FORTIS INCOME PORTFOLIOS INC, 485BPOS, 1999-12-01

FORTIS INCOME PORTFOLIOS INC
485BPOS, 1999-12-01

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<PAGE> 1
1933 Act Registration No. 002-46686
1940 Act Registration No. 811-02341

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 1999

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. 46
------

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> 2

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

[FORTIS Solid partners, flexible solutionsSM LOGO]

Fortis Bond Funds Prospectus

December 1, 1999

- - 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.
<PAGE> 3

TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
PAGE
<S> <C>
The Funds
U.S. Government Securities Fund........................... 1
Strategic Income Fund..................................... 4
High Yield Portfolio...................................... 8

Shareholder Information
Choosing a Share Class.................................... 11
Determining Your Purchase Price........................... 12
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..................................... 26
High Yield Portfolio...................................... 27
</TABLE>

<PAGE> 4

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 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. The Fund may
invest a significant portion of its assets in mortgage-backed securities issued
by U.S. Government agencies. It is anticipated that the duration of the Fund
will be between three and seven years.

The decision to purchase a particular security 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.

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, explained on page 22
under "More Information on Fund Objectives, Investment Strategies and
Risks--Investment Strategies."

- 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.

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> 5

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 December 31 each year*

[BAR GRAPH]

* The Fund's total return for the period from January 1, 1999 through
September 30, 1999 was -1.64%.

<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 December 31, 1998

<TABLE>
<CAPTION>
SINCE INCEPTION+
ONE YEAR FIVE YEARS TEN YEARS CLASS A, B, H, C
-------- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Class A shares..................................... 3.37% N/A N/A 7.53%
Class E shares..................................... 3.63% 4.99% 7.52% N/A
Class B shares**................................... 3.73% N/A N/A 7.56%
Class H shares**................................... 3.73% N/A N/A 7.56%
Class C shares**................................... 6.34% N/A N/A 7.89%
Lehman Brothers Intermediate Government Index*..... 8.49% 6.45% 8.34% 8.30%
</TABLE>

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

** With CDSC. Assumes redemption on December 31, 1998.

+ Inception date: November 14, 1994

2
<PAGE> 6

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,
1999.

<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............................................ .07% .07% .07% .07%
Total annual fund operating expenses...................... 1.03% 1.78% 1.78% .78%
</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 CLASS B/H SHARES CLASS C
ASSUMING SHARES ASSUMING SHARES
REDEMPTION ASSUMING REDEMPTION ASSUMING
CLASS A AT END OF NO AT END OF NO CLASS E
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION SHARES
------- ----------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1 year.............................. $ 550 $ 541 $ 181 $ 281 $ 181 $ 526
3 years............................. 763 830 560 560 560 688
5 years............................. 993 1,144 964 964 964 864
10 years............................ 1,653 1,897 1,897 2,095 2,095 1,373
</TABLE>

3
<PAGE> 7

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. The Fund may invest a
significant portion of its assets in mortgage-backed securities issued by
U.S. Government agencies.

- 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.

- 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. Nonperforming 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.

It is anticipated that the duration of the Fund will be between three and seven
years.

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, explained on page 22
under "More Information on Fund Objectives, Investment Strategies and
Risks -- Investment Strategies."

- 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> 8

- RISKS OF MORTGAGE-RELATED SECURITIES. Because the Fund may invest
significantly in mortgage-related securities, it is subject to prepayment
risk and extension risk. Similar to call risk, prepayment risk is the risk
that falling interest rates could cause faster than expected prepayments of
the mortgages underlying the Fund's mortgage-related securities. These
prepayments are passed through to the Fund, which must reinvest them at a
time when interest rates on new mortgage investments are falling, reducing
the Fund's income. Extension risk is the risk that rising interest rates
could cause mortgage prepayments to slow, which would lengthen the duration
of the Fund's mortgage-related securities and cause their prices to
decline.

- 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.

5
<PAGE> 9

FUND PERFORMANCE

The bar chart and table below provide you with information on Strategic Income
Fund's volatility and performance. The bar chart is intended to show you how
performance of the Fund's Class A shares has varied from year to year. However,
because the Fund was not offered until December 1, 1997, only one calendar year
of information is available. 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 December 31 each year*

[BAR GRAPH]

* The Fund's total return for the period from January 1, 1999 through
September 30, 1999 was -1.19%.

<TABLE>
<S> <C> <C>
BEST QUARTER: 2.23% (quarter ending March 31, 1998)
WORST QUARTER: -1.90% (quarter ending June 30, 1999)
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS as of December 31, 1998

<TABLE>
<CAPTION>
ONE YEAR SINCE INCEPTION+
-------- ----------------
<S> <C> <C>
Class A shares.............................................. -1.40% -0.39%
Class B shares**............................................ -1.17% -0.22%
Class H shares**............................................ -1.14% -0.18%
Class C shares**............................................ 1.46% 3.43%
Lehman Brothers Aggregate Bond Index*....................... 8.67% 9.00%
</TABLE>

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

* An unmanaged index of government, corporate and mortgage-backed
securities with an average maturity of approximately nine years.

** With CDSC. Assumes redemption on December 31, 1998.

+ Inception date: December 1, 1997.

6
<PAGE> 10

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, 1999.*

<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............................................ .39% .39% .39%
Total annual fund operating expenses...................... 1.44% 2.19% 2.19%
</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, 1999, 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 redemptions
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 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 CLASS B/H SHARES CLASS C
ASSUMING SHARES ASSUMING SHARES
REDEMPTION ASSUMING REDEMPTION ASSUMING
CLASS A AT END OF NO AT END OF NO
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION
------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1 year...................................... $ 590 $ 582 $ 222 $ 322 $ 222
3 years..................................... 885 955 685 685 685
5 years..................................... 1,201 1,355 1,175 1,175 1,175
10 years.................................... 2,097 2,334 2,334 2,524 2,524
</TABLE>

7
<PAGE> 11

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." It is anticipated that the duration of the
Fund will be between three and seven years.

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:

- 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 RISK 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.

8
<PAGE> 12

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.

ANNUAL TOTAL RETURNS as of December 31 each year*

[BAR GRAPH]

* The Fund's total return for the period from January 1, 1999 through
September 30, 1999 was -.05%.

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

AVERAGE ANNUAL TOTAL RETURNS as of December 31, 1998

<TABLE>
<CAPTION>
SINCE INCEPTION+
ONE YEAR FIVE YEARS TEN YEARS CLASS B, C, H
-------- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Class A shares..................................... -4.57% 4.75% 7.89% N/A
Class B shares**................................... -4.46% N/A N/A 6.38%
Class H shares**................................... -4.32% N/A N/A 6.38%
Class C shares**................................... -1.86% N/A N/A 6.71%
Lehman Brothers High Yield Index*.................. 1.87% 8.32% 10.42% 10.61%
</TABLE>

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

** With CDSC. Assumes redemption on December 31, 1998.

+ Inception date: November 14, 1994

9
<PAGE> 13

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, 1999.

<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........................................... .72% .72% .72%
Distribution and/or service (12b-1) fees.................. .35% 1.00% 1.00%
Other expenses............................................ .09% .09% .09%
Total annual fund operating expenses...................... 1.16% 1.81% 1.81%
</TABLE>

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

* A contingent deferred sales charge of 1.00% is imposed on certain redemptions
of Class A shares that were purchased without an initial sales charge as part
of an investment of $1 million or more. See "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 CLASS B/H SHARES CLASS C
ASSUMING SHARES ASSUMING SHARES
REDEMPTION ASSUMING REDEMPTION ASSUMING
CLASS A AT END OF NO AT END OF NO
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION
------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1 year...................................... $ 563 $ 544 $ 184 $ 284 $ 184
3 years..................................... 802 839 569 569 569
5 years..................................... 1,060 1,160 980 980 980
10 years.................................... 1,796 1,956 1,956 2,127 2,127
</TABLE>

10
<PAGE> 14

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.

11
<PAGE> 15

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.

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

12
<PAGE> 16

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 charges."

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. For
additional information, see "How to Sell Shares--Contingent deferred sales
charges."

<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>

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."

13
<PAGE> 17

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 the distribution and sale of its
shares and for services provided to shareholders. These fees differ by class, as
follows:

<TABLE>
<CAPTION>
RULE 12B-1 FEE
SHARE CLASS (AS A % OF AVERAGE NET ASSETS)
----------- --------------------------------------
<S> <C>
Class A.................. 0.25% (0.35% for High Yield Portfolio)
Class E.................. None
Class B and Class H...... 1.00%
Class C.................. 1.00%
</TABLE>

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.

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.

14
<PAGE> 18

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.

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 on 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.

15
<PAGE> 19

REDEEMING 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 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

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.

REDEEMING 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.

16
<PAGE> 20

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.

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.

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

17
<PAGE> 21

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> 22

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>

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. Kendall C. Peterson joined the management team in July 1999.

HIGH YIELD PORTFOLIO. Howard G. Hudson, Maroun M. Hayek and Robert C. Lindberg
have managed the Fund since August 1995. Kendall C. Peterson joined the
management team in July 1999.

- 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. Peterson,
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. Peterson, a Vice President of Advisers, has been managing
non-investment grade fixed income securities for Advisers since July
1999. Prior to that, Mr. Peterson was a Vice President and portfolio
manager at Prudential Insurance Company of America in Newark, New Jersey.

- 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> 23

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.

Each 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 a 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. The Fund may invest a significant portion of its
assets in mortgage-backed securities issued by U.S. Government agencies.

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.

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. The
Fund may invest a significant portion of its assets in mortgage-backed
securities issued by U.S. Government agencies.

- 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

20
<PAGE> 24

they may be unrated 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." In addition,
the Fund may invest in CMOs issued by private issuers. Strategic Income Fund can
invest up to 7.5% of its net assets in IOs, POs and inverse floaters and up to
15% of its net assets collectively in these types of securities. The Fund may
also invest up to 25% of its net assets in accrual bonds and zero coupon bonds,
discussed in the paragraph below.

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

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

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

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

HIGH YIELD PORTFOLIO

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

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

High Yield Portfolio's investments may include payment-in-kind bonds and zero
coupon bonds. The market prices for these securities are affected to a greater
extent by interest rate changes and are more volatile than market prices of
securities that pay interest periodically and in cash. High Yield Portfolio also
may invest in U.S. Government agency-backed (see "U.S. Government Securities
Fund" above) and privately issued CMOs, including the more volatile IOs, POs and
inverse floaters. High Yield Portfolio can invest up to 7.5% of its net assets
in IOs, POs and inverse floaters and up to 15% of its net assets collectively in
these types of securities. The Fund may also invest up to 25% of its net assets
in accrual bonds and zero coupon 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.

21
<PAGE> 25

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.

DURATION

As discussed above under "The Funds," each Fund anticipates maintaining an
average effective duration of three to seven years. Effective duration, one
measure of interest rate risk, measures how much the value of a security is
expected to change with a given change in interest rates. The longer a
security's effective duration, the more sensitive its price to changes in
interest rates. For example, if interest rates were to increase by one
percentage point, the market value of a bond with an effective duration of five
years would decrease by 5%, with all other factors being constant. Effective
duration is based on assumptions and subject to a number of limitations. It is
most useful when interest rate changes are small, rapid and occur equally in
short-term and long-term securities. In addition, it is difficult to calculate
precisely for bonds with prepayment options, such as mortgage-backed securities,
because the calculation requires assumptions about prepayment rates.

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.

- 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.

