<PAGE>
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FORTIS
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Enjoy the benefits of tax-smart investing
Fortis tax-free bond
annual report
September 30, 1999
FORTIS FINANCIAL GROUP
[GRAPHIC]
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
CONTENTS
LETTER TO SHAREHOLDERS 1
SCHEDULES OF INVESTMENTS
NATIONAL PORTFOLIO 4
MINNESOTA PORTFOLIO 7
STATEMENTS OF ASSETS AND LIABILITIES 9
STATEMENTS OF OPERATIONS 10
STATEMENTS OF CHANGES IN NET ASSETS
NATIONAL PORTFOLIO 11
MINNESOTA PORTFOLIO 12
NOTES TO FINANCIAL STATEMENTS 13
INDEPENDENT AUDITORS' REPORT 19
FEDERAL INCOME TAX INFORMATION 20
DIRECTORS AND OFFICERS 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 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 funds 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
FOR THE YEAR ENDED SEPTEMBER 30, 1999
<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.......................... $11.37 $11.36 $11.34 $11.38 $11.35
End of year................................ $10.47 $10.46 $10.45 $10.49 $10.46
DISTRIBUTIONS PER SHARE
From net investment income................. $ .468 $ .384 $ .384 $ .492 $ .384
From net realized gains on investments..... $ .120 $ .120 $ .120 $ .120 $ .120
FOR THE YEAR ENDED SEPTEMBER 30, 1999
FORTIS TAX-FREE MINNESOTA
NET ASSET VALUE PER SHARE:
Beginning of year.......................... $10.74 $10.73 $10.73 $10.77 $10.76
End of year................................ $ 9.91 $ 9.90 $ 9.93 $ 9.94 $ 9.93
DISTRIBUTIONS PER SHARE
From net investment income................. $ .462 $ .378 $ .378 $ .486 $ .378
From net realized gains on investments..... $ .171 $ .171 $ .171 $ .171 $ .171
</TABLE>
<PAGE>
[Photo]
Investing in municipal bonds for
tax-free income.
DEAR FORTIS SHAREHOLDER,
The bond market digested a wide variety of economic information during the
twelve months ended September 30, 1999. The economy continued to show strong
growth, combined with low inflation. Real Gross Domestic Product (GDP) grew at a
6.0% rate during the fourth quarter of 1998 and a 4.3% rate for the first
quarter of 1999, before tapering off to a more modest 1.6% in the second quarter
of 1999. Economic growth was supported by strong non-farm payroll growth, as the
unemployment rate for October 1998, was 4.6%, and declined to the 4.2-4.3%
range, where it has been since March 1999. Inflation measures continued to
behave well, with the year-over-year core Consumer Price Index (the core CPI
excludes food and energy) up 1.9%, and the year-over-year core Producer Price
Index up 1.3% through August. The Federal Reserve raised the Federal Funds rate
twice, totaling 50 basis points, and the Discount Rate by 25 basis points during
the third quarter of 1999. These actions reversed most of the 75 basis point
easing which the Fed undertook during late 1998 to address market uncertainty
caused by the economic turmoil in Asia.
Municipal bond yields, as reflected by the Bond Buyer Revenue Bond Index, traded
within a 25 basis point range from October 1998 to March 1999, then rose
steadily for the balance of the twelve-month period. The yield of the Index
began October 1998, at 5.09%, rose as inflation concerns increased, then fell
due to the Asian turmoil, closing January at 5.18%. Rates rose steadily
beginning in February, as strong economic growth caused concern about the
potential for future inflation. It was this concern that motivated the Fed to
raise rates. The yield of the Revenue Bond Index closed September 1999, at
5.96%.
During the fourth quarter of 1998 and the first quarter of 1999, in order to
benefit from expected price appreciation due to declining interest rates, the
durations of the funds were maintained at levels longer than their benchmarks.
This duration position was an impediment to performance as rates rose during the
first quarter of 1999. Performance was also negatively affected during the first
six months of the period by an overweighting in hospital bonds in both funds
relative to their competitors. Health care bonds performed poorly during that
time, and that trend has continued. In April, the duration of each fund was
shortened to a neutral position in comparison to its respective benchmark. The
duration of each fund was then held relatively constant as rates rose during the
second and third quarters of 1999. This shorter duration helped the performance
of the funds as rates rose. Hospital bond holdings of both funds were reduced,
and general obligation bond holdings were increased during the second and third
quarters of 1999, as continuing uncertainty about future Medicare reimbursements
caused us to be concerned about the future performance of the hospital sector.
As rates rose, lower yielding securities in both funds were sold, and replaced
with securities with higher yields. Total returns for the twelve months ending
September 30, 1999, were -2.56% for the National Portfolio Class E shares before
sales charge, and -1.71% for the Minnesota Portfolio Class E shares before sales
charge. These levels compare with the total return of the Lehman Municipal Index
during the same period, which was -0.70%. The durations of the funds at the end
of the reporting period were 6.4 years for the Minnesota portfolio, and 7.5
years for the National Portfolio. This compares to a duration of 7 years for the
Lehman Municipal Index.
As 1999 draws to a close, we expect economic growth to pick up slightly from its
modest second quarter level, and additional interest rate hikes by the Federal
Reserve cannot be ruled out. The trend of minimal inflation should continue,
although continuing tightness in the labor markets could exert modest upward
pressure. Nonetheless, we believe that interest rates are near the top of their
longer term trading range. For purposes of liquidity, we believe that it will be
important to maintain strong credit quality in both portfolios. 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>
1
<PAGE>
COMPOSITION BY INDUSTRY
AS OF 9/30/99
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
General Obligation 26.3%
Utilities-Water and Sewer 17.2%
Transportation 11.4%
Health Care Services 11.3%
Utilities-Electric 6.4%
Housing 5.8%
Higher Education 5.7%
Prerefunded with U.S. Gov't 5.3%
Cash Equivalents/Receivable 3.9%
Public Facilities 2.8%
Other 2.4%
Pollution Control 1.5%
</TABLE>
NATIONAL PORTFOLIO
VALUE OF $10,000 INVESTED OCTOBER 1, 1989
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO CLASS E 5 YEAR 10 YEAR
AVERAGE ANNUAL TOTAL
RETURN
1 YEAR
<S> <C> <C> <C>
Class E* -6.95% 4.66% 6.10%
Class E** -2.56% 5.63% 6.59%
Lehman Bros. Municipal Bond Index*** National Portfolio Class E
89 $10,000 $9,550
90 10,680 9,966
91 12,088 11,361
92 13,351 12,492
93 15,053 14,195
94 14,685 13,751
95 16,328 15,030
96 17,314 15,884
97 18,875 17,185
98 20,522 18,555
99 20,377 18,079
</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 9/30/99
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. University of New Mexico (6.00%) 2021 4.1%
2. New York Triborough Bridge & Tunnel Authority
(5.50%) 2017 4.1%
3. Metropolitan Transportation Authority NY (5.75%)
2013 4.0%
4. Maricopa County, AZ Independent School District
(5.125%) 2014 3.8%
5. Tucson, AZ Water (5.50%) 2014 3.5%
6. Fulton County, GA Water & Sewer (6.375%) 2014 3.1%
7. Larimer County Colorado School District R1,
(5.50%) 2013 3.0%
8. Detroit, MI Water System (6.50%) 2015 3.0%
9. South Carolina State, General Obligation (5.75%)
2004 3.0%
10. Southern California Public Power (6.36%) 2013 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# -2.87% +6.63%
Class A shares## -7.24% +5.63%
Class B shares# -3.61% +5.81%
Class B shares## -6.88% +5.51%
Class C shares# -3.53% +5.79%
Class C shares## -4.45% +5.79%
Class H shares# -3.52% +5.81%
Class H shares## -6.80% +5.51%
</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, 3.00% if
redeemed in year three or four, 2.00% if redeemed in year five and 1.00% if
redeemed in year six (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, 1999.
