy E. Ettestad 40 Vice President Senior Vice President, Operations of Advisers and prior to March 1997,
500 Bielenberg Drive Vice President G.E. Capital Fleet Services, Minneapolis, Minnesota.
Woodbury, Minnesota
Dickson Lewis 48 Vice President Senior Vice President, Marketing and Sales of Advisers; from 1993 to
500 Bielenberg Drive July 1997, President and Chief Executive Officer Hedstrom/Blessing,
Woodbury, Minnesota Inc., a marketing communications company in Minneapolis, Minnesota;
from 1992 to 1993 an independent marketing consultant.
Tamara L. Fagely 39 Treasurer Second Vice President of Advisers and Investors.
500 Bielenberg Drive
Woodbury, Minnesota
Michael J. Radmer 52 Secretary Partner, Dorsey & Whitney LLP, the Fund's General Counsel.
220 South Sixth Street
Minneapolis, Minnesota
</TABLE>
- -------------------------------------------
* Mr. Kopperud is an "interested person" (as defined under the 1940 Act) of
Fortis 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, Fortis Advantage, 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, 1997 for Fortis Income and 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 July 31, 1997. Neither Mr. Freedman, who is an officer of the
parent company of Advisers, nor Mr. Kopperud, who is an officer of Advisers and
Investors, received any such compensation and they are not included in the
table. No executive officer of the Funds received compensation from the Funds
during the fiscal year ended July 31, 1997.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION AGGREGATE TOTAL COMPENSATION
FROM FORTIS COMPENSATION FROM FROM FUND COMPLEX
DIRECTOR INCOME (3) FORTIS ADVANTAGE (2) PAID TO DIRECTOR (1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Richard W. Cutting $3,000 $3,000 $31,200
Dr. Robert M. Gavin $3,000 $3,000 $31,200
Benjamin S. Jaffray $3,229 $3,200 $23,300
Jean L. King $3,219 $3,200 $33,200
Edward M. Mahoney $3,000 $3,000 $31,200
Robb L. Prince $3,219 $3,200 $33,200
Leonard J. Santow $2,900 $2,900 $30,200
Noel S. Shadko $3,000 $3,000 $22,200
Joseph M. Wikler $3,000 $3,000 $31,200
</TABLE>
- ------------------------------
(1) Includes aggregate compensation paid by the Funds and all 9 Other Fortis
Funds paid to the director.
(2) The compensation paid by Fortis Advantage covers three separate portfolios,
including High Yield Portfolio.
(3) The compensation paid by Fortis Income covers only the U.S. Government
Securities Fund.
As of October 31, 1997, the directors and executive officers beneficially owned
less than 1% of the outstanding shares of all Funds. Directors Gavin, Jaffray,
Kopperud, Mahoney, Shadko and Prince are members of the Executive Committee of
the Board of Directors. 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 and it is expected that the
Committee will meet at least twice a year.
INVESTMENT ADVISORY AND OTHER
SERVICES
GENERAL
Fortis Advisers, Inc. ("Advisers") has been the investment adviser and manager
of 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 July 31, 1997, Advisers managed twenty-nine investment company portfolios
with combined net assets of approximately $5,517,873,000, and one private
account with net assets of approximately $23,720,000. Fortis Financial Group
also has approximately $2.0 billion in insurance reserves. As of the same date,
the investment company portfolios had an aggregate of 269,329 shareholders,
including 26,922 shareholders of the U.S. Government Securities Fund and 14,692
shareholders of High Yield Portfolio.
During the fiscal years ended July 31, 1997, 1996 and 1995, Advisers received
$3,071,143, $3,431,396 and $3,576,719, 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 $0, $0, and
$84,896 pursuant to the expense reimbursement agreement then in effect,
resulting in a net fee of $3,071,143, $3,431,396 and $3,491,823, respectively.
Investors received $373,847, $631,206 and $802,986 during these same periods for
underwriting such Fund's shares, out of which commissions of sales
representatives and allowances to dealers approximating $250,195, $476,133 and
$665,203 were paid by Investors.
40
<PAGE>
During the fiscal year ended July 31, 1997, Investors received $309,736 from the
U.S. Government Securities Fund pursuant to the Plan of Distribution (see "Plan
of Distribution"). Investors paid $338,977 to broker-dealers and registered
representatives. In addition to such amount paid, Advisers and Investors
together spent $141,777 on activities related to the distribution of the Fund's
shares.
During the fiscal year ended July 31, 1997, the nine-month period ended July 31,
1996, and the fiscal year ended October 31, 1995, the High Yield Portfolio paid
to Advisers advisory and management fees of $1,388,154, $866,285 and $874,371.
Investors received $879,710, $516,880 and $815,079 for the High Yield Portfolio
during the fiscal year ended July 31, 1997, the nine-month period ended July 31,
1996 and the fiscal year ended October 31, 1995, respectively, for underwriting
the Funds' shares, out of which allowances to dealers and representatives
totaling approximately $462,057, $300,045 and $625,940 for the High Yield
Portfolio, respectively, were paid.
During the fiscal year ended July 31, 1997, Investors received, $1,148,987 from
the High Yield Portfolio, pursuant to the Plan of Distribution (see "Plan of
Distribution"). Of these amounts, Investors paid $2,017,689 for the High Yield
Portfolio, respectively, to broker-dealers and registered representatives. In
addition to such amounts paid, Advisers and Investors together spent $551,100
for the High Yield Portfolio, respectively, on activities related to the
distribution of the Funds' shares.
The Strategic Income Fund had not commenced operations as of July 31, 1997 and
therefore paid no advisory and management fees.
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 $160 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, Howard G. Hudson and Lucinda S. Mezey are Executive Vice
President of Advisers; Debra L. Foss, Jon H. Nicholson Dickson Lewis and Peggy
Ettestad are Senior Vice Presidents of Advisers; Rhonda J. Schwartz is Senior
Vice President, General Counsel, and Secretary of Advisers; Robert W. Beltz,
Jr., are Vice Presidents of Advisers and Investors; Nicholas L. M. de Peyster,
Charles J. Dudley, Maroun H. Hayek; Kevin J. Michels, Christopher Pagano,
Stephen M. Rickert and Charles L. Mehlhouse, Eugene Glazer, Robert C. Lindberg,
Ann B. Ray, Thomas C. Britton, and Christopher J. Woods are Vice Presidents of
Advisers; John E. Hite is 2nd Vice President and Assistant Secretary of
Advisers; Carol M. Houghtby is 2nd Vice President and Treasurer of Advisers and
Investors; Tamara L. Fagely is 2nd Vice President of Advisers and Investors;
Barbara W. Kirby is 2nd Vice President of Advisers; David C. Greenzang is Money
Market Portfolio Officer of Advisers; Michael D. O'Connor is qualified Plan
Officer of Advisers; Scott R. Plummer is Second Vice President and Assistant
Secretary of Advisers; Joanne M. Herron is Assistant Treasurer of Advisers and
Investors and Debbie Malewski is Administrative Officer of Advisers.
Messrs. Kopperud, Yalen, and Byrd 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, Pagano, Glazer, Mehlhouse, Greenzang and Woods and Ms. Malewski, 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 and Strategic Income 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 with the U.S.
Government Securities Fund and High Yield Portfolio 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 5, 1996 and
the Agreement with the Strategic Income Fund was approved by the Board of
Directors on September 18, 1997. 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 Fund, by vote of a majority of the outstanding voting securities of
the applicable Fund, 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
41
<PAGE>
Board of Directors or, with respect to any particular Fund, by vote of a
majority of the outstanding voting securities of the applicable Fund, 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 July 31,
1997, the U.S. Government Securities Fund had net assets of approximately
$398,678,000 and the High Yield Portfolio had net assets of approximately
$214,330,000. The Strategic Income Fund had not commenced operations as of July
31, 1997 and therefore had no assets.
<TABLE>
<CAPTION>
ANNUAL INVESTMENT
ADVISORY AND
AVERAGE NET ASSETS MANAGEMENT FEE
- ------------------------------------------------- ----------------------
<S> <C> <C>
All Funds For the first $50,000,000 .8%
For assets over $50,000,000 .7%
</TABLE>
The Agreements require 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.
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) of the U.S. Government Securities Fund to
.77% of the Fund's average net assets.
Under the Agreements, Advisers, as investment adviser to the Funds, has the sole
authority and responsibility to make and execute investment decisions for the
Funds 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.
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 or Fund of Advantage
Portfolios or Fortis Income, such as custodian charges and registration fees for
shares, are charged to that Portfolio or Fund. Other expenses of Fortis
Advantage and Fortis Income are allocated pro rata among the Portfolios or Funds
in an equitable manner as determined by applicable officers of Fortis Advantage
or Fortis Income 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
42
<PAGE>
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 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, 1997, fixed income securities transactions
having an aggregate dollar value of approximately $1,386,884,000 (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, 1997.
During the fiscal year ended July 31, 1997, 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.
STRATEGIC INCOME FUND AND HIGH YIELD PORTFOLIO
The Strategic Income Fund and High Yield Portfolio will not generally 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 $1,247,962,000, respectively (excluding
short-term securities), were traded at net prices including a spread or markup
during the fiscal year ended July 31, 1997. For High Yield Portfolio
transactions, during the fiscal year ended July 31, 1997, the nine-month fiscal
period ended July 31, 1996, and the fiscal year ended October 31, 1995,
transactions in equity securities had an aggregate dollar value of approximately
$1,255,950 $6,412,960, and $1,821,750, respectively for High Yield Portfolio.
For the fiscal year ended July 31, 1997, High Yield Portfolio's commissions
totaled $2,674, 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 High Yield Portfolio and
Strategic Income Fund. 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 Funds. 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 the Funds 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
43
<PAGE>
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 and Strategic Income
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 High Yield Portfolio and Strategic Income Fund to
pay an amount of commission for effecting a securities transaction in excess of
the amount of commission another broker-dealer would have charged only if
Advisers determines in good faith that such amount of commission is reasonable
in relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or
Advisers' overall responsibilities with respect to the accounts as to which it
exercises investment discretion. Generally, the Funds pay higher commissions
than the lowest rates available.
The Strategic Income Fund commenced operations on December 1, 1997.
High Yield Portfolio paid $2,674 in commissions (in connection with transactions
having an aggregate value of approximately $1,255,950) during the fiscal year
ended July 31, 1997. Of this amount, virtually all was paid to broker-dealers
who furnished investment research to Advisers, as outlined above.
Neither Strategic Income Fund nor High Yield Portfolio will effect any brokerage
transactions in their 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 respective shareholders of the Funds. No
commissions were paid to any affiliate of Advisers during the fiscal year ended
July 31, 1997 and the fiscal periods ended July 31, 1996 and October 31, 1995.
High Yield Portfolio's acquisitions during the fiscal year ended July 31, 1997,
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:
<TABLE>
<CAPTION>
VALUE OF
SECURITIES OWNED
NAME OF ISSUER AT END OF PERIOD
- ---------------------------------------------- -----------------
<S> <C>
U.S. Bank (N.A.).............................. $ 16,000
</TABLE>
Fortis Advisers, Inc. has developed written trade allocation procedures for its
management of the securities trading activities of its clients. Advisers manages
multiple portfolios, both public (mutual funds) and private. The purpose of the
trade allocation procedures is to treat the portfolios fairly and reasonably in
situations where the amount of a security that is available is insufficient to
satisfy the volume or price requirements of each portfolio that is interested in
purchasing that security.
Generally, when the amount of securities available in a public offering or the
secondary market is insufficient to satisfy the requirements for the interested
portfolios, the procedures require a pro rata allocation based upon the amounts
initially requested by each portfolio manager. In allocating trades made on a
combined basis, Advisers seeks to achieve the average price of the securities
for each participating portfolio.
Because a pro rata allocation may not always adequately accommodate all facts
and circumstances, the procedures provide for exceptions to allocate trades on a
basis other than pro rata. Examples of where adjustments may be made include:
(i) the cash position of the portfolios involved in the transaction; and (ii)
the relative importance of the security to a portfolio in seeking to achieve its
investment objective.
CAPITAL STOCK
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 July 31, 1997, the U.S. Government Securities Fund had approximately
43,542,000 shares outstanding. On September 30, 1997, 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 E: Fortis Holdings Profit Sharing Trust
Marshall & Ilsley Trust Co. Trustee
1000 N. Water Street, 11th Floor,
Milwaukee, WI 53202-3197 - 8%
Class B: Marguerite K. Kibbel TOD
287 Southwood Dr.
Buffalo, NY 14223-1077 - 6%
Class C: Thomas F. Thompson TOD
3609 S. Marson Manor Cir
Sioux Falls, SD 57103-4724 - 7%
Silvio Francani
Rose Hill Escrow Acct
712 Mobjack PL
NewPort News, VA 23606-1957 - 24%
Kathleen Fagerstrom
16 Sheffield Lane
Mount Laurel, NJ 08054-3318 - 5%
As of July 31, 1997, Strategic Income Fund had no outstanding shares.
44
<PAGE>
On July 31, 1997, High Yield Portfolio had approximately 27,384,000 outstanding
shares. On September 30, 1997, no person owned of record or, to Fortis
Advantage's knowledge, beneficially as much as 5% of the outstanding shares
except as follows:
Class C: Brenda A. Gottlieb
Children's Trust
Kenneth L. Gottlieb
U/W Brenda A. Gottlieb
685 Underwood Road
Vestal, NY 13850-6039 - 7%
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, 1997, the U.S. Government Securities Fund's net asset values per
share were calculated as follows:
CLASS E
Net Assets ($324,642,326)
- ------------------------ = Net Asset Value Per Share ($9.16)
Shares Outstanding (35,453,992)
To obtain the public offering price per share, the 4.5% sales charge had to be
added to the net asset value obtained above:
$9.16
- ---- = Public Offering Price Per Share ($9.59)
.955
CLASS A
Net Assets ($59,127,644)
- ------------------------ = Net Asset Value Per Share ($9.16)
Shares Outstanding (6,456,243)
To obtain the public offering price per share, the 4.5% sales charge had to be
added to the net asset value obtained above:
$9.16
- ----- = Public Offering Price Per Share ($9.59)
.955
CLASS B
Net Assets ($2,826,460)
- ------------------------ = Net Asset Value Per Share ($9.14)
Shares Outstanding (309,239)
CLASS H
Net Assets ($10,637,336)
- ------------------------ = Net Asset Value Per Share ($9.14)
Shares Outstanding (1,164,372)
CLASS C
Net Assets ($1,444,353)
- ------------------------
Shares Outstanding (158,205) = Net Asset Value Per Share ($9.13)
STRATEGIC INCOME FUND
On July 31, 1997, the Strategic Income Fund had not commenced operations, and
therefore had no assets.
HIGH YIELD PORTFOLIO
On July 31, 1997, the High Yield Portfolio's net asset values per share were
calculated as follows:
CLASS A
Net Assets ($123,115,140)
- ------------------------- = Net Asset Value Per Share ($7.83)
Shares Outstanding(15,725,710)
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:
$7.83
---- = Public Offering Price Per Share ($8.20)
.955
CLASS B
Net Assets ($20,388,129)
- ------------------------ = Net Asset Value Per Share ($7.83)
Shares Outstanding (2,604,670)
CLASS H
Net Assets ($63,789,400)
- ------------------------ = Net Asset Value Per Share ($7.82)
Shares Outstanding (8,153,853)
CLASS C
Net Assets ($7,037,072)
- ------------------------ = Net Asset Value Per Share ($7.82)
Shares Outstanding (899,995)
45
<PAGE>
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, Martin Luther King, Jr. Birthday,
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 Plans or Individual Retirement Accounts (IRAs)
for retirement. IRAs 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 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.
TRADITIONAL IRA. 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 $2,000 (including sales charge) can be made
to IRA accounts for 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.
ROTH IRA. For tax years beginning January 1, 1998, a new type of IRA, called the
Roth IRA will be available. Roth IRAs are different from traditional IRAs in
that contributions are never tax deductible and earnings on amounts held in the
account can be withdrawn tax-free if the funds remain in the IRA for at least 5
years and the IRA holder is at least 59 1/2 at the time of the withdrawal. Roth
IRAs are also available for nonworking spouses. The ability to make a
contribution to a Roth IRA is phased out for individuals whose incomes exceed
specific limits.
EDUCATION IRA. For tax years beginning January 1, 1998, individuals can also
establish an IRA to be used for the education expenses of a child. Contributions
are limited to $500 per child per year and are not deductible when made.
Earnings on amounts held in the account can be withdrawn tax-free provided they
are used for undergraduate or graduate education expenses of the child before
the child reaches age 30. The ability to make a contribution to an Education IRA
is phased out for individuals whose incomes exceed specific limits.
46
<PAGE>
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 FULLY PARTIALLY
TAXABLE DEDUCTIBLE DEDUCTIBLE NON-DEDUCTIBLE
INVESTMENT IRA* IRA** IRA***
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
10 years - 15% Federal $ 24,799 $ 31,291 $ 28,944 $ 26,597
tax bracket
10 years - 28% Federal $ 19,785 $ 31,291 $ 26,910 $ 32,530
tax bracket
10 years - 31% Federal $ 18,702 $ 31,291 $ 26,441 $ 21,591
tax bracket
10 years - 36% Federal $ 16,597 $ 31,291 $ 25,659 $ 20,026
tax bracket
10 years - 39.6% $ 15,744 $ 31,291 $ 25,095 $ 18,900
Federal tax bracket
20 years - 15% Federal $ 72,515 $ 98,846 $ 91,432 $ 84,019
tax bracket
20 years - 28% Federal $ 54,236 $ 98,846 $ 85,007 $ 71,169
tax bracket
20 years - 31% Federal $ 50,526 $ 98,846 $ 83,525 $ 68,204
tax bracket
20 years - 36% Federal $ 44,722 $ 98,846 $ 81,054 $ 63,261
tax bracket
20 years - 39.6% $ 40,820 $ 98,846 $ 79,274 $ 59,703
Federal tax bracket
</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
$41,200 for married couples filing jointly and $24,650 for unmarried
individuals. The 28% Federal income tax rate applies to taxable income from
$41,200, to $99,600 for married couples filing jointly and to taxable income
from $24,650 to $59,750 for unmarried individuals. The 31% Federal income tax
applies to taxable income from $99,600 to $151,750 for married couples filing
jointly and to taxable income from $59,750 to $124,650 for unmarried
individuals. The 36% Federal income tax rate applies to taxable income from
$151,750 to $271,050 for married couples filing jointly and to taxable income
from $124,650 to $271,050 for unmarried individuals. The 39.6% Federal income
tax rate applies to taxable income above $271,050 for married couples filing
jointly and to taxable income above $271,050 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
47
<PAGE>
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).
SYSTEMATIC INVESTMENT PLAN
The Funds provide 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.
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.
48
<PAGE>
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) AND CERTAIN DIVERSIFIED INCOME SERIES (OF
CARNEGIE-CAPIELLO TRUST) ACCOUNTS
This privilege is based upon their familiarity with the applicable Fund stemming
from its acquisition of the applicable series and resulting economies of sales
effort and expense.
PURCHASES BY CERTAIN TIME INSURANCE COMPANY MEDICAL SAVINGS ACCOUNTS
This privilege is based upon their familiarity with the applicable Fund stemming
from its acquisition of the applicable series and resulting economies of sales
effort and expense.
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 time (a) when the Exchange
is closed for other than customary weekend or holiday closings, (b) when trading
on said Exchange is restricted, (c) when an emergency exists, as a result of
which disposal by the Fund of securities owned by it is not reasonably
practicable, or it is not reasonably practicable for the Fund 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, Martin Luther King, Jr. Birthday, 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
49
<PAGE>
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.
