FORTIS INCOME PORTFOLIOS INC, 485APOS, 1998-10-02

FORTIS INCOME PORTFOLIOS INC
485APOS, 1998-10-02

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<PAGE>
1933 Act Registration No. 002-46686
1940 Act Registration No. 811-02341

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 1998
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
---
Post-Effective Amendment No. 44

AND/OR

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No.
---
(Check appropriate box or boxes)

FORTIS INCOME PORTFOLIOS, INC.
(Exact Name of Registrant as Specified in Charter)

500 Bielenberg Drive
Woodbury, Minnesota 55125
(Address of Principal Executive Offices, Zip Code)

(651) 738-4000
(Registrant's Telephone Number, including Area Code)

Scott R. Plummer, Esq.
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Name and Address of Agent for Service)

COPY TO:
Michael J. Radmer, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498

It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
---------
on (specify date) pursuant to paragraph (b) of Rule 485
---------
75 days after filing pursuant to paragraph (a) of Rule 485
---------
X on December 1, 1998 pursuant to paragraph (a) of Rule 485
---------
60 days after filing pursuant to paragraph (a) of Rule 485
---------

<PAGE>

- --------------------------------------------------------------------------------
FORTIS INCOME PORTFOLIOS, INC.
Registration Statement on Form N-1A

--------------------------------
Cross Reference Sheet
Pursuant to Rule 481(a)

--------------------------------

Item No. Prospectus Heading
- -------- ------------------
<S> <C>
1. Cover Page. . . . . . . . . . . . . . . . . . . . Cover Page (no caption)
2. Synopsis. . . . . . . . . . . . . . . . . . . . . (not included)
3. Financial Highlights. . . . . . . . . . . . . . . Financial Highlights
4. General Description of Registrant . . . . . . . . The Funds; More Information on Fund
Objectives, Investment Strategies and Risks
5. Management of the Fund. . . . . . . . . . . . . . Fund Management
6. Capital Stock and Other Securities. . . . . . . . Shareholder Information
7. Purchase of Securities Being Offered. . . . . . . Shareholder Information
8. Redemption or Repurchase. . . . . . . . . . . . . Shareholder Information
9. Pending Legal Proceedings . . . . . . . . . . . . Not Applicable

Heading Statement of Additional Information
- ------- -----------------------------------
10. Cover Page. . . . . . . . . . . . . . . . . . . . Cover Page (no caption)
11. Table of Contents . . . . . . . . . . . . . . . . Table of Contents
12. General Information and History . . . . . . . . . Organization and Classification
13. Investment Objectives and Policies. . . . . . . . Investment Policies and Restrictions;
Risk Considerations
14. Management of the Fund. . . . . . . . . . . . . . Directors and Executive Officers
15. Control Persons and Principal
Holders of Securities . . . . . . . . . . . . . . Capital Stock
16. Investment Advisory and Other
Services. . . . . . . . . . . . . . . . . . . . . Investment Advisory and Other Services
17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . . . . . . . . Portfolio Transactions and Allocation
of Brokerage
18. Capital Stock and Other Securities. . . . . . . . Capital Stock
19. Purchase, Redemption and Pricing
of Securities Being Offered . . . . . . . . . . . Computation of Net Asset Value and
Pricing; Redemption; Special Purchase
Plans
20. Tax Status. . . . . . . . . . . . . . . . . . . . Taxation
21. Underwriters. . . . . . . . . . . . . . . . . . . Investment Advisory and Other
Services
22. Calculations of Performance Data. . . . . . . . . Performance
23. Financial Statements. . . . . . . . . . . . . . . Financial Statements
</TABLE>
<PAGE>
MAILING ADDRESS:
P.O. Box 64284
St. Paul
Minnesota 55164

STREET ADDRESS:
500 Bielenberg Drive
Woodbury
Minnesota 55125

Telephone: (651) 738-4000
Toll Free (800) 800-2000,
Ext. 3012

FORTIS
BOND FUNDS
PROSPECTUS
DATED DECEMBER 1, 1998

- ---------------------------------------
U.S. Government Securities
- ----------------------------------
Strategic Income
- ----------------------------------
High Yield
- ----------------------------------

AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THE SHARES OF THESE FUNDS OR DETERMINED WHETHER THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY STATEMENT TO THE CONTRARY IS A CRIMINAL
OFFENSE.

FORTIS-REGISTERED TRADEMARK- and
Fortis-Registered Trademark- are FORTIS-REGISTERED TRADEMARK-
registered servicemarks of Fortis AMEV SOLID ANSWERS FOR A CHANGING
and Fortis AG. WORLD-REGISTERED TRADEMARK-
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
<S> <C>
The Funds
U.S. Government Securities Fund........................................................................ 1
Strategic Income Fund.................................................................................. 4
High Yield Portfolio................................................................................... 6

Shareholder Information
Choosing a Share Class................................................................................. 9
Determining Your Purchase Price........................................................................ 10
How to Buy Shares...................................................................................... 13
How to Sell Shares..................................................................................... 14
Dividend and Capital Gains Distributions............................................................... 17
Tax Considerations..................................................................................... 17
Shareholder Inquiries.................................................................................. 17

Fund Management
Investment Adviser..................................................................................... 18
Portfolio Managers..................................................................................... 18

More Information on Fund Objectives, Investment Strategies and Risks
Objectives............................................................................................. 19
Investment Strategies.................................................................................. 19
Principal Risks........................................................................................ 21

Financial Highlights
U.S. Government Securities Fund........................................................................ 23
Strategic Income Fund.................................................................................. 24
High Yield Portfolio................................................................................... 25
</TABLE>
<PAGE>
THE FUNDS
- -------------------------------------------------------------------

This section briefly describes the objectives, principal investment strategies
and principal risks of U.S. Government Securities Fund, Strategic Income Fund
and High Yield Portfolio (the "Funds"). It also provides you with information on
how the Funds have performed (except for Strategic Income Fund, which has not
been in existence for a complete calendar year) and on Fund expenses. For
further information on the Funds, please read the section entitled "More
Information on Fund Objectives, Investment Strategies and Risks."

U.S. GOVERNMENT SECURITIES FUND

OBJECTIVE

U.S. Government Securities Fund's objective is to maximize total return, while
providing shareholders with a level of current income consistent with prudent
investment risk.

PRINCIPAL INVESTMENT STRATEGIES

U.S. Government Securities Fund pursues its objective by investing primarily in
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Fund invests both in U.S. Treasury obligations and in
obligations of U.S. Government agencies and instrumentalities, such as
mortgage-backed securities.

PRINCIPAL RISKS

As with any non-money market mutual fund, U.S. Government Securities Fund's
share price and yield will change daily because of changes in interest rates and
other factors. You may lose money if you invest in the Fund. The principal risks
of investing in U.S. Government Securities Fund include:

- INTEREST RATE RISK. Debt securities in the Fund will fluctuate in value
with changes in interest rates. In general, debt securities will increase in
value when interest rates fall and decrease in value when interest rates
rise.

- CREDIT RISK. The Fund is subject to the risk that the issuers of debt
securities it holds will not make payments on the securities.

- CALL RISK. The Fund is subject to the possibility that during periods of
falling interest rates, a bond issuer will "call"--or repay--its
high-yielding bonds before their maturity date. The Fund would then be
forced to invest the unanticipated proceeds at lower interest rates,
resulting in a decline in the Fund's income.

- RISKS OF MORTGAGE-RELATED SECURITIES. Because the Fund may invest
significantly in mortgage-related securities, it is subject to prepayment
risk and extension risk. Similar to call risk, prepayment risk is the risk
that falling interest rates could cause faster than expected prepayments of
the mortgages underlying the Fund's mortgage-related securities. These
prepayments are passed through to the Fund, which must reinvest them at a
time when interest rates on new mortgage investments are falling, reducing
the Fund's income. Extension risk is the risk that rising interest rates
could cause mortgage prepayments to slow, which would lengthen the duration
of the Fund's mortgage-related securities and cause their prices to decline.
(Duration is a commonly used measure of the potential volatility of a debt
security. Securities with longer durations generally have more volatile
prices than securities of comparable quality with shorter durations.)

AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.

1
<PAGE>
FUND PERFORMANCE

The bar chart and table below provide you with information on U.S. Government
Securities Fund's volatility and performance. The bar charts show you how
performance of the Fund's Class E shares has varied from year to year. The
performance of other classes of shares will differ due to differences in
expenses. Sales loads are not reflected in the bar chart; if they had been,
returns would be lower. The table compares the Fund's performance over different
time periods to that of a broad measure of market performance. Remember, how the
Fund has performed in the past is not necessarily an indication of how it will
perform in the future.

ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR*

[GRAPH TO COME]

* The Fund's total return for the period from January 1, 1998 through September
30, 1998 was %.

<TABLE>
<S> <C>
BEST QUARTER: Quarter ending , 199 %
WORST
QUARTER: Quarter ending , 199 %
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/97

<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS
----------- ------------- -------------
<S> <C> <C> <C>
Class A Shares..................................................................... 3.88% N/A N/A
Class E Shares..................................................................... 4.02% 4.96% 7.40%
Class B Shares..................................................................... 4.28% N/A N/A
Class H Shares..................................................................... 4.16% N/A N/A
Class C Shares..................................................................... 6.88% N/A N/A
Lehman Brothers Intermediate Government Index*..................................... 7.72% 6.27% 8.07%
</TABLE>

- ------------------------

* An unmanaged index of government bonds with an average maturity of eight to
nine years.

2
<PAGE>
FEES AND EXPENSES

As an investor, you pay certain fees and expenses if you buy and hold shares of
U.S. Government Securities Fund. Shareholder fees are fees you pay directly when
buying or selling shares. Annual fund operating expenses are deducted from Fund
assets, so their effect is included in the share price. The figures below are
based on expenses during the fiscal year ended July 31, 1998.

<TABLE>
<CAPTION>
CLASS B
CLASS A AND H CLASS C CLASS E
SHARES SHARES SHARES SHARES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)... 4.50% 0.00% 0.00% 4.50%
Maximum Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is less)........................ 0.00% 4.00% 1.00% 0.00%

ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................. -- % -- % -- % -- %
Distribution and Service (12b-1)
Fees............................ 0.25% 1.00% 1.00% 0.00%
Other Expenses................... -- % -- % -- % -- %
Total Annual Fund Operating
Expenses........................ -- % -- % -- % -- %
</TABLE>

EXPENSE EXAMPLE. This example is intended to help you compare the cost of
investing in the different share classes of U.S. Government Securities Fund with
the cost of investing in other mutual funds. It assumes that you invest $10,000
in the Fund for the time periods indicated, that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:

<TABLE>
<CAPTION>
CLASS B/H CLASS C
SHARES SHARES
ASSUMING CLASS B/H ASSUMING CLASS C
REDEMPTION AT SHARES REDEMPTION AT SHARES
CLASS A END OF ASSUMING NO END OF ASSUMING NO CLASS E
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION SHARES
----------- ------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 year............................. $ $ $ $ $ $
3 years............................
5 years............................
10 years...........................
</TABLE>

3
<PAGE>
STRATEGIC INCOME FUND

OBJECTIVE

Strategic Income Fund's objective is to maximize total return and current
income.

PRINCIPAL INVESTMENT STRATEGIES

Strategic Income Fund pursues its objective by investing in primarily in the
following three sectors:

- U.S. GOVERNMENT SECURITIES. The Fund invests in securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. The
Fund invests both in U.S. Treasury obligations and in obligations of U.S.
Government agencies and instrumentalities, such as mortgage-backed
securities.

- HIGH YIELD AND INVESTMENT GRADE FIXED-INCOME SECURITIES OF FOREIGN
GOVERNMENTS AND COMPANIES. The Fund invests in fixed-income securities
issued by (a) foreign governments and their agencies; (b) government-related
issuers; (c) supranational organizations; (d) foreign companies; and (e)
foreign banks and U.S. branches of foreign banks. These securities may be
either investment grade (or, if unrated, securities that the Fund's adviser
believes are of comparable quality) or non-investment grade (or unrated and
of comparable quality).

- HIGH YIELD DOMESTIC SECURITIES. The Fund invests in non-investment grade
fixed income securities issued by U.S. issuers (or unrated securities the
Fund's adviser believes are of comparable quality). These securities are
sometimes referred to as "junk bonds" or "high yield" securities.

The Fund may invest without limitation in securities rated as low as Caa by
Moody's Investors Service, Inc. ("Moody's) or CCC by Standard & Poor's
Corporation ("Standard & Poor's) or comparably rated by another nationally
recognized rating organization. In addition, up to 10% of the Fund's total
assets may be invested in "non-performing" securities rated lower than Caa or
CCC. The fund may also invest in unrated securities which the Fund's investment
adviser ("Advisers") believes are of comparable quality to those rated within
the foregoing categories.

