FORTIS INCOME PORTFOLIOS INC, 485BPOS, 2000-12-01

FORTIS INCOME PORTFOLIOS INC
485BPOS, 2000-12-01

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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, 2000

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. 47
------
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
[FORTIS Solid partners, flexible solutions(SM) LOGO]

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 Bond Funds Prospectus

December 1, 2000

- 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........................... 25
Strategic Income Fund..................................... 27
High Yield Portfolio...................................... 28
</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.

The Fund may also invest in asset-backed and commercial mortgage-backed
securities issued by private entities. Asset-backed securities are backed by a
pool of assets derived from payments made on credit card, automobile and home
equity loans, while commercial mortgage-backed securities are backed by a pool
of mortgage payments made on commercial property.

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."

- INCOME RISK. Income risk is the potential for a decline in the Fund's
income due to falling interest rates.

- 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-BACKED AND ASSET-BACKED SECURITIES. Because the Fund
may invest significantly in mortgage- and asset-backed 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 and loans underlying the Fund's
mortgage- and asset-backed securities. These prepayments pass through to
the Fund, which must reinvest them at a time when interest rates on new
mortgage- and asset-backed investments are falling, reducing the Fund's
income. Extension risk is the risk that rising interest rates could cause
mortgage and loan prepayments to slow, which could lengthen the duration of
the Fund's mortgage- and asset-backed securities thereby increasing their
interest rate sensitivity.

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, 2000 through
September 30, 2000 was 6.58%.

<TABLE>
<S> <C> <C>
BEST QUARTER: 5.33% (quarter ended September 30, 1991)
WORST QUARTER: -3.60% (quarter ended March 31, 1994)
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS as of December 31, 1999

<TABLE>
<CAPTION>
SINCE INCEPTION+
ONE YEAR FIVE YEARS TEN YEARS CLASS A, B, H, C
-------- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Class A shares..................................... -6.65% 5.54% N/A 5.56%
Class E shares..................................... -6.40% 5.79% 6.05% N/A
Class B shares**................................... -6.20% 5.44% N/A 5.58%
Class H shares**................................... -6.31% 5.39% N/A 5.55%
Class C shares**................................... -3.93% 5.71% N/A 5.68%
Lehman Brothers Intermediate Government Index*..... 0.49% 6.93% 7.10% 6.67%
</TABLE>

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

** With CDSC. Assumes redemption on December 31, 1999.

+ 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,
2000.

<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........................................... .72% .72% .72% .72%
Distribution and/or service (12b-1) fees.................. .25% 1.00% 1.00% --
Other expenses............................................ .07% .07% .07% .07%
Total annual fund operating expenses...................... 1.04% 1.79% 1.79% .79%
</TABLE>

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

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

<TABLE>
<CAPTION>
CLASS B/H CLASS C
SHARES 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.............................. $ 551 $ 542 $ 182 $ 282 $ 182 $ 527
3 years............................. 766 833 563 563 563 691
5 years............................. 998 1,150 970 970 970 869
10 years............................ 1,664 1,908 1,908 2,105 2,105 1,384
</TABLE>

3
<PAGE> 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."

- INCOME RISK. Income risk is the potential for a decline in the Fund's
income due to falling interest rates.

- 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 INVESTING. The Fund's investment in foreign securities
subjects it to risks not typically associated with U.S. investing. Because
of these risks, the Fund may be subject to greater volatility than most
mutual funds that invest principally in domestic securities. 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.
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 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, 2000 through
September 30, 2000 was 2.63%.

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

AVERAGE ANNUAL TOTAL RETURNS as of December 31, 1999

<TABLE>
<CAPTION>
ONE YEAR SINCE INCEPTION+
-------- ----------------
<S> <C> <C>
Class A shares.............................................. -4.34% -0.12%
Class B shares**............................................ -3.82% 0.23%
Class H shares**............................................ -3.82% 0.25%
Class C shares**............................................ -1.34% 1.44%
Lehman Brothers Aggregate Bond Index*....................... -0.82% 7.57%
</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, 1999.

+ 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, 2000.*

<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............................................ .29% .29% .29%
Total annual fund operating expenses...................... 1.34% 2.09% 2.09%
</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, 2000, 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...................................... $ 580 $ 572 $ 212 $ 312 $ 212
3 years..................................... 855 925 655 655 655
5 years..................................... 1,151 1,304 1,124 1,124 1,124
10 years.................................... 1,990 2,229 2,229 2,421 2,421
</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."

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.

The Fund may invest up to 25% of its total assets in securities of foreign
governments and companies.

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, High Yield Portfolio'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 High Yield Portfolio include:

- INCOME RISK. Income risk is the potential for a decline in the Fund's
income due to falling interest rates.

- 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, 2000 through
September 30, 2000 was -1.99%.

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

AVERAGE ANNUAL TOTAL RETURNS as of December 31, 1999

<TABLE>
<CAPTION>
SINCE INCEPTION+
ONE YEAR FIVE YEARS TEN YEARS CLASS B, C, H
-------- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Class A shares..................................... -2.48% 5.94% 8.71% N/A
Class B shares**................................... -1.66% 6.04% N/A 5.63%
Class H shares**................................... -1.80% 6.01% N/A 5.61%
Class C shares**................................... 0.61% 6.18% N/A 5.68%
Lehman Brothers High Yield Index*.................. 2.39% 9.31% 10.72% 8.88%
</TABLE>

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

** With CDSC. Assumes redemption on December 31, 1999.

+ 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, 2000.

<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........................................... .73% .73% .73%
Distribution and/or service (12b-1) fees.................. .35% 1.00% 1.00%
Other expenses............................................ .09% .09% .09%
Total annual fund operating expenses...................... 1.17% 1.82% 1.82%
</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...................................... $ 564 $ 545 $ 185 $ 285 $ 185
3 years..................................... 805 843 573 573 573
5 years..................................... 1,065 1,165 985 985 985
10 years.................................... 1,806 1,967 1,967 2,137 2,137
</TABLE>

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 the assets of Strategic Income Fund and High Yield
Portfolio may consist of securities of foreign issuers that trade on weekends or
other days when the Funds do not price their 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), $25 for investments by telephone through the Fortis
Information Line and Fortis Internet Website, 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 "Fortis
Funds, P.O. Box 9140, Minneapolis, MN 55480-9140."

If you have a bank account authorization form on file, you may invest
$25-$150,000 by telephone through the automated Fortis Information Line and
Fortis Internet Website.

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 "Fortis Funds, P.O. Box 9140,
Minneapolis, MN 55480-9140." 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 "Fortis Funds, P.O. Box 9140,
Minneapolis, MN, 55480-9140."

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 and Fortis Internet Website for exchanges of $25 or more. 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 55164-0284.

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 $50,000 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 and Fortis
Internet Website for redemptions of $25-$50,000 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............................. .72%
Strategic Income Fund....................................... .80%
High Yield Portfolio........................................ .73%
</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. Hayek, a Vice President of Advisers since 1995, has been managing
debt securities for Fortis, Inc. since 1987.

- Mr. Lindberg, a Vice President of Advisers since 1993, has been managing
debt securities for Advisers since 1993.

- Mr. Pagano, a Vice President of Advisers since 1996, has been managing
debt securities for Advisers since that time. From 1995 to 1996, Mr.
Pagano was a Government Strategist for Merrill Lynch, 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. From 1985 to July 1999, Mr. Peterson was employed by Prudential
Insurance Company of America in Newark, New Jersey with his last position
being Vice President and portfolio manager.

- Mr. Woods, a Vice President of Advisers since 1995, 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"). The Fund also may
invest in high-grade CMOs issued by private entities (e.g., rated A or above by
either Moody's or S&P). Some types of CMOs, such as interest-only classes
("IOs"), principal-only classes ("POs") and inverse floaters, 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 and inverse floaters.

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

The Fund also may invest in high-grade asset-backed and commercial
mortgage-backed securities issued by private entities (e.g., rated A or above by
either Moody's or S&P). In addition, the Fund may invest a portion of its assets
in a combination of other high-grade non-convertible debt securities and U.S.
bank obligations, bonds issued or guaranteed by the Canadian government or its
agencies, high-grade commercial paper (e.g., rated prime-1 by Moody's or A-1 by
S&P), and in cash or other high-quality, short-term debt securities.

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

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.

20
<PAGE> 24

- INVESTMENT GRADE AND HIGH YIELD/HIGH RISK FIXED-INCOME SECURITIES OF
FOREIGN GOVERNMENTS AND COMPANIES. The Fund invests in fixed-income
securities issued by foreign governments and companies. The Fund's foreign
government investments include securities issued by (a) governments and
their agencies; (b) government-related issuers; and (c) supranational
organizations, such as the World Bank, The European Economic Community, The
Asian Development Bank and The European Coal and Steel Community. The Fund
may also invest in fixed-income securities and commercial paper issued by
foreign companies, and certificates of deposit and bankers' acceptances
issued or guaranteed by, or time deposits maintained at, foreign banks or
U.S. branches of foreign banks. These securities may be either investment
grade or non-investment grade, or they may be unrated securities. 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." 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 invest in certain types of accrual bonds, including zero coupon
bonds, payment-in-kind securities and deferred payment securities. The holder of
an accrual bond does not receive cash interest during the accrual period. Zero
coupon bonds are issued at a significant discount to par with interest and
principal paid at maturity. Payment-in-kind securities pay interest in the form
of additional securities. Deferred payment securities accrue interest until a
predetermined date, after which they pay cash interest. The market prices for
these securities are affected to a greater extent by interest rate changes and
are typically more volatile than the market prices of securities that pay
interest periodically and in cash. The Fund may invest up to 25% of its net
assets in accrual bonds, except that the Fund may invest an unlimited amount of
its assets in zero coupon obligations issued by the U.S. Government and its
agencies.

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

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

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

HIGH YIELD PORTFOLIO

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

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

21
<PAGE> 25

assets in accrual bonds, except that the Fund may invest an unlimited amount of
its assets in zero coupon obligations issued by the U.S. Government and its
agencies.

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.

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

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

PORTFOLIO TURNOVER

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

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 and accrual bonds.

- 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 or repurchase 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 in 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
high-yielding bonds.

22
<PAGE> 26

A Fund would then be forced to invest the unanticipated proceeds at lower
interest rates, resulting in a decline in the Fund's income.

- INCOME RISK. Each Fund is subject to income risk, which is the potential
for a decline in the Fund's income due to falling interest rates.

- RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES. U.S. Government
Securities Fund and Strategic Income Fund are subject to both prepayment
and extension risk in connection with their investments in mortgage-backed
and/or asset-backed securities. To the extent it invests in mortgage-backed
and/or asset-backed securities, High Yield Portfolio may also be subject to
the risks of investing in these types of securities.

Prepayment risk. Mortgage-backed securities are secured by and payable
from pools of mortgage loans. Similarly, asset-backed securities are
supported by obligations such as automobile loans or home equity loans.
These mortgages and other obligations generally can be prepaid at any
time. As a result, mortgage- and asset-backed securities are subject to
prepayment risk, which is the risk that falling interest rates could
cause prepayments of the securities to occur more quickly than expected.
This occurs because, as interest rates fall, more homeowners refinance
the mortgages underlying mortgage-backed securities, or prepay the debt
obligations underlying asset-backed securities. A Fund holding these
securities must reinvest the prepayments at a time when interest rates
on new investments are falling, reducing the income of the Fund. In
addition, when interest rates fall, prices on mortgage- and asset-backed
securities may not rise as much as for other types of comparable debt
securities because investors may anticipate an increase in prepayments.

Extension risk. Mortgage- and asset-backed securities are also subject
to extension risk, which is the risk that rising interest rates could
cause mortgages or other obligations underlying the securities to be
prepaid more slowly than expected, resulting in slower prepayments of
securities. This would, in effect, convert a short- or medium-duration
mortgage- and asset-backed security into a longer-duration security,
increasing its sensitivity to interest rate changes and causing its
price to decline.

- 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. "Non-performing"
securities may be in default, or there may be present elements of danger
with respect to the payment of principal or interest. These securities are
highly speculative.

- RISKS OF FOREIGN INVESTING. Strategic Income Fund's principal investment
strategies include investing in foreign securities, and a significant
portion of High Yield Portfolios' assets may be invested in such
securities. A Fund's investment in foreign securities subjects it to risks
not typically associated with U.S. investing. Because of these risks, the
Fund may be subject to greater volatility than most mutual funds that
invest principally in domestic securities. These risks include:

Currency risk. Because the Funds invest in securities denominated in
currencies other than the U.S. dollar, and because the Funds may hold
foreign currencies, the Funds may be affected favorably or unfavorably
by changes in currency exchange rates. Changes in exchange rates will
affect a Fund's net asset value, the value of dividends and interest
earned, and gains and losses realized on the sale of securities.

