FORTIS TAX FREE PORTFOLIOS INC, 485APOS, 1996-11-29

FORTIS TAX FREE PORTFOLIOS INC
485APOS, 1996-11-29

Previous: CALVERT CASH RESERVES, 24F-2NT, 1996-11-29

Next: BARTLETT CAPITAL TRUST, NSAR-A, 1996-11-29

<PAGE>

File No. 2-78148
FISCAL YEAR END - SEPTEMBER 30

Registrant proposes that this amendment will become effective:

60 days after filing
---
As of the filing date
---
As of FEBRUARY 1, 1997 X
---
Pursuant to Rule 485:

paragraph (a) X
---
paragraph (b)
---

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 X
---

Post-Effective Amendment Number 19

and

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
---

FORTIS TAX-FREE PORTFOLIOS, INC.
(Exact Name of Registrant as Specified in Charter)

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

Registrant's Telephone Number: (612) 738-4000

Scott R. Plummer, Esq., Asst. Secretary (Same address as above)
(Name and Address of Agent for Service)

Copy to:

Michael J. Radmer, Esq.
Dorsey & Whitney P.L.L.P.
220 Sixth Street South
Minneapolis, MN 55402

Pursuant to Section 270.24f-2 of the Investment Company Act of 1940, the
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933. The Rule 24f-2 Notice for the Registrant's most
recent fiscal year was filed on November 26, 1996.

<PAGE>

FORTIS TAX-FREE PORTFOLIOS, INC.
Registration Statement on Form N-1A
- --------------------------------------------------------------------------------
CROSS REFERENCE SHEET
Pursuant to Rule 495(a) and Instruction F1 of Form N-1A
- --------------------------------------------------------------------------------
N-1A
Item No.
PART A (PROSPECTUS) PROSPECTUS HEADING
- ------------------- ------------------

1. Cover Page...............................Cover Page (no caption)
2. Synopsis (optional)......................(not included)
3. Condensed Financial Information..........FINANCIAL HIGHLIGHTS
4. General Description of Registrant........ORGANIZATION AND CLASSIFICATION
5. Management of the Fund...................MANAGEMENT
6. Capital Stock and Other Securities.......CAPITAL STOCK; SHAREHOLDER
INQUIRIES; DIVIDENDS AND CAPITAL
GAINS DISTRIBUTIONS; TAXATION
7. Purchase of Securities Being Offered.....HOW TO BUY FUND SHARES
8. Redemption or Repurchase.................REDEMPTION
9. Pending Legal Proceedings................None

PART B STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------------

10. Cover Page..............................Cover Page (no caption)
11. Table of Contents.......................TABLE OF CONTENTS
12. General Information and History.........ORGANIZATION AND CLASSIFICATION
13. Investment Objectives and Policies......INVESTMENT OBJECTIVES AND POLICIES
14. Management of the Fund..................DIRECTORS AND EXECUTIVE OFFICERS
15. Control Persons and Principal
Holders of Securities...................CAPITAL STOCK
16. Investment Advisory and Other Services..INVESTMENT ADVISORY AND OTHER
SERVICES
17. Brokerage Allocation....................PORTFOLIO TRANSACTIONS AND
ALLOCATION OF BROKERAGE
18. Capital Stock and Other Securities......CAPITAL STOCK
19. Purchase, Redemption, and Pricing of
Securities Being Offered................COMPUTATION OF NET ASSET VALUE AND
PRICING; SPECIAL PURCHASE PLANS;
REDEMPTION
20. Tax Status..............................TAXATION
21. Underwriters............................UNDERWRITER
22. Calculations of Performance Date........PERFORMANCE
23. Financial Statements....................FINANCIAL STATEMENTS

<PAGE>
DATED FEBRUARY 1, 1997

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

STREET ADDRESS:
500 Bielenberg Drive
Woodbury
Minnesota 55125

Telephone: (612) 738-4000
Toll Free: (800) 800-2638, Ext. 3012

- -------------------------------------------------------
FORTIS TAX-FREE
PORTFOLIOS, INC.
PROSPECTUS
(An income fund with two separate
investment portfolios investing primarily in
securities generating tax-exempt interest)

- ------------------------------------------
National Portfolio
- ----------------------------------
Minnesota Portfolio
- ----------------------------------

THIS PROSPECTUS CONCISELY SETS FORTH THE INFORMATION A PROSPECTIVE INVESTOR
SHOULD KNOW ABOUT THE FUND BEFORE INVESTING. INVESTORS SHOULD RETAIN THIS
PROSPECTUS FOR FUTURE REFERENCE. THE FUND HAS FILED A STATEMENT OF ADDITIONAL
INFORMATION (ALSO DATED FEBRUARY 1, 1997) WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE FREE OF CHARGE
FROM FORTIS INVESTORS, INC. ("INVESTORS") AT THE ABOVE MAILING ADDRESS OF THE
FUND, AND IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS IN ACCORDANCE WITH
THE COMMISSION'S RULES.

SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; AND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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

An investment in any of the Portfolios involves certain risks. These include the
following:

INTEREST RATE RISK. Interest rate risk is the risk that the value of a
fixed-rate debt security will decline due to changes in market interest rates.
Because the Portfolios invest in fixed-rate debt securities, they are subject to
interest rate risk. In general, when interest rates rise, the value of a
fixed-rate debt security declines. Conversely, when interest rates decline, the
value of a fixed-rate debt security generally increases. Thus, shareholders in
the Portfolios bear the risk that increases in market interest rates will cause
the value of their Portfolio's investments to decline.

In general, the value of fixed-rate debt securities with longer maturities is
more sensitive to changes in market interest rates than the value of such
securities with shorter maturities. Thus, the net asset value of a Portfolio
which invests in securities with longer weighted average maturities should be
expected to have greater volatility in periods of changing market interest rates
than that of a Portfolio which invests in securities with shorter weighted
average maturities.

CREDIT RISK. Credit risk is the risk that the issuer of a debt security will
fail to make payments on the security when due. Because the Portfolios invest in
debt securities, they are subject to credit risk.

The ratings and certain other requirements which apply to the Portfolios'
permitted investments, as described elsewhere in this Prospectus, are intended
to limit the amount of credit risk undertaken by the Portfolios. Nevertheless,
shareholders in the Portfolios bear the risk that payment defaults could cause
the value of their Portfolio's investments to decline.

CALL RISK. Many municipal bonds may be redeemed at the option of the issuer
("called") at a specified price prior to their stated maturity date. In general,
it is advantageous for an issuer to call its bonds if they can be refinanced
through the issuance of new bonds which bear a lower interest rate than that of
the called bonds. Call risk is the risk that bonds will be called during a
period of declining market interest rates so that such refinancings may take
place.

If a bond held by a Portfolio is called during a period of declining interest
rates, the Portfolio probably will have to reinvest the proceeds received by it
at a lower interest rate than that borne by the called bond, thus resulting in a
decrease in the Portfolio's income. To the extent that the Portfolios invest in
callable bonds, Portfolio shareholders bear the risk that reductions in income
will result from the call of bonds.

STATE AND LOCAL POLITICAL AND ECONOMIC CONDITIONS. The value of municipal
obligations owned by the Funds may be adversely affected by local political and
economic conditions and developments. Adverse conditions in an industry
significant to a local economy could have a correspondingly adverse effect on
the financial condition of local issuers. Other factors that could affect
tax-exempt obligations include a change in the local, state or national economy,
demographic factors, ecological or environmental concerns, statutory limitations
on the issuer's ability to increase taxes and other developments generally
affecting the revenues of issuers (for example, legislation or court decisions
reducing state aid to local governments or mandating additional services).

OTHER. Investors also should review "Investment Objectives and Policies" for
information concerning risks associated with certain investment techniques which
may be utilized by the Funds. In addition, investors in the Minnesota Portfolio
should note that the 1995 Minnesota Legislature enacted a statement of intent
specifying certain circumstances under which interest on the Minnesota municipal
obligations held by the Fund might become taxable for Minnesota state income tax
purposes. See "Taxation--Minnesota Income Taxation."

SUMMARY OF INVESTMENT OBJECTIVES

Fortis Tax-Free Portfolios, Inc. (the "Fund") is a mutual fund comprised of two
separate investment portfolios (the "Portfolios"), each of which invests
primarily in securities yielding interest that is exempt from Federal income
taxes, and each of which is, for investment purposes, in effect a separate fund
with its own investment policies. A separate series of capital stock is issued
for each Portfolio.

NATIONAL PORTFOLIO: The investment objective of the Portfolio is to maximize
total return, to be derived primarily from current income exempt from federal
income tax (at a level consistent with prudent investment risk) and from change
in the market value of the securities held by the Portfolio.

MINNESOTA PORTFOLIO: The investment objective of the Portfolio is to maximize
total return, to be derived primarily from current income exempt from both
federal and Minnesota income tax (at a level consistent with prudent investment
risk) and from change in the market value of the securities held by the
Portfolio.

The Fund's shares are of five classes (A, B, H, C, and E), each with different
sales arrangements and expenses.

For more information on the investment objectives and policies of the
Portfolios, as well as risks involved in investing in the Fund, see "Investment
Objectives and Policies; Risk Considerations."

2
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Risk Factors.............................................................. 2
Summary of Investment Objectives.......................................... 2
Class Shares.............................................................. 3
Summary of Fund Expenses.................................................. 4
Financial Highlights...................................................... 5
Organization and Classification........................................... 7
Investment Objectives and Policies; Risk Considerations................... 7
- Tax Exempt Bonds.................................................... 8
- Miscellaneous Investment Practices.................................. 9
Management................................................................ 10
- Board of Directors.................................................. 10
- The Investment Adviser/Transfer Agent/ Dividend Agent............... 10
- The Underwriter and Distribution Expenses........................... 10
- Fund Expenses....................................................... 11
- Brokerage Allocation................................................ 11
Valuation of Securities................................................... 11
Capital Stock............................................................. 11
Dividends and Capital Gains Distributions................................. 12
Taxation.................................................................. 12
- Federal Income Taxation............................................. 12
- Minnesota Income Taxation........................................... 12
How To Buy Fund Shares.................................................... 13
- General Purchase Information........................................ 13
- Alternative Purchase Arrangements................................... 13
- Class A and E Shares--Initial Sales Charge Alternative.............. 14
- Class B and H Shares--Contingent Deferred Sales Charge
Alternatives...................................................... 15
- Class C Shares--Level Sales Charge Alternative...................... 15
Redemption................................................................ 16
- Contingent Deferred Sales Charge.................................... 17
Shareholder Inquiries..................................................... 18
Appendix.................................................................. 18
</TABLE>

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

CLASS SHARES

The Fund offers investors the choice of five classes of shares with different
sales charges and expenses. These alternatives permit choosing the most
beneficial method of purchasing shares given the amount of the purchase, the
length of time the investor expects to hold the shares, and other circumstances.

CLASS A AND E SHARES. Generally, an investor who purchases Class A and E shares
pays a sales charge at the time of purchase. As a result, Class A and E shares
are not subject to any charges when they are redeemed (except for sales at net
asset value in excess of $1 million which may be subject to a contingent
deferred sales charge). The initial sales charge may be reduced or waived for
certain purchases. Class A shares are also subject to an annual Rule 12b-1 fee
of .25% of average daily net assets attributable to Class A shares. This fee is
lower than the other classes having Rule 12b-1 fees (all but Class E) and
therefore Class A shares have lower expenses and pay higher dividends. See "How
to Buy Fund Shares--Class A Shares." Class E shares are not subject to a Rule
12b-1 fee and therefore have the lowest expenses and pay the highest dividends,
but are only available to investors who were shareholders on November 13, 1994.

CLASS B AND H SHARES. The only difference between Class B and H shares is the
percentage of dealer concession paid to dealers. This difference does not in any
way affect the charges on an investor's shares. Class B and H shares both are
sold without an initial sales charge, but are subject to a contingent deferred
sales charge of 4% if redeemed within two years of purchase, with declining
charges for redemptions thereafter up to six years after purchase. Class B and H
shares are also subject to a higher annual Rule 12b-1 fee than Class A or E
shares--1.00% of the Fund's average daily net assets attributable to Class B or
H shares, as applicable. However, after eight years, Class B and H shares
automatically will be converted to Class A shares at no charge to the investor,
resulting in a lower Rule 12b-1 fee thereafter. Class B and H shares provide the
benefit of putting all dollars to work from the time of investment, but will
have a higher expense ratio and pay lower dividends than Class A and E shares
due to the higher Rule 12b-1 fee and other class specific expenses. See "How to
Buy Fund Shares--Class B and H Shares."

CLASS C SHARES. Class C shares: 1) are sold without an initial sales charge, but
are subject to a contingent deferred sales charge of 1% if redeemed within one
year of purchase; 2) are subject to the higher annual Rule 12b-1 fee of 1.00% of
the Fund's average daily net assets attributable to Class C shares; and 3)
provide the benefit of putting all dollars to work from the time of investment,
but will have a higher expense ratio and pay lower dividends than Class A or E
shares due to the higher Rule 12b-1 fee and other class specific expenses. While
Class C shares do not convert to Class A shares, they are subject to a lower
contingent deferred sales charge than Class B or H shares and do not have to be
held for as long a time to avoid paying the contingent deferred sales charge.
See "How to Buy Fund Shares-- Class C Shares."

IN SELECTING WHICH CLASS OF SHARES TO PURCHASE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and Rule 12b-1 fees, as noted above, (3) whether you qualify for
any reduction or waiver of any applicable sales charge (e.g., if you are exempt
from the sales charge, you must invest in Class A shares), (4) the various
exchange privileges among the different classes of shares and (5) the fact that
Class B and H shares automatically convert to Class A shares eight years after
purchase.

3
<PAGE>
SUMMARY OF FUND EXPENSES
The Portfolios' front-end and asset-based sales charges are within the
limitations imposed by the NASD. Such charges are shown below:

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES NATIONAL MINNESOTA
(AS A PERCENTAGE OF OFFERING PRICE) PORTFOLIO PORTFOLIO
- ------------------------------------------------------ ------------- --------------
<S> <C> <C>
Class A Shares........................................ 4.5%* 4.5%*
Class B and H Shares.................................. 0.00%** 0.00%**
Class C Shares........................................ 0.00%** 0.00%**
Class E Shares........................................ 4.5% 4.5%
</TABLE>

<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE (AS A PERCENTAGE OF
ORIGINAL PURCHASE PRICE OR REDEMPTION PROCEEDS, NATIONAL MINNESOTA
AS APPLICABLE) PORTFOLIO PORTFOLIO
- ------------------------------------------------------ -------------- ---------------
<S> <C> <C>
Class A Shares........................................ *** ***
Class B and H Shares.................................. 4.0% 4.0%
Class C Shares........................................ 1.0% 1.0%
Class E Shares........................................ *** ***
</TABLE>

*SINCE THE PORTFOLIOS ALSO PAY AN ASSET BASED SALES CHARGE, LONG-TERM
SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM
FRONT-END SALES CHARGE PERMITTED BY NASD RULES.
**CLASS B, H AND C SHARES ARE SOLD WITHOUT A FRONT END SALES CHARGE, BUT THEIR
CONTINGENT DEFERRED SALES CHARGE AND RULE 12B-1 FEES MAY CAUSE LONG-TERM
SHAREHOLDERS TO PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM
PERMITTED FRONT END SALES CHARGES.
***A CONTINGENT DEFERRED SALES CHARGE OF 1.00% IS IMPOSED ON CERTAIN REDEMPTIONS
OF CLASS A AND E SHARES THAT WERE PURCHASED WITHOUT AN INITIAL SALES CHARGE
AS PART OF AN INVESTMENT OF $1 MILLION OR MORE. SEE "HOW TO BUY PORTFOLIO
SHARES--CLASS A AND E SHARES."

ANNUAL PORTFOLIO OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
------------------------------------------------------
CLASS A CLASS B AND CLASS C CLASS E
SHARES H SHARES SHARES SHARES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management Fees............................ .77% .77% .77% .77%
12b-1 Fees................................. .25% 1.00% 1.00% --
Other Expenses............................. .16% .16% .16% .16%
--
--- --- ---
TOTAL PORTFOLIO OPERATING EXPENSES....... 1.18% 1.93% 1.93% .93%
</TABLE>

<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO
------------------------------------------------------
CLASS A CLASS B AND CLASS C CLASS E
SHARES H SHARES SHARES SHARES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management Fees............................ .72% .72% .72% .72%
12b-1 Fees................................. .25% 1.00% 1.00% --
Other Expenses............................. .21% .21% .21% .21%
--
--- --- ---
TOTAL PORTFOLIO OPERATING EXPENSES....... 1.18% 1.93% 1.93% .93%
</TABLE>

The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in the Portfolio will bear, whether
directly or indirectly. For a more complete description of the various costs and
expenses, see "Management" and "How to Buy Portfolio Shares."

EXAMPLE

You would pay the following expenses on a $1,000 investment over various time
periods assuming: (1) 5% annual return; and (2) redemption at the end of each
time period. This example includes conversion of Class B and H shares to Class A
shares after eight years and a waiver of deferred sales charges on Class B and H
shares of 10% of the amount invested. See "Contingent Deferred Sales
Charge--Class B, H, and C Shares."

<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
-------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares............................. $ 57 $ 84 $ 112 $ 193
Class B and H Shares....................... $ 57 $ 91 $ 127 $ 217
Class C Shares............................. $ 31 $ 64 $ 109 $ 236
Class E Shares............................. $ 55 $ 76 $ 99 $ 165
</TABLE>

<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO
-------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares............................. $ 57 $ 82 $ 110 $ 187
Class B and H Shares....................... $ 56 $ 89 $ 125 $ 211
Class C Shares............................. $ 30 $ 62 $ 107 $ 231
Class E Shares............................. $ 55 $ 75 $ 97 $ 160
</TABLE>

Assuming no redemption, the Class B, H, and C expenses on the same investment
would be as follows:

<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
-------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares....................... $ 21 $ 64 $ 109 $ 217
Class C Shares............................. $ 21 $ 64 $ 109 $ 236
</TABLE>

<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO
-------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares....................... $ 20 $ 62 $ 107 $ 211
Class C Shares............................. $ 20 $ 62 $ 107 $ 231
</TABLE>

The above example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.

4
<PAGE>
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)

The information below has been derived from audited financial statements and
should be read in conjunction with the financial statements of the Fund and
independent auditors' report of KPMG Peat Marwick LLP found in the Fund's 1996
Annual Report to Shareholders, which may be obtained without charge.
<TABLE>
<CAPTION>
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
NATIONAL PORTFOLIO -- CLASS E SHARES
- --------------------------------------------------- SIX-MONTH
YEAR ENDED THREE-MONTH YEAR ENDED PERIOD ENDED
SEPTEMBER 30, PERIOD ENDED JUNE 30, JUNE 30,
--------------------- SEPTEMBER 30, ----------------------------- -------------
1996 1995 1994*** 1994 1993 1992 1991***
--------- --------- ----- --------- ------- ------- ---
- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $10.38 $10.46 $11.13 $10.54 $9.99 $9.82
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
Operations:
Investment income -- net.............. .58 .15 .60 .63 .66 .32
Net realized and unrealized gains
(losses) on investments.............. .36 (.09) (.64) .59 .55 .17
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
Total from operations............... .94 .06 (.04) 1.22 1.21 0.49
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
Distribution to shareholders:
From investment income -- net......... (.59) (.14) (.59) (.62) (.66) (.32)
From realized gains................... (.01) -- (.04) -- -- --
Excess distribution of net investment
income............................... -- -- -- (.01) -- --
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
Total distributions to shareholders..... (.60) (.14) (.63) (.63) (.66) (.32)
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
Net asset value, end of period.......... $10.72 $10.38 $10.46 $11.13 $10.54 $9.99
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
Total Return**.......................... 9.30% .59% (0.49%) 11.99% 12.46% 5.09%
Net assets at end of period (000's
omitted)............................... $70,531 $74,877 $76,746 70,754 54,189 43,707
Ratio of expenses to average daily net
assets................................. 1.03% .87%* .87% .94% .92% .95%*
Ratio of net investment income to
average daily net assets............... 5.54% 5.74%* 5.38% 5.80% 6.40% 6.58%*
Portfolio turnover rate................. 35% 17% 25% 29% 38% 25%
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----

<CAPTION>
- ---------------------------------------- ------- ------- ------- -------
NATIONAL PORTFOLIO -- CLASS E SHARES
- ----------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------
1990 1989 1988 1987
------- ------- ------- -------
- ----------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $9.98 $9.85 $9.64 $10.31
- ---------------------------------------- ------- ------- ------- -------
Operations:
Investment income -- net.............. .66 .72 .72 .69
Net realized and unrealized gains
(losses) on investments.............. (.15) .13 .21 (.58)
- ---------------------------------------- ------- ------- ------- -------
Total from operations............... 0.51 0.85 0.93 .11
- ---------------------------------------- ------- ------- ------- -------
Distribution to shareholders:
From investment income -- net......... (.67) (.72) (.72) (.74)
From realized gains................... -- -- -- (.04)
Excess distribution of net investment
income............................... -- -- -- --
- ---------------------------------------- ------- ------- ------- -------
Total distributions to shareholders..... (.67) (.72) (.72) (.78)
- ---------------------------------------- ------- ------- ------- -------
Net asset value, end of period.......... $9.82 $9.98 $9.85 $9.64
- ---------------------------------------- ------- ------- ------- -------
Total Return**.......................... 5.33% 8.94% 9.98% 1.20%
Net assets at end of period (000's
omitted)............................... 41,041 36,874 28,985 18,895
Ratio of expenses to average daily net
assets................................. .95% .94% 1.09% 1.16%
Ratio of net investment income to
average daily net assets............... 6.71% 6.99% 7.17% 7.29%
Portfolio turnover rate................. 90% 86% 120% 98%
- ---------------------------------------- ------- ------- ------- -------
- ---------------------------------------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
- -----------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
----------------------- ----------------------- -----------------------
YEAR ENDED SEPTEMBER 30
-------------------------------------------------------------------------
1996 1995+ 1996 1995+ 1996 1995+
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period................. $10.71 $9.79 $10.70 $9.79 $10.70 $9.79
- --------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income -- net........................... .53 .49 .45 .42 .45 .43
Net realized and unrealized gains (losses) on
investments....................................... .04 .94 .04 .93 .04 .92
- --------------------------------------------------------------------------------------------------------------------------------
Total from operations................................ .57 1.43 .49 1.35 .49 1.35
- --------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income -- net...................... (.53 ) (.50 ) (.45 ) (.43 ) (.45 ) (.43 )
From net realized gains............................ -- (.01 ) -- (.01 ) -- (.01 )
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders.................. (.53 ) (.51 ) (.45 ) (.44 ) (.45 ) (.44 )
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period....................... $ 10.75 $ 10.71 $ 10.74 $ 10.70 $ 10.74 $ 10.70
- --------------------------------------------------------------------------------------------------------------------------------
Total Return@........................................ 5.46 % 14.80 % 4.65 % 13.96 % 4.65 % 13.95 %
Net assets at end of period (000's omitted).......... $6,239 $1,807 $997 $668 $223 $106
Ratio of expenses to average daily net assets........ 1.18 % 1.28 %* 1.93 % 2.03 %* 1.93 % 2.03 %*
Ratio of net investment income to average daily net
assets.............................................. 4.97 % 5.03 %* 4.20 % 4.04 %* 4.20 % 4.14 %*
Portfolio turnover rate.............................. 52 % 35 % 52 % 35 % 52 % 35 %
- --------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
NATIONAL PORTFOLIO
- -----------------------------------------------------
CLASS H SHARES
-----------------------

1996 1995+
<S> <C> <C>
- -----------------------------------------------------
Net asset value, beginning of period................. $10.71 $9.79
- -----------------------------------------------------
Operations:
Investment income -- net........................... .45 .43
Net realized and unrealized gains (losses) on
investments....................................... .04 .93
- -----------------------------------------------------
Total from operations................................ .49 1.36
- -----------------------------------------------------
Distributions to shareholders:
From investment income -- net...................... (.45 ) (.43 )
From net realized gains............................ -- (.01 )
- -----------------------------------------------------
Total distributions to shareholders.................. (.45 ) (.44 )
- -----------------------------------------------------
Net asset value, end of period....................... $ 10.75 $ 10.71
- -----------------------------------------------------
Total Return@........................................ 4.64 % 14.06 %
Net assets at end of period (000's omitted).......... $4,015 $1,757
Ratio of expenses to average daily net assets........ 1.93 % 2.03 %*
Ratio of net investment income to average daily net
assets.............................................. 4.20 % 4.24 %*
Portfolio turnover rate.............................. 52 % 35 %
- -----------------------------------------------------
</TABLE>

* Annualized.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.

