<PAGE>
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FORTIS
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ENJOY THE LIBERTY OF TAX-FREE INVESTING
Fortis Tax-Free Portfolios
Annual Report
September 30, 1998
FORTIS FINANCIAL GROUP
[GRAPHIC]
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
CONTENTS
LETTER TO SHAREHOLDERS 2
SCHEDULES OF INVESTMENTS
NATIONAL PORTFOLIO 5
MINNESOTA PORTFOLIO 8
STATEMENTS OF ASSETS AND LIABILITIES 11
STATEMENTS OF OPERATIONS 12
STATEMENTS OF CHANGES IN NET ASSETS
NATIONAL PORTFOLIO 13
MINNESOTA PORTFOLIO 14
NOTES TO FINANCIAL STATEMENTS 15
INDEPENDENT AUDITORS' REPORT 21
FEDERAL INCOME TAX INFORMATION 22
DIRECTORS AND OFFICERS 23
OTHER PRODUCTS AND SERVICES 24
- - 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 each fund's performance during the past twelve months,
refer to the Highlights box below. The letter from the portfolio manager and
president provides a more detailed analysis of the fund's 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 each 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
YEAR ENDED SEPTEMBER 30, 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 year.......................... $11.06 $11.05 $11.04 $11.07 $11.06
End of year................................ $11.37 $11.36 $11.34 $11.38 $11.35
DISTRIBUTIONS PER SHARE
From net investment income................. $ .490 $ .406 $ .406 $ .514 $ .406
From net realized gains on investments..... $ .036 $ .036 $ .036 $ .036 $ .036
YEAR ENDED SEPTEMBER 30, 1998
FORTIS TAX-FREE MINNESOTA
NET ASSET VALUE PER SHARE:
Beginning of year.......................... $10.43 $10.42 $10.44 $10.46 $10.44
End of year................................ $10.74 $10.73 $10.73 $10.77 $10.76
DISTRIBUTIONS PER SHARE
From net investment income................. $ .494 $ .410 $ .410 $ .518 $ .410
From net realized gains on investments..... $.0124 $.0124 $.0124 $.0124 $.0124
</TABLE>
1
<PAGE>
[Photo]
Investing in municipal bonds for
tax-free income.
DEAR FORTIS SHAREHOLDER,
Total returns for the Fortis Tax-Free Portfolios for the twelve months ended
September 30, 1998 were 7.97% (class E shares before sales charge) for the
National Portfolio, and 8.25% (class E shares before sales charge) for the
Minnesota Portfolio. These levels compare with the 8.35% total return of the
Lehman Brothers Municipal Bond Index during the same period.
The bond market digested a wide variety of economic information during the
twelve months ended September 30, 1998. Gross Domestic Product (GDP), which had
been expected to moderate from its strong growth rate of 3% during the fourth
quarter of 1997, grew at a 1.8% rate in the second quarter of 1998 after a
strong 5.5% showing in the first quarter. Inflation measures continued to behave
well, with the year-over-year core Consumer Price Index (the core CPI excludes
food and energy) up only 2.5% and the year-over-year core Producer Price Index
up 1.0% through August, 1998. In response to concerns about the impact of recent
Asian economic turmoil and the uncertain equity markets on U.S. economic growth,
the Federal Reserve reduced its Federal Funds target rate from 5.50% to 5.25% in
September 1998 and to 5.00% in October 1998.
Municipal bond yields, as reflected by the Bond Buyer Revenue Bond Index (the
average yield of an index of 25 revenue bonds), traded within a 60 basis point
range over the twelve month period. The yield of the index began October of 1997
at 5.63%, and declined to 5.25% in mid-January, 1998 due to concerns about the
negative impact of Asian economic problems on U.S. economic growth. When it
became clear that the Federal Reserve was not going to cut interest rates early
in 1998 in response to Asia, the yield of the Index rose gradually, reaching
5.52% during April. During the third quarter of 1998, foreign economic problems,
coupled with volatility in the U.S. equity markets, caused a "flight to
quality", which led to declining rates, primarily benefitting the U.S. Treasury
market. Since April, the Index declined almost continuously, reaching 5.09% at
the end of September. Heavy new issue supply during 1998 prevented the municipal
market from enjoying the benefits of declining bond yields to the same extent as
Treasury Bonds, whose yields fell by almost 1.4% over the same twelve month
period.
During the fourth quarter of 1997, in order to benefit from expected price
appreciation due to declining interest rates, the duration (a measure of price
volatility, the greater the duration of a portfolio, the greater its percentage
price volatility) of the funds was lengthened to levels longer than their
respective benchmarks, and for the same reason, there was continuing emphasis on
reducing the call risk in the portfolios. During most of 1998, the duration of
the funds was longer than their respective benchmarks, as our expectations of
lower rates were generally rewarded. The durations of the funds at the end of
the reporting period were 7.0 years for both the National and Minnesota
portfolios.
Our current forecast calls for further modest declines in interest rates as 1998
closes. We expect the economy to grow at a slower pace (1%-2% real GDP growth)
than earlier in 1998, with the continuing foreign economic difficulties acting
as a restraining influence. Inflation should continue to be well behaved. In our
view, narrow quality spreads do not justify any adjustment in the funds' current
AA average quality. Call protection and coupon will continue to be important
elements of bond structure as we look to enhance future portfolio performance.
Sincerely,
<TABLE>
<S> <C>
/s/ DEAN C. KOPPERUD /s/ HOWARD G. HUDSON
Dean C. Kopperud Howard G. Hudson
President Vice President
</TABLE>
October 16, 1998
2
<PAGE>
COMPOSITION BY INDUSTRY
AS OF 09/30/98
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
General Obligations 20.6%
Health Care Services 17.0%
Utilities-Water & Sewer 16.2%
Transportation 13.7%
Utilities-Electric 9.7%
Higher Education 5.3%
Prerefunded with U.S. Gov't 5.2%
Housing 4.7%
Cash Equivalents / Receivables 3.3%
Other 2.0%
Public Facilities 1.2%
Utilities-Gas 1.1%
</TABLE>
NATIONAL PORTFOLIO
VALUE OF $10,000 INVESTED OCTOBER 1, 1988
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROS. NATIONAL
<S> <C> <C> <C>
Municipal Bond Index*** Portfolio Class E
88 $10,000 $9,550
89 $10,868 $10,344
90 $11,607 $10,794
91 $13,137 $12,305
92 $14,511 $13,530
93 $16,360 $15,375
94 $15,966 $14,894
95 $17,752 $16,279
96 $18,755 $17,204
97 $20,441 $18,614
98 $22,147 $20,097
National Portfolio Class E
Average Annual Total Return
1 Year 5 Year 10 Year
Class E* +3.11% +4.54% +7.23%
Class E** +7.97% +5.50% +7.72%
</TABLE>
Annual Period ended September 30
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 portfolio's 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 9/30/98
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. University of New Mexico (6.00%) 2021 3.9%
2. New York Triborough Bridge & Tunnel Authority
(5.50%) 2017 3.9%
3. Metropolitan Transportation Authority NY (5.75%)
2013 3.7%
4. Grapevine-Colleyville, TX Independent School
District (5.75%) 2012 3.5%
5. Tucson, AZ Water (5.50%) 2014 3.3%
6. Bloomington, MN Highway Refunding General
Obligation (6.00%) 1999 3.0%
7. Minnesota Agriculture & Economic Development
(5.50%) 2017 3.0%
8. Detroit, MI Water System (6.50%) 2015 2.9%
9. Fulton County, GA Water & Sewer (6.375%) 2014 2.9%
10. Southern California Public Power (6.36%) 2013 2.7%
</TABLE>
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- ------------------------------------------------------------------
<S> <C> <C>
Class A shares# +7.75% +9.23%
Class A shares## +2.90% +7.94%
Class B shares# +6.95% +8.38%
Class B shares## +3.35% +7.83%
Class C shares # +6.86% +8.33%
Class C shares ## +5.86% +8.33%
Class H shares # +6.76% +8.35%
Class H shares ## +3.16% +7.80%
</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 September 30, 1998.
