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FORTIS
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Enjoy the benefits of tax-smart investing
Fortis tax-free portfolios
annual report
September 30, 2000
FORTIS FINANCIAL GROUP
[Photo of man and woman]
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Fortis Tax-Free National Fund
Fortis Tax-Free Minnesota Fund
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC. ANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS 1
SCHEDULES OF INVESTMENTS
NATIONAL PORTFOLIO 4
MINNESOTA PORTFOLIO 6
STATEMENTS OF ASSETS AND LIABILITIES 8
STATEMENTS OF OPERATIONS 9
STATEMENTS OF CHANGES IN NET ASSETS
NATIONAL PORTFOLIO 10
MINNESOTA PORTFOLIO 11
NOTES TO FINANCIAL STATEMENTS 12
INDEPENDENT AUDITORS' REPORT 18
FEDERAL INCOME TAX INFORMATION 19
DIRECTORS AND OFFICERS 20
OTHER PRODUCTS AND SERVICES 21
- TOLL-FREE PERSONAL ASSISTANCE
- Shareholder Services
- (800) 800-2000, Ext. 3012
- 7:30 a.m. to 7:00 p.m. CST, Monday thru Friday
- 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 each funds'
assets by industry.
The performance chart graphically compares each funds' 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, 2000
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS E CLASS H
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
TAX-FREE NATIONAL
NET ASSET VALUE PER SHARE:
Beginning of year.......................... $10.47 $10.46 $10.45 $10.49 $10.46
End of year................................ $10.50 $10.49 $10.48 $10.52 $10.49
DISTRIBUTIONS PER SHARE
From net investment income................. $ .486 $ .406 $ .406 $ .510 $ .406
TAX-FREE MINNESOTA
NET ASSET VALUE PER SHARE:
Beginning of year.......................... $ 9.91 $ 9.90 $ 9.93 $ 9.94 $ 9.93
End of year................................ $ 9.88 $ 9.88 $ 9.90 $ 9.91 $ 9.91
DISTRIBUTIONS PER SHARE
From net investment income................. $ .473 $ .400 $ .400 $ .497 $ .400
</TABLE>
<PAGE>
[PHOTO]
DEAR FORTIS SHAREHOLDER:
The bond market digested a wide variety of economic information during the
twelve months ended September 30, 2000. The economy showed strong growth, as
Real Gross Domestic Product (GDP) grew at an 8.3% rate during the fourth quarter
of 1999 and growth during the first two quarters of 2000 averaged more than 5%.
Economic growth was supported by strong non-farm payroll growth, as the
unemployment rate remained in a range between 3.9% and 4.2%, closing the
twelve-month period at 3.9%. Although headline inflation was sharply higher due
to rising oil prices, the year-over-year core Consumer Price Index (the core CPI
excludes food and energy) increased only slightly to 2.5%, and the
year-over-year core Producer Price Index rose 1.5% through August. The Federal
Reserve (the "Fed") raised the Federal Funds rate four times, totaling 1.25%
during the twelve months ended September 30, 2000. Recent Fed releases continue
to show concern about the potential for increased inflationary pressures in the
U.S. economy.
Municipal bond yields rose early in the twelve-month period, reflecting rate
increases by the Fed and concerns about the possibility of increased
inflationary pressure caused by strong growth and tight labor markets. As 2000
unfolded, a 20% decrease in new issue municipal supply combined with an expected
reduction in the Treasury market long bond supply produced a market rally. After
a brief pullback in late April and early May of 2000, the decline in rates
continued until early September of 2000.
During the fourth quarter of 1999, the duration of the funds was shorter than
the Lehman Brothers Municipal Bond Index. This shorter duration helped
performance as rates rose during the fourth quarter of 1999. The duration was
lengthened during the first and second quarters of 2000, as the expectation of
Treasury buybacks improved the tone of the market, and we believed that the
market was starting to anticipate an end to Fed tightening. We did not lengthen
the duration of the funds quickly enough to take full advantage of the rally
that occurred in February and March, and that explains the underperformance of
the funds for calendar 2000 to date. During the period, hospital bonds were
under-represented in the funds, due to concerns about reduced rates of Medicare
payments to hospitals. This underweighting helped our performance, since the
performance of the sector lagged the market as a whole. Total returns for the
twelve months ended September 30, 2000, were 5.33% for the National Portfolio
Class E before sales charge, and 4.87% for the Minnesota Portfolio Class E
before sales charge. These levels compare with the 6.17% total return of the
Lehman Brothers Municipal Bond Index during the same period. The durations of
the funds at the end of the reporting period were 7.5 years for the Minnesota
portfolio, and 8.3 years for the National Portfolio. This compares to a duration
of 6.99 years for the Lehman Brothers Municipal Bond Index.
As the year 2000 comes to a close, we expect economic growth to moderate as
higher oil prices and the Fed's rate increases of the past year restrain growth.
In the short run, we expect the Fed to remain on the sidelines as it assesses
trends in the economy. Continuing tightness in the labor markets and high oil
prices could exert upward inflationary pressure. 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
-------------------- --------------------
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Dean C. Kopperud Howard G. Hudson
President Vice President
</TABLE>
2
<PAGE>
COMPOSITION BY INDUSTRY
AS OF 9/30/2000
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
General Obligations 33.6%
Utilities - Electric 14.0%
Health Care/Services 12.5%
Transportation 12.3%
Utilities - Water and Sewer 11.4%
Higher Education 5.9%
Housing 4.6%
Pollution Control 1.9%
Cash Equivalents/Receivables 1.5%
Public Facilities 1.5%
Miscellaneous 0.8%
</TABLE>
NATIONAL PORTFOLIO
VALUE OF $10,000 INVESTED OCTOBER 1, 1990
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO CLASS E
AVERAGE ANNUAL TOTAL RETURN
<S> <C> <C> <C>
1 YEAR 5 YEAR 10 YEAR
CLASS E* +0.59% +3.89% +6.20%
CLASS E** +5.33% +4.85% +6.69%
</TABLE>
<TABLE>
<CAPTION>
LEHMAN BROS. NATIONAL PORTFOLIO
MUNICIPAL BOND INDEX*** CLASS E
<S> <C> <C>
90 10,000 9,550
91 11,318 10,887
92 12,502 11,971
93 14,095 13,603
94 13,751 13,177
95 15,289 14,402
96 16,212 15,221
97 17,674 16,468
98 19,216 17,780
99 19,080 17,325
00 20,258 18,248
</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 9/30/2000
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
-------------------------------------------------------------------
<C> <S> <C>
1. Ohio State Turnpike Commission (5.50%) 2017 4.6%
2. North Carolina Municipal Power Agency (5.50%) 2014 4.4%
3. University of Minnesota Revenue Bond (5.75%) 2017 4.1%
4. Fulton County, GA School District (5.375%) 2018 3.8%
5. Southern California Public Power (6.36%) 2013 3.7%
6. Phoenix, AZ General Obligation (6.25%) 2017 3.6%
7. Detroit, MI Water System (6.50%) 2015 3.5%
8. Fulton County, GA Water & Sewer (6.375%) 2014 3.5%
9. La Canada, CA School District (5.75%) 2025 3.4%
10. Connecticut State, Special Tax Obligation (6.125%)
2012 3.0%
</TABLE>
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year 5 Year Inception+
--------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares# +5.09% +4.60% +6.37%
Class A shares## +0.37% +3.64% +5.54%
Class B shares# +4.29% +3.81% +5.55%
Class B shares## +0.69% +3.51% +5.43%
Class C shares # +4.30% +3.79% +5.54%
Class C shares ## +3.30% +3.79% +5.54%
Class H shares # +4.29% +3.79% +5.55%
Class H shares ## +0.69% +3.48% +5.43%
</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, 2000.
