FORTIS EQUITY PORTFOLIOS INC, 485APOS, 1998-11-02

FORTIS EQUITY PORTFOLIOS INC
485APOS, 1998-11-02

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<PAGE>

1933 Act Registration No. 2-11387

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

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
----
Post-Effective Amendment No. 80
----

AND/OR

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

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

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

(612) 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:
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498

It is proposed that this filing will become effective (check appropriate box):

immediately upon filing pursuant to paragraph (b) of Rule 485
---------
on (specify date) pursuant to paragraph (b) of Rule 485
---------
75 days after filing pursuant to paragraph (a) of Rule 485
---------
X on January 1, 1999 pursuant to paragraph (a) of Rule 485
---------
60 days after filing pursuant to paragraph (a) of Rule 485
---------

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<PAGE>

FORTIS EQUITY PORTFOLIOS, INC.
Registration Statement on Form N-1A
-----------------------------------
Cross Reference Sheet
Pursuant to Rule 481(a)
-----------------------------------

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

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

STREET ADDRESS:
500 Bielenberg Drive
Woodbury
Minnesota 55125

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

FORTIS
STOCK FUNDS
PROSPECTUS
DATED JANUARY 1, 1999

- ---------------------------------------
Asset Allocation
- ----------------------------------
Value
- ----------------------------------
Growth & Income
- ----------------------------------
Capital
- ----------------------------------
Growth
- ----------------------------------
Capital Appreciation
- ----------------------------------

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

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

<TABLE>
<CAPTION>
PAGE
<S> <C>
The Funds
Asset Allocation Portfolio............................................................................. 1
Value Fund............................................................................................. 5
Growth & Income Fund................................................................................... 8
Capital Fund........................................................................................... 11
Growth Fund............................................................................................ 14
Capital Appreciation Portfolio......................................................................... 17

Shareholder Information
Choosing a Share Class................................................................................. 20
Determining Your Purchase Price........................................................................ 21
How to Buy Shares...................................................................................... 24
How to Sell Shares..................................................................................... 25
Dividend and Capital Gains Distributions............................................................... 28
Tax Considerations..................................................................................... 28
Shareholder Inquiries.................................................................................. 28

Fund Management
Investment Adviser..................................................................................... 29
Portfolio Managers..................................................................................... 29

More Information on Fund Objectives, Investment Strategies and Risks
Objectives............................................................................................. 30
Investment Strategies.................................................................................. 30
Principal Risks........................................................................................ 31

Financial Highlights
Asset Allocation Portfolio............................................................................. 33
Value Fund............................................................................................. 33
Growth & Income Fund................................................................................... 33
Capital Fund........................................................................................... 33
Growth Fund............................................................................................ 33
Capital Appreciation Portfolio......................................................................... 33
</TABLE>
<PAGE>
THE FUNDS
- -------------------------------------------------------------------

This section describes the objectives, principal investment strategies and
principal risks of Asset Allocation Portfolio, Value Fund, Growth & Income Fund,
Capital Fund, Growth Fund and Capital Appreciation Portfolio (the "Funds"). It
also provides you with information on how the Funds have performed and on Fund
expenses.

ASSET ALLOCATION PORTFOLIO

OBJECTIVE

Asset Allocation Portfolio's objective is to maximize total return on invested
capital, mainly from capital appreciation, dividends and interest.

PRINCIPAL INVESTMENT STRATEGIES

Asset Allocation Portfolio pursues its objective by following a flexible asset
allocation strategy that contemplates shifts among a wide range of investments
and markets. The Fund invests in equity and debt securities of domestic and
foreign issuers and in money market instruments. Depending on prevailing
economic and market conditions, the Fund may at any given time be primarily
comprised of equity securities, debt securities, short-term money market
securities, or any combination of these securities. The Fund may invest up to
20% of its net assets in securities of foreign governments and companies. The
Fund's investments may include the following:

- EQUITY SECURITIES. The Fund's equity security investments may include
common stocks, preferred stocks and securities convertible into common
stocks. The Fund generally invests in equity securities which, in the
judgment of the Fund's adviser, have above average revenue and earnings
growth potential, strong balance sheets and are well managed.

- U.S. GOVERNMENT SECURITIES. The Fund may invest in securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities.

- MORTGAGE-BACKED SECURITIES. The Fund may invest in mortgage-backed
securities, including pass-through certificates issued by the Government
National Mortgage Association ("GNMA") and the Federal National Mortgage
Association ("FNMA") and collateralized mortgage obligations ("CMOs"). CMOs
are debt instruments issued by special purpose entities which are secured by
pools of mortgage loans or other mortgage-backed securities.

- ZERO COUPON OBLIGATIONS. The Fund may invest in zero coupon obligations
issued by the U.S. Government and its agencies and by corporate issuers.
Because these obligations do not pay interest currently, their prices can be
highly volatile as interest rates rise and fall.

- MUNICIPAL OBLIGATIONS. The Fund may invest up to 20% of its total assets
in municipal securities during periods when these securities appear to offer
more attractive returns than taxable securities.

- CORPORATE BONDS. The Fund may invest without limitation in corporate
bonds rated within the four highest grades at the time of purchase by
Moody's Investors Service, Inc. or Standard & Poor's Corporation, or
comparably rated by another nationally recognized rating organization. These
are commonly referred to as "investment grade" securities. In addition, the
Fund may invest up to 30% of its total assets in securities rated lower than
investment grade, commonly known as "junk bonds." The Fund will not invest
in bonds rated below Caa by Moody's or CCC by Standard & Poor's, or
comparably rated by another nationally recognized rating organization.

- BANK OBLIGATIONS. The Fund may invest in obligations of United States
banks, and in U.S. dollar denominated obligations of Canadian chartered
banks and United States branches or agencies of foreign banks.

- COMMERCIAL PAPER. The Fund may invest in commercial paper rated at the
time of purchase Prime-2 or higher by Moody's, A-2 or higher by Standard &
Poor's, comparably rated by another nationally recognized rating
organization, or unrated and issued by a corporation with an outstanding
debt issue rated A or better by Moody's or Standard & Poor's or comparably
rated by another nationally recognized rating organization.

1
<PAGE>
PRINCIPAL RISKS

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

- MARKET RISK. This is the risk that stock prices will decline over short
or extended periods of time. As you consider an investment in the Fund, you
should take into account your personal tolerance for daily fluctuations of
the stock market.

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

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

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

- RISKS OF MORTGAGE-RELATED SECURITIES. The Fund's investments in debt
securities include mortgage-related securities, which are subject to
prepayment and extension risk. Similar to call risk, prepayment risk is the
risk that falling interest rates could cause faster than expected
prepayments of 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 interest rates
could cause mortgage prepayments to slow, which would lengthen the duration
of the Fund's mortgage-related securities and cause their prices to decline.
(Duration is a commonly used measure of the potential volatility of a debt
security. Securities with longer durations generally have more volatile
prices than securities of comparable quality with shorter durations.)

- RISKS OF HIGH YIELD SECURITIES. A significant portion of Fund assets may
consist of non-investment grade debt securities. Commonly referred to as
"high yield" securities or "junk bonds," these securities generally have
more volatile prices and carry more risk to principal than investment grade
securities. Investors should carefully consider their ability to assume the
risks involved with investing in Asset Allocation Portfolio.

- FOREIGN INVESTMENT RISKS. The Fund's investment in foreign securities
subjects it to risks not typically associated with U.S. investing. The Fund
may experience a decline in net asset value resulting from changes in
exchange rates between the United States dollar and foreign currencies.
Other risks of foreign investing include limited liquidity and volatile
prices of non-U.S. securities, limited availability of information regarding
non-U.S. companies, investment and repatriation restrictions, and foreign
taxation.

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.

2
<PAGE>
FUND PERFORMANCE

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

ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR*

[GRAPH TO COME]

* The Fund's total return for the period from January 1, 1998 through September
30, 1998 was 3.77%.

<TABLE>
<S> <C> <C>
BEST QUARTER: Quarter ending June 30, 1997 12.55%
WORST Quarter ending September 30,
QUARTER: 1990 -8.95%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/97

<TABLE>
<CAPTION>
TEN YEARS
OR SINCE
ONE YEAR FIVE YEARS INCEPTION*
----------- ----------- -----------
<S> <C> <C> <C>
Class A Shares.................................................................... 13.51% 11.35% 11.43%
Class B Shares.................................................................... 14.95% N/A 15.53%
Class H Shares.................................................................... 14.95% N/A 15.51%
Class C Shares.................................................................... 17.54% N/A 16.06%
S&P 500 Index**................................................................... 33.26% 20.14% 18.00%
Lehman Brothers Aggregate Bond Index***........................................... 9.68% 7.38% 9.12%
</TABLE>

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

* The average annual returns for Class B, Class H and Class C shares are since
inception on 11/14/94.

** An unmanaged index of 500 common stocks.

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

3
<PAGE>
FEES AND EXPENSES

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

<TABLE>
<CAPTION>
CLASS A CLASS B AND CLASS C
SHARES H SHARES SHARES
----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)... 4.75% 0.00% 0.00%
Maximum Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is less)........................ 0.00% 4.00% 1.00%

ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................. 0.90% 0.90% 0.90%
Distribution and Service (12b-1)
Fees............................ 0.45% 1.00% 1.00%
Other Expenses................... 0.09% 0.09% 0.09%
Total Annual Fund Operating
Expenses........................ 1.44% 1.99% 1.99%
</TABLE>

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

<TABLE>
<CAPTION>
CLASS B/H CLASS C
SHARES SHARES
ASSUMING ASSUMING
REDEMPTION AT CLASS B/H REDEMPTION AT CLASS C
END SHARES END SHARES
CLASS A OF EACH ASSUMING NO OF EACH ASSUMING NO
SHARES PERIOD REDEMPTION PERIOD REDEMPTION
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1 year............................. $ 59 $ 56 $ 20 $ 30 $ 20
3 years............................ 89 89 62 62 62
5 years............................ 120 125 107 107 107
10 years........................... 210 218 218 232 232
</TABLE>

4
<PAGE>
VALUE FUND

OBJECTIVE

Value Fund's objective is short and long term capital appreciation. Current
income is only a secondary objective.

PRINCIPAL INVESTMENT STRATEGIES

Value Fund pursues its objective by primarily investing in a broadly diversified
portfolio of equity securities. The Fund selects stocks based on a concept of
fundamental value, where stocks appear inexpensive relative to anticipated
profit and revenue growth. Under normal market conditions, it is the Fund's
intention to maintain a median market capitalization for its portfolio of over
$1 billion--making the Fund a "mid to large cap value fund."

PRINCIPAL RISKS

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

- MARKET RISK. Market risk is the risk that stock prices will decline over
short or extended periods of time. As you consider an investment in the
Fund, you should take into account your personal tolerance for daily
fluctuations of the stock market.

- RISKS OF MID CAP COMPANIES. Mid-sized companies may be more vulnerable
than larger, more established companies to adverse or economic events. In
particular, these companies may have somewhat limited product lines, markets
and financial resources and may depend upon a relatively small to
medium-sized management group.

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>
FUND PERFORMANCE

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

ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR*

[GRAPH TO COME]

* The Fund's total return for the period from January 1, 1998 through September
30, 1998 was -6.39%.

<TABLE>
<S> <C> <C>
Quarter ending June 30,
BEST QUARTER: 1997 12.36%
WORST Quarter ending March 31,
QUARTER: 1997 0.85%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/97

<TABLE>
<CAPTION>
SINCE
INCEPTION
ONE YEAR (1/2/96)
----------- -----------
<S> <C> <C>
Class A Shares................................................................................ 18.88% 19.38%
Class B Shares................................................................................ 20.22% 20.31%
Class H Shares................................................................................ 20.20% 20.35%
Class C Shares................................................................................ 22.91% 21.45%
S&P 500 Index*................................................................................ 33.26% 7.38%
</TABLE>

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

* An unmanaged index of 500 common stocks.

6
<PAGE>
FEES AND EXPENSES

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

<TABLE>
<CAPTION>
CLASS A CLASS B AND CLASS C
SHARES H SHARES SHARES
----------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)... 4.75% 0.00% 0.00%
Maximum Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is less)........................ 0.00% 4.00% 1.00%

ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................. 1.00% 1.00% 1.00%
Distribution and Service (12b-1)
Fees............................ 0.25% 1.00% 1.00%
Other Expenses................... 0.27% 0.27% 0.27%
Total Annual Fund Operating
Expenses........................ 1.52% 2.27% 2.27%
</TABLE>

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

<TABLE>
<CAPTION>
CLASS B/H CLASS C
SHARES SHARES
ASSUMING CLASS B/H ASSUMING CLASS C
REDEMPTION AT SHARES REDEMPTION AT SHARES
CLASS A END OF ASSUMING NO END OF ASSUMING NO
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1 year............................. $ 60 $ 59 $ 23 $ 33 $ 23
3 years............................ 91 98 71 71 71
5 years............................ 124 140 122 122 122
10 years........................... 218 242 242 261 261
</TABLE>

7
<PAGE>
GROWTH & INCOME FUND

OBJECTIVE

Growth & Income Fund's objectives are capital appreciation and current income.

PRINCIPAL INVESTMENT STRATEGIES

Growth & Income Fund pursues its objective by investing in a broadly diversified
portfolio of primarily equity securities with an emphasis on securities of
companies that have a history of dividend payments. Under normal market
conditions, the Fund intends to maintain a median market capitalization for its
portfolio of greater than $5 billion--making it a "large cap fund."

PRINCIPAL RISKS

As with any non-money market mutual fund, Growth & Income Fund's share price and
yield will change daily because of changes in stock prices and other factors.
You may lose money if you invest in the Fund.

The principal risk of investing in Growth & Income Fund is MARKET RISK. This is
the risk that stock prices will decline over short or extended periods of time.
As you consider an investment in the Fund, you should take into account your
personal tolerance for daily fluctuations of the stock market.

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>
FUND PERFORMANCE

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

ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR*

[GRAPH TO COME]

* The Fund's total return for the period from January 1, 1998 through September
30, 1998 was 0.06%.

<TABLE>
<S> <C> <C>
BEST QUARTER: Quarter ending June 30, 1997 10.20%
WORST Quarter ending September 30,
QUARTER: 1996 1.81%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/97

<TABLE>
<CAPTION>
SINCE
INCEPTION
ONE YEAR (1/2/96)
----------- -----------
<S> <C> <C>
Class A Shares................................................................................ 17.06% 17.53%
Class B Shares................................................................................ 18.49% 18.06%
Class H Shares................................................................................ 18.49% 18.06%
Class C Shares................................................................................ 21.09% 19.55%
S&P 500 Index*................................................................................ 33.26% 7.38%
</TABLE>

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

* An unmanaged index of 500 common stocks.

9
<PAGE>
FEES AND EXPENSES

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

ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................. 1.00% 1.00% 1.00%
Distribution and Service (12b-1)
Fees............................ 0.25% 1.00% 1.00%
Other Expenses................... 0.30% 0.30% 0.30%
Total Annual Fund Operating
Expenses........................ 1.55% 2.30% 2.30%
</TABLE>

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

<TABLE>
<CAPTION>
CLASS B/H CLASS C
SHARES SHARES
ASSUMING CLASS B/H ASSUMING CLASS C
REDEMPTION AT SHARES REDEMPTION AT SHARES
CLASS A END OF ASSUMING NO END OF ASSUMING NO
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1 year............................. $ 60 $ 59 $ 23 $ 33 $ 23
3 years............................ 92 99 72 72 72
5 years............................ 126 141 123 123 123
10 years........................... 221 245 245 264 264
</TABLE>

10
<PAGE>
CAPITAL FUND

OBJECTIVE

Capital Fund's objective is short and long term capital appreciation. Current
income is only a secondary objective.

PRINCIPAL INVESTMENT STRATEGIES

Capital Fund invests primarily in equity securities and selects stocks based
upon their growth potential. Under normal market conditions, the Fund intends to
maintain a median market capitalization for its portfolio of greater than $5
billion--making it a "large cap growth fund."

PRINCIPAL RISKS

As with any non-money market mutual fund, Capital Fund's share price will change
daily because of changes in stock prices and other factors. You may lose money
if you invest in the Fund.

The principal risk of investing in Capital Fund is market risk. This is the risk
that stock prices will decline over short or extended periods of time. As you
consider an investment in the Fund, you should take into account your personal
tolerance for daily fluctuations of the stock market.

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.

11
<PAGE>
FUND PERFORMANCE

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

ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR*

[GRAPH TO COME]

* The Fund's total return for the period from January 1, 1998 through September
30, 1998 was 6.26%.

<TABLE>
<S> <C> <C>
Quarter ending March 31,
BEST QUARTER: 1991 18.97%
WORST Quarter ending September 30,
QUARTER: 1990 -15.96%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/97

<TABLE>
<CAPTION>
TEN YEARS
OR SINCE
ONE YEAR FIVE YEARS INCEPTION*
----------- ----------- -----------
<S> <C> <C> <C>
Class A Shares.................................................................... 17.92% 12.36% 14.15%
Class B Shares.................................................................... 18.49% N/A 18.06%
Class H Shares.................................................................... 18.49% N/A 18.06%
Class C Shares.................................................................... 21.09% N/A 19.55%
S&P 500 Index**................................................................... 33.26% 7.38% 9.12%
</TABLE>

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

* The average annual total returns for Class B, Class H and Class C shares are
since inception on 11/14/94.

** An unmanaged index of 500 common stocks.

12
<PAGE>
FEES AND EXPENSES

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

ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................. 0.82% 0.82% 0.82%
Distribution and Service (12b-1)
Fees............................ 0.25% 1.00% 1.00%
Other Expenses................... 0.06% 0.06% 0.06%
Total Annual Fund Operating
Expenses........................ 1.13% 1.88% 1.88%
</TABLE>

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

<TABLE>
<CAPTION>
CLASS B/H CLASS C
SHARES SHARES
ASSUMING CLASS B/H ASSUMING CLASS C
REDEMPTION AT SHARES REDEMPTION AT SHARES
CLASS A END OF ASSUMING NO END OF ASSUMING NO
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1 year............................. $ 56 $ 55 $ 19 $ 29 $ 19
3 years............................ 79 86 59 59 59
5 years............................ 104 120 102 102 102
10 years........................... 176 212 212 220 220
</TABLE>

13
<PAGE>
GROWTH FUND

OBJECTIVE

Growth Fund's objective is short and long term capital appreciation. Current
income is only a secondary objective.

