FORTIS TAX FREE PORTFOLIOS INC, 485BPOS, 2000-01-31

FORTIS TAX FREE PORTFOLIOS INC
485BPOS, 2000-01-31

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<PAGE> 1
1933 Act Registration No. 2-78148
1940 Act Registration No. 811-03498

As filed with the Securities and Exchange Commission on January 31, 2000

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
------
Post-Effective Amendment No. 25
------

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

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

immediately upon filing pursuant to paragraph (b) of Rule 485
- -----
x on February 1, 2000 pursuant to paragraph (b) of Rule 485
- -----
75 days after filing pursuant to paragraph (a) of Rule 485
- -----
on (specify date) pursuant to paragraph (a) of Rule 485
- -----
60 days after filing pursuant to paragraph (a) of Rule 485
- -----

<PAGE> 2

[FORTIS Solid partners, flexible solutionsSM LOGO]

Fortis Tax-Free Funds Prospectus

February 1, 2000
- - 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> 3

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<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.................. 13
Tax Considerations........................................ 13
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....................................... 19
</TABLE>
<PAGE> 4

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 Fund expenses how the Funds have
performed. For more information, please read the section entitled "More
Information on Fund Objectives, Investment Strategies and Risks." Fortis
Advisers, Inc. ("Advisers") is the Funds' investment adviser.

An investment in either 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.

NATIONAL PORTFOLIO

OBJECTIVE

The objective of National Portfolio ("National Fund") 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 primarily invests in tax exempt obligations issued by states,
territories, and possessions of the United States, and their political
subdivisions, agencies and instrumentalities. 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 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 varies geographically and by industry.
Advisers will attempt to maintain an average effective duration for the Fund of
six to ten years.

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, explained on page 16
under "More Information on Fund Objectives, Investment Strategies and
Risks--Investment Strategies."

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

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

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

- STATE AND LOCAL POLITICAL AND ECONOMIC RISK. The Fund is also subject to
the risk that the value of obligations owned by the Fund will be adversely
affected by local or state political and economic conditions and
developments. The value of obligations owned by the Fund also may be
adversely affected by future changes in federal or state income tax laws,
including rate reductions or the imposition of a flat tax.

1
<PAGE> 5

FUND PERFORMANCE

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

ANNUAL TOTAL RETURNS as of December 31 each year
[BAR GRAPH]

<TABLE>
<S> <C> <C>
BEST QUARTER: 6.23% (quarter ended March 31, 1995)
WORST QUARTER: -5.32% (quarter ended March 31, 1994)
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS as of December 31, 1999

<TABLE>
<CAPTION>
SINCE
TEN YEARS INCEPTION
ONE YEAR FIVE YEARS CLASS E CLASS A, B, H, C+
-------- ---------- --------- -----------------
<S> <C> <C> <C> <C>
Class A shares..................................... (8.12)% 4.46% N/A 5.17%
Class E shares..................................... (8.00)% 4.70% 5.67% N/A
Class B shares*.................................... (7.82)% 4.32% N/A 5.15%
Class H shares*.................................... (7.82)% 4.32% N/A 5.15%
Class C shares*.................................... (5.47)% 4.61% N/A 5.27%
Lehman Brothers Municipal Bond Index**............. (2.06)% 6.91% 6.89% 6.81%
</TABLE>

2
<PAGE> 6

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 paid directly from your investment.
Annual fund operating expenses are deducted from Fund assets. The figures below
are based on expenses during the fiscal year ended September 30, 1999.

<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)................................... none 4.00% 1.00% none
ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management fees......................................... 0.77% 0.77% 0.77% 0.77%
Distribution and/or service (12b-1) fees................ 0.25% 1.00% 1.00% none
Other expenses.......................................... 0.17% 0.17% 0.17% 0.17%
Total annual fund operating expenses.................... 1.19% 1.94% 1.94% 0.94%
</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."

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............................. $ 566 $ 557 $ 197 $ 297 $ 197 $ 542
3 years............................ 811 879 609 609 609 736
5 years............................ 1,075 1,227 1,047 1,047 1,047 947
10 years........................... 1,828 2,070 2,070 2,264 2,264 1,553
</TABLE>

3
<PAGE> 7

MINNESOTA PORTFOLIO

OBJECTIVE

The objective of Minnesota Portfolio ("Minnesota Fund") 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 primarily invests in tax exempt obligations issued by the State of
Minnesota, its agencies, instrumentalities and political subdivisions. 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 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 varies by industry. Advisers will attempt
to maintain an average effective duration for the Fund of six to ten years.

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:

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

- STATE AND LOCAL POLITICAL AND ECONOMIC RISK. Because the Fund invests
primarily in municipal securities issued by the State of Minnesota and its
political subdivisions, the Fund will be particularly affected by political
and economic conditions and developments in that state. See Statement of
Additional Information for details. The value of obligations owned by the
Fund also may be adversely affected by future changes in federal or state
income tax laws, including rate reductions or the imposition of a flat tax.

4
<PAGE> 8

FUND PERFORMANCE

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

ANNUAL TOTAL RETURNS as of December 31 each year
[BAR GRAPH]

<TABLE>
<S> <C> <C>
BEST QUARTER: 5.67% (quarter ended March 31, 1995)
WORST QUARTER: -4.99% (quarter ended March 31, 1994)
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS as of December 31, 1999

<TABLE>
<CAPTION>
SINCE
TEN YEARS INCEPTION
ONE YEAR FIVE YEARS CLASS E CLASS A, B, H, C+
-------- ---------- --------- -----------------
<S> <C> <C> <C> <C>
Class A shares..................................... (7.19)% 4.22% N/A 4.78%
Class E shares..................................... (6.96)% 4.50% 5.45% N/A
Class B shares*.................................... (6.82)% 4.13% N/A 4.75%
Class H shares*.................................... (6.90)% 4.10% N/A 4.78%
Class C shares*.................................... (4.52)% 4.39% N/A 4.92%
Lehman Brothers Municipal Bond Index**............. (2.06)% 6.91% 6.89% 6.81%
</TABLE>

-------------------------------------
* With CDSC. Assumes redemption on December 31, 1999.
** An unmanaged index of municipal bonds with maturities greater than two
years. The average annual returns over the various time periods are
comparable to those of the Class E shares.
+ Inception date: November 14, 1994.

5
<PAGE> 9

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 paid directly from your investment.
Annual fund operating expenses are deducted from Fund assets. The figures below
are based on expenses during the fiscal year ended September 30, 1999.

<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)..................................... none 4.00% 1.00% none
ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management fees........................................... 0.72% 0.72% 0.72% 0.72%
Distribution and/or service (12b-1) fees.................. 0.25% 1.00% 1.00% none
Other expenses............................................ 0.14% 0.14% 0.14% 0.14%
Total annual fund operating expenses...................... 1.11% 1.86% 1.86% 0.86%
</TABLE>

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:

<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............................. $ 558 $ 549 $ 189 $ 289 $ 189 $ 534
3 years............................ 787 855 585 585 585 712
5 years............................ 1,034 1,186 1,006 1,006 1,006 905
10 years........................... 1,741 1,984 1,984 2,180 2,180 1,463
</TABLE>

6
<PAGE> 10

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.

- There is 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 amount of
the concession paid to dealers. This difference does not affect you in
any way.

CLASS C SHARES

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

- There is a contingent deferred sales charge of 1.00% if you redeem 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> 11

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,
and

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

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

DETERMINING YOUR PURCHASE PRICE

NET ASSET VALUE OF FUND SHARES

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

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

Each Fund's net asset value per share is determined by dividing the value of the
securities and other assets owned by the Fund, less all liabilities, by the
number of the Fund's shares outstanding. The securities owned by the Fund are
generally valued at market value. However, there are times when market values
are not readily available. 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 if you were a shareholder in the Funds
on November 13, 1994.)

The purchase price of Class A and Class E Fund shares is the 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>

- ------------------------------
* You will pay a contingent deferred sales charge if you redeem these shares
within two years of purchase.

In determining your sales charge above, purchases by you, your spouse, your
children under the age of 21, and purchases by any tax-qualified plan of any of
the foregoing (provided there is only one participant) will be combined. The
above schedule also applies 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 adviser.

8
<PAGE> 12

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

9
<PAGE> 13

RULE 12B-1 FEES

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

<TABLE>
<CAPTION>
RULE 12B-1 FEE
SHARE CLASS (AS A % OF AVERAGE NET ASSETS)
----------- ------------------------------
<S> <C>
Class A....................................... 0.25%
Class 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), $100 for investments by telephone through the
automated Fortis Information Line and $500 for other investments by telephone or
by wire.

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

INVESTING BY PHONE

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-$150,000 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.

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.

10
<PAGE> 14

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 quarterly, rather than following each transaction.

EXCHANGE PRIVILEGE

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

If you own shares of another Fortis Fund, you may exchange those shares for Fund
shares of the same class. You pay no sales charge if the shares to be exchanged
have already been subject to a sales charge. If you own Class E shares of
another Fortis Fund, you may exchange those shares for Class A Fund shares. If
you own Fortis Money Fund Class A shares, you may exchange those shares for any
class of Fund shares, 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--Redeeming by phone").

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

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

HOW TO SELL SHARES

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

REDEEMING BY MAIL

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

To redeem by mail, send a written request to Fortis Funds, P.O. Box 64284, St.
Paul, MN 55164-0284.

Your request should include the following information:

- name of Fund

- account number

- dollar amount or number of shares to be redeemed

- name on the account

- signatures of all registered account owners

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

11
<PAGE> 15

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

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

- the redemption proceeds are paid to someone other than the registered
holder, or

- 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.

REDEEMING BY PHONE

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

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

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

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

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

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'
procedures will verify your address and social security number, tape record the
telephone call and provide written confirmation of the transaction. The security
measures for automated telephone redemptions using the Fortis Information Line
involve using a personal identification number and providing written
confirmation of the transaction.

You may have difficulty reaching your broker-dealer, sales representative or the
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 on the telephone
redemption privilege. You will receive at least 30 days notice before any such
change is made.

PAYMENT OF REDEMPTION PROCEEDS

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

INVOLUNTARY REDEMPTIONS

Each Fund has the right to redeem accounts that fall below $500 as a result of
selling or exchanging shares. 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.

12
<PAGE> 16

REINVESTMENT PRIVILEGE

If you redeem your shares, you may reinvest the proceeds within 60 days without
payment of an additional sales charge. If the shares you redeemed were subject
to a CDSC, that charge will be credited to your account. 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 you redeem the shares
acquired through the exchange, you will be treated as if no exchange took place
for the purpose of determining the CDSC. In addition, a CDSC is not imposed at
the time that Fund shares subject to a CDSC are exchanged for shares of Fortis
Money Fund or at the time those Fortis Money Fund shares are re-exchanged for
shares of any Fortis Fund subject to a CDSC. In each case, however, the shares
acquired will remain subject to the CDSC that would have applied to the original
Fund shares.

DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS

Each Fund declares a daily dividend from its net investment income and pays the
dividend monthly. You will earn dividends starting the day after you purchase
your shares. If you made a telephone purchase, you will earn dividends after
payment is received. Any capital gains distributions are made annually. You will
receive 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 in the same Fund on the last
business day of each month. If they are reinvested in another Fortis Fund,
processing normally takes one business day. If you elect cash payment, a check
will be mailed within three business days after the end of the month. If you
withdraw your entire account, all dividends accrued will be paid at that time.

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

13
<PAGE> 17

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
short-term or long-term capital gains will be taxable whether you reinvest those
distributions or receive them in cash. Distributions paid from a Fund's net
long-term capital gains are taxable to you as long-term capital gains,
regardless of the length of time during which you have held your shares of the
Fund. Information about the tax status of each year's distributions will be
mailed to you annually.

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.

SHAREHOLDER INQUIRIES

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

14
<PAGE> 18

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 Fund........................... 0.77%
Minnesota Fund.......................... 0.72%
</TABLE>

PORTFOLIO MANAGERS

Howard G. Hudson supervises the portfolio management of the Funds. Robert C.
Lindberg has been primarily responsible for the day-to-day management of the
Funds since 1993.

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

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

15
<PAGE> 19

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' objectives. Of
course, there is no guarantee that either Fund will achieve its objective. 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.

Under unusual market circumstances, for temporary defensive purposes each Fund
may invest 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.

DURATION

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. 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.

PORTFOLIO TURNOVER

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. In addition, trading of securities may produce capital
gains, which are taxable to shareholders when distributed. 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.

- STATE AND LOCAL POLITICAL AND ECONOMIC CONDITIONS. The value of
obligations owned by the Funds may be adversely affected by state and 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

16
<PAGE> 20

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. 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
of investment grade quality. 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 ("called") at the option
of the issuer before their stated maturity date. In general, an issuer will
call its bonds if they can be refinanced by issuing new bonds which bear a
lower interest rate. The Funds are subject to the possibility that during
periods of falling interest rates, a bond issuer will call its 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 and their performance
will reflect in part the ability of Advisers to select securities which are
suited to achieving the Funds' investment objectives. Due to their active
management, the Funds could underperform other mutual funds with similar
investment objectives or the market generally.

17
<PAGE> 21

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

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

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

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS E
---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
NATIONAL PORTFOLIO 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $11.38 $11.07 $10.76 $10.72 $10.38
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net................................... .50 .52 .55 .56 .58
Net realized and unrealized gains (losses) on
investments............................................. (.78) .34 .31 .04 .36
- -----------------------------------------------------------------------------------------------------------------------------
Total from operations....................................... (.28) .86 .86 .60 .94
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.............................. (.49) (.51) (.55) (.56) (.59)
From net realized gains................................... (.12) (.04) -- -- (.01)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders......................... (.61) (.55) (.55) (.56) (.60)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year................................ $10.49 $11.38 $11.07 $10.76 $10.72
- -----------------------------------------------------------------------------------------------------------------------------
Total return@............................................... (2.56%) 7.97% 8.19% 5.69% 9.30%
Net assets end of year (000s omitted)....................... $47,140 $56,959 $59,727 $65,237 $70,531
Ratio of expenses to average daily net assets............... .94% .98% .95% .93% 1.03%
Ratio of net investment income to average daily net
assets.................................................... 4.56% 4.65% 5.03% 5.19% 5.54%
Portfolio turnover rate..................................... 89% 74% 71% 52% 35%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
---------------------------------------------- ----------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
NATIONAL PORTFOLIO 1999 1998 1997 1996 1995+ 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $11.37 $11.06 $10.75 $10.71 $9.79 $11.36 $11.05
- ---------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net................... .47 .50 .53 .53 .49 .38 .42
Net realized and unrealized gains (losses)
on investments.......................... (.78) .34 .31 .04 .94 (.78) .34
- ---------------------------------------------------------------------------------------------------------------------
Total from operations....................... (.31) .84 .84 .57 1.43 (.40) .76
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.............. (.47) (.49) (.53) (.53) (.50) (.38) (.41)
From net realized gains................... (.12) (.04) -- -- (.01) (.12) (.04)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders......... (.59) (.53) (.53) (.53) (.51) (.50) (.45)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.............. $10.47 $11.37 $11.06 $10.75 $10.71 $10.46 $11.36
- ---------------------------------------------------------------------------------------------------------------------
Total return@............................... (2.87%) 7.75% 7.96% 5.46% 14.80% (3.61%) 6.95%
Net assets end of period (000s omitted)..... $8,247 $8,308 $7,263 $6,239 $1,807 $1,752 $1,493
Ratio of expenses to average daily net
assets.................................... 1.19% 1.23% 1.20% 1.18% 1.28%* 1.94% 1.98%
Ratio of net investment income to average
daily net assets.......................... 4.31% 4.40% 4.78% 4.97% 5.03%* 3.56% 3.65%
Portfolio turnover rate..................... 89% 74% 71% 52% 35% 89% 74%
- ---------------------------------------------------------------------------------------------------------------------

<CAPTION>
- -------------------------------------------- ------------------------------
CLASS B
------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------
NATIONAL PORTFOLIO 1997 1996 1995+
- -------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........ $10.74 $10.70 $9.79
- --------------------------------------------
Operations:
Investment income - net................... .44 .45 .42
Net realized and unrealized gains (losses)
on investments.......................... .31 .04 .93
- --------------------------------------------
Total from operations....................... .75 .49 1.35
- --------------------------------------------
Distributions to shareholders:
From investment income - net.............. (.44) (.45) (.43)
From net realized gains................... -- -- (.01)
- --------------------------------------------
Total distributions to shareholders......... (.44) (.45) (.44)
- --------------------------------------------
Net asset value, end of period.............. $11.05 $10.74 $10.70
- --------------------------------------------
Total return@............................... 7.14% 4.65% 13.96%
Net assets end of period (000s omitted)..... $1,287 $997 $668
Ratio of expenses to average daily net
assets.................................... 1.95% 1.93% 2.03%*
Ratio of net investment income to average
daily net assets.......................... 4.02% 4.20% 4.04%*
Portfolio turnover rate..................... 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 gain distributions, without
adjustment for sales charge.

18
<PAGE> 22

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS C
---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
NATIONAL PORTFOLIO 1999 1998 1997 1996 1995+
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $11.34 $11.04 $10.74 $10.70 $9.79
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net................................... .39 .41 .43 .45 .43
Net realized and unrealized gains (losses) on
investments............................................. (.78) .34 .31 .04 .92
- -----------------------------------------------------------------------------------------------------------------------------
Total from operations....................................... (.39) .75 .74 .49 1.35
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.............................. (.38) (.41) (.44) (.45) (.43)
From net realized gains................................... (.12) (.04) -- -- (.01)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders......................... (.50) (.45) (.44) (.45) (.44)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.............................. $10.45 $11.34 $11.04 $10.74 $10.70
- -----------------------------------------------------------------------------------------------------------------------------
Total return@............................................... (3.53%) 6.86% 7.04% 4.65% 13.95 %
Net assets end of period (000s omitted)..................... $548 $493 $584 $223 $106
Ratio of expenses to average daily net assets............... 1.94% 1.98% 1.95% 1.93% 2.03 %*
Ratio of net investment income to average daily net
assets.................................................... 3.56% 3.65% 4.05% 4.20% 4.14 %*
Portfolio turnover rate..................................... 89% 74% 71% 52% 35 %
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS H
---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
NATIONAL PORTFOLIO 1999 1998 1997 1996 1995+
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $11.35 $11.06 $10.75 $10.71 $9.79
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net................................... .39 .40 .44 .45 .43
Net realized and unrealized gains (losses) on
investments............................................. (.78) .34 .31 .04 .93
- -----------------------------------------------------------------------------------------------------------------------------
Total from operations....................................... (.39) .74 .75 .49 1.36
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.............................. (.38) (.41) (.44) (.45) (.43)
From net realized gains................................... (.12) (.04) -- -- (.01)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders......................... (.50) (.45) (.44) (.45) (.44)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.............................. $10.46 $11.35 $11.06 $10.75 $10.71
- -----------------------------------------------------------------------------------------------------------------------------
Total return@............................................... (3.52%) 6.76% 7.13% 4.64% 14.06 %
Net assets end of period (000s omitted)..................... $6,019 $6,099 $5,111 $4,015 $1,757
Ratio of expenses to average daily net assets............... 1.94% 1.98% 1.95% 1.93% 2.03 %*
Ratio of net investment income to average daily net
assets.................................................... 3.56% 3.65% 4.03% 4.20% 4.24 %*
Portfolio turnover rate..................................... 89% 74% 71% 52% 35 %
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS E
---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------
MINNESOTA PORTFOLIO 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $10.77 $10.46 $10.28 $10.32 $10.08
- ---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net................................... .50 .52 .53 .55 .57
Net realized and unrealized gains (losses) on
investments............................................. (.67) .32 .18 (.04) .24
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations....................................... (.17) .84 .71 .51 .81
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.............................. (.49) (.52) (.53) (.55) (.57)
From net realized gains................................... (.17) (.01) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders......................... (.66) (.53) (.53) (.55) (.57)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year................................ $9.94 $10.77 $10.46 $10.28 $10.32
- ---------------------------------------------------------------------------------------------------------------------------------
Total return@............................................... (1.71%) 8.25% 7.10% 5.01% 8.35%
Net assets end of year (000s omitted)....................... $37,396 $42,170 $43,584 $49,262 $52,603
Ratio of expenses to average daily net assets............... .86% .91% .96% .93% .98%
Ratio of net investment income to average daily net
assets.................................................... 4.73% 4.94% 5.14% 5.34% 5.60%
Portfolio turnover rate..................................... 55% 55% 61% 41% 27%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

19
<PAGE> 23
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
------------------------------------------------------ ------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
MINNESOTA PORTFOLIO 1999 1998 1997 1996 1995+ 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $10.74 $10.43 $10.26 $10.30 $9.55 $10.73 $10.42
- -----------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net........... .47 .49 .50 .52 .48 .39 .41
Net realized and unrealized gains
(losses) on investments......... (.67) .32 .18 (.04) .76 (.67) .32
- -----------------------------------------------------------------------------------------------------------------------
Total from operations............... (.20) .81 .68 .48 1.24 (.28) .73
- -----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net...... (.46) (.49) (.51) (.52) (.49) (.38) (.41)
From net realized gains........... (.17) (.01) -- -- -- (.17) (.01)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders...................... (.63) (.50) (.51) (.52) (.49) (.55) (.42)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period...... $9.91 $10.74 $10.43 $10.26 $10.30 $9.90 $10.73
- -----------------------------------------------------------------------------------------------------------------------
Total return@....................... (1.94%) 8.13% 6.66% 4.78% 13.15% (2.73%) 7.18%
Net assets end of period (000s
omitted).......................... $3,240 $3,170 $3,689 $1,822 $884 $860 $1,271
Ratio of expenses to average daily
net assets........................ 1.11% 1.16% 1.21% 1.18% 1.23%* 1.86% 1.91%
Ratio of net investment income to
average daily net assets.......... 4.48% 4.69% 4.89% 5.07% 5.10%* 3.73% 3.94%
Portfolio turnover rate............. 55% 55% 61% 41% 27% 55% 55%
- -----------------------------------------------------------------------------------------------------------------------