+ Since November 14, 1994 -- Date shares were first offered to the public.
2
<PAGE>
COMPOSITION BY INDUSTRY
AS OF 9/30/2000
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
General Obligations 29.0%
Housing 18.5%
Higher Education 14.0%
Miscellaneous 10.3%
Health Care/Services 6.8%
Utilities - Electric 6.6%
Pollution Control 6.0%
Cash Equivalents/Receivables 4.2%
Transportation 2.7%
Public Facilities 1.9%
</TABLE>
MINNESOTA PORTFOLIO
VALUE OF $10,000 INVESTED OCTOBER 1, 1990
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO CLASS E
AVERAGE ANNUAL TOTAL RETURN
<S> <C> <C> <C>
1 YEAR 5 YEAR 10 YEAR
CLASS E* +0.15% +3.69% +5.81%
CLASS E** +4.87% +4.64% +6.29%
</TABLE>
<TABLE>
<CAPTION>
LEHMAN BROS. MINNESOTA PORTFOLIO
MUNICIPAL BOND INDEX*** CLASS E
<S> <C> <C>
90 10,000 9,550
91 11,318 10,697
92 12,502 11,691
93 14,095 13,126
94 13,751 12,933
95 15,289 14,013
96 16,212 14,714
97 17,674 15,758
98 19,216 17,059
99 19,080 16,768
00 20,258 17,584
</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 9/30/2000
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
-------------------------------------------------------------------
<C> <S> <C>
1. University of MN (Regents of) (5.50%) 2021 5.2%
2. Brainerd (City of), MN (6.65%) 2017 4.0%
3. Minnesota State Retirement System (5.875%) 2022 3.8%
4. Sauk Rapids (City of), MN, Independent School
District (5.43%) 2010 3.6%
5. Becker (City of), MN, Independent School District
(6.00%) 2017 3.5%
6. Minneapolis (City of), MN CDA Limited Tax (7.375%)
2012 2.7%
7. Puerto Rico, Commonwealth Highway & Transportation
(5.50%) 2013 2.7%
8. Lakeville (City of), MN, Independent School
District (5.10%) 2010 2.7%
9. University of MN (Regents of) (5.75%) 2018 2.7%
10. Waconia (City of), MN, Health Care Facility
(6.10%) 2019 2.7%
</TABLE>
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year 5 Year Inception+
--------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares# +4.63% +4.39% +5.93%
Class A shares## -0.08% +3.44% +5.10%
Class B shares# +3.96% +3.63% +5.11%
Class B shares## +0.36% +3.33% +4.99%
Class C shares# +3.84% +3.62% +5.13%
Class C shares## +2.84% +3.62% +5.13%
Class H shares# +3.95% +3.62% +5.15%
Class H shares## +0.35% +3.33% +5.03%
</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, 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, 2000.
+ 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, 2000
MUNICIPAL BONDS-98.45%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
----------- ----------- ------------ ------------
<C> <S> <C> <C> <C>
ARIZONA-5.85%
$1,800,000 Phoenix, AZ, 6.25% General Obligation Bond
Ser A 7-1-2017............................. AA+ $ 1,977,642 $ 1,992,402
1,225,000 Tucson, AZ, 5.50% Water Rev Refunding Bond
7-1-2014................................... A+ 1,206,347 1,256,531
----------- -----------
3,183,989 3,248,933
----------- -----------
CALIFORNIA-11.48%
1,830,000 La Canada School Dist, CA, 5.75% General
Obligation Bond Ser A 8-1-2025............. AAA 1,859,002 1,904,078
2,385,000 Redwood City California Elem School Dist,
5.50% Zero Coupon General Obligation FGIC
Insured 8-1-2018 (d)....................... AAA 906,227 885,813
4,000,000 Southern California Public Power, 6.36% Zero
Coupon Bond 7-1-2013 (d)................... A 1,800,708 2,075,560
2,750,000 Sulphur Springs (City of), CA, 7.00% Zero
Coupon General Obligation Ser A MBIA
Insured 9-1-2012 (d)....................... AAA 1,211,212 1,513,875
----------- -----------
5,777,149 6,379,326
----------- -----------
CONNECTICUT-2.95%
1,500,000 Connecticut State, 6.125% Special Tax
Obligation Rev Transportation
Infrastructure Ser B 9-1-2012.............. AA- 1,566,401 1,641,630
----------- -----------
FLORIDA-2.79%
1,000,000 Florida (State of), 5.25% Board of Education
Capital Outlay Bond Ser B 6-1-2011......... AA+ 1,001,596 1,024,570
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 472,527 525,270
----------- -----------
1,474,123 1,549,840
----------- -----------
GEORGIA-9.35%
2,105,000 Fulton County School Dist, GA, 5.375% General
Obligation Bond 1-1-2018................... AA 2,127,282 2,103,632
1,765,000 Fulton County, GA, Water & Sewer, 6.375% Ref
Bond FGIC Insured 1-1-2014 (Escrowed to
Maturity).................................. AAA 1,754,103 1,959,009
35,000 Fulton County, GA, Water & Sewer, 6.375% Ref
Bond FGIC Insured 1-1-2014 (Unrefunded).... AAA 34,757 38,635
1,000,000 Georgia Municipal Electric, 6.50% Auth Power
Rev Ser Y 1-1-2017......................... A 991,250 1,097,520
----------- -----------
4,907,392 5,198,796
----------- -----------
ILLINOIS-2.85%
500,000 Channahon Park, IL District, 7.50% General
Obligation 1-1-2011 (Prerefunded 7-1-2001
@100)...................................... NR 499,375 511,535
1,000,000 Illinois Dev Fin Auth, 7.375% Power Co Proj
Ser 1991A 7-1-2021......................... BBB 992,107 1,073,610
----------- -----------
1,491,482 1,585,145
----------- -----------
KENTUCKY-5.65%
1,000,000 Carroll County, KY, 7.45% Collateralized
Pollution Control Rev Bond Utilities
Project Ser A 9-15-2016.................... A 1,056,528 1,060,260
1,000,000 Christian County, KY, 6.00% Hospital Rev Ref
Bond Jennie Stuart Medical Center
7-1-2013................................... A- 995,594 982,430
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 996,677 1,098,090
----------- -----------
3,048,799 3,140,780
----------- -----------
MASSACHUSETTS-2.01%
1,140,000 Massachusetts Bay Transit Authority, 5.25%
General Transit System Bond Ser A FGIC
Insured 3-1-2017........................... AAA 1,073,999 1,116,619
----------- -----------
MICHIGAN-3.55%
1,750,000 Detroit, MI, Water System, 6.50% Rev Bond
FGIC Insured 7-1-2015...................... AAA 1,857,514 1,970,605
----------- -----------
MINNESOTA-11.81%
500,000 Duluth (City of), MN, 5.875% Economic Dev
Auth Health Care Fac Rev Bond Ser A
12-1-2028.................................. NR 500,000 401,785
1,140,000 Fergus Falls (City of), MN, 6.50% Health Care
Fac Rev (Lake Regional Hospital) Ser A
9-1-2018................................... BBB+ 1,132,300 1,096,817
500,000 Minneapolis (City of), MN, 5.875% Walker
Methodist Sr Services Rev Bond Ser C
11-15-2018................................. NR 492,872 418,830
670,000 Minneapolis (City of), MN, 7.00% Health Care
Fac Rev (St. Olaf Residence) Ser 1993
10-1-2012.................................. NR 670,000 676,727
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 1,004,193 992,270
690,000 St. Anthony (City of), MN, 6.75% Housing Dev