5
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO -- CLASS E SHARES
- --------------------------------------------------------------- SIX-MONTH
YEAR ENDED THREE-MONTH YEAR ENDED PERIOD ENDED
SEPTEMBER 30, PERIOD ENDED JUNE 30, JUNE 30,
--------------------- SEPTEMBER 30, ----------------------------- -------------
1996 1995 1994*** 1994 1993 1992 1991***
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------- --------- --------- ----- --------- ------- ------- ---
Net asset value, beginning of period.... $10.08 $10.15 $10.65 $10.16 $9.78 $9.68
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
Operations:
Investment income -- net.............. .57 .15 .59 .61 .64 .31
Net realized and unrealized gains
(losses) on investments.............. .24 (.08) (.51) .49 .38 .11
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
Total from operations............... .81 .07 .08 1.10 1.02 .42
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
Distribution to shareholders:
From investment income -- net......... (.57) (.14) (.58) (.61) (.64) (.32)
From realized gains................... -- -- -- -- -- --
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
Total distributions to shareholders..... (.57) (.14) (.58) (.61) (.64) (.32)
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
Net asset value, end of period.......... $10.32 $10.08 $10.15 $10.65 $10.16 $9.78
- ---------------------------------------- --------- --------- ------ --------- ------- ------- -----
Total Return**.......................... 8.35% .72% .64% 11.17% 10.71% 4.36%
Net assets end of period (000s
omitted)............................... $52,603 $54,560 $54,854 52,271 38,586 29,449
Ratio of expenses to average daily net
assets................................. .98% .85%* .85% .89% .90% .97%*
Ratio of net investment income to
average daily net assets............... 5.60% 5.69%* 5.51% 5.82% 6.37% 6.47%*
Portfolio turnover rate................. 27% 8% 11% 17% 10% 8%

<CAPTION>
MINNESOTA PORTFOLIO -- CLASS E SHARES
- ----------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------
1990 1989 1988 1987
<S> <C> <C> <C> <C>
- ---------------------------------------- ------- ------- ------- -------
Net asset value, beginning of period.... $9.73 $9.65 $9.46 $10.23
- ---------------------------------------- ------- ------- ------- -------
Operations:
Investment income -- net.............. .63 .68 .68 .66
Net realized and unrealized gains
(losses) on investments.............. (.05) .08 .20 (.73)
- ---------------------------------------- ------- ------- ------- -------
Total from operations............... .58 .76 .88 (.07)
- ---------------------------------------- ------- ------- ------- -------
Distribution to shareholders:
From investment income -- net......... (.63) (.68) (.69) (.70)
From realized gains................... -- -- -- --
- ---------------------------------------- ------- ------- ------- -------
Total distributions to shareholders..... (.63) (.68) (.69) (.70)
- ---------------------------------------- ------- ------- ------- -------
Net asset value, end of period.......... $9.68 $9.73 $9.65 $9.46
- ---------------------------------------- ------- ------- ------- -------
Total Return**.......................... 6.20% 8.19% 9.60% (.57)%
Net assets end of period (000s
omitted)............................... 26,481 24,720 15,909 9,007
Ratio of expenses to average daily net
assets................................. .98% .98% 1.00% 1.00%
Ratio of net investment income to
average daily net assets............... 6.56% 6.70% 6.63% 7.13%
Portfolio turnover rate................. 63% 36% 61% 78%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------- ----- ----- ----- ----- ----- -----
CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------------- ---------------------- ----------------------
YEAR ENDED SEPTEMBER 30
MINNESOTA PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
- ---------------------------------------------------------------
1996 1995+ 1996 1995+ 1996 1995+
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period............... $10.30 $9.55 $10.27 $9.55 $10.30 $9.55
- ---------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income -- net......................... .52 .48 .45 .41 .44 .42
Net realized and unrealized gains (losses) on
investments..................................... (.04 ) .76 (.04 ) .73 (.04 ) .75
- ---------------------------------------------------------------------------------------------------------------------------
Total from operations.............................. .48 1.24 .41 1.14 .40 1.17
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income -- net.................... (.52 ) (.49 ) (.44 ) (.42 ) (.44 ) (.42)
From net realized gains.......................... -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders................ (.52 ) (.49 ) (.44 ) (.42 ) (.44 ) (.42)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period..................... $10.26 $10.30 $10.24 $10.27 $10.26 $10.30
- ---------------------------------------------------------------------------------------------------------------------------
Total Return@...................................... 4.78 % 13.15 % 4.04 % 12.10 % 4.00 % 12.31%
Net assets at end of period (000's omitted)........ $1,822 $884 $1,109 $180 $210 $143
Ratio of expenses to average daily net assets...... 1.18 % 1.23 % 1.93 % 1.98 %* 1.93 % 1.98%*
Ratio of net investment income to average daily net
assets............................................ 5.07 % 5.10 % 4.34 % 4.37 %* 4.31 % 4.28%*
Portfolio turnover rate............................ 41 % 27 % 41 % 27 % 41 % 27%
- ---------------------------------------------------------------------------------------------------------------------------

<CAPTION>
- --------------------------------------------------- ----- -----
CLASS H SHARES
----------------------

MINNESOTA PORTFOLIO
<S> <C> <C>

- ---------------------------------------------------
1996 1995+
- ---------------------------------------------------
Net asset value, beginning of period............... $10.30 $9.55
- ---------------------------------------------------
Operations:
Investment income -- net......................... .44 .41
Net realized and unrealized gains (losses) on
investments..................................... (.04 ) .76
- ---------------------------------------------------
Total from operations.............................. .40 1.17
- ---------------------------------------------------
Distributions to shareholders:
From investment income -- net.................... (.44 ) (.42 )
From net realized gains.......................... -- --
- ---------------------------------------------------
Total distributions to shareholders................ (.44 ) (.42 )
- ---------------------------------------------------
Net asset value, end of period..................... $10.26 $10.30
- ---------------------------------------------------
Total Return@...................................... 3.93 % 12.42 %
Net assets at end of period (000's omitted)........ $1,061 $638
Ratio of expenses to average daily net assets...... 1.93 % 1.98 %*
Ratio of net investment income to average daily net
assets............................................ 4.33 % 4.29 %*
Portfolio turnover rate............................ 41 % 27 %
- ---------------------------------------------------
</TABLE>

6
<PAGE>
The Portfolios may advertise their "cumulative total return," "average annual
total return," "systematic investment plan cumulative total return," and
"systematic investment plan average annual total return," and may compare such
figures to recognized indices. Performance figures are calculated separately for
each class of shares, and figures for each class will be presented. The
Portfolios may advertise their "yield." When they advertise yield, they will
also advertise "average annual total return" for the most recent one, five, and
ten year periods, along with other performance data. The Portfolios also may
advertise their "tax equivalent yield" where yield and total return are
advertised. The Portfolios may advertise relative performance as compiled by
outside organizations such as Lipper Analytical or Wiesenberger, or refer to
publications which have mentioned the Fund, Advisers, or their personnel, and
also may advertise other performance items as set forth in the Statement of
Additional Information. The performance discussion required by the Securities
and Exchange Commission is found in the Fund's Annual Report to Shareholders and
will be made available without charge upon request.

ORGANIZATION AND CLASSIFICATION

The Fund was incorporated under Minnesota law in 1982, and is registered with
the Securities and Exchange Commission under the Investment Company Act of 1940
(the "1940 Act") as an "open-end management investment company".

The Fund is comprised of two separate investment portfolios (the
"Portfolios")--the National Portfolio, and the Minnesota Portfolio. The
Minnesota and National Portfolios are classified as diversified investment
companies under the 1940 Act. Each Portfolio is, for investment purposes, in
effect a separate investment fund. A separate series of capital stock is issued
for each Portfolio. Each share of capital stock issued with respect to a
Portfolio has a pro-rata interest in the assets of that Portfolio and has no
interest in the assets of any other Portfolio. Each Portfolio bears its own
liabilities and also its proportionate share of the general liabilities of the
Fund. In other respects, however, the Fund is treated as one entity.

INVESTMENT OBJECTIVES AND POLICIES; RISK CONSIDERATIONS

The Fund currently is comprised of two separate investment portfolios, each with
its own investment goals, policies, and investment restrictions. The investment
objective of the National Portfolio is to maximize total return, to be derived
primarily from current income exempt from federal income tax (at a level
consistent with prudent investment risk) and from change in the market value of
the securities held by the Portfolio. The National Portfolio will invest
primarily in securities of states, territories, and possessions of the United
States and the District of Columbia, and their political subdivisions, agencies,
and instrumentalities. The investment objective of the Minnesota Portfolio is to
maximize total return, to be derived primarily from current income exempt from
both federal and Minnesota income tax (at a level consistent with prudent
investment risk) and from change in the market value of the securities held by
the Portfolio. The Minnesota Portfolio will invest primarily in securities which
are issued by the State of Minnesota, its agencies, instrumentalities, and
political subdivisions. There is no assurance that the investment objectives of
either Portfolio will be achieved. The investment objectives of the Portfolios
and, except as otherwise noted, their investment policies, could be changed
without shareholder approval. Any change in a Portfolio's investment objective
may result in the Portfolio having an investment objective which is different
from that which an investor deemed appropriate to his or her objectives at the
time of investment.

The Portfolios will seek to achieve their investment objectives by investing
primarily in Tax Exempt Bonds. For purposes of the National Portfolio, "Tax
Exempt Bonds" means any debt obligation generating interest income that is
exempt, in the opinion of bond counsel, from federal income tax. For purposes of
the Minnesota Portfolio, "Tax Exempt Bonds" means any debt obligation generating
interest income that, in the opinion of bond counsel, is not includable in gross
income for Federal income tax purposes or in taxable net income of individuals,
estates, and trusts for Minnesota income tax purposes.

As policies which may not be changed without shareholder approval, except for
defensive purposes: the National Portfolio will invest at least 80% of its net
assets in securities that generate interest that is not includable in gross
income for federal income tax purposes and is not an item of tax preference for
purposes of the federal alternative minimum tax; the Minnesota Portfolio will
invest at least 80% of its net assets in securities that generate interest that
is not includable in federal gross income or in taxable net income of
individuals, estates, and trusts for Minnesota Income Tax purposes and is not an
item of tax preference for purposes of the Federal or State of Minnesota
alternative minimum tax. (Ninety-five percent or more of the exempt-interest
dividends paid by the Minnesota Portfolio will be derived from interest income
on obligations of the State of Minnesota or its political or governmental
subdivisions, municipalities, governmental agencies or instrumentalities.).

A policy which may not be changed without shareholder approval is that at least
90% of the Tax Exempt Bonds purchased by each Portfolio will be of "investment
grade" quality. This means that they will be rated, at the time of purchase,
within the four highest grades assigned by either Moody's Investors Service,
Inc. (Aaa, Aa, A or Baa) or Standard & Poor's Corporation (AAA, AA, A or BBB) or
will be unrated securities which at the time of purchase are judged by Fortis
Advisers, Inc. ("Advisers") to be of comparable quality to securities rated
within such four highest grades. Securities rated Baa or BBB are medium grade,
involve some speculative elements and are the lowest investment grade available.
Securities rated BBB may have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade securities. Securities rated below BBB (non-investment grade securities)
are regarded, on balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation. Participation in lower-rated 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 market. For a more detailed discussion of the risks
connected with such investments, see "Investment Objectives and Policies-- Risks
of Transactions in High-Yielding Securities" in the Statement of Additional
Information. The Portfolios may retain a portfolio security whose rating has
changed if the security otherwise meets the Portfolios' respective investment
objectives and investment criteria.

7
<PAGE>
A description of the ratings of tax exempt securities of Moody's and of Standard
& Poor's is set forth in the Appendix.

Rated, as well as unrated, Tax Exempt Bonds will be analyzed by Advisers on the
basis of available information as to creditworthiness and with a view to various
qualitative factors and trends affecting Tax Exempt Bonds generally. It should
be noted, however, that the amount of information about the financial condition
of an issuer of Tax Exempt Bonds may not be as extensive as that which is made
available by many corporations whose securities are more actively traded. While
the Portfolios are free to invest in securities of any maturity, it is expected
that the average maturity of the Portfolios will generally range from seven to
20 years.

The Portfolios may invest without limitation in taxable obligations on a
temporary, defensive basis due to market conditions. Such taxable obligations,
whether purchased for temporary or liquidity purposes or on a defensive basis,
may include: obligations of the U.S. government, its agencies or
instrumentalities; other debt securities rated within the four highest grades by
either Moody's or Standard & Poor's; commercial paper rated in the highest grade
by either of such rating services (Prime-1 or A-1, respectively); certificates
of deposit and bankers' acceptances of domestic banks which have assets of over
$1 billion; variable amount master demand notes; and repurchase agreements with
respect to any of the foregoing investments. The Portfolios may also hold their
respective assets in cash.

TAX EXEMPT BONDS

Tax Exempt Bonds include primarily debt obligations of the states, their
agencies, universities, boards, authorities and political subdivisions (for
example, cities, towns, counties, school districts, authorities and commissions)
issued to obtain funds for various public purposes, including the construction
or improvement of a wide range of public facilities such as airports, bridges,
highways, hospitals, housing, jails, mass transportation, nursing homes, parks,
public buildings, recreational facilities, school facilities, streets and water
and sewer works. Other public purposes for which Tax Exempt Bonds may be issued
include the refunding of outstanding obligations, the anticipation of taxes or
state aids, the payment of judgments, the funding of student loans, community
redevelopment, district heating, the purchase of street maintenance and
firefighting equipment, or any authorized corporate purpose of the issuer except
for the payment of current expenses. In addition, certain types of industrial
development bonds may be issued by or on behalf of public corporations to
finance privately operated housing facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. Such obligations are included within the term
Tax Exempt Bonds if the interest payable thereon is, in the opinion of bond
counsel, exempt from federal income taxation and, for the Minnesota Portfolio,
State of Minnesota income taxation (excluding excise taxes imposed on
corporations and banks and measured by income). Other types of industrial
development bonds, the proceeds of which are used for the construction,
equipment, repair or improvement of privately operated industrial, commercial or
office facilities constitute Tax Exempt Bonds, although current federal income
tax laws place substantial limitations on the size of such issues.

The two principal classifications of Tax Exempt Bonds are general obligation
bonds and limited obligation (or revenue) bonds. General obligation bonds are
obligations involving credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues and not from any
particular fund or revenue source. The characteristics and methods of
enforcement of general obligation bonds vary according to the law applicable to
the particular issuer. Limited obligation bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a specific revenue source, such as the user of the
facility. Industrial development bonds are in most cases limited obligation
bonds payable solely from specific revenues of the project to be financed,
pledged to their payment. The credit quality of industrial development bonds is
usually directly related to the credit standing of the user of the facilities
(or the credit standing of a third-party guarantor or other credit enhancement
participant, if any). There are, of course, variations in the quality of Tax
Exempt Bonds, both within a particular classification and between
classifications, depending on various factors. (See Appendix). The Fund does not
currently intend to invest in so-called "moral obligation" bonds, where
repayment is backed by a moral commitment of an entity other than the issuer,
unless the credit of the issuer itself, without regard to the "moral
obligation," meets the investment criteria established for investments by the
Fund.

The yields on Tax Exempt Bonds are dependent on a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the Tax Exempt Bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of Moody's
and Standard & Poor's represent their opinions as to the quality of the Tax
Exempt Bonds which they undertake to rate. It should be emphasized, however,
that ratings are general, not absolute, standards of quality. Consequently, Tax
Exempt Bonds of the same maturity, interest rate and rating may have different
yields, while Tax Exempt Bonds of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to their purchase by the
Portfolios, particular Tax Exempt Bonds or other investments may cease to be
rated or their ratings may be reduced below the minimum rating required for
purchase by the Portfolios. Neither event will require the elimination of an
investment from the Portfolio, but Advisers will consider such an event in its
determination of whether the Portfolio should continue to hold such an
investment.

As a fundamental policy, each Portfolio will not invest more than 25% of its
total assets in limited obligation bonds payable only from revenues derived from
facilities or projects within a single industry. As to utility companies, gas,
electric, water and telephone companies will be considered as separate
industries. For this purpose, municipal bonds refunded with U.S. Government
securities will be treated as investments in U.S. Government securities, and are
not subject to this requirement or the 5% diversification requirement under the
1940 Act.

Securities in which the Fund may invest, including Tax Exempt Bonds, are subject
to the provisions of bankruptcy, insolvency, reorganization and other laws
affecting the rights and remedies of creditors, such as the federal Bankruptcy
Code and laws, if any, which may be enacted by Congress or the Minnesota
legislature extending the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of such obligations. There is also
the possibility that, as a result of litigation or other conditions the power or
ability of issuers to meet their obligations for the payment of interest on and
principal of their Tax Exempt Bonds may be materially affected.

8
<PAGE>
Current economic conditions in each respective state affect both the total
amount of taxes each state collects and the personal income growth within each
state. Budgetary shortfalls may result in reductions in credit ratings for
securities issued by the states. This may cause an increase in the yield and a
decrease in the price of a security issued by a particular state. Furthermore,
because local finances are dependent upon the fiscal integrity of the state and
upon the same financial factors that influence state government, the credit
ratings of state agencies, authorities and municipalities may be similarly
affected. See the Statement of Additional Information for more information
concerning each state.

MISCELLANEOUS INVESTMENT PRACTICES

OPTIONS ON SECURITIES. The Portfolios may buy and sell, put and call options on
securities and write covered call options on securities in order to facilitate
their investment objectives.

Options transactions may subject the Portfolios to a number of risks. The risk
of purchasing options is that the Portfolio pays a premium for such options,
whether they are exercised or not. The risk of writing calls is that the
Portfolio forgoes a portion of the profit if the securities' price increases
substantially. The risk of writing put options is that the Portfolio may incur a
loss if the price of the security falls and the option is exercised.

Options contracts are valued daily at their closing prices, and unrealized
appreciation or depreciation is recorded. Gains from options transactions are
taxable income to shareholders. Gains and losses are realized when the options
position is closed or expires.

The total market value of securities against which the Portfolios have written
call or put options may not exceed 25% of their respective total assets. The
Portfolios will not commit more than 5% of their respective total assets to
premiums when purchasing call or put options.

FORWARD COMMITMENTS. New issues of Tax Exempt Bonds and other securities are
often purchased on a "when issued" or delayed delivery basis, with delivery and
payment for the securities normally taking place 15 to 45 days after the date of
the transaction. Such an agreement to purchase securities is termed a "forward
commitment." The payment obligation and the interest rate that will be received
on the securities are each fixed at the time the buyer enters into the
commitment.