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 U.S. Government Securities Fund and High Yield Portfolio qualified in their
tax years ended July 31, 1997, and all three Funds intend to qualify in the
future, as regulated investment companies under the Internal Revenue Code of
1986, as amended (the "Code"). As long as the Funds so qualify, the Funds are
not taxed on the income they distribute to their shareholders.
Under the Code, each Fund is treated as a separate entity for Federal tax
purposes. Therefore, each Fund is treated separately in determining whether it
qualifies as a regulated investment company and for purposes of determining the
net ordinary income (or loss), net realized capital gains (or losses), and
distributions necessary to relieve each Fund of any Federal income tax
liability.
For individuals, estates and trusts, long-term capital gains, which are realized
on the sale or exchange of capital assets held for more than 18 months, are
subject to a maximum federal income tax rate of 20%, while ordinary income is
subject to a maximum rate of 39.6%. Mid-term capital gains, which are realized
on the sale or exchange of capital assets held more than one year but not more
than 18 months, are subject to a maximum federal income tax rate of 28%.
If more than 50% of the Strategic Income Fund's total assets at the close of its
fiscal year consist of securities of foreign corporations, it will be eligible
to, and may, file an election with the Internal Revenue Service pursuant to
which shareholders will be required to include their pro rata portions of
foreign taxes paid by the Fund as income received by them. Shareholders may then
either deduct such pro rata portions in computing their taxable income or use
them as foreign tax credits against their United States income taxes. If the
Fund makes such an election, it will report annually to each shareholder the
amount of foreign taxes to be included in income and then either deducted or
credited.
Alternatively, if the amount of foreign taxes paid by Strategic Income Fund is
not large enough to warrant its making the election described above, the Fund
may claim the amount of foreign taxes paid as a deduction against its own gross
income. In that case, shareholders would not be required to include any amount
of foreign taxes paid by the Fund in their income and would not be permitted
either to deduct any portion of foreign taxes from their own income or to claim
any amount of foreign tax credit for taxes paid by the Fund.
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.
Except for the transactions that Strategic Income Fund or High Yield Portfolio
has identified as hedging transactions, each Fund is required for federal income
tax purposes to recognize as income for each taxable year its net unrealized
gains and losses on futures contracts, options, and forward currency contracts
as of the end of the year as well as those actually realized during the year.
Except for transactions in futures contracts, options, or forward currency
contracts that are classified as part of a "mixed straddle," gain or loss
50
<PAGE>
recognized with respect to such contract or contracts is considered to be 60%
long-term capital gain or loss and 40% short-term capital gain or loss, without
regard to the holding period of the contract. In the case of a transaction
classified as a "mixed straddle," the recognition of losses may be deferred to a
later taxable year.
Sales of futures contracts, options, or forward currency contracts that are
intended to hedge against a change in the value of securities or currencies held
by Strategic Income Fund or High Yield Portfolio may affect the holding period
of such securities or currencies and, consequently, the nature of the gain or
loss on such securities or currencies upon disposition.
It is expected that any net gain realized from the closing out of futures
contracts, options, or forward currency contracts will be considered gain from
the sale of securities or currencies and therefore qualifying income for
purposes of the requirement that a regulated investment company derive at least
90% of its gross income from dividends, interest and certain types of payment
related to its investment in stock or securities. For its taxable year beginning
August 1, 1997, High Yield Portfolio is still subject to the requirement that a
regulated investment company derive less than 30% of its gross income from the
sale or disposition of stock or securities, or options, futures, or forward
contracts (other than options, futures, or forward contracts on foreign
currencies), or foreign currencies if such foreign currencies are not directly
related to the company's principal business of investing in stocks or securities
(the "30% test"). (The 30% test has been repealed for taxable years of all
regulated investment companies beginning after August 5, 1997.) In order to
avoid realizing excessive gains on securities or currencies held less than three
months, High Yield Portfolio may be required to defer the closing out of futures
contracts, options, or forward currency contracts beyond the time when it would
otherwise be advantageous to do so. It is expected that unrealized gains on
futures contracts, options, or forward currency contracts, which have been open
for less than three months as of the end of High Yield Portfolio's fiscal year
and which are recognized for tax purposes, will not be considered gains on
securities or currencies held less than three months for purposes of the 30%
test, as discussed above.
If either Fund invests in zero coupon obligations upon their issuance, such
obligations will have original issue discount in the hands of the Fund.
Generally, the original issue discount equals the difference between the "stated
redemption price at maturity" of the obligation and its "issue price" as those
terms are defined in the Code. If a Fund acquires an already issued zero coupon
bond from another holder, the bond will have original issue discount in the
Fund's hands, equal to the difference between the "adjusted issue price" of the
bond at the time the Fund acquires it (that is, the original issue price of the
bond plus the amount of original issue discount accrued to date) and its stated
redemption price at maturity. In each case, the Fund is required to accrue as
ordinary interest income a portion of such original issue discount even though
they receive no cash currently as interest payment on the obligation. Similarly,
in the case of PIK's, Strategic Income Fund and High Yield Portfolio are
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 they
receive no cash. Furthermore, if a Fund invests in U.S. Treasury
inflation-protection securities, it will be required to treat as original issue
discount any increase in the principal amount of the securities that occurs
during the course of its taxable year. If a Fund purchases such
inflation-protection securities that are issued in stripped form either as
stripped bonds or coupons, it will be treated as if it had purchased a newly
issued debt instrument having original issue discount.
Because the Funds are required to distribute substantially all of their net
investment income (including accrued original issue discount and interest income
attributable to PIK's) in order to be taxed as regulated investment companies,
they may be required to distribute an amount greater than the total cash income
a Fund actually receives. Accordingly, in order to make the required
distribution, a Fund may be required to borrow or to liquidate securities.
Pursuant to a special provision in the Code, if Fund shares with respect to
which a long-term capital gain distribution has been made are held for six
months or less, any loss on the sale or other disposition of such shares will be
a long-term capital loss to the extent of such long-term capital gain
distribution, unless such sale or other disposition is pursuant to a Systematic
Withdrawal Plan.
Under the Code, each Fund is required to withhold and remit to the U.S. Treasury
31% of dividend and capital gain income on the accounts of certain shareholders
who fail to provide a correct tax identification number, fail to certify that
they are not subject to backup withholding, or are subject to backup withholding
for some other reason.
At July 31, 1997, High Yield Portfolio had capital loss carry forwards of
$12,157,664, which, if not offset by subsequent capital gains, will expire in
2003. At July 31, 1997, the U.S. Government Securities Fund had capital loss
carry-forwards of $72,061,071, which, if not offset by subsequent capital gains,
will expire in 1998 through 2006. 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 5, 1996, the Board of Directors of U.S Government Securities Fund
and High Yield Portfolio (including a majority of the directors who are not
parties to the contract, or interested persons of any such party) last approved
such Funds' separate Underwriting Agreements with Investors dated November 14,
1994, which became effective November 14, 1994. On September 18, 1997, the Board
of Directors of Strategic Income Fund approved the Fund's Underwriting Agreement
with Investors dated September 18, 1997, which became effective December 1,
1997. 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
51
<PAGE>
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 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 of U.S. Government Securities Fund and High Yield
Portfolio last approved the plan on December 5, 1996. The Board of Directors of
the Strategic Income Fund approved the plan on September 18, 1997.
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 following summarizes the yield for the U.S. Government Securities
Fund's and High Yield Portfolio's for the 30-day period ended July 31, 1997.
Since the Strategic Income Fund had not commenced operations as of July 31,
1997, no yield information is provided. The U.S. Government Securities Fund's
yields for the 30-day period ended July 31, 1997 were as follows:
Class A--5.44%
Class B--4.94%
Class H--4.94%
Class C--4.94%
Class E--5.68%
The High Yield Portfolio's yields for the 30-day period ended July 31, 1997 were
as follows:
Class A--8.76%
Class B--8.53%
Class H--8.53%
Class C--8.53%
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.
52
<PAGE>
U.S. GOVERNMENT SECURITIES FUND
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
REINVESTED CLASS E TOTAL
YEAR ENDED VALUE OF INITIAL CAPITAL GAINS REINVESTED CUMULATIVE % YEARLY
JULY 31, $1,000 INVESTMENT($) + DISTRIBUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
88 938 0 90 1,028 2.8%
89 957 0 197 1,154 12.3%
90 936 0 306 1,242 7.6%
91 943 0 431 1,374 10.6%
92 972 0 570 1,542 12.2%
93 975 0 702 1,677 8.8%
94 877 5 750 1,632 (2.7)%
95 876 5 877 1,758 7.7%
96 862 5 980 1,847 5.1%
97 890 5 1,138 2,033 10.1%
Last five years 25.9%
CUMULATIVE TOTAL RETURN Last ten years 103.3%
</TABLE>
<TABLE>
<CAPTION>
REINVESTED CLASS A TOTAL
YEAR ENDED VALUE OF INITIAL CAPITAL GAINS REINVESTED CUMULATIVE % YEARLY
JULY 31, $1,000 INVESTMENT($) + DISTRIBUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 998 0 53 1,051 5.1%
96 982 0 120 1,102 4.9%
97 1,014 0 195 1,209 9.7%
CUMULATIVE TOTAL RETURN Life of Class 20.9%
</TABLE>
<TABLE>
<CAPTION>
REINVESTED CLASS B TOTAL
YEAR ENDED VALUE OF INITIAL CAPITAL GAINS REINVESTED CUMULATIVE % YEARLY
JULY 31, $1,000 INVESTMENT($) + DISTRIBUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,045 0 50 1,095 9.5%
96 1,027 0 112 1,139 4.0%
97 1,059 0 182 1,241 9.0%
CUMULATIVE TOTAL RETURN Life of Class 24.1%
</TABLE>
<TABLE>
<CAPTION>
REINVESTED CLASS H TOTAL
YEAR ENDED VALUE OF INITIAL CAPITAL GAINS REINVESTED CUMULATIVE % YEARLY
JULY 31, $1,000 INVESTMENT($) + DISTRIBUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,045 0 50 1,095 9.5%
96 1,027 0 112 1,139 4.0%
97 1,059 0 181 1,240 8.9%
CUMULATIVE TOTAL RETURN Life of Class 24.0%
</TABLE>
<TABLE>
<CAPTION>
REINVESTED CLASS C TOTAL
YEAR ENDED VALUE OF INITIAL CAPITAL GAINS REINVESTED CUMULATIVE % YEARLY
JULY 31, $1,000 INVESTMENT($) + DISTRIBUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,044 0 49 1,093 9.3%
96 1,025 0 112 1,137 4.0%
97 1,058 0 181 1,239 9.0%
CUMULATIVE TOTAL RETURN Life of Class 23.9%
</TABLE>
53
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
1 2 3 4 5 6 7 8 9 10
MOST RECENT: YEAR YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class E 5.12% 5.10% 5.96% 3.72% 4.71% 5.92% 6.59% 6.72% 7.32% 7.35%
Class A 4.84% 4.82% 7.26%* -- -- -- -- -- -- --
Class B** 8.96% 6.45% 8.27%* -- -- -- -- -- -- --
Class B*** 5.35% 4.74% 7.39% -- -- -- -- -- -- --
Class H** 8.95% 6.45% 8.26%* -- -- -- -- -- -- --
Class H*** 5.34% 4.74% 7.39% -- -- -- -- -- -- --
Class C** 8.98% 6.46% 8.23% -- -- -- -- -- -- --
Class C*** 7.96% 6.45% 8.23% -- -- -- -- -- -- --
</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. 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 $3, $0, $0, $0, and $0, respectively, for
capital gains distributions and $763, $176, $165, $165 and $165, respectively,
for income dividends, and the value of the shares as of July 31, 1997, would
have been $890, $1,014, $1,059, $1,058, and $1,059, 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.
- ------------------------------
* Since November 14, 1994 inception.
** Does not include contingent deferred sales charge.
*** Includes contingent deferred sales charge, assuming full redemption on July
31, 1997.
54
<PAGE>
HIGH YIELD PORTFOLIO
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
REINVESTED CLASS A TOTAL
YEAR ENDED VALUE OF INITIAL CAPITAL GAINS REINVESTED CUMULATIVE % YEARLY
JULY 31, $1,000 INVESTMENT($) + DISTRIBUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
88* 949 0 61 1,010 1.0%
89 906 0 185 1,091 8.0
90 689 7 274 970 (11.1)%
91 713 7 436 1,156 19.2%
92 778 8 628 1,414 22.3%
93 820 8 828 1,656 17.1%
94 782 8 964 1,754 5.9%
95 758 8 1,141 1,907 8.7%
96 722 7 1,282 2,011 5.5%
97 748 7 1,548 2,303 14.5%
Last five years 55.6%
CUMULATIVE TOTAL RETURN Life of Class 130.3%
</TABLE>
<TABLE>
<CAPTION>
REINVESTED CLASS B TOTAL
YEAR ENDED VALUE OF INITIAL CAPITAL GAINS REINVESTED CUMULATIVE % YEARLY
JULY 31, $1,000 INVESTMENT($) + DISTRIBUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95** 1,008 0 82 1,090 9.0%
96 961 0 183 1,144 5.0%
97 995 0 307 1,302 13.8%
CUMULATIVE TOTAL RETURN Life of Class 30.2%
</TABLE>
<TABLE>
<CAPTION>
REINVESTED CLASS H TOTAL
YEAR ENDED VALUE OF INITIAL CAPITAL GAINS REINVESTED CUMULATIVE % YEARLY
JULY 31, $1,000 INVESTMENT($) + DISTRIBUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95** 1,008 0 82 1,090 9.0%
96 959 0 183 1,142 4.8%
97 994 0 306 1,300 13.8%
CUMULATIVE TOTAL RETURN Life of Class 30.0%
</TABLE>
<TABLE>
<CAPTION>
REINVESTED CLASS C TOTAL
YEAR ENDED VALUE OF INITIAL CAPITAL GAINS REINVESTED CUMULATIVE % YEARLY
JULY 31, $1,000 INVESTMENT($) + DISTRIBUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95** 1,008 0 82 1,090 9.0%
96 959 0 183 1,142 4.8%
97 994 0 306 1,300 13.8%
CUMULATIVE TOTAL RETURN Life of Class 30.0%
</TABLE>
HIGH YIELD PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE
2 3 4 5 6 7 8 9 OF
MOST RECENT: 1 YEAR YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 9.36% 7.39% 7.82% 7.34% 9.24% 11.32% 12.40% 9.15% 9.03% 9.10%
Class B*** 13.81% 9.29% -- -- -- -- -- -- -- 10.20%**
Class B**** 10.21% 7.62% -- -- -- -- -- -- -- 9.35%**
Class H*** 13.82% 9.22% -- -- -- -- -- -- -- 10.15%**
Class H**** 10.22% 7.56% -- -- -- -- -- -- -- 9.30%**
Class C*** 13.82% 9.23% -- -- -- -- -- -- -- 10.17%**
Class C**** 12.82% 9.23% -- -- -- -- -- -- -- 10.17%**
</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. 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 $865, $264, $264, and $264, respectively for income
dividends, and the value of the shares as of July 31, 1997, would have been
$748, $995, $994 and $994, 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.
- ------------------------------
* Since January 4, 1988, inception.
** Since November 14, 1994, inception.
*** Does not include contingent deferred sales charge.
**** Includes contingent deferred sales charge, assuming full redemption on July
31, 1997.
55
<PAGE>
Cumulative total return is computed by finding the cumulative compounded rate of
return over the period indicated in the advertisement that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
ERV+P
CTR = ( ----- ) 100
P
Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of
the period of a hypothetical $1,000
payment made at the beginning of such
period; and
P = initial payment of $1,000
This calculation assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.
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:
P(1+T) to the power of n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of
the period of a hypothetical $1,000
payment made at the beginning of such
period.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates 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:
(a - b) (6)
YIELD = 2 ( [ ------ + 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.
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 are 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
<TABLE>
<CAPTION>
RATINGS SERVICE CATEGORY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Lipper Analytical Services, Inc. fixed income
CDA/Wiesenberger bond and preferred
U.S. Government Securities
Morningstar Publications, Inc. general government
Johnson's Charts government securities
</TABLE>
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
RATINGS SERVICE CATEGORY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Lipper Analytical Services, Inc. fixed income-multisector income
CDA/Wiesenberger multisector bond
Morningstar Publications, Inc. multisector bond
Johnson's Charts global bond
</TABLE>
56
<PAGE>
HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
RATINGS SERVICE CATEGORY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Lipper Analytical Services, Inc. fixed income
CDA/Wiesenberger fixed income primarily high yield
Morningstar Publications, Inc. corporate bond-high quality
Johnson's Charts high yield corporate bond
</TABLE>
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
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
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
57
<PAGE>
FINANCIAL STATEMENTS
The financial statements included as part of the Funds' 1997 Annual Report to
Shareholders, filed with the Securities and Exchange Commission in September,
1997, are incorporated herein by reference. The Annual Report accompanies this
Statement of Additional Information.
CUSTODIAN; COUNSEL; ACCOUNTANTS
U.S. Bank National Association, First Bank Place, Minneapolis, MN 55480 acts as
custodian of each of the U.S. Government Securities Fund's, Strategic Income
Fund's and High Yield Fund's assets and portfolio securities; Dorsey & Whitney
LLP, 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 and Fortis Advantage 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 Funds have filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement under the Securities Act of 1933, as
amended, with respect to the common 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.
58
<PAGE>
APPENDIX
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS
OPTIONS ON SECURITIES
An option on a security provides the purchaser, or "holder," with the right, but
not the obligation, to purchase, in the case of a "call" option, or sell, in the
case of a "put" option, the security or securities underlying the option, for a
fixed exercise price up to a stated expiration date or, in the case of certain
options, on such date. The holder pays a 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 Fund is "covered" if the Fund owns the underlying security covered by the call
or has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if a Fund 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 Fund in cash and high
grade government securities in a segregated account with its custodian. A put
option written by a Fund is "covered" if the Fund 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 Fund 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 Fund 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 Fund 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 Fund
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.
59
<PAGE>
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 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 Fund on United
States exchanges are traded on the same contract market as the underlying
Futures Contract, and, like Futures Contracts, are subject to regulation by the
CFTC and the performance guarantee of the exchange clearing house. In addition,
Options on Futures Contracts may be traded on foreign exchanges.
An option, whether based on a Futures Contract, a stock index or security,
becomes worthless to the holder when it expires. Upon exercise of an 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.
60
<PAGE>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A Currency Contract is a contractual obligation to purchase or sell a specific
quantity of a given foreign currency for a fixed exchange rate at a future date.
Currency Contracts are individually negotiated and are traded through the
"interbank currency market," an informal network of banks and brokerage firms
which operates around the clock and throughout the world. Transactions in the
interbank market may be executed only through financial institutions acting as
market-makers in the interbank market, or through brokers 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 Fund's
position unless the institution acts as broker and is able to find another
counterpart willing to enter into the transaction with the Fund. Where no such
counterpart is available, it will not be possible to enter into a desired
transaction. There also may be no liquid secondary market in the trading of
over-the-counter contracts, and a Fund could be required to retain options
purchased or written until exercise, expiration or maturity. This in turn could
limit the Fund's ability to profit from open positions or to reduce losses
experienced, and could result in greater losses.
Further, over-the-counter transactions are not subject to the guarantee of an
exchange clearing house, and a Fund will therefore be subject to the risk of
default by, or the bankruptcy of, the financial institution serving as its
counterpart. 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 Fund's ability to enter into desired hedging transactions. A
Fund will enter into an over-the-counter transaction only with parties whose
creditworthiness has been reviewed and found satisfactory by Advisers.
61
<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 1997 Annual Report to
Shareholders.
ITEM 24.(b) EXHIBITS:
(1) Copy of the Articles of Incorporation, as amended and supplemented
through October 1997;
Filed Herewith
(2) Copies of the existing by-laws or instruments corresponding thereto;
Filed Herewith
(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) (i) Underwriting and Distribution Agreement
dated November 14, 1994 between Registrant
and Fortis Investors, Inc.