+ Since November 14, 1994 -- Date shares were first offered to the public.
2
<PAGE>
COMPOSITION BY INDUSTRY
AS OF 9/30/99
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
General Obligation 20.2%
Housing 19.9%
Health Care Services 12.7%
Higher Education 12.4%
Utilities-Electric 8.4%
Pollution Control 5.5%
Prerefunded with U.S. Gov't 5.0%
Miscellaneous 4.5%
Cash Equivalents/Receivables 3.9%
Public Facilities 3.0%
Transportation 2.4%
Airport Revenues 2.1%
</TABLE>
MINNESOTA PORTFOLIO
VALUE OF $10,000 INVESTED OCTOBER 1, 1989
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO CLASS E 5 YEAR 10 YEAR
AVERAGE ANNUAL TOTAL
RETURN
1 YEAR
<S> <C> <C> <C>
Class E* -6.13% 4.37% 5.85%
Class E** -1.71% 5.33% 6.33%
Lehman Bros. Municipal Bond Index*** Minnesota Portfolio Class E
89 $10,000 $9,550
90 10,680 10,053
91 12,088 11,260
92 13,351 12,306
93 15,053 13,817
94 14,685 13,614
95 16,328 14,750
96 17,314 15,489
97 18,875 16,588
98 20,522 17,957
99 20,377 17,651
</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 9/30/99
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. Minnesota State General Obligation (5.00%) 2002 4.7%
2. Centennial Independent School District #12
(5.625%) 2016 4.7%
3. University of MN (Regents of) (5.50%) 2021 4.6%
4. Minnesota Agriculture & Economic Development
(5.50%) 2017 4.5%
5. Rochester (City of), MN Health Care Facility
(5.90%) 2010 3.7%
6. Brainerd (City of), MN (6.65%) 2017 3.7%
7. Minneapolis (City of), MN (4.09%) Zero Coupon
General Obligation 2005 3.3%
8. St. Louis Park (City of), MN Hospital Facility
(7.25%) 2015 3.1%
9. Northern MN Municipal Power Agency (5.25%) 2013 2.5%
10. Minneapolis (City of), MN, CDA Limited Tax
(7.375%) 2012 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# -1.94% +6.20%
Class A shares## -6.35% +5.20%
Class B shares# -2.73% +5.34%
Class B shares## -6.01% +5.04%
Class C shares# -2.45% +5.39%
Class C shares## -3.37% +5.39%
Class H shares# -2.73% +5.40%
Class H shares## -6.01% +5.09%
</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, 3.00% if
redeemed in year three or four, 2.00% if redeemed in year five and 1.00% if
redeemed in year six (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, 1999
+ Since November 14, 1994 -- Date shares were first offered to the public.
3
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
NATIONAL PORTFOLIO
Schedule of Investments
September 30, 1999
MUNICIPAL BONDS-96.07%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
------------ ------------- ------------ ------------
<C> <S> <C> <C> <C>
ARIZONA-7.32%
$ 2,500,000 Maricopa County, AZ, Independent School
District #48, Scottsdale Project of 1997,
5.125% General Obligation Bond Ser D
7-1-2014................................... AA $ 2,427,825 $ 2,418,400
2,225,000 Tucson, AZ, 5.50% Water Rev Refunding Bond
7-1-2014................................... A+ 2,189,527 2,245,581
----------- -----------
4,617,352 4,663,981
----------- -----------
CALIFORNIA-7.86%
2,385,000 Redwood City California Elem School Dist,
5.50% Zero Coupon General Obligation FGIC
Insured 8-1-2018 (d)....................... AAA 858,367 813,905
2,750,000 Sulphur Springs (City of), CA, 7.00% Zero
Coupon General Obligation Ser A MBIA
Insured 9-1-2012 (d)....................... AAA 1,130,680 1,386,770
1,000,000 Los Angeles County, CA, Public Works Finance
Authority, 5.00% Regional Park and Open
Space District A 10-1-2019................. AA 919,194 913,750
4,000,000 Southern California Public Power, 6.36% Zero
Coupon Bond 7-1-2013 (d)................... A 1,691,615 1,894,160
----------- -----------
4,599,856 5,008,585
----------- -----------
COLORADO-3.04%
1,925,000 Larimer County Colorado School District R1,
5.50% General Obligation Bond 12-15-2013... AA- 1,941,424 1,938,648
----------- -----------
CONNECTICUT-2.54%
1,500,000 Connecticut State, 6.125% Special Tax
Obligation Rev Transportation
Infrastructure Ser B 9-1-2012.............. AA- 1,570,231 1,614,630
----------- -----------
DISTRICT OF COLUMBIA-2.05%
1,250,000 District of Columbia, 7.50% General
Obligation Ser 1990B FSA Insured
6-1-2010 (Prerefunded 6-1-2000 @ 102)...... AAA 1,239,981 1,305,137
----------- -----------
FLORIDA-0.85%
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 471,793 542,900
----------- -----------
GEORGIA-7.12%
1,000,000 Georgia Municipal Electric, 6.50% Auth Power
Rev Ser Y 1-1-2017......................... A 991,250 1,089,640
1,375,000 Brunswick, GA, Water & Sewer, 6.10% Rev
Ref & Improvement Bond MBIA Insured
10-1-2019.................................. AAA 1,462,331 1,462,230
1,765,000 Fulton County, GA, Water & Sewer, 6.375% Ref
Bond FGIC Insured 1-1-2014 (Escrowed to
Maturity).................................. AAA 1,753,266 1,943,900
35,000 Fulton County, GA, Water & Sewer, 6.375% Ref
Bond FGIC Insured 1-1-2014 (Unrefunded).... AAA 34,745 38,247
----------- -----------
4,241,592 4,534,017
----------- -----------
ILLINOIS-8.56%
500,000 Channahon Park, IL District, 7.50% General
Obligation 1-1-2011 (Prerefunded 7-1-2001
@ 100)..................................... NR 499,375 528,250
1,000,000 Chicago, IL Metropolitan Water Reclamation
District, 5.20% General Obligation Bond
12-1-2013.................................. AA 993,004 974,690
1,000,000 Kane County, IL, 5.50% Forest Preservation
District General Obligation Bond
12-30-2007................................. AA 1,056,499 1,040,920
1,000,000 Illinois Housing Dev Auth, 7.55% Multi-family
Housing Ser 1990A 7-1-2014................. A+ 987,575 1,035,420
1,000,000 Illinois Dev Fin Auth, 7.375% Power Co Proj
Ser 1991A 7-1-2021......................... BBB 991,951 1,102,210
750,000 Chicago Gas Supply, 7.50% Rev for Peoples Gas
Ser B 3-1-2015............................. AA- 755,522 773,168
----------- -----------
5,283,926 5,454,658
----------- -----------
INDIANA-2.06%
265,000 Indiana Bond Bank, 8.50% Special Loan Program
Ser B 2-1-2018............................. A+ 266,140 268,389
1,000,000 Indianapolis (City of), IN, Local Public
Improvement Bond Bank, 7.40% Ser 1990A
1-1-2020 (Prerefunded 7-1-2000 @102)....... Aaa* 997,814 1,046,510
----------- -----------
1,263,954 1,314,899
----------- -----------
KENTUCKY-3.34%
1,000,000 Christian County, KY, 6.00% Hospital Rev Ref
Bond Jennie Stuart Medical Center
7-1-2013................................... A- 995,370 1,008,010
1,000,000 Louisville & Jefferson County, KY, 6.75%
Metro Sewer Dist Rev Bond Ser A AMBAC
Insured 5-15-2019(Pr erefunded 11-15-2004
@102)...................................... AAA 996,590 1,117,470
----------- -----------
1,991,960 2,125,480
----------- -----------
LOUISIANA-1.45%
1,000,000 St. John Baptist Parish, LA, 5.35%
Environmental Improvement Rev Bond-USX
Corp. Project 12-1-2013.................... BBB- 975,410 924,520
----------- -----------
</TABLE>
4
<PAGE>
MUNICIPAL BONDS-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
----------- --------- ----------- -----------
<C> <S> <C> <C> <C>
MASSACHUSETTS-0.82%
$ 500,000 Boston, MA, 7.625% City Hospital Rev Bond Ser
A 2 -15-2021 (Prerefunded 8-15-2000
@102)...................................... Aaa* $ 496,030 $ 524,720
----------- -----------
MICHIGAN-3.04%
1,750,000 Detroit, MI, Water System, 6.50% Rev Bond
FGIC Insured 7-1-2015...................... AAA 1,861,978 1,938,510
----------- -----------
MINNESOTA-7.07%
1,140,000 Fergus Falls (City of), MN, 6.50% Health Care
Fac Rev (Lake Regional Hospital) Ser A
9-1-2018................................... BBB+ 1,132,482 1,184,802
670,000 Minneapolis (City of), MN, 7.00% Health Care
