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FORTIS
Solid partners, flexible solutions-SM-
ENJOY THE LIBERTY OF TAX-FREE INVESTING
Fortis Tax-Free Portfolios
Semi-Annual Report
MARCH 31, 1998
FORTIS FINANCIAL GROUP
[GRAPHIC]
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC. SEMI-ANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS 1
SCHEDULES OF INVESTMENTS
NATIONAL PORTFOLIO 4
MINNESOTA PORTFOLIO 7
STATEMENTS OF ASSETS AND LIABILITIES 10
STATEMENTS OF OPERATIONS 11
STATEMENTS OF CHANGES IN NET ASSETS
NATIONAL PORTFOLIO 12
MINNESOTA PORTFOLIO 13
NOTES TO FINANCIAL STATEMENTS 14
BOARD OF DIRECTORS AND OFFICERS 20
OTHER PRODUCTS AND SERVICES 21
- - TOLL-FREE PERSONAL ASSISTANCE
- Shareholder Services
- (800) 800-2000, Ext. 3012
- 7:30 a.m. to 5:30 p.m. CST, M-Th
- 7:30 a.m. to 5:00 p.m. CST, F
- - TOLL-FREE INFORMATION LINE
- For daily account balances,
transaction activity or net asset
value information
- (800) 800-2000, Ext. 4344
- 24 hours a day
FOR MORE INFORMATION ABOUT FORTIS FINANCIAL GROUP'S FAMILY OF PRODUCTS, CALL
YOUR INVESTMENT REPRESENTATIVE OR THE HOME OFFICE AT (800) 800-2000.
TO ORDER PROSPECTUSES OR SALES LITERATURE FOR ANY FORTIS PRODUCT, CALL (800)
800-2000, EXT. 4579.
HOW TO USE THIS REPORT
For a quick overview of the Fund's performance during the past six months, refer
to the Highlights box below. The letter from the portfolio manager and president
provides a more detailed analysis of the Fund, and financial markets.
The charts following the letter are useful because they provide more information
about your investments. The top holdings chart shows the types of securities in
which the Fund invests, and the pie chart shows a breakdown of the Fund's assets
by industry.
The performance chart graphically compares the Fund's total return performance
with a selected investment index. Remember, however, that an index may reflect
the performance of securities the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your fund does. Individuals cannot buy an unmanaged index fund without incurring
some charges and expenses.
This report is just one of several tools you can use to learn more about your
investment in the Fortis Family of Mutual Funds. Your investment representative,
who understands your personal financial situation, can best explain the features
of your investment and how it's designed to help you meet your financial goals.
HIGHLIGHTS
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS E CLASS H
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
FORTIS TAX-FREE NATIONAL
NET ASSET VALUE PER SHARE:
Beginning of period........................ $ 11.06 $ 11.05 $ 11.04 $ 11.07 $ 11.06
End of period.............................. $ 11.14 $ 11.13 $ 11.12 $ 11.15 $ 11.13
DISTRIBUTIONS PER SHARE
From net investment income................. $ 0.254 $ 0.212 $ 0.212 $ 0.266 $ 0.212
From net realized gains on investments..... $ .036 $ .036 $ .036 $ .036 $ .036
FORTIS TAX-FREE MINNESOTA
NET ASSET VALUE PER SHARE:
Beginning of period........................ $ 10.43 $ 10.42 $ 10.44 $ 10.46 $ 10.44
End of period.............................. $ 10.50 $ 10.49 $ 10.52 $ 10.53 $ 10.52
DISTRIBUTIONS PER SHARE
From net investment income................. $ 0.248 $ 0.206 $ 0.206 $ 0.260 $ 0.206
From net realized gains on investments..... $ 0.012 $ 0.012 $ 0.012 $ 0.012 $ 0.012
</TABLE>
<PAGE>
[PHOTO]
Investing in municipal bonds for
tax-free income.
GLOSSARY OF TERMS
Terms defined are in ITALICS in the shareholder letter.
AVERAGE QUALITY: Is the average credit rating of the securities in a
portfolio. Average quality is calculated using the ratings of each security in
the portfolio, weighted by its market value.
BOND BUYER REVENUE BOND INDEX: The average yield on a group of 25 municipal
revenue bonds with final maturities of 30 years.
CALL PROTECTION: The extent to which bondholders are protected from redemption
of bonds by issuers prior to their stated maturity dates.
COUPON: The specified contracted annual interest rate payable to a bondholder.
DURATION: The measure of a bond fund's sensitivity to interest rate changes.
Traditionally measured in years, higher durations mean potentially greater
fluctuations in bond values, just as lower durations typically mean less
volatility.
FEDERAL RESERVE BANK ("THE FED"): Led by its chairman, Alan Greenspan, the
Federal Reserve Bank is the central bank of the United States. The Federal
Reserve Bank is charged with responsibility for implementing policies which
preserve the purchasing power of the U.S. dollar, and encouraging economic
growth. One of the more widely known tools used by the Fed in pursuing its
goals is the FEDERAL FUNDS ("FED FUNDS") RATE.
GROSS DOMESTIC PRODUCT (GDP): The market value of a country's total output of
goods and services.
ORIGINAL ISSUE DISCOUNT (OID) is a term applied to a bond which was originally
issued at a price below par. For tax-exempt securities, the appreciation of a
bond from its original issue discount to par over its life is treated as
tax-exempt income.
DEAR FORTIS SHAREHOLDER,
We are pleased to present the Fortis Tax-Free Portfolios, Inc. semi-annual
report for the six-month period ended March 31, 1998.
REVIEW
During the reporting period, there were a lot of positive economic developments:
- - GROSS DOMESTIC PRODUCT, or GDP, rose at an annualized rate of 3.7% during the
fourth quarter of 1997, and a rate of 4.2% during the first quarter of 1998.
- - Economic growth was supported by strong non-farm payroll growth.
- - The unemployment rate dropped from 4.9% in September 1997 to 4.7% in March
1998.
- - Inflation continued to be a non-issue.
Municipal bond yields also remained relatively constant in October and November,
indicating a stable market. This situation changed when Asia's economic problems
created market expectations that economic growth in the U.S. might be slowed and
that lower inflation, or even deflation, might occur. This resulted in a slight
decline in municipal bond yields. However, when it became clear that the FEDERAL
RESERVE was not going to cut interest rates in response to the problems in Asia,
municipal bond yields rebounded with the BOND BUYER REVENUE BOND INDEX ending
March at 5.42% after being at 5.63% in October and 5.25% in mid-January.
During most of the reporting period the DURATION of the Portfolios was
maintained at levels longer than the market average due to an expectation that
interest rates would decline and result in increased bond valuations. However,
interest rates rose from mid-January through the end of March. In this
environment, the Portfolios' longer duration was the primary reason their
performance slightly lagged that of the Lehman Municipal Bond Index. Class E
shares (before sales charge) of the National Portfolio experienced total return
of 3.47 percent during the period and total return of the Minnesota Portfolio
was 3.30 percent. The return of the index was 3.89 percent over the same period.
OUTLOOK
Our forecast calls for modest declines in interest rates as 1998 proceeds. We
also expect the economy to grow at a slower pace in 1998, due at least in part
to the Asian economic difficulties. In addition, we believe that inflation will
continue to be well-behaved.
In this environment, we do not believe that the narrow differences in yields
between relatively lower-yielding, higher-rated bonds and the higher-yielding,
lower-rated bonds justify an adjustment in the Portfolios' current AA AVERAGE
QUALITY. Therefore, the COUPON, CALL PROTECTION and ORIGINAL ISSUE DISCOUNT
characteristics of bonds will continue to be important elements in determining
whether or not they should be held in the Portfolios.
IN CLOSING
We hope this information is helpful to you and we thank you for investing with
us. If you have any questions please call us or your investment professional.
Sincerely,
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
Dean C. Kopperud Howard G. Hudson
President Vice President
</TABLE>
1
<PAGE>
COMPOSITION BY INDUSTRY
AS OF 03/31/98
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
General Obligation 20.0%
Utilities - Water and Sewer 19.3%
Transportation 13.9%
Health Care / Services 13.8%
Higher Education 7.7%
Utilities - Electric 7.2%
Prerefunded with U.S. Gov't 6.4%
Housing 4.0%
Public Facilities 4.0%
Utilities - Gas 1.1%
Cash Equivalents / Receivables 1.0%
Industial 0.8%
Miscellaneous 0.8%
</TABLE>
NATIONAL PORTFOLIO
VALUE OF $10,000 INVESTED APRIL 1, 1988
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROS.
MUNICIPAL BOND NATIONAL PORTFOLIO
INDEX*** CLASS E
<S> <C> <C> <C>
88 $10,000 $10,000
89 $10,785 $10,031
90 $10,570 $11,130
91 $11,728 $12,015
92 $15,254 $13,264
93 $17,440 $14,948
94 $18,881 $15,335
95 $20,187 $16,316
96 $23,140 $17,439
97 $25,274 $18,236
98 $29,135 $20,089
National Portfolio Class E Average Annual Total Return
1 Year 5 Year 10 Year
Class E* +5.21% +5.12% +7.22%
Class E** +10.16% +6.09% +7.72%
</TABLE>
Annual Period ended March 31
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the portfolios total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
*** An unmanaged index of municipal bonds with maturities greater than two
years.