Rev Ref Bond 7-1-2007...................... AA 690,000 718,014
2,160,000 University of Minnesota, 5.75% Rev Bond
Ser A GO of Univ Insured 7-1-2017.......... AA 2,141,662 2,259,511
----------- -----------
6,631,027 6,563,954
----------- -----------
MISSOURI-2.34%
1,235,000 Missouri State Health & Educ, 7.70% Still
Regional Med Ctr 2-1-2013.................. BBB 1,268,226 1,298,084
----------- -----------
NEW YORK-7.90%
1,250,000 New York City, NY, 5.25% General Obligation
Bond Ser B FSA-CR Insured 8-1-2020......... AAA 1,162,340 1,193,575
1,000,000 New York City, NY, 8.25% General Obligation
Bond Ser B 6-1-2005........................ A- 991,797 1,147,170
</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>
$1,000,000 New York State Dorm Auth, 5.50% State
University Education Fac Rev Bond Ser A
AMBAC Insured 5-15-2019.................... AAA $ 1,025,791 $ 1,006,900
1,000,000 New York State Dorm Auth, 6.00% Rev Cons City
Univ System 2nd Gen 7-1-2020............... A- 1,017,364 1,042,450
----------- -----------
4,197,292 4,390,095
----------- -----------
NORTH CAROLINA-4.40%
2,400,000 North Carolina Municipal Power Agency, 5.50%
Catawba Electric Rev Bond Ser A 1-1-2014... AAA 2,413,267 2,442,792
----------- -----------
NORTH DAKOTA-2.03%
1,100,000 Ward County, ND, 7.50% Health Care Fac
Ser 1991B 7-1-2011......................... BBB+ 1,109,630 1,130,019
----------- -----------
OHIO-10.83%
750,000 Cleveland (City of), OH, Parking Fac, 8.10%
Improvement Proj Rev Bond
9-15-2022 (Prerefunded 9-15-2002 @102)..... NR 765,000 812,947
1,270,000 Hamilton City School District, OH, 6.15%
School Improvement Ser A 12-1-2016......... AA- 1,321,311 1,380,376
2,500,000 Ohio State Turnpike Commission, 5.50% Rev
Bond Ser A FGIC Insured 2-15-2017.......... AAA 2,437,200 2,537,675
1,250,000 Strongsville City School District, OH, 5.375%
General Obligation Bond MBIA Insured
12-1-2012.................................. AAA 1,238,057 1,286,512
----------- -----------
5,761,568 6,017,510
----------- -----------
PENNSYLVANIA-2.25%
750,000 Clarion County, PA, 8.50% Clarion Hospital
Proj Rev Bond 7-1-2021 (Prerefunded
7-1-2001 @102)............................. NR 732,044 785,880
500,000 LeHigh County, PA, 5.70% General Purpose Auth
Rev Bond, Kidspeace Obligation Group
11-1-2009.................................. NR 500,000 466,015
----------- -----------
1,232,044 1,251,895
----------- -----------
PUERTO RICO-0.50%
250,000 Puerto Rico, 6.25% Commonwealth Aqueduct &
Sewer Auth Rev Ref Bond PR-GTD 7-1-2013.... A 265,586 278,185
----------- -----------
SOUTH CAROLINA-1.94%
1,000,000 Piedmont Municipal Power Agency, SC, 6.25%
Rev Bond FGIC Insured 1-1-2021............. AAA 1,084,426 1,079,310
----------- -----------
TEXAS-1.70%
1,000,000 Klein School Dist, TX, 5.00% General
Obligation Bond Ser A FSF Insured
8-1-2017................................... AAA 935,084 942,330
----------- -----------
VIRGINIA-1.78%
1,000,000 Peninsula Ports Authority of VA, 6.0% Port
Facility CSX Transit Project Rev Bond
12-15-2012................................. Baa2* 1,000,000 990,940
----------- -----------
WEST VIRGINIA-2.07%
1,180,000 Ohio County West Virginia Board of Education,
5.25% General Obligation Bond MBIA Insured
6-1-2018................................... AAA 1,104,846 1,152,034
----------- -----------
WISCONSIN-2.42%
1,305,000 Sparta School District, WI, 5.90% General
Obligation Bond FGIC Insured 3-1-2016...... Aaa* 1,303,405 1,342,728
----------- -----------
TOTAL MUNICIPAL BONDS........................ $52,687,249 $54,711,550
=========== ===========
</TABLE>
SHORT-TERM INVESTMENTS-0.37%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value (b)
----------- ------------
<C> <S> <C>
INVESTMENT COMPANY-0.37%
$ 204,404 First American Tax-Free Obligations Fund,
Current rate - 4.67%....................... $ 204,404
-----------
TOTAL INVESTMENTS IN SECURITIES (COST:
$52,891,653) (a)........................... $54,915,954
===========
</TABLE>
(a) At September 30, 2000, the cost of securities for federal income tax
purposes was $52,891,653 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 2,369,584
Unrealized depreciation..................................... (345,283)
--------------------------------------------------------------------------
Net unrealized appreciation................................. $ 2,024,301
--------------------------------------------------------------------------
</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
5
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
MINNESOTA PORTFOLIO
Schedule of Investments
September 30, 2000
MUNICIPAL BONDS-96.00%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
------------ ----------- ----------- -----------
<C> <S> <C> <C> <C>
GENERAL OBLIGATIONS-29.04%
$ 1,300,000 Becker (City of), MN, Independent School
District #726, 6.00% General Obligation
Ser A FSA Insured 2-1-2017................. Aaa* $1,308,224 $ 1,370,161
1,000,000 Bloomington (City of), MN, Independent School
District #271, 5.45% General Obligation
Ser A SD Insured 2-1-2012.................. Aa1* 995,795 1,022,780
1,000,000 Delano (City of), MN, Independent School
District #879, 5.70% General Obligation
Ser A SD Insured 2-1-2017.................. Aa1* 994,262 1,020,270
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* 1,053,147 1,050,884
1,000,000 Minneapolis (City of), MN, 4.07% Zero Coupon
General Obligation Cap Apprec Ser B
12-1-2005 (d).............................. AAA 811,948 781,260
1,000,000 Minneapolis (City of), MN, 5.20% Sports Arena
Project General Obligation 10-01-2024...... AAA 928,381 944,140
1,000,000 Minnesota State, 5.25% General Obligation
8-1-2016................................... AAA 964,924 989,330
1,000,000 Mounds View (City of), MN, Independent School
District #621, 5.375% General Obligation
2-1-2024................................... Aa1* 970,790 965,760
750,000 Puerto Rico, 6.25% Commonwealth Aqueduct &
Sewer Auth Rev Ref Bond PR-GTD 7-1-2013.... A 796,758 834,555
1,950,000 Rosemount (City of), MN, Independent School
District #196, 5.70% Zero Coupon General
Obligation MBIA Insured 4-1-2015 (d)....... AA+ 863,163 882,628
2,205,000 Sauk Rapids (City of), MN, Independent School
District #047, 5.43% Zero Coupon General
Obligation 2-1-2010 (d).................... Aa1* 1,337,447 1,376,449
----------- -----------
11,024,839 11,238,217
----------- -----------
HEALTH CARE/SERVICES-6.83%
1,000,000 St Paul (City of), MN, 5.25% Health Care Fac
Rev Regions Hospital 5-15-2018............. BBB+ 977,519 844,830