Fac Rev (St. Olaf Residence) Ser 1993
10-1-2012.................................. NR 670,000 692,231
1,000,000 Minnesota Agriculture and Economic
Development, 5.50% Healthcare System Rev
Fairview Hospital and Healthcare Services
Ser 1997A MBIA Insured 11-15-2017.......... AAA 1,004,525 976,410
500,000 Duluth (City of), MN, 5.875% Economic Dev
Auth Health Care Fac Rev Bond Ser A
12-1-2028.................................. NR 500,000 453,585
500,000 Minneapolis (City of), MN, 5.875% Walker
Methodist Sr Services Rev Bond Ser C
11-15-2018................................. NR 492,659 466,025
690,000 St. Anthony (City of), MN, 6.75% Housing Dev
Rev Ref Bond 7-1-2007...................... AA 690,000 728,102
----------- -----------
4,489,666 4,501,155
----------- -----------
MISSOURI-2.12%
1,250,000 Missouri State Health & Educ, 7.70% Still
Regional Med Ctr 2-1-2013.................. BBB 1,289,586 1,350,525
----------- -----------
NEW MEXICO-4.10%
2,500,000 University of New Mexico, 6.00% Rev Ref Ser A
6-1-2021................................... AA 2,573,850 2,614,450
----------- -----------
NEW YORK-13.09%
1,000,000 New York City, NY, 8.25% General Obligation
Ser B 6-1-2005............................. A- 990,831 1,164,790
1,000,000 New York State Dorm Auth, 6.00% Rev Cons City
Univ System 2nd Gen 7-1-2020............... BBB+ 1,017,822 1,022,630
1,000,000 New York State, 7.75% UDC Correctional Fac
Ser 1 1-1-2014 (Prerefunded 1-1-2000
@102)...................................... Aaa* 953,170 1,029,990
2,465,000 Metropolitan Transportation Authority, NY,
Commuter Facilities, 5.75% Ser O
7-1-2013................................... BBB+ 2,396,739 2,529,534
2,600,000 New York Triborough Bridge and Tunnel Auth,
5.50% General Purpose Ser Y 1-1-2017....... A+ 2,502,297 2,591,160
----------- -----------
7,860,859 8,338,104
----------- -----------
NORTH DAKOTA-1.81%
1,100,000 Ward County, ND, 7.50% Health Care Fac Ser
1991B 7-1-2011............................. BBB+ 1,115,629 1,152,382
----------- -----------
OHIO-4.66%
1,000,000 Cleveland, OH, 5.75% General Obligation Bond
MBIA Insured 8-1-2012...................... AAA 1,058,711 1,048,090
750,000 Cleveland (City of), OH, Parking Fac, 8.10%
Improvement Proj Rev Bond
9-15-2022 (Prerefunded 9-15-2002
@ 102)..................................... NR 765,000 839,220
1,100,000 Cleveland, OH, 5.50% Water Works Rev Ref Bond
Ser G First Mortgage MBIA Insured
1-1-2021................................... AAA 1,091,734 1,083,643
----------- -----------
2,915,445 2,970,953
----------- -----------
PENNSYLVANIA-3.58%
750,000 Clarion County, PA, 8.50% Clarion Hospital
Proj Rev Bond 7-1-2021 (Prerefunded
7-1-2001 @102)............................. NR 731,744 816,210
1,000,000 Pennsylvania State, 6.00% Drexel University
Higher Education Facilities Auth Rev
5-1-2024................................... A- 993,590 989,800
500,000 LeHigh County, PA, 5.70% General Purpose Auth
Rev Bond, Kidspeace Obligation Group
11-1-2009.................................. NR 500,000 476,745
----------- -----------
2,225,334 2,282,755
----------- -----------
PUERTO RICO-2.13%
1,250,000 Puerto Rico, 6.25% Commonwealth Aqueduct &
Sewer Auth Rev Ref Bond PR-GTD 7-1-2013.... A 1,332,039 1,353,338
----------- -----------
SOUTH CAROLINA-2.99%
1,800,000 South Carolina State, 5.75% State Capital
Improvements General Obligation Ser B
8-1-2004................................... AAA 1,897,477 1,901,484
----------- -----------
TENNESSEE-1.74%
1,000,000 Metro Gov't of Nashville & Davidson County,
TN, 6.50% Water & Sewer Ref Bond FGIC
Insured 1-1-2010........................... AAA 1,077,521 1,108,920
----------- -----------
TEXAS-1.51%
1,000,000 Austin, TX, 5.375% Public Improvements
General Obligation Bond 9-01-2018.......... AA 962,620 960,380
----------- -----------
WISCONSIN-1.22%
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* 750,000 779,483
----------- -----------
TOTAL MUNICIPAL BONDS........................ $59,045,513 $61,204,614
=========== ===========
</TABLE>
5
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
NATIONAL PORTFOLIO (CONTINUED)
Schedule of Investments
September 30, 1999
SHORT-TERM INVESTMENTS-2.30%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
----------- ------------
<C> <S> <C>
INVESTMENT COMPANY-2.30%
$1,465,171 First American Tax-Free Obligations Fund,
Current rate -- 3.24%...................... $ 1,465,171
-----------
TOTAL INVESTMENTS IN SECURITIES (COST:
$60,510,684) (a)........................... $62,669,785
===========
</TABLE>
(a) At September 30, 1999, the cost of securities for federal income tax
purposes was $60,510,684 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 2,459,874
Unrealized depreciation........................... (300,773)
---------------------------------------------------------------
Net unrealized appreciation....................... $ 2,159,101
---------------------------------------------------------------
</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
September 30, 1999
MUNICIPAL BONDS-96.08%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
---------- ----------- ----------- -----------
<C> <S> <C> <C> <C>
AIRPORT REVENUES-2.11%
$1,000,000 Minneapolis-St. Paul (City of), MN, 5.125%
Metropolitan Airports Commission Ser A FGIC
Insured 1-1-2025........................... AAA $ 963,622 $ 908,540
----------- -----------
GENERAL OBLIGATIONS-20.25%
2,000,000 Centennial Independent School District #12,
5.625% Ser A 2-1-2016...................... Aa1* 1,972,333 2,007,080
1,240,000 Farmington (City of), MN, Independent School
District #192, 5.04% Zero Coupon Ser B FSA
Insured 2-1-2012 (d)....................... Aaa* 670,970 637,236
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* 1,001,434 982,254
1,915,000 Minneapolis (City of), MN, 4.09% Zero Coupon
General Obligation Ser B 12-1-2005 (d)..... AAA 1,492,249 1,431,731
2,000,000 Minnesota State, 5.00% General Obligation
11-1-2002.................................. AAA 2,050,966 2,045,780
750,000 Puerto Rico, 6.25% Commonwealth Aqueduct &
Sewer Auth Rev Ref Bond PR-GTD 7-1-2013.... A 799,223 812,002
1,950,000 Rosemount (City of), MN, Independent School
District #196, 5.70% Zero Coupon General
Obligation MBIA Insured 4-1-2015 (d)....... AA+ 815,987 822,061
----------- -----------
8,803,162 8,738,144
----------- -----------
HEALTH CARE SERVICES-12.71%
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 1,013,220 1,036,840
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 1,946,775 1,952,820
1,500,000 Rochester (City of), MN, 5.90% Health Care
Fac Rev Bond Mayo Med Ctr Ser I
11-15-2010................................. AA+ 1,568,442 1,598,190
1,000,000 St Paul (City of), MN, 5.25% Health Care Rev
5-15-2018.................................. BBB+ 976,775 897,880
----------- -----------
5,505,212 5,485,730
----------- -----------
HIGHER EDUCATION (UNIV, DORMS, ETC.)-12.45%
1,000,000 Minnesota Higher Education, 5.375% Fac Auth
Rev for University of St. Thomas Ser 4-P
4-1-2018................................... A2* 995,855 947,820
1,000,000 Minnesota Higher Education, 5.40% Fac Auth
for University of St. Thomas Ser 4-P
4-1-2023................................... A2* 942,842 941,700
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- 457,700 489,734
2,000,000 University of MN (Regents of), 5.50% General
Obligation Ser A 7-1-2021.................. AA 2,021,463 1,972,360
1,000,000 University of MN (Regents of), 5.75% General
Obligation Ser 1996A 7-1-2018.............. AA 1,011,428 1,018,340