TOP 10 HOLDINGS AS OF 3/31/98
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. University of New Mexico (6.00%) 2021 3.8%
2. New York Triborough Bridge & Tunnel Authority
(5.50%) 2017 3.8%
3. Metropolitan Transportation Authority NY (5.75%)
2013 3.6%
4. Grapevine-Colleyville, TX Independent School
District (5.75%) 2012 3.4%
5. Tucson, AZ Water (5.50%) 2014 3.2%
6. Fulton County, GA Water & Sewer (6.375%) 2014 2.9%
7. Minnesota Agriculture & Economic Development
(5.50%) 2017 2.8%
8. Ohio State Building Authority (5.25%) 2009 2.8%
9. Detroit, MI Water System (6.50%) 2015 2.8%
10. Southern California Public Power (6.36%) 2013 2.5%
</TABLE>
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- ------------------------------------------------------------------
<S> <C> <C>
Class A shares# +9.94% +9.32%
Class A shares## +4.99% +7.84%
Class B shares# +9.11% +8.46%
Class B shares## +5.51% +7.80%
Class C shares# +9.02% +8.43%
Class C shares## +8.02% +8.43%
Class H shares# +9.01% +8.46%
Class H shares## +5.41% +7.79%
</TABLE>
Past performance is not indicative of future performance. Total returns include
reinvestment of all dividend and capital gains distributions. The performance of
the separate classes (E, A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class E and A have a maximum sales charge of 4.50%, Class B
and H have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if
redeemed in year three or four (with a waiver of 10% of the amount purchased)
and Class C has a CDSC of 1.00% if redeemed within one year of purchase.
# Without sales charge.
## With sales charge. Assumes redemption on March 31, 1998.
+ Since November 14, 1994 -- Date shares were first offered to the public.
2
<PAGE>
COMPOSITION BY INDUSTRY
AS OF 03/31/98
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
General Obligation 29.8%
Housing 15.9%
Prerefunded with U.S. Gov't 14.2%
Health Care / Services 9.8%
Higher Education 9.7%
Utilities - Electric 6.5%
Miscellaneous 5.1%
Pollution Control 3.6%
Cash Equivalents / Receivables 2.7%
Public Facilities 1.6%
Utilities - Water and Sewer 1.1%
</TABLE>
MINNESOTA PORTFOLIO
VALUE OF $10,000 INVESTED APRIL 1, 1988
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROS.
MUNICIPAL BOND MINNESOTA PORTFOLIO
INDEX*** CLASS E
<S> <C> <C> <C>
88 $10,000 $10,000
89 $10,785 $10,176
90 $10,570 $10,972
91 $11,728 $11,868
92 $15,254 $12,952
93 $17,440 $14,427
94 $18,881 $14,821
95 $20,187 $15,784
96 $23,140 $16,776
97 $25,274 $17,468
98 $29,135 $19,055
Minnesota Portfolio Class E Average Annual Total Return
1 Year 5 Year 10 Year
Class E* +4.17% +4.75% +6.66%
Class E** +9.08% +5.72% +7.15%
</TABLE>
Annual Period ended March 31
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the portfolios total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
*** An unmanaged index of municipal bonds with maturities greater than two
years.
TOP 10 HOLDINGS AS OF 3/31/98
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. Minnesota Agriculture & Economic Development
(5.50%) 2017 6.4%
2. Centennial Independent School District #12
(5.625%) 2016 5.2%
3. Lakeville (City of), MN Independent School
District #194 (5.00%) 2018 4.6%
4. University of MN (Regents of) (5.50%) 4.3%
5. St. Michael (City of), MN Independent School
District #885 (5.00%) 2021 4.0%
6. Rochester (City of), MN Health Care Facility
(5.90%) 2010 3.4%
7. Kenyon Wanamingo (City of), MN Independent School
District #2172 (5.00%) 2018 3.4%
8. Brainerd (City of), MN (6.65%) 2017 3.4%
9. Minnesota Higher Education (5.375%) 2018 3.2%
10. Stillwater (City of), MN Independent School
District #834 (5.00%) 2015 3.0%
</TABLE>
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- ------------------------------------------------------------------
<S> <C> <C>
Class A shares# +8.75% +8.22%
Class A shares## +3.86% +6.76%
Class B shares# +7.99% +7.35%
Class B shares## +4.39% +6.67%
Class C shares# +8.08% +7.43%
Class C shares## +7.08% +7.43%
Class H shares# +7.97% +7.43%
Class H shares## +4.37% +6.76%
</TABLE>
Past performance is not indicative of future performance. Total returns include
reinvestment of all dividend and capital gains distributions. The performance of
the separate classes (E, A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class E and A have a maximum sales charge of 4.50%, Class B
and H have a CDSC of 4.00% if redeemed within two years of purchase or 3.00% if
redeemed in year three or four (with a waiver of 10% of the amount purchased)
and Class C has a CDSC of 1.00% if redeemed within one year of purchase.
# Without sales charge.
## With sales charge. Assumes redemption on March 31, 1998
+ Since November 14, 1994 -- Date shares were first offered to the public.
3
<PAGE>
FORTIS TAX-FREE PORTFOLIOS
NATIONAL PORTFOLIO
Schedule of Investments
March 31, 1998 (Unaudited)
MUNICIPAL BONDS-99.15%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
ARIZONA-4.70%
$1,000,000 Phoenix, AZ, 5.55% Ref Ser A 7-1-2009........ AA+ $ 1,084,444 $ 1,084,460
2,225,000 Tucson, AZ, 5.50% Water Rev Refunding Bond
7-1-2014................................... A+ 2,187,296 2,350,134
------------ ------------
3,271,740 3,434,594
------------ ------------
CALIFORNIA-5.51%
2,385,000 Redwood City California Elem School Dist,
5.50% Zero Coupon General Obligation FGIC
Insured 8-1-2018 (d)....................... AAA 791,154 829,861
4,000,000 Southern California Public Power, 6.36% Zero
Coupon Bond 7-1-2013 (d)................... A 1,539,547 1,847,520
2,750,000 Sulphur Springs (City of), CA, 7.00% Zero
Coupon General Obligation Ser A MBIA
Insured 9-1-2012 (d)....................... AAA 1,019,869 1,345,575
------------ ------------
3,350,570 4,022,956
------------ ------------
CONNECTICUT-2.32%
1,500,000 Connecticut State, 6.125% Special Tax
Obligation Rev Transportation
Infrastructure Ser B 9-1-2012.............. AA- 1,575,592 1,693,305
------------ ------------
DISTRICT OF COLUMBIA-3.27%
1,250,000 District of Columbia, 7.50% General
Obligation Ser 1990B FSA Insured 6-1-2010
(Prerefunded 6-1-2000 @102)................ AAA 1,235,938 1,362,675
1,000,000 Georgetown University, 8.25% District of
Columbia Rev Bond 4-1-2018 (Prerefunded
4-1-1998 @102)............................. A+ 1,034,661 1,020,000
------------ ------------
2,270,599 2,382,675
------------ ------------
FLORIDA-3.81%
1,500,000 Florida (State of), 5.50% Board of Education
Cap Outlay Ser A 1-1-2006.................. AA+ 1,602,143 1,607,250
500,000 Florida (State of), 7.50% Mid-Bay Bridge Auth
Ser 1991A 10-1-2017 (Crossover Refunding
10-1-2001 @103)............................ NR 476,028 563,355
600,000 Tampa (City of), FL, 8.25% Cap Improvement
Program Rev Bond Ser A 10-1-2018........... AA 598,982 611,808
------------ ------------
2,677,153 2,782,413
------------ ------------
GEORGIA-6.59%
1,375,000 Brunswick, GA, Water & Sewer, 6.10% Rev Ref &
Improvement Bond MBIA Insured 10-1-2019.... AAA 1,465,785 1,566,771
1,800,000 Fulton County, GA, Water & Sewer, 6.375% Ref
Bond FGIC Insured 1-1-2014................. AAA 1,785,976 2,091,042
1,000,000 Georgia Municipal Electric, 6.50% Auth Pwr
Rev Ser Y 1-1-2017......................... A 993,318 1,150,490
------------ ------------
4,245,079 4,808,303
------------ ------------
ILLINOIS-4.90%
500,000 Channahon Park, IL District, 7.50% General
Obligation 1-1-2011 (Prerefunded 7-1-2001
@100)...................................... NR 499,375 551,510
750,000 Chicago Gas Supply, 7.50% Rev for Peoples Gas
Ser B 3-1-2015............................. AA- 758,691 807,060
1,000,000 Illinois Dev Fin Auth, 7.375% Power Co Proj
Ser 1991A 7-1-2021......................... BBB 993,040 1,167,920
1,000,000 Illinois Housing Dev Auth, 7.55% Multi-family
Housing Ser 1990A 7-1-2014................. A+ 987,575 1,051,730
------------ ------------
3,238,681 3,578,220
------------ ------------
INDIANA-2.67%
565,000 Indiana Bond Bank, 8.50% Special Loan Program
Ser B 2-1-2018............................. A+ 570,586 584,583