765,000 St. Louis Park (City of), MN, 8.50% Health
Care Fac Rev Park Nicollet Med Ctr Ser A
1-1-2011 (Prerefunded 1-1-2001 @ 100)...... NR 765,420 772,757
1,000,000 Waconia (City of), MN, 6.10% Health Care Fac
Rev Ridgeview Med Ctr Ser A Asset Guaranty
Insured 1-1-2019........................... AA 994,518 1,027,050
----------- -----------
2,737,457 2,644,637
----------- -----------
HIGHER EDUCATION (UNIV., DORMS, ETC.)-14.03%
1,000,000 Minnesota Higher Education, 5.375% Fac Auth
Rev for University of St. Thomas Ser 4-P
4-1-2018................................... A2* 995,990 966,440
1,000,000 Minnesota Higher Education, 5.40% Fac Auth
Rev for University of St. Thomas Ser 4-P
4-1-2023................................... A2* 943,127 949,110
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- 457,700 474,113
2,000,000 University of MN (Regents of), 5.50% General
Obligation Ser A 7-1-2021.................. AA 2,020,927 1,999,820
1,000,000 University of MN (Regents of), 5.75% General
Obligation Ser A 7-1-2018.................. AA 1,011,072 1,040,720
----------- -----------
5,428,816 5,430,203
----------- -----------
HOUSING-18.48%
1,500,000 Brainerd (City of), MN, 6.65% Rev Ref Bond
Evangelical Lutheran-Good Samaritan Proj
Ser B FSA Insured 3-1-2017................. AAA 1,513,021 1,564,410
25,000 Dakota County, MN, 8.10% HRA Single Family
Rev GNMA Backed 3-1-2016................... AA 25,046 25,065
500,000 Duluth (City of), MN, 5.625% EDA Health Care
Fac Rev Board of Social Ministries
Properties Proj Ser A 12-1-2018............ NR 500,000 404,350
300,000 Eden Prairie (City of), MN, 7.40% Multifamily
Housing FHA Insured 8-1-2025............... AAA 299,957 306,666
830,000 Eden Prairie (City of), MN, 8.00% Multifamily
Housing Welsh Parkway Apts Ser A FHA
Insured 7-1-2026 (Prerefunded 1-1-2001
@ 102)..................................... AAA 830,000 853,738
525,000 Mankato (City of), MN, 8.25% Nursing Home Rev
Board of Social Ministry Mankato Lutheran
Ser A 10-1-2021 (Prerefunded 10-1-2001
@ 102)..................................... NR 520,000 553,676
500,000 Minneapolis (City of), MN, 5.875% Walker
Methodist Sr Services Rev Bond Ser C
11-15-2018................................. NR 492,872 418,830
450,000 Minneapolis (City of), MN, 6.00% Health Care
Fac Rev Bond Shelter Care Foundation Ser A
4-1-2010................................... NR 450,000 412,560
795,000 Minneapolis (City of), MN, 7.10% HRA Mortgage
Rev Bond Riverplace Proj Ser A LOC Bank of
Tokyo 1-1-2020............................. A2* 806,418 796,193
350,000 Minneapolis (City of), MN, 8.25% Rev Bond
Trinity Housing Proj 2-1-2018 (Prerefunded
2-1-2001 @ 102)............................ NR 350,000 361,088
440,000 Northfield (City of), MN, 7.00% Health Care
Fac Rev Northfield Parkview Proj Ser B
5-1-2015 (Prerefunded 5-1-2001 @ 102)...... NR 436,371 454,634
500,000 Red Wing (City of), MN, 6.50% Elderly Housing
Fac Rev River Region Obligated Group Ser C
9-1-2022................................... BBB+ 497,109 476,445
500,000 Spring Park (City of), MN, 8.25% Health Care
Fac Rev Bond Twin Birch Health Care Ctr
8-1-2011 (Prerefunded 8-1-2001 @ 102)...... NR 500,000 524,445
----------- -----------
7,220,794 7,152,100
----------- -----------
</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>
MISCELLANEOUS-10.32%
$ 450,000 Dakota County, MN, 7.50% HRA Limited Annual
Appropriation Tax & Rev Supported Bond
1-1-2006................................... BBB+ $ 450,000 $ 458,951
1,000,000 Golden Valley (City of), MN, 5.875% Rev Bond
Breck School Proj 10-1-2019................ A2* 985,875 1,012,890
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 1,055,900
1,425,000 Minnesota State, 5.875% Retirement Sys Bldg
Rev Bond 6-1-2022.......................... AAA 1,417,120 1,466,695
----------- -----------
3,852,995 3,994,436
----------- -----------
POLLUTION CONTROL-6.03%
650,000 East Grand Forks (City of), MN, 7.75%
Pollution Control Rev (American Crystal
Sugar) Ser 1991A 4-1-2018.................. BBB+ 650,180 669,669
1,000,000 Minnesota Public Fac Auth, 5.25% Water
Pollution Rev Bond Ser A 3-1-2017.......... AAA 981,616 975,260
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 657,197 688,320
----------- -----------
2,288,993 2,333,249
----------- -----------
PUBLIC FACILITIES-1.91%
400,000 Duluth (City of), MN, 6.75% Gross Rev
Recreation Fac Bond Spirit Mountain
Ser 1992 2-1-2007.......................... NR 400,000 402,164
325,000 Moorhead (City of), MN, 7.75% Golf Course Rev
Bond Ser 1992A 12-1-2015 (Prerefunded
12-1-2001 @ 100)........................... NR 325,000 337,012
----------- -----------
725,000 739,176
----------- -----------
TRANSPORTATION-2.72%
1,000,000 Puerto Rico, 5.50% Commonwealth Highway &
Transportation Auth Rev Ser W FSA-CR
7-1-2013................................... AAA 1,022,002 1,054,390
----------- -----------
UTILITIES-ELECTRIC-6.64%
1,000,000 Northern MN Municipal Power Agency, 5.30%
Elec Sys Rev FSA Insured 1-1-2021.......... AAA 955,346 956,140
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 643,455 761,887
1,000,000 Southern MN Municipal Power Agency, 5.27%
Zero Coupon Power Supply Systems Rev Bonds
MBIA Insured 1-1-2019 (d).................. AAA 387,036 353,380
1,600,000 Southern MN Municipal Power Agency, 6.25%
Zero Coupon Power Supply Systems Rev Bonds
Cap Apprec Ser A MBIA Insured 1-1-2021
(d)........................................ AAA 460,130 496,624
----------- -----------
2,445,967 2,568,031
----------- -----------
TOTAL MUNICIPAL BONDS........................ $36,746,863 $37,154,439
=========== ===========
</TABLE>
SHORT-TERM INVESTMENTS-2.68%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value (b)
------------ ------------
<C> <S> <C>
INVESTMENT COMPANY-2.68%
$ 1,037,096 Federated Minnesota Municipal Cash Trust,
Current rate - 4.60%....................... $ 1,037,096
-----------
TOTAL INVESTMENTS IN SECURITIES (COST:
$37,783,959) (a)........................... $38,191,535
===========
</TABLE>
(a) At September 30, 2000, the cost of securities for federal income tax
purposes was $37,783,959 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 906,981
Unrealized depreciation..................................... (499,405)
--------------------------------------------------------------------------
Net unrealized appreciation................................. $ 407,576
--------------------------------------------------------------------------
</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.