+ Since November 14, 1994 - Date shares were first offered to the public.
3
<PAGE>
COMPOSITION BY INDUSTRY AS OF 09/30/98
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
General Obligations 20.5%
Housing 18.2%
Health Care Services 14.9%
Higher Education 12.3%
Utilities-Electric 8.3%
Pollution Control 5.0%
Prerefunded with U.S. Gov't 4.6%
Airport Revenues 4.2%
Miscellaneous 4.2%
Cash Equivalents / Receivables 4.1%
Public Facilities 2.7%
Utilities-Water & Sewer 1.0%
</TABLE>
MINNESOTA PORTFOLIO
VALUE OF $10,000 INVESTED OCTOBER 1, 1988
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROS. MINNESOTA
<S> <C> <C> <C>
Municipal Bond Index*** Portfolio Class E
88 10,000 9,550
89 10,868 10,244
90 11,607 10,784
91 13,137 12,079
92 14,511 13,201
93 16,360 14,822
94 15,966 14,604
95 17,752 15,823
96 18,755 16,615
97 20,441 17,794
98 22,147 19,263
Minnesota Portfolio Class E
Average Annual Total Return
1 Year 5 Year 10 Year
Class E* +3.38% +4.42% +6.78%
Class E** +8.25% +5.38% +7.27%
</TABLE>
Annual Period ended September 30
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 portfolio's 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 9/30/98
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. Minnesota Agriculture & Economic Development
(5.50%) 2017 6.7%
2. Centennial Independent School District #12
(5.625%) 2016 5.4%
3. University of MN (Regents of) (5.50%) 2021 4.6%
4. Rochester (City of), MN Health Care Facility
(5.90%) 2010 3.6%
5. Brainerd (City of), MN (6.65%) 2017 3.4%
6. Minnesota Higher Education (5.375%) 2018 3.3%
7. St. Cloud (City of), MN General Obligation
Hydroelectric (5.25%) 2018 3.0%
8. Minneapolis (City of), MN (4.10%) Zero Coupon
General Obligation 2005 3.0%
9. St. Louis Park (City of), MN Hospital Facility
(7.25%) 2015 2.9%
10. Farmington (City of), MN Independent School
District #192 (5.20%) 2023 2.8%
</TABLE>
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- ------------------------------------------------------------------
<S> <C> <C>
Class A shares# +8.13% +8.40%
Class A shares## +3.27% +7.12%
Class B shares# +7.18% +7.53%
Class B shares## +3.58% +6.96%
Class C shares# +6.97% +7.51%
Class C shares## +5.97% +7.51%
Class H shares# +7.26% +7.60%
Class H shares## +3.66% +7.03%
</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 September 30, 1998
+ Since November 14, 1994 - Date shares were first offered to the public.
4
<PAGE>
FORTIS TAX-FREE PORTFOLIOS
NATIONAL PORTFOLIO
Schedule of Investments
September 30, 1998
MUNICIPAL BONDS-96.73%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
ARIZONA-3.30%
$2,225,000 Tucson, AZ, 5.50% Water Rev Refunding Bond
7-1-2014................................... A+ $ 2,188,020 $ 2,423,692
------------ ------------
CALIFORNIA-5.95%
2,385,000 Redwood City California Elem School Dist,
5.50% Zero Coupon General Obligation FGIC
Insured 8-1-2018 (d)....................... AAA 813,034 912,978
4,000,000 Southern California Public Power, 6.36% Zero
Coupon Bond 7-1-2013 (d)................... A 1,588,505 1,998,280
2,750,000 Sulphur Springs (City of), CA, 7.00% Zero
Coupon General Obligation Ser A MBIA
Insured 9-1-2012 (d)....................... AAA 1,055,565 1,452,247
------------ ------------
3,457,104 4,363,505
------------ ------------
CONNECTICUT-2.40%
1,500,000 Connecticut State, 6.125% Special Tax
Obligation Rev Transportation
Infrastructure Ser B 9-1-2012.............. AA- 1,573,852 1,758,570
------------ ------------
DISTRICT OF COLUMBIA-1.84%
1,250,000 District of Columbia, 7.50% General
Obligation Ser 1990B FSA Insured 6-1-2010
(Prerefunded 6-1-2000 @102)................ AAA 1,235,937 1,350,637
------------ ------------
FLORIDA-1.59%
500,000 Florida (State of), 7.50% Mid-Bay Bridge Auth
Ser 1991A 10-1-2017 (Subject to Crossover
Refunding 10-1-2001 @103).................. NR 476,644 563,440
600,000 Tampa (City of), FL, 8.25% Cap Improvement
Program Rev Bond Ser A 10-1-2018........... AA 599,007 602,106
------------ ------------
1,075,651 1,165,546
------------ ------------
GEORGIA-8.45%
1,375,000 Brunswick, GA, Water & Sewer, 6.10% Rev Ref &
Improvement Bond MBIA Insured 10-1-2019.... AAA 1,464,665 1,632,249
1,800,000 Fulton County, GA, Water & Sewer, 6.375% Ref
Bond FGIC Insured 1-1-2014................. AAA 1,787,215 2,149,724
1,000,000 Georgia Municipal Electric, 6.50% Auth Power
Rev Ser Y 1-1-2017......................... A 993,497 1,187,040
1,180,000 Hall County, GA, 5.00% School District
General Obligation Bond, 11-1-2001......... Aa3* 1,222,528 1,225,819
------------ ------------
5,467,905 6,194,832
------------ ------------
ILLINOIS-6.26%
500,000 Channahon Park, IL District, 7.50% General
Obligation 1-1-2011 (Prerefunded 7-1-2001
@100)...................................... NR 499,375 549,940
750,000 Chicago Gas Supply, 7.50% Rev for Peoples Gas
Ser B 3-1-2015............................. AA- 758,434 802,395
1,000,000 Illinois Dev Fin Auth, 7.375% Power Co Proj
Ser 1991A 7-1-2021......................... BBB 993,190 1,163,920
1,000,000 Illinois Housing Dev Auth, 7.55% Multi-family
Housing Ser 1990A 7-1-2014................. A+ 987,575 1,050,670
1,000,000 University of Illinois, 5.00% Auxiliary Fac
System Rev Bond MBIA Insured 10-1-2000..... AAA 1,024,831 1,026,040
------------ ------------
4,263,405 4,592,965
------------ ------------
INDIANA-2.37%
375,000 Indiana Bond Bank, 8.50% Special Loan Program
Ser B 2-1-2018............................. A+ 378,642 384,668
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* 1,247,489 1,352,788
------------ ------------
1,626,131 1,737,456
------------ ------------
KENTUCKY-3.09%
1,000,000 Christian County, KY, 6.00% Hospital Rev Ref
Bond Jennie Stuart Medical Center
7-1-2013................................... A- 995,159 1,095,120
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 996,455 1,172,070
------------ ------------
1,991,614 2,267,190
------------ ------------
MASSACHUSETTS-0.74%
500,000 Boston, MA, 7.625% City Hospital Rev Bond Ser
A 2-15-2021 (Prerefunded 8-15-2000 @102)... Aaa* 496,704 543,635
------------ ------------
MICHIGAN-7.12%
1,750,000 Detroit, MI, Water System, 6.50% Rev Bond
FGIC Insured 7-1-2015...................... AAA 1,866,231 2,119,145
1,570,000 Holland, MI, 6.25% Electrical Rev Bond