1,250,000 Indianapolis (City of), IN, Local Public
Improvement Bond Bank, 7.40% Ser 1990A
1-1-2020 (Prerefunded 7-1-2000 @102)....... Aaa* 1,247,437 1,364,762
------------ ------------
1,818,023 1,949,345
------------ ------------
KENTUCKY-3.05%
1,000,000 Christian County, KY, Hospital, 6.00% Rev Ref
Bond Jennie Stuart Medical Center
7-1-2013................................... A- 995,058 1,067,770
1,000,000 Louisville & Jefferson County, KY, 6.75%
Metro Sewer Dist Rev Bond Ser A AMBAC
Insured 5-15-2019 (Prerefunded 11-15-2004
@102)...................................... AAA 996,417 1,157,430
------------ ------------
1,991,475 2,225,200
------------ ------------
MASSACHUSETTS-1.85%
500,000 Boston, MA, City Hospital, 7.625% Rev Bond
Ser A 2-15-2021 (Prerefunded 8-15-2000
@102)...................................... Aaa* 496,630 547,570
750,000 Massachusetts State Water Resources Auth,
5.50% Rev Bond Ser 1998-A FSA Insured
8-1-2014................................... AAA 824,193 801,877
------------ ------------
1,320,823 1,349,447
------------ ------------
</TABLE>
4
<PAGE>
MUNICIPAL BONDS-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
MICHIGAN-4.73%
$1,750,000 Detroit, MI, Water System, 6.50% Rev Bond
FGIC Insured 7-1-2015...................... AAA $ 1,868,262 $ 2,062,060
1,360,000 Michigan State Hospital, 5.50% Fin Auth Mercy
Health System Ser S 8-15-2020.............. AA- 1,279,912 1,391,090
------------ ------------
3,148,174 3,453,150
------------ ------------
MINNESOTA-6.54%
1,140,000 Fergus Falls (City of), MN, 6.50% Health Care
Facility (Lake Regional Hospital) Ser A
9-1-2018................................... BBB+ 1,133,600 1,225,819
670,000 Minneapolis (City of), MN, 7.00% Health Care
Fac Rev (St. Olaf Residence) Ser 1993
10-1-2012.................................. NR 670,000 717,188
2,000,000 Minnesota Agriculture and Economic
Development, 5.50% Healthcare System Rev
Fairview Hospital and Healthcare Services
Ser 1997A MBIA Insured 11-15-2017.......... AAA 1,956,713 2,078,280
690,000 St. Anthony (City of), MN, 6.75% Housing Dev
Rev Ref Bond 7-1-2007...................... AA 690,000 748,498
------------ ------------
4,450,313 4,769,785
------------ ------------
MISSOURI-1.89%
1,250,000 Missouri State Health & Educ, 7.70% Still
Regional Med Ctr 2-1-2013.................. BBB 1,287,011 1,381,887
------------ ------------
NEVADA-1.46%
1,000,000 Washoe County, NV, Hosp, 7.60% Washoe Med Ctr
Rev Bond Ser A 6-1-2019 (Prerefunded
6-1-1999 @102)............................. NR 971,310 1,061,980
------------ ------------
NEW JERSEY-5.63%
1,560,000 Middlesex County, NJ, 5.00%, General
Obligation 10-1-2005....................... AA+ 1,631,894 1,628,359
1,000,000 New Jersey State Highway Auth, 6.20% Garden
State Pkwy Gen Rev Bond Sr Parking Bond
1-1-2010................................... AA- 1,073,363 1,134,160
1,250,000 New Jersey State Transportation Fund, 5.50%
Rev Bond Ser A 6-15-2009................... A+ 1,381,065 1,344,150
------------ ------------
4,086,322 4,106,669
------------ ------------
NEW MEXICO-3.85%
2,500,000 University of New Mexico, 6.00% Rev Ref Ser A
6-1-2021................................... AA 2,576,355 2,807,250
------------ ------------
NEW YORK-12.07%
2,465,000 Metropolitan Transportation Authority, NY,
Commuter Facilities, 5.75% Ser O
7-1-2013................................... BBB+ 2,393,081 2,635,898
1,000,000 New York City, NY, 8.25% General Obligation
Ser B 6-1-2005............................. BBB+ 991,151 1,212,570
1,000,000 New York State Dorm Auth, 6.00% Rev Cons City
Univ System 2nd Gen 7-1-2020............... BBB+ 1,018,462 1,106,060
1,000,000 New York State, 7.75% UDC Correctional Fac
Ser 1 1-1-2014 (Prerefunded 1-1-2000
@102)...................................... Aaa* 964,046 1,084,550
2,600,000 New York Triborough Bridge and Tunnel Auth,
5.50% General Purpose Ser Y 1-1-2017....... A+ 2,497,491 2,766,608
------------ ------------
7,864,231 8,805,686
------------ ------------
NORTH DAKOTA-1.64%
1,100,000 Ward County, ND, 7.50% Health Care Fac Ser
1991B 7-1-2011............................. BBB+ 1,121,386 1,198,087
------------ ------------
OHIO-5.66%
750,000 Cleveland (City of), OH, Parking Facility,
8.10% Improvement Proj Rev Bond 9-15-2022
(Prerefunded 9-15-2002 @102)............... NR 758,166 878,505
1,100,000 Cleveland, OH, 5.50% Water Works Rev Ref Bond
Ser G First Mortgage MBIA Insured
1-1-2021................................... AAA 1,091,438 1,180,377
1,970,000 Ohio State Building Authority, 5.25% State
Facilities Administration Building Fund
Project B 10-1-2009........................ AA- 2,085,753 2,074,371
------------ ------------
3,935,357 4,133,253
------------ ------------
PENNSYLVANIA-5.13%
1,780,000 Allegheny County, PA, Higher Education Bldg
Auth, 5.125% Duquesne University Proj Ser
98 AMBAC Insured 3-1-2013.................. Aaa* 1,816,324 1,823,859
750,000 Clarion County, PA, Hospital Auth, 8.50%
Clarion Hospital Proj Rev Bond
7-1-2021(Prerefunded 7-1-2001 @102)........ NR 734,658 859,058
3,595,000 Harrisburg (City of), PA, 5.24% Zero Coupon
Capital Appreciation Ser F AMBAC Insured
9-15-2021 (d).............................. Aaa* 1,067,895 1,057,865
------------ ------------
3,618,877 3,740,782
------------ ------------
PUERTO RICO-1.95%
1,250,000 Puerto Rico, 6.25% Commonwealth Aqueduct &
Sewer Auth Rev Ref Bond PR-GTD 7-1-2013.... A 1,337,799 1,423,863
------------ ------------
TENNESSEE-3.94%
1,750,000 Madison, TN, Suburban Util Dist, 5.00% Rev
Bond MBIA Insured 2-1-2019................. AAA 1,629,929 1,710,013
1,000,000 Metro Gov't of Nashville & Davidson County,
TN, 6.50% Water & Sewer Ref Bond FGIC
Insured 1-1-2010........................... AAA 1,085,673 1,163,960
------------ ------------
2,715,602 2,873,973
------------ ------------
</TABLE>
5
<PAGE>
FORTIS TAX-FREE PORTFOLIOS
NATIONAL PORTFOLIO (CONTINUED)
Schedule of Investments
March 31, 1998 (Unaudited)
MUNICIPAL BONDS-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
TEXAS-3.38%
$2,250,000 Grapevine-Colleyville, TX, 5.75% Independent
School District PSF Rev Ref Bond
8-15-2012.................................. AAA $ 2,282,895 $ 2,469,960
------------ ------------
WASHINGTON-1.48%
1,000,000 Washington Public Power Supply Sys, 7.00%
Nuclear Proj 2 Ref Rev Bond Ser 1990B
7-1-2012 (Prerefunded 7-1-2000 @102)....... AA- 959,890 1,082,600
------------ ------------
WISCONSIN-1.13%
750,000 Wisconsin Health & Educ Fac Auth, 8.50% Rev
Bond Ser 1990 (Franciscan Health Sys)
3-1-2020 (Prerefunded 3-1-2000 @102)....... Aaa* 750,000 826,778
------------ ------------
TOTAL MUNICIPAL BONDS........................ $66,865,257 $72,362,161
------------ ------------
------------ ------------
</TABLE>
SHORT-TERM INVESTMENTS-1.21%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
--------- ------------
<C> <S> <C>
INVESTMENT COMPANY-1.21%
$884,246 Federated Tax-Free Obligation Fund, Current
rate -- 3.54%.............................. $ 884,246
------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$67,749,503) (a)........................... $73,246,407
------------
------------
</TABLE>
(a) At March 31, 1998, the cost of securities for federal income tax purposes
was $67,749,503 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 5,595,743
Unrealized depreciation........................... (98,839)
---------------------------------------------------------------
Net unrealized appreciation....................... $ 5,496,904
---------------------------------------------------------------
</TABLE>
(b) See Note 1 of accompanying Notes to Financial Statements regarding
valuation of securities.
(c) Note: Percentage of investments as shown is the ratio of the total market
value to total net assets.
(d) The interest rate disclosed for these securities represents the effective
yield on the date of acquisition.
* Moody's Rating
6
<PAGE>
FORTIS TAX-FREE PORTFOLIOS INC.