PRINCIPAL INVESTMENT STRATEGIES

Growth Fund pursues its objective by primarily investing in equity securities
and selects stocks based upon their growth potential. Under normal market
conditions, the Fund intends to maintain a median market capitalization for its
portfolio of $1 billion to $5 billion--making it a "mid cap growth fund."

PRINCIPAL RISKS

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

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.

14
<PAGE>
FUND PERFORMANCE

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

ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR*

[GRAPH TO COME]

* The Fund's total return for the period from January 1, 1998 through September
30, 1998 was -2.55%.

<TABLE>
<S> <C> <C>
Quarter ending March 31,
BEST QUARTER: 1991 26.62%
WORST Quarter ending September 30,
QUARTER: 1990 -19.88%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/97

<TABLE>
<CAPTION>
TEN YEARS
OR SINCE
ONE YEAR FIVE YEARS INCEPTION*
----------- ----------- -----------
<S> <C> <C> <C>
Class A Shares.................................................................... 8.34% 10.05% 14.68%
Class B Shares.................................................................... 9.33% N/A 16.71%
Class H Shares.................................................................... 9.36% N/A 16.72%
Class C Shares.................................................................... 11.87% N/A 17.32%
Class Z Shares.................................................................... 14.12% N/A 14.60%
S&P 500 Index**................................................................... 33.26% 7.38% 9.12%
</TABLE>

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

* The average annual total returns for Class B, Class H and Class C shares are
since inception on 11/14/94. The average annual total return for Class Z
shares is since inception on 3/1/96.

** An unmanaged index of 500 common stocks.

15
<PAGE>
FEES AND EXPENSES

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

<TABLE>
<CAPTION>
CLASS A CLASS B AND CLASS C CLASS Z
SHARES H SHARES SHARES SHARES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)... 4.75% 0.00% 0.00% 0.00%
Maximum Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is less)........................ 0.00% 4.00% 1.00% 0.00%

ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................. 0.75% 0.75% 0.75% 0.75%
Distribution and Service (12b-1)
Fees............................ 0.25% 1.00% 1.00% 0.00%
Other Expenses................... 0.05% 0.05% 0.05% 0.05%
Total Annual Fund Operating
Expenses........................ 1.05% 1.80% 1.80% 0.80%
</TABLE>

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

<TABLE>
<CAPTION>
CLASS B/H CLASS C
SHARES SHARES
ASSUMING CLASS B/H ASSUMING CLASS C
REDEMPTION AT SHARES REDEMPTION AT SHARES
CLASS A END OF ASSUMING NO END OF ASSUMING NO CLASS Z
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION SHARES
----------- ------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 year............................. $ 55 $ 54 $ 18 $ 28 $ 18 $ 8
3 years............................ 77 84 57 57 57 26
5 years............................ 100 115 97 97 97 44
10 years........................... 167 192 192 212 212 99
</TABLE>

16
<PAGE>
CAPITAL APPRECIATION PORTFOLIO

OBJECTIVE

Capital Appreciation Portfolio's objective is maximum long term capital
appreciation. Dividend and interest income from investments, if any, is
incidental.

PRINCIPAL INVESTMENT STRATEGIES

Capital Appreciation Portfolio pursues its objective by primarily investing in
equity securities and selects stocks based upon their growth potential. Under
normal market conditions, the Fund intends to maintain a median market
capitalization for its portfolio of less than $1 billion-- making it a "small
cap growth fund."

The Fund invests primarily in common stocks of small to medium-sized companies
that are early in their life cycles and have the potential to continue to become
major enterprises ("emerging growth companies"). Emerging growth companies
generally have low market capitalizations, are expected to show earnings growth
over time that is well above the growth rate of the overall economy and the rate
of inflation, and have products, management, and market opportunities which are
usually necessary to become more widely recognized.

PRINCIPAL RISKS

As with any non-money market mutual fund, Capital Appreciation Portfolio's share
price will change daily because of changes in stock prices and other factors.
You may lose money if you invest in the Fund.

The principal risk of investing in Capital Appreciation Portfolio is MARKET
RISK. Market risk is the risk that stock prices will decline over short or
extended periods of time. As you consider an investment in the Fund, you should
take into account your personal tolerance for daily fluctuations of the stock
market.

Capital Appreciation Portfolio's investment in emerging growth companies
involves greater risk than is customarily associated with investments in more
established companies. Emerging growth companies often have limited product
lines, markets, or financial resources, and they may be dependent on one-person
management. The securities of emerging growth companies may have limited market
stability and may be subject to more abrupt or erratic market movements than
securities of larger, more established growth companies or the market averages
in general. Shares of Capital Appreciation Portfolio, therefore, may be subject
to greater fluctuations in value than shares of a conservative equity fund or of
a growth fund which invests entirely in more established growth stocks.

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.

17
<PAGE>
FUND PERFORMANCE

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

ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR*

[GRAPH TO COME]

* The Fund's total return for the period from January 1, 1998 through September
30, 1998 was -12.08%.

<TABLE>
<S> <C> <C>
Quarter ending March 31,
BEST QUARTER: 1991 28.89%
WORST Quarter ending September 30,
QUARTER: 1990 -30.58%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/97

<TABLE>
<CAPTION>
TEN YEARS
OR SINCE
ONE YEAR FIVE YEARS INCEPTION*
----------- ----------- -----------
<S> <C> <C> <C>
Class A Shares.................................................................... (3.31)% 8.67% 13.92%
Class B Shares.................................................................... (2.64)% N/A 12.80%
Class H Shares.................................................................... (2.64)% N/A 12.83%
Class C Shares.................................................................... (0.04)% N/A 13.49%
S&P 500 Index*.................................................................... 33.26% 7.38% 9.12%
</TABLE>

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

* The average annual returns for Class B, Class H and Class C shares are since
inception on 11/14/94.

** An unmanaged index of 500 common stocks.

18
<PAGE>
FEES AND EXPENSES

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

ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................. 0.95% 0.95% 0.95%
Distribution and Service (12b-1)
Fees............................ 0.45% 1.00% 1.00%
Other Expenses................. ' 0.12% 0.12% 0.12%
Total Annual Fund Operating
Expenses........................ 1.52% 2.07% 2.07%
</TABLE>

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

<TABLE>
<CAPTION>
CLASS B/H CLASS C
SHARES SHARES
ASSUMING CLASS B/H ASSUMING CLASS C
REDEMPTION AT SHARES REDEMPTION AT SHARES
CLASS A END OF ASSUMING NO END OF ASSUMING NO
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1 year............................. $ 60 $ 57 $ 21 $ 31 $ 21
3 years............................ 91 92 65 65 65
5 years............................ 124 129 111 111 111
10 years........................... 218 226 226 240 240
</TABLE>

19
<PAGE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------

CHOOSING A SHARE CLASS

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

CLASS A SHARES

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

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

- Shares are subject to an annual Rule 12b-1 fee equal to .25% of a Fund's
average daily net assets (.45% for Asset Allocation and Capital
Appreciation Portfolios).

- 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 B AND CLASS H SHARES

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

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

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

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

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

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

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

CLASS C SHARES

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

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

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

- Shares do not convert to Class A shares. While shares do not convert to
Class A shares, 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 shares due to the higher Rule 12b-1 fee.

20
<PAGE>
CLASS Z SHARES

- These shares are only available in Growth Fund, and only for investment
by:

(1) Fortis, Inc. or its subsidiaries, and the following persons associated
with these companies: (a) officers, directors, employees or sales
representatives; (b) their children, grandchildren, parents,
grandparents or siblings; and (c) spouses of any of the preceding;

(2) Fund directors, officers, or their spouses; or such persons' children,
grandchildren, parents, grandparents, or spouses of the preceding;

(3) Fortis Investors' representatives, employees or their spouses; or such
persons' children, grandchildren, parents, grandparents, or spouses of
the preceding;

(4) Pension, profit sharing and other retirement plans created for the
benefit of any of the above persons; and

(5) Accounts which were exchanged from Special Portfolios, Inc., Stock
Portfolio.

- You do not pay any sales charge either at the time of purchase or when you
redeem your shares.

- Your shares are not subject to annual Rule 12b-1 fees.

- Shares in this Class will have the lowest expenses and pay the highest
dividends of any available class.

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,
unless, in the case of Growth Fund, you qualify to invest in Class Z
shares).

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

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

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

The Statement of Additional Information contains additional information on
investors who are eligible to purchase Class A shares without a sales charge.

DETERMINING YOUR PURCHASE PRICE

NET ASSET VALUE OF FUND SHARES

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

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

21
<PAGE>
Each Fund's net asset value per share is determined by dividing the value of the
securities and other assets owned by the Fund, less all liabilities, by the
number of the Fund's shares outstanding. The securities owned by the Fund are
generally valued at market value. However, there are times when market values
are not readily available, or when restricted or illiquid securities or other
assets are being valued. In these cases, securities are valued at fair value as
determined in good faith by Fund management under supervision of the Funds'
Board of Directors.

PURCHASE PRICE OF CLASS A

The purchase price of Class A shares is equal to the net asset value per share
of the shares next calculated after receipt of your purchase order, plus a sales
charge. Sales charges and broker-dealer concessions, which vary with the size of
your purchase, are shown in the following table. Additional compensation (as a
percentage of sales charge) will be paid to a broker-dealer when its annual
sales of Fortis Funds having a sales charge exceed $10,000,000 (2%), $25,000,000
(4%), and $50,000,000 (5%).

<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
PERCENTAGE OF PERCENTAGE OF THE NET BROKER-DEALER
AMOUNT OF SALE PURCHASE PRICE AMOUNT INVESTED CONCESSION
- --------------------------------------------------------------- ----------------- --------------------- ---------------
<S> <C> <C> <C>
Less than $100,000............................................. 4.750% 4.987% 4.00%
$100,000 but less than $250,000................................ 3.500% 3.627% 3.00%
$250,000 but less than $500,000................................ 2.500% 2.564% 2.25%
$500,000 but less than $1,000,000.............................. 2.000% 2.041% 1.75%
$1,000,000 or more*............................................ -0- -0- 1.00%
</TABLE>

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

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

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

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

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

- STATEMENT OF INTENTION. The preceding table's sales charge discounts
apply to an initial purchase of at least $1,000, with an intention to
purchase the balance needed to qualify within 13 months (excluding shares
purchased by reinvesting dividends or capital gains).

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

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

22
<PAGE>
PURCHASE PRICE OF CLASS B AND CLASS H SHARES

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

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

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

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

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

CONVERSION TO CLASS A SHARES. Class B and Class H shares (except for those
purchased by reinvestment of dividends and other distributions) will
automatically convert to Class A shares after eight years. Each time any of
these shares convert to Class A, a proportionate amount of Class B and H shares
in your account that were purchased through the reinvestment of dividends and
other distributions will also convert to Class A.

PURCHASE PRICE OF CLASS C SHARES

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

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

PURCHASE PRICE OF CLASS Z SHARES

The purchase price of Class Z shares is their net asset value. These shares are
sold without an initial or contingent deferred sales charge. Class Z shares,
which are available only in Growth Fund, are available for investment only by
the persons and entities listed above under "Choosing a Share Class--Class Z
Shares."

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%
Class B and Class H........................................... 1.00%
Class C....................................................... 1.00%
Class Z....................................................... None
</TABLE>

23
<PAGE>
Because these fees are paid out of a fund's assets on an ongoing basis, over
time they will increase the cost of your investment and may cost you more than
paying other types of sales charges.

HOW TO BUY SHARES

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

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

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

INVESTING BY TELEPHONE

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

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

INVESTING BY WIRE

If you have an account with a commercial bank that is a member of the Federal
Reserve System, you may purchase shares ($500 minimum) by requesting your bank
to transmit immediately available funds (Federal Funds) by wire to:

U.S. Bank National Association
ABA #091000022, credit account no: 1-702-2514-1341
Fortis Funds Purchase Account
For further credit to: (name of client)
Fortis Account NBR (your account number)

Before making an initial investment by wire, your broker-dealer must first
telephone Investors at the number on the cover page of this Prospectus to open
your account and obtain your account number. In addition, the Account
Application which accompanies this Prospectus must be promptly forwarded to
Investors at the mailing address set forth below under "Investing by Mail."
Additional investments may be made at any time by having your bank wire Federal
Funds to the above address for credit to your account. These investments may be
made by wire even if your initial investment was by mail.

INVESTING BY MAIL

To invest by mail, the Account Application which accompanies this Prospectus
must be completed, signed, and sent with a check or other negotiable bank draft,
payable to "Fortis Funds," to the following address:

CM-9614
St. Paul, MN 55170-9614

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

24
<PAGE>
SPECIAL PURCHASE PLANS

TAX SHELTERED RETIREMENT PLANS. Individual Retirement Accounts ("IRAs"),
Self-Employed, Pension, Profit Sharing, and 403(b) accounts are available.

GIFTS OR TRANSFERS TO MINOR CHILDREN. Adults can make an irrevocable gift or
transfer of up to $10,000 annually per child ($20,000 for married couples) to as
many children as they choose without having to file a Federal gift tax return.

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

EXCHANGE PRIVILEGE

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

Similarly, shareholders of other Fortis Funds may exchange their shares for Fund
shares of the same class. These exchanges will be made at net asset value if the
shares to be exchanged have already been subject to a sales charge. Holders of
Class E shares of other Fortis Funds may exchange their shares for Class A Fund
shares and holders of Fortis Money Fund Class A shares may exchange their shares
for any class of Fund shares. However, if the Fortis Money Fund Class A shares
have already incurred a sales charge, exchanges will be made at net asset value
and may be made only into Class A Fund shares.

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

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

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

HOW TO SELL SHARES

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

Employees of certain Texas public educational institutions who direct investment
in Fund shares under their State of Texas Optional Retirement Plan generally
must obtain the prior written consent of their authorized employer
representative in order to redeem.

BY MAIL

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

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

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

25
<PAGE>
Your request should include the following information:

- Name of Fund

- Account number

- Dollar amount or number of shares to be redeemed

- Name on the account

- Signatures of all registered account owners

If you hold certificates for your shares, they must be included with your
request, and should be sent by certified mail. These certificates (and any stock
powers included with your redemption request) must be endorsed and executed
exactly as the Fund shares are registered.

If the redemption proceeds are to be paid to the registered holder and sent to
the address of record, normally no signature guarantee is required. Signatures
on a written redemption request must be guaranteed if:

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

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

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

- The shares are to be transferred.

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

BY PHONE

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

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

- Your account is not a tax-qualified plan,

- The check will be sent to the address of record, and

- The address of record has not changed for at least 30 days.

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

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

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

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

26
<PAGE>
PAYMENT OF REDEMPTION PROCEEDS

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

INVOLUNTARY REDEMPTIONS

Each Fund has the right to redeem accounts with a current value of less than
$500 unless the original purchase price of the remaining shares (including sales
commissions) was at least $500. Fund shareholders actively participating in the
Funds' Systematic Investment Plan will not have their accounts redeemed. Before
redeeming your account, the Fund will mail you a notice of its intention to
redeem, which will give you an opportunity to make an additional investment. If
no additional investment is received by the Fund within 60 days of the date the
notice was mailed, your account will be redeemed.

SYSTEMATIC WITHDRAWAL PLAN

Each Fund has a Systematic Withdrawal Plan, which provides for voluntary
automatic withdrawals of at least $50 monthly, quarterly, semiannually, or
annually. Deferred sales charges may apply to monthly redemptions. Confirmations
for redemptions made under the Systematic Withdrawal Plan may, at Advisers'
option, be sent to you quarterly, rather than following each transaction. For
further information about the Systematic Withdrawal Plan, contact your
broker-dealer or sales representative.

REINVESTMENT PRIVILEGE

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

CONTINGENT DEFERRED SALES CHARGES

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

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

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

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

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

A CDSC is not imposed:

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

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

- With respect to Class B and H shares only, to an amount that represents,
on an annual (non-cumulative) basis, up to 10% of the amount (at the time
of the investment) of the shareholder's purchases.

- With respect to Class B, H, and C shares, to qualified plan benefit
distributions due to the participant's separation from service, loans or
financial hardship (excluding IRAs, SEPs, and 403(b), 457, and Fortis KEY
plans) upon a Fund's receipt from the plan's administrator or trustee of
written instructions detailing the reason for the distribution.

If a you exchange shares subject to a CDSC for shares of a different Fortis
Fund, the transaction will not be subject to a CDSC. However, when you redeem
the shares acquired through the exchange, you will be treated as if no exchange
took place for the purpose of determining the CDSC.

27
<PAGE>
In addition, a CDSC will not be imposed at the time that Fund shares subject to
a CDSC are exchanged for shares of Fortis Money Fund or at the time those Fortis
Money Fund shares are reexchanged for shares of any Fortis Fund subject to a
CDSC. In each case, however, the shares acquired will remain subject to the CDSC
that would have applied to the original Fund shares.

DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS

Each Fund, other than Asset Allocation Portfolio and Growth & Income Fund, pays
annual dividends from net investment income and makes distributions of any
realized capital gains annually. Asset Allocation Portfolio and Growth & Income
Fund pay quarterly dividends from net investment income and make distributions
of any realized capital gain annually.

Dividend and capital gains distributions will be reinvested in additional Fund
shares of the same class (at net asset value) unless you send the Fund a written
request that either or both be sent to you in cash or reinvested (at net asset
value) in shares of the same class of another Fortis Fund. If dividends and
capital gains distributions are automatically reinvested in the same Fund, such
reinvestment takes place on the dividend record date. If they are to be
reinvested in another Fortis Fund, processing normally takes one business day.
If cash payment is requested, checks will be mailed within five business days
after the end of the month.

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

TAX CONSIDERATIONS

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

TAXES ON DISTRIBUTIONS

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

Distributions paid from a Fund's net investment income are taxable as ordinary
income. 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. The Funds,
other than Asset Allocation Portfolio and Growth & Income Fund, expect that
their distributions will consist primarily of capital gains.