PRINCIPAL RISKS

As with any non-money market mutual fund, Strategic Income Fund's share price
and yield will change daily because of changes in interest rates and other
factors. You may lose money if you invest in the Fund. The principal risks of
investing in Strategic Income Fund include:

- CREDIT RISK. Strategic Income Fund is subject to the risk that the
issuers of debt securities it holds will not make payments on the
securities.

- CALL RISK. Strategic Income Fund is subject to the possibility that
during periods of falling interest rates, a bond issuer will "call"--or
repay--its high-yielding bonds before their maturity date. The Fund would
then be forced to invest the unanticipated proceeds at lower interest rates,
resulting in a decline in the Fund's income.

- RISKS OF MORTGAGE-RELATED SECURITIES. Because Strategic Income Fund may
invest significantly in mortgage-related securities, the Fund is subject to
prepayment risk and extension risk. Similar to call risk, prepayment risk is
the risk that falling interest rates could cause faster than expected
prepayments of the mortgages underlying the Fund's mortgage-related
securities. These prepayments are passed through to the Fund, which must
reinvest them at a time when interest rates on new mortgage investments are
falling, reducing the Fund's income. Extension risk is the risk that rising
interest rates could cause mortgage prepayments to slow, which would
lengthen the duration of the Fund's mortgage-related securities and cause
their prices to decline. (Duration is a commonly used measure of the
potential volatility of a debt security. Securities with longer durations
generally have more volatile prices than securities of comparable quality
with shorter durations.)

4
<PAGE>
- RISKS OF FOREIGN SECURITIES. Strategic Income Fund's main investment
strategies include investing in foreign securities. Investing in foreign
securities involves risks not typically associated with U.S. investing,
including the risk that the Fund may experience a decline in net asset value
resulting from changes in exchange rates between the United States dollar
and foreign currencies. The Fund may invest in emerging markets, where the
risks of foreign investing are higher.

- RISKS OF HIGH YIELD SECURITIES. A significant portion of Strategic Income
Fund's portfolio may consist of non-investment grade fixed income
securities. Commonly referred to as "high yield" securities or "junk bonds,"
these securities generally have more volatile prices and carry more risk to
principal than investment grade securities. Investors should carefully
consider their ability to assume the risks involve before making an
investment in Strategic Income Fund.

AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.

FEES AND EXPENSES

As an investor, you pay certain fees and expenses if you buy and hold shares of
Strategic Income Fund. Shareholder fees are fees you pay directly when buying or
selling shares. Annual fund operating expenses are deducted from Fund assets, so
their effect is included in the share price. The figures below show expenses
before any expense reimbursements during the fiscal year ended July 31, 1998.*

<TABLE>
<CAPTION>
CLASS B
CLASS A AND H CLASS C
SHARES SHARES SHARES
----------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)... 4.50% 0.00% 0.00%
Maximum Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is less)........................ 0.00% 4.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................. -- % -- % -- %
Distribution and Service (12b-1)
Fees............................ 0.25% 1.00% 1.00%
Other Expenses................... -- % -- % -- %
Total Annual Fund Operating
Expenses........................ -- % -- % -- %
</TABLE>

- ------------------------

* Actual expenses for the fiscal year were lower than those shown in the table
because of voluntary expense reimbursements by Advisers. Taking these
reimbursements into account, Other Expenses and Total Fund Operating Expenses
for the fiscal year ended July 31, 1998 were % and %, respectively. Expense
reimbursements may be discontinued at any time.

EXPENSE EXAMPLE. This example is intended to help you compare the cost of
investing in the different share classes of Strategic Income Fund with the cost
of investing in other mutual funds. It assumes that you invest $10,000 in the
Fund for the time periods indicated, that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:

<TABLE>
<CAPTION>
CLASS B/H CLASS C
SHARES SHARES
ASSUMING CLASS B/H ASSUMING CLASS C
REDEMPTION AT SHARES REDEMPTION AT SHARES
CLASS A END OF ASSUMING NO END OF ASSUMING NO
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1 year............................. $ $ $ $ $
3 years............................
5 years............................
10 years...........................
</TABLE>

5
<PAGE>
HIGH YIELD PORTFOLIO

OBJECTIVE

High Yield Portfolio's objective is to maximize total return.

PRINCIPAL INVESTMENT STRATEGIES

High Yield Portfolio pursues its objective by investing primarily in a portfolio
of non-investment grade fixed-income securities, also referred to as "high
yield" securities or "junk bonds."

The Fund may invest without limitation in securities rated as low as Caa by
Moody's or CCC by Standard & Poor's Ratings Service, or comparably rated by
another nationally recognized rating organization. In addition, up to 10% of the
Fund's total assets may be invested in "non-performing" securities rated lower
than Caa or CCC. The Fund may also invest in unrated securities which Advisers
believes are of comparable quality to those rated within the foregoing
categories.

PRINCIPAL RISKS

As with any non-money market mutual fund, High Yield Portfolios' share price and
yield will change daily because of changes in interest rates and other factors.
You may lose money if you invest in the Fund. The principal risks of investing
in High Yield Portfolio include:

- CREDIT RISK. The Fund is subject to the risk that the issuers of debt
securities it holds will not make payments on the securities.

- RISKS OF HIGH YIELD SECURITIES. The Fund invests primarily in
non-investment grade fixed-income securities. Commonly referred to as "high
yield" securities or "junk bonds," these securities generally have more
volatile prices and carry more risk to principal than investment grade
securities. Investors should carefully consider their ability to assume the
risks involved before making an investment in the Fund.

AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.

FUND PERFORMANCE

The bar chart and table below provide you with information on the Fund's
volatility and performance. The bar charts show you how performance of the
Fund's Class A shares has varied from year to year. The performance of other
classes of shares will differ due to differences in expenses. Sales loads are
not reflected in the bar chart; if they had been, returns would be lower. The
table compares the Fund's performance over different time periods to that of a
broad measure of market performance. Remember, how the Fund has performed in the
past is not necessarily an indication of how it will perform in the future.

6
<PAGE>
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR*

[GRAPH TO COME]

* The Fund's total return for the period from January 1, 1998 through September
30, 1998 was %.

<TABLE>
<S> <C>
BEST QUARTER: Quarter ending , 199 %
WORST
QUARTER: Quarter ending , 199 %
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/97

<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS
----------- ----------- -----------
<S> <C> <C> <C>
Class A Shares..................................................................... 4.57% 8.98% 8.89%
Class B Shares..................................................................... 5.22% N/A N/A
Class H Shares..................................................................... 5.08% N/A N/A
Class C Shares..................................................................... 7.83% N/A N/A
Lehman Brothers High Yield Index*.................................................. 12.03% 11.38% 11.52%
</TABLE>

- ------------------------

* An unmanaged index of lower quality, high yield corporate debt securities.

7
<PAGE>
FEES AND EXPENSES

As an investor, you pay certain fees and expenses if you buy and hold shares of
High Yield Portfolio. Shareholder fees are fees you pay directly when buying or
selling shares. Annual fund operating expenses are deducted from Fund assets, so
their effect is included in the share price. The figures below are based on
expenses during the fiscal year ended July 31, 1998.

ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................. -- % -- % -- %
Distribution and Service (12b-1)
Fees............................ 0.35% 1.00% 1.00%
Other Expenses................... -- % -- % -- %
Total Annual Fund Operating
Expenses........................ -- % -- % -- %
</TABLE>

EXPENSE EXAMPLE. This example is intended to help you compare the cost of
investing in the different share classes of Strategic Income Fund with the cost
of investing in other mutual funds. It assumes that you invest $10,000 in the
Fund for the time periods indicated, that your investment has a 5% return each
year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:

8
<PAGE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------

CHOOSING A SHARE CLASS

The Funds offer you a choice among multiple classes of shares with different
sales charges and expenses. These alternatives enable you to choose the best
method of purchasing shares, given the amount of your purchase, the length of
time you expect to hold your shares, and other factors. Here is a brief summary
of the different share classes offered by the Funds:

CLASS A SHARES

- You pay a sales charge at the time of purchase. (THIS CHARGE MAY BE
REDUCED OR WAIVED FOR CERTAIN PURCHASES.)

- There is no sales charge when you redeem your shares. (SALES IN EXCESS OF
$1 MILLION THAT WERE NOT SUBJECT TO AN INITIAL SALES CHARGE MAY BE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.)

- Shares are subject to an annual Rule 12b-1 fee equal to .25% of a Fund's
average daily net assets (.35% for High Yield Portfolio).

- Because Rule 12b-1 fees are lower, Class A shares have lower expenses and
pay higher dividends than Class B, Class H or Class C shares.

CLASS E SHARES

- These shares are only available in U.S. Government Securities Fund, and
only if you were a shareholder of that Fund on November 13, 1994.

- You pay a sales charge at the time of purchase. (THIS CHARGE MAY BE
REDUCED OR WAIVED FOR CERTAIN PURCHASES.)

- There is no sales charge when you redeem your shares. (SALES IN EXCESS OF
$1 MILLION THAT WERE NOT SUBJECT TO AN INITIAL SALES CHARGE MAY BE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.)

- Shares are not subject to an annual Rule 12b-1 fee.

- Class E shares have the lowest expenses and pay the highest dividends of
all share classes.

CLASS B AND CLASS H SHARES

- You do not pay any sales charge at the time of purchase.

- Shares are subject to a contingent deferred sales charge (CDSC) if
redeemed within six years of purchase. The CDSC is 4% during the first two
years after purchase, and declines thereafter to as low as 1% during the
sixth year after purchase. Shares are not subject to a CDSC after the
sixth year.

- Shares are subject to an annual Rule 12b-1 fee equal to 1.00% of a Fund's
average daily net assets.

- After eight years, shares automatically convert to Class A shares at no
charge to you, resulting in a lower Rule 12b-1 fee thereafter.

- Class B and Class H shares provide the benefit of putting your entire
investment to work immediately.

- Shares in these classes will have a higher expense ratio and pay lower
dividends than Class A and Class E shares due to the higher Rule 12b-1
fee.

- The only difference between Class B and Class H shares is the size of the
concession paid to dealers. This difference does not affect you in any
way.

9
<PAGE>
CLASS C SHARES

- You do not pay any sales charge at the time of purchase.

- Shares are subject to a contingent deferred sales charge of 1.00% if
redeemed within one year of purchase.

- Shares are subject to an annual Rule 12b-1 fee of 1.00% of a Fund's
average daily net assets.

- Shares do not convert to Class A shares. However, they are subject to a
lower contingent deferred sales charge than Class B or Class H shares and
do not have to be held for as long a time (one year vs. six years) to
avoid paying a contingent deferred sales charge.

- Class C shares provide the benefit of putting your entire investment to
work for you immediately.

- Shares in this class will have a higher expense ratio and pay lower
dividends than Class A and Class E shares due to the higher Rule 12b-1
fee.

DECIDING WHICH CLASS TO PURCHASE

In deciding which class of shares to purchase, you should consider, among other
things:

- The length of time you expect to hold your investment.

- The amount of any sales charge (whether imposed at the time of purchase or
redemption) and Rule 12b-1 fees.

- Whether you qualify for any reduction or waiver of sales charges (E.G., if
you are exempt from the sales charge, you must invest in Class A shares).

- The various exchange privileges among the different classes of shares.

- The fact that Class B and Class H shares automatically convert to Class A
shares after eight years.

Because Class A shares may be a better choice if your investment qualifies for a
reduced sales charge, Class B and Class H share orders for more than $500,000
and Class C share orders for more than $1,000,000 will be treated as orders for
Class A shares.

DETERMINING YOUR PURCHASE PRICE

NET ASSET VALUE OF FUND SHARES

Your purchase price will be equal to a Fund's net asset value per share plus any
applicable initial sales charge. Each Fund's net asset value per share is
determined as of the primary closing time for business on the New York Stock
Exchange (the "Exchange") on each day the Exchange is open.

Your purchase price generally will be based on the net asset value per share of
the Fund which is next calculated after your purchase request is received by
Fortis Investors ("Investors"), the Funds' underwriter. Thus, orders generally
must be received by Investors prior to the close of the Exchange to receive that
day's price. If you purchase Fund shares through a broker-dealer other than
Investors, however, your order must be received by your broker-dealer prior to
the close of the Exchange. Investors will then apply that day's price to the
order if the broker-dealer places the order with Investors by the end of
Investors' business day.

Each Fund's net asset value per share is determined by dividing the value of the
securities and other assets owned by the Fund, less all liabilities, by the
number of the Fund's shares outstanding. The securities owned by the Fund are
generally valued at market value. However, there are times when market values
are not readily available, or when restricted or illiquid securities or other
assets are being valued. In these cases, securities are valued at fair value as
determined in good faith by Fund management under supervision of the Funds'
Board of Directors.

A significant portion of Strategic Income Fund's assets may consist of
securities of foreign issuers that trade on weekends or other days when the Fund
does not price its shares. Therefore, the net asset value of Strategic Income
Fund's shares may change on days when shareholders will not be able to purchase
or redeem their shares.

