FORTIS INCOME PORTFOLIOS INC, 485BPOS, 1998-12-01

FORTIS INCOME PORTFOLIOS INC
485BPOS, 1998-12-01

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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 DECEMBER 1, 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. 45
------

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):

X 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
-----
on (specify date) pursuant to paragraph (a) of Rule 485
-----
60 days after filing pursuant to paragraph (a) of Rule 485
-----

<PAGE>

[LOGO]
Solid partners, flexible solutions-SM-

FORTIS BOND FUNDS PROSPECTUS
- --------------------------------------------------------------------------------

Dated December 1, 1998

- Fortis U.S. Government
Securities Fund

- Fortis Strategic
Income Fund

- Fortis High Yield Portfolio

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

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

MAILING ADDRESS:
P.O. Box 64284
St. Paul, Minnesota 55164-0284

STREET ADDRESS:
500 Bielenberg Drive
Woodbury, Minnesota 55125-1400

TELEPHONE: (651) 738-4000
TOLL FREE: (800) 800-2000, extension 3012

<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
<S> <C>
The Funds
U.S. Government Securities Fund........................................................................ 1
Strategic Income Fund.................................................................................. 4
High Yield Portfolio................................................................................... 7

Shareholder Information
Choosing a Share Class................................................................................. 10
Determining Your Purchase Price........................................................................ 11
How to Buy Shares...................................................................................... 14
How to Sell Shares..................................................................................... 15
Dividend and Capital Gains Distributions............................................................... 18
Tax Considerations..................................................................................... 18
Shareholder Inquiries.................................................................................. 18

Fund Management
Investment Adviser..................................................................................... 19
Portfolio Managers..................................................................................... 19

More Information on Fund Objectives, Investment Strategies and Risks
Objectives............................................................................................. 20
Investment Strategies.................................................................................. 20
Principal Risks........................................................................................ 22

Financial Highlights
U.S. Government Securities Fund........................................................................ 24
Strategic Income Fund.................................................................................. 25
High Yield Portfolio................................................................................... 26
</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
about the Funds' performance (except for Strategic Income Fund, which has not
been in existence for a complete calendar year) and Fund expenses. For more
information, 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 increase in
value when interest rates fall and decrease in value when interest rates
rise. One measure of interest rate risk is duration. (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. For more information, see the
section entitled "Principal Risks."

- CREDIT OR DEFAULT RISK. If a bond issuer's credit quality declines or its
credit agency ratings are downgraded, there may be a resulting decline in
the bond's price. If credit quality deteriorates to the point of possible or
actual default (inability to pay interest or repay principal on a timely
basis), the bond's market value could decline precipitously.

- CALL RISK. The Fund is subject to the possibility that, under certain
conditions, especially during periods of falling interest rates, a bond
issuer will "call"--or repay--its bonds before their maturity date. The Fund
may 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 pass 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. For
more information see the section entitled "Principal Risks."

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 chart shows 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. Sales loads are reflected in the table which 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(%)*

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

* The Fund's total return for the period from January 1, 1998 through September
30, 1998 was 8.78%.

<TABLE>
<S> <C> <C>
BEST QUARTER: 6.80% (Quarter ending June 30, 1989)
WORST
QUARTER: -3.60% (Quarter ending March 31, 1994)
</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..................................................................... 3.68% 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.

** With CDSC. Assumes redemption on December 31, 1997.

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 paid directly from
your investment. Annual fund operating expenses are deducted from Fund assets.
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% -- -- 4.50%
Maximum Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is less)........................ --* 4.00% 1.00% --*

ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................. .71% .71% .71% .71%
Distribution and/or Service
(12b-1) Fees.................... .25% 1.00% 1.00% --
Other Expenses................... .08% .08% .08% .08%
Total Annual Fund Operating
Expenses........................ 1.04% 1.79% 1.79% .79%
</TABLE>

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

* A contingent deferred sales charge of 1.00% is imposed on certain redemptions
of Class A and Class E shares that were purchased without an initial sales
charge as part of an investment of $1 million or more. See "Shareholder
Information."

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 SHARES REDEMPTION SHARES
CLASS A AT END OF ASSUMING NO AT END OF ASSUMING NO CLASS E
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION SHARES
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 year............................. $ 551 $ 542 $ 182 $ 282 $ 182 $ 527
3 years............................ 766 833 563 563 563 691
5 years............................ 998 1,150 970 970 970 869
10 years........................... 1,664 1,908 1,908 2,105 2,105 1,384
</TABLE>

3
<PAGE>
STRATEGIC INCOME FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

Strategic Income Fund pursues its objective by investing 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 in U.S. Treasury obligations and in obligations of U.S.
Government agencies and instrumentalities, such as mortgage-backed
securities.

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

- HIGH YIELD HIGH RISK 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. Non-performing securities are highly speculative and may be in default or
there may be elements of danger with respect to the payment of principal or
interest. 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:

- 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. One measure of interest rate risk is duration. (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). For more information, see the
section entitled "Principal Risks."

- CREDIT OR DEFAULT RISK. If a bond issuer's credit quality declines or its
agency ratings are downgraded, there may be a resulting decline in the
bond's price. If credit quality deteriorates to the point of possible or
actual default (inability to pay interest or repay principal on a timely
basis), the bond's market value could decline precipitously.

4
<PAGE>
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. For
more information, see the section entitled "Principal Risks."

- RISKS OF FOREIGN SECURITIES. One of the Fund's main investment strategies
is investing in foreign securities. Investing in foreign securities involves
risks not typically associated with U.S. investing. One risk is 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 in which the risks of foreign investing
are higher.

- RISKS OF HIGH YIELD HIGH RISK SECURITIES. A significant portion of the
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.

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 Fund's total return for the period from January 1, 1998 through September
30, 1998 was 2.14%. A bar chart is not provided for the Fund because it has been
in operation for less than one year.

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 paid directly from your
investment. Annual fund operating expenses are deducted from Fund assets. 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
SHARES SHARES SHARES
----------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)... 4.50% -- --
Maximum Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is less)........................ --** 4.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................. .80% .80% .80%
Distribution and/or Service
(12b-1) Fees.................... .25% 1.00% 1.00%
Other Expenses................... .34% .34% .34%
Total Annual Fund Operating
Expenses........................ 1.39% 2.14% 2.14%
</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 for the fiscal year ended July 31, 1998, Other
Expenses were .05% for each share class and Total Fund Operating Expenses were
1.10% of average daily net assets for Class A shares and 1.85% for Classes B,
C and H. Expense reimbursements may be discontinued at any time.

** A contingent deferred sales charge of 1.00% is imposed on certain redemption
of Class A shares that were purchased without an initial sales charge as part
of an investment of $1 million or more. See "Shareholder Information."

5
<PAGE>
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 SHARES REDEMPTION SHARES
CLASS A AT END OF ASSUMING NO AT END OF ASSUMING NO
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1 year............................. $ 585 $ 577 $ 217 $ 317 $ 217
3 years............................ 870 940 670 670 670
5 years............................ 1,176 1,329 1,149 1,149 1,149
10 years........................... 2,043 2,282 2,282 2,472 2,472
</TABLE>

6
<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. Non-performing securities are highly speculative and may be in
default or there may be elements of danger with respect to the payment of
principal or interest. 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:

- 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. One measure of interest rate risk is duration. (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.) For more information, see the
section entitled "Principal Risks."

- CREDIT OR DEFAULT RISK. If a bond issuer's credit quality declines or its
credit ratings are downgraded, there may be a resulting decline in the
bond's price. If credit quality deteriorates to the point of possible or
actual default (inability to pay interest or repay principal on a timely
basis), the bond's market value could decline precipitously.

- RISKS OF HIGH YIELD HIGH RISKS 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.

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 chart shows 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. Sales
loads are reflected in the table which 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.

7
<PAGE>
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(%)*

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

* The Fund's total return for the period from January 1, 1998 through September
30, 1998 was -2.61%.

<TABLE>
<S> <C> <C>
BEST QUARTER: 25.36% (Quarter ending March 31, 1991)
WORST (Quarter ending September 30,
QUARTER: -9.51% 1990)
</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.

** With CDSC. Assumes redemption on December 31, 1997.

8
<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 paid directly from your
investment. Annual fund operating expenses are deducted from Fund assets. 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.................. .72% .72% .72%
Distribution and/or Service
(12b-1) Fees.................... .35% 1.00% 1.00%
Other Expenses................... .10% .10% .10%
Total Annual Fund Operating
Expenses........................ 1.17% 1.82% 1.82%
</TABLE>

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

* A contingent deferred sales charge of 1.00% is imposed on certain redemption
of Class A shares that were purchased without an initial sales charge as part
of an investment of $1 million or more. See "Shareholder Information."

EXPENSE EXAMPLE. This example is intended to help you compare the cost of
investing in the different share classes of High Yield Portfolio 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 SHARES REDEMPTION SHARES
CLASS A AT END OF ASSUMING NO AT END OF ASSUMING NO
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1 year............................. $ 564 $ 545 $ 185 $ 285 $ 185
3 years............................ 805 843 573 573 573
5 years............................ 1,065 1,165 985 985 985
10 years........................... 1,806 1,967 1,967 2,137 2,137
</TABLE>

9
<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.)

- There is 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 available only in U.S. Government Securities Fund, 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.

- There is a contingent deferred sales charge (CDSC) if you redeem shares
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. There is no CDSC after the sixth year.

- There is 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 amount of
the concession paid to dealers. This difference does not affect you in any
way.

CLASS C SHARES

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

- There is a contingent deferred sales charge of 1.00% if you redeem shares
within one year of purchase.

- There is 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.

10
<PAGE>
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.

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 is equal to a Fund's net asset value per share plus any
initial sales charge. The 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 will be the next net asset value per share of the Fund
calculated after your purchase order is accepted by Fortis Investors
("Investors"), the Funds' underwriter. 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, your order
must be received by your broker-dealer prior to the close of the Exchange.
Investors will 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 restricted or illiquid securities are being valued.
In these cases, securities are valued at fair value as determined in good faith
by Advisers 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. The net asset value of Strategic Income Fund's shares
may change on days when you will not be able to purchase or redeem your shares.

11
<PAGE>
PURCHASE PRICE OF CLASS A AND CLASS E SHARES

(Note: Class E shares are available only in the U.S. Government Securities Fund,
if you were a shareholder of that Fund on November 13, 1994.)

The purchase price of Class A and Class E Fund shares is their next net asset
value per share 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. A broker-dealer receives
additional compensation (as a percentage of the sales charge) 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>

- ------------------------
* You will pay a contingent deferred sales charge, if you redeem these shares
within two years of purchase.

In determining your sales charge above, purchases by you, your spouse, your
children under the age of 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 above,
larger purchases of Class A and Class E shares have a reduced sales charge. 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 sales charge discounts apply to your current
purchase plus the net asset value of shares you already own in any Fortis
Fund which has a sales charge.

- STATEMENT OF INTENTION. The sales charge discounts apply to an initial
purchase of at least $1,000, if you intend 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 a list of investors who are eligible to purchase
Class A and Class E shares without a sales charge.

CONTINGENT DEFERRED SALES CHARGES. You pay no initial sales charge on purchases
of Class A and Class E shares of $1,000,000 or more. Out of its own assets,
however, Investors pays broker-dealers a fee of up to 1.00% of the offering
price of these shares. If you redeem these shares within two years, you will pay
a contingent deferred sales charge of 1.00%. For more information, see "How to
Sell Shares--Contingent Deferred Sales Charge."

12
<PAGE>
PURCHASE PRICE OF CLASS B AND CLASS H SHARES

The purchase price of Class B and Class H shares is their net asset value.
Because you pay no sales charge, the Fund receives the full amount of your
investment. However, if you redeem shares within six years of purchase, you will
pay a contingent deferred sales charge ("CDSC") 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."

Investors receives the CDSC, in part to defray expenses incurred in selling
Class B and Class H shares. 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 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. When 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 you pay
no initial sales charge, the Fund receives the full amount of your investment.
However, if you redeem your shares within one year of purchase you will pay a
CDSC of 1.00%. For additional information, see "How to Sell Shares--Contingent
Deferred Sales Charge."

Investors receives the CDSC, in part to defray expenses incurred in selling
Class C shares. Investors pays broker-dealers who sell Class C shares a
concession equal to 1.00% of the amount invested and an annual fee of 1.00% of
the amount invested that begins to accrue one year after the shares are sold.

RULE 12B-1 FEES

Each Fund pays Investors Rule 12b-1 fees for 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>

These fees are paid out of a Fund's assets on an ongoing basis. Rule 12b-1 fees
will increase the cost of your investment and over time may cost you more than
other types of sales charges.

13
<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 invest under the Systematic Investment Plan, the minimum
initial investment is $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 may reject any purchase order or 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. You must promptly
send your check and the Account Application which accompanies this Prospectus so
that Investors receives it 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 invest $100 -
$10,000 by 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: (your name)
Fortis Account NBR (your account number)

Before making an initial investment by wire, your broker-dealer must telephone
Investors at the number on the cover page of this Prospectus to open your
account and obtain your account number. You must promptly send your Account
Application which accompanies this Prospectus to Investors at "CM-9614, St.
Paul, MN 55170-9614." You may make additional investments by wire at any time
even if your initial investment was by mail. Your bank should transmit Federal
Funds using the instructions above.

INVESTING BY MAIL

You should complete and sign the Account Application which accompanies this
Prospectus. Please make your check or other negotiable bank draft payable to
Fortis Funds and mail it with your Application to "CM-9614, St. Paul, MN
55170-9614."

You may make additional purchases 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.

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 Fund shares in an account established for a minor.

14
<PAGE>
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 the Account Application). A systematic investment
plan may lower your average cost per share through the principle of "dollar cost
averaging." Advisers may elect to send confirmations for purchases made under a
Systematic Investment Plan 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. You pay no exchange fee
or additional sales charge for exchanges. 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.

If you own shares of another Fortis Fund, you may exchange those shares for Fund
shares of the same class. You pay no sales charge if the shares to be exchanged
have already been subject to a sales charge. If you own Class E shares of
another Fortis Fund, you may exchange those shares for Class A Fund shares. If
you own Fortis Money Fund Class A shares, you may exchange those 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.

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. You may make a telephone
exchange 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. A telephone exchange may be difficult
to implement at those times. (See "How to Sell Shares--By Phone").

An exchange of shares is a sale for federal income tax purposes and you may have
a taxable capital gain or loss.

Advisers has the right to change, terminate, impose charges or restrict the
frequency of exchanges. 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
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 the next net asset value of
your shares which is determined after the Fund receives your written redemption
request in proper form (and a properly endorsed stock certificate if one has
been issued).

To redeem by mail, send a written request to the Fund at the following address:

Fortis 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

15
<PAGE>
If you hold certificates for your shares, you must include them with your
request. You should send certificates 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.

No signature guarantee is required if you are the registered holder and the
redemption proceeds are sent to your address on the Fund's records. A written
redemption request requires a signature guarantee 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 paid to someone other than the registered
holder.

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

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. The proceeds will be released after the Fund receives
appropriate written materials. If your broker-dealer receives your order prior
to the close of the Exchange and places the order with Investors by the end of
the business day, you will receive that day's price on the order. Some
broker-dealers may charge a fee to process redemptions.

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

- Your account is not a tax-qualified plan,

- Your check is sent to the address on the Fund's records, and

- You have not changed your address on the Fund's records 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. The Funds will
employ reasonable procedures to confirm that telephone instructions are genuine.
The Funds will not be responsible for any losses that may result from acting on
telephone instructions that they reasonably believe to be genuine. The Funds'
will verify your 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
using 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.

Advisers has the right to change, terminate or impose charges on 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 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. If you actively participate in the Funds' Systematic Investment Plan your
account will not be redeemed. Before redeeming your account, the Fund will mail
you a notice of its intention to redeem and give you an opportunity to make an
additional investment. If you do not make an additional investment within 60
days from the date the notice was mailed, your account will be redeemed.

16
<PAGE>
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 be sent to you
quarterly, rather than after 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 redeem are subject to a
CDSC, that charge will be credited to your account. 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

If 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 does not apply 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 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.

17
<PAGE>
If you exchange shares subject to a CDSC for shares of a different Fortis Fund,
the transaction is not 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 is not 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 re-exchanged 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

Each Fund declares a daily dividend from its net investment income and pays the
dividend monthly. You will earn dividends starting the day after you purchase
your shares. If you made a telephone purchase, you will earn dividends after
payment is received. Any capital gains distributions are made annually. You will
receive a confirmation 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). However, you may request that
dividends and/or capital gain distributions 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 paid to you or reinvested on the last business day of each
month at the net asset value. If your dividends are reinvested in other Fortis
Funds, processing normally takes one business day. If you elect cash payment, a
check will be mailed within five business days after the end of the month. If
you withdraw your entire account, all dividends accrued 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 as a taxable distribution.

TAX CONSIDERATIONS

Some of the common tax consequences of investing in the Funds are discussed
below. Because everyone's tax situation is unique, be sure to consult 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

If you sell or exchange your Fund shares, you will have a taxable event that 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

You should direct your inquiries 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.

18
<PAGE>
FUND MANAGEMENT
- -------------------------------------------------------------------
INVESTMENT ADVISER

Fortis Advisers, Inc. ("Advisers") is the investment adviser for the Funds.
Advisers 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.................................................. .71%
Strategic Income Fund............................................................ .80%*
High Yield Portfolio............................................................. .72%
</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.

- 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, Abbett & 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.

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

19
<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 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 IOs, POs, inverse floaters and accrual bonds.

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.

20
<PAGE>
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.

- INVESTMENT GRADE AND HIGH YIELD HIGH RISK 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) 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 25% or more of its total assets in government
securities of any single foreign country.

- HIGH YIELD HIGH RISK 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 7.5% of its net assets in any one of these types of securities, and
up to 15% of its net assets collectively in IOs, POs, inverse floaters and
accrual bonds.

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.

21
<PAGE>
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 7.5% of its net assets
in any one of these types of securities, and up to 15% of its net assets
collectively in IOs, POs, inverse floaters and accrual bonds.

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, 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 ("called") at the option
of the issuer 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 bonds. A Fund
may 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.

22
<PAGE>
- 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 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%.

- 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 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 HIGH RISK 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
Fund's 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.