<CAPTION>
- ------------------------------------ ----------------------------------
CLASS B
------------------------------
YEAR ENDED SEPTEMBER 30,
----------------------------------
MINNESOTA PORTFOLIO 1997 1996 1995+
- ------------------------------------ ----------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $10.24 $10.27 $9.55
- ------------------------------------
Operations:
Investment income - net........... .42 .45 .41
Net realized and unrealized gains
(losses) on investments......... .18 (.04) .73
- ------------------------------------
Total from operations............... .60 .41 1.14
- ------------------------------------
Distributions to shareholders:
From investment income - net...... (.42) (.44) (.42)
From net realized gains........... -- -- --
- ------------------------------------
Total distributions to
shareholders...................... (.42) (.44) (.42)
- ------------------------------------
Net asset value, end of period...... $10.42 $10.24 $10.27
- ------------------------------------
Total return@....................... 6.01% 4.04% 12.10%
Net assets end of period (000s
omitted).......................... $1,301 $1,109 $180
Ratio of expenses to average daily
net assets........................ 1.96% 1.93% 1.98%*
Ratio of net investment income to
average daily net assets.......... 4.14% 4.34% 4.37%*
Portfolio turnover rate............. 61% 41% 27%
- ------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS C
----------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
MINNESOTA PORTFOLIO 1999 1998 1997 1996 1995+
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.73 $10.44 $10.26 $10.30 $9.55
- ----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net................................... .42 .39 .42 .44 .42
Net realized and unrealized gains (losses) on
investments............................................. (.67) .32 .18 (.04) .75
- ----------------------------------------------------------------------------------------------------------------------------
Total from operations....................................... (.25) .71 .60 .40 1.17
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.............................. (.38) (.41) (.42) (.44) (.42)
From net realized gains................................... (.17) (.01) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders......................... (.55) (.42) (.42) (.44) (.42)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.............................. $9.93 $10.73 $10.44 $10.26 $10.30
- ----------------------------------------------------------------------------------------------------------------------------
Total return@............................................... (2.45%) 6.97% 6.00% 4.00% 12.31%
Net assets end of period (000s omitted)..................... $247 $194 $232 $210 $143
Ratio of expenses to average daily net assets............... 1.86% 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income to average daily net
assets.................................................... 3.73% 3.94% 4.14% 4.31% 4.28%*
Portfolio turnover rate..................................... 55% 55% 61% 41% 27%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS H
----------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
MINNESOTA PORTFOLIO 1999 1998 1997 1996 1995+
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.76 $10.44 $10.26 $10.30 $9.55
- ----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net................................... .39 .42 .42 .44 .41
Net realized and unrealized gains (losses) on
investments............................................. (.67) .32 .18 (.04) .76
- ----------------------------------------------------------------------------------------------------------------------------
Total from operations....................................... (.28) .74 .60 .40 1.17
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.............................. (.38) (.41) (.42) (.44) (.42)
From net realized gains................................... (.17) (.01) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders......................... (.55) (.42) (.42) (.44) (.42)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.............................. $9.93 $10.76 $10.44 $10.26 $10.30
- ----------------------------------------------------------------------------------------------------------------------------
Total return@............................................... (2.73%) 7.26% 6.00% 3.93% 12.42%
Net assets end of period (000s omitted)..................... $1,401 $1,458 $1,227 $1,061 $638
Ratio of expenses to average daily net assets............... 1.86% 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income to average daily net
assets.................................................... 3.73% 3.94% 4.14% 4.33% 4.29%*
Portfolio turnover rate..................................... 55% 55% 61% 41% 27%
- ----------------------------------------------------------------------------------------------------------------------------
</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.

20
<PAGE> 24
FORTIS FINANCIAL GROUP
Fund management offered through Fortis Advisers, Inc. since 1949
Securities offered through Fortis Investors, Inc. member NASD, SIPC
Insurance products offered through 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(SM) LOGO]

ACCOUNT APPLICATION Complete this application to open a new Fortis account or to
add services to an existing Fortis account. DO NOT USE TO OPEN A FORTIS IRA,
SEP, 403(B) OR FORTIS MONEY FUND ACCOUNT. If you have questions, please call
your Investment professional or Fortis customer service at 1-800-800-2000,
extension 3012. Please complete all sections, as submission of an incomplete
application may cause processing delays.

Mail to: FORTIS MUTUAL FUNDS, CM-9614, St. Paul, MN 55170-9614

1. ACCOUNT INFORMATION
Please provide the information requested below:

[ ] INDIVIDUAL: Please print your name, social security
number, U.S. citizen status.

[ ] JOINT TENANT: List all names, one social security number, one U.S. citizen
status. (When one joint tenant dies, the other takes full ownership.)

[ ] UNIFORM GIFT/TRANSFER TO MINORS: Provide name of custodian (only one) and
minor, minor's social security number, minor's U.S. citizen status and
birthdate of minor.

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

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

[ ] FORTIS KEY PLAN: Include social security number.

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

[ ] OTHER:
---------------------------------------------------------------------

- --------------------------------------------------------------------------------
Owner (individual, first joint tenant, custodian, trustee) (Please print.)

- --------------------------------------------------------------------------------
Owner (second joint tenant, minor, trust name) (Please print.)

- --------------------------------------------------------------------------------
Additional information, If needed

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

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

- --------------------------------------------------------------------------------
Social security number (taxpayer ID)

- --------------------------------------------------------------------------------
Joint tenant 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
-------------------------------------------

2. INVESTMENT ACCOUNT

A. PHONE ORDERS
Was order previously phoned in? If yes, date
------------------------------------

Confirmation no. Account no.
----------------------------- ------------------------

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

B. MAIL-IN ORDERS
Check enclosed for $ . (MADE PAYABLE to FORTIS FUNDS)
---------------------
MUST INDICATE CLASS

1) $
--------------------------- -------------------- A [ ] B [ ] C [ ] H [ ]
FUND NAME AMOUNT OR PERCENT CLASS

2) $
--------------------------- -------------------- A [ ] B [ ] C [ ] H [ ]
FUND NAME AMOUNT OR PERCENT CLASS

3) $
--------------------------- -------------------- A [ ] B [ ] C [ ] H [ ]
FUND NAME AMOUNT OR PERCENT CLASS

4) $
--------------------------- -------------------- A [ ] B [ ] C [ ] H [ ]
FUND NAME AMOUNT OR PERCENT CLASS

5) $
--------------------------- -------------------- A [ ] B [ ] C [ ] H [ ]
FUND NAME AMOUNT OR PERCENT CLASS

3. SUITABILITY

NOTE: MUST BE COMPLETED WITH EACH FUND APPLICATION UNLESS YOU PROVIDE
SUITABILITY INFORMATION TO YOUR BROKER/DEALER ON A DIFFERENT FORM.

- --------------------------------------------------------------------------------
Employer State in which application was signed

- --------------------------------------------------------------------------------
Business address

- --------------------------------------------------------------------------------
City, state, zip

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

Is customer associated with or employed by another NASD member?
[ ] yes [ ]no

ESTIMATED ANNUAL INCOME $ [ ] declined
(all sources) ---------------

ESTIMATED NET WORTH $ [ ] declined
(exclusive of family residence) ---------------

ESTIMATED TAX BRACKET % [ ] declined
---------------
SOURCE OF FUNDS
-----------------------------------------------------------------

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

95749 (c) Fortis, Inc. 12/99

The Fortis brandmark and Fortis(R) are servicemarks of Fortis (B) and Fortis
(NL).

<PAGE> 25

ACCOUNT APPLICATION continued

4. 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 no.
-------------------------------------- --------------------------------
Name SS no.
-------------------------------------- --------------------------------
Name SS no.
-------------------------------------- --------------------------------

5. EXEMPTION FROM SALES CHARGE

CHECK IF APPLICABLE (for net asset value purchases):

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

[ ] I was, within the past sixty 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.

6. 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 7 for payment
options.)

[ ] Dividends and capital gains in cash (See section 7 for payment options.)

[ ] Distributions into another Fortis fund (MUST BE SAME CLASS).

- --------------------------- --------------------------------------------------
Fund name Fund/account no. (if existing account)

7. WITHDRAWAL OPTIONS
A. CASH DIVIDENDS

PLEASE FORWARD THE PAYMENT TO:

[ ] My bank. Please complete bank information in Section D, and choose one
option below. Payment will be sent via U.S. Mail if neither option is
checked.

[ ] Via U.S. mail
[ ] Via ACH (electronic transfer)

[ ] My address of record.

7. WITHDRAWAL OPTIONS continued
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
------------------------------------------------------

FREQUENCY: [ ] monthly [ ] semiannually
[ ] quarterly [ ] annually

PLEASE FORWARD THE PAYMENT TO:

[ ] My bank. (Please complete bank information in Section D, and choose one
option below. Payment will be sent via U.S. mail if neither option is
checked. Signature guarantee is required to send to any place other than
address of record.)

[ ] via U.S. mail
[ ] via ACH (electronic transfer)

[ ] My address of record.

C. TELEPHONE OPTIONS

1. TELEPHONE EXCHANGE. All exchanges must be into accounts that have the
identical registration-ownership. All authorized signatures listed in
section 14 (or your registered representative with shareholder consent) can
make telephone transfers. A new application is required for investment in a
new fund.

2. TELEPHONE REDEMPTION ($25,000 LIMIT AND NOT AVAILABLE FOR QUALIFIED PLANS)
If you have not changed your address in the past sixty days, you are
eligible for this service. This option allows all authorized signatures in
section 14 (or your registered representative with shareholder consent) to
redeem up to $25,000 from your Fortis account.

PLEASE FORWARD THE PAYMENT TO:

[ ] My bank.(Please complete bank information in section D, and choose one
option below. Payment will be sent via U.S. mail if neither option is
checked.)

[ ] Via U.S. mail
[ ] Via ACH (electronic transfer)

[ ] My address of record.

D. BANK INFORMATION

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

TYPE OF ACCOUNT: [ ] Checking [ ] Savings

Bank name
----------------------------------------------------------------------

Address
-------------------------------------------------------------------------

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

Name of bank account
------------------------------------------------------------

Bank account number
-------------------------------------------------------------

Bank transit number
-------------------------------------------------------------

Bank phone number
---------------------------------------------------------------

ATTACH A VOIDED CHECK FROM YOUR BANK CHECKING ACCOUNT

95749 (C) Fortis, Inc. 12/99

<PAGE> 26
ACCOUNT APPLICATION continued

8. 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 thirteen-month period
--------------------------------
beginning (not more than ninety days prior
------------------------------------
to this application). I understand that an additional sales charge must be paid
if I do not complete my purchase.

