FORTIS TAX FREE PORTFOLIOS INC, 485APOS, 1998-12-03

FORTIS TAX FREE PORTFOLIOS INC
485APOS, 1998-12-03

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<PAGE>

1933 Act Registration No. 2-78148

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1998

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
-----
Post-Effective Amendment No. 23
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AND/OR

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

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

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

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

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

COPY TO:
Michael J. Radmer, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498

It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
---
on (specify date) pursuant to paragraph (b) of Rule 485
---
75 days after filing pursuant to paragraph (a) of Rule 485
---
X on February 1, 1999 pursuant to paragraph (a) of Rule 485
---
60 days after filing pursuant to paragraph (a) of Rule 485
---

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<PAGE>

[LOGO]
Solid partners, flexible solutions-SM-

Fortis Tax-Free Portfolios Prospectus

Dated February 1, 1999

- National Portfolio

- Minnesota Portfolio

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

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

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

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

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

<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
<S> <C>
The Funds
National Portfolio..................................................................................... 1
Minnesota Portfolio.................................................................................... 4

Shareholder Information
Choosing a Share Class................................................................................. 7
Determining Your Purchase Price........................................................................ 8
How to Buy Shares...................................................................................... 10
How to Sell Shares..................................................................................... 11
Dividend and Capital Gains Distributions............................................................... 14
Tax Considerations..................................................................................... 14
Shareholder Inquiries.................................................................................. 14

Fund Management
Investment Adviser..................................................................................... 15
Portfolio Managers..................................................................................... 15

More Information on Fund Objectives, Investment Strategies and Risks
Objectives............................................................................................. 16
Investment Strategies.................................................................................. 16
Principal Risks........................................................................................ 16

Financial Highlights
National Portfolio..................................................................................... 18
Minnesota Portfolio.................................................................................... 20
</TABLE>
<PAGE>
THE FUNDS
- -------------------------------------------------------------------

This section briefly describes the objectives, principal investment strategies
and principal risks of National Portfolio and Minnesota Portfolio (the "Funds").
It also provides you with information on how the Funds have performed and on
fund expenses. For more information, please read the section entitled "More
Information on Fund Objectives, Investment Strategies and Risks."

NATIONAL PORTFOLIO

OBJECTIVE

National Portfolio's ("National Fund") objective 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 Fund.

PRINCIPAL INVESTMENT STRATEGIES

National Fund pursues its objective by primarily investing in securities that
pay interest that is exempt from federal income tax. The Fund invests 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 Fund invests in tax exempt obligations issued by states, territories, and
possessions of the United States, and their political subdivisions, agencies and
instrumentalities. Tax exempt obligations include any debt obligation generating
interest that is exempt from federal income tax. At least 90% of the tax exempt
obligations purchased by the Fund 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 Ratings Services (AAA, AA, A or BBB) or will be unrated
securities which are judged by the Fund's adviser ("Advisers") to be of
comparable quality to securities rated within these four highest grades.

The overall approach of Advisers emphasizes security selection and duration
management and seeks a portfolio which is diversified geographically and by
industry. Advisers will attempt to maintain an average effective duration for
the Fund of to years. For more information see "More Information on Fund
Objectives, Investment Strategies and Risks--Investment Strategies."

PRINCIPAL RISKS

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

- INTEREST RATE RISK. Debt securities in the Fund will fluctuate in value
with changes in interest rates. In general, debt securities will increase in
value when interest rates fall and decrease in value when interest rates
rise. One measure of interest rate risk is duration. Securities with longer
durations generally have more volatile prices than securities of comparable
quality with shorter durations. For more information see "More Information
on Fund Objectives, Investment Strategies and Risks--Investment Strategies."

- CREDIT OR DEFAULT RISK. The Fund is subject to the risk that the issuers
of debt securities it holds will not make payments on the securities, or
that the other party to a contract (such as securities lending agreement)
will default on its obligations.

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

- STATE AND LOCAL POLITICAL AND ECONOMIC RISK. The Fund is also subject to
the risk that the value of municipal obligations owned by the Fund will be
adversely affected by local political and economic conditions and
developments.

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

1
<PAGE>
FUND PERFORMANCE

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

ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(%)

[Graph to come]

<TABLE>
<S> <C> <C>
BEST QUARTER: % (Quarter ending , 199 )
WORST QUARTER: % (Quarter ending , 199 )
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98

<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS
----------- ------------- -------------
<S> <C> <C> <C>
Class A Shares..................................................................... .% N/A N/A
Class E Shares..................................................................... .% .% .%
Class B Shares..................................................................... .% N/A N/A
Class H Shares..................................................................... .% N/A N/A
Class C Shares..................................................................... .% N/A N/A
Lehman Brothers Municipal Bond Index*.............................................. .% .% .%
</TABLE>

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

* An unmanaged index of municipal bonds with maturities greater than two
years.

2
<PAGE>
FEES AND EXPENSES

As an investor, you pay certain fees and expenses if you buy and hold shares of
National Fund. Shareholder fees are fees you pay directly when buying or selling
shares. Annual fund operating expenses are deducted from Fund assets. The
figures below are based on expenses during the fiscal year ended September 30,
1998.

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

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

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

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

<TABLE>
<CAPTION>
CLASS B/H CLASS C
SHARES SHARES
ASSUMING CLASS B/H ASSUMING CLASS C
REDEMPTION SHARES REDEMPTION SHARES
CLASS A AT END OF ASSUMING NO AT END OF ASSUMING NO CLASS E
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION SHARES
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 year............................. $ $ $ $ $ $
3 years............................
5 years............................
10 years...........................
</TABLE>

3
<PAGE>
MINNESOTA PORTFOLIO

OBJECTIVE

Minnesota Portfolio's ("Minnesota Fund") objective 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 Fund.

PRINCIPAL INVESTMENT STRATEGIES

Minnesota Fund pursues its objective by investing primarily in securities that
pay interest that is exempt from federal and Minnesota state income tax. The
Fund invests 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.

The Fund invests in tax exempt obligations issued by the State of Minnesota, its
agencies, instrumentalities and political subdivisions. Tax exempt obligations
include any debt obligation generating interest income that is exempt from
federal income tax and that is not includable in taxable net income of
individuals, estates and trusts for Minnesota income tax purposes. At least 90%
of the tax exempt obligations purchased by the Fund 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 Ratings Services (AAA, AA, A or
BBB) or will be unrated securities which are judged by the Fund's adviser
("Advisers") to be of comparable quality to securities rated within these four
highest grades.

The overall approach of Advisers emphasizes security selection and duration
management and seeks a portfolio which is diversified by industry. Advisers will
attempt to maintain an average effective duration for the Fund of to years.
For more information see "More Information on Fund Objectives, Investment
Strategies and Risks--Investment Strategies."

PRINCIPAL RISKS

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

- CREDIT OR DEFAULT RISK. The Fund is subject to the risk that the issuers
of debt securities it holds will not make payments on the securities, or
that the other party to a contract (such as a securities lending agreement)
will default on its obligations.

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

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

4
<PAGE>
FUND PERFORMANCE

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

ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(%)

[Graph to come]

<TABLE>
<S> <C> <C>
BEST QUARTER: % (Quarter ending , 19 )
WORST QUARTER: % (Quarter ending , 19 )
</TABLE>

AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98

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

* An unmanaged index of municipal bonds with maturities greater than two years.

5
<PAGE>
FEES AND EXPENSES

As an investor, you pay certain fees and expenses if you buy and hold shares of
Minnesota Fund. Shareholder fees are fees you pay directly when buying or
selling shares. Annual fund operating expenses are deducted from Fund assets.
The figures below are based on expenses during the fiscal year ended September
30, 1998.

<TABLE>
<CAPTION>
CLASS B
CLASS A AND H CLASS C CLASS E
SHARES SHARES SHARES SHARES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)... 4.50% None None 4.50%
Maximum Deferred Sales Charge
(Load) (as a percentage of
original
purchase price or redemption
proceeds, whichever is less).... --* 4.00% 1.00% --*
ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................... % % % %
Distribution and/or Service
(12b-1) Fees.................... 0.25% 1.00% 1.00% %
Other Expenses................... % % % %
Total Annual Fund Operating
Expenses........................ % % % %
</TABLE>

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

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

6
<PAGE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------

CHOOSING A SHARE CLASS

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

CLASS A SHARES

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

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

- Shares are subject to an annual Rule 12b-1 fee equal to .25% of a Fund's
average daily net assets.

- Because Rule 12b-1 fees are lower, Class A shares have lower expenses and
pay higher dividends than Class B, Class H or Class C shares.

CLASS E SHARES

- These shares are available only if you were a shareholder of the Funds on
November 13, 1994.

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

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

- Shares are not subject to an annual Rule 12b-1 fee.

- Class E shares have the lowest expenses and pay the highest dividends of
all share classes.

CLASS B AND CLASS H SHARES

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

- Shares are subject to a contingent deferred sales charge (CDSC) if you
redeem within six years of purchase. The CDSC is 4% during the first two
years after purchase, and declines thereafter to as low as 1% during the
sixth year after purchase. There is no CDSC after the sixth year.

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

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

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

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

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

CLASS C SHARES

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

- There is a contingent deferred sales charge of 1.00% if you redeem within
one year of purchase.

- There is an annual Rule 12b-1 fee of 1.00% of a Fund's average daily net
assets.

- Shares do not convert to Class A shares. However, they are subject to a
lower contingent deferred sales charge than Class B or Class H shares and
do not have to be held for as long a time (one year vs. six years) to
avoid paying a contingent deferred sales charge.

- Class C shares provide the benefit of putting your entire investment to
work for you immediately.

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

7
<PAGE>
DECIDING WHICH CLASS TO PURCHASE

In deciding which class of shares to purchase, you should consider, among other
things:

- The length of time you expect to hold your investment.

- The amount of any sales charge (whether imposed at the time of purchase or
redemption) and Rule 12b-1 fees.

- Whether you qualify for any reduction or waiver of sales charges (E.G., if
you are exempt from the sales charge, you must invest in Class A shares).