23
<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
PERIOD YEAR ENDED
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED DECEMBER
U.S. GOVERNMENT SECURITIES FUND JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, 31,
- -------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
CLASS E SHARES 1998 1997 1996 1995 1994*** 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $9.16 $8.87 $9.02 $9.03 $9.87 $9.86
- -------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .52 .54 .60 .67 .42 .75
Net realized and unrealized gains (losses) on
investments.................................... .14 .32 (.15) (.01) (.84) .05
- -------------------------------------------------------------------------------------------------------------------------------
Total from operations............................. .66 .86 .45 .66 (.42) .80
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.52) (.54) (.60) (.67) (.42) (.75)
From net realized gains......................... -- -- -- -- -- (.04)
Excess distributions of net realized gains...... -- (.03) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.52) (.57) (.60) (.67) (.42) (.79)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.................... $9.30 $9.16 $8.87 $9.02 $9.03 $9.87
- -------------------------------------------------------------------------------------------------------------------------------
Total return*..................................... 7.42% 10.07% 5.08% 7.71% (4.29)% 8.31%
Net assets end of period (000s omitted)........... $285,060 $324,643 $388,006 $470,597 $555,275 $641,977
Ratio of expenses to average daily net assets..... .79% .81% .81% .77% .77%** .76%
Ratio of net investment income to average daily
net assets....................................... 5.62% 6.08% 6.59% 7.51% 7.72%** 7.43%
Portfolio turnover rate........................... 118% 161% 75% 76% 85% 157%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
CLASS A CLASS B
------------------------------------ ---------------------------------
YEAR ENDED JULY 31,
U.S. GOVERNMENT ------------------------------------------------------------------------
SECURITIES FUND 1998 1997 1996 1995+ 1998 1997 1996 1995+
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period........ $9.16 $8.87 $9.02 $8.63 $9.14 $8.86 $9.02 $8.63
- -----------------------------------------------------------------------------------------
Operations:
Investment
income -
net......... .50 .52 .58 .46 .43 .46 .51 .41
Net realized
and
unrealized
gains
(losses) on
investments... .14 .32 (.15) .39 .14 .31 (.15) .39
- -----------------------------------------------------------------------------------------
Total from
operations.... .64 .84 .43 .85 .57 .77 .36 .80
- -----------------------------------------------------------------------------------------
Distribution to
shareholders:
From
investment
income -
net......... (.50) (.52) (.58) (.46) (.43) (.47) (.52) (.41)
From net
realized
gains....... -- -- -- -- -- -- -- --
Excess
distributions
of net
realized
gains....... -- (.03) -- -- -- (.02) -- --
- -----------------------------------------------------------------------------------------
Total
distributions
to
shareholders... (.50) (.55) (.58) (.46) (.43) (.49) (.52) (.41)
- -----------------------------------------------------------------------------------------
Net asset
value, end of
period........ $9.30 $9.16 $8.87 $9.02 $9.28 $9.14 $8.86 $9.02
- -----------------------------------------------------------------------------------------
Total
return*....... 7.14% 9.77% 4.78% 10.07% 6.40% 8.95% 4.00% 9.47%
Net assets end
of period
(000s
omitted)...... $52,439 $59,128 $67,707 $4,909 $ 3,161 $2,826 $2,314 $ 483
Ratio of
expenses to
average daily
net assets.... 1.04% 1.06% 1.06% 1.02%** 1.79% 1.81% 1.81% 1.77%**
Ratio of net
investment
income to
average daily
net assets.... 5.37% 5.83% 6.34% 7.00%** 4.62% 5.07% 5.59% 6.24%**
Portfolio
turnover
rate.......... 118% 161% 75% 76% 118% 161% 75% 76%
- -----------------------------------------------------------------------------------------

<CAPTION>
- ---------------
CLASS C CLASS H
------------------------------------------------- -------------------------------------------------
YEAR ENDED JULY 31,
U.S. GOVERNMENT -----------------------------------------------------------------------------------------------------
SECURITIES FUND 1998 1997 1996 1995+ 1998 1997 1996 1995+
- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period........ $9.13 $8.85 $9.01 $8.63 $9.14 $8.86 $9.02 $8.63
- ---------------
Operations:
Investment
income -
net......... .43 .46 .51 .41 .43 .46 .51 .41
Net realized
and
unrealized
gains
(losses) on
investments... .14 .31 (.15) .38 .14 .31 (.15) .39
- ---------------
Total from
operations.... .57 .77 .36 .79 .57 .77 .36 .80
- ---------------
Distribution to
shareholders:
From
investment
income -
net......... (.43) (.47) (.52) (.41) (.43) (.47) (.52) (.41)
From net
realized
gains....... -- -- -- -- -- -- -- --
Excess
distributions
of net
realized
gains....... -- (.02) -- -- -- (.02) -- --
- ---------------
Total
distributions
to
shareholders... (.43) (.49) (.52) (.41) (.43) (.49) (.52) (.41)
- ---------------
Net asset
value, end of
period........ $9.27 $9.13 $8.85 $9.01 $9.28 $9.14 $8.86 $9.02
- ---------------
Total
return*....... 6.41% 8.96% 4.00% 9.35% 6.40% 8.94% 4.00% 9.47%
Net assets end
of period
(000s
omitted)...... $ 1,267 $ 1,444 $ 1,057 $ 326 $ 10,816 $ 10,637 $ 10,120 $ 4,823
Ratio of
expenses to
average daily
net assets.... 1.79% 1.81% 1.81% 1.77%** 1.79% 1.80% 1.81% 1.77%**
Ratio of net
investment
income to
average daily
net assets.... 4.62% 5.07% 5.59% 6.24%** 4.62% 5.08% 5.52% 6.24%**
Portfolio
turnover
rate.......... 118% 161% 75% 76% 118% 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 year-end to July 31
(previously December 31).
+ For the period from November 14, 1994 (commencement of operations) to July
31, 1995.

24
<PAGE>

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
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.............. $9.98 $9.98 $9.98 $9.98
- -----------------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .42 .38 .38 .38
Net realized and unrealized gains on
investments.................................... .07 .07 .07 .07
- -----------------------------------------------------------------------------------------------------
Total from operations............................. .49 .45 .45 .45
- -----------------------------------------------------------------------------------------------------
Distribution to shareholders:
From investment income - net.................... (.42) (.38) (.38) (.38)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period.................... $10.05 $10.05 $10.05 $10.05
- -----------------------------------------------------------------------------------------------------
Total return**.................................... 4.77% 4.31% 4.35% 4.35%
Net assets end of period (000s omitted)........... $ 22,422 $398 $194 $355
Ratio of expenses to average daily net assets++... 1.10%* 1.85%* 1.85%* 1.85%*
Ratio of net investment income to average daily
net assets++..................................... 6.22%* 5.73%* 5.73%* 5.73%*
Portfolio turnover rate........................... 1.36% 1.36% 1.36% 1.36%
- -----------------------------------------------------------------------------------------------------
</TABLE>

+ For the period from December 1, 1997 (commencement of operations) to July 31,
1998.
++ Advisers has voluntarily undertaken to limit annual expenses for the Fund
(exclusive of interest, taxes, brokerage commission and non-recurring
extraordinary charges and expenses) to 1.10% of average daily net assets for
Class A shares and 1.85% for Classes B, C, and H. For the period presented,
had the waiver and reimbursement of expenses not been in effect, the ratios
of expenses and net investment income to average daily net assets would have
been 1.39% and 5.93% for Class A, 2.14% and 5.44% for Class B, 2.14% and
5.44% for Class C, and 2.14% and 5.44 for Class H, respectively.
* Annualized.
** These are the Fund's total returns during the periods, including reinvestment
of all dividend and capital gains distributions without adjustments for sales
charge.

25
<PAGE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO YEAR ENDED JULY 31, YEAR ENDED OCTOBER 31,
- ---------------------------------------- ------------------------------------- ----------------------------------
CLASS A SHARES 1998 1997 1996++ 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $7.83 $7.56 $7.61 $7.90 $8.65 $8.00
- --------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net............... .73 .76 .56 .86 .86 .87
Net realized and unrealized gain
(loss) on investments................ (.40) .28 (.04) (.25) (.72) .68
- --------------------------------------------------------------------------------------------------------------------
Total from operations................... .33 1.04 (.52) .61 .14 1.55
- --------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.......... (.75) (.75) (.55) (.86) (.89) (.89)
Excess distributions of net realized
gains................................ -- (.02) (.02) (.04) -- (.01)
- --------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders..... (.75) (.77) (.57) (.90) (.89) (.90)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.......... $7.41 $7.83 $7.56 $7.61 $7.90 $8.65
- --------------------------------------------------------------------------------------------------------------------
Total return@........................... 4.31% 14.51% 6.98% 8.07% 1.48% 20.33%
Net assets at end of period (000's
omitted)............................... $ 113,549 $ 123,115 $109,401 $ 113,268 $ 98,611 $ 73,395
Ratio of expenses to average daily net
assets................................. 1.17% 1.19% 1.21%* 1.25% 1.23% 1.29%
Ratio of net investment income to
average daily net assets............... 9.46% 9.84% 9.87%* 10.61% 10.18% 10.43%
Portfolio turnover rate................. 214% 331% 146% 101% 63% 95%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C
-------------------------------------------- -----------------------------------------
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO 1998 1997 1996++ 1995+ 1998 1997 1996++ 1995+
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $7.83 $7.56 $7.60 $7.87 $7.82 $7.55 $7.59 $7.87
- ---------------------------------------------------------------------------------------------------------------------
Operations:
Investment income -
net..................... .68 .71 .53 .78 .68 .71 .53 .78
Net realized and
unrealized gains
(losses) on
investments............. (.40) .28 (.04) (.23) (.40) .28 (.04) (.24)
- ---------------------------------------------------------------------------------------------------------------------
Total from operations...... .28 .99 .49 .55 .28 .99 .49 .54
- ---------------------------------------------------------------------------------------------------------------------
Distribution to
shareholders:
From investment income -
net..................... (.70) (.70) (.51) (.78) (.70) (.70) (.51) (.78)
Excess distributions of
net realized gains...... -- (.02) (.02) (.04) -- (.02) (.02) (.04)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders.............. (.70) (.72) (.53) (.82) (.70) (.72) (.53) (.82)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period.................... $7.41 $7.83 $7.56 $7.60 $7.40 $7.82 $7.55 $7.59
- ---------------------------------------------------------------------------------------------------------------------
Total return@.............. 3.67% 13.80% 6.62% 7.25% 3.67% 13.82% 6.63% 7.12%
Net assets at end of period
(000s omitted)............ $28,935 $20,388 $12,067 $7,530 $8,641 $7,037 $3,378 $2,180
Ratio of expenses to
average daily net
assets.................... 1.82% 1.83% 1.86%* 1.90%* 1.82% 1.83% 1.86%* 1.90%*
Ratio of net investment
income to average daily
net assets................ 8.81% 9.24% 9.20%* 9.66%* 8.81% 9.26% 9.21%* 9.83%*
Portfolio turnover rate.... 214% 331% 146% 101% 214% 331% 146% 101%
- ---------------------------------------------------------------------------------------------------------------------

<CAPTION>
- ---------------------------
CLASS H
---------------------------------------------
YEAR ENDED JULY 31,
---------------------------------------------
HIGH YIELD PORTFOLIO 1998 1997 1996++ 1995+
- ---------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................. $7.82 $7.55 $7.60 $7.87
- ---------------------------
Operations:
Investment income -
net..................... .68 .71 .52 .78
Net realized and
unrealized gains
(losses) on
investments............. (.40) .28 (.04) (.23)
- ---------------------------
Total from operations...... .28 .99 .48 .55
- ---------------------------
Distribution to
shareholders:
From investment income -
net..................... (.70) (.70) (.51) (.78)
Excess distributions of
net realized gains...... -- (.02) (.02) (.04)
- ---------------------------
Total distributions to
shareholders.............. (.70) (.72) (.53) (.82)
- ---------------------------
Net asset value, end of
period.................... $7.40 $7.82 $7.55 $7.60
- ---------------------------
Total return@.............. 3.67% 13.82% 6.48% 7.25%
Net assets at end of period
(000s omitted)............ $72,415 $63,789 $39,133 $23,862
Ratio of expenses to
average daily net
assets.................... 1.82% 1.83% 1.86%* 1.90%*
Ratio of net investment
income to average daily
net assets................ 8.81% 9.23% 9.21%* 9.81%*
Portfolio turnover rate.... 214% 331% 146% 101%
- ---------------------------
</TABLE>

* Annualized.
@ 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 year-end to July 31 (previously October 31).

26
<PAGE>
FORTIS-SM-
ACCOUNT APPLICATION

Complete this application to open a new Fortis
account or to add services to an existing Fortis
Mail to: account. For personal service, please call your
FORTIS MUTUAL FUNDS investment professional or Fortis customer service
CM-9614 at 1-800-800-2000, ext. 3012. Submission of an
St. Paul, MN 55170-9614 incomplete application may cause processing delays.

DO NOT USE TO OPEN A FORTIS IRA, SEP, 403(B) OR
FORTIS MONEY FUND ACCOUNT.

________________________________________________________________________________
1 ACCOUNT INFORMATION
________________________________________________________________________________

Please provide the information requested below:

/ /INDIVIDUAL: Please print your name, Social Security number, U.S. citizen
status.

/ /JOINT TENANT: List all names, one Social Security number, one U.S. citizen
status.

/ /UNIFORM GIFT/TRANSFER TO MINORS: Provide name of custodian (ONLY ONE) and
minor, minor's Social Security number, minor's U.S. citizen status and date
of birth of minor.

/ /TRUST: List trustee and trust title, including trust date, trust's Taxpayer
ID number; also include a photocopy of the first and last page of the trust
agreement.

/ /CORPORATION, ASSOCIATION, PARTNERSHIP: Include full name, Taxpayer ID number.

/ /FORTIS KEY PLAN: Include Social Security number.

/ /QUALIFIED PLAN: Include name of Plan and trustee, Plan's Taxpayer ID number.

/ / OTHER: _____________________________________________________________________

- ---------------------------------------------------------------
Owner (Individual, 1st Joint Tenant, Custodian, Trustee) (Please print)

- ------------------------------------------------------------------------
Owner (2nd Joint Tenant, Minor, Trust Name) (Please print)

- ------------------------------------------------------------------------
Additional information, if needed

- ------------------------------------------------------------------------
Street address

- ------------------------------------------------------------------------
City State Zip

- ------------------------------------------------------------------------
Social Security number (Taxpayer ID)

( )
- ---------------------------------------------------------------
Daytime phone Date of birth
(Uniform Gift/Transfer to Minors)
Date of Trust (if applicable) __________________________________________________
Are you a U.S. citizen? / / Yes / / No
If no, country of permanent residence __________________________________________

95749 (11/98)
________________________________________________________________________________
2 TRANSFER ON DEATH
________________________________________________________________________________

Please indicate the Primary Beneficiary with "PB" after the beneficiary(ies)
name(s). Indicate Contingent Beneficiary with "CB." Indicate Lineal Descendant
Per Stirpes with "LDPS" if you want ownership to pass to the legal heirs of the
primary beneficiary in the event a designated beneficiary dies before the
account owner.

TOD IS ONLY AVAILABLE FOR INDIVIDUAL AND JOINT TENANTS (JTWROS) ACCOUNTS.

BENEFICIARY(IES):

Name _____________________________ SS# _________________________________________
Name _____________________________ SS# _________________________________________
Name _____________________________ SS# _________________________________________

________________________________________________________________________________
3 INVESTMENT ACCOUNT
________________________________________________________________________________

A. PHONE ORDERS

Was order previously phoned in? If yes, date ___________________________________
Confirmation # ___________________________ Account # ___________________________

FOR PHONE ORDERS, CHECK MUST BE MADE PAYABLE TO FORTIS INVESTORS

B. MAIL-IN ORDERS

Check enclosed for $____________________________. (MADE PAYABLE TO FORTIS FUNDS)
MUST INDICATE CLASS

<TABLE>
<C> <S> <C> <C>
1) --------- $ ----------- A / / B / / C / / H / /
Fund Name Amount or % Class
2) $ A / / B / / C / / H / /
--------- -----------
Fund Name Amount or % Class
3) $ A / / B / / C / / H / /
--------- -----------
Fund Name Amount or % Class
4) $ A / / B / / C / / H / /
--------- -----------
Fund Name Amount or % Class
5) $ A / / B / / C / / H / /
--------- -----------
Fund Name Amount or % Class
</TABLE>

________________________________________________________________________________
4 EXEMPTION FROM SALES CHARGE
________________________________________________________________________________

CHECK IF APPLICABLE (for net asset value purchases):

/ / I am a member of one of the categories of persons listed under "Exemptions
from Sales Charge" in the prospectus. I qualify for exemption from the sales
charge because ____________________________________________________________.

/ / I was (within the past 60 days) the owner of a fixed annuity contract not
deemed a security or a shareholder of an unrelated mutual fund with a
front-end and/or deferred sales charge. I have attached the mutual
fund/insurance check (or copy of the redemption confirmation/surrender
form).

The Fortis logo and Fortis-SM- are servicemarks of Fortis AMEV and Fortis AG
<PAGE>
________________________________________________________________________________
5 SIGNATURE & CERTIFICATION
________________________________________________________________________________

I have received and read each appropriate fund prospectus and understand that
its terms are incorporated by reference into this application. I am of legal age
and legal capacity.

I understand that this application is subject to acceptance by Fortis Investors,
Inc.

I CERTIFY, UNDER PENALTIES OF PERJURY, THAT:

(1) THE SOCIAL SECURITY NUMBER OR TAXPAYER ID NUMBER PROVIDED IS CORRECT; AND
(CROSS OUT THE FOLLOWING IF NOT TRUE)
(2) THAT THE IRS HAS NEVER NOTIFIED ME THAT I AM SUBJECT TO 31% BACKUP
WITHHOLDING, OR HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO SUCH BACKUP
WITHHOLDING.

Each person signing on behalf of any entity represents that his or her actions
are authorized. It is agreed that all Fortis Funds, Fortis Investors, Fortis
Advisers and their officers, directors, agents and employees will not be liable
for any loss, liability, damage or expense for relying upon this application or
any instruction believed genuine.

IF YOU ARE NOT SIGNING AS AN INDIVIDUAL, STATE YOUR TITLE OR CAPACITY (INCLUDE
APPROPRIATE DOCUMENTS VERIFYING YOUR CAPACITY).

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.

AUTHORIZED SIGNATURE(S)

X
- ---------------------------------------------------------------
Owner, Custodian, Trustee Date

X
- ---------------------------------------------------------------
Joint Owner, Trustee Date
________________________________________________________________________________
6 DEALER/REPRESENTATIVE INFORMATION
________________________________________________________________________________

- --------------------------------------------------
Representative's name (please print)

- ------------------------------------------------------------------------
Name of Broker/Dealer

- ------------------------------------------------------------------------
Branch Office address

- ------------------------------------------------------------------------
Representative's signature

( )
- ------------------------------------------------------------------------

Representative's number Representative's Phone Number

- ------------------------------------------------------------------------
AUTHORIZED SIGNATURE OF BROKER/DEALER
________________________________________________________________________________
7 DISTRIBUTION OPTIONS
________________________________________________________________________________

If no option is selected, all distributions will be reinvested in the same
Fortis fund(s) selected above. Please note that distributions can only be
reinvested in the SAME CLASS.

/ / Reinvest dividends and capital gains
/ / Dividends in cash and reinvest capital gains (See Section 9 for payment
options.)
/ / Dividends and capital gains in cash (See Section 9 for payment options.)
/ / Distributions into another Fortis fund (must be SAME CLASS).
____________________________________________________________________________
Fund Name Fund/Account # (if existing account)
________________________________________________________________________________
8 SYSTEMATIC EXCHANGE PROGRAM
________________________________________________________________________________

Fortis' Systematic Transfer Program allows you to transfer money from any Fortis
fund, in which you have a current balance of at least $1,000, into any other
Fortis fund (maximum of three), on a monthly basis. The minimum amount for each
transfer is $50. Generally, transfers between funds must be within the SAME
CLASS. See prospectus for details.
- ------------------------------------------------------------------------
Fund from which shares will be exchanged: Effective Date

FUND(S) TO RECEIVE INVESTMENT(S):

<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Fund Amount to invest monthly
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>

________________________________________________________________________________
9 WITHDRAWAL OPTIONS
________________________________________________________________________________

A. CASH DIVIDENDS

PLEASE FORWARD THE PAYMENT TO:

<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)

/ / Via U.S. Mail
/ / Via ACH (electronic transfer)

/ / My address of record.
</TABLE>

B. SYSTEMATIC WITHDRAWAL PLAN

Please consult your financial or tax adviser before electing a Systematic
Withdrawal Plan.

Please redeem shares from my Fortis ______________________________________ Fund,
account number _______________________ in the amount of $______________________.

Effective Withdrawal Date __________________

<TABLE>
<S> <C> <C> <C>
FREQUENCY: / / Monthly / / Semi-Annually
/ / Quarterly / / Annually
</TABLE>

PLEASE FORWARD THE PAYMENT TO:

<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)

/ / Via U.S. Mail
/ / Via ACH (electronic transfer)

/ / My address of record.
</TABLE>

C. TELEPHONE OPTIONS

/ / TELEPHONE EXCHANGE. All exchanges must be into accounts having the identical
registration-ownership. All authorized signatures listed in Section 5 (or
your registered representative with shareholder consent) can make telephone
transfers.
/ / TELEPHONE REDEMPTION ($25,000 LIMIT AND NOT AVAILABLE FOR QUALIFIED PLANS)
If you have not changed your address in the past 60 days, you are eligible
for this service. This option allows all authorized signatures in Section 5
(or your registered representative with shareholder consent) to redeem up to
$25,000 from your Fortis account.

PLEASE FORWARD THE PAYMENT TO:

<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)

/ / Via U.S. Mail
/ / Via ACH (electronic transfer)

/ / My address of record.
</TABLE>

<PAGE>
(WITHDRAWAL OPTIONS, CONTINUED)

D. BANK INFORMATION

I request Fortis Financial Group (FFG) to pay sums due me by crediting my bank
account in the form of electronic entries. This authorization will remain in
effect until I notify FFG.

TYPE OF ACCOUNT: / / Checking / / Savings
Bank name ______________________________________________________________________
Address ________________________________________________________________________
City, State, Zip _______________________________________________________________
Name of bank account ___________________________________________________________
Bank account number ____________________________________________________________
Bank transit number ____________________________________________________________
Bank phone number ______________________________________________________________
ATTACH A VOIDED CHECK FROM YOUR BANK CHECKING ACCOUNT
________________________________________________________________________________
10 REDUCED FRONT-END SALES CHARGES
________________________________________________________________________________

A. RIGHT OF ACCUMULATION

/ / I own shares of more than one fund in the Fortis Family of Funds, which may
entitle me to a reduced sales charge.