MINNESOTA PORTFOLIO
Schedule of Investments
March 31, 1998 (Unaudited)
MUNICIPAL BONDS-97.26%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
GENERAL OBLIGATIONS-29.80%
$2,400,000 Centennial Independent School District #12,
5.625% Ser A 2-1-2016...................... Aa1* $ 2,366,604 $ 2,524,752
1,000,000 Chaska (City of), MN, Independent School
District #112, 5.00% General Obligation Ser
A 2-1-2014................................. Aa1* 1,000,000 989,160
1,670,000 Kenyon Wanamingo (City of), MN, Independent
School District #2172, 5.00% General
Obligation 2-1-2018........................ Aa1* 1,649,208 1,647,154
1,685,000 Lakeville (City of), MN Independent School
District #194, 5.10% Zero Coupon General
Obligation Cap Apprec Ser B FSA Insured
2-1-2010 (d)............................... Aaa* 928,455 962,354
2,290,000 Lakeville (City of), MN, Independent School
District #194, 5.00% General Obligation
2-1-2018................................... Aa1* 2,281,333 2,247,475
1,000,000 Puerto Rico, 5.50% Commonwealth Pub Impt Ref
Bond 7-1-2013.............................. A 1,093,220 1,059,420
750,000 Puerto Rico, 6.25% Commonwealth Aqueduct &
Sewer Auth Rev Ref Bond PR-GTD 7-1-2013.... A 802,679 854,317
1,950,000 Rosemount (City of), MN, Independent School
District #196, 5.70% Zero Coupon General
Obligation MBIA Insured 4-1-2015 (d)....... AA+ 750,012 822,900
2,000,000 St. Michael (City of), MN, Independent School
District #885, 5.00% General Obligation
2-1-2021................................... Aa1* 1,986,455 1,962,480
1,500,000 Stillwater (City of), MN, Independent School
District #834, 5.00% General Obligation
2-1-2015................................... Aa1* 1,491,463 1,483,080
------------ ------------
14,349,429 14,553,092
------------ ------------
HEALTH CARE/SERVICES-9.80%
3,000,000 Minnesota Agriculture and Economic
Development, 5.50% Healthcare System Rev
Fairview Hospital and Healthcare Services
Ser 1997A MBIA Insured 11-15-2017.......... AAA 2,950,387 3,117,420
1,500,000 Rochester (City of), MN, 5.90% Health Care
Fac Rev Bond Mayo Med Ctr Ser I
11-15-2010................................. AA+ 1,574,961 1,669,815
------------ ------------
4,525,348 4,787,235
------------ ------------
HIGHER EDUCATION-9.74%
1,525,000 Minnesota Higher Education, 5.375% Facilities
Auth Rev for University of St. Thomas Ser
4-P 4-1-2018............................... A2* 1,529,864 1,546,792
2,000,000 University of MN (Regents of), 5.50% General
Obligation Ser A 7-1-2021.................. AA 2,022,217 2,119,320
1,000,000 University of MN (Regents of), 5.75% General
Obligation Ser 1996A 7-1-2018.............. AA 1,011,926 1,089,370
------------ ------------
4,564,007 4,755,482
------------ ------------
HOUSING-15.93%
1,500,000 Brainerd (City of), MN, 6.65% Rev Ref Bond
Evangelical Lutheran-Good Samaritan Project
Ser 1992B FSA Insured 3-1-2017............. AAA 1,512,956 1,639,755
190,000 Dakota County, MN, 8.10% HRA Single Family
Rev GNMA Backed 3-1-2016................... AAA 194,418 195,687
300,000 Eden Prairie (City of), MN, 7.40% Multifamily
Housing Ser 1990 FHA Insured 8-1-2025...... AAA 299,957 315,282
855,000 Eden Prairie (City of), MN, 8.00% Multifamily
Housing Ser A FHA Insured 7-1-2026......... AAA 855,000 913,516
530,000 Edina (City of), MN, 7.50% Housing Dev Ref
Rev Edina Park Plaza Ser 1989A 12-1-2009... Aa* 529,625 553,967
500,000 Edina (City of), MN, 7.70% Housing Dev Ref
Rev Edina Park Plaza Ser A FHA Insured
12-1-2028.................................. Aa* 500,000 521,165
1,010,000 Minneapolis (City of), MN, 7.10% HRA Mortgage
Rev Bond Riverplace Proj Ser A LOC Bank of
Tokyo 1-1-2020............................. Aa2* 1,021,310 1,029,695
485,000 Minneapolis (City of), MN, 8.25% Health Care
Fac Rev Bond Jones-Harrison Residence Ser
1991 9-1-2011.............................. NR 479,122 510,424
350,000 Minneapolis (City of), MN, 8.25% Rev Bond
Trinity Housing Proj Ser 1991 2-1-2018..... NR 350,000 364,290
185,000 Minnesota Housing Finance Agency, 7.70%
Single Family Mortgage Bond Ser C
7-1-2014................................... AA+ 185,937 194,346
440,000 Northfield (City of), MN, 7.00% Health Care
Facility Northfield Retirement Ctr
5-1-2015................................... NR 436,542 460,522
500,000 Red Wing (City of), MN, 6.50% Elderly Housing
Fac Ref Rev River Region Obligated Group
Ser 1993C 9-1-2022......................... BBB+ 497,315 539,365
500,000 Spring Park (City of), MN, 8.25% Health Care
Fac Rev Bond Twin Birch Health Care Ctr
8-1-2011................................... NR 500,000 541,050
------------ ------------
7,362,182 7,779,064
------------ ------------
MISCELLANEOUS-5.16%
450,000 Dakota County, MN, 7.50% HRA Limited Annual
Appropriation Tax & Rev Supported Bond Ser
1991 1-1-2006.............................. BBB+ 450,000 474,701
400,000 Dawson (City of), MN, 7.30% IDR Ref Bond
Associated Milk Producers 9-1-2000......... NR 396,426 417,880
1,000,000 Minneapolis (City of), MN, 7.375% CDA Limited
Tax Supported Dev Rev Common Bond Fund Ser
1995-G3 12-1-2012.......................... A- 1,000,000 1,111,340
500,000 Minneapolis (City of), MN, 8.375% CDA Limited
Tax Supported Dev Rev Common Bond Fund Ser
1990-6A 6-1-2007........................... A- 497,500 513,330
------------ ------------
2,343,926 2,517,251
------------ ------------
</TABLE>
7
<PAGE>
FORTIS TAX-FREE PORTFOLIOS INC.
MINNESOTA PORTFOLIO (CONTINUED)
Schedule of Investments
March 31, 1998 (Unaudited)
MUNICIPAL BONDS-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
POLLUTION CONTROL-3.56%
$ 650,000 East Grand Forks (City of), MN, 7.75%
Pollution Control Rev (American Crystal
Sugar) Ser 1991A 4-1-2018.................. BBB+ $ 650,463 $ 707,077
1,000,000 Minnesota Public Fac Auth, 5.00% Water
Pollution Rev Bond Ser B 3-1-2002.......... AAA 1,031,210 1,032,700
------------ ------------
1,681,673 1,739,777
------------ ------------
PREREFUNDED WITH U.S. GOVERNMENT
SECURITIES-14.18%
1,000,000 Duluth (City of), MN, 8.375% EDA Health Care
Fac Rev (St. Mary's Med Ctr) Ser 1990
2-15-2020 (Prerefunded 2-15-2000 @ 102).... AAA 1,016,985 1,098,570
785,000 Duluth (City of), MN, 9.00% Hosp Fac Rev Bond
(St. Luke's Hospital) Ser 1988 5-1-2018
(Prerefunded 5-1-1998 @ 102)............... AAA 797,230 804,091
525,000 Mankato (City of), MN, 8.25% Nursing Home Rev
Bond Board of Soc Ministry Mankato Lutheran
Ser 1991A 10-1-2021 (Prerefunded 10-1-2001
@ 102)..................................... NR 520,000 602,065
460,000 Minnesota Higher Education, 7.625% Mortgage
Rev for St. Mary's College Ser 3F 10-1-2016
(Prerefunded 10-1-2001 @ 100).............. BBB- 457,700 510,945
1,000,000 Minnesota Public Fac Auth, 6.65% Zero Coupon
Water Pollution Rev Bond Ser 1992A 3-1-2007
(Prerefunded 3-1-2002 @ 73.543) (d)........ AAA 558,142 622,800
500,000 Northfield (City of), MN, 8.00% College
Facility Rev Bond for St. Olaf College
10-1-2018 (Prerefunded 10-1-1998 @ 100).... NR 500,134 510,780
1,275,000 St. Louis Park (City of), MN, 7.25% Hospital
Fac Rev Methodist Ser 1990C AMBAC Insured
7-1-2015 (Prerefunded 7-1-2000 @ 102)...... AAA 1,262,455 1,387,404
765,000 St. Louis Park (City of), MN, 8.50% Health
Care Fac (Park Nicollet Med Ctr) Ser A
1-1-2011 (Prerefunded 1-1-2001 @ 100)...... Aaa* 768,364 852,042
500,000 St. Paul (City of), MN, 6.45% HRA Parking Rev
Bond Ser 1992A 8-1-2007 (Prerefunded
8-1-2000 @ 102)............................ A- 500,000 536,090
------------ ------------
6,381,010 6,924,787
------------ ------------
PUBLIC FACILITES-1.57%
400,000 Duluth (City of), MN, 6.75% Gross Rev
Recreation Fac Bond Spirit Mountain Ser
1992 2-1-2007.............................. NR 400,000 415,664
325,000 Moorhead (City of), MN, 7.75% Golf Course Rev
Bond Ser 1992A 12-1-2015................... NR 325,000 349,505
------------ ------------
725,000 765,169
------------ ------------
UTILITIES-ELECTRIC-6.46%
1,295,000 Northern MN Municipal Power Agency, 7.102%
Zero Coupon Elec Sys Rev Ref Ser A AMBAC
Primary Insured 1-1-2011 (d)............... AAA 542,693 699,442
1,400,000 St. Cloud (City of), MN, 5.25% General
Obligation Hydroelectric Rev Ref MBIA
Insured 12-1-2018.......................... AAA 1,356,270 1,406,216
1,000,000 Western MN Municipal Power Agency, 5.50% Ref
Ser A AMBAC Insured 1-1-2013............... AAA 991,932 1,046,780
------------ ------------
2,890,895 3,152,438
------------ ------------
UTILITIES-WATER AND SEWER-1.06%
500,000 St. Paul (City of), MN, 8.00% Sewer Rev Bond
Ser 1988A 12-1-2008 (Crossover Refunding
12-1-1998 @ 101)........................... A 500,000 519,105
------------ ------------
TOTAL MUNICIPAL BONDS........................ $45,323,470 $47,493,400
------------ ------------
------------ ------------
</TABLE>
8
<PAGE>
SHORT-TERM INVESTMENTS-1.68%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value (b)
----------- -------------
<C> <S> <C> <C> <C>
INVESTMENT COMPANY-1.68%
$819,229 Federated Minnesota Municipal Cash Trust,
Current rate -- 3.50%...................... $ 819,229
------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$46,142,699) (a)........................... $48,312,629
------------
------------
</TABLE>
(a) At March 31, 1998, the cost of securities for federal income tax purposes
was $46,143,218 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 2,282,464
Unrealized depreciation........................... (113,053)
---------------------------------------------------------------
Net unrealized appreciation....................... $ 2,169,411
---------------------------------------------------------------
</TABLE>
(b) See Note 1 of accompanying Notes to Financial Statements regarding
valuation of securities.
(c) Note: Percentage of investments as shown is the ratio of the total market
value to total net assets.
(d) The interest rate disclosed for these securities represents the effective
yield on the date of acquisition.
