FORTIS ADVANTAGE PORTFOLIOS INC, 485BPOS, 1999-07-01

FORTIS ADVANTAGE PORTFOLIOS INC
485BPOS, 1999-07-01

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1933 Act Registration No. 033-17759
1940 Act Registration No. 811-05355

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

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
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Post-Effective Amendment No. 28
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AND/OR

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

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

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

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

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

COPY TO:
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):

X immediately upon filing pursuant to paragraph (b) of Rule 485
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on (specify date) pursuant to paragraph (b) of Rule 485
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75 days after filing pursuant to paragraph (a) of Rule 485
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on (specify date) pursuant to paragraph (a) of Rule 485
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60 days after filing pursuant to paragraph (a) of Rule 485
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<PAGE>
[LOGO]

Fortis Stock Funds Prospectus

Dated July 1, 1999

- Asset Allocation Portfolio
Class Z Shares

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any statement to the contrary is a criminal offense.

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

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

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

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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE

<S> <C>
The Fund............................................................................................ 1
Objective...................................................................................... 1
Principal investment strategies................................................................ 1
Principal risks................................................................................ 2
Fund performance............................................................................... 3
Fees and expenses.............................................................................. 4

Shareholder Information............................................................................. 5
Purchasing Class Z shares...................................................................... 5
Determining your purchase price................................................................ 5
How to buy shares.............................................................................. 5
How to sell shares............................................................................. 7
Dividend and capital gains distributions....................................................... 9
Tax considerations............................................................................. 9
Shareholder inquiries.......................................................................... 9

Fund Management..................................................................................... 10
Investment adviser............................................................................. 10
Portfolio managers............................................................................. 10

More Information on the Fund's Objective, Investment Strategies and Risks 11
Fund objective................................................................................. 11
Investment strategies.......................................................................... 11
Principal risks................................................................................ 12

Financial Highlights................................................................................ 14
</TABLE>

<PAGE>

THE FUND
- --------------------------------------------------------------------------------

This section describes the objective, principal investment strategies and
principal risks of Asset Allocation Portfolio (the "Fund"). It also provides you
with information on how the Fund has performed and on Fund expenses. For more
information, please read the section entitled "More Information on the Fund's
Objective, Investment Strategies and Risks."

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

OBJECTIVE

The Fund has an objective of maximizing total return on invested capital, mainly
from capital appreciation, dividends and interest.

PRINCIPAL INVESTMENT STRATEGIES

The Fund 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. In managing the equity portion of the Fund's
portfolio, the adviser uses a "bottom up" investment style in which stock
selection is driven primarily by the merits of the company itself. The Fund will
attempt to maintain an average effective duration of three to seven years for
the debt securities portion of its portfolio. 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 growth potential.

- - U.S. GOVERNMENT SECURITIES. The Fund may invest in securities issued or
guaranteed by the U.S. 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. ("Moody's") or Standard & Poor's Rating Services
("Standard & Poor's"), 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

<PAGE>

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.

PRINCIPAL RISKS

As with any non-money market mutual fund, the Fund'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 the Fund include:

- - RISKS OF COMMON STOCKS. Prices of stocks in the Fund's portfolio may decline
over short or extended periods of time. Price changes may occur in the market as
a whole, or they may occur in only a particular company, industry or sector of
the market. As you consider an investment in the Fund, you should take into
account your personal tolerance for daily fluctuations of the stock market.

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

- - RISKS OF HIGH YIELD/HIGH RISK SECURITIES. A significant portion of the Fund's
portfolio may consist of non-investment grade debt securities, commonly known as
"high yield" securities or "junk bonds." These securities generally have more
volatile prices and carry more risk to principal than investment grade
securities.

- - CALL RISK. The Fund is subject to the possibility that, under certain
conditions, especially during periods of falling interest rates, a bond issuer
will "call" -- or repay -- its bonds before their maturity date. The Fund may
then be forced to invest the unanticipated proceeds at lower interest rates,
resulting in a decline on 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 then reinvest them at a time when interest rates
on new mortgage investments are falling, reducing the Fund's income. Extension
risk is the risk that rising interest rates could cause mortgage prepayments to
slow, which would lengthen the duration of the Fund's mortgage-related
securities and cause their prices to decline. (Duration is a commonly used
measure of the potential volatility of a debt security. See "More Information on
the Fund's Objective, Investment Strategies and Risks.")

- - RISKS OF FOREIGN INVESTMENT. Investing in foreign securities involves risks
not typically associated with U.S. investing. These investments may involve
increased political and economic risk. In addition, the Fund may experience a
decline in net asset value resulting from changes in exchange rates between the
U.S. dollar and foreign currencies.

- - RISKS OF ACTIVE MANAGEMENT. Because the Fund may invest in a wide range of
investments and markets, the Fund's investment adviser has substantially more
investment discretion than the advisers of most mutual funds. The

<PAGE>

performance of the Fund will reflect in part the adviser's ability to
effectively allocate the Fund's assets among these investments and markets.

FUND PERFORMANCE

The bar chart and table below provide you with information on the Fund's
volatility and performance. Because Class Z shares have not been offered
prior to the date of this Prospectus, information in the chart and table is
for the Fund's Class A shares, which are offered through another prospectus.
The classes will have substantially similar returns, because they are
invested in the same portfolio of securities. However, Class Z shares will
have higher returns because their expenses are lower.

The bar chart shows you how performance of the Fund's Class A shares
has varied from year to year. The chart does not reflect sales charges paid
by Class A investors, which reduce their returns. You do not pay a sales
charge on the purchase of Class Z shares. 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*

[CHART]

*The Fund's total return for the period from January 1, 1999 through
March 31, 1999 was 3.22%.

BEST QUARTER: 14.96% (Quarter ending December 31, 1998)
WORST QUARTER: -8.95% (Quarter ending September 30, 1990)

<PAGE>

AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98

<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS
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<S> <C> <C> <C>
Asset Allocation Portfolio (Class A)*................. 19.30% 14.02% 13.60%
S&P 500 Index**....................................... 29.82% 24.19% 19.25%
Lehman Brothers Aggregate Bond Index***............... 8.67% 7.17% 9.20%
</TABLE>

- ---------------------------
* Class A share returns do not reflect the 4.75% front-end sales charge
normally imposed on those shares. Class Z shares have no sales charge.
** 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.

FEES AND EXPENSES

As an investor, you pay certain fees and expenses if you buy and hold shares of
the Fund. Shareholder fees are fees paid directly from your investment. Annual
fund operating expenses are deducted from Fund assets. The figures below are
based on Fund expenses during the fiscal year ended August 31, 1998.

<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Maximum sales charge (load) imposed on purchases (as a percentage
of offering price)....................................................... None
Maximum deferred sales charge (load) (as a percentage of original
purchase price or redemption proceeds, whichever is less)................ None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees............................................................ 0.90%
Distribution and/or service (12b-1) fees................................... None
Other expenses............................................................. 0.09%
Total annual fund operating expenses....................................... 0.99%
</TABLE>

EXAMPLE This example is intended to help you compare the cost of investing in
Class Z shares of the 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:

1 year............................... $101
3 years.............................. 315
5 years.............................. 547
10 years............................. 1,213

<PAGE>

SHAREHOLDER INFORMATION
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PURCHASING CLASS Z SHARES

Class Z shares are available only for investment by:

<TABLE>
<CAPTION>
<S> <C>
- 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/domestic partners of any such persons;

- Fund directors and officers or their spouses/domestic
partners; or such persons' children, grandchildren, parents,
grandparents, or spouses/domestic partners of the preceding;

- Representatives of Fortis Investors (including agencies) or
their spouses; or such persons' children, grandchildren,
parents, grandparents, or spouses of any such persons; and

- Pension, profit sharing and other retirement plans created
for the benefit of any of the above persons.
</TABLE>

You do not pay any sales charge either at the time of purchase or when you
redeem your shares and your shares are not subject to annual Rule 12b-1 fees.

DETERMINING YOUR PURCHASE PRICE

Your purchase price is equal to the Fund's net asset value per share. The net
asset value per share is determined as of the primary closing time for business
on the New York Stock Exchange (the "Exchange") on each day the Exchange is
open.

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

The 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. In these cases, securities are valued at fair value
as determined in good faith by Advisers under supervision of the Fund's Board of
Directors.

HOW TO BUY SHARES

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

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

The Fund may reject any purchase order or restrict purchases at any time.

<PAGE>

INVESTING BY TELEPHONE

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

If you have a bank account authorization form on file, you may invest $100 -
$10,000 by telephone through the automated Fortis Information Line.

INVESTING BY WIRE

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

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

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

INVESTING BY MAIL

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

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

SPECIAL PURCHASE PLANS

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

GIFTS OR TRANSFERS TO MINOR CHILDREN. Adults can make an irrevocable gift or
transfer of Fund shares in an account established for a minor.

SYSTEMATIC INVESTMENT PLAN. You may have $25 or more automatically withdrawn
each month from your checking account (see the Systematic Investment Plan
Authorization Agreement in the Account Application). A systematic investment
plan may lower your average cost per share through the principle of "dollar cost
averaging." Advisers may elect to send you confirmations for purchases made
under the Systematic Investment Plan quarterly, rather than following each
transaction.

<PAGE>

EXCHANGE PRIVILEGE

You may exchange your Class Z Fund shares for Class Z shares of Fortis Growth
Fund (the only other Fortis Fund offering Class Z shares) or for Class A shares
of any other Fortis Fund. You pay no exchange fee or additional sales charge for
exchanges.

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

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

Advisers has the right to change, terminate, impose charges on or restrict the
frequency of exchanges. You will receive at least 60 days' notice in writing
before any such change is made.

HOW TO SELL SHARES

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

BY MAIL

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

To redeem by mail, send a written request to Fortis Funds, P.O. Box 64284, St.
Paul, MN 55164.

Your request should include the following information:

- Name of Fund

- Account number

- Dollar amount or number of shares to be redeemed

- Name on the account

- Signatures of all registered account owners

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

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

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

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

<PAGE>

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

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

BY PHONE

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

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

- Your account is not a tax-qualified plan,

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

- You have not changed your address on the Fund's records for at
least 30 days.

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

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

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

Advisers has the right to change, terminate or impose charges on the telephone
redemption privilege. You will receive at least 60 days' notice in writing
before any such change is made.