----------- -----------
5,429,288 5,369,954
----------- -----------
HOUSING-19.91%
1,500,000 Brainerd (City of), MN, 6.65% Rev Ref Bond
Evangelical Lutheran-Good Samaritan Proj
Ser 1992B FSA Insured 3-1-2017............. AAA 1,513,453 1,590,915
65,000 Dakota County, MN, 8.10% HRA Single Family
Rev GNMA Backed 3-1-2016................... AA+ 65,387 65,713
500,000 Duluth (City of), MN, 5.625% EDA Health Care
Fac Rev Board of Social Ministries
Properties Proj Ser 1998A 12-1-2018........ NR 500,000 453,660
300,000 Eden Prairie (City of), MN, 7.40% Multifamily
Housing Ser 1990 FHA Insured 8-1-2025...... AAA 299,957 309,300
840,000 Eden Prairie (City of), MN, 8.00% Multifamily
Housing Ser A FHA Insured 7-1-2026......... AAA 840,000 876,506
485,000 Edina (City of), MN, 7.50% Housing Dev Ref
Rev Edina Park Plaza Ser 1989A 12-1-2009... Aa* 484,625 495,432
500,000 Edina (City of), MN, 7.70% Housing Dev Ref
Rev Edina Park Plaza Ser A FHA Insured
12-1-2028.................................. Aa* 500,000 510,820
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 520,000 573,925
500,000 Minneapolis (City of), MN, 5.875% Walker
Methodist Sr Services Rev Bond Ser C
11-15-2018................................. NR 492,659 466,025
500,000 Minneapolis (City of), MN, 6.00% Health Care
Fac Rev Bond Shelter Care Foundation Ser A
4-1-2010................................... NR 500,000 478,620
910,000 Minneapolis (City of), MN, 7.10% HRA Mortgage
Rev Bond Riverplace Proj Ser A LOC Bank of
Tokyo 1-1-2020............................. A2* 922,203 911,665
350,000 Minneapolis (City of), MN, 8.25% Rev Bond
Trinity Housing Proj Ser 1991 2-1-2018..... NR 350,000 357,151
440,000 Northfield (City of), MN, 7.00% Health Care
Fac Northfield Retirement Ctr 5-1-2015..... NR 436,233 466,440
500,000 Red Wing (City of), MN, 6.50% Elderly Housing
Fac Ref Rev River Region Obligated Group
Ser 1993C 9-1-2022......................... BBB+ 497,051 512,995
500,000 Spring Park (City of), MN, 8.25% Health Care
Fac Rev Bond Twin Birch Health Care Ctr
8-1-2011................................... NR 500,000 522,410
----------- -----------
8,421,568 8,591,577
----------- -----------
</TABLE>
7
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
MINNESOTA PORTFOLIO (CONTINUED)
Schedule of Investments
September 30, 1999
MUNICIPAL BONDS-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
---------- ----------- ----------- -----------
<C> <S> <C> <C> <C>
MISCELLANEOUS-4.50%
$ 450,000 Dakota County, MN, 7.50% HRA Limited Annual
Appropriation Tax & Rev Supported Bond Ser
1991 1-1-2006.............................. BBB+ $ 450,000 $ 464,724
400,000 Dawson (City of), MN, 7.30% IDR Ref Bond
Associated Milk Producers 9-1-2000......... NR 396,426 404,912
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 1,070,290
----------- -----------
1,846,426 1,939,926
----------- -----------
POLLUTION CONTROL-5.48%
650,000 East Grand Forks (City of), MN, 7.75%
Pollution Control Rev (American Crystal
Sugar) Ser 1991A 4-1-2018.................. BBB+ 650,244 684,372
1,000,000 Minnesota Public Fac Auth, 5.00% Water
Pollution Rev Bond Ser B 3-1-2002.......... AAA 1,019,855 1,017,500
1,000,000 Minnesota Public Fac Auth, 6.86% Zero Coupon
Water Pollution Rev Bond Ser 1992A
3-1-2007 (Prerefunded 3-1-2002 @ 73.543)
(d)........................................ AAA 615,565 661,150
----------- -----------
2,285,664 2,363,022
----------- -----------
PREREFUNDED WITH U.S. GOVERNMENT
SECURITIES-4.96%
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 1,259,648 1,332,809
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* 767,022 805,231
----------- -----------
2,026,670 2,138,040
----------- -----------
PUBLIC FACILITIES-2.95%
400,000 Duluth (City of), MN, 6.75% Gross Rev
Recreation Fac Bond Spirit Mountain Ser
1992 2-1-2007.............................. NR 400,000 405,468
325,000 Moorhead (City of), MN, 7.75% Golf Course Rev
Bond Ser 1992A 12-1-2015................... NR 325,000 348,413
500,000 St. Paul (City of), MN, 6.45% HRA Parking Rev
Bond Ser 1992A 8-1-2007 (Prerefunded
8-1-2000 @ 102)............................ A- 500,000 520,560
----------- -----------
1,225,000 1,274,441
----------- -----------
TRANSPORTATION-2.37%
1,000,000 Puerto Rico, 5.50% Commonwealth Highway &
Transportation Auth Rev FSA-CR 7-1-2013.... AAA 1,023,187 1,022,210
----------- -----------
UTILITIES-ELECTRIC-8.39%
1,100,000 Northern MN Municipal Power Agency, 5.25%
Electric Support Rev FSA Insured
1-1-2013................................... AAA 1,100,000 1,082,389
1,295,000 Northern MN Municipal Power Agency, 6.94%
Zero Coupon Elec Sys Rev Ref Ser A AMBAC
Primary Insured 1-1-2011 (d)............... AAA 601,019 711,784
2,500,000 Southern MN Municipal Power Agency, 5.27%
Zero Coupon Power Supply Systems Rev Bonds
MBIA Insured 1-1-2019 (d).................. AAA 918,549 817,650
1,000,000 Western MN Municipal Power Agency, 5.50% Ref
Ser A AMBAC Insured 1-1-2013............... AAA 992,487 1,007,160
----------- -----------
3,612,055 3,618,983
----------- -----------
TOTAL MUNICIPAL BONDS........................ $41,141,854 $41,450,567
=========== ===========
</TABLE>
SHORT-TERM INVESTMENTS-2.72%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value (b)
---------- -----------
<C> <S> <C>
INVESTMENT COMPANY-2.72%
$1,175,309 Federated Minnesota Municipal Cash Trust,
Current rate -- 3.43%...................... $ 1,175,309
-----------
TOTAL INVESTMENTS IN SECURITIES (COST:
$42,317,163)(A)............................ $42,625,876
===========
</TABLE>
(a) At September 30, 1999, the cost of securities for federal income tax
purposes was $42,317,682 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 902,574
Unrealized depreciation........................... (594,380)
--------------------------------------------------------------
Net unrealized appreciation....................... $ 308,194
--------------------------------------------------------------
</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
8
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Assets and Liabilities
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
ASSETS:
Investments in securities, as detailed in the
accompanying schedules, at market (cost
$60,510,684; $42,317,163; respectively) (Note
1)............................................ $62,669,785 $42,625,876
Receivables:
Investment securities sold.................... 2,260,564 --
Interest and dividends........................ 890,678 619,746
Deferred registration costs (Note1)............. 15,314 4,166
----------- -----------
TOTAL ASSETS...................................... 65,836,341 43,249,788
----------- -----------
LIABILITIES:
Cash portion of dividends payable............... 78,759 50,151
Payable for investment securities purchased..... 1,956,210 --
Redemptions of capital stock.................... 23,004 4,855
Payable for investment advisory and management
fees (Note 2)................................. 40,909 25,792
Payable for distribution fees (Note 2).......... 567 181
Accounts payable and accrued expenses........... 30,718 24,476
----------- -----------
TOTAL LIABILITIES................................. 2,130,167 105,455
----------- -----------
NET ASSETS:
Net proceeds of capital stock, par value $.01
per share-authorized 100,000,000,000;
100,000,000,000 shares; respectively.......... 61,953,416 42,946,933
Unrealized appreciation of investments.......... 2,159,101 308,713
Undistributed net investment income............. 44,136 23,958
Accumulated net realized gain (loss) from sale