Statements of Assets and Liabilities
September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
ASSETS:
Investments in securities, as detailed in the
accompanying schedules, at market (cost
$52,891,653; $37,783,959; respectively) (Note
1)............................................ $54,915,954 $38,191,535
Receivables:
Investment securities sold.................... -- 15,000
Interest and dividends........................ 775,264 597,122
Deferred registration costs (Note 1)............ 16,824 4,944
----------- -----------
TOTAL ASSETS...................................... 55,708,042 38,808,601
----------- -----------
LIABILITIES:
Cash portion of dividends payable............... 72,168 50,778
Redemptions of capital stock.................... 4,222 11,923
Payable for investment advisory and management
fees (Note 2)................................. 36,353 22,981
Payable for distribution fees (Note 2).......... 464 165
Accounts payable and accrued expenses........... 24,035 21,037
----------- -----------
TOTAL LIABILITIES................................. 137,242 106,884
----------- -----------
NET ASSETS:
Net proceeds of capital stock, par value $.01
per share-authorized 100,000,000,000;
100,000,000,000 shares; respectively.......... 53,754,309 38,674,683
Unrealized appreciation of investments.......... 2,024,301 407,576
Undistributed net investment income............. 69,627 49,218
Accumulated net realized gain (loss) from sale
of investments................................ (277,437) (429,760)
----------- -----------
TOTAL NET ASSETS.................................. $55,570,800 $38,701,717
=========== ===========
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A shares (based on net assets of $6,509,121;
and $3,454,436; respectively and 619,730; and
349,665 shares outstanding; respectively)....... $10.50 $9.88
----------- -----------
Class B shares (based on net assets of $1,539,727;
and $828,567; respectively and 146,735; and
83,842 shares outstanding; respectively)........ $10.49 $9.88
----------- -----------
Class C shares (based on net assets of $289,000;
and $254,748; respectively and 27,584; and
25,723 shares outstanding; respectively)........ $10.48 $9.90
----------- -----------
Class E shares (based on net assets of
$42,211,791; and $33,087,875; respectively and
4,012,788; and 3,337,576 shares outstanding;
respectively)................................... $10.52 $9.91
----------- -----------
Class H shares (based on net assets of $5,021,161;
and $1,076,091; respectively and 478,737; and
108,598 shares outstanding; respectively)....... $10.49 $9.91
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Statements of Operations
September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
NET INVESTMENT INCOME:
Income:
Interest income............................... $3,422,865 $2,409,161
---------- ----------
Expenses:
Investment advisory and management fees (Note
2)........................................... 455,123 290,182
Distribution fees (Class A) (Note 2).......... 16,851 8,427
Distribution fees (Class B) (Note 2).......... 15,917 7,717
Distribution fees (Class C) (Note 2).......... 3,634 2,342
Distribution fees (Class H) (Note 2).......... 54,382 12,413
Registration fees (Note 1).................... 43,186 7,219
Legal and auditing fees....................... 17,300 17,000
Shareholders' notices and reports............. 20,100 12,800
Custodian fees................................ 2,550 4,800
Directors' fees and expenses.................. 7,350 7,150
Other......................................... 10,270 6,875
---------- ----------
Total expenses.................................. 646,663 376,925
---------- ----------
NET INVESTMENT INCOME............................. 2,776,202 2,032,236
---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS: (NOTE 1)
Net realized gain (loss) from security
transactions.................................. 171,448 (294,489)
Net realized gain from interest rate futures.... 1,594 --
---------- ----------
NET REALIZED GAIN (LOSS) ON INVESTMENTS........... 173,042 (294,489)
---------- ----------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENTS................... (134,800) 98,863
---------- ----------
NET GAIN (LOSS) ON INVESTMENTS.................... 38,242 (195,626)
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $2,814,444 $1,836,610
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
<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, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 2,776,202 $ 3,106,189
Net realized gain (loss) on investments......... 173,042 (447,559)
Net change in unrealized depreciation of
investments................................... (134,800) (4,554,712)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................. 2,814,444 (1,896,082)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (315,592) (358,626)
Class B....................................... (62,240) (65,694)
Class C....................................... (14,125) (17,374)
Class E....................................... (2,145,134) (2,370,705)
Class H....................................... (213,620) (231,888)
From net realized gains on investments
Class A....................................... -- (90,276)
Class B....................................... -- (16,339)
Class C....................................... -- (4,978)
Class E....................................... -- (589,072)
Class H....................................... -- (71,581)
----------- -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (2,750,711) (3,816,533)
----------- -----------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (99,558 and 159,281 shares)........... 1,036,967 1,748,357
Class B (8,589 and 102,711 shares)............ 89,415 1,139,703
Class C (4,400 and 19,583 shares)............. 45,357 211,700
Class E (67,046 and 109,227 shares)........... 695,823 1,197,525
Class H (21,104 and 151,781 shares)........... 220,943 1,688,819
Proceeds from shares issued as a result of
reinvested dividends
Class A (22,556 and 25,779 shares)............ 233,569 282,949
Class B (5,373 and 6,255 shares).............. 55,576 68,470
Class C (1,261 and 1,782 shares).............. 13,020 19,489
Class E (137,257 and 177,747 shares).......... 1,422,937 1,955,188
Class H (11,561 and 16,763 shares)............ 119,524 184,180
Less cost of repurchase of shares
Class A (290,086 and 128,393 shares).......... (3,000,411) (1,402,494)
Class B (34,705 and 72,984 shares)............ (358,758) (792,178)
Class C (30,550 and 12,353 shares)............ (313,727) (135,294)
Class E (685,948 and 797,205 shares).......... (7,119,277) (8,692,661)
Class H (129,435 and 130,296 shares).......... (1,340,065) (1,406,941)
----------- -----------
NET DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... (8,199,107) (3,933,188)
----------- -----------
TOTAL DECREASE IN NET ASSETS...................... (8,135,374) (9,645,803)
NET ASSETS:
Beginning of year............................... 63,706,174 73,351,977
----------- -----------
End of year (includes undistributed net
investment income of $69,627 and $44,136 ,
respectively)................................. $55,570,800 $63,706,174
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
<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, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 2,032,236 $ 2,160,827
Net realized loss on investments................ (294,489) (118,813)
Net change in unrealized appreciation
(depreciation) of investments................. 98,863 (2,876,460)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................. 1,836,610 (834,446)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (163,436) (149,384)
Class B....................................... (31,425) (40,527)
Class C....................................... (9,544) (8,069)
Class E....................................... (1,752,368) (1,884,736)
Class H....................................... (50,203) (56,779)
From net realized gains on investments
Class A....................................... -- (52,042)
Class B....................................... -- (20,754)
Class C....................................... -- (3,754)
Class E....................................... -- (660,723)
Class H....................................... -- (26,232)
----------- -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (2,006,976) (2,903,000)
----------- -----------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (83,620 and 92,718 shares)............ 819,244 970,636
Class B (17,842 and 19,520 shares)............ 173,976 199,062
Class C (4,227 and 12,467 shares)............. 41,374 129,572
Class E (71,185 and 118,222 shares)........... 694,000 1,219,784
Class H (34,160 and 26,466 shares)............ 331,607 278,026
Proceeds from shares issued as a result of
reinvested dividends
Class A (12,337 and 14,757 shares)............ 120,618 152,679
Class B (3,201 and 4,423 shares).............. 31,314 45,770
Class C (505 and 824 shares).................. 4,954 8,553
Class E (122,065 and 171,562 shares).......... 1,197,168 1,781,326
Class H (3,131 and 5,383 shares).............. 30,721 55,968
Less cost of repurchase of shares
Class A (73,271 and 75,526 shares)............ (716,329) (780,540)
Class B (24,003 and 55,585 shares)............ (234,700) (569,738)
Class C (3,913 and 6,459 shares).............. (38,303) (65,701)
Class E (618,875 and 440,999 shares).......... (6,046,896) (4,539,493)
Class H (69,818 and 26,178 shares)............ (680,998) (266,818)
----------- -----------
NET DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... (4,272,250) (1,380,914)
----------- -----------
TOTAL DECREASE IN NET ASSETS...................... (4,442,616) (5,118,360)
NET ASSETS:
Beginning of year............................... 43,144,333 48,262,693
----------- -----------
End of year (includes undistributed net
investment income of $49,218 and $23,958,
respectively)................................. $38,701,717 $43,144,333
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<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 its investments in a single state and,
therefore, may have more credit risk related to the economic conditions of
the respective state than a portfolio with broader geographical
diversification.
The funds offer Class A, Class B, Class C, Class E and Class H shares.
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' 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 the 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 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 funds amortize long-term bond premium and
original issue discount.
For the year ended September 30, 2000, the cost of purchases and proceeds
from sales of securities (other than short-term securities) aggregated
$36,036,328 and $42,567,634 for National Portfolio; and $19,667,318 and
$23,767,820 for Minnesota Portfolio, respectively.