22
<PAGE> 26

- 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 have taken steps that they believe were reasonably
designed to address year 2000 issues with respect to the computer systems
they use and to obtain satisfactory assurances that comparable steps have
been 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> 27

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 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>
CLASS E
--------------------------------------------------------------------
YEAR ENDED JULY 31,
--------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year......................... $9.30 $9.16 $8.87 $9.02 $9.03
- ---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net.................................. .49 .52 .54 .60 .67
Net realized and unrealized gains (losses) on
investments............................................ (.34) .14 .32 (.15) (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations...................................... .15 .66 .86 .45 .66
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net............................. (.49) (.52) (.54) (.60) (.67)
From net realized gains.................................. -- -- -- -- --
Excess distributions of net realized gains............... -- -- (.03) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders........................ (.49) (.52) (.57) (.60) (.67)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year............................... $8.96 $9.30 $9.16 $8.87 $9.02
- ---------------------------------------------------------------------------------------------------------------------------------
Total return*.............................................. 1.56% 7.42% 10.07% 5.08% 7.71%
Net assets end of year (000s omitted)...................... $254,096 $285,060 $324,643 $388,006 $470,597
Ratio of expenses to average daily net assets.............. .78% .79% .81% .81% .77%
Ratio of net investment income to average daily net
assets................................................... 5.32% 5.62% 6.08% 6.59% 7.51%
Portfolio turnover rate.................................... 75% 118% 161% 75% 76%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
---------------------------------------------------------- ------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
---------------------------------------------------------- ------------------
U.S. GOVERNMENT SECURITIES FUND 1999 1998 1997 1996 1995+ 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................ $9.30 $9.16 $8.87 $9.02 $8.63 $9.28 $9.14
- -----------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net....... .47 .50 .52 .58 .46 .40 .43
Net realized and unrealized
gains (losses) on
investments................. (.34) .14 .32 (.15) .39 (.34) .14
- -----------------------------------------------------------------------------------------------------------------------
Total from operations........... .13 .64 .84 .43 .85 .06 .57
- -----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment
income - net................ (.47) (.50) (.52) (.58) (.46) (.40) (.43)
From net realized gains....... -- -- -- -- -- -- --
Excess distributions of net
realized gains.............. -- -- (.03) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders.................. (.47) (.50) (.55) (.58) (.46) (.40) (.43)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of year.... $8.96 $9.30 $9.16 $8.87 $9.02 $8.94 $9.28
- -----------------------------------------------------------------------------------------------------------------------
Total return*................... 1.30% 7.14% 9.77% 4.78% 10.07% .53% 6.40%
Net assets end of year (000s
omitted)...................... $49,274 $52,439 $59,128 $67,707 $4,909 $4,703 $3,161
Ratio of expenses to average
daily net assets.............. 1.03% 1.04% 1.06% 1.06% 1.02%** 1.78% 1.79%
Ratio of net investment income
to average daily net assets... 5.07% 5.37% 5.83% 6.34% 7.00%** 4.32% 4.62%
Portfolio turnover rate......... 75% 118% 161% 75% 76% 75% 118%
- -----------------------------------------------------------------------------------------------------------------------

<CAPTION>
- -------------------------------- ---------------------------------
CLASS B
---------------------------------
YEAR ENDED JULY 31,
-----------------------------
U.S. GOVERNMENT SECURITIES FUND 1997 1996 1995+
- -------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year............................ $8.86 $9.02 $8.63
- --------------------------------
Operations:
Investment income - net....... .46 .51 .41
Net realized and unrealized
gains (losses) on
investments................. .31 (.15) .39
- --------------------------------
Total from operations........... .77 .36 .80
- --------------------------------
Distributions to shareholders:
From investment
income - net................ (.47) (.52) (.41)
From net realized gains....... -- -- --
Excess distributions of net
realized gains.............. (.02) -- --
- --------------------------------
Total distributions to
shareholders.................. (.49) (.52) (.41)
- --------------------------------
Net asset value, end of year.... $9.14 $8.86 $9.02
- --------------------------------
Total return*................... 8.95% 4.00% 9.47%
Net assets end of year (000s
omitted)...................... $2,826 $2,314 $483
Ratio of expenses to average
daily net assets.............. 1.81% 1.81% 1.77%**
Ratio of net investment income
to average daily net assets... 5.07% 5.59% 6.24%**
Portfolio turnover rate......... 161% 75% 76%
- --------------------------------
</TABLE>

* These are the Fund's total returns during the periods, including reinvestment
of all dividend and capital gains distributions without adjustments for sales
charge.
** Annualized.

+ For the period from November 14, 1994 (commencement of operations) to July
31, 1995.

24
<PAGE> 28

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLASS C CLASS H
----------------------------------------------------- --------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
----------------------------------------------------- --------------------
U.S. GOVERNMENT SECURITIES FUND 1999 1998 1997 1996 1995+ 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................ $9.27 $9.13 $8.85 $9.01 $8.63 $9.28 $9.14
- --------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net....... .40 .43 .46 .51 .41 .40 .43
Net realized and unrealized
gains (losses) on
investments................. (.34) .14 .31 (.15) .38 (.34) .14
- --------------------------------------------------------------------------------------------------------------------
Total from operations........... .06 .57 .77 .36 .79 .06 .57
- --------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment
income - net................ (.40) (.43) (.47) (.52) (.41) (.40) (.43)
From net realized gains....... -- -- -- -- -- -- --
Excess distributions of net
realized gains.............. -- -- (.02) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders.................. (.40) (.43) (.49) (.52) (.41) (.40) (.43)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of year.... $8.93 $9.27 $9.13 $8.85 $9.01 $8.94 $9.28
- --------------------------------------------------------------------------------------------------------------------
Total return*................... .52% 6.41% 8.96% 4.00% 9.35% .53% 6.40%
Net assets end of year (000s
omitted)...................... $3,071 $1,267 $1,444 $1,057 $326 $10,262 $10,816
Ratio of expenses to average
daily net assets.............. 1.78% 1.79% 1.81% 1.81% 1.77%** 1.78% 1.79%
Ratio of net investment income
to average daily net assets... 4.32% 4.62% 5.07% 5.59% 6.24%** 4.32% 4.62%
Portfolio turnover rate......... 75% 118% 161% 75% 76% 75% 118%
- --------------------------------------------------------------------------------------------------------------------

<CAPTION>
- -------------------------------- ------------------------------------
CLASS H
------------------------------------
YEAR ENDED JULY 31,
--------------------------------
U.S. GOVERNMENT SECURITIES FUND 1997 1996 1995+
- -------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year............................ $8.86 $9.02 $8.63
- --------------------------------
Operations:
Investment income - net....... .46 .51 .41
Net realized and unrealized
gains (losses) on
investments................. .31 (.15) .39
- --------------------------------
Total from operations........... .77 .36 .80
- --------------------------------
Distributions to shareholders:
From investment
income - net................ (.47) (.52) (.41)
From net realized gains....... -- -- --
Excess distributions of net
realized gains.............. (.02) -- --
- --------------------------------
Total distributions to
shareholders.................. (.49) (.52) (.41)
- --------------------------------
Net asset value, end of year.... $9.14 $8.86 $9.02
- --------------------------------
Total return*................... 8.94% 4.00% 9.47%
Net assets end of year (000s
omitted)...................... $10,637 $10,120 $4,823
Ratio of expenses to average
daily net assets.............. 1.80% 1.81% 1.77%**
Ratio of net investment income
to average daily net assets... 5.06% 5.45% 6.24%**
Portfolio turnover rate......... 161% 75% 76%
- --------------------------------
</TABLE>

* These are the Fund's total returns during the periods, including reinvestment
of all dividend and capital gains distributions without adjustments for sales
charge.
** Annualized.

+ For the period from November 14, 1994 (commencement of operations) to July
31, 1995.

25
<PAGE> 29

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------- ----------------------
YEAR ENDED JULY 31,
---------------------------------------------------
STRATEGIC INCOME FUND 1999 1998+ 1999 1998+
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $10.05 $9.98 $10.05 $9.98
- -----------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net................................... .61 .42 .54 .38
Net realized and unrealized gain (loss) on investments.... (.89) .07 (.89) .07
- -----------------------------------------------------------------------------------------------------------------
Total from operations....................................... (.28) .49 (.35) .45
- -----------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.............................. (.62) (.42) (.55) (.38)
From net realized gains on investments.................... (.01) -- (.01) --
- -----------------------------------------------------------------------------------------------------------------
Total distributions to shareholders......................... (.63) (.42) (.56) (.38)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of year................................ $9.14 $10.05 $9.14 $10.05
- -----------------------------------------------------------------------------------------------------------------
Total return*............................................... (2.86%) 4.77% (3.58%) 4.31%
Net assets end of year (000s omitted)....................... $22,207 $22,422 $815 $398
Ratio of expenses to average daily net assets (a)........... 1.10% 1.10%** 1.85% 1.85%**
Ratio of net investment income to average daily net assets
(a)....................................................... 6.38% 6.22%** 5.63% 5.73%**
Portfolio turnover rate..................................... 79% 136% 79% 136%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CLASS C CLASS H
------------------ ----------------------
YEAR ENDED JULY 31,
-------------------------------------------------
STRATEGIC INCOME FUND 1999 1998+ 1999 1998+
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $10.05 $9.98 $10.05 $9.98
- ---------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net................................... .55 .38 .54 .38
Net realized and unrealized gain (loss) on investments.... (.89) .07 (.89) .07
- ---------------------------------------------------------------------------------------------------------------
Total from operations....................................... (.34) .45 (.35) .45
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.............................. (.55) (.38) (.55) (.38)
From net realized gains on investments.................... (.01) -- (.01) --
- ---------------------------------------------------------------------------------------------------------------
Total distributions to shareholders......................... (.56) (.38) (.56) (.38)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of year................................ $9.15 $10.05 $9.14 $10.05
- ---------------------------------------------------------------------------------------------------------------
Total return*............................................... (3.49%) 4.35% (3.58%) 4.35%
Net assets end of year (000s omitted)....................... $219 $194 $751 $355
Ratio of expenses to average daily net assets (a)........... 1.85% 1.85%** 1.85% 1.85%**
Ratio of net investment income to average daily net assets
(a)....................................................... 5.63% 5.73%** 5.63% 5.73%**
Portfolio turnover rate..................................... 79% 136% 79% 136%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

* These are the Fund's total returns during the periods, including reinvestment
of all dividend and capital gains distributions without adjustment for sales
charge.

** Annualized.

+ For the period December 1, 1997 (commencement of operations) to July 31,
1998.

(a) Advisers has voluntarily undertaken to limit annual expenses for the
Strategic Income 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 and 1.85% for Classes B, C, and H. For the
periods 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 1.44% and 6.04% for Class A, 2.19% and 5.29% for
Class B, 2.19% and 5.29% for Class C, and 2.19% and 5.29% for Class H,
respectively.

26
<PAGE> 30

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
YEAR ENDED
YEAR ENDED JULY 31, OCTOBER 31,
-------------------------------------------------- -----------
HIGH YIELD PORTFOLIO 1999 1998 1997 1996++ 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year...................... $7.41 $7.83 $7.56 $7.61 $7.90
- ---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net............................... .59 .73 .76 .56 .86
Net realized and unrealized gain (loss) on
investments......................................... (.72) (.40) .28 (.04) (.25)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations................................... (.13) .33 1.04 (.52) .61
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.......................... (.61) (.75) (.75) (.55) (.86)
Excess distributions of net realized gains............ -- -- (.02) (.02) (.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders..................... (.61) (.75) (.77) (.57) (.90)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year............................ $6.67 $7.41 $7.83 $7.56 $7.61
- ---------------------------------------------------------------------------------------------------------------------------------
Total return*........................................... (1.76%) 4.31% 14.51% 6.98% 8.07%
Net assets at end of year (000's omitted)............... $106,921 $113,549 $123,115 $109,401 $113,268
Ratio of expenses to average daily net assets........... 1.16% 1.17% 1.19% 1.21%** 1.25%
Ratio of net investment income to average daily net
assets................................................ 8.54% 9.46% 9.84% 9.87%** 10.61%
Portfolio turnover rate................................. 46% 214% 331% 146% 101%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C
---------------------------------------------------------- ------------------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
---------------------------------------------------------- ------------------------------
HIGH YIELD PORTFOLIO 1999 1998 1997 1996++ 1995+ 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................ $7.41 $7.83 $7.56 $7.60 $7.87 $7.40 $7.82 $7.55
- -----------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net....... .54 .68 .71 .53 .78 .54 .68 .71
Net realized and unrealized
gains (losses) on
investments................. (.72) (.40) .28 (.04) (.23) (.72) (.40) .28
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations........... (.18) .28 .99 .49 .55 (.18) .28 .99
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment
income - net................ (.56) (.70) (.70) (.51) (.78) (.56) (.70) (.70)
Excess distributions of net
realized gains.............. -- -- (.02) (.02) (.04) -- -- (.02)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders.................. (.56) (.70) (.72) (.53) (.82) (.56) (.70) (.72)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year.... $6.67 $7.41 $7.83 $7.56 $7.60 $6.66 $7.40 $7.82
- -----------------------------------------------------------------------------------------------------------------------------------
Total return*................... (2.44%) 3.67% 13.80% 6.62% 7.25% (2.44%) 3.67% 13.82%
Net assets at end of year (000s
omitted)...................... $22,814 $28,935 $20,388 $12,067 $7,530 $6,051 $8,641 $7,037
Ratio of expenses to average
daily net assets.............. 1.81% 1.82% 1.83% 1.86%** 1.90%** 1.81% 1.82% 1.83%
Ratio of net investment income
to average daily net assets... 7.90% 8.81% 9.24% 9.20%** 9.66%** 7.90% 8.81% 9.26%
Portfolio turnover rate......... 46% 214% 331% 146% 101% 46% 214% 331%
- -----------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
- -------------------------------- ----------------------
CLASS C
----------------------
YEAR ENDED JULY 31,
----------------------
HIGH YIELD PORTFOLIO 1996++ 1995+
- -------------------------------- ----------------------
<S> <C> <C> <C>
Net asset value, beginning of
year............................ $7.59 $7.87
- --------------------------------
Operations:
Investment income - net....... .53 .78
Net realized and unrealized
gains (losses) on
investments................. (.04) (.24)
- --------------------------------
Total from operations........... .49 .54
- --------------------------------
Distributions to shareholders:
From investment
income - net................ (.51) (.78)
Excess distributions of net
realized gains.............. (.02) (.04)
- --------------------------------
Total distributions to
shareholders.................. (.53) (.82)
- --------------------------------
Net asset value, end of year.... $7.55 $7.59
- --------------------------------
Total return*................... 6.63% 7.12%
Net assets at end of year (000s
omitted)...................... $3,378 $2,180
Ratio of expenses to average
daily net assets.............. 1.86%** 1.90%**
Ratio of net investment income
to average daily net assets... 9.21%** 9.83%**
Portfolio turnover rate......... 146% 101%
- --------------------------------
</TABLE>