of investments................................ (450,479) (135,271)
----------- -----------
TOTAL NET ASSETS.................................. $63,706,174 $43,144,333
=========== ===========
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A shares (based on net assets of $8,247,207;
and $3,239,826; respectively and 787,702; and
326,979 shares outstanding; respectively)....... $10.47 $9.91
----------- -----------
Class B shares (based on net assets of $1,752,115;
and $859,714; respectively and 167,478; and
86,802 shares outstanding; respectively)........ $10.46 $9.90
----------- -----------
Class C shares (based on net assets of $548,297;
and $247,269; respectively and 52,473; and
24,904 shares outstanding; respectively)........ $10.45 $9.93
----------- -----------
Class E shares (based on net assets of
$47,139,617; and $37,396,030; respectively and
4,494,433; and 3,763,201 shares outstanding;
respectively)................................... $10.49 $9.94
----------- -----------
Class H shares (based on net assets of $6,018,938;
and $1,401,494; respectively and 575,507; and
141,125 shares outstanding; respectively)....... $10.46 $9.93
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Operations
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
NET INVESTMENT INCOME:
Income:
Interest income............................... $ 3,880,920 $ 2,596,452
----------- -----------
Expenses:
Investment advisory and management fees (Note
2)........................................... 543,144 334,606
Distribution fees (Class A) (Note 2).......... 21,020 8,351
Distribution fees (Class B) (Note 2).......... 18,691 11,058
Distribution fees (Class C) (Note 2).......... 4,948 2,351
Distribution fees (Class H) (Note 2).......... 66,331 15,277
Registration fees (Note 1).................... 45,367 7,609
Legal and auditing fees....................... 19,025 17,707
Shareholders' notices and reports............. 30,090 19,591
Custodian fees................................ 3,121 4,618
Directors' fees and expenses.................. 10,491 6,745
Other......................................... 12,503 7,712
----------- -----------
Total expenses.................................. 774,731 435,625
----------- -----------
NET INVESTMENT INCOME............................. 3,106,189 2,160,827
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS: (NOTE 1)
Net realized gain (loss) from security
transactions.................................. (396,223) (118,813)
Net realized gain (loss) from interest rate
futures....................................... (51,336) --
----------- -----------
NET REALIZED GAIN (LOSS) ON INVESTMENTS........... (447,559) (118,813)
----------- -----------
Net change in unrealized depreciation of
investments................................... (4,554,712) (2,876,460)
----------- -----------
NET GAIN (LOSS) ON INVESTMENTS.................... (5,002,271) (2,995,273)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................. $(1,896,082) $ (834,446)
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
<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, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 3,106,189 $ 3,297,595
Net realized gain (loss) on investments......... (447,559) 841,665
Net change in unrealized appreciation
(depreciation) on investments in securities... (4,554,712) 1,361,161
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................. (1,896,082) 5,500,421
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (358,626) (338,406)
Class B....................................... (65,694) (51,129)
Class C....................................... (17,374) (19,545)
Class E....................................... (2,370,705) (2,656,955)
Class H....................................... (231,888) (201,242)
From net realized gains on investments
Class A....................................... (90,276) (23,860)
Class B....................................... (16,339) (4,260)
Class C....................................... (4,978) (1,845)
Class E....................................... (589,072) (188,744)
Class H....................................... (71,581) (15,907)
----------- -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (3,816,533) (3,501,893)
----------- -----------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (159,281 and 168,869 shares).......... 1,748,357 1,884,679
Class B (102,711 and 27,291 shares)........... 1,139,703 303,559
Class C (19,583 and 12,943 shares)............ 211,700 144,041
Class E (109,227 and 182,874 shares).......... 1,197,525 2,053,379
Class H (151,781 and 145,610 shares).......... 1,688,819 1,619,378
Proceeds from shares issued as a result of
reinvested dividends
Class A (25,779 and 19,967 shares)............ 282,949 223,080
Class B (6,255 and 3,514 shares).............. 68,470 39,225
Class C (1,782 and 1,696 shares).............. 19,489 18,910
Class E (177,747 and 163,960 shares).......... 1,955,188 1,833,309
Class H (16,763 and 11,998 shares)............ 184,180 133,931
Less cost of repurchase of shares
Class A (128,393 and 114,659 shares).......... (1,402,494) (1,277,661)
Class B (72,984 and 15,741 shares)............ (792,178) (175,491)
Class C (12,353 and 24,064 shares)............ (135,294) (267,354)
Class E (797,205 and 737,765 shares).......... (8,692,661) (8,235,319)
Class H (130,296 and 82,292 shares)........... (1,406,941) (915,367)
----------- -----------
NET DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... (3,933,188) (2,617,701)
----------- -----------
TOTAL DECREASE IN NET ASSETS...................... (9,645,803) (619,173)
NET ASSETS:
Beginning of year............................... 73,351,977 73,971,150
----------- -----------
End of year [includes undistributed (excess of
distribution over) net investment income of
$44,136 and ($17,766), respectively].......... $63,706,174 $73,351,977
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<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, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 2,160,827 $ 2,373,409
Net realized gain (loss) on investments......... (118,813) 785,347
Net change in unrealized appreciation
(depreciation) of investments in securities... (2,876,460) 701,009
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................. (834,446) 3,859,765
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (149,384) (169,880)
Class B....................................... (40,527) (46,230)
Class C....................................... (8,069) (8,174)
Class E....................................... (1,884,736) (2,084,604)
Class H....................................... (56,779) (52,848)
From realized gains on investments
Class A....................................... (52,042) (5,160)
Class B....................................... (20,754) (1,292)
Class C....................................... (3,754) (238)
Class E....................................... (660,723) (50,432)
Class H....................................... (26,232) (1,461)
----------- -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (2,903,000) (2,420,319)
----------- -----------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (92,718 and 138,615 shares)........... 970,636 1,449,793
Class B (19,520 and 16,125 shares)............ 199,062 169,764
Class C (12,467 and 967 shares)............... 129,572 10,000
Class E (118,222 and 111,624 shares).......... 1,219,784 1,177,034
Class H (26,466 and 20,470 shares)............ 278,026 218,276
Proceeds from shares issued as a result of