7-1-2001................................... AA- 1,668,598 1,675,033
1,360,000 Michigan State Hospital, 5.50% Fin Auth Mercy
Health System Ser S 8-15-2020.............. AA- 1,280,793 1,431,944
------------ ------------
4,815,622 5,226,122
------------ ------------
</TABLE>
5
<PAGE>
FORTIS TAX-FREE PORTFOLIOS
NATIONAL PORTFOLIO (CONTINUED)
Schedule of Investments
September 30, 1998
MUNICIPAL BONDS-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
MINNESOTA-10.28%
$2,100,000 Bloomington, MN, 6.00% Highway Refunding
General Obligation Rev Bond 12-1-1999...... AA+ $ 2,159,403 $ 2,163,693
500,000 Duluth (City of), MN, 5.875% Economic Dev
Auth Health Care Fac Rev Bond Ser A
12-1-2028.................................. NR 500,000 510,535
1,140,000 Fergus Falls (City of), MN, 6.50% Health Care
Fac Rev (Lake Regional Hospital) Ser A
9-1-2018................................... BBB+ 1,133,604 1,230,288
670,000 Minneapolis (City of), MN, 7.00% Health Care
Fac Rev (St. Olaf Residence) Ser 1993
10-1-2012.................................. NR 670,000 728,565
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 1,957,307 2,160,680
690,000 St. Anthony (City of), MN, 6.75% Housing Dev
Rev Ref Bond 7-1-2007...................... AA 690,000 749,671
------------ ------------
7,110,314 7,543,432
------------ ------------
MISSOURI-1.88%
1,250,000 Missouri State Health & Educ, 7.70% Still
Regional Med Ctr 2-1-2013.................. BBB 1,283,834 1,379,500
------------ ------------
NEVADA-1.40%
980,000 Washoe County, NV, 7.60% Washoe Med Ctr Rev
Bond Ser A 6-1-2019 (Prerefunded 6-1-1999
@102)...................................... NR 951,884 1,026,334
------------ ------------
NEW JERSEY-1.58%
1,100,000 Woodbridge Township, NJ, 6.65% General
Improvement General Obligation Bond
8-1-2000................................... A1* 1,154,472 1,158,047
------------ ------------
NEW MEXICO-3.93%
2,500,000 University of New Mexico, 6.00% Rev Ref Ser A
6-1-2021................................... AA 2,575,543 2,885,750
------------ ------------
NEW YORK-12.32%
2,465,000 Metropolitan Transportation Authority, NY,
Commuter Facilities, 5.75% Ser O
7-1-2013................................... BBB+ 2,394,267 2,707,038
1,000,000 New York City, NY, 8.25% General Obligation
Ser B 6-1-2005............................. A- 991,584 1,235,790
1,000,000 New York State Dorm Auth, 6.00% Rev Cons City
Univ System 2nd Gen 7-1-2020............... BBB+ 1,018,254 1,147,540
1,000,000 New York State, 7.75% UDC Correctional Fac
Ser 1 1-1-2014 (Prerefunded 1-1-2000 @
102)....................................... Aaa* 965,189 1,070,330
2,600,000 New York Triborough Bridge and Tunnel Auth,
5.50% General Purpose Ser Y 1-1-2017....... A+ 2,499,084 2,873,078
------------ ------------
7,868,378 9,033,776
------------ ------------
NORTH DAKOTA-1.63%
1,100,000 Ward County, ND, 7.50% Health Care Fac Ser
1991B 7-1-2011............................. BBB+ 1,118,814 1,194,776
------------ ------------
OHIO-2.86%
750,000 Cleveland (City of), OH, Parking Fac, 8.10%
Improvement Proj Rev Bond 9-15-2022
(Prerefunded 9-15-2002 @102)............... NR 757,533 879,660
1,100,000 Cleveland, OH, 5.50% Water Works Rev Ref Bond
Ser G First Mortgage MBIA Insured
1-1-2021................................... AAA 1,091,534 1,217,315
------------ ------------
1,849,067 2,096,975
------------ ------------
PENNSYLVANIA-3.71%
1,290,000 Allegheny County, PA, 5.70% Hospital Dev Auth
Rev 10-1-2001.............................. AAA 1,355,128 1,358,564
750,000 Clarion County, PA, 8.50% Clarion Hospital
Proj Rev Bond 7-1-2021 (Prerefunded
7-1-2001 @102)............................. NR 734,988 855,398
500,000 Lehigh County, PA, 5.70% General Purpose Auth
Rev Bond, Kidspeace Obligation Group
11-1-2009.................................. NR 500,096 505,295
------------ ------------
2,590,212 2,719,257
------------ ------------
PUERTO RICO-2.01%
1,250,000 Puerto Rico, 6.25% Commonwealth Aqueduct &
Sewer Auth Rev Ref Bond PR-GTD 7-1-2013.... A 1,335,928 1,477,925
------------ ------------
TENNESSEE-3.09%
1,000,000 Metro Gov't of Nashville & Davidson County,
TN, 6.50% Water & Sewer Ref Bond FGIC
Insured 1-1-2010........................... AAA 1,083,024 1,195,540
1,000,000 Tennessee State, 5.50% General Obligation Ser
B 5-1-2003................................. AAA 1,057,472 1,073,510
------------ ------------
2,140,496 2,269,050
------------ ------------
TEXAS-3.48%
2,250,000 Grapevine-Colleyville, TX, 5.75% Independent
School District PSF Rev Ref Bond
8-15-2012.................................. AAA 2,282,130 2,552,760
------------ ------------
VIRGINIA-2.87%
1,000,000 Norfolk (City of), VA, 5.00% General
Obligation 7-1-2004........................ AAA 1,036,351 1,059,310
1,000,000 Richmond, VA, 5.00% Public Improvement
General Obligation Bond Ser A 1-15-2003.... AA 1,042,680 1,045,840
------------ ------------
2,079,031 2,105,150
------------ ------------
</TABLE>
6
<PAGE>
MUNICIPAL BONDS-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
WASHINGTON-1.47%
$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- $ 960,696 $ 1,075,070
------------ ------------
WISCONSIN-1.11%
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* 750,000 814,605
------------ ------------
TOTAL MUNICIPAL BONDS........................ $64,242,744 $70,956,557
------------ ------------
------------ ------------
</TABLE>
SHORT-TERM INVESTMENTS-2.07%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
----------- ------------
<C> <S> <C>
INVESTMENT COMPANY-2.07%
$1,517,714 First American Tax-Free Obligations Fund,
Current rate -- 3.40%...................... $ 1,517,714
------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$65,760,458) (a)........................... $72,474,271
------------
------------
</TABLE>
(a) At September 30, 1998, the cost of securities for federal income tax
purposes was $65,760,458 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 6,714,003
Unrealized depreciation........................... (190)
---------------------------------------------------------------
Net unrealized appreciation....................... $ 6,713,813
---------------------------------------------------------------
</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
7
<PAGE>
FORTIS TAX-FREE PORTFOLIOS INC.