PAYMENT OF REDEMPTION PROCEEDS

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

INVOLUNTARY REDEMPTIONS

The Fund has the right to redeem accounts that fall below $500 as a result of
selling or exchanging shares. If you actively participate in the Fund's
Systematic Investment Plan, your account will not be redeemed. Before redeeming
your account, the Fund will mail you a notice of its intention to redeem and
give you an opportunity to make an additional investment. If you do not make an
additional investment within 60 days from the date the notice was mailed, your
account will be redeemed.

<PAGE>

SYSTEMATIC WITHDRAWAL PLAN

The Fund has a Systematic Withdrawal Plan, which provides for voluntary
automatic withdrawals of at least $50 monthly, quarterly, semiannually or
annually. Confirmations for redemptions made under the Systematic Withdrawal
Plan may 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.

DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS

The Fund pays quarterly dividends from net investment income and makes
distributions of any realized capital gains annually.

Dividend and capital gains distributions will be reinvested in additional Fund
shares of the same class (at net asset value). However, you may request that
dividends and/or capital gain distributions be sent to you in cash or reinvested
(at net asset value) in shares of the same class of another Fortis Fund. If
dividends and capital gains distributions are reinvested in the same Fund, the
reinvestment takes place on the dividend record date. If they are reinvested in
another Fortis Fund, processing normally takes one business day. If you elect
cash payment, a check will be mailed within three business days after the
dividend record date.

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

TAX CONSIDERATIONS

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

TAXES ON DISTRIBUTIONS

The 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 the 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.

TAXES ON TRANSACTIONS

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

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

SHAREHOLDER INQUIRIES

You should direct your inquiries to your broker-dealer or sales representative
or to the Fund 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.

<PAGE>

FUND MANAGEMENT
- --------------------------------------------------------------------------------

INVESTMENT ADVISER

Fortis Advisers, Inc. ("Advisers") is the investment adviser for the Fund.
Advisers also serves as the Fund's 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 the Fund's
business affairs, subject to the overall authority of the Board of Directors.
Advisers' address is that of the Fund.

The Fund pays Advisers a monthly fee for providing investment advisory services.
During its most recent fiscal year, the Fund paid an investment advisory fee to
Advisers equal to 0.90% of the Fund's average daily net assets.

PORTFOLIO MANAGERS

Howard G. Hudson supervises the portfolio management of the fixed-income portion
of the Fund and Lucinda S. Mezey supervises the portfolio management of the
equity portion of the Fund. Charles L. Mehlhouse has been primarily responsible
for the day-to-day management of the equity portion of the Fund since May 1996.
Maroun M. Hayek, Robert C. Lindberg, Christopher J. Pagano, Ho Wang and
Christopher J. Woods are primarily responsible for the day-to-day management of
the fixed-income portion of the Fund. Mr. Hayek has managed the Fund since 1988,
Mr. Lindberg since 1993, Mr. Pagano since 1996, Mr. Wang since 1998, and Mr.
Woods since 1993.

Additional information about the Fund's investment supervisors and portfolio
managers is set forth below.

- - Mr. Hudson, an Executive Vice President and Head of Fixed Income
Investments of Advisers since 1991, has been managing debt securities
for Fortis, Inc. since 1991.

- - Ms. Mezey, an Executive Vice President and Head of Equity Investments
of Advisers since October 1997, manages equity securities for Advisers.
From 1995 to October 1997, she was Chief Investment Officer, Alex Brown
Capital Advisory and Trust Co., Baltimore, Maryland. From 1970 to 1995,
she was employed by PNC Bank, Philadelphia, Pennsylvania, with her last
position being Senior Vice President and Head of Equity Investments.

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

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

- - Mr. Pagano, a Vice President of Advisers since 1996, has been involved
in management of debt securities for Advisers since March 1996. From
1987 to 1996, Mr. Pagano was a Government Strategist for Merrill
Lynch in New York, New York.

- - Mr. Wang, a Vice President of Advisers since 1998, has been managing
non-investment grade fixed-income securities since July 1998. From
October 1995 to June 1998, Mr. Wang was a Senior Securities Analyst
for Lord, Abbett & Co. in New York, New York. From 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 since 1995, has been managing
debt securities for Fortis, Inc. since 1993.

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

<PAGE>

MORE INFORMATION ON THE FUND'S OBJECTIVE, INVESTMENT STRATEGIES
AND RISKS
- --------------------------------------------------------------------------------

FUND OBJECTIVE

The Fund's objective, which is described above under "The Fund," may be changed
without shareholder approval.

INVESTMENT STRATEGIES

The principal investment strategies of the Fund are described above under "The
Fund," and in more detail below. These are the strategies that Advisers believes
are most likely to be important in trying to achieve the Fund's goal. Of course,
there is no guarantee that the Fund will achieve its goal. You should be aware
that the 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 Fund's portfolio, Advisers uses a "bottom
up" investment style in which stock selection is driven primarily by the merits
of the company itself. 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.

In an attempt to respond to adverse market, economic, political or other
conditions, the Fund may invest, for temporary defensive purposes, 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 the Fund from participating in a market
upswing and prevent the Fund from achieving its investment objective.

DURATION

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

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. While the Fund
generally does not invest or trade for short-term profits, it is actively
managed and the portfolio managers may trade securities frequently. As a result,
the Fund has historically had portfolio turnover rates near 100%. The "Financial
Highlights" section of this Prospectus shows the Fund's historical portfolio
turnover rate.

<PAGE>

PRINCIPAL RISKS

The principal risks of investing in the Fund are summarized above under "The
Fund." More information about Fund risks is presented below. Please remember,
you may lose money if you invest in the Fund.

- - MARKET RISK. All stocks are subject to price movements due to changes in
general economic conditions, changes in the level of prevailing interest rates,
changes in investor perceptions of the market, or the outlook for overall
corporate profitability.

- - COMPANY RISK. Individual stocks can perform differently than the overall
market. This may be a result of specific factors such as changes in corporate
profitability due to the success or failure of specific products or management
strategies, or it may be due to changes in investor perceptions regarding a
company.

- - SECTOR RISK. The stocks of companies within specific industries or sectors of
the economy can periodically perform differently than the overall stock market.
This can be due to changes in such things as the regulatory or competitive
environment or to changes in investor perceptions of a particular industry or
sector.

- - RISKS OF GROWTH STOCKS. The Fund focuses on stocks which Advisers believes
have earnings and revenue growth potential that exceed industry averages. These
"growth stocks" typically trade at higher multiples of current earnings than
other stocks. Therefore, their prices may be more sensitive to changes in
current or expected earnings than the prices of other stocks. If Advisers'
assessment of the prospects for the company's earning growth is wrong, or its
judgment about how other investors will value the company's earnings growth is
wrong, then the price of the company's stock may fall or not approach the value
that Advisers has placed on it.

- - 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. 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. The Fund is subject to the risk that the issuers of
debt securities it holds will not make payments on the securities or that the
other party to a contract (such as a securities lending agreement) will default
on its obligations. There is also the risk that an issuer could suffer adverse
changes in financial condition that could lower the credit quality of a
security. This could lead to greater volatility in the price of the security and
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.

- - RISKS OF HIGH YIELD/HIGH RISK SECURITIES. The Fund's investments in corporate
bonds may include non-investment grade fixed-income obligations. Non-investment
grade obligations are commonly referred to as "high yield" securities or "junk
bonds." Although these securities usually offer higher yields than investment
grade securities, they also involve more risk. High yield bonds may be more
susceptible to real or perceived adverse economic conditions than investment
grade bonds. In addition, the secondary trading market may be less liquid. High
yield securities generally have more volatile prices and carry more risk to
principal than investment grade securities. The Fund may invest up to 30% of its
total assets in securities rated as low as Caa by Moody's, CCC by Standard &
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.

- - CALL RISK. Many corporate bonds may be redeemed ("called") at the option of
the issuer before their stated maturity date. In general, an issuer will call
its bonds if they can be refinanced by issuing new bonds which bear a lower
interest rate. The Fund is subject to the possibility that during periods of
falling interest rates, a bond issuer will call its 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.

<PAGE>

- - PREPAYMENT RISK. Because the Fund 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 rates on new mortgages 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 FOREIGN SECURITIES. The Fund may invest up to 20% of its assets in
foreign securities. Foreign investing involves risks not typically associated
with U.S. investing. The Fund may experience a decline in net asset value
resulting from changes in exchange rates between the U.S. 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 SECURITIES LENDING. The Fund may lend its portfolio securities. When
the Fund loans its portfolio securities, it will receive collateral equal to at
least 100% of the value of the loaned securities. Nevertheless, the Fund risks a
delay in the recovery of the loaned securities, or even the loss of rights in
the collateral deposited by the borrower, if the borrower should fail
financially.

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

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

<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The table that follows presents performance information about the currently
outstanding classes of shares of the Fund. No Class Z shares were outstanding as
of the date of this Prospectus. This information is intended to help you
understand the Fund's financial performance for the past five years. Some of
this information reflects financial results for a single Fund share. The total
returns in the table represents the rate that you would have earned or lost on
an investment in the 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 Fund's financial statements, is included
in the Fund's annual report, which is available upon request.

(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
ASSET ALLOCATION PORTFOLIO - CLASS A FEBRUARY, 28 YEAR ENDED AUGUST 31, OCTOBER 31,
- ------------------------------------- -------------------------------------------------------------------------
1999 1998 1997 1996 1995++ 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.91 $ 18.98 $ 16.48 $ 16.52 $ 14.44 $ 15.43 $ 14.00
- -----------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net .13 .39 .39 .47 .43 .37 .42

Net realized and unrealized gains on 3.28 .13 3.47 .29 2.14 (.31) 1.52
investments
- -----------------------------------------------------------------------------------------------------------------
Total from operations 3.41 .52 3.86 .76 2.57 .06 1.94

- -----------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net (.14) (.41 ) (.41) (.47) (.40) (.33) (.51)

From net realized gains (1.96) (2.18 ) (.95) (.32) (.09) (.72) --

Excess distributions of net realized gains -- -- -- (.01) -- -- --

- -----------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (2.10) (2.59 ) (1.36) (.80) (.49) (1.05) (.51)

- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.22 $ 16.91 $ 18.98 $ 16.48 $ 16.52 $ 14.44 $ 15.43

- -----------------------------------------------------------------------------------------------------------------
Total return @ 20.60% 2.71 % 24.62% 4.73% 18.25% .48% 14.20%
Net assets end of period (000s omitted) $177,240 $151,920 $156,734 $136,656 $132,939 $119,395 $108,488
Ratio of expenses to average daily net asset 1.42% * 1.44 % 1.48% 1.50% 1.57%* $ 1.55% 1.58%
Ratio of net investment income to average 1.39% * 2.07 % 2.22% 2.85% 3.31%* 2.60% 2.90%
daily net assets
Portfolio turnover rate 59% 104 % 109% 89% 94% 94% 103%
- --------------------------------------- --------------------- --------------------------------- -----------------
</TABLE>

* Annualized
++ Ten-month period ended August 31, 1995.
@ These are the total returns during the periods, including reinvestment of
all dividend and capital gains distributions without adjustments for sales
charges.