- --------------------------------------------------------------------------------
Name on account Account number

B. STATEMENT OF INTENT

I agree to invest $_________ over a 13-month period beginning ____________ (not
more than 90 days prior to this application). I understand that an additional
sales charge must be paid if I do not complete my purchase.
________________________________________________________________________________
11 PRIVILEGED ACCOUNT SERVICE
________________________________________________________________________________

Fortis' Privileged Account Service systematically rebalances your funds back to
your original specifications ($10,000 minimum per account). All funds must be
within the SAME CLASS.

Frequency: / / quarterly / / semi-annually / / annually

<TABLE>
<S> <C> <C>
Fund Selected Percentage
(up to 5) (whole %)
1)
------------------------- ---------------
2)
------------------------- ---------------
3)
------------------------- ---------------
4)
------------------------- ---------------
5)
------------------------- ---------------
</TABLE>

________________________________________________________________________________
12 SUITABILITY
________________________________________________________________________________

NOTE: Must be completed with each fund application unless you provide
suitability information to your broker/dealer on a different form.

State In Which Application Was Signed ______________________________________

- --------------------------------------------------------------------------------
Employer
- --------------------------------------------------------------------------------
Business Address
- --------------------------------------------------------------------------------
City, State, ZIP

- --------------------------------------------------------------------------------
Occupation Age (optional)

Is customer associated with or employed by another
NASD member? / / Yes / / No

<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
Please mark one box under ESTIMATED
ESTIMATED ANNUAL INCOME ESTIMATED NET
and one box under ANNUAL WORTH
ESTIMATED NET WORTH INCOME (Exclusive of
(All Sources) Family Residence)
- --------------------------------------------------------------------------------
under $10,000
- --------------------------------------------------------------------------------
$10,000 - $25,000
- --------------------------------------------------------------------------------
$25,000 - $50,000
- --------------------------------------------------------------------------------
$50,000 - $100,000
- --------------------------------------------------------------------------------
$100,000 - $500,000
- --------------------------------------------------------------------------------
$500,000 - $1,000,000
- --------------------------------------------------------------------------------
Over $1,000,000
- --------------------------------------------------------------------------------
Declined
- --------------------------------------------------------------------------------
</TABLE>

Source of Funds
- --------------------------------------------------------------------------------

ESTIMATED FEDERAL TAX BRACKET

/ / 15% / / 28% / / 31% / / 33% / / Declined

INVESTMENT OBJECTIVES

/ / Growth (long-term capital appreciation)

/ / Income (cash generating)

/ / Tax-free Income

/ / Diversification

/ / Other (please specify) _________________________________________

Did you use a Fortis Asset Allocation model? / / Yes / / No
________________________________________________________________________________
13 SYSTEMATIC INVESTMENT PLAN
________________________________________________________________________________

Complete the Automated Clearing House (ACH) Authorization Agreement Form in the
prospectus and attach a VOIDED check from your bank checking account. These
plans may be established for as little as $25.
________________________________________________________________________________
14 OTHER SPECIAL INSTRUCTIONS
________________________________________________________________________________

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

- --------------------------------------------------------------------------------
<PAGE>

FORTIS FINANCIAL GROUP FORTIS-SM-
Fortis Advisers, Inc. (fund management since 1949)
Fortis Investors, Inc. (principal underwriter, member NASD, SIPC)
Fortis Benefits Insurance Company & Fortis Insurance Company
P.O. Box 64284 St. Paul, MN 55164-0284 (800) 800-2000
http://www.ffg.us.fortis.com
FORTIS MUTUAL FUND
AUTOMATED CLEARING HOUSE (ACH) AUTHORIZATION AGREEMENT

Please complete each section below to establish ACH capability to your
Fortis Mutual Fund Account.
For personal service, please call your investment professional or
Fortis at (800) 800-2000, extension 3012.
For investment options, complete sections 1, 2, 3. For withdrawal,
complete sections 1, 2, 4, 5.

________________________________________________________________________________
1 FORTIS ACCOUNT INFORMATION
________________________________________________________________________________

Account Registration:
________________________________________________________________________________
Owner (Individual, 1st Joint Tenant, Custodian, Trustee)
________________________________________________________________________________
Owner (2nd Joint Tenant, Minor, Trust Name)
________________________________________________________________________________
Additional Information, if needed
________________________________________________________________________________
Street address
________________________________________________________________________________
City State Zip
________________________________________ _______________________________________
Social Security number (Taxpayer I.D.) Daytime phone number

________________________________________________________________________________
2 BANK/FINANCIAL INSTITUTION INFORMATION
________________________________________________________________________________

<TABLE>
<S> <C> <C>
PLAN TYPE: / / New Plan / / Bank Change

ACCOUNT TYPE: / / Checking / / Savings
(must attach a (must attach a
voided check) deposit slip)
</TABLE>

________________________________________________________________________________
Transit Number
________________________________________________________________________________
Bank Account Number
________________________________________________________________________________
Account Owner(s) (Please Print)
________________________________________________________________________________
Depositor's Daytime Phone Number

CLEARLY PRINT THE BANK/FINANCIAL INSTITUTION'S NAME AND ADDRESS BELOW:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Signature of Depositor Date
________________________________________________________________________________
Signature of Joint-Depositor Date
________________________________________________________________________________
3 INVESTMENT OPTION(S)
________________________________________________________________________________

<TABLE>
<S> <C> <C>
I request Fortis Financial Group (FFG) to obtain payment of sums becoming due the
company by charging my account in the form of electronic debit entries. I request
and authorize the financial institution named to accept, honor and charge those
entries to my account. Please allow THIRTY days for collected funds to be
available in your Fortis account.

A. / / Invest by phone
(minimum $25, maximum $10,000)

Please allow up to four business days for deposits into
Fortis Funds. Transactions after 3:00 p.m. (CST) will be
processed the following business day.
*Not available on tax-qualified accounts such as IRA, SEP,
SARSEP and KEY plans.
B. / / Systematic Investment Plan: / / New Plan / / Change Plan
C. / / Starting Draft Date:
D. / / Account Number:
</TABLE>

<TABLE>
<CAPTION>
Class Amount
Fund (Circle One) $25.00 per fund minimum
- ------------------------------------------------------ -------------- -----------------------------
<S> <C> <C>
A B C H
A B C H
A B C H
A B C H
</TABLE>

98049 (11/98)

________________________________________________________________________________
4 WITHDRAWAL OPTION(S)
________________________________________________________________________________

<TABLE>
<S> <C> <C>
I request Fortis Financial Group (FFG) to pay sums due me by crediting
my bank account in the form of electronic entries. I request and
authorize the financial institution to accept, honor and credit those
entries to my account. Withdrawal from Fortis Fund(s) requires account
owner(s) signature(s) - see Section 5

(Please consult your financial or tax adviser before electing a
systematic withdrawal plan. For Tax Qualified accounts, additional forms
are required for distribution.)

A. / / Cash Dividends
B. / / Redeem via FORTIS INFORMATION LINE by phone
(minimum $100, maximum $25,000)

Please allow up to four business days for withdrawal to
credit your bank account. Transactions after 3:00 p.m. (CST)
will be processed the following business day.
*Not available on tax qualified accounts such as IRA, SEP,
SARSEP and Key plans.

C. / / Systematic Withdrawal Plan: / / New Plan / / Change Plan

D. / / Beginning Withdrawal Date:

E. / / Account Number:
</TABLE>

________________________________________________________________________________
5 SIGNATURES
________________________________________________________________________________

This authorization will remain in effect until I notify FFG. I hereby terminate
any prior authorization of FFG to initiate charges to this account. I understand
that any returned item or redemption of the entire account may result in
termination of my Automated Clearing House agreement. This authorization will
become effective upon acceptance by FFG at its home office.

Authorized Signature(s)

X ______________________________________________________________________________

Owner, Custodian, Trustee Date

X ______________________________________________________________________________
Joint Owner, Trustee Date

The Fortis logo and Fortis-SM- are servicemarks of Fortis AMEV and Fortis AG
<PAGE>

[LOGO] ---------------
FORTIS-SM- BULK RATE
U.S. POSTAGE
FORTIS FINANCIAL GROUP: PAID
P.O. Box 64284 Permit No, 3794
St. Paul, Minnesota 55164-0284 Minneapolis, MN
---------------

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

<TABLE>
<S> <C>
Prospectus - STATEMENT OF ADDITIONAL INFORMATION. The SAI
Dated December 1, 1998 provides more details about the Funds and their
- - Fortis U.S. Government policies. A current SAI is on file with the
Securities Fund Securities and Exchange Commission (SEC) and is
incorporated into this Prospectus by reference,
- - Fortis Strategic which means that it is legally considered part
Income Fund of this Prospectus.

- - Fortis High Yield Portfolio - ANNUAL AND SEMIANNUAL REPORTS. Additional
information about Funds' investments is
SEC file numbers: 811-05355, 811-02341 available in the Funds' annual and semiannual
reports to shareholders. In the Funds' annual
report, you will find a discussion of the
[LOGO] FORTIS-SM- market conditions and investment strategies
that significantly affected the Funds'
performance during their last fiscal year.
FORTIS FINANCIAL GROUP
Fortis Advisers, Inc. (fund management since 1949) You can obtain a free copy of the Funds' SAI
Fortis Investors, Inc. (principal underwriter; member NASD, SIPC) and/or free copies of the Funds' most recent
Fortis Benefits Insurance Company & Fortis Insurance Company annual or semiannual reports by calling
(issuers of FFG's insurance products) (800) 800-2000, extension 3012. The material
P.O. Box 64284 - St. Paul, MN 55164-0284 - (800) 800-2000 you request will be sent by first-class mail,
http://www.ffg.us.fortis.com or other means designed to ensure equally
prompt delivery, within three business days of
98301 -C-Fortis 11/98 receipt of request.

You can also obtain copies by visiting the
More information about the Funds is available SEC's public reference room in Washington DC,
in the Funds' Statement of Additional or by sending your request and a duplicating
Information (SAI) and annual and semiannual fee to the SEC's Public Reference Section,
reports. Washington DC 20549-6009. For more information,
call (800) SEC-0330.

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

The Fortis logo and Fortis-SM- are servicemarks
of Fortis AMEV and Fortis AG.
</TABLE>

<PAGE>

FORTIS U.S. GOVERNMENT SECURITIES FUND
FORTIS STRATEGIC INCOME FUND
EACH A SERIES OF FORTIS INCOME PORTFOLIOS, INC.

AND

FORTIS HIGH YIELD PORTFOLIO
A SERIES OF FORTIS ADVANTAGE PORTFOLIOS, INC.

STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 1, 1998

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. Information from the Funds'
prospectus dated December 1, 1998 is incorporated by reference into this
Statement of Additional Information. 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

Fund History . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of the Funds . . . . . . . . . . . . . . . . . . . . . . .
Investment Policies and Restrictions . . . . . . . . . . . . . . . . .
Investment Practices and Risk Considerations . . . . . . . . . . . . .
Management of the Funds. . . . . . . . . . . . . . . . . . . . . . . .
Principal Holders of Securities. . . . . . . . . . . . . . . . . . . .
Investment Advisory and Other Services . . . . . . . . . . . . . . . .
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . .
Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pricing of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underwriter and Distribution of Shares . . . . . . . . . . . . . . . .
Performance Information. . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . .
Other Service Providers. . . . . . . . . . . . . . . . . . . . . . . .
Limitation of Director Liability . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . . . . . . .
Appendix A
Description of Futures, Options and Forward Contracts . . . . . .
Appendix B
Corporate Bond and Commercial Paper Ratings . . . . . . . . . . .

<PAGE>

FUND HISTORY

Fortis U.S. Government Securities Fund and Fortis Strategic Income Fund are
portfolios of Fortis Income Portfolios, Inc. ("Fortis Income") which was
incorporated in Minnesota in 1972. U.S. Government Securities Fund commenced
operations on February 28, 1973 and Strategic Income Fund commenced operations
on December 1, 1997. Fortis High Yield Portfolio is a portfolio of Fortis
Advantage Portfolios, Inc. ("Fortis Advantage") which was incorporated in
Minnesota 1987 and High Yield Fund commenced operations on January 4, 1988.

DESCRIPTION OF THE FUNDS

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 three investment portfolios (one of which is contained in this Statement of
Additional Information). 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.

Any investment policy or restriction in the Prospectus or this Statement of
Additional Information which involves a maximum percentage of securities or
assets except those dealing with borrowing 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.

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

<PAGE>

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.

INVESTMENT POLICIES -- U.S. GOVERNMENT SECURITIES FUND

The Fund will invest 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 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 -- U.S. GOVERNMENT SECURITIES FUND

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.
(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.

-2-
<PAGE>

(6) Purchase or sell commodities or commodity contracts.
(7) Invest 25% or more of the value of its total assets in the securities
of issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to securities
issued, guaranteed, insured, or collateralized by the 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 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:

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<PAGE>

(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 (non-U.S. Government) 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).

INVESTMENT POLICIES -- STRATEGIC INCOME FUND

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

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<PAGE>

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 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) in an amount that does not exceed 10% of
the value of the Fund's total assets.

INVESTMENT RESTRICTIONS -- STRATEGIC INCOME FUND

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

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<PAGE>

(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 (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

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<PAGE>

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).

INVESTMENT POLICIES -- HIGH YIELD PORTFOLIO

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 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.

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<PAGE>

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 -- HIGH YIELD PORTFOLIO

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 the limitations set forth in the
Prospectus and Statement of Additional Information. The Fund may also
obtain such short-term credit as it needs for the clearance of
securities transactions, and may borrow from a bank, for 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 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) 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

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<PAGE>

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 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 more than 15% of its net assets in all forms of illiquid
investments.
(5) 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).

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<PAGE>

INVESTMENT PRACTICES AND RISK CONSIDERATIONS

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.

Mortgage-related securities provide a monthly payment, which consists of
both an interest and a principal payment, which is in effect a "pass-through" of
the monthly payment made by each individual borrower on his or her residential
mortgage loan, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying residential property, refinancing, or
foreclosure, net of fees or costs which may be incurred. Some certificates
(such as those issued by the Government National Mortgage Association) are
described as "modified pass-through." These securities entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, regardless of whether the mortgagor actually makes the payment.

A major governmental guarantor of pass-through certificates is the
Government National Mortgage Association ("GNMA"). GNMA guarantees, with the
full faith and credit of the 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.

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<PAGE>

(ii) GNMA GUARANTEE. The National Housing Act authorizes GNMA to
guarantee the timely payment of principal and interest on securities backed
by a pool of mortgages insured by the Federal Housing Administration
("FHA") or the Farmers' Home Administration ("FmHA"), or guaranteed by the
Veterans Administration ("VA"). GNMA is also empowered to borrow without
limitation from the U.S. Treasury, if necessary, to make any payments
required under its guarantee.

(iii) LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate
is likely to be substantially less than the stated maturity of the
mortgages underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures will usually result in the return of
the greater part of principal investment long before the maturity of the
mortgages in the pool. Foreclosures impose no risk of loss of the
principal balance of a Certificate, because of the GNMA guarantee, but
foreclosure may impact the yield to shareholders because of the need to
reinvest proceeds of foreclosure.

As prepayment rates of individual mortgage pools vary widely, it is
not possible to predict accurately the average life of a particular issue
of GNMA Certificates. However, statistics published by the FHA indicate
that the average life of single family dwelling mortgages with 25 to
30-year maturities, the type of mortgages backing the vast majority of GNMA
Certificates, is approximately 12 years. Prepayments are likely to
increase in periods of falling interest rates. It is customary to treat
GNMA Certificates as 30-year mortgage-backed securities which prepay fully
in the twelfth year.

(iv) YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of
interest of GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the certificates, by the
amount of the fees paid to GNMA and the issuer. The coupon rate by itself,
however, does not indicate the yield which will be earned on GNMA
Certificates. First, GNMA Certificates may be issued at a premium or
discount, rather than at par, and, after issuance, GNMA Certificates may
trade in the secondary market at a premium or discount. Second, interest
is earned monthly, rather than semi-annually as with traditional bonds;
monthly compounding raises the effective yield earned. Finally, the actual
yield of a GNMA Certificate is influenced by the prepayment experience of
the mortgage pool underlying it. For example, if interest rates decline,
prepayments may occur faster than had been originally projected and the
yield to maturity and the investment income of the 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

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<PAGE>

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 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.

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<PAGE>

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 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, prevailing
economic conditions 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.

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<PAGE>

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.

-14-
<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.

TRANSACTIONS IN HIGH YIELD HIGH RISK SECURITIES

Strategic Income Fund and High Yield Portfolio invest in high yield high
risk securities. Participation in high-yielding securities transactions
generally involves greater returns in the form of higher average yields.
However, participation in such transactions involves greater risks, often
related to sensitivity to interest rates, economic changes, solvency, and
relative liquidity in the secondary trading market.

Yields on high yield securities will fluctuate over time. The prices of
high-yielding securities have been found to be less sensitive to interest rate
changes than higher-rated investments, but more sensitive to adverse economic
changes or individual issuer developments.

-15-
<PAGE>

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.

-16-
<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>
PERCENT OF TOTAL INVESTMENTS
STANDARD & POOR'S RATING ------------------------------------------
(OR EQUIVALENT) STRATEGIC INCOME * HIGH YIELD PORFOLIO
- ---------------- ------------------ -------------------
<S> <C> <C>
AAA . . . . . . . . . . . . . . . . 31.0 --

AA . . . . . . . . . . . . . . . . 3.3 --

A . . . . . . . . . . . . . . . . . 19.3 1.2

BBB . . . . . . . . . . . . . . . . 13.2 --

BB . . . . . . . . . . . . . . . . 13.3 22.1

B . . . . . . . . . . . . . . . . . 17.1 61.6

CCC . . . . . . . . . . . . . . . . 2.5 9.8

CC . . . . . . . . . . . . . . . . -- --

C . . . . . . . . . . . . . . . . . -- --

D . . . . . . . . . . . . . . . . . -- 2.0

All unrated bonds as a group . . . 0.3 3.3
----- -----

TOTAL 100.0 100.0
</TABLE>

* For the period from inception (December 1, 1997) to July 31, 1998.

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

-17-
<PAGE>

or principal payments. High Yield Portfolio and Strategic Income Fund may
invest in either type of zero coupon obligation.

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.

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 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 a Fund may not be registered with the U.S.
Securities and Exchange Commission. Issuers of foreign securities may not be
subject to reporting requirements of the U.S. Securities and Exchange
Commission. 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 U.S. economy in

-18-
<PAGE>

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 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.

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.

-19-
<PAGE>

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, 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

-20-
<PAGE>

specified, options on interest rate futures contracts and options on foreign
currency futures contracts are collectively referred to as "Options on
Futures Contracts.") Unless otherwise stated in the Prospectus or in this
Statement of Additional Information, such investment strategies will be used
as a hedge and not for speculation.

Put and call options on Futures Contracts may be traded by the Funds in
order to protect against declines in the values of portfolio securities or
against increases in the cost of securities to be acquired. Purchases of
options on Futures Contracts may present less risk in hedging the portfolio of
the Fund than the purchase or sale of the underlying Futures Contracts since the
potential loss is limited to the amount of the premium plus related transaction
costs. The writing of such options, however, does not present less risk than
the trading of futures contracts and will constitute only a partial hedge, up to
the amount of the premium received, and, if an option is exercised, the Funds
may suffer a loss on the transaction.

FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS

Strategic Income Fund and High Yield Portfolio may purchase or sell foreign
currency forward exchange contracts ("Currency Contracts") to attempt to
minimize the risk from adverse changes in the relationship between the various
currencies in which the Funds invest. A Currency Contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date.
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.

A Currency Contract is individually negotiated and privately traded by
currency traders and their customers. Each Fund may enter into a Currency
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").

Currency Contracts 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

-21-
<PAGE>

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.

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 CONTRACTS

The use of forward currency contracts and options and futures strategies
involve certain investment risks and transaction costs. These risks include:
dependence on Advisers' ability to predict movements in the prices of individual
securities; fluctuations in the general securities markets and movements in
interest rates and currency markets; imperfect correlation between movements in
the price of currency, options, futures contracts, or options thereon and
movements in the price of the currency or security hedged or used for cover;
unexpected adverse price movements which could render a Fund's hedging strategy
unsuccessful and could result in losses; the fact that skills and techniques
needed to trade options, futures contracts and options thereon or to use forward
currency contracts 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.