Information risk. There may be less publicly available information
about foreign securities and issuers than is available about domestic
securities and issuers. In addition, foreign companies are not subject
to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those which apply to domestic
companies.

Foreign securities market risk. Securities of some foreign companies
are less liquid than securities of comparable domestic companies, and
their prices may be more volatile. In addition, there may be delays in
the settlement of foreign securities transactions.

23
<PAGE> 27

Political and economic risk. International investing is subject to the
risk of political, social or economic instability in the country of the
issuer of a security, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls,
expropriation, limits on removal of currency or other assets and
nationalization of assets.

- RISKS OF EMERGING MARKETS. Strategic Income Fund and High Yield
Portfolio may invest in emerging markets as a principal investment
strategy. Emerging markets tend to be in the less economically developed
regions of the world. The risks of foreign investing are of greater concern
in the case of investments in emerging markets, which may exhibit greater
price volatility and have less liquidity. Risks of investing in securities
issued by companies in emerging market countries include, among other
things, greater social, political and economic instability, lack of
liquidity and greater price volatility due to small market size and low
trading volume, certain national policies that restrict investment
opportunities and the lack of a developed judicial system.

- 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. In
addition, the Fund invests the cash collateral in high-grade money market
securities, which are subject to credit or default risk.

- RISKS OF SHORT-TERM TRADING. Due to many factors, each Fund may trade
securities frequently and hold securities in their portfolios for one year
or less. Frequent purchases and sales of portfolio securities will increase
a Fund's transaction costs. Factors that can lead to short-term trading
include market volatility; a significant positive or negative development
concerning a security; and the need to sell a security to meet redemption
activity in the Fund.

- 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.

- INFLATION RISK. Even if the principal value of your investment in a
Fund, or your income from that investment, remains constant or increases,
their real value may be less in the future because of inflation. Thus, as
inflation occurs, the purchasing power of your Fund shares and
distributions may decline, even if their value in dollars increases.

- EURO CONVERSION. On January 1, 1999, the European Monetary Union ("EMU")
introduced a single currency, the Euro, which was adopted as the common
legal currency for participating member countries. Existing sovereign
currencies of the participating countries will remain legal tender in those
countries, as denominations of the Euro, until January 1, 2002. Countries
participating in the EMU are Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Whether the Euro conversion will materially affect the performance of Fund
investing in foreign securities is uncertain. A Fund may be affected by the
Euro's impact on the business or financial condition of European issuers
held by that Fund. The ongoing process of establishing the Euro may result
in market volatility. In addition, the transition to the Euro and the
elimination of currency risk among EMU countries may change the economic
environment and behavior of investors, particularly in European markets. To
the extent Funds hold non-U.S. dollar (Euro or other) denominated
securities, they will still be exposed to currency risk due to fluctuations
in those currencies versus the U.S. dollar.

24
<PAGE> 28

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 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year......................... $8.96 $9.30 $9.16 $8.87 $9.02
---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net.................................. .52 .49 .52 .54 .60
Net realized and unrealized gain (loss) on investments... (.10) (.34) .14 .32 (.15)
---------------------------------------------------------------------------------------------------------------------------------
Total from operations...................................... .42 .15 .66 .86 .45
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net............................. (.52) (.49) (.52) (.54) (.60)
Excess distributions of net realized gains............... -- -- -- (.03) --
---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders........................ (.52) (.49) (.52) (.57) (.60)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year............................... $8.86 $8.96 $9.30 $9.16 $8.87
---------------------------------------------------------------------------------------------------------------------------------
Total return*.............................................. 4.91% 1.56% 7.42% 10.07% 5.08%
Net assets end of year (000s omitted)...................... $184,520 $254,096 $285,060 $324,643 $388,006
Ratio of expenses to average daily net assets.............. .79% .78% .79% .81% .81%
Ratio of net investment income to average daily net
assets................................................... 5.96% 5.32% 5.62% 6.08% 6.59%
Portfolio turnover rate.................................... 181% 75% 118% 161% 75%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
----------------------------------------------------------- ------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
----------------------------------------------------------- ------------------
U.S. GOVERNMENT SECURITIES FUND 2000 1999 1998 1997 1996 2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $8.96 $9.30 $9.16 $8.87 $9.02 $8.94 $9.28
-----------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net...... .50 .47 .50 .52 .58 .43 .40
Net realized and unrealized
gain (loss) on
investments................ (.10) (.34) .14 .32 (.15) (.10) (.34)
-----------------------------------------------------------------------------------------------------------------------
Total from operations.......... .40 .13 .64 .84 .43 .33 .06
-----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment
income - net............... (.50) (.47) (.50) (.52) (.58) (.44) (.40)
Excess distributions of net
realized gains............. -- -- -- (.03) -- -- --
-----------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders................. (.50) (.47) (.50) (.55) (.58) (.44) (.40)
-----------------------------------------------------------------------------------------------------------------------
Net asset value, end of year... $8.86 $8.96 $9.30 $9.16 $8.87 $8.83 $8.94
-----------------------------------------------------------------------------------------------------------------------
Total return*.................. 4.62% 1.30% 7.14% 9.77% 4.78% 3.79% .53%
Net assets end of year (000s
omitted)..................... $43,620 $49,274 $52,439 $59,128 $67,707 $4,264 $4,703
Ratio of expenses to average
daily net assets............. 1.04% 1.03% 1.04% 1.06% 1.06% 1.79% 1.78%
Ratio of net investment income
to average daily net
assets....................... 5.71% 5.07% 5.37% 5.83% 6.34% 4.96% 4.32%
Portfolio turnover rate........ 181% 75% 118% 161% 75% 181% 75%
-----------------------------------------------------------------------------------------------------------------------

<CAPTION>
------------------------------- ---------------------------------
CLASS B
---------------------------------
YEAR ENDED JULY 31,
-----------------------------
U.S. GOVERNMENT SECURITIES FUND 1998 1997 1996
------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $9.14 $8.86 $9.02
-------------------------------
Operations:
Investment income - net...... .43 .46 .51
Net realized and unrealized
gain (loss) on
investments................ .14 .31 (.15)
-------------------------------
Total from operations.......... .57 .77 .36
-------------------------------
Distributions to shareholders:
From investment
income - net............... (.43) (.47) (.52)
Excess distributions of net
realized gains............. -- (.02) --
-------------------------------
Total distributions to
shareholders................. (.43) (.49) (.52)
-------------------------------
Net asset value, end of year... $9.28 $9.14 $8.86
-------------------------------
Total return*.................. 6.40% 8.95% 4.00%
Net assets end of year (000s
omitted)..................... $3,161 $2,826 $2,314
Ratio of expenses to average
daily net assets............. 1.79% 1.81% 1.81%
Ratio of net investment income
to average daily net
assets....................... 4.62% 5.08% 5.45%
Portfolio turnover rate........ 118% 161% 75%
-------------------------------
</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.

25
<PAGE> 29

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
CLASS C CLASS H
------------------------------------------------------ ---------------------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
------------------------------------------------------ ---------------------------------
U.S. GOVERNMENT SECURITIES FUND 2000 1999 1998 1997 1996 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $8.93 $9.27 $9.13 $8.85 $9.01 $8.94 $9.28 $9.14
---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net...... .44 .40 .43 .46 .51 .43 .40 .43
Net realized and unrealized
gains (losses) on
investments................ (.10) (.34) .14 .31 (.15) (.10) (.34) .14
---------------------------------------------------------------------------------------------------------------------------------
Total from operations.......... .34 .06 .57 .77 .36 .33 .06 .57
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment
income - net............... (.44) (.40) (.43) (.47) (.52) (.44) (.40) (.43)
Excess distributions of net
realized gains............. -- -- -- (.02) -- -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders................. (.44) (.40) (.43) (.49) (.52) (.44) (.40) (.43)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year... $8.83 $8.93 $9.27 $9.13 $8.85 $8.83 $8.94 $9.28
---------------------------------------------------------------------------------------------------------------------------------
Total return*.................. 3.91% .52% 6.41% 8.96% 4.00% 3.79% .53% 6.40%
Net assets end of year (000s
omitted)..................... $1,606 $3,071 $1,267 $1,444 $1,057 $8,345 $10,262 $10,816
Ratio of expenses to average
daily net assets............. 1.79% 1.78% 1.79% 1.81% 1.81% 1.79% 1.78% 1.79%
Ratio of net investment income
to average daily net
assets....................... 4.93% 4.32% 4.62% 5.07% 5.59% 4.96% 4.32% 4.62%
Portfolio turnover rate........ 181% 75% 118% 161% 75% 181% 75% 118%
---------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
------------------------------- ------------------------
CLASS H
------------------------
YEAR ENDED JULY 31,
--------------------
U.S. GOVERNMENT SECURITIES FUND 1997 1996
------------------------------- ------------------------
<S> <C> <C> <C>
Net asset value, beginning of
year......................... $8.86 $9.02
-------------------------------
Operations:
Investment income - net...... .46 .51
Net realized and unrealized
gains (losses) on
investments................ .31 (.15)
-------------------------------
Total from operations.......... .77 .36
-------------------------------
Distributions to shareholders:
From investment
income - net............... (.47) (.52)
Excess distributions of net
realized gains............. (.02) --
-------------------------------
Total distributions to
shareholders................. (.49) (.52)
-------------------------------
Net asset value, end of year... $9.14 $8.86
-------------------------------
Total return*.................. 8.94% 4.00%
Net assets end of year (000s
omitted)..................... $10,637 $10,120
Ratio of expenses to average
daily net assets............. 1.80% 1.81%
Ratio of net investment income
to average daily net
assets....................... 5.08% 5.52%
Portfolio turnover rate........ 161% 75%
-------------------------------
</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.

26
<PAGE> 30

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
--------------------------------- -------------------------------
YEAR ENDED JULY 31,
-----------------------------------------------------------------------------
STRATEGIC INCOME FUND 2000 1999 1998+ 2000 1999 1998+
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year................ $9.14 $10.05 $10.00 $9.14 $10.05 $10.00
---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .69 .61 .42 .62 .54 .38
Net realized and unrealized gain (loss) on
investments................................... (.30) (.89) .05 (.30) (.89) .05
---------------------------------------------------------------------------------------------------------------------------------
Total from operations............................. .39 (.28) .47 .32 (.35) .43
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.71) (.62) (.42) (.64) (.55) (.38)
From net realized gains on investments.......... -- (.01) -- -- (.01) --
---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.71) (.63) (.42) (.64) (.56) (.38)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year...................... $8.82 $9.14 $10.05 $8.82 $9.14 $10.05
---------------------------------------------------------------------------------------------------------------------------------
Total return*..................................... 4.43% (2.86%) 4.77% 3.63% (3.58%) 4.31%
Net assets end of year (000s omitted)............. $23,087 $22,207 $22,422 $806 $815 $398
Ratio of expenses to average daily net assets
(a)............................................. 1.10% 1.10% 1.10%** 1.85% 1.85% 1.85%**
Ratio of net investment income to average daily
net assets (a).................................. 7.71% 6.38% 6.22%** 6.96% 5.63% 5.73%**
Portfolio turnover rate........................... 67% 79% 136% 67% 79% 136%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
CLASS C CLASS H
------------------------------ ------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------------------------------
STRATEGIC INCOME FUND 2000 1999 1998+ 2000 1999 1998+
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.................... $9.15 $10.05 $10.00 $9.14 $10.05 $10.00
---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net............................. .62 .55 .38 .62 .54 .38
Net realized and unrealized gain (loss) on
investments....................................... (.30) (.89) .05 (.30) (.89) .05
---------------------------------------------------------------------------------------------------------------------------------
Total from operations................................. .32 (.34) .43 .32 (.35) .43
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net........................ (.64) (.55) (.38) (.64) (.55) (.38)
From net realized gains on investments.............. -- (.01) -- -- (.01) --
---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders................... (.64) (.56) (.38) (.64) (.56) (.38)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year.......................... $8.83 $9.15 $10.05 $8.82 $9.14 $10.05
---------------------------------------------------------------------------------------------------------------------------------
Total return*......................................... 3.63% (3.49%) 4.35% 3.63% (3.58%) 4.35%
Net assets end of year (000s omitted)................. $190 $219 $194 $810 $751 $355
Ratio of expenses to average daily net assets (a)..... 1.85% 1.85% 1.85%** 1.85% 1.85% 1.85%**
Ratio of net investment income to average daily net
assets (a).......................................... 6.96% 5.63% 5.73%** 6.96% 5.63% 5.73%**
Portfolio turnover rate............................... 67% 79% 136% 67% 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 as follows:

<TABLE>
<CAPTION>
RATIO OF EXPENSES RATIO OF NET INVESTMENT INCOME
------------------------------ ------------------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
------------------------------ ------------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Class A....................... 1.34% 1.44% 1.39% 7.47% 6.04% 5.93%
Class B, C, H................. 2.09% 2.19% 2.14% 6.72% 5.29% 5.44%
</TABLE>

27
<PAGE> 31

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------------------
YEAR, ENDED
YEAR ENDED JULY 31, OCTOBER 31,
---------------------------------------------------------------- -----------
HIGH YIELD PORTFOLIO 2000 1999 1998 1997 1996++ 1995
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year........ $6.67 $7.41 $7.83 $7.56 $7.61 $7.90
---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net................. .60 .59 .73 .76 .56 .86
Net realized and unrealized gain (loss)
on investments........................ (.64) (.72) (.40) .28 (.04) (.25)
---------------------------------------------------------------------------------------------------------------------------------
Total from operations..................... (.04) (.13) .33 1.04 (.52) .61
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net............ (.57) (.61) (.75) (.75) (.55) (.86)
Excess distributions of net realized
gains................................. -- -- -- (.02) (.02) (.04)
---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders....... (.57) (.61) (.75) (.77) (.57) (.90)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year.............. $6.06 $6.67 $7.41 $7.83 $7.56 $7.61
---------------------------------------------------------------------------------------------------------------------------------
Total return*............................. (.57%) (1.76%) 4.31% 14.51% 6.98% 8.07%
Net assets at end of year (000's
omitted)................................ $82,279 $106,921 $113,549 $123,115 $109,401 $113,268
Ratio of expenses to average daily net
assets.................................. 1.17% 1.16% 1.17% 1.19% 1.21%** 1.25%
Ratio of net investment income to average
daily net assets........................ 9.32% 8.54% 9.46% 9.84% 9.87%** 10.61%
Portfolio turnover rate................... 67% 46% 214% 331% 146% 101%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
CLASS B
-------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO 2000 1999 1998 1997 1996++ 1995+
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year........ $6.67 $7.41 $7.83 $7.56 $7.60 $7.87
---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net................. .56 .54 .68 .71 .53 .78
Net realized and unrealized gain (loss)
on investments........................ (.64) (.72) (.40) .28 (.04) (.23)
---------------------------------------------------------------------------------------------------------------------------------
Total from operations..................... (.08) (.18) .28 .99 .49 .55
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net............ (.53) (.56) (.70) (.70) (.51) (.78)
Excess distributions of net realized
gains................................. -- -- -- (.02) (.02) (.04)
---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders....... (.53) (.56) (.70) (.72) (.53) (.82)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year.............. $6.06 $6.67 $7.41 $7.83 $7.56 $7.60
---------------------------------------------------------------------------------------------------------------------------------
Total return*............................. (1.29%) (2.44%) 3.67% 13.80% 6.62% 7.25%
Net assets at end of year (000's
omitted)................................ $15,279 $22,814 $28,935 $20,388 $12,067 $7,530
Ratio of expenses to average daily net
assets.................................. 1.82% 1.81% 1.82% 1.83% 1.86%** 1.90%**
Ratio of net investment income to average
daily net assets........................ 8.66% 7.90% 8.81% 9.24% 9.20%** 9.66%**
Portfolio turnover rate................... 67% 46% 214% 331% 146% 101%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
CLASS C
-------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO 2000 1999 1998 1997 1996++ 1995+
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year........ $6.66 $7.40 $7.82 $7.55 $7.59 $7.87
---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net................. .56 .54 .68 .71 .53 .78
Net realized and unrealized gain (loss)
on investments........................ (.64) (.72) (.40) .28 (.04) (.24)
---------------------------------------------------------------------------------------------------------------------------------
Total from operations..................... (.08) (.18) .28 .99 .49 .54
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net............ (.53) (.56) (.70) (.70) (.51) (.78)
Excess distributions of net realized
gains................................. -- -- -- (.02) (.02) (.04)
-----------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders....... (.53) (.56) (.70) (.72) (.53) (.82)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year.............. $6.05 $6.66 $7.40 $7.82 $7.55 $7.59
---------------------------------------------------------------------------------------------------------------------------------
Total return*............................. (1.29%) (2.44%) 3.67% 13.82% 6.63% 7.12%
Net assets at end of year (000's
omitted)................................ $4,224 $6,051 $8,641 $7,037 $3,378 $2,180
Ratio of expenses to average daily net
assets.................................. 1.82% 1.81% 1.82% 1.83% 1.86%** 1.90%**
Ratio of net investment income to average
daily net assets........................ 8.66% 7.90% 8.81% 9.26% 9.21%** 9.83%**
Portfolio turnover rate................... 67% 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.
+ 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).

28
<PAGE> 32

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
CLASS H
----------------------------------------------------------------------------
YEAR ENDED JULY 31,
----------------------------------------------------------------------------
HIGH YIELD PORTFOLIO 2000 1999 1998 1997 1996++ 1995+
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year................. $6.66 $7.40 $7.82 $7.55 $7.60 $7.87
---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net.......................... .57 .54 .68 .71 .52 .78
Net realized and unrealized gain (loss) on
investments.................................... (.64) (.72) (.40) .28 (.04) (.23)
---------------------------------------------------------------------------------------------------------------------------------
Total from operations.............................. (.07) (.18) .28 .99 .48 .55
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net..................... (.53) (.56) (.70) (.70) (.51) (.78)
Excess distributions of net realized gains....... -- -- -- (.02) (.02) (.04)
---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders................ (.53) (.56) (.70) (.72) (.53) (.82)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year....................... $6.06 $6.66 $7.40 $7.82 $7.55 $7.60
---------------------------------------------------------------------------------------------------------------------------------
Total return*...................................... (1.13%) (2.44%) 3.67% 13.82% 6.48% 7.25%
Net assets at end of year (000s omitted)........... $36,161 $56,420 $72,415 $63,789 $39,133 $23,862
Ratio of expenses to average daily net assets...... 1.82% 1.81% 1.82% 1.83% 1.86%** 1.90%**
Ratio of net investment income to average daily net
assets........................................... 8.66% 7.90% 8.81% 9.23% 9.21%** 9.81%**
Portfolio turnover rate............................ 67% 46% 214% 331% 146% 101%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

29
<PAGE> 33

(This page has been left blank intentionally.)
<PAGE> 34
[FORTIS LOGO]

FORTIS FINANCIAL GROUP
Fund management offered through Fortis Advisers, Inc. since 1949
Securities offered through Fortis Investors, Inc., member NASD, SIPC
Insurance products issued by 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

ACCOUNT APPLICATION: Complete this application to open a new Fortis account or
to add services to an existing Fortis account. DO NOT USE TO OPEN A FORTIS IRA,
SEP, 403(b) OR FORTIS MONEY FUND ACCOUNT. If you have questions, please call
your investment professional or Fortis customer service at (800) 800-2000,
extension 3012. Please complete all sections, as submission of an incomplete
application may cause processing delays.

Mail to: FORTIS MUTUAL FUNDS, P.O. Box 9140, Minneapolis, MN 55480-9140

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. (When one joint tenant dies, the other takes full ownership.

[ ] 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
birthdate of minor.

[ ] TRUST: List trustee and trust title, including trust date, trust's taxpayer
ID number and include a photocopy of the first and last page of the trust
agreement.

[ ] CORPORATION, ASSOCIATION, PARTNERSHIP: Include full name, taxpayer ID
number. Also include a photocopy of articles of incorporation, partnership
agreements, etc.

[ ] FORTIS KEY PLAN: Include social security number.

[ ] QUALIFIED PLAN: For pooled 401(k) plans, trusts and pensions, include name
of plan, trustee, and plan's taxpayer ID number. (Do not use this
application for a Fortis IRA).

[ ] OTHER______________________________________________________________________

Please print

_______________________________________________________________________________
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 Joint tenant social security
(taxpayer ID) number (taxpayer ID)

_(_______)________________________________ _(________)_____________________
Daytime telephone number Date of birth
(Uniform gift/transfer to minors)

Date of trust (if applicable)__________________________________________________
Are you a U.S. citizen? [ ] yes [ ] no

If no, country of permanent residence___________________________________________

2. INVESTMENT ACCOUNT

A. PHONE ORDERS
Was order previously phoned in? [ ] yes [ ] no

If yes, date________________/_______/__________

Confirmation no.__________________________ Account no.__________________________
For phone orders, check must be made payable to Fortis investors.

B. MAIL-IN ORDERS
Check enclosed for $______________ (PAYABLE TO FORTIS FUNDS)

MUST INCLUDE CLASS

1)___________________________ $___________________ A [ ] B [ ] C [ ] H [ ]
Fund name Amount or percent Class

2)___________________________ $___________________ A [ ] B [ ] C [ ] H [ ]
Fund name Amount or percent Class

3)___________________________ $___________________ A [ ] B [ ] C [ ] H [ ]
Fund name Amount or percent Class

4)___________________________ $___________________ A [ ] B [ ] C [ ] H [ ]
Fund name Amount or percent Class

5)___________________________ $___________________ A [ ] B [ ] C [ ] H [ ]
Fund name Amount or percent Class

3. TRANSFER ON DEATH

Please indicate the primary beneficiary with "PB" after the beneficiary(ies)
name(s). Indicate contingent beneficiary with "CB". Indicate lineal descendant
per stirpes with "LDPS" if you want ownership to pass to the legal heirs of the
primary beneficiary in the event a designated beneficiary dies before the
account owner.

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

BENEFICIARY(IES)

_______________________________________ ___________-__________-_____________
Name Social security number

95749 (c) Fortis, Inc. 11/00
<PAGE> 35
ACCOUNT APPLICATION continued

4. EXEMPTION FROM SALES CHARGE
CHECK IF APPLICABLE (for net asset value purchases):

[ ] I am a member of one of the categories of persons listed under "Exemptions
from sales charge" in the prospectus. I qualify for exemption from the sales
charge because ____________ .

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

5. DISTRIBUTION OPTIONS

If no option is selected, all distributions will be reinvested in the same
Fortis funds(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 6 for payment options.)

[ ] Dividends and capital gains in cash
(See Section 6 for payment options.)

[ ] Distributions into another Fortis fund
(must be same class).

______________________ _____________________
Fund name Fund/account number
(if existing account)

6. 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 advisor before electing a Systematic
Withdrawal Plan.

Please redeem shares from my Fortis __________ Fund, account number ______ in
the amount of $_______.

Effective withdrawal date / /
____________________

FREQUENCY: [ ] monthly [ ] quarterly [ ] semiannually [ ] 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. Signature guarantee is required to send to any place other than
address of record.

[ ] Via U.S. mail
[ ] Via ACH - electronic transfer

[ ] My address of record.

C. TELEPHONE OPTIONS

1. TELEPHONE EXCHANGE All exchanges must be into accounts that have the
identical registration-ownership. All authorized signatures listed is
Section 13 (or your registered representative with shareholder consent) can
make telephone transfers.

2. TELEPHONE REDEMPTION ($25,000 LIMIT AND NOT AVAILABLE FOR QUALIFIED PLANS) If
you have not changed your address in the past 60 days, you are eligible for
this service. This option allows all authorized signatures in Section 13 (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.

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.

95749 (C) Fortis, Inc. 11/00 Continued
<PAGE> 36
ACCOUNT APPLICATION continued

7. REDUCED FRONT-END SALES CHARGES
A. RIGHT OF ACCUMULATION

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

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

B. STATEMENT OF INTENT

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

8. PRIVILEGED ACCOUNT SERVICE
Fortis' Privileged Account Service(R) systematically rebalances your funds back
to your original specifications ($10,000 minimum per account). All funds must
be within the same class.

Frequency: [ ] quarterly [ ] semiannually [ ] annually

---------------------------------------------------------
Fund selected Percentage
(up to five) (whole percent)

1)_________________________ _________________________

2)_________________________ _________________________

3)_________________________ _________________________

4)_________________________ _________________________

5)_________________________ _________________________

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

9. 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 made within the
same class. See prospectus for details.