reinvested dividends
Class A (14,757 and 9,988 shares)............. 152,679 105,254
Class B (4,423 and 2,500 shares).............. 45,770 26,326
Class C (824 and 526 shares).................. 8,553 5,539
Class E (171,562 and 141,459 shares).......... 1,781,326 1,494,183
Class H (5,383 and 3,448 shares).............. 55,968 36,388
Less cost of repurchase of shares
Class A (75,526 and 207,182 shares)........... (780,540) (2,183,158)
Class B (55,585 and 25,031 shares)............ (569,738) (260,690)
Class C (6,459 and 5,599 shares).............. (65,701) (58,479)
Class E (440,999 and 506,507 shares).......... (4,539,493) (5,336,737)
Class H (26,178 and 5,981 shares)............. (266,818) (63,038)
----------- -----------
NET DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... (1,380,914) (3,209,545)
----------- -----------
TOTAL DECREASE IN NET ASSETS...................... (5,118,360) (1,770,099)
NET ASSETS:
Beginning of year............................... 48,262,693 50,032,792
----------- -----------
End of year (includes undistributed net
investment income of $23,958 and $2,626,
respectively)................................. $43,144,333 $48,262,693
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
<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 fund offers Class A, Class B, Class C, Class E and Class H shares. 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: Municipal 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. 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. The portfolios amortize long-term bond premium and
original issue discount.
For the year ended September 30, 1999, the cost of purchases and proceeds
from sales of securities (other than short-term securities) aggregated
$61,304,279 and $66,105,287 for National Portfolio; and $25,136,314 and
$26,975,573 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. 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.
For federal income tax purposes the National Portfolio and Minnesota
Portfolio had capital loss carryovers of $450,479 and $135,790, respectively,
at September 30, 1999, which, if not offset by subsequent capital gains, will
expire in 2008. It is unlikely the Board of Directors will authorize a
distribution of any net realized gains until the available capital loss
carryovers have been offset or expired.
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 financial futures
contracts in order to gain exposure to or protect against changes in the
market. The portfolios would be exposed to market risk as a result of changes
in the value of the underlying financial instruments. Investment in financial
futures requires the portfolios 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 gain or losses. When the contracts are closed, the
portfolios recognize 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
13
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
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,
1999.
2. PAYMENTS TO RELATED PARTIES: Fortis Advisers, Inc. (Advisers), is the
investment adviser for the funds. Under the investment advisory and
management 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. 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. (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........................... $32,145 $14,724 $141 $22,635 $22,399
Minnesota Portfolio.......................... $27,794 $ 4,164 -- $34,623 $ 1,824
</TABLE>
Legal fees and expenses aggregating $3,250 and $2,148 for the National and
Minnesota Portfolios, respectively, were paid to a law firm of which the
secretary of the fund is a partner.
14
<PAGE>
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS: Selected per share historical data for each of the
portfolios was as follows:
<TABLE>
<CAPTION>
Class E
------------------------------------------------
Year Ended September 30,
------------------------------------------------
NATIONAL PORTFOLIO 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Net asset value, beginning of
year........................ $ 11.38 $ 11.07 $ 10.76 $ 10.72 $ 10.38
------- ------- ------- ------- -------
Operations:
Investment income - net..... .50 .52 .55 .56 .58
Net realized and unrealized
gains (losses) on
investments............... (.78) .34 .31 .04 .36
------- ------- ------- ------- -------
Total from operations......... (.28) .86 .86 .60 .94
------- ------- ------- ------- -------
Distributions to shareholders:
From investment income -
net....................... (.49) (.51) (.55) (.56) (.59)
From net realized gains..... (.12) (.04) -- -- (.01)
------- ------- ------- ------- -------
Total distributions to
shareholders................. (.61) (.55) (.55) (.56) (.60)
------- ------- ------- ------- -------
Net asset value, end of
year........................ $ 10.49 $ 11.38 $ 11.07 $ 10.76 $ 10.72
------- ------- ------- ------- -------
Total Return @................ (2.56%) 7.97% 8.19% 5.69% 9.30%
Net assets end of year (000s
omitted).................... $47,140 $56,959 $59,727 $65,237 $70,531
Ratio of expenses to average
daily net assets............ .94% .98% .95% .93% 1.03%
Ratio of net investment income
to average
daily net assets............ 4.56% 4.65% 5.03% 5.19% 5.54%
Portfolio turnover rate....... 89% 74% 71% 52% 35%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
---------------------------------------- ----------------------------------------
Year Ended September 30, Year Ended September 30,
---------------------------------------- ----------------------------------------
NATIONAL PORTFOLIO 1999 1998 1997 1996 1995+ 1999 1998 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 11.37 $11.06 $10.75 $10.71 $ 9.79 $ 11.36 $11.05 $10.74 $10.70 $ 9.79
------- ------ ------ ------ ------ ------- ------ ------ ------ ------
Operations:
Investment income - net..... .47 .50 .53 .53 .49 .38 .42 .44 .45 .42
Net realized and unrealized
gains (losses) on
investments............... (.78) .34 .31 .04 .94 (.78) .34 .31 .04 .93
------- ------ ------ ------ ------ ------- ------ ------ ------ ------
Total from operations......... (.31) .84 .84 .57 1.43 (.40) .76 .75 .49 1.35
------- ------ ------ ------ ------ ------- ------ ------ ------ ------
Distributions to shareholders:
From investment income -
net....................... (.47) (.49) (.53) (.53) (.50) (.38) (.41) (.44) (.45) (.43)
From net realized gains..... (.12) (.04) -- -- (.01) (.12) (.04) -- -- (.01)
------- ------ ------ ------ ------ ------- ------ ------ ------ ------
Total distributions to
shareholders................. (.59) (.53) (.53) (.53) (.51) (.50) (.45) (.44) (.45) (.44)
------- ------ ------ ------ ------ ------- ------ ------ ------ ------
Net asset value, end of
period...................... $ 10.47 $11.37 $11.06 $10.75 $10.71 $ 10.46 $11.36 $11.05 $10.74 $10.70
------- ------ ------ ------ ------ ------- ------ ------ ------ ------
Total Return @................ (2.87%) 7.75% 7.96% 5.46% 14.80% (3.61%) 6.95% 7.14% 4.65% 13.96%
Net assets end of period (000s
omitted).................... $ 8,247 $8,308 $7,263 $6,239 $1,807 $ 1,752 $1,493 $1,287 $ 997 $ 668
Ratio of expenses to average
daily net assets............ 1.19% 1.23% 1.20% 1.18% 1.28%* 1.94% 1.98% 1.95% 1.93% 2.03%*
Ratio of net investment income
to average
daily net assets............ 4.31% 4.40% 4.78% 4.97% 5.03%* 3.56% 3.65% 4.02% 4.20% 4.04%*
Portfolio turnover rate....... 89% 74% 71% 52% 35% 89% 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 gain distributions, without
adjustment for sales charge.