The Portfolios may enter into such forward commitments if the Portfolios hold,
and maintain until the settlement date in a segregated account, cash or any
security that is not considered restricted or illiquid, equal to the value of
the when-issued or forward commitment securities and will be marked to market
daily. There is no percentage limitation on the Portfolios' total assets which
may be invested in forward commitments. The purchase of securities on a
when-issued, delayed delivery or forward commitment basis exposes a Portfolio 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 a Portfolio's net
asset value to the extent that such Portfolio 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 Portfolio may incur a loss or will have lost the
opportunity to invest the amount set aside for such transaction in the
segregated asset account. Although the Portfolios will generally enter into
forward commitments with the intention of acquiring Tax Exempt Bonds or other
securities, the Fund may dispose of a commitment prior to settlement if Advisers
deems it appropriate to do so. The Portfolios may realize short-term profits or
losses upon the sale of forward commitments.

PORTFOLIO TURNOVER. Portfolio transactions will be undertaken principally to
accomplish the Portfolios' objectives in relation to anticipated movements in
the general level of interest rates. Securities may be sold in anticipation of a
market decline (a rise in interest rates) or purchased in anticipation of a
market rise (a decline in interest rates) and later sold. In addition, a
security may be sold and another purchased at approximately the same time to
take advantage of what Advisers believes to be a temporary disparity in the
normal yield relationship between the two securities. Yield disparities may
occur for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, due to such factors as changes
in the overall demand for or supply of various types of Tax Exempt Bonds or
changes in the investment objectives of investors.

The Fund's investment policies may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest rates. A change in
securities held by the Portfolios is known as "portfolio turnover" and may
involve the payment by the Portfolios of dealer mark-ups or underwriting
commissions, and other transaction costs, on the sale of securities as well as
on the reinvestment of the proceeds in other securities. The portfolio turnover
rate for a fiscal year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of portfolio
securities--excluding securities whose maturities at acquisition were one year
or less.

FLOATING AND VARIABLE RATE SECURITIES. The Fund also may purchase floating and
variable rate Tax Exempt Bonds. These notes normally have a stated maturity in
excess of one year, but permit the holder to demand payment of principal plus
accrued interest upon a specified number of days' notice. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Use of letters of credit or other credit support
arrangements will generally not adversely affect the tax exempt status of these
obligations. Advisers will rely upon the opinion of the issuer's bond counsel to
determine whether such notes are exempt from federal income taxes and, for the
Minnesota Portfolio, Minnesota income tax. The issuer of floating and variable
rate demand notes normally has a corresponding right, after a given period, to
prepay at its discretion the outstanding principal amount of the note plus
accrued interest upon a specified number of days' notice to the noteholders. The
interest rate on a floating rate demand note is based on a known lending rate,
such as a bank's prime rate, and is adjusted automatically each time such rate
is adjusted. The interest rate on a variable rate demand note is adjusted at
specified intervals, based on a known lending rate, generally the rate on 90-day
U.S. Treasury bills. Advisers will monitor the creditworthiness of the issuers
of floating and variable rate demand notes. Such obligations are not as liquid
as many other types of Tax Exempt Bonds.

For the purpose of diversification under the 1940 Act, the identification of the
issuer of Tax Exempt Bonds depends on the terms and

9
<PAGE>
conditions of the security. If a state or a political subdivision of such state
pledges its full faith and credit to payment of a security, the state or the
political subdivision, respectively, will be deemed the sole issuer of the
security. If the assets and revenues of an agency, authority or instrumentality
of the state or a political subdivision are separate from those of the state or
political subdivision and the security is backed only by the assets and revenues
of the agency, authority or instrumentality, such agency, authority or
instrumentality will be deemed to be the sole issuer. Moreover, if the security
is backed only by revenues of an enterprise or specific projects of the state, a
political subdivision or agency, authority or instrumentality, such as utility
revenue bonds, and the full faith and credit of the governmental unit is not
pledged to the payment thereof, such enterprise or projects will be deemed the
sole issuer. Similarly, in the case of an industrial development bond, if that
bond is backed only by certain revenues to be received from the non-governmental
user of the project financed by the bond, then such non-governmental user will
be deemed to be the sole issuer. If, however, in any of the above cases, the
state, the political subdivision or some other entity guarantees a security, and
the value of all securities issued or guaranteed by the guarantor and owned by a
Portfolio exceeds 10% of the value of the Portfolio's total assets, the
guarantee will be considered a separate security and will be treated as an issue
of the guarantor.

BORROWING. Each Portfolio may borrow money from banks as a temporary measure to
facilitate redemptions. As a fundamental policy, however, borrowings may not
exceed 10% of the value of such Portfolio's total assets and no additional
investment securities may be purchased by a Portfolio while outstanding bank
borrowings exceed 5% of the value of such Portfolio's total assets. Interest
paid on borrowings will not be available for investment.

ILLIQUID SECURITIES. Each Portfolio may invest up to 15% of the value of its net
assets in illiquid securities. For this purpose illiquid securities include,
among others, (i) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale, (ii)
options purchased over-the-counter and the cover for options written
over-the-counter, and (iii) repurchase agreements not terminable within seven
days. Securities that have been determined to be liquid by the Board of
Directors of the Fund, or by Advisers subject to the oversight of such Board of
Directors, will not be subject to this limitation. Commercial paper issued
pursuant to the private placement exemption of Section 4(2) of the 1933 Act and
securities that are eligible for resale under Rule 144A under the 1933 Act that
have legal or contractual restrictions on resale but have a readily available
market are not deemed illiquid securities for this purpose.

MANAGEMENT

BOARD OF DIRECTORS

Under Minnesota law, the Board of Directors of the Fund (the "Board of
Directors") has overall responsibility for managing the Fund in good faith, in a
manner reasonably believed to be in the best interests of the Fund, and with the
care an ordinarily prudent person would exercise in similar circumstances.
However, this management may be delegated.

The Articles of Incorporation of the Fund limit the liability of directors to
the fullest extent permitted by law.

THE INVESTMENT ADVISER/TRANSFER AGENT/DIVIDEND AGENT

Fortis Advisers, Inc. ("Advisers") is the investment adviser, transfer agent,
and dividend agent for the Fund. Advisers has been managing investment company
portfolios since 1949, and is indirectly owned 50% by Fortis AMEV and 50% by
Fortis AG, diversified financial services companies. In addition to providing
investment advice, Advisers is responsible for management of the Fund's business
affairs, subject to the overall authority of the Board of Directors. Howard G.
Hudson (Executive Vice President), Robert C. Lindberg (Vice President), Maroun
M. Hayek (Vice President) and David C. Greenzang (Money Market Portfolio
Officer) manage the Portfolios. Mr. Lindberg has managed the Portfolios since
1993. Prior to 1993, Mr. Lindberg managed bank portfolios for COMERICA, Inc.,
Detroit, Michigan. The other individuals have been managing the Portfolios since
August of 1995. Messrs. Hudson and Hayek have managed debt securities for
Fortis, Inc. since 1991 and 1987, respectively. Mr. Greenzang has been involved
in management of debt securities for Fortis, Inc. since 1992. Prior to 1992, Mr.
Greenzang was an Associate with Dean Witter Reynolds, Inc. in New York, NY.
Messrs. Hudson, Lindberg, Hayek and Greenzang are located at One Chase Manhattan
Plaza, New York, NY.

THE UNDERWRITER AND DISTRIBUTION EXPENSES

Fortis Investors, Inc. ("Investors"), a subsidiary of Advisers, is the Fund's
underwriter. Investors' address is that of the Fund. Investors reserves the
right to reject any purchase order. The following persons are affiliated with
both Investors and the Fund: Dean C. Kopperud is a director and officer of both;
Stephen M. Poling and Jon H. Nicholson are officers of the Funds; and Robert W.
Beltz, Jr., Thomas D. Gualdoni, Tamara L. Fagely and Carol M. Houghtby are
officers of both; Dennis M. Ott, James S. Byrd, Robert C. Lindberg, Keith R.
Thomson, Rhonda J. Schwartz, Richard P. Roche, John E. Hite and Scott R. Plummer
are officers of the Funds.

Pursuant to a Plan of Distribution adopted by the Fund under Rule 12b-1 under
the 1940 Act, the Fund is obligated to pay Investors an annual fee of .25% of
average net assets attributable to the Fund's Class A shares and 1.00% of
average net assets attributable to Class B, H, and C shares. While all of Class
A's Rule 12b-1 fee constitutes a "distribution fee", only 75% of Class B, H, and
C's fees constitute distribution fees.

The higher distribution fee attributable to Class B, H, and C shares is designed
to permit an investor to purchase such shares through registered representatives
of Investors and other broker-dealers without the assessment of an initial sales
charge and at the same time to permit Investors to compensate its registered
representatives and other broker-dealers in connection with the sale of such
shares. The distribution fee for all classes may be used by Investors for the
purpose of financing any activity which is primarily intended to result in the
sale of shares of the Fund. For example, such distribution fee may be used by
Investors: (a) to compensate broker-dealers, including Investors and its
registered representatives, for their sale

10
<PAGE>
of Fund shares, including the implementation of various incentive programs with
respect to broker-dealers, banks, and other financial institutions, and (b) to
pay other advertising and promotional expenses in connection with the
distribution of Fund shares. These advertising and promotional expenses include,
by way of example but not by way of limitation, costs of prospectuses for other
than current shareholders; preparation and distribution of sales literature;
advertising of any type; expenses of branch offices provided jointly by
Investors and affiliated insurance companies; and compensation paid to and
expenses incurred by officers, employees or representatives of Investors or of
other broker-dealers, banks, or other financial institutions, including travel,
entertainment, and telephone expenses.

A portion of the Rule 12b-1 fee equal to .25% of the average net assets of the
Fund attributable to the Class B, H, and C shares, constitutes a shareholder
servicing fee designed to compensate Investors for the provision of certain
services to shareholders. The services provided may include personal services
provided to shareholders, such as answering shareholder inquiries regarding the
Funds and providing reports and other information, and services related to the
maintenance of shareholder accounts. Investors may use the Rule 12b-1 fee to
make payments to qualifying broker-dealers and financial institutions that
provide such services.

Investors may also enter into sales or servicing agreements with certain
institutions such as banks ("Service Organizations") which have purchased shares
of the Fund for the accounts of their clients, or which have made Fund shares
available for purchase by their clients, and/or which provide continuing service
to such clients. The Glass-Steagall Act and other applicable laws prohibit
certain banks from engaging in the business of underwriting securities. In such
circumstances, Investors, if so requested, will engage such banks as Service
Organizations only to perform administrative and shareholder servicing
functions, but at the same fees and other terms applicable to dealers. (If a
bank were later prohibited from acting as a Service Organization, its
shareholder clients would be permitted to remain Fund shareholders and
alternative means for continuing servicing of such shareholders would be
sought.) In such event, changes in the operation of the Fund might occur and a
shareholder serviced by such bank might no longer be able to avail itself of any
automatic investment or other services then being provided by the Bank. (State
securities laws on this issue may differ from the interpretations of Federal law
expressed above and banks and other financial institutions may be required to
register as dealers pursuant to state law.)

FUND EXPENSES

For the most recent fiscal year, the ratio of the Funds' total operating
expenses (including the distribution fees and shareholding servicing fees
referred to under "Distribution Expenses"), and their advisory fees (which are
included in operating expenses) both as a percentage of average daily net assets
were as follows:

<TABLE>
<CAPTION>
TOTAL OPERATING EXPENSES
--------------------------------------------------------
CLASSES B, ADVISORY
CLASS A H, & C CLASS E FEE
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
National Portfolio............. 1.18% 1.93% .93% .77%
Minnesota Portfolio............ 1.18% 1.93% .93% .72%
</TABLE>

BROKERAGE ALLOCATION

Advisers may consider sales of shares of the Fund, and of other funds advised by
Advisers, as a factor in the selection of broker-dealers to execute Fund
securities transactions when it is believed that this can be done without
causing the Fund to pay more in brokerage commissions than it would otherwise.

VALUATION OF SECURITIES

The Portfolios' net asset values per share are determined by dividing the value
of the securities owned by each Portfolio, plus any cash or other assets, less
all liabilities, by the number of the Portfolio shares outstanding. The
portfolio securities in which the Portfolio invests fluctuate in value, and
hence the net asset values per share of the Portfolios also fluctuate. The net
asset value of the Portfolios' shares is determined as of the primary closing
time for business on the New York Stock Exchange (the "Exchange") on each day on
which the Exchange is open. If shares are purchased through another broker-
dealer who receives the order prior to the close of the Exchange, then Investors
will apply that day's price to the order as long as the broker-dealer places the
order with Investors by the end of the day.

Securities are generally valued at market value. Securities for which
over-the-counter market quotations are readily available are valued on the basis
of the last current bid price. When market quotations are not readily available,
or when restricted securities or other assets are being valued, such securities
or other assets are valued at fair value as determined in good faith by
management under supervision of the Board of Directors. However, debt securities
may be valued on the basis of valuations furnished by a pricing service which
utilizes electronic data processing techniques to determine valuations for
normal institutional-size trading units of debt securities when such valuations
are believed to more accurately reflect the fair market value of such
securities. Short-term investments in debt securities with maturities of less
than 60 days when acquired, or which subsequently are within 60 days of
maturity, are valued at amortized cost. Purchases and sales by the Fund after
2:00 P.M. Central Time normally are not recorded until the following day.

CAPITAL STOCK

Each Portfolio's shares constitute separate series of common shares. Each
Portfolio currently offers its shares in five classes, each with different sales
arrangements and bearing differing expenses. Class A, B, H, C, and E shares each
represent interests in the assets of the respective Portfolios and have
identical voting, dividend, liquidation, and other rights on the same terms and
conditions except that expenses related to the distribution of each class are
borne solely by

11
<PAGE>
such class and each class of shares has exclusive voting rights with respect to
provisions of the Fund's Rule 12b-1 distribution plan which pertain to that
particular class and other matters for which separate class voting is
appropriate under applicable law. Each Portfolio may offer additional classes of
shares.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Each Portfolio currently declares dividends from net investment income on each
day the Exchange is open (to shareholders of record as of 3:00 p.m., Central
Time, the preceding business day) and pays dividends monthly. A shareholder will
not be credited with a dividend until payment is received for the shares.
Distributions of net realized capital gains are made annually. Distributions
paid by a Portfolio with respect to all classes of shares will be calculated in
the same manner, at the same time, on the same day, and will be in the same
amount, except that the per share dividends on Class B, H, and C shares will be
lower than those on Class A shares (which have lower Rule 12b-1 fees) and Class
E shares (which do not have Rule 12b-1 fees and will therefore have the highest
dividends).

Such dividends and capital gains distributions will be made in the form of
additional shares of the same class of the same Portfolio (at net asset value)
unless the shareholder sends the Fund a written request that either or both be
sent to the shareholder or reinvested (at net asset value) in shares of the same
class of another Portfolio or Fortis fund.

Dividends will be reinvested monthly, on the last business day of each month, at
the net asset value on that date. If they are to be reinvested in other Fortis
funds, processing normally takes up to three business days.

TAXATION

FEDERAL INCOME TAXATION

Each Portfolio intends to pay at least 90% of its dividends as "exempt-interest
dividends." Distributions by a mutual fund meeting applicable Code requirements
are subject to the following Federal tax treatment:

Distributions of net interest income from tax-exempt obligations that are
designated by a Portfolio as exempt-interest dividends are excludable from
shareholders' gross income. The Portfolio's present policy is to designate
exempt-interest dividends annually. Shareholders are required for information
purposes to report exempt-interest dividends and other tax-exempt interest on
their tax returns.

Distributions of net long-term capital gains, designated in the shareholder's
Annual Account Summary as long-term capital gain distributions, are taxable to
shareholders as long-term capital gains, regardless of the length of time a
shareholder has held his or her shares or whether such gains were realized by
the Portfolio before the shareholder acquired such shares and were reflected in
the price paid for the shares.

Since none of the Portfolios' income will consist of corporate dividends, the
70% dividends received deduction for corporations will not be applicable to
taxable distributions by the Portfolios.

Exempt-interest dividends attributable to interest income on certain tax-exempt
obligations issued after August 7, 1986, to finance certain private activities
will be treated as an item of tax preference that is included in alternative
minimum taxable income for purposes of computing the Federal alternative minimum
tax for all taxpayers and the Federal environmental tax on corporations. No
Portfolio will invest more than 20% of its net assets in obligations the
interest on which is treated as an item of tax preference. However, all other
tax-exempt interest received by a corporation will be included in earnings and
profits and adjusted current earnings for purposes of determining the Federal
corporate alternative minimum tax and the environmental tax imposed on
corporations by Section 59A of the Code.

Tax-exempt interest, including exempt-interest dividends paid by the Portfolio,
is taken into account in computing the "modified adjusted gross income" of
individuals for purposes of determining the portion of social security and
railroad retirement benefits that are subject to Federal income tax. In certain
limited circumstances, the portion of such benefits that may be subject to tax
is 85%.

Any loss on the sale or exchange of shares held for 6 months or less (although
regulations may reduce this time to 31 days) will be disallowed for Federal
income tax purposes to the extent of the amount of any exempt-interest dividend
received with respect to such shares.

The Tax Reform Act of 1986 imposed new requirements on certain Tax Exempt Bonds
which, if not satisfied, could result in loss of tax exemption for interest on
such bonds, even retroactively to the date of issuance of the bonds. Proposals
may be introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the Federal income tax exemption for Tax Exempt
Bonds. The Fund cannot predict what additional legislation may be enacted that
may affect shareholders. The Fund will avoid investment in bonds which, in the
opinion of Advisers, pose a material risk of the loss of tax exemption. Further,
if a bond in one of the Portfolios lost its exempt status, Advisers would make
every effort to dispose of it on terms that are not detrimental to the
Portfolio.

MINNESOTA INCOME TAXATION

The portion of exempt-interest dividends that is derived from interest income on
Minnesota Tax Exempt Bonds by the Minnesota Portfolio is excluded from the
Minnesota gross income of individuals, estates, and trusts, provided that the
portion of the exempt-interest dividends from such Minnesota sources paid to all
shareholders represents 95 percent or more of the exempt-interest dividends paid
by such Portfolio. All remaining dividends (except for dividends, if any,
derived from interest on obligations of the United States or certain of its
territories or possessions), including capital gain dividends, are included in
the Minnesota gross income of individuals, estates, and

12
<PAGE>
trusts. Exempt-interest dividends are not excluded from the Minnesota gross
income of corporations and financial institutions. Dividends paid from long-term
capital gains (and designated as such) are to be treated by shareholders as
long-term capital gains under Minnesota law. However, Minnesota currently taxes
long-term capital gains at the same rates as ordinary income, while retaining
restrictions on the deductibility of capital losses.

Exempt-interest dividends attributable to interest on certain private activity
bonds issued after August 7, 1986, will be included in Minnesota alternative
minimum taxable income of individuals, estates, and trusts for purposes of
computing Minnesota's alternative minimum tax. Dividends generally will not
qualify for the dividends-received deduction for corporations and financial
institutions.
The 1995 Minnesota Legislature enacted a statement of intent that interest on
obligations of Minnesota governmental units and Indian tribes be included in net
income of individuals, estates and trusts for Minnesota income tax purposes if a
court determines that Minnesota's exemption of such interest unlawfully
discriminates against interstate commerce because interest on obligations of
governmental issuers located in other states is so included. This provision
applies to taxable years that begin during or after the calendar year in which
any such court decision becomes final, irrespective of the date on which the
obligations were issued. The Fund is not aware of any decision in which a court
has held that a state's exemption of interest on its own bonds or those of its
political subdivisions or Indian tribes, but not of interest on the bonds of
other states or their political subdivisions or Indian tribes, unlawfully
discriminates against interstate commerce or otherwise contravenes the United
States Constitution. Nevertheless, the Fund cannot predict the likelihood that
interest on the Minnesota bonds held by the Fund would become taxable under this
Minnesota statutory provision.

HOW TO BUY FUND SHARES

GENERAL PURCHASE INFORMATION

MINIMUM AND MAXIMUM INVESTMENTS

A minimum initial investment of $500 normally is required. An exception to this
minimum (except on telephone or wire orders) is the "Systematic Investment Plan"
($25 per month by "Pre-authorized Check Plan" or $50 per month on any other
basis). The minimum subsequent investment normally is $50, again subject to the
above exceptions.

While Class A and E shares have no maximum order, Class B and H shares have a
$500,000 maximum and Class C shares have a $1,000,000 maximum. Orders greater
than these limits will be treated as orders for Class A shares.

INVESTING BY TELEPHONE

Your registered representative may make your purchase ($500 minimum) by
telephoning the number on the cover page of this Prospectus. In addition, your
check and the Account Application which accompanies this Prospectus must be
promptly forwarded, so that Investors receives your check within three business
days. Please make your check payable to Fortis Investors, Inc. and mail it with
your Application "CM-9651, St. Paul, MN 55170-9651." If you have a bank account
authorization form on file, you may purchase $100-$10,000 worth of Fund shares
via telephone through the automated Fortis Information Line.

INVESTING BY WIRE

A shareholder having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares ($500 minimum) by requesting their
banks to transmit immediately available funds (Federal Funds) by wire to:

First Bank National Association
ABA #091000022, credit account no: 1-702-2514-1341
Fortis Funds Purchase Account
For further credit to __________________________________________________________
(name of client)
Fortis Account NBR _____________________________________________________________

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

INVESTING BY MAIL (ADDRESS: CM-9614, ST. PAUL, MN 55170-9614)

The Account Application which accompanies this Prospectus must be completed,
signed, and sent with a check or other negotiable bank draft, payable to "Fortis
Funds." Additional purchases may be made at any time by mailing a check or other
negotiable bank draft along with your confirmation stub. The account to which
the subsequent purchase is to be credited should be identified as to the name(s)
of the registered owner(s) and by account number.