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

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

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

DETERMINING YOUR PURCHASE PRICE

NET ASSET VALUE OF FUND SHARES

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

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

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

PURCHASE PRICE OF CLASS A AND CLASS E SHARES

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

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

<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
PERCENTAGE OF PERCENTAGE OF THE NET BROKER-DEALER
AMOUNT OF SALE PURCHASE PRICE AMOUNT INVESTED CONCESSION
- --------------------------------------------------------------- --------------- --------------------- ---------------
<S> <C> <C> <C>
Less than $100,000............................................. 4.500% 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>

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

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

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

8
<PAGE>
REDUCING YOUR SALES CHARGE FOR CLASS A AND CLASS E SHARES. As shown above,
larger purchases of Class A and Class E shares have a reduced sales charge. You
also may reduce your sales charge through one of the special purchase plans
listed below. For more information on these plans, see the Statement of
Additional Information or contact your broker-dealer or sales representative. It
is your obligation to notify your broker-dealer or sales representative about
your eligibility for either of the following plans.

- RIGHT OF ACCUMULATION. The sales charge discounts apply to your current
purchase plus the net asset value of shares you already own in any Fortis
Fund which has a sales charge.

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

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

CONTINGENT DEFERRED SALES CHARGES. You pay no initial sales charge on purchases
of Class A and Class E shares of $1,000,000 or more. Out of its own assets,
however, Investors pays broker-dealers, a fee of up to 1.00% of the offering
price of these shares. If you redeem these shares within two years, you will pay
a contingent deferred sales charge of 1.00%. For more information, see "How to
Sell Shares--Contingent Deferred Sales Charge."

PURCHASE PRICE OF CLASS B AND CLASS H SHARES

The purchase price of Class B and Class H shares is their net asset value.
Because you pay no sales charge, the Fund receives the full amount of your
investment. However, if you redeem shares within six years of purchase, you will
pay a contingent deferred sales charge ("CDSC") at the following rates. For
additional information, see "How to Sell Shares--Contingent Deferred Sales
Charge."

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE PURCHASE SALES CHARGE
- -------------------- --------------------
<S> <C>
First............... 4.00%
Second.............. 4.00%
Third............... 3.00%
Fourth.............. 3.00%
Fifth............... 2.00%
Sixth............... 1.00%
Seventh............. None
Eighth.............. None
</TABLE>

Investors receives the CDSC, in part to defray expenses incurred in selling
Class B and Class H shares. Investors pays broker-dealers who sell Class B
shares a concession equal to 4.00% of the amount invested and an annual fee of
.25% of the average daily net assets of the Fund attributable to such shares.
Broker-dealers who sell Class H shares are paid a concession of between 5.25%
and 5.50% of the amount invested.

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

PURCHASE PRICE OF CLASS C SHARES

The purchase price of Class C shares is their net asset value. Because you pay
no initial sales charge, the Fund receives the full amount of your investment.
However, if you redeem your shares within one year of purchase, you will pay a
CDSC of 1.00%. For additional information, see "How to Sell Shares--Contingent
Deferred Sales Charge."

Investors receives the CDSC, in part to defray expenses in selling Class C
shares. Investors pays pays broker-dealers who sell Class C shares a concession
equal to 1.00% of the amount invested and an annual fee of 1.00% of the amount
invested that begins to accrue one year after the shares are sold.

9
<PAGE>
RULE 12B-1 FEES

Each Fund pays Investors Rules 12b-1 fees for distribution and sale of its
shares and for services provided to shareholders. These fees differ by class, as
follows:

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

These fees are paid out of a Fund's assets on an ongoing basis. Rule 12b-1 fees
will increase the cost of your investment and over time may cost you more than
paying other types of sales charges.

HOW TO BUY SHARES

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

The minimum subsequent investment is $50 for investments by mail ($25 for the
Pre-Authorized Check Plan) and $500 for investments by telephone or by wire.

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

INVESTING BY TELEPHONE

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

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

INVESTING BY WIRE

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

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

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

10
<PAGE>
INVESTING BY MAIL

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

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

SPECIAL PURCHASE PLANS

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

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

EXCHANGE PRIVILEGE

Except for Class E shares, you may exchange your Fund shares for the same class
of shares in another Fortis Fund. If you hold Class E shares, you may exchange
those shares for Class A shares of another Fortis Fund. If you held Fund Class E
shares and exchanged those shares for Class A shares of another Fortis Fund, you
may re-exchange your Class A shares for Class E shares of the Funds. You pay no
exchange fee or additional sales charge for exchanges.

If you own shares of another Fortis Fund, you may exchange these shares for Fund
shares of the same class. You pay no sales charge if the shares to be exchanged
have already been subject to a sales charge. If you own Class E shares of
another Fortis Fund, you may exchange those shares for Class A Fund shares. If
you own Fortis Money Fund Class A shares, you may exchange those shares for any
class of Fund shares, other than Class E shares. However, if the Fortis Money
Fund Class A shares have already incurred a sales charge, exchanges will be made
at net asset value and may be made only into Class A Fund shares.

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

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

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

HOW TO SELL SHARES

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

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

BY MAIL

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

11
<PAGE>
To redeem by mail, send a written request to Fortis Funds, P.O. Box 64284, St.
Paul, MN 55164.

Your request should include the following information:

- Name of Fund

- Account number

- Dollar amount or number of shares to be redeemed

- Name on the account

- Signatures of all registered account owners

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

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

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

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

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

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

BY PHONE

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

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

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

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

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

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

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

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

12
<PAGE>
PAYMENT OF REDEMPTION PROCEEDS

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

INVOLUNTARY REDEMPTIONS

Each Fund has the right to redeem accounts with a current value of less than
$500. If you actively participate in the Funds' Systematic Investment Plan your
account will not be redeemed. Before redeeming your account, the Fund will mail
you a notice of its intention to redeem and give you an opportunity to make an
additional investment. If you do not make an additional investment within 60
days from the date the notice was mailed, your account will be redeemed.

SYSTEMATIC WITHDRAWAL PLAN

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

REINVESTMENT PRIVILEGE

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

CONTINGENT DEFERRED SALES CHARGES

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

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

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

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

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

A CDSC is not imposed:

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

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

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

If you exchange shares subject to a CDSC for shares of a different Fortis Fund,
the transaction is not subject to a CDSC. However, when redeem the shares
acquired through the exchange, you will be treated as if no exchange took place
for the purpose of determining the CDSC. In addition, a CDSC is not be imposed
at the time that Fund shares subject to a CDSC are exchanged for shares of
Fortis Money Fund or at the time those Fortis Money Fund shares are re-exchanged
for shares of any Fortis Fund subject to a CDSC. In each case, however, the
shares acquired will remain subject to the CDSC that would have applied to the
original Fund shares.

13
<PAGE>
DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS

Each Fund declares a daily dividend from its net investment income and pays the
dividend monthly. You will earn dividends starting the day after you purchase
your shares. If you made a telephone purchase, you will earn dividends after
payment is received. Any capital gains distributions are made annually. You will
receive confirmations after each dividend (or quarterly, at Advisers' option).

Dividend and capital gains distributions will be reinvested in additional Fund
shares of the same class (at net asset value). However, you may request that
dividends and/or capital gain distributions be sent to you in cash or reinvested
(at net asset value) in shares of the same class of another Fortis Fund.

Dividends will be paid to you or reinvested on the last business day of each
month at the net asset value. If your dividends are reinvested in other Fortis
Funds, processing normally takes one business day. If you elect cash payment, a
check will be mailed within five business days after the end of the month. If
you withdraw your entire account, all dividends will be paid at that time.

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

TAX CONSIDERATIONS

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

FEDERAL INCOME TAXATION

TAXES ON DISTRIBUTIONS. Each Fund intends to meet certain federal tax
requirements so that distributions of tax-exempt interest income may be treated
as "exempt-interest dividends." These dividends are not subject to regular
federal income tax. However, each Fund may invest up to 20% of its net assets in
tax-exempt obligations subject to the alternative minimum tax. Any portion of
exempt-interest dividends attributable to interest on these obligations may
increase some shareholders' alternative minimum tax. The Funds expect that their
distributions will consist primarily of exempt-interest dividends. National
Fund's exempt interest dividends may be subject to state or local taxes.

Distributions paid from any interest income that is not tax-exempt and from any
net realized capital gains will be taxable whether you reinvest those
distributions or take them in cash.

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

MINNESOTA INCOME TAXATION

Minnesota Fund intends to comply with certain state tax requirements so that
dividends it pays that are attributable to interest on Minnesota tax-exempt
obligations will be excluded from the Minnesota taxable net income of
individuals, estates and trusts. To meet these requirements, at least 95% of the
exempt interest dividends paid by the Fund must be derived from interest income
on Minnesota tax-exempt obligations. A portion of each Fund's dividends may be
subject to the Minnesota alternative minimum tax. Exempt-interest dividends are
not excluded from the Minnesota taxable income of corporations and financial
institutions.

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

SHAREHOLDER INQUIRIES

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

14
<PAGE>
FUND MANAGEMENT
- -------------------------------------------------------------------

INVESTMENT ADVISER

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

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

<TABLE>
<CAPTION>
ADVISORY FEE
AS A % OF
AVERAGE DAILY NET ASSETS
-------------------------
<S> <C>
National Portfolio............................................................... %
Minnesota Portfolio.............................................................. %
</TABLE>

PORTFOLIO MANAGERS

Robert C. Lindberg is primarily responsible for the day-to-day management of the
Funds. Howard G. Hudson, Maroun M. Hayek and David C. Greenzang assist in the
management of the Funds.

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

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

- Mr. Hayek, a Vice President of Advisers, has managed the Funds since 1995
and has been managing debt securities for Fortis, Inc. since 1987.

- Mr. Greenzang, an Officer of Advisers, has managed the Funds since 1995
and has been involved in management of debt securities for Advisers since
1992.

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

15
<PAGE>
MORE INFORMATION ON FUND OBJECTIVES, INVESTMENT
STRATEGIES AND RISKS
- -------------------------------------------------------------------

OBJECTIVES

The Funds' objectives, which are described above under "The Funds," may be
changed without shareholder approval.