MINNESOTA PORTFOLIO
Schedule of Investments
September 30, 1998
MUNICIPAL BONDS-95.90%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
AIRPORT REVENUES-4.18%
$1,000,000 Minneapolis-St. Paul (City of), MN, 5.00%
Metropolitan Airports Commission Rev Ser
1998A AMBAC Insured 1-1-2019............... AAA $ 980,020 $ 1,013,680
1,000,000 Minneapolis-St. Paul (City of), MN, 5.00%
Metropolitan Airports Commission Rev Ser
1998A AMBAC Insured 1-1-2022............... AAA 974,492 1,003,080
------------ ------------
1,954,512 2,016,760
------------ ------------
GENERAL OBLIGATIONS-20.53%
2,400,000 Centennial Independent School District #12,
5.625% Ser A 2-1-2016...................... Aa1* 2,367,156 2,600,016
1,000,000 Chaska (City of), MN, Independent School
District #112, 5.00% General Obligation Ser
A 2-1-2014................................. Aa1* 1,000,000 1,028,730
1,240,000 Farmington (City of), MN, Independent School
District #192, 5.04% Zero Coupon Ser B FSA
Insured 2-1-2012 (d)....................... Aaa* 638,380 678,764
1,300,000 Farmington (City of), MN, Independent School
District# 192, 5.20% Ser A FSA Insured
2-1-2023................................... Aaa* 1,294,616 1,334,658
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* 952,259 1,020,840
1,915,000 Minneapolis (City of), MN, 4.10% Zero Coupon
General Obligation Ser B 12-01-2005 (d).... AAA 1,433,094 1,452,815
750,000 Puerto Rico, 6.25% Commonwealth Aqueduct &
Sewer Auth Rev Ref Bond PR-GTD 7-1-2013.... A 801,557 886,755
1,950,000 Rosemount (City of), MN, Independent School
District #196, 5.70% Zero Coupon General
Obligation MBIA Insured 4-1-2015 (d)....... AA+ 771,389 905,892
------------ ------------
9,258,451 9,908,470
------------ ------------
HEALTH CARE SERVICES-14.91%
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 1,015,784 1,082,470
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 2,951,071 3,241,020
1,000,000 Rochester (City of), MN, 5.90% Health Care
Fac Rev Bond Mayo Med Ctr Ser I
11-15-2009................................. AA+ 1,115,843 1,146,920
1,500,000 Rochester (City of), MN, 5.90% Health Care
Fac Rev Bond Mayo Med Ctr Ser I
11-15-2010................................. AA+ 1,572,847 1,724,850
------------ ------------
6,655,545 7,195,260
------------ ------------
HIGHER EDUCATION-12.32%
1,525,000 Minnesota Higher Education, 5.375% Fac Auth
Rev for University of St. Thomas Ser 4-P
4-1-2018................................... A2* 1,529,793 1,578,100
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- 457,700 510,177
500,000 Northfield (City of), MN, 8.00% College Fac
Rev Bond for St. Olaf College 10-1-2018
(Prerefunded 10-1-1998 @ 100).............. NR 500,000 500,065
2,000,000 University of MN (Regents of), 5.50% General
Obligation Ser A 7-1-2021.................. AA 2,021,972 2,221,980
1,000,000 University of MN (Regents of), 5.75% General
Obligation Ser 1996A 7-1-2018.............. AA 1,011,764 1,134,080
------------ ------------
5,521,229 5,944,402
------------ ------------
HOUSING-18.18%
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 1,512,613 1,646,430
135,000 Dakota County, MN, 8.10% HRA Single Family
Rev GNMA Backed 3-1-2016................... AA+ 138,052 139,130
500,000 Duluth (City of), MN, 5.625% EDA Health Care
Fac Rev (Board of Social Ministry
Properties Proj) Ser 1998A 12-1-2018....... NR 500,000 508,670
300,000 Eden Prairie (City of), MN, 7.40% Multifamily
Housing Ser 1990 FHA Insured 8-1-2025...... AAA 299,956 314,955
850,000 Eden Prairie (City of), MN, 8.00% Multifamily
Housing Ser A FHA Insured 7-1-2026......... AAA 850,000 908,820
515,000 Edina (City of), MN, 7.50% Housing Dev Ref
Rev Edina Park Plaza Ser 1989A 12-1-2009... Aa* 514,625 535,955
500,000 Edina (City of), MN, 7.70% Housing Dev Ref
Rev Edina Park Plaza Ser A FHA Insured
12-1-2028.................................. Aa* 500,000 519,315
525,000 Mankato (City of), MN, 8.25% Nursing Home Rev
Bond Board of Social Ministry Mankato
Lutheran Ser 1991A 10-1-2021 (Prerefunded
10-1-2001 @ 102)........................... NR 520,000 600,085
965,000 Minneapolis (City of), MN, 7.10% HRA Mortgage
Rev Bond Riverplace Proj Ser A LOC Bank of
Tokyo Insured 1-1-2020..................... A1* 975,877 977,728
485,000 Minneapolis (City of), MN, 8.25% Health Care
Fac Rev Bond Jones-Harrison Residence Ser
1991 9-1-2011.............................. NR 479,122 506,170
350,000 Minneapolis (City of), MN, 8.25% Rev Bond
Trinity Housing Proj Ser 1991 2-1-2018..... NR 350,000 365,263
185,000 Minnesota Housing Finance Agency, 7.70%
Single Family Mortgage Bond Ser C
7-1-2014................................... AA+ 185,909 185,111
</TABLE>
8
<PAGE>
MUNICIPAL BONDS-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
----------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
$ 440,000 Northfield (City of), MN, 7.00% Health Care
Fac Northfield Retirement Ctr 5-1-2015
(Prerefunded 5-1-2001 @102)................ NR $ 436,644 $ 482,561
500,000 Red Wing (City of), MN, 6.50% Elderly Housing
Fac Ref Rev River Region Obligated Group
Ser 1993C 9-1-2022......................... BBB+ 497,370 541,195
500,000 Spring Park (City of), MN, 8.25% Health Care
Fac Rev Bond Twin Birch Health Care Ctr
8-1-2011................................... NR 500,000 540,260
------------ ------------
8,260,168 8,771,648
------------ ------------
MISCELLANEOUS-4.16%
450,000 Dakota County, MN, 7.50% HRA Limited Annual
Appropriation Tax & Rev Supported Bond Ser
1991 1-1-2006.............................. BBB+ 450,000 474,377
400,000 Dawson (City of), MN, 7.30% IDR Ref Bond
Associated Milk Producers 9-1-2000......... NR 396,426 415,896
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 1,118,630
------------ ------------
1,846,426 2,008,903
------------ ------------
POLLUTION CONTROL-4.95%
650,000 East Grand Forks (City of), MN, 7.75%
Pollution Control Rev (American Crystal
Sugar) Ser 1991A 4-1-2018.................. BBB+ 650,451 705,133
1,000,000 Minnesota Public Fac Auth, 5.00% Water
Pollution Rev Bond Ser B 3-1-2002.......... AAA 1,027,508 1,040,710
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 584,156 644,660
------------ ------------
2,262,115 2,390,503
------------ ------------
PREREFUNDED WITH U.S. GOVERNMENT
SECURITIES-4.60%
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 1,262,641 1,376,758
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* 767,752 844,124
------------ ------------
2,030,393 2,220,882
------------ ------------
PUBLIC FACILITES-2.72%
400,000 Duluth (City of), MN, 6.75% Gross Rev
Recreation Fac Bond Spirit Mountain Ser
1992 2-1-2007.............................. NR 400,000 414,016
325,000 Moorhead (City of), MN, 7.75% Golf Course Rev
Bond Ser 1992A 12-1-2015................... NR 325,000 363,412
500,000 St. Paul (City of), MN, 6.45% HRA Parking Rev
Bond Ser 1992A 8-1-2007 (Prerefunded
8-1-2000 @ 102)............................ A- 500,000 534,045
------------ ------------
1,225,000 1,311,473
------------ ------------
UTILITIES-ELECTRIC-8.30%
1,295,000 Northern MN Municipal Power Agency, 7.102%
Zero Coupon Elec Sys Rev Ref Ser A AMBAC
Insured 1-1-2011 (d)....................... AAA 561,460 748,899
2,000,000 Southern MN Municipal Power Agency, 5.17%
Zero Coupon Cap Apprec Ser A MBIA Insured
1-1-2020 (d)............................... AAA 675,995 722,300
1,400,000 St. Cloud (City of), MN, 5.25% General
Obligation Hydroelectric Rev Ref MBIA
Insured 12-1-2018.......................... AAA 1,356,520 1,454,614
1,000,000 Western MN Municipal Power Agency, 5.50% Ref
Ser A AMBAC Insured 1-1-2013............... AAA 992,112 1,082,180
------------ ------------
3,586,087 4,007,993
------------ ------------
UTILITIES-WATER AND SEWER-1.05%
500,000 St. Paul (City of), MN, 8.00% Sewer Rev Bond
Ser 1988A 12-1-2008 (Subject to Crossover
Refunding 12-1-1998 @ 101)................. A 500,000 508,805
------------ ------------
TOTAL MUNICIPAL BONDS........................ $43,099,926 $46,285,099
------------ ------------
------------ ------------
</TABLE>
9
<PAGE>
FORTIS TAX-FREE PORTFOLIOS INC.