10
<PAGE>
PURCHASE PRICE OF CLASS A AND CLASS E SHARES

(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 purchase price of Class A and Class E Fund shares is equal to their net
asset value per share next calculated after receipt of your purchase order, plus
a sales charge. Sales charges and broker-dealer concessions, which vary with the
size of your 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 AS SALES CHARGE AS
PERCENTAGE OF PERCENTAGE OF THE NET BROKER-DEALER
AMOUNT OF SALE PURCHASE PRICE AMOUNT INVESTED CONCESSION
- --------------------------------------------------------------- ----------------- --------------------- ---------------
<S> <C> <C> <C>
Less than $100,000............................................. 4.50% 4.712% 4.00%
$100,000 but less than $250,000................................ 3.50% 3.627% 3.00%
$250,000 but less than $500,000................................ 2.50% 2.564% 2.25%
$500,000 but less than $1,000,000.............................. 2.00% 2.041% 1.75%
$1,000,000 or more*............................................ -0- -0- 1.00%
</TABLE>

- ------------------------

* A contingent deferred sales charge will be assessed if you redeem these shares
within two years of purchase.

In determining your sales charge under the above schedule, purchases by you,
your spouse, your children under the age or 21, and purchases by any
tax-qualified plan of any of the foregoing (provided there is only one
participant) will be combined. The above schedule also applies to (1) purchases
by a trustee or fiduciary of a single trust estate or single fiduciary account,
and (2) purchases by any organized group with a tax identification number, if
these purchases result in economy of sales effort or expense. An organized group
does not include clients of an investment advisor.

REDUCING YOUR SALES CHARGE FOR CLASS A AND CLASS E SHARES. As shown in the
table above, your sales charge is reduced for larger purchases of Class A and
Class E shares. You also may reduce your sales charge through one of the special
purchase plans listed below. For more information on these plans, see the
Statement of Additional Information or contact your broker-dealer or sales
representative. It is your obligation to notify your broker-dealer or sales
representative about your eligibility for either of the following plans.

- RIGHT OF ACCUMULATION. The preceding table's sales charge discounts apply
to your current purchase plus the net asset value of shares already owned in
any Fortis Fund having a sales charge.

- STATEMENT OF INTENTION. The preceding table's sales charge discounts
apply 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).

EXEMPTIONS FROM SALES CHARGES ON CLASS A AND CLASS E SHARES. The Statement of
Additional Information contains information on investors who are eligible to
purchase Class A and Class E shares without a sales charge.

CONTINGENT DEFERRED SALES CHARGES. There is no initial sales charge on
purchases of Class A and Class E shares of $1,000,000 or more. However,
Investors pays broker-dealers, out of its own assets, a fee of up to 1% of the
offering price of these shares. If these shares are redeemed within two years,
you will be assessed a contingent deferred sales charge of 1%. For more
information, see "How to Sell Shares--Contingent Deferred Sales Charge."

11
<PAGE>
PURCHASE PRICE OF CLASS B AND CLASS H SHARES

The purchase price of Class B and Class H shares is the net asset value of the
shares. Because these shares are sold without an initial sales charge, the Fund
receives the full amount of your investment. However, a contingent deferred
sales charge ("CDSC") will be imposed if shares are redeemed within six years of
purchase, at the following rates:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE PURCHASE SALES CHARGE
- -------------------- --------------------

<S> <C>
First............... 4.00%
Second.............. 4.00%
Third............... 3.00%
Fourth.............. 3.00%
Fifth............... 2.00%
Sixth............... 1.00%
Seventh............. None
Eighth.............. None
</TABLE>

For additional information, see "How to Sell Shares--Contingent Deferred Sales
Charge."

Proceeds from the CDSC are paid to Investors, in part to defray expenses
incurred by Investors in selling Class B and Class H shares. Although these
shares are sold without an initial sales charge, Investors pays broker-dealers
who sell Class B shares a concession equal to 4.00% of the amount invested and
an annual fee of .25% of the average daily net assets of the Fund attributable
to such shares. Broker-dealers who sell Class H shares are paid a concession of
between 5.25% and 5.50% of the amount invested.

CONVERSION TO CLASS A SHARES. Class B and Class 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 of
these shares convert to Class A, a proportionate amount of Class B and H shares
in your account that were purchased through the reinvestment of dividends and
other distributions will also convert to Class A.

PURCHASE PRICE OF CLASS C SHARES

The purchase price of Class C shares is their net asset value. Because these
shares are sold without an initial sales charge, the Fund receives the full
amount of your investment. However, a CDSC of 1% will be imposed if you redeem
your shares within one year of purchase. For additional information, see "How to
Sell Shares--Contingent Deferred Sales Charge."

Proceeds from the CDSC are paid to Investors, in part to defray expenses
incurred by Investors in selling Class C shares. Although these shares are sold
without an initial sales charge, Investors pays pays broker-dealers who sell
Class C shares a concession equal to 1.00% of the amount invested and an annual
fee, which begins to accrue one year after the shares are sold, equal to 1.00%
of the amount invested.

RULE 12B-1 FEES

Each Fund pays Investors Rules 12b-1 fees for the distribution and sale of its
shares and for services provided to shareholders. These fees differ by class, as
follows:

<TABLE>
<CAPTION>
RULE 12b-1 FEE
SHARE CLASS (AS A % OF AVERAGE NET ASSETS)
- -------------------------------------------------------------- -------------------------------

<S> <C>
Class A....................................................... 0.25%
(0.35% for High Yield
Portfolio)
Class E....................................................... None
Class B and Class H........................................... 1.00%
Class C....................................................... 1.00%
</TABLE>

Because these fees are paid out of a Fund's assets on an ongoing basis, over
time they will increase the cost of your investment and may cost you more than
paying other types of sales charges.

12
<PAGE>
HOW TO BUY SHARES

You may become a shareholder in any of the Funds with an initial investment of
$500 or more. If you are investing under the Systematic Investment Plan, this
minimum initial investment is reduced to $25 for the Pre-Authorized Check Plan
and $50 for any other Systematic Investment Plan (except for telephone or wire
orders).

The minimum subsequent investment is $50 for investments by mail ($25 for the
Pre-Authorized Check Plan), $100 for investments by telephone through the
automated Fortis Information Line, and $500 for other investments by telephone
or investments by wire.

The Funds have the right to reject any purchase order or to restrict purchases
at any time.

INVESTING BY TELEPHONE

Your registered representative may make your purchase ($500 minimum) by
telephoning the number on the cover page of this Prospectus. In addition, your
check and the Account Application which accompanies this Prospectus must be
promptly forwarded, so that Investors receives your check within three business
days. Please make your check payable to Fortis Investors, Inc. and mail it with
your Application to "CM-9651, St. Paul, MN 55170-9651".

If you have a bank account authorization form on file, you may purchase
$100-$10,000 worth of Fund shares via telephone through the automated Fortis
Information Line.

INVESTING BY WIRE

If you have an account with a commercial bank that is a member of the Federal
Reserve System, you may purchase shares ($500 minimum) by requesting your bank
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 (your account number)

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 set forth below under "Investing by Mail."
Additional investments may be made at any time by having your bank wire Federal
Funds to the above address for credit to your account. These investments may be
made by wire even if your initial investment was by mail.

INVESTING BY MAIL

To invest by mail, 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," to the following address:

CM-9614
St. Paul, MN 55170-9614

Additional purchases may be made at any time by mailing a check or other
negotiable bank draft along with your confirmation stub. Be sure to identify the
account to which any such purchase is to be credited by specifying the name(s)
of the registered owner(s) and the account number.

13
<PAGE>
SPECIAL PURCHASE PLANS

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. You may have $25 or more automatically withdrawn
each month from your checking account (see the Systematic Investment Plan
Authorization Agreement in this Prospectus). A systematic investment plan may
enable you to lower your average cost per share through the principle of "dollar
cost averaging." Confirmations for purchases made under a Systematic Investment
Plan may, at Advisers' option, be sent to you quarterly, rather than following
each transaction.

EXCHANGE PRIVILEGE

Except for Class E shares, you may exchange your Fund shares for the same class
of shares in another Fortis Fund. If you hold Class E shares, you may exchange
those shares for Class A shares of another Fortis Fund. In both cases, the
exchange may be made without payment of an exchange fee or an additional sales
charge.

Similarly, shareholders of other Fortis Funds may exchange their shares for Fund
shares of the same class. These exchanges will be made at net asset value if the
shares to be exchanged have already been subject to a sales charge. 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. However, if the Fortis Money Fund Class A shares
have already incurred a sales charge, exchanges will be made at net asset value
and may be made only into Class A Fund shares. Finally, if you held Class E
shares of U.S. Government Securities Fund and exchanged those shares for Class A
shares of another Fortis Fund, you may re-exchange your Class A shares for U.S.
Government Securities Fund Class E shares.

You may initiate an exchange by writing to or telephoning your broker-dealer,
sales representative, or the Fund. You may also use the automated Fortis
Information Line for exchanges of $100-$100,000 worth of shares. Telephone
exchanges will be permitted only if you have completed and returned the
Telephone Exchange section of the Account Application. During times of chaotic
economic or market circumstances, you may have difficulty reaching your
broker-dealer, sales representative, or the Fund by telephone. Consequently, a
telephone exchange may be difficult to implement at those times. (See "How to
Sell Shares--By Phone").

An exchange of shares is considered to be a sale for federal income tax
purposes, and may result in a taxable capital gain or loss.

Advisers has the right to restrict the frequency of or impose charges upon
exchanges, or to otherwise change or terminate the exchange privilege. You will
receive at least 30 days notice before any such change is made.

HOW TO SELL SHARES

You may sell your shares on any day when the New York Stock Exchange is open.
Your redemption price will be the net asset value of your shares, less any
applicable contingent deferred sales charge.

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.

BY MAIL

If you redeem by mail, your redemption price will be based on the next net asset
value per share which is determined following receipt by the Fund of your
written redemption request in proper form (and a properly endorsed stock
certificate if one has been issued).

14
<PAGE>
To redeem by mail, send a written request to the Funds at the following address:

Fortis Mutual Funds
P.O. Box 64284
St. Paul, MN 55164

Your request should include the following information:

- Name of Fund

- Account number

- Dollar amount or number of shares to be redeemed

- Name on the account

- Signatures of all registered account owners

If you hold certificates for your shares, they must be included with your
request, and should be sent by certified mail. These certificates (and any stock
powers included with your redemption request) 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. Signatures
on a written redemption request must be guaranteed if:

- The Funds do not have the signature of the registered holder on file and
the redemption proceeds are greater than $25,000.

- The redemption proceeds are to be paid to someone other than the
registered holder.

- The redemption proceeds are to be sent to an address other than the
address on the Funds' records.

- The shares are to be transferred.

You may obtain a signature guarantee from a bank, broker-dealer, credit union,
national securities exchange, registered securities association, clearing
agency, or savings association. A signature guarantee assures that a signature
is genuine and protects you from unauthorized account transfers.

BY PHONE

Your broker-dealer may place a redemption order by phone if it has a selling
agreement with Investors, but proceeds will not be released until the
appropriate written materials are received by the Funds. If your broker-dealer
receives your order prior to the close of the Exchange, you will receive that
day's price on the order, so long as the broker-dealer places the order with
Investors by the end of the business day. Some broker-dealers may charge a fee
to process redemptions.

You may also redeem up to $25,000 worth of your shares by calling the Funds at
(800) 800-2000, ext. 3012, provided that:

- Your 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.

In addition, you may use the automated Fortis Information Line for redemptions
of $500-$25,000 on non-tax qualified accounts.

The telephone redemption procedure is automatically available to shareholders.
The Funds will employ reasonable procedures to confirm that telephone
instructions are genuine, and they will not be responsible for any losses that
may result from acting on telephone instructions that they reasonably believe to
be genuine. The Funds' procedures are to verify address and social security
number, tape record the telephone call, and provide written confirmation of the
transaction. The security measures for automated telephone redemptions using the
Fortis Information Line involve use of a personal identification number and
providing written confirmation of the transaction.

You may have difficulty reaching your broker-dealer, sales representative, or
the Funds by telephone during times of chaotic economic or market circumstances.
If you are unable to reach the Funds or their agents by telephone, written
instructions should be sent.

15
<PAGE>
The Funds have the right to change, terminate, or impose charges upon the
telephone redemption privilege. You will receive at least 30 days notice before
any such change is made.

PAYMENT OF REDEMPTION PROCEEDS

Your redemption proceeds generally will be paid as soon as possible, but not
later than three business days after receipt of a proper redemption request.
However, if your shares were recently purchased with non-guaranteed funds, such
as a personal check, the mailing of your redemption check may be delayed by up
to fifteen days. If you wish to avoid this delay, you should consider the wire
purchase method described under "How to Buy Shares."