Filed Herewith
(ii) Amendment No. 1 to Underwriting and Distribution
Agreement dated November 24, 1997 between
Registrant and Fortis Investors, Inc.
Filed Herewith
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;
(a) Custodian Agreement dated as of March 21, 1992 between
Registrant and First Bank National Association.
Filed herewith
(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;
Filed herewith
(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.
Filed herewith
(16) Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22 (which need not be audited).
Filed herewith
(17) A Financial Data Schedule meeting the requirements of Rule 483 under the
Securities Act of 1933.
Filed herewith
(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.
*********
*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
<PAGE>
Commission in September, 1994.
********Incorporated by reference to Post Effective Amendment No. 37 to the
Registrant's Registration statement, filed with the Securities and Exchange
Commission in July, 1995.
*********Incorporated by reference to Post Effective Amendment No. 41 to the
Registrant's Registration Statement, filed with the Securities and Exchange
Commission in December, 1996.
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:
Number of Record Holders (As of September 30, 1997)(1)
------------------------------------------------------
Class A Class B Class C Class E Class H
U.S. Government
Securities Fund 5,376 517 234 18,892 1,239
Strategic Income Fund 0 0 0 0 0
High Yield Portfolio 9,882 1,258 560 0 3,130
(1) Common Shares, par value $.01 per share
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 of
Current Position 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.
David L. Greenzang Money Market Portfolio Debt Securities Manager with
Officer 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.
Fortis Worldwide 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
- --------------------------------------------------------------------------------
*The business address of these persons is 500 Bielenberg Drive, Woodbury, MN
55125
<PAGE>
(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 from the
effective date of Registrant's 1933 act Registration Statement.
Registrant, on behalf of Strategic Income Fund, undertakes to file a
post-effective amendment, using financial statements which need not be
certified within four to six months from the date such Fund commences
business.
(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.
We undertake to furnish each person to whom a prospectus is delivered
<PAGE>
with copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement 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 November 24, 1997.
Fortis Income Portfolios, Inc.
By: /s/ Dean C. Kopperud
------------------------------
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 TITLE DATED
--------- ----- -----
/s/ Dean C. Kopperud President (principal November 24, 1997
- ----------------------- executive officer)
Dean C. Kopperud
/s/ Tamara L. Fagely Treasurer (principal financial November 24, 1997
- ---------------------- and accounting officer)
Tamara L. Fagely
*
- ----------------------
Richard W. Cutting Director November 24, 1997
*
- ----------------------
Allen R. Freedman Director November 24, 1997
*
- ----------------------
Robert M. Gavin Director November 24, 1997
*
- ----------------------
Benjamin S. Jaffray Director November 24, 1997
*
- ----------------------
Jean L. King Director November 24, 1997
*
- ----------------------
Edward M. Mahoney Director November 24, 1997
*
- ----------------------
Robb L. Prince Director November 24, 1997
*
- ----------------------
Leonard J. Santow Director November 24, 1997
*
- ----------------------
Joseph M. Wikler Director November 24, 1997
- ----------------------
Noel S. Shadko Director November 24, 1997
/s/ Dean C. Kopperud
- -----------------------------
Dean C. Kopperud, Pro-Se and
Attorney-in-Fact
Dated: November 24, 1997
* Registrant's directors executing Power of Attorney dated March 21, 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 11 THROUGH 17 OF THE FORTIS BOND FUNDS
ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000049929
<NAME> FORTIS INCOME PORTFOLIOS, INC.
<SERIES>
<NUMBER> 011
<NAME> U.S. GOVERNMENT SECURITIES FUND (CLASS A)
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 374,858,782
<INVESTMENTS-AT-VALUE> 385,736,039
<RECEIVABLES> 34,920,275
<ASSETS-OTHER> 186,889,625<F1>
<OTHER-ITEMS-ASSETS> 25,550
<TOTAL-ASSETS> 607,571,489
<PAYABLE-FOR-SECURITIES> 21,034,152
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 187,859,218<F1>
<TOTAL-LIABILITIES> 208,893,370
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 461,113,348
<SHARES-COMMON-STOCK> 6,456,243
<SHARES-COMMON-PRIOR> 7,629,609
<ACCUMULATED-NII-CURRENT> 207,588
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (73,520,074)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,877,257
<NET-ASSETS> 398,678,119
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29,566,950
<OTHER-INCOME> 191,064<F2>
<EXPENSES-NET> (3,792,841)
<NET-INVESTMENT-INCOME> 25,965,173
<REALIZED-GAINS-CURRENT> (2,463,932)
<APPREC-INCREASE-CURRENT> 17,073,718
<NET-CHANGE-FROM-OPS> 40,574,959
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,832,687)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (190,527)
<NUMBER-OF-SHARES-SOLD> 1,111,657
<NUMBER-OF-SHARES-REDEEMED> (2,602,273)
<SHARES-REINVESTED> 317,250
<NET-CHANGE-IN-ASSETS> (70,526,773)
<ACCUMULATED-NII-PRIOR> 188,322
<ACCUMULATED-GAINS-PRIOR> (70,951,083)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,071,143
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,792,841
<AVERAGE-NET-ASSETS> 432,511,000
<PER-SHARE-NAV-BEGIN> 8.87
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 0.32
<PER-SHARE-DIVIDEND> (0.52)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.03)
<PER-SHARE-NAV-END> 9.16
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>SECURITIES VALUED AT $181,933,482 WERE ON LOAN TO BROKERS FROM THE PORTFOLIO.
FOR COLLATERAL, THE PORTFOLIO'S CUSTODIAN RECEIVED $186,889,625 IN CASH.
<F2>SECURITY LENDING INCOME THROUGH JULY 31, 1997.
</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 11 THROUGH 17 OF THE FORTIS BOND FUNDS
ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000049929
<NAME> FORTIS INCOME PORTFOLIOS, INC.
<SERIES>
<NUMBER> 012
<NAME> U.S. GOVERNMENT SECURITIES FUND (CLASS B)
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 374,858,782
<INVESTMENTS-AT-VALUE> 385,736,039
<RECEIVABLES> 34,920,275
<ASSETS-OTHER> 186,889,625<F1>
<OTHER-ITEMS-ASSETS> 25,550
<TOTAL-ASSETS> 607,571,489
<PAYABLE-FOR-SECURITIES> 21,034,152
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 187,859,218<F1>
<TOTAL-LIABILITIES> 208,893,370
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 461,113,348
<SHARES-COMMON-STOCK> 309,239
<SHARES-COMMON-PRIOR> 261,330
<ACCUMULATED-NII-CURRENT> 207,588
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (73,520,074)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,877,257
<NET-ASSETS> 398,678,119
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29,566,950
<OTHER-INCOME> 191,064<F2>
<EXPENSES-NET> (3,792,841)
<NET-INVESTMENT-INCOME> 25,965,173
<REALIZED-GAINS-CURRENT> (2,463,932)
<APPREC-INCREASE-CURRENT> 17,073,718
<NET-CHANGE-FROM-OPS> 40,574,959
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (134,130)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (6,668)
<NUMBER-OF-SHARES-SOLD> 142,993
<NUMBER-OF-SHARES-REDEEMED> (108,504)
<SHARES-REINVESTED> 13,420
<NET-CHANGE-IN-ASSETS> (70,526,773)
<ACCUMULATED-NII-PRIOR> 188,322
<ACCUMULATED-GAINS-PRIOR> (70,951,083)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,071,143
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,792,841
<AVERAGE-NET-ASSETS> 432,511,000
<PER-SHARE-NAV-BEGIN> 8.86
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.31
<PER-SHARE-DIVIDEND> (0.47)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.02)
<PER-SHARE-NAV-END> 9.14
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>SECURITIES VALUED AT $181,933,482 WERE ON LOAN TO BROKERS FROM THE PORTFOLIO.
FOR COLLATERAL, THE PORTFOLIO'S CUSTODIAN RECEIVED $186,889,625 IN CASH.
<F2>SECURITY LENDING INCOME THROUGH JULY 31, 1997.
</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 11 THROUGH 17 OF THE FORTIS BOND FUNDS
ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000049929
<NAME> FORTIS INCOME PORTFOLIOS, INC.
<SERIES>
<NUMBER> 013
<NAME> U.S. GOVERNMENT SECURITIES FUND (CLASS C)
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 374,858,782
<INVESTMENTS-AT-VALUE> 385,736,039
<RECEIVABLES> 34,920,275
<ASSETS-OTHER> 186,889,625<F1>
<OTHER-ITEMS-ASSETS> 25,550
<TOTAL-ASSETS> 607,571,489
<PAYABLE-FOR-SECURITIES> 21,034,152
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 187,859,218<F1>
<TOTAL-LIABILITIES> 208,893,370
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 461,113,348
<SHARES-COMMON-STOCK> 158,205
<SHARES-COMMON-PRIOR> 119,461
<ACCUMULATED-NII-CURRENT> 207,588
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (73,520,074)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,877,257
<NET-ASSETS> 398,678,119
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29,566,950
<OTHER-INCOME> 191,064<F2>
<EXPENSES-NET> (3,792,841)
<NET-INVESTMENT-INCOME> 25,965,173
<REALIZED-GAINS-CURRENT> (2,463,932)
<APPREC-INCREASE-CURRENT> 17,073,718
<NET-CHANGE-FROM-OPS> 40,574,959
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (73,505)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (3,654)
<NUMBER-OF-SHARES-SOLD> 143,651
<NUMBER-OF-SHARES-REDEEMED> (112,053)
<SHARES-REINVESTED> 7,146
<NET-CHANGE-IN-ASSETS> (70,526,773)
<ACCUMULATED-NII-PRIOR> 188,322
<ACCUMULATED-GAINS-PRIOR> (70,951,083)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,071,143
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,792,841
<AVERAGE-NET-ASSETS> 432,511,000
<PER-SHARE-NAV-BEGIN> 8.85
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.31
<PER-SHARE-DIVIDEND> (0.47)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.02)
<PER-SHARE-NAV-END> 9.13
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>SECURITIES VALUED AT $181,933,482 WERE ON LOAN TO BROKERS FROM THE PORTFOLIO.
FOR COLLATERAL, THE PORTFOLIO'S CUSTODIAN RECEIVED $186,889,625 IN CASH.
<F2>SECURITY LENDING INCOME THROUGH JULY 31, 1997.
</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 11 THROUGH 17 OF THE FORTIS BOND FUNDS
ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000049929
<NAME> FORTIS INCOME PORTFOLIOS, INC.
<SERIES>
<NUMBER> 014
<NAME> U.S. GOVERNMENT SECURITIES FUND (CLASS H)
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 374,858,782
<INVESTMENTS-AT-VALUE> 385,736,039
<RECEIVABLES> 34,920,275
<ASSETS-OTHER> 186,889,625<F1>
<OTHER-ITEMS-ASSETS> 25,550
<TOTAL-ASSETS> 607,571,489
<PAYABLE-FOR-SECURITIES> 21,034,152
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 187,859,218<F1>
<TOTAL-LIABILITIES> 208,893,370
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 461,113,348
<SHARES-COMMON-STOCK> 1,164,372
<SHARES-COMMON-PRIOR> 1,142,208
<ACCUMULATED-NII-CURRENT> 207,588
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (73,520,074)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,877,257
<NET-ASSETS> 398,678,119
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29,566,950
<OTHER-INCOME> 191,064<F2>
<EXPENSES-NET> (3,792,841)
<NET-INVESTMENT-INCOME> 25,965,173
<REALIZED-GAINS-CURRENT> (2,463,932)
<APPREC-INCREASE-CURRENT> 17,073,718
<NET-CHANGE-FROM-OPS> 40,574,959
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (544,458)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (27,066)
<NUMBER-OF-SHARES-SOLD> 373,676
<NUMBER-OF-SHARES-REDEEMED> (395,058)
<SHARES-REINVESTED> 43,546
<NET-CHANGE-IN-ASSETS> (70,526,773)
<ACCUMULATED-NII-PRIOR> 188,322
<ACCUMULATED-GAINS-PRIOR> (70,951,083)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,071,143
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,792,841
<AVERAGE-NET-ASSETS> 432,511,000
<PER-SHARE-NAV-BEGIN> 8.86
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.31
<PER-SHARE-DIVIDEND> (0.47)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.02)
<PER-SHARE-NAV-END> 9.14
<EXPENSE-RATIO> 1.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>SECURITIES VALUED AT $181,933,482 WERE ON LOAN TO BROKERS FROM THE PORTFOLIO.
FOR COLLATERAL, THE PORTFOLIO'S CUSTODIAN RECEIVED $186,889,625 IN CASH.
<F2>SECURITY LENDING INCOME THROUGH JULY 31, 1997.
</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 11 THROUGH 17 OF THE FORTIS BOND FUNDS
ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000049929
<NAME> FORTIS INCOME PORTFOLIOS, INC.
<SERIES>
<NUMBER> 015
<NAME> U.S. GOVERNMENT SECURITIES FUND (CLASS E)
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 374,858,782
<INVESTMENTS-AT-VALUE> 385,736,039
<RECEIVABLES> 34,920,275
<ASSETS-OTHER> 186,889,625<F1>
<OTHER-ITEMS-ASSETS> 25,550
<TOTAL-ASSETS> 607,571,489
<PAYABLE-FOR-SECURITIES> 21,034,152
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 187,859,218<F1>
<TOTAL-LIABILITIES> 208,893,370
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 461,113,348
<SHARES-COMMON-STOCK> 35,453,992
<SHARES-COMMON-PRIOR> 43,720,683
<ACCUMULATED-NII-CURRENT> 207,588
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (73,520,074)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,877,257
<NET-ASSETS> 398,678,119
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29,566,950
<OTHER-INCOME> 191,064<F2>
<EXPENSES-NET> (3,792,841)
<NET-INVESTMENT-INCOME> 25,965,173
<REALIZED-GAINS-CURRENT> (2,463,932)
<APPREC-INCREASE-CURRENT> 17,073,718
<NET-CHANGE-FROM-OPS> 40,574,959
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (21,361,127)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (1,061,888)
<NUMBER-OF-SHARES-SOLD> 1,979,573
<NUMBER-OF-SHARES-REDEEMED> (12,000,074)
<SHARES-REINVESTED> 1,753,810
<NET-CHANGE-IN-ASSETS> (70,526,773)
<ACCUMULATED-NII-PRIOR> 188,322
<ACCUMULATED-GAINS-PRIOR> (70,951,083)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,071,143
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,792,841
<AVERAGE-NET-ASSETS> 432,511,000
<PER-SHARE-NAV-BEGIN> 8.87
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.32
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.03)
<PER-SHARE-NAV-END> 9.16
<EXPENSE-RATIO> 0.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>SECURITIES VALUED AT $181,933,482 WERE ON LOAN TO BROKERS FROM THE PORTFOLIO.
FOR COLLATERAL, THE PORTFOLIO'S CUSTODIAN RECEIVED $186,889,625 IN CASH.
<F2>SECURITY LENDING INCOME THROUGH JULY 31, 1997.
</FN>
</TABLE>
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES B (AND CLASS A, CLASS B, CLASS C AND CLASS H SHARES THEREOF)
OF
FORTIS INCOME PORTFOLIOS, INC.
The undersigned duly elected Secretary of Fortis Income Portfolios, Inc., a
Minnesota corporation (the "Corporation") hereby certifies that the following is
a true, complete and correct copy of resolutions duly adopted by a majority of
the directors of the Board of Directors of the Corporation on September 18,
1997.
APPROVAL OF CREATION AND DESIGNATION
OF SERIES B (AND CLASS A, CLASS B, CLASS C AND CLASS H SHARES THEREOF)
OF
FORTIS INCOME PORTFOLIOS, INC.
WHEREAS, the total authorized number of shares for the Corporations is
100,000,000,000 (one hundred billion), all of which shares are common
shares, $.01 par value per share, as set forth in the Corporation's
Articles of Incorporation (the "Articles"); and
WHEREAS, of said total authorized shares, 10,000,000,000 (ten billion) have
been designated Series A Common Shares, with 1,000,000,000 of such shares
designated as Class A Common Shares; 1,000,000,000 designated as Class B
Common Shares; 1,000,000,000 designated as Class C Common Shares; and
1,000,000,000 designated as Class H Common Shares; and
WHEREAS, said Articles set forth that the balance of 90,000,000,000
authorized but unissued common shares may be issued in such series, and in
such classes of such series, with such relative rights and preferences as
shall be stated or expressed in a resolution or resolutions providing for
the issue of any such series of common shares, or any such class of such
series, as may be adopted from time to time by the Board of Directors of
the Corporation;
NOW, THEREFORE, BE IT RESOLVED, that of the 90,000,000,000 authorized but
unissued common shares of the Corporation, 10,000,000,000 (ten billion) of
such shares are hereby designated as Series B Common Shares as provided in
Article 5(a) of the Articles and each of said Series B Common Shares shall
represent interests in a separate and distinct portion of the Corporation's
assets and liabilities which shall take the form of a separate portfolio of
investment securities, cash, other assets and liabilities.
BE IT FURTHER RESOLVED, of the 10,000,000,000 (ten billion) shares
designated herein as Series B Common Shares for the Corporation,
1,000,000,000 are hereby designated as Class A Common Shares, 1,000,000,000
are hereby designated as Class B Common Shares, 1,000,000,000 are hereby
designated as Class C Common Shares and 1,000,000,000 are hereby designated
as Class H Common Shares, as provided in Article 5(b) of the Articles.
BE IT FURTHER RESOLVED, that Articles 5, 6 and 7 of the Articles of the
Corporation setting forth the relative rights and preferences of each
series and class thereof be, and they hereby are, adopted as the rights and
preferences of the series and classes designated in these resolutions. As
provided in Article 5(b) of the Articles, any Class of Common Shares
designated by these resolutions may be subject to such charges and expenses
(including by way of example, but not of limitation, such front-end and
deferred sales charges as may be permitted under the Investment Company Act
of 1940, as amended (the "1940 Act") and the rules of the National
Association of Securities Dealers, Inc., and expenses under Rule 12b-1
plans, administration plans, service plans, or other plans or arrangements,
however designated) as may be adopted
<PAGE>
from time to time by the Board of Directors of the Corporation in
accordance, to the extent applicable, with the 1940 Act, which charges and
expenses may differ from those applicable to another Class, and all of the
charges and expenses to which a Class is subject shall be borne by such
Class and shall be appropriately reflected in determining the net asset
value and the amounts payable with respect to dividends and distributions
on, and redemptions or liquidations of, such Class.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Designation on behalf of Fortis Income Portfolios, Inc. this 22nd day of
October, 1997.
/s/ Michael J. Radmer
--------------------------------
Michael J. Radmer, Secretary
[STATE OF MINNESOTA SEAL]
<PAGE>
CERTIFICATE OF DESIGNATION
of
CLASS A, CLASS B, CLASS C, CLASS E AND CLASS H SHARES
of
FORTIS INCOME PORTFOLIOS, INC.
The undersigned duly elected Secretary of Fortis Income Portfolios, Inc., a
Minnesota corporation (the "Fund"), hereby certifies that the following is a
true, complete and correct copy of resolutions duly adopted by a majority of the
directors of the Board of Directors of the Fund on June 28, 1994, and further
certifies that the Amended and Restated Articles referred to in such resolutions
were approved by the shareholders of the Fund on August 23, 1994.