TAXES ON TRANSACTIONS

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

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

SHAREHOLDER INQUIRIES

Inquiries should be directed to your broker-dealer or sales representative, or
to the Funds at the telephone number or mailing address listed on the cover of
this Prospectus. A $10 fee will be charged for copies of Annual Account
Summaries older than the preceding year.

28
<PAGE>
FUND MANAGEMENT
- -------------------------------------------------------------------

INVESTMENT ADVISER

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

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

<TABLE>
<CAPTION>
ADVISORY FEE
AS A % OF
AVERAGE DAILY NET
ASSETS
-----------------------
<S> <C>
Asset Allocation Portfolio....................................................... 0.90%
Value Fund....................................................................... 1.00%
Growth & Income Fund............................................................. 1.00%
Capital Fund..................................................................... 0.82%
Growth Fund...................................................................... 0.75%
Capital Appreciation Portfolio................................................... 0.95%
</TABLE>

PORTFOLIO MANAGERS

ASSET ALLOCATION PORTFOLIO. Lucinda S. Mezey, since October 1997, and Charles
L. Mehlhouse, since May 1996, manage the equity portion of the Fund. Howard G.
Hudson, Maroun M. Hayek, Robert C. Lindberg, Christopher J. Pagano, Ho Wang and
Christopher J. Woods manage the fixed income portion of the Fund.

VALUE FUND. Lucinda S. Mezey, since October 1997, and Nicholas L.M. de Peyster,
since January 1996, manage the Fund.

GROWTH & INCOME FUND. Lucinda S. Mezey, since October 1997, and Charles L.
Mehlhouse, since May 1996, manage the Fund.

CAPITAL FUND. Lucinda S. Mezey, since October 1997, and Charles L. Mehlhouse,
since May 1996, manage the Fund.

GROWTH FUND. Lucinda S. Mezey, since October 1997, and Michael J. Romanowski,
since March 1998, manage the Fund.

CAPITAL APPRECIATION FUND. Laura E. Granger has managed the Fund since July
1998.

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

- Mr. Lindberg, a Vice President of Advisers, has been managing debt
securities for Advisers since 1993. Prior to that, Mr. Lindberg was Vice
President and Chief Securities Trader for COMERICA, Inc., Detroit,
Michigan.

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

- Mr. Pagano, a Vice President of Advisers, has been involved in management
of debt securities for Advisers since March 1996. Prior to that, Mr.
Pagano was a Government Strategist for Merrill Lynch in New York, New
York.

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

- Mr. Woods, a Vice President of Advisers, has been managing debt securities
for Fortis, Inc. since 1993. Prior to that, Mr. Woods was the head of
fixed income for The Police and Firemen's Disability and Pension Fund of
Ohio in Columbus, Ohio.

29
<PAGE>
- Ms. Mezey, an Executive Vice President and Head of Equity Investments of
Advisers, has been managing equity securities for Advisers since October
1997. From 1995 to October 1997, she was Chief Investment Officer, Alex
Brown Capital Advisory and Trust Co., Baltimore, MD. From 1970 to 1995 she
was employed by PNC Bank, Philadelphia, PA with her last position being
Senior Vice President and Head of Equity Investments. Ms. Mezey performs a
supervisory function in the management of the equity Funds.

- Mr. Mehlhouse, a Vice President of Advisers, has managed equity securities
for Advisers since May 1996. From 1993 to May 1996, Mr. Mehlhouse was a
portfolio manager for Marshall & Ilsley Bank Corporation in Milwaukee,
Wisconsin.

- Ms. Granger, a Vice President of Advisers, has managed equity securities
for Advisers since July 1998. From July 1993 to July 1998, Ms. Granger was
portfolio manager for General Motors Investment Management in New York,
New York. From July 1992 to July 1993, she was a portfolio manager for
Dean Witter Intercapital in New York, New York.

- Mr. de Peyster, a Vice President of Advisers, has managed equity
securities for Fortis since 1991.

- Mr. Romanowski, a Vice President of Advisers, has managed equity
securities for Fortis since March, 1998. From October 1995 to March 1998,
he was a portfolio manager for Value Line in New York, New York. From 1992
to October 1995, he was a securities analyst for Conning & Co. in
Hartford, Connecticut.

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

MORE INFORMATION ON FUND OBJECTIVES, INVESTMENT
STRATEGIES AND RISKS
- -------------------------------------------------------------------

FUND 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 are described in the Statement of Additional
Information.

In selecting equity securities for the Funds' portfolios, Advisers uses two
distinct equity investment philosophies. Specifically, Asset Allocation
Portfolio, Capital Fund, Growth Fund and Capital Appreciation Portfolio use a
"growth" philosophy and Value Fund uses a "value" philosophy. Growth & Income
Fund may at times use either or both philosophies. Under both philosophies,
Advisers uses a "bottom up" investment style in which stock selection is driven
primarily by the merits of the company itself.

In managing "growth" portfolios, Advisers invests based on a concept of growth
potential, seeking to identify companies whose earnings and revenue growth
potential exceed industry averages. In addition to superior earnings growth
potential, Advisers seeks companies which it believes to be well managed with
above average returns on equity and invested capital, healthy balance sheets and
the potential to gain market share. Companies of this nature typically have
above average growth potential and a correspondingly higher than average
valuation level as measured by price to earnings, price to cash flow and price
to book value ratios. Depending upon the market capitalization goals of a growth
portfolio, the manager will select stocks of small, mid or large capitalization
companies or a combination of all three.

In managing "value" portfolios, Advisers invests based on a concept of
fundamental value, seeking to identify companies whose shares appear inexpensive
relative to anticipated profit and dividend growth. The primary emphasis is
placed on companies expected to experience a significant acceleration in
earnings over the next three to five years. The prices of these stocks typically
do not fully reflect such improvement. Often such a stock is "out of favor" and
priced low relative to the company's earnings, cash flow and book value. A
second source of "value" stocks are companies expected to sustain their historic
rate of growth but which are selling at a low price to earnings ratio in
relation to this anticipated growth.

30
<PAGE>
In an attempt to respond to adverse market, economic, political or other
conditions, each Fund may invest without limit in high grade preferred stocks,
bonds, other fixed income securities, short-term money market instruments,
commercial paper, obligations of banks or the U.S. Government, other high
quality short-term debt instruments, or cash. Being invested in these securities
may keep a Fund from participating in a market upswing and prevent the Fund from
achieving its investment objectives.

PORTFOLIO TURNOVER

Before investing in any mutual fund you should review its portfolio turnover
rate for an indication of the potential effect of transaction costs on the
fund's future returns. In general, the greater the volume of buying and selling
by the fund, the greater the impact that brokerage commissions and other
transaction costs will have on its return. Also, funds with high portfolio
turnover rates may be more likely than low-turnover funds to generate capital
gains that must be distributed to shareholders as taxable income.

PRINCIPAL RISKS

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

- MARKET RISK. This is the risk that stock prices will decline over short
or extended periods of time. Price changes may affect the market as a whole,
or they may affect only a particular company, industry, or sector of the
market.

- INTEREST RATE RISK. Debt securities in the Asset Allocation Portfolio
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, the Fund's investments
in zero coupon obligations may be highly volatile in response to changing
interest rates.

- CREDIT OR DEFAULT RISK. Asset Allocation Portfolio is subject to the risk
that the issuers of debt securities held by the Fund will not make payments
on the securities. 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 the Fund purchases unrated securities, it will
depend on Advisers' analysis of credit risk more heavily than usual.

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

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

- EXTENSION RISK. Mortgage-related securities also are subject to extension
risk, which is the risk that rising interest rates could cause homeowners to
prepay their mortgages more slowly than expected, resulting in slower
prepayments of mortgage-related securities. This would, in effect, convert a
short- or medium-duration mortgage-related security into a longer-duration
security, increasing its sensitivity to interest rate changes and causing
its price to decline.

- RISKS OF SECURITIES LENDING. Each Fund, except Growth Fund, may lend its
portfolio securities. These loans are callable at any time and are secured
by collateral equal to at least 100% of the value of the loaned securities.
Nevertheless, the Fund risks a delay in the recovery of the loaned
securities, or even the loss of rights in the collateral deposited by the
borrower if the borrower should fail financially.

- RISKS OF FOREIGN SECURITIES. Each Fund, except Asset Allocation
Portfolio, may invest up to 10%, and Asset Allocation Portfolio may invest
up to 20%, of its assets in foreign securities. Foreign investing involves
risks not typically associated with U.S. investing. The Fund

31
<PAGE>
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.

- RISKS OF HIGH YIELD SECURITIES. Asset Allocation Portfolio's investment
in corporate bonds may consist of non-investment grade debt securities.
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. Asset Allocation Portfolio may invest up to 30% of its total
assets in securities rated as low as Caa by Moody's, CCC by Standard and
Poor's or comparably rated by another rating agency. Securities in the
Caa/CCC rating category are considered to be of poor standing and are
predominantly speculative. These securities may be in default, or there may
be present elements of danger with respect to the payment of principal or
interest. "Non-performing" securities are highly speculative.

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

- 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.

32
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------

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

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

33
<PAGE>
FORTIS-REGISTERED TRADEMARK-

FORTIS FINANCIAL GROUP
P.O. BOX 64284
ST. PAUL, MN 55164

BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 3794
MINNEAPOLIS, MN

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

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

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

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

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

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

FORTIS ASSET ALLOCATION PORTFOLIO
FORTIS VALUE FUND
FORTIS GROWTH & INCOME FUND
FORTIS CAPITAL FUND
FORTIS GROWTH FUND
FORTIS CAPITAL APPRECIATION PORTFOLIO

SEC FILE NUMBERS: 811-05355, 811-00558, 811-00848
<PAGE>

FORTIS ASSET ALLOCATION PORTFOLIO
FORTIS CAPITAL APPRECIATION PORTFOLIO
EACH A SERIES OF FORTIS ADVANTAGE PORTFOLIOS, INC.

FORTIS VALUE FUND
FORTIS GROWTH & INCOME FUND
FORTIS CAPITAL FUND
EACH A SERIES OF FORTIS EQUITY PORTFOLIOS, INC.

FORTIS GROWTH FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 1, 1999

Fortis Asset Allocation Portfolio ("Asset Allocation Portfolio"), Fortis
Capital Appreciation Portfolio ("Capital Appreciation Portfolio"), Fortis
Value Fund ("Value Fund"), Fortis Growth & Income Fund ("Growth & Income
Fund"), Fortis Capital Fund ("Capital Fund") and Fortis Growth Fund, Inc.
("Growth Fund") are individually referred to as a "Fund" and collectively
referred to as the "Funds." This Statement of Additional Information is NOT
a prospectus. Information from the Funds' prospectus dated January 1, 1999
is incorporated by reference into this Statement of Additional Information.
A copy of that prospectus may be obtained from your broker-dealer or sales
representative. The address of Fortis Investors, Inc. ("Investors") is P.O.
Box 64284, St. Paul, Minnesota 55164. Telephone: (651) 738-4000. Toll Free
1-(800) 800-2638 (x3012).

No broker-dealer, sales representative, or other person has been authorized
to give any information or to make any representations other than those
contained in this Statement of Additional Information, and if given or made,
such information or representations must not be relied upon as having been
authorized by the Fund or Investors. This Statement of Additional Information
does not constitute an offer or solicitation by anyone in any state in which
such offer or solicitation is not authorized, or in which the person making such
offer or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation.

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TABLE OF CONTENTS

[Information to be supplied]

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ORGANIZATION AND CLASSIFICATION

Asset Allocation Portfolio and Capital Appreciation Portfolio are
portfolios of Fortis Advantage Portfolios, Inc. ("Fortis Advantage"). Fortis
Advantage was incorporated in Minnesota in 1987; Asset Allocation Portfolio
commenced operations on ________________________ and Capital Appreciation
Portfolio commenced operations on November 14, 1994. Value Fund, Growth &
Income Fund and Capital Fund are the three portfolios of Fortis Equity
Portfolios, Inc. ("Fortis Equity"). Fortis Equity was incorporated in
Minnesota in 1949; Value Fund and Growth & Income Fund commenced operations
on January 2, 1996 and Capital Fund commenced operations on
________________________ . Growth Fund was incorporated in Minnesota in
1958 and its single portfolio commenced operations on
________________________ . Fortis Income and Fortis Advantage may establish
other portfolios, each corresponding to a distinct investment portfolio and a
distinct series of their common stock.

Fortis Advantage, Fortis Equity and Capital Fund 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 Advantage currently has three investment portfolios (only two of which
are offered through the prospectus and Fortis Equity has three investment
portfolios; Growth Fund has a single portfolio. Each Fund operates as an
open-end, diversified investment company as defined under the 1940 Act.
Open-end means that it generally must redeem an investor's shares upon
request. In order to be diversified, each Fund 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.

INVESTMENT POLICES AND RESTRICTIONS

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

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

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Any investment policy or restriction which involves a maximum percentage of
securities or assets 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 such excess results therefrom.

ASSET ALLOCATION PORTFOLIO AND CAPITAL APPRECIATION PORTFOLIO

INVESTMENT POLICIES --ASSET ALLOCATION PORTFOLIO

In addition to its investments in equity securities and in obligations of
the U.S. Government, its agencies, and instrumentalities, Asset Allocation
Portfolio may invest in a variety of long, intermediate, and short-term debt
securities. Such instruments may include the following:

(a) CORPORATE BONDS. The Fund may invest, without limitation, in
corporate bonds rated within the four highest rating grades assigned by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings
Services ("S&P"), or comparably rated by another nationally recognized
rating agency, and may invest up to 30% of its total assets in lower rated
bonds. The Fund will not invest in bonds rated below Caa by Moody's or CCC
by S&P, or comparably rated by another nationally recognized rating agency;
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. For a description of ratings assigned by both
Moody's and S&P, see the Appendix.

(b) BANK OBLIGATIONS. The Fund may invest in: (i) obligations
(including certificates of deposit and bankers acceptances) of U.S. banks,
savings and loan associations, and savings banks, which institutions have
total assets (as of the date of their most recent annual financial
statements at the time of investment) of not less than $1 billion;
(ii) U.S. dollar denominated obligations of Canadian chartered banks,
London branches of U.S. banks, and U.S. branches or agencies of foreign
banks which meet the asset size referred to in (i) above; and
(iii) obligations of the institutions referred to in (i) above which have
total assets of less than $1 billion, provided that the amount of the
obligations purchased does not exceed $100,000 for any one such
institution, and the payment of the principal is insured by the Federal
Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation; and

(c) COMMERCIAL PAPER. The Fund may invest, without limitation, in
commercial paper issued by U.S. corporations or affiliated foreign
corporations and rated (or guaranteed by a company whose commercial paper
is rated) at the date of investment

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Prime-2 or higher by Moody's or A-2 or higher by S&P, or comparably rated
by another nationally recognized rating agency, or, if not rated, issued by
a corporation having an outstanding debt issue rated A or better by Moody's
or S&P, or comparably rated by another nationally recognized rating agency,
and, if issued by an affiliated foreign corporation, such commercial paper
(not to exceed in the aggregate 20% of the Fund's net assets) is U.S.
dollar denominated and not subject at the time of purchase to foreign tax
withholding.

The Fund may invest not more than 20% of its total assets in municipal
securities during periods when such securities appear to offer more attractive
returns than taxable securities.

The Fund may invest in debentures the interest on which may be paid in
other securities rather than cash ("PIKs"). Typically, during a specified term
prior to the debenture's maturity, the issuer of a PIK may provide for the
option or the obligation to make interest payments in debentures, common stock,
or other instruments (I.E., "in kind" rather than in cash). The type of
instrument in which interest may or will be paid would be known by the Portfolio
at the time of the investment. While PIKs generate income for generally
accepted accounting standards purposes, they do not generate cash flow and thus
could cause the Fund to be forced to liquidate securities at an inopportune
time in order to distribute cash, as required by the Internal Revenue Code.

INVESTMENT POLICIES --CAPITAL APPRECIATION PORTFOLIO

Capital Appreciation Portfolio's policy is to invest, under normal
circumstances, at least 65% of its total assets (exclusive of collateral in
connection with securities lending) in: (a) common stocks of small and
medium-sized companies that are early in their life cycles, but which have the
potential to become major enterprises ("emerging growth companies"); and
(b) equity securities of some more established companies whose rates of earnings
growth are expected to accelerate because of special factors such as new
products, changes in consumer demand, basic changes in the economic environment,
or rejuvenated management. However, when Advisers considers a more defensive
posture appropriate, the Fund temporarily can be 100% invested in commercial
paper, obligations of banks or the U.S. Government, and other high quality,
short-term debt instruments.