INVOLUNTARY REDEMPTIONS

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
Funds' Systematic Investment Plan will not have their accounts redeemed. Before
redeeming your account, the Fund will mail you a notice of its intention to
redeem, which will give you 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, your account will be redeemed.

SYSTEMATIC WITHDRAWAL PLAN

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. Confirmations
for redemptions made under the Systematic Withdrawal Plan may, at Advisers'
option, be sent to you quarterly, rather than following each transaction. For
further information about the Systematic Withdrawal Plan, contact your
broker-dealer or sales representative.

REINVESTMENT PRIVILEGE

If you redeem your shares, you may reinvest the proceeds within 60 days without
payment of an additional sales charge. If the shares you redeemed were subject
to a CDSC, that charge will be credited to your account, and the reinvested
shares will be subject to the same CDSC that would have applied to the original
shares. For further information, contact your broker-dealer or sales
representative.

CONTINGENT DEFERRED SALES CHARGES

When you redeem shares subject to a CDSC, your CDSC will be based on the value
of the shares at the time of purchase or at the time of sale, whichever is less.
The CDSC will not be applied to shares acquired by reinvesting income dividends
or capital gain distributions.

Unless instructed otherwise, the Funds will redeem shares in the following
order:

- Shares not subject to a CDSC and having a higher Rule 12b-1 fee will be
redeemed first.

- Shares not subject to a CDSC and having a lower Rule 12b-1 fee will be
redeemed next.

- Shares subject to a CDSC then will be redeemed in the order purchased.

A CDSC is not imposed:

- When a Fund exercises its right to liquidate accounts which are less than
the minimum account size.

- When shares are redeemed because of a shareholder's death or disability,
as defined in Section 72(m)(7) of the Internal Revenue Code (if
satisfactory evidence is provided to the Fund).

- With respect to Class B and H shares only, to 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.

- With respect to Class B, H, and C shares, to qualified plan benefit
distributions due to the 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.

16
<PAGE>
If you exchange shares subject to a CDSC for shares of a different Fortis Fund,
the transaction will not be subject to a CDSC. However, when you redeem the
shares acquired through the exchange, you will be treated as if no exchange took
place for the purpose of determining the CDSC. In addition, a CDSC will not be
imposed at the time that Fund shares subject to a CDSC are exchanged for shares
of Fortis Money Fund or at the time those Fortis Money Fund shares are
reexchanged for shares of any Fortis Fund subject to a CDSC. In each case,
however, the shares acquired will remain subject to the CDSC that would have
applied to the original Fund shares.

DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS

Dividends from a Fund's net investment income are declared each day and paid
monthly. You will be credited with dividends starting the day after you purchase
your shares. If you have purchased by phone, you will not be credited with a
dividend until payment is received for the shares. Any capital gains
distributions are made annually. You will receive confirmations after each
dividend, or quarterly, at Advisers' option.

Dividend and capital gains distributions will be reinvested in additional Fund
shares of the same class (at net asset value) unless you send the Fund a written
request that either or both be sent to you in cash 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
you withdraw your entire account, all dividends accrued from the last payment
date to the time of withdrawal will be paid at that time.

Prior to purchasing shares of a Fund, you should consider the impact of dividend
or capital gains distributions which are expected to be announced, or which have
been announced but not paid. If you purchase shares shortly before the record
date for such a distribution, you will pay the full price for the shares and
then receive a portion of that price back shortly thereafter as a taxable
distribution.

TAX CONSIDERATIONS

Some of the come common tax consequences of investing in the Funds are discussed
below. However, because everyone's tax situation is unique, be sure to consult
with your tax adviser.

TAXES ON DISTRIBUTIONS

Each Fund will distribute substantially all of its net income and capital gains
to its shareholders. For most investors, these distributions will be taxable,
whether paid in cash or reinvested.

Distributions paid from a Fund's net investment income are taxable as ordinary
income. The Funds expect that their distributions will consist primarily of
ordinary income. Distributions paid from the Fund's long-term capital gains are
taxable as long-term gains, regardless of how long you have held your shares.

TAXES ON TRANSACTIONS

The sale or exchange of Fund shares will be a taxable event for you and may
result in a capital gain or loss. The gain or loss will be considered long-term
if you have held your shares for more than one year. A gain or loss on shares
held for one year or less is considered short-term and is taxed at the same
rates as ordinary income.

Information about the tax status of each year's distributions will be mailed
annually.

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.

17
<PAGE>
FUND MANAGEMENT
- -------------------------------------------------------------------

INVESTMENT ADVISER

Fortis Advisers, Inc. ("Advisers") is the investment adviser for the Funds, and
also serves as the Funds' transfer agent and dividend agent. Advisers has been
managing investment company portfolios since 1949. In addition to providing
investment advice, Advisers is responsible for managing each Fund's business
affairs, subject to the overall authority of the Board of Directors. Advisers'
address is that of the Funds.

Each Fund pays Advisers a monthly fee for providing investment advisory
services. During their most recent fiscal years, the Funds paid the following
investment advisory fees to Advisers:

<TABLE>
<CAPTION>
ADVISORY FEE
AS A % OF
AVERAGE DAILY NET
ASSETS
-----------------------
<S> <C>
U.S. Government Securities Fund.................................................. -- %
Strategic Income Fund............................................................ -- %*
High Yield Portfolio............................................................. -- %
</TABLE>

- ------------------------

* Because Strategic Income Fund has not operated for a full fiscal year, the
contractual fee rate is provided in the table.

PORTFOLIO MANAGERS

U.S. GOVERNMENT SECURITIES FUND. Howard G. Hudson and Christopher J. Woods have
managed the Fund since August 1995. Christopher J. Pagano joined the management
team in March 1996.

STRATEGIC INCOME FUND. Howard G. Hudson, Maroun M. Hayek, Robert C. Lindberg,
Christopher J. Pagano and Christopher J. Woods have managed the Fund since
December 1997. Ho Wang joined the management team in July 1998.

HIGH YIELD PORTFOLIO. Howard G. Hudson, Maroun M. Hayek and Robert C. Lindberg
have managed the Fund since August 1995. Ho Wang joined the management team in
June 1998.

- Mr. Hudson, an Executive Vice President and the Head of Fixed Income
Investments of Advisers, has been managing debt securities for Fortis,
Inc. since 1991. Mr. Hudson performs a supervisory function in the
management of the Funds. The portfolio managers supervised by Mr. Hudson
have primary responsibility for the Funds' investments in particular types
of securities. Specifically, these individuals and their areas of
responsibility are as follows: Mr. Lindberg, municipal securities; Mr.
Hayek, corporate bonds; Mr. Pagano, treasury securities; Mr. Wang,
non-investment grade securities; and Mr. Woods, mortgage-related
securities and structured products.

- 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. Hayek, a Vice President of Advisers, has been managing debt securities
for Fortis, Inc. since 1987.

- 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, New
York.

- Mr. Wang, a Vice President of Advisers, has been managing non-investment
grade fixed income securities since July 1998. From October 1995 to June
1998 Mr. Wang was a Senior Securities Analyst for Lord Abbet & Co. in New
York, New York. From April 1992 to October 1995 he was a portfolio manager
for New York Life in New York, New York.

- 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, Ohio.

The Funds' portfolio managers are located at One Chase Manhattan Plaza, New
York, New York 10005.

18
<PAGE>
MORE INFORMATION ON FUND OBJECTIVES, INVESTMENT
STRATEGIES AND RISKS
- -------------------------------------------------------------------

OBJECTIVES

The Funds' objectives, which are described above under "The Funds," may be
changed without shareholder approval.

INVESTMENT STRATEGIES

The principal investment strategies of the Funds are described above under "The
Funds," and in more detail below. These are the strategies that Advisers
believes are most likely to be important in trying to achieve the Funds' goals.
Of course, there is no guarantee that any Fund will achieve its goal. You should
be aware that each Fund may also use strategies and invest in securities that
are not described below, but that are described in the Statement of Additional
Information.

U.S. Government Securities Fund and Strategic Income Fund are managed using a
proprietary benchmark. This benchmark is created internally by Advisers and is
periodically adjusted based upon ongoing analysis of the trends and performance
of the global and domestic economies and securities markets, as well as the
composition and performance of various market indices and selected portfolios.
The benchmark is constructed from the asset categories in which each Fund can
invest. Each Fund's actual portfolio may deviate from the benchmark based upon
factors such as the anticipated timing and magnitude of changes in interest
rates and expectations concerning the future performance of the different asset
categories.

High Yield Portfolio is comprised of securities of various issuers in diverse
industries. The Fund's portfolio may change based upon factors such as the
anticipated timing and magnitude of changes in interest rates and expectations
concerning the future performance of the different asset categories. The
decision to purchase a particular security for inclusion within the Fund is
based upon many factors, the most important of which are the characteristics of
the security (interest rate, term, call provisions, etc.), the financial
stability and managerial strength of the issuer of the security and
diversification in the Fund.

U.S. GOVERNMENT SECURITIES FUND

U.S. Government Securities Fund invests primarily in securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. The Fund
invests both in U.S. Treasury obligations and in obligations of U.S. Government
agencies and instrumentalities, such as mortgage-backed securities.

The Fund's investments in U.S. Treasury obligations may include U.S. Treasury
inflation-protection securities. The principal amount of inflation-protection
securities is adjusted for inflation, and interest payments are equal to a fixed
percentage of this adjusted principal amount.

The Fund's investments in mortgage-backed securities include U.S. Government
agency-backed collateralized mortgage obligations ("CMOs"). Some types of CMOs,
such as interest-only classes ("IOs"), principal-only classes ("POs"), inverse
floaters and accrual bonds, can be highly volatile in response to changing
interest rates. The Fund will not invest more than 5% of its net assets in any
one of these types of securities, or more than 10% of its net assets
collectively in these types of securities.

The Fund also may invest in zero coupon obligations of the U.S. Government and
its agencies. Because these obligations do not pay interest currently, their
prices can be highly volatile as interest rates rise and fall.

To generate additional income, the Fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers and other
institutions.

STRATEGIC INCOME FUND

Strategic Income Fund invests primarily in the following three sectors:

- U.S. GOVERNMENT SECURITIES. The Fund invests in securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.

19
<PAGE>
- HIGH YIELD AND INVESTMENT GRADE FIXED-INCOME SECURITIES OF FOREIGN
GOVERNMENTS AND COMPANIES. The Fund invests in fixed-income securities
issued by foreign governments and companies. The Fund's foreign government
investments include securities issued by (a) foreign governments and their
agencies; (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 and commercial paper issued by
foreign companies, and certificates of deposit and bankers' acceptances
issued or guaranteed by, or time deposits maintained at, foreign banks or
U.S. branches of foreign banks. These securities may be either investment
grade or non-investment grade, or they may be unrated securities that
Advisers believes offer yields and risks comparable to rated securities.
Strategic Income Fund's investments in foreign securities may include
investments in emerging markets.

The Fund will not invest more than 25% of its total assets in government
securities of any single foreign country.

- HIGH YIELD DOMESTIC SECURITIES. The Fund invests in non-investment grade
fixed-income securities issued by U.S. issuers. These securities are
sometimes referred to as "junk bonds" or "high yield" securities. The Fund
also may invest in unrated fixed income securities that Advisers believes
offer yields and risks comparable to non-investment grade rated securities.

Under normal circumstances, the Fund will invest at least 65% of its total
assets in these three sectors (exclusive of collateral received in connection
with securities lending). The Fund generally will have no more than 50% of its
total assets invested in any one sector.

Strategic Income Fund's investments in U.S. Government securities include those
securities described above under "U.S. Government Securities Fund." However, the
Fund can invest to a slightly greater extent than U.S. Government Securities
Fund in IOs, POs, inverse floaters and accrual bonds. Strategic Income Fund can
invest up to 5% of its net assets in any one of these types of securities, and
up to 15% of its net assets collectively in these types of securities.

Strategic Income Fund's investments in high yield securities include
payment-in-kind bonds and zero coupon bonds. The market prices for these
securities are affected to a greater extent by interest rate changes and are
more volatile than market prices of securities that pay interest periodically
and in cash.

Strategic Income Fund may invest in securities rated as low as Caa by Moody's or
CCC by Standard & Poor's. In addition, up to 10% of the Fund's total assets may
be invested in "non-performing" securities rated lower than Caa or CCC. The Fund
also may invest in unrated securities which Advisers believes are of comparable
quality to those rated within the foregoing categories.

To generate additional income, the Fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers and other
institutions.

In an attempt to respond to adverse market, economic, political or other
conditions, Strategic Income Fund may invest without limit in investment grade
debt securities, commercial paper, U.S. Government obligations, and bank
obligations. These investments may result in a lower yield than would be
available from investments with a lower quality or longer term, and may prevent
the Fund from achieving its investment objective.

HIGH YIELD PORTFOLIO

High Yield Portfolio invests primarily in a portfolio of non-investment grade
fixed-income securities, also referred to as "high yield" securities or "junk
bonds."