APPROVAL OF CREATION AND DESIGNATION OF
CLASS A, CLASS B, CLASS C, CLASS E AND CLASS H SHARES
WHEREAS, shareholders of the Fund are being asked to approve Amended and
Restated Articles of Incorporation (the "Articles") to allow the Fund to
issue Multiple Classes of shares and to increase its authorized capital; and
WHEREAS, following the approval of such amended Articles the total authorized
number of shares of the Fund will be 100,000,000,000 (one hundred billion); and
WHEREAS, as amended the Articles will provide that the sole currently
outstanding series will have 10,000,000,000 (ten billion) shares of designated
shares; and
WHEREAS, the amended Articles set forth that the authorized shares may be issued
in such Classes and with such relative rights and preferences as shall be stated
or expressed in a resolution or resolutions providing for the issue of any such
Class or Classes of common shares as may be adopted from time to time by the
Board of Directors;
NOW, THEREFORE, BE IT RESOLVED, that of the to be authorized common shares of
the Fund, for the sole currently outstanding series, 1,000,000,000 (one billion)
are hereby designated as Class A Common Shares, 1,000,000,000 (one billion) are
hereby designated as Class B Common Shares, 1,000,000,000 (one billion) are
hereby designated as Class C Common Shares, 1,000,000,000 (one billion) are
hereby designated as Class E Common Shares and 1,000,000,000 (one billion) are
hereby designated as Class H Common Shares; and the shares of the Fund which are
outstanding on November 13, 1994 are hereby redesignated as Class E Common
Shares of the currently outstanding series of the Fund.
FURTHER RESOLVED, that the Class A, Class B, Class C, Class E, and Class H
Common Shares designated by these resolutions shall have the relative rights and
preferences set forth in the amended Articles of the Fund. As provided in
Article 5(b) of such amended Articles, any Class of Common Shares designated by
these resolutions may be subject to such charges and expenses (including by way
of example, but not by way of limitation, such front-end and deferred sales
charges as may be permitted under the Investment Company Act of 1940, as amended
(the "1940 Act") and the rules of the National Association of Securities
Dealers, Inc., and expenses under Rule 12b-1 plans, administration plans,
service plans, or other plans or arrangements, however designated) as may be
adopted from time to time by the Board of Directors of the Fund in accordance,
to the extent applicable, with the 1940 Act, which charges and expenses may
differ from those applicable to another Class, and all of the charges and
expenses to which a Class is subject shall be borne by such Class and shall be
appropriately reflected in determining the net asset value and the amounts
payable with respect to dividends and distributions on, and redemptions or
liquidations of, such Class.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Designation on behalf of Fortis Income Portfolios, Inc. this 31st day of
October, 1994.
/s/ Michael J. Radmer
-----------------------------------
Michael J. Radmer, Secretary
[STATE OF MINNESOTA SEAL]
<PAGE>
ARTICLES OF AMENDMENT
AMENDING AND RESTATING
ARTICLES OF INCORPORATION
OF
FORTIS INCOME PORTFOLIOS, INC.
1. The name of the corporation is Fortis Income Portfolios, Inc., a
Minnesota corporation.
2. The document entitled "Amended and Restated Articles of Incorporation
of Fortis Income Portfolios, Inc.," marked as Exhibit A attached
hereto, contains the full text of the amendment to the Articles of
Incorporation of the corporation.
3. The date of adoption of the amendment by the shareholders of the
corporation was August 23, 1994.
4. The amendment, among other things, permits Fortis Income Portfolios,
Inc. to issue multiple classes of shares and to increase the
authorized capital of the corporation.
5. The amendment amends and restates the Articles of Incorporation of the
corporation in their entirety, and the Amended and Restated Articles
of Incorporation attached hereto as Exhibit A supersede the original
Articles of Incorporation and all amendments to and restatements of
them.
6. The amendment has been adopted pursuant to Chapter 302A of the
Minnesota Statutes.
IN WITNESS WHEREOF, the undersigned, Michael J. Radmer, the Secretary
of Fortis Income Portfolios, Inc., being duly authorized on behalf of Fortis
Income Portfolios, Inc., has executed this document this 8th day of September,
1994.
/s/ Michael J. Radmer
---------------------------
Michael J. Radmer
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
of
FORTIS INCOME PORTFOLIOS, INC.
Pursuant to the provisions of Minnesota Statutes, Chapter 302A, the
following Articles of Incorporation are adopted, as amended and restated:
1. The name of this corporation is Fortis Income Portfolios, Inc.
2. This corporation shall have general business purposes and shall
have unlimited power to engage in and do any lawful act concerning any and all
lawful businesses for which corporations may be organized under the Minnesota
Statutes, Chapter 302A. Without limiting the generality of the foregoing, this
corporation shall have specific power:
(a) To conduct, operate and carry on the business of a so-called
"open-end" management investment company pursuant to applicable
state and federal regulatory statutes, and exercise all the powers
necessary and appropriate to the conduct of such operations.
(b) To purchase, subscribe for, invest in or otherwise acquire,
and to own, hold, pledge, mortgage, hypothecate, sell, possess,
transfer or otherwise dispose of, or turn to account or realize
upon, and generally deal in, all forms of securities of every kind,
nature, character, type and form, and other financial instruments
which may not be deemed to be securities, including but not limited
to futures contracts and options thereon. Such securities and other
financial instruments may include but are not limited to shares,
stocks, bonds, debentures, notes, scrip, participation
certificates, rights to subscribe, warrants, options, certificates
of deposit, bankers' acceptances, repurchase agreements, commercial
paper, choses in action, evidences of indebtedness, certificates of
indebtedness and certificates of interest of any and every kind and
nature whatsoever, secured and unsecured, issued or to be issued,
by any corporation, company, partnership (limited or general),
association, trust, entity or person, public or private, whether
organized under the laws of the United States, or any state,
commonwealth, territory or possession thereof, or organized under
the laws of any foreign country, or any state, province, territory
or possession thereof, or issued or to be issued by the United
States government or any agency or instrumentality thereof, options
on stock indexes, stock index and interest rate futures contracts
and options thereon, and other futures contracts and options thereon.
(c) In the above provisions of this Article 2, purposes
shall also be construed as powers and powers shall also be
construed as purposes, and the enumeration of specific purposes or
powers shall not be construed to limit other statements of purposes
or to limit purposes or powers which the corporation may otherwise
have under applicable law, all of the same being separate and
cumulative, and all of the same may be carried on, promoted and
pursued, transacted or exercised in any place whatsoever.
3. This corporation shall have perpetual existence.
4. The location and post office address of the registered office in
Minnesota is 500 Bielenberg Drive, Woodbury, Minnesota 55125.
5. The total authorized number of shares of this corporation is
100,000,000,000, all of which shall be common shares of the par value of S.01
each. The corporation may issue and sell any of its shares in fractional
denominations to the same extent as its whole shares, and shares and fractional
denominations shall have, in proportion to the relative fractions represented
thereby, all the rights of whole shares, including, without
A-1
<PAGE>
limitation, the right to vote, the right to receive dividends and distributions,
and the right to participate upon liquidation of the corporation.
(a) Of said common shares, 10,000,000,000 shares may be issued in the
series of common shares designated "Series A Common Shares." The balance of
90,000,000,000 shares may be issued in such series with such designations,
preferences and relative, participating, optional or other special rights,
or qualifications, limitations or restrictions thereof, as shall be stated
or expressed in a resolution or resolutions providing for the issue of any
series of common shares as may be adopted from time to time by the Board of
Directors of this corporation pursuant to the authority hereby vested in
said Board of Directors. Each series of common shares which the Board of
Directors may establish, as provided herein, may evidence, if the Board of
Directors shall so determine by resolution, an interest in a separate and
distinct portion of the corporation's assets, which shall take the form of
a separate portfolio of investment securities, cash and other assets.
Authority to establish such separate portfolios is hereby vested in the
Board of Directors of this corporation, and such separate portfolios may be
established by the Board of Directors without the authorization or approval
of the holders of any series of shares of this corporation.
(b) The shares of each series may be classified by the Board of
Directors in one or more classes with such relative rights and preferences
as shall be stated or expressed in a resolution or resolutions providing
for the issue of any such class or classes as may be adopted from time to
time by the Board of Directors of the corporation pursuant to the authority
hereby vested in the Board of Directors and Minnesota Statutes, Section
302A.401, Subd. 3, or any successor provision. The shares of each class
within a series may be subject to such charges and expenses (including by
way of example, but not by way of limitation, front-end and deferred sales
charges, expenses under Rule 12b-1 plans, administration plans, service
plans, or other plans or arrangements, however designated) as may be
adopted from time to time by the Board of Directors in accordance, to the
extent applicable, with the Investment Company Act of 1940, as amended
(together with the rules and regulations promulgated thereunder, the "1940
Act"), which charges and expenses may differ from those applicable to
another class within such series, and all of the charges and expenses to
which a class is subject shall be borne by such class and shall be
appropriately reflected (in the manner determined or approved by the Board
of Directors) in determining the net asset value and the amounts payable
with respect to dividends and distributions on, and redemptions or
liquidations of, such class. Subject to compliance with the requirements of
the 1940 Act, the Board of Directors shall have the authority to provide
that shares of any class shall be convertible (automatically, optionally or
otherwise) into shares of one or more other classes in accordance with such
requirements and procedures as may be established by the Board of
Directors.
6. The shareholders of each series (or class thereof) of common
shares of this corporation:
(a) shall not have the right to cumulate votes for the election
of directors; and
(b) shall have no preemptive right to subscribe to any issue of
shares of any class or series of this corporation now or hereafter created,
designated, or classified.
7. A description of the relative rights and preferences of all
series of shares (and classes thereof) is as follows, unless otherwise set forth
in one or more amendments to these Articles of Incorporation or in the
resolutions providing for the issue of such series (and classes thereof):
(a) On any matter submitted to a vote of shareholders of this
corporation, all common shares of this corporation then issued and
outstanding and entitled to vote, irrespective of series or class, shall be
voted in the aggregate and not by series or class, except: (i) when
otherwise required by Minnesota Statutes, Chapter 302A, in which case
shares will be voted by individual series or class, as applicable; (ii)
when otherwise required by the 1940 Act, as amended, or the rules adopted
thereunder, in which case shares shall be voted by individual series or
class, as applicable; and (iii) when the matter does
A-2
<PAGE>
not affect the interests of a particular series or class, in which case only
shareholders of the series or class affected shall be entitled to vote thereon
and shall vote by individual series or class, as applicable.
(b) All consideration received by this corporation for the issue or sale
of shares of any series, together with all assets, income, earnings, profits and
proceeds derived therefrom (including all proceeds derived from the sale,
exchange or liquidation thereof and, if applicable, any assets derived from any
reinvestment of such proceeds in whatever form the same may be) shall become
part of the assets of the portfolio to which the shares of that series relate,
for all purposes, subject only to the rights of creditors, and shall be so
treated upon the books of account of this corporation. Such assets, income,
earnings, profits and proceeds (including any proceeds derived from the sale,
exchange or liquidation thereof and, if applicable, any assets derived from any
reinvestment of such proceeds in whatever form the same may be) are herein
referred to as "assets belonging to" a series of the common shares of this
corporation.
(c) Assets of this corporation not belonging to any particular series are
referred to herein as "General Assets." General Assets shall be allocated to
each series in proportion to the respective net assets belonging to such series.
The determination of the Board of Directors shall be conclusive as to the amount
of assets, as to the characterization of assets as those belonging to a series
or as General Assets, and as to the allocation of General Assets.
(d) The assets belonging to a particular series of common shares shall be
charged with the liabilities incurred specifically on behalf of such series of
common shares ("Special Liabilities"). Such assets shall also be charged with a
share of the general liabilities of this corporation ("General Liabilities") in
proportion to the respective net assets belonging to such series of common
shares. The determination of the Board of Directors shall be conclusive as to
the amount of liabilities, including accrued expenses and reserves, as to the
characterization of any liability as a Special Liability or General Liability,
and as to the allocation of General Liabilities among series.
(e) The Board of Directors may, to the extent permitted by Minnesota
Statutes, Chapter 302A or any successor provision thereto, and in the manner
provided herein, declare and pay dividends or distributions in shares or cash on
any or all series (or classes thereof) of common shares, the amount of such
dividends and the payment thereof being wholly in the discretion of the Board of
Directors. Dividends or distributions on shares of any series of common shares
shall be paid only out of the earnings, surplus, or other lawfully available
assets belonging to such series (including, for this purpose, any General
Assets allocated to such series).
(f) In the event of the liquidation or dissolution of this corporation,
holders of the shares of any series shall have priority over the holders of any
other series with respect to, and shall be entitled to receive, out of the
assets of this corporation available for distribution to holders of shares, the
assets belonging to such series of common shares and the General Assets
allocated to such series of common shares, and the assets so distributable to
the holders of the shares of any series shall be distributed among such holders
in proportion to the number of shares of such series held by each such
shareholder and recorded on the books of this corporation, except that, in the
case of a series with more than one class of shares, such distributions shall be
adjusted to reflect appropriately any charges and expenses borne by each
individual class.
(g) With the approval of a majority of the shareholders of each of the
affected series of common shares present in person or by proxy at a meeting
called for the following purpose (provided that a quorum of the issued and
outstanding shares of the affected series is present at such meeting in person
or by proxy), the Board of Directors may transfer the assets of any series to
any other series. Upon such a transfer, the corporation shall issue common
shares representing interests in the series to which the assets were transferred
in exchange for all common shares representing interests in the series from
which the assets were transferred. Such shares shall be exchanged
at their respective net asset values.
A-3
<PAGE>
8. The following additional provisions, when consistent with law, are
hereby established for the management of the business, for the conduct of the
affairs of the corporation, and for the purpose of describing certain specific
powers of the corporation and of its directors and shareholders.
(a) In furtherance and not in limitation of the powers conferred by
statute and pursuant to these Articles of Incorporation, the Board of Directors
is expressly authorized to do the following:
(1) to make, adopt, alter, amend and repeal Bylaws of the
corporation unless reserved to the shareholders by the Bylaws or by the laws of
the State of Minnesota, subject to the power of the shareholders to change or
repeal such Bylaws;
(2) to distribute, in its discretion, for any fiscal year (in
the year or in the next fiscal year) as ordinary dividends and as capital gains
distributions, respectively, amounts sufficient to enable each series to qualify
under the Internal Revenue Code as a regulated investment company to avoid any
liability for federal income tax in respect of such year. Any distribution or
dividend paid to shareholders from any capital source shall be accompanied by a
written statement showing the source or sources of such payment;
(3) to authorize, subject to such vote, consent, or approval of
shareholders and other conditions, if any, as may be required by any applicable
statute, rule or regulation, the execution and performance by the corporation
of any agreement or agreements with any person, corporation, association,
company, trust, partnership (limited or general) or other organization
whereby, subject to the supervision and control of the Board of Directors, any
such other person, corporation, association, company, trust, partnership
(limited or general), or other organization shall render managerial, investment
advisory, distribution, transfer agent, accounting and/or other services to the
corporation (including, if deemed advisable, the management or supervision of
the investment portfolios of the corporation) upon such terms and conditions as
may be provided in such agreement or agreements;
(4) to authorize any agreement of the character described in
subparagraph (3) of this paragraph (a) with any person, corporation,
association, company, trust, partnership (limited or general) or other
organization, although one or more of the members of the Board of Directors or
officers of the corporation may be the other party to any such agreement or an
officer, director, employee, shareholder, or member of such other party, and no
such agreement shall be invalidated or rendered voidable by reason of the
existence of any such relationship;
(5) to allot and authorize the issuance of the authorized but
unissued shares of any series, or class thereof, of this corporation;
(6) to accept or reject subscriptions for shares of any series,
or class thereof, made after incorporation;
(7) to fix the terms, conditions and provisions of and authorize
the issuance of options to purchase or subscribe for shares of any series, or
class thereof, including the option price or prices at which shares may be
purchased or subscribed for; and
(8) to determine what constitutes net income, total assets and
the net asset value of the shares of each series (or class thereof) of the
corporation. Any such determination made in good faith shall be final and
conclusive and shall be binding upon the corporation and all holders (past,
present, and future) of shares of each series (and class thereof).
A-4
<PAGE>
(b) Except as provided in the next sentence of this paragraph (b), shares
of any series, or class thereof, which are redeemed, exchanged, or otherwise
acquired by this corporation shall return to the status of authorized and
unissued shares of such series or class. Upon the redemption, exchange, or other
acquisition by the corporation of all outstanding shares of any series (or class
thereof), such shares shall return to the status of authorized and unissued
shares without designation as to series (if no shares of the series remain
outstanding) or with the same designation as to series, but no designation as
to class within such series (if shares of such series remain outstanding, but no
shares of such class thereof remain outstanding), and all provisions of these
Articles of Incorporation relating to such series, or class thereof (including,
without limitation, any statement establishing or fixing the rights and
preferences of such series, or class thereof), shall cease to be of further
effect and shall cease to be a part of these Articles. Upon the occurrence of
such events, the Board of Directors of the corporation shall have the power,
pursuant to Minnesota Statutes Section 302A.135, Subdivision 5 or any successor
provision and without shareholder action, to cause restated articles of
incorporation of the corporation to be prepared and filed with the Secretary of
State of the State of Minnesota which reflect such removal from these Articles
of all such-provisions relating to such series, or class thereof.
(c) The determination as to any of the following matters made by or
pursuant to the direction of the Board of Directors consistent with these
Articles of Incorporation and in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of duties, shall be final and
conclusive and shall be binding upon the corporation and every holder of shares
of its capital stock: namely, the amount of the assets, obligations,
liabilities and expenses of each series (or class thereof) of the corporation;
the amount of the net income of each series (or class thereof) of the
corporation from dividends and interest for any period and the amount of assets
at any time legally available for the payment of dividends in each series (or
class thereof); the amount of paid-in surplus, other surplus, annual or other
net profits, or net assets in excess of capital, undivided profits, or excess of
profits over losses on sales of securities of each series (or class thereof);
the amount, purpose, time of creation, increase or decrease, alteration or
cancellation of any reserves or charges and the propriety thereof (whether or
not any obligation or liability for which such reserves or charges shall have
been created shall have been paid or discharged); the market value, or any sale,
bid or asked price to be applied in determining the market value, of any
security owned or held by or in each series (or class thereof) of the
corporation; the fair value of any other asset owned by or in each series of the
corporation; the number of shares of each series (or class thereof) of the
corporation issued or issuable; any matter relating to the acquisition, holding
and disposition of securities and other assets by each series (or class thereof)
of the corporation; and any question as to whether any transaction constitutes a
purchase of securities on margin, a short sale of securities, or an underwriting
of the sale of, or participation in any underwriting or selling group in
connection, with the public distribution of any securities.
(d) The Board of Directors or the shareholders of the corporation may
adopt, amend, affirm or reject investment policies and restrictions upon
investment or the use of assets of each series of the corporation and may
designate some such policies as fundamental and not subject to change other than
by a vote of a majority of the outstanding voting securities, as such phrase is
defined in the Investment Company Act of 1940, of the affected series of the
corporation.
(e) The corporation shall indemnify such persons for such expenses and
liabilities, in such manner, under such circumstances, and to the full extent
permitted by Section 302A.521 of the Minnesota Statutes, as now enacted or
hereafter amended, provided, however, that no such indemnification may be
made if it would be in violation of Section 17(h) of the Investment Company
Act of 1940, as now enacted or hereafter amended.
(f) Any action which might be taken at a meeting of the Board of
Directors, or any duly constituted committee thereof, may be taken without a
meeting if done in writing and signed by a majority of the directors or
committee members.
A-5
<PAGE>
(g) To the fullest extent permitted by the Minnesota Business Corporation
Act, as the same exists or may hereafter be amended (except as prohibited by the
Investment Company Act of 1940, as the same exists or may hereafter be amended),
a director of this corporation shall not be liable to this corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director.
A-6
<PAGE>
As amended and restated
effective September 18, 1997
AMENDED AND RESTATED
BYLAWS
OF
FORTIS INCOME PORTFOLIOS, INC.
(formerly AMEV U.S. Government Securities Fund, Inc.)