/ /
------------------------------------- ----------------------------------
Fund from which shares will Effective date
be exchanged

Fund(s) to receive investment(s):

---------------------------------------------------------------------------
Fund Amount to invest monthly
---------------------------------------------------------------------------

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

10. SYSTEMATIC INVESTMENT PLAN [ ] yes [ ] no
These plans may be established with automatic withdrawals of $25 or more each
month.

Complete the Automated Clearing House (ACH) authorization agreement form in the
prospectus and attach a voided check from your bank checking account.

11. OTHER SPECIAL INSTRUCTIONS

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

12. 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

----------------------------------------------------------------------------
Authorize signature of broker/dealer

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

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

I/We 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)

/ /
-----------------------------------------------------------------------
Owner, custodian, trustee Date

/ /
-----------------------------------------------------------------------
Joint owner, trust Date

95749 (C) Fortis, Inc. 11/00
<PAGE> 37

(This page has been left blank intentionally.)
<PAGE> 38
FORTIS FINANCIAL GROUP
Fund management offered through Fortis Advisers, Inc. since 1949
Securities offered through Fortis Investors, Inc., member NASD, SIPC
Insurance products issued by Fortis Benefits Insurance
Company & Fortis Insurance Company
P.O. Box 84284 St Paul, MN 55164-0284 (800) 800-2000
http:/www.ffg.us.fortis.com [FORTIS LOGO]

FORTIS INVESTORS ACCOUNT FORM [ ] New Client [ ] Existing client - update

REGISTERED REPRESENTATIVES OF FORTIS INVESTORS MUST COMPLETE THIS FORM WHEN
OPENING A NEW ACCOUNT OR WHEN UPDATING INFORMATION FOR AN EXISTING ACCOUNT.
PLEASE PROVIDE ALL REQUESTED INFORMATION TO AVOID PROCESSING DELAYS. RETURN
THIS FORM ALONG WITH THE PRODUCT APPLICATION.

[ ] Joint account registrations - Include names of both account holders.
[ ] UGMA/UTMA custodial accounts - Indicate name of custodian and minor.
Remaining questions apply to custodian.
[ ] Trust accounts - Indicate name and date of trust and trustee(s)
[ ] Corporate accounts - Indicate name of corporation and tax identification
number.

Please print:

_______________________________ _____________________________ _____________
Owner - individual, first joint Social security/tax ID number Date of Birth
tenant, custodian, trustee

_______________________________ _____________________________ _____________
Owner - individual, second Social security/tax ID number Date of Birth
joint tenant, custodian, trustee

________________________________________ _________________ _________________
Address Home phone number Work phone number

______________________________________________ ______________ ____________
City State Zip

Are you a U.S. citizen? [ ] yes [ ] no -- If no, please indicate permanent
residence:______________________
country
Are you associated with a NASD member firm? [ ] yes [ ] no

Are you an officer, director, or 10% shareholder of any
public company? [ ] yes [ ] no

Will anyone else have authority over this account through a power-of-attorney?
[ ] yes [ ] no

If yes, what type of power-of-attorney?
[ ] full [ ] limited Date executed:_______________________________________

INITIAL TRANSACTION INFORMATION:

[ ] Mutual fund(s) -- describe:________________________________________________

[ ] Annuity contract -- describe:______________________________________________

[ ] Variable universal life contract -- describe:______________________________

[ ] Other -- describe:_________________________________________________________

Initial transaction amount $_______ Total annual planned contribution $________

Source of funds: [ ] discretionary income [ ] savings [ ] retirement plan

[ ] other -- describe:__________________________________________________________

Replacement of previous investment? [ ] yes [ ] no -- If yes, Fortis requires a
CLIENT REPLACEMENT DISCLOSURE LETTER (99134).

95899 (c) Fortis, Inc. 11/00
<PAGE> 39
FORTIS INVESTORS ACCOUNT FORM continued

NASD RULE 2310 REQUIREMENTS

All information must be provided. Fortis Investors is required to collect this
information to comply with NASD and state regulations. Your responses will be
treated as confidential client information.

INVESTMENT OBJECTIVE -- select the one that best describes your goal:

[ ] Growth -- long-term capital appreciation

[ ] Income --cash generating

[ ] Total return -- blend of capital appreciation, dividends and interest

RISK TOLERANCE:

[ ] conservative [ ] moderate [ ] aggressive

INVESTMENT EXPERIENCE -- YEARS: ______

FINANCIAL PROFILE

Occupation: _______________________ Employer: ________________________

Years employed:____________________

____________________________________
ESTIMATED TOTAL ANNUAL INCOME

[ ] combined [ ] joint

[ ] under $25,000
[ ] $25,000-$49,999
[ ] $50,000-$99,999
[ ] $100,000-$499,999
[ ] $500,000-$999,999
[ ] $1,000,000-$4,999,999
[ ] $5,000,000 and over

ESTIMATED NET WORTH
Exclusive of family residence

[ ] under $25,000
[ ] $25,000-$49,999
[ ] $50,000-$99,999
[ ] $100,000-$499,999
[ ] $500,000-$999,999
[ ] $1,000,000-$4,999,999
[ ] $5,000,000 and over

ESTIMATED FEDERAL TAX BRACKET

_________%

ESTIMATED STATE TAX BRACKET

_________%

____________________________________

CURRENT ASSETS AS OF / /
_______________

<TABLE>
<CAPTION>
TYPE INSTITUTION START ACCOUNT SOURCE CONTRIBUTION
OF PRODUCT WHERE HELD DATE VALUE OF FUNDS SCHEDULE
<S> <C> <C> <C> <C> <C>

/ /
____________________ ___________________ ___________ $ _________ __________ _____________

/ /
____________________ ___________________ ___________ $ _________ __________ _____________
</TABLE>

I HAVE RECEIVED AND READ THE APPROPRIATE PROSPECTUS FOR THE PRODUCT I AM
PURCHASING. I AM OF LEGAL AGE AND CAPACITY. I HAVE PROVIDED THIS INFORMATION TO
FORTIS INVESTORS, INC.

/ / / /
_____________________________ __________ __________________________ __________
Client signature Date Client Signature Date

Remarks: _______________________________________________________________________

________________________________________________________________________________

[ ] If this is an application for an annuity to be a part of a qualified plan, I
have reviewed the contents of the Choosing a Qualified Plan Investment
brochure (#100800) with the applicant and have left a copy of the brochure
with the applicant.

/ / ( )
___________________________ __________ ____________________ __________________
Registered representative Date Rep phone number Rep code number

/ /
____________________________________________________________ __________________
Registered principal -- Fortis Investors, Inc. Date

95899 (C) Fortis, Inc, 11/00

<PAGE> 40
[FORTIS 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

P.O. Box 64284 St. Paul, MN 55164-0284 (800) 800-2000

http://www.ffg.us.fortis.com
FORTIS MUTUAL FUND
AUTOMATED CLEARING HOUSE (ACH) AUTHORIZATION AGREEMENT
Please complete each section below to establish ACH capability to your Fortis
Mutual Fund Account.
For personal service, please call your investment professional or Fortis at
(800) 800-2000, extension 3012.
For investment options, complete sections 1, 2, 3. For withdrawal, complete
sections 1, 2, 4, 5.

1 FORTIS ACCOUNT INFORMATION

ACCOUNT REGISTRATION:

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

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OWNER (SECOND JOINT TENANT, MINOR, TRUST NAME)

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ADDITIONAL INFORMATION, IF NEEDED

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STREET ADDRESS

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CITY STATE ZIP

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

2 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>

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Transit number

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Bank account number

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Account owner(s) (please print)

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Depositor's daytime phone

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

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SIGNATURE OF DEPOSITOR DATE

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SIGNATURE OF JOINT-DEPOSITOR DATE

3 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 AND BY FORTIS INTERNET
WEBSITE (MINIMUM $25, MAXIMUM $150,000)
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
CERTAIN TAX-QUALIFIED ACCOUNTS INCLUDING 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>

4 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 AND BY FORTIS INTERNET
WEBSITE (MINIMUM $25, 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
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OWNER, CUSTODIAN, TRUSTEE DATE

X
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JOINT OWNER, TRUSTEE DATE

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

98049 (12/00)

<PAGE> 41

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<PAGE> 43

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<PAGE> 44

(This page has been left blank intentionally.)
<PAGE> 45

[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, 2000

- 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 12/00

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> 46

STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 2000

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.

This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to, and should be read together
with, a prospectus for U.S. Government Securities Fund, Strategic Income Fund
and High Yield Portfolio (the "Funds") dated December 1, 2000. The financial
statements included as a part of the Funds' Annual Report to Shareholders for
the fiscal year ended July 31, 2000 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> 47

TABLE OF CONTENTS

PAGE

Fund History 1

Description of the Funds 1

Investment Strategies and Risk Considerations 1

Investment Restrictions 28

Management of the Funds 34

Principal Holders of Securities 39

Investment Advisory and Other Services 39

Brokerage Allocation and Other Practices 43

Capital Stock 46

Pricing of Shares 46

Purchase of Shares 49

Redemption of Shares 52

Taxation 53

Underwriter and Distribution of Shares 55

Performance Information 56

Financial Statements 59

Other Service Providers 59

Limitation of Director Liability 59

Additional Information 60

Appendix A
Description of Futures, Options and Forward Contracts 61
Appendix B
Corporate Bond and Commercial Paper Ratings 66

<PAGE> 48

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 STRATEGIES AND RISK CONSIDERATIONS

This section of the Statement of Additional Information contains more
information on the types of securities in which the Funds may invest and the
investment strategies that the Funds may use, including securities and
strategies not discussed in the Prospectus. Unless otherwise noted, investment
strategies used by the Funds may be changed without the approval of
shareholders.

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 of the U.S. Government). The Fund may invest a significant portion of
these assets in mortgage-backed securities issued by U.S. government agencies,
including agency-backed collateralized mortgage obligations ("CMOs") and
multi-class pass-through securities. The Fund will invest in these types of
securities that 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 issuer
does not make the securities unsuitable investments for the Fund.

Up to 35% of the Fund's total assets may consist of:

1
<PAGE> 49

(1) Marketable non-convertible debt securities which are rated at the
time of purchase within the three highest grades assigned by Moody's (Aaa, Aa or
A) or S&P (AAA, AA or A), or comparably rated by another nationally recognized
rating agency. See Appendix B for a discussion of S&P and Moody's ratings;

(2) Marketable securities (payable in U.S. dollars) of, or guaranteed
by, the government of Canada or a province of Canada or any instrumentality or
political subdivision thereof (such securities not to exceed 25% of the Fund's
total assets);

(3) Obligations of, or guaranteed by, U.S. banks, which obligations,
although not rated as a matter of policy by either Moody's or S&P, are
considered by Advisers to have investment quality comparable to securities which
may be purchased under item (1) above (such securities not to exceed 25% of the
Fund's total assets);

(4) Commercial paper obligations rated Prime-1 by Moody's or A-1 by
S&P, or comparably rated by another nationally recognized rating agency; and

(5) Cash, other non-securities assets such as accrued interest,
receivables from investment securities sold, prepaid expenses, as well as other
high-quality short-term interest bearing debt securities not discussed above.

The Fund may also invest in asset-backed and commercial mortgage-backed
securities issued by private entities if these securities fall within the
investment restrictions for marketable, non-convertible debt securities set
forth above.

For more information on the types of securities in which the Fund may
invest, see "More Information on Certain Investments and Investment Strategies."

The Fund may (i) invest in short-term money market instruments; (ii)
invest in certificates of deposit; (iii) purchase commercial paper backed by
letters of credit; (iv) invest in extendible notes; (v) invest in floating and
variable rate instruments; (vi) purchase municipal securities; (vii) purchase
accrual bonds; (viii) purchase securities of other investment companies; (ix)
purchase securities on a "when-issued" or delayed delivery basis; (x) enter into
dollar roll transactions; (xi) enter into repurchase agreements; (xii) purchase
illiquid securities; (xiii) sell securities short against the box; (xiv) lend
its securities; (xv) borrow money for temporary or emergency purposes; and (xvi)
utilize short-term trading techniques. For more information about these
investment strategies, restrictions on their use and certain associated risks
see the related headings under "More Information on Certain Investments and
Investment Strategies."

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 Strategies and Risk
Considerations--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

2
<PAGE> 50

other investment instruments as described in "More Information on Certain
Investments and Investment Strategies" 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 "More Information on Certain
Investments and Investment Strategies."

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.

3
<PAGE> 51

For more information on the types of securities in which the Fund may
invest, investment strategies it may utilize, restrictions on their use and
certain associated risks see "More Information on Certain Investments and
Investment Strategies."