* These are the Fund's total returns during the period, including reinvestment
of all dividend and capital gains distributions without adjustments for sales
charge.

** Annualized.

+ 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).

27
<PAGE> 31

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS H
---------------------------------------------------------------
YEAR ENDED JULY 31,
---------------------------------------------------------------
HIGH YIELD PORTFOLIO 1999 1998 1997 1996++ 1995+
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $7.40 $7.82 $7.55 $7.60 $7.87
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net................................... .54 .68 .71 .52 .78
Net realized and unrealized gains (losses) on
investments............................................. (.72) (.40) .28 (.04) (.23)
- -----------------------------------------------------------------------------------------------------------------------------
Total from operations....................................... (.18) .28 .99 .48 .55
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.............................. (.56) (.70) (.70) (.51) (.78)
Excess distributions of net realized gains................ -- -- (.02) (.02) (.04)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders......................... (.56) (.70) (.72) (.53) (.82)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year................................ $6.66 $7.40 $7.82 $7.55 $7.60
- -----------------------------------------------------------------------------------------------------------------------------
Total return*............................................... (2.44%) 3.67% 13.82% 6.48% 7.25%
Net assets at end of year (000s omitted).................... $56,420 $72,415 $63,789 $39,133 $23,862
Ratio of expenses to average daily net assets............... 1.81% 1.82% 1.83% 1.86%** 1.90%**
Ratio of net investment income to average daily net
assets.................................................... 7.90% 8.81% 9.23% 9.21%** 9.81%**
Portfolio turnover rate..................................... 46% 214% 331% 146% 101%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

* These are the Fund's total returns during the period, including reinvestment
of all dividend and capital gains distributions without adjustments for sales
charge.

** Annualized.

28
<PAGE> 32

(This page has been left blank intentionally.)
<PAGE> 33

(This page has been left blank intentionally.)
<PAGE> 34

[FORTIS LOGO]
ACCOUNT APPLICATION
Mail to: Complete this application to open a new Fortis account or to
FORTIS MUTUAL FUNDS add services to an existing Fortis account. For personal
CM-9614 service, please call your investment professional or Fortis
St. Paul, MN 55170-9614 customer service at 1-800-800-2000, ext. 3012. Submission of
an incomplete application may cause processing delays.
DO NOT USE TO OPEN A FORTIS IRA, SEP, 403(B) OR FORTIS MONEY
FUND ACCOUNT.
</TABLE>

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)

<TABLE>
<S> <C>
( )
- ------------------------------ ------------------------------
Daytime phone Date of birth
(Uniform Gift/Transfer to
Minors)
</TABLE>

Date of Trust (if applicable) ---------------------------------

Are you a U.S. citizen? [ ] Yes [ ] No
If no, country of permanent residence -------------------------

95749 (11/99)

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):

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>
<S> <C> <C> <C> <C> <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 who are exempt from the
sales charge. 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 (NL)N.V. and Fortis
(B)

<PAGE> 35

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)
</TABLE>

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 Effective Date
exchanged:
</TABLE>

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:

[ ] 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.

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

FREQUENCY: [ ] Monthly [ ] Semi-Annually
[ ] Quarterly [ ] Annually

PLEASE FORWARD THE PAYMENT TO:

[ ] 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.

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) 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:

[ ] 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.
<PAGE> 36

(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.

<TABLE>
<S> <C>
- -------------------------------------- ------------------------
Name on account Account number

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

- -------------------------------------- ------------------------
Name on account Account number
</TABLE>

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>
<CAPTION>
Fund Selected Percentage
(up to 5) (whole %)
<S> <C> <C>
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

<TABLE>
<S> <C>
- ------------------------------------------------ ------------
Occupation Age (optional)
</TABLE>

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

<TABLE>
<CAPTION>
ESTIMATED
Please mark one box under ESTIMATED NET
Estimated Annual Income ANNUAL WORTH
and one box under Income (Exclusive of
Estimated Net Worth (All Sources) Family Residence)
- ------------------------------------------------------------------------
<S> <C> <C>
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> 37

(This page has been left blank intentionally.)
<PAGE> 38

FORTIS FINANCIAL GROUP

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 [FORTIS LOGO]

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.

FORTIS ACCOUNT INFORMATION

ACCOUNT REGISTRATION:

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

OWNER (INDIVIDUAL, FIRST JOINT TENANT, CUSTODIAN, TRUSTEE)

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

OWNER (SECOND JOINT TENANT, MINOR, TRUST NAME)

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

ADDITIONAL INFORMATION, IF NEEDED

- ------------------------------------------------------------------
STREET ADDRESS

- ------------------------------------------------------------------
CITY STATE ZIP

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

SOCIAL SECURITY NUMBER (TAXPAYER I.D.) DAYTIME PHONE

BANK/FINANCIAL INSTITUTION INFORMATION

<TABLE>
<S> <C> <C>
Plan type: [ ] NEW PLAN [ ] BANK CHANGE
Account type: [ ] CHECKING [ ] SAVINGS
(MUST ATTACH A VOIDED (MUST ATTACH A DEPOSIT
CHECK) SLIP)
</TABLE>

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

Transit number

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

Bank account number

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

Account owner(s) (please print)

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

Depositor's daytime phone

Clearly print the bank/financial institution's name and address below:

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

SIGNATURE OF DEPOSITOR DATE

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

SIGNATURE OF JOINT-DEPOSITOR DATE

INVESTMENT OPTION(S)

I REQUEST FORTIS FINANCIAL GROUP (FFG) TO OBTAIN PAYMENT OF SUMS BECOMING DUE
THE COMPANY BY CHARGING MY ACCOUNT IN THE FORM OF ELECTRONIC DEBIT ENTRIES. I
REQUEST AND AUTHORIZE THE FINANCIAL INSTITUTION NAMED TO ACCEPT, HONOR AND
CHARGE THOSE ENTRIES TO MY ACCOUNT. PLEASE ALLOW 30 DAYS FOR COLLECTED FUNDS TO
BE AVAILABLE IN YOUR FORTIS ACCOUNT.

<TABLE>
<S> <C> <C>
A. [ ] INVEST BY FORTIS INFORMATION LINE 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
BEGINNING DRAFT DATE:
---------------------------------------
ACCOUNT NUMBER: ------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
CLASS AMOUNT
FUND A B C H $25.00 PER FUND MINIMUM
<S> <C> <C>
[ ] N N N
- --------------------------------- --------------------
[ ] N N N
- --------------------------------- --------------------
[ ] N N N
- --------------------------------- --------------------
[ ] N N N
- --------------------------------- --------------------
</TABLE>

WITHDRAWAL OPTION(S)

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.)

<TABLE>
<S> <C> <C>
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
BEGINNING WITHDRAWAL DATE: ---------------------------------
ACCOUNT NUMBER: ------------------------------------------
</TABLE>

5
SIGNATURES

EACH PERSON SIGNING ON BEHALF OF ANY ENTITY REPRESENTS THAT HIS OR HER ACTIONS
ARE AUTHORIZED. IT IS AGREED THAT ALL FORTIS FUNDS, FORTIS INVESTORS, FORTIS
ADVISERS AND THEIR OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES WILL NOT BE LIABLE
FOR ANY LOSS, LIABILITY, DAMAGE OR EXPENSE FOR RELYING UPON THIS APPLICATION OR
ANY INSTRUCTION BELIEVED GENUINE.

THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I NOTIFY FFG. I HEREBY TERMINATE
ANY PRIOR AUTHORIZATION OF FFG TO INITIATE CHARGES TO THIS ACCOUNT. I UNDERSTAND
THAT ANY RETURNED ITEM OR REDEMPTION OF THE ENTIRE ACCOUNT MAY RESULT IN
TERMINATION OF MY AUTOMATED CLEARING HOUSE AGREEMENT. THIS AUTHORIZATION WILL
BECOME EFFECTIVE UPON ACCEPTANCE BY FFG AT ITS HOME OFFICE.

AUTHORIZED SIGNATURE(S)

X
- ------------------------------------------------------------------

OWNER, CUSTODIAN, TRUSTEE DATE

X
- ------------------------------------------------------------------

JOINT OWNER, TRUSTEE DATE

THE FORTIS LOGO AND FORTIS(SM) ARE SERVICEMARKS OF FORTIS (NL)N.V. AND FORTIS
(B)

98049 (11/99)

<PAGE> 39

(This page has been left blank intentionally.)
<PAGE> 40

(This page has been left blank intentionally.)
<PAGE> 41

[FORTIS(SM) LOGO]

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

Prospectus

December 1, 1999

- - Fortis U.S. Government Securities Fund

- - Fortis Strategic
Income Fund

- - Fortis High Yield Portfolio

SEC file numbers: 811-05355, 811-02341

[FORTIS(SM) LOGO]
FORTIS FINANCIAL GROUP
Fortis Advisers, Inc. (fund management since 1949)
Fortis Investors, Inc. (principal underwriter; member NASD, SIPC)
Fortis Benefits Insurance Company & Fortis Insurance Company
(issuers of FFG's insurance products)
P.O. Box 64284 - St. Paul, MN 55164-0284 - (800) 800-2000
http://www.ffg.us.fortis.com

98301 (C)Fortis 11/99

MORE INFORMATION ABOUT THE FUNDS IS AVAILABLE IN THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION (SAI) AND ANNUAL AND SEMIANNUAL REPORTS.

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

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

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

You can also obtain copies by visiting the SEC's public reference room in
Washington DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington DC 20549-6009. For more information, call
(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 (NL)N.V. and Fortis
(B).

<PAGE> 42
FORTIS U.S. GOVERNMENT SECURITIES FUND
FORTIS STRATEGIC INCOME FUND
EACH A SERIES OF FORTIS INCOME PORTFOLIOS, INC.

AND

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

STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 1, 1999

This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to a prospectus for U.S. Government
Securities Fund, Strategic Income Fund and High Yield Portfolio (the "Funds")
dated December 1, 1999, and should be read in conjunction therewith. The
financial statements included as a part of the Fund's Annual Report to
Shareholders for the fiscal year ended July 31, 1999, are incorporated by
reference into this Statement of Additional Information. Copies of the Funds'
Prospectus and/or Annual Report are available, without charge, by writing or
calling Fortis Investors, Inc. ("Investors"), P.O. Box 64284, St. Paul,
Minnesota 55164. Telephone: (651) 738-4000. Toll Free: (800) 800-2000.