ARTICLE I
OFFICES, CORPORATE SEAL
Section 1.01. NAME. The name of the corporation is Fortis Income
Portfolios, Inc. The name of the series represented by the Corporation's Series
A Common Shares shall be "Fortis U.S. Government Securities Fund;" and the name
of the series represented by the Corporation's Series B Common shares shall be
"Fortis Strategic Income Fund."
Section 1.02. REGISTERED OFFICE. The registered office of the
corporation in Minnesota shall be that set forth in the Articles of
Incorporation or in the most recent amendment of the Articles of Incorporation
or resolution of the directors filed with the Secretary of State of Minnesota
changing the registered office.
Section 1.03. OTHER OFFICES. The corporation may have such other
offices and places of business, within or without the State of Minnesota, as the
directors shall, from time to time, determine.
Section 1.04. CORPORATE SEAL. The corporate seal shall be circular
in form and shall have inscribed thereon the name of the corporation and the
word "Minnesota" and the words "Corporate Seal." The form of the seal shall be
subject to alteration by the Board of Directors and the seal may be used by
causing it or a facsimile to be impressed or affixed or printed or otherwise
reproduced. Any officer or director of the corporation shall have authority to
affix the corporate seal of the corporation to any document requiring the same.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. PLACE AND TIME OF MEETINGS. Except as provided
otherwise by Minnesota Statutes Chapter 302A, meetings of the shareholders may
be held at any place, within or without the State of Minnesota, designated by
the directors and, in the absence of such designation, shall be held at the
registered office of the corporation in the State of Minnesota. The directors
shall designate the time of day for each meeting and, in the absence of such
designation, every meeting of shareholders shall be held at ten o'clock a.m.
<PAGE>
Section 2.02. REGULAR MEETINGS. Annual meetings of shareholders are
not required by these Bylaws. Regular meetings shall be held only with such
frequency and at such times and places as provided in and required by law.
Section 2.03. SPECIAL MEETINGS. Special meetings of the shareholders
may be held at any time and for any purpose and may be called by the Chairman of
the Board, the President, and two or more directors, or by one or more
shareholders holding ten percent (10%) or more of the shares entitled to vote on
the matters to be presented to the meeting, except that a special meeting for
the purpose of considering any action directly or indirectly to facilitate or
effect a business combination, including any action to change or otherwise
affect the composition of the Board of Directors for that purpose, must be
called by 25% of the voting power of all shares entitled to vote.
Section 2.04. QUORUM; ADJOURNED MEETINGS. The holders of ten percent
(10%) of the shares outstanding and entitled to vote at the meeting shall
constitute a quorum for the transaction of business at any regular or special
shareholders' meeting. In case a quorum shall not be present at a meeting,
those present in person or by proxy shall adjourn to such day as they shall, by
majority vote, agree upon without further notice other than by announcement at
the meeting at which such adjournment is taken. If a quorum is present, a
meeting may be adjourned from time to time without notice other than
announcement at the meeting. At adjourned meetings at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. If a quorum is present, the shareholders may
continue to transact business until adjournment notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 2.05. VOTING. At each meeting of the shareholders, every
shareholder shall have the right to vote in person or by proxy. Each
shareholder, unless the Articles of Incorporation or applicable laws provide
otherwise, shall have one vote for each share having voting power registered in
his name on the books of the corporation. Upon the demand of any shareholder,
the vote upon any question before the meeting shall be by written ballot.
Except as otherwise specifically provided by these Bylaws or as required by
provisions of the Investment Company Act of 1940 or other applicable laws, all
questions shall be decided by a majority vote of the number of shares entitled
to vote and represented at the meeting at the time of the vote. If the
matter(s) to be presented at a regular or special meeting relate only to a
particular portfolio or portfolios of the corporation, then only the
shareholders of the series of stock issued by such portfolio or portfolios are
entitled to vote on such matter(s).
Section 2.06. VOTING - PROXIES. The right to vote by proxy shall
exist only if the instrument authorizing such proxy to act shall have been
executed in
-2-
<PAGE>
writing by the shareholder himself or by his attorney thereunto duly authorized
in writing. No proxy shall be voted after three years from its date unless it
provides for a longer period.
Section 2.07. CLOSING OF BOOKS. The Board of Directors may fix a
time, not exceeding sixty (60) days preceding the date of any meeting of
shareholders, as a record date for the determination of the shareholders
entitled to notice of, and to vote at, such meeting, notwithstanding any
transfer of shares on the books of the corporation after any record date so
fixed. If the Board of Directors fails to fix a record date for determination
of the shareholders entitled to notice of, and to vote at, any meeting of
shareholders, the record date shall be the thirtieth (30th) day preceding the
date of such meeting.
Section 2.08. NOTICE OF MEETINGS. The Secretary or an Assistant
Secretary shall mail to each shareholder, shown by the books of the corporation
to be a holder of record of voting shares, at his address as shown by the books
of the corporation, a notice setting out the time and date and place of each
regular meeting and each special meeting, which notice shall be mailed at least
ten (10) days prior thereto; except that notice of a meeting at which an
agreement of merger or consolidation is to be considered shall be mailed to all
shareholders of record, whether entitled to vote or not, at least two (2) weeks
prior thereto; and except that notice of a meeting at which a proposal to
dispose of all, or substantially all, of the property and assets of the
corporation is to be considered shall be mailed to all shareholders of record,
whether entitled to vote or not, at least ten (10) days prior thereto; and
except that notice of a meeting at which a proposal to dissolve the corporation
or to amend the Articles of Incorporation is to be considered shall be mailed to
all shareholders of record, whether entitled to vote or not, at least ten (10)
days prior thereto. Every notice of any special meeting shall state the purpose
or purposes for which the meeting has been called, pursuant to Section 2.03, and
the business transacted at all special meetings shall be confined to the purpose
stated in the call.
Section 2.09. WAIVER OF NOTICE. Notice of any regular or special
meeting may be waived either before, at or after such meeting in writing signed
by each shareholder or representative thereof entitled to vote the shares so
represented.
ARTICLE III
DIRECTORS
Section 3.01. NUMBER QUALIFICATIONS AND TERM OF OFFICE. Until the
first meeting of shareholders, or until the directors increase their number by
resolution, the number of directors shall be the number named in the Articles of
Incorporation. Thereafter, the number of directors shall be established by
resolution
-3-
<PAGE>
of the shareholders (subject to the authority of the Board of Directors to
increase the number of directors as permitted by law), but shall not be less
than the lesser of (i) the number of shareholders of record and beneficially, or
(ii) three (3). In the absence of such resolution, the number of directors
shall be the number last fixed by the shareholders or the Board of Directors, or
the Articles of Incorporation. Directors may but need not be shareholders.
Each of the directors shall hold office until the regular meeting of
shareholders next held after his election and until his successor shall have
been elected and shall qualify, or until he shall resign, or shall have been
removed as hereinafter provided.
Section 3.02. ELECTION OF DIRECTOR. Except as otherwise provided in
Section 3.11 and 3.12 hereof, the directors shall be elected at all regular
shareholders' meetings. Directors may be elected at a special shareholders'
meeting, provided that the notice of such meeting shall contain mention of such
purpose. At each shareholders' meeting for the election of directors, the
directors shall be elected by a plurality of the votes validly cast at such
election. The shareholders of each series of stock of the corporation shall be
entitled to vote for directors and shall have equal voting power.
Section 3.03. GENERAL POWERS.
(a) The property, affairs and business of the corporation shall be
managed by the Board of Directors, which may exercise all the powers of the
corporation except those powers vested solely in the shareholders of the
corporation by statute, the Articles of Incorporation, or these Bylaws, as
amended.
(b) All acts done by any meeting of the Directors or by any person
acting as a director, so long as his successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the corporation.
Section 3.04. POWER TO DECLARE DIVIDENDS.
(a) The Board of Directors, from time to time as they may deem
advisable, may declare and pay dividends in cash or other property of the
corporation, out of any source available for dividends, to the shareholders of
each series of stock of the corporation according to their respect rights and
interests in the investment portfolio of the corporation issuing such series of
stock.
-4-
<PAGE>
(b) The Board of Directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than
(i) each investment portfolio's accumulated and accrued
undistributed net income (determined in accordance with generally
accepted accounting practice and the rules and regulations of the
Securities and Exchange Commission then in effect) and not including
profits or losses realized upon the sale of securities or other
properties; or
(ii) each investment portfolio's net income so determined for the
current or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation, and shall be in such form as the Commission may
prescribe.
(c) Notwithstanding the above provisions of this Section 3.04, the
Board of Directors may at any time declare and distribute pro rata among the
shareholders of each series of stock a "stock dividend" out of each portfolio's
authorized but unissued shares of stock, including any shares previously
purchased by a portfolio of the corporation.
Section 3.05. ANNUAL MEETING. The Board of Directors shall meet
annually at the registered office of the corporation, or at such other place
within or without the State of Minnesota as may be designated by the Board of
Directors, for the purpose of electing the officers of the corporation and for
the transaction of such other business as shall come before the meeting.
Section 3.06. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held from time to time at such time and place within or
without the State of Minnesota as may be fixed by resolution adopted by a
majority of the whole Board of Directors.
Section 3.07. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President, or by any
two of the directors and shall be held from time to time at such time and place
as may be designated in the notice of such meeting.
Section 3.08. NOTICE OF MEETINGS. Unless otherwise required by
Statute, no notice need be given of any annual or regular meeting of the Board
of Directors. Notice of each special meeting of the Board of Directors shall be
given by the Secretary who shall give at least twenty-four (24) hours' notice
thereof to each director by mail, telephone, telegram or in person.
-5-
<PAGE>
Section 3.09. WAIVER OF NOTICE. Notice of any meeting of the Board
of Directors may be waived either before, at, or after such meeting in writing
signed by each director. A director, by his attendance and participation in the
action taken at any meeting of the Board of Directors, shall be deemed to have
waived notice of such meeting.
Section 3.10. QUORUM. A majority of the whole Board of Directors
shall constitute a quorum for the transaction of business except that, when a
vacancy or vacancies exist, a majority of the remaining directors (provided such
majority consists of not less than the lesser of (i) the number of directors
required by Section 3.02, or (ii) two (2) directors) shall constitute a quorum.
Section 3.11. VACANCIES; NEWLY CREATED DIRECTORSHIPS. Vacancies in
the Board of Directors of this corporation occurring by reason of death,
resignation or increase in the number of directors by the shareholders to the
minimum number required by Section 3.01 or by the Board pursuant to Section
3.01, shall be filled for the unexpired term by a majority of the remaining
directors of the Board although less than a quorum; newly created directorships
resulting from an increase in the authorized number of directors by action of
the Board of Directors as permitted by Section 3.01 may be filled by a
two-thirds (2/3) vote of the directors serving at the time of such increase; and
each person so elected shall be a director until his successor is elected by the
shareholders, who may make such election at their next regular meeting or at any
meeting duly called for that purpose; provided, however, that no vacancy can be
filled as provided above if prohibited by the provisions of the Investment
Company Act of 1940.
Section 3.12. REMOVAL. Removal of directors shall be governed by the
provisions of Section 302A.233 of the Minnesota Statutes or other applicable
provisions of the Minnesota Statutes or successors thereto.
Section 3.13. EXECUTIVE COMMITTEE. The Board of Directors, by
unanimous affirmative action of the entire Board, may establish an Executive
Committee consisting of two (2) or more directors. Such Committee may meet at
stated times or on notice of all given by any of their own number. During the
intervals between meetings of the Board of Directors, such Committee shall
advise and aid the officers of the corporation in all matters concerning the
business and affairs of the corporation and, generally, perform such duties and
exercise such powers as may be directed or delegated by the Board of Directors
from time to time. The Board of Directors may, by unanimous affirmative action
of the entire Board, delegate to such Committee authority to exercise all the
powers of the Board of Directors, except the power to amend the Bylaws and to
take action on matters reserved to the entire Board by the Investment Company
Act of 1940, while the Board of Directors is not in session. Vacancies in the
membership of the Committee
-6-
<PAGE>
shall be filled by the Board of Directors at a regular meeting or at a special
meeting called for that purpose.
Section 3.14. OTHER COMMITTEES. The Board of Directors may establish
other committees from time to time making such regulations as it deems advisable
with respect to the membership, authority and procedures of such committees.
Section 3.15. WRITTEN ACTION. Any action which might be taken at a
meeting of the Board of Directors, or any duly constituted committee thereof,
may be taken without a meeting if done in writing and signed by a majority of
the directors or committee members.
Section 3.16. COMPENSATION. Directors who are not salaried officers
of this corporation shall receive such fixed sum per meeting attended or such
fixed annual sum as shall be determined, from time to time, by resolution of the
Board of Directors. All directors may receive their expenses, if any, of
attendance at meetings of the Board of Directors or any committee thereof.
Nothing herein contained shall be construed to preclude any director from
serving this corporation in any other capacity and receiving proper compensation
therefor.
ARTICLE IV
OFFICERS
Section 4.01. NUMBER. The officers of the corporation shall consist
of a Chairman of the Board (if one is elected by the Board), the President, one
or more Vice Presidents (if desired by the Board), a Secretary and one or more
Assistant Secretaries, a Treasurer and one or more Assistant Treasurers, and
such other officers and agents as may, from time to time, be elected by the
Board of Directors.
Section 4.02. QUALIFICATIONS. At each annual meeting of the Board of
Directors, the Board shall elect, from within or without their number, the
President, the Secretary, the Treasurer and such other officers as may be deemed
advisable. Such officers shall hold office until the next annual meeting of the
directors or until their successors are elected and qualified. The President
and all other officers who may be directors shall continue to hold office until
the election and qualification of their successors, notwithstanding an earlier
termination of their directorship.
Section 4.03. RESIGNATION. Any officer may resign his office at any
time by delivering a written resignation to the Board of Directors, the
President, the Secretary, or any Assistant Secretary. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
Section 4.04. REMOVAL AND VACANCIES. Any officer may be removed from
his office by a majority of the whole Board of Directors, with or without cause.
-7-
<PAGE>
Such removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy shall be filled for
the unexpired term by the Board of Directors.
Section 4.05. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
one is elected, shall preside at all meetings of the shareholders and directors
and shall have such other duties as may be prescribed, from time to time, by the
Board of Directors.
Section 4.06. PRESIDENT. The President shall have general active
management of the business of the corporation. In the absence of the Chairman
of the Board, he shall preside at all meetings of the shareholders and
directors. He shall be the chief executive officer of the corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall be ex officio a member of all standing committees. He may
execute and deliver, in the name of the corporation, any deeds, mortgages,
bonds, contracts or other instruments pertaining to the business of the
corporation and, in general, shall perform all duties usually incident to the
office of President. He shall have such other duties as may, from time to time,
be prescribed by the Board of Directors.
Section 4.07. VICE PRESIDENT. Each Vice President shall have such
powers and shall perform such duties as may be specified in the Bylaws or
prescribed by the Board of Directors or by the President. In the event of
absence or disability of the President, Vice Presidents shall succeed to his
power and duties in the order designated by the Board of Directors,
Section 4.08. SECRETARY. The Secretary shall be secretary of, and
shall attend all, meetings of the shareholders and Board of Directors and shall
record all proceedings of such meetings in the minute book of the corporation.
He shall give proper notice of meetings of shareholders and directors. He shall
keep the seal of the corporation and shall affix the same to any instrument
requiring it and may, when necessary, attest the seal by his signature. He
shall perform such other duties as may, from time to time, be prescribed by the
Board of Directors or by the President.
Section 4.09. TREASURER. The Treasurer shall keep accurate accounts
of all moneys of the corporation received or disbursed. He shall deposit all
moneys, drafts and checks in the name of, and to the credit of, the corporation
in such banks and depositories as a majority of the whole Board of Directors
shall, from time to time, designate. He shall have power to endorse, for
deposit, all notes, checks and drafts received by the corporation. He shall
disburse the funds of the corporation, as ordered by the Board of Directors,
making proper vouchers therefor. He shall render to the President and the
directors, whenever required, an account of all his
-8-
<PAGE>
transactions as Treasurer and of the financial condition of the corporation, and
shall perform such other duties as may, from time to time, be prescribed by the
Board of Directors or by the President.
Section 4.10. ASSISTANT SECRETARIES. At the request of the
Secretary, or in his absence or disability, any Assistant Secretary shall have
power to perform all the duties of the Secretary and, when so acting, shall have
all the powers of, and be subject to all restrictions upon, the Secretary. The
Assistant Secretaries shall perform such other duties as from time to time may
be assigned to them by the Board of Directors or the President.
Section 4.11. ASSISTANT TREASURERS. At the request of the Treasurer,
or in his absence or disability, any Assistant Treasurer shall have power to
perform all the duties of the Treasurer, and when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the Treasurer. The
Assistant Treasurers shall perform such other duties as from time to time may be
assigned to them by the Board of Directors or the President.
Section 4.12. COMPENSATION. The officers of this corporation shall
receive such compensation for their services as may be determined, from time to
time, by resolution of the Board of Directors.
Section 4.13. SURETY BONDS. The Board of Directors may require any
officer or agent of the corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940 and the
rules and regulations of the Securities and Exchange Commission) to the
corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his duties
to the corporation, including responsibility for negligence and for the
accounting of any of the corporation's property, funds or securities that may
come into his hands. In any such case, a new bond of like character shall be
given at least every six years, so that the date of the new bond shall not be
more than six years subsequent to the date of the bond immediately preceding.
ARTICLE V
SHARES AND THEIR TRANSFER AND REDEMPTION
Section 5.01. CERTIFICATES FOR SHARES.
(a) Every owner of shares of the corporation shall be entitled to a
certificate, to be in such form as shall be prescribed by the Board of
Directors, certifying the number of shares of the corporation owned by him. The
certificates for such shares shall be numbered in the order in which they shall
be issued and shall be signed, in the name of the corporation, by the President
or a Vice President
-9-
<PAGE>
and by the Treasurer, or by such officers as the Board of Directors may
designate. Such signatures may be facsimile if authorized by the Board of
Directors. Every certificate surrendered to the corporation for exchange or
transfer shall be cancelled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in Section 5.08.
(b) In case any officer, transfer agent or registrar who shall have
signed any such certificate, or whose facsimile signature has been placed
thereon, shall cease to be such an officer (because of death, resignation or
otherwise) before such certificate is issued, such certificate may be issued and
delivered by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 5.02. ISSUANCE OF SHARES. The Board of Directors is
authorized to cause to be issued shares of the corporation up to the full amount
authorized by the Articles of Incorporation in such series and in such amounts
as may be determined by the Board of Directors and as may be permitted by law.
No shares shall be allotted except in consideration of cash or of an amount
transferred from surplus to stated capital upon a share dividend. At the time
of such allotment of shares, the Board of Directors making such allotments shall
state, by resolution, their determination of the fair value to the corporation
in monetary terms of any consideration other than cash for which shares are
allotted. The amount of consideration to be received in cash, or otherwise,
shall not be less than the par value of the shares so allotted. No shares of
stock issued by the corporation shall be issued, sold, or exchanged by or on
behalf of the corporation for any amount less than the net asset value per share
of the shares outstanding as determined pursuant to Article XI hereunder.
Section 5.03. REDEMPTION OF SHARES. Upon the demand of any
shareholder this corporation shall redeem any share of stock issued by it held
and owned by such shareholder at the net asset value thereof as determined
pursuant to Article XI hereunder. The Board of Directors may suspend the right
of redemption or postpone the date of payment during any period when: (a)
trading on the New York Stock Exchange is restricted or such Exchange is closed
for other than weekends or holidays' (b) the Securities and Exchange Commission
has by order permitted such suspension; or (c) an emergency as defined by rules
of the Securities and Exchange Commission exists, making the disposal of
portfolio securities or valuation of net assets of the corporation not
reasonably practicable.
Section 5.04. TRANSFER OF SHARES. Transfer of shares on the books of
the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such
-10-
<PAGE>
shares or a duly executed assignment covering shares held in unissued form. The
corporation may treat, as the absolute owner of shares of the corporation, the
person or persons in whose name shares are registered on the books of the
corporation.