15
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued):
<TABLE>
<CAPTION>
Class C
------------------------------------------------
Year Ended September 30,
------------------------------------------------
NATIONAL PORTFOLIO 1999 1998 1997 1996 1995+
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 11.34 $ 11.04 $ 10.74 $ 10.70 $ 9.79
------- ------- ------- ------- -------
Operations:
Investment income - net..... .39 .41 .43 .45 .43
Net realized and unrealized
gains (losses) on
investments............... (.78) .34 .31 .04 .92
------- ------- ------- ------- -------
Total from operations......... (.39) .75 .74 .49 1.35
------- ------- ------- ------- -------
Distributions to shareholders:
From investment income -
net....................... (.38) (.41) (.44) (.45) (.43)
From net realized gains..... (.12) (.04) -- -- (.01)
------- ------- ------- ------- -------
Total distributions to
shareholders................. (.50) (.45) (.44) (.45) (.44)
------- ------- ------- ------- -------
Net asset value, end of
period...................... $ 10.45 $ 11.34 $ 11.04 $ 10.74 $ 10.70
------- ------- ------- ------- -------
Total Return @................ (3.53%) 6.86% 7.04% 4.65% 13.95%
Net assets end of period (000s
omitted).................... $ 548 $ 493 $ 584 $ 223 $ 106
Ratio of expenses to average
daily net assets............ 1.94% 1.98% 1.95% 1.93% 2.03%*
Ratio of net investment income
to average
daily net assets............ 3.56% 3.65% 4.05% 4.20% 4.14%*
Portfolio turnover rate....... 89% 74% 71% 52% 35%
</TABLE>
<TABLE>
<CAPTION>
Class H
------------------------------------------------
Year Ended September 30,
------------------------------------------------
NATIONAL PORTFOLIO 1999 1998 1997 1996 1995+
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 11.35 $ 11.06 $ 10.75 $ 10.71 $ 9.79
------- ------- ------- ------- -------
Operations:
Investment income - net..... .39 .40 .44 .45 .43
Net realized and unrealized
gains (losses) on
investments............... (.78) .34 .31 .04 .93
------- ------- ------- ------- -------
Total from operations......... (.39) .74 .75 .49 1.36
------- ------- ------- ------- -------
Distributions to shareholders:
From investment income -
net....................... (.38) (.41) (.44) (.45) (.43)
From net realized gains..... (.12) (.04) -- -- (.01)
------- ------- ------- ------- -------
Total distributions to
shareholders................. (.50) (.45) (.44) (.45) (.44)
------- ------- ------- ------- -------
Net asset value, end of
period...................... $ 10.46 $ 11.35 $ 11.06 $ 10.75 $ 10.71
------- ------- ------- ------- -------
Total Return @................ (3.52%) 6.76% 7.13% 4.64% 14.06%
Net assets end of period (000s
omitted).................... $ 6,019 $ 6,099 $ 5,111 $ 4,015 $ 1,757
Ratio of expenses to average
daily net assets............ 1.94% 1.98% 1.95% 1.93% 2.03%*
Ratio of net investment income
to average
daily net assets............ 3.56% 3.65% 4.03% 4.20% 4.24%*
Portfolio turnover rate....... 89% 74% 71% 52% 35%
</TABLE>
* Annualized.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gain distributions, without
adjustment for sales charge.
16
<PAGE>
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued):
<TABLE>
<CAPTION>
Class E
------------------------------------------------
Year Ended September 30,
------------------------------------------------
MINNESOTA PORTFOLIO 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Net asset value, beginning of
year........................ $ 10.77 $ 10.46 $ 10.28 $ 10.32 $ 10.08
------- ------- ------- ------- -------
Operations:
Investment income - net..... .50 .52 .53 .55 .57
Net realized and unrealized
gains (losses) on
investments............... (.67) .32 .18 (.04) .24
------- ------- ------- ------- -------
Total from operations......... (.17) .84 .71 .51 .81
------- ------- ------- ------- -------
Distributions to shareholders:
From investment income -
net....................... (.49) (.52) (.53) (.55) (.57)
From net realized gains..... (.17) (.01) -- -- --
------- ------- ------- ------- -------
Total distributions to
shareholders................. (.66) (.53) (.53) (.55) (.57)
------- ------- ------- ------- -------
Net asset value, end of
year........................ $ 9.94 $ 10.77 $ 10.46 $ 10.28 $ 10.32
------- ------- ------- ------- -------
Total Return @................ (1.71%) 8.25% 7.10% 5.01% 8.35%
Net assets end of year (000s
omitted).................... $37,396 $42,170 $43,584 $49,262 $52,603
Ratio of expenses to average
daily net assets............ .86% .91% .96% .93% .98%
Ratio of net investment income
to average
daily net assets............ 4.73% 4.94% 5.14% 5.34% 5.60%
Portfolio turnover rate....... 55% 55% 61% 41% 27%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------------- ----------------------------------------
Year Ended September 30, Year Ended September 30,
-------------------------------------------- ----------------------------------------
MINNESOTA PORTFOLIO 1999 1998 1997 1996 1995+ 1999 1998 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 10.74 $ 10.43 $ 10.26 $ 10.30 $ 9.55 $ 10.73 $10.42 $10.24 $10.27 $ 9.55
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Operations:
Investment income - net..... .47 .49 .50 .52 .48 .39 .41 .42 .45 .41
Net realized and unrealized
gains (losses) on
investments............... (.67) .32 .18 (.04) .76 (.67) .32 .18 (.04) .73
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total from operations......... (.20) .81 .68 .48 1.24 (.28) .73 .60 .41 1.14
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Distributions to shareholders:
From investment income -
net....................... (.46) (.49) (.51) (.52) (.49) (.38) (.41) (.42) (.44) (.42)
From net realized gains..... (.17) (.01) -- -- -- (.17) (.01) -- -- --
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total distributions to
shareholders................. (.63) (.50) (.51) (.52) (.49) (.55) (.42) (.42) (.44) (.42)
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Net asset value, end of
period...................... $ 9.91 $ 10.74 $ 10.43 $ 10.26 $ 10.30 $ 9.90 $10.73 $10.42 $10.24 $10.27
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total Return @................ (1.94%) 8.13% 6.66% 4.78% 13.15% (2.73%) 7.18% 6.01% 4.04% 12.10%
Net assets end of period (000s
omitted).................... $ 3,240 $ 3,170 $ 3,689 $ 1,822 $ 884 $ 860 $1,271 $1,301 $1,109 $ 180
Ratio of expenses to average
daily net assets............ 1.11% 1.16% 1.21% 1.18% 1.23%* 1.86% 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income
to average
daily net assets............ 4.48% 4.69% 4.89% 5.07% 5.10%* 3.73% 3.94% 4.14% 4.34% 4.37%*
Portfolio turnover rate....... 55% 55% 61% 41% 27% 55% 55% 61% 41% 27%
</TABLE>
* Annualized.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
17
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued):
<TABLE>
<CAPTION>
Class C
--------------------------------------------
Year Ended September 30,
--------------------------------------------
MINNESOTA PORTFOLIO 1999 1998 1997 1996 1995+
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 10.73 $10.44 $10.26 $10.30 $ 9.55
------- ------ ------ ------ ------
Operations:
Investment income - net..... .42 .39 .42 .44 .42
Net realized and unrealized
gains (losses) on
investments............... (.67) .32 .18 (.04) .75
------- ------ ------ ------ ------
Total from operations......... (.25) .71 .60 .40 1.17
------- ------ ------ ------ ------
Distributions to shareholders:
From investment income -
net....................... (.38) (.41) (.42) (.44) (.42)
From net realized gains..... (.17) (.01) -- -- --