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.

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 "More Information on Certain Investments and Investment
Strategies," High Yield Portfolio may invest in CMOs, multi-class pass-through
securities, repurchase agreements, variable amount master demand notes and up to
25% of its total assets in foreign securities.

4
<PAGE> 52

MORE INFORMATION ON CERTAIN INVESTMENTS AND INVESTMENT STRATEGIES

COMMON AND PREFERRED STOCKS. Strategic Income Fund and High Yield
Portfolio may invest in common and preferred stocks. Stocks represent shares of
ownership in a company. Generally, preferred stock has a specified dividend and
ranks after bonds and before common stocks in its claim on income for dividend
payments and on assets should the company be liquidated. After other claims are
satisfied, common stockholders participate in company profits on a pro rata
basis; profits may be paid out in dividends or reinvested in the company to help
it grow. Increases and decreases in earnings are usually reflected in a
company's stock price, so common stocks generally have the greatest appreciation
and depreciation potential of all corporate securities.

CONVERTIBLE SECURITIES. Strategic Income Fund and High Yield Portfolio
may invest in debt or preferred stock convertible into or exchangeable for
common stock. Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than non-convertible
securities. They generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree. In
recent years, convertibles have been developed which combine higher or lower
current income with options and other features.

WARRANTS OR RIGHTS. Warrants or rights may be acquired by Strategic
Income Fund and High Yield Portfolio in connection with other securities or
separately. A warrant is essentially a long-term (in excess of one year) option
that conveys to the holder the privilege of buying a stated number of shares of
common stock at a specified price any time during the life of the warrant
(generally two or more years). It is typically attached to a bond or preferred
stock issue, with the intent to lower the cost of capital for the issuing firm
or make an issue more attractive to investors.

SHORT-TERM MONEY MARKET INSTRUMENTS. Each Fund may at any time invest
funds awaiting investment or held as reserves for the purposes of satisfying
redemption requests, payment of dividends or making other distributions to
shareholders, in cash and short-term money market instruments. Short-term money
market instruments in which each Fund may invest include (i) short-term U.S.
government securities and short-term obligations of foreign sovereign
governments and their agencies and instrumentalities, (ii) interest bearing
savings deposits on, and certificates of deposit and bankers' acceptances of,
United States and foreign banks, (iii) commercial paper of U.S. or foreign
issuers rated A-1 or higher by S&P or Prime-1 by Moody's or comparably rated by
another nationally recognized rating agency, or, if not rated, determined by
Advisers to be of comparable quality and (iv) repurchase agreements relating to
the foregoing; provided that U.S. Government Securities Fund may not invest in
securities of foreign issuers, except that it may invest in marketable
securities of, or guaranteed by, the government of Canada or a province of
Canada or any instrumentality or political subdivision thereof.

CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Each Fund may invest
in certificates of deposit. Certificates of deposit are receipts issued by a
bank in exchange for the

5
<PAGE> 53

deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.

LETTERS OF CREDIT. Commercial paper and other short-term obligations
may be backed by irrevocable letters of credit issued by banks that assume the
obligation for payment of principal and interest in the event of default by an
issuer. Only banks, the securities of which, in the opinion of Advisers, are of
investment quality comparable to other permitted investments of such Fund, may
be used for letter of credit-backed investments.

EXTENDIBLE NOTES. Each Fund is permitted to invest up to 25% of the
value of its total assets in extendible notes. An extendible note is a debt
arrangement under which the holder, at its option, may require the issuer,
typically a financial or an industrial concern, to repurchase the note for a
predetermined fixed price at one or more times prior to the ultimate maturity
date of the note. Typically, an extendible note is issued at an interest rate
that can be adjusted at fixed times throughout its term. At the same time as the
interest rate is adjusted by the issuer, the holder of the note is typically
given the option to "put" the note back to the issuer at a predetermined price,
e.g., at 100% of the outstanding principal amount plus unpaid accrued interest,
if the extended interest rate is undesirable to the holder. This option to put
the note back to the issuer, i.e., to require the issuer to repurchase the note,
provides the holder with an optional maturity date that is shorter than the
actual maturity date of the note.

Extendible notes are typically issued with maturity dates in excess of
397 days from the date of issuance. If such extendible notes provide for an
optional maturity date of 397 days or less, however, then such notes are deemed
by the Funds to have been issued for the shorter optional maturity date.
Investment in extendible notes is not expected to have a material impact on the
effective portfolio maturities of the Funds.

An investment in an extendible note is liquid, and the note may be
resold to another investor prior to its optional maturity date at its market
value. The market value of an extendible note with a given optional maturity
date is determined and fluctuates in a similar manner to the market value of a
fixed maturity note with a maturity equivalent to the optional maturity of the
extendible note. Compared to fixed-term notes of the same issuer, however,
extendible notes with equivalent optional maturities generally yield higher
returns without a material increase in risk to the Fund buying them.

The creditworthiness of the issuers of the extendible notes is
monitored and rated by Moody's and by S&P, and investments by the Funds in such
extendible notes are restricted to notes with the same investment ratings as are
acceptable to the Funds with respect to other forms of investment. The
creditworthiness of such issuers is also monitored by Advisers.

6
<PAGE> 54

FLOATING AND VARIABLE RATE INSTRUMENTS. Some of the debt obligations
that the Funds may purchase have floating or variable rates of interest. Such
obligations bear interest at rates that are not fixed, but vary with changes in
specified market rates or indices, such as the prime rate, and at specified
intervals. Certain of these obligations may carry a demand feature that would
permit the holder to tender them back to the issuer at par value prior to
maturity. Each Fund limits its purchases of floating and variable rate
obligations to those of the same quality as it otherwise is allowed to purchase.
Advisers monitors on an ongoing basis the ability of an issuer of a demand
instrument to pay principal and interest on demand. A Fund's right to obtain
payment at par on a demand instrument can be affected by events occurring
between the date such Fund elects to demand payment and the date payment is due
that may affect the ability of the issuer of the instrument to make payment when
due, except when such demand instruments permit same-day settlement. To
facilitate settlement, these same-day demand instruments may be held in book
entry form at a bank other than the Fund's custodian, subject to a sub-custodian
agreement approved by the Fund between the bank and the Fund's custodian.

The floating and variable rate obligations that the Funds may purchase
include certificates of participation in obligations purchased from banks. A
certificate of participation gives the Fund an undivided interest in the
underlying obligations in the proportion that such Fund's interest bears to the
total principal amount of such obligations. Certain of such certificates of
participation may carry a demand feature that would permit the holder to tender
them back to the issuer prior to maturity. To the extent that floating and
variable rate instruments without demand features are not readily marketable,
they will be subject to the investment restrictions pertaining to investments in
illiquid securities.

U.S. GOVERNMENT SECURITIES. Each Fund may invest in a variety of
securities issued or guaranteed by the U.S. Government, which differ in their
interest rates, maturities and dates of issuance. These securities include U.S.
Treasury obligations and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. U.S. Treasury obligations include U.S. Treasury
bills (initial maturities of one year or less), U.S. Treasury notes (initial
maturities of one to 10 years), and U.S. Treasury bonds (generally having
initial maturities of greater than 10 years), all of which are backed by the
full faith and credit of the United States. In addition to U.S. Treasury
obligations, the Funds may invest in the following securities issued or
guaranteed by U.S. government agencies or instrumentalities: (1) obligations
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association; (2)
obligations supported 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; and (3) obligations backed by the credit of the issuer itself,
such as securities of the Student Loan Marketing Association, Federal Home Loan
Bank or Federal National Mortgage Association. U.S. government securities are
backed by the full faith and credit of the U.S. government or guaranteed by the
issuing agency or instrumentality and, therefore, there is generally considered
to be little or no risk as to the issuer's capacity to pay interest and repay
principal. Nevertheless, due to fluctuations in interest rates there is no
guarantee as to the market value of U.S. government securities.

U.S. Treasury Inflation-Protection Securities. U.S. government
securities in which the Funds may invest include U.S. Treasury
inflation-protection securities. Inflation-protection securities are a type of
marketable book-entry security 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,

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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 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

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<PAGE> 56

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.

MUNICIPAL SECURITIES. Each Fund may invest not more than 20% of its
total assets in municipal securities, such as municipal bonds and other debt
obligations, when such securities appear to offer more attractive returns than
taxable securities. 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.

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 Federal National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC"). FNMA purchases residential mortgages from a
list of approved

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<PAGE> 57

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

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(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 Manufactured Housing
Construction and Safety Standards Act of 1974), whether such

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<PAGE> 59

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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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, and
inverse floaters, 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.

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

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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.

REAL ESTATE AND REAL ESTATE INVESTMENT TRUSTS. Strategic Income Fund
and High Yield Portfolio may invest in real estate investment trusts ("REITs"),
real estate development and real estate operating companies and other real
estate related businesses. A REIT may focus on particular projects, such as
apartment complexes or shopping centers, or geographic regions, such as the
Southeastern United States, or both. The Funds may invest in both equity and
debt REITs. Equity REITs are trusts that sell shares to investors and use the
proceeds to invest in real estate or interests in real estate. Debt REITs invest
in obligations secured by mortgages on real property or interests in real
property.

The Funds' investments in real estate securities may be subject to
certain of the same risks associated with the direct ownership of real estate.
These risks include: declines in the value of real estate; risks related to
general and local economic conditions; overbuilding and competition; increases
in property taxes and operating expenses; and variations in rental income. In
addition, REITs may not be diversified. REITs are subject to the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and failing to maintain exemption from the 1940 Act. Also, REITs
may be dependent upon management skill and may be subject to the risks of
obtaining adequate financing for projects on favorable terms.

ACCRUAL BONDS. Each Fund may invest in certain types of accrual bonds,
including zero coupon obligations, payment-in-kind debentures and deferred
payment securities. The holder of an accrual bond does not receive cash interest
during the accrual period of the bond.

Zero Coupon Obligations. The Funds may invest in zero coupon
obligations of government and corporate issuers, including rights to "stripped"
coupon and principal payments. Certain 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. The Funds may invest in either type of zero coupon obligation. A
Fund's investment policies and restrictions applicable to corporate and
government securities shall apply equally to such Fund's investments in zero
coupon securities (including, for example, minimum corporate bond ratings).

Payment-in-Kind Debentures. A payment-in-kind debenture ("PIK") pays
interest in securities rather than cash. 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

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<PAGE> 62

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. A Fund's investment
restrictions regarding corporate bond quality are applicable to investments in
PIKs by such Fund as well as to the securities which may constitute interest
payments on PIKs. While PIKs generate income for generally accepted accounting
standards purposes, they do not generate cash flow and thus could cause a Fund
to be forced to liquidate securities at an inopportune time in order to
distribute cash, as required by the Internal Revenue Code.

Deferred payment securities. With deferred payment securities interest
payments accrue on the security for a predetermined period of time. At the end
of the period, the accumulated cash interest is paid to the holder of the
security. Deferred payment securities are, similar to zero coupon bonds, issued
at a significant discount from face value. The discount approximates the total
amount of interest the bonds will accrue and compound over the period until the
first interest payment date at a rate of interest reflecting the market rate of
the security at the time of issuance.

ASSET-BACKED SECURITIES. The Funds may invest in asset-backed
securities, which have similar characteristics to mortgage-backed securities.
Asset-backed securities, issued by trusts and special purpose corporations, are
backed by a pool of assets, such as credit card receivables, home equity loans
and automobile receivables, representing the obligations of a number of
different parties. The credit quality of most asset-backed securities depends on
a number of factors, including the credit quality of the assets underlying such
securities, how well the issuer of the security is insulated from the credit
risk of the debtor, and the amount and quality of any credit enhancement of the
securities. To lessen the effect of failures by debtors on underlying assets to
make payments, payments or distributions of principal and interest on
asset-backed securities may be supported by non-governmental credit enhancements
including letters of credit, reserve funds, over-collateralization, and
guarantees by third parties. The Funds will not pay any additional or separate
fees for credit support. The degree of credit support provided for each issue is
generally based on historical information respecting the level of credit risk
associated with the underlying assets. Delinquency or loss in excess of the
level anticipated or failure of the credit support could adversely affect the
return on an investment in such a security.

Asset-backed securities generally are issued by a private
special-purpose entity. Asset-backed securities and their underlying receivables
generally are not issued or guaranteed by any governmental entity.