INVESTMENT RESTRICTIONS

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

(1) Purchase securities on margin or otherwise borrow money or issue
senior securities, except that the Funds, in accordance with their
investment objectives and policies, may purchase securities on a
when-issued and delayed delivery basis, within the limitations set
forth in the Prospectus and Statement of Additional

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Information. Fortis Advantage may also obtain such short-term credit
as it needs for the clearance of securities transactions, and may
borrow from banks, for the account of either Fund, as a temporary
measure to facilitate redemptions (but not for leveraging or
investment) an amount that does not exceed 10% of the value of a
Fund's total assets. No additional investment securities may be
purchased by a Fund while outstanding bank borrowings exceed 5% of the
value of such Fund's total assets.
(2) Mortgage, pledge or hypothecate its assets, except in an amount not
exceeding 10% of the value of its total assets to secure temporary or
emergency borrowing.
(3) Invest in commodities or commodity contracts, other than for hedging
purposes only.
(4) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, Fortis Advantage may be deemed an underwriter under
applicable laws.
(5) Participate on a joint or a joint and several basis in any securities
trading account.
(6) Invest in real estate, except a Fund may invest in securities issued
by companies owning real estate or interests therein.
(7) Make loans to other persons. Repurchase agreements, the lending of
securities and the acquiring of debt securities in accordance with the
Prospectus and Statement of Additional Information are not considered
to be "loans" for this purpose.
(8) Concentrate its investments in any particular industry, except that
(i) it may invest up to 25% of the value of its total assets in any
particular industry, and (ii) there is no limitation with respect to
investments in obligations issued or guaranteed by the U.S. Government
or its agencies and instrumentalities, or obligations of domestic
commercial banks. As to utility companies, gas, electric, water and
telephone companies will be considered as separate industries. As to
finance companies, the following categories will be considered as
separate industries: (a) captive automobile finance, such as General
Motors Acceptance Corp. and Ford Motor Credit Corp.; (b) captive
equipment finance companies, such as Honeywell Finance Corporation and
General Electric Credit Corp.; (c) captive retail finance companies,
such as Macy Credit Corp. and Sears Roebuck Acceptance Corp.;
(d) consumer loan companies, such as Beneficial Finance Corporation
and Household Finance Corporation; (e) diversified finance companies
such as CIT Financial Corp., Commercial Credit Corporation and Borg
Warner Acceptance Corp.; and (f) captive oil finance companies, such
as Shell Credit, Inc., Mobil Oil Credit Corp. and Texaco Financial
Services, Inc.
(9) Purchase from or sell to any officer, director, or employee of Fortis
Advantage, or Advisers or Investors, 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

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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. Neither of the Funds will:

(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 in interests (including partnership interests or leases) in
oil, gas, or other mineral exploration or development programs, except
it may purchase or sell securities issued by corporations engaging in
oil, gas, or other mineral exploration or development business.
(5) Purchase or retain the securities of any issuer if those officers and
directors of Fortis Advantage or its investment adviser owning
(including beneficial ownership) individually more than 1/2 of 1% of
the securities of such issuer together own (including beneficial
ownership) more than 5% of the securities of such issuer.
(6) Invest more than 15% of its net assets in illiquid securities.
(7) Invest more than 5% of its total assets in warrants, nor invest more
than 2% of its total assets in warrants not traded on the New York
Stock Exchange or the American Stock Exchange.
(8) Invest in real estate limited partnership interests.
(9) Invest more than 20% of its net assets in when-issued, delayed
delivery or forward commitment transactions, and of such 20%, no more
than one-half (i.e., 10% of its net assets) may be invested in
when-issued, delayed delivery or forward commitment transactions
without the intention of actually acquiring securities (i.e., dollar
rolls).

VALUE FUND AND CAPITAL FUND

INVESTMENT RESTRICTIONS

The following investment restrictions are fundamental and may be changed
only by the approval of shareholders. No Fund will:

(1) Concentrate its investments, that is, invest more than 25% of the
value of its assets in any particular industry.

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(2) Purchase or sell physical commodities (such as grains, livestock,
etc.) or futures or options contracts thereon; however, it may
purchase or sell any forms of financial instruments or contracts that
might be deemed commodities.
(3) Invest directly in real estate or interests in real estate; however,
the Fund may invest in interests in real estate investment trusts,
debt securities secured by real estate or interests therein, or debt
or equity securities issued by companies which invest in real estate
or interests therein.
(4) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed an underwriter under applicable
laws.
(5) Purchase securities on margin or otherwise borrow money, except that
the Fund, in accordance with its investment objectives and policies,
may purchase securities on a when-issued, delayed delivery, or forward
commitment basis, and may make margin deposits in connection with
dealing in commodities or options thereon. The Fund may also obtain
such short-term credit as it needs for the clearance of securities
transactions, and may borrow from a bank as a temporary measure to
facilitate redemptions (but not for leveraging or investment) an
amount that does not exceed 10% of the value of the Fund's total
assets. Investment securities will not be purchased while outstanding
bank borrowings (including "roll" transactions) exceed 5% of the value
of the Fund's total assets.
(6) Issue senior securities (as defined in the 1940 Act) other than as set
forth in restriction #5 above concerning borrowing and except to the
extent that using options and futures contracts or purchasing or
selling securities on a when issued, delayed delivery, or forward
commitment basis (including the entering into of roll transactions)
may be deemed to constitute issuing a senior security.
(7) Make loans to other persons, except that it may lend its portfolio
securities in an amount not to exceed 331 3% of the value of the
Fund's total assets (including the amount lent) if such loans are
secured by collateral at least equal to 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. Loans shall not be deemed to include repurchase
agreements or the purchase or acquisition of a portion of an issue of
notes, bonds, debentures, or other debt securities, whether or not
such purchase or acquisition is made upon the original issuance of the
securities. ("Total assets" of the Fund includes the amount lent as
well as the collateral securing such loans.)

The following investment restrictions may be changed without shareholder
approval. Value Fund and Capital 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,

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acquisition or reorganization; provided that the Fund shall not
purchase or otherwise acquire more than 3% of the total outstanding
voting stock of any other investment company.
(2) Invest in a company for the purposes of exercising control or
management.
(3) Buy or sell foreign exchange.
(4) Invest in securities which would expose the Fund to liabilities
exceeding the amount invested.
(5) Invest in interests (including partnership interests or leases) in
oil, gas, or other mineral exploration or development programs, except
the Fund may purchase or sell securities issued by corporations
engaging in oil, gas, or other mineral exploration or development
business.
(6) Purchase or retain the securities of any issuer if those officers and
directors of the Fund or its investment adviser owning (including
beneficial ownership) individually more than 1/2 of 1% of the
securities of such issuer together own (including beneficial
ownership) more than 5% of the securities of such issuer.
(7) Invest more than 15% of its net assets in illiquid securities.
(8) Make short sales, except for sales "against the box."
(9) Mortgage, pledge, or hypothecate its assets except to the extent
necessary to secure permitted borrowings.
(10) Invest in real estate limited partnership interests.
(11) Purchase the securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of any
issuer to be held by the Fund.
(12) Invest more than 5% of its net assets, valued at the lower of cost or
market, in warrants; nor, within such amount, invest more than 2% of
such net assets in warrants not listed on the New York Stock Exchange
or American Stock Exchange. Warrants attached to securities or
acquired in units are excepted from the above limitations.
(13) Invest more than 10% of its total assets in real estate investment
trusts or invest in real estate investment trusts that are not
publicly distributed.
(14) Enter into any options, futures, or forward contract transactions if
immediately thereafter (a) the amount of premiums paid for all
options, initial margin deposits on all futures contracts and/or
options on futures contracts, and collateral deposited with respect to
forward contracts held by or entered into by the Fund would exceed 5%
of the value of the total assets of the Fund or (b) the Fund's assets
covering, subject to, or committed to all options, futures, and
forward contracts would exceed 20% of the value of the total assets of
the Fund. (This restriction does not apply to securities purchased on
a when-issued, delayed delivery, or forward commitment basis.)
(15) Write, purchase, or sell put or call options, except that it may write
covered call options.
(16) Invest more than 10% of its assets in foreign securities.

GROWTH FUND

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INVESTMENT RESTRICTIONS

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

(1) Concentrate its investments, that is, invest more than 25% of the
value of its assets, in any particular industry.
(2) Buy or sell commodities or commodity contracts.
(3) Purchase or sell real estate or other interests in real estate, or
interests in real estate investment trusts.
(4) Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund.
(5) Act as an underwriter of securities of other issuers, except that the
Fund may invest up to 5% of the value of its assets (at time of
investment) in portfolio securities which the Fund might not be free
to sell to the public without registration of such securities under
the Securities Act of 1933.
(6) Write, purchase, or sell puts, calls, or combinations thereof.
(7) Purchase or sell securities on margin or sell short.
(8) Make loans to other persons, except that it may purchase bonds,
debentures, or other debt securities, which are not publicly
distributed in an amount not to exceed 5% of the value of its total
assets. The purchase of a portion of an issue of publicly distributed
bonds, debentures, or other debt securities, does not constitute the
making of a loan.
(9) Borrow money or issue debt securities.

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

(6) Purchase or retain the securities of any issuer if those officers and
directors of the Fund or its investment adviser owning (including
beneficial ownership)

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<PAGE>

individually more than 1/2 of 1% of the securities of such issuer
together own (including beneficial ownership) more than 5% of the
securities of such issuer.
(7) Invest more than 5% of its net assets in warrants, not more than 2% of
net assets in warrants not listed on the New York Stock Exchange or
American Stock Exchange.
(8) Invest more than 10% of its assets in foreign securities.

GROWTH & INCOME FUND

INVESTMENT RESTRICTIONS

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

(1) Concentrate its investments in any particular industry, except that
(i) it may invest up to 25% of the value of its total assets in any
particular industry, and (ii) there is no limitation with respect to
investments in obligations issued or guaranteed by the U.S. Government
or its agencies and instrumentalities, or obligations of domestic
commercial banks. As to utility companies, gas, electric, water and
telephone companies will be considered as separate industries. As to
finance companies, the following categories will be considered as
separate industries: (a) captive automobile finance, such as General
Motors Acceptance Corp. and Ford Motor Credit Corp.; (b) captive
equipment finance companies, such as Honeywell Finance Corporation and
General Electric Credit Corp.; (c) captive retail finance companies,
such as Macy Credit Corp. and Sears Roebuck Acceptance Corp.;
(d) consumer loan companies, such as Beneficial Finance Corporation
and Household Finance Corporation; (e) diversified finance companies
such as CIT Financial Corp., Commercial Credit Corporation and Borg
Warner Acceptance Corp.; and (f) captive oil finance companies, such
as Shell Credit, Inc., Mobile Oil Credit Corp. and Texaco Financial
Services, Inc.
(2) Purchase or sell physical commodities (such as grains, livestock,
etc.) or futures or options contracts thereon. However, the Fund may
purchase or sell any forms of financial instruments or contracts that
might be deemed commodities.
(3) Invest directly in real estate or interests in real estate; however,
the Fund may invest in interests in real estate investment trusts,
debt securities secured by real estate or interests therein, or debt
or equity securities issued by companies which invest in real estate
or interests therein.
(4) Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund, provided
that this restriction shall not apply to the transfer of securities in
connection with any permissible borrowing or the collateral
arrangements in connection with permissible activities.

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(5) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed an underwriter under applicable
laws.
(6) Purchase securities on margin, except that the Fund, in accordance
with its investment objectives and policies, may purchase securities
on a when-issued, delayed delivery or forward commitment basis. The
Fund may also obtain such short-term credit as it needs for the
clearance of securities transactions and may make margin deposits in
connection with futures contracts.
(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 the Fund contemporaneously owns or
has the right to obtain securities identical to those sold without
payment of any additional consideration.
(8) Make loans to other persons, except (i) the Fund may lend its
portfolio securities in an amount not to exceed 33 1/3% of the value
of its total assets 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 (ii) it may purchase debt
securities through private placements (restricted securities) in
accordance with its investment objectives and policies.
(9) Issue senior securities (as defined in the 1940 Act) other than as set
forth in restriction #10 below and except to the extent that using
options and futures contracts or purchasing or selling securities on a
when issued, delayed delivery or forward commitment basis (including
the entering into of roll transactions) may be deemed to constitute
issuing a senior security.
(10) Borrow money except from banks for temporary or emergency purposes not
in excess of 33 1/3% of the value of the Fund's total assets. The Fund
will not purchase securities while borrowings (including "roll"
transactions) in excess of 5% of total assets are outstanding. In the
event that the asset coverage for the Fund's borrowings falls below
300%, the Fund will reduce, within three days (excluding Sundays and
holidays), the amount of its borrowings in order to provide for 300%
asset coverage.

The following investment restrictions may be changed without shareholder
approval. Growth & Income 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; provided that the Fund
shall not purchase or otherwise acquire more than 3% of the total
outstanding voting stock of any other investment company. (Since the
Fund indirectly absorbs its pro rata share of the other investment
companies' expenses through the return received on these

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securities, "double" investment advisory fees in effect are paid on
those portfolio assets invested in shares of other investment
companies. However, management believes that at times the return and
liquidity features of these securities will be more beneficial to the
Fund than other types of securities, and that the indirect absorption
of these expenses has a de minimis effect on the Fund's return.)
(2) Invest in a company for the purpose of exercising control or
management.
(3) Invest in interests (including partnership interests or leases) in
oil, gas, or other mineral exploration or development programs, except
the Fund may purchase or sell securities issued by corporations
engaging in oil, gas, or other mineral exploration or development
business.
(4) Purchase or retain the securities of any issuer if those officers and
directors of the Fund or its investment adviser owning (including
beneficial ownership) individually more than 1/2 of 1% of the
securities of such issuer together own (including beneficial
ownership) more than 5% of the securities of such issuer.
(5) Invest more than 5% of its total assets in securities of unseasoned
issuers, including their predecessors, which have been in operation
for less than three years.
(6) Invest more than 15% of its net assets in illiquid securities.
(7) Enter into any options, futures, or forward contract transactions if
immediately thereafter (a) the amount of premiums paid for all
options, initial margin deposits on all futures contracts and/or
options on futures contracts, and collateral deposited with respect to
forward contracts held by or entered into by the Fund would exceed 5%
of the value of the total assets of the Fund or (b) the Fund's assets
covering, subject to, or committed to all options, futures, and
forward contracts would exceed 20% of the value of the total assets of
the Fund. (This restriction does not apply to securities purchased on
a when-issued, delayed delivery, or forward commitment basis.)
(8) Invest in real estate limited partnership interests.
(9) Purchase the securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of any
issuer to be held by the Fund.
(10) Borrow money in excess of 10% of its total assets, except as a
temporary or emergency measure. ("Roll" transactions will not be
considered borrowing for purposes of this restriction).

INVESTMENT PRACTICES COMMON TO THE FUNDS

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 making other distributions to shareholders, or for defensive purposes,
in cash and short-term money market instruments. Short-term money market
instruments in which the Funds may invest include (i) short-term U.S. government
securities and short-term obligations of foreign sovereign governments and their

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agencies and instrumentalities, (ii) interest bearing savings deposits on, and
certificates of deposit and bankers' acceptances of, U.S. 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.

U.S. GOVERNMENT SECURITIES

Each Fund may invest in U.S. government securities, which include the
following U.S. Treasury obligations: 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 initial maturities of greater than 10 years),
all of which are backed by the full faith and credit of the United States. The
Funds may also invest in obligations issued or guaranteed by U.S. government
agencies or instrumentalities, including government guaranteed mortgage-related
securities, some of which are backed by the full faith and credit of the U.S.
Treasury, e.g., direct pass-through certificates of the Government National
Mortgage Association; some of which are supported by the right of the issuer to
borrow from the U.S. government, e.g., obligations of Federal Home Loan Banks;
and some of which are backed only by the credit of the issuer itself, e.g.,
obligations of the Student Loan Marketing 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 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.

MORTGAGE-RELATED SECURITIES

Asset Allocation Portfolio and Growth & Income Fund may invest in certain
types of mortgage-related securities. One type of mortgage-related security
includes certificates which represent pools of mortgage loans assembled for sale
to investors by various governmental and private organizations. These
securities provide a monthly payment, which consists of both an interest and a
principal payment, which is in effect a "pass-through" of the monthly payment
made by each individual borrower on his or her residential mortgage loan, net of
any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the sale of the
underlying residential property, refinancing, or foreclosure, net of fees or
costs which may be incurred. Some certificates (such as those issued by the
Government National Mortgage Association) are described as "modified
pass-through." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, regardless of
whether the mortgagor actually makes the payment.

A major governmental guarantor of pass-through certificates is the
Government National Mortgage Association ("GNMA"). GNMA guarantees, with the
full faith and credit of the U.S. government, the timely payments of principal
and interest on securities issued by institutions

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approved by GNMA (such as savings and loan institutions, commercial banks, and
mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages.
Other governmental guarantors (but not backed by the full faith and credit of
the United States Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA
purchases residential mortgages from a list of approved seller/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks, credit unions, and mortgage bankers.

(i) GNMA CERTIFICATES. Certificates of the GNMA ("GNMA Certificates")
evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly as
payments of principal, including prepayments, on the mortgages in the
underlying pool are passed through to holders of the GNMA Certificates
representing interests in the pool, rather than returned in a lump sum at
maturity. The GNMA Certificates that the Government Total Return Portfolio
purchases are the "modified pass-through" type. "Modified pass-through"
GNMA Certificates entitle the holder to receive a share of all interest and
principal payments paid or owed to the mortgage pool, net of fees paid or
due to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment.

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

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

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

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<PAGE>

(iv) YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of
interest of GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the certificates, by the
amount of the fees paid to GNMA and the issuer.

The coupon rate by itself, however, does not indicate the yield which will
be earned on GNMA Certificates. First, GNMA Certificates may be issued at
a premium or discount, rather than at par, and, after issuance, GNMA
Certificates may trade in the secondary market at a premium or discount.
Second, interest is earned monthly, rather than semi-annually as with
traditional bonds; monthly compounding raises the effective yield earned.
Finally, the actual yield of a GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying it. For example, if
interest rates decline, prepayments may occur faster than had been
originally projected and the yield to maturity and the investment income of
the Fund would be reduced.

(v) FHLMC SECURITIES. "FHLMC" is a federally chartered corporation created
in 1970 through enactment of Title III of the Emergency Home Finance Act of
1970. Its purpose is to promote development of a nationwide secondary
market in conventional residential mortgages.

The FHLMC issues two types of mortgage pass-through securities, mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro
rata share of all interest and principal payments made or owed on the
underlying pool. The FHLMC guarantees timely payment of interest on PCs
and the ultimate payment of principal. Like GNMA Certificates, PCs are
assumed to be prepaid fully in their twelfth year.

GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a
year in guaranteed minimum payments. The expected average life of these
securities is approximately ten years.

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

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

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<PAGE>

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.

Advisers expects 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 the Funds' investment objectives,
policies, and restrictions, consider making investments in such new types of
securities.

Other types of mortgage-related securities include debt securities which
are secured, directly or indirectly, by mortgages on commercial real estate or
residential rental properties, or by first liens on residential manufactured
homes (as defined in section 603(6) of the National Manufactured Housing
Construction and Safety Standards Act of 1974), whether such manufactured homes
are considered real or personal property under the laws of the states in which
they are located.

Securities in this investment category include, among others, standard
mortgage-backed bonds and newer collateralized mortgage obligations (CMO's).
Mortgage-backed bonds are secured by pools of mortgages, but, unlike
pass-through securities, payments to bondholders are not determined by payments
on the mortgages. The bonds consist of a single class, with interest payable
periodically and principal payable on the stated date of maturity. CMO's have
characteristics of both pass-through securities and mortgage-backed bonds. CMO's
are secured by pools of mortgages, typically in the form of "guaranteed"
pass-through certificates such as GNMA, FNMA, or FHLMC securities. The payments
on the collateral securities determine the payments to the bondholders, but
there is not a direct "pass-through" of payments. CMO's are structured into
multiple classes, each bearing a different date of maturity. Monthly payments
of principal received from the pool of underlying mortgages, including
prepayments, is first returned to investors holding the shortest maturity class.
Investors holding the longest maturity classes receive principal only after the
shorter maturity classes have been retired.