INVESTMENT STRATEGIES

The principal investment strategies of the Funds are described above under "The
Funds" and in more detail below. These are the strategies that Advisers believes
are most likely to be important in trying to achieve the Funds' goals. Of
course, there is no guarantee that any Fund will achieve its goal. You should be
aware that each Fund may also use strategies and invest in securities that are
not described below, but that are described in the Statement of Additional
Information.

The overall investment approach of Advisers emphasizes security selection and
duration management and seeks a portfolio which is diversified by industry for
both Funds, and geographically for National Portfolio. Individual securities
should possess appropriate credit quality and liquidity characteristics within
the context of the overall portfolio. Securities should possess a combination of
coupon rate, original issue discount and call protection which will maximize
fund performance.

Each Fund attempts to maintain the effective duration of its portfolio
securities within a specified range. Effective duration, one measure of interest
rate risk, measures how much the value of a security is expected to change with
a given change in interest rates. The longer a security's effective duration,
the more sensitive its price to changes in interest rates. For example, if
interest rates were to increase by one percentage point, the market value of a
bond with an effective duration of five years would decrease by 5%, with all
other factors being constant. However, all other factors are rarely constant.
Effective duration is based on assumptions and subject to a number of
limitations. It is most useful when interest rate changes are small, rapid and
occur equally in short-term and long-term securities. In addition, it is
difficult to calculate precisely, especially in the case of a bond that is
callable prior to maturity, and can be greatly affected by interest rate
changes.

Under unusual market circumstances, Advisers may take temporary defensive
measures for each Fund by investing without limit in assets which are highly
defensive in nature, including U.S. Treasury Bills. Such measures would be
utilized to protect the net asset value of the Fund from severe adverse
movements and could result in a portion of the Fund's regular income
distribution being federally taxable.

PORTFOLIO TURNOVER

Portfolio transactions will be undertaken principally to accomplish the Funds'
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 obligations or changes in the investment
objectives of investors.

Investment policies may lead to frequent changes in investments, particularly in
periods of rapidly fluctuating interest rates. A change in securities held by
the Funds is known as "portfolio turnover" and may involve the payment by the
Funds 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 "Financial Highlights" section of this prospectus shows
each Fund's historical portfolio turnover rate.

PRINCIPAL RISKS

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

- INTEREST RATE RISK. Debt securities in the Funds will fluctuate in value
with changes in interest rates. In general, debt securities will increase in
value when interest rates fall and decrease in value when interest rates
rise. Longer term debt securities are generally more sensitive to interest
rate changes. One measure of interest rate risk is duration which is
discussed above.

16
<PAGE>
- 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.

- CREDIT OR DEFAULT RISK. Each Fund is subject to the risk that the issuers
of debt securities held by the Fund will not make payments on the
securities, or that the other party to a contract (such as a securities
lending agreement or repurchase agreement) will default on its obligations.
There is also the risk that an issuer could suffer adverse changes in
financial condition that could lower the credit quality of a security. This
could lead to greater volatility in the price of the security and in shares
of the Fund. Also, a change in the credit quality rating of a bond can
affect the bond's liquidity and make it more difficult for the Fund to sell.

At least 90% of the tax-exempt obligations purchased by each Fund will be
investment grade. However, all of these securities, especially those in the
lower investment grade rating categories, have credit risk. In adverse
economic or other circumstances, issuers of these lower rated securities are
more likely to have difficulty making principal and interest payments than
issuers of higher rated securities. When a Fund purchases unrated
securities, it will depend on Advisers' analysis of credit risk more heavily
than usual.

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

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

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

17
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------

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

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

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
THREE-MONTH
PERIOD ENDED YEAR ENDED
NATIONAL PORTFOLIO YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
- ---------------------------------------- --------------------------------------------------- -------------- ------------
CLASS E 1998 1997 1996 1995 1994 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $11.07 $10.76 $10.72 $10.38 $10.46 $11.13
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net............... .52 .55 .56 .58 .15 .60
Net realized and unrealized gains
(losses) on investments.............. .34 .31 .04 .36 (.09) (.64)
- -----------------------------------------------------------------------------------------------------------------------------
Total from operations................... .86 .86 .60 .94 .06 (.04)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.......... (.51) (.55) (.56) (.59) (.14) (.59)
From net realized gains on
investments.......................... (.04) -- -- (.01) -- (.04)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders..... (.55) (.55) (.56) (.60) (.14) (.63)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.......... $11.38 $11.07 $10.76 $10.72 $10.38 $10.46
- -----------------------------------------------------------------------------------------------------------------------------
Total return@........................... 7.97% 8.19% 5.69% 9.30% .59% (.49%)
Net assets end of period (000s
omitted)............................... $56,959 $59,727 $65,237 $ 70,531 $ 74,877 $76,746
Ratio of expenses to average daily net
assets................................. .98% .95% .93% 1.03% .87%* .87%
Ratio of net investment income to
average daily net assets............... 4.65% 5.03% 5.19% 5.54% 5.74%* 5.38%
Portfolio turnover rate................. 74% 71% 52% %35 17% 25%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
------------------------------------- -------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
NATIONAL PORTFOLIO 1998 1997 1996 1995+ 1998 1997 1996 1995+
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $11.06 $10.75 $10.71 $9.79 $11.05 $10.74 $10.70 $9.79
- ---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .50 .53 .53 .49 .42 .44 .45 .42
Net realized and unrealized gains (losses) on
investments.................................... .34 .31 .04 .94 .34 .31 .04 .93
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations............................. .84 .84 .57 1.43 .76 .75 .49 1.35
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.49) (.53) (.53) (.50) (.41) (.44) (.45) (.43)
From net realized gains on investments.......... (.04) -- -- (.01) (.04) -- -- (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.53) (.53) (.53) (.51) (.45) (.44) (.45) (.44)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.................... $11.37 $11.06 $10.75 $10.71 $11.36 $11.05 $10.74 $10.70
- ---------------------------------------------------------------------------------------------------------------------------------
Total return@..................................... 7.75% 7.96% 5.46% 14.80% 6.95% 7.14% 4.65% 13.96%
Net assets end of period (000s omitted)........... $8,308 $7,263 $6,239 $1,807 $1,493 $1,287 $ 997 $ 668
Ratio of expenses to average daily net assets..... 1.23% 1.20% 1.18% 1.28%* 1.98% 1.95% 1.93% 2.03%*
Ratio of net investment income to average daily
net assets....................................... 4.40% 4.78% 4.97% 5.03%* 3.65% 4.02% 4.20% 4.04%*
Portfolio turnover rate........................... 74% 71% 52% 35% 74% 71% 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.