Asset-backed securities are subject to risks associated with changes in
interest rates and prepayment of underlying obligations similar to the risks of
investment in mortgage-backed securities discussed above. On the other hand,
asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may provide the Fund
with a less effective security interest in the related collateral than do
mortgage-backed securities. Therefore, there is the possibility that recoveries
on the underlying collateral may not, in some cases, be available to support
payments on these securities. Additionally, the market for privately issued
asset-backed securities is smaller and less liquid than the market for
government sponsored mortgage-backed securities. Each type of asset-backed
security also entails unique risks depending on the type of assets involved and
the legal structure used. For example, credit card receivables are generally
unsecured obligations of the credit card holder and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many of
which

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give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due.

TRANSACTIONS IN HIGH YIELD/HIGH RISK SECURITIES. Strategic Income Fund
and High Yield Portfolio invest in high yield/high risk securities. These are
non-investment grade fixed-income securities, also referred to as "junk bonds,"
that are rated lower than BBB by Standard & Poor's or Baa by Moody's.
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. 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

16
<PAGE> 64

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, 2000, 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
(OR EQUIVALENT) PERCENT OF TOTAL INVESTMENTS
--------------- ----------------------------
Strategic Income Fund High Yield Portfolio
<S> <C> <C>
AAA 11.6 --
AA 8.2 --
A 15.9 0.1
BBB 19.7 0.1
BB 14.4 17.9
B 28.3 74.4
CCC 0.2 2.8
CC -- --
C -- --
D -- 1.3
All unrated bonds as a group 1.7 3.4
---------------------------- --- ---
Total 100.0 100.0
</TABLE>

BRADY BONDS. Strategic Income Fund and High Yield Portfolio may invest
in Brady Bonds. Brady Bonds are fixed income securities that are created through
the exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring under a plan introduced by
Nicholas G. Brady when he was the U.S. Secretary of the Treasury. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar-denominated) and they are actively traded in the
over-the-counter secondary market. However, Brady Bonds should be viewed as
speculative in light of the history of defaults with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds.

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 25% 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

17
<PAGE> 65

with generally accepted accounting principles. Fluctuations in exchange rates
may affect the value of foreign securities not denominated in U.S. currency.

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 the investment securities of Strategic Income Fund and High Yield
Portfolio may be listed on foreign stock exchanges that may trade on other days
(such as a Saturday). As a result, the net asset value of Strategic Income Fund
and High Yield Portfolio 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.

18
<PAGE> 66
Inflation and rapid fluctuations in inflation rates have had and may continue to
have adverse effects on the economies and securities markets of certain of these
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. In many cases, emerging market countries are among
the world's largest debtors to commercial banks, foreign governments,
international financial organizations and other financial institutions. In
recent years, the governments of some of these countries have encountered
difficulties in servicing their external debt obligations, which has led to
defaults on certain obligations and the restructuring of certain indebtedness.
In general, emerging markets tend to be in the less economically developed
regions of the world, and are countries that have a lower degree of political
stability, a high demand for capital investment, a high dependence on export
markets for their major industries, a need to develop basic economic
infrastructures, and rapid economic growth.

DEPOSITARY RECEIPTS. Strategic Income Fund and High Yield Portfolio may
hold equity securities of foreign issuers in the form of American Depositary
Receipts ("ADRs"), Global Depositary Receipts ("GDRs") or other securities
convertible into securities of eligible European or Far Eastern Issuers. These
securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs are receipts typically issued
by an American bank or trust company that evidence ownership of underlying
securities issued by a foreign corporation. Generally, ADRs in registered form
are designed for use in the United States securities markets. For purposes of
the Funds' investment policies, the Funds' investments in ADRs and GDRs will be
deemed to be investments in the equity securities representing securities of
foreign issuers into which they may be converted.

PASSIVE FOREIGN INVESTMENT COMPANIES. Strategic Income Fund and High
Yield Portfolio may purchase the securities of certain foreign investment funds
or trusts called passive foreign investment companies. Such trusts have been the
only or primary way to invest in certain countries. In addition to bearing their
proportionate share of the trust's expenses (management fees and operating
expenses), shareholders will also indirectly bear similar expenses of such
trusts. Capital gains on the sale of such holdings are considered ordinary
income regardless of how long the fund held its investment. In addition, the
fund may be subject to corporate income tax and an interest charge on certain
dividends and capital gains earned from these investments, regardless of whether
such income and gains are distributed to shareholders.

YANKEE BONDS. Strategic Income Fund and High Yield Portfolio may invest
in Yankee Bonds which are dollar-denominated bonds issued in the United States
by foreign banks and corporations. These bonds pay semiannual interest and are
registered with the Securities and Exchange Commission.

SECURITIES OF OTHER INVESTMENT COMPANIES. The Funds may purchase the
securities of open-end or closed-end investment companies if the purchase is in
compliance with the 1940 Act. If a Fund invests in securities of other
investment companies, the return on any such investment will be reduced by the
operating expenses, including investment advisory and administrative fees, of
such investment companies. (Such Fund indirectly absorbs its pro rata share of
the other investment companies' expenses.) However, Advisers believes that at
times the return and liquidity features of these securities will be more
beneficial than other types of securities.

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

<PAGE> 67

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. Strategic Income Fund and High Yield Portfolio may
enter into interest rate futures contracts for hedging purposes. These Funds may
also enter into foreign currency futures contracts. (Unless otherwise specified,
interest rate futures contracts and foreign currency futures contracts are
collectively referred to as "Futures Contracts.")

Interest rate and foreign currency futures contracts are purchased or
sold to attempt to hedge against the effects of interest or exchange rate
changes on the Funds' current or intended investments in fixed income or foreign
securities. In the event that an anticipated decrease in the value of portfolio
securities occurs as a result of a general stock market decline, a general
increase in interest rates, or a decline in the dollar value of foreign
currencies in which portfolio securities are denominated, the adverse effects of
such changes may be offset, in whole or in part, by gains on the sale of Futures
Contracts. Conversely, the increased cost of portfolio securities to be
acquired, caused by a general rise in the stock market, a general decline in
interest rates, or a rise in the dollar value of foreign currencies, may be
offset, in whole or in part, by gains on Futures Contracts purchased by a Fund.
The Funds will incur brokerage fees when

<PAGE> 68

they purchases and sells 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 (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.

21
<PAGE> 69

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.

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 it 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

22
<PAGE> 70

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.

"WHEN-ISSUED" OR 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

23
<PAGE> 71

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.

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.

DOLLAR ROLLS. In connection with their ability to purchase securities
on a when-issued or forward commitment basis, each Fund may enter into "dollar
rolls" in which a Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. Each Fund gives up the right to receive principal and interest paid on the
securities sold. However, each Fund would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase plus any fee income received. Unless such
benefits exceed the income and capital appreciation that would have been
realized on the securities sold as part of the dollar roll, the use of this
technique will diminish the investment performance of each Fund compared with
what such performance would have been without the use of dollar rolls. Each Fund
will hold and maintain in a segregated account until the settlement date cash or
any security that is not considered restricted or illiquid in an amount equal to
the value of the when-issued or forward commitment securities. The benefits
derived from the use of dollar rolls may depend, among other things, upon
Adviser's (or the subadviser's) ability to predict interest rates correctly.
There is no assurance that dollar rolls can be successfully employed. In
addition, the use of dollar rolls by a Fund while remaining substantially fully
invested increases the amount of the Fund's assets that are subject to market
risk to an amount that is greater than the Fund's net asset value, which could
result in increased volatility of the price of the Fund's shares.

24
<PAGE> 72

VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes are short-term, unsecured promissory notes issued by corporations to
finance short-term credit needs. They allow the investment of fluctuating
amounts by High Yield Portfolio and Strategic Income Fund at varying market
rates of interest pursuant to arrangements between one of such Funds and a
financial institution which has lent money to a borrower. Variable amount master
demand notes permit a series of short-term borrowings under a single note. Both
the lender and the borrower have the right to reduce the amount of outstanding
indebtedness at any time. Such notes provide that the interest rate on the
amount outstanding varies on a daily basis depending upon a stated short-term
interest rate barometer. Advisers will monitor the creditworthiness of the
borrower throughout the term of the variable master demand note. It is not
generally contemplated that such instruments will be traded and there is no
secondary market for the notes. Typically, agreements relating to such notes
provide that the lender shall not sell or otherwise transfer the note without
the borrower's consent. Thus, variable amount master demand notes may under
certain circumstances be deemed illiquid assets. However, such notes will not be
considered illiquid where 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 and High Yield Portfolio 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. U.S. Government Securities Fund will
only execute repurchase agreements in which the underlying security meets the
criteria of the Fund's investment policies. Additionally, U.S. Government
Securities Fund will limit transactions involving repurchase agreements to
domestic commercial banks and/or recognized dealers in United States government
securities believed by Advisers to present minimum credit risks. 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 a repurchase price, however, the Fund could suffer a loss. If a
Fund owns the underlying securities following a default on the repurchase
agreement, the Fund will be subject to risk associated with changes in the
market value of such securities. The Funds' custodian will hold the securities
underlying any repurchase agreement or such securities may be part of the
Federal Reserve Book Entry System. The market value of the collateral underlying
the repurchase agreement will be determined on each business day. If at any time
the market value of the collateral falls below the repurchase price of the
repurchase agreement (including any

25
<PAGE> 73

accrued interest), the Fund will promptly receive additional collateral (so the
total collateral is in an amount at least equal to the repurchase price plus
accrued interest).

ILLIQUID SECURITIES. The Funds may invest in illiquid securities,
including "restricted" securities. For this purpose illiquid securities include,
among others, (i) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale, (ii)
options purchased over-the-counter and the cover for options written
over-the-counter, and (iii) repurchase agreements not terminable within seven
days. Commercial paper issued pursuant to the private placement exemption of
Section 4(2) of the Securities Act of 1933 (the "1933 Act") and securities that
are eligible for resale under Rule 144A under the 1933 Act that have legal or
contractual restrictions on resale but have a readily available market are not
deemed illiquid securities for this purpose. A restricted security is one which
was originally sold in a private placement and was not registered with the
Commission under the Securities Act of 1933 (the "1933 Act") and which is not
free to be resold unless it is registered with the Commission or its sale is
exempt from registration. 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

26
<PAGE> 74

to do so. Illiquid securities often sell at a price lower than similar
securities that are not subject to restrictions on resale.

SHORT SALES "AGAINST THE BOX." Each Fund may sell a security short to
the extent such Fund contemporaneously owns or has the right to obtain
securities identical to those sold short without payment of any additional
consideration. Such a short sale is referred to as a short sale "against the
box." If a Fund enters into a short sale against the box, it is required to
segregate securities equivalent in kind and amount to the securities sold short
(or securities convertible or exchangeable into such securities) and is required
to hold such securities while the short sale is outstanding. A Fund will incur
transaction costs, including interest, in connection with opening, maintaining
and closing short sales against the box.

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, not 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.

BORROWINGS. Each Fund may borrow money to the extent set forth below
under "Investment Restrictions." None of the Funds will borrow for leverage
purposes. Interest paid on borrowings will decrease the net earnings of a Fund
and will not be available for investment.

SHORT-TERM TRADING. U.S. Government Securities Fund intends to use
short-term trading of its securities as a means of managing its portfolio to
achieve its investment objectives. As used herein, "short-term trading" means
selling securities held for a relatively brief period of time, usually less than
three months. Short-term trading will be used by the Fund primarily in two
situations:

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

Yield Disparities. A security may be sold and another of comparable
quality purchased at approximately the same time, in order to take
advantage of what the Fund believes is a

27
<PAGE> 75

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.

SEGREGATED ACCOUNTS. To comply with the 1940 Act, a Fund engaging in
certain transactions involving options, futures, delayed delivery and forward
contracts on foreign currencies will "cover" its positions by establishing a
segregated account. These segregated accounts will be established and maintained
with the Fund's custodian and will contain only liquid assets such as cash, or
any security that is not considered restricted or illiquid.

RATINGS. After purchase by any Fund, a security may cease to be rated
or its rating may be reduced below the minimum required for purchase by such
Fund. Neither event will require a sale of such security by a Fund. To the
extent the ratings may change as a result of changes in the rating organizations
or the rating systems, each Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in the Prospectus and the Statement of Additional Information. The ratings of
Standard & Poor's Ratings Services and Moody's Investors Service, Inc. are
described in Appendix B attached hereto.

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.

INVESTMENT 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.

28
<PAGE> 76

Each Fund is subject to certain investment restrictions, which are set
forth below. Any investment restriction that is denoted as "fundamental" 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.

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.