------- ------ ------ ------ ------
Total distributions to
shareholders................. (.55) (.42) (.42) (.44) (.42)
------- ------ ------ ------ ------
Net asset value, end of
period...................... $ 9.93 $10.73 $10.44 $10.26 $10.30
------- ------ ------ ------ ------
Total Return @................ (2.45%) 6.97% 6.00% 4.00% 12.31%
Net assets end of period (000s
omitted).................... $ 247 $ 194 $ 232 $ 210 $ 143
Ratio of expenses to average
daily net assets............ 1.86% 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income
to average
daily net assets............ 3.73% 3.94% 4.14% 4.31% 4.28%*
Portfolio turnover rate....... 55% 55% 61% 41% 27%
</TABLE>
<TABLE>
<CAPTION>
Class H
------------------------------------------------
Year Ended September 30,
------------------------------------------------
MINNESOTA PORTFOLIO 1999 1998 1997 1996 1995+
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 10.76 $ 10.44 $ 10.26 $ 10.30 $ 9.55
------- ------- ------- ------- -------
Operations:
Investment income - net..... .39 .42 .42 .44 .41
Net realized and unrealized
gains (losses) on
investments............... (.67) .32 .18 (.04) .76
------- ------- ------- ------- -------
Total from operations......... (.28) .74 .60 .40 1.17
------- ------- ------- ------- -------
Distributions to shareholders:
From investment income -
net....................... (.38) (.41) (.42) (.44) (.42)
From net realized gains..... (.17) (.01) -- -- --
------- ------- ------- ------- -------
Total distributions to
shareholders................. (.55) (.42) (.42) (.44) (.42)
------- ------- ------- ------- -------
Net asset value, end of
period...................... $ 9.93 $ 10.76 $ 10.44 $ 10.26 $ 10.30
------- ------- ------- ------- -------
Total Return @................ (2.73%) 7.26% 6.00% 3.93% 12.42%
Net assets end of period (000s
omitted).................... $ 1,401 $ 1,458 $ 1,227 $ 1,061 $ 638
Ratio of expenses to average
daily net assets............ 1.86% 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income
to average
daily net assets............ 3.73% 3.94% 4.14% 4.33% 4.29%*
Portfolio turnover rate....... 55% 55% 61% 41% 27%
</TABLE>
* Annualized.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
18
<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, 1999, 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, 1999, 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
performed 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 as of September 30, 1999, 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, 1999,
and the financial highlights for each of the periods presented, in conformity
with generally accepted accounting principles.
KPMG LLP
Minneapolis, Minnesota
November 5, 1999
19
<PAGE>
FEDERAL INCOME TAX INFORMATION
(Unaudited)
Exempt interest dividends are exempt from federal income taxes and should not be
included in the 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, 2000, 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, 1999, 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, 1999.
NATIONAL PORTFOLIO
<TABLE>
<CAPTION>
RECORD DATE Class A Class B Class C Class E Class H
<S> <C> <C> <C> <C> <C>
---------------------------------------------------
Ordinary Income Per Share
October 30, 1998............................. $0.039 $0.032 $0.032 $0.041 $0.032
November 30, 1998............................ 0.039 0.032 0.032 0.041 0.032
December 31, 1998............................ 0.039 0.032 0.032 0.041 0.032
January 29, 1999............................. 0.039 0.032 0.032 0.041 0.032
February 26, 1999............................ 0.039 0.032 0.032 0.041 0.032
March 31, 1999............................... 0.039 0.032 0.032 0.041 0.032
April 30, 1999............................... 0.039 0.032 0.032 0.041 0.032
May 28, 1999................................. 0.039 0.032 0.032 0.041 0.032
June 30, 1999................................ 0.039 0.032 0.032 0.041 0.032
July 30, 1999................................ 0.039 0.032 0.032 0.041 0.032
August 31, 1999.............................. 0.039 0.032 0.032 0.041 0.032
September 30, 1999........................... 0.039 0.032 0.032 0.041 0.032
------ ------ ------ ------ ------
Total Distributions.......................... 0.468 0.384 0.384 0.492 0.384
------ ------ ------ ------ ------
Short-Term Capital Gain Per Share
December 31, 1998............................ $0.0520 $0.0520 $0.0520 $0.0520 $0.0520
------ ------ ------ ------ ------
Long-Term Capital Gain Per Share
December 31, 1998............................ $0.0680 $0.0680 $0.0680 $0.0680 $0.0680
------ ------ ------ ------ ------
MINNESOTA PORTFOLIO
RECORD DATE
Ordinary Income Per Share
October 30, 1998............................. $0.041 $0.034 $0.034 $0.043 $0.034
November 30, 1998............................ 0.041 0.034 0.034 0.043 0.034
December 31, 1998............................ 0.039 0.032 0.032 0.041 0.032
January 29, 1999............................. 0.039 0.032 0.032 0.041 0.032
February 26, 1999............................ 0.039 0.032 0.032 0.041 0.032
March 31, 1999............................... 0.039 0.032 0.032 0.041 0.032
April 30, 1999............................... 0.039 0.032 0.032 0.041 0.032
May 28, 1999................................. 0.037 0.030 0.030 0.039 0.030
June 30, 1999................................ 0.037 0.030 0.030 0.039 0.030
July 30, 1999................................ 0.037 0.030 0.030 0.039 0.030
August 31, 1999.............................. 0.037 0.030 0.030 0.039 0.030
September 30, 1999........................... 0.037 0.030 0.030 0.039 0.030
------ ------ ------ ------ ------
Total Distributions.......................... 0.462 0.378 0.378 0.486 0.378
------ ------ ------ ------ ------
Short-Term Capital Gain Per Share
December 31, 1998............................ $0.0700 $0.0700 $0.0700 $0.0700 $0.0700
------ ------ ------ ------ ------
Long-Term Capital Gain Per Share
December 31, 1998............................ $0.1010 $0.1010 $0.1010 $0.1010 $0.1010
------ ------ ------ ------ ------
</TABLE>
20
<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.
PRESIDENT - FORTIS FINANCIAL GROUP,
FORTIS BENEFITS INSURANCE COMPANY AND
SENIOR VICE PRESIDENT, FORTIS
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 LLP
MINNEAPOLIS, MINNESOTA
The use of this material is authorized only when preceded or accompanied by a
prospectus.
21
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[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 annuities, life insurance and mutual funds
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 the international Fortis group, which operates in the
fields of insurance, banking and investments. Fortis' listed companies are
Fortis (B) of Belgium and Fortis (NL) of the Netherlands.
Fortis: steadfast for YOU!
FORTIS FINANCIAL GROUP
Fortis Advisers, Inc.
Fund management offered through
Fortis Advisers, Inc. since 1949
Securities offered through
Fortis Investors, Inc.,
member NASD, SIPC
Insurance products offered through
Fortis Benefits Insurance Company
& Fortis Insurance Company
P.O. Box 64284, St. Paul, MN 55164-0284
Telephone (800) 800-2000
http://www.ffg.us.fortis.com
- --------------------------------------------------------------------------------
FORTIS FINANCIAL GROUP ---------------
P.O. Box 64284 Bulk Rate
St. Paul, MN 55164-0284 U.S. Postage
PAID
Permit No. 3794
Fortis tax-free bond funds Minneapolis, MN
---------------
[LOGO] Printed on recycled paper containing at least
10% post-consumer recycled material.
The Fortis brandmark and Fortis-SM- are servicemarks
of Fortis (B) and Fortis (NL).
95311-C- Fortis, Inc. 10/99