18
<PAGE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CLASS C
------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------
NATIONAL PORTFOLIO 1998 1997 1996 1995+
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 11.04 $ 10.74 $ 10.70 $ 9.79
- ----------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .41 .43 .45 .43
Net realized and unrealized gains (losses) on
investments.................................... .34 .31 .04 .92
- ----------------------------------------------------------------------------------------------
Total from operations............................. .75 .74 .49 1.35
- ----------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.41) (.44) (.45) (.43)
From net realized gains on investments.......... (.04) -- -- (.01)
- ----------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.45) (.44) (.45) (.44)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period.................... $ 11.34 $ 11.04 $ 10.74 $ 10.70
- ----------------------------------------------------------------------------------------------
Total return@..................................... 6.86% 7.04% 4.65% 13.95%
Net assets end of period (000s omitted)........... $ 493 $ 584 $ 223 $ 106
Ratio of expenses to average daily net assets..... 1.98% 1.95% 1.93% 2.03%*
Ratio of net investment income to average daily
net assets....................................... 3.65% 4.05% 4.20% 4.14%*
Portfolio turnover rate........................... 74% 71% 52% 35%
- ----------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CLASS H
------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------
NATIONAL PORTFOLIO 1998 1997 1996 1995+
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 11.06 $ 10.75 $ 10.71 $ 9.79
- ----------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .40 .44 .45 .43
Net realized and unrealized gains (losses) on
investments.................................... .34 .31 .04 .93
- ----------------------------------------------------------------------------------------------
Total from operations............................. .74 .75 .49 1.36
- ----------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.41) (.44) (.45) (.43)
From net realized gains on investments.......... (.04) -- -- (.01)
- ----------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.45) (.44) (.45) (.44)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period.................... $ 11.35 $ 11.06 $ 10.75 $ 10.71
- ----------------------------------------------------------------------------------------------
Total return@..................................... 6.76% 7.13% 4.64% 14.06%
Net assets end of period (000s omitted)........... $ 6,099 $ 5,111 $ 4,015 $ 1,757
Ratio of expenses to average daily net assets..... 1.98% 1.95% 1.93% 2.03%*
Ratio of net investment income to average daily
net assets....................................... 3.65% 4.03% 4.20% 4.24%*
Portfolio turnover rate........................... 74% 71% 52% 35%
- ----------------------------------------------------------------------------------------------
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
THREE-MONTH
PERIOD ENDED YEAR ENDED
MINNESOTA PORTFOLIO YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
- -------------------------------------------------- ----------------------------------------- ------------- ----------
CLASS E 1998 1997 1996 1995 1994 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $10.46 $10.28 $10.32 $10.08 $10.15 $10.65
- --------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .52 .53 .55 .57 .15 .59
Net realized and unrealized gains (losses) on
investments.................................... .32 .18 (.04) .24 (.08) (.51)
- --------------------------------------------------------------------------------------------------------------------------
Total from operations............................. .84 .71 .51 .81 .07 .08
- --------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.52) (.53) (.55) (.57) (.14) (.58)
From net realized gains on investments.......... (.01) -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.53) (.53) (.55) (.57) (.14) (.58)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.................... $10.77 $10.46 $10.28 $10.32 $10.08 $10.15
- --------------------------------------------------------------------------------------------------------------------------
Total return@..................................... 8.25% 7.10% 5.01% 8.35% .72% .64%
Net assets end of period (000s omitted)........... $42,170 $43,584 $49,262 $52,603 $54,560 $54,854
Ratio of expenses to average daily net assets..... .91% .96% .93% .98%+ .85% .85%
Ratio of net investment income to average daily
net assets....................................... 4.94% 5.14% 5.34% 5.60%+ 5.69% 5.51%
Portfolio turnover rate........................... 55% 61% 41% 27% 8% 11%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
------------------------------------- -------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
MINNESOTA PORTFOLIO 1998 1997 1996 1995+ 1998 1997 1996 1995+
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $10.43 $10.26 $10.30 $9.55 $10.42 $10.24 $10.27 $9.55
- ------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net.......... .49 .50 .52 .48 .41 .42 .45 .41
Net realized and unrealized gains
(losses) on investments......... .32 .18 (.04) .76 .32 .18 (.04) .73
- ------------------------------------------------------------------------------------------------------------------
Total from operations.............. .81 .68 .48 1.24 .73 .60 .41 1.14
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net..... (.49) (.51) (.52) (.49) (.41) (.42) (.44) (.42)
From net realized gains on
investments..................... (.01) -- -- -- (.01) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders...................... (.50) (.51) (.52) (.49) (.42) (.42) (.44) (.42)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period..... $10.74 $10.43 $10.26 $10.30 $10.73 $10.42 $10.24 $10.27
- ------------------------------------------------------------------------------------------------------------------
Total return@...................... 8.13% 6.66% 4.78% 13.15% 7.18% 6.01% 4.04% 12.10%
Net assets end of period (000s
omitted).......................... $3,170 $3,689 $1,822 $ 884 $1,271 $1,301 $1,109 $ 180
Ratio of expenses to average daily
net assets........................ 1.16% 1.21% 1.18% 1.23%* 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income to
average daily net assets.......... 4.69% 4.89% 5.07% 5.10%* 3.94% 4.14% 4.34% 4.37%*
Portfolio turnover rate............ 55% 61% 41% 27% 55% 61% 41% 27%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CLASS C
------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------
MINNESOTA PORTFOLIO 1998 1997 1996 1995+
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 10.44 $ 10.26 $ 10.30 $ 9.55
- ----------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .39 .42 .44 .42
Net realized and unrealized gains (losses) on
investments.................................... .32 .18 (.04) .75
- ----------------------------------------------------------------------------------------------
Total from operations............................. .71 .60 .40 1.17
- ----------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.41) (.42) (.44) (.42)
From net realized gains on investments.......... (.01) -- -- --
- ----------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.42) (.42) (.44) (.42)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period.................... $ 10.73 $ 10.44 $ 10.26 $ 10.30
- ----------------------------------------------------------------------------------------------
Total return@..................................... 6.97% 6.00% 4.00% 12.31%
Net assets end of period (000s omitted)........... $ 194 $ 232 $ 210 $ 143
Ratio of expenses to average daily net assets..... 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income to average daily
net assets....................................... 3.94% 4.14% 4.31% 4.28%*
Portfolio turnover rate........................... 55% 61% 41% 27%
- ----------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CLASS H
------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------
MINNESOTA PORTFOLIO 1998 1997 1996 1995+
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 10.44 $ 10.26 $ 10.30 $ 9.55
- ----------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .42 .42 .44 .41
Net realized and unrealized gains (losses) on
investments.................................... .32 .18 (.04) .76
- ----------------------------------------------------------------------------------------------
Total from operations............................. .74 .60 .40 1.17
- ----------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.41) (.42) (.44) (.42)
From net realized gains on investments.......... (.01) -- -- --
- ----------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.42) (.42) (.44) (.42)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period.................... $ 10.76 $ 10.44 $ 10.26 $ 10.30
- ----------------------------------------------------------------------------------------------
Total return@..................................... 7.26% 6.00% 3.93% 12.42%
Net assets end of period (000s omitted)........... $ 1,458 $ 1,227 $ 1,061 $ 638
Ratio of expenses to average daily net assets..... 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income to average daily
net assets....................................... 3.94% 4.14% 4.33% 4.29%*
Portfolio turnover rate........................... 55% 61% 41% 27%
- ----------------------------------------------------------------------------------------------
</TABLE>

21
<PAGE>
FORTIS-SM-
ACCOUNT APPLICATION

Complete this application to open a new Fortis
account or to add services to an existing Fortis
Mail to: account. For personal service, please call your
FORTIS MUTUAL FUNDS investment professional or Fortis customer service
CM-9614 at 1-800-800-2000, ext. 3012. Submission of an
St. Paul, MN 55170-9614 incomplete application may cause processing delays.

DO NOT USE TO OPEN A FORTIS IRA, SEP, 403(B) OR
FORTIS MONEY FUND ACCOUNT.

________________________________________________________________________________
1 ACCOUNT INFORMATION
________________________________________________________________________________

Please provide the information requested below:

/ /INDIVIDUAL: Please print your name, Social Security number, U.S. citizen
status.

/ /JOINT TENANT: List all names, one Social Security number, one U.S. citizen
status.

/ /UNIFORM GIFT/TRANSFER TO MINORS: Provide name of custodian (ONLY ONE) and
minor, minor's Social Security number, minor's U.S. citizen status and date
of birth of minor.

/ /TRUST: List trustee and trust title, including trust date, trust's Taxpayer
ID number; also include a photocopy of the first and last page of the trust
agreement.

/ /CORPORATION, ASSOCIATION, PARTNERSHIP: Include full name, Taxpayer ID number.

/ /FORTIS KEY PLAN: Include Social Security number.

/ /QUALIFIED PLAN: Include name of Plan and trustee, Plan's Taxpayer ID number.

/ / OTHER: _____________________________________________________________________

- ---------------------------------------------------------------
Owner (Individual, 1st Joint Tenant, Custodian, Trustee) (Please print)

- ------------------------------------------------------------------------
Owner (2nd Joint Tenant, Minor, Trust Name) (Please print)

- ------------------------------------------------------------------------
Additional information, if needed

- ------------------------------------------------------------------------
Street address

- ------------------------------------------------------------------------
City State Zip

- ------------------------------------------------------------------------
Social Security number (Taxpayer ID)

( )
- ---------------------------------------------------------------
Daytime phone Date of birth
(Uniform Gift/Transfer to Minors)
Date of Trust (if applicable) __________________________________________________
Are you a U.S. citizen? / / Yes / / No
If no, country of permanent residence __________________________________________

95749 (11/98)
________________________________________________________________________________
2 TRANSFER ON DEATH
________________________________________________________________________________

Please indicate the Primary Beneficiary with "PB" after the beneficiary(ies)
name(s). Indicate Contingent Beneficiary with "CB." Indicate Lineal Descendant
Per Stirpes with "LDPS" if you want ownership to pass to the legal heirs of the
primary beneficiary in the event a designated beneficiary dies before the
account owner.

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

BENEFICIARY(IES):

Name _____________________________ SS# _________________________________________
Name _____________________________ SS# _________________________________________
Name _____________________________ SS# _________________________________________

________________________________________________________________________________
3 INVESTMENT ACCOUNT
________________________________________________________________________________

A. PHONE ORDERS

Was order previously phoned in? If yes, date ___________________________________
Confirmation # ___________________________ Account # ___________________________

FOR PHONE ORDERS, CHECK MUST BE MADE PAYABLE TO FORTIS INVESTORS

B. MAIL-IN ORDERS

Check enclosed for $____________________________. (MADE PAYABLE TO FORTIS FUNDS)
MUST INDICATE CLASS

<TABLE>
<C> <S> <C> <C>
1) --------- $ ----------- A / / B / / C / / H / /
Fund Name Amount or % Class
2) $ A / / B / / C / / H / /
--------- -----------
Fund Name Amount or % Class
3) $ A / / B / / C / / H / /
--------- -----------
Fund Name Amount or % Class
4) $ A / / B / / C / / H / /
--------- -----------
Fund Name Amount or % Class
5) $ A / / B / / C / / H / /
--------- -----------
Fund Name Amount or % Class
</TABLE>

________________________________________________________________________________
4 EXEMPTION FROM SALES CHARGE
________________________________________________________________________________

CHECK IF APPLICABLE (for net asset value purchases):

/ / I am a member of one of the categories of persons who are exempt from the
sales charge. I qualify for exemption from the sales charge because _______.

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

The Fortis logo and Fortis-SM- are servicemarks of Fortis AMEV and Fortis AG
<PAGE>
________________________________________________________________________________
5 SIGNATURE & CERTIFICATION
________________________________________________________________________________

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

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

I CERTIFY, UNDER PENALTIES OF PERJURY, THAT:

(1) THE SOCIAL SECURITY NUMBER OR TAXPAYER ID NUMBER PROVIDED IS CORRECT; AND
(CROSS OUT THE FOLLOWING IF NOT TRUE)

(2) THAT THE IRS HAS NEVER NOTIFIED ME THAT I AM SUBJECT TO 31% BACKUP
WITHHOLDING, OR HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO SUCH BACKUP
WITHHOLDING.

Each person signing on behalf of any entity represents that his or her actions
are authorized. It is agreed that all Fortis Funds, Fortis Investors, Fortis
Advisers and their officers, directors, agents and employees will not be liable
for any loss, liability, damage or expense for relying upon this application or
any instruction believed genuine.

IF YOU ARE NOT SIGNING AS AN INDIVIDUAL, STATE YOUR TITLE OR CAPACITY (INCLUDE
APPROPRIATE DOCUMENTS VERIFYING YOUR CAPACITY).

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.

AUTHORIZED SIGNATURE(S)

X
- ---------------------------------------------------------------
Owner, Custodian, Trustee Date

X
- ---------------------------------------------------------------
Joint Owner, Trustee Date
________________________________________________________________________________
6 DEALER/REPRESENTATIVE INFORMATION
________________________________________________________________________________
- --------------------------------------------------
Representative's name (please print)

- ------------------------------------------------------------------------
Name of Broker/Dealer

- ------------------------------------------------------------------------
Branch Office address

- ------------------------------------------------------------------------
Representative's signature

( )
- ------------------------------------------------------------------------

Representative's number Representative's Phone Number

- ------------------------------------------------------------------------
AUTHORIZED SIGNATURE OF BROKER/DEALER
________________________________________________________________________________
7 DISTRIBUTION OPTIONS
________________________________________________________________________________

If no option is selected, all distributions will be reinvested in the same
Fortis fund(s) selected above. Please note that distributions can only be
reinvested in the SAME CLASS.