INCOME TAXES: The funds 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 funds intend to distribute substantially all of
their 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 funds.
For federal income tax purposes the National Portfolio and Minnesota
Portfolio have capital loss carryovers of $277,437 and $429,760, respectively
at September 30, 2000, which, if not offset by subsequent capital gains, will
expire in 2008 and 2009. 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 funds declare income distributions
daily to be paid on the last business day of each month. The funds 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 fund 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
accounting principles generally accepted in the United States of America
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 funds may invest in financial futures contracts in
order to gain exposure to or protect against changes in the market. The funds
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 funds 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
12
<PAGE>
--------------------------------------------------------------------------------
unrealized gains or losses. When the contracts are closed, the funds
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 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, 2000.
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 National Portfolio.
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........................... $17,895 $4,538 $1,208 $14,820 $24,960
Minnesota Portfolio.......................... 10,092 4,952 136 15,361 12,496
</TABLE>
Legal fees and expenses aggregating $1,200 and $900 for the National and
Minnesota Portfolios, respectively, were paid to a law firm of which the
secretary of the fund is a partner.
13
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
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 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
Net asset value, beginning of year...... $ 10.49 $ 11.38 $ 11.07 $ 10.76 $ 10.72
------- ------- ------- ------- -------
Operations:
Investment income - net............... .52 .50 .52 .55 .56
Net realized and unrealized gain
(loss) on investments............... .02 (.78) .34 .31 .04
------- ------- ------- ------- -------
Total from operations................... .54 (.28) .86 .86 .60
------- ------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.51) (.49) (.51) (.55) (.56)
From net realized gains on
investments......................... -- (.12) (.04) -- --
------- ------- ------- ------- -------
Total distributions to shareholders..... (.51) (.61) (.55) (.55) (.56)
------- ------- ------- ------- -------
Net asset value, end of year............ $ 10.52 $ 10.49 $ 11.38 $ 11.07 $ 10.76
------- ------- ------- ------- -------
Total Return @.......................... 5.33% (2.56%) 7.97% 8.19% 5.69%
Net assets end of year (000s omitted)... $42,212 $47,140 $56,959 $59,727 $65,237
Ratio of expenses to average daily net
assets................................ .96% .94% .98% .95% .93%
Ratio of net investment income to
average daily net assets.............. 4.96% 4.56% 4.65% 5.03% 5.19%
Portfolio turnover rate................. 64% 89% 74% 71% 52%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
----------------------------------------------- -----------------------------------------------
Year Ended September 30, Year Ended September 30,
----------------------------------------------- -----------------------------------------------
NATIONAL PORTFOLIO 2000 1999 1998 1997 1996 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
year....................... $10.47 $11.37 $11.06 $10.75 $10.71 $10.46 $11.36 $11.05 $10.74 $10.70
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operations:
Investment income - net.... .50 .47 .50 .53 .53 .42 .38 .42 .44 .45
Net realized and unrealized
gain (loss) on
investments.............. .02 (.78) .34 .31 .04 .02 (.78) .34 .31 .04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from operations........ .52 (.31) .84 .84 .57 .44 (.40) .76 .75 .49
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions to
shareholders:
From investment income -
net...................... (.49) (.47) (.49) (.53) (.53) (.41) (.38) (.41) (.44) (.45)
From net realized gains on
investments.............. -- (.12) (.04) -- -- -- (.12) (.04) -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions to
shareholders................ (.49) (.59) (.53) (.53) (.53) (.41) (.50) (.45) (.44) (.45)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
year....................... $10.50 $10.47 $11.37 $11.06 $10.75 $10.49 $10.46 $11.36 $11.05 $10.74
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Return @............... 5.09% (2.87%) 7.75% 7.96% 5.46% 4.29% (3.61%) 6.95% 7.14% 4.65%
Net assets end of year (000s
omitted)................... $6,509 $8,247 $8,308 $7,263 $6,239 $1,540 $1,752 $1,493 $1,287 $ 997
Ratio of expenses to average
daily net assets........... 1.21% 1.19% 1.23% 1.20% 1.18% 1.96% 1.94% 1.98% 1.95% 1.93%
Ratio of net investment
income to average daily net
assets..................... 4.71% 4.31% 4.40% 4.78% 4.97% 3.96% 3.56% 3.65% 4.02% 4.20%
Portfolio turnover rate...... 64% 89% 74% 71% 52% 64% 89% 74% 71% 52%
</TABLE>
@ These are the total returns during the periods, including reinvestment
of all dividend and capital gains distributions, without adjustments
for sales charge.
14
<PAGE>
--------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued):
<TABLE>
<CAPTION>
Class C
-----------------------------------------------
Year Ended September 30,
-----------------------------------------------
NATIONAL PORTFOLIO 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
Net asset value, beginning of year...... $10.45 $11.34 $11.04 $10.74 $10.70
------ ------ ------ ------ ------
Operations:
Investment income - net............... .42 .39 .41 .43 .45
Net realized and unrealized gain
(loss) on investments............... .02 (.78) .34 .31 .04
------ ------ ------ ------ ------
Total from operations................... .44 (.39) .75 .74 .49
------ ------ ------ ------ ------
Distributions to shareholders:
From investment income - net.......... (.41) (.38) (.41) (.44) (.45)
From net realized gains on
investments......................... -- (.12) (.04) -- --
------ ------ ------ ------ ------
Total distributions to shareholders..... (.41) (.50) (.45) (.44) (.45)
------ ------ ------ ------ ------
Net asset value, end of year............ $10.48 $10.45 $11.34 $11.04 $10.74
------ ------ ------ ------ ------
Total Return @.......................... 4.30% (3.53%) 6.86% 7.04% 4.65%
Net assets end of year (000s omitted)... $ 289 $ 548 $ 493 $ 584 $ 223
Ratio of expenses to average daily net
assets................................ 1.96% 1.94% 1.98% 1.95% 1.93%
Ratio of net investment income to
average daily net assets.............. 3.96% 3.56% 3.65% 4.05% 4.20%
Portfolio turnover rate................. 64% 89% 74% 71% 52%
</TABLE>
<TABLE>
<CAPTION>
Class H
-----------------------------------------------
Year Ended September 30,
-----------------------------------------------
NATIONAL PORTFOLIO 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
Net asset value, beginning of year...... $10.46 $11.35 $11.06 $10.75 $10.71
------ ------ ------ ------ ------
Operations:
Investment income - net............... .42 .39 .40 .44 .45
Net realized and unrealized gain
(loss) on investments............... .02 (.78) .34 .31 .04
------ ------ ------ ------ ------
Total from operations................... .44 (.39) .74 .75 .49
------ ------ ------ ------ ------
Distributions to shareholders:
From investment income - net.......... (.41) (.38) (.41) (.44) (.45)
From net realized gains on
investments......................... -- (.12) (.04) -- --
------ ------ ------ ------ ------
Total distributions to shareholders..... (.41) (.50) (.45) (.44) (.45)
------ ------ ------ ------ ------
Net asset value, end of year............ $10.49 $10.46 $11.35 $11.06 $10.75
------ ------ ------ ------ ------
Total Return @.......................... 4.29% (3.52%) 6.76% 7.13% 4.64%
Net assets end of year (000s omitted)... $5,021 $6,019 $6,099 $5,111 $4,015
Ratio of expenses to average daily net
assets................................ 1.96% 1.94% 1.98% 1.95% 1.93%
Ratio of net investment income to
average daily net assets.............. 3.96% 3.56% 3.65% 4.03% 4.20%
Portfolio turnover rate................. 64% 89% 74% 71% 52%
</TABLE>
@ These are the total returns during the periods, including reinvestment
of all dividend and capital gains distributions, without adjustments
for sales charge.