* Moody's Rating
9
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Assets and Liabilities
(Unaudited)
March 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NATIONAL MINNESOTA
PORTFOLIO PORTFOLIO
-------------- --------------
<S> <C> <C>
ASSETS:
Investments in securities, as detailed in the accompanying
schedules, at market (cost $67,749,503; $46,142,699; respectively)
(Note 1).......................................................... $ 73,246,407 $ 48,312,629
Receivables:
Investment securities sold........................................ -- 1,632,743
Interest and dividends............................................ 951,576 657,271
Deferred registration costs (Note 1)................................ 19,880 --
Prepaid expenses.................................................... 4,490 2,069
-------------- --------------
TOTAL ASSETS.......................................................... 74,222,353 50,604,712
-------------- --------------
LIABILITIES:
Cash portion of dividends payable................................... 100,811 58,922
Payable for investment securities purchased......................... 1,067,895 1,649,208
Redemptions of capital stock........................................ 669 5,575
Payable for investment advisory and management fees (Note 2)........ 47,587 29,859
Payable for distribution fees (Note 2).............................. 1,017 402
Accounts payable and accrued expenses............................... 25,118 30,155
-------------- --------------
TOTAL LIABILITIES..................................................... 1,243,097 1,774,121
-------------- --------------
NET ASSETS:
Net proceeds of capital stock, par value $.01 per share-authorized
100,000,000,000; 100,000,000,000 shares; respectively............. 66,989,090 45,989,248
Unrealized appreciation of investments.............................. 5,496,904 2,169,930
Undistributed (distributions in excess of) net investment income.... (71,466) (6,462)
Accumulated net realized gain from sale of investments.............. 564,728 677,875
-------------- --------------
TOTAL NET ASSETS...................................................... $ 72,979,256 $ 48,830,591
-------------- --------------
-------------- --------------
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A shares (based on net assets of $7,806,045; and $3,420,322;
respectively and 700,891; and 325,674 shares outstanding;
respectively)....................................................... $11.14 $10.50
-------------- --------------
Class B shares (based on net assets of $1,421,121; and $1,178,444;
respectively and 127,689; and 112,327 shares outstanding;
respectively)....................................................... $11.13 $10.49
-------------- --------------
Class C shares (based on net assets of $573,000; and $196,453;
respectively and 51,520; and 18,683 shares outstanding;
respectively)....................................................... $11.12 $10.52
-------------- --------------
Class E shares (based on net assets of $57,837,923; and $42,591,405;
respectively and 5,186,409; and 4,045,234 shares outstanding;
respectively)....................................................... $11.15 $10.53
-------------- --------------
Class H shares (based on net assets of $5,341,167; and $1,443,967;
respectively and 480,098; and 137,306 shares outstanding;
respectively)....................................................... $11.13 $10.52
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Operations
(Unaudited)
For the Six-Month Period Ended March 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NATIONAL MINNESOTA
PORTFOLIO PORTFOLIO
-------------- --------------
<S> <C> <C>
NET INVESTMENT INCOME:
Income:
Interest income................................................... $ 2,087,467 $ 1,463,832
-------------- --------------
Expenses:
Investment advisory and management fees (Note 2).................. 280,850 179,545
Distribution fees (Class A) (Note 2).............................. 9,345 4,961
Distribution fees (Class B) (Note 2).............................. 6,658 5,744
Distribution fees (Class C) (Note 2).............................. 2,822 1,015
Distribution fees (Class H) (Note 2).............................. 24,757 6,523
Registration fees (Note 1)........................................ 28,772 13,962
Legal and auditing fees (Note 2).................................. 13,670 13,513
Shareholders' notices and reports................................. 19,530 14,115
Custodian fees.................................................... 5,111 3,361
Directors' fees and expenses...................................... 5,090 3,490
Other............................................................. 9,691 7,898
-------------- --------------
Total expenses...................................................... 406,296 254,127
-------------- --------------
NET INVESTMENT INCOME................................................. 1,681,171 1,209,705
-------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1):
Net realized gain from security transactions........................ 637,066 716,175
Net change in unrealized appreciation (depreciation) of
investments....................................................... 144,252 (314,234)
-------------- --------------
NET GAIN ON INVESTMENTS............................................... 781,318 401,941
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 2,462,489 $ 1,611,646
-------------- --------------
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Changes in Net Assets
NATIONAL PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30,
(UNAUDITED) 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................... $ 1,681,171 $ 3,701,017
Net realized gain from security transactions........................ 637,066 607,613
Net change in unrealized appreciation on investments in
securities........................................................ 144,252 1,542,136
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 2,462,489 5,850,766
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A........................................................... (171,342) (329,029)
Class B........................................................... (25,331) (42,850)
Class C........................................................... (10,752) (31,714)
Class E........................................................... (1,395,190) (3,129,259)
Class H........................................................... (101,938) (189,499)
From net realized gains on investments
Class A........................................................... (23,859) --
Class B........................................................... (4,260) --
Class C........................................................... (1,845) --
Class E........................................................... (188,744) --
Class H........................................................... (15,907) --
-------------- --------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS................................... (1,939,168) (3,722,351)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (82,726 and 151,166 shares)............................... 924,663 1,640,602
Class B (16,760 and 45,077 shares)................................ 186,936 493,819
Class C (4,061 and 97,772 shares)................................. 45,304 1,054,744
Class E (96,149 and 172,663 shares)............................... 1,082,204 1,869,526
Class H (55,114 and 129,325 shares)............................... 614,265 1,402,422
Proceeds from shares issued as a result of reinvested dividends
Class A (10,993 and 17,479 shares)................................ 122,760 190,089
Class B (1,768 and 2,882 shares).................................. 19,729 31,313
Class C (1,012 and 2,611 shares).................................. 11,279 28,311
Class E (92,149 and 186,406 shares)............................... 1,029,960 2,028,431
Class H (6,377 and 10,795 shares)................................. 71,199 117,389
Less cost of repurchase of shares
Class A (49,686 and 92,271 shares)................................ (553,494) (1,002,654)
Class B (7,271 and 24,367 shares)................................. (80,827) (267,065)
Class C (6,439 and 68,234 shares)................................. (72,081) (725,474)
Class E (397,484 and 1,029,099 shares)............................ (4,435,529) (11,165,616)
Class H (43,336 and 51,643 shares)................................ (481,583) (562,890)
-------------- --------------
NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS.................... (1,515,215) (4,867,053)
-------------- --------------
TOTAL DECREASE IN NET ASSETS.......................................... (991,894) (2,738,638)
NET ASSETS:
Beginning of period................................................. 73,971,150 76,709,788
-------------- --------------
End of period (includes excess of distributions over net investment
income of $71,466 and $48,084, respectively)...................... $ 72,979,256 $ 73,971,150
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statement of Changes in Net Assets
MINNESOTA PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30,
(UNAUDITED) 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................... $ 1,209,705 $ 2,583,121
Net realized gain from security transactions........................ 716,175 456,296
Net change in unrealized appreciation (depreciation) of investments
in securities..................................................... (314,234) 402,887
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 1,611,646 3,442,304
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A........................................................... (94,023) (149,255)
Class B........................................................... (22,614) (50,647)
Class C........................................................... (3,976) (9,080)
Class E........................................................... (1,061,032) (2,327,379)
Class H........................................................... (25,475) (46,977)
From realized gains on investments
Class A........................................................... (5,160) --
Class B........................................................... (1,292) --
Class C........................................................... (238) --
Class E........................................................... (50,432) --
Class H........................................................... (1,461) --
-------------- --------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS................................... (1,265,703) (2,583,338)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (93,175 and 218,477 shares)............................... 972,823 2,250,193
Class B (10,106 and 16,325 shares)................................ 106,514 167,995
Class C (967 and 6,987 shares).................................... 10,000 72,000
Class E (52,805 and 129,779 shares)............................... 557,314 1,334,599
Class H (20,394 and 28,209 shares)................................ 217,483 290,250
Proceeds from shares issued as a result of reinvested dividends
Class A (5,060 and 8,506 shares).................................. 53,240 87,649
Class B (1,196 and 2,921 shares).................................. 12,564 30,108
Class C (271 and 700 shares)...................................... 2,849 7,226
Class E (74,375 and 166,633 shares)............................... 784,451 1,723,375
Class H (1,674 and 2,570 shares).................................. 17,639 26,550
Less cost of repurchase of shares
Class A (126,170 and 51,049 shares)............................... (1,332,608) (524,883)
Class B (23,825 and 2,631 shares)................................. (247,805) (27,153)
Class C (4,733 and 6,013 shares).................................. (49,368) (62,355)
Class E (249,786 and 919,962 shares).............................. (2,629,296) (9,495,068)
Class H (2,279 and 16,693 shares)................................. (23,944) (171,976)
-------------- --------------
NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS.................... (1,548,144) (4,291,490)
-------------- --------------
TOTAL DECREASE IN NET ASSETS.......................................... (1,202,201) (3,432,524)
NET ASSETS:
Beginning of period................................................. 50,032,792 53,465,316
-------------- --------------
End of period (includes excess of distributions over net investment
income of $6,462 and $9,047, respectively)........................ $ 48,830,591 $ 50,032,792
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
FORTIS TAX FREE PORTFOLIOS, INC.
Notes to Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Fortis Tax Free Portfolios, Inc.
is an open-end management investment company which currently is comprised of
two separate investment portfolios and series of capital stock: the National
and Minnesota Portfolios, (the Funds) are diversified portfolios each of
which has different investment objectives and its own investment portfolio
and net asset value. The investment objective of National Portfolio is to
maximize total return, to be derived primarily from current income exempt
from federal income tax (at a level consistent with prudent investment risk)
and from change in the market value of the securities held by the Portfolio.
The investment objective of Minnesota Portfolio is to maximize total return,
to be derived primarily from current income exempt from both federal and
Minnesota income tax (at a level consistent with prudent investment risk) and
from change in the market value of the securities held by the Portfolio.
The Minnesota Portfolio concentrates its investments in a single state and,
therefore, may have more credit risk related to the economic conditions of
the respective state than a portfolio with broader geographical
diversification.
The funds offer Class A, Class B, Class C, Class E and Class H shares. The
funds began to issue class shares effective November 14, 1994. Class E shares
are only available to existing shareholders on November 14, 1994. Class A and
E shares are sold with a front-end sales charge. Class B and H shares are
sold without a front-end sales charge and may be subject to a contingent
deferred sales charge for six years, and such shares automatically convert to
Class A after eight years. Class C shares are sold without a front-end sales
charge and may be subject to a contingent deferred sales charge for one year.