9. 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 [ ] semiannually [ ] annually

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

1)
------------------------------------------- --------------------------
2)
------------------------------------------- --------------------------
3)
------------------------------------------- --------------------------
4)
------------------------------------------- --------------------------
5)
------------------------------------------- --------------------------

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

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

FUND(S) TO RECEIVE INVESTMENT(S):

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

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

11. SYSTEMATIC INVESTMENT PLAN [ ] yes [ ] no

These plans may be established with automatic withdrawals of $25 or more each
month.

Complete the automated clearing house (ACH) authorization agreement Form in the
prospectus and attach a VOIDED check from your bank checking account.

12. OTHER SPECIAL INSTRUCTIONS

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

13. 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

14. SIGNATURE AND CERTIFICATION
I/WE HAVE RECEIVED AND READ EACH APPROPRIATE FUND PROSPECTUS AND UNDERSTAND THAT
ITS TERMS ARE INCORPORATED BY REFERENCE INTO THIS APPLICATION. I AM/WE ARE OF
LEGAL AGE AND LEGAL CAPACITY.

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

I/WE CERTIFY, UNDER PENALTIES OF PERJURY, THAT:

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

(2) THAT THE IRS HAS NEVER NOTIFIED ME THAT I AM SUBJECT TO THIRTY-ONE PERCENT
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

95749 (C) Fortis, Inc. 12/99
<PAGE> 27

(This page has been left blank intentionally.)
<PAGE> 28

FORTIS FINANCIAL GROUP

Fortis Advisers, Inc. (fund management since 1949)
Fortis Investors, Inc. (principal underwriter, member NASD, SIPC)
Fortis Benefits Insurance Company & Fortis Insurance Company
P.O. Box 64284 St. Paul, MN 55164-0284 (800) 800-2000
http://www.ffg.us.fortis.com

FORTIS MUTUAL FUND
AUTOMATED CLEARING HOUSE (ACH) AUTHORIZATION AGREEMENT [FORTIS LOGO]
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, FIRST JOINT TENANT, CUSTODIAN, TRUSTEE)

- ------------------------------------------------------------------
OWNER (SECOND JOINT TENANT, MINOR, TRUST NAME)

- ------------------------------------------------------------------
ADDITIONAL INFORMATION, IF NEEDED

- ------------------------------------------------------------------
STREET ADDRESS

- ------------------------------------------------------------------
CITY STATE ZIP

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

2 BANK/FINANCIAL INSTITUTION INFORMATION

<TABLE>
<S> <C> <C>
PLAN TYPE: [ ] New Plan [ ] Bank Change
ACCOUNT TYPE: [ ] Checking [ ] Savings
(Must Attach A Voided (Must Attach A Deposit
Check) Slip)
</TABLE>

- ------------------------------------------------------------------
Transit number

- ------------------------------------------------------------------
Bank account number

- ------------------------------------------------------------------
Account owner(s) (please print)

- ------------------------------------------------------------------
Depositor's daytime phone

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

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

- ------------------------------------------------------------------
SIGNATURE OF DEPOSITOR DATE

- ------------------------------------------------------------------
SIGNATURE OF JOINT-DEPOSITOR DATE

3 INVESTMENT OPTION(S)

I request Fortis Financial Group (FFG) to obtain payment of sums becoming due
the company by charging my account in the form of electronic debit entries. I
request and authorize the financial institution named to accept, honor and
charge those entries to my account. please allow 30 days for collected funds to
be available in your Fortis account.

<TABLE>
<S> <C> <C>
A. [ ] Invest by Fortis Information Line by phone
(minimum $100, maximum $150,000)
Please allow up to four business days for deposits into
Fortis Funds. Transactions after 3:00 p.m. (CST) will be
processed the following business day.
*Not available on tax-qualified accounts such as IRA, SEP,
SARSEP and KEY plans.
B. [ ] Systematic Investment Plan: [ ] New Plan [ ] Change Plan
Beginning draft date:

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

Account number: ------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
CLASS AMOUNT
FUND A B C H $25.00 PER FUND MINIMUM
<S> <C> <C>
[ ] [ ] [ ] [ ]
- --------------------------------- --------------------
[ ] [ ] [ ] [ ]
- --------------------------------- --------------------
[ ] [ ] [ ] [ ]
- --------------------------------- --------------------
[ ] [ ] [ ] [ ]
- --------------------------------- --------------------
</TABLE>

4 WITHDRAWAL OPTION(S)

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

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

<TABLE>
<S> <C> <C>
A. [ ] Cash Dividends
B. [ ] Redeem via Fortis Information Line 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
Beginning withdrawal date: ---------------------------------
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 (NL)N.V. AND
FORTIS (B)

98049 (11/99)
<PAGE> 29

[FORTIS(SM) LOGO]

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

Prospectus
February 1, 2000

- - National Portfolio

- - Minnesota Portfolio

SEC file numbers: 811-03498

[FORTIS(SM) LOGO]

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

95418 (C)Fortis 2/00

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

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

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

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

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

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

The Fortis logo and Fortis(SM) are servicemarks of Fortis (NL) N.V. and
Fortis (B).

<PAGE> 30

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

STATEMENT OF ADDITIONAL INFORMATION

DATED FEBRUARY 1, 2000

This Statement of Additional Information is NOT a prospectus. This
Statement of Additional Information relates to a prospectus for Fortis Tax-Free
Funds dated February 1, 2000 and should be read in conjunction therewith.
National Portfolio ("National Fund") and Minnesota Portfolio (Minnesota Fund")
are collectively referred to as the "Funds." The financial statements included
as a part of the Funds' Annual Report to Shareholders for the fiscal year ended
September 30, 1999 are incorporated by reference to this Statement of Additional
Information. Copies of the Fund's Prospectus and /or Annual Report are
available, without charge, by writing or calling Fortis Investors, Inc.
("Investors") at P.O. Box 64284, St. Paul, Minnesota 55164. Telephone: (651)
738-4000. Toll Free (800) 800-2000.

<PAGE> 31

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page

<S> <C>
Fund History 1

Description of the Funds 1

Investment Strategies and Risk Considerations 1

Investment Restrictions 11

Management of the Funds 12

Principal Holders of Securities 17

Investment Advisory and Other Services 18

Brokerage Allocation and Other Practices 21

Capital Stock 23

Pricing of Shares 23

Purchase of Shares 25

Redemption of Shares 28

Taxation 29

Underwriter and Distribution of Shares 31

Performance Information 32

Tax-Exempt versus Taxable Income 35

Financial Statements 36

Other Service Providers 36

Limitation of Director Liability 36

Additional Information 37

Appendix A
Tax Exempt Bond Ratings 38
Appendix B
Description of Futures and Options 42
</TABLE>

<PAGE> 32

FUND HISTORY

National Portfolio ("National Fund") and Minnesota Portfolio
("Minnesota Fund") are portfolios of Fortis Tax-Free Portfolios, Inc. ("Fortis
Tax-Free") which was incorporated in Minnesota in 1986. National Fund and
Minnesota Fund each commenced operations on March 17, 1986.

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
management investment company. Fortis Tax-Free currently consists of two
separate investment portfolios. As a fundamental policy, 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 without shareholder
approval, each corresponding to a distinct investment portfolio and a distinct
series of their common stock.

INVESTMENT STRATEGIES AND RISK CONSIDERATIONS

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

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

<PAGE> 33

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 A). The Funds do not
currently intend to invest in so-called "moral obligation" bonds, where
repayment is backed by a moral commitment of an entity other than the issuer,
unless the credit of the issuer itself, without regard to the moral obligation,
meets the investment criteria established for investments by 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 the various rating agencies 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.

As a fundamental policy, neither Fund will 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
policy that each Fund must invest at least 80% if its net assets in securities
that generate interest that is not includable in gross income for federal income
tax purposes, or with respect to the Minnesota Fund, is not includable 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
stated Minnesota, in the case of Minnesota Fund) alternative minimum tax.

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

<PAGE> 34

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.

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.

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 1999 Forecast projects that, under current laws, the State will
complete its current biennium June 30, 2000 with an unrestricted balance of $751
million, plus a $350 million cash flow account balance, plus a $622 million
budget reserve. Total General Fund expenditures and transfers for the biennium
are projected to be $23.6 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

<PAGE> 35

may create additional budgetary pressures. The Department of Finance
Forecast cautioned that the Forecast does not "provide protection against
anything less than ideal economic conditions," and that the "budget reserve
remains well below the recommended long term goal of 5 percent of biennial
spending."

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.

Certain Minnesota tax legislation and possible future changes in
federal and State income tax laws, including rate reductions, could adversely
affect the value and marketability of Minnesota Tax Exempt Bonds that are held
by the Fund.

RATINGS OF SECURITIES

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 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 involves greater
risks, often related to sensitivity to interest rates, economic changes,
solvency, and relative liquidity in the secondary market.

Each Fund may invest up to 10% of its total assets in Tax Exempt Bonds
rated below investment grade, but no lower than Caa as determined by Moody's and
CCC as determined by S&P, or comparably rated by another nationally recognized
rating agency. Securities in the Caa/CCC rating categories are considered to be
of poor standing and are predominantly speculative. Additionally, investments in
securities rated Caa or CCC involve significant risk exposure to adverse
conditions. Such securities may be in default, or there may be present elements
of danger with respect to the payment of principal or interest.

The Funds may retain a security which ceases to be rated, or whose
rating has changed below the minimum rating required for purchase by the Funds,
if the security otherwise meets the respective Fund's 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 Appendix A.

<PAGE> 36

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 six to twenty years.

HIGH YIELD/HIGH RISK SECURITIES

While at least 90% of each Fund is Tax Exempt Bonds will be of
investment grade quality at the time of purchase, 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 yield/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.

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 yield/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
yield/ 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.

<PAGE> 37

To the extent that there is no established secondary market, there may
be thin trading of high yield/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 yield/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 yield/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 objectives 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
rating has been changed if the security otherwise meets the Fund's investment
objective and investment criteria.

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.

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,

<PAGE> 38

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 Fund'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, each 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 has the unconditional right to demand and receive payment in full of the
principal amount then outstanding together with interest to the date of payment.

ILLIQUID SECURITIES

Each Fund may invest 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

<PAGE> 39

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,
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.

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 Appendix B to this
Statement of Additional Information, which should be read in conjunction with
the following sections.

Options On Securities. Each Fund may write (sell) covered call and put
options and purchase call and put options. 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. 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

<PAGE> 40

security known as "straddles." Such transactions can generate additional
premium income but also present increased risk.

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

Options 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.

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.

<PAGE> 41

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' investments. Duration is a measure which
reflects estimated price sensitivity to a given change in interest rates. 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.

TEMPORARY INVESTMENTS

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.

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,

<PAGE> 42
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.