<PAGE> 43
TABLE OF CONTENTS

Page

Fund History . . . . . . . . . . . . . . . . . . . . . . 1
Description of the Funds . . . . . . . . . . . . . . . . 1
Investment Policies and Restrictions . . . . . . . . . . 1
Investment Practices and Risk Considerations . . . . . . 8
Management of the Funds . . . . . . . . . . . . . . . . . 25
Principal Holders of Securities . . . . . . . . . . . . . 30
Investment Advisory and Other Services . . . . . . . . . 30
Brokerage Allocation and Other Practices . . . . . . . . 34
Capital Stock . . . . . . . . . . . . . . . . . . . . . . 37
Pricing of Shares . . . . . . . . . . . . . . . . . . . . 37
Purchase of Shares . . . . . . . . . . . . . . . . . . . 40
Redemption of Shares . . . . . . . . . . . . . . . . . . 43
Taxation . . . . . . . . . . . . . . . . . . . . . . . . 44
Underwriter and Distribution of Shares . . . . . . . . . 46
Performance Information . . . . . . . . . . . . . . . . . 47
Financial Statements . . . . . . . . . . . . . . . . . . 50
Other Service Providers . . . . . . . . . . . . . . . . . 50
Limitation of Director Liability . . . . . . . . . . . . 50
Additional Information . . . . . . . . . . . . . . . . . 51
Appendix A
Description of Futures, Options and Forward Contracts. . 52
Appendix B
Corporate Bond and Commercial Paper Ratings . . . . . . 57

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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. High Yield Portfolio is a portfolio of Fortis Advantage
Portfolios, Inc. ("Fortis Advantage") which was incorporated in Minnesota in
1987. High Yield Portfolio 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, 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 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 at least 65% of its total assets 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

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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.

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.

(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

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<PAGE> 46

percent of the value of the Fund's total assets excluding
collateral securing such loans taken at current value. The
purchase of a portion of an issue of publicly distributed bonds,
debentures, or other debt securities will not be considered the
making of a loan. Fund assets may be invested in repurchase
agreements in connection with interest bearing debt securities
which may otherwise be purchased by the Fund, provided that the
Fund will not enter into repurchase agreements if, as a result
thereof, more than 10% of the Fund's total assets valued at the
time of the transaction would be subject to repurchase agreements
maturing in more than seven days.

(10) Purchase securities on margin, except that it may obtain such
short-term credits as may be necessary for the clearance of
purchases or sales of securities.

(11) Participate on a joint or a joint and several basis in any
securities trading account.

(12) Invest in puts, calls, or combinations thereof.

(13) Make short sales, except for sales "against the box." While a
short sale is made by selling a security the Fund does not own, a
short sale is "against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain securities
identical to those sold short at no added cost.

(14) Purchase from or sell to any officer, director, or employee of the
Fund, or its adviser or underwriter, or any of their officers or
directors, any securities other than shares of the Fund's common
stock.

(15) Invest more than 10% of its total assets in repurchase agreements
maturing in more than seven days.

The following investment restrictions may be changed without
shareholder approval. The Fund will not:

(1) Invest more than 5% of the value of its total assets in securities
of other investment companies, except in connection with a merger,
consolidation, acquisition or reorganization.

(2) Invest more than 15% of its net assets in illiquid securities.

(3) Invest more than 5% of its net assets in any type of IO, PO,
inverse floater, or accrual bonds at any time and no more than 10%
of its net assets will be invested in such obligations at any one
time.

(4) 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

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--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

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<PAGE> 47

investment instruments as described in "Investment Practices and Risk
Considerations" when these types of investments are consistent with the Fund's
investment objectives.

The Fund will not invest 25% or more of its total assets in government
securities of any single foreign country. The Fund has no restrictions on the
countries in which it may invest and there are no limitations on the maturity of
a security or the capitalization of the issuers 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
the Fund's investment adviser, Fortis Advisers, Inc. ("Advisers"), fails to
predict currency exchange movements correctly. See "Investment Practices and
Risk Considerations."

The Fund may invest in high yield (non-investment grade) and unrated
fixed income securities. High yield securities are rated lower than BBB+ by
Standard & Poor's Ratings Services ("S&P") or lower than Baa(3) by Moody's
Investors Service, Inc. ("Moody's"), or comparably rated by another nationally
recognized rating agency. 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.

The Fund may invest without limitation in securities rated as low as
Caa as determined by Moody's and CCC as determined by S&P, or comparably rated
by another nationally recognized rating agency. In addition, 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 and may be in
default. For a description of ratings assigned by both Moody's and S&P, see
Appendix B.

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 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.

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> 48

and may borrow from a bank, for its account, as a temporary
measure to facilitate redemptions (but not for leveraging or
investment) an amount that does not exceed 10% of the value of the
its total assets. Investment securities will not be purchased
while outstanding bank borrowings exceed 5% of the value of the
Fund's total assets.

(2) Purchase or sell physical commodities (such as grains, livestock,
etc.) or futures or option contracts thereon. However, the Fund
may purchase or sell any form of financial instruments or
contracts that might be deemed commodities.

(3) Act as an underwriter of securities of other issuers, except to
the extent that, in connection with the disposition of portfolio
securities, Fortis Income may be deemed to be an underwriter under
applicable laws.

(4) Invest in real estate, except that it may invest in securities
issued by companies owning real estate or interests therein.

(5) Concentrate its investments in any particular industry, except
that (i) it may invest up to 25% of the value of its total assets
(at the time of investment) in the securities of issuers
conducting their principal business activities in the same
industry, and (ii) there is no limitation with respect to
investments in obligations issued, guaranteed, insured, or
collateralized by the U.S. Government or its agencies or
instrumentalities. As to utility companies, gas, electric, water,
and telephone companies will be considered as separate industries.
As to finance companies, the following categories will be
considered as separate industries: (a) captive automobile finance,
such as General Motors Acceptance Corp. and Ford Motor Credit
Corp.; (b) captive equipment finance companies, such as Honeywell
Finance Corporation and General Electric Credit Corp.; (c) captive
retail finance companies, such as Macy Credit Corp. and Sears
Roebuck Acceptance Corp.; (d) consumer loan companies, such as
Beneficial Finance Corporation and Household Finance Corporation;
(e) diversified finance companies such as CIT Financial Corp.,
Commercial Credit Corporation and Borg Warner Acceptance Corp.;
and (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 more than 15% of its net assets in illiquid investments.

(4) 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).

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<PAGE> 49

(5) Invest more than 7 1/2% of its net assets in any type of IO, PO or
inverse floater and no more than 15% of its net assets
collectively in IOs, POs and inverse floaters.

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 securities rated as low as
Caa as determined by Moody's and CCC as determined by S&P, or comparably
rated by another nationally recognized rating agency. In addition, 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 and may be in
default. For a description of ratings assigned by both Moody's and S&P, see
Appendix B.

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 "Investment Practices and Risk Considerations," 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

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<PAGE> 50

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 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
mobile 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.

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<PAGE> 51

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 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).

(6) Invest more than 7 1/2% of its net assets in any type of IO, PO
and inverse floater and no more than 15% of its net assets
collectively in IOs, POs and inverse floaters.

INVESTMENT PRACTICES AND RISK CONSIDERATIONS

MORTGAGE-RELATED SECURITIES

Consistent with their investment objectives and policies, the Funds may
invest in certain types of mortgage-related securities. U.S. Government
Securities Fund and Strategic Income Fund may invest a significant portion of
their assets in such securities. Mortgage-related securities are securities
that, directly or indirectly, represent a participation in (or are secured by
and payable from) mortgage loans on real property. Mortgage-related securities
may represent the right to receive both principal and interest payments on
underlying mortgages or may represent the right to receive varying proportions
of such payments. One type of mortgage-related security includes certificates
that 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 that 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 that 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

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<PAGE> 52

Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). FNMA purchases residential mortgages from a list
of approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks, credit unions,
and mortgage bankers.

(i) GNMA Certificates. Certificates of the GNMA ("GNMA Certificates")
evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back
monthly as payments of principal, including prepayments, on the
mortgages in the underlying pool are passed through to holders of
the GNMA Certificates representing interests in the pool, rather
than returned in a lump sum at maturity.

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

(iii) Life of GNMA Certificates. The average life of a GNMA Certificate
is likely to be substantially less than the stated maturity of
the mortgages underlying the securities. Prepayments of principal
by mortgagors and mortgage foreclosures will usually result in
the return of the greater part of the 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
the 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 that 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 that 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

9
<PAGE> 53

yield to maturity and the investment income of the applicable
Fund would be reduced.

(v) FHLMC Securities. "FHLMC" is a federally chartered
corporation created in 1970 through enactment of Title III of
the Emergency Home Finance Act of 1970. Its purpose is to
promote development of a nationwide secondary market in
conventional residential mortgages. The FHLMC issues two types
of mortgage pass-through securities, mortgage participation
certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC
represents a pro rata share of all interest and principal
payments made or owed on the underlying pool. The FHLMC
guarantees timely payment of interest on PCs and the ultimate
payment of principal. Like GNMA Certificates, PCs are assumed
to be prepaid fully in their twelfth year. GMCs also represent
a pro rata interest in a pool of mortgages. However, these
instruments pay interest semi-annually and return principal
once a year in guaranteed minimum payments. The expected
average life of these securities is approximately ten years.

(vi) FNMA Securities. "FNMA" is a federally chartered and privately
owned corporation which was established in 1938 to create a
secondary market in mortgages insured by the FHA. It was
originally established as a government agency and was
transformed into a private corporation in 1968.

FNMA issues guaranteed mortgage pass-through certificates
("FNMA Certificates"). FNMA Certificates resemble GNMA
Certificates in that each FNMA Certificate represents a pro
rata share of all interest and principal payments made or owed
on the underlying pool. FNMA guarantees timely payment of
interest on FNMA certificates and the full return of
principal. Like GNMA Certificates, FNMA Certificates are
assumed to be prepaid fully in their twelfth year.

Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers, and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may in addition be the originators of the underlying mortgage loans as
well as the guarantors of the pass-through certificates. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
governmental pools because there are no direct or indirect governmental
guarantees of payments in the former pools. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool, and hazard insurance. The
insurance and guarantees are issued by government entities, private insurers,
and the mortgage poolers.

Fortis Advantage and Fortis Income expect that governmental or private
entities may create mortgage loan pools offering pass-through investments in
addition to those described above. As new types of pass-through securities are
developed and offered to investors, Advisers may, consistent with 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 that
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

10
<PAGE> 54

Manufactured Housing Construction and Safety Standards Act of 1974), whether
such manufactured homes are considered real or personal property under the laws
of the states in which they are located.

Securities in this investment category include, among others, standard
mortgage-backed bonds and newer collateralized mortgage obligations (CMO's).
Mortgage-backed bonds are secured by pools of mortgages, but, unlike
pass-through securities, payments to bondholders are not determined by payments
on the mortgages. The bonds consist of a single class, with interest payable
periodically and principal payable on the stated date of maturity.

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. 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.

CMOS AND MULTI-CLASS PASS-THROUGH SECURITIES

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. 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.

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<PAGE> 55

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 IOs, POs and inverse floaters, the limits for each Fund
are 7.5% and 15% respectively. Both High Yield Fund and Strategic Income Fund
may invest up to 25% of their net assets in accrual bonds.

Inverse floating CMOs are typically more volatile than fixed or
adjustable rate tranches of CMOs. Investments in inverse floating CMOs would be
purchased by a Fund to attempt to protect against a reduction in the income
earned on the Fund's investments due to a decline in interest rates. The Fund
would be adversely affected by the purchase of such CMOs in the event of an
increase in interest rates since the coupon rate thereon will decrease as
interest rates increase, and, like other mortgage-backed securities, the value
will decrease as interest rates increase.

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

An accrual or "Z" bond holder is not entitled to receive cash payments
until one or more other classes of the CMO have been paid in full from payments
on the mortgage loans underlying the CMO. During the period in which cash
payments are not being made on the Z tranche, interest accrues on the Z tranche
at a stated rate, and this accrued interest is added to the amount

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<PAGE> 56

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. 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 might 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 payment-in-kind
securities, 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.