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

29
<PAGE> 77

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

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

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

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

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

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

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

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

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

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

(3) Invest 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).

30
<PAGE> 78

STRATEGIC INCOME FUND

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 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.

31
<PAGE> 79

(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).

(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.

HIGH YIELD PORTFOLIO

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

(1) Purchase securities on margin or otherwise borrow money or
issue senior securities, except that in accordance with its
investment objectives and policies, it may purchase securities on a
when-issued and delayed delivery basis, within the limitations set
forth in the Prospectus and Statement of Additional Information.
The Fund may also obtain such short-term credit as it needs for the
clearance of securities transactions, and may borrow from a bank,
for its account, as a temporary measure to facilitate redemptions
(but not for leveraging or investment) an amount that does not
exceed 10% of the value of its total assets. Investment securities
will not be purchased while outstanding bank borrowings exceed 5%
of the value of the Fund's total assets.

(2) Mortgage, pledge or hypothecate its assets, except in an
amount not exceeding 10% of the value of its total assets to secure
temporary or emergency borrowing.

32
<PAGE> 80

(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.

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

33
<PAGE> 81

(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.

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

Allen R. Freedman* 60 Director Director, Fortis, Inc.; prior to July 2000, Chairman
One Chase Manhattan Plaza and CEO of Fortis, Inc., and Managing Director of
New York, New York Fortis International, N.V.; director of Systems and
Computer Technology Corporation.

Dr. Robert M. Gavin 60 Director President, Cranbrook Education Community; prior to
380 Lone Pine Road July 1996, President, Macalester College, St. Paul, MN.
Bloomfield, Michigan

</TABLE>

34
<PAGE> 82

POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
---------------- --- --------- -----------------------------------------
<S> <C> <C> <C>
Jean L. King 56 Director President, Communi-King, a communications consulting
12 Evergreen Lane firm, St. Paul, MN.
St. Paul, Minnesota

Dean C. Kopperud* 48 President and Chief Executive Officer and a Director of Advisers;
500 Bielenberg Drive Director Chief Executive Officer and a Director of Investors;
Woodbury, Minnesota Chief Executive Officer of Fortis Financial Group; a
Director of Fortis Benefits Insurance Company and
Senior Vice President of Fortis Insurance Company.

Phillip O. Peterson 55 Director Mutual Fund industry consultant; Partner of KPMG LLP
11155 Kane Trail through June 1999.
Northfield, Minnesota

Robb L. Prince 59 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 64 Director Principal, Griggs & Santow, Inc., economic and
75 Wall Street 21st Floor financial consultants
New York, New York

Noel F. Schenker 46 Director Senior Vice President, Marketing and New Business
1908 W. 49th Street Development, Select Comfort Corporation; prior to
Minneapolis, Minnesota 2000, marketing consultant; prior to 1996, Senior
Vice President, Marketing and Strategic Planning,
Rollerblade, Inc.

Dr. Lemma W. Senbet 53 Advisory Director The William E. Mayer Professor of Finance and Chair,
4435 Van Munching Hall College Finance Department, University of Maryland, College
Park, Maryland Park, MD; consultant, international financial
institutions.

Joseph M. Wikler 59 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., an
investment adviser, Baltimore, MD.

Gary N. Yalen 58 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>

35
<PAGE> 83

POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
---------------- --- --------- -----------------------------------------
<S> <C> <C> <C>
Howard G. Hudson 63 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 53 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.

James S. Byrd 49 Vice President Executive Vice President of Advisers.
90 South 7th Street
Minneapolis, Minnesota

Nicholas L.M. de Peyster 33 Vice President Vice President of Advisers.
One Chase Manhattan Plaza
New York, New York

Diane M. Gotham 42 Vice President Vice President of Advisers since 1998; from 1994 to
90 South 7th Street 1998, securities analyst for Advisers.
Minneapolis, Minnesota

Maroun M. Hayek 52 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 47 Vice President Vice President of Advisers.
One Chase Manhattan Plaza
New York, New York

Charles L. Mehlhouse 58 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 49 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 37 Vice President Senior Vice President of Advisers since January 2000;
One Chase Manhattan Plaza from March 1996 until 2000, Vice President of
New York, New York Advisers; from 1995 to March 1996, government
strategist, Merrill Lynch, New York, NY.

Kendall C. Peterson 44 Vice President Vice President of Advisers since August 1999; from
One Chase Manhattan Plaza 1985 to July 1999, Vice President and portfolio
New York, New York manager at Prudential Insurance Company of America,
Newark, NJ.

</TABLE>

36
<PAGE> 84

POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
---------------- --- --------- -----------------------------------------
<S> <C> <C> <C>
Michael J. Romanowski 50 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 40 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. 51 Vice President Vice President "Securities Operations of Advisers and
500 Bielenberg Drive of Investors.
Woodbury, Minnesota

Peggy E. Ettestad 43 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 42 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 51 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 58 Vice President Vice President and Assistant General Counsel, Fortis
500 Bielenberg Drive Benefits Insurance Company.
Woodbury, Minnesota

Scott R. Plummer 41 Vice President Vice President, Associate General Counsel and
500 Bielenberg Drive Assistant Secretary of Advisers.
Woodbury, Minnesota

Rhonda J. Schwartz 42 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.

Melinda S. Urion 47 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; from 1994 to
November 1995, corporate controller, American Express
Financial Corporation, Minneapolis, MN.
</TABLE>

37
<PAGE> 85

POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
---------------- --- --------- -----------------------------------------
<S> <C> <C> <C>
Michael J. Radmer 55 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 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 because
he holds a position as Director of Fortis, Inc., the parent company of
Advisers.

Each director who is not affiliated with Advisers or Investors receives
fees of approximately $100 per month, $200 per meeting attended, and between
$100-$200 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, 2000, as well as the total compensation received by each director
from the Fund Complex during the calendar year ended December 31, 1999. Mr.
Freedman and Mr. Kopperud, who are affiliated with Advisers and Investors, did
not receive any compensation. Mr. Peterson and Dr. Senbet became members of the
Board in June 2000 and did not receive any compensation during the calendar year
ended December 31, 1999. Dr. Senbet serves the Board as an advisory director. No
executive officer receives any compensation from the Funds.

Aggregate compensation Aggregate compensation Total compensation
from from From
Director Fortis Income Fortis Advantage Fund Complex*
-------- ------------- ---------------- -------------
<S> <C> <C> <C>
Richard W. Cutting $1,800 $3,300 $31,300
Dr. Robert M. Gavin $1,800 $3,300 $31,300
Benjamin S. Jaffray** $ 900 $1,700 $20,500
Jean L. King $1,800 $3,300 $29,300
Edward M. Mahoney** $ 900 $1,700 $31,300
Phillip O. Peterson $ 400 $ 750 --
Robb L. Prince $1,800 $3,300 $31,300
Leonard J. Santow $2,137 $3,640 $33,900
Noel F. Schenker $1,800 $3,300 $26,200
Dr. Lemma W. Senbet $ 400 $ 750 --
Joseph M. Wikler $2,200 $3,700 $34,800
</TABLE>

------------------------------
* The Fund Complex consists of one closed-end and eight open-end investment
companies managed by Advisers.
** Mr. Mahoney and Mr. Jaffray retired from the Board effective January 1, 2000.

Directors Gavin, Kopperud, Prince and Schenker are members of the
Executive Committee of the Board of Directors. While the Executive Committee is
authorized to act in the intervals between regular board meetings with full
capacity and authority of the full Board of Directors, except as limited by law,
it is expected that the Committee will meet at least twice a year.

38
<PAGE> 86

During the fiscal year ended July 31, 2000, U.S. Government Securities
Fund paid $5,400, Strategic Income Fund paid $600 and High Yield Portfolio paid
$5,300 in legal fees and expenses to a law firm of which the Funds' Secretary is
a partner.

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 October 30, 2000, 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: First
Clearing Corp., F Group Capital Partners LP, 16 Sheffield Ln., Mount Laurel, NJ
(5%); Richard Maynard Priest, Trustee, Priest Living Trust, 1847 Golden Spike
Dr., Sparks, NV (6%); Robert Mulchrone, 1747 W Barry Ave., Chicago, IL (6%);
Horace Snipes TOD, 2168 Crisp Springs Rd., McMinnville, TN (6%); and GEMA
Trading Corp., 6136 N Avers Ave., Chicago, IL (8%). Strategic Income Fund--Class
A: Fortis Insurance Co.-Life, c/o Kevin Michels, Fortis Advisers, 1 Chase
Manhattan Plaza, New York, NY (45%); and Fortis Benefits Insurance
Co.--Investment Products, c/o Kevin Michels, Fortis Advisers, 1 Chase Manhattan
Plaza, New York, NY (45%). Strategic Income Fund--Class B: Raul V. De Velasco
TOD, 8250 SW 32nd Terr., Miami, FL (9%); US Bank N.A., C/F Arthur L. Gordon R/O
IRA, 24516 Starlight Ln., West Hills, CA (10%); and PaineWebber Inc, FBO Minerva
Mikkila, Trustee, Charitable Remainder Trust, 70 E. St. Marie St., Duluth, MN
(21%). Strategic Income Fund--Class C: Todd C. Blumenstock, C/F Meghan C.
Mitchell UTMA, 216 Kenyon Ave., Elkhart, IN (5%); US Bank N.A., C/F Wilbert
Schmautz IRA, 16007 SE 32nd St., Vancouver, WA (6%); Isabelle Fetch, 210 9th
Ave., Langdon, ND (6%); Donaldson, Lufkin, Jenrette Securities Corporation,
Inc., PO Box 2052, Jersey City, NJ (7%); US Bank, N.A., C/F Janice M. Smith R/O
IRA, 219 E. Palm Dr., Lena, IL (7%); US Bank N.A., C/F Violet R. Best IRA, 2491
S Irish Rd., Davison, MI (8%); and John A. Kufus, 2030 Highland Pkwy, St. Paul,
MN (13%). Strategic Income Fund--Class H: US Bank, N.A., C/F Donna Calkins IRA,
219 173rd Pl. NE, Bellevue, WA (6%); US Bank, N.A., C/F 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 (18%). High Yield
Portfolio--Class A: Fortis Benefits Insurance Co., c/o Kevin Michels, Fortis
Advisers, 1 Chase Manhattan Plaza, New York, NY (24%).

As of October 30, 2000, 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 31, 2000, Advisers managed thirty-eight investment company
portfolios with combined net assets of approximately $8.5 billion.

<PAGE> 87
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 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:

Annual investment advisory
Average net assets of each Fund and management fee
------------------------------- ------------------
<S> <C>
For the first $50,000,000 0.8%
For assets over $50,000,000 0.7%

</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

<PAGE> 88

expenses, association membership dues, and the expense of reports to
shareholders, shareholders' meetings and proxy solicitations.

During various fiscal periods, the Funds paid advisory and management
fees as follows:

Advisory Fees Paid During :
-------------------------

Fiscal year Fiscal year Fiscal year
Ended Ended Ended
July 31, 1998 July 31, 1999 July 31, 2000
------------- ------------- -------------
<S> <C> <C> <C>
U.S. Government Securities Fund $2,670,449 $2,477,465 $1,909,619
Strategic Income Fund $ 164,575* $ 269,265** $ 195,426***
High Yield Portfolio $1,611,812 $1,459,592 $1,194,590
</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.

*** Advisers reimbursed the Fund $57,704, pursuant to an expense reimbursement
agreement, resulting in a net fee of $137,722.

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
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:

<PAGE> 89

(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 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

<PAGE> 90

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, 2000.

U.S. Government Strategic High Yield
Securities Fund Income Fund Portfolio
--------------- ----------- ---------
<S> <C> <C> <C>
Advertising $0 $0 $0
Printing and mailing of prospectuses
to other than current shareholders $15,404 $1,673 $76,945
Compensation to underwriters $182,531 $65,346 $536,397
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) $79,962 $7,534 $411,853
----------------------------------------------- ------- ------ --------
Total $277,897 $74,553 $1,025,195

</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 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

<PAGE> 91

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, 2000, 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.

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 2000 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 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

44
<PAGE> 92

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, 1998 July 31, 1999 July 31, 2000
------------- ------------- -------------
<S> <C> <C> <C>
U.S. Government Securities Fund $ 0 $ 0 $ 0
Strategic Income Fund $ 0* $ 0 $ 0
High Yield Portfolio $ 7,500 $ 0 $ 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, 1998,
1999 and 2000.