INVESTMENT RESTRICTIONS

Each Fund is subject to certain investment restrictions, which are set
forth below. Any investment that is denoted as "fundamental" may be changed only
by the approval of a majority of a Fund's shareholders. In this situation,
majority means the lesser of (i) 67% of the Fund's outstanding shares present at
a meeting of the holders if more than 50% of the outstanding shares are present
in person or by proxy or (ii) more than 50% of the Fund's outstanding shares.

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

The following investment restrictions are fundamental and may be changed
only by the approval of shareholders. Neither Fund will:0

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 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 Fund'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

<PAGE> 43

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.

2) Invest more than 15% of its net assets in all forms of illiquid
investments.

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 assets covering, subject to, or committed to all options,
futures, and forward contracts would exceed 25% of the value of the
total assets of the Fund.

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

Richard W. Cutting 68 Director Certified public accountant and financial consultant.
137 Chapin Parkway
Buffalo, New York
</TABLE>

<PAGE> 44

<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- -------------- --------------------------------------------
<S> <C> <C> <C>
Allen R. Freedman * 59 Director Chairman and Chief Executive Officer of Fortis, Inc.;
One Chase Manhattan Plaza a Managing Director of Fortis International, N.V.;
New York, New York director of Systems and Computer Technology
Corporation.

Dr. Robert M. Gavin 59 Director President, Cranbrook Education Community; prior to
380 Lone Pine Road July 1996, President, Macalester College, St. Paul,
Bloomfield, Michigan MN.

Jean L. King 55 Director President, Communi-King, a communications
12 Evergreen Lane consulting firm, St. Paul, MN.
St. Paul, Minnesota

Dean C. Kopperud* 47 President and Chief Executive Officer and a Director of Advisers;
500 Bielenberg Drive Director President and a Director of Investors; President of
Woodbury, Minnesota Fortis Financial Group; a Director of Fortis Benefits
Insurance Company and Senior Vice President of
Fortis Insurance Company.

Robb L. Prince 58 Director Financial and employee benefit consultant; prior to
5108 Duggan Plaza July 1995, Vice President and Treasurer, Jostens, Inc.,
Edina, Minnesota a producer of products and services for youth,
education, sports award, and recognition markets;
director of Analysts International Corporation.

Leonard J. Santow 63 Director Principal, Griggs & Santow, Inc., economic and
75 Wall Street 21st Floor financial consultants.
New York, New York

Noel Schenker Shadko 45 Director Marketing consultant; prior to 1996, Senior Vice
1908 W. 49th Street President, Marketing and Strategic Planning,
Minneapolis, Minnesota Rollerblade, Inc.

Joseph M. Wikler 57 Director Investment consultant and private investor; prior to
12520 Davan Drive 1994, Director of Research, Chief Investment Officer,
Silver Spring, Maryland Principal and a Director, The Rothschild Co., and
investment adviser, Baltimore, MD.

Gary N. Yalen 57 Vice President President and Chief Investment Officer of Advisers
One Chase Manhattan Plaza (since 1995) and Senior Vice President, Investments,
New York, New York of Fortis, Inc.; prior to 1996, President and Chief
Investment Officer, Fortis Asset Management, a
former division of Fortis, Inc.

Howard G. Hudson 62 Vice President Executive Vice President and Head of Fixed Income
One Chase Manhattan Plaza Investments of Advisers since 1995; prior to 1996,
New York, New York Senior Vice President, Fixed Income, Fortis Asset
Management.
</TABLE>

<PAGE> 45

<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- -------------- --------------------------------------------
<S> <C> <C> <C>
Lucinda S. Mezey 52 Vice President Executive Vice President and Head of Equity
One Chase Manhattan Plaza Investments of Advisers since October 1997; from
New York, New York 1995 to October 1997, Chief Investment Officer, Alex
Brown Capital Advisory and Trust Co., Baltimore,
MD; prior to 1995, Senior Vice President and Head of
Equity Investments, PNC Bank, Philadelphia, PA.

James S. Byrd 48 Vice President Executive Vice President of Advisers since 1995;
90 South 7th Street prior to 1995, Vice President of Advisers and of
Minneapolis, Minnesota Investors.

Nicholas L.M. de Peyster 33 Vice President Vice President of Advisers since 1995; prior to 1995,
One Chase Manhattan Plaza Vice President, Equities, Fortis Asset Management.
New York, New York

Diane M. Gotham 41 Vice President Vice President of Advisers since 1998; from 1994 to
90 South 7th Street 1998, securities analyst for Advisers.
Minneapolis, Minnesota

Laura E. Granger 38 Vice President Vice President of Advisers since 1998; from 1993-
One Chase Manhattan Plaza 1998, portfolio manager, General Motors Investment
New York, New York Management, New York, NY.

Maroun M. Hayek 51 Vice President Vice President of Advisers since 1995; prior to 1996,
One Chase Manhattan Plaza Vice President, Fixed Income, Fortis Asset
New York, New York Management.

Robert C. Lindberg 43 Vice President Vice President of Advisers since 1993.
One Chase Manhattan Plaza
New York, New York

Charles L. Mehlhouse 57 Vice President Vice President of Advisers; prior to March 1996,
One Chase Manhattan Plaza portfolio manager, Marshall & Ilsley Bank
New York, New York Corporation, Milwaukee, WI.

Kevin J. Michels 48 Vice President Vice President of Advisers since 1995; prior to 1996,
One Chase Manhattan Plaza Vice President, Administration, Fortis Asset
New York, New York Management.

Christopher J. Pagano 36 Vice President Vice President of Advisers since 1996; prior to March
One Chase Manhattan Plaza 1996, government strategist, Merrill Lynch, New
New York, New York York, NY.
</TABLE>

<PAGE> 46

<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- -------------- --------------------------------------------
<S> <C> <C> <C>
Kendall C. Peterson 43 Vice President Vice President of Advisers since August 1999; prior
One Chase Manhattan Plaza to August 1999, Vice President and portfolio manager
New York, New York at Prudential Insurance Company of America,
Newark, NJ.

Stephen M. Rickert 56 Vice President Vice President of Advisers since 1995; from 1994 to
One Chase Manhattan Plaza 1996, Corporate Bond Analyst, Fortis Asset
New York, New York Management.

Michael J. Romanowski 48 Vice President Vice President of Advisers since 1998; from October
One Chase Manhattan Plaza 1995 to March 1998, portfolio manager, Value Line,
New York, New York New York, NY; prior to October 1995, securities
analyst, Conning & Co., Hartford, CT.

Christopher J. Woods 39 Vice President Vice President of Advisers since 1995; prior to 1996
One Chase Manhattan Plaza Vice President, Fixed Income, Fortis Asset
New York, New York Management.

Robert W. Beltz, Jr. 50 Vice President Vice President -- Securities Operations of Advisers and
500 Bielenberg Drive of Investors.
Woodbury, Minnesota

Peggy L. Ettestad 42 Vice President Senior Vice President, Operations of Advisers since
500 Bielenberg Drive March 1997; prior to March 1997, Vice President,
Woodbury, Minnesota G.E. Capital Fleet Services, Minneapolis, MN.

Tamara L. Fagely 41 Vice President Vice President of Advisers and of Investors since
500 Bielenberg Drive and Treasurer 1998; prior to 1998, Second Vice President of
Woodbury, Minnesota Advisers and Investors.

Dickson W. Lewis 50 Vice President Senior Vice President, Marketing and Sales of
500 Bielenberg Drive Advisers and of Investors since July 1997; from 1993
Woodbury, Minnesota to July 1997, President and Chief Executive Officer,
Hedstrom/Blessing, Inc., Minneapolis, MN.

David A. Peterson 57 Vice President Vice President and Assistant General Counsel, Fortis
500 Bielenberg Drive Benefits Insurance Company.
Woodbury, Minnesota

Scott R. Plummer 40 Vice President Vice President, Associate General Counsel and
500 Bielenberg Drive Assistant Secretary of Advisers.
Woodbury, Minnesota

Rhonda J. Schwartz 41 Vice President Since January 1996, Senior Vice President and
500 Bielenberg Drive General Counsel of Advisers, Vice President and
Woodbury, Minnesota General Counsel, Life and Investment Products of
Fortis Insurance Company and Senior Vice President
and General Counsel of Fortis Benefits Insurance
</TABLE>

<PAGE> 47

<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- -------------- --------------------------------------------
<S> <C> <C> <C>
Company, FFG Division; from 1994 to January
1996, Vice President, General Counsel and Secretary of
Fortis, Inc.

Melinda S. Urion 46 Vice President Senior Vice President and Chief Financial Officer of
500 Bielenberg Drive Advisers since 1997; from 1995 to 1997, Senior Vice
Woodbury, Minnesota President of Finance and Chief Financial Officer,
American Express Financial Corporation; prior to March
1995, corporate controller, American Express
Financial Corporation and prior to 1994, controller and
treasurer, IDS Life Insurance Company, Minneapolis, MN.

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

* Mr. Kopperud is an "interested person" (as defined under the 1940 Act)
of Advisers and Fortis Tax-Free because he holds certain positions including
serving as Chief Executive Officer and a director of Advisers. Mr. Freedman is
an "interested person" of Advisers and Fortis Tax-Free because he holds certain
positions including serving as Chairman and Chief Executive Officer of Fortis,
Inc., the parent company of Advisers.

Each director who is not affiliated with Advisers or Investors receives
a monthly fee ($90 per month from National Fund and $59 per month from Minnesota
Fund), $100 per meeting attended from each Fund, and $100 per committee meeting
attended from each Fund (and reimbursement of travel expenses to attend
meetings). Each such director also receives a monthly fee, a meeting fee and a
committee meeting fee from each fund in the Fund Complex for which they are a
director. The following table sets forth the aggregate compensation received by
each director from Fortis Tax-Free during the fiscal year ended September 30,
1999, as well as the total compensation received by each director from the Fund
Complex during the calendar year ended December 31, 1999. Mr. Freedman and
Mr. Kopperud, who are affiliated with Advisers and Investors, did not receive
any compensation. No executive officer receives any compensation from the Funds.

<TABLE>
<CAPTION>
AGGREGATE COMPENSATION TOTAL COMPENSATION
DIRECTOR FROM FORTIS TAX-FREE FROM FUND COMPLEX*
- -------- ---------------------- ------------------
<S> <C> <C>
Richard W. Cutting $1,800 $31,200
Dr. Robert M. Gavin $1,800 $31,300
Benjamin S. Jaffray** $1,800 $21,100
Jean L. King $1,600 $29,200
Edward M. Mahoney** $1,800 $31,300
Robb L. Prince $1,800 $31,300
Leonard J. Santow $1,781 $32,650
Noel Schenker Shadko $1,800 $23,900
Joseph M. Wikler $1,900 $33,800
</TABLE>

<PAGE> 48

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

** Messrs. Jaffray and Mahoney retired from the Board of Directors effective
January 1, 2000.

During the fiscal year ended September 30, 1999, National Fund paid
$3,250 and Minnesota Fund paid $2,148 in legal fees and expenses to a law firm
of which the Funds' Secretary is a partner.