ALTERNATIVE PURCHASE ARRANGEMENTS

The Portfolios each offer investors the choice between five classes of shares
which offer differing sales charges and bear different expenses. These
alternatives permit an investor to choose the more beneficial method of
purchasing shares given the amount of the purchase, the length of time the
investor expects to hold the shares, and other circumstances. The inside front
cover of the Prospectus contains a summary of these alternative purchase
arrangements. A broker-dealer may receive different levels of compensation
depending on which class of shares is sold. Investors may also provide
additional cash compensation to dealers, and the dealers may use the cash
compensation for their own company-sponsored sales programs. Non-cash
compensation will be provided to dealers and includes payment or reimbursement
for educational and training conferences or programs for their employees. None
of the aforementioned additional compensation is paid for by the Fund or its
shareholders.

13
<PAGE>
CLASS A AND E SHARES--INITIAL SALES CHARGE ALTERNATIVE

(Note: Class E shares are only available to investors who were shareholders on
November 13, 1994.)

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

<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS AS
PERCENTAGE PERCENTAGE
OF THE OF THE NET BROKER-
OFFERING AMOUNT DEALER
AMOUNT OF SALE PRICE INVESTED CONCESSION
<S> <C> <C> <C>
Less than $100,000...................... 4.500% 4.712% 4.00%
$100,000 but less than $250,000......... 3.500% 3.627% 3.00%
$250,000 but less than $500,000......... 2.500% 2.564% 2.25%
$500,000 but less than $1,000,000....... 2.000% 2.041% 1.75%
$1,000,000 or more*..................... -0- -0- 1.00%
</TABLE>

- ------------------------
* The Fund imposes a contingent deferred sales charge in connection with certain
purchases of Class A and E shares of $1,000,000 or more. See
"Redemption--Contingent Deferred Sales Charge."

The above scale applies to purchases of Class A and E shares by the following:

(1) Any individual, his or her spouse, and their children under the age of
21, and any of such persons' tax-qualified plans (provided there is only one
participant);

(2) A trustee or fiduciary of a single trust estate or single fiduciary
account; and

(3) Any organized group which has been in existence for more than six
months, provided that it is not organized for the purpose of buying
redeemable securities of a registered investment company, and provided that
the purchase is made by means which result in economy of sales effort or
expense, whether the purchase is made through a central administration,
through a single broker-dealer, or by other means. An organized group does
not include a group of individuals whose sole organizational connection is
participation as credit cardholders of a company, policyholders of an
insurance company, customers of either a bank or broker-dealer, or clients
of an investment adviser.

SPECIAL PURCHASE PLANS FOR CLASS A AND E SHARES

For information on any of the following special purchase or exchange plans
applicable to Class A and E shares, see the Statement of Additional Information
or contact your broker-dealer or sales representative. It is the purchaser's
obligation to notify his or her broker-dealer or sales representative about the
purchaser's eligibility for any of the following special purchase or exchange
plans. Any plan involving systematic purchases may, at Advisers' option, result
in transactions under such plan being confirmed to the investor quarterly,
rather than as a separate notice following the transaction.

RIGHT OF ACCUMULATION The preceding table's sales charge discount applies to the
current purchase plus the cost of shares already owned (excluding shares
purchased by reinvesting dividends or capital gains distributions) of any Fortis
fund having a sales charge.

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

REINVESTED DIVIDEND/CAPITAL GAINS DISTRIBUTIONS BETWEEN THE FORTIS
FUNDS Shareholders of any Portfolio or fund may reinvest their dividend and/or
capital gains distributions in any of such Portfolios or funds at net asset
value.

CONVERSION FROM CLASS B OR H SHARES Class B and H shares will automatically be
converted to Class A shares (at net asset value) at the end of the month in
which the ninth anniversary of their purchase occurs.

EXEMPTIONS FROM SALES CHARGE

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

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

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

- 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 Portfolio
shares is funded by the proceeds from the redemption of shares of any
such unrelated mutual fund (within 60 days of the purchase of
Portfolio 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

14
<PAGE>
statement showing the redemption. Similarly, anyone who is or has been
the owner of a fixed annuity contract not deemed a security under the
securities laws who wishes to surrender such contract and invest the
proceeds in a Portfolio, to the extent that the purchase price of such
Portfolio shares is funded by the proceeds from the surrender of the
contract (within 60 days of the purchase of Portfolio 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 Portfolios 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 Portfolio shares shall
qualify.

- 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 a Portfolio, 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.

RULE 12b-1 FEES (FOR CLASS A SHARES ONLY)

Class A shares are subject to a Rule 12b-1 fee payable at an annual rate of .25%
of the average daily net assets of the Portfolio attributable to such shares.
The Rule 12b-1 fee will cause Class A shares to have a higher expense ratio and
to pay lower dividends than Class E shares. For additional information, see
"Management--The Underwriter and Distribution Expenses."

DEFERRED SALES CHARGES Although there is no initial sales charge on purchases of
Class A and E shares of $1,000,000 or more, Investors pays broker-dealers out of
its own assets, a fee of 1% of the offering price of such shares. If these
shares are redeemed within two years, the redemption proceeds will be reduced by
1%. For additional information, see "Redemption--Contingent Deferred Sales
Charge."

CLASS B AND H SHARES--CONTINGENT DEFERRED SALES CHARGE ALTERNATIVES

The public offering price of Class B and H shares is the net asset value of the
Portfolio's shares. Such shares are sold without an initial sales charge so that
the Fund receives the full amount of the investor's purchase. However, a
contingent deferred sales charge ("CDSC") of 4% will be imposed if shares are
redeemed within two years of purchase, with lower CDSCs as follows if
redemptions occur later:

<TABLE>
<S> <C> <C>
3 years -- 3%
4 years -- 3%
5 years -- 2%
6 years -- 1%
</TABLE>

For additional information, see "Redemption--Contingent Deferred Sales Charge."
In addition, Class B and H shares are subject to higher annual Rule 12b-1 fees
as described below.

Proceeds from the CDSC are paid to Investors and are used to defray its expenses
related to providing distribution-related services to the Fund in connection
with the sale of Class B and H shares, such as the payment of compensation to
selected broker-dealers, and for selling such shares. The combination of the
CDSC and the Rule 12b-1 fee enables the Fund to sell such shares without
deduction of a sales charge at the time of purchase. Although such shares are
sold without an initial sales charge, Investors pays a dealer concession equal
to: (1) 4.00% of the amount invested to broker-dealers who sell Class B shares
at the time the shares are sold and an annual fee of .25% of the average daily
net assets of the Portfolio attributable to such shares; or (2) 5.25% of the
amount invested to broker-dealers who sell Class H shares at the time the shares
are sold (with no annual fee). Under alternative (2), from time to time the
dealer concession paid to broker-dealers who sell Class H shares may be
increased up to 5.50%.

RULE 12b-1 FEES Class B and H shares are subject to a Rule 12b-1 fee payable at
an annual rate of 1.00% of the average daily net assets of the Fund attributable
to such shares. The higher Rule 12b-1 fee will cause Class B and H shares to
have a higher expense ratio and to pay lower dividends than Class A and E
shares. For additional information about this fee, see "Management--The
Underwriter and Distribution Expenses."

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

CLASS C SHARES--LEVEL SALES CHARGE ALTERNATIVE

The public offering price of Class C shares is the net asset value of such
shares. Class C shares are sold without an initial sales charge so that the Fund
receives the full amount of the investor's purchase. However, a CDSC of 1% will
be imposed if shares are redeemed within one year of purchase. For additional
information, see "Redemption--Contingent Deferred Sales Charge." In addition,
Class C shares are subject to higher annual Rule 12b-1 fees as described below.

15
<PAGE>
Proceeds from the CDSC are paid to Investors and are used to defray its expenses
related to providing distribution-related services to the Fund in connection
with the sale of Class C shares, such as the payment of compensation to selected
broker-dealers, and for selling Class C shares. The combination of the CDSC and
the Rule 12b-1 fee enables the Fund to sell the Class C shares without deduction
of a sales charge at the time of purchase. Although Class C shares are sold
without an initial sales charge, Investors pays a sales commission equal to
1.00% of the amount invested to broker-dealers who sell Class C shares at the
time the shares are sold and an annual fee of 1.00% of the amount invested that
begins to accrue one year after the shares are sold.

RULE 12b-1 FEES Class C shares are subject to a Rule 12b-1 fee payable at an
annual rate of 1.00% of the average daily net assets of the Portfolio
attributable to such shares. The higher Rule 12b-1 fee will cause Class C shares
to have a higher expense ratio and to pay lower dividends than Class A and E
shares. For additional information about this fee, see "Management--The
Underwriter and Distribution Expenses."

SPECIAL PURCHASE PLANS FOR ALL CLASSES

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

SYSTEMATIC INVESTMENT PLAN Voluntary $25 or more per month purchases by
automatic financial institution transfers (see ACH Authorization Agreement in
this Prospectus) or $50 or more per month by any other means enable an investor
to lower his or her average cost per share through the principle of "dollar cost
averaging;"

EXCHANGE PRIVILEGE Except for Class E shares, Portfolio shares may be exchanged
among other Portfolios or funds of the same class managed by Advisers without
payment of an exchange fee or additional sales charge. Similarly, shareholders
of other Fortis funds may exchange their shares for Portfolio shares of the same
class (at net asset value if the shares to be exchanged have already incurred a
sales charge). Also, holders of Class E shares of other Fortis funds that have a
front-end sales charge may exchange their shares for Class A Portfolio shares
and holders of Fortis Money Fund Class A shares may exchange their shares for
any class of Portfolio shares (at net asset value and only into Class A, if the
shares have already incurred a sales charge). Finally, holders of Portfolio
Class E shares who exchange such shares for Class A shares of another Portfolio
or other Fortis fund may re-exchange such Class A shares for Portfolio Class E
shares. A shareholder initiates an exchange by writing to or telephoning his or
her broker-dealer, sales representative, or the Fund regarding the shares to be
exchanged. Telephone exchanges will be permitted only if the shareholder
completes and returns the Telephone Exchange section of the Account Application.
During times of chaotic economic or market circumstances, a shareholder may have
difficulty reaching his or her broker-dealer, sales representative, or the Fund
by telephone. Consequently, a telephone exchange may be difficult to implement
at those times. (See "Redemption".)

Advisers reserves the right to restrict the frequency of--or otherwise modify,
condition, terminate, or impose charges upon--the exchange and/or telephone
transfer privileges, all with 30 days notice to shareholders.

REDEMPTION

Registered holders of Fund shares may redeem their shares without any charge
(except any applicable contingent deferred sales charge) at the per share net
asset value next determined following receipt by the Fund of a written
redemption request in proper form (and a properly endorsed stock certificate if
one has been issued). However, if shares are redeemed through another
broker-dealer who receives the order prior to the close of the Exchange, then
Investors will apply that day's price to the order as long as the broker-dealer
places the order with Investors by the end of the day. Some broker-dealers may
charge a fee to process redemptions.

Any certificates should be sent to the Fund by certified mail. Share
certificates and/or stock powers, if any, tendered in redemption must be
endorsed and executed exactly as the Fund shares are registered. If the
redemption proceeds are to be paid to the registered holder and sent to the
address of record, normally no signature guarantee is required unless Advisers
does not have the shareholder's signature on file and the redemption proceeds
are greater than $25,000. However, for example, if the redemption proceeds are
to be paid to someone other than the registered holder, sent to a different
address, or the shares are to be transferred, the owner's signature must be
guaranteed by a bank, broker (including government or municipal), dealer
(including government or municipal), credit union, national securities exchange,
registered securities association, clearing agency, or savings association.

Class A shares may be registered in broker-dealer "street name accounts" only if
the broker-dealer has a selling agreement with Investors. In such cases,
instructions from the broker-dealer are required to redeem shares or transfer
ownership and transfer to another broker-dealer requires the new broker-dealer
to also have a selling agreement with Investors. If the proposed new
broker-dealer does not have a selling agreement with Investors, the shareholder
can leave the shares under the original street name account or have the
broker-dealer transfer ownership to the shareholder's name.

Broker-dealers having a sales agreement with Investors may orally place a
redemption order, but proceeds will not be released until the appropriate
written materials are received.

An individual shareholder (or in the case of multiple owners, any shareholder)
may orally redeem up to $25,000 worth of their shares, provided that the account
is not a tax-qualified plan, the check will be sent to the address of record,
and the address of record has not changed for at least 30 days. During times of
chaotic economic or market circumstances, a shareholder may have difficulty
reaching his or her broker-dealer, sales representative, or the Fund by
telephone. Consequently, a telephone redemption may be difficult to implement at
those times. If a shareholder is unable to reach the Fund by telephone, written
instructions should be sent. Advisers

16
<PAGE>
reserves the right to modify, condition, terminate, or impose charges upon this
telephone redemption privilege, with 30 days notice to shareholders. Advisers,
Investors, and the Fund will not be responsible for, and the shareholder will
bear the risk of loss from, oral instructions, including fraudulent
instructions, which are reasonably believed to be genuine. The telephone
redemption procedure is automatically available to shareholders. The Fund will
employ reasonable procedures to confirm that telephone instructions are genuine,
but if such procedures are not deemed reasonable, it may be liable for any
losses due to unauthorized or fraudulent instructions. The Fund's procedures are
to verify address and social security number, tape record the telephone call,
and provide written confirmation of the transaction.

Payment will be made as soon as possible, but not later than three days after
receipt of a proper redemption request. However, if shares subject to the
redemption request were recently purchased with non-guaranteed funds (e.g.,
personal check), the mailing of your redemption check may be delayed by fifteen
days. A shareholder wishing to avoid these delays should consider the wire
purchase method described under "How to Buy Fund Shares."

The Fund has the right to redeem accounts with a current value of less than $500
unless the original purchase price of the remaining shares (including sales
commissions) was at least $500. Fund shareholders actively participating in the
Fund's Systematic Investment Plan or Group Systematic Investment Plan will not
have their accounts redeemed. Before redeeming an account, the Fund will mail to
the shareholder a notice of its intention to redeem, which will give the
shareholder an opportunity to make an additional investment. If no additional
investment is received by the Fund within 60 days of the date the notice was
mailed, the shareholder's account will be redeemed. Any redemption in an account
established with the minimum initial investment of $500 may trigger this
redemption procedure.

The Fund has a "Systematic Withdrawal Plan," which provides for voluntary
automatic withdrawals of at least $50 per quarter, semiannually, or annually or
$50 per month. Deferred sales charges may apply to monthly redemptions.

There is also a "Reinvestment Privilege," which is a one-time opportunity to
reinvest sums redeemed within the prior 60 days without payment of an additional
sales charge. For further information about these plans, contact your
broker-dealer or sales representative.

CONTINGENT DEFERRED SALES CHARGE

CLASS A AND E SHARES

The Fund imposes a contingent deferred sales charge ("CDSC") on Class A and E
shares in certain circumstances. Under the CDSC arrangement, for sales of shares
of $1,000,000 or more (including right of accumulation and statements of
intention (see "How to Buy Fund Shares--Special Purchase Plans")), the front-end
sales charge ("FESC"), will no longer be imposed (although Investors intends to
pay its registered representatives and other dealers that sell Fund shares, out
of its own assets, a fee of up to 1% of the offering price of such sales except
on purchases exempt from the FESC). However, if such shares are redeemed within
two years after their purchase date (the "CDSC Period"), the redemption proceeds
will be reduced by the 1.00% CDSC.

The CDSC will be applied to the lesser of (a) the net asset value of shares
subject to the CDSC at the time of purchase, or (b) the net asset value of such
shares at the time of redemption. No charge will be imposed on amounts
representing an increase in share value due to capital appreciation. The CDSC
will not be applied to shares acquired through reinvestment of income dividends
or capital gain distributions or shares held for longer than the applicable CDSC
Period. In determining which shares to redeem, unless instructed otherwise,
shares that are not subject to the CDSC and having a higher Rule 12b-1 fee will
be redeemed first, shares not subject to the CDSC having a lower Rule 12b-1 fee
will be redeemed next, and shares subject to the CDSC then will be redeemed in
the order purchased.

The Fund will waive the CDSC in the event of the shareholder's death or
disability, as defined in Section 72(m)(7) of the Code (if satisfactory evidence
is provided to the Fund) and for tax-qualified retirement plans (excluding IRAs,
SEPS, 403(b) plans, and 457 plans) and each class of transaction that qualifies
for exemption from the Fund FESC (see "How to Buy Fund Shares--Special Purchase
Plans"). Shares of the Fund that are acquired in exchange for shares of another
Fortis fund that were subject to a CDSC will remain subject to the CDSC that
applied to the shares of the other Fortis fund. Additionally, the CDSC will not
be imposed at the time that Fund shares subject to the CDSC are exchanged for
shares of Fortis Money Fund or at the time such Fortis Money Fund shares are
reexchanged for shares of any Fortis fund subject to a CDSC; provided, however,
that, in each such case, the shares acquired will remain subject to the CDSC if
redeemed within the CDSC Period.

Investors, upon notification, will provide a PRO RATA refund of any CDSC paid in
connection with a redemption of shares of any Fortis fund (by crediting such
refunded CDSC to such shareholder's account) if, within 60 days of such
redemption, all or any portion of the redemption proceeds are reinvested in
shares of the Fund. Any reinvestment within 60 days of a redemption on which the
CDSC was paid will be made without the imposition of a FESC. Such reinvestment
will be subject to the same CDSC to which such amount was subject prior to the
redemption, but the CDSC Period will run from the original investment date.

CLASS B, H, AND C SHARES

The CDSC on Class B, H, and C shares will be calculated on an amount equal to
the lesser of the net asset value of the shares at the time of purchase or their
net asset value at the time of redemption. No charge will be imposed on amounts
representing an increase in share value due to capital appreciation. In
addition, no charge will be assessed on shares derived from reinvestment of
dividends or capital gains distributions or on shares held for longer than the
applicable CDSC Period.

17
<PAGE>
Upon any request for redemption of shares of any class of shares that imposes a
CDSC, it will be assumed, unless otherwise requested, that shares subject to no
CDSC will be redeemed first in the order purchased and all remaining shares that
are subject to a CDSC will be redeemed in the order purchased. With respect to
the redemption of shares subject to no CDSC where the shareholder owns more than
one class of shares, those shares with the highest Rule 12b-1 fee will be
redeemed in full prior to any redemption of shares with a lower Rule 12b-1 fee.

The CDSC does not apply to: (1) redemption of shares when a Fund exercises its
right to liquidate accounts which are less than the minimum account size; (2)
death or disability, as defined in Section 72(m)(7) of the Code (if satisfactory
evidence is provided to the Fund); (3) with respect to Class B and H shares
only, an amount that represents, on an annual (non-cumulative) basis, up to 10%
of the amount (at the time of the investment) of the shareholder's purchases;
and (4) with respect to Class B, H, and C shares, qualified plan benefit
distributions due to participant's separation from service, loans or financial
hardship (excluding IRAs, SEPs, and 403(b), 457, and Fortis KEY plans) upon the
Fund's receipt from the plan's administrator or trustee of a signature guarantee
and written instructions detailing the reason for the distribution.

As an illustration of CDSC calculations, assume that Shareholder X purchases on
Year 1/Day 1 100 shares at $10 per share. Assume further that, on Year 2/Day 1,
Shareholder X purchased an additional 100 shares at $12 per share. Finally,
assume that, on Year 3/Day 1, Shareholder X wishes to redeem shares worth
$1,300, and that the net asset value per share as of the close of business on
such day is $13. To effect Shareholder X's redemption request, 100 shares at $13
per share (totaling $1,300) would be redeemed. The CDSC would be waived in
connection with the redemption of that number of shares equal in value (at the
time of redemption) to $220 (10% of $1,000-- the purchase amount of the shares
purchased by Shareholder X on Year 1/Day 1--plus 10% of $1200--the purchase
amount of the shares purchased by Shareholder X on Year 2/Day 1.) In addition,
no CDSC would apply to the $400 in capital appreciation on Shareholder X's
shares ($2,600 Year 3 value minus $2,200 purchase cost of shares).

If a shareholder exchanges shares subject to a CDSC for Class B, H, or C shares
of a different Fortis Fund, the transaction will not be subject to a CDSC.
However, when shares acquired through the exchange are redeemed, the shareholder
will be treated as if no exchange took place for the purpose of determining the
CDSC Period and applying the CDSC.

Investors, upon notification, will provide, out of its own assets, a PRO RATA
refund of any CDSC paid in connection with a redemption of Class B, H, or Class
C shares of any Fund (by crediting such refunded CDSC to such shareholder's
account) if, within 60 days of such redemption, all or any portion of the
redemption proceeds are reinvested in shares of the same class in any of the
Fortis Funds. Any reinvestment within 60 days of a redemption to which the CDSC
was paid will be made without the imposition of a front-end sales charge but
will be subject to the same CDSC to which such amount was subject prior to the
redemption. The CDSC Period will run from the original investment date.

SHAREHOLDER INQUIRIES

Inquiries should be directed 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.

APPENDIX

TAX-EXEMPT BOND RATINGS

STANDARD & POOR'S CORPORATION. Its ratings for municipal debt have the following
definitions:

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

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

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

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

Debt rated "BB," "B," "CCC" and "CC" 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

18
<PAGE>
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.

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

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 Standard & Poor's 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 ratings from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major categories.

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

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

MOODY'S INVESTORS SERVICE, INC. Its ratings for municipal 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.

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

MUNICIPAL NOTES AND OTHER SHORT-TERM LOANS

STANDARD & POOR'S CORPORATION. A Standard & Poor's note rating reflects the
liquidity concerns and market access risks unique to notes. Notes due in three
years or less will likely receive a note rating. Notes maturing beyond three
years will most likely receive a long-term debt rating.

19
<PAGE>
Note rating symbols are as follows:

SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.

SP-2 -- Satisfactory capacity to pay principal and interest.