15
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued):
<TABLE>
<CAPTION>
Class E
----------------------------------------------------
Year Ended September 30,
----------------------------------------------------
MINNESOTA PORTFOLIO 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------
Net asset value, beginning of
year........................ $ 9.94 $ 10.77 $ 10.46 $ 10.28 $ 10.32
------- ------- ------- ------- -------
Operations:
Investment income - net..... .51 .50 .52 .53 .55
Net realized and unrealized
gain (loss) on
investments............... (.04) (.67) .32 .18 (.04)
------- ------- ------- ------- -------
Total from operations......... .47 (.17) .84 .71 .51
------- ------- ------- ------- -------
Distributions to shareholders:
From investment income -
net....................... (.50) (.49) (.52) (.53) (.55)
From net realized gains on
investments............... -- (.17) (.01) -- --
------- ------- ------- ------- -------
Total distributions to
shareholders................. (.50) (.66) (.53) (.53) (.55)
------- ------- ------- ------- -------
Net asset value, end of
year........................ $ 9.91 $ 9.94 $ 10.77 $ 10.46 $ 10.28
------- ------- ------- ------- -------
Total Return @................ 4.87% (1.71%) 8.25% 7.10% 5.01%
Net assets end of year (000s
omitted).................... $33,088 $37,396 $42,170 $43,584 $49,262
Ratio of expenses to average
daily net assets............ .86% .86% .91% .96% .93%
Ratio of net investment income
to average daily net
assets...................... 5.12% 4.73% 4.94% 5.14% 5.34%
Portfolio turnover rate....... 56% 55% 55% 61% 41%
</TABLE>
<TABLE>
<CAPTION>
Class A
----------------------------------------------------
Year Ended September 30,
----------------------------------------------------
MINNESOTA PORTFOLIO 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------
Net asset value, beginning of
year........................ $ 9.91 $ 10.74 $ 10.43 $ 10.26 $ 10.30
------- ------- ------- ------- -------
Operations:
Investment income - net..... .48 .47 .49 .50 .52
Net realized and unrealized
gain (loss) on
investments............... (.04) (.67) .32 .18 (.04)
------- ------- ------- ------- -------
Total from operations......... .44 (.20) .81 .68 .48
------- ------- ------- ------- -------
Distributions to shareholders:
From investment income -
net....................... (.47) (.46) (.49) (.51) (.52)
From net realized gains on
investments............... -- (.17) (.01) -- --
------- ------- ------- ------- -------
Total distributions to
shareholders................. (.47) (.63) (.50) (.51) (.52)
------- ------- ------- ------- -------
Net asset value, end of
year........................ $ 9.88 $ 9.91 $ 10.74 $ 10.43 $ 10.26
------- ------- ------- ------- -------
Total Return @................ 4.63% (1.94%) 8.13% 6.66% 4.78%
Net assets end of year (000s
omitted).................... $ 3,454 $ 3,240 $ 3,170 $ 3,689 $ 1,822
Ratio of expenses to average
daily net assets............ 1.11% 1.11% 1.16% 1.21% 1.18%
Ratio of net investment income
to average daily net
assets...................... 4.87% 4.48% 4.69% 4.89% 5.07%
Portfolio turnover rate....... 56% 55% 55% 61% 41%
<CAPTION>
Class B
------------------------------------------------
Year Ended September 30,
------------------------------------------------
MINNESOTA PORTFOLIO 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................ $ 9.90 $10.73 $10.42 $10.24 $10.27
------- ------ ------ ------ ------
Operations:
Investment income - net..... .42 .39 .41 .42 .45
Net realized and unrealized
gain (loss) on
investments............... (.04) (.67) .32 .18 (.04)
------- ------ ------ ------ ------
Total from operations......... .38 (.28) .73 .60 .41
------- ------ ------ ------ ------
Distributions to shareholders:
From investment income -
net....................... (.40) (.38) (.41) (.42) (.44)
From net realized gains on
investments............... -- (.17) (.01) -- --
------- ------ ------ ------ ------
Total distributions to
shareholders................. (.40) (.55) (.42) (.42) (.44)
------- ------ ------ ------ ------
Net asset value, end of
year........................ $ 9.88 $ 9.90 $10.73 $10.42 $10.24
------- ------ ------ ------ ------
Total Return @................ 3.96% (2.73%) 7.18% 6.01% 4.04%
Net assets end of year (000s
omitted).................... $ 829 $ 860 $1,271 $1,301 $1,109
Ratio of expenses to average
daily net assets............ 1.86% 1.86% 1.91% 1.96% 1.93%
Ratio of net investment income
to average daily net
assets...................... 4.12% 3.73% 3.94% 4.14% 4.34%
Portfolio turnover rate....... 56% 55% 55% 61% 41%
</TABLE>
@ These are the total returns during the periods, including reinvestment
of all dividend and capital gains distributions, without adjustments
for sales charge.
16
<PAGE>
--------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued):
<TABLE>
<CAPTION>
Class C
------------------------------------------------
Year Ended September 30,
------------------------------------------------
MINNESOTA PORTFOLIO 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------
Net asset value, beginning of
year........................ $ 9.93 $10.73 $10.44 $10.26 $10.30
------- ------ ------ ------ ------
Operations:
Investment income - net..... .41 .42 .39 .42 .44
Net realized and unrealized
gain (loss) on
investments............... (.04) (.67) .32 .18 (.04)
------- ------ ------ ------ ------
Total from operations......... .37 (.25) .71 .60 .40
------- ------ ------ ------ ------
Distributions to shareholders:
From investment income -
net....................... (.40) (.38) (.41) (.42) (.44)
From net realized gains on
investments............... -- (.17) (.01) -- --
------- ------ ------ ------ ------
Total distributions to
shareholders................. (.40) (.55) (.42) (.42) (.44)
------- ------ ------ ------ ------
Net asset value, end of
year........................ $ 9.90 $ 9.93 $10.73 $10.44 $10.26
------- ------ ------ ------ ------
Total Return @................ 3.84% (2.45%) 6.97% 6.00% 4.00%
Net assets end of year (000s
omitted).................... $ 255 $ 247 $ 194 $ 232 $ 210
Ratio of expenses to average
daily net assets............ 1.86% 1.86% 1.91% 1.96% 1.93%
Ratio of net investment income
to average daily net
assets...................... 4.12% 3.73% 3.94% 4.14% 4.31%
Portfolio turnover rate....... 56% 55% 55% 61% 41%
</TABLE>
<TABLE>
<CAPTION>
Class H
----------------------------------------------------
Year Ended September 30,
----------------------------------------------------
MINNESOTA PORTFOLIO 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
Net asset value, beginning of
year........................ $ 9.93 $ 10.76 $ 10.44 $ 10.26 $ 10.30
------- ------- ------- ------- -------
Operations:
Investment income - net..... .42 .39 .42 .42 .44
Net realized and unrealized
gain (loss) on
investments............... (.04) (.67) .32 .18 (.04)
------- ------- ------- ------- -------
Total from operations......... .38 (.28) .74 .60 .40
------- ------- ------- ------- -------
Distributions to shareholders:
From investment income -
net....................... (.40) (.38) (.41) (.42) (.44)
From net realized gains on
investments............... -- (.17) (.01) -- --
------- ------- ------- ------- -------
Total distributions to
shareholders................. (.40) (.55) (.42) (.42) (.44)
------- ------- ------- ------- -------
Net asset value, end of
year........................ $ 9.91 $ 9.93 $ 10.76 $ 10.44 $ 10.26
------- ------- ------- ------- -------
Total Return @................ 3.95% (2.73%) 7.26% 6.00% 3.93%
Net assets end of year (000s
omitted).................... $ 1,076 $ 1,401 $ 1,458 $ 1,227 $ 1,061
Ratio of expenses to average
daily net assets............ 1.86% 1.86% 1.91% 1.96% 1.93%
Ratio of net investment income
to average daily net
assets...................... 4.12% 3.73% 3.94% 4.14% 4.33%
Portfolio turnover rate....... 56% 55% 55% 61% 41%
</TABLE>
@ These are the total returns during the periods, including reinvestment
of all dividend and capital gains distributions, without adjustments
for sales charge.