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

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

PRINCIPAL HOLDERS OF SECURITIES

As of January 15, 2000 no person owned of record or, to the Fund's
knowledge, beneficially as much as 5% of the outstanding shares of any class of
Fund shares, except as follows: NATIONAL PORTFOLIO. CLASS A - Brian L. and Joan
M. Johnson, PO Box 400, Spooner, WI (14%). NATIONAL PORTFOLIO. CLASS B - Anthony
Ciccarino TOD, 55 McClellan Ave., Amsterdam, NY (10%); Harold M. Sales Trustee
FBO Florence E. Sales Trust, 7319 S. Syracuse Ct., Englewood, CO (8%) Norwest
Investment Services, Inc., FBO 105468101, North Star Building E., 608 Second Av,
S., Minneapolis, MN (11%); and Elvada M. Torsiello TOD, 10 Roosevelt Rd.,
Amsterdam, NY (8%). NATIONAL PORTFOLIO. CLASS H - Maurice T. Moler INTER-VIVOS
Trustee FBO Maurice T. Moler Trust, 716 18th St., RM 15, Prairie View Center,
Charleston, IL (6%). NATIONAL PORTFOLIO. CLASS C - Byron V. Nair TOD, 612
Arizona St., Glidden, IA (5%); Eugene E. Shepard, Trustee for Eugene Shepard
Living Trust, 12690 Grandin Ln., Bridgeton, MO (5%); Sheldon Schram TOD, 61
Ridgeview Dr, West Patterson, NJ (9%); Glenn H. and Bernita K. Mannes, RR1,
Yankton, SD (5%) and Jerry J. and L. J. Hamby, 530 Sonnet Dr., San Antonio, TX
(23%).

MINNESOTA PORTFOLIO. CLASS A - Harold A. Fischer TOD, 3701 Chandler Dr.
NE, Apt. #313, Minneapolis, MN (6%) and Ruth R. Gillespie, Rt 3 Box 98, Pine
City, MN (7%); and Betty Mae Nelson, RR 1, Box 8, Bellingham, MN (6%). MINNESOTA
PORTFOLIO. CLASS B - Elsie M. Krostue TOD, 100 Roosevelt St. SE #6, Bemidji, MN
(11%); Norman C. Hotvedt, RR 2, East Grand Forks, MN (5%); Orville M.
Vredenburg, Gladys C. Vredenburg JTWROS, TOD: Ricky L. Vredenburg et al, RR 2,
Box 222, Akeley, MN (6%); and Paine Webber, Inc., FBO Minerva Mikkila TTEE, CHAR
REM Trust, 1000 Harbor Blvd., Weehawken, NJ (26%). MINNESOTA PORTFOLIO. CLASS H
- - Norwest Bank Minnesota, FBO Boentje Living Trust, A/C 16964300, PO Box 1533,
Minneapolis, MN (10%); Norwest Investment Services, Inc., FBO 301318091, North
Star Building E., 608 Second Av, S., Minneapolis, MN (14%); Mary C. Jackson,
4300 W River Pkwy. #215, Minneapolis, MN (12%); and U.S. Bancorp Investments,
FBO 176082411, 100 S Fifth St., Minneapolis, MN (25%). MINNESOTA PORTFOLIO.
CLASS C - Donaldson, Lufkin, Jenrette Securities Corporation, PO Box 2052,
Jersey City, NJ (13%); Dennis E. Jones and Pamela M. Jones, PO Box 186, Lowry,
MN (7%); Lyle W. Jahnke TOD, 1305 W Birch Ave., Olivia, MN (30%); Catherine A.
Estrem TOD, 1594 Lakewood Dr., Maplewood, MN (11%); Ardis E. Ninke TOD,

<PAGE> 49
8006 Hayes St. NE, Spring Lake Park, MN (13%); Henry A. and Patricia E. Prchal,
214 SW 2nd St., Young America, MN (10%) and Theodore Pulasky Custodian, Brandie
L. Pearson UTMA, RR 1 Box 87, Donnelly, MN (12%).

As of January 15, 2000, the directors and executive officers as a group
beneficially owned less than 1% of the outstanding shares of each class of each
Fund.

INVESTMENT ADVISORY AND OTHER SERVICES

GENERAL

Fortis Advisers, Inc. ("Advisers") has been the investment adviser and
manager of each Fund since inception. Fortis Investors, Inc. ("Investors") acts
as the Funds underwriter. Each acts pursuant to written agreements periodically
approved by the directors or shareholders. The address of each is that of the
Funds. As of December 31, 1999 Advisers managed thirty-three investment company
portfolios with combined net assets of approximately $8.2 billion.

CONTROL AND MANAGEMENT OF ADVISERS AND INVESTORS

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

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

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

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENTS

Advisers acts as investment adviser and manager of each Fund under
separate Investment Advisory and Management Agreements. These agreements are
individually referred to as an "Agreement" and collectively referred to as the
"Agreements." Each Agreement will terminate automatically in the event of its
assignment. In addition, the Agreements are terminable at any time, without
penalty, by the Board of Directors or, with respect to any Fund, by vote of a
majority of the Fund's outstanding voting securities, on not more than 60 days'
written notice to Advisers, and by Advisers on 60 days' notice to the Fund.
Unless sooner terminated, the Agreements continue in 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

<PAGE> 50
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:

<TABLE>
<CAPTION>
Average Daily Net Annual Investment Advisory
Assets of Each Fund and Management Fee
------------------- --------------------------
<S> <C> <C>
National Fund For the first $50,000,000 0.80%
For assets over $50,000,000 0.70%

Minnesota Fund For the first $50,000,000 0.72%
For assets over $50,000,000 0.70%
</TABLE>

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

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

<TABLE>
<CAPTION>
Advisory Fees Paid During:
--------------------------------------------------------------------
Fiscal year ended Fiscal year ended Fiscal year ended
September 30, 1997 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
National Fund $ 576,384 $ 560,282 $ 543,144
Minnesota Fund $ 371,144 $ 352,796 $ 334,606
</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.

<PAGE> 51

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 members 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.

Pursuant to the provisions of the Distribution Plan each Fund pays
Investers 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. Payments made under the Distribution Plan are
not tied to actual expenses incurred by Investors and may exceed such 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 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 year ended September 30, 1999.

<PAGE> 52

<TABLE>
<CAPTION>
NATIONAL FUND MINNESOTA FUND
------------- --------------
<S> <C> <C>
Advertising $ 0 $ 0
Printing and Mailing of Prospectuses to
Other than Current Shareholders 9,490 4,281
Compensation to Underwriters 98,925 24,815
Compensation to Dealers 0 0
Compensation to Sales Personnel 0 0
Interest, Carrying or Other Financing Charges 0 0
Other (distribution-related compensation, sales
literature, supplies, postage, toll-free phone) 2,575 7,941
-------- --------

Total $110,990 $37,037
</TABLE>

BROKERAGE ALLOCATION AND OTHER PRACTICES

For a fund exclusively composed of debt, such as 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. The
volume of business done with a broker-dealer for fixed income trades is based to
a large extent on the availability and competitive price of the fixed income
securities that fit the strategy of the fixed income portfolio. Best execution,
the quality of research, making of secondary markets and other services are also
determining factors for the allocation of business when buying and selling fixed
income securities. If a broker-dealer offering a larger spread is more reliable
or provides better execution than a broker-dealer offering a smaller spread,
then Advisers may select the broker-dealer offering a larger spread for a
particular equity or fixed income trade.

Advisers may direct orders to broker-dealers who furnish research
products and services to Advisers as long as the broker-dealers meet the
selection criteria outlined above. The research products and services
supplements Advisers' own research and enables Advisers to obtain the views and
information of others prior to making investment decisions for the Funds. During
fiscal year ended September 30, 1999, the Fund did not pay any commissions to
broker-dealers who provided research products and services to Advisers. Advisers
has not entered and will not enter into any agreement with a broker-dealer that
would prevent Advisers from obtaining best execution on a trade.

Advisers believes that most research services obtained by it generally
benefit several or all of the investment companies, insurance company accounts
and private accounts which it manages, as opposed to solely benefiting one
specific managed fund or account. Such research services include advice, both
directly and in writing, as to the value of the securities; the advisability of
investing in, purchasing, or selling securities; the availability of securities,
or purchasers or sellers of securities; and analysis and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts. Examples of some of the research products and
services that may be furnished to Advisers include:

o hard copy securities research services;

o securities research software database services;

o electronic securities trading networks; and

<PAGE> 53

o statistical services useful to mutual fund directors and account
representatives in evaluating the relative performance of mutual fund
portfolios.

If a broker-dealer furnishes Advisers with non-research products and
services, Advisers will pay the broker-dealer for such products and services. No
client brokerage will be used to pay for non-research product and services.

The Funds did not pay any brokerage commissions for the fiscal years
ended September 30, 1997, 1998 or 1999.

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, 1997, 1998 and
1999 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 their regular brokers or dealers or
parent companies of such brokers or dealers during the fiscal period ended
September 30, 1999:

<TABLE>
<CAPTION>
VALUE OF SECURITIES
NAME OF ISSUER OWNED AT YEAR END
-------------- -------------------
<S> <C>
U.S. Bank (N.A.) $ 1,465,171
</TABLE>

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

<PAGE> 54

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 series or
classes of shares without the approval of the shareholders of Fortis Tax-Free.
Each share of a series will have a pro rata interest in the assets of the
portfolio to which the shares of that series relates, and will have no interest
in the assets of any other portfolio. In the event of liquidation, each share of
a Series 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 is also
authorized to create new classes of the Funds 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 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, 1999, each Fund's net asset values per share were
calculated as follows:

NATIONAL FUND

CLASS A

Net Assets ($8,247,207) = Net Asset Value per Share ($10.47)
-----------------------
Shares Outstanding (787,702)

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

$10.47 = Public Offering Price per Share ($10.96)
------
0.955

<PAGE> 55

CLASS B

Net Assets ($1,752,115) = Net Asset Value per Share ($10.46)
---------------------------
Shares Outstanding (167,478)

CLASS C

Net Assets ($548,297) = Net Asset Value per Share ($10.45)
---------------------
Shares Outstanding (52,473)

CLASS E

Net Assets ($47,139,617) = Net Asset Value per Share ($10.49)
------------------------
Shares Outstanding (4,494,433)

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

$10.49 = Public Offering Price per Share ($10.98)
------
0.955

CLASS H

Net Assets ($6,018,938) = Net Asset Value per Share ($10.46)
---------------------------
Shares Outstanding (575,507)

MINNESOTA FUND
CLASS A

Net Assets ($3,239,826) = Net Asset Value per Share ($ 9.91)
-----------------------
Shares Outstanding (326,979)

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

$ 9.91 = Public Offering Price per Share ($10.38)
------
0.955

CLASS B

Net Assets ($859,714) = Net Asset Value per Share ($ 9.90)
---------------------
Shares Outstanding (86,802)

CLASS C

Net Assets ($247,269) = Net Asset Value per Share ($ 9.93)
---------------------
Shares Outstanding (24,904)

<PAGE> 56

CLASS E

Net Assets ($37,396,030) = Net Asset Value per Share ($ 9.94)
------------------------
Shares Outstanding (3,763,201)

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

$ 9,94 = Public Offering Price per Share ($10.41)
------
0.955

CLASS H

Net Assets ($1,401,494) = Net Asset Value per Share ($ 9.93)
---------------------------
Shares Outstanding (141,125)

The primary close of trading of the New York Stock Exchange (the
"Exchange") currently is 3:00 P.M. (Central Time), but this time may be changed.
The offering price for purchase orders received in the office of the Funds after
the beginning of each day the Exchange is open for trading is based on net asset
value determined as of the primary closing time for business on the Exchange
that day; the price in effect for orders received after such close is based on
the net asset value as of such close of the Exchange on the next day the
Exchange is open for trading. Net asset value is the value of the securities
owned by the Fund, plus cash or other assets, less liabilities, divided by the
number of Fund shares outstanding.