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<PAGE> 57

Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high-yielding securities,
especially in a thinly traded market. Illiquid or restricted high-yielding
securities purchased by a Fund may involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties.

Certain risks are associated with applying credit ratings as a method
for evaluating high-yielding securities. For example, credit ratings evaluate
the safety of principal and interest payments, not market value risk of
high-yielding securities. Since credit rating agencies may fail to timely change
the credit ratings to reflect subsequent events, Advisers continuously monitors
the issuers of high-yielding securities held by a Fund to determine if the
issuers will have sufficient cash flow and profits to meet required principal
and interest payments, and to assure the securities' liquidity so such Fund can
meet redemption requests. The achievement of the investment objective of a Fund
may be more dependent upon Advisers' own credit analysis than is the case for
higher quality bonds. Also, a Fund may retain a portfolio security whose rating
has been changed if the security otherwise meets the Fund's investment objective
and investment criteria.

The table below shows the weighted average percentages of Strategic Income
Fund's and High Yield Portfolio's long-term bond investments during the fiscal
year ended July 31, 1999, 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.

STANDARD & POOR'S RATING PERCENT OF TOTAL INVESTMENTS
(OR EQUIVALENT) STRATEGIC INCOME FUND HIGH YIELD PORTFOLIO
- ------------------ --------------------------- --------------------
<S> <C> <C>
AAA 22.7 -

AA 6.9 -

A 19.3 0.7

BBB 18.2 3.2

BB 14.9 23.7

B 16.0 67.0

CCC 0.4 2.9

CC 0.7 0.4

C - -

D - -

All unrated bonds as a group 0.8 2.0
- ---------------------------- ----- -----
Total 100.0 100.0

</TABLE>

ZERO COUPON OBLIGATIONS

Each Fund may invest in zero coupon obligations of the U.S. Government
and U.S. Government agencies. Strategic Income Fund and High Yield Portfolio
also may invest in zero coupon obligations of corporate issuers. Certain U.S.
Government obligations (principally, Treasury Notes and Treasury Bonds) and
corporate obligations are "stripped" of their coupons, and the rights to receive
each coupon payment and the principal payment are sold as separate securities.
Once separated, each coupon as well as the principal amount represents a
different single-payment claim due from the issuer of the security. Each
single-payment claim (coupon or principal) is equivalent to a zero coupon bond.
A zero coupon security pays no interest to its holder during its life, and its
value consists of the difference between its face value at maturity (the coupon
or principal amount), if held to maturity, or its market price on the date of
sale, if sold prior to maturity, and its acquisition price (the discounted
"present value" of the payment to be received).

Certain zero coupon obligations represent direct obligations of the
issuer of the "stripped" coupon and principal payments. Other zero coupon
obligations are securities issued by financial institutions which constitute a
proportionate ownership of an underlying pool of stripped coupon or principal
payments. Only High Yield Portfolio and Strategic Income Fund may invest in the
latter type of zero coupon obligation.

FOREIGN SECURITIES

Strategic Income Fund invests in securities of foreign governments
and companies as a principal investment strategy. High Yield Portfolio may
invest up to 10% of its total assets in foreign securities. 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.

<PAGE> 58

Investing in foreign issuers involves considerations that 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.

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. With respect
to some foreign countries, there is the possibility of expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or domestic developments that could
affect United States investments in those countries. Individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of Gross Domestic Product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payment positions.

Securities of some foreign companies are less liquid and their prices
are more volatile than securities of comparable domestic companies. Certain
foreign countries are known to experience long delays between the trade and
settlement dates of securities purchased or sold. Due to the increased exposure
to a Fund of market and foreign exchange fluctuations brought about by such
delays, and due to the corresponding negative impact on liquidity, the Fund will
avoid investing in countries which are known to experience settlement delays
which may expose the Fund to unreasonable risk of loss.

The Funds will calculate their net asset value to complete orders to
purchase, exchange or redeem shares only on a Monday through Friday basis
(excluding holidays on which the New York Stock Exchange is closed). A material
portion of Strategic Income Fund's investment securities may be listed on
foreign stock exchanges that may trade on other days (such as a Saturday). As a
result, Strategic Income Fund's 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
subject to the restrictions set forth above in "Foreign Securities." 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

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<PAGE> 59
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.

TRANSACTIONS IN OPTIONS, FUTURES, AND FORWARD CONTRACTS

High Yield Portfolio and Strategic Income Fund may each, to a limited
extent, enter into options, futures, and forward contracts on a variety of
investments, indexes and currencies, in order to protect against declines in the
value of Fund securities or increases in the cost of securities to be acquired
and, in the case of options on securities or indexes of securities, to increase
a Fund's gross income. In addition, the Funds may enter into options, futures
and forward contracts to manage the duration of the Funds' investments. Duration
is a measure that 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. See Appendix A for more information.

OPTIONS ON SECURITIES AND INDEXES. Strategic Income Fund and High Yield
Portfolio may write (sell) covered call and secured put options and purchase
call and put options on debt securities and financial indexes. 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 securities underlying the option, or the increased cost of portfolio
securities to be acquired. In contrast, however, if the price of the underlying
security or index 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 or to make a cash settlement in the case of
an option on an index, 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 their portfolios or the prices of securities that the Funds want to
purchase at a later date. In the event that the expected market fluctuations
occur, a 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. These Funds may
also enter into foreign

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<PAGE> 60

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 a Fund.
The Funds will incur brokerage fees when they purchase and sell Futures
Contracts, and they will be required to make and maintain margin deposits.

OPTIONS ON FUTURES CONTRACTS. Strategic Income Fund and High Yield
Portfolio may purchase and write options to buy or sell interest rate futures
contracts. In addition, the Funds may purchase and write options on foreign
currency futures contracts. (Unless otherwise specified, options on interest
rate futures contracts and options on foreign currency futures contracts are
collectively referred to as "Options on Futures Contracts.") Unless otherwise
stated in the Prospectus or in this Statement of Additional Information, such
investment strategies will be used as a hedge and not for speculation.

Put and call options on Futures Contracts may be traded by the Funds in
order to protect against declines in the values of portfolio securities or
against increases in the cost of securities to be acquired. Purchases of options
on Futures Contracts may present less risk in hedging the portfolio of a 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 Fund 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

17
<PAGE> 61

(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 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
("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 a 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 that, 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.

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 that may not be present in the case of exchange-traded
instruments.

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 contracts, 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.

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<PAGE> 62
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. Additionally, in the case of privately
negotiated instruments, the risk that the counterparty will fail to perform its
obligations could leave the Funds worse off than if they had not entered into
the position. 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.

Transactions in options, Futures Contracts, Options on Futures
Contracts and Currency Contracts may be entered into on U.S. exchanges regulated
by the Commission or the Commodity Futures Trading Commission (the "CFTC"), as
well as in the over-the-counter market and on foreign exchanges. In addition,
the securities underlying options and Futures Contracts traded by the Funds may
include domestic as well as foreign securities. Investors should recognize that
transactions involving foreign securities or foreign currencies, and
transactions entered into in foreign countries, may involve considerations and
risks not typically associated with investing in U.S. markets.

REGULATORY RESTRICTIONS

To the extent required to comply with Commission Release No. 10666,
when purchasing a futures contract, writing a put option, or entering into a
delayed delivery purchase, a Fund will maintain in a segregated account cash or
any security that is not considered restricted or illiquid equal to the value of
such contracts. Similarly, U.S. Government Securities Fund will maintain in a
segregated account cash or any security that is not considered restricted or
illiquid, equal to the value of the securities purchased on a delayed delivery
basis.

To the extent required to comply with CFTC Regulation 4.5 and thereby
avoid "commodity pool operator" status, the Funds will enter into futures
contracts options thereon only (a) for "bona fide hedging purposes" (as defined
in CFTC regulations) or (b) for other purposes so long as aggregate initial
margins and premiums required in connection with non-hedging positions do not
exceed 5% of the liquidation value of the Fund's portfolio. 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

19
<PAGE> 63
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 a 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. Strategic Income Fund may invest up
to 33-1/3% of its total assets in repurchase agreements. U.S. Government
Securities Fund's limit on such investments is 10% of total assets. Repurchase
agreements with maturities of more than seven days are considered illiquid and
subject to each Fund's restriction on investments in illiquid securities.

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
a Fund owns the underlying securities following a default on a 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

20
<PAGE> 64

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. Each Fund will invest no more than 15% of the value of
its respective net assets in illiquid securities.

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

The Board of Directors of Fortis Income and Fortis Advantage 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
that pay interest in the form of 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 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 that may constitute interest payments on PIKs.
While PIKs generate income for generally accepted

21
<PAGE> 65

accounting standards purposes, they do not generate cash flow and thus the Funds
could 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

Each Fund 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 are currently 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.

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

22
<PAGE> 66

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 to hedge
against anticipated changes in interest rates and prices. 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 a 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 a 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 Funds 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, a Fund may in that event, agree to resell its purchase
commitment to the third-party seller at the current market price on the date of
sale and concurrently enter into another purchase commitment for such securities
at a later date. As an inducement for the Fund to "roll over" its purchase
commitment, the Fund may receive a negotiated fee or repurchase similar
securities for settlement at a later date and at a lower purchase price relative
to the current market value.

The purchase of securities on a when-issued, delayed delivery or forward
commitment basis exposes the Funds to risk because the securities may decrease
in value prior to their delivery. An additional risk is 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 a 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.

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<PAGE> 67

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 continually 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 Funds will receive amounts equal
to dividends or interest on the securities loaned. The Funds 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, no
more than 35% of the Fund's total assets may be invested in securities which are
not issued, guaranteed, insured or collateralized by the U.S. Government or its
agencies or instrumentalities). Each Fund will limit its loans of portfolio
securities to an aggregate of 33 1/3% of the value of its total assets, measured
at the time such loan is made. ("Total assets" of the Fund includes the amount
lent as well as the collateral securing such loans.) Where voting or consent
rights with respect to loaned securities pass to the borrower, management will
follow the policy of calling the loan, in whole or in part as may be
appropriate, to permit the exercise of such voting or consent rights if the
issues involved have a material effect on the Fund's investment in the
securities loaned. Apart from lending its securities, investing in repurchase
agreements, and acquiring debt securities, as described in the Prospectus and
Statement of Additional Information, the Funds will not make loans to other
persons.

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 that uses or operates the facilities.

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

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<PAGE> 68

trading" means selling securities held for a relatively brief period of time,
usually less than three months. Short-term trading will be used by the Fund
primarily in two situations:

Market Developments. A security may be sold to avoid depreciation in what
the Fund anticipates will be a market decline (a rise in interest rates),
or a security may be purchased in anticipation of a market rise (a decline
in interest rates) and later sold.

Yield Disparities. A security may be sold and another of comparable quality
purchased at approximately the same time, in order to take advantage of
what the Fund believes is a temporary disparity in the normal yield
relationship between the two securities (a yield disparity).

The Fund will engage in short-term trading if it believes the transactions,
net of costs (including commission, if any), will result in improving the
appreciation potential or income of 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 the Funds in good faith, in a
manner reasonably believed to be in the best interests of each Fund 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").

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<PAGE> 69

The Fund Complex currently consists of one closed-end and eight open-end
investment companies.

<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION WITH THE PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- ------------------ -----------------------------------------
FUNDS
-----
<S> <C> <C> <C>
Richard W. Cutting 68 Director Certified public accountant and financial consultant.
137 Chapin Parkway
Buffalo, New York

Allen R. Freedman * 59 Director Chairman and Chief Executive Officer of
One Chase Manhattan Plaza Fortis, Inc.; a Managing Director of Fortis
New York, New York International, N.V.; director of Systems and Computer
Technology Corporation.

Dr. Robert M. Gavin 59 Director President, Cranbrook Education Community; prior to
380 Lone Pine Road July 1996, President, Macalester College, St. Paul,
Bloomfield, Michigan MN.