The Fund may invest without limitation in securities rated as low as Caa by
Moody's or CCC by Standard & Poor's. In addition, up to 10% of the Fund's total
assets may be invested in "non-performing" securities rated lower than Caa or
CCC. The Fund also may invest in unrated securities which Advisers believes are
of comparable quality to those rated within the foregoing categories.

High Yield Portfolio's investments may include payment-in-kind bonds and zero
coupon bonds. The market prices for these securities are affected to a greater
extent by interest rate changes and are more volatile than market prices of
securities that pay interest periodically and in cash. High Yield Portfolio also
may invest in U.S. Government agency-backed CMOs (see "U.S. Government
Securities Fund," above), including the more volatile IOs, POs, inverse floaters
and accrual bonds. High Yield Portfolio can invest up to 5% of its net assets in
any one of these types of securities, and up to 7.5% of its net assets
collectively in these types of securities.

To generate additional income, the Fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers and other
institutions.

20
<PAGE>
In an attempt to respond to adverse market, economic, political or other
conditions, High Yield Portfolio may invest without limit in investment grade
debt securities, commercial paper, U.S. Government obligations, and bank
obligations. These investments may result in a lower yield than would be
available from investments with a lower quality or longer term, and may prevent
the Fund from achieving its investment objective.

PORTFOLIO TURNOVER

U.S. Government Securities Fund frequently trades securities held for a
relatively short period of time in an attempt to achieve its investment
objective. In addition, High Yield Portfolio and Strategic Income Fund, while
they generally do not invest or trade for short-term profits, are actively
managed and the portfolio managers may trade securities frequently. As a result,
each Fund may, from time to time, have an annual portfolio turnover rate of over
100%. Trading of securities may produce capital gains, which are taxable to
shareholders when distributed. Active trading also may increase the amount of
commissions or mark-ups to broker-dealers that a Fund pays when it buys and
sells securities. The "Financial Highlights" section of this Prospectus shows
each Fund's historical portfolio turnover rate.

PRINCIPAL RISKS

The principal risks of investing in the Funds, which are listed above under "The
Funds," are discussed in more detail here. Please remember, you may lose money
if you invest in the Funds.

- INTEREST RATE RISK. Debt securities in the Funds will fluctuate in value
with changes in interest rates. In general, debt securities will increase in
value when interest rates fall and decrease in value when interest rates
rise. Longer term debt securities are generally more sensitive to interest
rate changes. In addition, certain Fund investments may be highly volatile
in response to changing interest rates. These investments include IOs, POs,
inverse floaters, accrual bonds, payment-in-kind bonds and zero-coupon
obligations.

- CREDIT OR DEFAULT RISK. Each Fund is subject to the risk that the issuers
of debt securities held by the Fund will not make payments on the
securities, or that the other party to a contract (such as a securities
lending agreement) will default on its obligations. There is also the risk
that an issuer could suffer adverse changes in financial condition that
could lower the credit quality of a security. This could lead to greater
volatility in the price of the security and the shares of the Fund. Also, a
change in the credit quality rating of a bond can affect the bond's
liquidity and make it more difficult for the Fund to sell. When a Fund
purchases unrated securities, it will depend on Advisers' analysis of credit
risk more heavily than usual.

- CALL RISK. Many corporate bonds may be redeemed at the option of the
issuer ("called") before their stated maturity date. In general, an issuer
will call its bonds if they can be refinanced by issuing new bonds which
bear a lower interest rate. The Funds are subject to the possibility that
during periods of falling interest rates, a bond issuer will call its
high-yielding bonds. A Fund would then be forced to invest the unanticipated
proceeds at lower interest rates, resulting in a decline in the Fund's
income.

- PREPAYMENT RISK. Because U.S. Government Securities Fund and Strategic
Income Fund may invest significantly in mortgage-related securities, each of
these Funds may be subject to prepayment risk. Prepayment risk is the risk
that falling interest rates could cause prepayments of mortgage-related
securities to occur more quickly than expected. This occurs because, as
interest rates fall, more homeowners refinance the mortgages underlying
these securities. The Fund must reinvest the prepayments at a time when
interest rates on new mortgage investments are falling, reducing the income
of the Fund. In addition, when interest rates fall, prices on
mortgage-related securities may not rise as much as for other types of
comparable debt securities because investors may anticipate an increase in
mortgage prepayments.

- EXTENSION RISK. Mortgage-related securities also are subject to extension
risk, which is the risk that rising interest rates could cause homeowners to
prepay their mortgages more slowly than expected, resulting in slower
prepayments of mortgage-related securities. This would, in effect, convert a
short- or medium-duration mortgage-related security into a longer-duration
security, increasing its sensitivity to interest rate changes and causing
its price to decline. (Duration is a commonly used measure of the potential
volatility of a debt security. Securities with longer durations generally
have more volatile prices than securities of comparable quality with shorter
durations.)

- RISKS OF SECURITIES LENDING. When a Fund loans its portfolio securities,
it will receive collateral equal to at least 100% of the value of the loaned
securities. Nevertheless, the Fund risks a delay in the recovery of the
loaned securities, or even the loss of rights in the collateral deposited by
the borrower if the borrower should fail financially.

- RISKS OF FOREIGN SECURITIES. Strategic Income Fund's principal investment
strategies include investing in foreign securities. Foreign investing
involves risks not typically associated with U.S. investing. The Fund may
experience a decline in net asset value resulting from changes in exchange
rates between the United States dollar and foreign currencies. Other risks
of foreign investing include limited liquidity

21
<PAGE>
and volatile prices of non-U.S. securities, limited availability of
information regarding non-U.S. companies, investment and repatriation
restrictions, and foreign taxation. Strategic Income Fund may invest in
emerging markets, where the risks of foreign investing are higher. Investing
in emerging markets generally involves exposure to economic structures that
are less diverse and mature and political systems that are less stable than
those of developed countries.

- RISKS OF HIGH YIELD SECURITIES. High Yield Portfolio invests primarily in
non-investment grade fixed income obligations, and a significant portion of
Strategic Income Fund's portfolio may consist of such obligations.
Non-investment grade obligations are commonly referred to as "high yield"
securities or "junk bonds." Although these securities usually offer higher
yields than investment grade securities, they also involve more risk. High
yield bonds may be more susceptible to real or perceived adverse economic
conditions than investment grade bonds. In addition, the secondary trading
market may be less liquid. High yield securities generally have more
volatile prices and carry more risk to principal than investment grade
securities. High Yield Portfolio and Strategic Income Fund may invest
without limitation in securities rated as low as Caa by Moody's, CCC by
Standard & Poor's or comparably rated by another rating agency, or in
unrated securities which Advisers determines to be of comparable quality. In
addition, each of these Funds may invest up to 10% of its total assets in
"non-performing" securities rated lower than these categories (or, if
unrated, determined to be of comparable quality by Advisers). Securities in
the Caa/CCC rating category are considered to be of poor standing and are
predominantly speculative. These 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.

- YEAR 2000 ISSUES. Like other mutual funds and financial and business
organizations around the world, the Funds could be adversely affected if the
computer systems used by Fortis Funds, Advisers and other service providers
and entities with computer systems that are linked to Fortis Funds' records
do not properly process and calculate date-related information and data from
and after January 1, 2000. The Funds and Advisers and its affiliates are
taking steps that they believe are reasonably designed to address year 2000
issues with respect to the computer systems they use and to obtain
satisfactory assurances that comparable steps are being taken by each of the
Funds' other major service providers. However, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the
Funds. In addition, the prices of securities in which the Funds invest could
be adversely affected by year 2000 problems experienced by the issuers of
those securities.

- MANAGEMENT RISK. The Funds are actively managed by professionals with
extensive money management experience and expertise. The performance of the
Funds will reflect in part the ability of Advisers to select securities
which are suited to achieving the Funds' investment objectives. Due to their
active management, the Funds could underperform other mutual funds with
similar investment objectives or the market generally.

22
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------

The tables that follow present performance information about each class of
shares of the Funds. This information is intended to help you understand each
Fund's financial performance for the past five years or, if shorter, the period
of the Fund's operations. Some of this information reflects financial results
for a single Fund share. The total returns in the tables represent the rate that
you would have earned or lost on an investment in a Fund, assuming you
reinvested all of your dividends and distributions.

This information has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report, along with the Funds' financial statements, is included
in the Funds' annual report, which is available upon request.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SEVEN-MONTH
U.S. GOVERNMENT YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SECURITIES FUND JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, DECEMBER 31,
- -------------------- ----------- ----------- ----------- ----------- ------------- -------------
CLASS E SHARES 1998 1997 1996 1995 1994*** 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............. $8.87 $9.02 $9.03 $9.87 $9.86
- ------------------------------------------------------------------------------------------------------
Operations:
Investment income
- net............ .54 .60 .67 .42 .75
Net realized and
unrealized gains
(losses) on
investments...... .32 (.15) (.01) (.84) .05
- ------------------------------------------------------------------------------------------------------
Total from
operations......... .86 .45 .66 (.42) .80
- ------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From investment
income - net..... (.54) (.60) (.67) (.42) (.75)
Excess
distributions of
net realized
gains............ (.03) -- -- -- --
From realized
gains............ -- -- -- -- (.04)
- ------------------------------------------------------------------------------------------------------
Total distributions
to shareholders.... (.57) (.60) (.67) (.42) (.79)
- ------------------------------------------------------------------------------------------------------
Net asset value, end
of period.......... $9.16 $8.87 $9.02 $9.03 $9.87
- ------------------------------------------------------------------------------------------------------
Total return*....... 10.07 % 5.08 % 7.71 % (4.29)% 8.31 %
Net assets end of
period (000s
omitted)........... $ 324,643 $ 388,006 $ 470,597 $ 555,275 $ 641,977
Ratio of expenses to
average daily net
assets............. .81 % .81 % .77 % .77 %** .76 %
Ratio of net
investment income
to average daily
net assets......... 6.08 % 6.59 % 7.51 % 7.72 %** 7.43 %
Portfolio turnover
rate............... 161 % 75 % 76 % 85 % 157 %
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
------------------------------------ --------------------------------- ---------------------------------
YEAR ENDED JULY 31,
U.S. GOVERNMENT ------------------------------------------------------------------------------------------------------------
SECURITIES FUND 1998 1997 1996 1995+ 1998 1997 1996 1995+ 1998 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
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment
income -
net......... .52 .58 .46 .46 .51 .41 .46 .51 .41
Net realized
and
unrealized
gains
(losses) on
investments... .32 (.15) .39 .31 (.15) .39 .31 (.15) .38
- -----------------------------------------------------------------------------------------------------------------------------
Total from
operations.... .84 .43 .85 .77 .36 .80 .77 .36 .79
- -----------------------------------------------------------------------------------------------------------------------------
Distribution to
shareholders:
From
investment
income -
net......... (.52) (.58) (.46) (.47) (.52) (.41) (.47) (.52) (.41)
Excess
distributions
of net
realized
gains....... (.03) -- -- (.02) -- -- (.02) -- --
From realized
gains....... -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total
distributions
to
shareholders... (.55) (.58) (.46) (.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
- -----------------------------------------------------------------------------------------------------------------------------
Total
return*....... 9.77% 4.78% 10.07% 8.95% 4.00% 9.47% 8.96% 4.00% 9.35%
Net assets end
of period
(000s
omitted)...... $59,128 $67,707 $4,909 $2,826 $2,314 $ 483 $1,444 $1,057 $ 326
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%**
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%**
Portfolio
turnover
rate.......... 161% 75% 76% 161% 75% 76% 161% 75% 76%
- -----------------------------------------------------------------------------------------------------------------------------

<CAPTION>
- ---------------
CLASS H
---------------------------------

U.S. GOVERNMENT
SECURITIES FUND 1998 1997 1996 1995+
- ---------------
<S> <C> <C> <C> <C>
Net asset
value,
beginning of
period........ $8.86 $9.02 $8.63
- ---------------
Operations:
Investment
income -
net......... .46 .51 .41
Net realized
and
unrealized
gains
(losses) on
investments... .31 (.15) .39
- ---------------
Total from
operations.... .77 .36 .80
- ---------------
Distribution to
shareholders:
From
investment
income -
net......... (.47) (.52) (.41)
Excess
distributions
of net
realized
gains....... (.02) -- --
From realized
gains....... -- -- --
- ---------------
Total
distributions
to
shareholders... (.49) (.52) (.41)
- ---------------
Net asset
value, end of
period........ $9.14 $8.86 $9.02
- ---------------
Total
return*....... 8.94% 4.00% 9.47 %
Net assets end
of period
(000s
omitted)...... $10,637 $10,120 $4,823
Ratio of
expenses to
average daily
net assets.... 1.81% 1.81% 1.77 %**
Ratio of net
investment
income to
average daily
net assets.... 5.08% 5.52% 6.24 %**
Portfolio
turnover
rate.......... 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.