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, 2000:
<TABLE>
<CAPTION>

Value of securities
owned at end of period
----------------------
<S> <C>
U.S. Government Securities Fund
-------------------------------
U.S. Bank N.A. Money Market $3,808,000

Strategic Income Fund
---------------------
U.S. Bank N.A. Money Market $207,000
J.P. Morgan & Co., Inc. $496,000

High Yield Portfolio
--------------------
U.S. Bank N.A. Money Market $2,000

</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 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.

45
<PAGE> 93

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, 2000, the Fund's net asset values per share were calculated
as follows:

<PAGE> 94

<TABLE>

<S><C>

CLASS A

Net assets ($43,620,123) = Net asset value per share ($8.86)
------------------------
Shares outstanding (4,924,126)

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

$8.86 = Public Offering Price per Share ($9.28)
-----
0.955

CLASS B

Net assets ($4,264,156) = Net asset value per share ($8.83)
-----------------------
Shares outstanding (482,654)

CLASS C

Net assets ($1,605,533) = Net asset value per share ($8.83)
-----------------------
Shares outstanding (181,765)

CLASS E

Net assets ($184,520,283) = Net asset value per share ($8.86)
-------------------------
Shares outstanding (20,837,610)

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

$8.86 = Public Offering Price per Share ($9.28)
-----
0.955

CLASS H

Net assets ($8,345,374) = Net asset value per share ($8.83)
-----------------------
Shares outstanding (944,907)

STRATEGIC INCOME FUND

On July 31, 2000, the Fund's net asset values per share were calculated as
follows:

CLASS A

Net assets ($23,087,320) = Net asset value per share ($8.82)
------------------------
Shares outstanding (2,617,107)
</TABLE>

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

47
<PAGE> 95

$8.82 = Public Offering Price per Share ($9.24)
-----
0.955

CLASS B

Net assets ($806,022) = Net asset value per share ($8.82)
---------------------
Shares outstanding (91,354)

CLASS C

Net assets ($189,599) = Net asset value per share ($8.83)
---------------------
Shares outstanding (21,476)

CLASS H

Net assets ($809,905) = Net asset value per share ($8.82)
---------------------
Shares outstanding (91,827)

HIGH YIELD PORTFOLIO

On July 31, 2000, the Fund's net asset values per share were calculated as
follows:

CLASS A

Net assets ($82,278,801) = Net asset value per share ($6.06)
------------------------
Shares outstanding (13,582,916)

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

$6.06 = Public Offering Price per Share ($6.35)
-----
0.955

CLASS B

Net assets ($15,278,915) = Net asset value per share ($6.06)
------------------------
Shares outstanding (2,520,398)

CLASS C

Net assets ($4,224,114) = Net asset value per share ($6.05)
-----------------------
Shares outstanding (698,014)

CLASS H

Net assets ($36,160,929) = Net asset value per share ($6.06)
------------------------
Shares outstanding (5,969,673)

</TABLE>

<PAGE> 96

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

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

PURCHASE OF SHARES

EXEMPTIONS FROM SALES CHARGE

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

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

49
<PAGE> 97

copy of the confirmation statement showing the redemption. Similarly,
anyone who is or has been the owner of a fixed annuity contract not deemed
a security under the securities laws who wishes to surrender such contract
and invest the proceeds in a Fund, to the extent that the purchase price of
such Fund shares is funded by the proceeds from the surrender of the
contract (within 60 days of the purchase of Fund shares), provided that
such owner's application so specifies and is accompanied either by the
insurance company's check (or a copy of the check) or a copy of the
insurance company surrender form. From time to time, Investors may pay
commissions to broker-dealers and registered representatives on transfers
from mutual funds or annuities as described above;
- Purchases by employees (including their spouses and dependent children) of
banks and other financial institutions that provide referral and
administrative services related to order placement and payment to
facilitate transactions in shares of the Fund for their clients pursuant to
a sales or servicing agreement with Investors; provided, however, that only
those employees of such banks and other firms who as a part of their usual
duties provide such services related to such transactions in Fund shares
shall qualify;
- Commercial banks offering self directed 401(k) programs containing both
pooled and individual investment options may purchase Fund shares for such
programs at a reduced sales charge of 2.5% on sales of less than $500,000.
For sales of $500,000 or more, normal sales charges apply;
- Registered investment advisers, trust companies, and bank trust departments
exercising discretionary investment authority or using a money
management/mutual fund "wrap" program with respect to the money to be
invested in the Fund, provided that the investment adviser, trust company
or trust department provides Advisers with evidence of such authority or
the existence of such a wrap program with respect to the money invested;
- With respect to U.S. Government Securities Fund only, (1) officers,
directors, and employees of Empire of America Advisory Services, Inc., the
investment advisor of Pathfinder Fund; and (2) accounts which were in
existence and entitled to purchase shares of the Pathfinder Fund without a
sales charge at the time of the effectiveness of the acquisition of its
assets by the Fund;
- Accounts which were in existence and entitled to purchase shares of the
applicable Carnegie Series without a sales charge at the time of the
effectiveness of the acquisition of its assets by the applicable Fund;
- Beginning January 1, 1998, purchasers of Medical Savings Accounts ("MSAs")
from 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

<PAGE> 98

as a credit toward Fund shares to be purchased under the Statement of Intention.
Any such fund shares purchased during the remainder of the 13-month period also
may be included as purchases made under the Statement of Intention.

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

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 (the "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.

<PAGE> 99

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-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.

<PAGE> 100

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.

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.

<PAGE> 101

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

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

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

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

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

<PAGE> 102

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

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

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

At July 31, 2000, U.S. Government Securities Fund, Strategic Income
Fund and High Yield Portfolio had capital loss carry forwards of $73,772,508,
$1,571,212 and $45,024,222, respectively, which, if not offset by subsequent
capital gains, will expire in 2002 through 2009. 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.

<PAGE> 103

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

Fiscal year ended Fiscal year ended Fiscal year ended
July 31, 1998 July 31, 1999 July 31, 2000
------------- ------------- -------------
<S> <C> <C> <C>
U.S. Government Securities Fund $353,664 $366,908 $222,947
Strategic Income Fund $ 25,949* $ 18,389 $ 14,639
High Yield Portfolio $842,743 $811,672 $506,514
</TABLE>

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

Fiscal year ended Fiscal year ended Fiscal year ended
July 31, 1998 July 31, 1999 July 31, 2000
------------- ------------- -------------
<S> <C> <C> <C>
U.S. Government Securities Fund $160,462 $ 88,967 $ 80,012
Strategic Income Fund $ 2,456* $ 4,448 $ 9,540
High Yield Portfolio $443,574 $615,284 $201,333

</TABLE>

* 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
discounts and redemptions and Brokerage Other
commissions repurchases commissions compensation
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund $170,884 $ 52,063 $0 $0
Strategic Income Fund $ 11,123 $ 3,516 $0 $0
High Yield Portfolio $108,084 $398,430 $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, 2000
were:

<PAGE> 104

Class A Class B Class C Class E Class H
------- ------- ------- ------- -------

<S> <C> <C> <C> <C> <C>
U.S. Government Securities Fund 5.71% 5.23% 5.23% 5.95% 5.23%
Strategic Inc. Fund 8.36% 7.98% 7.98% n/a 7.98%
High Yield Portfolio 10.06% 9.88% 9.88% n/a 9.88%
</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

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, 2000.

AVERAGE ANNUAL TOTAL RETURNS
----------------------------
10 YEARS/SINCE
1 YEAR 5 YEARS INCEPTION
------ ------- ---------

<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES FUND
Class A Shares* (0.09%) 4.52% 5.71%
Class B Shares* 0.24% 4.40% 5.64%
Class C Shares* 2.92% 4.72% 5.77%
Class E Shares 0.19% 4.80% 5.99%
Class H Shares* 0.24% 4.40% 5.64%

STRATEGIC INCOME FUND
Class A Shares** (0.27%) -- 0.56%
Class B Shares** 0.17% -- 0.71%
Class C Shares** 2.66% -- 1.62%
Class H Shares** 0.18% -- 0.73%

HIGH YIELD PORTFOLIO
Class A Shares (5.05%) 3.28% 8.73%
Class B Shares* (4.51%) 3.38% 4.61%
Class C Shares* (2.19%) 3.56% 4.68%
Class H Shares* (4.36%) 3.39% 4.62%

</TABLE>

<PAGE> 105

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

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

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

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

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

The following table sets forth the cumulative total returns of each
Class of shares of each Fund for the period from inception through July 31,
2000:
<TABLE>
<CAPTION>

CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
U.S. GOVERNMENT SECURITIES FUND
Class A Shares* 43.77%
Class B Shares* 37.70%
Class C Shares* 37.73%
Class E Shares+ 712.94%
Class H Shares* 37.69%

STRATEGIC INCOME FUND
Class A Shares** 6.29%
Class B Shares** 4.23%
Class C Shares** 4.37%
Class H Shares** 4.27%

HIGH YIELD PORTFOLIO
Class A Shares++ 145.71%
Class B Shares* 29.94%
Class C Shares* 29.82%
Class H Shares* 29.98%

</TABLE>

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

The Funds may advertise relative performance as compiled by outside
organizations or refer to publications 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

<PAGE> 106

the category in which the Funds are included. Because some of these
organizations do not take into account sales charges, their ratings may
sometimes be different than had they done so.

U.S. GOVERNMENT SECURITIES FUND

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

STRATEGIC INCOME FUND

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

HIGH YIELD PORTFOLIO

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

FINANCIAL STATEMENTS

The audited financial statements as of July 31, 2000, 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

<PAGE> 107

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

Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law 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> 108

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.

61
<PAGE> 109

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.

62
<PAGE> 110

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

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

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

OPTIONS ON FUTURES CONTRACTS

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

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

Options on Futures Contracts that are written or purchased by a Fund on
United States exchanges are traded on the same contract market as the underlying
Futures Contract, and, like

63
<PAGE> 111

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 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

64
<PAGE> 112

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.

65
<PAGE> 113

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 RATING 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

66
<PAGE> 114

terms of the obligation. "BB" indicates the lowest degree of speculation and "C"
the highest degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.

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

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

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

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

The rating "C" is typically applied to debt subordinated to senior debt
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

67
<PAGE> 115

Investment Laws of various states impose certain rating or other standards for
obligations eligible for investment by savings banks, trust companies, insurance
companies and fiduciaries generally.

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

Bonds 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.

<PAGE> 116

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 9/28/00 *
(c) Instruments
Defining Rights of Security Holders - not applicable
(d).1 Investment Advisory and Management Agreement dated 4/2/93 (3)
(d).2 Investment Advisory and Management Agreement for Strategic Income
Fund dated 12/1/97 (3)
(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 (3)
(e).4 Mutual Fund Supplement to Dealer Sales Agreement (3)
(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 (4)
(n) Financial Data Schedule - not applicable
(o) Rule 18f-3 Plan (2)
(p) Code of Ethics for Fortis Advisers, Inc. and affiliates dated
9/30/99 (4)

------------------------------
(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 Post-Effective Amendment No. 41 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
on November 29, 1996.
(3) Incorporated by reference to Post-Effective Amendment No. 46 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
on December 1, 1999.
(4) Incorporated by reference to Post-Effective Amendment No. 29 to the
Registration Statement of Fortis Advantage Portfolios, Inc. on Form N-1A
filed with the Commission on December 1, 2000.
* Filed herewith.

<PAGE> 117

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

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

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

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

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

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

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

<PAGE> 118

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

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

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

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

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

<PAGE> 119

DISTRIBUTING THE FUND'S SECURITIES ALSO ACTS AS A PRINCIPAL UNDERWRITER,
DEPOSITOR, OR INVESTMENT ADVISER.

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

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

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

NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH THE
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>

(a) 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.

<PAGE> 120

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

(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> 121

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 2000.

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:

<TABLE>

<S> <C> <C>
/s/ Dean C. Kopperud President (principal executive officer) December 1, 2000
-------------------------
Dean C. Kopperud

/s/ Tamara L. Fagely Treasurer (principal financial and December 1, 2000
------------------------- accounting officer)
Tamara L. Fagely

Richard D. Cutting* Director

Allen R. Freedman* Director

Dr. Robert M. Gavin* Director

Jean L. King* Director

Phillip O. Peterson* Director

Robb L. Prince* Director

Leonard J. Santow* Director

Noel F. Schenker* Director

Joseph M. Wikler* Director
</TABLE>

*By /s/ Dean C. Kopperud December 1, 2000
-----------------------------
Dean C. Kopperud, Attorney-in-Fact
(Pursuant to a Power of Attorney dated July 27, 2000)