Section 5.05. REGISTERED SHAREHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by the laws of Minnesota.
Section 5.06. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may from time to time appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
Section 5.07. TRANSFER REGULATIONS. The shares of stock of the
corporation may be freely transferred, and the Board of Directors may from time
to time adopt rules and regulations with reference to the method of transfer of
the shares of stock of the corporation.
Section 5.08. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES.
The holder of any stock of the corporation shall immediately notify the
corporation of any loss, theft, destruction or mutilation of any certificate
therefor, and the Board of Directors may, in its discretion, cause to be issued
to him a new certificate or certificates of stock upon the surrender of the
mutilated certificate or in case of loss, theft or destruction of the
certificate, upon satisfactory proof of such loss, theft or destruction, after
the owner of the lost, stolen or destroyed certificate, or his legal
representatives, gives to the corporation and to such registrar or transfer
agent as may be authorized or required to countersign such new certificate or
certificates a bond, in such sum as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be made
against them or any of them on account of or in connection with the alleged
loss, theft, or destruction of any such certificate.
Section 5.09. REDEMPTION OF SMALL SHAREHOLDER ACCOUNTS. If the value
of a shareholder's investments in the corporation becomes less than $250 (or
such other amount as may be determined from time to time by the Board of
Directors) as a result of a redemption or transfer of shares, the corporation's
officers
-11-
<PAGE>
are authorized, in their discretion, on behalf of the corporation, to redeem
such shareholder's entire interest and remit such amount, provided that such a
redemption will only be effected by the corporation following (a) the mailing by
the corporation to such shareholder of a "notice of intention to redeem," and
(b) the passage of such time period as may be determined by the Board of
Directors, during which time the shareholder will have the opportunity to make
an additional investment in the corporation to increase the value of such
shareholder's account to at least such minimum amount.
ARTICLE VI
DIVIDENDS, SURPLUS, ETC.
Section 6.01. The corporation's net investment income will be
determined, and its dividends shall be declared and made payable at such time(s)
as the Board of Directors shall determine; dividends shall be payable to
shareholders of record as of the date of declaration.
It shall be the policy of the corporation to qualify for and elect the
tax treatment applicable to regulated investment companies under the Internal
Revenue Code, so that the corporation will not be subjected to Federal income
tax on such part of its income or capital gains as it distributes to
shareholders.
ARTICLE VII
BOOKS AND RECORDS, AUDIT, FISCAL YEAR
Section 7.01. BOOKS AND RECORDS. The Board of Directors of the
corporation shall cause to be kept:
(1) a share register, giving the names and addresses of the
shareholders, the number and classes held by each, and the dates
on which the certificates therefor were issued;
(2) records of all proceedings of shareholders and directors; and
(3) such other records and books of account as shall be necessary and
appropriate to the conduct of the corporate business.
Section 7.02. DOCUMENTS KEPT AT REGISTERED OFFICE. The Board of
Directors shall cause to be kept at the registered office of the corporation
originals or copies of:
(1) records of all proceedings of shareholders and directors
(2) Bylaws of the corporation and all amendments thereto; and
-12-
<PAGE>
(3) reports made to any or all of the shareholders within the last
preceding three (3) years.
Section 7.03. AUDIT, ACCOUNTANT.
(a) The Board of Directors shall cause the records and books of
account of the corporation to be audited at least once in each fiscal year and
at such other times as it may deem necessary or appropriate.
(b) The corporation shall employ an independent certified public
accountant or firm of independent certified public accountants as its Accountant
to examine the accounts of the corporation and to sign and certify financial
statements filed by the corporation. The Accountant's certificates and reports
shall be addressed both to the Board of Directors and to the shareholders.
(c) Any vacancy occurring between regular meetings, due to the death,
resignation or otherwise of the Accountant, may be filled by the Board of
Directors.
Section 7.04. FISCAL YEAR. The fiscal year of the corporation shall
be determined by the Board of Directors.
ARTICLE VIII
INSPECTION OF BOOKS
Section 8.01. Every shareholder of the corporation and every holder
of a voting trust certificate shall have a right to examine, in person or by
agent or attorney, at any reasonable time or times, for any proper purpose, and
at the place or places where usually kept, the share register, books of account
and records of the proceedings of the shareholders and directors and to make
extracts therefrom.
ARTICLE IX
VOTING OF STOCK HELD
Section 9.01. Unless otherwise provided by resolution of the Board of
Directors, the President, any Vice President, the Secretary or the Treasurer,
may from time to time appoint an attorney or attorneys or agent or agents of the
corporation, in the name and on behalf of the corporation, to cast the votes
which the corporation may be entitled to cast as a stockholder or otherwise in
any other corporation or association, any of whose stock or securities may be
held by the Corporation, at meetings of the holders of the stock or other
securities of any such other corporation or association, or to consent in
writing to any action by any such other corporation or association, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may
-13-
<PAGE>
execute or cause to be executed on behalf of the corporation and under its
corporate seal, or otherwise, such written proxies, consents, waivers, or other
instruments as it may deem necessary or proper in the circumstances; or any of
such officers may themselves attend any meeting of the holders of stock or other
securities of any such corporation or association and thereat vote or exercise
any or all other powers of the corporation as the holder of such stock or other
securities of such other corporation or association, or consent in writing to
any action by any such other corporation or association.
ARTICLE X
VALUATION OF NET ASSET VALUE
Section 10.01. The net asset value per share of each series of stock
issued by the portfolios of the corporation shall be determined in good faith by
or under supervision of the officers of the corporation as authorized by the
Board of Directors as often and on such days and at such time(s) as the Board of
Directors shall determine.
ARTICLE XI
CUSTODY OF ASSETS
Section 11.01. All securities and cash owned by this corporation
shall, as hereinafter provided, be held by or deposited with a bank or trust
company having (according to its last published report) not less than two
million dollars ($2,000,000) aggregate capital, surplus and undivided profits
(the "Custodian").
This corporation shall enter into a written contract with the
Custodian regarding the powers, duties and compensation of the Custodian with
respect to the cash and securities of this corporation held by the Custodian.
Said contract and all amendments thereto shall be approved by the Board of
Directors of this corporation. In the event of the Custodian's resignation or
termination, the corporation shall use its best efforts promptly to obtain a
successor Custodian and shall require that the cash and securities owned by this
corporation held by the Custodian be delivered directly to such successor
Custodian.
ARTICLE XII
AMENDMENTS
Section 12.01. These Bylaws may be amended or altered by a vote of the
majority of the whole Board of Directors at any meeting provided that notice of
such proposed amendment shall have been given in the notice given to the
directors of such meeting. Such authority in the Board of Directors is subject
to the power of the shareholders to change or repeal such Bylaws by a majority
vote of the shareholders present or represented at any annual or special meeting
of shareholders called for
-14-
<PAGE>
such purpose. The Board of Directors shall not make or alter any Bylaws fixing
their qualifications, classifications, term of office, or number, except that
the Board of Directors may make or alter any Bylaw to increase their number.
ARTICLE XIII
MISCELLANEOUS
Section 13.01. INTERPRETATION. When the context in which words are
used in these Bylaws indicates that such is the intent, singular words will
include the plural and vice versa, and masculine words will include the feminine
and neuter genders and vice versa.
Section 13.02. ARTICLE AND SECTION TITLES. The titles of Sections and
Articles in these Bylaws are for descriptive purposes only and will not control
or alter the meaning of any of these Bylaws as set forth in the text.
-15-
<PAGE>
UNDERWRITING AND DISTRIBUTION AGREEMENT
THIS AGREEMENT, made this 14th day of November 1994, by and between Fortis
Income Portfolios, Inc. (formerly AMEV U.S. Government Securities Fund, Inc.), a
Minnesota corporation (the "Fund") for and on behalf of each class of shares
(each such class is referred to hereinafter as a "Class") of each of the Fund's
Portfolios and Fortis Investors, Inc. (formerly AMEV Investors, Inc.), a
Minnesota corporation ("Investors"),
WITNESSETH:
1. UNDERWRITING SERVICES.
The Fund on behalf of each Class hereby engages Investors, and Investors
hereby agrees to act, as principal underwriter for each Class in connection with
the sale and distribution of the shares of each Class of the Fund's Portfolios
to the public, either through dealers or otherwise. Investors agrees to offer
such shares for sale at all times when such shares are available for sale and
may lawfully be offered for sale and sold.
As used herein, "Portfolios" is defined as Fortis U.S. Government
Securities Fund and any other Portfolios which may hereafter be created by the
Board of Directors of the Fund. In addition, as used herein, "Classes" of the
Fund's Portfolios is defined as Class A, Class B, Class C, Class E and Class H
shares of each Portfolio and any other classes which may hereinafter be created
by the Fund's Board of Directors.
2. SALE OF FUND SHARES.
The shares of each Class are to be sold only on the following terms:
(a) All subscriptions, offers or sales shall be subject to acceptance or
rejection by the Fund. Any offer or sale shall be conclusively presumed to have
been accepted by the Fund if the Fund
1
<PAGE>
shall fail to notify Investors of the rejection of such offer or sale prior to
the computation of the net asset value of the applicable Class's shares next
following receipt by the Fund of notice of such offer or sale.
(b) No share of a Class shall be sold by Investors (i) for any amount less
than the net asset value of such share, computed as provided in the Bylaws of
the Fund, or (ii) for any consideration other than cash, or, pursuant to any
exchange privilege provided for by such Class's currently effective Prospectus
or Statement of Additional Information, shares of the corresponding Class of
shares of any other investment company for which Investors acts as an
underwriter. In addition, except as provided below or in the Class's currently
effective Prospectus or Statement of Additional Information, all shares of the
Fund's Portfolios sold by Investors shall be sold at the applicable public
offering price, as hereinafter defined, provided that, in the case of sales of
such shares to or through bona fide dealers in securities. Investors may allow,
or sell at, a discount from said public offering price to such dealers, which
discount shall be no greater than the "sales load" hereinafter referred to.
(c) The public offering price of the shares of the Fund's Portfolios shall
be the current net asset value thereof (computed as provided in the Bylaws of
the Fund) plus the applicable "sales load" or loading charge, if any, which
shall be such percentage of the public offering price, computed to the nearest
cent, as may be agreed upon by the Fund and Investors and specifically approved
by the Board of Directors of the Fund, provided that no schedule of sales loads
shall be effective until set forth in a prospectus of the Fund meeting the
requirements of the Securities Act of 1933. Said sales loads may be graduated on
a scale based on the dollar amount of shares sold.
(d) In connection with certain sales of shares, a contingent deferred sales
charge will be imposed in the event of a redemption transaction occurring within
a certain period of time following
2
<PAGE>
such a purchase, as described in each Class's currently effective Prospectus and
Statement of Additional Information.
(e) The front-end sales charge, if any, for any Class may, at the
discretion of the Fund and Investors, be increased, reduced or eliminated as
permitted by the Investment Company Act of 1940, and the rules and regulations
thereunder, as they may be amended from time to time, or as set forth elsewhere
in this Agreement, provided that, if necessary, such increase, reduction or
elimination shall be set forth in the Prospectus for such Class, and provided
the Fund shall in no event receive for any shares sold an amount less than the
net asset value thereof. In addition, any contingent deferred sales charge for
any Class may, at the discretion of the Fund and Investors, be increased,
reduced or eliminated in accordance with the terms of an exemptive order
received from, or any applicable rule or rules promulgated by, the Securities
and Exchange Commission by the Fund, provided such increase, reduction or
elimination shall be set forth in the Prospectus for such Class.
(f) Investors may decline to offer for sale or sell shares of the Fund in
an amount the cumulative public offering price of which is less than $500 or
such other amount as it may from time to time fix.
3. INVESTMENT OF DIVIDEND AND DISTRIBUTIONS.
The Fund may extend to its shareholders the right to purchase shares issued
by each Class of the Fund at the net asset value thereof with the proceeds of
any dividend or capital gain distribution paid or payable by the Fund (or any
other fund for which Investors serves as underwriter) to its shareholders.
3
<PAGE>
4. REGISTRATION OF SHARES.
The Fund agrees to make prompt and reasonable efforts to effect and keep in
effect, at its own expense, the registration or qualification of each Class's
shares for sale in such jurisdictions as the Fund may designate.
5. INFORMATION TO BE FURNISHED INVESTORS.
The Fund agrees that it will furnish Investors with such information with
respect to the affairs and accounts of the Fund (and each Class and Portfolio
thereof) as Investors may from time to time reasonably require, and further
agrees that Investors, at all reasonable times, shall be permitted to inspect
the books and records of the Fund.
6. ALLOCATION OF EXPENSES.
During the period of this contract, the Fund shall pay or cause to be paid
all expenses, costs and fees incurred by the Fund which are not assumed by
Investors or Fortis Advisers, Inc. ("Advisers"). Investors agrees to provide,
and shall pay costs which it incurs in connection with providing personal,
continuing services to shareholders (such costs are referred to as "Shareholder
Servicing Costs"). Shareholder Servicing Costs include all expenses of Investors
incurred in connection with providing administrative or accounting services to
shareholders of each Class, including, but not limited to, an allocation of
Investor's overhead and payments made to persons, including employees of
Investors, who respond to inquiries of shareholders regarding their ownership of
Class shares, or who provide other administrative or accounting services not
otherwise required to be provided by the applicable Funds' investment adviser or
transfer agent. Notwithstanding the foregoing, if the National Association of
Securities Dealers, Inc. ("NASD") adopts a definition of "service fee" for
purposes of Section 26(d) of the NASD Rules of Fair Practice that differs from
a definition of Shareholder Servicing Costs in this
4
<PAGE>
paragraph, or if the NASD adopts a related definition intended to define the
same concept, the definition of Shareholder Servicing Costs in this paragraph
shall be automatically amended, without further action of the parties, to
conform to such NASD definition. Investors shall also pay all costs of
distributing the shares of each Class ("Distribution Expenses"). Distribution
expenses include, but are not limited to, initial and ongoing sales compensation
(in addition to sales loads) paid to registered representatives of Investors and
to other broker-dealers and participating financial institutions; expenses
incurred in the printing of prospectuses, statements of additional information
and reports used for sales purposes: expenses of preparation and distribution of
sales literature; expenses of advertising of any type; an allocation of
Investors' overhead: payments to and expenses of persons who provide support
services in connection with the distribution of Fund shares; and other
distribution-related expenses. Advisers, rather than Investors, may bear the
expenses referred to in this paragraph, but Investors shall be primarily liable
for such expenses until paid.
7. COMPENSATION TO INVESTORS.
As compensation for all of its services provided and its costs assumed
under this contract. Investors shall receive the following forms of and amounts
of compensation:
(a) Investors shall be entitled to receive and retain the front-end sales
charge (if any) imposed in connection with sales of each Class, as set forth in
the applicable Class's current Prospectus. Up to the entire amount of the
front-end sales charge (if any) with respect to each applicable Class may be
reallowed by Investors to broker-dealers and participating financial
institutions in connection with their sale of Fund shares. The amount of the
front-end sales charge (if any) may be retained or deducted by Investors from
any sums received by it in payment for shares so sold. If such amount is not
deducted by Investors from such payments, such amount shall be paid to Investors
by the Fund not
5
<PAGE>
later than five business days after the close of any month during which any such
sales were made by Investors and payment therefor received by the Fund.
(b) Investors shall be entitled to receive any contingent deferred sales
charge imposed in connection with any redemption of applicable Class shares, as
set forth in each applicable Class's current Prospectus.
(c) Investors shall be entitled to receive the following 12b-1 fees,
payable under the Plan of Distribution adopted by each Class (EXCEPT Class E) in
accordance with Rule 12b-1 under the Investment Company Act of 1940 (the
"Plan"):
(i) CLASS A SHARES: Class A shares of each of the Portfolios are
obligated to pay Investors, the principal underwriter of the Fund's shares, a
monthly fee in connection with distribution-related services provided with
respect to Class A and in connection with the servicing of shareholder accounts
of said Class A. This fee shall be calculated and payable monthly at an annual
rate of .25% of the value of the Class's average daily net assets. All or a
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 Fund's Board of Directors. Until further
action by the Board of Directors, all of such fee shall be designated and
payable as a Distribution Fee.
(ii) CLASS B, CLASS C AND CLASS H SHARES: Class B, Class C and Class H
shares of the Portfolios are each obligated to pay Investors a total fee in
connection with the distribution-related services and servicing of shareholder
accounts provided for their respective Class. The total fee paid by each Class
shall be calculated and payable monthly, at an annual rate of 1.00% of the value
of the respective Class's 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
6
<PAGE>
Fee, as determined from time to time by the Fund's Board of Directors. Until
further action by the Board, 75% of such fee (.75 of 1.00%) shall be designated
and payable as a Distribution Fee and 25% of such fee (.25 of 1.00%) shall be
designated and payable as a Shareholder Servicing Fee.
(iii) FUTURE PORTFOLIOS AND/OR CLASSES: The 12b-1 fees for Class A,
Class B, Class C or Class H shares of any future Portfolios shall be as
determined by the Board of Directors of the Fund upon the creation of any such
Portfolios, but in no event shall such fees exceed any then existing limitations
imposed under any applicable rule or rules promulgated by the Securities and
Exchange Commission and/or the National Association of Securities Dealers, Inc.
Upon the creation of any new classes of shares for any or all of the Portfolios,
the respective levels of sales charges and 12b-1 fees shall be determined by the
Board of Directors of the Fund, subject to any necessary shareholder approval
and only in accordance with any applicable rule or rules promulgated by the
Securities and Exchange Commission and/or the National Association of Securities
Dealers, Inc. All or any portion of the 12b-1 fees referred to in this paragraph
may be payable as a Distribution Fee, and all or any portion of such 12b-1 fees
may be payable as a Shareholder Servicing Fee, as determined from time to time
by the Fund's Board of Directors.
(iv) OTHER INFORMATION: Average daily net assets shall be computed in
accordance with the Prospectus of each applicable Class. Amounts payable to
Investors under the Plan may exceed or be less than Investor's actual
distribution expenses and shareholder servicing costs. In the event such
distribution expenses and/or shareholder servicing expenses exceed amounts
payable to Investors under the Plan, Investors shall not be entitled to
reimbursement from the Fund.
(d) In each year during which this contract remains in effect, Investors
will prepare and furnish to the Board of Directors of the Fund, and the Board
will review, on a quarterly basis written
7
<PAGE>
reports complying with the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act") that set forth the amounts expended under
this contract and the Plan and the purposes for which those expenditures were
made.
8. LIMITATION OF INVESTORS' AUTHORITY.
Investors shall be deemed to be an independent contractor and, except as
specifically provided or authorized herein, shall have no authority to act for
or represent the Fund. In connection with its role as underwriter of Fund
shares, Investors shall at all times be deemed an agent of the Fund and shall
sell Fund shares to purchasers thereof as agent and not as principal.
9. SUBSCRIPTION FOR SHARES-REFUND FOR CANCELED ORDERS.
Investors shall subscribe for the shares of the Fund only for the purpose
of covering purchase orders already received by it or for the purpose of
investment for its own account. In the event that an order for the purchase of
shares of the Fund is placed with Investors by a customer or dealer and
subsequently canceled, Investors shall forthwith cancel the subscription for
such shares entered on the books of the Fund, and, if Investors has paid the
Fund for such shares, shall be entitled to receive from the Fund in refund of
such payment the lesser of:
(a) the consideration received by the Fund for said shares; or
(b) the net asset value of such shares at the time of cancellation by
Investors.