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. These
transactions 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%. It is currently the intention
of High Yield Portfolio and Strategic Income Fund to limit their investment
in options so that no more than 5% of each Fund's total assets are exposed to
risk of loss. In addition, there can be no assurance that a liquid secondary
market will

-22-

<PAGE>

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.

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.

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.

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.

-23-
<PAGE>

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.

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

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<PAGE>

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 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

-25-
<PAGE>

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 has adopted
procedures to determine the liquidity of certain securities, including
commercial paper issued pursuant to the private placement exemption of Section
4(2) of the 1933 Act and securities that are eligible for resale to qualified
institutional buyers pursuant to Rule 144A under the 1933 Act. Under these
procedures, factors taken into account in determining the liquidity of a
security include (a) the frequency of trades and quotes for the security, (b)
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers, (c) dealer undertakings to make a market in the
security, and (d) the nature of the security and the nature of the marketplace
trades (E.G., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer).

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.

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

-26-
<PAGE>

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.

U.S. TREASURY INFLATION-PROTECTION SECURITIES

All of the Funds may invest in U.S. Treasury inflation-protection
securities. Inflation-protection securities are a relatively new type 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 are auctioned and issued on a quarterly
basis on the 15th of January, April, July and October. They will be issued as
10-year notes (other maturities may be added in the future). The index used to
measure inflation is the non-seasonally adjusted U.S. City Average All Items
Consumer Price Index for All Urban Consumers ("CPI-U").

The value of the principal is adjusted for inflation, and every six months
the security pays interest, which is 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 is 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.

-27-
<PAGE>

Any revisions the Bureau of Labor Statistics (or successor agency) makes to
any CPI-U number that has been previously released will not be used in
calculations of the value of outstanding inflation-protection securities. In
the case that the CPI-U for a particular month is not reported by the last day
of the following month, the Treasury will announce an index number based on the
last year-over-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.

DELAYED DELIVERY TRANSACTIONS

Each Fund may purchase securities on a "when-issued" or delayed delivery
basis and purchase or sell securities on a "forward commitment" basis. When
such transactions are negotiated, the price is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. (The settlement
date for transactions made on a when-issued or delayed delivery basis will be
within 120 days of the trade date.) At the time the Fund enters into a
transaction on a when-issued or forward commitment basis, a segregated account
consisting of cash, or any security that is not considered restricted or
illiquid, equal to the value of the when-issued or forward commitment securities
will be established and maintained with the custodian and will be marked to the
market daily. During the period between a commitment and settlement, no payment
is made for the securities purchased by the purchaser and, thus, no interest
accrues to the purchaser from the transaction. If the Fund disposes of the
right to acquire a when-issued security prior to its acquisition or disposes of
its right to deliver or receive against a forward commitment, it can incur a
gain or loss due to market fluctuation. The use of when-issued transactions and
forward commitments enables the Fund to hedge against anticipated changes in
interest rates and prices. The Fund may also enter into such transactions to
generate incremental income. In some instances, the third-party seller of
when-issued or forward commitment securities may determine prior to the
settlement date that it will be unable or unwilling to meet its existing
transaction commitments without borrowing securities. If advantageous from a
yield perspective, the Fund

-28-
<PAGE>

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 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

-29-
<PAGE>

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.

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.

BORROWING

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.

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).

-30-
<PAGE>

The Fund will engage in short-term trading if it believes the transactions,
net of costs (including commission, if any), will result in improving the
appreciation potential or income of its portfolio. Whether any improvement will
be realized by short-term trading will depend upon the ability of the Fund to
evaluate particular securities and anticipate relevant market factors, including
interest rate trends and variations from such trends. Short-term trading such
as that contemplated by the Fund places a premium upon the ability of the Fund
to obtain relevant information, evaluate it promptly, and take advantage of its
evaluations by completing transactions on a favorable basis.

While it is not generally the policy of 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.

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.

MANAGEMENT OF THE FUNDS

Under Minnesota law, the Board of Directors of Fortis Income and Fortis
Advantage has overall responsibility for managing them in good faith, in a
manner reasonably believed to be in the best interests of each company and with
the care an ordinarily prudent person would exercise in similar circumstances.
This management may not be delegated. The Articles of Incorporation limit the
liability of directors to the fullest extent permitted by law.

The names, addresses, principal occupations and other affiliations of
directors and executive officers of Fortis Income and Fortis Advantage are
listed below. Unless stated otherwise, all positions have been held at least
five years. Each director and officer also serves as a director or officer of
all investment companies managed by Advisers (the "Fund Complex"), with the
exception of Mr. Jaffray and Ms. Shadko who are not directors of Fortis Series
Fund, Inc. The Fund Complex currently consists of one closed-end and eight
open-end investment companies.

-31-
<PAGE>

POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- -------------- -----------------------------------------
<S> <C> <C> <C>
Richard W. Cutting 67 Director Certified public accountant and financial consultant.
137 Chapin Parkway
Buffalo, New York

Allen R. Freedman* 58 Director Chairman, Chief Executive Officer and President of Fortis,
One Chase Manhattan Plaza Inc.; a Managing Director of Fortis International, N. V.
New York, New York

Dr. Robert M. Gavin 58 Director President, Cranbrook Education Community, Prior to July 1996,
380 Lone Pine Road President Macalester College, St. Paul, MN.
Bloomfield Hills, Michigan

Benjamin S. Jaffray 68 Director Chairman of the Sheffield Group, Ltd., a financial consulting
4040 IDS Center group, Minneapolis, MN.
Minneapolis, Minnesota

Jean L. King 54 Director President, Communi-King, a communications consulting firm,
12 Evergreen Lane St. Paul, MN.
St. Paul, Minnesota

Dean C. Kopperud * 46 President and Chief Executive Officer and a Director of Advisors, President
500 Bielenberg Drive Director and a Director of Investors, President of Fortis Financial
Woodbury, Minnesota Group, a Director of Fortis Benefits Insurance Company and a
Senior Vice President of Time Insurance Company.
Edward M. Mahoney 68 Director Retired; prior to December, 1994, Chairman and Chief
2760 Pheasant Road Excelsior, Executive Officer and a Director of Advisers and Investors,
Minnesota Senior Vice President and a Director of Fortis Benefits
Insurance Company, and Senior Vice President of Time
Insurance Company.

Robb L. Prince 57 Director Financial and Employee Benefit Consultant; prior to July,
5108 Duggan Plaza 1995, Vice President and Treasurer, Jostens, Inc., a producer
Edina, Minnesota of products and services for the youth, education, sports
award, and recognition markets, Minneapolis, MN.

Leonard J. Santow 62 Director Principal, Griggs & Santow, Incorporated, economic and
75 Wall Street financial consultants, New York, NY.
21st Floor
New York, New York

Noel S. Shadko 44 Director Marketing Consultant; prior to May 1996, Senior Vice
1908 W. 49th Street President of Marketing & Strategic Planning, Rollerblade,
Minneapolis, Minnesota Inc., Minneapolis, MN.

Joseph M. Wikler 57 Director Investment consultant and private investor.
12520 Davan Drive
Silver Spring, Maryland

-32-
<PAGE>

POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- -------------- -----------------------------------------

Gary N. Yalen 56 Vice President President and Chief Investment Officer of Advisers (since
One Chase Manhattan Plaza 1995) New York, NY, and Senior Vice President, Investments,
New York, New York Fortis, Inc.; prior to 1996, President and Chief Investment
Officer, Fortis Asset Management, a former division of
Fortis, Inc.

Howard G. Hudson 61 Vice President Executive Vice President and Head of Fixed Income Investments
One Chase Manhattan Plaza of Advisers since 1995; prior to 1996, Senior Vice President,
New York, New York Fixed Income, Fortis Asset Management.

Lucinda S. Mezey 51 Vice President Executive Vice President and Head of Equity Investments of
One Chase Manhattan Plaza Advisers since October 1997; from 1995 to October 1997, Chief
New York, New York Investment Officer, Alex Brown Capital Advisory and Trust
Co., Baltimore, MD; and prior to 1995, Senior Vice President
and Head of Equity Investments, PNC Bank, Philadelphia, PA.

James S. Byrd 47 Vice President Executive Vice President of Advisers; prior to 1995, Vice
5500 Wayzata Boulevard President of Advisers and Investors.
Golden Valley, Minnesota

Nicholas L. M. de Peyster 32 Vice President Vice President of Advisers since August 1995; prior to1996,
One Chase Manhattan Plaza Vice President, Equities, Fortis Asset Management.
New York, New York

Diane M. Gotham 40 Vice President Vice President of Advisers since 1998; from 1994 to 1998,
500 Bielenberg Drive securities analyst for Advisers.
Woodbury, Minnesota

Laura E. Granger 37 Vice President Vice President of Advisers since 1998; from 1993 to 1998,
One Chase Manhattan Plaza portfolio manager, General Motors Investment Management, New
New York, New York York, NY.

Maroun M. Hayek 50 Vice President Vice President of Advisers; prior to August 1996, Vice
One Chase Manhattan Plaza President, Fixed Income, Fortis Asset Management.
New York, New York

Robert C. Lindberg 46 Vice President Vice President of Advisers since 1993.
One Chase Manhattan Plaza
New York, New York

Charles L. Mehlhouse 56 Vice President Vice President of Advisers; prior to March 1996, Portfolio
One Chase Manhattan Plaza Manager to Marshall & Ilsley Bank Corporation, Milwaukee, WI.
New York, New York

Kevin J. Michels 47 Vice President Vice President of Advisers since 1995. Prior to 1996, Vice
One Chase Manhattan Plaza President, Administration, Fortis Asset Management.
New York, New York

Christopher J. Pagano 35 Vice President Vice President of Advisers since 1996; prior to March 1996,
One Chase Manhattan Plaza Government Strategist for Merrill Lynch, New York, N.Y.
New York, New York

-33-
<PAGE>

POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- -------------- -----------------------------------------

Stephen M. Rickert 55 Vice President Vice President of Advisers since 1995; from 1994 to 1996,
One Chase Manhattan Plaza Corporate Bond Analyst, Fortis Asset Management.
New York, New York

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

Ho Wang 51 Vice President Vice President of Advisers since 1998; from 1995 to 1998,
One Chase Manhattan Plaza senior securities analyst, Lord, Abbett & Co., New York, NY;
New York, New York prior to 1995, portfolio manager, New York Life, New York,
NY.
Christopher J. Woods 38 Vice President Vice President of Advisers since 1995; prior to 1996, Vice
One Chase Manhattan Plaza President, Fixed Income, Fortis Asset Management.
New York, New York

Robert W. Beltz, Jr. 49 Vice President Vice President - Securities Operations of Advisers and
500 Bielenberg Drive Investors.
Woodbury, Minnesota

David A. Peterson 56 Vice President Vice President and Assistant General Counsel, Fortis Benefits
500 Bielenberg Drive Insurance Company.
Woodbury, Minnesota

Rhonda J. Schwartz 40 Vice President Senior Vice President and General Counsel of Advisers; Senior
500 Bielenberg Drive Vice President and General Counsel, Life and Investment
Woodbury, Minnesota Products, Fortis Benefits Insurance Company and Vice
President and General Counsel, Life and Investment Products,
Time Insurance Company; from 1993 to January 1996, Vice
President, General Counsel, Fortis, Inc.

Scott R. Plummer 39 Vice President Second Vice President, Corporate Counsel and Assistant
500 Bielenberg Drive Secretary of Advisers.
Woodbury, Minnesota

Peggy E. Ettestad 41 Vice President Senior Vice President, Operations of Advisers; prior to March
500 Bielenberg Drive 1997, Vice President G.E. Capital Fleet Services,
Woodbury, Minnesota Minneapolis, MN.

Dickson Lewis 49 Vice President Senior Vice President, Marketing and Sales of Advisers; from
500 Bielenberg Drive 1993 to July 1997, President and Chief Executive Officer
Woodbury, Minnesota Hedstrom/Blessing, Inc., a marketing communications company,
Minneapolis, MN.

Tamara L. Fagely 40 Treasurer Second Vice President of Advisers and Investors.
500 Bielenberg Drive
Woodbury, Minnesota

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<PAGE>

POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- -------------- -----------------------------------------

Melinda S. Urion 45 Vice President Since December 1997, Senior Vice President and Chief
500 Bielenberg Drive Financial Officer of Advisers. Prior to December 1997,
Woodbury, Minnesota Senior Vice President of Finance and Chief Financial Officer,
American Express Financial Corporation; prior to 1995,
Corporate Controller, American Express Financial Corporation.

Michael J. Radmer 53 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
Advisers, Fortis Income and Fortis Advantage because he holds certain positions
including serving as Chief Executive Officer and a director of Advisers. Mr.
Freedman is an "interested person" of Advisers, Fortis Income and Fortis
Advantage because he holds certain positions including serving as Chairman and
Chief Executive Officer of Fortis, Inc., the parent company of Advisers, and as
a Managing Director of Fortis International, N.V., the parent company of Fortis,
Inc.

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) for
each fund in the Fund Complex for which they are a director. The following
table sets forth the aggregate compensation received by each director from
Fortis 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. Mr. Freedman and Mr. Kopperud, who are
affiliated with Advisers and Investors, did not receive any compensation. No
executive officer receives any compensation from the Funds. During the fiscal
year ended July 31, 1998, U.S. Government Securities Fund paid $10,122,
Strategic Income Fund paid $918 (from commencement of operations on December 1,
1997 to July 31, 1998) and High Yield Portfolio paid $7,000 in legal fees and
expenses to a law firm of which the Funds' Secretary is a partner.

<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL
COMPENSATION FROM COMPENSATION FROM COMPENSATION FROM
DIRECTOR FORTIS INCOME FORTIS ADVANTAGE FUND COMPLEX*
-------- ------------- ---------------- -------------
<S> <C> <C> <C>
Richard W. Cutting $3,000 $3,000 $31,200
Dr. Robert M. Gavin $3,000 $3,000 $31,200
Benjamin S. Jaffray $3,000 $3,000 $24,300
Jean L. King $2,900 $2,900 $32,200
Edward M. Mahoney $3,000 $3,000 $31,200
Robb L. Prince $3,000 $3,000 $33,200
Leonard J. Santow $2,900 $2,900 $30,200
Noel S. Shadko $3,000 $3,000 $22,200
Joseph M. Wikler $3,000 $3,000 $31,200
</TABLE>
___________

-35-
<PAGE>

* The Fund Complex consists of one closed-end and eight open-end investment
companies managed by Advisers.

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.

Directors, officers and other persons affiliated with the Funds are
eligible to purchase shares of the Funds without a sales charge. For more
complete information about these arrangements, refer to "Purchase of Shares -
Exemptions from the Sales Charge."

PRINCIPAL HOLDERS OF SECURITIES

As of November 11, 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: U.S. GOVERNMENT SECURITIES FUND CLASS E:
Fortis Holdings Profit Sharing Trust, Marshall & Ilsley Trust Co., Trustee,
1000 North Water Street Floor 11, Milwaukee, WI 53202 (9%) and U.S.
GOVERNMENT SECURITIES FUND CLASS C: Richard Maynard Priest, Trustee, FBO The
Priest Living Trust, 1847 Golden Spike Drive, Sparks, NV 89434 (5%).
STRATEGIC INCOME FUND CLASS A: Fortis Insurance Co.-Life, c/o Kevin Michels,
Fortis Advisers, 1 Chase Manhattan Plaza, New York, NY 10005 (46%); STRATEGIC
INCOME FUND CLASS B: Ronald S. Sharer, TOD-Ronald S. Sharer and Leanne Smith,
126 Oak Drive, Saxonsburg, PA 16056 (8%); First Trust National Association,
C/F Richard J.Gust IRA, E5741 803rd Avenue, Menomonie WI 54751 (8%);
Corabelle Rosenow Trustee, FBO Corabelle Rosenow Trust, S1094 Mill Road,
Nelson, WI 54756 (6%); and Curtis Liechty Trustee, FBO Curtis Liechty
Childrens' Trust, PO Box 801, Jamestown, ND 58402 (14%). STRATEGIC INCOME
FUND CLASS H: First Trust National Association, Custodian for Lavada A.
Gleissner IRA, 12716 W 120th Terrace, Overland Park, KS 66213 (11%); Jane
Lopiccolo TOD, 132 Garrow St, Auburn, NY 13021 (12%) and Jose L. Rodriguez
Pension and Profit Sharing Plan, 0629 Yale Court, Gypsum, CO 81637 (5%).
STRATEGIC INCOME FUND CLASS C: John A. Kufus, 2030 Highland Pkwy, St. Paul,
MN 55116 (11%) and Donaldson, Lufkin, Jenrette Securities Corporation, Inc.,
PO Box 2052, Jersey City, NJ 07303 (6%).

As of November 10, 1998, the directors and executive officers as a group
beneficially owned less than 1% of the outstanding shares of each class of each
Fund.

-36-
<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 October 30, 1998, Advisers managed thirty-three investment company
portfolios with combined net assets of approximately $5.8 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 financial services company that
provides specialty insurance and investment products to individuals, businesses,
associations and other financial services organizations in the United States.
Fortis, Inc. is a part of Fortis, a worldwide group of companies active in the
fields of insurance, banking and investments. Fortis is jointly owned by Fortis
AMEV of The Netherlands and Fortis AG of Belgium.

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,
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.

-37-
<PAGE>

Each Agreement provides for an investment advisory and management fee to be
paid by each Fund calculated as described below:

<TABLE>
<CAPTION>
ANNUAL
INVESTMENT
ADVISORY AND
MANAGEMENT
AVERAGE NET ASSETS OF EACH FUND FEE
------------------------------- ------------
<S> <C> <C>
U.S. Government Securities Fund For the first $50,000,000 .8%
Strategic Income Fund For assets over $50,000,000 .7%
High Yield Portfolio
</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 various fiscal periods, the Funds paid advisory and management fees
as follows:

<TABLE>
<CAPTION>
Advisory Fees Paid During:
------------------------------------------

Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
July 31, 1996 July 31, 1997 July 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
U.S. Government Securities Fund $3,431,396 $3,071,143 $2,670,449
Strategic Income Fund n/a n/a $ 164,575*
High Yield Portfolio $ 866,285** $1,388,154 $1,611,812***
</TABLE>

-38-
<PAGE>

* Period from inception (December 1, 1997) to July 31, 1998.
** Nine-month period ended July 31, 1996.
*** Advisers reimbursed the Fund $41,375, pursuant to an expense reimbursement
agreement, resulting in a net fee of $123,200.

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 and the Classes 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

-39-
<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. Investors will
be paid under the Distribution Plan regardless of Investors' actual expenses.

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

-40-
<PAGE>

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 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.

Listed below are the total distribution fees paid by the Funds and how
those fees were used by Investors for the fiscal period ended July 31, 1998.

<TABLE>
<CAPTION>
U.S.
GOVERNMENT
SECURITIES STRATEGIC HIGH YIELD
FUND INCOME FUND PORTFOLIO
---------- ----------- ----------
<S> <C> <C> <C>
Advertising $ 0 $ 0 $ 0
Printing and Mailing of Prospectuses
to Other than Current Shareholders 1,618 25 14,538
Compensation to Underwriters 263,728 28,450 1,250,290
Compensation to Dealers 0 0 0
Compensation to Sales Personnel 0 0 0
Interest, Carrying or Other
Financing Charges 0 0 0
Other (distribution-related
compensation, sales literature,
supplies, postage, toll-free phone) 28,961 12,763 188,998
---------- ----------- ----------
TOTAL $ 294,307 $ 41,238 $ 1,453,826
</TABLE>

BROKERAGE ALLOCATION AND OTHER PRACTICES

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

-41-
<PAGE>

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, 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.

-42-
<PAGE>

The Funds paid the following brokerage commissions for the periods
indicated:

<TABLE>
<CAPTION>
FISCAL YEAR FISCAL PERIOD FISCAL PERIOD
ENDED ENDED ENDED
JULY 31, 1996 JULY 31, 1997 JULY 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
U.S. Government Securities Fund $ 0 $ 0 $ 0
Strategic Income Fund n/a n/a 0*
High Yield Portfolio $11,895 ** $ 2,674 $ 7,500
</TABLE>

* Period from inception (December 1, 1997) to July 31, 1998.
** Nine-month period ended July 31, 1996.

The Funds 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 Funds. No commissions were paid to any
affiliate of Advisers during the fiscal years ended July 31, 1998, 1997 and 1996
for any Fund.