SP-3 -- Speculative capacity to pay principal and interest.
MOODY'S INVESTORS SERVICES. Moody's ratings for state and municipal notes and
other short-term loans are designated Moody's Investment Grade (MIG). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower and
short-term cyclical elements are critical in short-term ratings, while other
factors of major importance in bond risk may be less important over the short
run. In the case of variable rate demand obligations, two ratings are assigned;
one representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an evaluation of the
degree of risk associated with the demand feature. The short-term rating
assigned to the demand feature of variable rate demand obligations is designated
as VMIG. Moody's ratings for short-term loans have the following definitions:

MIG_1/VMIG_1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.

MIG_2/VMIG_2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

MIG_3/VMIG_3. This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

MIG_4/VMIG_4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.

TAX-EXEMPT DEMAND BONDS

Standard & Poor's assigns "dual" ratings to all long-term debt issues that have
as part of their provisions a demand or double feature.

The first rating addresses the likelihood of repayment of principal and interest
as due, and the second rating addresses only the demand feature. The long-term
debt rating symbols are used for bonds to denote the long-term maturity and the
commercial paper rating symbols are used to denote the put option (for example,
"AAA/ A-1+"). For the newer "demand notes," Standard & Poor's note rating
symbols, combined with the commercial paper symbols, are used (for example,
"SP-1+/A-1+").

20
<PAGE>
PROSPECTUS
FEBRUARY 1, 1997

FORTIS TAX-FREE PORTFOLIOS, INC.
TAX-FREE CURRENT INCOME

95418 (REV. 2/97)

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

BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 3794
MINNEAPOLIS, MN
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 1, 1997

This Statement of Additional Information is NOT a prospectus, but should be read
in conjunction with the Fortis Tax-Free Portfolios, Inc. (the "Fund") (prior to
January 31, 1992, known as AMEV Tax-Free Fund, Inc.) Prospectus dated February
1, 1997. A copy of that prospectus may be obtained from your broker-dealer or
sales representative. The address of Fortis Investors, Inc. ("Investors") is
P.O. Box 64284, St. Paul, Minnesota 55164. Telephone: (612) 738-4000. Toll Free
1-(800) 800-2638.

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

28
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ORGANIZATION AND CLASSIFICATION........................ 30
INVESTMENT OBJECTIVES AND POLICIES..................... 30
- Investment Objectives............................ 30
- Investment Restrictions.......................... 30
- Variable Amount Master Demand Notes.............. 31
- Options on Securities............................ 31
- Illiquid Securities.............................. 31
- Risks of Transactions in High-Yielding
Securities........................................ 32
- Special Considerations Relating to Minnesota Tax
Exempt Bonds..................................... 33
DIRECTORS AND EXECUTIVE OFFICERS....................... 34
INVESTMENT ADVISORY AND OTHER SERVICES................. 36
- General.......................................... 36
- Control and Management of Advisers and
Investors........................................ 37
- Investment Advisory and Management
Agreement........................................ 37
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE..... 38
CAPITAL STOCK.......................................... 39
COMPUTATION OF NET ASSET VALUE AND PRICING............. 40
SPECIAL PURCHASE PLANS................................. 41
- Statement of Intention........................... 41
- Gifts or Transfers to Minor Children............. 41
- Systematic Investment Plan....................... 42
- Exchange Privilege............................... 42
- Reinvested Dividend/Capital Gains Distributions
between Fortis Funds............................. 42

<CAPTION>
PAGE
<S> <C>
- Purchases by Fortis, Inc. (or its Subsidiaries)
or Associated Persons............................ 42
- Purchases by Fund Directors or Officers.......... 42
- Purchases by Representatives or Employees of
Broker-Dealers................................... 42
- Purchases by Registered Investment Companies..... 42
- Purchases with Proceeds from Redemption of
Unrelated Mutual Fund Shares or Surrender of
Certain Fixed Annuity Contracts.................. 42
- Purchases by Employees of Certain Banks and Other
Financial Services Firms......................... 42
- Purchases by Investment Advisers, Trust
Companies, and Bank Trust Departments Exercising
Discretionary Investment Authority or Using a
Money Management Mutual Fund "Wrap" Program...... 42
REDEMPTION............................................. 43
- Systematic Withdrawal Plan....................... 43
- Reinvestment Privilege........................... 43
TAXATION............................................... 44
UNDERWRITER............................................ 45
PLAN OF DISTRIBUTION................................... 45
PERFORMANCE............................................ 46
TAX-EXEMPT VERSUS TAXABLE INCOME....................... 49
FINANCIAL STATEMENTS................................... 52
CUSTODIAN; COUNSEL; ACCOUNTANTS........................ 52
LIMITATION OF DIRECTOR LIABILITY....................... 52
ADDITIONAL INFORMATION................................. 52
</TABLE>

29
<PAGE>
ORGANIZATION AND CLASSIFICATION

An investment company is an arrangement by which a number of persons invest in a
company that in turn invests in securities of other companies. The Fund operates
as an "open-end" investment company because it generally must redeem an
investor's shares upon request. The Portfolios operate as "diversified"
investment companies because they offer investors an opportunity to minimize the
risk inherent in all investments in securities by spreading their investment
over a number of issuers. However, diversification cannot eliminate such risks.

INVESTMENT OBJECTIVES AND POLICIES

The National and Minnesota Portfolios will operate as "diversified" investment
companies as defined under the Investment Company Act of 1940 (the "1940 Act"),
which means that they each must meet the following requirements:

At least 75% of the value of its 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 Portfolio
and to not more than 10% of the outstanding voting securities of
such issuer.

INVESTMENT OBJECTIVES

INVESTMENT RESTRICTIONS

The following investment restrictions are deemed fundamental policies. They may
be changed only by the vote of a "majority" of the outstanding voting securities
of each Portfolio, which as used in this Statement of Additional Information
means the lesser of: (i) 67% or more of the shares present at a shareholders'
meeting if more than 50% of the Portfolio's outstanding shares are represented
at the meeting in person or by proxy or (ii) more than 50% of the outstanding
shares of the Portfolio.

None of the Portfolios may:

(1) Buy or hold any commodity or commodity future contracts, or any oil, gas
or mineral exploration or development program.

(2) Invest directly in real estate or interests in real estate; however, the
Portfolios may invest in interests in debt securities secured by real estate or
interests therein, or debt securities issued by companies which invest in real
estate or interests therein.

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

(4) Purchase securities on margin or otherwise borrow money or issue senior
securities, except that the Portfolio, in accordance with its investment
objectives and policies, may purchase securities on a when-issued, delayed
delivery, or forward commitment basis (including the entering into of "roll"
transactions). The Portfolio 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) in an amount that does not exceed 10% of the value of the
Portfolio's total assets. Investment securities will not be purchased while
outstanding bank borrowings (including "roll" transactions) exceed 5% of the
value of the Portfolio's total assets.

(5) 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 its 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 a Portfolio includes the
amount lent as well as the collateral securing such loans.)

The following investment restrictions may be changed by the Board of Directors
of the Fund (the "Board of Directors") without shareholder approval.

The Portfolios will not:

(1) Invest more than 5% of its net assets in securities of other investment
companies, except in connection with a merger, consolidation, acquisition or
reorganization. (Although the Portfolio indirectly absorbs its pro rata share of
the other investment companies' expenses through the yield received on these
securities, management believes the yield and liquidity features of these
securities to, at

30
<PAGE>
times, be more beneficial to the Portfolio than other types of short-term
securities and that the indirect absorption of these expenses has a de minimus
effect on the Portfolio's return.)

(2) Invest more than 15% of its net assets in all forms of illiquid
investments, as determined pursuant to applicable Securities and Exchange
Commission rules and interpretations. Securities that have been determined to be
liquid by the Board of Directors of the Fund or Advisers subject to the
oversight of such Board of Directors will not be subject to this limitation.

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

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

(5) Invest in real estate investment trusts.

(6) Invest more than 5% of its net assets, valued at the lower of cost or
market, in warrants; nor, within such amount, invest more than 2% of such net
assets in warrants not listed on the New York Stock Exchange or American Stock
Exchange. Warrants attached to securities or acquired in units are excepted from
the above limitations.

(7) Invest in real estate limited partnerships or in oil, gas, and other
mineral leases.

(8) Buy securities of any issuer for the purpose of exercising control or
management.

Any investment policy or restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities or
utilization of assets and results therefrom.

VARIABLE AMOUNT MASTER DEMAND NOTES

The Fund may invest in variable amount master demand notes. These instruments
are short-term, unsecured promissory notes issued by corporations to finance
short-term credit needs. They allow the investment of fluctuating amounts by the
Fund at varying market rates of interest pursuant to arrangements between the
Fund, as lender, and the 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.

OPTIONS ON SECURITIES

OPTIONS ON SECURITIES The Portfolio may write (sell) covered call and secured
put options and purchase call and put options. Where the Portfolio writes an
option which expires unexercised or is closed out by the Portfolio 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
Portfolio 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 Portfolio's position, the option may be
exercised and the Portfolio 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 Portfolio 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.

The Portfolios 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 Portfolio wants to purchase at a later date. In the event
that the expected market fluctuations occur, the Portfolio may be able to offset
the resulting adverse effect on its Portfolio, in whole or in part, through the
options purchased. The premium paid for a put or call option plus any
transaction costs will reduce the benefit, if any realized by the Portfolio 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
Portfolio.

ILLIQUID SECURITIES

Each of the Portfolios 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 Securities and Exchange Commission
(the "Commission" or the "SEC") 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.) However, no Portfolio will
invest more than 15% of the value of its net assets in illiquid securities, as
determined pursuant to applicable Commission rules and interpretations.

The staff of the SEC 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 Board of Directors of the Fund has adopted procedures to determine liquidity
of certain securities, including commercial paper

31
<PAGE>
issued pursuant to the private placement exemption of Section 4(2) of the 1933
Act and securities that are eligible for resale to qualified institutional
buyers pursuant to Rule 144A under the 1933 Act. Under these procedures, factors
taken into account in determining the liquidity of a security include (a) the
frequency of trades and quotes for the security, (b) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers, (c) dealer undertakings to make a market in the security, and (d)
the nature of the security and the nature of the marketplace trades (E.G., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). Section 4(2) commercial paper or a Rule 144A security
that when purchased enjoyed a fair degree of marketability may subsequently
become illiquid, thereby adversely affecting the liquidity of the Portfolio.

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 Portfolio
may also be restricted in its ability to sell such securities at a time when it
is advisable to do so. Restricted securities often sell at a price lower than
similar securities that are not subject to restrictions on resale.

RISKS OF TRANSACTIONS IN HIGH-YIELDING SECURITIES

While at least 90% of each Portfolio will be of "investment grade" quality, up
to 10% may be invested in non-investment grade securities (securities rated
below BBB). Participation in lower rated 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.

The high yielding, high risk securities market is still relatively new and its
recent growth paralleled a long period of economic expansion and an increase in
merger, acquisition, and leveraged buyout activity. Such securities are
especially subject to adverse changes in general economic conditions, to changes
in the financial condition of their issuers, and to price fluctuation in
response to changes in interest rates. During periods of economic downturn or
rising interest rates, issuers of such securities may experience financial
stress that could adversely affect their ability to make payments of principal
and interest and increase the possibility of default. While the Portfolios do
not generally directly invest in corporate obligations, the credit quality of
certain types of industrial development bonds is at least in part a function of
the credit quality of the underlying corporate obligation.

Yields on high yield, high risk securities will fluctuate over time. The prices
of such 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. Also, during an economic downturn or
substantial period of rising interest rates highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a security
held by a Portfolio defaulted, such Portfolio may incur additional expenses to
seek recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of such securities
and such Portfolio's asset value. Furthermore, in the case of such securities
structured as zero coupon securities, their market prices are affected to a
greater extent by interest rate changes and thereby tend to be more volatile
than securities which pay interest periodically and in cash.

High-yielding, high risk securities present risks based on payment expectations.
For example, such securities may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, the
Portfolios would have to replace the security with a lower-yielding security,
resulting in a decreased return for investors. Conversely, a high-yielding, high
risk security's value will decrease in a rising interest rate market, as will
the value of such Portfolio's assets. If the Portfolios experience unexpected
net redemptions, this may force them to sell such securities, without regard to
their investment merits, thereby decreasing the asset base upon which the
Portfolios' 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, high risk securities. This may adversely affect the
ability of the Fund's Board of Directors to accurately value such securities and
the Portfolio's assets, and the Portfolios' ability to dispose of the
securities. Securities valuation becomes more difficult and judgment plays a
greater role in valuation because there is less reliable, objective data
available. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of such securities,
especially in a thinly traded market. Illiquid or restricted high-yielding, high
risk securities purchased by the Portfolios may involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties.

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

32
<PAGE>
SPECIAL CONSIDERATIONS RELATING TO MINNESOTA TAX EXEMPT BONDS

Minnesota's constitutionally prescribed fiscal period is a biennium, and the
state operates on a biennial budget basis. Legislative appropriations for each
biennium are prepared and adopted during the final legislative session of the
immediately preceding biennium. Prior to each fiscal year of a biennium, the
state's Department of Finance allots a portion of the applicable biennial
appropriation to each agency or other entity for which an appropriation has been
made. An agency or other entity may not expend monies in excess of its
allotment. If revenues are insufficient to balance total available resources and
expenditures, the state's Commissioner of Finance, with the approval of the
Governor, is required to reduce allotments to the extent necessary to balance
expenditures and forecast available resources for the then current biennium. The
Governor may prefer legislative action when a large reduction in expenditures
appears necessary, and if the state's legislature is not in session the Governor
is empowered to convene a special session.

Frequently in recent years, legislation has been required to eliminate projected
budget deficits by raising additional revenue, reducing expenditures, including
aids to political subdivisions and higher education, reducing the State's budget
reserve, imposing a sales tax on purchases by local governmental units, and
making other budgetary adjustments. The Minnesota Department of Finance April
1996 Estimates project that, under current laws, the state will complete its
current biennium June 30, 1997 with a $1 million surplus, plus a $350 million
cash flow account balance, plus a $270 million budget reserve. Total General
Fund expenditures and transfers for the biennium are projected to be $18.9
billion. Planning estimates (extrapolations) for the biennium ending June 30,
1999 show a General Fund deficit of $71 million, after funding a $350 million
cash flow account plus a $270 million budget reserve, if current law is not
changed. Accordingly, there may be additional revenue increases or spending cuts
relative to current law. Furthermore, under current law spending caps, State
expenditures for education finance (K-12) and corrections in the biennium ending
June 30, 1999 are not expected to be sufficient to maintain program levels of
the previous biennium. Accordingly, there may be additional revenue increases or
spending cuts relative to current law. The State is party to a variety of civil
actions that could adversely affect the State's General Fund. In addition,
substantial portions of State and local revenues are derived from federal
expenditures, and reductions in federal aid to the State and its political
subdivisions and other federal spending cuts may have substantial adverse
effects on the economic and fiscal condition of the State and its local
governmental units. The April 1996 estimates state that pending federal
legislation could reduce federal aid to Minnesota's state and local governments
by a total of $3.2 billion over seven years. Risks are inherent in making
revenue and expenditure forecasts. Economic or fiscal conditions less favorable
than those reflected in State budget forecasts and planning estimates may create
additional budgetary pressures.

State grants and aids represent a large percentage of the total revenues of
cities, towns, counties and school districts in Minnesota, but generally the
State has no obligation to make payments on local obligations in the event of a
default. Even with respect to revenue obligations, no assurance can be given
that economic or other fiscal difficulties and the resultant impact on State and
local government finances will not adversely affect the ability of the
respective obligors to make timely payment of the principal and interest on
Minnesota municipal obligations that are held by the Fund or the value or
marketability of such obligations.

For more information on the Portfolio's investment objectives and policies see
the Fund Prospectus, "Investment Objectives and Policies; Risk Considerations."

33
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS

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

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION AND AFFILIATIONS WITH
NAME & ADDRESS AGE THE FUND "AFFILIATED PERSONS" OR INVESTORS (PAST 5 YEARS)
- -------------------------- --- ------------------ -----------------------------------------------------------------
<S> <C> <C> <C>
Richard W. Cutting 64 Director Certified public accountant and financial consultant.
137 Chapin Parkway
Buffalo, New York

Allen R. Freedman* 56 Director Chairman, President and Chief Executive Officer of Fortis, Inc.;
One Chase Manhattan Plaza a Managing Director of Fortis International, N. V.
New York, New York

Dr. Robert M. Gavin 55 Director Interim President, Haverford College. Prior to July 1996,
Office of the President President, Macalaster College.
370 Lancaster Ave
Haverford, PA 19041

Benjamin S. Jaffray 66 Director Chairman of the Sheffield Group, Ltd., a financial consulting
4040 IDS Center group.
Minneapolis, Minnesota

Jean L. King 51 Director President, Communi-King, a communications consulting firm.
12 Evergreen Lane
St. Paul, Minnesota

Dean C. Kopperud* 43 President and Chief Executive Officer and a Director of Advisers, President and
500 Bielenberg Drive Director a Director of Investors, and Senior Vice President and a Director
Woodbury, Minnesota of Fortis Benefits Insurance Company and Time Insurance Company.

Edward M. Mahoney 66 Director Retired; prior to December, 1994, Chairman and Chief Executive
2760 Pheasant Road Officer and a Director of Advisers and Investors, Senior Vice
Excelsior, Minnesota President and a Director of Fortis Benefits Insurance Company,
and Senior Vice President of Time Insurance Company.

Robb L. Prince 54 Director Retired; prior to July, 1995, Vice President and Treasurer,
5108 Duggan Plaza Jostens, Inc., a producer of products and services for the youth,
Edina, Minnesota education, sports award, and recognition markets.

Leonard J. Santow 60 Director Principal, Griggs & Santow, incorporated, economic and financial
75 Wall Street consultants.
21st Floor
New York, New York

Noel S. Shadko 42 Director Marketing Consultant; prior to May 1996, Senior Vice President of
1908 W. 49th Street Marketing & Strategic Planning, Rollerblade, Inc.
Minneapolis, MN 55409

Joseph M. Wikler 55 Director Investment consultant and private investor; prior to January,
12520 Davan Drive 1994, Director of Research, Chief Investment Officer, Principal,
Silver Spring, Maryland and a Director, The Rothschild Co., Baltimore, Maryland. The
Rothschild Co. is an investment advisory firm.

Gary N. Yalen 53 Vice President President and Chief Investment Officer of Advisers (since August,
One Chase Manhattan Plaza 1995) and Fortis Asset Management, a division of Fortis, Inc.,
New York, New York New York, NY, and Senior Vice President, Investments, Fortis,
Inc.

James S. Byrd 45 Vice President Executive Vice President of Advisers; prior to March, 1991,
5500 Wayzata Boulevard Senior Vice President, Templeton Investment Counsel, Inc., Fort
Golden Valley, Minnesota Lauderdale, Florida.

Howard G. Hudson 58 Vice President Executive Vice President of Advisers (since August, 1995) and
One Chase Manhattan Plaza Senior Vice President, Fixed Income, Fortis Asset Management;
New York, New York prior to February, 1991, Senior Vice President, Fairfield
Research, New Canaan, CT.
</TABLE>

34
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION AND AFFILIATIONS WITH
NAME & ADDRESS AGE THE FUND "AFFILIATED PERSONS" OR INVESTORS (PAST 5 YEARS)
- -------------------------- --- ------------------ -----------------------------------------------------------------
<S> <C> <C> <C>
Stephen M. Poling 64 Vice President Executive Vice President and Director of Advisers.
5500 Wayzata Boulevard
Golden Valley, Minnesota

Fred Obser 57 Vice President Senior Vice President of Advisers (since August, 1995) and Senior
One Chase Manhattan Plaza Vice President, Equities, Fortis Asset Management
New York, New York

Dennis M. Ott 49 Vice President Senior Vice President of Advisers.
5500 Wayzata Boulevard
Golden Valley, Minnesota

Nicholas L.M. de Peyster 29 Vice President Vice President of Advisers (since August, 1995) and Vice
One Chase Manhattan Plaza President, Equities, Fortis Asset Management; prior to July,
New York, New York 1991, Research Associate, Smith Barney, Inc., New York, NY

Charles J. Dudley 36 Vice President Vice President of Advisers and Fortis Asset Management; prior to
One Chase Manhattan Plaza August 1995, Senior Vice President, Sun America Asset Management,
New York, New York Los Angeles, CA.

Maroun M. Hayek 48 Vice President Vice President of Advisers (since August, 1995) and Vice
One Chase Manhattan Plaza President, Fixed Income, Fortis Asset Management.
New York, New York

Robert C. Lindberg 43 Vice President Vice President of Advisers; prior to July, 1993, Vice President,
One Chase Manhattan Plaza Portfolio Manager, and Chief Securities Trader, COMERICA, Inc.,
New York, New York Detroit, Michigan. COMERICA, Inc. is a bank.

Charles L. Melhouse 54 Vice President Vice President of Advisers; prior to March 1996, Portfolio
One Chase Manhattan Plaza Manager to Marshall & Isley Bank Corporation
New York, New York

Kevin J. Michels 44 Vice President Vice President of Advisers (since August, 1995) and Vice
One Chase Manhattan Plaza President, Administration, Fortis Asset Management.
New York, New York

Christopher J. Pagano 32 Vice President Vice President of Advisers; prior to March 1996, Government
One Chase Manhattan Plaza Strategist for Merrill Lynch, New York, N.Y.
New York, New York

Stephen M. Rickert 53 Vice President Vice President of Advisers (since August 1995) and Corporate Bond
One Chase Manhattan Plaza Analyst, Fortis Asset Management; from August, 1993 to April,
New York, New York 1994, Corporate Bond Analyst, Dillon, Read & Co., Inc., New York,
NY; prior to June, 1992, Corporate Bond Analyst, Western Asset
Management, Los Angeles, CA.