All classes of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that the level of
distribution fees charged differs between classes. Income, expenses (other
than expenses incurred under each class's distribution agreement) and
realized and unrealized gains or losses on investments are allocated to each
class of shares based on its relative net assets.
The significant accounting policies followed by the fund are summarized as
follows:
SECURITY VALUATION: Investments in securities traded on a national securities
exchange or on the NASDAQ National Market System are valued at the last
reported sales price. Securities for which over-the-counter market quotations
are readily available are valued on the basis of the last current bid price.
An outside pricing service may be utilized to provide such valuations. For
fixed income securities, the pricing service may employ electronic data
processing techniques and/or a matrix system to determine valuations using
methods which include consideration of yields or prices of bonds of
comparable quality, type of issue, coupon, maturity and rating indications as
to value from dealers, and general market conditions. Securities for which
quotations are not readily available are valued at fair value as determined
in good faith by management under supervision of the Board of Directors.
Short-term investments, with maturities of less than 60 days when acquired,
or which subsequently are within 60 days of maturity, are valued at amortized
cost.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions
are accounted for on the trade date. Interest income is recorded on the
accrual basis. Realized security gains and losses are determined using the
identified cost method. For financial reporting purposes, the portfolios
amortize long-term bond premium and original issue discount.
For the period ended March 31, 1998, the cost of purchases and proceeds from
sales of securities (other than short-term securities) aggregated $23,014,968
and $23,163,573 for National Portfolio; and $16,702,240 and $18,710,209 for
Minnesota Portfolio, respectively.
INCOME TAXES: The portfolios intend to qualify, under the Internal Revenue
Code, as regulated investment companies and if so qualified, will not have to
pay federal income taxes to the extent their taxable net income is
distributed. On a calendar year basis, the fund intends to distribute
substantially all of its taxable net investment income and realized gains, if
any, to avoid the payment of federal excise taxes.
Net realized gains may differ for financial statement and tax purposes
primarily because of wash sale transactions. The character of distributions
made during the year from net investment income or net realized gains may
also differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal year
in which amounts are distributed may differ from the year that the income or
realized gains (losses) were recorded by the fund.
DEFERRED COSTS: Registration costs are deferred and charged to income over
the registration period.
INCOME AND CAPITAL GAINS DISTRIBUTION: The portfolios declare income
distributions daily to be paid on the last business day of each month. The
portfolios will make annual distributions of any realized capital gains as
required by law. These income and capital gains distributions may be
reinvested in additional shares of the portfolio at net asset value on the
payable date or paid in cash five business days after month end without any
charge to the shareholder.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of increase and decrease
in net assets from operations during the reporting period. Actual results
could differ from those estimates.
2. PAYMENTS TO RELATED PARTIES: Fortis Advisers, Inc. (Advisers), is the
investment adviser for the fund. At the special shareholders' meeting of
January 29, 1998, shareholders of the Minnesota Portfolio approved an amended
Investment Advisory and Management Agreement between the Portfolio and Fortis
Advisers, Inc. Under the approved amended agreement, the investment advisory
fee payable by the Minnesota Portfolio is computed at an annual rate of .72%
of the first $50 million in average daily net assets and .70% of average
daily net assets in excess of $50 million and are based on the average net
assets of the Minnesota Portfolio. Prior to January 29, 1998, investment
advisory fees paid by the Minnesota Portfolio were computed at an annual rate
of .80% of the first $50 million in average daily net assets, .70% of the
next $50 million in average daily net assets and .625% of average daily net
assets in excess of $100 million and was based upon the aggregate average net
assets of the National and Minnesota Portfolios combined, then allocated to
the Minnesota Portfolio based upon proportionate net assets. The National
Portfolio's investment advisory fees are computed at an annual rate of
14
<PAGE>
- --------------------------------------------------------------------------------
.80% of the first $50 million in average daily net assets, and .70% of
average daily net assets in excess of $50 million, and are based upon the
average net assets of the portfolio alone.
In addition to the investment advisory and management fee, Classes A, B, C
and H pay Fortis Investors, Inc. (the fund's principal underwriter)
distribution fees equal to .25% (Class A) and 1.00% (Class B, C, and H) of
average daily net assets (of the respective classes) on an annual basis, to
be used to compensate those who sell shares of the fund and to pay certain
other expenses of selling fund shares. Fortis Investors, Inc., also received
sales charges (paid by purchasers or redeemers of the fund's shares)
aggregating:
<TABLE>
<CAPTION>
Class A Class B Class C Class E Class H
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
National Portfolio........................... $ 22,010 $1,230 $ 216 $ 30,126 $1,971
Minnesota Portfolio.......................... $ 28,601 $8,326 $ 42 $ 12,247 --
</TABLE>
Legal fees and expenses aggregating $1,097 and $798 for the National and
Minnesota Portfolios, respectively, were paid to a law firm of which the
secretary of the fund is a partner.
3. FUNDAMENTAL CHANGES: At the special shareholder's meeting of January 29,
1998, shareholders of the National and Minnesota Portfolios approved an
amendment to the Fundamental policy of investing in commodities to allow the
Portfolios to invest in forms of financial contracts and instruments such as
futures contracts, which may be deemed, for regulatory purposes, to be
"commodities", but the Portfolios may not purchase or sell physical
commodities (such as agricultural products).
15
<PAGE>
FORTIS TAX FREE PORTFOLIOS, INC.
Notes to Financial Statements (continued)
(Unaudited)
- --------------------------------------------------------------------------------
4. FINANCIAL HIGHLIGHTS: Selected per share historical data for each of the
Portfolios was as follows:
<TABLE>
<CAPTION>
Class E
-----------------------------------------------------------------------------------
Three-Month
Period Ended Year Ended June 30,
Year Ended September 30, September 30,
-------------------------------------------- ------------- --------------------
NATIONAL PORTFOLIO 1998** 1997 1996 1995 1994 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 11.07 $ 10.76 $ 10.72 $ 10.38 $ 10.46 $ 11.13 $ 10.54
-------- -------- -------- -------- ------------- -------- --------
Operations:
Investment income - net..... .26 .55 .56 .58 .15 .60 .63
Net realized and unrealized
gain (loss) on
investments............... .13 .31 .04 .36 (.09 ) (.64) .59
-------- -------- -------- -------- ------------- -------- --------
Total from operations......... .39 .86 .60 .94 .06 (.04) 1.22
-------- -------- -------- -------- ------------- -------- --------
Distributions to shareholders:
From investment income -
net....................... (.27) (.55) (.56) (.59) (.14 ) (.59) (.62)
Excess distributions of net
investment income......... -- -- -- -- -- -- (.01)
From net realized gains on
investments............... (.04) -- -- (.01) -- (.04) --
-------- -------- -------- -------- ------------- -------- --------
Total distributions to
shareholders................. (.31) (.55) (.56) (.60) (.14 ) (.63) (.63)
-------- -------- -------- -------- ------------- -------- --------
Net asset value, end of
period....................... $ 11.15 $ 11.07 $ 10.76 $ 10.72 $ 10.38 $ 10.46 $ 11.13
-------- -------- -------- -------- ------------- -------- --------
Total return @................ 3.47% 8.19% 5.69% 9.30% .59% (.49%) 11.99%
Net assets end of period (000s
omitted).................... $ 57,838 $ 59,727 $ 65,237 $ 70,531 $ 74,877 $ 76,746 $ 70,754
Ratio of expenses to average
daily net assets............ .95%* .95% .93% 1.03% .87%* .87% .94%
Ratio of net investment income
to average daily net
assets...................... 4.72%* 5.03% 5.19% 5.54% 5.74%* 5.38% 5.80%
Portfolio turnover rate....... 32% 71% 52% 35% 17% 25% 29%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
--------------------------------------------- --------------------------------------------
Year Ended September 30,
---------------------------------------------------------------------------------------------
NATIONAL PORTFOLIO 1998** 1997 1996 1995+ 1998** 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 11.06 $ 10.75 $ 10.71 $ 9.79 $ 11.05 $ 10.74 $ 10.70 $ 9.79
-------- -------- -------- --------- -------- -------- -------- --------
Operations:
Investment income - net..... .24 .53 .53 .49 .20 .44 .45 .42
Net realized and unrealized
gain (loss) on
investments............... .13 .31 .04 .94 .13 .31 .04 .93
-------- -------- -------- --------- -------- -------- -------- --------
Total from operations......... .37 .84 .57 1.43 .33 .75 .49 1.35
-------- -------- -------- --------- -------- -------- -------- --------
Distributions to shareholders:
From investment income -
net....................... (.25) (.53) (.53) (.50) (.21) (.44) (.45) (.43)
Excess distributions of net
investment income......... -- -- -- -- -- -- -- --
From net realized gains on
investments............... (.04) -- -- (.01) (.04) -- -- (.01)
-------- -------- -------- --------- -------- -------- -------- --------
Total distributions to
shareholders................. (.29) (.53) (.53) (.51) (.25) (.44) (.45) (.44)
-------- -------- -------- --------- -------- -------- -------- --------
Net asset value, end of
period....................... $ 11.14 $ 11.06 $ 10.75 $ 10.71 $ 11.13 $ 11.05 $ 10.74 $ 10.70
-------- -------- -------- --------- -------- -------- -------- --------
Total return @................ 3.37% 7.96% 5.46% 14.80% 2.98% 7.14% 4.65% 13.96%
Net assets end of period (000s
omitted).................... $ 7,806 $ 7,263 $ 6,239 $ 1,807 $ 1,421 $ 1,287 $ 997 $ 668
Ratio of expenses to average
daily net assets............ 1.20%* 1.20% 1.18% 1.28%* 1.95%* 1.95% 1.93% 2.03%*
Ratio of net investment income
to average daily net
assets...................... 4.47%* 4.78% 4.97% 5.03%* 3.72%* 4.02% 4.20% 4.04%*
Portfolio turnover rate....... 32% 71% 52% 35% 32% 71% 52% 35%
</TABLE>
* Annualized.