10. INDEMNIFICATION OF THE FUND.
Investors agrees to indemnity the Fund against any and all litigation and
other legal proceedings of any kind or nature and against any liability,
judgment, cost or penalty imposed as a result of such litigation or proceedings
in any way arising out of or in connection with the sale or distribution of the
shares of the Fund by Investors. In the event of the threat or institution of
any such litigation or legal
8
<PAGE>
proceedings against the Fund, Investors shall defend such action on behalf of
the Fund at its own expense, and shall pay any such liability, judgment, cost or
penalty resulting therefrom, whether imposed by legal authority or agreed upon
by way of compromise and settlement; provided, however, Investors shall not be
required to pay or reimburse the Fund for any liability, judgment, cost or
penalty incurred as a result of information supplied by, or as the result of the
omission to supply information by, the Fund to Investors, or to Investors by a
director, officer, or employee of the Fund who is not an interested person of
Investors, unless the information so supplied or omitted was available to
Investors or the Fund's investment adviser without recourse to the Fund or any
such interested person of the Fund.
11. FREEDOM TO DEAL WITH THIRD PARTIES.
Investors shall be free to render to others services of a nature either
similar to or different from those rendered under this contract, except such as
may impair its performance of the services and duties to be rendered by it
hereunder.
12. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT.
(a) This Agreement shall be effective as to Fortis U.S. Government
Securities Fund and each Class thereof on November 14, 1994. Unless sooner
terminated as hereinafter provided, this Agreement shall continue in effect only
so long as such continuance is specifically approved at least annually (a) by
the Board of Directors of the Fund, or with respect to a particular Class by the
vote of the holders of a majority of the outstanding voting securities of such
Class, and (b) by a majority of the directors who are not interested persons of
Investors or of the Fund, cast in person at a meeting called for the purpose of
voting on such approval; provided that, if a majority of the outstanding voting
securities of any of the Classes approves this Agreement, this Agreement shall
continue in effect with
9
<PAGE>
respect to such approving Class whether or not the shareholders of any other
Class of the Fund approve this Agreement.
(b) This Agreement may be terminated at any time without the payment of any
penalty by the vote of the Board of Directors of the Fund or by Investors, upon
sixty (60) days' written notice to the other party. This Agreement may be
terminated with respect to a particular Class at any time without the payment of
any penalty by the vote of the holders of a majority of the outstanding voting
securities of such Class, upon sixty (60) days' written notice to Investors.
(c) This Agreement shall automatically terminate in the event of its
"assignment" (as defined by the provisions of the 1940 Act).
(d) Wherever referred to in this Agreement, the vote or approval of the
holders of a majority of the outstanding voting securities of a Class or the
Fund shall mean the vote of 67% or more of such securities if the holders of
more than 50% of such securities are present in person or by proxy or the vote
of more than 50% of such securities, whichever is less.
13. AMENDMENTS TO AGREEMENT.
No material amendment to this Agreement shall be effective until approved
by a vote of the Board of Directors of the Fund, including a majority of the
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in this Agreement, cast in person at a meeting
called for the purpose of voting on such amendment. Additionally, no amendment
to this Agreement that materially increases the distribution fee and/or
shareholder servicing fee payable by any Class hereunder shall be effective
until any necessary amendment to the applicable Rule 12b-1 Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the
10
<PAGE>
applicable Class and approved by the Fund's Board of Directors as required under
Rule 12b-1 under the Investment Company Act of 1940.
14. NOTICES.
Any notice under this Agreement shall be in writing, addressed, delivered
or mailed, postage prepaid to the other party at such address as such other
party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Fund and Investors have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
FORTIS INCOME PORTFOLIOS, INC.
By: /s/ Edward M. Mahoney
----------------------------------
Edward M. Mahoney
Its President
FORTIS INVESTORS, INC.
By: /s/ Dean C. Kopperud
----------------------------------
Dean C. Kopperud
Its President
11
<PAGE>
AMENDMENT NO. 1 TO
UNDERWRITING AND DISTRIBUTION AGREEMENT
THIS AMENDMENT, made this 24th day of November 1997, by and between Fortis
Income Portfolios, Inc., a Minnesota corporation (the "Fund") for and on behalf
of each class of shares of each of the Fund's Portfolios and Fortis Investors,
Inc., a Minnesota corporation ("Investors").
1. Section 1 of the Underwriting and Distribution Agreement dated as of
November 14, 1994 by and between the Fund and Investors is hereby amended to
state that the term "Portfolios" shall be defined to include Fortis U.S.
Government Securities Fund, Fortis Strategic Income Fund and any other
Portfolios which may hereafter be created by the Board of Directors of the Fund.
2. The effective date of this Amendment shall be December 1, 1997.
IN WITNESS WHEREOF, the Fund and Investors have caused this Amendment to be
executed by their duly authorized officers as of the day and year first above
written.
FORTIS INCOME PORTFOLIOS, INC.
By: /s/ Dean C. Kopperud
--------------------------------
Dean C. Kopperud
Its President
FORTIS INVESTORS, INC.
By: /s/ Dean C. Kopperud
--------------------------------
Dean C. Kopperud
Its President
<PAGE>
CUSTODIAN AGREEMENT
THIS AGREEMENT, made as of the 21st day of March, 1992, by and between
Fortis Income Portfolios, Inc., a Minnesota corporation (the "Fund"), for and on
behalf of each series of the Fund that adopts this Agreement (said series being
hereinafter referred to, individually, as a "Series" and, collectively, as the
"Series"), and First Bank National Association, a national banking association
organized and existing under the laws of the United States of America (the
"Custodian"). The name of each Series that adopts this Agreement and the
effective date of this Agreement with respect to each such Series are set forth
in EXHIBIT A hereto.
WITNESSETH:
WHEREAS, the Fund desires to appoint the Custodian as the custodian for the
assets of each Series, and the Custodian desires to accept such appointment,
pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
herein made, the Fund and the Custodian agree as follows:
ARTICLE 1. DEFINITIONS
The word "Securities" as used herein shall be construed to include, without
being limited to, shares, stocks, bonds, debentures, notes, scrip, participation
certificates, rights to subscribe, warrants, options, certificates of deposit,
bankers' acceptances, repurchase agreements, commercial paper, choses in action,
evidences of indebtedness, investment contracts, voting trust certificates,
certificates of indebtedness and certificates of interest of any and every kind
and nature whatsoever, secured and unsecured, issued or to be issued, by any
corporation, company, partnership (limited or general), association, trust,
entity or person, public or private, whether organized under the laws of the
United States, or any state, commonwealth, territory or possession thereof, or
organized under the laws of any foreign country, or any state, province,
territory or possession thereof, or issued or to be issued by the United States
government or any agency or instrumentality thereof, options on stock indexes,
stock index and interest rate futures contracts and options thereon, and other
futures contracts and options thereon.
The words "Written Order from the Fund" shall mean a writing signed or
initialed by one or more person or persons designated in the current certified
list referred to in Article 2, provided that if said writing is signed by only
one person, that person shall be an officer of the Fund designated in said
current certified list. "Written Order from the Fund" also may include a
communication effected directly between electro-mechanical or electronic devices
(including, but not limited to, facsimile transceivers) provided that management
of the Fund and the Custodian are satisfied that such procedures afford adequate
safeguards for the assets of each Series.
<PAGE>
ARTICLE 2. NAMES, TITLES AND SIGNATURES OF FUND'S OFFICERS
The Fund shall certify to the Custodian the names, titles and signatures of
officers and other persons who are authorized to give any Written Order from the
Fund on behalf of each Series. The Fund agrees that, whenever any change in
such authorization occurs, it will file with the Custodian a new certified list
of names, titles and signatures which shall be signed by at least one officer
previously certified to the Custodian if any such officer still holds an office
in the Fund. The Custodian is authorized to rely and act upon the names, titles
and signatures of the individuals as they appear in the most recent such
certified list which has been delivered to the Custodian as hereinbefore
provided.
ARTICLE 3. SUB-CUSTODIANS AND DEPOSITORIES
Notwithstanding any other provision in this Agreement to the contrary, all
or any of the cash and Securities of each Series may be held in the Custodian's
own custody or in the custody of one or more other banks or trust companies
selected by the Custodian or as directed in one or more Written Orders from the
Fund. Any such sub-custodian must have the qualifications required for
custodians under the Investment Company Act of 1940, as amended. The Custodian
or sub-custodian, as the case may be, may participate directly or indirectly in
one or more "securities depositories" (as defined in Rule 17f-4 under the
Investment Company Act of 1940, as amended, or in any successor provisions or
rules thereto). Any references in this Agreement to the delivery of Securities
by or to the Custodian shall, with respect to Securities custodied with one of
the aforementioned "securities depositories," be interpreted to mean that the
Custodian shall cause a bookkeeping entry to be made by the applicable
securities depository to indicate the transfer of ownership of the applicable
Security to or from the Fund, all as set forth in one or more Written Orders
from the Fund. Additionally, any references in this Agreement to the receipt of
proceeds or payments with respect to Securities transactions shall, with respect
to Securities custodied with one of the aforementioned "securities
depositories," be interpreted to mean that the Custodian shall have received an
advice from such securities depository that said proceeds or payments have been
received by such depository and deposited in the Custodian's account.
ARTICLE 4. RECEIPT AND DISBURSING OF MONEY
SECTION (1). The Fund shall from time to time cause cash owned by the
Fund to be delivered or paid to the Custodian for the account of any Series, but
the Custodian shall not be under any obligation or duty to determine whether all
cash of the Fund is being so deposited or to take any action or to give any
notice with respect to cash not so deposited. The Custodian agrees to hold such
cash, together with any other sum collected or received by it for or on behalf
of each Series of the Fund, in the account of such Series in conformity with the
terms of this Agreement. The Custodian shall be authorized to disburse cash
from the account of each Series only:
- 2 -
<PAGE>
(a) upon receipt of and in accordance with Written Orders from the
Fund stating that such cash is being used for one or more of the following
purposes, and specifying such purpose or purposes, provided, however, that
a reference in such Written Order from the Fund to the pertinent paragraph
or paragraphs of this Article shall be sufficient compliance with this
provision:
(i) the payment of interest;
(ii) the payment of dividends;
(iii) the payment of taxes;
(iv) the payment of the fees or charges to any investment
adviser of any Series;
(v) the payment of fees to a Custodian, stock registrar,
transfer agent or dividend disbursing agent for any
Series;
(vi) the payment of distribution fees and commissions;
(vii) the payment of any operating expenses, which shall be
deemed to include legal and accounting fees and all other
expenses not specifically referred to in this paragraph
(a);
(viii) payments to be made in connection with the conversion,
exchange or surrender of Securities owned by any Series;
(ix) payments on loans that may from time to time be due;
(x) payment to a recognized and reputable broker for
Securities purchased by the Fund through said broker
(whether or not including any regular brokerage fees,
charges or commissions on the transaction) upon receipt
by the Custodian of such Securities in proper form for
transfer and after the receipt of a confirmation from the
broker or dealer with respect to the transaction;
(xi) payment to an issuer or its agent on a subscription for
Securities of such issuer upon the exercise of rights so
to subscribe, against a receipt from such issuer or agent
for the cash so paid;
(b) as provided in Article 5 hereof; and
(c) upon the termination of this Agreement.
- 3 -
<PAGE>
SECTION (2). The Custodian is hereby appointed the attorney-in-fact of
the Fund to use reasonable efforts to enforce and collect all checks, drafts or
other orders for the payment of money received by the Custodian for the account
of each Series and drawn to or to the order of the Fund and to deposit them in
the account of the applicable Series.
ARTICLE 5. RECEIPT OF SECURITIES
The Fund agrees to place all of the Securities of each Series in its
account with the Custodian, but the Custodian shall not be under any obligation
or duty to determine whether all Securities of any Series are being so
deposited, or to require that such Securities be so deposited, or to take any
action or give any notice with respect to the Securities not so deposited. The
Custodian agrees to hold such Securities in the account of the Series designated
by the Fund, in the name of the Fund or of bearer or of a nominee of the
Custodian, and in conformity with the terms of this Agreement. The Custodian
also agrees, upon Written Order from the Fund, to receive from persons other
than the Fund and to hold in the account of the Series designated by the Fund
Securities specified in said Written Order of the Fund, and, if the same are in
proper form, to cause payment to be made therefor to the persons from whom such
Securities were received, from the funds of the applicable Series held by the
Custodian in said account in the amounts provided and in the manner directed by
the Written Order from the Fund.
The Custodian agrees that all Securities of each Series placed in its
custody shall be kept physically segregated at all times from those of any other
Series, person, firm or corporation, and shall be held by the Custodian with all
reasonable precautions for the safekeeping thereof. Upon delivery of any
Securities of any Series to a subcustodian pursuant to Article 3 of this
Agreement, the Custodian will create and maintain records identifying those
assets which have been delivered to the subcustodian as belonging to the
applicable Series.
ARTICLE 6. DELIVERY OF SECURITIES
The Custodian agrees to transfer, exchange or deliver Securities as
provided in Article 7, or on receipt by it of, and in accordance with, a Written
Order from the Fund in which the Fund shall state specifically which of the
following cases is covered thereby:
(a) in the case of deliveries of Securities sold by the Fund, against
receipt by the Custodian of the proceeds of sale and after receipt of a
confirmation from a broker or dealer (or, in accordance with industry
practice with respect to "same day trades," acceptance of delivery of such
securities by the broker or dealer, which acceptance is followed up by
confirmation thereof within the normal settlement period) with respect to
the transaction;
- 4 -
<PAGE>
(b) in the case of deliveries of Securities which may mature or be
called, redeemed, retired or otherwise become payable, against receipt by
the Custodian of the sums payable thereon or against interim receipts or
other proper delivery receipts;
(c) in the case of deliveries of Securities which are to be
transferred to and registered in the name of the Fund or of a nominee of
the Custodian and delivered to the Custodian for the account of the Series,
against receipt by the Custodian of interim receipts or other proper
delivery receipts;
(d) in the case of deliveries of Securities to the issuer thereof,
its transfer agent or other proper agent, or to any committee or other
organization for exchange for other Securities to be delivered to the
Custodian in connection with a reorganization or recapitalization of the
issuer or any split-up or similar transaction involving such Securities,
against receipt by the Custodian of such other Securities or against
interim receipts or other proper delivery receipts;
(e) in the case of deliveries of temporary certificates in exchange
for permanent certificates, against receipt by the Custodian of such
permanent certificates or against interim receipts or other proper delivery
receipts;
(f) in the case of deliveries of Securities upon conversion thereof
into other Securities, against receipt by the Custodian of such other
Securities or against interim receipts or other proper delivery receipts;
(g) in the case of deliveries of Securities in exchange for other
Securities (whether or not such transactions also involve the receipt or
payment of cash), against receipt by the Custodian of such other Securities
or against interim receipts or other proper delivery receipts;
(h) in the case of warrants, rights or similar Securities, the
surrender thereof in the exercise of such warrants, rights or similar
Securities or the surrender of interim receipts or temporary Securities for
definitive Securities;
(i) for delivery in connection with any loans of securities made by
the Fund for the benefit of any Series, but only against receipt of
adequate collateral as agreed upon from time to time by the Custodian and
the Fund;
(j) for delivery as security in connection with any borrowings by the
Fund for the benefit of any Series requiring a pledge of assets from the
applicable Series, but only against receipt of amounts borrowed;
(k) for delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a bank, broker-dealer or futures
commission merchant relating to compliance with applicable rules and
- 5 -
<PAGE>
regulations regarding account deposits, escrow or other arrangements in
connection with transactions by the Fund for the benefit of any Series;
(l) in a case not covered by the preceding paragraphs of this
Article, upon receipt of a resolution adopted by the Board of Directors of
the Fund, signed by an officer of the Fund and certified to by the
Secretary, specifying the Securities and assets to be transferred,
exchanged or delivered, the purposes for which such delivery is being made,
declaring such purposes to be proper corporate purposes, and naming a
person or persons (each of whom shall be a properly bonded officer or
employee of the Fund) to whom such transfer, exchange or delivery is to be
made; and
(m) in the case of deliveries pursuant to paragraphs (a) through (k)
above, the Written Order from the Fund shall direct that the proceeds of
any Securities delivered, or Securities or other assets exchanged for or in
lieu of Securities so delivered, are to be delivered to the Custodian.
ARTICLE 7. CUSTODIAN'S ACTS WITHOUT WRITTEN ORDERS FROM THE FUND
Unless and until the Custodian receives contrary Written Orders from the
Fund, the Custodian shall without order from the Fund:
(a) present for payment all bills, notes, checks, drafts and similar
items, and all coupons or other income items (except stock dividends), held
or received for the account of any Series, and which require presentation
in the ordinary course of business, and credit such items to the account of
the applicable Series conditionally, subject to final payment;
(b) present for payment all Securities which may mature or be called,
redeemed, retired or otherwise become payable and credit such items to the
account of the applicable Series conditionally, subject to final payment;
(c) hold for and credit to the account of any Series all shares of
stock and other Securities received as stock dividends or as the result of
a stock split or otherwise from or on account of Securities of the Series,
and notify the Fund, in the Custodian's monthly reports to the Fund, of the
receipt of such items;
(d) deposit or invest (as instructed from time to time by the Fund)
any cash received by it from, for or on behalf of any Series to the credit
of the account of the applicable Series;
(e) charge against the account for any Series disbursements
authorized to be made by the Custodian hereunder and actually made by it,
and notify the Fund of such charges at least once a month;
- 6 -
<PAGE>
(f) deliver Securities which are to be transferred to and reissued in
the name of any Series, or of a nominee of the Custodian for the account of
any Series, and temporary certificates which are to be exchanged for
permanent certificates, to a proper transfer agent for such purpose against
interim receipts or other proper delivery receipts; and
(g) hold for disposition in accordance with Written Orders from the
Fund hereunder all options, rights and similar Securities which may be
received by the Custodian and which are issued with respect to any
securities held by it hereunder, and notify the Fund promptly of the
receipt of such items.
ARTICLE 8. SEGREGATED ACCOUNTS
Upon receipt of a Written Order from the Fund, the Custodian shall
establish and maintain one or more segregated accounts for and on behalf of the
Series specified in said Written Order from the Fund for purposes of segregating
cash and/or Securities (of the type agreed upon from time to time by the
Custodian and the Fund) for the purpose or purposes specified in said Written
Order from the Fund.
ARTICLE 9. DELIVERY OF PROXIES
The Custodian shall deliver promptly to the Fund all proxies, notices and
communications with relation to Securities held by it which it may receive from
sources other than the Fund.
ARTICLE 10. TRANSFER
The Fund shall furnish to the Custodian appropriate instruments to enable
the Custodian to hold or deliver in proper form for transfer any Securities
which it may hold for the account of any Series of the Fund. For the purpose of
facilitating the handling of Securities, unless otherwise directed by Written
Order from the Fund, the Custodian is authorized to hold Securities deposited
with it under this Agreement in the name of its registered nominee or nominees
(as defined in the Internal Revenue Code and any regulations of the United
States Treasury Department issued thereunder or in any provision of any
subsequent federal tax law exempting such transaction from liability for stock
transfer taxes) and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. The Custodian shall, if requested by the Fund, advise the
Fund of the certificate number of each certificate so presented for transfer and
that of the certificate received in exchange therefor, and shall use its best
efforts to the end that the specific Securities held by it hereunder shall be at
all times identifiable.
- 7 -
<PAGE>
ARTICLE 11. TRANSFER TAXES AND OTHER DISBURSEMENTS
The Fund, for and on behalf of each Series, shall pay or reimburse the
Custodian for any transfer taxes payable upon transfers of Securities made
hereunder, including transfers incident to the termination of this Agreement,
and for all other necessary and proper disbursements and expenses made or
incurred by the Custodian in the performance or incident to the termination of
this Agreement, and the Custodian shall have a lien upon any cash or Securities
held by it for the account of each applicable Series of the Fund for all such
items, enforceable, after thirty days' written notice by registered mail from
the Custodian to the Fund, by the sale of sufficient Securities to satisfy such
lien. The Custodian may reimburse itself by deducting from the proceeds of any
sale of Securities an amount sufficient to pay any transfer taxes payable upon
the transfer of Securities sold. The Custodian shall execute such certificates
in connection with Securities delivered to it under this Agreement as may be
required, under the provisions of any federal revenue act and any regulations of
the Treasury Department issued thereunder or any state laws, to exempt from
taxation any transfers and/or deliveries of any such Securities as may qualify
for such exemption.