23
<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------
EIGHT-MONTH PERIOD ENDED JULY 31, 1998
STRATEGIC INCOME --------------------------------------
FUND CLASS A CLASS B CLASS C CLASS H
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of
period.............
- ------------------------------------------------------------
Operations:
Investment income
- net............
Net realized and
unrealized gains
(losses) on
investments......
- ------------------------------------------------------------
Total from
operations.........
- ------------------------------------------------------------
Distribution to
shareholders:
From investment
income - net.....
Excess
distributions of
net realized
gains............
From realized
gains............
- ------------------------------------------------------------
Total distributions
to shareholders....
- ------------------------------------------------------------
Net asset value, end
of period..........
- ------------------------------------------------------------
Total return*.......
Net assets end of
period (000s
omitted)...........
Ratio of expenses to
average daily net
assets.............
Ratio of net
investment income
to average daily
net assets.........
Portfolio turnover
rate...............
- ------------------------------------------------------------
</TABLE>

* These are the Fund's total returns since inception of operations on December
1, 1998. Total returns include reinvestment of all dividend and capital gains
distributions without adjustments for sales charge.
** These ratios have been annualized since the Fund has not been in existence
for a full fiscal year.

24
<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
YEAR ENDED FOR THE YEAR ENDED OCTOBER
HIGH YIELD PORTFOLIO JULY 31, 31,
- ------------------------------ ------------------------------ --------------------------
CLASS A SHARES 1998 1997 1996++ 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $7.56 $7.61 $7.90 $8.65 $8.00
- -------------------------------------------------------------------------------------------
Operations:
Investment income - net..... .76 .56 .86 .86 .87
Net realized and unrealized
gain (loss) on
investments................ .28 (.04) (.25) (.72) .68
- -------------------------------------------------------------------------------------------
Total from operations......... 1.04 (.52) .61 .14 1.55
- -------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income -
net........................ (.75) (.55) (.86) (.89) (.89)
Excess distributions of net
realized gains............. (.02) (.02) (.04) -- (.01)
From net realized gains..... -- -- -- -- --
- -------------------------------------------------------------------------------------------
Total distributions to
shareholders................. (.77) (.57) (.90) (.89) (.90)
- -------------------------------------------------------------------------------------------
Net asset value, end of
period....................... $7.83 $7.56 $7.61 $7.90 $8.65
- -------------------------------------------------------------------------------------------
Total return@................. 14.51% 6.98% 8.07% 1.48% 20.33%
Net assets at end of period
(000's omitted).............. $123,115 $109,401 $113,268 $98,611 $73,395
Ratio of expenses to average
daily net assets............. 1.19% 1.21%* 1.25% 1.23% 1.29%
Ratio of net investment income
to average daily net
assets....................... 9.84% 9.87%* 10.61% 10.18% 10.43%
Portfolio turnover rate....... 331% 146% 101% 63% 95%
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C CLASS H
-------------------------------------------- ----------------------------------------- ---------
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO 1998 1997 1996++ 1995+ 1998 1997 1996++ 1995+ 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<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
- ---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income -
net..................... .71 .53 .78 .71 .53 .78
Net realized and
unrealized gains
(losses) on
investments............. .28 (.04) (.23) .28 (.04) (.24)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations...... .99 .49 .55 .99 .49 .54
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution to
shareholders:
From investment income -
net..................... (.70) (.51) (.78) (.70) (.51) (.78)
Excess distributions of
net realized gains...... (.02) (.02) (.04) (.02) (.02) (.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders.............. (.72) (.53) (.82) (.72) (.53) (.82)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period.................... $7.83 $7.56 $7.60 $7.82 $7.55 $7.59
- ---------------------------------------------------------------------------------------------------------------------------------
Total return@.............. 13.80% 6.62% 7.25% 13.82% 6.63% 7.12%
Net assets at end of period
(000s omitted)............ $20,388 $12,067 $7,530 $7,037 $3,378 $2,180
Ratio of expenses to
average daily net
assets.................... 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%*
Portfolio turnover rate.... 331% 146% 101% 331% 146% 101%
- ---------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
- ---------------------------

HIGH YIELD PORTFOLIO 1997 1996++ 1995+
- ---------------------------
<S> <C> <C> <C>
Net asset value, beginning
of period................. $7.55 $7.60 $7.87
- ---------------------------
Operations:
Investment income -
net..................... .71 .52 .78
Net realized and
unrealized gains
(losses) on
investments............. .28 (.04) (.23)
- ---------------------------
Total from operations...... .99 .48 .55
- ---------------------------
Distribution to
shareholders:
From investment income -
net..................... (.70) (.51) (.78)
Excess distributions of
net realized gains...... (.02) (.02) (.04)
- ---------------------------
Total distributions to
shareholders.............. (.72) (.53) (.82)
- ---------------------------
Net asset value, end of
period.................... $7.82 $7.55 $7.60
- ---------------------------
Total return@.............. 13.82% 6.48% 7.25%
Net assets at end of period
(000s omitted)............ $63,789 $39,133 $23,862
Ratio of expenses to
average daily net
assets.................... 1.84% 1.86%* 1.90%*
Ratio of net investment
income to average daily
net assets................ 9.23% 9.21%* 9.81%*
Portfolio turnover rate.... 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, 1996, the
Fund changed its fiscal accounting and tax year-end to July 31 (previously
October 31).

25
<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

More information about the Funds is available in the Funds' Statement of
Additional Information and annual and semiannual reports.

- STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI provides more details
about the Funds and their policies. A current SAI is on file with the
Securities and Exchange Commission (SEC) and is incorporated into this
Prospectus by reference (which means that it is legally considered part of
this Prospectus).

- ANNUAL AND SEMIANNUAL REPORTS. Additional information about the Funds'
investments is available in the Funds' annual and semiannual reports to
shareholders. In the Funds' annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Funds' performance during their last fiscal year.

You can obtain a free copy of the Funds' SAI and/or free copies of the Funds'
most recent annual or semiannual reports by calling 1-800-800-2000, Ext. 3012.
The material you request will be sent by first-class mail, or other means
designed to ensure equally prompt delivery, within three business days of
receipt of the request.

You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009. For more information, call
1-800-SEC-0330.

Information about the Funds is also available on the Internet. Text-only
versions of Fund documents can be viewed online or downloaded from the SEC's
Internet site at http://www.sec.gov.

FORTIS U.S. GOVERNMENT SECURITIES FUND
FORTIS STRATEGIC INCOME FUND
FORTIS HIGH YIELD PORTFOLIO

SEC FILE NUMBERS: 811-05355, 811-02341
98301 (REV. 12/98)
<PAGE>

FORTIS U.S. GOVERNMENT SECURITIES FUND
FORTIS STRATEGIC INCOME FUND
FORTIS HIGH YIELD PORTFOLIO

STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 1, 1998

Fortis U.S. Government Securities Fund and Fortis Strategic Income Fund are
portfolios of Fortis Income Portfolios, Inc. ("Fortis Income") which was
incorporated in 1972. Fortis High Yield Portfolio is a portfolio of Fortis
Advantage Portfolios, Inc. ("Fortis Advantage") which was incorporated in 1987.
U.S. Government Securities Fund, Strategic Income Fund and 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, 1998. 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: (651) 738-4000. Toll Free (800) 800-2000.

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.

<PAGE>

TABLE OF CONTENTS

<PAGE>

ORGANIZATION AND CLASSIFICATION

Fortis Income and Fortis Advantage are registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 (the "1940 Act") as
open-end diversified management investment companies. Fortis Income currently
consists of two separate investment portfolios and Fortis Advantage currently
has one investment portfolio. Each Fund operates as a "diversified" investment
company as defined under the 1940 Act, which means that it must meet the
following requirements:

At least 75% of the value of the Fund's 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.

Fortis Income and Fortis Advantage may establish other portfolios, each
corresponding to a distinct investment portfolio and a distinct series of their
common stock.

INVESTMENT POLICIES AND RESTRICTIONS

Each Fund's investment objective and, except as otherwise noted, the
policies by which each Fund seeks to achieve its objective, may be changed
without the approval of shareholders. No changes are contemplated at this time,
but a change in investment objective or policies could result in a Fund no
longer being appropriate for an investor.

Some investment policies and restrictions are fundamental and may be
changed only by the approval of a majority of a Fund's shareholders. In this
situation, majority means the lesser of (i) 67% of the Fund's outstanding shares
present at a meeting of the holders if more than 50% of the outstanding shares
are present in person or by proxy or (ii) more than 50% of the Fund's
outstanding shares.

U.S. GOVERNMENT SECURITIES FUND

INVESTMENT POLICIES

The Fund will invested in securities issued, guaranteed, insured or
collateralized by the U.S. Government, its agencies or instrumentalities
(whether or not backed by the full faith and credit of the U.S. Government.
Securities issued or guaranteed as to principal and interest by the U.S.
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. In addition to Treasury obligations, the Fund
may invest in the following such securities: (1) obligations of U.S. government
agencies and instrumentalities which are secured by the full faith and credit of
the U.S. 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

<PAGE>

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 these types of securities which are not backed by the full faith
and credit of the U.S. Treasury when, in the opinion of Advisers, the credit
risk with respect to the instrumentality or agency issuing such securities does
not make the securities unsuitable investments for the Fund.

Debt securities in the Fund will fluctuate in value with changes in
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.

INVESTMENT RESTRICTIONS

The following investment restrictions are fundamental and may be changed
only by the approval of shareholders. The Fund will not:

(1) Issue any senior securities as defined in the 1940 Act.
(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 U.S. 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 to enter into 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

<PAGE>

such collateral shall be limited to cash, securities issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit or other high-grade,
short-term obligations or interest-bearing cash equivalents, and
provided further that such loans may not be made if, as a result, the
aggregate of such loans would exceed fifty percent of the value of the
Fund's total assets excluding collateral securing such loans taken at
current value. The purchase of a portion of an issue of publicly
distributed bonds, debentures, or other debt securities will not be
considered the making of a loan. Fund assets may be invested in
repurchase agreements in connection with interest bearing debt
securities which may otherwise be purchased by the Fund, provided that
the Fund will not enter into repurchase agreements if, as a result
thereof, more than 10% of the Fund's total assets valued at the time
of the transaction would be subject to repurchase agreements maturing
in more than seven days.
(10) Purchase securities on margin, except that it may obtain such
short-term credits as may be necessary for the clearance of purchases
or sales of securities.
(11) Participate on a joint or a joint and several basis in any securities
trading account.
(12) Invest in puts, calls, or combinations thereof.
(13) Make short sales, except for sales "against the box." While a short
sale is made by selling a security the Fund does not own, a short sale
is "against the box" to the extent that the Fund contemporaneously
owns or has the right to obtain securities identical to those sold
short at no added cost.
(14) Purchase from or sell to any officer, director, or employee of the
Fund, or its adviser or underwriter, or any of their officers or
directors, any securities other than shares of the Fund's common
stock.
(15) Invest more than 10% of its total assets in repurchase agreements
maturing in more than seven days.

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.
(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 its net assets in IOs, POs, inverse floaters,
and accrual bonds at any one time, and no more than 10% of its net
assets will be invested in all such obligations at any one time.
(5) Invest more than 20% of its 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

<PAGE>

INVESTMENT POLICIES

As stated in the Prospectus, under normal circumstances the Fund will
invest at least 65% (exclusive of collateral in connection with securities
lending) of its total assets in three sectors: 1) U.S. Government securities,
2) investment and non-investment grade fixed income securities issued by foreign
governments and companies, and 3) non-investment grade fixed income securities
issued by U.S. issuers. The Fund's remaining assets may be held in cash or cash
equivalents or invested in investment grade fixed-income securities (including,
but not limited to, the types of securities as described above in "Investment
Policies and Restrictions -- 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.

The Fund will not invest more than 25% of its total assets in government
securities of any single foreign country. The Fund is not restricted in which
countries it may invest and there are 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."

The Fund may invest in high yield (non-investment grade) and unrated fixed
income securities. High yield securities 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 also may invest in the securities as
described below under "Investment Objectives and Policies -- High Yield
Portfolio." 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.

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

<PAGE>

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.

INVESTMENT RESTRICTIONS

The following investment restrictions are fundamental and may be changed
only by the approval of shareholders. The Fund will not:

(1) Purchase securities on margin or otherwise borrow money or issue
senior securities, except that in accordance with its investment
objectives and policies, it may purchase securities on a when-issued
and delayed delivery basis, within certain limitations. 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 its account,
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 its total assets. Investment securities will not be
purchased 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 it 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 U.S. 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

<PAGE>

(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.
(6) Make loans to other persons. Repurchase agreements, the lending of
securities and the acquisition of debt securities 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 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,
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.
(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 1/2% 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 POLICIES

Under normal circumstances, High Yield Portfolio will be at least 65%
(exclusive of collateral in connection with securities lending) invested in
non-investment grade 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 the Fund seeks are usually available from
non-investment grade

<PAGE>

securities 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 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. Investors should carefully consider their ability to
assume the risks involved before making an investment in the High Yield
Portfolio.