14
<PAGE>

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

<S> <C>
More information about the Fund is available in the Fund's Statement of
Additional Information (SAI) and annual and semiannual reports.

Prospectus
Dated July 1, 1999 - STATEMENT OF ADDITIONAL INFORMATION. The SAI provides more details
about the Fund and its policies. A current SAI is on file with the Securities
and Exchange Commission (SEC) and is incorporated into this Prospectus by
- - Asset Allocation Portfolio reference, which means that it is legally considered part of this Prospectus.
Class Z shares

- ANNUAL AND SEMIANNUAL REPORTS. Additional information about Fund
SEC file number: 811-05355 investments is available in the Fund's annual and semiannual reports to
shareholders. In the Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.

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

You can also obtain copies by visiting the SEC's public reference room in
Washington, DC, or by sending your request and a duplicating fee to the
FORTIS FINANCIAL GROUP SEC's Public Reference Section, Washington, DC 20549-6009. For more
Fortis Advisers, Inc. (fund management since 1949) information, call (800) SEC-0330.
Fortis Investors, Inc. (principal underwriter;
member NASD, SIPC) Information about the Fund is available on the Internet. Text-only versions
Fortis Benefits Insurance Company & Fortis Insurance of the Fund documents can be viewed online or downloaded from the SEC's
Company (issuers of FFG's insurance products) Internet site at http://www.sec.gov.
P.O. Box 64284 - St. Paul, MN 55164-0284
- (800) 800-2000
http://www.ffg.us.fortis.com
</TABLE>

100094 -C- Fortis 7/99 The Fortis logo and Fortis -sm- are service marks of
Fortis AMEV and Fortis AG.
<PAGE>

ASSET ALLOCATION PORTFOLIO
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 JULY 1, 1999

Asset Allocation Portfolio ("Asset Allocation Fund"), Fortis Capital
Appreciation Portfolio ("Capital Appreciation Fund"), 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. This
Statement of Additional Information relates to the Prospectus dated January 1,
1999 for all classes of each Fund other than the Class Z shares of Asset
Allocation Fund, and the Prospectus dated July 1, 1999 for the Class Z shares of
Asset Allocation Fund, and should be read in conjunction with the appropriate
Prospectus. The financial statements included as a part of the Funds' Annual
Report to Shareholders for the fiscal year ended August 31, 1998 and the
financial statements included as part of the Funds' Semi-Annual Report to
Shareholders for the six months ended February 28, 1999 are incorporated by
reference into this Statement of Additional Information. Copies of the Funds'
Prospectuses, Annual Report and/or Semi-Annual Report are available, without
charge, by writing or calling the Funds, P.O. Box 64284, St. Paul, Minnesota
55164 (telephone: (651) 738-4000 or (800) 800-2000).

-1-

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Fund History.................................................................................... 3
Description of the Funds........................................................................ 3
Investment Policies and Restrictions............................................................ 3
Investment Practices and Risk Considerations.................................................... 13
Management of the Funds......................................................................... 32
Principal Holders of Securities................................................................. 36
Investment Advisory and Other Services.......................................................... 37
Brokerage Allocation and Other Practices........................................................ 41
Capital Stock................................................................................... 44
Pricing of Shares............................................................................... 44
Purchase of Shares.............................................................................. 48
Redemption of Shares............................................................................ 52
Taxation........................................................................................ 53
Underwriter and Distribution of Shares.......................................................... 55
Performance Information......................................................................... 56
Financial Statements............................................................................ 61
Other Service Providers......................................................................... 61
Limitation of Director Liability................................................................ 61
Additional Information.......................................................................... 62
Appendix A -- Description of Futures, Options and Forward Contracts............................. A-1
Appendix B -- Corporate Bond, Preferred Stock and Commercial Paper Ratings...................... B-1
</TABLE>

-2-

<PAGE>

FUND HISTORY

Asset Allocation Fund and Capital Appreciation Fund are portfolios of
Fortis Advantage Portfolios, Inc. ("Fortis Advantage") which was incorporated in
Minnesota in 1987. Asset Allocation Fund and Capital Appreciation Fund commenced
operations on January 4, 1988. Value Fund, Growth & Income Fund and Capital Fund
are the three portfolios of Fortis Equity Portfolios, Inc. ("Fortis Equity")
which was incorporated in Minnesota in 1949. Value Fund and Growth & Income Fund
commenced operations on January 2, 1996 and Capital Fund commenced operations on
June 8, 1949. Fortis Growth Fund, Inc. ("Fortis Growth") was incorporated in
Minnesota in 1958 and its single portfolio commenced operations on March 31,
1963.

DESCRIPTION OF THE FUNDS

Fortis Advantage, Fortis Equity and Fortis Growth 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
discussed in this Statement of Additional Information) and Fortis Equity has
three investment portfolios; Growth Fund has a single portfolio. As a
fundamental policy, 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.

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

INVESTMENT POLICIES AND RESTRICTIONS

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

Any investment policy or restriction in a Prospectus or this Statement
of Additional Information which involves a maximum percentage of securities or
assets, except those dealing with borrowing and illiquid securities, shall not
be considered to be violated unless an excess over the percentage occurs
immediately after an acquisition of securities or utilization of assets and such
excess results therefrom.

-3-

<PAGE>

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

INVESTMENT POLICIES -- ASSET ALLOCATION FUND

The Fund will endeavor to achieve its investment objective by following
a flexible asset allocation strategy that contemplates shifts, which may be
frequent, among a wide range of investments and markets. Advisers has broad
latitude in selecting the class of investments and market sectors in which the
Fund will invest. Asset Allocation Fund is not required to maintain a portion of
its investments in each of its permitted investment types. A shareholder of the
Fund confers substantial investment discretion on the investment adviser,
enabling the investment adviser to invest in a wide variety of investment
securities.

Depending upon prevailing economic and market conditions, Asset
Allocation Fund may at any given time be primarily comprised of equity
securities (including debt securities convertible into equity securities),
short-term money market securities, investment grade bonds and other debt
securities, or any combination thereof. For example, during periods when
Advisers believes that the overall return on equity securities will exceed the
return on debt securities, the Fund may be fully or substantially invested in
equity securities. The Fund normally would be invested primarily in debt
securities during periods when Advisers believes that the total return from
investing in debt securities will exceed the return on equity securities.
Finally, during periods when Advisers believes interest rates will rise, the
Fund may be primarily invested in short-term money market securities.

Equity securities in which the Fund may invest include common stocks,
preferred stocks and securities convertible into common stocks, all with growth
potential. In addition to its investments in equity securities and in
obligations of the U.S. Government, its agencies, and instrumentalities, Asset
Allocation Fund may invest in a variety of long, intermediate and short-term
debt securities. Such instruments may include corporate bonds, bank obligations
and commercial paper.

The Fund may invest up to 30% of its total assets in lower rated
corporate bonds commonly known as "junk bonds" and may also invest up to 10% of
its total assets in corporate bonds that are rated in one of the four highest
rating categories (such as BBB or above), and at the same time are rated below
such categories by another nationally recognized agency (or in the alternative,
any such bonds may be included with those subject to the 30% limitation on lower
rated bonds). The Fund may retain a security whose rating has changed if the
security otherwise meets the Fund's criteria. 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

-4-

<PAGE>

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.

The bank obligations in which the Fund may invest are: (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.

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 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.

INVESTMENT POLICIES -- CAPITAL APPRECIATION FUND

Capital Appreciation Fund'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.

The Fund may also write covered call and secured put options and
purchase call and put options on securities and stock indexes in an effort to
increase total return and for hedging purposes and may purchase and sell stock
index futures contracts and options thereon for hedging purposes.

INVESTMENT RESTRICTIONS -- ASSET ALLOCATION FUND AND CAPITAL APPRECIATION FUND

The following investment restrictions are fundamental and may be
changed only by the approval of shareholders. Neither Fund will:

-5-

<PAGE>

(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 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
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.

-6-

<PAGE>

(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 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 Fund 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 more than 15% of its net assets in illiquid
securities.

(5) Invest more than 20% of its net assets in when-issued,
delayed delivery or forward commitment transactions, and of such 20%,
no more than one-half (i.e., 10% of its net assets) may be invested in
when-issued, delayed delivery or forward commitment transactions
without the intention of actually acquiring securities (i.e., dollar
rolls).

INVESTMENT POLICIES -- VALUE FUND AND CAPITAL FUND

Value Fund and Capital Fund invest primarily in common stock and
securities convertible into common stocks. Value Fund intends to maintain a
median market capitalization of over $1 billion making it a mid to large cap
value fund. Capital Fund intends to maintain a median market capitalization of
over $5 billion, making it a large cap growth fund.

INVESTMENT RESTRICTIONS -- VALUE FUND AND CAPITAL FUND

The following investment restrictions are fundamental and may be
changed only by the approval of shareholders. Neither Fund will:

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

(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.

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<PAGE>

(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 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 33 1/3% 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. Neither Fund 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; 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.

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<PAGE>

(3) Buy or sell foreign exchange.

(4) Invest in securities which would expose the Fund to
liabilities exceeding the amount invested.

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

(6) Make short sales, except for sales "against the box."

(7) Mortgage, pledge, or hypothecate its assets except to the
extent necessary to secure permitted borrowings.

(8) 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.

(9) 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.

(10) 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.)

(11) Write, purchase, or sell put or call options, except that
it may write covered call options.

(12) Invest more than 10% of its assets in foreign securities.