17
<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 (funds within Fortis Tax-Free Portfolios, Inc.) as of September 30,
2000, 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, 2000, and the financial highlights for each of the years
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 auditing standards generally accepted
in the United States of America. 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. Our procedures included confirmation of
securities owned as of September 30, 2000, by correspondence with the custodian.
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, 2000, 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, 2000,
and the financial highlights for each of the years presented, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Minneapolis, Minnesota
November 3, 2000
18
<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, 2001, 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, 2000, 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, 2000.
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
10/29/1999................................... $ 0.039 $ 0.032 $ 0.032 $ 0.041 $ 0.032
11/30/1999................................... 0.039 0.032 0.032 0.041 0.032
12/31/1999................................... 0.039 0.032 0.032 0.041 0.032
1/31/2000.................................... 0.039 0.032 0.032 0.041 0.032
2/29/2000.................................... 0.040 0.033 0.033 0.042 0.033
3/31/2000.................................... 0.040 0.033 0.033 0.042 0.033
4/28/2000.................................... 0.041 0.034 0.034 0.043 0.034
5/31/2000.................................... 0.041 0.034 0.034 0.043 0.034
6/30/2000.................................... 0.042 0.036 0.036 0.044 0.036
7/31/2000.................................... 0.042 0.036 0.036 0.044 0.036
8/31/2000.................................... 0.042 0.036 0.036 0.044 0.036
9/29/2000.................................... 0.042 0.036 0.036 0.044 0.036
------- ------- ------- ------- -------
Total Distributions.......................... $ 0.486 $ 0.406 $ 0.406 $ 0.510 $ 0.406
------- ------- ------- ------- -------
MINNESOTA PORTFOLIO
RECORD DATE
Ordinary Income Per Share
10/29/1999................................... $ 0.037 $ 0.030 $ 0.030 $ 0.039 $ 0.030
11/30/1999................................... 0.038 0.032 0.032 0.040 0.032
12/31/1999................................... 0.038 0.032 0.032 0.040 0.032
1/31/2000.................................... 0.038 0.032 0.032 0.040 0.032
2/29/2000.................................... 0.039 0.033 0.033 0.041 0.033
3/31/2000.................................... 0.039 0.033 0.033 0.041 0.033
4/28/2000.................................... 0.040 0.034 0.034 0.042 0.034
5/31/2000.................................... 0.040 0.034 0.034 0.042 0.034
6/30/2000.................................... 0.041 0.035 0.035 0.043 0.035
7/31/2000.................................... 0.041 0.035 0.035 0.043 0.035
8/31/2000.................................... 0.041 0.035 0.035 0.043 0.035
9/29/2000.................................... 0.041 0.035 0.035 0.043 0.035
------- ------- ------- ------- -------
Total Distributions.......................... $ 0.473 $ 0.400 $ 0.400 $ 0.497 $ 0.400
------- ------- ------- ------- -------
</TABLE>
19
<PAGE>
DIRECTORS AND OFFICERS
DIRECTORS Richard W. Cutting CPA AND FINANCIAL CONSULTANT
Allen R. Freedman CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
FORTIS, INC. MANAGING DIRECTOR OF
FORTIS INTERNATIONAL, N.V.
Dr. Robert M. Gavin PRESIDENT, CRANBROOK EDUCATION
COMMUNITY. PRIOR TO JULY 1996,
PRESIDENT MACALESTER COLLEGE
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
Phillip O. Peterson MUTUAL FUND INDUSTRY CONSULTANT;
PARTNER OF KPMG LLP, THROUGH JUNE
1999
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 F. Schenker MARKETING CONSULTANT. PRIOR TO MAY
1996, SENIOR VICE PRESIDENT OF
MARKETING & STRATEGIC PLANNING,
ROLLERBLADE, INC.
Dr. Lemma W. Senbet CONSULTANT, INTERNATIONAL FINANCIAL
INSTITUTIONS, THE WILLIAM E. MAYER
PROFESSOR OF FINANCE AND CHAIR,
FINANCE DEPARTMENT, UNIVERSITY OF
MARYLAND, COLLEGE PARK, MD
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.
20
<PAGE>
FORTIS FINANCIAL GROUP'S OTHER PRODUCTS AND SERVICES
MUTUAL Fortis Bond Funds MONEY FUND
FUNDS/PORTFOLIOS U.S. GOVERNMENT
CONVENIENT ACCESS TO SECURITIES FUND
A BROAD RANGE OF TAX-FREE NATIONAL
SECURITIES PORTFOLIO
TAX-FREE MINNESOTA
PORTFOLIO
STRATEGIC INCOME FUND
HIGH YIELD PORTFOLIO
Fortis Stock Funds ASSET ALLOCATION
PORTFOLIO
VALUE FUND
GROWTH & INCOME FUND
CAPITAL FUND
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
MULTISECTOR BOND
SUBACCOUNT
HIGH YIELD SUBACCOUNT
ASSET ALLOCATION
SUBACCOUNT
AMERICAN LEADERS
SUBACCOUNT
VALUE SUBACCOUNT
CAPITAL OPPORTUNITIES
SUBACCOUNT
GROWTH & INCOME
SUBACCOUNT
S&P 500 INDEX SUBACCOUNT
BLUE CHIP STOCK
SUBACCOUNT
BLUE CHIP STOCK II
SUBACCOUNT
INTERNATIONAL STOCK
SUBACCOUNT
INTERNATIONAL STOCK II
SUBACCOUNT
MID CAP STOCK SUBACCOUNT
SMALL CAP VALUE
SUBACCOUNT
GLOBAL GROWTH SUBACCOUNT
GLOBAL EQUITY SUBACCOUNT
LARGE CAP GROWTH
SUBACCOUNT
INVESTORS 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
MULTISECTOR BOND
SUBACCOUNT
HIGH YIELD SUBACCOUNT
ASSET ALLOCATION
SUBACCOUNT
AMERICAN LEADERS
SUBACCOUNT
VALUE SUBACCOUNT
CAPITAL OPPORTUNITIES
SUBACCOUNT
GROWTH & INCOME
SUBACCOUNT
S&P 500 INDEX SUBACCOUNT
BLUE CHIP STOCK
SUBACCOUNT
BLUE CHIP STOCK II
SUBACCOUNT
INTERNATIONAL STOCK
SUBACCOUNT
INTERNATIONAL STOCK II
SUBACCOUNT
MID CAP STOCK SUBACCOUNT
SMALL CAP VALUE
SUBACCOUNT
GLOBAL GROWTH SUBACCOUNT
GLOBAL EQUITY SUBACCOUNT
LARGE CAP GROWTH
SUBACCOUNT
INVESTORS 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.
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[LOGO]
FORTIS
Solid partners, flexible solutions-SM-
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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 provides a wide selection of investment products
including annuities, life insurance and mutual funds. 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
Fund management offered through
Fortis Advisers, Inc. since 1949
Securities offered through
Fortis Investors, Inc.,
member NASD, SIPC
Insurance products issued by
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
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FORTIS FINANCIAL GROUP ---------------
P.O. Box 64284 PRSRT STD
St. Paul, MN 55164-0284 U.S. Postage
PAID
Permit No. 3794
Tax-free bond funds Minneapolis, MN
---------------
The Fortis brandmark and Fortis-Registered Trademark- are servicemarks
of Fortis (B) and Fortis (NL).
95311-C- Fortis, Inc. 11/00