Benjamin S. Jaffray 69 Director Chairman of the Sheffield Group, Ltd., a financial
4040 IDS Center consulting group, Minneapolis, MN.
Minneapolis, Minnesota

Jean L. King 55 Director President, Communi-King, a communications consulting
12 Evergreen Lane firm, St. Paul, MN.
St. Paul, Minnesota

Dean C. Kopperud* 47 President and Chief Executive Officer and a Director of Advisers;
500 Bielenberg Drive Director President and a Director of Investors; President of
Woodbury, Minnesota Fortis Financial Group; a Director of Fortis Benefits
Insurance Company and Senior Vice President of Fortis
Insurance Company.

Edward M. Mahoney 69 Director Retired; prior to December 1994, Chairman, Chief
2760 Pheasant Road Executive Officer and a Director of Advisers and
Excelsior, Minnesota Investors, Senior Vice President and a Director of
Fortis Benefits Insurance Company, and a Senior
Vice President of Time Insurance Company.

Robb L. Prince 58 Director Financial and employee benefit consultant; prior to
5108 Duggan Plaza July 1995, Vice President and Treasurer, Jostens,
Edina, Minnesota Inc., a producer of products and services for youth,
education, sports award, and recognition markets;
director of Analysts International Corporation.

Leonard J. Santow 63 Director Principal, Griggs & Santow, Inc., economic and
75 Wall Street financial consultants
21st Floor
New York, New York

Noel Schenker Shadko 45 Director Marketing consultant; prior to 1996, Senior Vice
1908 W. 49th Street President, Marketing and Strategic Planning,
Minneapolis, Minnesota Rollerblade, Inc.

Joseph M. Wikler 57 Director Investment consultant and private investor; prior to
12520 Davan Drive 1994, Director of Research, Chief Investment Officer,
Silver Spring, Maryland Principal and a Director, The Rothschild Co., and
investment adviser, Baltimore, MD.

Gary N. Yalen 57 Vice President President and Chief Investment Officer of Advisers
One Chase Manhattan Plaza (since 1995) and Senior Vice President, Investments,
New York, New York of Fortis, Inc.; prior to 1996, President and Chief
Investment Officer, Fortis Asset Management, a former
division of Fortis, Inc.
</TABLE>

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<PAGE> 70

Howard G. Hudson 62 Vice President Executive Vice President and Head of Fixed Income
One Chase Manhattan Plaza Investments of Advisers since 1995; prior to 1996,
New York, New York Senior Vice President, Fixed Income, Fortis Asset
Management.

Lucinda S. Mezey 52 Vice President Executive Vice President and Head of Equity
One Chase Manhattan Plaza Investments of Advisers since October 1997; from 1995
New York, New York to October 1997, Chief Investment Officer, Alex Brown
Capital Advisory and Trust Co., Baltimore, MD; prior
to 1995, Senior Vice President and Head of Equity
Investments, PNC Bank, Philadelphia, PA.

James S. Byrd 48 Vice President Executive Vice President of Advisers since 1995;
90 South 7th Street prior to 1995, Vice President of Advisers and of
Minneapolis, Minnesota Investors.

Nicholas L.M. de Peyster 33 Vice President Vice President of Advisers since 1995; prior to 1995,
One Chase Manhattan Plaza Vice President, Equities, Fortis Asset Management.
New York, New York

Diane M. Gotham 41 Vice President Vice President of Advisers since 1998; from 1994 to
90 South 7th Street 1998, securities analyst for Advisers.
Minneapolis, Minnesota

Laura E. Granger 38 Vice President Vice President of Advisers since 1998; from
One Chase Manhattan Plaza 1993-1998, portfolio manager, General Motors
New York, New York Investment Management, New York, NY.

Maroun M. Hayek 51 Vice President Vice President of Advisers since 1995; prior to 1996,
One Chase Manhattan Plaza Vice President, Fixed Income, Fortis Asset Management.
New York, New York

Robert C. Lindberg 43 Vice President Vice President of Advisers since 1993.
One Chase Manhattan Plaza
New York, New York

Charles L. Mehlhouse 57 Vice President Vice President of Advisers; prior to March 1996,
One Chase Manhattan Plaza portfolio manager, Marshall & Ilsley Bank
New York, New York Corporation, Milwaukee, WI.

Kevin J. Michels 48 Vice President Vice President of Advisers since 1995; prior to 1996,
One Chase Manhattan Plaza Vice President, Administration, Fortis Asset
New York, New York Management.

Christopher J. Pagano 36 Vice President Vice President of Advisers since 1996; prior to March
One Chase Manhattan Plaza 1996, government strategist, Merrill Lynch, New York,
New York, New York NY.
</TABLE>

27
<PAGE> 71

<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION WITH THE PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- ------------------ -----------------------------------------
FUNDS
-----
<S> <C> <C> <C>
Kendall C. Peterson 43 Vice President Vice President of Advisers since August 1999; prior
One Chase Manhattan Plaza to August 1999, Vice President and portfolio manager
New York, New York at Prudential Insurance Company of America, Newark,
NJ.

Stephen M. Rickert 56 Vice President Vice President of Advisers since 1995; from 1994 to
One Chase Manhattan Plaza 1996, Corporate Bond Analyst, Fortis Asset Management.
New York, New York

Michael J. Romanowski 48 Vice President Vice President of Advisers since 1998; from October
One Chase Manhattan Plaza 1995 to March 1998, portfolio manager, Value Line,
New York, New York New York, NY; prior to October 1995, securities
analyst, Conning & Co., Hartford, CT.

Christopher J. Woods 39 Vice President Vice President of Advisers since 1995; prior to 1996
One Chase Manhattan Plaza Vice President, Fixed Income, Fortis Asset Management.
New York, New York

Robert W. Beltz, Jr. 50 Vice President Vice President -- Securities Operations of Advisers and
500 Bielenberg Drive of Investors.
Woodbury, Minnesota

Peggy E. Ettestad 42 Vice President Senior Vice President, Operations of Advisers since
500 Bielenberg Drive March 1997; prior to March 1997, Vice President, G.E.
Woodbury, Minnesota Capital Fleet Services, Minneapolis, MN.

Tamara L. Fagely 41 Vice President Vice President of Advisers and of Investors since
500 Bielenberg Drive and Treasurer 1998; prior to 1998, Second Vice President of
Woodbury, Minnesota Advisers and Investors.

Dickson W. Lewis 50 Vice President Senior Vice President, Marketing and Sales of
500 Bielenberg Drive Advisers and of Investors since July 1997; from 1993
Woodbury, Minnesota to July 1997, President and Chief Executive Officer,
Hedstrom/Blessing, Inc., Minneapolis, MN.

David A. Peterson 57 Vice President Vice President and Assistant General Counsel, Fortis
500 Bielenberg Drive Benefits Insurance Company.
Woodbury, Minnesota

Scott R. Plummer 40 Vice President Vice President, Associate General Counsel and
500 Bielenberg Drive Assistant Secretary of Advisers.
Woodbury, Minnesota

Rhonda J. Schwartz 41 Vice President Since January 1996, Senior Vice President and General
500 Bielenberg Drive Counsel of Advisers, Vice President and General
Woodbury, Minnesota Counsel, Life and Investment Products of Fortis
Insurance Company and Senior Vice President and
General Counsel of Fortis Benefits Insurance Company,
FFG Division; from 1994 to January 1996, Vice
President, General Counsel and Secretary of Fortis,
Inc.
</TABLE>

28
<PAGE> 72

<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION WITH THE PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- ------------------ -----------------------------------------
FUNDS
-----
<S> <C> <C> <C>
Melinda S. Urion 46 Vice President Senior Vice President and Chief Financial Officer of
500 Bielenberg Drive Advisers since 1997; from 1995 to 1997, Senior Vice
Woodbury, Minnesota President of Finance and Chief Financial Officer,
American Express Financial Corporation; prior to
March 1995, corporate controller, American Express
Financial Corporation and prior to 1994, controller
and treasurer, IDS Life Insurance Company,
Minneapolis, MN.

Michael J. Radmer 54 Secretary Partner, Dorsey & Whitney LLP, the Company's General
220 South Sixth Street Counsel.
Minneapolis, Minnesota
</TABLE>

* Denotes directors who are interested persons, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), of the Company and
Advisers. Mr. Kopperud is an "interested person" of Advisers and the
Company primarily because he holds certain positions, including serving as
Chief Executive Officer and a director of Advisers. Mr. Freedman is an
"interested person" of Advisers and the Company primarily 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, 1999, as well
as the total compensation received by each director from the Fund Complex during
the calendar year ended December 31, 1998. 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, 1999, U.S. Government Securities Fund paid $17,310,
Strategic Income Fund paid $1,087 and High Yield Portfolio paid $8,000 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 $2,300 $3,000 $31,200
Dr. Robert M. Gavin $2,300 $3,000 $31,200
Benjamin S. Jaffray $2,300 $3,000 $22,200
Jean L. King $2,300 $3,000 $31,200
Edward M. Mahoney $2,300 $3,000 $31,200
Robb L. Prince $2,300 $3,000 $31,200
Leonard J. Santow $2,404 $3,106 $30,300
Noel Schenker Shadko $2,300 $3,000 $22,200
Joseph M. Wikler $2,404 $3,100 $31,300
</TABLE>

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

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

Directors Gavin, Jaffray, Kopperud, Mahoney, Prince and Schenker Shadko are
members of the Executive Committee of the Board of Directors. While the
Executive Committee is authorized to act in the

29
<PAGE> 73

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 5, 1999 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 C: Andrew
J. McGann, Trustee for Andrew J McGann Living Trust, 9901 S Western Ave.,
Chicago, IL (31%). Strategic Income Fund--Class A: Fortis Insurance Co.-Life,
c/o Kevin Michels, Fortis Advisers, 1 Chase Manhattan Plaza, New York, NY (45%).
Strategic Income Fund--Class B: First Trust, N.A., C/F Arthur L.Gordon R/O IRA,
24516 Starlight Ln., West Hills, CA (8%); Raul de Velasco TOD, 8250 SW 32nd
Terr., Miami, FL (8%); and PaineWebber Inc, FBO Minerva Mikkila, Trustee,
Charitable Remainder Trust, 1000 Harbor Blvd., Weehawken, NJ (17%). Strategic
Income Fund--Class C: Donaldson, Lufkin, Jenrette Securities Corporation, Inc.,
PO Box 2052, Jersey City, NJ (6%); First Trust, N.A., C/F Janice M. Smith R/O
IRA, 219 E. Palm Dr., Lena, IL (6%); JW Genesis Clearing Corp., C/F Clarence C.
Murphy Jr. IRA, 1022 Oakdale Rd., Augusta, GA (6%); First Trust, N.A., C/F
Violet R. Best IRA, 2491 S Irish Rd., Davison, MI (7%); and John A. Kufus, 2030
Highland Pkwy, St. Paul, MN 55116 (11%). Strategic Income Fund--Class H: Jane
Lopiccolo TOD, 10 Cottrell St., Auburn, NY (5%); First Trust, N.A., Custodian
for Sally Ann Thomas R/O IRA, 1859 Harrisburg Pike, Grove City, OH (7%); and
Andrew M. Farrar & Marilyn L. Linfield, JTTEN, 33 Gail St., Topsfield, MA (20%).
High Yield Portfolio--Class A: Fortis Benefits Insurance Co., c/o Kevin Michels,
Fortis Advisers, 1 Chase Manhattan Plaza, New York, NY 10005 (19%).

As of November 5, 1999, the directors and executive officers as a group
beneficially owned less than 1% of the outstanding shares of each class of each
Fund.

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 29, 1999, Advisers managed thirty-three investment company
portfolios with combined net assets of approximately $7.1 billion.

CONTROL AND MANAGEMENT OF ADVISERS AND INVESTORS

Fortis, Inc. ("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 is a part of a worldwide group of

<PAGE> 74

companies active in the fields of insurance, banking and investments. Fortis is
jointly owned by Fortis (NL) N.V. of The Netherlands and Fortis (B) of Belgium.

Fortis (NL) N.V. is a diversified financial services company
headquartered in Utrecht, The Netherlands, where its insurance operations began
in 1847. Fortis (B) is a diversified financial services company headquartered in
Brussels, Belgium, where it insurance operations began in 1824. Fortis (NL) N.V.
and Fortis (B) own a group of companies 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 acts 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.