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 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 the Appendix.

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.

As discussed in "Risk Considerations and Other Investment Practices," 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 in foreign securities.

INVESTMENT RESTRICTIONS

The following investment restrictions are fundamental and may be changed
only by the approval of shareholders. The Fund will not:

<PAGE>

Investment securities will not be purchased 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 that it 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 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 U.S. Government
or its agencies and instrumentalities, or obligations of domestic
commercial banks. As to utility companies, gas, electric, water and
telephone companies will be considered as separate industries. As to
finance companies, the following categories will be considered as
separate industries: (a) captive automobile finance, such as General
Motors Acceptance Corp. and Ford Motor Credit Corp.; (b) captive
equipment finance companies, such as Honeywell Finance Corporation and
General Electric Credit Corp.; (c) captive retail finance companies,
such as Macy Credit Corp. and Sears Roebuck Acceptance Corp.; (d)
consumer loan companies, such as Beneficial Finance Corporation and
Household Finance Corporation; (e) diversified finance companies such
as CIT Financial Corp., Commercial Credit Corporation and Borg Warner
Acceptance Corp.; and (f) captive oil finance companies, such as Shell
Credit, Inc., Mobil Oil Credit Corp. and Texaco Financial Services,
Inc. 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 without
shareholder approval. The Fund will not:

(1) Invest more than 5% of the value of its total assets in securities of
other

<PAGE>

investment companies, except in connection with a merger,
consolidation, acquisition or reorganization.
(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.
(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

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. Consistent with their
investment objectives and policies, 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. 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.

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

<PAGE>

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 U.S. 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 U.S. 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 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.

<PAGE>

(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
("PCSs") and guaranteed mortgage certificates ("GMCs"). PCSs 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 PCSs and the ultimate payment of
principal. Like GNMA Certificates, PCSs 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

<PAGE>

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 each 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 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 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

<PAGE>

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 U.S.
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 U.S. currency.

OPTIONS

As provided below, 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. 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,

<PAGE>

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.

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 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

<PAGE>

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

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, 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 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

<PAGE>

be no assurance that a liquid secondary market will exist for any contract
purchased or sold, and a Fund may be required to maintain a position until
exercise or expiration, which could result in losses.

Transactions in options, Futures Contracts, Options on Futures Contracts
and Currency Contracts may be entered into on U.S. 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.

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, 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

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.

<PAGE>

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 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. High Yield Portfolio will limit its
investment in repurchase agreements with a maturity of more than seven days to
15% of its net assets. 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. 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

<PAGE>

Federal Reserve Book Entry System. The market value of the collateral
underlying the repurchase agreement will be determined on each business day. If
at any time the market value of the collateral falls below the repurchase price
of the repurchase agreement (including any accrued interest), the 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. For this purpose illiquid securities include, among others,
(i) securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (ii) options purchased
over-the-counter and the cover for options written over-the-counter, and
(iii) repurchase agreements not terminable within seven days. Commercial paper
issued pursuant to the private placement exemption of Section 4(2) of the
Securities Act of 1933 (the "1933 Act") and securities that are eligible for
resale under Rule 144A under the 1933 Act that have legal or contractual
restrictions on resale but have a readily available market are not deemed
illiquid securities for this purpose. A restricted security is one which was
originally sold in a private placement and was not registered with the
Commission under the Securities Act of 1933 (the "1933 Act") and which is not
free to be resold unless it is registered with the Commission or its sale is
exempt from registration. The Funds will not invest more than 15% of the value
of their respective net assets in illiquid securities.

The staff of the Securities and Exchange Commission has taken the position
that the liquidity of securities in the portfolio of a fund offering redeemable
securities is a question of fact for a board of directors of such a fund to
determine, based upon a consideration by such board of the readily available
trading markets and a review of any contractual restrictions. The SEC staff also
acknowledges that, while such a board retains ultimate responsibility, it may
delegate this function to the fund's investment adviser. Securities that have
been determined to be liquid by the Board of Directors of Fortis Income or
Fortis Advantage, or by Advisers subject to the oversight of such Board of
Directors, will not be subject to this limitation.

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.

<PAGE>

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

<PAGE>

based on the last year-over-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.

RISK CONSIDERATIONS

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.

<PAGE>

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 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.

<PAGE>

The table below shows the weighted average percentages of Strategic Income
Fund's and High Yield Portfolio's long-term bond investments during the fiscal
period ended July 31, 1998, represented by (1) bonds rated by a nationally
recognized statistical rating organization, separated into each rating category,
and (2) all unrated bonds as a group.

<TABLE>
<CAPTION>
STRATEGIC INCOME
----------------
FUND HIGH YIELD PORTFOLIO
---- --------------------
STANDARD & POOR'S RATING PERCENT OF TOTAL PERCENT OF TOTAL
(OR EQUIVALENT) INVESTMENTS INVESTMENTS
--------------- ----------- -----------
<S> <C> <C>
AAA . . . . . . . . . . . . . . . .

AA . . . . . . . . . . . . . . . .

A . . . . . . . . . . . . . . . . .

BBB . . . . . . . . . . . . . . . .

BB . . . . . . . . . . . . . . . .

B . . . . . . . . . . . . . . . . .

CCC . . . . . . . . . . . . . . . .

CC . . . . . . . . . . . . . . . .

C . . . . . . . . . . . . . . . . .

D . . . . . . . . . . . . . . . . .

All unrated bonds as a group . . .
-----------

</TABLE>

TRANSACTIONS IN OPTIONS, FUTURES, AND FORWARD CONTRACTS

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 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

Strategic Income Fund and High Yield Portfolio may invest 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 U.S. issuers. Since 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

<PAGE>

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.

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

Strategic Income Fund and High Yield Portfolio may invest 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

<PAGE>

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

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 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

<PAGE>

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 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

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

<PAGE>

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 U.S. Government Securities Fund's investment in IOs, POs, inverse
floaters, and accrual bonds, not more than 5% of the Fund's net assets will be
invested in any one of these items at any one time, and no more than 10% of the
net assets of the Fund will be invested in all such obligations at any one time.
With respect to the High Yield Portfolio's 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.

<PAGE>

The cash flows and yields on IO and PO classes are extremely sensitive to
the rate of principal payments (including prepayments) on the related underlying
pool of mortgage loans or mortgage-backed securities ("Mortgage Assets"). For
example, a rapid or slow rate of principal payments may have a material adverse
effect on the yield to maturity of IOs or POs, respectively. If the underlying
Mortgage Assets experience greater than anticipated prepayments of principal,
the holder of an IO may incur substantial losses, even if the IO class is rated
AAA. Conversely, if the underlying Mortgage Assets experience slower than
anticipated prepayments of principal, the yield and market value for the holder
of a PO will be affected more severely than would be the case with a traditional
Mortgage-Backed Security.

However, if interest rates were expected to rise, the value of an IO might
increase and may partially offset other bond value declines, and if rates were
expected to fall, the inclusion of POs could balance lower reinvestment rates.

An accrual or "Z" bond holder is not entitled to receive cash payments
until one or more other classes of the CMO have been paid in full from payments
on the mortgage loans underlying the CMO. During the period in which cash
payments are not being made on the Z tranche, interest accrues on the Z tranche
at a stated rate, and this accrued interest is added to the amount of principal
which is due to the holder of the Z tranche. After the other classes have been
paid in full, cash payments are made on the Z tranche until its principal
(including previously accrued interest which was added to principal, as
described above) and accrued interest at the stated rate have been paid in full.
Generally, the date upon which cash payments begin to be made on a Z tranche
depends on the rate at which the mortgage loans underlying the CMO are prepaid,
with a faster prepayment rate resulting in an earlier commencement of cash
payments on the Z tranche. Like a zero coupon bond, during its accrual period,
the Z tranche of a CMO has the advantage of eliminating the risk of reinvesting
interest payments at lower rates during a period of declining market interest
rates. At the same time, however, 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

<PAGE>

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 puchase 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
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 Strategic Income 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 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

<PAGE>

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

Section 4(2) commercial paper or a Rule 144A security that when purchased
enjoyed a fair degree of marketability may subsequently become illiquid, thereby
adversely affecting the liquidity of the Funds. With respect to Rule 144A
securities, investing in such securities could have the effect of increasing the
level of Fund illiquidity to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities.

Illiquid securities may offer a higher yield than securities that are more
readily marketable. The sale of illiquid securities, however, often requires
more time and results in higher brokerage charges or dealer discounts or other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Each Fund may
also be restricted in its ability to sell such securities at a time when it is
advisable to do so. Illiquid securities often sell at a price lower than
similar securities that are not subject to restrictions on resale.

SHORT-TERM TRADING

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:

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.
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

<PAGE>

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 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

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 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. 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, Advisers attempt to have
such costs outweighed by the benefits of such transactions, although this cannot
be assured.

<PAGE>

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 DURING PAST 5 YEARS
NAME AND ADDRESS AGE THE FUNDS
---------------- --- -------------
<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 Managing
One Chase Manhattan Plaza 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
380 Lone Pine Road Macalester College, St. Paul, MN.
Bloomfield Hills, MI

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 Advisors, President and a Director
500 Bielenberg Drive Director of Investors, President of Fortis Financial Group, a Director of Fortis
Woodbury, Minnesota 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 and a
2760 Pheasant Road Director of Advisers and Investors, Senior Vice President and a Director of
Excelsior, Minnesota 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 services
Edina, Minnesota 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

Joseph M. Wikler 56 Director Investment consultant and private investor; prior to January, 1994, Director
12520 Davan DriveSilver of Research, Chief Investment Officer, Principal, and a Director, The
Spring, Maryland 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) New
One Chase Manhattan Plaza York, NY, and Senior Vice President, Investments, Fortis,_Inc., prior to
New York, New York 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

<PAGE>

Howard G. Hudson 60 Vice President Executive Vice President and Head of Fixed Income Investments of Advisers
One Chase Manhattan Plaza (since August, 1995) and prior to 1996, Senior Vice President, Fixed Income,
New York, New York Fortis Asset Management.

Lucinda S. Mezey Vice President Executive Vice President and Head of Equity Investments of Advisers since
One Chase Manhattan Plaza 50 October 1997, From 1995 to October 1997, Chief Investment Officer, Alex
New York, New York Brown Capital Advisory and Trust Co., Baltimore, MD and prior to 1995,
Senior Vice President and Head of Equity Investments, PNC Bank,
Philadelphia, PA.

Nicholas L. M. de Peyster Vice President Vice President of Advisers since August 1995. Prior to 1966, Vice
One Chase Manhattan Plaza 31 President, Equities, Fortis Asset Management.
New York, New York

Charles J. Dudley 38 Vice President Vice President of Advisers; prior to August, 1995, Senior Vice President,
One Chase Manhattan Plaza 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, Portfolio
One Chase Manhattan Plaza Manager, and Chief Securities Trader, COMERICA,_Inc., Detroit, Michigan.
New York, New York COMERCA,_Inc. is a bank.

Christopher J. Pagano 34 Vice President Vice President of Advisers; prior to March_1996, Government Strategist for
One Chase Manhattan Plaza 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

Kevin J. Michels Vice President Vice President of Advisers since 1995. Prior to 1996, Vice President,
One Chase Manhattan Plaza 46 Administration, Fortis Asset Management.
New York, New York

Michael J. Romanowski Vice President Vice President of Advisers since March 1998. From October 1995 to March
One Chase Manhattan Plaza 47 1998, Portfolio Manager, Value Line, New York, NY and prior to October 1995,
New York, New York securities analyst, Conning & Co., Hartford, CT.

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

<PAGE>

Rhonda J. Schwartz 40 Vice President Senior Vice President and General Counsel of Advisers; Senior Vice President
500 Bielenberg Drive and General Counsel, Life and Investment Products, Fortis Benefits Insurance
Woodbury, Minnesota 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.

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, Minneapolis,
Woodbury, Minnesota Minnesota.

Peggy E. Ettestad 40 Vice President Senior Vice President, Operations of Advisers and prior to March 1997, Vice
500 Bielenberg Drive 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 July
500 Bielenberg Drive 1997, President and Chief Executive Officer Hedstrom/Blessing, Inc., a
Woodbury, Minnesota 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

Melinda S. Urion Vice President Since December 1997, Senior Vice President and Chief Financial Officer of
500 Bielenberg Drive 45 Advisers. Prior to December 1997, Senior Vice President of Finance and
Woodbury, Minnesota Chief Financial Officer, American Express Financial Corporation; prior to
March 1995 Corporate Controller, American Express Financial Corporation and
prior to 1994, Controller and Treasurer, IDS Life Insurance Company,
Minneapolis, MN.