Multi-class pass-through securities are interests in a trust composed of
mortgage loans or other mortgage-backed securities. Payments of principal and
interest on underlying collateral provide the funds to pay debt service on the
CMO or make scheduled distributions on the multi-class pass-through security.
Multi-class pass-through securities, CMOs, and classes

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<PAGE>

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.

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

Certain zero coupon obligations represent direct obligations of the issuer
of the "stripped" coupon and principal payments. Other zero coupon obligations
are securities issued by financial institutions which constitute a proportionate
ownership of an underlying pool of stripped coupon or principal payments. Asset
Allocation Portfolio may invest in either type of zero coupon obligation. The
investment policies and restrictions applicable to corporate and government
securities in the Fund shall apply to the Fund's investments in zero coupon
securities (including, for example, minimum corporate bond ratings and
percentage limitations).

CMO's are issued by entities that operate under orders from the the SEC
exempting such issuers from the provisions of the 1940 Act. Until recently, the
staff of the SEC had taken the position that such issuers were investment
companies and that, accordingly, an investment by an investment company (such as
the Funds) in the securities of such issuers was subject to limitations imposed
by Section 12 of the 1940 Act. However, in reliance on a SEC staff
interpretation, the Funds may invest in securities issued by certain "exempted
issuers" without regard to the limitations of Section 12 of the 1940 Act. In
its interpretation, the SEC staff defined "exempted issuers" as unmanaged, fixed
asset issuers that (a) invest primarily in mortgage-backed securities, (b) do
not issue redeemable securities as defined in Section 2(a)(32)

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<PAGE>

of the 1940 Act, (c) operate under general exemptive orders exempting them from
"all provisions of the [1940] Act" and (d) are not registered or regulated under
the 1940 Act as investment companies.

REPURCHASE AGREEMENTS

Each of the Funds may invest in repurchase agreements. A repurchase
agreement is a short-term 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 less than a week in duration.

In investing in repurchase agreements, a Fund's risk is limited to the
ability of such bank or securities dealer to pay the agreed upon amount at the
maturity of the repurchase agreement. In the opinion of management, such risk
is not material; if the other party defaults, the underlying security
constitutes collateral for the obligation to pay--although the Fund may incur
certain delays in obtaining direct ownership of the collateral, plus costs in
liquidating the collateral. In the event a bank or securities dealer defaults
on the repurchase agreement, management believes that, barring extraordinary
circumstances, the Fund will be entitled to sell the underlying securities or
otherwise receive adequate protection (as defined in the federal Bankruptcy
Code) for its interest in such securities. To the extent that proceeds from any
sale upon a default were less than the repurchase price, however, the Fund could
suffer a loss. If the Fund owns underlying securities following a default on
the repurchase agreement, the Fund will be subject to risk associated with
changes in the market value of such securities. The Fund's custodian will hold
the securities underlying any repurchase agreement or such securities may be
part of the Federal Reserve Book Entry System. The market value of the
collateral underlying the repurchase agreement will be determined on each
business day. If at any time the market value of the collateral falls below the
repurchase price of the repurchase agreement (including any accrued interest),
the Fund will promptly receive additional collateral (so the total collateral is
in an amount at least equal to the repurchase price plus accrued interest).

VARIABLE AMOUNT MASTER DEMAND NOTES

Each of the Funds, except Growth & Income Fund, may invest in 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 a Fund at varying
market rates of interest pursuant to arrangements between the Fund 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

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<PAGE>

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 the 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.

ILLIQUID SECURITIES

Each of the Funds may invest in illiquid securities, including "restricted"
securities. (A restricted security is one which was originally sold in a
private placement and was not registered with the Commission under the
Securities Act of 1933 (the "1933 Act") and which is not free to be resold
unless it is registered with the Commission or its sale is exempt from
registration. 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.) Each Fund has a
nonfundamental policy that it will invest no more than 15% of the value of its
net assets in illiquid securities, as determined pursuant to applicable
Commission rules and interpretations.

The staff of the Securities and Exchange Commission has taken the position
that the liquidity of securities in the portfolio of a fund offering redeemable
securities is a question of fact for a board of directors of such a fund to
determine, based upon a consideration by such board of the readily available
trading markets and a review of any contractual restrictions. The SEC staff
also acknowledges that, while such a board retains ultimate responsibility, it
may delegate this function to the fund's investment adviser.

The Funds' Boards of Directors have adopted procedures to determine the
liquidity of certain securities, including commercial paper issued pursuant to
the private placement exemption of Section 4(2) of the 1933 Act and securities
that are eligible for resale to qualified institutional buyers pursuant to
Rule 144A under the 1933 Act. Under these procedures, factors taken into
account in determining the liquidity of a security include (a) the frequency of
trades and quotes for the security, (b) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers,
(c) dealer undertakings to make a market in the security, and (d) the nature of
the security and the nature of the marketplace trades (E.G., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). Section 4(2) commercial paper or a Rule 144A security that when
purchased enjoyed a fair degree of marketability may subsequently become
illiquid, thereby adversely affecting the liquidity of the applicable Fund.

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

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<PAGE>

securities eligible for trading on national securities exchanges or in the
over-the-counter markets. A Fund may also be restricted in its ability to sell
such securities at a time when it is advisable to do so. Illiquid securities
often sell at a price lower than similar securities that are not subject to
restrictions on resale.

FOREIGN SECURITIES

Each Fund may invest up to 10% of total assets (except that Asset
Allocation Portfolio may invest up to 20% of total assets) in securities of
foreign governments and companies. No more than 15% of Asset Allocation
Portfolio's total assets may be invested in foreign securities that are not
traded on national foreign securities exchanges or traded in the United States.
Domestic branches of foreign banks and foreign branches of domestic banks are
deemed by Advisers to be domestic, not foreign, companies. Investing in foreign
securities may result in greater risk than that incurred by investing in
domestic securities. The obligations of foreign issuers may be affected by
political or economic instabilities. Financial information published by foreign
companies may be less reliable or complete than information disclosed by
domestic companies pursuant to U.S. Government securities laws, and may not have
been prepared in accordance with generally accepted accounting principles.
Fluctuations in exchange rates may affect the value of foreign securities not
denominated in United States currency.

DELAYED DELIVERY TRANSACTIONS

Each of the Funds, except Growth Fund, may purchase securities on a "when
issued" or delayed delivery basis and purchase or sell securities on a "forward
commitment" basis. When such transactions are negotiated, the price is fixed at
the time the commitment is made, but delivery and payment for the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but delayed settlements beyond two months may be
negotiated. As to each such Fund, 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 (i.e., dollar rolls). At
the time a Fund enters into a transaction on a when-issued or forward commitment
basis, a segregated account consisting of cash, U.S. Government securities or
any security that is not considered restricted or illiquid at least equal to the
value of the when-issued or forward commitment securities will be established
and maintained with the custodian and will be marked to the market daily.
During the period between a commitment and settlement, no payment is made for
the securities purchased by the purchaser and, thus, no interest accrues to the
purchaser from the transaction. If the Fund disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it can incur a gain or loss due
to market fluctuation.

The use of when-issued transactions and forward commitments enables the
Fund to hedge against anticipated changes in interest rates and prices. The Fund
may also enter into such

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<PAGE>

transactions to generate incremental income. In some instances, the third-party
seller of when-issued or forward commitment securities may determine prior to
the settlement date that it will be unable or unwilling to meet its existing
transaction commitments without borrowing securities. If advantageous from a
yield perspective, the Funds may, in that event, agree to resell its purchase
commitment to the third-party seller at the current market price on the date of
sale and concurrently enter into another purchase commitment for such securities
at a later date. As an inducement for the Fund to "roll over" its purchase
commitment, the Fund may receive a negotiated fee.

The purchase of securities on a when-issued, delayed delivery, or forward
commitment basis exposes the Fund to risk because the securities may decrease in
value prior to their delivery. Purchasing securities on a when-issued, delayed
delivery, or forward commitment basis involves the additional risk that the
return available in the market when the delivery takes place will be higher than
that obtained in the transaction itself. These risks could result in increased
volatility of the Fund's net asset value to the extent that the Fund purchases
securities on a when-issued, delayed delivery, or forward commitment basis while
remaining substantially fully invested. There is also a risk that the securities
may not be delivered or that a Fund may incur a loss or will have lost the
opportunity to invest the amount set aside for such transaction in the
segregated asset account.

DOLLAR ROLLS

In connection with its ability to purchase securities on a when-issued or
forward commitment basis, Growth & Income Fund may enter into "dollar rolls" in
which the 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. The Fund gives up the right to receive principal and interest paid on the
securities sold. However, the 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 the Fund compared with
what such performance would have been without the use of dollar rolls. The Fund
will hold and maintain in a segregated account until the settlement date cash,
government securities or liquid high-grade debt securities 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
Advisers 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 the 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.

REAL ESTATE OR REAL ESTATE INVESTMENT TRUSTS

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Value Fund and Capital Fund are authorized to invest in real estate
investment trusts ("REITs"), real estate development and real estate
operating companies and other real estate related businesses. Each Fund
presently intends to invest the REIT portion of its portfolio primarily in
equity REITs, which are trusts that sell shares to investors and use the
proceeds to invest in real estate or interests in real estate. 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. Debt REITs invest in obligations secured by mortgages on real property
or interests in real property.

These Funds have adopted a nonfundamental investment restriction that they
will not invest more than 10% of their respective total assets in REITs and will
invest only in REITs that are publicly distributed.

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.

LENDING OF PORTFOLIO SECURITIES

Asset Allocation Portfolio, Capital Appreciation Portfolio, Value Fund,
Capital Fund and Growth & Income Fund may each lend their portfolio
securities (principally to broker-dealers) where such loans are callable at
any time and are continuously secured by collateral securities 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. Any cash
collateral pursuant to these loans will be invested in government securities,
certificates of deposit or other high-grade, short-term obligations or
interest-bearing cash equivalents. Each Fund will limit such lending to not
more than 33 1/3% of the value of its total assets (including 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 Funds' investment in the
securities loaned.

The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will only be made to firms deemed
by Advisers to be of good standing and will not be made unless, in the judgment
of Advisers, the consideration to be earned from such loans would justify the
risk.

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No additional investment securities may be purchased by a Fund when
outstanding borrowings, (including "roll" transactions) exceed 5% of the value
of its total assets. If market fluctuations in the value of the portfolio
holdings or other factors cause the ratio of total assets to outstanding
borrowings to fall below 300%, within three days (excluding Sundays and
holidays) of such event the Fund may be required to sell portfolio securities to
restore the 300% asset coverage, even though from an investment standpoint such
sales might be disadvantageous. Interest paid on borrowings will not be
available for investment.

CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES

Asset Allocation Portfolio and Growth & Income Fund may invest in
certificates of deposits. Certificates of deposit are receipts issued by a bank
in exchange for the 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.

OPTIONS

Capital Appreciation Portfolio, Value Fund, Capital Fund and Asset
Allocation Portfolio may enter into transactions in options on a variety of
instruments and indexes, in order to protect against declines in the value of
portfolio securities or increases in the costs of securities to be acquired
and to hedge its portfolio. It is the current intent of Advisers to limit
the investment in options by each Fund so that such investments do not expose
more than 5% of each Fund's total assets to risk of loss. Additional
information about the types of instruments to be purchased and sold is
contained in the Appendix.

OPTIONS ON SECURITIES. Each Fund may write (sell) covered call options.
In addition, Asset Allocation Portfolio and Capital Appreciation Portfolio may
write secured put options and purchase call and put options on securities
(provided that Capital Appreciation Portfolio will write and purchase options
only on equity securities). If a Fund writes an option which expires
unexercised or is closed out by the Fund at a profit, it will retain all or a
portion of the premium received for the option, which will increase its gross
income and will offset in part the reduced value of the Fund security underlying
the option, or the increased cost of portfolio securities to be acquired. In
contrast, however, if the price of the underlying security moves adversely to
the Fund's position, the option may be exercised and the Fund will be required
to purchase or sell the

-24-
<PAGE>

underlying security at a disadvantageous price, which may only be partially
offset by the amount of the premium, if at all. The Funds may also write
combinations of put and call options on the same security, known as "straddles."
Such transactions can generate additional premium income but also present
increased risk.

Asset Allocation Portfolio and Capital Appreciation Portfolio may also
purchase put or call options in anticipation of market fluctuations which may
adversely affect the value of its portfolio or the prices of securities that the
Fund wants to purchase at a later date. In the event that the expected market
fluctuations occur, the Fund may be able to offset the resulting adverse effect
on its Fund, 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.

OPTIONS ON STOCK INDEXES. Each Fund may write (sell) covered call options.
Asset Allocation Portfolio and Capital Appreciation Portfolio may write secured
put options and purchase call and put options on stock indexes. When a Fund
writes an option on a stock index, and the value of the index moves adversely to
the holder's position, the option will not be exercised, and the Fund will
either close out the option at a profit or allow it to expire unexercised. The
Fund will thereby retain the amount of the premium, which will increase its
gross income and offset part of the reduced value of portfolio securities or the
increased cost of securities to be acquired. Such transactions, however, will
constitute only partial hedges against adverse price fluctuations, since any
such fluctuations will be offset only to the extent of the premium received by
the Fund for the writing of the option. In addition, if the value of an
underlying index moves adversely to a Fund's option position, the option may be
exercised, and the Fund will experience a loss which may only be partially
offset by the amount of the premium received.

A Fund may also purchase put or call options on stock indexes in order
either to hedge its investments against a decline in value or to attempt to
reduce the risk of missing a market or industry segment advance. The Fund's
possible loss in either case will be limited to the premium paid for the option,
plus related transaction costs.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

FUTURES CONTRACTS. Asset Allocation Portfolio may enter into interest rate
futures contracts for hedging purposes. Capital Appreciation Portfolio and
Asset Allocation Portfolio may enter into stock index futures contracts for
hedging purposes. Both Funds may also enter into foreign currency futures
contracts. (Unless otherwise specified, interest rate futures contracts, stock
index futures contracts and foreign currency futures contracts are collectively
referred to as "Futures Contracts.")

-25-
<PAGE>

Purchases or sales of stock index futures contracts are used to attempt to
protect a Fund's current or intended stock investments from broad fluctuations
in stock prices, and 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 a Fund's 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.
A Fund will incur brokerage fees when it purchases and sells Futures Contracts,
and it will be required to make and maintain margin deposits.

OPTIONS ON FUTURES CONTRACTS. Asset Allocation Portfolio may purchase and
write options to buy or sell interest rate futures contracts. In addition,
Capital Appreciation Portfolio and Asset Allocation Portfolio may purchase and
write options on stock index futures contracts, and both Funds may purchase and
write options on foreign currency futures contracts. (Unless otherwise
specified, options on interest rate futures contracts, options on stock index
futures contracts, and options on foreign currency futures contracts are
collectively referred to as "Options on Futures Contracts.") 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 portfolios of
the Funds 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,
a Fund may suffer a loss on the transaction.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

Asset Allocation Portfolio and Capital Appreciation Portfolio may enter
into contracts for the purchase or sale of a specific currency at a future date
at a price set at the time of the contract (a "Currency Contract"). The Funds
will enter into Currency Contracts for hedging purposes only, in a manner
similar to the Funds' use of foreign currency futures contracts. These
transactions will include forward purchases or sales of foreign currencies for
the purpose of protecting the dollar value of securities denominated in a
foreign currency or protecting the dollar equivalent of interest or dividends to
be paid on such securities. By entering into such transactions, however, the
Fund may be required to forego the benefits of advantageous changes in exchange
rates. Currency Contracts are traded over-the-counter, and not on organized

-26-
<PAGE>

commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves certain
risks beyond those associated with transactions in the futures and option
contracts described above.

OPTIONS ON FOREIGN CURRENCIES. Both 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 portfolio could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against fluctuations in exchange rates, although, in the event of rate movements
adverse to a Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. As in the case of Currency Contracts, certain
options on foreign currencies are traded over-the-counter and involve risks
which may not be present in the case of exchange-traded instruments.

REGULATORY RESTRICTIONS

To the extent required to comply with Securities and Exchange Commission
Release No. 10666, when purchasing a futures contract, writing a put option, or
entering into a delayed delivery purchase, the Funds will each maintain in a
segregated account cash or any security that is not considered restricted or
illiquid equal to the value of such contracts.

To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid "commodity pool operator" status, neither Fund
will enter into a futures contract or purchase an option thereon if immediately
thereafter the initial margin deposits for futures contracts held by the Fund,
plus premiums paid by it for open options on futures (less the amount by which
the value of the underlying futures contract exceeds the exercise price at the
time of purchase), would exceed 5% of the Fund's total assets. The Funds will
not engage in transactions in financial futures contracts or options thereon for
speculation, but only to attempt to hedge against changes in market conditions
affecting the values of securities which the Funds hold or intend 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.

RISK CONSIDERATIONS

MORTGAGE-RELATED SECURITIES

-27-
<PAGE>

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. In addition,
the value of such securities may fluctuate in response to the market's
perception of the creditworthiness of the issuers of mortgage-related securities
owned by the Funds. Because investments in mortgage-related securities are
interest sensitive, the ability of the issuer to reinvest favorably in
underlying mortgages may be limited by government regulation or tax policy. For
example, action by the Board of Governors of the Federal Reserve System to limit
the growth of the nation's money supply may cause interest rates to rise and
thereby reduce the volume of new residential mortgages. Additionally, although
mortgages and mortgage-related securities are generally supported by some form
of government or private guarantees and/or insurance, there is no assurance that
private guarantors or insurers will be able to meet their obligations.

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 IOs, POs, inverse floaters, and accrual bonds, not more than 7.5% of
the Asset Allocation Portfolio's net assets will be invested in any one of these
items at any one time, and no more than 15% of the net assets of the Fund will
be invested in all such obligations at any one time.