MINNESOTA PORTFOLIO (CONTINUED)
Schedule of Investments
September 30, 1998
SHORT-TERM INVESTMENTS-2.90%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
----------- ------------
<C> <S> <C>
INVESTMENT COMPANY-2.90%
$1,399,469 Federated Minnesota Municipal Cash Trust,
Current rate -- 3.50%...................... $ 1,399,469
------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$44,499,395) (a)........................... $47,684,568
------------
------------
</TABLE>
(a) At September 30, 1998, the cost of securities for federal income tax
purposes was $44,499,914 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 3,188,141
Unrealized depreciation........................... (3,487)
---------------------------------------------------------------
Net unrealized appreciation....................... $ 3,184,654
---------------------------------------------------------------
</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
10
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Assets and Liabilities
September 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NATIONAL MINNESOTA
PORTFOLIO PORTFOLIO
-------------- --------------
<S> <C> <C>
ASSETS:
Investments in securities, as detailed in the
accompanying schedules, at market (cost
$65,760,458; and $44,499,395; respectively)
(Note 1).................................... $ 72,474,271 $ 47,684,568
Receivables:
Investment securities sold.................. 1,040,430 --
Interest and dividends...................... 1,027,992 688,184
Subscriptions of capital stock.............. 232 --
Deferred registration costs (Note 1).......... 17,264 5,850
-------------- --------------
TOTAL ASSETS.................................... 74,560,189 48,378,602
-------------- --------------
LIABILITIES:
Cash portion of dividends payable............. 89,968 57,003
Payable for investment securities purchased... 1,042,490 --
Redemptions of capital stock.................. -- 5,597
Payable for investment advisory and management
fees (Note 2)............................... 45,824 28,291
Payable for distribution fees (Note 2)........ 555 203
Accounts payable and accrued expenses......... 29,375 24,815
-------------- --------------
TOTAL LIABILITIES............................... 1,208,212 115,909
-------------- --------------
NET ASSETS:
Net proceeds of capital stock, par value $.01
per share-authorized 100,000,000,000;
100,000,000,000 shares; respectively........ 65,886,604 44,327,847
Unrealized appreciation of investments........ 6,713,813 3,185,173
Undistributed (distributions in excess over)
net investment income....................... (17,766) 2,626
Accumulated net realized gain from sale of
investments................................. 769,326 747,047
-------------- --------------
TOTAL NET ASSETS................................ $ 73,351,977 $ 48,262,693
-------------- --------------
-------------- --------------
SHARES OUTSTANDING AND NET ASSET VALUE PER
SHARE:
Class A shares (based on net assets of
$8,308,232; and $3,169,628; respectively and
731,035; and 295,030 shares outstanding;
respectively)................................. $11.37 $10.74
-------------- --------------
Class B shares (based on net assets of
$1,493,275; and $1,271,447; respectively and
131,496; and 118,444 shares outstanding;
respectively)................................. $11.36 $10.73
-------------- --------------
Class C shares (based on net assets of $492,981;
and $193,961; respectively and 43,461; and
18,072 shares outstanding; respectively)...... $11.34 $10.73
-------------- --------------
Class E shares (based on net assets of
$56,958,829; and $42,169,545; respectively and
5,004,664; and 3,914,416 shares outstanding;
respectively)................................. $11.38 $10.77
-------------- --------------
Class H shares (based on net assets of
$6,098,660; and $1,458,112; respectively and
537,259; and 135,454 shares outstanding;
respectively)................................. $11.35 $10.76
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Operations
For the Year Ended September 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NATIONAL MINNESOTA
PORTFOLIO PORTFOLIO
-------------- --------------
<S> <C> <C>
NET INVESTMENT INCOME:
Income:
Interest income............................. $ 4,102,828 $ 2,852,323
-------------- --------------
Expenses:
Investment advisory and management fees
(Note 2)................................... 560,282 352,796
Distribution fees (Class A) (Note 2)........ 19,258 9,026
Distribution fees (Class B) (Note 2)........ 14,114 11,850
Distribution fees (Class C) (Note 2)........ 5,294 1,976
Distribution fees (Class H) (Note 2)........ 53,437 13,747
Registration fees (Note 1).................. 46,647 11,260
Legal and auditing fees..................... 28,632 28,362
Shareholders' notices and reports........... 42,029 29,441
Custodian fees.............................. 6,791 3,334
Directors' fees and expenses................ 12,342 6,794
Other....................................... 16,407 10,328
-------------- --------------
Total expenses................................ 805,233 478,914
-------------- --------------
NET INVESTMENT INCOME........................... 3,297,595 2,373,409
-------------- --------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
(NOTE 1)
Net realized gain from security
transactions............................... 839,978 785,347
Interest rate futures....................... 1,687 --
-------------- --------------
Net realized gain on investments.............. 841,665 785,347
-------------- --------------
Net change in unrealized appreciation of
investments................................. 1,361,161 701,009
-------------- --------------
NET GAIN ON INVESTMENTS......................... 2,202,826 1,486,356
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... $ 5,500,421 $ 3,859,765
-------------- --------------
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Changes in Net Assets
NATIONAL PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income......................... $ 3,297,595 $ 3,701,017
Net realized gain on investments.............. 841,665 607,613
Net change in unrealized appreciation on
investments in securities................... 1,361,161 1,542,136
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... 5,500,421 5,850,766
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A..................................... (338,406) (329,029)
Class B..................................... (51,129) (42,850)
Class C..................................... (19,545) (31,714)
Class E..................................... (2,656,955) (3,129,259)
Class H..................................... (201,242) (189,499)
From net realized gains on investments
Class A..................................... (23,860) --
Class B..................................... (4,260) --
Class C..................................... (1,845) --
Class E..................................... (188,744) --
Class H..................................... (15,907) --
-------------- --------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............. (3,501,893) (3,722,351)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (168,869 and 151,166 shares)........ 1,884,679 1,640,602
Class B (27,291 and 45,077 shares).......... 303,559 493,819
Class C (12,943 and 97,772 shares).......... 144,041 1,054,744
Class E (182,874 and 172,663 shares)........ 2,053,379 1,869,526
Class H (145,610 and 129,325 shares)........ 1,619,378 1,402,422
Proceeds from shares issued as a result of
reinvested dividends
Class A (19,967 and 17,479 shares).......... 223,080 190,089
Class B (3,514 and 2,882 shares)............ 39,225 31,313
Class C (1,696 and 2,611 shares)............ 18,910 28,311
Class E (163,960 and 186,406 shares)........ 1,833,309 2,028,431
Class H (11,998 and 10,795 shares).......... 133,931 117,389
Less cost of repurchase of shares
Class A (114,659 and 92,271 shares)......... (1,277,661) (1,002,654)
Class B (15,741 and 24,367 shares).......... (175,491) (267,065)
Class C (24,064 and 68,234 shares).......... (267,354) (725,474)
Class E (737,765 and 1,029,099 shares)...... (8,235,319) (11,165,616)
Class H (82,292 and 51,643 shares).......... (915,367) (562,890)
-------------- --------------
NET DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................. (2,617,701) (4,867,053)
-------------- --------------
TOTAL DECREASE IN NET ASSETS.................... (619,173) (2,738,638)
NET ASSETS:
Beginning of year............................. 73,971,150 76,709,788
-------------- --------------
End of year (includes excess of distributions
over net investment income of $17,766 and
$48,084, respectively)...................... $ 73,351,977 $ 73,971,150
-------------- --------------