/ / Reinvest dividends and capital gains
/ / Dividends in cash and reinvest capital gains (See Section 9 for payment
options.)
/ / Dividends and capital gains in cash (See Section 9 for payment options.)
/ / Distributions into another Fortis fund (must be SAME CLASS).
____________________________________________________________________________
Fund Name Fund/Account # (if existing account)
________________________________________________________________________________
8 SYSTEMATIC EXCHANGE PROGRAM
________________________________________________________________________________

Fortis' Systematic Transfer Program allows you to transfer money from any Fortis
fund, in which you have a current balance of at least $1,000, into any other
Fortis fund (maximum of three), on a monthly basis. The minimum amount for each
transfer is $50. Generally, transfers between funds must be within the SAME
CLASS. See prospectus for details.
- ------------------------------------------------------------------------
Fund from which shares will be exchanged: Effective Date

FUND(S) TO RECEIVE INVESTMENT(S):

<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Fund Amount to invest monthly
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>

________________________________________________________________________________
9 WITHDRAWAL OPTIONS
________________________________________________________________________________

A. CASH DIVIDENDS

PLEASE FORWARD THE PAYMENT TO:

<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)

/ / Via U.S. Mail
/ / Via ACH (electronic transfer)

/ / My address of record.
</TABLE>

B. SYSTEMATIC WITHDRAWAL PLAN

Please consult your financial or tax adviser before electing a Systematic
Withdrawal Plan.

Please redeem shares from my Fortis ______________________________________ Fund,
account number _______________________ in the amount of $______________________.

Effective Withdrawal Date __________________

<TABLE>
<S> <C> <C> <C>
FREQUENCY: / / Monthly / / Semi-Annually
/ / Quarterly / / Annually
</TABLE>

PLEASE FORWARD THE PAYMENT TO:

<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)

/ / Via U.S. Mail
/ / Via ACH (electronic transfer)

/ / My address of record.
</TABLE>

C. TELEPHONE OPTIONS

/ / TELEPHONE EXCHANGE. All exchanges must be into accounts having the identical
registration-ownership. All authorized signatures listed in Section 5 (or
your registered representative with shareholder consent) can make telephone
transfers.
/ / TELEPHONE REDEMPTION ($25,000 LIMIT AND NOT AVAILABLE FOR QUALIFIED PLANS)
This option allows all authorized signatures in Section 5 (or your
registered representative with shareholder consent) to redeem up to $25,000
from your Fortis account.

PLEASE FORWARD THE PAYMENT TO:

<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)

/ / Via U.S. Mail
/ / Via ACH (electronic transfer)

/ / My address of record.
</TABLE>

<PAGE>
(WITHDRAWAL OPTIONS, CONTINUED)

D. BANK INFORMATION

I request Fortis Financial Group (FFG) to pay sums due me by crediting my bank
account in the form of electronic entries. This authorization will remain in
effect until I notify FFG.

TYPE OF ACCOUNT: / / Checking / / Savings
Bank name ______________________________________________________________________
Address ________________________________________________________________________
City, State, Zip _______________________________________________________________
Name of bank account ___________________________________________________________
Bank account number ____________________________________________________________
Bank transit number ____________________________________________________________
Bank phone number ______________________________________________________________
ATTACH A VOIDED CHECK FROM YOUR BANK CHECKING ACCOUNT
________________________________________________________________________________
10 REDUCED FRONT-END SALES CHARGES
________________________________________________________________________________

A. RIGHT OF ACCUMULATION

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

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

B. STATEMENT OF INTENT

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

Fortis' Privileged Account Service systematically rebalances your funds back to
your original specifications ($10,000 minimum per account). All funds must be
within the SAME CLASS.

Frequency: / / quarterly / / semi-annually / / annually

<TABLE>
<S> <C> <C>
Fund Selected Percentage
(up to 5) (whole %)
1)
------------------------- ---------------
2)
------------------------- ---------------
3)
------------------------- ---------------
4)
------------------------- ---------------
5)
------------------------- ---------------
</TABLE>

________________________________________________________________________________
12 SUITABILITY
________________________________________________________________________________

NOTE: Must be completed with each fund application unless you provide
suitability information to your broker/dealer on a different form.

State In Which Application Was Signed ______________________________________

- --------------------------------------------------------------------------------
Employer
- --------------------------------------------------------------------------------
Business Address
- --------------------------------------------------------------------------------
City, State, ZIP

- --------------------------------------------------------------------------------
Occupation Age (optional)

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

<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
Please mark one box under ESTIMATED
ESTIMATED ANNUAL INCOME ESTIMATED NET
and one box under ANNUAL WORTH
ESTIMATED NET WORTH INCOME (Exclusive of
(All Sources) Family Residence)
- --------------------------------------------------------------------------------
under $10,000
- --------------------------------------------------------------------------------
$10,000 - $25,000
- --------------------------------------------------------------------------------
$25,000 - $50,000
- --------------------------------------------------------------------------------
$50,000 - $100,000
- --------------------------------------------------------------------------------
$100,000 - $500,000
- --------------------------------------------------------------------------------
$500,000 - $1,000,000
- --------------------------------------------------------------------------------
Over $1,000,000
- --------------------------------------------------------------------------------
Declined
- --------------------------------------------------------------------------------
</TABLE>

Source of Funds
- --------------------------------------------------------------------------------

ESTIMATED FEDERAL TAX BRACKET

/ / 15% / / 28% / / 31% / / 33% / / Declined

INVESTMENT OBJECTIVES

/ / Growth (long-term capital appreciation)

/ / Income (cash generating)

/ / Tax-free Income

/ / Diversification

/ / Other (please specify) _________________________________________

Did you use a Fortis Asset Allocation model? / / Yes / / No
________________________________________________________________________________
13 SYSTEMATIC INVESTMENT PLAN
________________________________________________________________________________

Complete the Automated Clearing House (ACH) Authorization Agreement Form in the
prospectus and attach a VOIDED check from your bank checking account. These
plans may be established for as little as $25.
________________________________________________________________________________
14 OTHER SPECIAL INSTRUCTIONS
________________________________________________________________________________

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

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

FORTIS FINANCIAL GROUP FORTIS-SM-
Fortis Advisers, Inc. (fund management since 1949)
Fortis Investors, Inc. (principal underwriter, member NASD, SIPC)
Fortis Benefits Insurance Company & Fortis Insurance Company
P.O. Box 64284 St. Paul, MN 55164-0284 (800) 800-2000
http://www.ffg.us.fortis.com
FORTIS MUTUAL FUND
AUTOMATED CLEARING HOUSE (ACH) AUTHORIZATION AGREEMENT

Please complete each section below to establish ACH capability to your
Fortis Mutual Fund Account.
For personal service, please call your investment professional or
Fortis at (800) 800-2000, extension 3012.
For investment options, complete sections 1, 2, 3. For withdrawal,
complete sections 1, 2, 4, 5.

________________________________________________________________________________
1 FORTIS ACCOUNT INFORMATION
________________________________________________________________________________

Account Registration:
________________________________________________________________________________
Owner (Individual, 1st Joint Tenant, Custodian, Trustee)
________________________________________________________________________________
Owner (2nd Joint Tenant, Minor, Trust Name)
________________________________________________________________________________
Additional Information, if needed
________________________________________________________________________________
Street address
________________________________________________________________________________
City State Zip
________________________________________ _______________________________________
Social Security number (Taxpayer I.D.) Daytime phone number

________________________________________________________________________________
2 BANK/FINANCIAL INSTITUTION INFORMATION
________________________________________________________________________________

<TABLE>
<S> <C> <C>
PLAN TYPE: / / New Plan / / Bank Change

ACCOUNT TYPE: / / Checking / / Savings
(must attach a (must attach a
voided check) deposit slip)
</TABLE>

________________________________________________________________________________
Transit Number
________________________________________________________________________________
Bank Account Number
________________________________________________________________________________
Account Owner(s) (Please Print)
________________________________________________________________________________
Depositor's Daytime Phone Number

CLEARLY PRINT THE BANK/FINANCIAL INSTITUTION'S NAME AND ADDRESS BELOW:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Signature of Depositor Date
________________________________________________________________________________
Signature of Joint-Depositor Date
________________________________________________________________________________
3 INVESTMENT OPTION(S)
________________________________________________________________________________

<TABLE>
<S> <C> <C>
I request Fortis Financial Group (FFG) to obtain payment of sums becoming due the
company by charging my account in the form of electronic debit entries. I request
and authorize the financial institution named to accept, honor and charge those
entries to my account. Please allow THIRTY days for collected funds to be
available in your Fortis account.

A. / / Invest by phone
(minimum $25, maximum $10,000)

Please allow up to four business days for deposits into
Fortis Funds. Transactions after 3:00 p.m. (CST) will be
processed the following business day.
*Not available on tax-qualified accounts such as IRA, SEP,
SARSEP and KEY plans.
B. / / Systematic Investment Plan: / / New Plan / / Change Plan
C. / / Starting Draft Date:
D. / / Account Number:
</TABLE>

<TABLE>
<CAPTION>
Class Amount
Fund (Circle One) $25.00 per fund minimum
- ------------------------------------------------------ -------------- -----------------------------
<S> <C> <C>
A B C H
A B C H
A B C H
A B C H
</TABLE>

98049 (11/98)

________________________________________________________________________________
4 WITHDRAWAL OPTION(S)
________________________________________________________________________________

<TABLE>
<S> <C> <C>
I request Fortis Financial Group (FFG) to pay sums due me by crediting
my bank account in the form of electronic entries. I request and
authorize the financial institution to accept, honor and credit those
entries to my account. Withdrawal from Fortis Fund(s) requires account
owner(s) signature(s) - see Section 5

(Please consult your financial or tax adviser before electing a
systematic withdrawal plan. For Tax Qualified accounts, additional forms
are required for distribution.)