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

PURCHASE OF SHARES

EXEMPTIONS FROM SALES CHARGE

The following purchasers of Class A shares and Class E shares are
exempt from the sales charge:

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

<PAGE> 57

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

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

o Registered investment companies;

o Shareholders of unrelated mutual funds with front-end and/or deferred
sales loads, to the extent that the purchase price of such Fund shares
is funded by the proceeds from the redemption of shares of any such
unrelated mutual fund (within 60 days of the purchase of Fund shares),
provided that the shareholder's application so specifies and is
accompanied either by the redemption check of such unrelated mutual
fund (or a copy of the check) or a copy of the confirmation statement
showing the redemption. Similarly, anyone who is or has been the owner
of a fixed annuity contract not deemed a security under the securities
laws who wishes to surrender such contract and invest the proceeds in
a Fund, to the extent that the purchase price of such Fund shares is
funded by the proceeds from the surrender of the contract (within 60
days of the purchase of Fund shares), provided that such owner's
application so specifies and is accompanied either by the insurance
company's check (or a copy of the check) or a copy of the insurance
company surrender form. From time to time, Investors may pay
commissions to broker-dealers and registered representatives on
transfers from mutual funds or annuities as described above;

o Employees (including their spouses and dependent children) of banks and
other financial institutions that provide referral and administrative
services related to order placement and payment to facilitate transactions
in shares of the Fund for their clients pursuant to a sales or servicing
agreement with Investors; provided, however, that only those employees of
such banks and other firms who as a part of their usual duties provide such
services related to such transactions in Fund shares shall qualify;

o Registered investment advisers, trust companies, and bank trust departments
exercising discretionary investment authority or using a money
management/mutual fund "wrap" program with respect to the money to be
invested in the Fund, provided that the investment adviser, trust company
or trust department provides Advisers with evidence of such authority or
the existence of such a wrap program with respect to the money invested.

SPECIAL PURCHASE PLANS

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

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

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

<PAGE> 58

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

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

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

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

Exchange Privilege. You may exchange your shares for the same class of
shares in another Fortis Fund (except for Class E which may be exchanged for
Class A shares of another Fortis Fund). There is no exchange fee or additional
sales charge. The amount exchanged must meet the minimum purchase amount of the
Fund being purchased. You should consider the investment objectives and policies
of the other fund prior to making such exchange.

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

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

<PAGE> 59

REDEMPTION OF SHARES

GENERAL

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

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

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

SYSTEMATIC WITHDRAWAL PLAN

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

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

Distributions of income and realized capital gains will continue to be
reinvested at net asset value. If you purchase additional shares of the Fund
(other than by reinvestment of distributions), when you have elected a
Systematic Withdrawal Plan, you will pay a sales charge on your purchases at the
same time that withdrawals are made at net asset value. Purchases of additional
shares concurrent with withdrawals are ordinarily disadvantageous to you because
of sales charges and tax liabilities. Additions

<PAGE> 60

to your account in which an election has been made to receive systematic
withdrawals will be accepted only if each additional purchase is equal to at
least one year's scheduled withdrawals or $1,200, whichever is greater. You may
not have a "Systematic Withdrawal Plan" and a "Systematic Investment Plan" in
effect at the same time.

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

REINVESTMENT PRIVILEGE

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

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

TAXATION

Each Fund has qualified and intends to continue to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). As long as they so qualify, the Funds are not taxed on the income
distributed to shareholders.

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

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

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

<PAGE> 61

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

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

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

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

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

The 1995 Minnesota Legislature enacted a statement of intent that
interest on obligations of Minnesota governmental units and Indian tribes be
included in net income of individuals, estates and trusts for Minnesota income
tax purposes if a court determines that Minnesota's exemption of such interest
unlawfully discriminates against interstate commerce because interest on
obligations of governmental issuers located in other states is so included. This
provision applies to taxable years that begin during or after the calendar year
in which any such court decision becomes final, irrespective of the date on
which the obligations were issued. The Funds are not aware of any decision in
which a court has

<PAGE> 62

held that a state's exemption of interest on its own bonds or
those of its political subdivisions or Indian tribes, but not of interest on the
bonds of other states or their political subdivisions or Indian tribes,
unlawfully discriminates against interstate commerce or otherwise contravenes
the United States Constitution. Nevertheless, the Funds cannot predict the
likelihood that interest on the Minnesota bonds held by the Funds would become
taxable under this Minnesota statutory provision.

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

UNDERWRITER AND DISTRIBUTION OF SHARES

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

<TABLE>
<CAPTION>
Total Underwriting Commissions

Fiscal year ended Fiscal year ended Fiscal year ended
September 30, 1997 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
National Fund $ 99,076 $ 107,088 $ 92,044
Minnesota Fund $ 58,107 $ 74,187 $ 68,405
</TABLE>

<TABLE>
<CAPTION>
Underwriting Commissions Retained By Investors

Fiscal year ended Fiscal year ended Fiscal Year ended
September 30, 1997 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------

<S> <C> <C> <C>
National Fund $ 32,102 $ 36,107 $ 10,782
Minnesota Fund 8,448 22,571 8,599
</TABLE>

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

<PAGE> 63

<TABLE>
<CAPTION>
Net Underwriting Compensation on
Discounts and Redemptions and Brokerage Other
Commissions Repurchases Commissions Compensation
--------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
National Fund $ 54,780 $ 37,264 $ -0- $ -0-
Minnesota Fund $ 62,417 $ 5,988
</TABLE>

PERFORMANCE INFORMATION

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

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

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

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

The Fund's yields for the 30-day period ended September 30, 1999, were:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS H CLASS E
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
National Portfolio 3.88% 3.31% 3.31% 3.31% 4.12%
Minnesota Portfolio 4.15% 3.60% 3.60% 3.60% 4.39%
</TABLE>

"Tax equivalent yield" is computed by dividing the portion of the
Fund's yield which is tax- exempt by one minus a stated income tax rate. The
result is then added to the portion of the Fund's yield, if any, which is not
tax exempt.

<PAGE> 64

The Fund's tax-exempt yields for the 30-day period ended September 30,
1999 (assuming a Federal tax rate of 39.6%, and combined Minnesota/Federal tax
rate of 44.4%) were:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS H CLASS E
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
National Portfolio 6.42% 5.48% 5.48% 5.48% 6.82%
Minnesota Portfolio 7.46% 6.47% 6.47% 6.47% 7.90%
</TABLE>

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

P(1+T) power of n = ERV

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

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

The following tables set forth the average annual total returns for
each Class of shares of each Fund for one year, five years and since inception
(10 years with respect to Class E shares of each Fund) for the period ending
September 30, 1999.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------------
10 YEARS/SINCE
1 YEAR 5 YEARS INCEPTION
------ ------- ---------------

<S> <C> <C> <C>
NATIONAL FUND
Class A Shares* (7.24%) - 5.63%
Class B Shares* (6.88%) - 5.51%
Class C Shares* (4.45%) - 5.79%
Class E Shares (6.95%) 4.66% 6.10%
Class H Shares* (6.80%) - 5.51%
</TABLE>

<PAGE> 65

AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>

10 YEARS/SINCE
1 YEAR 5 YEARS INCEPTION
------ ------- --------------
<S> <C> <C> <C>
MINNESOTA FUND
Class A Shares* (6.35%) - 5.20%
Class B Shares* (6.01%) - 5.04%
Class C Shares* (3.37%) - 5.39%
Class E Shares (6.13%) 4.37% 5.85%
Class H Shares* (6.01%) - 5.09%
</TABLE>

*Inception date: November 14, 1994.

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

CTR = (ERV - P) 100

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

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

The following table sets forth the cumulative total returns of each
Class of shares of each Fund for the period from inception through September 30,
1999:

<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
NATIONAL FUND
Class A Shares* 30.64%
Class B Shares* 29.92%
Class C Shares* 31.60%
Class E Shares+ 126.05%
Class H Shares* 29.90%

MINNESOTA FUND
Class A Shares* 28.04%
Class B Shares* 27.10%
Class C Shares* 29.20%
Class E Shares+ 114.45%
Class H Shares* 27.43%
</TABLE>

<PAGE> 66
*Inception date: November 14, 1994.
+Inception date: June 2, 1986

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

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

TAX-EXEMPT VERSUS TAXABLE INCOME

The following tables show the yield that taxable investments would have
to earn to equal tax-exempt income earned by an investment in the National Fund
or the Minnesota Fund. The tax-exempt yields shown are for illustrative purposes
only and are not indicative of the Funds' yields.

NATIONAL FUND

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

FEDERAL TAX RATE TAXABLE EQUIVALENT YIELDS
- ---------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
15% 4.71% 5.88% 7.06% 8.24% 9.41%
28% 5.56% 6.94% 8.33% 9.72% 11.11%
31% 5.80% 7.25% 8.70% 10.14% 11.59%
36% 6.25% 7.81% 9.38% 10.94% 12.50%
39.6% 6.62% 8.28% 9.93% 11.59% 13.25%
</TABLE>

MINNESOTA FUND
TAX-EXEMPT YIELDS
----------------------------------------------------------------
<S> <C> <C> <C> <C>
4.00% 5.00% 6.00% 7.00% 8.00%
</TABLE>

APPROXIMATE
COMBINED STATE AND
FEDERAL TAX RATE TAXABLE EQUIVALENT YIELDS
- ------------------ ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
19.7% 4.98% 6.22% 7.47% 8.71% 9.96%
33.2% 5.99% 7.49% 8.98% 10.48% 11.98%
</TABLE>

35
<PAGE> 67

The tax rates shown above are based on federal and Minnesota tax rates
in effect in 2000.

In the tables for Minnesota Fund, the combined tax rates assume that
state and local income taxes paid are deducted in calculating federal taxable
income. The tables do not reflect the federal and state rules for the phase-out
of personal exemptions and deductions. The combined 19.7% rate assumes that the
investor is subject to a 15% federal tax rate and a 5.5% Minnesota tax rate. The
combined 33.2% rate assumes that the investor is subject to a 28% federal tax
rate and a 7.25% Minnesota tax rate. The combined 36.5%, 41.1% and 44.4% rates
assume that the investor is subject to a 31%, 36%, and 39,6% federal tax rate,
respectively, and an 8% Minnesota tax rate. For years after 2000, the federal
and Minnesota tax bracket amounts will be adjusted for inflation. If these
scheduled changes take effect, they will result in slightly different taxable
equivalent yields for 2001 and later years than those shown in the tables.