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Changes in Net Assets
MINNESOTA PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income......................... $ 2,373,409 $ 2,583,121
Net realized gain from security
transactions................................ 785,347 456,296
Net change in unrealized appreciation of
investments in securities................... 701,009 402,887
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... 3,859,765 3,442,304
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A..................................... (169,880) (149,255)
Class B..................................... (46,230) (50,647)
Class C..................................... (8,174) (9,080)
Class E..................................... (2,084,604) (2,327,379)
Class H..................................... (52,848) (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............. (2,420,319) (2,583,338)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (138,615 and 218,477 shares)........ 1,449,793 2,250,193
Class B (16,125 and 16,325 shares).......... 169,764 167,995
Class C (967 and 6,987 shares).............. 10,000 72,000
Class E (111,624 and 129,779 shares)........ 1,177,034 1,334,599
Class H (20,470 and 28,209 shares).......... 218,276 290,250
Proceeds from shares issued as a result of
reinvested dividends
Class A (9,988 and 8,506 shares)............ 105,254 87,649
Class B (2,500 and 2,921 shares)............ 26,326 30,108
Class C (526 and 700 shares)................ 5,539 7,226
Class E (141,459 and 166,633 shares)........ 1,494,183 1,723,375
Class H (3,448 and 2,570 shares)............ 36,388 26,550
Less cost of repurchase of shares
Class A (207,182 and 51,049 shares)......... (2,183,158) (524,883)
Class B (25,031 and 2,631 shares)........... (260,690) (27,153)
Class C (5,599 and 6,013 shares)............ (58,479) (62,355)
Class E (506,507 and 919,962 shares)........ (5,336,737) (9,495,068)
Class H (5,981 and 16,693 shares)........... (63,038) (171,976)
-------------- --------------
NET DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................. (3,209,545) (4,291,490)
-------------- --------------
TOTAL DECREASE IN NET ASSETS.................... (1,770,099) (3,432,524)
NET ASSETS:
Beginning of year............................. 50,032,792 53,465,316
-------------- --------------
End of year [includes undistributed (excess of
distributions over) net investment income of
$2,626 and $(9,047), respectively].......... $ 48,262,693 $ 50,032,792
-------------- --------------
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
FORTIS TAX FREE PORTFOLIOS, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 it's 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 funds 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 year ended September 30, 1998, the cost of purchases and proceeds
from sales of securities (other than short-term securities) aggregated
$52,688,342 and $55,664,059 for National Portfolio; and $26,555,979 and
$30,856,664 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. 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.
FUTURES TRANSACTIONS: The portfolios may invest in interest rate futures
contracts in order to gain exposure to or protect against changes in the
market. Risks of entering into futures contracts include the possibility that
there may be an illiquid market and that a change in the value of the
contract may not correlate with changes in the value of the underlying
securities. Investment in interest rate futures require the fund to "mark to
market" on a daily basis, which reflects the change in the market value of
the contract at the close of each day's trading. Accordingly, variation
margin payments are received or made to reflect daily unrealized gains or
losses. When the contracts are closed, the fund recognizes a realized gain or
loss. These investments require initial margin deposits with a custodian,
which consist of cash or cash equivalents. The amount of these deposits is
determined by the exchange or Board of Trade on which the contract is traded
and is subject to change. There were no open contracts as of September 30,
1998.
15
<PAGE>
FORTIS TAX FREE PORTFOLIOS, INC.
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
2. PAYMENTS TO RELATED PARTIES: Fortis Advisers, Inc. (Advisers), is the
investment adviser for the funds. 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 .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. (each 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................. $41,656 $2,656 $ 449 $51,506 $10,821
Minnesota Portfolio................ $37,761 $8,595 $ 42 $27,179 $ 610
</TABLE>
Legal fees and expenses aggregating $1,986 and $1,319 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).
16
<PAGE>
- --------------------------------------------------------------------------------
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
Year Ended September 30, September 30, June 30,
---------------------------------- ------------- ----------
NATIONAL PORTFOLIO 1998 1997 1996 1995 1994 1994
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period............................. $ 11.07 $ 10.76 $ 10.72 $ 10.38 $ 10.46 $ 11.13
------- ------- ------- ------- ------------- ----------
Operations:
Investment income - net........................................ .52 .55 .56 .58 .15 .60
Net realized and unrealized gains (losses) on investments...... .34 .31 .04 .36 (.09) (.64)
------- ------- ------- ------- ------------- ----------
Total from operations............................................ .86 .86 .60 .94 .06 (.04)
------- ------- ------- ------- ------------- ----------
Distributions to shareholders:
From investment income - net................................... (.51) (.55) (.56) (.59) (.14) (.59)
From net realized gains on investments......................... (.04) -- -- (.01) -- (.04)
------- ------- ------- ------- ------------- ----------
Total distributions to shareholders.............................. (.55) (.55) (.56) (.60) (.14) (.63)
------- ------- ------- ------- ------------- ----------
Net asset value, end of period................................... $ 11.38 $ 11.07 $ 10.76 $ 10.72 $ 10.38 $ 10.46
------- ------- ------- ------- ------------- ----------
Total return @................................................... 7.97% 8.19% 5.69% 9.30% .59% (.49%)
Net assets end of period (000s omitted).......................... $56,959 $59,727 $65,237 $70,531 $74,877 $76,746
Ratio of expenses to average daily net assets.................... .98% .95% .93% 1.03% .87%* .87%
Ratio of net investment income to average daily net assets....... 4.65% 5.03% 5.19% 5.54% 5.74%* 5.38%
Portfolio turnover rate.......................................... 74% 71% 52% 35% 17% 25%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
---------------------------------------- ----------------------------------------
Year Ended September 30, Year Ended September 30,
---------------------------------------- ----------------------------------------
NATIONAL PORTFOLIO 1998 1997 1996 1995+ 1998 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 11.06 $ 10.75 $ 10.71 $ 9.79 $ 11.05 $ 10.74 $ 10.70 $ 9.79
------- ------- ------- ------- ------- ------- ------- -------
Operations:
Investment income - net............... .50 .53 .53 .49 .42 .44 .45 .42
Net realized and unrealized gains
(losses) on investments............. .34 .31 .04 .94 .34 .31 .04 .93
------- ------- ------- ------- ------- ------- ------- -------
Total from operations................... .84 .84 .57 1.43 .76 .75 .49 1.35
------- ------- ------- ------- ------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.49) (.53) (.53) (.50) (.41) (.44) (.45) (.43)
From net realized gains on
investments......................... (.04) -- -- (.01) (.04) -- -- (.01)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions to shareholders..... (.53) (.53) (.53) (.51) (.45) (.44) (.45) (.44)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period.......... $ 11.37 $ 11.06 $ 10.75 $ 10.71 $ 11.36 $ 11.05 $ 10.74 $ 10.70
------- ------- ------- ------- ------- ------- ------- -------
Total return @.......................... 7.75% 7.96% 5.46% 14.80% 6.95% 7.14% 4.65% 13.96%
Net assets end of period (000s
omitted).............................. $ 8,308 $ 7,263 $ 6,239 $ 1,807 $ 1,493 $ 1,287 $ 997 $ 668
Ratio of expenses to average daily net
assets................................ 1.23% 1.20% 1.18% 1.28%* 1.98% 1.95% 1.93% 2.03%*
Ratio of net investment income to
average daily net assets.............. 4.40% 4.78% 4.97% 5.03%* 3.65% 4.02% 4.20% 4.04%*
Portfolio turnover rate................. 74% 71% 52% 35% 74% 71% 52% 35%
</TABLE>
* Annualized.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
17
<PAGE>
FORTIS TAX FREE PORTFOLIOS, INC.