Keith R. Thomson 58 Vice President Vice President of Advisers.
5500 Wayzata Boulevard
Golden Valley, Minnesota

Christopher J. Woods 36 Vice President Vice President of Advisers (since August 1995) and Vice
One Chase Manhattan Plaza President, Fixed Income, Fortis Asset Management; prior to
New York, New York November, 1992, Head of Fixed Income, The Police and Firemen's
Disability and Pension Fund of Ohio, Columbus, OH.

Robert W. Beltz, Jr. 46 Vice President Vice President--Mutual Fund Operations of Advisers and Investors;
500 Bielenberg Drive Vice President of Fortis Benefits Insurance Company.
Woodbury, Minnesota

Thomas D. Gualdoni 47 Vice President Vice President of Advisers, Investors, and Fortis Benefits
500 Bielenberg Drive Insurance Company.
Woodbury, Minnesota

Jon H. Nicholson 46 Vice President Senior Vice President--Marketing and Product Development of
500 Bielenberg Drive Fortis Benefits Insurance Company; Senior Vice President of
Woodbury, Minnesota Advisers.
</TABLE>

35
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION AND AFFILIATIONS WITH
NAME & ADDRESS AGE THE FUND "AFFILIATED PERSONS" OR INVESTORS (PAST 5 YEARS)
- -------------------------- --- ------------------ -----------------------------------------------------------------
<S> <C> <C> <C>
David A. Peterson 53 Vice President Vice President and Assistant General Counsel, Fortis Benefits
500 Bielenberg Drive Insurance Company.
Woodbury, Minnesota

Richard P. Roche 44 Vice President Vice President of Advisers; prior to August, 1995, President of
500 Bielenberg Drive Prospecting By Seminars, Inc. Guttenberg, NJ.
Woodbury, Minnesota

Rhonda J. Schwartz 38 Vice President Senior Vice President, General Counsel, and Secretary of
500 Bielenberg Drive Advisers; Senior Vice President and General Counsel, Life and
Woodbury, Minnesota Investment Products, Fortis Benefits Insurance Company and Vice
President and General Counsel, Life and Investment Products, Time
Insurance Company; prior to January, 1996, Vice President,
General Counsel, Fortis, Inc.; prior to 1993, Attorney, Norris,
McLaughlin & Marcus, Somerville, N.J.

Michael J. Radmer 51 Secretary Partner, Dorsey & Whitney LLP, the Fund's General Counsel.
220 South Sixth Street
Minneapolis, Minnesota

Tamara L. Fagely 38 Treasurer Second Vice President of Advisers and Investors.
500 Bielenberg Drive
Woodbury, Minnesota
</TABLE>

- -------------------------------------------
* Mr. Kopperud is an "interested person" (as defined under the 1940 Act) of
Fortis Money, Advisers, and Investors primarily because he is an officer of
each. Mr. Freedman is an "interested person" of Fortis Money, Advisers, and
Investors because he is Chairman and Chief Executive Officer of Fortis, Inc.
("Fortis"), the parent company of Advisers and indirect parent company of
Investors, and a Managing Director of Fortis International, N. V., the parent
company of Fortis.
- -------------------------------------------

All of the above officers and directors also are officers and/or directors of
other investment companies of which Advisers is the investment adviser. No
compensation is paid by the Fund to any of its officers or directors except for
a fee of $100 per month, $100 per meeting attended, and $100 per applicable
committee meeting attended (and reimbursement of travel expenses to attend
meetings) to each director not affiliated with Advisers. For the fiscal period
ended September 30, 1996, the National Portfolio, and the Minnesota Portfolio,
paid $8,909, and $7,000, respectively, in directors' fees to directors who were
not affiliated with Advisers or Investors and reimbursed two such directors a
total of $383 and $397, respectively, for travel expenses incurred in attending
directors' meetings. During the same period, the National Portfolio and
Minnesota Portfolio, paid legal fees and expenses of $23,277 and $17,105,
respectively, to a law firm of which the Fund's Secretary is a partner. As of
September 30, 1996, the directors and executive officers as a group beneficially
owned less than 1% of the outstanding shares of each Portfolio. 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.

The following table sets forth the aggregate compensation received by each
director during the fiscal year ended September 30, 1996, as well as the total
compensation received by each director from the Fund and all other open-end
investment companies managed by Advisers during the fiscal year ended September
30, 1996. Neither Mr. Freedman, who is an officer of the parent company of
Advisers, nor Mr. Kopperud, who is an officer of Advisers and Investors,
received any such compensation and they are not included in the table. No
executive officer of the Fund received compensation from the Fund during the
fiscal year ended September 30, 1996.

<TABLE>
<CAPTION>
TOTAL
COMPENSATION FROM
AGGREGATE FUND COMPLEX
COMPENSATION FROM PAID TO
DIRECTOR THE COMPANY DIRECTOR(1)
- --------------------------- ----------------- -----------------
<S> <C> <C>
Richard W. Cutting......... $ 1,900 $ 32,300
Dr. Robert M. Gavin........ 1,700 30,100
Benjamin S. Jaffray........ 1,900 32,300
Jean L. King............... 2,000 33,400
Edward M. Mahoney.......... 1,400 23,950
Robb L. Prince............. 1,800 31,200
Leonard J. Santow.......... 1,790 31,100
Noel S. Shadko............. 0 0
Joseph M. Wikler........... 1,900 32,300
</TABLE>

- ------------------------
(1) Includes aggregate compensation paid by the Fund and all 10 Other Fortis
Funds paid to the Director.

INVESTMENT ADVISORY AND OTHER SERVICES

GENERAL

Fortis Advisers, Inc. ("Advisers") has been the investment adviser and manager
of the Fund since the Fund began business in 1982.

36
<PAGE>
Investors acts as the Fund's underwriter. Both act as such pursuant to written
agreements periodically approved by the directors or shareholders of the Fund.
The address of both is that of the Fund.

As of September 30, 1996, Advisers managed thirty investment company portfolios
with combined net assets of approximately $4,068,451,000 and one private account
with net assets of approximately $17,770,000. Fortis Financial Group also has
approximately $2.0 billion in insurance reserves. As of the same date, the
investment company portfolios had an aggregate of 222,175 shareholders,
including 4,962 shareholders of the Fund.

During the fiscal year ended September 30, 1996, the three-month fiscal period
ended September 30, 1994, and the fiscal year ended June 30, 1994, the National
Portfolio and the Minnesota Portfolio paid advisory and management fees as
follows: National Portfolio-- $557,889, $147,364, and $598,148, Minnesota
Portfolio--$387,530, $99,924, and $402,022. During the same periods, Investors
received $151,195, $54,730, and $579,654, respectively, for underwriting the
National Portfolio's shares, and $95,293, $34,819, and $267,998, respectively,
for underwriting the Minnesota Portfolio's shares. Of the amounts received,
Investors paid $122,346, $43,947, and $473,014, respectively to broker-dealers
and registered representatives for selling shares of the National Portfolio and
$80,081, $29,921, and $227,529, for selling shares of the Minnesota Portfolio.

During the fiscal periods ended September 30, 1996, Investors received the
following amounts pursuant to the Plan of Distribution (see "Plan of
distribution"), paid the following amounts to broker-dealers and registered
representatives, and in addition to such amount (along with Advisers) spent the
following amounts on activities related to the distribution of the Fund's
shares:

<TABLE>
<CAPTION>
NATIONAL MINNESOTA
PORTFOLIO PORTFOLIO
SEPTEMBER SEPTEMBER 30,
FISCAL PERIOD ENDED: 30, 1995 1995
- ------------------------------------ ------------ -------------
<S> <C> <C>
Amount Received..................... $ 9,454 $ 5,282
Amount Paid......................... 102,714 37,206
Additional Expenses Paid............ 57,176 26,105
</TABLE>

CONTROL AND MANAGEMENT OF ADVISERS AND INVESTORS

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

Fortis, located in New York, New York, is a wholly owned subsidiary of Fortis
International, N.V., which has approximately $100 billion in assets worldwide
and is in turn a wholly owned subsidiary of AMEV/ VSB 1990 N.V. ("AMEV/VSB
1990").

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

Fortis AMEV is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
AG is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis AMEV and Fortis AG
own a group of companies (of which AMEV/VSB 1990 is one) active in insurance,
banking and financial services, and real estate development in The Netherlands,
Belgium, the United States, Western Europe, and the Pacific Rim.

Dean C. Kopperud is Chief Executive Officer of Advisers and President of
Investors; Gary N. Yalen is President and Chief Investment Officer of Advisers;
James S. Byrd and Stephen M. Poling are Executive Vice Presidents of Advisers;
Howard G. Hudson is Executive Vice President of Advisers; Debra L. Foss, Jon H.
Nicholson, and Dennis M. Ott are Senior Vice Presidents of Advisers; Rhonda J.
Schwartz is Senior Vice President, General Counsel, and Secretary of Advisers;
Robert W. Beltz, Jr., and Thomas D. Gualdoni are Vice Presidents of Advisers and
Investors; Nicholas L. M. de Peyster, Charles J. Dudley, Maroun M. Hayek, Kevin
J. Michels, Robert C. Lindberg, Richard P. Roche, Keith R. Thomson, Stephen M.
Rickert, and Christopher J. Woods are Vice Presidents of Advisers; John E. Hite
is 2nd Vice President and Assistant Secretary of Advisers; Carol M. Houghtby is
2nd Vice President and Treasurer of Advisers and Investors; Tamara L. Fagely is
2nd Vice President of Advisers and Investors; Barbara W. Kirby and Deborah K.
Kramer are 2nd Vice Presidents of Advisers; David C. Greenzang is Money Market
Portfolio Officer of Advisers, Michael D. O'Connor is Qualified Plan Officer of
Advisers; Barbara J. Wolf is Trading Officer of Advisers; Scott R. Plummer is
2nd Vice President and Assistant Secretary of Advisers; Joanne M. Herron is
Assistant Treasurer of Advisers and Investors and Sharon R. Jibben is Assistant
Secretary of Advisers.

Messrs. Kopperud, Yalen, and Poling are the Directors of Advisers.

All of the above persons reside or have offices in the Minneapolis/St. Paul
area, except Messrs. Yalen, Hudson, de Peyster, Dudley, Hayek, Lindberg,
Michels, Rickert, Woods and Greenzang, who are all located in New York City.

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT

Advisers acts as investment adviser and manager of each Portfolio under separate
Investment Advisory and Management Agreements (the "Agreements") dated January
31, 1992 (for National Portfolio), and December 12, 1990 (for Minnesota
Portfolio), all of which became effective on their respective dates.
Shareholders approved these Agreements on January 28, 1992, and November 8,
1990, respectively. The Agreements were last approved by the Board of Directors
on December 5, 1996. The approval by the Board of Directors included approval by
a majority of the directors who are not parties to the contracts, or interested
persons of such parties. The Agreements will terminate automatically in the
event of their 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 the Fund's outstanding voting
securities of the applicable portfolio, on not more than 60 days' written notice
to Advisers, and by Advisers on 60 days' notice to the Fund. Unless sooner
terminated, the Agreements continue in

37
<PAGE>
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 particular portfolio, by a vote of a majority
of the outstanding voting securities of the applicable portfolio; 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.

The Agreements provide for investment advisory and management fees calculated as
described in the following table. As you can see from the table, this fee
decreases (as a percentage of Fund net assets) as the Fund grows. The fee
percentage for the National Portfolio is based upon the average net assets of
the Portfolio alone, while Minnesota Portfolio's fee is based upon its prorata
portion of the fee based on the combined assets of the Minnesota and National
Portfolios. As of December 31, 1996, the National Portfolio, and Minnesota
Portfolio, had net assets of approximately $ , and $ .

<TABLE>
<CAPTION>
ANNUAL
INVESTMENT
ADVISORY AND
AVERAGE NET ASSETS MANAGEMENT FEE
---------------------------- -----------------
<S> <C> <C>
National Portfolio... For the first $50,000,000 .8%
For assets over $50,000,000 .7%
Minnesota Portfolio.. For the first $50,000,000 .8%
For the next $50,000,000 .7%
For assets over $100,000,000 .625%
</TABLE>

The Agreement requires the Fund to pay all its expenses which are not assumed by
Advisers and/or Investors. These Fund 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 Fund
and its shares for distribution under Federal and state securities laws,
expenses of preparing prospectuses and of printing and distributing prospectuses
annually to existing shareholders, custodian charges, auditing and legal
expenses, insurance expenses, association membership dues, and the expense of
reports to shareholders, shareholders' meetings, and proxy solicitations.

Advisers bears the costs of acting as the Fund's transfer agent, registrar, and
dividend agent. 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 Portfolio, such as custodian
charges and registration fees for shares, are charged to that Portfolio. Other
expenses of the Fund are allocated pro rata among the Portfolios 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 shares.

Under the Agreements, Advisers, as investment adviser to the Fund, has the sole
authority and responsibility to make and execute investment decisions for the
Fund within the framework of the Fund's investment policies, subject to review
by the Board of Directors. Advisers also furnishes the Fund with all required
management services, facilities, equipment, and personnel.

Although investment decisions for the Fund 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 the Fund and other funds or accounts may have a
detrimental effect on the Fund, as this may affect the price paid or received by
the Fund or the size of the position obtainable by the Fund.

PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

As the Fund's portfolio is exclusively composed of debt, rather than equity
securities, most of the Fund's portfolio transactions are effected with dealers
without the payment of brokerage commissions, but at net prices which usually
include a spread or markup. In effecting such portfolio transactions on behalf
of the Fund, Advisers seeks the most favorable net price consistent with the
best execution. However, frequently Advisers selects a dealer to effect a
particular transaction without contacting all dealers who might be able to
effect such transaction, because of the volatility of the bond market and the
desire of Advisers to accept a particular price for a security because the price
offered by the dealer meets its guidelines for profit, yield, or both.

Decisions with respect to placement of the Fund's portfolio transactions are
made by its investment adviser. The primary consideration in making these
decisions is efficiency in the execution of orders and obtaining the most
favorable net prices for the Fund. When consistent with these objectives,
business may be placed with broker-dealers who furnish investment research
services to Advisers. Such research services include advice, both directly and
in writing, as to the value of securities; the advisability of investing in,
purchasing, or selling securities; and the availability of securities, or
purchasers or sellers of securities; as well as analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts. This allows Advisers to supplement its own
investment research activities and enables Advisers to obtain the views and
information of individuals and research staffs of many different securities
firms prior to making investment decisions for the Fund. To the extent portfolio
transactions are effected with broker-dealers who furnish research services to
Advisers, Advisers receives a benefit, not capable of evaluation in dollar
amounts, without providing any direct monetary benefit to the Fund from these
transactions.

38
<PAGE>
Advisers has not entered into any formal or informal agreements with any
broker-dealers, nor does it maintain any "formula" which must be followed in
connection with the placement of Fund portfolio transactions in exchange for
research services provided Advisers, except as noted below. However, Advisers
does maintain an informal list of broker-dealers, which is used from time to
time as a general guide in the placement of Fund business, in order to encourage
certain broker-dealers to provide Advisers with research services which Advisers
anticipates will be useful to it. Because the list is merely a general guide,
which is to be used only after the primary criterion for the selection of
broker-dealers (discussed above) has been met, substantial deviations from the
list are permissible and may be expected to occur. Advisers will authorize the
Fund to pay an amount of commission for effecting a securities transaction in
excess of the amount of commission another broker-dealer would have charged only
if Advisers determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or Advisers' overall responsibilities with respect to the accounts
as to which Advisers exercises investment discretion. Generally, the Fund pays
higher commissions than the lowest rates available.

During the fiscal period ended September 30, 1996, fixed income securities
transactions having an aggregate dollar value of approximately $52,302,000, and
$29,987,108, for the National, and Minnesota Portfolios, respectively (excluding
short-term securities), were traded at net prices including a spread or markup;
during the same period, the Portfolios paid no brokerage commissions to brokers
involved in the purchase and sale of securities for the Portfolios.

The Portfolios will not effect any brokerage transactions in their portfolio
securities with any broker-dealer affiliated directly or indirectly with
Advisers, unless such transactions, including the frequency thereof, the receipt
of commissions payable in connection therewith, and the selection of the
affiliated broker-dealer effecting such transactions are not unfair or
unreasonable to the shareholders of the Portfolios. No commissions were paid to
any affiliate of Advisers during the fiscal period ended September 30, 1996,
September 30, 1995 the three-month fiscal period ended September 30, 1994 or the
fiscal year ended June 30, 1994.

During the fiscal period ended September 30, 1996, the Portfolios did not
acquire the securities of any of its regular brokers or dealers or the parent of
those brokers or dealers that derive more than fifteen percent of their gross
revenue from securities-related activities.

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

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

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

CAPITAL STOCK

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

The Fund currently has two Portfolios, each issuing its own series of common
shares. Each Portfolio currently offers its shares in five classes, each with
different sales arrangements and bearing different expenses. Under the Fund's
Articles of Incorporation, the Board of Directors is authorized to create new
portfolios or classes without the approval of the shareholders of the Fund. Each
share of stock will have a pro-rata interest in the assets of the Portfolio to
which the stock of that series relates 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.

On some issues, such as the election of directors, all shares of the Fund vote
together as one series. Each share of a Portfolio has one vote (with
proportionate voting for fractional shares) irrespective of the relative net
asset value of the Portfolios' shares.

On issues affecting particular Portfolios of the Fund, the series of shares of
the affected Portfolio vote as a separate series. An example of such an issue
would be a fundamental investment restriction pertaining to only one Portfolio.
Shareholders of a Portfolio are not entitled to vote on any issue which does not
affect that Portfolio but which requires a separate vote of another Portfolio.
In voting on the Agreement, approval of the Agreement by the shareholders of a
particular Portfolio would make the Agreement effective as to that Portfolio
whether or not it had been approved by the shareholders of the other Portfolios.

On December 31, 1996, the National Portfolio, and Minnesota Portfolio, had
6,996,135, and 5,317,048, shares outstanding, respectively.

39
<PAGE>
On that date, no person owned of record or, to the Fund's knowledge,
beneficially as much as 5% of the outstanding shares of any Portfolio, except as
follows:

NATIONAL PORTFOLIO: Class B--21% John W. and Carol J. Heim, 6923 South Owens
Street, Littleton, CO 80127-2814; 13% John M. Larson, 804 Fieldale Lane,
Grayslake, IL 60030-3201; 8% Lisa J. Mol, 8974 South Greenmeadows Drive,
Highlands Ranch, CO 80126-2815; 7% Jean and Joseph O'Brien, 407 Glenridge Road,
Stratford, CT 06497-4338; 5% First Trust National Association, Custodian For
Robert N. McDill IRA, 2731 State Road 25 North, Lafayette, IN 47905-3969; 5%
Debra K. and Alan S. Kube, 8241 West Nichols Avenue, Littleton, CO 80123-5559;
Class H--12% Mark Caban, 120 Arden Drive, Glenshaw, PA 15116-1602; 11% Sylvia W.
Jacobs, 73 High Street, Montclair, NJ 07042-4278; 8% Hunan Restaurant, Inc.,
2100 South Columbia Road, Grand Forks, ND 58201-5895; 5% First Trust National
Association, Custodian For K. L. Manternach IRA, P. O. Box 267, Summerfield, NC
27358-0267; 5% Hilary and Ernest Lisakowski, R.R. 1 Box 43, Manvel, ND
58256-9763; Class C--27% Jerry J. and Susan L. Cummins, 5340 Wolf Road, Western
Springs, IL 60558-1858; 15% Gilbert W. and Barbara R. Grace, 159 Curtis Drive,
Beaver Falls, PA 15010-1056; 12% Cheryl Ramos, 2005 North 50th Avenue, Omaha, NE
68104-4331; 11% Byron V. Nair, 612 Arizona Street, Glidden, IA 51443-1001; 8%
Stanley G. and Ethel Zafran, 1136 Gilham Street, Philadelphia, PA 19111--5419;
8% Tina M. Yost, R.R. 1 Box 181, Worthington, WV 26591-9732.

MINNESOTA PORTFOLIO: Class A--15% Mary C. and Paul G. Smaagaard, Mariner East
Condominiums, 6211 Thomas Drive, Unit 406, Panama City Beach, FL 32408; 10%
First Trust National Association, Custodian for T. S. Forsythe IRA, 10555 Joliet
Avenue North, Stillwater, MN 55082-9435; 10% Garret W. and Leslie M. Johnson,
1085 Villa Lane, Detroit Lakes, MN 56501-4326; 6% Harlan J. Nickel Trust, 490
Pelham Blvd., St. Paul, MN 55104--4938; Robert E. Golden Trust, 2231 East 58th
Street, Minneapolis, MN 55417-2712; Class B--18% Robert R. and Sandra R.
Schreurs, 2829 Norwood Avenue, Slayton, MN 56172-1426; 13% Gary D. Floss, 1444
18th Street NW, New Brighton, MN 55112-5407; 10% Joseph J. Glatzmaier, 333 8th
Street SE, Apt. 313, Minneapolis, MN 55414-1255; 8% Wilbur R. L. Trimpe, 507
Jenkran Street, Apt. 2, Morrison, IL 61270-3012; 8% Elwood C. and Mary E. Black,
814 W 43rd Street, Indianapolis, IN 46208-3311; 6% Gloria A. Jungkans, R.R. 2
Box 180, New Ulm, MN 56073-9569; 6% Erwin L. Nolte, 204 East 12th Street, Blue
Earth, MN 56013-2106; 5% David L. and Eileen Cederberg, 3457 Orchard Avenue
North, Crystal, MN 55422-2867; Class H--18% Donna Milam, 1735 Donegal Drive,
Woodbury, MN 55125-3352; 15% Mary C. Jackson, 4300 West River Pkwy., Apt 215,
Minneapolis, MN 55406-3677; 15% Keith B. Magnuson, 737 Memorial Drive,
Crookston, MN 56716-1131; 7% Michael L. Scott Profit Sharing Plan, 770 Torchwood
Drive, New Brighton, MN 55112-2560; 6% Betty D. Eullrich, 8407 Kell Avenue,
Bloomington, MN 55437-1501; 6% Gwen A. Turman, 23315 County Road 7, Hutchinson,
MN 55350-5513; 5% Myron A. Trebesch, R.R. 3 Box 167, Sleepy Eye, MN 56085-9306;
Class C--33% Rice Family Limited Partnership, P. O. Box 128, Sauk Rapids, MN
56379-0128; 25% Lois M. Elias, R. R. 1 Box 185, Kasson, MN 55944-9728; 12%
Dennis E. and Pamela M. Jones, P. O. Box 186, Lowry, MN 56349-0186; 12% Brandie
L. Pierson UTMA, R.R. 1 Box 87, Donnely, MN 56235-9742; 10% Catherine A. Estrem,
1594 Lakewood Drive, Maplewood, MN 55119-7167.