A. / / Cash Dividends
B. / / Redeem via FORTIS INFORMATION LINE by phone
(minimum $100, maximum $25,000)

Please allow up to four business days for withdrawal to
credit your bank account. Transactions after 3:00 p.m. (CST)
will be processed the following business day.
*Not available on tax qualified accounts such as IRA, SEP,
SARSEP and Key plans.

C. / / Systematic Withdrawal Plan: / / New Plan / / Change Plan

D. / / Beginning Withdrawal Date:

E. / / Account Number:
</TABLE>

________________________________________________________________________________
5 SIGNATURES
________________________________________________________________________________

This authorization will remain in effect until I notify FFG. I hereby terminate
any prior authorization of FFG to initiate charges to this account. I understand
that any returned item or redemption of the entire account may result in
termination of my Automated Clearing House agreement. This authorization will
become effective upon acceptance by FFG at its home office.

Authorized Signature(s)

X ______________________________________________________________________________

Owner, Custodian, Trustee Date

X ______________________________________________________________________________
Joint Owner, Trustee Date

The Fortis logo and Fortis-SM- are servicemarks of Fortis AMEV and Fortis AG
<PAGE>

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

[LOGO]

FORTIS FINANCIAL GROUP:
P.O. Box 64284
St. Paul, Minnesota 55164-0284

Prospectus
Dated December 1, 1998

- - Fortis Tax-Free National Portfolio

- - Fortis Tax-Free Minnesota Portolio

SEC file numbers: 811-03498

[LOGO]

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

98301 -C-Fortis 11/98

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

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

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

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

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

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

The Fortis logo and Fortis-SM- are servicemarks of Fortis AMEV and Fortis AG.

<PAGE>

NATIONAL PORTFOLIO
MINNESOTA PORTFOLIO
EACH A SERIES OF FORTIS TAX-FREE PORTFOLIOS, INC.

STATEMENT OF ADDITIONAL INFORMATION

DATED FEBRUARY 1, 1999

National Portfolio ("National Fund") and Minnesota Portfolio (Minnesota
Fund") are collectively referred to as the "Funds." This Statement of
Additional Information is NOT a prospectus. Information from the Funds'
prospectus dated February 1, 1999 is incorporated by reference into this
Statement of Additional Information. A copy of that prospectus may be obtained
from your broker-dealer or sales representative. The address of Fortis
Investors, Inc. ("Investors") is P.O. Box 64284, St. Paul, Minnesota 55164.
Telephone: (651) 738-4000. Toll Free (800) 800-2000.

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 Funds or Investors. This Statement of Additional Information
does not constitute an offer or solicitation by anyone in any state in which
such offer or solicitation is not authorized, or in which the person making such
offer or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation.
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TABLE OF CONTENTS

Page

Fund History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Description of the Funds . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Policies and Restrictions . . . . . . . . . . . . . . . . . 3
Investment Practices and Risk Considerations . . . . . . . . . . . . . 7
Management of the Funds. . . . . . . . . . . . . . . . . . . . . . . . 17
Principal Holders of Securities. . . . . . . . . . . . . . . . . . . . 22
Investment Advisory and Other Services . . . . . . . . . . . . . . . . 22
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . . 26
Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Pricing of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 34
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Underwriter and Distribution of Shares . . . . . . . . . . . . . . . . 38
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . 39
Tax-Exempt versus Taxable Income . . . . . . . . . . . . . . . . . . . 42
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 43
Other Service Providers. . . . . . . . . . . . . . . . . . . . . . . . 43
Limitation of Director Liability . . . . . . . . . . . . . . . . . . . 43
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . 44
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Description of Futures, Options and Forward Contracts
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FUND HISTORY

National Portfolio and Minnesota Portfolio are portfolios of Fortis
Tax-Free Portfolios, Inc. ("Fortis Tax-Free") which was incorporated in
Minnesota in __________. National Portfolio commenced operations on ______
___________ and and Minnesota Portfolio commenced operations on ____________.

DESCRIPTION OF THE FUNDS

Fortis Tax-Free is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 (the "1940 Act") as open-end
diversified management investment company. Fortis Tax-Free currently consists
of two separate investment portfolios. Each Fund operates as a "diversified"
investment company as defined under the 1940 Act, which means that it must meet
the following requirements:

At least 75% of the value of the Fund's total assets will be
represented by cash and cash items (including receivables), Government
securities, securities of other investment companies, and other securities
for the purposes of this calculation limited in respect of any one issuer
to an amount not greater in value than 5% of the value of the total assets
of the Fund and to not more than 10% of the outstanding voting securities
of such issuer.

Fortis Tax-Free may establish other portfolios, each corresponding to a
distinct investment portfolio and a distinct series of their common stock.

INVESTMENT POLICIES AND RESTRICTIONS

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

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

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

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INVESTMENT POLICIES --NATIONAL PORTFOLIO AND MINNESOTA PORTFOLIO

National Fund 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. Minnesota Fund will
invest primarily in securities which are issued by the State of Minnesota, its
agencies, instrumentalities and political subdivisions.

The Funds will seek to achieve their investment objectives by investing
primarily in Tax Exempt Bonds. For purposes of the National Fund, "Tax Exempt
Bonds" means any debt obligation generating interest income that is, in the
opinion of bond counsel, exempt from federal income tax. For purposes of the
Minnesota Fund, "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 a policy which may not be changed without shareholder approval (except
for defensive purposes), National Fund 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. As a policy which may not be
changed without shareholder approval (except for defensive purposes), Minnesota
Fund 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 Fund 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 Fund 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. ("Moody's") (Aaa, Aa, A or Baa) or Standard & Poor's Ratings Services
("Standard & Poor's") (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 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

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involves greater risks, often related to sensitivity to interest rates, economic
changes, solvency, and relative liquidity in the secondary market. The Funds
may retain a security whose rating has changed if the security otherwise meets
the Fund's respective investment objectives and investment criteria. 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 Funds are free to invest in securities of any maturity, it is
expected that the average maturity of the Funds will generally range from seven
to 20 years.

The Funds 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 Funds may also hold their
respective assets in cash.

INVESTMENT RESTRICTIONS --NATIONAL PORTFOLIO AND MINNESOTA PORTFOLIO

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

(1) Purchase or sell physical commodities (such as grains, livestock,
etc.) or futures or options contracts thereon; however, it may
purchase or sell any forms of financial instruments or contracts that
might be deemed commodities.
(2) Invest directly in real estate or interests in real estate; however,
the Funds 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 Fund may be deemed an underwriter under applicable
laws.
(4) Purchase securities on margin or otherwise borrow money or issue
senior securities, except that the Fund, in accordance with its
investment objectives and policies, may purchase securities on a
when-issued, delayed delivery, or forward commitment basis (including
the entering into of "roll" transactions). The Fund may also obtain
such short-term credit as it needs for the clearance of securities

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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 Fund'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 Fund includes the amount lent as well as the collateral securing
such loans.)

The following investment restrictions may be changed without shareholder
approval. Neither Fund will:

(1) Invest more than 5% of its net assets in securities of other
investment companies, except in connection with a merger,
consolidation, acquisition or reorganization. (Although a Fund
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 times, be more beneficial to the Fund than other
types of short-term securities and that the indirect absorption of
these expenses has an insignifcant effect on the Fund'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) Buy securities of any issuer for the purpose of exercising control or
management.
(7) Enter into any options, futures, or forward contract transactions if
immediately thereafter (a) the amount of premiums paid for all
options, initial margin deposits on all futures contracts and/or
options on futures contracts, and collateral deposited with respect to
forward contracts held by or entered into by the Fund would exceed 5%
of the value of the total assets of the Fund or (b) the Fund's

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assets covering, subject to, or committed to all options, futures, and
forward contracts would exceed 20% of the value of the total assets of
the Fund.

INVESTMENT PRACTICES AND RISK CONSIDERATIONS

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 Fund, 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 Funds do not
currently intend to invest in so-called

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"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 a 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 Funds, 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 Funds. Neither event will require the elimination
of an investment from a Fund, but Advisers will consider such an event in its
determination of whether the Fund should continue to hold such an investment.

As a fundamental policy, each Fund will not invest 25% or more 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. These refunded municipal bonds will however be counted toward the 80%
policy described under "Investment Policies."

Securities in which the Funds 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

Current economic conditions in Minnesota affect both the total amount of
taxes the state collects and the personal income growth within the 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

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municipalities may be similarly affected. See the Statement of Additional
Information for more information concerning Minnesota.

For the purpose of diversification under the 1940 Act, the identification
of the issuer of a Tax Exempt Bond depends on the terms and 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 Fund
exceeds 10% of the value of the Fund's total assets, the guarantee will be
considered a separate security and will be treated as an issue of the guarantor.

FLOATING AND VARIABLE RATE SECURITIES

The Funds 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 Fund, 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.

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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 Funds may enter into such forward commitments if the Funds 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 marked to market daily. There
is no percentage limitation on the Funds' 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 Fund to risk because the
securities may decrease in value prior to their delivery. Purchasing securities
on a when-issued, delayed delivery or forward commitment basis involves the
additional risk that the return available in the market when the delivery takes
place will be higher than that obtained in the transaction itself. These risks
could result in increased volatility of a Portfolio's net asset value to the
extent that such Fund purchases securities on a when-issued, delayed delivery or
forward commitment basis while remaining substantially fully invested. There is
also a risk that the securities may not be delivered or that a Fund may incur a
loss or will have lost the opportunity to invest the amount set aside for such
transaction in the segregated asset account. Although the Funds 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 Funds may realize short-term
profits or losses upon the sale of forward commitments.

VARIABLE AMOUNT MASTER DEMAND NOTES

Each 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 a 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 when the Fund has a "same day withdrawal option," I.E.,
where it

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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

As provided below, each Fund may enter into transactions in options on a
variety of instruments and indexes, in order to protect against declines in the
value of portfolio securities or increases in the costs of securities to be
acquired and in order to increase the gross income of the Fund. The types of
instruments to be purchased and sold are further described in the Appendix to
this Statement of Additional Information, which should be read in conjunction
with the following sections.