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
<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............... .41 .43 .45 .43
Net realized and unrealized gains
(losses) on investments............. .34 .31 .04 .92
------- ------- ------- -------
Total from operations................... .75 .74 .49 1.35
------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.41) (.44) (.45) (.43)
From net realized gains on
investments......................... (.04) -- -- (.01)
------- ------- ------- -------
Total distributions to shareholders..... (.45) (.44) (.45) (.44)
------- ------- ------- -------
Net asset value, end of period.......... $ 11.34 $ 11.04 $ 10.74 $ 10.70
------- ------- ------- -------
Total return @.......................... 6.86% 7.04% 4.65% 13.95%
Net assets end of period (000s
omitted).............................. $ 493 $ 584 $ 223 $ 106
Ratio of expenses to average daily net
assets................................ 1.98% 1.95% 1.93% 2.03%*
Ratio of net investment income to
average daily net assets.............. 3.65% 4.05% 4.20% 4.14%*
Portfolio turnover rate................. 74% 71% 52% 35%
</TABLE>
<TABLE>
<CAPTION>
Class H
----------------------------------------
Year Ended September 30,
----------------------------------------
NATIONAL PORTFOLIO 1998 1997 1996 1995+
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 11.06 $ 10.75 $ 10.71 $ 9.79
------- ------- ------- -------
Operations:
Investment income - net............... .40 .44 .45 .43
Net realized and unrealized gains
(losses) on investments............. .34 .31 .04 .93
------- ------- ------- -------
Total from operations................... .74 .75 .49 1.36
------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.41) (.44) (.45) (.43)
From net realized gains on
investments......................... (.04) -- -- (.01)
------- ------- ------- -------
Total distributions to shareholders..... (.45) (.44) (.45) (.44)
------- ------- ------- -------
Net asset value, end of period.......... $ 11.35 $ 11.06 $ 10.75 $ 10.71
------- ------- ------- -------
Total return @.......................... 6.76% 7.13% 4.64% 14.06%
Net assets end of period (000s
omitted).............................. $ 6,099 $ 5,111 $ 4,015 $ 1,757
Ratio of expenses to average daily net
assets................................ 1.98% 1.95% 1.93% 2.03%*
Ratio of net investment income to
average daily net assets.............. 3.65% 4.03% 4.20% 4.24%*
Portfolio turnover rate................. 74% 71% 52% 35%
</TABLE>
* Annualized.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
18
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
4. FINANCIAL HIGHLIGHTS (continued):
Class E
--------------------------------------------------------------
Three-Month
Period Ended Year Ended
Year Ended September 30, September 30, June 30,
---------------------------------- ------------- ----------
MINNESOTA PORTFOLIO 1998 1997 1996 1995 1994 1994
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period............................. $ 10.46 $ 10.28 $ 10.32 $ 10.08 $ 10.15 $ 10.65
------- ------- ------- ------- ------------- ----------
Operations:
Investment income - net........................................ .52 .53 .55 .57 .15 .59
Net realized and unrealized gains (losses) on investments...... .32 .18 (.04) .24 (.08) (.51)
------- ------- ------- ------- ------------- ----------
Total from operations............................................ .84 .71 .51 .81 .07 .08
------- ------- ------- ------- ------------- ----------
Distributions to shareholders:
From investment income - net................................... (.52) (.53) (.55) (.57) (.14) (.58)
From net realized gains on investments......................... (.01) -- -- -- -- --
------- ------- ------- ------- ------------- ----------
Total distributions to shareholders.............................. (.53) (.53) (.55) (.57) (.14) (.58)
------- ------- ------- ------- ------------- ----------
Net asset value, end of period................................... $ 10.77 $ 10.46 $ 10.28 $ 10.32 $ 10.08 $ 10.15
------- ------- ------- ------- ------------- ----------
Total return @................................................... 8.25% 7.10% 5.01% 8.35% .72% .64%
Net assets end of period (000s omitted).......................... $42,170 $43,584 $49,262 $52,603 $54,560 $54,854
Ratio of expenses to average daily net assets.................... .91% .96% .93% .98%+ .85% .85%
Ratio of net investment income to average daily net assets....... 4.94% 5.14% 5.34% 5.60%+ 5.69% 5.51%
Portfolio turnover rate.......................................... 55% 61% 41% 27% 8% 11%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
---------------------------------------- ----------------------------------------
Year Ended September 30, Year Ended September 30,
---------------------------------------- ----------------------------------------
MINNESOTA PORTFOLIO 1998 1997 1996 1995+ 1998 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 10.43 $ 10.26 $ 10.30 $ 9.55 $ 10.42 $ 10.24 $ 10.27 $ 9.55
------- ------- ------- ------- ------- ------- ------- -------
Operations:
Investment income - net............... .49 .50 .52 .48 .41 .42 .45 .41
Net realized and unrealized gains
(losses) on investments............. .32 .18 (.04) .76 .32 .18 (.04) .73
------- ------- ------- ------- ------- ------- ------- -------
Total from operations................... .81 .68 .48 1.24 .73 .60 .41 1.14
------- ------- ------- ------- ------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.49) (.51) (.52) (.49) (.41) (.42) (.44) (.42)
From net realized gains on
investments......................... (.01) -- -- -- (.01) -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions to shareholders..... (.50) (.51) (.52) (.49) (.42) (.42) (.44) (.42)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period.......... $ 10.74 $ 10.43 $ 10.26 $ 10.30 $ 10.73 $ 10.42 $ 10.24 $ 10.27
------- ------- ------- ------- ------- ------- ------- -------
Total return @.......................... 8.13% 6.66% 4.78% 13.15% 7.18% 6.01% 4.04% 12.10%
Net assets end of period (000s
omitted).............................. $ 3,170 $ 3,689 $ 1,822 $ 884 $ 1,271 $ 1,301 $ 1,109 $ 180
Ratio of expenses to average daily net
assets................................ 1.16% 1.21% 1.18% 1.23%* 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income to
average daily net assets.............. 4.69% 4.89% 5.07% 5.10%* 3.94% 4.14% 4.34% 4.37%*
Portfolio turnover rate................. 55% 61% 41% 27% 55% 61% 41% 27%
</TABLE>
* 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.