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 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,

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<PAGE>

the yield and market value for the holder of a PO will be affected more severely
than would be the case with a traditional Mortgage Backed Security.

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

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

HIGH YIELDING SECURITIES

Asset Allocation Portfolio may invest up to 30% of its total assets in
lower rated bonds. 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
corporate 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 serve their principal and interest payment obligations,
to meet projected business goals, and to obtain additional financing. If the
issuer of a security held by Asset Allocation Portfolio defaulted, the Fund
might incur additional expenses to seek recovery. In addition, periods of

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<PAGE>

economic uncertainty and changes can be expected to result in increased
volatility of market prices of high-yielding securities and the Fund's assets.
Furthermore, in the case of high-yielding securities structured as zero coupon
or debentures the interest on which may be paid in other securities rather than
cash ("PIKs"), their market prices are affected to a greater extent by interest
rate changes and thereby tend to be more volatile than securities which pay
interest periodically and in cash.

High-yielding securities present risks based on payment expectations. For
example, high-yielding securities may contain redemption or call provisions. If
an issuer exercises these provisions in a declining interest rate market, Asset
Allocation Portfolio 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 the Fund experiences unexpected net
redemptions, this may force it to sell its high-yielding securities, without
regard to their investment merits, thereby decreasing the asset base upon which
the 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 the Fund'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 Asset Allocation Portfolio may involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.

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

For the fiscal year ended August 31, 1998, the weighted average percentage
of the Fund's long-term bond investments represented by certain securities is
set forth in the following table:

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<PAGE>

<TABLE>
<CAPTION>
STANDARD & POOR'S RATING PERCENT OF LONG TERM
(OR EQUIVALENT) BOND INVESTMENTS
- ------------------------ ----------------
<S> <C>
AAA. . . . . . . . . . . . .
AA . . . . . . . . . . . . .
A. . . . . . . . . . . . . .
BBB. . . . . . . . . . . . .
BB . . . . . . . . . . . . .
B. . . . . . . . . . . . . .
CCC. . . . . . . . . . . . .
Below CCC. . . . . . . . . .
All unrated bonds as a group _____________
</TABLE>

FOREIGN SECURITIES

You should recognize that investing in foreign companies involves certain
considerations, including those discussed below, which are not typically
associated with investing in U.S. issuers. Since the indicated Funds may invest
in securities denominated in currencies other than U.S. dollars, and since they
may temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, they 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 indicated 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 the
indicated Funds. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balances of
payments and other economic and financial conditions, government intervention,
speculation, and other factors.

Foreign securities held by the Funds may not be registered with, nor the
issuers thereof be subject to, reporting requirements of the U.S. Securities and
Exchange Commission. Accordingly, there may be less publicly available
information about the securities and about the foreign company or government
issuing them than is available about a domestic company or government entity.
Foreign companies are generally not subject to uniform financial reporting
standards, practices, and requirements comparable to those applicable to
domestic companies. In addition, with respect to some foreign countries, there
is the possibility of expropriation or confiscatory taxation, limitations of the
removal of funds or other assets of the Funds, political or social instability,
or domestic developments which could affect United States investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably

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<PAGE>

from the U.S. economy in such respects as growth of Gross National 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 the
Funds of market and foreign exchange fluctuations brought about by such delays,
and due to the corresponding negative impact on liquidity, the Funds will avoid
investing in countries which are known to experience settlement delays which may
expose the Funds to unreasonable risk of loss.

The Funds will calculate their net asset values 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 a Fund's investment securities may be listed on foreign stock
exchanges which may trade on other days (such as a Saturday). As a result, the
Fund's net asset values may be materially affected by such trading on days when
a shareholder has no access to the Funds.

OPTIONS, FUTURES CONTRACTS, AND FORWARD CONTRACTS

Value Fund and Capital Fund have adopted a nonfundamental policy that
they will not write, purchase or sell put or call options; they may only
write covered call options. The writing of covered call options can have the
effect of limiting a Fund's gains on the securities or other instruments
covered thereby; however, Advisers believes that this technique represents a
relatively low-risk way for a portfolio manager to attempt to enhance a
portfolio's return.

Although Asset Allocation Portfolio and Capital Appreciation Portfolio may
enter into transactions in Options, Futures Contracts, Options on Futures
Contracts, Currency Contracts, and certain options solely for hedging purposes,
their use does involve certain risks. For example, a lack of correlation
between the index or instrument underlying an option or Futures Contract and the
assets being hedged, or unexpected adverse price movements, could render a
Fund's hedging strategy unsuccessful and could result in losses. The indicated
Funds also may enter into transactions in options on securities and indexes of
securities for other than hedging purposes, which involves greater risk. In
addition, there can be no assurance that a liquid secondary market will exist
for any contract purchased or sold, and a Fund may be required to maintain a
position until exercise or expiration, which could result in losses.

A put option gives the purchaser (holder) of the option the right to sell
(put) a security or other instrument to a third party at a stated price for a
stated period or on a stated date. A call option gives the purchaser (holder)
of the option the right to purchase (call) a security or other instrument from a
third party at a stated price for a stated period or on a stated date. A person
who sells (writes) a put option gives a third party the right to require the
writer to purchase a security or other instrument at a stated price for a stated
period or on a stated date, while a person

-32-
<PAGE>

who sells (writes) a call option gives a third party the right to require the
writer to sell a security or other instrument at a stated price for a stated
period or on a stated date. A person who writes a call option may do so either
on a "covered" basis, in which case the writer already owns or has the right to
acquire the security or other instrument which the writer agrees may be called
away from such writer, or on an "uncovered" basis, in which case the writer does
not own or have the right to acquire such security or instrument. In the case
of an uncovered call option, the writer bears the risk that the writer will have
to purchase the security or instrument subject to the option in the open market
at an increased price if the purchaser of the call option exercises it.

Put and call options may be used for a variety of purposes. For example,
if a portfolio manager wishes to hedge a security which the manager owns against
a decline in price, the manager may purchase a put option on the underlying
security, i.e., purchase the right to sell the security to a third party at a
stated price. If the underlying security then declines in price, the manager
can exercise the put option, thus limiting the amount of the manager's loss
resulting from the decline in price. Similarly, if the manager intends to
purchase a security at some date in the future, the manager may purchase a call
option on the security today in order to hedge against an increase in its price
before the intended purchase date. On the other hand, put and call options also
can be used for speculative purposes. For example, if a portfolio manager
believes that the price of stocks generally is going to rise, the manager may
purchase a call option on a stock index, the components of which are unrelated
to the stocks the manager holds in portfolio or intends to purchase. Finally, a
portfolio manager may write covered call options on securities the manager owns
in order to realize additional income with respect to his portfolio, or the
manager may write put options for similar income-producing purposes. If the
options expire unexercised, the manager has increased the portfolio's income by
the amount of the price (premium) received upon sale of the option. On the
other hand, if a covered call option is exercised and the underlying security is
"called" away, the manager has limited the amount of his gain to the exercise
price of the options plus the premium.

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

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

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<PAGE>

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.

DIRECTORS AND EXECUTIVE OFFICERS

The names, addresses, principal occupations, and other affiliations of
directors and executive officers of Fortis Advantage, Fortis Equity and Growth
Fund are given below:

<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATION AND AFFILIATIONS DURING PAST 5 YEARS
- ---------------- --- --------- ---------------------------------------------------------
<S> <C> <C> <C>
Richard W. Cutting 66 Director Certified public accountant and financial consultant.
137 Chapin Parkway
Buffalo, New York

Allen R. Freedman* 57 Director Chairman, Chief Executive Officer and President of Fortis,
One Chase Manhattan Plaza Inc.; a Managing Director of Fortis International, N. V.
New York, New York

Dr. Robert M. Gavin 57 Director President, Cranbrook Education Community, Prior to July
380 Lone Pine Road 1996, President Macalester College, St. Paul, MN.
Bloomfield Hills, MI

Jean L. King 53 Director President, Communi-King, a communications consulting firm.
12 Evergreen Lane
St. Paul, Minnesota

Dean C. Kopperud* 45 President and Chief Executive Officer and a Director of Advisors,
500 Bielenberg Drive Director President and a Director of Investors, President of Fortis
Woodbury, Minnesota Financial Group, a Director of Fortis Benefits Insurance
Company and a Senior Vice President of Time Insurance
Company.

Edward M. Mahoney 67 Director Retired; prior to December, 1994, Chairman and Chief
2760 Pheasant Road Executive Officer and a Director of Advisers and Investors,
Excelsior, Minnesota Senior Vice President and a Director of Fortis Benefits
Insurance Company, and Senior Vice President of Time
Insurance Company.

-34-
<PAGE>

<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATION AND AFFILIATIONS DURING PAST 5 YEARS
- ---------------- --- --------- ---------------------------------------------------------
<S> <C> <C> <C>
Robb L. Prince 56 Director Financial and Employee Benefit Consultant; prior to July,
5108 Duggan Plaza 1995, Vice President and Treasurer, Jostens, Inc., a
Edina, Minnesota producer of products and services for the youth, education,
sports award, and recognition markets.

Leonard J. Santow 61 Director Principal, Griggs & Santow, Incorporated, economic and
75 Wall Street financial consultants.
21st Floor
New York, New York

Joseph M. Wikler 56 Director Investment consultant and private investor; prior to
12520 Davan Drive January, 1994, Director of Research, Chief Investment
Silver Spring, Maryland Officer, Principal, and a Director, The Rothschild Co.,
Baltimore, Maryland. The Rothschild Co. is an investment
advisory firm.

Gary N. Yalen 55 Vice President President and Chief Investment Officer of Advisers (since
One Chase Manhattan Plaza August, 1995) New York, NY, and Senior Vice President,
New York, New York Investments, Fortis, Inc., prior to 1996, President and
Chief Investment Officer, Fortis Asset Management, a former
division of Fortis, Inc.

James S. Byrd 46 Vice President Executive Vice President of Advisers; prior to 1995, Vice
5500 Wayzata Boulevard President of Advisers and Investors.
Golden Valley, Minnesota

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

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

-35-

<PAGE>

<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATION AND AFFILIATIONS DURING PAST 5 YEARS
- ---------------- --- --------- ---------------------------------------------------------
<S> <C> <C> <C>
Nicholas L. M. de Peyster 31 Vice President Vice President of Advisers since August 1995. Prior to
One Chase Manhattan Plaza 1966, Vice President, Equities, Fortis Asset Management.
New York, New York

Charles J. Dudley 38 Vice President Vice President of Advisers; prior to August, 1995, Senior
One Chase Manhattan Plaza Vice President, Sun America Asset Management, Los Angeles,
New York, New York CA.

Maroun M. Hayek 49 Vice President Vice President of Advisers; prior to August 1996, Vice
One Chase Manhattan Plaza President, Fixed Income, Fortis Asset Management, a former
New York, New York division of Fortis, Inc.

Robert C. Lindberg 45 Vice President Vice President of Advisers; prior to July, 1993, Vice
One Chase Manhattan Plaza President, Portfolio Manager, and Chief Securities Trader,
New York, New York COMERICA, Inc., Detroit, Michigan. COMERCA, Inc. is a bank.

Christopher J. Pagano 34 Vice President Vice President of Advisers; prior to March 1996, Government
One Chase Manhattan Plaza Strategist for Merrill Lynch, New York, N.Y.
New York, N.Y.

Charles L. Mehlhouse 55 Vice President Vice President of Advisers; prior to March 1996, Portfolio
One Chase Manhattan Plaza Manager to Marshall & Ilsley Bank Corporation, Milwaukee,
New York, New York WI.

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

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

-36-
<PAGE>

<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATION AND AFFILIATIONS DURING PAST 5 YEARS
- ---------------- --- --------- ---------------------------------------------------------
<S> <C> <C> <C>
Christopher J. Woods 37 Vice President Vice President of Advisers (since August, 1995) and prior to
One Chase Manhattan Plaza 1996, Vice President, Fixed Income, Fortis Asset Management.
New York, New York

Robert W. Beltz, Jr. 48 Vice President Vice President-Securities Operations of Advisers and
500 Bielenberg Drive Investors.
Woodbury, Minnesota

David A. Peterson 55 Vice President Vice President and Assistant General Counsel, Fortis
500 Bielenberg Drive Benefits Insurance Company.
Woodbury, Minnesota

Rhonda J. Schwartz 40 Vice President Senior Vice President and General Counsel of Advisers;
500 Bielenberg Drive Senior Vice President and General Counsel, Life and
Woodbury, Minnesota Investment Products, Fortis Benefits Insurance Company and
Vice President and General Counsel, Life and Investment
Products, Time Insurance Company; from 1993 to January 1996,
Vice President, General Counsel, Fortis, Inc.; prior to
1993, Attorney, Norris, McLaughlin & Marcus, Washington,
D.C.

Scott R. Plummer 38 Vice President Second Vice President, Corporate Counsel and Assistant
500 Bielenberg Drive Secretary of Advisers; prior to September 1993, attorney,
Woodbury, Minnesota Zelle & Larson, Minneapolis, Minnesota.

Peggy E. Ettestad 40 Vice President Senior Vice President, Operations of Advisers and prior to
500 Bielenberg Drive March 1997, Vice President G.E. Capital Fleet Services,
Woodbury, Minnesota Minneapolis, Minnesota.

Dickson Lewis 48 Vice President Senior Vice President, Marketing and Sales of Advisers; from
500 Bielenberg Drive 1993 to July 1997, President and Chief Executive Officer
Woodbury, Minnesota Hedstrom/Blessing, Inc., a marketing communications company
in Minneapolis, Minnesota; from 1992 to 1993 an independent
marketing consultant.

Tamara L. Fagely 39 Treasurer Second Vice President of Advisers and Investors.
500 Bielenberg Drive
Woodbury, Minnesota

-37-
<PAGE>

<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATION AND AFFILIATIONS DURING PAST 5 YEARS
- ---------------- --- --------- ---------------------------------------------------------
<S> <C> <C> <C>
Melinda S. Urion 45 Vice President Since December 1997, Senior Vice President and Chief
500 Bielenberg Drive Financial Officer of Advisers. Prior to December 1997,
Woodbury, Minnesota Senior Vice President of Finance and Chief Financial
Officer, American Express Financial Corporation; prior to
March 1995, Corporate Controller, American Express Financial
Corporation and prior to 1994, Controller and Treasurer, IDS
Life Insurance Company, Minneapolis, MN.

Michael J. Radmer 52 Secretary Partner, Dorsey & Whitney LLP, the Fund's General Counsel.
220 South Sixth Street
Minneapolis, Minnesota
</TABLE>

___________________
* Mr. Kopperud is an "interested person" (as defined under the 1940 Act) of
the Funds and Advisers because he is an officer and a director of each. Mr.
Freedman is an "interested person" of the Funds, Advisers and Investors because
he is Chairman and Chief Executive Officer of Fortis, Inc. ("Fortis"), the
parent company of Advisers and indirect parent company of Investors.

Each director who is not affiliated with Advisers or Investors receives
a monthly fee from each Fund and a fee for each meeting attended. The
monthly fees paid are: Asset Allocation Portfolio and Capital Appreciation
Portfolio--$200; Value Fund, Capital Fund and Growth & Income Fund--$150; and
Growth Fund--$350. In addition, each Fund pays a fee of $100 for each
meeting attended and each committee meeting attended. The following table
sets forth the aggregate compensation received by each director from Fortis
Advantage, Fortis Equity and Growth Fund during the fiscal year ended August
31, 1998 as well as the total compensation received by each director from the
Funds and all other open-end investment companies managed by Advisers during
the calendar year ended December 31, 1998. Neither Mr. Freedman, who is an
officer of the parent company of Advisers, nor Mr. Kopperud, who is an
officer of Advisers and Investors, received any such compensation. No
executive officer receives any compensation from the Funds. During the fiscal
year ended August 31, 1998, the Funds paid legal fees and expenses of
$ ____________ , $___________ and $______________ , respectively, to a law firm
of which the Funds' Secretary is a partner.

<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL
COMPENSATION COMPENSATION COMPENSATION COMPENSATION FROM
FROM FORTIS FROM FORTIS FROM GROWTH FUND COMPLEX PAID
DIRECTOR EQUITY ADVANTAGE FUND TO DIRECTOR *
- -------- ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Richard W. Cutting . .

Dr. Robert M. Gavin . .

-38-
<PAGE>

Benjamin S. Jaffray . .

Jean L. King . . . . .

Edward M. Mahoney . . .

Robb L. Prince . . . .

Leonard J. Santow . . .

Noel S. Shadko . . . .

Joseph M. Wikler . . .
</TABLE>

___________

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

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

INVESTMENT ADVISORY AND OTHER SERVICES

GENERAL

Fortis owns 100% of the outstanding voting securities of Advisers, and
Advisers owns all of the outstanding voting securities of Investors.

Fortis, located in New York, New York, is a wholly owned subsidiary of
Fortis International, N.V., which has approximately $__________ billion in
assets worldwide and is in turn a wholly owned subsidiary of AMEV/VSB 1990 N.V.
("AMEV/VSB 1990").

AMEV/VSB 1990 is a corporation organized under the laws of The Netherlands
to serve as the holding company for all U.S. operations and is owned 50% by
Fortis AMEV and 50% by Fortis AG. AMEV/VSB 1990 owns a group of companies active
in insurance, banking and financial services, and real estate development in The
Netherlands, the United States, Western Europe, Australia, and New Zealand.

Fortis AMEV is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
AG is a diversified financial services company headquartered in Brussels,
Belgium, where it insurance operations began in 1824. Fortis AMEV and Fortis AG
own a group of companies (of which AMEV/VSB 1990 is

-39-
<PAGE>

one) active in insurance, banking and financial services, and real estate
development in The Netherlands, Belgium, the United States, Western Europe, and
the Pacific Rim..