Options transactions may subject the Funds to a number of risks. The risk
of purchasing options is that the Fund pays a premium for such options, whether
they are exercised or not. The risk of writing calls is that the Fund forgoes a
portion of the profit if the securities' price increases substantially. The
risk of writing put options is that the Fund 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 a Fund may write call or
put options will not exceed 25% of its total assets. The Funds will not commit
more than 5% of their respective total assets to premiums when purchasing call
or put options.

OPTIONS ON SECURITIES Each Fund may write (sell) covered call and put options
and purchase call and put options. Neither Fund may write "naked" call options.
If a Fund writes an option which expires unexercised or is closed out by the
Fund at a profit, it will retain all or a portion of the premium received for
the option, which will increase its gross income and will offset in part the
reduced value of the Fund security underlying the option, or the increased cost
of portfolio securities to be acquired. In contrast however, if the price of
the underlying security moves adversely to the Fund's position, the option may
be exercised and the Fund will be required to purchase or sell the underlying
security at a disadvantageous price, which may only be partially offset by the
amount of the premium, if at all. Each Fund 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.

Each Fund may also purchase put or call options in anticipation of market
fluctuations which may adversely affect the value of its portfolio or the prices
of securities that the Fund wants to purchase at a later date. In the event that
the expected market fluctuations occur, the Fund may be able to offset the
resulting adverse effect on its portfolio, in whole or in part, through the
options purchased. The premium paid for a put or call option plus any
transaction

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costs will reduce the benefit, if any realized by the Fund upon exercise or
liquidation of the option, and unless the price of the underlying security
changes sufficiently, the option may expire without value to the Fund.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

FUTURES CONTRACTS. Each Fund may enter into interest rate futures contracts for
hedging purposes.

Interest rate futures contracts are purchased or sold to attempt to hedge
against the effects of interest rate changes on a Fund's current or intended
investments in fixed income securities. In the event that an anticipated
decrease in the value of portfolio securities occurs as a result of a general
increase in interest rates, the adverse effects of such changes may be offset,
in whole or in part, by gains on the sale of Futures Contracts. Conversely, the
increased cost of portfolio securities to be acquired, caused by a general
decline in interest rates, may be offset, in whole or in part, by gains on
Futures Contracts purchased by the Funds. In addition, Futures Contracts
provide a tool for quick action by the portfolio managers to adjust the duration
of the portfolio. A Fund will incur brokerage fees when it purchases and sells
Futures Contracts, and it will be required to make and maintain margin deposits.

OPTIONS ON FUTURES CONTRACTS. Each Fund may purchase and write options to buy or
sell interest rate futures contracts. Unless otherwise stated in the Prospectus
or in this Statement of Additional Information, such investment strategies will
be used as a hedge and not for speculation.

Put and call options on Futures Contracts may be traded by the Funds in
order to protect against declines in the values of portfolio securities or
against increases in the cost of securities to be acquired. Purchases of
options on Futures Contracts may present less risk in hedging the portfolios of
the Funds than the purchase or sale of the underlying Futures Contracts since
the potential loss is limited to the amount of the premium plus related
transaction costs. The writing of such options, however, does not present less
risk than the trading of futures contracts and will constitute only a partial
hedge, up to the amount of the premium received, and, if an option is exercised,
the Funds may suffer a loss on the transaction.

RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS

Although the Funds will enter into transactions in Futures Contracts,
Options on Futures Contracts, and certain options solely for hedging purposes,
their use does involve certain risks. For example, a lack of correlation between
the index or instrument underlying an option or Futures Contract and the assets
being hedged, or unexpected adverse price movements, could render a Fund's
hedging strategy unsuccessful and could result in losses. The Funds also may
enter into transactions in futures, forward contracts and options on securities,
indexes and other investments for other than hedging purposes, which involves
greater risk. For example, the Funds may enter into these transactions to
manage the duration of certain of the Funds'

-12-
<PAGE>

investments. Duration is a measure which reflects estimated price sensitivity
to a given change in interest rates. For example, for an interest rate change
of 1%, a portfolio with a duration of 5 years would be expected to experience a
price change of 5%. In addition, there can be no assurance that a liquid
secondary market will exist for any contract purchased or sold, and a Fund may
be required to maintain a position until exercise or expiration, which could
result in losses.

Other risks include: dependence on Advisers' ability to predict movements
in the prices of individual securities; fluctuations in the general securities
markets and movements in interest rates; imperfect correlation between movements
in the price of options, futures contracts, or options thereon and movements in
the price of the security hedged or used for cover; unexpected adverse price
movements which could render a Fund's hedging strategy unsuccessful and could
result in losses; the fact that skills and techniques needed to trade options,
futures contracts and options thereon or to use forward contracts are different
from those needed to select the securities in which the Funds invest, lack of
assurance that a liquid secondary market will exist for any particular option,
futures contract or option thereon at any particular time requiring a Fund to
maintain a position until exercise or expiration, which could result in losses;
and the possible need to defer closing out certain options, futures contracts
and options thereon in order to continue to qualify for the beneficial tax
treatment afforded regulated investment companies under the Internal Revenue
Code.

ILLIQUID SECURITIES

Each Fund may invest up to 15% of the value of its net assets in illiquid
securities, including "restricted" securities. For this purpose illiquid
securities include, among others, (i) securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale, (ii) options purchased over-the-counter and the cover for options
written over-the-counter, and (iii) repurchase agreements not terminable within
seven days. Commercial paper issued pursuant to the private placement exemption
of Section 4(2) of the 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. Securities that have been determined to be liquid by the Board
of Directors of the Fortis Tax Free, or by Advisers subject to the oversight of
such Board of Directors, will not be subject to this limitation. The U.S.
Securities and Exchange Commission adopted Rule 144A under the 1933 Act, which
provides a safe harbor exemption from the registration requirements of the
1933 Act for resales of "restricted securities" to "qualified institutional
buyers," each as defined in the rule. The result of this rule has been the
development of a more liquid and efficient institutional resale market for
restricted securities.

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,

-13-
<PAGE>

while such a board retains ultimate responsibility, it may delegate this
function to the fund's investment adviser.

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

Illiquid securities may offer a higher yield than securities that are more
readily marketable. The sale of illiquid securities, however, often requires
more time and results in higher brokerage charges or dealer discounts or other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. A Fund may
also be restricted in its ability to sell such securities at a time when it is
advisable to do so. 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 Fund 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 Funds 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.

-14-
<PAGE>

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 Fund defaulted, such Fund 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 Fund'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 Funds 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 Fund's assets. If the Funds 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 Funds' 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 Board of Directors to accurately value such securities and a
Fund's assets, and the Funds' 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 Funds 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 Funds 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 Funds can meet
redemption requests. The achievement of the investment objective of the Funds
may be more dependent upon Advisers' own credit analysis than is the case for
higher quality bonds. Also, the Funds may retain a portfolio security whose

-15-
<PAGE>

rating has been changed if the security otherwise meets the Fund's investment
objective and investment criteria.

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 November 1997 Forecast projects that, under current laws, the State will
complete its current biennium June 30, 1999 with a $453 million surplus, plus a
$350 million cash flow account balance, plus a $522 million budget reserve.
Total General Fund expenditures and transfers for the biennium are projected to
be $20.7 billion. 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. 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.

-16-
<PAGE>

PORTFOLIO TURNOVER

Portfolio transactions will be undertaken principally to accomplish the
Funds' 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.

Investment policies may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest rates. A change in
securities held by a Fund is known as "portfolio turnover" and may involve the
payment by the Funds 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 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.

MANAGEMENT OF THE FUNDS

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

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

Allen R. Freedman* 58 Director Chairman, Chief Executive Officer and President of Fortis,
One Chase Manhattan Plaza

</TABLE>

-17-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

</TABLE>

-18-
<PAGE>

POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- -------------- -----------------------------------------
<S> <C> <C> <C>
Lucinda S. Mezey 51 Vice President Executive Vice President and Head of Equity Investments of Advisers
One Chase Manhattan Plaza since October 1997; from 1995 to October 1997, Chief Investment
New York, New York Officer, Alex Brown Capital Advisory and Trust Co., Baltimore, MD; and
prior to 1995, Senior Vice President and Head of Equity Investments,
PNC Bank, Philadelphia, PA.

James S. Byrd 47 Vice President Executive Vice President of Advisers; prior to 1995, Vice President of
5500 Wayzata Boulevard Advisers and Investors.
Golden Valley, Minnesota

Nicholas L. M. de Peyster 32 Vice President Vice President of Advisers since August 1995; prior to1996, Vice
One Chase Manhattan Plaza President, Equities, Fortis Asset Management.
New York, New York

Diane M. Gotham 40 Vice President Vice President of Advisers since 1998; from 1994 to 1998, securities
500 Bielenberg Drive analyst for Advisers.
Woodbury, Minnesota

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

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

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

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

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

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

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

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

</TABLE>

-19-
<PAGE>

POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- -------------- -----------------------------------------
<S> <C> <C> <C>
Ho Wang 51 Vice President Vice President of Advisers since 1998; from 1995 to 1998, senior
One Chase Manhattan Plaza securities analyst, Lord, Abbett & Co., New York, NY; prior to 1995,
New York, New York portfolio manager, New York Life, New York, NY.

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

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

David A. Peterson 56 Vice President Vice President and Assistant General Counsel, Fortis Benefits
500 Bielenberg Drive Insurance Company.
Woodbury, Minnesota

Rhonda J. Schwartz 40 Vice President Senior Vice President and General Counsel of Advisers; Senior Vice
500 Bielenberg Drive President and General Counsel, Life and Investment Products, Fortis
Woodbury, Minnesota Benefits Insurance Company and Vice President and General Counsel,
Life and Investment Products, Time Insurance Company; from 1993 to
January 1996, Vice President, General Counsel, Fortis, Inc.

Scott R. Plummer 39 Vice President Second Vice President, Corporate Counsel and Assistant Secretary of
500 Bielenberg Drive Advisers.
Woodbury, Minnesota

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

Dickson Lewis 49 Vice President Senior Vice President, Marketing and Sales of Advisers; from 1993 to
500 Bielenberg Drive July 1997, President and Chief Executive Officer Hedstrom/Blessing,
Woodbury, Minnesota Inc., a marketing communications company, Minneapolis, MN.