ARTICLE 12. CUSTODIAN'S LIABILITY FOR
PROCEEDS OF SECURITIES SOLD
If the mode of payment for Securities to be delivered by the Custodian is
not specified in the Written Order from the Fund directing such delivery, the
Custodian shall make delivery of such Securities against receipt by it of cash,
a postal money order or a check drawn by a bank, trust company or other banking
institution, or by a broker named in such Written Order from the Fund, for the
amount the Custodian is directed to receive. The Custodian shall be liable for
the proceeds of any delivery of Securities made pursuant to this Article, but
provided that it has complied with the provisions of this Article, only to the
extent that such proceeds are actually received.
ARTICLE 13. CUSTODIAN'S REPORT
The Custodian shall furnish the Fund, as of the close of business on the
last business day of each month, a statement showing all cash transactions and
entries for the account of each Series of the Fund. The books and records of
the Custodian pertaining to its actions as Custodian under this Agreement shall
be open to inspection and audit, at reasonable times, by officers of, and
auditors employed by, the Fund. The Custodian shall furnish the Fund with a
list of the Securities held by it in custody for the account of each Series of
the Fund as of the close of business on the last business day of each quarter of
the Fund's fiscal year.
- 8 -
<PAGE>
ARTICLE 14. CUSTODIAN'S COMPENSATION
The Custodian shall be paid compensation at such rates and at such times as
may from time to time be agreed on in writing by the parties hereto (as set
forth with respect to each Series in EXHIBIT B hereto), and the Custodian shall
have a lien for unpaid compensation, to the date of termination of this
Agreement, upon any cash or Securities held by it for the Series accounts of the
Fund, enforceable in the manner specified in Article 11 hereof.
ARTICLE 15. DURATION, TERMINATION AND AMENDMENT OF AGREEMENT
This Agreement shall remain in effect with respect to each Series, as it
may from time to time be amended, until it shall have been terminated as
hereinafter provided, but no such amendment or termination shall affect or
impair any rights or liabilities arising out of any acts or omissions to act
occurring prior to such amendment or termination.
The Custodian may terminate this Agreement by giving the Fund ninety days'
written notice of such termination by registered mail addressed to the Fund at
its principal place of business.
The Fund may terminate this Agreement by giving ninety days' written notice
thereof delivered by registered mail to the Custodian at its principal place of
business. Additionally, this Agreement may be terminated with respect to any
Series of the Fund pursuant to the same procedures, in which case this Agreement
shall continue in full effect with respect to all other Series of the Fund.
Upon termination of this Agreement, the assets of the Fund, or Series
thereof, held by the Custodian shall be delivered by the Custodian to a
successor custodian upon receipt by the Custodian of a Written Order from the
Fund designating the successor custodian; and if no successor custodian is
designated in said Written Order from the Fund, the Custodian shall, upon such
termination, deliver all such assets to the Fund.
This Agreement may be amended or terminated at any time by the mutual
agreement of the Fund and the Custodian. Additionally, this Agreement may be
amended or terminated with respect to any Series of the Fund at any time by the
mutual agreement of the Fund and the Custodian, in which case such amendment or
termination would apply to such Series amending or terminating this Agreement
but not to the other Series of the Fund.
This Agreement may not be assigned by the Custodian without the consent of
the Fund, authorized or approved by a resolution of its Board of Directors.
- 9 -
<PAGE>
ARTICLE 16. SUCCESSOR CUSTODIAN
Any bank or trust company into which the Custodian or any successor
custodian may be merged or converted or with which it or any successor custodian
may be consolidated, or any bank or trust company resulting from any merger,
conversion or consolidation to which the Custodian or any successor custodian
shall be a party, or any bank or trust company succeeding to the business of the
Custodian, shall be and become the successor custodian without the execution of
any instrument or any further act on the part of the Fund or the Custodian or
any successor custodian.
Any successor custodian shall have all the power, duties and obligations of
the preceding custodian under this Agreement and any amendments thereof and
shall succeed to all the exemptions and privileges of the preceding custodian
under this Agreement and any amendments thereof.
ARTICLE 17. GENERAL
Nothing expressed or mentioned in or to be implied from any provisions of
this Agreement is intended to give or shall be construed to give any person or
corporation other than the parties hereto any legal or equitable right, remedy
or claim under or in respect of this Agreement or any covenant, condition or
provision herein contained, this Agreement and all of the covenants, conditions
and provisions hereof being intended to be, and being, for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns.
It is the purpose and intention of the parties hereto that the Fund shall
retain all the power, rights and responsibilities of determining policy,
exercising discretion and making decisions with respect to the purchase, or
other acquisition, and the sale, or other disposition, of all of its Securities,
and that the duties and responsibilities of the Custodian hereunder shall be
limited to receiving and safeguarding the assets and Securities of each Series
of the Fund and to delivering or disposing of them pursuant to the Written Order
from the Fund as aforesaid, and the Custodian shall have no authority, duty or
responsibility for the investment policy of the Fund or for any acts of the Fund
in buying or otherwise acquiring, or in selling or otherwise disposing of, any
Securities, except as hereinbefore specifically set forth.
The Custodian shall in no case or event permit the withdrawal of any money
or Securities of the Fund upon the mere receipt of any director, officer,
employee or agent of the Fund, but shall hold such money and Securities for
disposition under the procedures herein set forth.
- 10 -
<PAGE>
ARTICLE 18. STANDARD OF CARE; INDEMNIFICATION
In connection with the performance of its duties and responsibilities
hereunder, the Custodian (and each officer, employee, agent, sub-custodian and
depository of or engaged by the Custodian) shall at all times be held to the
standard of reasonable care. The Custodian shall be fully responsible for any
action taken or omitted by any officer, employee, agent, sub-custodian or
depository of or engaged by the Custodian to the same extent as if the Custodian
were to take or omit to take such action directly. The Custodian agrees to
indemnify and hold the Fund and each Series of the Fund harmless from and
against any and all loss, liability and expense, including reasonable legal fees
and expenses, arising out of the Custodian's own negligence, misfeasance, bad
faith or willful misconduct or that of any officer, employee, agent,
sub-custodian and depository of or engaged by the Custodian in the performance
of the Custodian's duties and obligations under this Agreement; PROVIDED,
HOWEVER, that, notwithstanding any other provision in this Agreement, the
Custodian shall not be responsible for the following:
(a) any action taken or omitted in accordance with any Written Order
from the Fund reasonably believed by the Custodian to be genuine and to be
signed by the proper party or parties; or
(b) any action taken or omitted in reasonable reliance on the advice
of counsel of or reasonably acceptable to the Fund relating to any of its
duties and responsibilities hereunder.
The Fund agrees to indemnify and hold the Custodian harmless from and
against any and all loss, liability and expense, including reasonable legal fees
and expenses, arising out of the performance by the Custodian (and each officer,
employee, agent, sub-custodian and depository of or engaged by the Custodian) of
its duties and responsibilities under this Agreement PROVIDED THAT the Custodian
(or any officer, employee, agent, sub-custodian or depository of or engaged by
the Custodian, as applicable) exercised reasonable care in the performance of
its duties and responsibilities under this Agreement.
ARTICLE 19. EFFECTIVE DATE
This Agreement shall become effective with respect to each Series that
adopts this Agreement when this Agreement shall have been approved with respect
to such Series by the Board of Directors of the Fund. The effective date with
respect to each Series shall be set forth on EXHIBIT A hereto. The Fund shall
transmit to the Custodian promptly after such approval by said Board of
Directors a copy of its resolution embodying such approval, certified by the
Secretary of the Fund.
- 11 -
<PAGE>
ARTICLE 20. GOVERNING LAW
This Agreement is executed and delivered in Minneapolis, Minnesota, and the
laws of the State of Minnesota shall be controlling and shall govern the
construction, validity and effect of this contract.
IN WITNESS WHEREOF, the Fund and the Custodian have caused this Agreement
to be executed in duplicate as of the date first above written by their duly
authorized officers.
ATTEST: FORTIS INCOME PORTFOLIOS, INC.
By
- -------------------------------------- --------------------------------------
Secretary Its
-----------------------------------
ATTEST: FIRST BANK NATIONAL ASSOCIATION
By
- -------------------------------------- --------------------------------------
Trust Officer Its
-----------------------------------
- 12 -
<PAGE>
AMENDMENT NO. 1
TO
EXHIBIT A
(AS AMENDED THROUGH DECEMBER 1, 1997)
TO
CUSTODIAN AGREEMENT
BETWEEN
FORTIS INCOME PORTFOLIOS, INC.
AND
FIRST BANK NATIONAL ASSOCIATION
NAME OF SERIES EFFECTIVE DATE
- -------------- --------------
Fortis U.S. Government Securities Fund March 21, 1992
10139190 Fortis Income U.S. Gov't
10139195 Fortis Income U.S. Gov't Segregated
Fortis Strategic Income Fund December 1, 1997
A-1
<PAGE>
100
[Logo] PEAT MARWICK LLP 1897-1997
4200 Norwest Center Telephone 612 305 5000 Telefax 612 305 5039
90 South Seventh
Street
Minneapolis, MN 55402
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
Fortis Income Portfolios, Inc.
Fortis Advantage Portfolios, Inc.:
We consent to the use of our report incorporated by reference herein 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
KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
November 25, 1997
<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 adoption 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
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
<PAGE>
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, Inc., Class A November 14, 1994
Fortis U.S. Government Securities Fund, Inc., Class B November 14, 1994
Fortis Strategic Income Fund, Inc., Class A December 1, 1997
Fortis Strategic Income Fund, Inc., Class B December 1, 1997
Fortis Strategic Income Fund, Inc., Class C December 1, 1997
Fortis Strategic Income Fund, Inc., Class H December 1, 1997
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
*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
<PAGE>
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.
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
<PAGE>
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.
(a) 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 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.
<PAGE>
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 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 at 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 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.
<PAGE>
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 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.
<PAGE>
Fortis Bond Funds
(With Sales Charge)
Average Annual Total Return
One Year
P(1+T)^n ERV
<TABLE>
<CAPTION>
U.S. Government
Securities Fund Class E Class A Class B Class C Class H
--------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
P = 1,000 1,000 1,000 1,000 1,000
n = 1 1 1 1 1
ERV = 1,051.20 1,048.40 1,053.50 1,079.60 1,053.40
T = 5.12 4.84 5.35 7.96 5.34
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97) Ended 7/31/97) Ended 7/31/97) Ended 7/31/97)
<CAPTION>
High Yield Fund Class A Class B Class C Class H
--------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,093.60 1,102.10 1,128.20 1,102.20
T = 9.36 10.21 12.82 10.22
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97) Ended 7/31/97) Ended 7/31/97)
</TABLE>
<PAGE>
(With Sales Charge)
Average Annual Total Return
Two Year
<TABLE>
<CAPTION>
U.S. Government
Securities Fund Class E Class A Class B Class C Class H
--------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
P = 1,000 1,000 1,000 1,000 1,000
n = 2 2 2 2 2
ERV = 1,104.50 1,098.70 1,097.10 1,133.10 1,097.00
CTR = 10.45 9.87 9.71 13.31 9.70
T = 5.10 4.82 4.74 6.45 4.74
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97) Ended 7/31/97) Ended 7/31/97) Ended 7/31/97)
<CAPTION>
High Yield Fund Class A Class B Class C Class H
--------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
P = 1,000 1,000 1,000 1,000
n = 2 2 2 2
ERV = 1,153.30 1,158.30 1,193.10 1,157.00
CTR = 15.33 15.83 19.31 15.70
T = 7.39 7.62 9.23 7.56
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97) Ended 7/31/97) Ended 7/31/97)
</TABLE>
<PAGE>
(With Sales Charge) (With Sales Charge)
Average Annual Total Return Average Annual Total Return
Three Year Four Year
U.S. Government U.S. Government
Securities Fund Class E Securities Fund Class E
--------------- ------- --------------- -------
P = 1,000 P = 1,000
n = 3 n = 4
ERV = 1,189.70 ERV = 1,157.50
CTR = 18.97 CTR = 15.75
T = 5.96 T = 3.72
(Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97)
High Yield Fund Class A High Yield Fund Class A
--------------- ------- --------------- -------
P = 1,000 P = 1,000
n = 3 n = 4
ERV = 1,253.50 ERV = 1,327.70
CTR = 25.35 CTR = 32.77
T = 7.82 T = 7.34
(Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97)
<PAGE>
(With Sales Charge) (With Sales Charge)
Average Annual Total Return Average Annual Total Return
Five Year Six Year
U.S. Government U.S. Government
Securities Fund Class E Securities Fund Class E
--------------- ------- --------------- -------
P = 1,000 P = 1,000
n = 5 n = 6
ERV = 1,258.90 ERV = 1,412.50
CTR = 25.89 CTR = 41.25
T = 4.71 T = 5.92
(Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97)
High Yield Fund Class A High Yield Fund Class A
--------------- ------- --------------- -------
P = 1,000 P = 1,000
n = 5 n = 6
ERV = 1,555.60 ERV = 1,902.50
CTR = 55.56 CTR = 90.25
T = 9.24 T = 11.32
(Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97)
<PAGE>
(With Sales Charge) (With Sales Charge)
Average Annual Total Return Average Annual Total Return
Seven Year Eight Year
U.S. Government U.S. Government
Securities Fund Class E Securities Fund Class E
--------------- ------- --------------- -------
P = 1,000 P = 1,000
n = 7 n = 8
ERV = 1,563.60 ERV = 1,682.20
CTR = 56.36 CTR = 68.22
T = 6.59 T = 6.72
(Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97)
High Yield Fund Class A High Yield Fund Class A
--------------- ------- --------------- -------
P = 1,000 P = 1,000
n = 7 n = 8
ERV = 2,266.10 ERV = 2,015.30
CTR = 126.61 CTR = 101.53
T = 12.40 T = 9.15
(Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97)
<PAGE>
(With Sales Charge) (With Sales Charge)
Average Annual Total Return Average Annual Total Return
Nine Year Ten Year
U.S. Government U.S. Government
Securities Fund Class E Securities Fund Class E
--------------- ------- --------------- -------
P = 1,000 P = 1,000
n = 9 n = 10
ERV = 1,887.80 ERV = 2,032.90
CTR = 88.78 CTR = 103.29
T = 7.32 T = 7.35
(Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97)
High Yield Fund Class A
--------------- -------
P = 1,000
n = 9
ERV = 2,177.90
CTR = 117.79
T = 9.03
(Fiscal Year
Ended 7/31/97)
<PAGE>
(With Sales Charge)
Average Annual Total Return
Since Inception
<TABLE>
<CAPTION>
U.S. Government
Securities Fund Class A Class B Class C Class H
--------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
P = 1,000 1,000 1,000 1,000
n = 2.71 2.71 2.71 2.71
ERV = 1,209.20 1,213.40 1,239.20 1,213.30
CTR = 20.92 21.34 23.92 21.33
T = 7.26 7.40 8.24 7.40
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97 Ended 7/31/97) Ended 7/31/97)
<CAPTION>
High Yield Fund Class A Class B Class C Class H
--------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
P = 1,000 1,000 1,000 1,000
n = 9.57 2.71 2.71 2.71
ERV = 2,302.30 1,274.20 1,300.10 1,272.90
CTR = 130.23 27.42 30.01 27.29
T = 9.10 9.36 10.17 9.31
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97) Ended 7/31/97) Ended 7/31/97)
</TABLE>
<PAGE>
(Without Sales Charge)
Average Annual Total Return
One Year
U.S. Government
Securities Fund Class B Class C Class H
--------------- ------- ------- -------
P = 1,000 1,000 1,000
n = 1 1 1
ERV = 1,089.60 1,089.80 1,089.50
T = 8.96 8.98 8.95
(Fiscal Year (Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97) Ended 7/31/97)
High Yield Fund Class B Class C Class H
--------------- ------- ------- -------
P = 1,000 1,000 1,000
n = 1 1 1
ERV = 1,138.10 1,138.20 1,138.20
T = 13.81 13.82 13.82
(Fiscal Year (Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97) Ended 7/31/97)
<PAGE>
(Without Sales Charge)
Average Annual Total Return
Two Year
U.S. Government
Securities Fund Class B Class C Class H
--------------- ------- ------- -------
P = 1,000 1,000 1,000
n = 2 2 2
ERV = 1,133.10 1,133.10 1,133.10
CTR = 13.31 13.31 13.31
T = 6.45 6.45 6.45
(Fiscal Year (Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97) Ended 7/31/97)
High Yield Fund Class B Class C Class H
--------------- ------- ------- -------
P = 1,000 1,000 1,000
n = 2 2 2
ERV = 1,194.40 1,193.10 1,193.00
CTR = 19.44 19.31 19.30
T = 9.29 9.23 9.22
(Fiscal Year (Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97) Ended 7/31/97)
<PAGE>
(Without Sales Charge)
Average Annual Total Return
Since Inception
U.S. Government
Securities Fund Class B Class C Class H
--------------- ------- ------- -------
P = 1,000 1,000 1,000
n = 2.71 2.71 2.71
ERV = 1,240.40 1,239.20 1,240.30
CTR = 24.04 23.92 24.03
T = 8.28 8.24 8.27
(Fiscal Year (Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97) Ended 7/31/97)
High Yield Fund Class B Class C Class H
--------------- ------- ------- -------
P = 1,000 1,000 1,000
n = 2.71 2.71 2.71
ERV = 1,301.40 1,300.10 1,299.90
CTR = 30.14 30.01 29.99
T = 10.21 10.17 10.16
(Fiscal Year (Fiscal Year (Fiscal Year
Ended 7/31/97) Ended 7/31/97) Ended 7/31/97)
<PAGE>
Fortis Bond Funds
SEC Yield
Yield = 2 * [((A-b)/(C*d) + 1)^6 -1]
<TABLE>
<CAPTION>
U.S. Government
Securities Fund Class E Class A Class B Class C Class H
--------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
a = 1,768,852 320,734 14,762 7,880 57,208
b = 166,053 42,173 3,602 1,930 13,988
c = 35,755,838.346 6,482,665.034 299,313.344 159,775.358 1,159,562.208
d = 9.59 9.59 9.14 9.13 9.14
yield = 5.68% 5.44% 4.94% 4.94% 4.94%
<CAPTION>
High Yield Fund Class A Class B Class C Class H
--------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
a= 1,045,760 171,461 58,928 537,795
b = 122,191 30,667 10,536 96,194
c = 15,702,484.985 2,575,008.749 885,801.108 8,080,971.515
d = 8.20 7.83 7.82 7.82
yield = 8.76% 8.53% 8.53% 8.53%
</TABLE>
<PAGE>
Fortis Bond Funds
Historical Distribution Rates
Monthly Declaring
Yield = (CD * 12) / POP
CD = Current Distribution
POP = Maximum Public Offer Price on 7/31/97
MD = Monthly Declaring
<TABLE>
<CAPTION>
U.S. Government
Securities Fund Class E Class A Class B Class C Class H
--------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
MD MD MD MD MD
CD = 0.048 0.046 0.041 0.041 0.041
POP = 9.59 9.59 9.14 9.13 9.14
distribution yield = 6.01% 5.76% 5.38% 5.39% 5.38%
High Yield Fund Class A Class B Class C Class H
--------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
MD MD MD MD
CD = 0.060 0.056 0.056 0.056
POP = 8.20 7.83 7.82 7.82
distribution yield = 8.78% 8.58% 8.59% 8.59%
</TABLE>