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENTS

Advisers act as investment adviser and manager of each Fund under separate
Investment Advisory and Management Agreements. These agreements are
individually referred to as an "Agreement" and collectively referred to as the
"Agreements." Each Agreement will terminate automatically in the event of its
assignment. In addition, the Agreements are terminable at any time, without
penalty, by the Board of Directors or, with respect to any particular portfolio,
by vote of a majority of a Fund's outstanding voting securities, on not more
than 60 days' written notice to Advisers, and by Advisers on 60 days' notice to
the Funds. Unless sooner terminated, the Agreements continue in effect for more
than two years after their execution only so long as such continuance is
specifically approved at least annually by either the board of Directors or,
with respect to any Fund, by a vote of a majority of the outstanding voting
securities of the applicable Fund; provided that, in either event, such
continuance is also approved by the vote of the majority of the directors who
are not parties to such Agreements, or interested persons of such parties, cast
in person at a meeting called for the purpose of voting on such approval.

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

<TABLE>
<CAPTION>
ANNUAL INVESTMENT ADVISORY
AVERAGE NET ASSETS OF FUND AND MANAGEMENT FEE
- -------------------------- ------------------
<S> <C>
For the first $100,000,000 1.00%
For the next $150,000,000 0.80%
For assets over $250,000,000 0.70%
</TABLE>

Each Agreement requires each Fund to pay all its expenses which are not
assumed by Advisers and/or Investors. These expenses include, by way of
example, but not by way of limitation, the fees and expenses of directors and
officers who are not "affiliated persons" of Advisers, interest expenses, taxes,
brokerage fees and commissions, fees and expenses of registering and qualifying
the Funds and their shares for distribution under Federal and state securities
laws, expenses of preparing prospectuses and of printing and distributing
prospectuses annually to existing shareholders, custodian charges, auditing and
legal expenses, insurance expenses, association membership dues, and the expense
of reports to shareholders, shareholders' meetings and proxy solicitations.

Although investment decisions for the Funds are made independently from
those of the other funds or private accounts managed by Advisers, sometimes the
same security is suitable for more than one fund or account. If and when two or
more funds or accounts simultaneously purchase or sell the same security, the
transactions will be allocated as to price and amount in

-40-
<PAGE>

accordance with arrangements equitable to each fund or account. The
simultaneous purchase or sale of the same securities by a Fund and other funds
or accounts may have a detrimental effect on a Fund, as this may affect the
price paid or received by a Fund or the size of the position obtainable by a
Fund.

The table below sets forth the advisory and management fees paid by the
Funds for the periods indicated:

<TABLE>
<CAPTION>
ADVISORY FEES ADVISORY FEES ADVISORY FEES
FOR THE FISCAL FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FUND AUGUST 31, 1996 AUGUST 31, 1997 AUGUST 31, 1998
- ---- --------------- --------------- ---------------
<S> <C> <C> <C>
Asset Allocation Portfolio $ $ $
Value Fund
Growth & Income Fund
Capital Fund
Growth Fund
Capital Appreciation Portflio
</TABLE>

EXPENSES

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

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

Advisers reserves the right, but shall not be obligated, to institute
voluntary expense reimbursement programs which, if instituted, shall be in such
amounts and based on such terms and conditions as Advisers, in its sole and
absolute discretion, determines. Furthermore, Advisers reserves the absolute
right to discontinue any of such reimbursement programs at any time without
notice to the applicable Fund.

PLAN OF DISTRIBUTION

-41-
<PAGE>

Fortis Advantage, Fortis Equity, Fiduciary Fund and Growth Fund, on behalf
of each Fund, have each adopted a plan pursuant to Rule 12b-1 under the 1940
Act. Rule 12b-1(b) provides that any payments made by the Fund in connection
with financing the distribution of its shares may only be made pursuant to a
written plan describing all aspects of the proposed financing of distribution,
and also requires that all agreements with any person relating to the
implementation of the plan must be in writing. In addition, Rule 12b-1(b)(1)
requires that such plan be approved by a majority of the Fund's outstanding
shares, and Rule 12b-1(b)(1) requires that such plan, together with any related
agreements, be approved by a vote of the board of Directors who are not
interested persons of the fund and have no direct or indirect interest in the
operation of the plan or in the agreements related to the plan, cast in person
at a meeting called for the purpose of voting on such plan or agreement. Rule
12b-1(b)(3) requires that the plan or agreement provide in substance:

(i) That it shall continue in effect for a period of more than one year
from the date of its execution or adoption only so long as such continuance is
specifically approved at least annually in the manner described in a paragraph
(b)(3) of Rule 12b-1;

(ii) That any person authorized to direct the disposition of monies paid
or payable by the fund pursuant to the plan or any related agreement shall
provide to the Board of Directors, and the directors shall review, at least
quarterly, a written report of the amounts so expended and the purpose for which
such expenditures were made; and

(iii) In the case of a plan, that it may be terminated at any time by
vote of a majority of the members of the Board of Directors who are not
interested persons of the Fund and have no direct or indirect financial interest
in the operation of the plan or in any agreements related to the plan or by vote
of a majority of the outstanding voting securities of the Fund.

Rule 12b-1(b)(4) requires that such plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1.

Rule 12b-1(c) provides that the Fund may rely on Rule 12b-1(b) only if the
selection and nomination of the Fund's disinterested directors are committed to
discretion of such disinterested directors. Rule 12b-1(e) provides that the
Fund may implement or continue a plan pursuant to Rule 12b-1(b) only if the
directors who vote to approve such implementation or continuation conclude, in
the exercise of reasonable business judgment and in light of their fiduciary
duties under state law, and under Sections 36(a) and (b) of the 1940 Act, that
there is a reasonable likelihood that the plan will benefit the Fund and its
shareholders.

Pursuant to the provisions of the Distribution Plan each Fund pays Advisers
an annual fee of .25% (.45% for Asset Allocation Portfolio and Capital
Appreciation Portfolio) of the average daily net assets attributable to that
Fund's Class A shares and 1.00% attributable to that Fund's

-42-
<PAGE>

Class B, Class C and Class H shares. Such fees are paid in connection with
servicing of the Fund's shareholder accounts and in connection with
distribution-related services provided with respect to the Fund.

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

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

Distribution fees paid to Investors by each Fund and each Class of shares
for the fiscal year ended August 31, 1998 were:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS H
------- ------- ------- -------
<S> <C> <C> <C> <C>
Asset Allocation Portfolio $ $ $ $
Value Fund
Growth & Income Fund
Capital Fund
Growth Fund
Capital Appreciation Portfolio
</TABLE>

The total distribution fees paid by each Fund for the fiscal year ended
August 31, 1998 and how those fees were used by Investors are:

-43-
<PAGE>

<TABLE>
<S> <C>
Advertising $

Printing and Mailing of
Prospectuses to Other Than
Current Shareholders

Compensation to Underwriters

Compensation to Dealers

Compensation to Sales Personnel

Interest, Carrying or Other
Financing Charges

Other (distribution-related
compensation, sales literature,
supplies, postage, toll-free
phone)

Total
</TABLE>

UNDERWRITING AND DISTRIBUTION AGREEMENT

Pursuant to the Underwriting and Distribution Agreement, Investors has
agreed to act as the principal underwriter for the Funds in the sale an
distribution to the public of shares of the Fund, either through dealers or
otherwise. Investors has agreed to offer such shares for sale at all times when
such shares are available for sale and may lawfully be offered for sale and
sold. As compensation for its services, in addition to receiving its
distribution fees pursuant to the Distribution Plan discussed above, the
Distributor receives the initial sales charges on sales of Class A shares of the
Funds and any contingent deferred sales charges and redemptions of certain
Class A shares of the Funds that were not subject to an initial sales charge, as
set forth in the Prospectus. The following tables set forth the amount of
underwriting commissions paid by each Fund and the amount of such commissions
retained by Investors.

<TABLE>
<CAPTION>
TOTAL UNDERWRITING COMMISSIONS
---------------------------------------------------------
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1997 AUGUST 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Asset Allocation Portfolio $ $ $
Value Fund
Growth & Income Fund
Capital Fund
Growth Fund
Capital Appreciation Portfolio
</TABLE>

-44-
<PAGE>

<TABLE>
<CAPTION>
UNDERWRITING COMMISSIONS RETAINED BY INVESTORS
---------------------------------------------------------
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1997 AUGUST 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Asset Allocation Portfolio $ $ $
Value Fund
Growth & Income Fund
Capital Fund
Growth Fund
Capital Appreciation Portfolio
</TABLE>

PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

In a number of security transactions, it is possible for the Funds to deal
in the over-the-counter security markets (including the so-called "third market"
which is the "over-the-counter" market for securities listed on the New York
Stock Exchange) without the payment of brokerage commissions, but at net prices
including a spread or markup. The Funds will continue to trade in this manner
whenever the net price appears advantageous. Generally, the Funds must deal
through brokers.

Advisers selects and (where applicable) negotiates commissions with the
broker-dealers who execute the transactions for each Fund. The primary
criterion for the selection of a broker-dealer is the ability of the
broker-dealer, in the opinion of Advisers, to secure prompt execution of the
transactions on favorable terms, including the reasonableness of the commission
and considering the state of the market at the time. When consistent with these
objectives, business may be placed with broker-dealers who furnish investment
research services to Advisers. Such research services include advice, both
directly and in writing, as to the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities, or purchasers or sellers of securities; as well as analysis and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts. This allows Advisers to
supplement its own investment research activities and enables Advisers to obtain
the views and information of individuals and research staffs of many different
securities research firms prior to making investment decisions for the Fund. To
the extent such commissions are directed to these other broker-dealers who
furnish research services to Advisers, Advisers receives a benefit, not capable
of evaluation in dollar amounts, without providing any direct monetary benefit
to the Fund from these commissions. Advisers believes that most research
services obtained by it generally benefit several or all of the investment
companies and private accounts which it manages, as opposed to solely
benefitting one specific managed fund or account. Research services obtained
through commissions paid by the Fund may be used by Advisers in servicing all of
its accounts, and not all such services would necessarily be used by Advisers in
connection with the Fund.

-45-
<PAGE>

Advisers has not entered into any formal or informal agreements with any
broker-dealers, nor does it maintain any "formula" which must be followed in
connection with the placement of Fund portfolio transactions in exchange for
research services provided Advisers, except as noted below. However, Advisers
does maintain an informal list of broker-dealers, which is used from time to
time as a general guide in the placement of Fund business, in order to encourage
certain broker-dealers to provide Advisers with research services which Advisers
anticipates will be useful to it. Because the list is merely a general guide,
which is to be used only after the primary criterion for the selection of
broker-dealers (discussed above) has been met, substantial deviations from the
list are permissible and may be expected to occur. Advisers will authorize 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 Advisers' overall responsibilities with respect to the accounts
as to which Advisers exercises investment discretion. Generally, the Funds pay
higher commissions than the lowest rates available.

During the fiscal year ended August 31, 1998, the Funds paid ______________
commissions to broker-dealers who furnished investment research to Advisers, as
outlined above.

No Fund will effect any brokerage transactions in its portfolio securities
with any broker-dealer affiliated directly or indirectly with Advisers, unless
such transactions, including the frequency thereof, the receipt of commissions
payable in connection therewith, and the selection of the affiliated
broker-dealer effecting such transactions are not unfair or unreasonable to the
shareholders of the Fund. No commissions were paid to any affiliate of Advisers
by any of the Funds during the fiscal years ended August 31, 1996, 1997, and
1998.

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

<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL AUGUST ENDED
AUGUST 31, 1996 AUGUST 31, 1997 AUGUST 31, 1998
----------------- ----------------- -------------------
<S> <C> <C> <C>
Asset Allocation Portfolio $ $ $
Value Fund
Growth & Income Fund
Capital Fund
Growth Fund
Capital Appreciation Portfolio
</TABLE>

Each Fund's acquisition during the fiscal year ended August 31, 1998, of
securities of its regular brokers or dealers or of the parent of those brokers
or dealers that derive more than fifteen percent of their gross revenue from
securities-related activities is presented below:

-46-
<PAGE>

<TABLE>
<CAPTION>
VALUE OF SECURITIES OWNED AT
NAME OF ISSUER END OF YEAR
- -------------- -----------
<S> <C>
Asset Allocation Portfolio

Value Fund

Growth & Income Fund

Capital Fund

Growth Fund

Capital Appreciation Portfolio
</TABLE>

Advisers has developed written trade allocation procedures for its
management of the securities trading activities of its clients. Advisers manages
multiple portfolios, both public (mutual funds) and private. The purpose of the
trade allocation procedures is to treat the portfolios fairly and reasonably in
situations where the amount of a security that is available is insufficient to
satisfy the volume or price requirements of each portfolio that is interested in
purchasing that security.

Generally, when the amount of securities available in a public offering or
the secondary market is insufficient to satisfy the requirements for the
interested portfolios, the procedures require a pro rata allocation based upon
the amounts initially requested by each portfolio manager. In allocating trades
made on combined basis, Advisers seeks to achieve the average price of the
securities for each participating portfolio.

Because a pro rata allocation may not always adequately accommodate all
facts and circumstances, the procedures provide for exceptions to allocate
trades on a basis other than pro rata. Examples of where adjustments may be made
include: (i) the cash position of the portfolios involved in the transaction;
and (ii) the relative importance of the security to a portfolio in seeking to
achieve its investment objective.

CAPITAL STOCK

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

-47-
<PAGE>

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

[NAME, ADDRESS, # OF SHARES, % OF CLASS OWNED TO BE PROVIDED]

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

Each Fund currently offers it shares in multiple classes, each with
different sales arrangements and bearing different expenses. Under the Funds'
Articles of Incorporation, the Board of Directors is authorized to create new
portfolios or classes without the approval of the shareholders of a Fund. Each
share will have a pro rata interest in the assets of the portfolio to which the
shares of that series relate, and will have no interest in the assets of any
other portfolio. In the event of liquidation, each share of a portfolio would
have the same rights to dividends and assets as every other share of that
portfolio, 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.

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.

None of the Funds are required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders. Minnesota corporation
law provides for the Board of Directors to convene shareholder meetings when it
deems appropriate. In addition, if a regular meeting of shareholders has not
been held during the immediately preceding fifteen months, a shareholder or
shareholders holding three percent or more of the voting shares may demand a
regular meeting of shareholders by written notice of demand given to the chief
executive officer or the chief financial officer. Within ninety days after
receipt of the demand, a regular meeting of shareholders must be held at the
Fund's expense. Additionally, the 1940 Act requires shareholder votes for all
amendments to fundamental investment policies and restrictions, for all
investment advisory contracts and for certain amendments to Rule 12b-1
distribution plans.

COMPUTATION OF NET ASSET VALUE AND PRICING

On August 1, 1998, the Funds' net asset values per share were calculated
as follows:

ASSET ALLOCATION PORTFOLIO
CLASS A

Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS B

-48-
<PAGE>

Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS H
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS C
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
VALUE FUND
CLASS A
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS B
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS H
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS C
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
GROWTH & INCOME FUND
CLASS A
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS B
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS H
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS C
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CAPITAL FUND
CLASS A
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS B
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )

-49-
<PAGE>

CLASS H
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS C
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
FIDUCIARY FUND
CLASS A
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS B
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS H
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS C
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
GROWTH FUND
CLASS A
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS B
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS H
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS C
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS Z
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CAPITAL APPRECIATION PORTFOLIO
CLASS A
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS B

-50-
<PAGE>

Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS H
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )
CLASS C
Net Assets ($ )

Shares Outstanding ( ) = Net Asset Value Per Share ($ )

To obtain the public offering price per share, the 4.75% sales charge must
be added to the net asset value obtained above:

ASSET ALLOCATION PORTFOLIO
CLASS A
$ /
.9525 = Public Offering Price Per Share ($ )

VALUE FUND
CLASS A
$ /
.9525 = Public Offering Price Per Share ($ )

GROWTH & INCOME FUND

CLASS A
$ /
.9525 = Public Offering Price Per Share ($ )

CAPITAL FUND
CLASS A
$ /
.9525 = Public Offering Price Per Share ($ )

FIDUCIARY FUND
CLASS A
$ /
.9525 = Public Offering Price Per Share ($ )

GROWTH FUND
CLASS A
$ /
.9525 = Public Offering Price Per Share ($ )

CAPITAL APPRECIATION PORTFOLIO
CLASS A
$ /
.9525 = Public Offering Price Per Share ($ )

-51-
<PAGE>

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 (nor 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.

EXEMPTIONS FROM SALES CHARGE

The following purchases of Class A shares 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 of any such
persons; or (4) any of such persons' children, grandchildren, parents,
grandparents, or siblings--or spouses of any of these persons. (All
such persons may continue to add to their account even after their
company relationships have ended);
- Fund directors, officers, or their spouses (or such persons' children,
grandchildren, parents, or grandparents--or spouses of any such
persons), if all account owners fit this description;
- Representatives or employees (or their spouses) of Investors
(including agencies) or of other broker-dealers having a sales
agreement with Investors (or such persons' children, grandchildren,
parents, or grandparents--or spouses of any such persons), if all
account owners fit this description;
- Pension, profit-sharing, and other retirement plans created for the
benefit of any of the above persons; 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;
- (Fiduciary Fund only) Shareholders having an open Fiduciary Fund
account before May 1, 1986, when its sales charge was implemented;

-52-
<PAGE>

- Shareholders of unrelated mutual funds with front-end and/or deferred
sales loads, to the extent that the purchase price of such Fund shares
is funded by the proceeds from the redemption of shares of any such
unrelated mutual fund (within 60 days of the purchase of Fund shares),
provided that the shareholder's application so specifies and is
accompanied either by the redemption check of such unrelated mutual
fund (or a copy of the check) or a copy of the confirmation statement
showing the redemption. Similarly, anyone who is or has been the owner
of a fixed annuity contract not deemed a security under the securities
laws who wishes to surrender such contract and invest the proceeds in
a Fund, to the extent that the purchase price of such Fund shares is
funded by the proceeds from the surrender of the contract (within
60 days of the purchase of Fund shares), provided that such owner's
application so specifies and is accompanied either by the insurance
company's check (or a copy of the check) or a copy of the insurance
company surrender form. From time to time, Investors may pay
commissions to broker-dealers and registered representatives on
transfers from mutual funds or annuities as described above;
- Purchases by employees (including their spouses and dependent
children) of banks and other financial institutions that provide
referral and administrative services related to order placement and
payment to facilitate transactions in shares of the Fund for their
clients pursuant to a sales or servicing agreement with Investors;
provided, however, that only those employees of such banks and other
firms who as a part of their usual duties provide such services
related to such transactions in Fund shares shall qualify;
- Commercial banks offering self directed 401(k) programs containing
both pooled and individual investment options may purchase Fund shares
for such programs at a reduced sales charge of 2.5% on sales of less
than $500,000. For sales of $500,000 or more, normal sales charges
apply;
- Registered investment advisers, trust companies, and bank trust
departments exercising discretionary investment authority or using a
money management/mutual fund "wrap" program with respect to the money
to be invested in the Fund, provided that the investment adviser,
trust company or trust department provides Advisers with evidence of
such authority or the existence of such a wrap program with respect to
the money invested;
- Purchasers of Medical Savings Accounts ("MSAs") from Time Insurance
Company who maintain certain minimum balances in their MSA accounts
may invest a portion of their MSA account balances in Asset Allocation
Portfolio, Value Fund, Growth & Income Fund and Capital Fund.