From time to time, the Funds may acquire the securities of their regular
brokers or dealers or parent companies of such brokers or dealers. During the
fiscal year ended July 31, 1998, U.S. Government Securities Fund did not acquire
the securities of any of its regular brokers or dealers or the parent of those
brokers. Strategic Income Fund and High Yield Portfolio acquired the following
securities of their regular brokers or dealers or parent companies of such
brokers or dealers during the fiscal period ended July 31, 1998:

<TABLE>
<CAPTION>
Value of Securities
Strategic Income Fund Owned at End of Period
- --------------------- ----------------------
<S> <C>
Lehman Brothers Holdings, Inc. $524,722
J.P. Morgan Commercial Mtg. Fin. Corp. $529,687
U.S. Bank N.A. Money Market $128,792

High Yield Portfolio
- --------------------

U.S. Bank N.A. Money Market $4,868
</TABLE>

Advisers 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

-43-
<PAGE>

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 Fund's shares have a par value of $.01 per share and equal rights to
share in dividends and assets. The shares possess no preemptive or conversion
rights.

The Funds currently offer their shares in multiple classes, each with
different sales arrangements and bearing different expenses. Under the Articles
of Incorporation, the 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 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.

-44-
<PAGE>

PRICING OF SHARES

U.S. GOVERNMENT SECURITIES FUND

On July 31, 1998, the Fund's net asset values per share were calculated as
follows:

CLASS A

Net Assets (52,439,289 ) = Net Asset Value per Share ($9.30)
-------------------------
Shares Outstanding (5,635,910)

To obtain the public offering price per share, the 4.5% sales charge must
be added to the net asset value obtained above:

$9.30 = Public Offering Price per Share ($9.74)
--------
0.955

CLASS B

Net Assets (3,160,505) = Net Asset Value per Share ($9.28)
---------------------
Shares Outstanding (340,570)

CLASS C

Net Assets (1,266,505) = Net Asset Value per Share ($9.27)
---------------------
Shares Outstanding (136,654)

CLASS E

Net Assets (285,059,579) = Net Asset Value per Share ($9.30)
-----------------------
Shares Outstanding (30,649,851)

To obtain the public offering price per share, the 4.5% sales charge must
be added to the net asset value obtained above:

$9.30 = Public Offering Price per Share ($9.74)
--------
0.955

CLASS H

Net Assets (10,815,841) = Net Asset Value per Share ($9.28)
----------------------
Shares Outstanding (1,166,084)

-45-
<PAGE>

STRATEGIC INCOME FUND

On July 31, 1998, the Fund's net asset values per share were calculated as
follows:

CLASS A

Net Assets (22,422,343) = Net Asset Value per Share ($10.05)
----------------------
Shares Outstanding (2,230,772)

To obtain the public offering price per share, the 4.5% sales charge must be
added to the net asset value obtained above:

$10.05 = Public Offering Price per Share ($10.52)
---------
0.955

CLASS B

Net Assets (397,812) = Net Asset Value per Share ($10.05)
-------------------
Shares Outstanding (39,581)

CLASS C

Net Assets (193,963) = Net Asset Value per Share ($10.05)
-------------------
Shares Outstanding (19,294)

CLASS H

Net Assets (354,754) = Net Asset Value per Share ($10.05)
-------------------
Shares Outstanding (35,302)

HIGH YIELD PORTFOLIO

On July 31, 1998, the Fund's net asset values per share were calculated as
follows:

CLASS A

Net Assets (113,549,315) = Net Asset Value per Share ($7.41)
-----------------------
Shares Outstanding (15,327,289)

To obtain the public offering price per share, the 4.5% sales charge must be
added to the net asset value obtained above:

$7.41 = Public Offering Price per Share ($7.76)
--------
0.955

-46-
<PAGE>

CLASS B

Net Assets (28,935,055) = Net Asset Value per Share ($7.41)
----------------------
Shares Outstanding (3,906,704)

CLASS C

Net Assets (8,640,535) = Net Asset Value per Share ($7.40)
---------------------
Shares Outstanding (1,168,289)

CLASS H

Net Assets (72,415,357) = Net Asset Value per Share ($7.40)
----------------------
Shares Outstanding (9,783,864)

The primary close of trading of the New York Stock Exchange (the
"Exchange") currently is 3:00 P.M. (Central Time), but this time may be changed.
The offering price for purchase orders received in the office of the Funds after
the beginning of each day the Exchange is open for trading is based on net asset
value determined as of the primary closing time for business on the Exchange
that day; the price in effect for orders received after such close is based on
the net asset value as of such close of the Exchange on the next day the
Exchange is open for trading.

Generally, the net asset value of the Funds' shares is determined on each
day on which the Exchange is open for business. The Exchange is not open for
business on the following holidays (or on the nearest Monday or Friday if the
holiday falls on a weekend): New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, net asset value need not be
determined (i) on days on which changes in the value of the Funds' portfolio
securities will not materially affect the current net asset value of the Funds'
shares; or (ii) on days during which no Fund shares are tendered for redemption
and no orders to purchase or sell Fund shares are received by the Funds.

PURCHASE OF SHARES

EXEMPTIONS FROM SALES CHARGE

The following purchases of Class A shares (and Class E shares of U.S.
Government Securities Fund) are exempt from the sales charge:

- Fortis, Inc. or its subsidiaries and the following persons associated
with such companies, if all account owners fit this description:
(1) officers and directors; (2) employees or sales representatives
(including agencies and their employees);

-47-
<PAGE>
(3) spouses/domestic partners of any such persons; or (4) any of such
persons' children, grandchildren, parents, grandparents, or siblings
or spouses/domestic partners of any of these persons. (All such
persons may continue to add to their account even after their company
relationships have ended);
- Fund directors, officers, or their spouses/domestic partners (or such
persons' children, grandchildren, parents, or grandparents--or
spouses/domestic partners of any such persons), if all account owners
fit this description;
- Representatives or employees (or their spouses) of Investors
(including agencies) or of other broker-dealers having a sales
agreement with Investors (or such persons' children, grandchildren,
parents, or grandparents--or spouses of any such persons), if all
account owners fit this description;
- Pension, profit-sharing, and other retirement plans of directors,
officers, employees, representatives, and other relatives and
affiliates (as set forth in the preceding three paragraphs) of the
Fund, Fortis, Inc., and broker-dealers (and certain affiliated
companies) having a sales agreement with Investors and purchases with
the proceeds from such plans upon the retirement or employment
termination of such persons;
- Registered investment companies;
- Shareholders of unrelated mutual funds with front-end and/or deferred
sales loads, to the extent that the purchase price of such Fund shares
is funded by the proceeds from the redemption of shares of any such
unrelated mutual fund (within 60 days of the purchase of Fund shares),
provided that the shareholder's application so specifies and is
accompanied either by the redemption check of such unrelated mutual
fund (or a copy of the check) or a copy of the confirmation statement
showing the redemption. Similarly, anyone who is or has been the owner
of a fixed annuity contract not deemed a security under the securities
laws who wishes to surrender such contract and invest the proceeds in
a Fund, to the extent that the purchase price of such Fund shares is
funded by the proceeds from the surrender of the contract (within
60 days of the purchase of Fund shares), provided that such owner's
application so specifies and is accompanied either by the insurance
company's check (or a copy of the check) or a copy of the insurance
company surrender form. From time to time, Investors may pay
commissions to broker-dealers and registered representatives on
transfers from mutual funds or annuities as described above;
- Purchases by employees (including their spouses and dependent
children) of banks and other financial institutions that provide
referral and administrative services related to order placement and
payment to facilitate transactions in shares of the Fund for their
clients pursuant to a sales or servicing agreement with Investors;
provided, however, that only those employees of such banks and other
firms who as a part of their usual duties provide such services
related to such transactions in Fund shares shall qualify;
- Commercial banks offering self directed 401(k) programs containing
both pooled and individual investment options may purchase Fund shares
for such programs at

-48-

<PAGE>

a reduced sales charge of 2.5% on sales of less than $500,000. For
sales of $500,000 or more, normal sales charges apply;
- Registered investment advisers, trust companies, and bank trust
departments exercising discretionary investment authority or using a
money management/mutual fund "wrap" program with respect to the money
to be invested in the Fund, provided that the investment adviser,
trust company or trust department provides Advisers with evidence of
such authority or the existence of such a wrap program with respect to
the money invested;
- With respect to U.S. Government Securities Fund only, (1) officers,
directors, and employees of Empire of America Advisory Services, Inc.,
the investment advisor of Pathfinder Fund; and (2) accounts which were
in existence and entitled to purchase shares of the Pathfinder Fund
without a sales charge at the time of the effectiveness of the
acquisition of its assets by the Fund;
- Accounts which were in existence and entitled to purchase shares of
the applicable Carnegie Series without a sales charge at the time of
the effectiveness of the acquisition of its assets by the applicable
Fund;
- Beginning January 1, 1998, purchasers of Medical Savings Accounts
("MSAs") from Fortis Insurance Company who maintain certain minimum
balances in their MSA accounts may invest a portion of their MSA
account balances in U.S. Government Securities Fund and Strategic
Income Fund.

SPECIAL PURCHASE PLANS

STATEMENT OF INTENTION. Your sales charge may be reduced or eliminated by
signing a non-binding Statement of Intention to purchase at least $100,000 of
shares which are sold with a sales charge over a 13-month period. The 13-month
period is measured from the date the letter of intent is approved by Investors,
or at the purchaser's option it may be made retroactive 90 days, in which case
Investors will make appropriate adjustments on purchases during the 90-day
period.

In computing the total amount purchased for purposes of determining the
applicable sales commission, the public offering price (at the time they were
purchased) of shares currently held in the Fortis Funds having a sales charge
and purchased within the past 90 days may be used as a credit toward Fund shares
to be purchased under the Statement of Intention. Any such fund shares
purchased during the remainder of the 13-month period also may be included as
purchases made under the Statement of Intention.

The Statement of Intention includes a provision for payment of additional
applicable sales charges at the end of the period in the event the investor
fails to purchase the amount indicated. This is accomplished by holding in
escrow the number of shares represented by the sales charge discount. If the
investor's purchases equal those specified in the Statement of Intention, the
escrow is released. If the purchases do not equal those specified in the
Statement of Intention, the shareholder may remit to Investors an amount equal
to the difference between

-49-
<PAGE>

the dollar amount of sales charges actually paid and the amount of sales charges
that would have been paid on the aggregate purchases if the total of such
purchases had been made at a single time. If the purchaser does not remit this
sum to Investors on a timely basis, Investors will redeem the escrowed shares.

RETIREMENT PLANS. Individual taxpayers can defer taxes on current income
by investing in tax qualified retirement plans established by their employer,
such as a pension plan, profit-sharing plan and Section 403(b)plans, or in
Individual Retirement Accounts (IRAs), including a traditional IRA, Roth IRA and
Education IRA. If you are interested in a retirement plan account, you should
contact Investors. Investing in a retirement plan involves a long-term
commitment of assets and is subject to legal and tax requirements and
restrictions. You should consult with your attorney or tax adviser prior to
establishing such a plan.

SYSTEMATIC INVESTMENT PLAN. The Systematic Investment Plan enables you to
make regular purchases in amounts less than normally required and employs the
principle of dollar cost averaging, described below.

By acquiring Fund shares on a regular or systematic basis, you take
advantage of the principle of dollar cost averaging. Under dollar cost
averaging, if a constant amount is invested at regular intervals at varying
price levels, the average cost of all the shares will be lower than the average
of the price levels. This is because the same fixed number of dollars buys more
shares when price levels are low and fewer shares when price levels are high.
The principle of dollar cost averaging will not protect against loss in a
declining market and a loss will result if the plan is discontinued when the
market value is less than cost.

You have no obligation to invest regularly or to continue the Plan, which
you may terminate at any time without penalty. Under the Plan, any
distributions of income and realized capital gains will be reinvested in
additional shares at net asset value unless you instruct Investors in writing to
pay distributions in cash. Investors reserves the right to increase or decrease
the amount required to open and continue a Plan, and to terminate any Plan after
one year if the value of the amount invested is less than the amount indicated.

EXCHANGE PRIVILEGE. You may exchange your shares for the same class of
shares in another Fortis Fund (except for Class E shares of U.S. Government
Securities Fund which may be exchanged for Class A shares of another Fortis
Fund). There is no exchange fee or additional sales charge. The amount
exchanged must meet the minimum purchase amount of the Fund being purchased.
You should consider the investment objectives and policies of the other fund
prior to making such exchange.

For Federal tax purposes, except where the transferring shareholder is a
tax qualified plan, an exchange between funds is a taxable event that will
result in a capital gain or loss. If you exchange your shares within 90 days of
purchase, the sales charge on that purchase cannot be taken into account for
determining your gain or loss on the sale of those shares to the extent

-50-
<PAGE>

that the sales charge that would have been applicable to the purchase of the
later-acquired shares in the other fund is reduced because of the exchange
privilege. However, the amount of the sales charge that may not be taken into
account in determining your gain or loss on the sale of the first-acquired
shares may be taken into account in determining gain or loss on the eventual
sale or exchange of the later-acquired shares.

GIFTS OR TRANSFERS TO MINOR CHILDREN. You may purchase Fund shares in an
account established for a minor. This gift or transfer is registered in the
name of the custodian for a minor under the Uniform Transfers to Minors Act (in
some states the Uniform Gifts to Minors Act). Control of the Fund shares passes
to the child upon reaching a specified age (either 18 or 21 years in most
states).

REDEMPTION OF SHARES

GENERAL

If you request a redemption, the Fund is required to redeem your shares,
with certain exceptions. The Fund will pay all redemption requests in cash,
limited in amount during any 90-day period to the lesser of $250,000 or 1% of
the net asset value of the Fund at the beginning of such period. If your
redemption request exceeds such amount, the Fund reserves the right to make part
or all of the payment in the form of readily marketable securities or other
assets of the Fund. An example of when this might be done is in case of an
emergency, such as in those situations listed in the following paragraph, or at
any time a cash distribution would impair the liquidity of the Fund to the
detriment of the remaining shareholders. Any securities being so distributed
would be valued in the same manner as the portfolio of the Fund is valued. If
you received securities which you later sold, you probably would incur brokerage
charges.

Redemption of shares or payment may be suspended at time (a) when the
Exchange is closed for other than customary weekend or holiday closings, (b)
when trading on said Exchange is restricted, (c) when an emergency exists, as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable, or it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits; provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist.

There is no charge for redeeming shares. In the event a charge is
established, it would apply only to persons who became shareholders after the
charge was implemented, and it would not, in any event, exceed 1% of the net
asset value of the shares redeemed. Should further public sales ever be
discontinued, the Funds may deduct a proportionate share of the cost of
liquidating assets from the asset value of the shares being redeemed, in order
to protect the equity of the other shareholders.

-51-
<PAGE>

SYSTEMATIC WITHDRAWAL PLAN

You may open a "Systematic Withdrawal Plan" providing for withdrawals of
$50 or more monthly, quarterly, semiannually or annually if the value of your
shares is at least $4,000 ($10,000 if you elect monthly withdrawals).

These withdrawals may constitute return of capital. The redemption of Fund
shares pursuant to the Plan is a taxable event to you. The withdrawals do not
represent a yield or a return on your investment and they may deplete or
eliminate your investment. You have no assurance of receiving payment for any
specific period because payments will terminate when all shares have been
redeemed. The number of such payments will depend on the amount and frequency
of each payment and the increase (or decrease) in value of the remaining shares.

Distributions of income and realized capital gains will continue to be
reinvested at net asset value. If you purchase additional shares of the Fund
(other than by reinvestment of distributions), when you have elected a
Systematic Withdrawal Plan, you will pay a sales charge on your purchases at the
same time that withdrawals are made at net asset value. Purchases of additional
shares concurrent with withdrawals are ordinarily disadvantageous to you because
of sales charges and tax liabilities. Additions to your account in which an
election has been made to receive systematic withdrawals will be accepted only
if each additional purchase is equal to at least one year's scheduled
withdrawals or $1,200, whichever is greater. You may not have a "Systematic
Withdrawal Plan" and a "Systematic Investment Plan" in effect at the same time.

The Systematic Withdrawal Plan is voluntary, flexible and under your
control and direction at all times, and does not limit or alter your right to
redeem shares. You or the Fund may terminate the Plan at any time by written
notification. Advisers bears the cost of operating the Plan.

REINVESTMENT PRIVILEGE

If you redeem Fund shares, you have a one-time privilege to reinvest in the
Fund or in any other fund underwritten by Investors and available to the public,
without a sales charge. The reinvestment privilege must be exercised within 60
days of the redemption and for an amount which does not exceed the redemption
proceeds.

The purchase price for Fund shares will be based upon net asset value at
the time of reinvestment, and may be more or less than the redemption value.
Should you utilize the reinvestment privilege within 30 days following a
redemption which resulted in a loss, all or a portion of that loss may not be
currently deductible for Federal income tax purposes. Exercising the
reinvestment privilege would not defer any capital gains taxes payable on a
realized gain. Furthermore, if you redeem within 90 days of purchasing your
shares, the sales charge incurred on that purchase cannot be taken into account
for determining your gain or loss on the sale of those shares.

-52-
<PAGE>

TAXATION

The Funds have qualified and intend to qualify in the future as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). As long as the Funds so qualify, the Funds are not taxed on the income
they distribute to their shareholders.

Under the Code, each Fund is treated as a separate entity for Federal tax
purposes. Therefore, each Fund is treated separately in determining whether it
qualifies as a regulated investment company and for purposes of determining the
net ordinary income (or loss), net realized capital gains (or losses), and
distributions necessary to relieve each Fund of any Federal income tax
liability.

For individuals, estates and trusts, long-term capital gains, which are
realized on the sale or exchange of capital assets held for more than one year,
are subject to a maximum federal income tax rate of 20%, while ordinary income
is subject to a maximum rate of 39.6%.

If more than 50% of Strategic Income Fund's total assets at the close of
its fiscal year consist of securities of foreign corporations, it will be
eligible to, and may, file an election with the Internal Revenue Service
pursuant to which shareholders will be required to include their pro rata
portions of foreign taxes paid by the Fund as income received by them.
Shareholders may then either deduct such pro rata portions in computing their
taxable income or use them as foreign tax credits against their United States
income taxes. If the Fund makes such an election, it will report annually to
each shareholder the amount of foreign taxes to be included in income and then
either deducted or credited.

Alternatively, if the amount of foreign taxes paid by Strategic Income Fund
is not large enough to warrant its making the election described above, the Fund
may claim the amount of foreign taxes paid as a deduction against its own gross
income. In that case, shareholders would not be required to include any amount
of foreign taxes paid by the Fund in their income and would not be permitted
either to deduct any portion of foreign taxes from their own income or to claim
any amount of foreign tax credit for taxes paid by the Fund.

Some of the investment practices that may be employed by the Funds will be
subject to special provisions that, among other things, may defer the use of
certain losses of such Funds, affect the holding period of the securities held
by the funds and, particularly in the case of transactions in or with respect
to foreign currencies, affect the character of the gains or losses realized.
These provisions may also require the Funds to mark-to-market some of the
positions in their respective portfolios (i.e., treat them as closed out) or to
accrue original discount, both of which may cause such Funds to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the distribution requirements for qualification as a regulated
investment company and for avoiding income and excise taxes. Accordingly, in
order to make the required distributions, a Fund may be required to borrow or
liquidate securities.

-53-
<PAGE>

Each Fund will monitor its transactions and may make certain elections in order
to mitigate the effect of these rules and prevent disqualification of the funds
as regulated investment companies.

It is expected that any net gain realized from the closing out of futures
contracts, options, or forward currency contracts will be considered gain from
the sale of securities or currencies and therefore qualifying income for
purposes of the requirement that a regulated investment company derive at least
90% of its gross income from dividends, interest and certain types of payment
related to its investment in stock or securities.

If a Fund invests in zero coupon obligations upon their issuance, such
obligations will have original issue discount in the hands of the Fund.
Generally, the original issue discount equals the difference between the "stated
redemption price at maturity" of the obligation and its "issue price" as those
terms are defined in the Code. If a Fund acquires an already issued zero coupon
bond from another holder, the bond will have original issue discount in the
Fund's hands, equal to the difference between the "adjusted issue price" of the
bond at the time the Fund acquires it (that is, the original issue price of the
bond plus the amount of original issue discount accrued to date) and its stated
redemption price at maturity. In each case, the Fund is required to accrue as
ordinary interest income a portion of such original issue discount even though
they receive no cash currently as interest payment on the obligation.
Similarly, in the case of PIK's, Strategic Income Fund and High Yield Portfolio
are required to recognize interest income in the amount of the fair market value
of the securities received as interest payments on the PIK's, even though they
receive no cash. Furthermore, if a Fund invests in U.S. Treasury
inflation-protection securities, it will be required to treat as original issue
discount any increase in the principal amount of the securities that occurs
during the course of its taxable year. If a Fund purchases such
inflation-protection securities that are issued in stripped form either as
stripped bonds or coupons, it will be treated as if it had purchased a newly
issued debt instrument having original issue discount.