** For the six-month period ended March 31, 1998.
+ 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.
16
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
4. FINANCIAL HIGHLIGHTS (continued):
Class C
--------------------------------------------
Year Ended September 30,
--------------------------------------------
NATIONAL PORTFOLIO 1998** 1997 1996 1995+
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 11.04 $ 10.74 $ 10.70 $ 9.79
-------- -------- -------- --------
Operations:
Investment income - net..... .20 .43 .45 .43
Net realized and unrealized
gain (loss) on
investments............... .13 .31 .04 .92
-------- -------- -------- --------
Total from operations......... .33 .74 .49 1.35
-------- -------- -------- --------
Distributions to shareholders:
From investment income -
net....................... (.21) (.44) (.45) (.43)
Excess distributions of net
investment income......... -- -- -- --
From net realized gains on
investments............... (.04) -- -- (.01)
-------- -------- -------- --------
Total distributions to
shareholders................. (.25) (.44) (.45) (.44)
-------- -------- -------- --------
Net asset value, end of
period....................... $ 11.12 $ 11.04 $ 10.74 $ 10.70
-------- -------- -------- --------
Total return @................ 2.98% 7.04% 4.65% 13.95%
Net assets end of period (000s
omitted).................... $ 573 $ 584 $ 223 $ 106
Ratio of expenses to average
daily net assets............ 1.95%* 1.95% 1.93% 2.03%*
Ratio of net investment income
to average daily net
assets...................... 3.72%* 4.05% 4.20% 4.14%*
Portfolio turnover rate....... 32% 71% 52% 35%
</TABLE>
<TABLE>
<CAPTION>
Class H
--------------------------------------------
Year Ended September 30,
--------------------------------------------
NATIONAL PORTFOLIO 1998** 1997 1996 1995+
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 11.06 $ 10.75 $ 10.71 $ 9.79
-------- -------- -------- --------
Operations:
Investment income - net..... .19 .44 .45 .43
Net realized and unrealized
gain (loss) on
investments............... .13 .31 .04 .93
-------- -------- -------- --------
Total from operations......... .32 .75 .49 1.36
-------- -------- -------- --------
Distributions to shareholders:
From investment income -
net....................... (.21) (.44) (.45) (.43)
Excess distributions of net
investment income......... -- -- -- --
From net realized gains on
investments............... (.04) -- -- (.01)
-------- -------- -------- --------
Total distributions to
shareholders................. (.25) (.44) (.45) (.44)
-------- -------- -------- --------
Net asset value, end of
period....................... $ 11.13 $ 11.06 $ 10.75 $ 10.71
-------- -------- -------- --------
Total return @................ 2.89% 7.13% 4.64% 14.06%
Net assets end of period (000s
omitted).................... $ 5,341 $ 5,111 $ 4,015 $ 1,757
Ratio of expenses to average
daily net assets............ 1.95%* 1.95% 1.93% 2.03%*
Ratio of net investment income
to average daily net
assets...................... 3.72%* 4.03% 4.20% 4.24%*
Portfolio turnover rate....... 32% 71% 52% 35%
</TABLE>
* Annualized.
** For the six-month period ended March 31, 1998.
+ 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.
17
<PAGE>
FORTIS TAX FREE PORTFOLIOS, INC.
Notes to Financial Statements (continued)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
4. FINANCIAL HIGHLIGHTS (continued):
Class E
-----------------------------------------------------------------------------------
Three-Month
Period Ended Year Ended June 30,
Year Ended September 30, September 30,
-------------------------------------------- ------------- --------------------
MINNESOTA PORTFOLIO 1998** 1997 1996 1995 1994 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 10.46 $ 10.28 $ 10.32 $ 10.08 $ 10.15 $ 10.65 $ 10.16
-------- -------- -------- -------- ------------- -------- --------
Operations:
Investment income - net..... .26 .53 .55 .57 .15 .59 .61
Net realized and unrealized
gains (losses) on
investments............... .08 .18 (.04) .24 (.08 ) (.51) .49
-------- -------- -------- -------- ------------- -------- --------
Total from operations......... .34 .71 .51 .81 .07 .08 1.10
-------- -------- -------- -------- ------------- -------- --------
Distributions to shareholders:
From investment income -
net....................... (.26) (.53) (.55) (.57) (.14 ) (.58) (.61)
From net realized gains on
investments............... (.01) -- -- -- -- -- --
-------- -------- -------- -------- ------------- -------- --------
Total distributions to
shareholders................ (.27) (.53) (.55) (.57) (.14 ) (.58) (.61)
-------- -------- -------- -------- ------------- -------- --------
Net asset value, end of
period....................... $ 10.53 $ 10.46 $ 10.28 $ 10.32 $ 10.08 $ 10.15 $ 10.65
-------- -------- -------- -------- ------------- -------- --------
Total return @................ 3.30% 7.10% 5.01% 8.35% .72% .64% 11.17%
Net assets end of period (000s
omitted).................... $ 42,591 $ 43,584 $ 49,262 $ 52,603 $ 54,560 $ 54,854 $ 52,271
Ratio of expenses to average
daily net assets............ .96%* .96% .93% .98% .85%* .85% .89%
Ratio of net investment income
to average daily net
assets...................... 4.94%* 5.14% 5.34% 5.60% 5.69%* 5.51% 5.82%
Portfolio turnover rate....... 35% 61% 41% 27% 8% 11% 17%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
--------------------------------------------- --------------------------------------------
Year Ended September 30,
---------------------------------------------------------------------------------------------
MINNESOTA PORTFOLIO 1998** 1997 1996 1995+ 1998** 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 10.43 $ 10.26 $ 10.30 $ 9.55 $ 10.42 $ 10.24 $ 10.27 $ 9.55
-------- -------- -------- --------- -------- -------- -------- --------
Operations:
Investment income - net..... .25 .50 .52 .48 .21 .42 .45 .41
Net realized and unrealized
gains (losses) on
investments............... .08 .18 (.04) .76 .08 .18 (.04) .73
-------- -------- -------- --------- -------- -------- -------- --------
Total from operations......... .33 .68 .48 1.24 .29 .60 .41 1.14
-------- -------- -------- --------- -------- -------- -------- --------
Distributions to shareholders:
From investment income -
net....................... (.25) (.51) (.52) (.49) (.21) (.42) (.44) (.42)
From net realized gains on
investments............... (.01) -- -- -- (.01) -- -- --
-------- -------- -------- --------- -------- -------- -------- --------
Total distributions to
shareholders................ (.26) (.51) (.52) (.49) (.22) (.42) (.44) (.42)
-------- -------- -------- --------- -------- -------- -------- --------
Net asset value, end of
period....................... $ 10.50 $ 10.43 $ 10.26 $ 10.30 $ 10.49 $ 10.42 $ 10.24 $ 10.27
-------- -------- -------- --------- -------- -------- -------- --------
Total return @................ 3.29% 6.66% 4.78% 13.15% 2.78% 6.01% 4.04% 12.10%
Net assets end of period (000s
omitted).................... $ 3,420 $ 3,689 $ 1,822 $ 884 $ 1,178 $ 1,301 $ 1,109 $ 180
Ratio of expenses to average
daily net assets............ 1.21%* 1.21% 1.18% 1.23%* 1.96%* 1.96% 1.93% 1.98%*
Ratio of net investment income
to average daily net
assets...................... 4.67%* 4.89% 5.07% 5.10%* 3.92%* 4.14% 4.34% 4.37%*
Portfolio turnover rate....... 35% 61% 41% 27% 35% 61% 41% 27%
</TABLE>
* Annualized.
** For the six-month period ended March 31, 1998.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
18
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
4. FINANCIAL HIGHLIGHTS (continued):
Class C
--------------------------------------------
Year Ended September 30,
--------------------------------------------
MINNESOTA PORTFOLIO 1998** 1997 1996 1995+
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 10.44 $ 10.26 $ 10.30 $ 9.55
-------- -------- -------- --------
Operations:
Investment income - net..... .22 .42 .44 .42
Net realized and unrealized
gains (losses) on
investments............... .08 .18 (.04) .75
-------- -------- -------- --------
Total from operations......... .30 .60 .40 1.17
-------- -------- -------- --------
Distributions to shareholders:
From investment income -
net....................... (.21) (.42) (.44) (.42)
From net realized gains on
investments............... (.01) -- -- --
-------- -------- -------- --------
Total distributions to
shareholders................ (.22) (.42) (.44) (.42)
-------- -------- -------- --------
Net asset value, end of
period....................... $ 10.52 $ 10.44 $ 10.26 $ 10.30
-------- -------- -------- --------
Total return @................ 2.87% 6.00% 4.00% 12.31%
Net assets end of period (000s
omitted).................... $ 196 $ 232 $ 210 $ 143
Ratio of expenses to average
daily net assets............ 1.96%* 1.96% 1.93% 1.98%*
Ratio of net investment income
to average daily net
assets...................... 3.92%* 4.14% 4.31% 4.28%*
Portfolio turnover rate....... 35% 61% 41% 27%
</TABLE>
<TABLE>
<CAPTION>
Class H
--------------------------------------------
Year Ended September 30,
--------------------------------------------
MINNESOTA PORTFOLIO 1998** 1997 1996 1995+
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 10.44 $ 10.26 $ 10.30 $ 9.55
-------- -------- -------- --------
Operations:
Investment income - net..... .22 .42 .44 .41
Net realized and unrealized
gains (losses) on
investments............... .08 .18 (.04) .76
-------- -------- -------- --------
Total from operations......... .30 .60 .40 1.17
-------- -------- -------- --------
Distributions to shareholders:
From investment income -
net....................... (.21) (.42) (.44) (.42)
From net realized gains on
investments............... (.01) -- -- --
-------- -------- -------- --------
Total distributions to
shareholders................ (.22) (.42) (.44) (.42)
-------- -------- -------- --------
Net asset value, end of
period....................... $ 10.52 $ 10.44 $ 10.26 $ 10.30
-------- -------- -------- --------
Total return @................ 2.87% 6.00% 3.93% 12.42%
Net assets end of period (000s
omitted).................... $ 1,444 $ 1,227 $ 1,061 $ 638
Ratio of expenses to average
daily net assets............ 1.96%* 1.96% 1.93% 1.98%*
Ratio of net investment income
to average daily net
assets...................... 3.92%* 4.14% 4.33% 4.29%*
Portfolio turnover rate....... 35% 61% 41% 27%
</TABLE>
* Annualized.