The following purchases of Growth Fund Class Z shares 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;

-53-
<PAGE>

(2) employees or sales representatives (including agencies and their
employees); (3) spouses of any such persons; or (4) any of such
persons' children, grandchildren, parents, grandparents, or
siblings--or spouses of any of these persons. (All such persons may
continue to add to their account even after their company
relationships have ended);
- Fund directors, officers, or their spouses (or such persons' children,
grandchildren, parents, or grandparents--or spouses of any such
persons), if all account owners fit this description;
- Representatives or employees (or their spouses) of Investors
(including agencies) or of other broker-dealers having a sales
agreement with Investors (or such persons' children, grandchildren,
parents, or grandparents--or spouses of any such persons), if all
account owners fit this description;
- Pension, profit-sharing, and other retirement plans created for the
benefit of any of the above persons;
- Accounts which were exchanged from Special Portfolios, Inc., Stock
Portfolio.

SPECIAL PURCHASE PLANS

STATEMENT OF INTENTION

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

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

The Statement of Intention includes a provision for payment of additional
applicable sales charges at the end of the period in the event the investor
fails to purchase the amount indicated.

This is accomplished by holding in escrow the number of shares
represented by the sales charge discount. If the investor's purchases equal
those specified in the Statement of Intention, the escrow is released. If
the purchases do not equal those specified in the Statement of Intention, the
shareholder may remit to Investors an amount equal to the difference between
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.

-54-
<PAGE>

RETIREMENT PLANS

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

SYSTEMATIC INVESTMENT PLAN

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

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

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

EXCHANGE PRIVILEGE

You may exchange your shares for the same class of shares in another Fortis
Fund without payment of an exchange fee or additional sales charge. The amount
exchanged must meet the minimum purchase amount of the Fund being purchased.
You should consider the investment objectives and policies of the other fund
prior to making such exchange.

For Federal tax purposes, except where the transferring shareholder is a
tax qualified plan, an exchange between funds is a taxable event that will
result in a capital gain or loss. If you exchange your shares within 90 days of
purchase, the sales charge on that purchase cannot be taken into account for
determining your gain or loss on the sale of those shares to the extent that the
sales charge that would have been applicable to the purchase of the
later-acquired shares in the other fund is reduced because of the exchange
privilege. However, the amount of the sales

-55-
<PAGE>

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
adult age (either 18 or 21 years in most states).

REDEMPTION

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

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

There is no charge for redemption, nor do the Funds contemplate
establishing a charge. In the event a charge is established, it would apply
only to persons who became shareholders after the charge was implemented, and it
would not, in any event, exceed 1% of the net asset value of the shares
redeemed. Should further public sales ever be discontinued, the Funds may
deduct a proportionate share of the cost of liquidating assets from the asset
value of the shares being redeemed, in order to protect the equity of the other
shareholders.

SYSTEMATIC WITHDRAWAL PLAN

-56-
<PAGE>

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

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

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

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

REINVESTMENT PRIVILEGE

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

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

-57-
<PAGE>

TAXATION

Each Fund has qualified, and intends to continue to qualify, as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). If a Fund so qualifies, it is not taxed on the income it distributes
to its shareholders.

Gain or loss realized upon the sale of shares in a Fund will be treated as
capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. For individuals, estates, and trusts, long-term
capital gains, which are realized on the sale or exchange of capital assets held
for more than 18 months, are subject to a maximum federal income tax rate of
20%, while ordinary income is subject to a maximum rate of 39.6%. Mid-term
capital gains, which are realized on the sale or exchange of capital assets held
more than one year but not more than 18 months, are subject to a maximum federal
income tax rate of 28%.

Under the Code, each Fund is subject to a nondeductible excise tax for each
calendar year equal to 4 percent of the excess, if any, of the amount required
to be distributed over the amount distributed. However, the excise tax does not
apply to any income on which the Fund pays income tax. In order to avoid the
imposition of the excise tax, the Fund generally must declare dividends by the
end of a calendar year representing at least 98 percent of the Fund's ordinary
income for the calendar year and 98 percent of its capital gain net income (both
long-term and short-term capital gains) for the 12-month period ending
October 31 of the calendar year.

Asset Allocation Portfolio may invest in zero coupon obligations. If it
invests in such obligations upon their issuance, the 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 the Fund acquires an already issued zero coupon bond from another holder, the
bond will have original issue discount in the Fund's hands, equal to the
difference between the "adjusted issue price" of the bond at the time the Fund
acquires it (that is, the original issue price of the bond plus the amount of
original issue discount accrued to date) and its stated redemption price at
maturity. In each case, the Fund is required to accrue as ordinary interest
income a portion of such original issue discount even though it receives no cash
currently as interest payment on the obligation. Similarly, if Asset Allocation
Portfolio invests in PIKs, it is required to recognize interest income in the
amount of the fair market value of the securities received as interest payments
on the PIKs, even though it receives no cash.

Because each Fund is required to distribute substantially all of its net
investment income (including accrued original issue discount and interest income
attributable to PIKs) in order to be taxed as a regulated investment company,
Asset Allocation Portfolio may be required to distribute an amount greater than
the total cash income the Fund actually receives. Accordingly, in order to make
the required distribution, the Fund may be required to borrow or to liquidate
securities.

-58-
<PAGE>

If any Fund (other than Growth Fund) invests in options and futures, it may
be obliged to recognize gains and losses on certain options and futures it holds
at the end of the fiscal year. Under the marked-to-market rules, 60% of any net
capital gain or loss recognized is treated as long-term and 40% as short-term.
In addition, the straddle rules of the Code would require deferral of certain
losses realized on positions of a straddle to the extent that a Fund has
unrealized gains in offsetting positions at year end.

Pursuant to a special provision in the Code, if Fund shares with respect to
which a long-term capital gain distribution has been made are held for six
months or less, any loss on the sale or other disposition of such shares will be
a long-term capital loss to the extent of such long-term capital gain
distribution, unless such sale or other disposition is pursuant to a Systematic
Withdrawal Plan.

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

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 may also be subject to state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, state, or local taxes.

PERFORMANCE

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.

(a - b)
YIELD = 2 ( [ ------- ] ) ] 6 - 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

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<PAGE>

d = the maximum offering price per share on the last day of the
period.

The 30-day yields for each Fund which quotes a yield for the period ended
August 31, 1998 were:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS H
------- ------- ------- -------
<S> <C> <C> <C> <C>
Asset Allocation Portfolio
Growth & Income Fund
</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:

P(1+T)n 0 ERV

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

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

The following table sets forth the average annual total returns of each
Class of shares of each Fund for various periods ended August 31, 1998:

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------------------
1 YEAR 5 YEARS 10 YEARS/SINCE
----- ------- INCEPTION *
--------------
<S> <C> <C> <C>
ASSET ALLOCATION PORTFOLIO
Class A Shares *
Class B Shares *
Class C Shares *
Class H Shares *

-60-
<PAGE>

VALUE FUND
Class A Shares *
Class B Shares *
Class C Shares *
Class H Shares *

GROWTH & INCOME FUND
Class A Shares *
Class B Shares *
Class C Shares *
Class H Shares *

CAPITAL FUND
Class A Shares *
Class B Shares *
Class C Shares *
Class H Shares *

GROWTH FUND
Class A Shares *
Class B Shares *
Class C Shares *
Class H Shares *
Class Z Shares *

CAPITAL APPRECIATION PORTFOLIO
Class A Shares *
Class B Shares *
Class C Shares *
Class H Shares *
</TABLE>
* Inception date:

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:

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<PAGE>

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 August 31, 1998:

<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS
------------------------
<S> <C>
ASSET ALLOCATION PORTFOLIO
Class A Shares *
Class B Shares *
Class C Shares *
Class H Shares *

VALUE FUND
Class A Shares *
Class B Shares *
Class C Shares *
Class H Shares *

GROWTH & INCOME FUND
Class A Shares *
Class B Shares *
Class C Shares *
Class H Shares *

CAPITAL FUND
Class A Shares *
Class B Shares *
Class C Shares *
Class H Shares *

-62-
<PAGE>

GROWTH FUND
Class A Shares *
Class B Shares *
Class C Shares *
Class H Shares *
Class Z Shares *

CAPITAL APPRECIATION PORTFOLIO
Class A Shares *
Class B Shares *
Class C Shares *
Class H Shares *
</TABLE>

* Inception date:

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

<TABLE>
<CAPTION>
RATINGS SERVICE ASSET CAPITAL FUND GROWTH FUND CAPITAL
- --------------- ALLOCATION CATEGORY CATEGORY APPRECIATION
PORTFOLIO -------- -------- PORTFOLIO
CATEGORY CATEGORY
-------- --------
<S> <C> <C> <C> <C>
Lipper Analytical flexible growth and capital small company
Services, Inc. portfolio income appreciation growth

Wiesenberger Investment flexible growth and long term small company
Companies Services portfolio current income growth/ growth
income secondary

Morningstar Publications, asset growth growth small company
Inc. allocation growth

Johnson's Charts total return growth and long term growth long term growth
income

CDA Technologies, Inc. balanced growth growth growth
</TABLE>

FINANCIAL STATEMENTS

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

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<PAGE>

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

OTHER SERVICE PROVIDERS

Norwest Bank Minnesota N.A., Sixth and Marquette, 55479 acts as custodian
of each Fund's assets and portfolio securities. Dorsey & Whitney LLP, 220 South
Sixth Street, Minneapolis, MN 55402, is the independent General Counsel for the
Funds. Advisers bears the costs of serving as the transfer agent and
dividend-paying agent for each Fund.

LIMITATION OF DIRECTOR LIABILITY

Under Minnesota law, each director of Fortis Income and Fortis Advantage
owes certain fiduciary duties to it and to its shareholders. Minnesota law
provides that a director "shall discharge the duties of the position of director
in good faith, in a manner the director reasonably believes to be in the best
interest of the corporation, and with the care an ordinarily prudent person in a
like position would exercise under similar circumstances." Fiduciary duties of
a director of a Minnesota corporation include, therefore, both a duty of
"loyalty" (to act in good faith and act in a manner reasonably believed to be in
the best interests of the corporation) and a duty of "care" (to act with the
care an ordinarily prudent person in a like position would exercise under
similar circumstances). Minnesota law authorizes corporations to eliminate or
limit the personal liability of a director to the corporation or its
shareholders for monetary damages for breach of the fiduciary duty of "care."
Minnesota law does not, however, permit a corporation to eliminate or limit the
liability of a director (i) for any breach of the director's duty of "loyalty"
to the corporation or its shareholders, (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) for authorizing a dividend, stock repurchase or redemption or other
distribution in violation of Minnesota law or for violation of certain
provisions of Minnesota securities laws, or (iv) for any transaction from which
the director derived an improper personal benefit. The Articles of
Incorporation of Fortis Income 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

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or the Securities Exchange Act of 1934, and it is uncertain whether and to what
extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the 1940 Act and the rules and regulations
adopted under such act.

ADDITIONAL INFORMATION

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

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APPENDIX A

DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS

OPTIONS ON SECURITIES

An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date or, in the
case of certain options, on such date. The holder pays a non-refundable purchase
price for the option, known as the "premium." The maximum amount of risk the
purchaser of the option assumes is equal to the premium plus related transaction
costs, although this entire amount may be lost. The risk of the seller, or
"writer," however, is potentially unlimited, unless the option is "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 writtenuntil exercise.

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

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

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

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

OPTIONS ON STOCK INDEXES

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

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

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

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

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

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

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

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

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

OPTIONS ON FUTURES CONTRACTS

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

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

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

An option, whether based on a Futures Contract, a stock index or security,
becomes worthless to the holder when it expires. Upon exercise of an 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 which have written
options of the same series and expiration date. A writer therefore has no
control over whether an option will be exercised against it, nor over the timing
of such exercise.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

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

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

OPTIONS ON FOREIGN CURRENCIES

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

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

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

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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
counterparty willing to enter into the transaction with the Fund. Where no such
counterparty 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
counterparty. 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.

APPENDIX B

CORPORATE BOND, PREFERRED STOCK 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.

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

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

CORPORATE BOND RATINGS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated

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lower than the best bonds because margins of protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risk
appear somewhat larger than in Aaa securities.

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

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

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

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

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

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

Bonds which 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.

PREFERRED STOCK RATING

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

An issue rated "AAA" has the highest rating that may be assigned by
Standard & Poor's to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.

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A preferred stock issue rated "AA" also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA."

An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.

An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.

Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.

The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.

A preferred stock rated "C" is a non-paying issue.

A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.

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

MOODY'S INVESTORS SERVICE, INC. Its ratings for preferred stock include
the following:

An issue which is rated "Aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.

An issue which is rated "Aa" is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.

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An issue which is rated "A" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.

An issue which is rated "Baa" is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.

An issue which is rated "Ba" is considered to have speculative elements and
its future cannot be considered will assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.

Bonds which are rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

An issue which is rated "Caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments. An issue which is rated "Ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual payment.
An issue rated "C" is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

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<PAGE>
PART C

Value Fund
Growth & Income Fund
and
Capital Fund
each a series of
Fortis Equity Portfolios, Inc.

OTHER INFORMATION

ITEM 23. EXHIBITS

1. Articles of Incorporation (1) and (2)
2. Bylaws (3)
3. Not applicable
4. Not applicable
5. Investment Advisory and Management Agreement (1) and (2)
6. Underwriting Agreement (1) and (2)
7. Not applicable
8. Custody Agreement (1)
9. Not applicable
10. Not applicable
11. Consent of KPMG Peat Marwick LLP (1)
12. Not applicable
13. Not applicable
14. Model plan establishing retirement plan (1)
15. Rule 12b-1 Plan of Distribution (4)
16. Computation of Performance Quotations (1)
17. Not applicable
18. Plan pursuant to Rule 18f-3 (2)
____________________
(1) To be filed by amendment.
(2) Incorporated by reference to Post-Effective Amendment No. 76 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in October 1995.
(3) Incorporated by reference to Post-Effective Amendment No. 77 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in December 1995.
(4) Incorporated by reference to a Post-Effective Amendment No. 11 to the
Registration Statement of Fortis Worldwide Portfolios, Inc. on Form N-1A
filed with the Commission on February 26, 1998.

<PAGE>

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

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

ITEM 25. INDEMNIFICATION

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

-2-
<PAGE>

(f) had not otherwise engaged in conduct which precludes indemnification
under either Minnesota or Federal law (including, without limitation,
conduct constituting willful misfeasance, bad faith, gross negligence,
or reckless disregard of duties as set forth in Section 17(h) and (i)
of the Investment Company Act of 1940).

ADVANCES. If a person is made or threatened to be made a party to a
proceeding, the person is entitled, upon written request to the Registrant, to
payment or reimbursement by the Registrant of reasonable expenses, including
attorneys fees and disbursements, incurred by the person in advance of the final
disposition of the proceeding, (a) upon receipt by the Registrant of a written
affirmation by the person of a good faith belief that the criteria for
indemnification set forth in Section 302A.521 have been satisfied and a written
undertaking by the person to repay all amounts so paid or reimbursed by the
Registrant, if it is ultimately determined that the criteria for indemnification
have been satisfied, and (b) after a determination that the facts then known to
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 INVESTMENT ADVISER

Information on the business of the Adviser is described in the Statement of
Additional Information. In addition to those listed in the Statement of
Additional Information:

OTHER BUSINESS/EMPLOYMENT
NAME POSITION WITH ADVISER DURING PAST TWO YEARS
- ---- --------------------- ---------------------
Michael D. O'Connor Qualified Plan Officer Qualified Plan Officer of
Fortis Benefits Insurance
Company
David C. Greenzang Money Market Portfolio Debt securities manager with
Officer Fortis, Inc.

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<PAGE>

ITEM 27. PRINCIPAL UNDERWRITERS

(a) Fortis Advantage Portfolios, Inc.
Fortis Equity Portfolios, Inc.
Fortis Fiduciary Fund, Inc.
Fortis Growth Fund, Inc.
Fortis Income Portfolios, Inc.
Fortis Money Portfolios, Inc.
Fortis Securities, Inc.
Fortis Series Fund, Inc.
Fortis Worldwide Portfolios, Inc.
Variable Account C of Fortis Benefits Insurance Company
Variable Account D of Fortis Benefits Insurance Company

(b) In addition to those listed in the Statement of Additional Information:

POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME/ADDRESS WITH UNDERWRITER WITH REGISTRANT
- -------------------- ---------------------- ----------------------

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

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

ITEM 29. MANAGEMENT SERVICES

Not applicable.

ITEM 30. UNDERTAKINGS

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

-4-

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Woodbury and State of Minnesota on the 2nd day
of November 1998.

FORTIS EQUITY 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 November 2, 1998
- ------------------------------ executive officer)
Dean C. Kopperud

/s/ Tamara L. Fagely Treasurer (principal November 2, 1998
- ----------------------------- financial and
Tamara L. Fagely accounting officer)

Richard W. Cutting* Director

Allen R. Freedman* Director

Robert M. Gavin* Director

Benjamin S. Jaffray* Director

Jean L. King* Director

Edward M. Mahoney* Director

Robb L. Prince* Director

Leonard J. Santow* Director

Noel S. Shadko Director

Joseph M. Wikler* Director

*By /s/ Dean C. Kopperud November 2, 1998
------------------------------------
Dean C. Kopperud, Attorney-in-Fact
</TABLE>