Because the Funds are required to distribute substantially all of their net
investment income (including accrued original issue discount and interest income
attributable to PIK's) in order to be taxed as regulated investment companies,
they may be required to distribute an amount greater than the total cash income
a Fund actually receives. Accordingly, in order to make the required
distribution, a Fund may be required to borrow or to liquidate securities.

Under the Code, each Fund is required to withhold and remit to the U.S.
Treasury 31% of dividend and capital gain income on the accounts of certain
shareholders who fail to provide a correct tax identification number, fail to
certify that they are not subject to backup withholding, or are subject to
backup withholding for some other reason.

At July 31, 1998, High Yield Portfolio and U.S. Government Securities Fund
had capital loss carry forwards of $9,435,408 and $65,049,930, respectively,
which, if not offset by subsequent capital gains, will expire in 1999 through
2007. It is unlikely the Funds' Boards of

-54-
<PAGE>

Directors will authorize a distribution of any net realized gains until the
available capital loss carryovers have been offset or expired.

The foregoing is a general discussion of the Federal income tax
consequences of an investment in the Funds as of the date of this Statement of
Additional Information. Distributions from net investment income and from net
realized capital gains may also be subject to state and local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state or local taxes.

UNDERWRITER AND DISTRIBUTION OF SHARES

Pursuant to the Underwriting and Distribution Agreement, Investors has
agreed to act as the principal underwriter for the Funds in the sale 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, Investors
receives the initial sales charges on sales of Class A shares of the Funds and
any contingent deferred sales charges on redemptions of certain Class A shares
of the Funds that were not subject to an initial sales charge, as set forth in
the Prospectus. The following tables set forth the amount of underwriting
commissions paid by each Fund and the amount of such commissions retained by
Investors.

<TABLE>
<CAPTION>
Total Underwriting Commissions
-------------------------------------------------------------------------
Fiscal Year Ended Fiscal Period Ended Fiscal Period Ended
July 31, 1996 July 31, 1997 July 31, 1998
----------------- ------------------- -------------------
<S> <C> <C> <C>
U.S. Government Securities Fund $631,206 $373,847 $353,664
Strategic Income Fund n/a n/a $ 25,949*
High Yield Portfolio $516,880** $879,710 $842,743

<CAPTION>
Underwriting Commissions Retained by Investors
-------------------------------------------------------------------------
Fiscal Year Ended Fiscal Period Ended Fiscal Period Ended
July 31, 1996 July 31, 1997 July 31, 1998
----------------- ------------------- -------------------
<S> <C> <C> <C>
U.S. Government Securities Fund $155,073 $123,652 $160,462
Strategic Income Fund n/a n/a $ 2,456*
High Yield Portfolio $216,835** $417,653 $443,574
</TABLE>
* Period from inception (December 1, 1997) to July 31, 1998.
** Nine-month period ended July 31, 1996.

Investors received the following compensation from each Fund during its
most recent fiscal year.

-55-
<PAGE>

<TABLE>
<CAPTION>
Net Underwriting Compensation on
Discounts and Redemptions and Brokerage Other
Commissions Repurchases Commissions Compensation
---------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund $ 230,042 $ 123,622 $0 $0
Strategic Income Fund $ 25,800 $ 149 $0 $0
High Yield Portfolio $ 472,687 $ 370,056 $0 $0
</TABLE>

PERFORMANCE INFORMATION

Advertisements and other sales literature for the Funds may refer to
"average annual total return," "cumulative total return," "yield" and "tax
equivalent yield." All such yield and total return quotations are based on
historical earnings and are not intended to indicate future performance.

The "yield" refers to the income generated by an investment over a 30-day
(or one month) period (which period will be stated in the advertisement). It is
calculated by dividing the net investment income per share (as defined under
Securities and Exchange Commission rules) earned during the computation period
by the maximum offering price per share on the last day of the period, according
to the following formula. The result is then annualized using a formula that
provides for semiannual compounding of income.

6
Yield = 2 [(a-b + 1) - 1]
---
cd

Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the
period.

The 30-day yields for each Fund for the period ended July 31, 1998 were:

<TABLE>
<CAPTION>
Class A Class B Class C Class E Class H
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
U.S. Government Securities Fund 4.70% 4.16% 4.16% 4.94% 4.16%
Strategic Inc. Fund 6.10% 5.63% 5.63% n/a 5.63%
High Yield Portfolio 8.28% 8.11% 8.11% n/a 8.11%
</TABLE>

Average annual total return is the average annual compounded rate of return
on a hypothetical $1,000 investment made at the beginning of the advertised
period. Average annual total return figures are computed according to the
following formula:

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<PAGE>

n
P(1+T) 0 ERV

Where: P = a hypothetical initial payment of $1,000
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.

This calculation deducts the maximum sales charge from the initial
hypothetical $1,000 investment, assumes all dividends and capital gains
distributions are reinvested at net asset value on the appropriate reinvestment
dates, and includes all recurring fees, such as investment advisory and
management fees, charged to all shareholder accounts. Average annual total
return quotations may be accompanied by quotations which do not reflect the
reduction in value of the initial investment due to the sales charge, and which
thus will be higher.

The following tables set forth the average annual total returns for each
Class of shares of each Fund for one year, five years and since inception (10
years with respect to Class E shares of U.S. Government Securities Fund and
Class A shares of High Yield Fund) for the period ending July 31, 1998.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
-----------------------------------------
10 YEARS/SINCE
1 YEAR 5 YEARS INCEPTION*
------ ------- ----------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES FUND
Class A Shares* 2.32% -- 7.22%
Class B Shares* 2.80% -- 7.16%

Class C Shares* 5.41% -- 7.73%
Class E Shares 2.59% 4.45% 7.33%
Class H Shares* 2.80% -- 7.16%

Strategic Income Fund **
Class A Shares -- -- 0.05%
Class B Shares -- -- 0.71%

Class C Shares -- -- 3.35%
Class H Shares -- -- 0.75%

HIGH YIELD PORTFOLIO
Class A Shares (0.38%) 6.73% 8.55%
Class B Shares* 0.07% -- 7.81%

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<PAGE>

Class C Shares* 2.67% -- 8.37%

Class H Shares* 0.07% -- 7.78%
</TABLE>

* Inception date: November 14, 1994.
** Inception date: December 1, 1997.

Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:

CTR = ( ERV+P ) 100
-----
P

Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period; and
P = initial payment of $1,000

This calculation assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.

The following table sets forth the cumulative total returns of each Class
of shares of each Fund for the period from inception through July 31, 1998:

<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
U.S. GOVERNMENT SECURITIES FUND
Class A Shares* 29.56%
Class B Shares* 29.27%
Class C Shares* 31.85%
Class E Shares+ 628.69%

Class H Shares* 29.27%

Strategic Income Fund **
Class A Shares 0.05%
Class B Shares 0.71%
Class C Shares 3.35%
Class H Shares 0.75%

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<PAGE>

HIGH YIELD PORTFOLIO
Class A Shares++ 140.24%
Class B Shares* 32.22%
Class C Shares* 34.79%
Class H Shares* 32.07%
</TABLE>

* Inception date: November 14, 1994.
** Inception date: December 1, 1997.
+ Inception date: February 28, 1973.
++ Inception date: January 4, 1988.

The Funds may advertise relative performance as compiled by outside
organizations or refer to publications which have mentioned their performance or
track the performance of investment companies. Following is a list of ratings
services which may be referred to, along with the category in which the Funds
are included. Because some of these organizations do not take into account
sales charges, their ratings may sometimes be different than had they done so.

U.S. GOVERNMENT SECURITIES FUND
RATINGS SERVICE CATEGORY
--------------- --------
Lipper Analytical Services, Inc. fixed income
CDA/Wiesenberger bond and preferred
Morningstar Publications, Inc. general government
Johnson's Charts government securities

STRATEGIC INCOME FUND
RATINGS SERVICE CATEGORY
--------------- --------
Lipper Analytical Services, Inc. fixed income-multisector income
CDA/Wiesenberger multisector bond
Morningstar Publications, Inc. multisector bond
Johnson's Charts global bond

HIGH YIELD PORTFOLIO
RATINGS SERVICE CATEGORY
--------------- --------
Lipper Analytical Services, Inc. fixed income
CDA/Wiesenberger fixed income primarily high yield
Morningstar Publications, Inc. corporate bond - high quality
Johnson's Charts high yield corporate bond

FINANCIAL STATEMENTS

The audited financial statements as of July 31, 1998, as set forth in the
Funds' Annual Report to Shareholders, are incorporated herein by reference. The
audited financial statements

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<PAGE>

are provided in reliance on the report of KPMG Peat Marwick LLP, 4200 Norwest
Center, Minneapolis, MN 55402, independent auditors of the Funds, and given on
the authority of such firm as experts in accounting and auditing.

OTHER SERVICE PROVIDERS

U.S. Bank National Association, 601 Second Avenue South, Minneapolis, MN
55480 acts as custodian of each Fund's assets and portfolio securities. Dorsey
& Whitney LLP, 220 South Sixth Street, Minneapolis, MN 55402, is the
independent General Counsel for the Funds. Advisers bears the costs of serving
as the transfer agent and dividend-paying agent for each Fund.

LIMITATION OF DIRECTOR LIABILITY

Under Minnesota law, each director of Fortis Income and Fortis Advantage
owes certain fiduciary duties to it and to its shareholders. Minnesota law
provides that a director "shall discharge the duties of the position of director
in good faith, in a manner the director reasonably believes to be in the best
interest of the corporation, and with the care an ordinarily prudent person in a
like position would exercise under similar circumstances." Fiduciary duties of
a director of a Minnesota corporation include, therefore, both a duty of
"loyalty" (to act in good faith and act in a manner reasonably believed to be in
the best interests of the corporation) and a duty of "care" (to act with the
care an ordinarily prudent person in a like position would exercise under
similar circumstances). Minnesota law authorizes corporations to eliminate or
limit the personal liability of a director to the corporation or its
shareholders for monetary damages for breach of the fiduciary duty of "care."
Minnesota law does not, however, permit a corporation to eliminate or limit the
liability of a director (i) for any breach of the director's duty of "loyalty"
to the corporation or its shareholders, (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) for authorizing a dividend, stock repurchase or redemption or other
distribution in violation of Minnesota law or for violation of certain
provisions of Minnesota securities laws, or (iv) for any transaction from which
the director derived an improper personal benefit. The Articles of
Incorporation of Fortis Income and Fortis Advantage limit the liability of
directors to the fullest extent permitted by Minnesota statutes, except to the
extent that such a liability cannot be limited as provided in the 1940 Act
(which act prohibits any provisions which purport to limit the liability of
directors arising from such directors' willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of their
role as directors).

Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law

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<PAGE>

does not permit elimination or limitation of a director's liability under the
Securities Act of 1933 or the Securities Exchange Act of 1934, and it is
uncertain whether and to what extent the elimination of monetary liability would
extend to violations of duties imposed on directors by the 1940 Act and the
rules and regulations adopted under such act.

ADDITIONAL INFORMATION

The Funds have filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act of
1933, as amended, with respect to the common stock offered hereby. The
Prospectus and this Statement of Additional Information do not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with Rules and Regulations of the Commission. The
Registration Statement may be inspected at the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C., and copies thereof may
be obtained from the Commission at prescribed rates.

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APPENDIX A
----------

DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS

OPTIONS ON SECURITIES

An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date or, in the
case of certain options, on such date. The holder pays a non-refundable purchase
price for the option, known as the "premium." The maximum amount of risk the
purchaser of the option assumes is equal to the premium plus related transaction
costs, although this entire amount may be lost. The risk of the seller, or
"writer," however, is potentially unlimited, unless the option is November 17,
1998"covered." A call option written by a Fund is "covered" if the Fund owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio. A call
option is also covered if a Fund holds a call on the same security and in the
same principal amount as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call written or (b)
is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash and high grade government securities in a
segregated account with its custodian. A put option written by a Fund is
"covered" if the Fund maintains cash and high grade government securities with a
value equal to the exercise price in a segregated account with its custodian, or
else holds a put on the same security and in the same principal amount as the
put written where the exercise price of the put held is equal to or greater than
the exercise price of the put written. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the underlying
security from the time the option is written until exercise.

Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.

Options on securities and options on indexes of securities, discussed
below, are traded on national securities exchanges, such as the Chicago Board
Options Exchange and the New York Stock Exchange, which are regulated by the
SEC. The Options Clearing Corporation guarantees the performance of each party
to an exchange-traded option, by in effect taking the opposite side of each such
option. A holder or writer may engage in transactions in exchange-traded options
on

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securities and options on indexes of securities only through a registered
broker-dealer which is a member of the exchange on which the option is traded.

In addition, options on securities and options on indexes of securities may
be traded on exchanges located outside the United States and over-the-counter
through financial institutions dealing in such options as well as the underlying
instruments. The particular risks of transactions on foreign exchanges and
over-the-counter transactions are set forth more fully in the Statement of
Additional Information.

OPTIONS ON STOCK INDEXES

In contrast to an option on a security, an option on a stock index provides
the holder with the right to make or receive a cash settlement upon exercise of
the option, rather than the right to purchase or sell a security. The amount of
this settlement is equal to (i) the amount, if any, by which the fixed exercise
price of the option exceeds (in the case of a call) or is below (in the case of
a put) the closing value of the underlying index on the date of exercise,
multiplied by (ii) a fixed "index multiplier." The purchaser of the option
receives this cash settlement amount if the closing level of the stock index on
the day of exercise is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount
if the option is exercised. As in the case of options on securities, the writer
or holder may liquidate positions in stock index options prior to exercise or
expiration by entering into closing transactions on the exchange on which such
positions were established, subject to the availability of a liquid secondary
market.

A Fund will cover all options on stock indexes by owning securities whose
price changes, in the opinion of Advisers, are expected to be similar to those
of the index, or in such other manner as may be in accordance with the rules of
the exchange on which the option is traded and applicable laws and regulations.
Nevertheless, where a Fund covers a call option on a stock index through
ownership of securities, such securities may not match the composition of the
index. In that event, the Fund will not be fully covered and could be subject to
risk of loss in the event of adverse changes in the value of the index. A Fund
will secure put options on stock indexes by segregating assets equal to the
option's exercise price, or in such other manner as may be in accordance with
the rules of the exchange on which the option is traded and applicable laws and
regulations.

The index underlying a stock index option may be a "broad-based" index,
such as the Standard & Poor's 500 Index or the New York Stock Exchange Composite
index, the changes in value of which ordinarily will reflect movements in the
stock market in general. In contrast, certain options may be based on narrower
market indexes, such as the Standard & Poor's 100 Index, or on indexes of
securities of particular industry groups, such as those of oil and gas or
technology companies. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks so included.

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FUTURES CONTRACTS ON FIXED INCOME SECURITIES, STOCK INDEXES AND FOREIGN
CURRENCIES

A Futures Contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future for a fixed price. By its terms, a Futures Contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures Contracts differ from options in that they are bilateral agreements,
with both the purchaser and the seller equally obligated to complete the
transaction. Futures Contracts call for settlement only on the expiration date,
and cannot be "exercised" at any other time during their term.

The purchase or sale of a Futures Contract differs from the purchase or
sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of the
index or instrument underlying the Futures Contract fluctuates, making positions
in the Futures Contracts more or less valuable, a process known as "marking to
the market."

U.S. Futures Contracts may be purchased or sold only on an exchange, known
as a "contract market," designated by the CFTC for the trading of such contract,
and only through a registered futures commission merchant which is a member of
such contract market. A commission must be paid on each completed purchase and
sale transaction. The contract market clearing house guarantees the performance
of each party to a Futures Contract, by in effect taking the opposite side of
such contract. At any time prior to the expiration of a Futures Contract, a
trader may elect to close out its position by taking an opposite position on the
contract market on which the position was entered into, subject to the
availability of a secondary market, which will operate to terminate the initial
position. At that time, a final determination of variation margin is made and
any loss experienced by the trader is required to be paid to the contract market
clearing house while any profit due to the trader must be delivered to it.
Futures Contracts may also be traded on foreign exchanges.

Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities and U.S. Treasury Bills. In addition, interest rate futures contracts
include contracts on indexes of municipal securities. Foreign currency futures
contracts currently are traded on the British pound, Canadian dollar, Japanese
yen, Swiss franc, West German mark and on Eurodollar deposits.

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A stock index or Eurodollar futures contract provides for the making and
acceptance of a cash settlement in much the same manner as the settlement of an
option on a stock index. The types of indexes underlying stock index futures
contracts are essentially the same as those underlying stock index options, as
described above. The index underlying a municipal bond index futures contract is
a broad based index of municipal securities designed to reflect movements in the
municipal securities market as a whole. The index assigns weighted values to the
securities included in the index and its composition is changed periodically.

OPTIONS ON FUTURES CONTRACTS

An Option on a Futures Contract provides the holder with the right to enter
into a "long" position in the underlying Futures Contract, in the case of a call
option, or a "short" position in the underlying Futures Contract, in the case of
a put option, at a fixed exercise price up to a stated expiration date or, in
the case of certain options, on such date. Upon exercise of the option by the
holder, the contract market clearing house establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of Futures Contracts, such as payment of variation margin
deposits. In addition, the writer of an Option on a Futures Contract, unlike the
holder, is subject to initial and variation margin requirements on the option
position.

A position in an Option on a Futures Contract may be terminated by the
purchaser or seller prior to expiration by affecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.

Options on Futures Contracts that are written or purchased by a Fund on
United States exchanges are traded on the same contract market as the underlying
Futures Contract, and, like Futures Contracts, are subject to regulation by the
CFTC and the performance guarantee of the exchange clearing house. In addition,
Options on Futures Contracts may be traded on foreign exchanges.

An option, whether based on a Futures Contract, a stock index or security,
becomes worthless to the holder when it expires. Upon exercise of an opinion,
the exchange or contract market clearing house assigns exercise notices on a
random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
timing of such exercise.

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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

A Currency Contract is a contractual obligation to purchase or sell a
specific quantity of a given foreign currency for a fixed exchange rate at a
future date. Currency Contracts are individually negotiated and are traded
through the "interbank currency market," an informal network of banks and
brokerage firms which operates around the clock and throughout the world.
Transactions in the interbank market may be executed only through financial
institutions acting as market-makers in the interbank market, or through brokers
executing purchases and sales through such institutions. Market-makers in the
interbank market generally act as principals in taking the opposite side of
their customers' positions in Currency Contracts, and ordinarily charge a
mark-up commission which may be included in the cost of the Contract. In
addition, market-makers may require their customers to deposit collateral upon
entering into a Currency Contract, as security for the customer's obligation to
make or receive delivery of currency, and to deposit additional collateral if
exchange rates move adversely to the customer's position. Such deposits may
function in a manner similar to the margining of Futures Contracts, described
above.

Prior to the stated maturity date of a Currency Contract, it may be
possible to liquidate the transaction by entering into an offsetting contract.
In order to do so, however, a customer may be required to maintain both
contracts as open positions until maturity and to make or receive a settlement
of the difference owed to or from the market-maker or broker at that time.

OPTIONS ON FOREIGN CURRENCIES

Options on foreign currencies are traded in a manner substantially similar
to options on securities. In particular, an option on foreign currency provides
the holder with the right to purchase, in the case of a call option, or to sell,
in the case of a put option, a stated quantity of a particular currency for a
fixed price up to a stated expiration date or, in the case of certain options,
on such date. The writer of the option undertakes the obligation to deliver, in
the case of a call option, or to purchase in the case of a put option, the
quantity of the currency called for in the option, upon exercise of the option
by the holder.

As in the case of other types of options, the holder of an option on
foreign currency is required to pay a one-time, non-refundable premium, which
represents the cost of purchasing the option. The holder can lose the entire
amount of this premium, as well as related transaction costs, but not more than
this amount. The writer of the option, in contrast, generally is required to
make initial and variation margin payments, similar to margin deposits required
in the trading of Futures Contracts and the writing of other types of options.
The writer is therefore subject to risk of loss beyond the amount originally
invested and above the value of the option at the time it is entered into.