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>
For the first $50,000,000 .8%
For assets over $50,000,000 .7%

</TABLE>

Each Agreement requires each Fund to pay all its expenses that 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.

31
<PAGE> 75
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, 1997 July 31, 1998 July 31, 1999
------------- ------------- -------------
<S> <C> <C> <C>
U.S. Government Securities Fund $3,071,143 $2,670,449 $2,477,465
Strategic Income Fund n/a $ 164,575* $ 269,265**
High Yield Portfolio $1,388,154 $1,611,812 $1,459,592
</TABLE>

* Period from inception (December 1, 1997) to July 31, 1998. Advisers reimbursed
the Fund $41, 375, pursuant to an expense reimbursement agreement, resulting in
a net fee of $123,200.
** Advisers reimbursed the Fund $79,503, pursuant to an
expense reimbursement agreement, resulting in a net fee of $189,762.

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 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

<PAGE> 76

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
(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 a 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 a
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

<PAGE> 77

information and reports used for sales purposes; expenses of preparation and
distribution of sales literature; expenses of advertising of any type; an
allocation of Investors' overhead; and payments to and expenses of persons who
provide support services in connection with the distribution of Fund shares.
Shareholder Servicing Fees include all expenses of Investors incurred in
connection with providing administrative or accounting services to shareholders,
including, but not limited to, an allocation of Investors' overhead and payments
made to persons, including employees of Investors, who respond to inquiries of
shareholders of the Fund regarding 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, 1999.

<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 8,586 1,903 54,928
Compensation to underwriters 245,906 49,302 1,177,979
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) 48,188 18,084 102,142
---------- ----------- ----------
Total $ 302,680 $ 69,289 $ 1,334,649

</TABLE>

BROKERAGE ALLOCATION AND OTHER PRACTICES

Advisers selects and (where applicable) negotiates commissions with
broker-dealers who execute trades for each Fund. In selecting a broker-dealer to
execute an equity trade, Advisers primarily considers whether the broker-dealer
can provide best execution on the trade including best price for a security.
Other factors that Advisers considers when selecting a broker-dealer for an
equity trade include:

- - competitive commissions commensurate with the value of research
products and services provided to Advisers;
- - consistently good service quality;
- - adequate capital position;
- - broad market coverage;
- - continuous flow of information concerning bids and offers;
- - the ability to complete, clear and settle trades in a timely and
efficient manner;
- - capital usage;
- - specialized expertise;
- - access to new issues; and
- - the ability to handle large blocks of stock discreetly.

For a fund exclusively composed of debt, rather than equity securities,
portfolio transactions are effected with dealers without the payment of
brokerage commissions, but at net prices which

34
<PAGE> 78

usually include a spread or markup. The volume of business done with a
broker-dealer for fixed income trades is based to a large extent on the
availability and competitive price of the fixed income securities that fit the
strategy of the fixed income portfolio. Best execution, the quality of research,
making of secondary markets and other services are also determining factors for
the allocation of business when buying and selling fixed income securities. If a
broker-dealer charging a higher commission or offering a larger spread is more
reliable or provides better execution than a broker-dealer charging a lower
commission or offering a smaller spread, then Advisers may select the
broker-dealer charging a higher commission or offering a larger spread for a
particular equity or fixed income trade.

Advisers may direct orders to broker-dealers who furnish research products
and services to Advisers as long as the broker-dealers meet the selection
criteria outlined above. The research products and services supplement Advisers'
own research and enable Advisers to obtain the views and information of others
prior to making investment decisions for the Funds. Advisers has not entered and
will not enter into any agreement with a broker-dealer that would prevent
Advisers from obtaining best execution on a trade. During fiscal year ended July
31, 1999, the Funds did not direct brokerage commissions to broker-dealers
providing research services to Advisers.

Advisers will authorize each 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 Adviser's overall responsibilities with
respect to the accounts to which Advisers exercises investment discretion. In
1999, the Funds generally paid higher commissions than those obtainable from
other broker-dealers in return for research products and services.

Advisers believes that most research services obtained by it generally
benefit several or all of the investment companies, insurance company accounts
and private accounts which it manages, as opposed to solely benefiting one
specific managed fund or account. Such research services include advice, both
directly and in writing, as to the value of the securities; the advisability of
investing in, purchasing, or selling securities; the availability of securities,
or purchasers or sellers of securities; and analysis and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts. Examples of some of the research products and
services that were furnished to Advisers in 1999 include:

- - hard copy securities research services;
- - securities research software database services;
- - electronic securities trading networks; and
- - statistical services useful to mutual fund directors and account
representatives in evaluating the relative performance of mutual fund
portfolios.

If a broker-dealer furnishes Advisers with non-research products and
services, Advisers will pay the broker-dealer for such products and services. No
client brokerage will be used to pay for non-research products and services.

The Funds contemplate purchasing most foreign equity securities in
over-the-counter markets or stock exchanges located in the countries in which
the respective principal offices of the issuers

<PAGE> 79

of the various securities are located, if that is the best available market. The
fixed commissions paid in connection with most such foreign stock transactions
generally are higher than negotiated commissions on United States transactions.
There generally is less government supervision and regulation of foreign stock
exchanges and brokers than in the United States. Foreign security settlements
may in some instances be subject to delays and related administrative
uncertainties.

Foreign equity securities may be held by a Fund in the form of American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs," which are
sometimes referred to as Continental Depository Receipts or "CDRs"), or
securities convertible into foreign equity securities. ADRs or EDRs may be
listed on stock exchanges, or traded in the over-the-counter markets in the
United States or Europe, as the case may be. ADRs, like other securities traded
in the United States, will be subject to negotiated commission rates. The
foreign and domestic debt securities and money market instruments in which the
Funds may invest are generally traded in the over-the-counter markets.

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

<TABLE>
<CAPTION>
Fiscal year Fiscal year Fiscal year
ended ended ended
July 31, 1997 July 31, 1998 July 31, 1999
------------- ------------- -------------
<S> <C> <C> <C>
U.S. Government Securities Fund $ 0 $ 0 $ 0
Strategic Income Fund n/a 0* 0
High Yield Portfolio $ 2,674 $ 7,500 $ 0
</TABLE>

* Period from inception (December 1, 1997) to July 31, 1998.

The Funds will not effect any brokerage transactions in their portfolio
securities with any broker-dealer affiliated directly or indirectly with
Advisers, unless such transactions, including the frequency thereof, the receipt
of commissions payable in connection therewith, and the selection of the
affiliated broker-dealer effecting such transactions are not unfair or
unreasonable to the shareholders of the applicable Fund. No commissions were
paid to any affiliate of Advisers during the fiscal years ended July 31, 1997,
1998 and 1999.

From time to time, the Funds may acquire the securities of their
regular brokers or dealers or parent companies of such brokers or dealers. The
Funds acquired the following securities of its regular brokers or dealers or
parent companies of such brokers or dealers during the fiscal period ended July
31, 1999:

Value of securities
Strategic Income Fund owned at end of period
- --------------------- ----------------------
<S> <C>
Lehman Brothers Holdings, Inc. $ 497,975
J.P. Morgan Commercial Mtg. Fin. Corp. $ 502,340
U.S. Bank N.A. Money Market $1,243,401

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

U.S. Bank N.A. Money Market $3,160,347
</TABLE>

Advisers has developed written trade allocation procedures for its
management of the securities trading activities of its clients. Advisers manages
multiple funds, both public (mutual

<PAGE> 80

funds) and private. The purpose of the trade allocation procedures is to treat
the Funds 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 Fund that is interested in purchasing that security. Generally, when the
amount of securities available in a public offering or the secondary market is
insufficient to satisfy the requirements for the interested Funds, the
procedures require a pro rata allocation based upon the amounts initially
requested by each Fund manager. In allocating trades made on combined basis,
Advisers seeks to achieve the average price of the securities for each
participating Fund.

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 Funds involved in the transaction; and
(ii) the relative importance of the security to a Fund 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.

Each Fund currently constitutes a separate series of shares of either
Fortis Income (in the case of U.S. Government Securities Fund and Strategic
Income Fund) or Fortis Advantage (in the case of High Yield Portfolio). 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 of Fortis Income and Fortis Advantage are
authorized to create new series of shares, or classes of shares within a
particular series, without shareholder approval. Each share of a series 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 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.

PRICING OF SHARES

U.S. GOVERNMENT SECURITIES FUND

On July 31, 1999, the Fund's net asset values per share were calculated
as follows:

<PAGE> 81

<TABLE>
<CAPTION>
<S> <C>
CLASS A

Net assets ($49,273,979) = Net asset value per share ($8.96)
-----------------------
Shares outstanding (5,497,787)

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

$8.96 = Public Offering Price per Share ($9.38)
-----
0.955

CLASS B

Net assets ($4,702,686) = Net asset value per share ($8.94)
----------------------
Shares outstanding (525,994)

CLASS C

Net assets ($3,070,901) = Net asset value per share ($8.93)
----------------------
Shares outstanding (343,991)

CLASS E

Net assets ($254,095,859) = Net asset value per share ($8.96)
------------------------
Shares outstanding (28,363,968)

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

$8.96 = Public Offering Price per Share ($9.38)
-----
0.955

CLASS H

Net assets ($10,261,781) = Net asset value per share ($8.94)
-----------------------
Shares outstanding (1,148,235)

STRATEGIC INCOME FUND

On July 31, 1999, the Fund's net asset values per share were calculated as
follows:

CLASS A

Net assets ($22,207,363) = Net asset value per share ($9.14)
-----------------------
Shares outstanding (2,428,411)

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

$9.14 = Public Offering Price per Share ($9.57)
-----
</TABLE>

<PAGE> 82
<TABLE>
<CAPTION>
<S> <C>
0.955

CLASS B

Net assets ($814,709) = Net asset value per share ($9.14)
--------------------
Shares outstanding (89,098)

CLASS C

Net assets ($219,175) = Net asset value per share ($9.15)
--------------------
Shares outstanding (23,959)

CLASS H

Net assets ($750,647) = Net asset value per share ($9.14)
--------------------
Shares outstanding (82,116)

HIGH YIELD PORTFOLIO

On July 31, 1999, the Fund's net asset values per share were calculated as
follows:

CLASS A

Net assets ($106,920,950) = Net asset value per share ($6.67)
------------------------
Shares outstanding (16,036,606)

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

$6.67 = Public Offering Price per Share ($6.98)
-----
0.955

CLASS B

Net assets ($22,814,492) = Net asset value per share ($6.67)
-----------------------
Shares outstanding (3,421,053)

CLASS C

Net assets ($6,050,748) = Net asset value per share ($6.66)
----------------------
Shares outstanding (908,869)

CLASS H

Net assets ($56,420,203) = Net asset value per share ($6.66)
-----------------------
Shares outstanding (8,466,437)
</TABLE>

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

39
<PAGE> 83
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); (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

<PAGE> 84

contract (within 60 days of the purchase of Fund shares), provided
that such owner's application so specifies and is accompanied either
by the insurance company's check (or a copy of the check) or a copy of
the insurance company surrender form. From time to time, Investors may
pay commissions to broker-dealers and registered representatives on
transfers from mutual funds or annuities as described above;
- - Purchases by employees (including their spouses and dependent
children) of banks and other financial institutions that provide
referral and administrative services related to order placement and
payment to facilitate transactions in shares of the Fund for their
clients pursuant to a sales or servicing agreement with Investors;
provided, however, that only those employees of such banks and other
firms who as a part of their usual duties provide such services
related to such transactions in Fund shares shall qualify;
- - Commercial banks offering self directed 401(k) programs containing
both pooled and individual investment options may purchase Fund shares
for such programs at a reduced sales charge of 2.5% on sales of less
than $500,000. For sales of $500,000 or more, normal sales charges
apply;
- - Registered investment advisers, trust companies, and bank
trust departments exercising discretionary investment authority or
using a money management/mutual fund "wrap" program with respect to
the money to be invested in the Fund, provided that the investment
adviser, trust company or trust department provides Advisers with
evidence of such authority or the existence of such a wrap program
with respect to the money invested;
- - With respect to U.S. Government Securities Fund only, (1) officers,
directors, and employees of Empire of America Advisory Services, Inc.,
the investment advisor of Pathfinder Fund; and (2) accounts which were
in existence and entitled to purchase shares of the Pathfinder Fund
without a sales charge at the time of the effectiveness of the
acquisition of its assets by the Fund;
- - Accounts which were in existence and entitled to purchase shares of
the applicable Carnegie Series without a sales charge at the time of
the effectiveness of the acquisition of its assets by the applicable
Fund;
- - Beginning January 1, 1998, purchasers of Medical Savings Accounts
("MSAs") from 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

<PAGE> 85

indicated. This is accomplished by holding in escrow the number of shares
represented by the sales charge discount. If the investor's purchases equal
those specified in the Statement of Intention, the escrow is released. If the
purchases do not equal those specified in the Statement of Intention, the
shareholder may remit to Investors an amount equal to the difference between the
dollar amount of sales charges actually paid and the amount of sales charges
that would have been paid on the aggregate purchases if the total of such
purchases had been made at a single time. If the purchaser does not remit this
sum to Investors on a timely basis, Investors will redeem the escrowed shares.