The Fund is not required under Minnesota law to hold annual or periodically
scheduled regular meetings of shareholders. Minnesota corporation law provides
for the Board of Directors to convene shareholder meetings when it deems
appropriate. In addition, if a regular meeting of shareholders has not been held
during the immediately preceding fifteen months, a shareholder or shareholders
holding three percent or more of the voting shares of the Fund may demand a
regular meeting of shareholders by written notice of demand given to the chief
executive officer or the chief financial officer of the Fund. 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.

COMPUTATION OF NET ASSET VALUE AND PRICING

On September 30, 1996, the Portfolios' net asset values per share were
calculated as follows:

<TABLE>
<S> <C>
NATIONAL PORTFOLIO

CLASS E
Net Assets ($70,530,792)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (6,581,433) ($10.72)

CLASS A
Net Assets ($1,807,181)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (168,770) ($10.71)

CLASS B
Net Assets ($668,200)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (62,463) ($10.70)

CLASS H
Net Assets ($1,756,529)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (164,006) ($10.71)

CLASS C
Net Assets ($105,922)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (9,896) ($10.70)
</TABLE>

40
<PAGE>
<TABLE>
<S> <C>
MINNESOTA PORTFOLIO

CLASS E
Net Assets ($52,603,103)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (5,097,390) ($10.32)

CLASS A
Net Assets ($883,555)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (85,773) ($10.30)

CLASS B
Net Assets ($179,976)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (17,521) ($10.27)

CLASS H
Net Assets ($638,141)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (61,971) ($10.30)

CLASS C
Net Assets ($143,053)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (13,895) ($10.30)
</TABLE>

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

NATIONAL PORTFOLIO

CLASS E

$10.72
---- = Public Offering Price Per Share
.955 ($11.23)

CLASS A

$10.71
---- = Public Offering Price Per Share
.955 ($11.21)

MINNESOTA PORTFOLIO

CLASS E

$10.32
---- = Public Offering Price Per Share
.955 ($10.81)

CLASS A

$10.30
---- = Public Offering Price Per Share
.955 ($10.79)

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 Fund after the
beginning of each day the Exchange is open for trading is based on net asset
value determined as of the primary closing time for business on the Exchange
that day; the price in effect for orders received after such close is based on
the net asset value as of such close of the Exchange on the next day the
Exchange is open for trading.

Generally, the net asset value of the Fund's shares is determined on each day on
which the Exchange is open for business. The Exchange is not open for business
on the following holidays (nor on the nearest Monday or Friday if the holiday
falls on a weekend): New Year's Day, 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 Fund's portfolio securities will not materially affect the current net
asset value of the Fund's 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 Fund.

SPECIAL PURCHASE PLANS

The Fund offers several special purchase plans, described in the Prospectus,
which allow reduction or elimination of the sales charge for Class A and E
shares under certain circumstances. Additional information regarding some of the
plans is as follows:

STATEMENT OF INTENTION

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. The Statement of Intention is not a binding obligation on
the part of the investor to purchase, or the Fund to sell, the full amount
indicated. Nevertheless, the Statement of Intention should be read carefully
before it is signed.

GIFTS OR TRANSFERS TO MINOR CHILDREN

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). Dividends or capital gains distributions are taxed to the child,
whose tax bracket is usually lower than the adult's. However, if the child is
under 14 years old and his or her unearned income is more than $1,300 per year,
then that portion of the child's income which exceeds $1,300 per year will be
taxed to the

41
<PAGE>
child at the parents' top rate. Control of the Fund shares passes to the child
upon reaching a specified adult age (either 18 or 21 years in most states).

SYSTEMATIC INVESTMENT PLAN

The Fund provides a convenient, voluntary method of purchasing shares in the
Fund through its "Systematic Investment Plan."

The principal purposes of the Plan are to encourage thrift by enabling you to
make regular purchases in amounts less than normally required, and to employ the
principle of dollar cost averaging, described below.

By acquiring Fund shares on a regular basis pursuant to a Systematic Investment
Plan, or investing regularly on any other systematic plan, the investor takes
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. It
is essential that the investor consider his or her financial ability to continue
this investment program during times of market decline as well as market rise.
The principle of dollar cost averaging will not protect against loss in a
declining market, as a loss will result if the plan is discontinued when the
market value is less than cost.

An investor has no obligation to invest regularly or to continue the Plan, which
may be terminated by the investor 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 a shareholder instructs Investors in
writing to pay them 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

The amount to be exchanged must meet the minimum purchase amount of the fund
being purchased.

Shareholders should consider the differing investment objectives and policies of
these other funds prior to making such exchange.

For Federal tax purposes, except where the transferring shareholder is a tax
qualified plan, a transfer between funds is a taxable event that probably will
give rise to a capital gain or loss. Furthermore, if a shareholder carries out
the exchange within 90 days of purchasing the shares in the Fund, the sales
charge incurred on that purchase cannot be taken into account for determining
the shareholder's 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 the shareholder's 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.

REINVESTED DIVIDEND/CAPITAL GAINS DISTRIBUTIONS BETWEEN
FORTIS FUNDS

This privilege is based upon the fact that such orders are generally unsolicited
and the resulting lack of sales effort and expense.

PURCHASES BY FORTIS, INC. (OR ITS SUBSIDIARIES) OR ASSOCIATED PERSONS

This privilege is based upon the relationship of such persons to the Fund and
the resulting economies of sales effort and expense.

PURCHASES BY FUND DIRECTORS OR OFFICERS

This privilege is based upon their familiarity with the Fund and the resulting
lack of sales effort and expense.

PURCHASES BY REPRESENTATIVES OR EMPLOYEES OF BROKER-DEALERS

This privilege is based upon the presumed knowledge such persons have about the
Fund as a result of their working for a company selling the Fund's shares and
resulting economies of sales effort and expense.

PURCHASES BY REGISTERED INVESTMENT COMPANIES

This privilege is based upon the generally unsolicited nature of such purchases
and the resulting lack of sales effort and expense.

PURCHASES WITH PROCEEDS FROM REDEMPTION OF UNRELATED MUTUAL FUND SHARES OR
SURRENDER OF CERTAIN FIXED ANNUITY CONTRACTS

SHAREHOLDERS OF UNRELATED MUTUAL FUNDS WITH SALES LOADS--This privilege is based
upon the existing relationship of such persons with their broker-dealer or
registered representative and/or the familiarity of such shareholders with
mutual funds as an investment concept, with resulting economies of sales effort
and expense.

OWNERS OF A FIXED ANNUITY CONTRACT NOT DEEMED A SECURITY UNDER THE SECURITIES
LAWS--This privilege is based upon the existing relationship of such persons
with their broker-dealer or registered representative and/or the lower
acquisition costs associated with such sale, with resulting economies of sales
effort and expense.

PURCHASES BY EMPLOYEES OF CERTAIN BANKS AND OTHER FINANCIAL SERVICES FIRMS

This privilege is based upon the familiarity of such investors with the Fund and
the resulting lack of sales effort and expense.

PURCHASES BY INVESTMENT ADVISERS, TRUST COMPANIES, AND BANK TRUST DEPARTMENTS
EXERCISING DISCRETIONARY INVESTMENT AUTHORITY OR USING A MONEY MANAGEMENT MUTUAL
FUND "WRAP" PROGRAM

This privilege is based upon the familiarity of such investors with the Fund and
the resulting lack of sales effort and expense.

42
<PAGE>
REDEMPTION

The obligation of the Fund to redeem its shares when called upon to do so by the
shareholder is mandatory with certain exceptions. The Fund will pay in cash all
redemption requests by any shareholder of record, 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. When redemption requests exceed such amount,
however, 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 emergency, such as in those situations
enumerated in the following paragraph, or at any time a cash distribution would
impair the liquidity of the Fund to the detriment of the existing shareholders.
Any securities being so distributed would be valued in the same manner as the
portfolio of the Fund is valued. If the recipient sold such securities, he or
she probably would incur brokerage charges.

Redemption of shares, or payment, may be suspended at times (a) when the
Exchange is closed for other than customary weekend or holiday closings, (b)
when trading on 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. The Exchange
is not open for business on the following holidays (nor on the nearest Monday or
Friday if the holiday falls on a weekend), on which the Fund will not redeem
shares: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.

There is no charge for redemption, nor does the Fund contemplate establishing a
charge, although it has the right to do so. In the event a charge were
established, it would apply only to persons who became shareholders after such
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 Fund 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

An investor may open a "Systematic Withdrawal Plan" providing for withdrawals of
$50 or more per quarter, semiannually, or annually if he or she has made a
minimum investment in Fund shares of $4,000 ($50 or more per month if at least
$10,000 has been invested), or has acquired and deposited shares having either
an original cost, or current value computed on the basis of the offering price,
equal to the appropriate amount. The minimum amount which may be withdrawn of
$50 per month is a minimum only, and should not be considered a recommendation.

These payments may constitute return of capital, and it should be understood
that they do not represent a yield or return on investment and that they may
deplete or eliminate the investment. The shareholder cannot be assured 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 of each payment, the frequency of each payment, and the increase (or
decrease) in value of the remaining shares.

Under this Plan, any distributions of income and realized capital gains are
reinvested at net asset value. If a shareholder wishes to purchase additional
shares of the Fund under this Plan, other than by reinvestment of distributions,
it should be understood that he or she would be paying a sales commission on
such purchases, while liquidations effected under the Plan would be at net asset
value. Purchases of additional shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and tax liabilities.
Additions to a shareholder account in which an election has been made to receive
systematic withdrawals will be accepted only if each such addition is equal to
at least one year's scheduled withdrawals or $1,200, whichever is greater. A
shareholder may not have a "Systematic Withdrawal Plan" and a "Systematic
Investment Plan" in effect simultaneously, as it is not, as explained above,
advantageous to do so.

The Plan is voluntary, flexible, and under the shareholder's control and
direction at all times, and does not limit or alter his or her right to redeem
shares. The Plan may be terminated in writing at any time by either the
shareholder or the Fund. The cost of operating the Plan is borne by Advisers.
The redemption of Fund shares pursuant to the Plan is a taxable event to the
shareholder.

REINVESTMENT PRIVILEGE

In order to allow investors who have redeemed Fund shares an opportunity to
reinvest, without additional cost, a one-time privilege is offered whereby an
investor may 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 in an amount not exceeding the proceeds of
redemption; must be exercised within 60 days of redemption; and only may be
exercised once with respect to the Fund.

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
an investor 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 alter any capital gains taxes payable on a
realized gain. Furthermore, if a shareholder redeems within 90 days of
purchasing the shares in the Fund, the sales charge incurred on that purchase
cannot be taken into account for determining the shareholder's gain or loss on
the sale of those shares.

43
<PAGE>
TAXATION

The Portfolios qualified in the tax year ended September 30, 1996, and intend to
continue to qualify, as regulated investment companies under the Internal
Revenue Code of 1986, as amended (the "Code"). As long as they so qualify, the
Portfolios are not taxed on the income distributed to shareholders.

For individuals in taxable year 1997, long-term capital gains are subject to a
maximum tax rate of 28% while ordinary income is subject to a maximum rate of
39.6% (for taxable income in excess of $271,050). (The maximum effective tax
rate may be in excess of 39.6%, resulting from a combination of the nominal tax
rate and a phase-out of personal exemptions and a partial disallowance of
itemized deductions for individuals with taxable incomes above certain levels.)

Gain or loss realized upon the sale of shares in the Fund will be treated as
capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. Such gain or loss will be long-term capital gain
or loss if the shares were held for more than one year.

Under the Code, the 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.

Under the Code, interest on indebtedness incurred or continued to purchase or
carry shares of an investment company paying exempt-interest dividends, such as
the Fund, is not deductible by the investor in proportion to the percentage of
each Portfolio's distributions from investment income and short-term capital
gains that is exempt from federal income tax. Minnesota law also restricts the
deductibility of interest on indebtedness incurred or continued to purchase or
carry shares of the Fund. Indebtedness may be allocated to shares of the Fund
even though not directly traceable to the purchase of such shares.

Any loss on the sale or exchange of shares held for six months or less (although
regulations may reduce this time period to 31 days) will be disallowed for
Federal income tax purposes to the extent of the amount of any exempt-interest
dividend received with respect to such shares. Except to the extent disallowed
pursuant to the preceding sentence, any loss on the sale or exchange of shares
held for six months or less will be treated as a long-term capital loss to the
extent of the amount of any dividend received from long-term capital gains with
respect to such shares. Similar rules apply in the case of individuals, estates,
and trusts under Minnesota law.

Certain deductions otherwise allowable to financial institutions and property
and casualty insurance companies will be eliminated or reduced by reason of the
receipt of certain exempt-interest dividends.

For Federal income tax purposes the National and Minnesota Portfolios had the
following capital loss carryovers at September 30, 1996, which, if not offset by
subsequent capital gains, will expire in 2003. It is unlikely the Board of
Directors will authorize a distribution of any net realized gains until the
available capital loss carryovers have been offset or expired.

<TABLE>
<S> <C>
National
Portfolio........ $1,125,424
Minnesota
Portfolio........ $ 335,029
</TABLE>

If either Portfolio disposes of a Municipal Obligation that it acquired after
April 30, 1993 at a market discount, it must recognize any gain it realizes on
the disposition as ordinary income (and not as capital gain) to the extent of
the accrued market discount.

If the Portfolios invest in options on securities, the marked-to-market rules of
the Code may require them to recognize gains and losses on options held by the
Portfolios at the end of the fiscal year. Under the marked-to-market rules, 60%
of a net capital gain or loss recognized is treated as long-term and 40% as
short-term. In addition, if a Portfolio held offsetting options that were
considered a "straddle" for purposes of the Code, and those options were not
subject to the marked-to-market rules described above, the straddle rules of the
Code would require deferral of certain losses realized on positions of the
straddle to the extent that a Portfolio had unrealized gains in offsetting
positions at year end.

If the Portfolios invest in zero coupon obligations upon their issuance, such
obligations will have original issue discount in the hands of the Portfolios.
Generally, 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. Similarly, if a Portfolio acquires an already
issued zero coupon bond from another holder, the bond will have original issue
discount in the Portfolio's hands, equal to the difference between the "adjusted
issue price" of the bond at the time the Portfolio 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
Portfolios are required to accrue as ordinary interest income a portion of such
original issue discount even though the Portfolios receive no cash currently as
interest payments, on the obligation. Because the Portfolios are each required
to distribute substantially all of their net investment income (including
accrued original issue discount) in order to qualify as regulated investment
companies, the Portfolios may be required to distribute an amount greater than
the total cash income the Portfolios actually receive. Accordingly, in order to
make the required distribution, the Portfolios may be required to borrow or to
liquidate securities. The extent to which the Portfolios may liquidate
securities at a gain may be limited by the requirement that generally less than
30% of the Portfolios' gross income (on an annual basis) must consist of gains
from the sale of securities held for less than three months.

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

44
<PAGE>
UNDERWRITER

On December 6, 1996, the Board of Directors (including a majority of the
directors who are not parties to the contract, or interested persons of any such
party) reapproved the existing Underwriting Agreement with Investors dated
November 14, 1994, which will become effective November 14, 1994. This
Underwriting Agreement may be terminated by the Fund or Investors at any time by
the giving of 60 days' written notice, and terminates automatically in the event
of its assignment. Unless sooner terminated, the Underwriting Agreement shall
continue in effect for more than two years after its execution only so long as
such continuance is also approved by the vote of a majority of the directors who
are not parties to such Underwriting Agreement, or interested persons of such
parties, cast in person at a meeting called for the purpose of voting on such
approval.

The Underwriting Agreement requires Investors or Advisers to pay all promotional
expenses in connection with the distribution of the Fund's shares, including
paying for printing and distributing prospectuses and shareholder reports to new
shareholders, and the costs of sales literature.

In the Underwriting Agreement, Investors undertakes to indemnify the Fund
against all costs of litigation and other legal proceedings, and against any
liability incurred by or imposed upon the Fund in any way arising out of or in
connection with the sale or distribution of the Fund's shares, except to the
extent that such liability is the result of information which was obtainable by
Investors only from persons affiliated with the Fund but not with Investors.

PLAN OF DISTRIBUTION

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

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

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

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

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

Rule 12b-1(c) provides that the fund may rely on Rule 12b-1(b) only if the
selection and nomination of the disinterested directors of the Fund are
committed to the discretion of such disinterested directors. Rule 12b-1(c)
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 Section 88(a) and (b)
of the 1940 Act, that there is a reasonable likelihood that the plan will
benefit the Fund and its shareholders.

The Board of Directors last approved the plan on December 5, 1996.

45
<PAGE>
PERFORMANCE

The National and Minnesota Portfolios' yields for the 30-day period ended
September 30, 1996, respectively, were:

<TABLE>
<CAPTION>
TAX-EXEMPT YIELDS
CLASS A CLASS B CLASS C CLASS H CLASS E
<S> <C> <C> <C> <C> <C>
National Portfolio 4.43% 4.10% 4.10% 4.10% 4.65%
Minnesota Portfolio 4.64% 4.04% 4.04% 4.04% 4.81%
</TABLE>

The National and Minnesota Portfolios' annualized tax-exempt yields for the same
period, assuming a Federal tax rate of 39.6%, and combined Minnesota/Federal tax
rate of 44.7%, the tax equivalent yields respectively were:

<TABLE>
<CAPTION>
TAX-EQUIVALENT YIELDS
CLASS A CLASS B CLASS C CLASS H CLASS E
<S> <C> <C> <C> <C> <C>
National Portfolio 7.33% 6.79% 6.79% 6.79% 7.69%
Minnesota Portfolio 8.39% 7.31% 7.31% 7.31% 8.69%
</TABLE>

46
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS E

<CAPTION>
VALUE OF REINVESTED
PERIOD ENDED INITIAL CAPITAL TOTAL
SEPTEMBER $1,000 GAINS REINVESTED CUMULATIVE % YEARLY
30, INVESTMENT($) + DISTRIBUTIONS + DIVIDENDS = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
86** 979 0 8 987 -1.3%
87 903 4 74 981 -0.6%
88 942 4 157 1,103 12.4%
89 948 4 242 1,194 8.3%
90 923 4 319 1,246 4.4%
91 986 4 430 1,420 14.0%
92 1,018 4 540 1,562 10.0%
93 1,093 4 677 1,774 13.6%
94 999 10 709 1,718 -3.2%
95 1,032 11 836 1,879 9.4%
CUMULATIVE TOTAL RETURN Last 5 Years 44.0%
Life of
Portfolio 87.9%
CLASS A
<CAPTION>
VALUE OF REINVESTED
PERIOD ENDED INITIAL CAPITAL TOTAL
SEPTEMBER $1,000 GAINS REINVESTED CUMULATIVE % YEARLY
30, INVESTMENT($) + DISTRIBUTIONS + DIVIDENDS = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,045 1 51 1,097 9.7%
<CAPTION>
CLASS B
VALUE OF REINVESTED
PERIOD ENDED INITIAL CAPITAL TOTAL
SEPTEMBER $1,000 GAINS REINVESTED CUMULATIVE % YEARLY
30, INVESTMENT($) + DISTRIBUTIONS + DIVIDENDS = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,093 1 46 1,140 14.0%
CLASS C
<CAPTION>
VALUE OF REINVESTED
PERIOD ENDED INITIAL CAPITAL TOTAL
SEPTEMBER $1,000 GAINS REINVESTED CUMULATIVE % YEARLY
30, INVESTMENT($) + DISTRIBUTIONS + DIVIDENDS = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,093 1 46 1,140 14.0%
CLASS H
<CAPTION>
VALUE OF REINVESTED
PERIOD ENDED INITIAL CAPITAL TOTAL
SEPTEMBER $1,000 GAINS REINVESTED CUMULATIVE % YEARLY
30, INVESTMENT($) + DISTRIBUTIONS + DIVIDENDS = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,094 1 46 1,141 14.1%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

<CAPTION>
MOST RECENT: 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS 8 YEARS 9 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class E 4.38% 0.55% 4.74% 6.02% 7.57% 7.03% 7.21% 7.84% 6.87%
Class A -- -- -- -- -- -- -- -- --
Class B -- -- -- -- -- -- -- -- --
Class C -- -- -- -- -- -- -- -- --
Class H -- -- -- -- -- -- -- -- --

<CAPTION>
<S> <C>
LIFE OF
MOST RECENT: PORTFOLIO
<S> <C>
Class E 6.99%
Class A 9.63%*
Class B 13.96%*
Class C 13.95%*
Class H 14.06%*
</TABLE>

*This reflects the cumulative total return from November 14, 1994 to September
30, 1995
**June 2, 1986 to September 30, 1986
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for Classes E, A, B, C,
and H for the period would have been $8, $1, $1, $1, and $1, respectively, for
capital gains distributions and $580, $49, $44, $44, and $44, respectively for
income dividends, and the value of the shares as of September 30, 1995, would
have been $1,032, $1,045, $1,093, $1,093 and $1,094, respectively. All figures
are based upon historical earnings and are not intended to indicate future
performance. Investment return and share value fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. No
adjustment has been made for a shareholder's income tax liability on dividends
or capital gains.