Certain options on foreign currencies, like Currency Contracts, are traded
over-the-counter through financial institutions acting as market-makers in such
options and the

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underlying currencies. Such transactions therefore involve risks not generally
associated with exchange-traded instruments, which are discussed below. Options
on foreign currencies may also be traded on national securities exchanges
regulated by the SEC and on exchanges located in foreign countries.

Over-the-counter transactions can only be entered into with a financial
institution willing to take the opposite side, as principal, of a Fund's
position unless the institution acts as broker and is able to find another
counterpart willing to enter into the transaction with the Fund. Where no such
counterpart is available, it will not be possible to enter into a desired
transaction. There also may be no liquid secondary market in the trading of
over-the-counter contracts, and a Fund could be required to retain options
purchased or written until exercise, expiration or maturity. This in turn could
limit the Fund's ability to profit from open positions or to reduce losses
experienced, and could result in greater losses.

Further, over-the-counter transactions are not subject to the guarantee of
an exchange clearing house, and a Fund will therefore be subject to the risk of
default by, or the bankruptcy of, the financial institution serving as its
counterpart. One or more of such institutions also may decide to discontinue
their role as market-makers in a particular currency or security, thereby
restricting the Fund's ability to enter into desired hedging transactions. A
Fund will enter into an over-the-counter transaction only with parties whose
creditworthiness has been reviewed and found satisfactory by Advisers.

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APPENDIX B
----------

CORPORATE BOND AND COMMERCIAL PAPER RATINGS

COMMERCIAL PAPER RATINGS

STANDARD & POOR'S CORPORATION. Commercial paper ratings are graded into
four categories, ranging from "A" for the highest quality obligations to "D" for
the lowest. Issues assigned the A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
designation 1, 2, and 3 to indicate the relative degree of safety. The "A-1"
designation indicates that the degree of safety regarding timely payment is very
strong.

MOODY'S INVESTORS SERVICE INC. Moody's commercial paper ratings are
opinions of the ability of the issuers to repay punctually promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representation that such obligations are exempt from registration under
the Securities Act of 1933, nor does it represent that any specific note is a
valid obligation of a rated issuer or issued in conformity with any applicable
law. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:

PRIME-1--Superior capacity for repayment of short-term promissory
obligations.

PRIME-2--Strong capacity for repayment of short-term promissory
obligations.

PRIME-3--Acceptable capacity for repayment of short-term promissory
obligations.

CORPORATE BOND RATINGS

STANDARD & POOR'S CORPORATION. Its ratings for corporate bonds have the
following definitions:

Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.

Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in high rated categories.

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Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

Debt rated "BB," "B," "CCC," "CC," and "C" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB+" rating.

Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB+"
rating.

Debt rated "CCC" has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B+" rating.

The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.

The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC+" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

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The rating "C1" is reserved for income bonds on which no interest is being
paid.

"NR" indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.

BOND INVESTMENT QUALITY STANDARDS. Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings)
are generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states impose certain rating or other standards for
obligations eligible for investment by savings banks, trust companies, insurance
companies and fiduciaries generally.

MOODY'S INVESTORS SERVICE, INC. Its ratings for corporate bonds include
the following:

Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.

Bonds which are rated "A" possess many favorable attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest arc considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

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Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Bonds which are rated "Ca" represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

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PART C
U.S. Government Securities Fund
and
Strategic Income Fund
series of
Fortis Income Portfolios, Inc.

OTHER INFORMATION

ITEM 23. EXHIBITS
THE FUND IS FILING OR INCORPORATING BY REFERENCE THE FOLLOWING EXHIBITS:

(a).1 Articles of Amendment dated 9/8/94 and Amended and Restated
Articles of Incorporation dated as of 9/9/94 (1)
(a).2 Certification of Designation of Series B dated 10/22/97 (1)
(a).3 Certification of Designation of Classes A, B, C & H dated
10/31/94 (1)
(b) Amended and Restated Bylaws dated 9/18/97 (1)
(c) Instruments Defining Rights of Security Holders - not applicable
(d).1 Investment Advisory and Management Agreement dated 4/2/93 *
(d).2 Investment Advisory and Management Agreement for Strategic Income
Fund dated 12/1/97 *
(e).1 Underwriting and Distribution Agreement dated 11/14/94 (1)
(e).2 Amendment #1 dated 12/1/97 to Underwriting and Distribution
Agreement (1)
(e).3 Dealer Sales Agreement *
(e).4 Mutual Fund Supplement to Dealer Sales Agreement *
(f) Bonus or Profit Sharing Contracts -not applicable
(g).1 Custody Agreement dated 3/21/92 (1)
(g).2 Amendment #1 dated 12/1/97 to Exhibit A of Custody Agreement (1)
(h) Other Material Contracts - not applicable
(i) Legal Opinion - not applicable
(j) Consent of KPMG Peat Marwick LLP *
(k) Omitted Financial Statements - not applicable
(l) Initial Capital Agreements - not applicable
(m) Rule 12b-1 Plan (3)
(n) Financial Data Schedule - not applicable
(o) Rule 18f-3 Plan (2)

- -------------------------
(1) Incorporated by reference to Post-Effective Amendment No. 43 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
on November 26, 1997.
(2) Incorporated by reference to a Post-Effective Amendment No. 41 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in November 29, 1996.
(3) Incorporated by reference to a Post-Effective Amendment No. 11 to the
Registration Statement of Fortis Worldwide Portfolios, Inc. on Form N-1A
filed with the Commission on February 26, 1998.
* Filed herewith.

1
<PAGE>

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
THE FOLLOWING IS A LIST OF ALL PERSONS DIRECTLY OR INDIRECTLY CONTROLLED BY
OR UNDER COMMON CONTROL WITH THE FUND:

No person is directly or indirectly controlled by or under common control
with the Registrant.

ITEM 25. INDEMNIFICATION
STATE THE GENERAL EFFECT OF ANY CONTRACT, ARRANGEMENTS OR STATUTE UNDER
WHICH ANY DIRECTOR, OFFICER, UNDERWRITER OR AFFILIATED PERSON OF THE FUND IS
INSURED OR INDEMNIFIED AGAINST ANY LIABILITY INCURRED IN THEIR OFFICIAL
CAPACITY, OTHER THAN INSURANCE PROVIDED BY ANY DIRECTOR, OFFICER, AFFILIATED
PERSON, OR UNDERWRITER FOR THEIR OWN PROTECTION.

Paragraph 8(d) of the Registrant's Articles of Incorporation provides that
the Registrant shall indemnify such person for such expenses and liabilities, in
such manner, under such circumstances, and to the full extent permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended;
provided, however, that no such indemnification may be made if it would be in
violation of Section 17(h) of the Investment Company Act of 1940, as now enacted
or hereinafter amended, and any rules, regulations, or releases promulgated
thereunder.

The Registrant may indemnify its officers and directors and other "persons"
acting in an "official capacity" (as such terms are defined in Section 302A.521)
pursuant to a determination by the board of directors or shareholders of the
Registrant as set forth in Section 302A.521, by special legal counsel selected
by the board or a committee thereof for the purpose of making such a
determination, or by a Minnesota court upon application of the person seeking
indemnification. If a director is seeking indemnification for conduct in the
capacity of director or officer of the Registrant, then such director generally
may not be counted for the purposes of determining either the presence of a
quorum or such director's eligibility to be indemnified.

In any case, indemnification is proper only if the eligibility determining
body decides that the person seeking indemnification:

(a) has not received indemnification for the same conduct from any
other party or organization;
(b) acted in good faith;
(c) received no improper personal benefit;
(d) in the case of criminal proceedings, has no reasonable cause to
believe the conduct was unlawful;
(e) reasonably believed that the conduct was in the best interest of
the Registrant, or in certain contexts, was not opposed to the best
interest of the Registrant; and
(f) had not otherwise engaged in conduct which precludes
indemnification under either Minnesota or Federal law (including,
without limitation, conduct constituting willful misfeasance, bad
faith, gross negligence, or reckless disregard of duties as set
forth in Section 17(h) and (i) of the Investment Company Act of
1940).

2
<PAGE>

ADVANCES. If a person is made or threatened to be made a party to a
proceeding, the person is entitled, upon written request to the Registrant, to
payment or reimbursement by the Registrant of reasonable expenses, including
attorneys fees and disbursements, incurred by the person in advance of the final
disposition of the proceeding, (a) upon receipt by the Registrant of a written
affirmation by the person of a good faith belief that the criteria for
indemnification set forth in Section 302A.521 have been satisfied and a written
undertaking by the person to repay all amounts so paid or reimbursed by the
Registrant, if it is ultimately determined that the criteria for indemnification
have been satisfied, and (b) after a determination that the facts then known to
those making the determination would not preclude indemnification under
302A.521. The written undertaking required by clause (a) is an unlimited
general obligation of the person making it, but need not be secured and shall be
accepted without reference to financial ability to make the repayment.

UNDERTAKING. The Registrant undertakes that insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provision, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless, in the opinion of its counsel, the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
DESCRIBE ANY OTHER BUSINESS, PROFESSION, VOCATION OR EMPLOYMENT OF A
SUBSTANTIAL NATURE THAT EACH INVESTMENT ADVISER, AND EACH DIRECTOR, OFFICER OR
PARTNER OF THE ADVISER, IS OR HAS BEEN ENGAGED WITHIN THE LAST TWO FISCAL YEARS
FOR HIS OR HER OWN ACCOUNT OR IN THE CAPACITY OF DIRECTOR, OFFICER, EMPLOYEE,
PARTNER OR TRUSTEE.

Information on the business of the Adviser, its directors and officers is
described in the Statement of Additional Information. The following officers
are not listed in the Statement of Additional Information:

<TABLE>
<CAPTION>
Other Business/Employment
Name Position with Adviser During Past Two Years
- ---- --------------------- -------------------------
<S> <C> <C>
Michael D. O'Connor Qualified Plan Officer Qualified Plan Officer of Fortis
Benefits Insurance Company
David C. Greenzang Money Market Portfolio Debt securities manager with
Officer Fortis, Inc.
</TABLE>

3
<PAGE>

ITEM 27. PRINCIPAL UNDERWRITERS
(a) STATE THE NAME OF EACH INVESTMENT COMPANY (OTHER THAN THE FUND) FOR WHICH
EACH PRINCIPAL UNDERWRITER CURRENTLY DISTRIBUTING THE FUND'S SECURITIES ALSO
ACTS AS A PRINCIPAL UNDERWRITER, DEPOSITOR, OR INVESTMENT ADVISER.

Investors also acts as the principal underwriter for: Fortis Advantage
Portfolios, Inc., Fortis Equity Portfolios, Inc., Fortis Money Portfolios, Inc.,
Fortis Tax Free Portfolios, Inc., Fortis Securities, Inc., Fortis Series Fund,
Inc., Fortis Worldwide Portfolios, Inc., Fortis Growth Fund, Inc., Variable
Account C of Fortis Benefits Insurance Company and Variable Account D of Fortis
Benefits Insurance Company.

(b) PROVIDE THE INFORMATION REQUIRED BY THE FOLLOWING TABLE FOR EACH DIRECTOR,
OFFICER, OR PARTNER OF EACH PRINCIPAL UNDERWRITER NAMED IN RESPONSE TO ITEM 20.

In addition to those listed in the Statement of Additional Information with
respect to Investors, the following are also officers of Investors. The
principal business address of each is 500 Bielenberg Drive, Woodbury,
Minnesota 55125.

Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Fund
- ------------------------ ---------------------------- ----------------------
<S> <C> <C>
Carol M. Houghtby Director, Vice President & None
Treasurer
Roger W. Arnold Senior Vice President None
Peter M. Delehanty Senior Vice President None
John E. Hite Vice President & Secretary None
</TABLE>

(c) PROVIDE THE INFORMATION REQUIRED BY THE FOLLOWING TABLE FOR ALL COMMISSIONS
AND OTHER COMPENSATION RECEIVED, DIRECTLY OR INDIRECTLY, FROM THE FUND DURING
THE LAST FISCAL YEAR BY EACH PRINCIPAL UNDERWRITER WHO IS NOT AN AFFILIATED
PERSON OF THE FUND OR ANY AFFILIATED PERSON OF AN AFFILIATED PERSON.

Not applicable.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
STATE THE NAME AND ADDRESS OF EACH PERSON MAINTAINING PHYSICAL POSSESSION
OF EACH ACCOUNT, BOOK, OR OTHER DOCUMENT REQUIRED TO BE MAINTAINED BY SECTION
31(a) AND THE RULES UNDER THAT SECTION.

The physical possession of the accounts, books, and other documents
required to be maintained by Section 31(a) of the Investment Company Act of 1940
and Rules 3la-1 to 3la-3 promulgated thereunder is maintained by the Registrant
at Fortis Advisers, Inc., 500 Bielenberg Drive, Woodbury, MN 55125.

ITEM 29. MANAGEMENT SERVICES
PROVIDE A SUMMARY OF THE SUBSTANTIVE PROVISIONS OF ANY MANAGEMENT-RELATED
SERVICE CONTRACT NOT DISCUSSED IN PART A OR B, DISCLOSING THE PARTIES TO THE
CONTRACT AND THE TOTAL AMOUNT PAID AND BY WHOM FOR THE FUND FOR THE LAST THREE
FISCAL YEARS.

All contracts were discussed in Part A or B.

4
<PAGE>

ITEM 30. UNDERTAKINGS

(a) IN INITIAL REGISTRATION STATEMENTS FILED UNDER THE SECURITIES ACT, PROVIDE
AN UNDERTAKING TO FILE AN AMENDMENT TO THE REGISTRATION STATEMENT WITH
CERTIFIED FINANCIAL STATEMENTS SHOWING THE INITIAL CAPITAL RECEIVED BEFORE
ACCEPTING SUBSCRIPTIONS FROM MORE THAN 25 PERSONS IF THE FUND INTENDS TO
RAISE ITS INITIAL CAPITAL UNDER SECTION 14(a)(3).

Not applicable.

(b) Each recipient of a prospectus of any series of the Registrant may request
the latest Annual Report of such series, and such Annual Report will be
furnished by the Registrant without charge.

(c) Registrant represents that it is relying on a No-Action Letter (IDS
Financial Services, June 20, 1986) and that it has complied with the
provisions of paragraphs (a) - (d) of such No-Action Letter.

5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement on Form N-1A
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Woodbury and State of Minnesota
on the 1st day of December 1998.

FORTIS INCOME PORTFOLIOS, INC.
(Registrant)

By /s/ Dean C. Kopperud
-----------------------------------
Dean C. Kopperud, President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:

/s/ Dean C. Kopperud President (principal December 1, 1998
- ------------------------------ executive officer)
Dean C. Kopperud

/s/ Tamara L. Fagely Treasurer (principal December 1, 1998
- ------------------------------ financial and
Tamara L. Fagely accounting officer)

Richard D. Cutting* Director

Allen R. Freedman* Director

Robert M. Gavin* Director

Benjamin S. Jaffray* Director

Jean L. King* Director

Edward M. Mahoney* Director

Robb L. Prince* Director

Leonard J. Santow* Director

Noel S. Shadko Director

Joseph M. Wikler* Director

*By /s/ Dean C. Kopperud December 1, 1998
----------------------------------
Dean C. Kopperud, Attorney-in-Fact
(Pursuant to a Power of Attorney dated March 21, 1996)

<PAGE>

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT

THIS AGREEMENT, made this 2nd day of April 1993, by and between FORTIS
INCOME PORTFOLIOS, INC.(formerly FORTIS U.S. GOVERNMENT SECURITIES FUND, INC.),
a Minnesota corporation (the "Fund") and FORTIS Advisers, Inc. (formerly AMEV
Advisers, Inc.), a Minnesota ("Advisers").

1. INVESTMENT ADVISORY AND MANAGEMENT SERVICES

The Fund hereby engages Advisers, and Advisers hereby agrees to act,
as investment adviser for, and to manage the affairs, business and the
investment of the assets of the Fund's Portfolios, which shall consist of Fortis
U. S. Government Securities Fund and any further portfolios from time to time
created by the Board of Directors of the Fund. Each such Portfolio is herein
individually referred to as a "Portfolio," and the Portfolios are herein
collectively referred to as the "Portfolios."

The investment of the assets of the Portfolio shall at all times be
subject to the applicable provisions of the Articles of Incorporation, Bylaws,
Registration Statement and current Prospectus and Statement of Additional
Information of the Fund and shall conform to the policies and purposes of the
Fund as set forth in the Registration Statement and Prospectus and Statement of
Additional Information as interpreted from time to time by the Board of
Directors of the Fund. Within the framework of the investment policies of the
Portfolios, Advisers shall have the sole and exclusive responsibility for the
management of the Portfolios and the making and execution of all investment
decisions for the Fund. Advisers shall report to the Board of Directors
regularly at such times and in such detail as the Board may from time to time
determine to be appropriate, in order to permit the Board to determine the
adherence of Advisers to the investment policies of the Portfolios.

Advisers shall, at its own expense, furnish the Fund suitable office
space, and all necessary office facilities, equipment and personnel for
servicing the investments of the Fund. Advisers shall arrange, if requested by
the Fund, for officers, employees or other affiliates of Advisers to serve
without compensation from the Fund as directors, officers, or employees of the
Fund if duly elected to such positions by the shareholders or directors of the
Fund.

Advisers hereby acknowledges that all records necessary in the
operation of the Fund, including records pertaining to shareholders and
investments, are the property of the Fund, and in the event that a transfer of
management or investment advisory services to someone other than Advisers should
ever occur, Advisers will promptly, and at its own cost, take all steps
necessary to segregate such records and deliver them to the Fund.

-1-
<PAGE>

2. COMPENSATION FOR SERVICES.

In payment for all services, facilities, equipment and personnel, and
for other costs of Advisers hereunder, the Fund shall pay to Advisers a monthly
fee, which fee shall be paid to Advisers not later than the fifth business day
of the month following the month in which such services are rendered. Such
monthly fee shall be at the rate or rates set forth below and shall be based on
the average of the net asset values of all of the issued and outstanding shares
of the respective Portfolio as determined as of the close of each business day
of the month pursuant to the Articles of Incorporation, Bylaws and currently
effective Prospectus and Statement of Additional Information of the Fund. The
following table sets forth the fee on a monthly and annual basis:

Monthly Equivalent Average Asset
Rate Annual Rate Values of the Fund
- ------- ----------- ------------------
<S> <C> <C>
1/15 of 1% 8/10 of 1% On the first $50,000,000
7/120 of 1% 7/10 of 1% On average net assets over $100,000,000
</TABLE>

The fee shall be prorated for any fraction of a month at the
commencement or termination of this Agreement.

The investment advisory fee for any future Portfolio(s) shall be
determined by the Board of Directors of the Fund upon the creation of any such
Portfolio(s).

3. ALLOCATION OF EXPENSES.

In addition to the fee described in Section 2 hereof, the Fund shall
pay all its expenses which are not assumed by Advisers and/or Fortis Investors,
Inc. ("Investors"). These Fund expenses include, by way of example, but not by
way of limitation, the fees and expenses of directors and officers of the Fund
who are not "affiliated persons" of Advisers, interest expenses, taxes,
brokerage fees and commissions, fees and expenses of registering and qualifying
the Fund and its shares for distribution under federal and state securities
laws, expenses of preparing prospectuses and of printing and distributing
prospectuses annually to existing shareholders, custodian charges, auditing and
legal expenses, insurance expenses, association membership dues, and the
expenses of reports to shareholders, shareholders' meetings and proxy
solicitations. Advisers shall bear the costs of acting as the Portfolio's
transfer agent, registrar and dividend disbursing agent.

Advisers or Investors shall bear all promotional expenses in
connection with the distribution of the Fund's shares, including paying for
prospectuses and shareholder reports for new shareholders and the costs of sales
literature.

-2-
<PAGE>

4. FREEDOM TO DEAL WITH THIRD PARTIES.

Advisers shall be free to render services to others similar to those
rendered under this Agreement or of a different nature except as such services
may conflict with the services to be rendered or the duties to be assumed
hereunder.

5. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT.

. The effective date of this Agreement shall be April 2, 1993. Wherever
referred to in this Agreement, the vote or approval of the holders of a majority
of the outstanding voting securities of the Fund shall mean the vote of 67% or
more of such securities if the holders of more than 50% of such securities are
present in person or by proxy or the vote of more than 50% of such securities,
whichever is less.

Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect only so long as such continuance is specifically approved at
least annually (a) by the Board of Directors of the Fund, or with respect to a
particular Portfolio by the vote of the holders of a majority of the outstanding
voting securities of such Portfolio, and (b) by a majority of the directors who
are not interested persons of Advisers or of the Fund cast in person at a
meeting called for the purpose of voting on such approval; provided that if a
majority of the outstanding voting securities of any of the Portfolios approves
this Agreement, this Agreement shall continue in effect with respect to such
approving Portfolio whether or not the shareholders of any other Portfolio of
the Fund approve this Agreement.

This Agreement may be terminated at any time without the payment of
any penalty by the vote of the Board of Directors of the Fund or by Advisers
upon sixty (60) days written notice to the other party. This Agreement may be
terminated with respect to a particular Portfolio at any time without the
payment of any penalty by the vote of the holders of a majority of the
outstanding voting securities of such Portfolios, upon sixty (60) days written
notice to Advisers. Any such termination may be made effective with respect to
both the investment advisory and management services provided for in this
Agreement or with respect to either of such kinds of services. This Agreement
shall automatically terminate in the event of its assignment.

6. AMENDMENTS TO AGREEMENT.

No material amendment to this Agreement shall be effective until
approved by a vote of the holders of a majority of the outstanding voting
securities of the Portfolios which have approved and are subject to this
Agreement. In addition, if a majority of the outstanding voting securities of
any Portfolio of the Fund votes to amend this Agreement, such amendment shall be

-3-
<PAGE>

effective with respect to such Portfolio whether or not the shareholders of any
other Portfolio vote to adopt such amendment.

7. NOTICES.

Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate in writing for receipt of such notice.

IN WITNESS WHEREOF, the Fund and Advisers have caused this Agreement
to be executed by their duly authorized officers as of the day and year first
above written.

FORTIS U.S. GOVERNMENT SECURITIES
FUND, INC.

By /s/ Dean C. Kopperud
-----------------------------------
Its Vice President

FORTIS ADVISERS, INC.

By /s/ Dean C. Kopperud
-----------------------------------
Its Vice President

-4-

<PAGE>

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT

THIS AGREEMENT, made this 1st day of December 1997, by and between
Fortis Income Portfolios, Inc., a Minnesota corporation (the "Company") and
Fortis Advisers, Inc., a Minnesota ("Advisers").

RECITALS

A. WHEREAS, the Board of Directors of the Company has amended the
Company's Articles of Incorporation to create a new series of $.01 par value
common stock desinated as Series B Common Shares known as "Fortis Strategic
Income Fund (the "Portfolio"); and

B. WHEREAS, the Board of Directors of the Company desires to enter
into this Agreement pursuant to which Advisers will act as investment adviser
for, and manage the affairs, business and the investment assets of the
Portfolio.

NOW, THEREFORE, in consideration of the mutual agreements and
covenants herein made, the Company and Advisers agree as follows:

1. INVESTMENT ADVISORY AND MANAGEMENT SERVICES

The Company hereby engages Advisers, and Advisers hereby agrees to
act, as investment adviser for, and to manage the affairs, business and the
investment of the assets of the Portfolio.

The investment of the assets of the Portfolio shall at all times be
subject to the applicable provisions of the Articles of Incorporation, Bylaws,
Registration Statement and current Prospectus of the Portfolio and shall conform
to the policies and purposes of the Portfolio as set forth in the Registration
Statement and Prospectus and as interpreted from time to time by the Board of
Directors of the Company. Within the framework of the investment policies of
the Portfolio, Advisers shall have the sole and exclusive responsibility for the
management of the Portfolio and the making and execution of all investment
decisions for the Portfolio. Advisers shall report to the Board of Directors
regularly at such times and in such detail as the Board may from time to time
determine to be appropriate, in order to permit the Board to determine the
adherence of Advisers to the investment policies of the Portfolio.

Advisers shall, at its own expense, furnish the Portfolio suitable
office space, and all necessary office facilities, equipment and personnel for
servicing the investments of the Portfolio. Advisers shall arrange, if
requested by the Company, for officers, employees or other affiliates of
Advisers to serve without compensation from the Portfolio as directors,
officers, or employees of the Fund if duly elected to such positions by the
shareholders or directors of the Company.

-1-
<PAGE>

Advisers hereby acknowledges that all records necessary in the
operation of the Portfolio, including records pertaining to shareholders and
investments, are the property of the Portfolio, and in the event that a transfer
of management or investment advisory services to someone other than Advisers
should ever occur, Advisers will promptly, and at its own cost, take all steps
necessary to segregate such records and deliver them to the Portfolio.

2. COMPENSATION FOR SERVICES.

In payment for all services, facilities, equipment and personnel, and
for other costs of Advisers hereunder, the Portfolio shall pay to Advisers a
monthly fee, which fee shall be paid to Advisers not later than the fifth
business day of the month following the month in which such services are
rendered. Such monthly bee shall be at the rate or rates set forth below and
shall be based on the average of the net asset values of all of the issued and
outstanding shares of the Portfolio as determined as of the close of each
business day of the month pursuant to the Articles of Incorporation, Bylaws and
currently effective Prospectus of the Portfolio. The following table sets forth
the fee on a monthly and annual basis:

Monthly Equivalent Average Asset
Rate Annual Rate Values of the Portfolio
- ------- ----------- -----------------------
<S> <C> <C>
1/15 of 1% 8/10 of 1% On the first $50,000,000
7/120 of 1% 7/10 of 1% For assets over $50,000,000
</TABLE>

The fee shall be prorated for any fraction of a month at the
commencement or termination of this Agreement.

3. ALLOCATION OF EXPENSES

In addition to the fee described in Section 2 hereof, the Portfolio
shall pay all its expenses which are not assumed by Advisers and/or Fortis
Investors, Inc. ("Investors"). These expenses include, by way of example, but
not by way of limitation, the fees and expenses of directors and officers of the
Company who are not "affiliated persons" of Advisers, interest expenses, taxes,
brokerage fees and commissions, fees and expenses of registering and qualifying
the Portfolio and its shares for distribution under federal and state securities
laws, expenses of preparing prospectuses and of printing and distributing
prospectuses annually to existing shareholders, custodian charges, auditing and
legal expenses, insurance expenses, association membership dues, and the
expenses of reports to shareholders, shareholders' meetings and proxy
solicitations. Advisers shall bear the costs of acting as the Portfolio's
transfer agent, registrar and dividend disbursing agent.

Advisers or Investors shall bear all promotional expenses in
connection with the distribution of the Portfolio's shares, including paying for
prospectuses and shareholder reports for new shareholders and the costs of sales
literature.

-2-
<PAGE>

4. FREEDOM TO DEAL WITH THIRD PARTIES.

5. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT.

. The effective date of this Agreement shall be December 1, 1997.
Wherever referred to in this Agreement, the vote or approval of the holders of a
majority of the outstanding voting securities of the Portfolio shall mean the
vote of 67% or more of such securities if the holders of more than 50% of such
securities are present in person or by proxy or the vote of more than 50% of
such securities, whichever is less.

Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect only so long as such continuance is specifically approved at
least annually by the Board of Directors of the Company, including the specific
approval of a majority of the directors who are not interested persons of
Advisers or of the Company cast in person at a meeting called for the purpose of
voting on such approval, or by the vote of the holders of a majority of the
outstanding voting securities of the Portfolio.

This Agreement may be terminated at any time without the payment of
any penalty by the vote of the Board of Directors of the Company or by the vote
of the holders of a majority of the outstanding voting securities of the
Portfolio, or by Advisers, upon sixty (60) days written notice to the other
party. Any such termination may be made effective with respect to both the
investment advisory and management services provided for in this Agreement or
with respect to either of such kinds of services. This Agreement shall
automatically terminate in the event of its assignment.

6. AMENDMENTS TO AGREEMENT.

No material amendment to this Agreement shall be effective until
approved by a vote of the holders of a majority of the outstanding voting
securities of the Portfolio.

7. NOTICES.

-3-
<PAGE>

IN WITNESS WHEREOF, the Company and Advisers have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.

FORTIS INCOME PORTFOLIOS, INC.

By /s/ Dean C. Kopperud
-----------------------------------
Its President
-----------------------------------

FORTIS ADVISERS, INC.

By /s/ Dean C. Kopperud
-----------------------------------
Its President
-----------------------------------

-4-

<PAGE>

FORTIS
Fortis Investors, Inc.

PO Box 64284 DEALER SALES AGREEMENT
(612) 738-4000
(800) 800-2638

- --------------------------------------------------------------------------------
________________________________________, a Dealer sales organization (the
"Dealer") currently registered and in good standing with the Securities and
Exchange Commission ("SEC"), the National Association of Securities Dealers,
Inc. ("NASD"), and all necessary state regulators, with principal offices at
________________________, hereby accepts membership in a selling group to
distribute the following products ("Products") (check applicable boxes)
available through Fortis Investors, Inc. ("Investors"):

Securities issued Contracts issued by Fortis Benefits Insurance
through Fortis Investors, Inc: Company, or First Fortis Life Insurance
Company for Contracts sold in the state
of New York (the "Insurance Companies"):

/ / Mutual Funds / / Variable Universal Life Insurance

/ / Variable Annuity

/ / Fixed Annuity

Upon execution of this Agreement, the Dealer may participate in the distribution
of these Products, subject to the following terms and to those contained in the
applicable product supplement(s) to this Agreement.

1. COMPENSATION

The compensation payable shall be that described in the attached Product
supplements(s); or in subsequent supplements which may be sent to the Dealer.

2. DEALER ACTS FOR OWN ACCOUNT

In all sales of these products to the public, the Dealer shall act as Dealer for
its own account and not as agent for Investors, the issuers of the Products
underwritten by Investors, or any other Dealer.

3. SUITABILITY

The Dealer is responsible for determining suitability. In making such
determinations the Dealer agrees to comply with all applicable NASD rules and
requirements as well as all applicable federal and state laws and regulations.
In addition, the Dealer will abide by Investors' compliance standards with
respect to the sale of the Products. Investors' compliance standards will be
provided to the Dealer and may be amended from time to time, Amended compliance
standards shall become effective automatically upon the Dealer's receipt of the
amended compliance standards.

4. ORDERS

Orders to purchase or redeem interests in Investors' Products: 1) must be placed
as described in the Product's current Prospectus; 2) must be unconditional; 3)
are subject to acceptance by Investors or the Insurance Companies

<PAGE>

or both, as the case may be, and 4) become effective as described in the current
Prospectus.

Investors and the Insurance Companies have the right in their sole discretion to
reject for any reason any order or insurance or annuity application. In
addition, with respect to insurance Products, many state insurance departments
require that owners be given a right of recision. In the event that such a right
or recision is exercised, or such a refund is made, the Dealer agrees to
promptly repay any compensation received as a result of such sale, and that if
such repayment is not made promptly, any such unrepaid compensation may be
deducted from any other sums owed the Dealer by Investors or the Insurance
Companies.

5. PAYMENT

All purchases shall be paid for as described in the Product's current
Prospectus. Otherwise, Investors reserves the right, without notice, to
immediately cancel the sale and, at its option, to hold the Dealer responsible
for any resulting loss suffered by Investors, the Insurance Companies, or the
issuer of the Product.

6. REPRESENTATIONS

(a) The Dealer is not authorized to make any representations concerning the
Products except those contained in the then current Prospectus, Statement of
Additional Information, or in current material furnished by Investors which is
officially designated as approved advertising or sales literature. Investors
will supply Prospectuses and reasonable quantities of supplemental sales
literature, sales bulletins and additional information as issued. The Dealer
agrees not to use other advertising and sales material relating to the Products
except that which conforms to the applicable requirements of the Federal and
State securities laws and which is approved in writing by Investors in advance
of such use.

(b) The Dealer agrees not to sell, or offer for sale, any Product unless the
Dealer has met all necessary Federal, NASD, and State regulatory licensing and
other requirements for doing so, including any Prospectus and Statement of
Additional Information delivery requirements and Section 26 of Article III of
the NASD Rules of Fair Practice (which pertains to the sale of investment
company securities); and agrees to be solely responsible for the proper
licensing, conduct and supervision of its representatives. Expulsion of either
party from the NASD will automatically terminate this Agreement without notice.

7. INDEBTEDNESS

Compensation payable under this Agreement or any other agreement with Investors
or an affiliated company will be subject to offsets to repay any indebtedness or
claims now due, or which may become due at any time from the Dealer to Investors
or such affiliate. Investors or such affiliate will have a lien on all such
compensation, as security for the payment of any and all such debts or claims,
and Investors will have the right to deduct any monies due from such
compensation, together with legal interest, without any requirement that it
first obtain the Dealer's consent or give the Dealer notice.

This lien and assignment will not be extinguished by the termination of this
Agreement and will be binding upon the Dealer's successors, executors,
administrators and assigns. Upon termination of the Agreement, all monies and
indebtedness due Investors will be payable immediately upon demand, together
with interest payable at the legal rate from the date of such termination.

8. INDEMNIFICATION

(a) Investors shall indemnify, defend and hold harmless the Dealer and all of
its affiliates against all losses, claims, demands, liabilities, and expenses,
including reasonable legal and other expenses in defending claims or liabilities
arising from any untrue statement or alleged untrue statement or a material fact
contained in the prospectus or the registration statement of the Product, as
filed and in effect with the SEC, or any amendment or supplement thereto, or in
any application prepared or approved in writing by counsel to the issuer of the
Products and filed with any state regulatory agency in order to register to
qualify the Products under state securities laws (the "blue sky

<PAGE>

applications"), or which shall arise out of or be based upon any omission or
alleged omission to state a material fact required to be stated in the
prospectus or the registration statement or any of the blue sky applications or
which is necessary to make the statements or a part thereof not misleading. This
indemnity provision shall survive the termination of this Agreement.

(b) The Dealer shall indemnify, defend and hold harmless Investors and all of
its affiliates, and the Insurance Companies and their affiliates and their
officers, directors, employees, agents, and assignees against all losses,
claims, demands, liabilities, and expenses, including reasonable legal and other
expenses incurred in defending any claims or liabilities, whether or not
resulting in any liability to any of them, or which they or any of them may
incur, including but not limited to alleged violations of the Securities Act of
1933, as amended, and/or to the Securities Exchange Act of 1934, as amended,
arising out of the offer or sale by the Dealer of the Products pursuant to this
Agreement, arising out of the breach by the Dealer of any of the terms and
conditions of this Agreement, or arising out of the sale by the Dealer of any
other product or service not offered by Investors, other than any claim, demand
or liability arising from any untrue statement or alleged untrue statement of a
material fact contained in the prospectus or the registration statement of the
Products, as filed and in effect with the SEC, or any amendment or supplement
thereto, or in any application prepared or approved in writing by counsel to the
issuer of the Products and filed with any state regulatory agency in order to
register or qualify the Products under state securities laws (the "blue sky
applications"), or which shall arise out of or be based upon any omission or
alleged omission to state a material fact required to be stated in the
prospectus or the registration statement or any of the blue sky applications or
which is necessary to make the statement or a part thereof not misleading. This
indemnity provision shall survive the termination of this Agreement.

9. OTHER

(a) The Dealer agrees to comply with the terms of this Agreement and all of
Investors' and the Insurance Companies procedures for the sale of the Products,
and agrees that no failure, neglect or forbearance by Investors or the Insurance
Companies to require strict performance of any such requirements shall be
construed as a waiver of their rights or privileges hereunder.

(b) This Agreement may be terminated by either party upon seven days' written
notice.

(c) All written communications to Investors or the Insurance Companies shall be
sent to the address on the product's current Prospectus. Any notice to the
Dealer shall be duly given if mailed or telegraphed to the address shown in the
Agreement or the last known address of record.

(d) This Agreement becomes effective only when accepted and signed by
Investors, and shall be construed in accordance with Minnesota law.

(e) There is a corresponding product supplement to this Agreement for each of
the boxes checked in the first paragraph of this Agreement which contains
additional information. Such supplements and/or this Agreement may

<PAGE>

be amended by Investors from time to time and the amendments shall become
effective automatically the first time the Dealer places an order for any
Product following its receipt of the amended supplement.

- ----------------------------------- ----------------------------------------
Broker Dealer By: (Signature)

- ----------------------------------- ----------------------------------------
Street Address Please Print Name

- ----------------------------------- ----------------------------------------
City State Zip Title

- ----------------------------------- ----------------------------------------
Broker Dealer Fax Number Tax Identification Number

For FORTIS INVESTORS, INC.
Acccepted by:

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Date Accepted

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Mutual Fund Supplement
to Dealer Sales Agreement
1. Compensation

Compensation is payable from two sources:

A. Dealer Concession. Compensation is payable as set forth in the
applicable current Prospectus, the terms of which are incorporated
herein by reference. (See such Prospectus for minimum investment
requirements and circumstances when commissions are not payable.)

B. 12b-1 fees. In addition to any commissions payable pursuant to the
preceding paragraph, for certain Fortis Funds compensation is
payable as a percentage of the current average daily net asset
value of all such accounts brought to the Fund by such Dealer.
Payment of such "12b-1 fees" requires a current minimum monthly
average daily net asset value brought by the Dealer to one or more
of the Funds having 12b-1 plans. (See the appropriate Prospectus
for details of the amount payable.) Such compensation will be paid
monthly as long as this agreement and the 12b-1 plan remain in
effect and the amount of such business remaining on the books
exceeds such minimum. Upon termination of this Agreement or the
12b-1 plan, such compensation will no longer be paid.

Notwithstanding anything contained herein or the Fortis Funds'
prospectuses to the contrary, the Dealer's right to 12b-1 fees
shall be limited or terminated to the extent that any Fortis Fund
ceases to accrue and/or pay 12b-1 fees by reasons of the
application of the limitations imposed on sales charges, including
asset-based sales charges, by the rules of the National Association
of Securities Dealers, Inc.

In return for the payments of these 12b-1 fees associated with
certain Fortis Funds, at least to the extent that any Fortis Fund
has adopted a service fee plan as a part of any 12b-1 plan, the
Dealer shall provide personal account maintenance services to the
shareholders of such Fortis Funds for those accounts which have
been assigned to the Dealer. Such services shall include, but not
be limited to, assisting the shareholder with elections and changes
in elections of shareholder services and options provided by the
Fortis Fund, changes in registration, assistance with processing
proxy solicitations, and generally answering the shareholder's
questions concerning the account and the Fortis Fund in which it is
invested.

2. Orders

A. Purchases. The Dealer agrees to place purchase orders with
Investors immediately for the same number of shares and at the same
price as any sales by the Dealer.

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All purchases shall be paid for within the time period required by
applicable laws and/or regulations. Otherwise, Investors reserves
the right, without notice, to immediately cancel the sale and, at
its option, to sell the shares ordered by Investors back to the
Fund -- in which case, Investors may hold the Dealer responsible
for any resulting loss suffered by Investors or the Fund.

If any Fund shares sold to the Dealer under the terms of the
Agreement are repurchased by the Funds, or are tendered for
redemption to Investors or the Funds within seven business days
after confirmation of the original purchase, the Dealer's right to
any compensation received on such shares will be forfeited.
Investors will notify the Dealer of any such repurchase or
redemption within ten business days after delivery of the
certificate or written notice to Investors or the Fund, and the
Dealer shall thereafter promptly refund to Investors the full
compensation allowed on such sale (if it shall already have been
paid to Dealer). If such refund is not made promptly, any such
unrepaid compensation may be deducted from any other sums owed by
Investors or any affiliated companies, as described in the Dealer
Sales Agreement.

B. Redemptions. While Fund redemptions indicated by the Dealer may be
either oral or in writing, if properly executed share certificates
(or satisfactory written authorization in the case of
uncertificated shares) are not received by Investors within 10 days
after its acceptance of the redemption order, Investors reserves
the right, without prior notice, to cancel such sale, in which case
it may hold the Dealer responsible for any resulting loss.

3. Other This Agreement shall be interpreted so as to be in compliance with
the requirements of Rule 12b-1 under the Investment Company Act of
1940 insofar as it relates to the sale of shares of those funds
having 12b-1 plans.

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[LETTERHEAD]

Independent Auditors' Consent
-----------------------------

The Board of Directors
Fortis Income Portfolios, Inc.
Fortis Advantage Portfolios, Inc.:

We consent to the use of our report incorporated by reference herein and the
references to our Firm under the headings "Financial Highlights" in Part A
and "Financial Statements" in Part B of the Registration Statement.

/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP

Minneapolis, Minnesota
November 30, 1998