INVESTMENT POLICIES -- GROWTH FUND

Growth Fund invests primarily in common stock and securities
convertible into common stocks. The Fund intends to maintain a median market
capitalization of $1 - $5 billion, making it a mid cap growth fund.

INVESTMENT RESTRICTIONS -- GROWTH FUND

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.

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<PAGE>

(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.

(10) Invest more than 5% of its net assets in each of i)
restricted securities and ii) bonds, debentures or other debt
securities which are not publicly distributed.

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

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

(2) Invest in a company for the purposes of exercising control
or management.

(3) Buy or sell foreign exchange.

(4) Invest in securities which would expose the Fund to
liabilities exceeding the amount invested.

(5) Invest more than 10% of its assets in foreign securities.

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

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<PAGE>

(7) Issue senior securities (as defined in the 1940 Act),
except as set forth herein and in the prospectus.

INVESTMENT POLICIES -- GROWTH & INCOME FUND

Growth & Income Fund invests primarily in common stock and securities
convertible into common stocks. The Fund intends to maintain a median market
capitalization of over $5 billion, making it a large cap fund.

INVESTMENT RESTRICTIONS -- GROWTH & INCOME FUND

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.

(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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<PAGE>

(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.

(2) Invest in a company for the purpose of exercising control
or management.

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<PAGE>

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

(4) 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.)

(5) 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.

(6) 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 AND RISK CONSIDERATIONS

MEDIAN MARKET CAPITALIZATION

As discussed in the prospectus, each Fund, except Asset Allocation
Fund, intends to maintain its median market capitalization within a certain
range or above or below a specified amount. There is no assurance that the
Funds' median market capitalizations will always remain within the designated
ranges (or above or below the specified amount) in light of constantly
fluctuating market conditions and the performance of the stocks held in the
Funds' portfolios.

Market capitalization is a measure of a company's relative size and is
calculated by multiplying the number of outstanding shares of a company by the
market price of those shares. Half of a portfolio's assets are invested in
securities of companies with market capitalizations larger than the median
market capitalization of the portfolio, and half are invested in the securities
of companies with market capitalizations smaller than the median. For example,
in a portfolio of nine securities with market capitalizations of $1 billion,
$1.5 billion, $2 billion, $3 billion, $5 billion, $8 billion, $8 billion, $8.75
billion and $9 billion, the median market capitalization of this portfolio would
be $5 billion because half of the portfolio securities have market
capitalizations that are smaller than the median and half have market
capitalizations that are larger than the median. Median market capitalization is
used as a measure of the average market capitalization of a portfolio and is
sometimes used in the mutual fund industry to categorize a fund as "small cap,"
"mid cap" or "large cap." The Funds consider small cap portfolios to have median
market capitalizations of less than $1 billion, mid cap portfolios to have
median market capitalizations of $1 billion to $5 billion and large cap
portfolios to have median market capitalizations of more than $5 billion.

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<PAGE>

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 Fund 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 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.

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<PAGE>

(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.

(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

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<PAGE>

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.

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.

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<PAGE>

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 (CMOs).
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.

Asset Allocation Fund and Growth & Income Fund may invest in CMOs which
have characteristics of both pass-through securities and mortgage-backed bonds.
CMOs 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. CMOs 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 thereof (including those
discussed below) are examples of the types of financial instruments commonly
referred to as "derivatives".

In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specified coupon rate and has a stated maturity or final distribution date.
Principal prepayments on collateral underlying a CMO may cause it to be retired
substantially earlier than the stated maturities or final distribution dates.
Interest is paid or accrues on all classes of a CMO on a monthly, quarterly or
semi-annual basis. The principal and interest on the underlying mortgages may be
allocated among the several classes of a series of a CMO in many ways. In a
common structure, payments of principal, including any principal prepayments, on
the underlying mortgages are applied according to scheduled cash flow priorities
to classes of the series of a CMO.

There are many classes of CMOs in which Asset Allocation Fund may
invest. 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

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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, 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

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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.

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.

ZERO COUPON OBLIGATIONS

Asset Allocation Fund 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).

MUNICIPAL SECURITIES

Asset Allocation Fund may invest up to 20% of its total assets in
municipal securities such as municipal bonds and other debt obligations. These
municipal bonds and debt obligations are issued by the states and by their local
special-purpose political subdivisions. The term "municipal bonds" includes
short-term municipal notes and other commercial paper issued by the

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states and their political subdivisions. The two general classifications of
municipal bonds are "general obligation" bonds and "revenue" bonds. General
obligation bonds are secured by the governmental issuer's pledge of its faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
ordinarily are not backed by the faith, credit or general taxing power of the
issuing governmental entity. The principal and interest on revenue bonds for
private facilities are typically paid out of rents or other specified payments
made to the issuing governmental entity by a private company which uses or
operates the facilities.

HIGH YIELD/HIGH RISK SECURITIES

Asset Allocation Fund 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 Fund defaulted,
the Fund might incur additional expenses to seek recovery. In addition, periods
of economic uncertainty and changes can be expected to result in increased
volatility of market prices of high-yielding securities and the Fund's 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 Fund would have to replace the security with a lower-yielding
security, resulting in a decreased return for investors. Conversely, a
high-yielding security's value will decrease in a rising interest rate market,
as will the value of such Fund's assets. If 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

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<PAGE>

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 Fund may involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties.

Certain risks are associated with applying credit ratings as a method
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 Fund to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments, and to assure the securities'
liquidity so 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.

REPURCHASE AGREEMENTS

Each Fund 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 of short duration, usually less than a week, but on occasion
extend for longer periods of time.

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).

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<PAGE>

VARIABLE AMOUNT MASTER DEMAND NOTES

Each 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 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 Fund 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 investment
restriction 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. In addition, Growth Fund has a fundamental investment
restriction that it will not invest more than 5% of its net assets in each of i)
restricted securities and ii) bonds, debentures or other debt securities which
are not publicly distributed.

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

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<PAGE>

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 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 Fund may invest up to 20% of total assets) in securities of foreign
governments and companies. No more than 15% of Asset Allocation Fund'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.

Investing in foreign companies involves certain considerations,
including those discussed below, which are not typically associated with
investing in U.S. issuers. Since the 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 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 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.

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<PAGE>

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 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 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 affected by trading on days when a shareholder has no access to
the Funds.

DELAYED DELIVERY TRANSACTIONS

Each Fund, 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 10% of net assets may be invested in such
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

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between a commitment and settlement, no payment is made for the securities
purchased by the purchaser and, thus, no interest accrues to the purchaser from
the transaction. If the Fund disposes of the right to acquire a when-issued
security prior to its acquisition or disposes of its right to deliver or receive
against a forward commitment, it can incur a gain or loss due to market
fluctuation.

The use of when-issued transactions and forward commitments enables the
Fund to hedge against anticipated changes in interest rates and prices. The Fund
may also enter into such transactions to generate incremental income. In some
instances, the third-party seller of when-issued or forward commitment
securities may determine prior to the settlement date that it will be unable or
unwilling to meet its existing transaction commitments without borrowing
securities. If advantageous from a yield perspective, the 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 their ability to purchase securities on a
when-issued or forward commitment basis, each Fund, except Growth 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

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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

Each Fund, except Growth Fund, is authorized to invest in real estate
investment trusts ("REITs"), real estate development and real estate operating
companies and other real estate related businesses. The Funds presently intend
to invest the REIT portion of their 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.

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

Consistent with applicable regulatory requirements, each Fund, except
Growth Fund, may lend its 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. A Fund will receive amounts equal to dividends or
interest on the securities loaned. A Fund 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 331/3% 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 Fund's 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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OPTIONS

Each Fund, except Growth Fund, may use options in order to increase
return and to hedge its portfolio. In addition, Value Fund and Capital Fund have
a nonfundamental investment policy that they will only write covered call
options. 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. 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 is a relatively low-risk
way to enhance a portfolio's return. Additional information about options is
contained in Appendix A.

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 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.

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OPTIONS ON SECURITIES. Each Fund, except Growth Fund, may write (sell)
covered call options. In addition, Asset Allocation Fund, Growth & Income Fund
and Capital Appreciation Fund may write secured put options and purchase call
and put options on securities (provided that Capital Appreciation Fund 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 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 Fund, Growth & Income Fund and Capital Appreciation
Fund 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, except Growth Fund, may write
(sell) covered call options on stock indexes. In addition, Asset Allocation
Fund, Growth & Income Fund and Capital Appreciation Fund may write secured put
options on stock indexes and purchase call and put options on stock indexes. If
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 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.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

FUTURES CONTRACTS. Each Fund, except Growth Fund, may enter into stock
index futures contracts for hedging purposes. Each Fund, except Capital
Appreciation Fund and Growth Fund, may enter into interest rate futures
contracts for hedging purposes. Asset Allocation Fund, Capital Appreciation Fund
and Growth & Income Fund may also enter into foreign currency futures contracts.
Interest rate futures contracts, stock index futures contracts and foreign
currency futures contracts are collectively referred to as "Futures Contracts."

-28-

<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. Each Fund, except Capital Appreciation
Fund and Growth Fund, may purchase and write options on interest rate futures
contracts for hedging purposes. Each Fund, except Growth Fund, may purchase and
write options on stock index futures contracts and may purchase and write
options on foreign currency futures contracts for hedging purposes. 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."

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

Each Fund, except Growth Fund, 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") for hedging purposes only. 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, a 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
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. Each Fund, except Growth Fund, may
purchase and write put and call options on foreign currencies for the purpose of
protecting against declines in

-29-

<PAGE>

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

ADDITIONAL RISKS OF OPTIONS, FUTURES AND CURRENCY CONTRACTS

Options and futures involve certain risks and transaction costs. 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. A Fund also may enter into transactions in options on
securities and indexes of securities for other than hedging purposes, which
involves greater risk. 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.
Other risks include dependence on Advisers' ability to predict movements in the
prices of individual securities, fluctuations in the general securities markets,
and movements in interest rates; imperfect correlation between movements in the
price of options, futures contracts, or options thereon and movements in the
price of the security hedged or used for cover, the fact that skills and
techniques needed to trade options, futures contracts and options thereon are
different from those needed to select the securities in which the Fund invests,
lack of assurance that a liquid secondary market will exist for any particular
option, futures contract or option thereon at any particular time; and the
possible need to defer closing out certain options, futures contracts, and
options thereon in order to continue to qualify for the beneficial tax treatment
afforded regulated investment companies.