RETIREMENT PLANS. Individual taxpayers can defer taxes on current
income by investing in tax qualified retirement plans established by their
employer, such as pension plans, profit-sharing plans 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 that 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 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-

<PAGE> 86

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 times (a) when the
Exchange is closed for other than customary weekend or holiday closings, (b)
when trading on the 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
Commission, by order, so permits; provided that applicable rules and regulations
of the 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.

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 a 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.

<PAGE> 87

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 and subsequently exercise the reinvestment privilege, the sales charge
incurred on the original purchase cannot be taken into account for determining
your gain or loss on the redemption of those shares.

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

<PAGE> 88

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. 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.

<PAGE> 89

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, 1999, U.S. Government Securities Fund, Strategic Income
Fund and High Yield Portfolio had capital loss carry forwards of $64,894,291,
$805,970 and $25,970,943, respectively, which, if not offset by subsequent
capital gains, will expire in 2002 through 2008. It is unlikely the Funds'
Boards of Directors will authorize a distribution of any net realized gains
until the available capital loss carryovers have been offset or expired.

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

UNDERWRITER 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 and
distribution to the public of shares of the Funds, 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.

TOTAL UNDERWRITING COMMISSIONS
-----------------------------------------------------------

Fiscal year ended Fiscal year ended Fiscal year ended
July 31, 1997 July 31, 1998 July 31, 1999
-----------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Securities Fund $373,847 $353,664 $366,908
Strategic Income Fund n/a $ 25,949* $ 18,389
High Yield Portfolio $879,710 $842,743 $811,672

UNDERWRITING COMMISSIONS RETAINED BY INVESTORS
-----------------------------------------------------------

Fiscal year ended Fiscal year ended Fiscal year ended
July 31, 1997 July 31, 1998 July 31, 1999
-----------------------------------------------------------
U.S. Government Securities Fund $123,652 $160,462 $ 88,967
Strategic Income Fund n/a $ 2,456* $ 4,448
High Yield Portfolio $417,653 $443,574 $615,284
</TABLE>

46
<PAGE> 90

* Period from inception (December 1, 1997) to July 31, 1998.

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

Net Underwriting Compensation on Brokerage Other
Discounts and Redemptions and Commissions Compensation
Commissions Repurchases
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund $303,326 $ 63,582 $0 $0
Strategic Income Fund $ 14,235 $ 4,154 $0 $0
High Yield Portfolio $376,413 $435,259 $0 $0

</TABLE>

PERFORMANCE INFORMATION

Advertisements and other sales literature for the Funds may refer to
"average annual total return," "cumulative total return," and "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, 1999
were:

Class A Class B Class C Class E Class H
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
U.S. Government Securities Fund 4.95% 4.42% 4.42% 5.19% 4.42%
Strategic Inc. Fund 6.93% 6.49% 6.49% n/a 6.49%
High Yield Portfolio 8.80% 8.55% 8.55% n/a 8.55%

</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:

n
P(1+T) = ERV

<PAGE> 91

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, 1999.

AVERAGE ANNUAL TOTAL RETURNS
-----------------------------------------------

1 YEAR 5 YEARS 10 YEARS/SINCE
------ ------- INCEPTION
---------

<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES FUND
Class A Shares* (3.26%) -- 5.94%
Class B Shares* (2.92%) -- 5.88%
Class C Shares* (0.44%) -- 6.16%
Class E Shares+ (3.01%) 5.35% 6.26%
Class H Shares* (2.92%) -- 5.88%

STRATEGIC INCOME FUND
Class A Shares** (7.23%) -- (1.69%)
Class B Shares** (6.81%) -- (1.60%)
Class C Shares** (4.40%) -- 0.43%
Class H Shares** (6.81%) -- (1.58%)

HIGH YIELD PORTFOLIO
Class A Shares++ (6.18%) 5.14% 7.52%
Class B Shares* (5.63%) -- 5.70%
Class C Shares* (3.34%) -- 5.98%
Class H Shares* (5.63%) -- 5.67%

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

</TABLE>

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

<PAGE> 92

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,
1999:

CUMULATIVE TOTAL RETURN
-----------------------

<S> <C>
U.S. GOVERNMENT SECURITIES FUND
Class A Shares* 31.24%
Class B Shares* 30.87%
Class C Shares* 32.55%
Class E Shares+ 621.39%
Class H Shares* 30.87%

STRATEGIC INCOME FUND
Class A Shares** (2.81%)
Class B Shares** (2.65%)
Class C Shares** 0.71%
Class H Shares** (2.62%)

HIGH YIELD PORTFOLIO
Class A Shares++ 136.00%
Class B Shares* 29.83%
Class C Shares* 31.51%
Class H Shares* 29.67%

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

The Funds may advertise relative performance as compiled by outside
organizations or refer to publications that have mentioned their performance or
track the performance of investment companies. Following is a list of ratings
services that 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

49
<PAGE> 93

<TABLE>
<CAPTION>
RATINGS SERVICE CATEGORY
--------------- --------
<S> <C>
Lipper Analytical Services, Inc. fixed income-multisector income
CDA/Wiesenberger multisector bond
Morningstar Publications, Inc. multisector bond
Johnson's Charts global bond
<CAPTION>

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

FINANCIAL STATEMENTS

The audited financial statements as of July 31, 1999, as set forth in the
Funds' Annual Report to Shareholders, are incorporated herein by reference. The
audited financial statements are provided in reliance on the report of KPMG 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 the respective corporation 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).

50
<PAGE> 94

Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the 1940 Act and the rules and regulations
adopted under such act.

ADDITIONAL INFORMATION

The Funds have filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act of
1933, as amended, with respect to the common 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.

<PAGE> 95

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 "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 that 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
Commission. The Options Clearing Corporation guarantees the performance of each
party to an exchange-traded option, by in effect taking the opposite side of
each such option. A holder or writer may engage in transactions in
exchange-traded options on securities and options on indexes of securities only
through a registered broker-dealer which is a member of the exchange on which
the option is traded.

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

52
<PAGE> 96

OPTIONS ON FINANCIAL INDEXES

In contrast to an option on a security, an option on a financial 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 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 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 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 an 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 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 an 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. An index assigns relative values to the securities
included in the index and the index fluctuates with changes in the market values
of the securities so included.

FUTURES CONTRACTS ON FIXED INCOME SECURITIES, FINANCIAL 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 financial 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

53
<PAGE> 97

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.

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

54
<PAGE> 98

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 option,
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 that have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
timing of such exercise.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

A Currency Contract is a contractual obligation to purchase or sell a
specific quantity of a given foreign currency for a fixed exchange rate at a
future date. Currency Contracts are individually negotiated and are traded
through the "interbank currency market," an informal network of banks and
brokerage firms which operates around the clock and throughout the world.
Transactions in the interbank market may be executed 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

55
<PAGE> 99

costs, but not more than this amount. The writer of the option, in contrast,
generally is required to make initial and variation margin payments, similar to
margin deposits required in the trading of Futures Contracts and the writing of
other types of options. The writer is therefore subject to risk of loss beyond
the amount originally invested and above the value of the option at the time it
is entered into.

Certain options on foreign currencies, like Currency Contracts, are traded
over-the-counter through financial institutions acting as market-makers in such
options and the underlying currencies. Such transactions therefore involve risks
not generally associated with exchange-traded instruments, which are discussed
below. Options on foreign currencies may also be traded on national securities
exchanges regulated by the SEC and on exchanges located in foreign countries.

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

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

56
<PAGE> 100
APPENDIX B

CORPORATE BOND AND COMMERCIAL PAPER RATINGS

COMMERCIAL PAPER RATINGS

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

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

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

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

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

Debt rated "BB," "B," "CCC," "CC," and "C" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective

57
<PAGE> 101

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

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

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

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

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

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

58
<PAGE> 102

Bonds that 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 that 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 that
make the long-term risk appear somewhat larger than in Aaa securities.

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

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

Bonds that 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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<PAGE> 103

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 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.

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:

<PAGE> 104

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).

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

<PAGE> 105
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 DURING
NAME POSITION WITH ADVISER 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 Officer Debt securities manager with
Fortis, Inc.
</TABLE>

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.

<PAGE> 106

(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 individual is 500 Bielenberg Drive, Woodbury,
Minnesota 55125.

POSITIONS AND OFFICES WITH THE
NAME AND PRINCIPAL BUSINESS ADDRESS UNDERWRITER POSITIONS AND OFFICES WITH FUND
- ------------------------------------ ----------------------------------- -----------------------------------
<S> <C> <C>
Carol M. Houghtby Director, Vice President & None
500 Bielenberg Drive Treasurer
Woodbury, Minnesota 55125

Roger W. Arnold Senior Vice President None
500 Bielenberg Drive
Woodbury, Minnesota 55125

John E. Hite Vice President & Secretary None
500 Bielenberg Drive
Woodbury, Minnesota 55125

</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.

ITEM 30. UNDERTAKINGS

<PAGE> 107

(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 the Registrant without charge
will furnish such Annual Report.

(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.

<PAGE> 108

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 1999.

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 executive officer)
- -------------------------
Dean C. Kopperud December 1, 1999

/s/ Tamara L. Fagely Treasurer (principal financial and
- ------------------------- accounting officer) December 1, 1999
Tamara L. Fagely

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 Schenker Shadko* Director

Joseph M. Wikler* Director

*By /s/ Dean C. Kopperud
------------------------- December 1, 1999
Dean C. Kopperud, Attorney-in-Fact
(Pursuant to a Power of Attorney dated March 21, 1996)

<PAGE> 1

EXHIBIT (d).1

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, NC.), 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.

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

<PAGE> 2

Additional Information of the Fund. The following table sets forth the fee on a
monthly and annual basis:
<TABLE>
<CAPTION>

EQUIVALENT
MONTHLY RATE RATE AVERAGE ASSET VALUES OF THE FUND
---------------- ------------- -------------------------------------------
<S> <C> <C> <C>
U.S. Government Securities Fund 1/15 of 1.0% 8/10 of 1.0% On the first $50,000,000
7/120 of 1.0% 7/10 of 1.0% 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.

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

<PAGE> 3

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
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

<PAGE> 1
EXHIBIT (d).2

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
designated 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.

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.

<PAGE> 2

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:

EQUIVALENT
MONTHLY RATE RATE AVERAGE ASSET VALUES OF THE FUND
----------------- ------------- -------------------------------------------
<S> <C> <C> <C>
Strategic Income Fund 1/15 of 1.0% 8/10 of 1.0% On the first $50,000,000
7/120 of 1.0% 7/10 of 1.0% 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.

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.

<PAGE> 3

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.

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

<PAGE> 1

EXHIBIT (e).3

FORTIS
Fortis Investors, Inc.
PO Box 64284
(612) 738-4000
(800) 800-2638
DEALER SALES AGREEMENT

________________________________________, 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 through Fortis Investors, Inc.
/ / Contracts issued by Fortis Benefits Insurance Company, Inc., 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

<PAGE> 2

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 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

<PAGE> 3

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
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.
<PAGE> 4

(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 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.

Accepted by:

- ---------------------------- -------------------
Date Accepted

<PAGE> 1
EXHIBIT (e).4

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. 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

<PAGE> 2
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.

<PAGE> 1
[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 LLP
KPMG LLP

Minneapolis, Minnesota
November 29, 1999