47
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS E

<CAPTION>
VALUE OF REINVESTED
PERIOD ENDED INITIAL CAPITAL TOTAL
SEPTEMBER $1,000 GAINS REINVESTED CUMULATIVE % YEARLY
30, INVESTMENT($) + DISTRIBUTIONS + DIVIDENDS = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
86** 979 0 7 986 -1.4%
87 897 0 73 970 -1.6%
88 931 0 151 1,082 11.5%
89 930 0 231 1,161 7.3%
90 916 0 305 1,221 5.2%
91 962 0 407 1,369 12.1%
92 987 0 508 1,495 9.2%
93 1,047 0 632 1,679 12.3%
94 976 0 678 1,654 -1.5%
95 1,000 0 793 1,793 8.4%
CUMULATIVE TOTAL RETURN Last 5 Years 40.1%
Life of
Portfolio 79.3%
CLASS A
<CAPTION>
VALUE OF REINVESTED
PERIOD ENDED INITIAL CAPITAL TOTAL
SEPTEMBER $1,000 GAINS REINVESTED CUMULATIVE % YEARLY
30, INVESTMENT($) + DISTRIBUTIONS + DIVIDENDS = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,030 0 50 1,080 8.0%
CLASS B
<CAPTION>
VALUE OF REINVESTED
PERIOD ENDED INITIAL CAPITAL TOTAL
SEPTEMBER $1,000 GAINS REINVESTED CUMULATIVE % YEARLY
30, INVESTMENT($) + DISTRIBUTIONS + DIVIDENDS = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,075 0 46 1,121 12.1%
CLASS C
<CAPTION>
VALUE OF REINVESTED
PERIOD ENDED INITIAL CAPITAL TOTAL
SEPTEMBER $1,000 GAINS REINVESTED CUMULATIVE % YEARLY
30, INVESTMENT($) + DISTRIBUTIONS + DIVIDENDS = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,077 0 46 1,123 12.3%
CLASS H
<CAPTION>
VALUE OF REINVESTED
PERIOD ENDED INITIAL CAPITAL TOTAL
SEPTEMBER $1,000 GAINS REINVESTED CUMULATIVE % YEARLY
30, INVESTMENT($) + DISTRIBUTIONS + DIVIDENDS = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,079 0 45 1,124 12.4%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

<CAPTION>
MOST RECENT: 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS 8 YEARS 9 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class E 3.47% 0.97% 4.61% 5.76% 6.98% 6.69% 6.77% 7.37% 6.31%
Class A -- -- -- -- -- -- -- -- --
Class B -- -- -- -- -- -- -- -- --
Class C -- -- -- -- -- -- -- -- --
Class H -- -- -- -- -- -- -- -- --

<CAPTION>
<S> <C>
LIFE OF
MOST RECENT: PORTFOLIO
<S> <C>
Class E 6.45%
Class A 8.06%*
Class B 12.10%*
Class C 12.31%*
Class H 12.42%*
</TABLE>

*This reflects the cumulative total return from November 14, 1994 to September
30, 1995
**June 2, 1986 to September 30, 1986
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for Classes E, A, B, C,
and H for the period would have been $0, $0, $0, and $0, respectively, for
capital gains distributions and $562, $49, $44, $44, and $44, respectively, for
income dividends, and the value of the shares as of September 30, 1995, would
have been $1,000, $1,030, $1,075, $1,077 and $1,079, respectively. All figures
are based upon historical earnings and are not intended to indicate future
performance. Investment return and share value fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. No
adjustment has been made for a shareholder's income tax liability on dividends
or capital gains.

48
<PAGE>
TAX-EXEMPT VERSUS TAXABLE INCOME

The following tables show the yield that taxable investments would have to earn
to equal tax-exempt income earned by an investment in the National Portfolio, or
the Minnesota Portfolio Portfolio, respectively. The tax-exempt yields shown are
for illustrative purposes only and are not indicative of the Funds' yields.
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
TAX-EXEMPT YIELDS
-----------------------------------------------
4.00% 5.00% 6.00% 7.00% 8.00%

FEDERAL TAXABLE
INCOME BRACKET FEDERAL TAX
JOINT RETURNS SINGLE RETURNS RATE TAXABLE EQUIVALENT YIELDS
- -------------------- -------------------- ------------ -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0-$41,200 $0-24,650 15% 4.71% 5.88% 7.06% 8.24% 9.41%
$41,200-$99,600 $24,650-$59,750 28% 5.56% 6.94% 8.33% 9.72% 11.11%
$99,600-$151,750 $59,750-$124,650 31% 5.80% 7.25% 8.70% 10.14% 11.59%
$151,750-$271,050 $124,650-$271,050 36% 6.25% 7.81% 9.38% 10.94% 12.50%
Over $271,050 Over $271,050 39.6% 6.62% 8.28% 9.93% 11.59% 13.25%

MINNESOTA PORTFOLIO

TAX-EXEMPT YIELDS
-----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
4.00% 5.00% 6.00% 7.00% 8.00%
<CAPTION>

APPROXIMATE
COMBINED
FEDERAL TAXABLE STATE AND
INCOME BRACKET FEDERAL TAX
JOINT RETURNS SINGLE RETURNS RATE TAXABLE EQUIVALENT YIELDS
- -------------------- -------------------- ------------ -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0-$22,080 $0-$15,110 20.1% 5.01% 6.26% 7.51% 8.76% 10.01%
$22,080-$40,100 $15,110-$24,000 21.8% 5.12% 6.39% 7.67% 8.95% 10.23%
$40,100-$86,340 $24,000-$48,890 33.8% 6.04% 7.55% 9.06% 10.57% 12.08%
$86,340-$96,900 $48,890-$58,150 34.1% 6.07% 7.59% 9.10% 10.62% 12.14%
$96,900-$147,700 $58,150-$121,300 36.9% 6.44% 7.92% 9.50% 11.09% 12.68%
$147,700-$263,750 $121,300-$263,750 41.4% 6.83% 8.53% 10.24% 11.95% 13.65%
Over $263,750 Over $263,750 44.7% 7.23% 9.04% 10.85% 12.66% 14.47%
</TABLE>

The tax rates shown above are based on federal and Minnesota tax rates in effect
in 1997. In the tables for Minnesota Portfolio, the combined tax rates assume
that state and local income taxes paid are deducted in calculating federal
taxable income. The tables do not reflect the federal and state rules for the
phase-out of personal exemptions and deductions. For years after 1997, the
federal and Minnesota tax bracket amounts will be adjusted for inflation. If
these scheduled changes take effect, they will result in slightly different
taxable equivalent yields for 1998 and later years than those shown in the
tables.

"Tax equivalent yield" is computed by dividing the portion of the Portfolio's
yield which is tax-exempt by one minus a stated income tax rate and then adding
the result to the non tax-exempt portion of the Portfolio's yield.

While yield may be compared to that of "CDs" (insured, fixed rate certificates
of deposit issued by financial institutions), the Portfolios' yield is not fixed
and an investment in the Portfolios is not insured.

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:

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

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

49
<PAGE>
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.

Average annual total return figures are computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:

P(1+T)(n) = 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 as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.

Yield is computed by dividing the net investment income per share (as defined
under Securities and Exchange Commission rules and regulations) earned during
the computation period by the maximum offering price per share on the last day
of the period, according to the following formula:

[( (a-b) )] 6
Yield = 2 [( ----- )] - 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.

As noted in the Prospectus, the Fund may advertise its relative performance as
compiled by outside organizations or refer to publications which have mentioned
its performance.

Following is a list of ratings services which may be referred to, along with the
category in which the Fund is included. Because some of these services do not
take into account sales charges, their ratings may sometimes be different than
had they done so:

<TABLE>
<CAPTION>
RATINGS SERVICE CATEGORY
- ------------------------------------------------------------------ ----------------------------------------------------------------
<S> <C>
Lipper Analytical Services, Inc. general municipal bond
Wiesenberger Investment Companies Services U.S. Government Securities
Morningstar Publications, Inc. municipal bond -- general
Johnson's Charts municipal bond
CDA Technologies, Inc. municipal bond
</TABLE>

50
<PAGE>
Following is a list of the publications whose articles may be referred to:

AMERICAN BANKER (The)
AP-DOW Jones News Service
ASSOCIATED PRESS (The)
BARRON'S
BETTER INVESTING
BOARDROOM REPORTS
BOND BUYER & CREDIT MARKETS (The)
BOND BUYER (The)
BONDWEEK
BUSINESS MONTH
BUSINESS WEEK
CABLE NEWS NETWORK
CASHFLOW MAGAZINE
CFO
CHICAGO TRIBUNE (The)
CHRISTIAN SCIENCE MONITOR
CITY BUSINESS/CORPORATE REPORT
CITYBUSINESS PUBLICATIONS
COMMERCIAL & FINANCIAL CHRONICLE
CONSUMER GUIDE
CORPORATE FINANCE
DALLAS MORNING NEWS
DOLLARS & SENSE
DOW-JONES NEWS SERVICE
ECONOMIST (The)
EQUITY INTERNATIONAL
EUROMONEY
FINANCIAL EXECUTIVE
FINANCIAL PLANNING
FINANCIAL SERVICES WEEK
FINANCIAL TIMES
FINANCIAL WORLD
FORBES
FORTUNE
FUTURES
GLOBAL FINANCE
GLOBAL INVESTOR
INDUSTRY WEEK
INSTITUTIONAL INVESTOR
INTERNATIONAL HERALD TRIBUNE
INVESTMENT DEALER'S DIGEST
INVESTOR'S BUSINESS DAILY
KIPLINGER PERSONAL FINANCE
KIPLINGER CALIF. LETTER (The)
KIPLINGER FLORIDA LETTER
KIPLINGER TEXAS LETTER
KIPLINGER WASHINGTON LETTER (The)
KNIGHT/RIDDER FINANCIAL
LA TIMES
LIPPER ANALYTICAL SERVICES
MARKET CHRONICLE
MINNEAPOLIS STAR TRIBUNE
MONEY
MONEY MANAGEMENT LETTER
MOODY'S INVESTORS SERVICE, INC.
NATIONAL THRIFT NEWS
NATIONAL UNDERWRITER
NELSON'S RESEARCH MONTHLY
NEW YORK DAILY NEWS
NEW YORK NEWSDAY
NEW YORK TIMES (The)
NEWSWEEK
NIGHTLY BUSINESS REPORT (The)
PENSION WORLD
PENSIONS & INVESTMENT AGE
PERSONAL INVESTOR
PORTFOLIO LETTER
REGISTERED REPRESENTATIVE
RUETERS
SECURITIES PRODUCT NEWS
SECURITIES WEEK
SECURITY TRADERS HANDBOOK
SAINT PAUL PIONEER PRESS
STANDARD & POOR'S CORPORATION
STANGER'S INVESTMENT ADVISOR
STANGER'S SELLING MUTUAL FUNDS
STOCK MARKET MAGAZINE (The)
TIME
TRUSTS & ESTATES
U.S. NEWS & WORLD REPORT
UNITED PRESS INTERNATIONAL
USA TODAY
WALL STREET JOURNAL (The)
WASHINGTON POST (The)
FORTIS BENEFITS INSURANCE COMPANY
WOODBURY BULLETIN
WIESENBERGER INVESTMENT COMPANIES
SERVICES

51
<PAGE>
FINANCIAL STATEMENTS

The financial statements included as part of the Fund's 1996 Annual Report to
Shareholders, filed with the Securities and Exchange Commission in December,
1996, are incorporated herein by reference. The Annual Report accompanies this
Statement of Additional Information.

CUSTODIAN; COUNSEL; ACCOUNTANTS

First Bank National Association, First Bank Place, Minneapolis, MN 55480 acts as
custodian of the Fund's assets and portfolio securities; Dorsey & Whitney LLP,
220 South Sixth Street, Minneapolis, MN 55402, is the independent General
Counsel for the Fund; and KPMG Peat Marwick LLP, 4200 Norwest Center,
Minneapolis, MN 55402, acts as the Fund's independent auditors.

LIMITATION OF DIRECTOR LIABILITY

Under Minnesota law, each director of Fortis Income owes certain fiduciary
duties to it and to its shareholders.

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

Minnesota law does not eliminate the duty of "care" imposed upon a director. It
only authorizes a corporation to eliminate monetary liability for violations of
that duty. Minnesota law, further, does not permit elimination or limitation of
liability of "officers" to the corporation for breach of their duties as
officers (including the liability of directors who serve as officers for breach
of their duties as officers). Minnesota law does not permit elimination or
limitation of the availability of equitable relief, such as injunctive or
rescissionary relief. Further, Minnesota law does not permit elimination or
limitation of a director's liability under the Securities Act of 1933 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 Fund has 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.

52
<PAGE>

PART C - OTHER INFORMATION

ITEM 24.(a) FINANCIAL STATEMENTS:

The following financial statements are included in the registration
statement:

Financial Statements included in Part A:

Financial Highlights

Financial Statements included in Part B:

All financial statements required by Part B were incorporated
therein by reference to Registrant's 1995 Annual Report to
Shareholders.

ITEM 24.(b) EXHIBITS:

(1) Copy of the charter as now in effect;

***

(2) Copies of the existing by-laws or instruments corresponding thereto;

(3) Copies of any voting trust agreement with respect to more than 5
percent of any class of equity securities of the Registrant;

Inapplicable

(4) Copies of all instruments defining the rights of holders of the
securities being registered including, where applicable, a relevant
portion of the articles of incorporation or by-laws of the Registrant;

See Item 24(b)(1)

(5) Copies of all investment advisory contracts relating to the management
of the assets of the Registrant;

(6) Copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies of all
agreements between principal underwriters and dealers;

***

(7) Copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of
directors or officers of the Registrant in their capacity as such; if
any such plan is not set forth in a formal document, furnish a
reasonably detailed description thereof;

Inapplicable
<PAGE>

(8) Copies of all custodian agreements, and depository contracts under
Section 17(f) of the 1940 Act, with respect to securities and similar
investments of the Registrant, including the schedule of remuneration;

(9) Copies of all other material contracts not made in the ordinary course
of business which are to be performed in whole or in part at or after
the date of filing the Registration Statement;

Inapplicable

(10) An opinion and consent of counsel as to the legality of the securities
being registered, indicating whether they will when sold be legally
issued, fully paid and non-assessable;

Inapplicable

(11) Copies of any other opinions, appraisals or rulings and consents to
the use thereof relied on in the preparation of this Registration
Statement and required by Section 7 of the 1933 Act;

(12) All financial statements omitted from Item 23;

Inapplicable

(13) Copies of any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant, the
underwriter, adviser, promoter or initial stockholders and written
assurances from promoters or initial stockholders that their purchases
were made for investment purposes without any present intention of
redeeming or reselling;

Inapplicable

(14) Copies of the model plan used in the establishment of any retirement
plan in conjunction with which Registrant offers its securities, any
instructions thereto and any other documents making up the model plan.
Such form(s) should disclose the costs and fees charged in connection
therewith;

Inapplicable

(15) Copies of any plan entered into by Registrant pursuant to rule 12b-1
of the 1940 Act, which describes all material aspects of the financing
of distribution of Registrant's shares, and any agreement with any
person relating to implementation of such plan.

Attached

(16) Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22 (which need not be
audited).

**
(17) A Financial Data Schedule meeting the requirements of Rule 483 under
the Securities Act of 1933.

Not applicable
<PAGE>

(18) Copies of any plan entered into by Registrant pursuant to Rule 18f-3
under the 1940 Act, any agreement with any person relating to the
implementation of a plan, any amendment to a plan or agreement, and a
copy of the portion of the minutes of a meeting of the Registrant's
directors describing any action taken to revoke a plan.

Incorporated by reference to Post Effective Amendment Number 18 to
Registrant's Registration Statement, filed with the Securities and
Exchange Commission in January 1996.

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

*Incorporated by reference to Post-Effective Amendment Number 13 to Registrant's
registration statement, filed with the Securities and Exchange Commission in
November, 1992.

**Incorporated by reference to Post-Effective Amendment Number 12 to
Registrant's registration statement, filed with the Securities and Exchange
Commission in November, 1991.

***Incorporated by reference to Post-Effective Amendment Number 16 to
Registrant's registration statement, filed with the Securities and Exchange
Commission in November, 1994.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Furnish a list or diagram of all persons directly or indirectly controlled by or
under common control with the Registrant and as to each person indicate (1) if a
company, the state or other sovereign power under the laws of which it is
organized, and (2) the percentage of voting securities owned or other basis of
control by the person, if any, immediately controlling it.

Inapplicable

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

State in substantially the tabular form indicated, as of a specified date within
90 days prior to the date of filing, the number of record holders of each class
of securities of the Registrant:

Title of Class Number of Record Holders
-------------- ------------------------

National Portfolio Common Class E: 2,059
Class A: 240
Class B: 56
Class C: 44
Class H: 102
(10/31/96)

Minnesota Portfolio Common Class E: 1,425
Class A: 117
Class B: 35
Class C: 18
Class H: 28
(10/31/96)
<PAGE>

ITEM 27. INDEMNIFICATION

State the general effect of any contract, arrangement or statute under which
any director, officer, underwriter or affiliated person of the Registrant is
insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.

Incorporated by reference to Post Effective Amendment Number 8 to
Registrant's Registration Statement, filed with the Securities and Exchange
Commission in February, 1988.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Describe any other business, profession, vocation, or employment of a
substantial nature in which each investment adviser of the Registrant, and
each director, officer, or partner of any such investment adviser, is or has
been, at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner, or
trustee.

See Statement of Additional Information constituting part B hereof. In
addition, the following is furnished.

Other business,
professions, vocations
or employments of a
Current Position substantial nature
Name With Advisers during past two years
- ---- ------------- ---------------------

Michael D. O'Connor Qualified Plan Officer Qualified Plan Officer of
Fortis Benefits Insurance
Company.

Item 29. Principal Underwriters

(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing
securities of the Registrant also acts as a principal underwriter, depositor, or
investment adviser.

Fortis Advantage Portfolios, Inc.
Fortis Equity Portfolios, Inc.
Fortis Fiduciary Fund, Inc.
Fortis Growth Fund, Inc.
Fortis Money Portfolios, Inc.
Fortis Securities, Inc.
Fortis Series Fund, Inc.
Fortis Income Portfolios, Inc.
Fortis Worldwide Portfolios, Inc.
Variable Account C of Fortis Benefits Insurance Company
Variable Account D of Fortis Benefits Insurance Company
<PAGE>

In addition to those listed under "Directors and Executive Officers" in the
Statement of Additional Information:

Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ --------------------- ---------------------

Carol M. Houghtby* 2nd Vice President and Accounting Officer
Treasurer

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

*The business address of these persons is 500 Bielenberg Drive, Woodbury, MN
55125

(c) Furnish the information required by the following table with respect to
all commissions and other compensation received by each principal underwriter
who is not an affiliated person of the Registrant or an affiliated person of
such an affiliated person, directly or indirectly, from the Registrant during
the Registrant's last fiscal year.

Inapplicable

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act and the Rules (17 CFR 270, 31a-1
to 31a-3) promulgated thereunder, furnish the name and address of each person
maintaining physical possession of each such account, book or other document.

Fortis Advisers, Inc., 500 Bielenberg Drive, Woodbury, Minnesota 55125

ITEM 31. MANAGEMENT SERVICES

Furnish a summary of the substantive provisions of any management-related
service contract not discussed in Part I of this Form (because the contract
was not believed to be material to a purchaser of securities of the
Registrant) under which services are provided to the Registrant, indicating
the parties to the contract, the total dollars paid and by whom, for the last
three fiscal years.

Inapplicable

ITEM 32. UNDERTAKINGS

Furnish the following undertakings in substantially the following form in all
initial Registration Statements filed under the 1993 Act:

(a) An undertaking to file an amendment to the Registration Statement
with certified financial statements showing the initial capital received
before accepting subscriptions from any person in excess of 25 if Registrant
proposes to raise its initial capital pursuant to Section 14(a)(3) of the
1940 Act;

Inapplicable

(b) An undertaking to file a post-effective amendment, using financial
statement which need not be certified, within four to six months from the
effective date of Registrant's 1933 act Registration Statement.

Inapplicable
<PAGE>

(c) If the information called for by Item 5A is contained in the latest
annual report to shareholders, an undertaking to furnish each person to whom
a prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.

We undertake to furnish each person to whom a prospectus is delivered
with a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.

<PAGE>

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Woodbury, State of
Minnesota, on November 29, 1996.

Fortis Tax-Free Portfolios, Inc.

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

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to Registration Statement has been signed below by the
following persons in the capacities and on the dates shown.

Signature and Title
- ---------------------

/s/ Dated November 29, 1996
- --------------------------------------------
Dean C. Kopperud, President
(principal executive officer)

/s/ Dated November 29, 1996
- --------------------------------------------
Tamara L. Fagely, Treasurer
(principal financial and accounting officer)

Richard W. Cutting*
Director

Allan R. Freedman*
Director

Robert M. Gavin*
Director

Benjamin S. Jaffray*
Director

Jean L. King*
Director

Edward M. Mahoney*
Director

Thomas R. Pellett*
Director
/s/
-------------------------------
Robb L. Prince* Dean C. Kopperud, Director
Director Pro Se and Attorney-in-Fact

Leonard J. Santow*
Director Dated: November 29, 1996

Joseph M. Wikler*
Director

*Registrant's directors executing Power of Attorney dated March 21, 1996.