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

REGULATORY RESTRICTIONS

To the extent required to comply with Securities and Exchange
Commission Release No. 10666, when purchasing a futures contract, writing a put
option, or entering into a delayed delivery purchase, 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.

-30-

<PAGE>

To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid "commodity pool operator" status,
none of the Funds 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.

CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES

Each 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.

SHORT-TERM MONEY MARKET INSTRUMENTS

Each Fund may invest funds awaiting investment or held as reserves, or
for temporary defensive purposes, in commercial paper, obligations of banks or
the U.S. Government and other high quality, short-term debt instruments.
Short-term debt 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 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.

-31-

<PAGE>

PAYMENT-IN-KIND DEBENTURES

Asset Allocation 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 Fund 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.

PORTFOLIO TURNOVER

The portfolio turnover rate for a Fund is calculated by dividing the
lesser of purchases or sales by such Fund of investment securities for the
particular fiscal year by the monthly average value of investment securities
owned by the Fund during the same fiscal year. Investment securities for
purposes of this calculation do not include securities with a maturity date less
than twelve months from the date of investment. A 100% portfolio turnover rate
would occur, for example, if the lesser of the value of purchases or sales of
investment securities for a particular year were equal to the average monthly
value of the investment securities owned during such year. While a higher
turnover rate (100% or more) may result in the Funds incurring higher
transaction costs and result in additional tax or brokerage consequences,
Advisers attempt to have such costs outweighed by the benefits of such
transactions, although this cannot be assured. During the last fiscal year,
Value Fund's portfolio turnover rate increased from 93% to 260%. The primary
reasons for this increase were market conditions and the portfolio manager's
repositioning of the Fund's holdings to acquire more large capitalization value
stocks.

MANAGEMENT OF THE FUNDS

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

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

-32-

<PAGE>

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

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

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

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

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

Dean C. Kopperud * 46 President and Chief Executive Officer and a Director of Advisors, President and a
500 Bielenberg Drive Director Director of Investors, President of Fortis Financial Group, a
Woodbury, Minnesota Director of Fortis Benefits Insurance Company and a Senior Vice
President of Time Insurance Company.

Edward M. Mahoney 68 Director Retired; prior to December, 1994, Chairman and Chief Executive
2760 Pheasant Road Excelsior, Officer and a Director of Advisers and Investors, Senior Vice
Minnesota President and a Director of Fortis Benefits Insurance Company, and
Senior Vice President of Time Insurance Company.

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

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

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

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

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

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

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

-33-

<PAGE>

Nicholas L. M. de Peyster 32 Vice President Vice President of Advisers since 1995; prior to 1996, Vice
One Chase Manhattan Plaza President, Equities, Fortis Asset Management.
New York, New York

Diane M. Gotham 40 Vice President Vice President of Advisers since 1998; from 1994 to 1998,
90 South 7th Street, #5030 securities analyst for Advisers.
Minneapolis, Minnesota

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

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

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

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

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

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

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

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

Ho Wang 51 Vice President Vice President of Advisers since 1998; from 1995 to 1998, senior
One Chase Manhattan Plaza securities analyst, Lord, Abbett & Co., New York, NY; prior to
New York, New York 1995, portfolio manager, New York Life, New York, NY.

Christopher J. Woods 38 Vice President Vice President of Advisers since 1995; prior to 1996, Vice
One Chase Manhattan Plaza President, Fixed Income, Fortis Asset Management.
New York, New York

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

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

Tamara L. Fagely 40 Vice President Vice President of Advisers and Investors since 1998; prior thereto,
500 Bielenberg Drive and Treasurer Second Vice President of Advisers and Investors.
Woodbury, Minnesota
</TABLE>

-34-

<PAGE>

POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dickson Lewis 49 Vice President Senior Vice President, Marketing and Sales of Advisers; from 1993
500 Bielenberg Drive to July 1997, President and Chief Executive Officer
Woodbury, Minnesota Hedstrom/Blessing, Inc., a marketing communications company,
Minneapolis, MN.
David A. Peterson 56 Vice President Vice President and Assistant General Counsel, Fortis Benefits
500 Bielenberg Drive Insurance Company.
Woodbury, Minnesota

Scott R. Plummer 39 Vice President Vice President since 1998, Associate General Counsel since 1998
500 Bielenberg Drive and Assistant Secretary of Advisers; prior thereto, Second Vice
Woodbury, Minnesota President and Corporate Counsel of Advisers.

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

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

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

- -------------------
* Mr. Kopperud is an "interested person" (as defined under the 1940 Act) of
Advisers, Fortis Income and Fortis Advantage because he holds certain positions
including serving as Chief Executive Officer and a director of Advisers. Mr.
Freedman is an "interested person" of Advisers, Fortis Advantage, Fortis Equity
and Fortis Growth because he holds certain positions including serving as
Chairman and Chief Executive Officer of Fortis, Inc., the parent company of
Advisers, and as a Managing Director of Fortis International, N.V., the parent
company of Fortis, Inc.

Each director who is not affiliated with Advisers or Investors receives
a monthly fee ($200 per month from each of Value Fund, Growth & Income Fund and
Capital Fund; $350 per month from Growth Fund and $200 per month from each of
Asset Allocation Fund and Capital Appreciation Fund), $100 per meeting attended
from each Fund, and $100 per committee meeting attended from each Fund (and
reimbursement of travel expenses to attend meetings). Each such director also
receives a monthly fee, a meeting fee and a committee meeting fee from each fund
in the Fund Complex for which they are a director. The following table sets
forth the aggregate compensation received by each director from Fortis
Advantage, Fortis Equity and Fortis Growth during the fiscal year ended August
31, 1998, as well as the total compensation received by each director from the
Fund Complex during the calendar year ended December 31, 1997. Mr. Freedman and
Mr. Kopperud, who are affiliated with Advisers and Investors, did not receive
any compensation. No executive officer receives any compensation from the Funds.

-35-

<PAGE>

<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL
COMPENSATION COMPENSATION COMPENSATION COMPENSATION
FROM FROM FROM FROM
DIRECTOR FORTIS ADVANTAGE FORTIS EQUITY FORTIS GROWTH FUND COMPLEX*
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard W. Cutting $3,000 $2,400 $4,800 $31,200
Dr. Robert M. Gavin $3,000 $2,400 $4,800 $31,200
Benjamin S. Jaffray $3,000 $2,400 $4,800 $24,300
Jean L. King $2,900 $2,300 $4,700 $32,200
Edward M. Mahoney $3,000 $2,400 $4,800 $31,200
Robb L. Prince $3,000 $2,400 $4,800 $33,200
Leonard J. Santow $2,900 $2,300 $4,700 $30,200
Noel S. Shadko $3,000 $2,400 $4,800 $22,200
Joseph M. Wikler $3,000 $2,400 $4,800 $31,200
</TABLE>

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

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

During the fiscal year ended August 31, 1998, the Funds paid legal fees
and expenses as set forth below to the law firm of which the Funds' Secretary is
a partner.

<TABLE>
<CAPTION>
<S> <C>
Asset Allocation Fund $6,084
Value Fund $1,273
Growth & Income Fund $ 800
Capital Fund $23,831
Growth Fund $23,400
Capital Appreciation Fund $4,741
</TABLE>

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

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

PRINCIPAL HOLDERS OF SECURITIES

As of June 21, 1999 no person owned of record or, to a Fund's
knowledge, beneficially as much as 5% of the outstanding shares of any Class of
Fund shares, except as follows: ASSET ALLOCATION FUND -- CLASS C SHARES: KCB
Services and Company, Quads Trust Company, PO Box 4310, Frederick, MD 21705
(11%); VALUE FUND -- CLASS A SHARES: Fortis Insurance Company, One Chase
Manhattan Plaza, New York, NY 10005 (5%); Fortis Benefits Insurance Company, One
Chase Manhattan Plaza, New York, NY 10005 (5%); GROWTH FUND -- CLASS Z SHARES:
Mitra & Co., 1000 N. Water Street, Milwaukee, WI 53202 (56%); CAPITAL
APPRECIATION FUND -- CLASS A SHARES: Fortis Benefits Insurance Company, One
Chase Manhattan Plaza, New York, NY 10005 (8%).

-36-

<PAGE>

As of June 21, 1999, the directors and executive officers as a group
beneficially owned less than 1% of the outstanding shares of each class of each
Fund.

INVESTMENT ADVISORY AND OTHER SERVICES

GENERAL

Fortis Advisers, Inc. ("Advisers") has been the investment adviser and
manager of each Fund since inception. Fortis Investors, Inc. ("Investors") acts
as the Funds underwriter. Each acts pursuant to written agreements periodically
approved by the directors or shareholders. The address of each is that of the
Funds. As of December 31, 1998, Advisers managed thirty-three investment company
portfolios with combined net assets of approximately $6.6 billion.

CONTROL AND MANAGEMENT OF ADVISERS AND INVESTORS

Fortis, Inc. ("Fortis") owns 100% of the outstanding voting securities
of Advisers, and Advisers owns all of the outstanding voting securities of
Investors.

Fortis, located in New York, New York, is a financial services company
that provides specialty insurance and investment products to individuals,
businesses, associations and other financial services organizations in the
United States. Fortis is a part of a worldwide group of companies active in the
fields of insurance, banking and investments. Fortis is jointly owned by Fortis
(NL) N.V. of The Netherlands and Fortis (B) of Belgium.

Fortis (NL) N.V. is a diversified financial services company
headquartered in Utrecht, The Netherlands, where its insurance operations began
in 1847. Fortis (B) is a diversified financial services company headquartered in
Brussels, Belgium, where it insurance operations began in 1824. Fortis (NL) N.V.
and Fortis (B) own a group of companies active in insurance, banking and
financial services, and real estate development in The Netherlands, Belgium, the
United States, Western Europe, and the Pacific Rim.

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENTS

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

-37-

<PAGE>

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

<TABLE>
<CAPTION>
Average Net Assets Annual Investment Advisory
of Each 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 accordance with
arrangements equitable to each fund or account. The simultaneous purchase or
sale of the same securities by a Fund and other funds or accounts may have a
detrimental effect on a Fund, as this may affect the price paid or received by a
Fund or the size of the position obtainable by a Fund.