Michael J. 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 and Fortis Advantage because he is an officer and a director of
each. Mr. Freedman is an "interested person" of Fortis Income, Fortis
Advantage, Advisers, and Investors because he is Chairman and Chief Executive
Officer of Fortis, Inc. ("Fortis"), the parent company of Advisers and indirect
parent company of Investors.

Each director who is not affiliated with Advisers or Investors receives
fees of $100 per month, $100 per meeting attended, and $100 per committee
meeting attended (and reimbursement of travel expenses to attend meetings). The
following table sets forth the aggregate compensation received by each director
from Fortis Income and Fortis Advantage during the fiscal year ended July 31.
1998, as well as the total compensation received by each director from the Funds
and all other registered investment companies managed by Advisers during the
calendar year ended December 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. No executive officer
receives any compensation from the Funds. During the fiscal year ended July 31,
1998, the Funds paid legal fees and expenses of $ _____________ , $____________
and $_______________ , respectively, to a law firm of which the Funds' Secretary
is a partner.

<PAGE>

<TABLE>
<CAPTION>
DIRECTOR AGGREGATE AGGREGATE TOTAL
COMPENSATION FROM COMPENSATION FROM COMPENSATION
FORTIS INCOME FORTIS ADVANTAGE FROM FUND
COMPLEX*
<S> <C> <C> <C>
Richard W. Cutting

Dr. Robert M. Gavin

Benjamin S. Jaffray

Jean L. King

Edward M. Mahoney
Robb L. Prince

Leonard J. Santow

Noel S. Shadko

Joseph M. Wikler
</TABLE>
- ------------

* The Fund Complex consists of 10 registered investment companies
managed by Advisers. All of the above officers and directors also are
officers and/or directors of each such open-end and closed-end
investment company.

As of November ___, 1998, the directors and executive officers as a group
beneficially owned less than 1% of the outstanding shares of each Fund.
Directors Gavin, Jaffray, Kopperud, Mahoney, Prince and Shadko are members of
the Executive Committee of the Board of Directors. While the Executive
Committee is authorized to act in the intervals between regular board meetings
with full capacity and authority of the full Board of Directors, except as
limited by law, it is expected that the Committee will meet at least twice a
year.

<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

GENERAL

Fortis Advisers, Inc. ("Advisers") has been the investment adviser and
manager of each Fund since inception. Fortis Investors, Inc. ("Investors") acts
as the Funds underwriter. Each acts pursuant to written agreements periodically
approved by the directors or shareholders. The address of each is that of the
Funds.

As of November ___ , 1998, Advisers managed twenty-nine investment company
portfolios with combined net assets of approximately $ billion.

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 $ billion in
assets worldwide and is in turn a 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 it 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.

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENTS

Advisers act as investment adviser and manager of each Fund under separate
Investment Advisory and Management Agreements. These agreements are
individually referred to as an "Agreement" and collectively referred to as the
"Agreements." Each Agreement will terminate automatically in the event of its
assignment. In addition, the Agreements are terminable at any time, without
penalty, by the Board of Directors or, with respect to any particular portfolio,
by vote of a majority of a Fund's outstanding voting securities, 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 continue in effect for more
than two years after their execution only so long as such continuance is
specifically approved at least annually by either the board of Directors or,

<PAGE>

with respect to any Fund, by a 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 the 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.

Each Agreement provides for an investment advisory and management fee
calculated as described in the following table:

ANNUAL
INVESTMENT
ADVISORY AND
AVERAGE NET ASSETS MANAGEMENT FEE
------------------ --------------
<S> <C> <C>
U.S. Government Securities. . For the first $50,000,000 .8%
Fund For assets over $50,000,000 .7%
Strategic Income Fund . . . . For the first $50,000,000 .8%
For the next $50,000,000 .7%
. . . . . . . . . . . . . . . For assets over $100,000,000 .625%
High Yield Portfolio . . . . For the first $50,000,000 .8%
For assets over $50,000,000 .7%
</TABLE>

Each Agreement requires each Fund to pay all its expenses which are not
assumed by Advisers and/or Investors. These expenses include, by way of
example, but not by way of limitation, the fees and expenses of directors and
officers 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.

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 a Fund and other funds or accounts may have a
detrimental effect on a Fund, as this may affect the price paid or received by a
Fund or the size of the position obtainable by a Fund.

During the fiscal periods ended July 31, 1998, 1997 and 1996, the Funds
paid advisory and management fees as follows:

$_________________ , $3,431,396 and $3,576,719, respectively, from U.S.
Government Securities Fund for the fiscal years ended July 31, 1998, 1997
and 1996.(However, for 1998, Advisers reimbursed such Fund $___________ ,
pursuant to an expense reimbursement

<PAGE>

agreement, resulting in a net fee of $______________ .)

$ from Strategic Income Portfolio from the period from
inception ( date ) to July 31, 1998.

$ , $1,388,154 and $866,285, respectively from High Yield
Portfolio for the fiscal year ended July 31, 1998, the nine month period
ended July_31, 1996, and the fiscal year ended October 31, 1995.

EXPENSES

Advisers bears the costs of acting as each Fund's transfer agent, registrar and
dividend agent. Advisers also furnishes each Fund with all required management
services, facilities, equipment, and personnel. Advisers or Investors also
shall bear all promotional expenses in connection with the distribution of Fund
shares, including paying for prospectuses and shareholder reports for new
shareholders and the costs of sales literature.

Expenses that relate exclusively to a particular Fund, such as custodian
charges and registration fees for shares, are charged to that Fund. Other
expenses are allocated pro rata between the Funds in an equitable manner as
determined by officers of the Fund under the supervision of the Board of
Directors, usually on the basis of net assets or number of accounts.

PLAN OF DISTRIBUTION

Fortis Income and Fortis Advantage on behalf of each Fund have each adopted
a plan 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 a paragraph
(b)(3) 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

<PAGE>

(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 Fund's disinterested directors are committed to
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 Sections 36(a) and (b) of the 1940 Act, that
there is a reasonable likelihood that the plan will benefit the Fund and its
shareholders.

Pursuant to the provisions of the Distribution Plan each Fund pays
Advisers an annual fee of .25% (.35% for High Yield Portfolio) of the
average daily net assets attributable to that Fund's Class A shares and 1.00%
attributable to that Fund's Class B, Class C and Class H shares. Such fees
are paid in connection with servicing of the Fund's shareholder accounts and
in connection with distribution-related services provided with respect to the
Fund.

A portion of each Fund's total fee is paid as a distribution fee and
will be used by Investors to cover expenses that are primarily intended to
result in, or that are primarily attributable to, the sale of shares of the
Fund ("Distribution Fees"), and the remaining portion of the fee is paid as a
shareholder servicing fee and will be used by Investors to provide
compensation for ongoing servicing and/or maintenance of shareholder accounts
("Shareholder Servicing Fees"). For the Class A shares, the entire fee is
designated as a Distribution Fee. For the Class B, Class C and Class H
shares, Investors receives a total fee of 1.00% of the average daily net
assets of each such class, of which .75% is designated as a Distribution Fee
and .25% is designated as a Shareholder Servicing Fee.

Distribution Fees under the Plan include, but are not limited to, initial
and ongoing sales compensation (in addition to sales charges) paid to registered
representatives of Investors and to other broker-dealers; expenses incurred in
the printing of prospectuses, statements of additional information and reports
used for sales purposes; expenses of preparation and distribution of sales
literature; expenses of advertising of any type; an allocation of Investors'
overhead; and payments to and expenses of persons who provide support services
in connection with the distribution of Fund shares. Shareholder Servicing Fees
include all expenses of Investors incurred in connection with providing
administrative or accounting services to shareholders, including, but not
limited to, an allocation of Investors' overhead and payments made to persons,
including employees of Investors, who respond to inquiries of shareholders of
the Fund regarding

<PAGE>

their ownership of shares or their accounts with the Fund, or who provide other
administrative or accounting services not otherwise required to be provided by
Advisers.

For the Class A shares, the Funds paid Investors distribution fees of $
, $ and $ for the fiscal year ended July 31,
1998. The additional distribution fee paid by the Class B, Class C and Class H
shares totaled $_____, $_____ and $_____, respectively. The total
distribution fees paid for the fiscal year ended July 31, 1998 and how those
fees were used by Investors are:

<TABLE>
<CAPTION>
Gov Fund Strategic Income High Yield
<S> <C> <C> <C>
Advertising $

Printing and Mailing of
Prospectuses to Other Than
Current Shareholders

Compensation to
Underwriters
Compensation to Dealers

Compensation to Sales
Personnel

Interest, Carrying or Other
Financing Charges

Other (distribution-related
compensation, sales
literature,
supplies, postage, toll-
free phone)
Total
</TABLE>

UNDERWRITING AND DISTRIBUTION AGREEMENT

Pursuant to the Underwriting and Distribution Agreement, Investors has
agreed to act as the principal underwriter for the Funds in the sale an
distribution to the public of shares of the Fund, either through dealers or
otherwise. Investors has agreed to offer such shares for sale at all times when
such shares are available for sale and may lawfully be offered for sale and
sold. As compensation for its services, in addition to receiving its
distribution fees pursuant to the Distribution Plan discussed above, the
Distributor receives the contingent deferred sales load on sales of Fund shares
set forth in the Prospectus.

The following tables set forth the amount of underwriting commissions paid by
each Fund and the amount retained by Investors.

<TABLE>
<CAPTION>
Total Underwriting Commissions
---------------------------------------------
Fiscal year Fiscal year Fiscal year
ended ended ended
July 31, 1995 7/31/96 7/31/98
------------- ----------- -----------
<S> <C> <C> <C>
U.S. Gov Sec Fund $ $ $
Strategic Income Fund $ $ $
High Yield Portfolio $ $ $

Underwriting Commissions Returned by Investors
----------------------------------------------
Fiscal year Fiscal year Fiscal year
ended ended ended
July 31, 1995 7/31/96 7/31/98
------------- ----------- -----------
<S> <C> <C> <C>
U.S. Gov Sec Fund $ $ $
Strategic Income Fund $ $ $
High Yield Portfolio $ $ $
</TABLE>

<PAGE>

PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERS

As each Fund's portfolio is composed primarily of debt (U.S. Government
Securities Fund's portfolio is exclusively debt), rather than equity securities,
most of the Funds' portfolio transactions are effected with dealers without the
payment of brokerage commissions, but at net prices which usually include a
spread or markup. 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

In effecting such portfolio transactions on behalf of a 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 a Fund's portfolio transactions are
made by advisers. 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 analysis and reports
concerning issues, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts. This allows Advisers to
supplement its own investment research activities and enables Advisers to
obtain the views and information of individuals and research staffs of many
different securities firms prior to making investment decisions for the Fund.
To the extent portfolio transactions are effected with broker-dealers who
furnish research services to Advisers, Advisers receives a benefit, not
capable of evaluation in dollar amounts, without providing any direct
monetary benefit to the Fund from these transactions. Advisers believes that
most research services obtained by it generally benefits several or all of
the investment companies and private accounts which it manages, as opposed to
solely benefitting 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,

<PAGE>

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.

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 years ended July 31, 1998, 1997 and 1996
for any Fund.

The Funds paid the following brokerage commissions for the fiscal
periods ended July 31, 1996, 1997 and 1998:

The following table sets forth additional information with respect to
brokerage commissions paid by each Fund during the fiscal year ended July 31,
1998:

<TABLE>
<CAPTION>
$ of Fund's aggregate
dollar amount of
transactions involving
$ of Fund's payment of
Brokerage total brokerage commissions which
Total brokerage commissions paid commissions paid was effected through
commissions paid to Investors to Investors to Investors
---------------- ---------------- ---------------- ----------------------
<S> <C> <C> <C> <C>
U.S. Gov Sec Fund $ $ % %
Strategic Income Fund $ $ % %
High Yield Portfolio $ $ % %
</TABLE>

During the fiscal year ended July 31, 1998, no Fund acquired 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.

<PAGE>

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.

As of November _______, 1998 no person owned of record or, to the Fund's
knowledge, beneficially as much as 5% of the outstanding shares of any Class of
Fund shares, except as follows:

The Funds currently offer their shares in multiple classes, each with
different sales arrangements and bearing different expenses. Under the Articles
of Incorporation, the Boards of Directors are authorized to create new
portfolios or classes without the approval of the shareholders of the Fortis
Income or Fortis Advantage. Each share will have a pro rata interest in the
assets of the Fund portfolio 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.
The Boards of Directors are also authorized to create new classes without
shareholder approval.

The Funds are not required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders. Minnesota corporation
law provides for the Board of Directors to convene shareholder meetings when it
deems appropriate. In addition, if a regular meeting of shareholders has not
been held during the immediately preceding fifteen months, a shareholder or
shareholders holding three percent or more of the voting shares may demand a
regular meeting of shareholders by written notice of demand given to the chief
executive officer or the chief financial officer. Within ninety days after
receipt of the demand, a regular meeting of

<PAGE>

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, 1998, the Fund's net asset values per share were calculated as
follows:

CLASS A