FINANCIAL STATEMENTS

The audited financial statements as of September 30, 1999, as set forth
in the Funds' Annual Report to Shareholders, are incorporated herein by
reference. The audited financial statements are provided in reliance on the
report of KPMG LLP, 4200 Norwest Center, Minneapolis, MN 55402, independent
auditors of the Funds, and given on the authority of such firm as experts in
accounting and auditing.

OTHER SERVICE PROVIDERS

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

LIMITATION OF DIRECTOR LIABILITY

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

36
<PAGE> 68

distribution in violation of Minnesota law or for violation of certain
provisions of Minnesota securities laws, or (iv) for any transaction from which
the director derived an improper personal benefit. The Articles of Incorporation
of Fortis Tax-Free limit the liability of directors to the fullest extent
permitted by Minnesota statutes, except to the extent that such a liability
cannot be limited as provided in the 1940 Act (which act prohibits any
provisions which purport to limit the liability of directors arising from such
directors' willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their role as directors).

Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the 1940 Act and the rules and regulations
adopted under such act.

ADDITIONAL INFORMATION

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

<PAGE> 69

APPENDIX A

TAX EXEMPT BOND RATINGS

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

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

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

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

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

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

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

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

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

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

<PAGE> 70

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

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

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

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

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

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

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

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

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

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

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

<PAGE> 71

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

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

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

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

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

MUNICIPAL NOTES AND OTHER SHORT-TERM LOANS

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

Note rating symbols are as follows:

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

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

SP-3 - Speculative capacity to pay principal and interest.

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

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

<PAGE> 72

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

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

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

TAX-EXEMPT DEMAND BONDS

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

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

<PAGE> 73

APPENDIX B

DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS

OPTIONS ON SECURITIES

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

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

Options on securities and options on indexes of securities, discussed
below, are traded on national securities exchanges, such as the Chicago Board
Options Exchange and the New York Stock Exchange, which are regulated by the
SEC. The Options Clearing Corporation guarantees the performance of each party
to an exchange-traded option, by in effect taking the opposite side of each such
option. A holder or writer may engage in transactions in exchange-traded options
on securities and options on indexes of securities only through a registered
broker-dealer which is a member of the exchange on which the option is traded.
In addition, options on securities and options on indexes of securities may be
traded over-the-counter through financial institutions dealing in such options
as well as the underlying instruments. The particular risks of over-the-counter
transactions are set forth more fully in the Statement of Additional
Information.

<PAGE> 74

FUTURES CONTRACTS ON FIXED INCOME SECURITIES AND BOND INDEXES

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

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

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

Interest rate futures contracts currently are traded on a variety of
fixed income securities, including long-term U.S. Treasury Bonds, Treasury
Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities and U.S. Treasury Bills. In addition, interest rate
futures contracts include contracts on indexes of municipal securities. The
index underlying a municipal bond index futures contract is a broad-based index
of municipal securities designed to reflect movements in the municipal
securities market as a whole. The index assigns weighted values to the
securities included in the index and its composition is changed periodically.

OPTIONS ON FUTURES CONTRACTS

An Option on a Futures Contract provides the holder with the right to
enter into a "long" position in the underlying Futures Contract, in the case of
a call option, or a "short" position in the underlying Futures Contract, in the
case of a put option, at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Upon exercise of the option by
the holder, the contract market clearing house establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is

<PAGE> 75

exercised, the parties will be subject to all the risks associated with the
trading of Futures Contracts, such as payment of variation margin deposits. In
addition, the writer of an Option on a Futures Contract, unlike the holder, is
subject to initial and variation margin requirements on the option position.

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

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

An option, whether based on a Futures Contract, a stock index or
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
timing of such exercise.

<PAGE> 76

PART C

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

OTHER INFORMATION

ITEM 23. EXHIBITS

The Fund Is Filing Or Incorporating By Reference The Following Exhibits:

(a).1. Articles of Amendment dated 9/8/94 and Amended and Restated Articles
of Incorporation dated as of 9/9/94 (4)

(a).2. Certification of Designation of Classes A, B, C & H dated 10/31/94
(4)

(a).3. Articles of Amendment to Amended and Restated Articles of
Incorporation dated as of 10/15/96 (4)

(b) Amended and Restated Bylaws dated 1/31/92 (4)

(d).1. Investment Advisory and Management Agreement dated 2/1/98 for
Minnesota Portfolio (4)

(d).2. Investment Advisory and Management Agreement
dated 1/31/92 for National Portfolio (4)

(d) 1.Underwriting and
Distribution Agreement dated 11/14/94 (4)

(e).1. Dealer Sales Agreement (1)

(e).2. Mutual Fund Supplement to Dealer Sales Agreement (1)

(f) Bonus or Profit Sharing Contracts - not applicable

(g) Custody Agreement dated 3/21/92 (4)

(h) Other Material Contracts - not applicable

(I) Legal Opinion - not applicable

(j) Consent of KPMG LLP *

(k) Omitted Financial Statements - not applicable

(l) Initial Capital Agreements - not applicable

(m) Rule 12b-1 Plan (2)

(n) Financial Data Schedule - not applicable

(o) Rule 18f-3 Plan (3)

- - - - - - - - - - - - - - - - - - - - -
(1) Incorporated by reference to Post-Effective Amendment No. 45 to the
Registration Statement of Fortis Income Portfolios, Inc. on Form N-1A filed
with the Commission on December 1, 1998.

(2) Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement of Fortis Worldwide Portfolios, Inc. on Form N-1A
filed with the Commission on February 26, 1998.

(3) Incorporated by reference to Post-Effective Amendment No. 18 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
on January 31, 1996.

(4) Incorporated by reference to Post-Effective Amendment No. 24 to the
Registrant's Registration Statement of form N-1A filed with the Commission
on February 1, 1999.

* Filed herewith.

<PAGE> 77

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND

The following is a list of all persons directly or indirectly
controlled or under common control with the Fund:

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

ITEM 25. INDEMNIFICATION

State general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Fund is
insured or indemnified against any liability incurred in their official
capacity, other than insurance provided by any director, officer, affiliated
person, or underwriter for their own protection

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

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

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

(a) has not received indemnification for the same conduct from any other
party or organization;

(b) acted in good faith;

(d) in the case of criminal proceedings, has no reasonable cause to believe
the conduct was unlawful;

(e) reasonably believed that the conduct was in the best interest of the
Registrant, or in certain contexts, was not opposed to the best
interest of the Registrant; and

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

Advances. If a person is made or threatened to be made a party to a
proceeding, the person is entitled, upon written request to the Registrant, to
payment or reimbursement by the Registrant of reasonable

<PAGE> 78
expenses, including attorneys fees and disbursements, incurred by the person in
advance of the final disposition of the proceeding, (a) upon receipt by the
Registrant of a written affirmation by the person of a good faith belief that
the criteria for indemnification set forth in Section 302A.521 have been
satisfied and a written undertaking by the person to repay all amounts so paid
or reimbursed by the Registrant, if it is ultimately determined that the
criteria for indemnification have been satisfied, and (b) after a determination
that the facts then known to those making the determination would not preclude
indemnification under 302A.521. The written undertaking required by clause (a)
is an unlimited general obligation of the person making it, but need not be
secured and shall be accepted without reference to financial ability to make the
repayment.

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

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER

Describe any other business, profession, vocation or employment of a
substantial nature that each investment adviser, and each director, officer or
partner of the adviser, is or has been engaged within the last two fiscal years
for his or her own account or in the capacity of director, officer, employee,
partner or trustee.

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

<TABLE>
<CAPTION>
OTHER
BUSINESS/EMPLOYMENT
NAME POSITION WITH ADVISER DURING PAST TWO YEARS
- ---- --------------------- ---------------------
<S> <C> <C>
Michael D. O'Connor Qualified Plan Officer Qualified Plan Officer of Fortis
Benefits Insurance Company

David C. Greenzang Money Market Portfolio Debt securities manager with
Officer Fortis, Inc.
</TABLE>

<PAGE> 79

ITEM 27. PRINCIPAL UNDERWRITERS

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

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

(b) Provide the information required by the following table for each director,
Officer, or partner of each principal underwriter named in response to item 20.

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

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH FUND
- ------------------ --------------------- ---------------------
<S> <C> <C>
Carol M. Houghtby Director, Vice President & None
Treasurer

Roger W. Arnold Senior Vice President None

John E. Hite Vice President & Secretary None
</TABLE>

(c) Provide the information required by the following table for all commissions
and other compensation received, directly or indirectly, from the fund during
The last fiscal year by each principal underwriter who is not an affiliated
Person of the fund or any affiliated person of an affiliated person.

Not applicable.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

State the name and address of each person maintaining physical
possession of each account, book, or other document required to be maintained by
section 31(a) and the rules under that section.

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

ITEM 29. MANAGEMENT SERVICES

<PAGE> 80

Provide a summary of the substantive provisions of any
management-related service contract not discussed in part a or b, disclosing the
parties to the contract and the total amount paid and by whom for the fund for
the last three fiscal years.

All contracts were discussed in Part A or B.

ITEM 30. UNDERTAKINGS

(a) In initial registration statements filed under the securities act, provide
an undertaking to file an amendment to the registration statement with certified
financial statements showing the initial capital received before accepting
subscriptions from more than 25 persons if the fund intends to raise its initial
capital under section 14(a)(3).

Not applicable.

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

(c) Registrant represents that it is relying on a No-Action Letter (IDS
Financial Services, June 20, 1986) and that it has complied with the provisions
of paragraphs (a) - (d) of such No-Action Letter.

<PAGE> 81

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement on Form N-1A
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Woodbury and State of Minnesota on the
31st day of January 2000.

FORTIS TAX-FREE PORTFOLIOS, INC.
(Registrant)

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

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:

/s/ Dean C. Kopperud President January 31, 2000
- -------------------- (principal executive officer)
Dean C. Kopperud

/s/ Tamara L. Fagely Treasurer January 31, 2000
- -------------------- (principal financial
Tamara L. Fagely accounting officer)

Richard D. Cutting* Director

Allen R. Freedman* Director

Robert M. Gavin* Director

Jean L. King* Director

Robb L. Prince* Director

Leonard J. Santow* Director

Noel Schenker Shadko* Director

Joseph M. Wikler* Director

*By /s/ Dean C. Kopperud January 31, 2000
--------------------
Dean C. Kopperud, Attorney-in-Fact

<PAGE> 1

EXHIBIT (j)

[KPMG letterhead]

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Fortis Tax-Free Portfolios, Inc.

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

/s/ KPMG LLP

KPMG LLP

Minneapolis, Minnesota
January 28, 2000