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

<TABLE>
<CAPTION>
ADVISORY FEES PAID DURING
-----------------------------------------------------------
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31,
1996 1997 1998
----------------- ------------------ ------------------

<S> <C> <C> <C>
Asset Allocation Fund $ 1,396,000 $ 1,577,254 $ 1,811,123
Value Fund $ 56,988 $ 207,623 $ 366,680
Growth & Income Fund $ 19,129* $ 125,226 $ 318,842
Capital Fund $ 2,519,746 $ 2,735,421 $ 3,140,323
Growth Fund $ 5,563,562 $ 6,323,998 $ 6,792,000
Capital Appreciation Fund $ 1,086,889 $ 1,190,025 $ 1,261,410
</TABLE>
* Period from inception (January 2, 1996) to August 31, 1996.

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<PAGE>

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

Fortis Advantage, Fortis Equity and Fortis Growth, 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

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<PAGE>

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 Fund and Capital
Appreciation Fund) of the average daily net assets attributable to that Fund's
Class A shares and 1.00% attributable to that Fund's Class B, Class C and Class
H shares. Such fees are paid in connection with servicing of the Fund's
shareholder accounts and in connection with distribution-related services
provided with respect to the Fund. Class Z shares of Growth Fund and Asset
Allocation Fund do not pay any distribution fees. Investors will be paid under
the Distribution Plan regardless of Investors' actual expenses.

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

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

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<PAGE>

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

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

<TABLE>
<CAPTION>
ASSET GROWTH CAPITAL
ALLOCATION VALUE & INCOME CAPITAL GROWTH APPRECIATION
FUND FUND FUND FUND FUND FUND
----------- ----------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Advertising $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Printing and Mailing of
Prospectuses to Other than Current
Shareholders 38,916 6,176 6,322 32,234 70,773 25,809
Compensation to Underwriters 933,755 140,064 123,949 991,856 2,056,497 657,415
Compensation to Dealers 0 0 0 0 0 0
Compensation to Sales Personnel 0 0 0 0 0 0
Interest, Carrying or Other
Financing Charges 0 0 0 0 0 0
Other (distribution-related
compensation, sales literature,
supplies, postage, toll-free phone) 132,529 42,145 44,121 147,121 265,631 50,593
------- ------ ------ ------- ------- ------
TOTAL $1,105,200 $ 188,385 $ 174,392 $1,171,211 $2,392,901 $ 733,817
</TABLE>

BROKERAGE ALLOCATION AND OTHER PRACTICES

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

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<PAGE>

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.

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.

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

<TABLE>
<CAPTION>
Fiscal Period Ended Fiscal Year Ended Fiscal August Ended
August 31, 1996 August 31, 1997 August 31, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Asset Allocation Fund $ 74,894 $ 131,066 $ 207,470
Value Fund 19,061 67,046 188,814
Growth & Income Fund 5,040 17,192 24,624
Capital Fund 190,273 360,210 684,684
Growth Fund 359,800 421,163 1,120,063
Capital Appreciation Fund 45,448 36,593 90,781
</TABLE>

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.

From time to time, the Funds may acquire the securities of their
regular brokers or dealers or parent companies of such brokers or dealers. The
Funds acquired the following securities of their regular brokers or dealers or
parent companies of such brokers or dealers during the fiscal period ended
August 31, 1998:

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<PAGE>

<TABLE>
<CAPTION>
Value of Securities
Fund Owned at End of Period
- ---- ----------------------

Asset Allocation Fund
- ---------------------

<S> <C>
Bear Stearns Capital Trust $ 514,682
J.P. Morgan Commercial Mortgage 1,572,960
Lehman Brothers Holding 2,132,488
Merrill Lynch Mortgage 842,537
Norwest Investment Services 7,518,287
U.S. Bank N.A. 7,234

Value Fund
- ----------
J.P. Morgan Commercial Mortgage 623,100
Norwest Investment Services 2,903,420
U.S. Bank N.A. 465,258

Growth & Income Fund
- --------------------
Norwest Investment Services 3,285,642
U.S. Bank N.A. 78,321

Capital Fund
- ------------
Norwest Investment Services 23,696,397
U.S. Bank N.A. 13,445
</TABLE>

<TABLE>
<CAPTION>
Value of Securities
Fund Owned at End of Period
- ---- ----------------------
<S> <C>
Growth Fund
- -----------
Norwest Investment Services $44,679,853
U.S. Bank N.A. 37,000

Capital Appreciation Fund
- -------------------------
Norwest Investment Services 6,882,313
U.S. Bank N.A. 4,876
</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

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<PAGE>

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.

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.

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 and for all
investment advisory contracts and amendments thereto.

Cumulative voting is not authorized. This means that the holders of
more than 50% of the shares voting for the election of directors can elect 100%
of the directors if they choose to do so, and in such event the holders of the
remaining shares will be unable to elect any directors.

PRICING OF SHARES

ASSET ALLOCATION FUND
- ---------------------

On August 31, 1998, the Fund's net asset values per share were
calculated as follows (no Class Z shares were outstanding as of such date):

CLASS A
Net Assets ($151,919,819) = Net Asset Value per Share ($16.91)
-------------------------
Shares Outstanding (8,983,702 )

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<PAGE>

To obtain the public offering price per share, the 4.75% sales charge must be
added to the net asset value obtained above:
$16.91 = Public Offering Price per Share ($17.75)
---------
0.9525

CLASS B
Net Assets ($9,928,052) = Net Asset Value per Share ($16.80)
-----------------------
Shares Outstanding (590,940)

CLASS C
Net Assets ($5,830,993) = Net Asset Value per Share ($16.74)
-----------------------
Shares Outstanding (348,401)

CLASS H
Net Assets ($22,979,434) = Net Asset Value per Share ($16.79)
------------------------
Shares Outstanding (1,368,337)

VALUE FUND

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

CLASS A
Net Assets ($22,448,820) = Net Asset Value per Share ($11.85)
------------------------
Shares Outstanding (1,894,249)

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

$11.85 = Public Offering Price per Share ($12.44)
---------
0.9525

CLASS B
Net Assets ($4,793,957) = Net Asset Value per Share ($11.71)
-----------------------
Shares Outstanding (409,260)

CLASS C
Net Assets ($1,990,524) = Net Asset Value per Share ($11.72)
-----------------------
Shares Outstanding (169,861)

CLASS H
Net Assets ($7,016,498) = Net Asset Value per Share ($11.72)
-----------------------
Shares Outstanding (598,717)

GROWTH & INCOME FUND

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

CLASS A
Net Assets ($20,994,307) = Net Asset Value per Share ($13.20)
------------------------
Shares Outstanding (1,591,074)

To obtain the public offering price per share, the 4.75% sales charge must be
added to the net asset value obtained above:
$13.20 = Public Offering Price per Share ($13.86)
---------
0.9525
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<PAGE>

CLASS B
Net Assets ($5,158,623) = Net Asset Value per Share ($13.16)
-----------------------
Shares Outstanding (391,957)

CLASS C
Net Assets ($2,452,708) = Net Asset Value per Share ($13.16)
-----------------------
Shares Outstanding (168,471)

CLASS H
Net Assets ($6,305,699) = Net Asset Value per Share ($13.16)
-----------------------
Shares Outstanding (479,134)

CAPITAL FUND

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

CLASS A
Net Assets ($312,582,197) = Net Asset Value per Share ($22.37)
-------------------------
Shares Outstanding (13,973,341)

To obtain the public offering price per share, the 4.75% sales charge must be
added to the net asset value obtained above:
$22.37 = Public Offering Price per Share ($23.49)
---------
0.9525

CLASS B
Net Assets ($9,338,795) = Net Asset Value per Share ($21.73)
-----------------------
Shares Outstanding (429,750)

CLASS C
Net Assets ($2,452,708) = Net Asset Value per Share ($21.73)
-----------------------
Shares Outstanding (112,878)

CLASS H
Net Assets ($16,986,594) = Net Asset Value per Share ($21.74)
------------------------
Shares Outstanding (781,254)

GROWTH FUND

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

CLASS A
Net Assets ($581,818,754) = Net Asset Value per Share ($29.78)
-------------------------
Shares Outstanding (19,538,392)

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

$29.78 = Public Offering Price per Share ($31.27)
---------
0.9525

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<PAGE>

CLASS B
Net Assets ($12,416,546) = Net Asset Value per Share ($28.85)
------------------------
Shares Outstanding (430,379)

CLASS C
Net Assets ($2,737,896) = Net Asset Value per Share ($28.85)
-----------------------
Shares Outstanding (94,905)

CLASS H
Net Assets ($34,452,800) = Net Asset Value per Share ($28.86)
------------------------
Shares Outstanding (1,193,677)
CLASS Z
Net Assets ($95,369,978) = Net Asset Value per Share ($30.00)
------------------------
Shares Outstanding (3,179,327)

CAPITAL APPRECIATION FUND

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

CLASS A
Net Assets ($79,813,218) = Net Asset Value per Share ($26.42)
------------------------
Shares Outstanding (3,020,824)

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

$26.42 = Public Offering Price per Share ($27.74)
---------
0.9525
CLASS B
Net Assets ($5,848,934) = Net Asset Value per Share ($25.90)
-----------------------
Shares Outstanding (225,785)

CLASS C
Net Assets ($1,793,777) = Net Asset Value per Share ($25.92)
-----------------------
Shares Outstanding (69,204)

CLASS H
Net Assets ($11,932,860) = Net Asset Value per Share ($25.92)
------------------------
Shares Outstanding (460,343)

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. Net asset value is the value of the securities
owned by the Fund, plus cash or other assets, less liabilities, divided by the
number of Fund shares outstanding.