Tamara L. Fagely 40 Treasurer Second Vice President of Advisers and Investors.
500 Bielenberg Drive
Woodbury, Minnesota

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

Michael J. Radmer 53 Secretary Partner, Dorsey & Whitney LLP, the Fund's General Counsel.
220 South Sixth Street
Minneapolis, Minnesota

</TABLE>

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<PAGE>

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

Each director who is not affiliated with Advisers or Investors receives
fees of $100 per month, $100 per meeting attended, and $100 per committee
meeting attended (and reimbursement of travel expenses to attend meetings) for
each fund in the Fund Complex for which they are a director. The following
table sets forth the aggregate compensation received by each director from
Fortis Tax-Free during the fiscal year ended September 30, 1998, as well as the
total compensation received by each director from the Funds and all other
registered investment companies managed by Advisers during the calendar year
ended December 31, 1997. Mr. Freedman and Mr. Kopperud, who are affiliated with
Advisers and Investors, did not receive any compensation. No executive officer
receives any compensation from the Funds. During the fiscal year ended
September 30, 1998, National Fund paid $______________ and Minnesota Fund paid
$__________________ in legal fees and expenses to a law firm of which the Funds'
Secretary is a partner.

AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
DIRECTOR FROM FORTIS TAX-FREE FUND COMPLEX*
-------- -------------------- -------------
<S> <C> <C>
Richard W. Cutting $ $31,200
Dr. Robert M. Gavin $ $31,200
Benjamin S. Jaffray $ $24,300
Jean L. King $ $32,200
Edward M. Mahoney $ $31,200
Robb L. Prince $ $33,200
Leonard J. Santow $ $30,200
Noel S. Shadko $ $22,200
Joseph M. Wikler $ $31,200
</TABLE>

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

Directors Gavin, Jaffray, Kopperud, Mahoney, Prince and 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.

-21-
<PAGE>

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

PRINCIPAL HOLDERS OF SECURITIES

As of January ___________, 1999 no person owned of record or, to the
Fund's knowledge, beneficially as much as 5% of the outstanding shares of any
Class of Fund shares, except as follows:

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

INVESTMENT ADVISORY AND OTHER SERVICES

GENERAL

Fortis Advisers, Inc. ("Advisers") has been the investment adviser and
manager of each Fund since inception. Fortis Investors, Inc. ("Investors") acts
as the Funds underwriter. Each acts pursuant to written agreements periodically
approved by the directors or shareholders. The address of each is that of the
Funds. As of October 30, 1998, Advisers managed thirty-three investment company
portfolios with combined net assets of approximately $5.8 billion.

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 financial services company that
provides specialty insurance and investment products to individuals, businesses,
associations and other financial services organizations in the United States.
Fortis, Inc. is a part of Fortis, a worldwide group of companies active in the
fields of insurance, banking and investments. Fortis is jointly owned by Fortis
AMEV of The Netherlands and Fortis AG of Belgium.

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

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENTS

-22-
<PAGE>

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

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

Average Net Assets Annual Investment Advisory
of each Fund and Management Fee
-------------------- ---------------------------
<S> <C> <C>
National Fund For the first $50,000,000 0.8%
Minnesota Fund For assets over $50,000,000 0.7%
</TABLE>

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

Although investment decisions for the Funds are made independently from
those of the other funds or private accounts managed by Advisers, sometimes the
same security is suitable for more than one fund or account. If and when two or
more funds or accounts simultaneously purchase or sell the same security, the
transactions will be allocated as to price and amount in accordance with
arrangements equitable to each fund or account. The simultaneous purchase or
sale of the same securities by a Fund and other funds or accounts may have a
detrimental effect on a Fund, as this may affect the price paid or received by a
Fund or the size of the position obtainable by a Fund.

The Funds paid advisory and management fees as follows during the last
three fiscal years:

-23-
<PAGE>

Advisory Fees Paid During:
--------------------------------------------------------------------------
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
September 30, 1996 September 30, 1997 September 30, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
National Fund $ 581,556 $ 576,384 $
Minnesota Fund 395,618 371,144 $
</TABLE>

EXPENSES

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

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

PLAN OF DISTRIBUTION

Fortis Tax-Free on behalf of each Fund has adopted a plan pursuant to
Rule 12b-1 under the 1940 Act. Rule 12b-1(b) provides that any payments made by
a 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

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<PAGE>

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

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

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

Pursuant to the provisions of the Distribution Plan each Fund pays Advisers
an annual fee of .25% of the average daily net assets attributable to that
Fund's Class A shares and 1.00% attributable to that Fund's Class B, Class C and
Class H shares. Such fees are paid in connection with servicing of the Fund's
shareholder accounts and in connection with distribution-related services
provided with respect to the Fund. Investors will be paid under the
Distribution Plan regardless of Investors' actual expenses.

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

Distribution Fees under the Plan include, but are not limited to, initial
and ongoing sales compensation (in addition to sales charges) paid to registered
representatives of Investors and to other broker-dealers; expenses incurred in
the printing of prospectuses, statements of additional information and reports
used for sales purposes; expenses of preparation and distribution of sales
literature; expenses of advertising of any type; an allocation of Investors'
overhead; and

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<PAGE>

payments to and expenses of persons who provide support services in connection
with the distribution of Fund shares. Shareholder Servicing Fees include all
expenses of Investors incurred in connection with providing administrative or
accounting services to shareholders, including, but not limited to, an
allocation of Investors' overhead and payments made to persons, including
employees of Investors, who respond to inquiries of shareholders of the Fund
regarding their ownership of shares or their accounts with the Fund, or who
provide other administrative or accounting services not otherwise required to be
provided by Advisers.

Listed below are the total distribution fees paid by the Funds and how
those fees were used by Investors for the fiscal period ended September 30,
1998.

<TABLE>
<CAPTION>
NATIONAL FUND MINNESOTA FUND
<S> <C> <C>
Advertising $ $
Printing and Mailing of Prospectuses to
Other than Current Shareholders
Compensation to Underwriters
Compensation to Dealers
Compensation to Sales Personnel
Interest, Carrying or Other Financing
Charges
Other (distribution-related compensation,
sales literature, supplies, postage,
toll-free phone) ------ ------
TOTAL $ $
</TABLE>

BROKERAGE ALLOCATION AND OTHER PRACTICES

Because each Fund's portfolio is exclusively composed of debt, rather than
equity securities, most of the Funds' 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 transactions on behalf of
a 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 a Fund's portfolio transactions are
made by Advisers. The primary consideration in making these decisions is
efficiency in the execution of orders and obtaining the most favorable net
prices for a 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 analysis and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy, and the performance

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<PAGE>

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 a 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 a Fund from these transactions.
Advisers believes that most research services obtained by it generally benefits
several or all of the investment companies and private accounts which it
manages, as opposed to solely benefitting one specific managed fund or account.
Normally, research services obtained through managed funds or accounts investing
in common stocks would primarily benefit those funds or accounts managed by
Advisers which invest in common stock; similarly, services obtained from
transactions in fixed income securities would normally be of greater benefit to
the managed funds or accounts which invest in debt securities.

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, a Fund pays
higher commissions than the lowest rates available.

The Funds did not pay any brokerage commissions for the fiscal years ended
September 30, 1996, 1997 or 1998.

The Funds will not effect any brokerage transactions in its portfolio
securities with any broker-dealer affiliated directly or indirectly with
Advisers, unless such transactions, including the frequency thereof, the receipt
of commissions payable in connection therewith, and the selection of the
affiliated broker-dealer effecting such transactions are not unfair or
unreasonable to the shareholders of the Funds. No commissions were paid to any
affiliate of Advisers during the fiscal years ended September 30, 1996, 1997 and
1998 for any Fund.

From time to time, the Funds may acquire the securities of their regular
brokers or dealers or parent companies of such brokers or dealers. The Funds
acquired the following securities of

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<PAGE>

their regular brokers or dealers or parent companies of such brokers or dealers
during the fiscal period ended September 30, 1998:

Advisers has developed written trade allocation procedures for its
management of the securities trading activities of its clients. Advisers
manages multiple portfolios, both public (mutual funds) and private. The
purpose of the trade allocation procedures is to treat the portfolios fairly and
reasonably in situations where the amount of a security that is available is
insufficient to satisfy the volume or price requirements of each portfolio that
is interested in purchasing that security. Generally, when the amount of
securities available in a public offering or the secondary market is
insufficient to satisfy the requirements for the interested portfolios, the
procedures require a pro rata allocation based upon the amounts initially
requested by each portfolio manager. In allocating trades made on combined
basis, each participating portfolio will receive the same average price for the
securities purchased or sold.

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

CAPITAL STOCK

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

The Funds currently offer their shares in multiple classes, each with
different sales arrangements and bearing different expenses. Under the Articles
of Incorporation, the Board of Directors is authorized to create new portfolios
or classes without the approval of the shareholders of Fortis Tax-Free. Each
share will have a pro rata interest in the assets of the Fund portfolio to which
the shares of that series relates, and will have no interest in the assets of
any other Fund portfolio. In the event of liquidation, each share of a Fund
would have the same rights to dividends and assets as every other share of that
Fund, except that, in the case of a series with more than one class of shares,
such distributions will be adjusted to appropriately reflect any charges and
expenses borne by each individual class. The Board of Directors are also
authorized to create new classes without shareholder approval.

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

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<PAGE>

shareholders must be held at the Funds' expense. Additionally, the 1940 Act
requires shareholder votes for all amendments to fundamental investment policies
and restrictions and for all investment advisory
contracts and amendments thereto.

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

PRICING OF SHARES

On September 30, 1998, the Fund's net asset values per share were
calculated as follows:

NATIONAL FUND

CLASS A

Net Assets ( ) = Net Asset Value per Share ($ )
------------------------- ----
Shares Outstanding ( )
---------
To obtain the public offering price per share, the 4.5% sales charge must be
added to the net asset value obtained above:

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

CLASS B