** For the six-month period ended March 31, 1998.
+ 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.
19
<PAGE>
DIRECTORS AND OFFICERS
DIRECTORS Richard W. Cutting CPA AND FINANCIAL CONSULTANT
Allen R. Freedman CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
FORTIS, INC. MANAGING DIRECTOR OF
FORTIS INTERNATIONAL, N.V.
Dr. Robert M. Gavin PRESIDENT, CRANBROOK EDUCATION
COMMUNITY. PRIOR TO JULY 1996,
PRESIDENT MACALESTER COLLEGE
Benjamin S. Jaffray CHAIRMAN, SHEFFIELD GROUP, LTD.
Jean L. King PRESIDENT, COMMUNI-KING
Dean C. Kopperud CHIEF EXECUTIVE OFFICER AND DIRECTOR,
FORTIS ADVISERS, INC. PRESIDENT AND
DIRECTOR, FORTIS INVESTORS, INC.
SENIOR VICE PRESIDENT AND DIRECTOR,
FORTIS BENEFITS INSURANCE COMPANY AND
TIME INSURANCE COMPANY
Edward M. Mahoney PRIOR TO JANUARY 1995, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER, FORTIS
ADVISERS, INC., FORTIS INVESTORS,
INC.
Robb L. Prince FINANCIAL AND EMPLOYEE BENEFIT
CONSULTANT. PRIOR TO JULY 1995, VICE
PRESIDENT AND TREASURER, JOSTENS,
INC.
Leonard J. Santow PRINCIPAL, GRIGGS & SANTOW, INC.
Noel Shadko MARKETING CONSULTANT. PRIOR TO MAY
1996, SENIOR VICE PRESIDENT OF
MARKETING & STRATEGIC PLANNING,
ROLLERBLADE, INC.
Joseph M. Wikler INVESTMENT CONSULTANT AND PRIVATE
INVESTOR. PRIOR TO JANUARY 1994,
DIRECTOR OF RESEARCH, CHIEF
INVESTMENT OFFICER, PRINCIPAL, AND
DIRECTOR, THE ROTHSCHILD CO.
OFFICERS
Dean C. Kopperud
PRESIDENT AND DIRECTOR
Robert W. Beltz, Jr.
VICE PRESIDENT
James S. Byrd
VICE PRESIDENT
Peggy L. Ettestad
VICE PRESIDENT
Tamara L. Fagely
VICE PRESIDENT AND TREASURER
Howard G. Hudson
VICE PRESIDENT
Dickson W. Lewis
VICE PRESIDENT
Lucinda S. Mezey
VICE PRESIDENT
David A. Peterson
VICE PRESIDENT
Scott R. Plummer
VICE PRESIDENT
Rhonda J. Schwartz
VICE PRESIDENT
Melinda S. Urion
VICE PRESIDENT
Gary N. Yalen
VICE PRESIDENT
Michael J. Radmer
SECRETARY
INVESTMENT MANAGER, REGISTRAR Fortis Advisers, Inc.
AND TRANSFER AGENT BOX 64284, ST. PAUL, MINNESOTA 55164
PRINCIPAL UNDERWRITER Fortis Investors, Inc.
BOX 64284, ST. PAUL, MINNESOTA 55164
CUSTODIAN U.S. Bank National Association
MINNEAPOLIS, MINNESOTA
GENERAL COUNSEL Dorsey & Whitney LLP
MINNEAPOLIS, MINNESOTA
INDEPENDENT AUDITORS KPMG Peat Marwick LLP
MINNEAPOLIS, MINNESOTA
The use of this material is authorized only when preceded or accompanied by a
prospectus.
20
<PAGE>
FORTIS FINANCIAL GROUP'S OTHER PRODUCTS AND SERVICES
MUTUAL Fortis Bond Funds MONEY FUND
FUNDS/PORTFOLIOS U.S. GOVERNMENT
CONVENIENT ACCESS TO SECURITIES FUND
A BROAD RANGE OF TAX-FREE NATIONAL
SECURITIES PORTFOLIO
TAX-FREE MINNESOTA
PORTFOLIO
STRATEGIC INCOME FUND
HIGH YIELD PORTFOLIO
Fortis Stock Funds ASSET ALLOCATION
PORTFOLIO
VALUE FUND
GROWTH & INCOME FUND
CAPITAL FUND
FIDUCIARY FUND
GLOBAL GROWTH PORTFOLIO
GROWTH FUND
INTERNATIONAL EQUITY
PORTFOLIO
CAPITAL APPRECIATION
PORTFOLIO
FIXED AND VARIABLE Fortis Opportunity Fixed FIXED ACCOUNT
ANNUITIES & Variable Annuity MONEY MARKET SUBACCOUNT
TAX-DEFERRED Masters Variable Annuity U.S. GOVERNMENT
INVESTING SECURITIES SUBACCOUNT
DIVERSIFIED INCOME
SUBACCOUNT
GLOBAL BOND SUBACCOUNT
HIGH YIELD SUBACCOUNT
ASSET ALLOCATION
SUBACCOUNT
GLOBAL ASSET ALLOCATION
SUBACCOUNT
VALUE SUBACCOUNT
GROWTH & INCOME
SUBACCOUNT
S&P 500 INDEX SUBACCOUNT
BLUE CHIP STOCK
SUBACCOUNT
GLOBAL GROWTH SUBACCOUNT
GROWTH STOCK SUBACCOUNT
INTERNATIONAL STOCK
SUBACCOUNT
AGGRESSIVE GROWTH
SUBACCOUNT
Fortune Fixed Annuities SINGLE PREMIUM ANNUITY
FLEXIBLE PREMIUM ANNUITY
Income Annuities GUARANTEED FOR LIFE
GUARANTEED FOR A
SPECIFIED PERIOD
LIFE Wall Street Series FIXED ACCOUNT
INSURANCE PROTECTION Variable Universal Life MONEY MARKET SUBACCOUNT
AND TAX-DEFERRED Insurance U.S. GOVERNMENT
INVESTMENT SECURITIES SUBACCOUNT
OPPORTUNITY DIVERSIFIED INCOME
SUBACCOUNT
GLOBAL BOND SUBACCOUNT
HIGH YIELD SUBACCOUNT
GLOBAL ASSET ALLOCATION
SUBACCOUNT
ASSET ALLOCATION
SUBACCOUNT
VALUE SUBACCOUNT
GROWTH & INCOME
SUBACCOUNT
S&P 500 INDEX SUBACCOUNT
BLUE CHIP STOCK
SUBACCOUNT
INTERNATIONAL STOCK
SUBACCOUNT
MID CAP STOCK SUBACCOUNT
SMALL CAP VALUE
SUBACCOUNT
GLOBAL GROWTH SUBACCOUNT
LARGE CAP GROWTH
SUBACCOUNT
GROWTH STOCK SUBACCOUNT
AGGRESSIVE GROWTH
SUBACCOUNT
Adaptable Life
Universal Life
FORTIS FINANCIAL GROUP manages and distributes mutual funds, annuities and life
insurance products. The mutual funds, variable life and variable annuity
products are distributed through FORTIS INVESTORS, INC. and managed by FORTIS
ADVISERS, INC. The insurance products are issued by FORTIS BENEFITS INSURANCE
COMPANY, FIRST FORTIS LIFE INSURANCE COMPANY and TIME INSURANCE COMPANY.
FOR MORE COMPLETE INFORMATION, INCLUDING CHARGES AND EXPENSES, SEND FOR A
PROSPECTUS. WRITE TO: FORTIS INVESTORS, INC., P.O. BOX 64284, ST. PAUL, MN
55164. READ IT CAREFULLY BEFORE INVESTING OR SENDING MONEY.
21
<PAGE>
[LOGO]
FORTIS
Solid partners, flexible solutions-SM-
- --------------------------------------------------------------------------------
FORTIS MEANS STEADFAST
Fortis means "steadfast" in Latin. The worldwide Fortis family of companies
lives up to the name, and has each day since the 1800s, with flexible
solutions tailored to our customers' individual needs. We deliver the
stability you require today ... and tomorrow. You can count on it.
Fortis Financial Group offers mutual funds, annuities and life insurance
through its broker/dealer Fortis Investors, Inc. We're part of Fortis, Inc.,
a financial services company that provides specialty insurance and
investment products to individuals, businesses, associations and other
financial services organizations throughout the United States.
Fortis, Inc. is part of Fortis, a worldwide group of companies active in the
fields of insurance, banking and investments. Fortis is jointly owned by
Fortis AMEV of The Netherlands and Fortis AG of Belgium.
Fortis: steadfast for YOU!
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
Telephone (800) 800-2000
http://www.ffg.us.fortis.com
- --------------------------------------------------------------------------------
FORTIS FINANCIAL GROUP ---------------
P.O. Box 64284 Bulk Rate
St. Paul, MN 55164 U.S. Postage
PAID
Permit No. 3794
FORTIS TAX-FREE PORTFOLIOS Minneapolis, MN
---------------
[LOGO] Printed on recycled paper with
40% preconsumer waste and 10%
post consumer waste. Please recycle.
The Fortis logo and Fortis-SM- are servicemarks
of Fortis AMEV and Fortis AG.
95380-C- Fortis 5/98