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

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<PAGE>

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

PURCHASE OF SHARES

EXEMPTIONS FROM SALES CHARGE

Purchases of Class A shares made by the following are exempt from the
sales charge:

- Fortis, Inc. or its subsidiaries and the following persons
associated with such companies, if all account owners fit this
description: (1) officers and directors; (2) employees or
sales representatives (including agencies and their
employees); (3) spouses/domestic partners of any such persons;
or (4) any of such persons' children, grandchildren, parents,
grandparents, or siblings or spouses/domestic partners of any
of these persons. (All such persons may continue to add to
their account even after their company relationships have
ended);

- Fund directors, officers, or their spouses/domestic partners
(or such persons' children, grandchildren, parents, or
grandparents-or spouses/domestic partners of any such
persons), if all account owners fit this description;

- Representatives of Investors (including agencies) or of other
broker-dealers (or spouses of such representatives) having a
sales agreement with Investors (or such persons' children,
grandchildren, parents, or grandparents - or spouses of any
such persons), if all account owners fit this description;

- Pension, profit-sharing, and other retirement plans of
directors, officers, employees, representatives, and other
relatives and affiliates (as set forth in the preceding three
paragraphs) of the Fund, Fortis, Inc., and broker-dealers (and
certain affiliated companies) having a sales agreement with
Investors and purchases with the proceeds from such plans upon
the retirement or employment termination of such persons;

- Registered investment companies;

- Shareholders of unrelated mutual funds with front-end and/or
deferred sales loads, to the extent that the purchase price of
such Fund shares is funded by the proceeds from the redemption
of shares of any such unrelated mutual fund (within 60 days of
the purchase of Fund shares), provided that the shareholder's
application so specifies and is accompanied either by the
redemption check of such unrelated mutual fund (or a copy of
the check) or a copy of the confirmation statement

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<PAGE>

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 Fortis
Insurance Company who maintain certain minimum balances in
their MSA accounts may invest a portion of their MSA account
balances in Asset Allocation Fund, Value Fund, Growth & Income
Fund and Capital Fund.

In addition, the following may purchase Class Z shares of Growth Fund
and Asset Allocation Fund, which are not subject to a sales charge:

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<PAGE>

- Fund directors, officers, or their spouses/domestic partners
(or such persons' children, grandchildren, parents, or
grandparents -- or spouses/domestic partners of any such
persons), if all account owners fit this description;

- Representatives of Investors (including agencies) or their
spouses; 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;

- In the case of Growth Fund, 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.

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

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<PAGE>

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 charge that may not be taken into
account in determining your gain or loss on the sale of the first-acquired
shares may be taken into account in determining gain or loss on the eventual
sale or exchange of the later-acquired shares.

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

-51-

<PAGE>

REDEMPTION OF SHARES

GENERAL

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

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

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

SYSTEMATIC WITHDRAWAL PLAN

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

These withdrawals may constitute return of capital. The redemption of
Fund shares pursuant to the Systematic Withdrawal 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.

-52-

<PAGE>

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. 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.

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

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<PAGE>

exchange of capital assets held for more than one year, are subject to a maximum
federal income tax rate of 20%, while ordinary income is subject to a maximum
rate of 39.6%. Short-term capital gains, which are realized on the sale or
exchange of capital assets held one year or less, are taxed at the same rates as
ordinary income.

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 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 a Fund pays income tax. In order to avoid
the imposition of the excise tax, each 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.

If a 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.

-54-

<PAGE>

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.

UNDERWRITER AND DISTRIBUTION OF SHARES

Pursuant to the Underwriting and Distribution Agreement, Investors has
agreed to act as the principal underwriter for the Funds in the sale an
distribution to the public of shares of the Fund, either through dealers or
otherwise. Investors has agreed to offer such shares for sale at all times when
such shares are available for sale and may lawfully be offered for sale and
sold. As compensation for its services, in addition to receiving its
distribution fees pursuant to the Distribution Plan discussed above, Investors
receives the initial sales charges on sales of Class A shares of the Funds and
any contingent deferred sales charges 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 Fund $ 559,079 $ 438,308 $ 500,107
Value Fund 58,069 149,014 236,426
Growth & Income Fund 56,833 145,005 246,685
Capital Fund 488,205 461,654 530,929
Growth Fund 1,716,774 1,439,303 1,256,346
Capital Appreciation Fund 572,493 526,432 367,109
</TABLE>

<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 Fund $ 119,087 $ 70,416 $ 65,123
Value Fund 13,865 28,996 32,703
Growth & Income Fund 14,644 8,377 29,523
Capital Fund 93,932 94,167 66,201
Growth Fund 342,166 254,436 139,000
Capital Appreciation Fund 119,541 101,781 39,408
</TABLE>

-55-

<PAGE>

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

<TABLE>
<CAPTION>
Net Underwriting Compensation on
Discounts and Redemptions and Brokerage Other
Commissions Repurchases Commissions Compensation
------------------ ------------------ ---------------- ---------------

<S> <C> <C> <C> <C>
Asset Allocation Fund $ 438,623 $ 61,484 $ 0 $ 0
Value Fund $ 202,655 $ 33,771 $ 0 $ 0
Growth & Income Fund $ 215,428 $ 31,257 $ 0 $ 0
Capital Fund $ 456,456 $ 74,473 $ 0 $ 0
Growth Fund $ 1,051,136 $ 205,210 $ 0 $ 0
Capital Appreciation Fund $ 274,920 $ 92,189 $ 0 $ 0
</TABLE>

PERFORMANCE INFORMATION

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

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

n
P(1+T) = ERV

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

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

The following tables set forth the average annual total returns for
each Class of shares of each Fund for one year, five years and since inception
(10 years with respect to Class A shares of Asset Allocation Fund, Growth &
Income, Capital Fund, Growth Fund and Capital Appreciation Fund) for the period
ending August 31, 1998. No information is presented for the Class Z shares of
Asset Allocation Fund, which were not offered prior to the date of this
Statement of Additional Information.

-56-

<PAGE>

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------------------------------------
10 YEARS/SINCE
1 YEAR 5 YEARS INCEPTION
------------------ ---------------- --------------------
<S> <C> <C> <C>
ASSET ALLOCATION FUND
Class A Shares - 2.17% 9.563% 11.22%
Class B Shares* - 1.46% -- 12.07%
Class C Shares* 1.15% -- 12.50%
Class H Shares* - 1.45% -- 12.05%

VALUE FUND
Class A Shares** - 7.15% -- 9.84%
Class B Shares** - 6.39% -- 9.89%
Class C Shares** - 4.21% -- 11.06%
Class H Shares** - 6.30% -- 9.83%

GROWTH & INCOME FUND
Class A Shares** - 2.08% -- 10.82%
Class B Shares** - 1.61% -- 10.91%
Class C Shares** .99% -- 12.03%
Class H Shares** 1.61% -- 10.91%

CAPITAL FUND
Class A Shares 3.26% 12.57% 14.15%
Class B Shares* - 2.80% -- 13.93%
Class C Shares* - .24% -- 14.42%
Class H Shares* - 2.80% -- 13.94%

GROWTH FUND
Class A Shares - 14.83% 6.58% 13.46%
Class B Shares* - 13.98% -- 10.40%
Class C Shares* - 12.01% -- 10.93%
Class H Shares* - 13.98% -- 10.41%
Class Z Shares*** - 10.34% -- 6.19%

CAPITAL APPRECIATION FUND
Class A Shares - 17.76% 2.53% 10.75%
Class B Shares* - 17.16% -- 4.69%
Class C Shares* - 14.98% -- 5.33%
Class H Shares* - 17.16% -- 4.71%
</TABLE>

* Inception date: November 14, 1994.
** Inception date: January 2, 1996.
*** Inception date: March 1, 1996.

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:

-57-

<PAGE>

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

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, except for the Class Z shares of Asset Allocation Fund, which were not
offered prior to the date of this Statement of Additional Information:

<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
------------------------------
<S> <C>
ASSET ALLOCATION FUND
Class A Shares (1) 190.45%
Class B Shares (2) 54.12%
Class C Shares (2) 56.40%
Class H Shares (2) 54.06%

VALUE FUND
Class A Shares (3) 28.42%
Class B Shares (3) 28.55%
Class C Shares (3) 32.26%
Class H Shares (3) 28.66%

GROWTH & INCOME FUND
Class A Shares (3) 31.51%
Class B Shares (3) 31.76%
Class C Shares (3) 35.36%
Class H Shares (3) 31.76%

CAPITAL FUND
Class A Shares (4) 26,733.83%
Class B Shares (2) 64.07%
Class C Shares (2) 66.79%
Class H Shares (2) 64.14%

GROWTH FUND
Class A Shares (5) 8,086.66%
Class B Shares (2) 45.59%
Class C Shares (2) 48.29%
</TABLE>

-58-

<PAGE>

<TABLE>
<CAPTION>
<S> <C>
Class H Shares (2) 45.63%
Class Z Shares (6) 16.22%

CAPITAL APPRECIATION FUND
Class A Shares (1) 202.39%
Class B Shares (2) 19.00%
Class C Shares (2) 21.79%
Class H Shares (2) 19.09%
</TABLE>

(1) Inception date: January 4, 1988.
(2) Inception date: November 14, 1994.
(3) Inception date: January 2, 1996.
(4) Inception date: June 8, 1949.
(5) Inception date: March 31, 1963.
(6) Inception date: March 1, 1996.

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

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

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

None of the Funds currently provide yield information.

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, the Funds' ratings may sometimes be different than had the
organizations done so.

-59-

<PAGE>

<TABLE>
<CAPTION>
<S> <C>
ASSET ALLOCATION FUND
RATINGS SERVICE CATEGORY
Lipper Analytical Services, Inc. flexible portfolio
CDA/Wiesenberger asset allocation -- domestic
Morningstar Publications, Inc. asset allocation
Johnson's Charts total return

VALUE FUND
RATINGS SERVICE CATEGORY
Lipper Analytical Services, Inc. growth and income
CDA/Wiesenberger growth -- domestic
Morningstar Publications, Inc. large value
Johnson's Charts long term growth

GROWTH & INCOME FUND
RATINGS SERVICE CATEGORY
Lipper Analytical Services, Inc. growth and income
CDA/Wiesenberger growth and income
Morningstar Publications, Inc. large blend
Johnson's Charts growth and income

CAPITAL FUND
RATINGS SERVICE CATEGORY
Lipper Analytical Services, Inc. growth and income-- multisector income
CDA/Wiesenberger growth-- domestic
Morningstar Publications, Inc. growth
Johnson's Charts growth and income

GROWTH FUND
RATINGS SERVICE CATEGORY
Lipper Analytical Services, Inc. capital appreciation
CDA/Wiesenberger growth -- domestic
Morningstar Publications, Inc. small company growth
Johnson's Charts long term growth

CAPITAL APPRECIATION FUND
RATINGS SERVICE CATEGORY
Lipper Analytical Services, Inc. small company growth
CDA/Wiesenberger aggressive growth
Morningstar Publications, Inc. small company growth
Johnson's Charts long term growth
</TABLE>

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<PAGE>

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 are provided in reliance on the report of KPMG
Peat Marwick LLP, 4200 Norwest Center, Minneapolis, MN 55402, independent
auditors of the Funds, and given on the authority of such firm as experts in
accounting and auditing. Also incorporated herein by reference are the unaudited
financial statements as of February 28, 1999, as set forth in the Funds'
Semi-Annual Report to Shareholders.