19
<PAGE>
FORTIS TAX FREE PORTFOLIOS, INC.
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
<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............... .39 .42 .44 .42
Net realized and unrealized gains
(losses) on investments............. .32 .18 (.04) .75
------- ------- ------- -------
Total from operations................... .71 .60 .40 1.17
------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.41) (.42) (.44) (.42)
From net realized gains on
investments......................... (.01) -- -- --
------- ------- ------- -------
Total distributions to shareholders..... (.42) (.42) (.44) (.42)
------- ------- ------- -------
Net asset value, end of period.......... $ 10.73 $ 10.44 $ 10.26 $ 10.30
------- ------- ------- -------
Total return @.......................... 6.97% 6.00% 4.00% 12.31%
Net assets end of period (000s
omitted).............................. $ 194 $ 232 $ 210 $ 143
Ratio of expenses to average daily net
assets................................ 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income to
average daily net assets.............. 3.94% 4.14% 4.31% 4.28%*
Portfolio turnover rate................. 55% 61% 41% 27%
</TABLE>
<TABLE>
<CAPTION>
Class H
----------------------------------------
Year Ended September 30,
----------------------------------------
MINNESOTA PORTFOLIO 1998 1997 1996 1995+
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 10.44 $ 10.26 $ 10.30 $ 9.55
------- ------- ------- -------
Operations:
Investment income - net............... .42 .42 .44 .41
Net realized and unrealized gains
(losses) on investments............. .32 .18 (.04) .76
------- ------- ------- -------
Total from operations................... .74 .60 .40 1.17
------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.41) (.42) (.44) (.42)
From net realized gains on
investments......................... (.01) -- -- --
------- ------- ------- -------
Total distributions to shareholders..... (.42) (.42) (.44) (.42)
------- ------- ------- -------
Net asset value, end of period.......... $ 10.76 $ 10.44 $ 10.26 $ 10.30
------- ------- ------- -------
Total return @.......................... 7.26% 6.00% 3.93% 12.42%
Net assets end of period (000s
omitted).............................. $ 1,458 $ 1,227 $ 1,061 $ 638
Ratio of expenses to average daily net
assets................................ 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income to
average daily net assets.............. 3.94% 4.14% 4.33% 4.29%*
Portfolio turnover rate................. 55% 61% 41% 27%
</TABLE>
* 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>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Fortis Tax-Free Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments in securities, of National Portfolio and Minnesota
Portfolio (portfolios within Fortis Tax-Free Portfolios, Inc.) as of September
30, 1998, and the related statements of operations for the year then ended, and
the statements of changes in net assets for each of the years in the two-year
period ended September 30, 1998, and the financial highlights for each of the
periods presented. These financial statements and the financial highlights are
the responsibility of fund management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers, and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
National Portfolio and Minnesota Portfolio at September 30, 1998, and the
results of their operations for the year then ended, the changes in their net
assets for each of the years in the two-year period ended September 30, 1998,
and the financial highlights for each of the periods presented, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 6, 1998
21
<PAGE>
FEDERAL INCOME TAX INFORMATION
Exempt interest dividends are exempt from federal income taxes and should not be
included in shareholder's gross income, but need to be reported on the income
tax return for informational purposes. Each shareholder should consult a tax
adviser about reporting this income for state and local tax purposes. In
January, 1999, the fund will provide the shareholder with information regarding
the percentage of distributions exempt from federal income taxes and a breakdown
setting forth states from which income was earned.
During the year ended September 30, 1998, 100% of the National and Minnesota
Portfolios' distributions were derived from interest on municipal securities and
qualify as exempt dividends for federal tax purposes.
Detailed below are the per share distributions made during the year ended
September 30, 1998.
NATIONAL PORTFOLIO
Record Date
<TABLE>
<CAPTION>
ORDINARY INCOME PER SHARE CLASS A CLASS B CLASS C CLASS E CLASS H
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------
October 31, 1997............................. $ .043 $ .036 $ .036 $ .045 $ .036
November 28, 1997............................ .043 .036 .036 .045 .036
December 31, 1997............................ .042 .035 .035 .044 .035
January 30, 1998............................. .042 .035 .035 .044 .035
February 27, 1998............................ .042 .035 .035 .044 .035
March 31, 1998............................... .042 .035 .035 .044 .035
April 30, 1998............................... .041 .034 .034 .043 .034
May 29, 1998................................. .039 .032 .032 .041 .032
June 30, 1998................................ .039 .032 .032 .041 .032
July 31, 1998................................ .039 .032 .032 .041 .032
August 31, 1998.............................. .039 .032 .032 .041 .032
September 30, 1998........................... .039 .032 .032 .041 .032
------- ------- ------- ------- -------
Total Distributions.......................... $ .490 $ .406 $ .406 $ .514 $ .406
------- ------- ------- ------- -------
SHORT-TERM CAPITAL GAIN PER SHARE
December 31, 1997............................ $ .008 $ .008 $ .008 $ .008 $ .008
------- ------- ------- ------- -------
MID-TERM CAPITAL GAIN PER SHARE
December 31, 1997 (Distribution is Taxable at
a Maximum Rate of 28%)..................... $ .020 $ .020 $ .020 $ .020 $ .020
------- ------- ------- ------- -------
LONG-TERM CAPITAL GAIN PER SHARE
December 31, 1997 (Distribution is Taxable at
a Maximum Rate of 20%)..................... $ .008 $ .008 $ .008 $ .008 $ .008
------- ------- ------- ------- -------
MINNESOTA PORTFOLIO
Record Date
ORDINARY INCOME PER SHARE
October 31, 1997............................. $ .042 $ .035 $ .035 $ .044 $ .035
November 28, 1997............................ .042 .035 .035 .044 .035
December 31, 1997............................ .041 .034 .034 .043 .034
January 30, 1998............................. .041 .034 .034 .043 .034
February 27, 1998............................ .041 .034 .034 .043 .034
March 31, 1998............................... .041 .034 .034 .043 .034
April 30, 1998............................... .041 .034 .034 .043 .034
May 29, 1998................................. .041 .034 .034 .043 .034
June 30, 1998................................ .041 .034 .034 .043 .034
July 31, 1998................................ .041 .034 .034 .043 .034
August 31, 1998.............................. .041 .034 .034 .043 .034
September 30, 1998........................... .041 .034 .034 .043 .034
------- ------- ------- ------- -------
Total Distributions.......................... $ .494 $ .410 $ .410 $ .518 $ .410
------- ------- ------- ------- -------
SHORT-TERM CAPITAL GAIN PER SHARE
December 31, 1997............................ $.0044 $.0044 $.0044 $.0044 $.0044
------- ------- ------- ------- -------
MID-TERM CAPITAL GAIN PER SHARE (DISTRIBUTION
IS TAXABLE AT A MAXIMUM RATE OF 28%)
December 31, 1997............................ $ .008 $ .008 $ .008 $ .008 $ .008
------- ------- ------- ------- -------
</TABLE>
22
<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.
23
<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
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
Empower Variable DIVERSIFIED INCOME
Annuity 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
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 FORTIS 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.
24
<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.
95311-C- Fortis 11/98