OTHER SERVICE PROVIDERS

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

LIMITATION OF DIRECTOR LIABILITY

Under Minnesota law, each director of Fortis Advantage, Fortis Equity
and Fortis Growth 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 Advantage, Fortis Equity and Fortis Growth 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

-61-

<PAGE>

breach of their duties as officers). Minnesota law does not permit elimination
or limitation of the availability of equitable relief, such as injunctive or
rescissionary relief. Further, Minnesota law does not permit elimination or
limitation of a director's liability under the Securities Act of 1933 or the
Securities Exchange Act of 1934, and it is uncertain whether and to what extent
the elimination of monetary liability would extend to violations of duties
imposed on directors by the 1940 Act and the rules and regulations adopted under
such act.

ADDITIONAL INFORMATION

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

-62-

<PAGE>

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

DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS

OPTIONS ON SECURITIES

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

Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities 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 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.

A-1

<PAGE>

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.

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

A-2

<PAGE>

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.

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.

A-3

<PAGE>

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

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

A-4

<PAGE>

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 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.

A-5

<PAGE>

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.

A-6

<PAGE>

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.

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.

B-1

<PAGE>

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

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

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

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

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

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

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

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.

B-2

<PAGE>

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

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

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

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

Bonds which are rated "A" possess many favorable attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest 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.

B-3

<PAGE>

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.

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.

B-4

<PAGE>

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.

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.

B-5
<PAGE>

PART C
Fortis Asset Allocation Portfolio
and
Fortis Capital Appreciation Portfolio
each a series of
Fortis Advantage Portfolios, Inc.

OTHER INFORMATION

Item 23. Exhibits
- -------- --------

THE FUND IS FILING OR INCORPORATING BY REFERENCE THE FOLLOWING EXHIBITS:

(a).1 Articles of Amendment and Amended and Restated Articles of
Incorporation adopted 8/23/94 (1)
(a).2 Certification of Designation of Classes A, B, C & H dated 10/31/94
(1)
(a).3 Articles of Amendment dated 2/29/96 to Restated Articles of
Incorporation dated as of 9/9/94 (1)
(a).4 Certificate of Designation of Class Z Shares of Series C (Asset
Allocation Portfolio) dated 6/23/99 *
(b) Amended and Restated Bylaws dated 1/31/92 (1)
(c) Instruments Defining Rights of Security Holders - not applicable
(d) Investment Advisory and Management Agreement dated 1/31/92 (1)
(e).1 Underwriting and Distribution Agreement dated 11/14/94 (1)
(e).2 Dealer Sales Agreement (4)
(e).3 Mutual Fund Supplement to Dealer Sales Agreement (4)
(f) Bonus or Profit Sharing Contracts -not applicable
(g) Custody Agreement dated 3/21/92 (1)
(h) Other Material Contracts - not applicable
(i) Legal Opinion *
(j) Consent of KPMG Peat Marwick LLP *
(k) Omitted Financial Statements - not applicable
(l) Initial Capital Agreements - not applicable
(m) Rule 12b-1 Plan (2)
(n) Financial Data Schedule - not applicable
(o) Rule 18f-3 Plan (3)

- -------------------------
(1) Incorporated by reference to a Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
on December 1, 1998.
(2) Incorporated by reference to 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.
(3) Incorporated by reference to a Post-Effective Amendment No. 13 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
on July 31, 1995.
(4) Incorporated by reference to Post-Effective Amendment No. 45 to the
Registration Statement of Fortis Income Portfolios, Inc. on Form N-1A
filed with the Commission on December 1, 1998.
* Filed herewith.

<PAGE>

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

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

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

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

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

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

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

2
<PAGE>

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

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

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

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

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

<PAGE>

Item 27. PRINCIPAL UNDERWRITERS

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

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

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

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

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

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

Not applicable.

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

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

<PAGE>

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

All contracts were discussed in Part A or B.

ITEM 30. UNDERTAKINGS
(a) IN INITIAL REGISTRATION STATEMENTS FILED UNDER THE SECURITIES ACT, PROVIDE
AN UNDERTAKING TO FILE AN AMENDMENT TO THE REGISTRATION STATEMENT WITH
CERTIFIED FINANCIAL STATEMENTS SHOWING THE INITIAL CAPITAL RECEIVED BEFORE
ACCEPTING SUBSCRIPTIONS FROM MORE THAN 25 PERSONS IF THE FUND INTENDS TO
RAISE ITS INITIAL CAPITAL UNDER SECTION 14(a)(3).

Not applicable.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Registration Statement on Form
N-1A pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Woodbury and State of
Minnesota on the 30th day of June 1999.

FORTIS ADVANTAGE 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>
<CAPTION>
<S> <C> <C>
/s/ Dean C. Kopperud President (principal June 30, 1999
- ---------------------------------- executive officer)
Dean C. Kopperud

/s/ Tamara L. Fagely Treasurer (principal financial June 30, 1999
- ---------------------------------- and accounting officer)
Tamara L. Fagely

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

June 30, 1999
</TABLE>

*By /s/ Dean C. Kopperud
------------------------------------
Dean C. Kopperud, Attorney-in-Fact

<PAGE>

CERTIFICATE OF DESIGNATION
OF
CLASS Z COMMON SHARES
OF
SERIES C
OF
FORTIS ADVANTAGE PORTFOLIOS, INC.

The undersigned duly elected Secretary of Fortis Advantage Portfolios,
Inc., a Minnesota corporation (the "Fund"), hereby certifies that the following
is a true, complete and correct copy of resolutions duly adopted by a majority
of the directors of the Board of Directors of the Fund on June 22, 1999:

APPROVAL OF CREATION AND DESIGNATION
OF CLASS Z SHARES OF SERIES C

WHEREAS, the total authorized number of shares of the Fund is
100,000,000,000 (one hundred billion), all of which shares are common shares,
par value $.01 per share, as set forth in the Fund's Amended and Restated
Articles of Incorporation (the "Articles"); and

WHEREAS, of such total authorized shares, 10,000,000,000 (ten
billion) have been designated as Series C Common Shares, with 1,000,000,000 (one
billion) designated as Class A Common Shares, 1,000,000,000 (one billion)
designated as Class B Common Shares, 1,000,000,000 (one billion) designated as
Class C Common Shares, and 1,000,000,000 (one billion) designated as Class H
Common Shares; and

WHEREAS, the Articles provide that the authorized shares of
the Fund may be issued in such Classes and with such relative rights and
preferences as shall be stated or expressed in a resolution or resolutions
providing for the issue of any such Class or Classes of common shares as may be
adopted from time to time by the Board of Directors of the Fund.

NOW, THEREFORE, BE IT RESOLVED, that of the remaining
authorized common shares of Series C of the Fund, 1,000,000,000 (one billion)
are hereby designated as Class Z Common Shares.

FURTHER RESOLVED, that Articles 5, 6 and 7 of the Articles of
Incorporation setting forth the relative rights and preferences of each series
and class thereof be, and they hereby are, adopted as the rights preferences of
the class designated in these resolutions. As provided in Articles 5(b) of such
Articles, the Class Z Common Shares designated by these resolutions may be
subject to such charges and expenses (including by way of example, but not by
way of limitation, such front-end and deferred sales charges as may be permitted
under the Investment Company Act of 1940, as amended (the "1940 Act") and the
rules of the National Association of Securities Dealers, Inc., and expenses
under Rule 12b-1 plans, administrative plans, service plans or other plans or
arrangements, however designated) adopted from time to time by the Board of
Directors of the Fund in accordance, to the extent applicable, with the 1940
Act, which charges and expenses may differ from those applicable to another
Class within such Series, and all of the charges and expenses to which a Class
is subject shall be borne by such Class and shall be appropriately reflected in
determining the net asset value and the amounts payable with respect to
dividends and distributions on, and redemptions or liquidation of, such Class.

IN WITNESS WHEREOF, the undersigned has signed this
Certificate of Designation on behalf of the Fortis Advantage Portfolios, Inc. on
this 23rd day of June 1999.

----------------------------------
Michael J. Radmer
Secretary

<PAGE>

Fortis Advantage Portfolios, Inc.
500 Bielenberg Drive
Woodbury, Minnesota 55125

Ladies and Gentlemen:

We have acted as counsel to Fortis Advantage Portfolios, Inc., a
Minnesota corporation (the "Fund"), in connection with a Registration Statement
on Form N-1A (File No. 33-17759) (the "Registration Statement") relating to the
sale by the Fund of an indefinite number of shares of the Fund's Series C, Class
Z shares of common stock, par value $.01 per share (the "Shares").

We have examined such documents and have reviewed such questions
of law as we have considered necessary and appropriate for the purposes of our
opinions set forth below. In rendering our opinions set forth below, we have
assumed the authenticity of all documents submitted to us as originals, the
genuineness of all signatures and the conformity to authentic originals of all
documents submitted to us as copies. We have also assumed the legal capacity for
all purposes relevant hereto of all natural persons and, with respect to all
parties to agreements or instruments relevant hereto other than the Fund, that
such parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Fund and of public officials. We have also
assumed that the Shares will be issued and sold as described in the Registration
Statement.

Based on the foregoing, we are of the opinion that the Shares
have been duly authorized by all requisite corporate action and, upon issuance,
delivery and payment therefore as described in the Registration Statement, will
be validly issued, fully paid and nonassessable.

Our opinions expressed above are limited to the laws of the
State of Minnesota.

<PAGE>

We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement, and to the reference to our firm under the caption
"Legal Counsel" in the Statement of Additional Information constituting part of
the Registration Statement.

Dated: June 30, 1999

Very truly yours,

/s/ Dorsey & Whitney LLP

KLP

<PAGE>

EXHIBIT (j)

[KPMG letterhead]

Independent Auditors' Consent

The Board of Directors
Fortis Advantage Portfolios, Inc.

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

/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP

Minneapolis, Minnesota
June 30, 1999