-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OJB2O+AU0PBTJ+Yg7t0z0kHbihvEac+HBnZF9ZAgs2cfiQOE0EGUkb5yfyWRWBLH wEwk9g1tOcDaPvePIn9GvQ== 0000912057-02-011418.txt : 20020415 0000912057-02-011418.hdr.sgml : 20020415 ACCESSION NUMBER: 0000912057-02-011418 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020131 FILED AS OF DATE: 20020325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORTIS ADVANTAGE PORTFOLIOS INC CENTRAL INDEX KEY: 0000823344 IRS NUMBER: 411594429 STATE OF INCORPORATION: MN FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05355 FILM NUMBER: 02584656 BUSINESS ADDRESS: STREET 1: PO BOX 64284 CITY: ST PAUL STATE: MN ZIP: 55164 BUSINESS PHONE: 6517384000 MAIL ADDRESS: STREET 1: PO BOX 64284 CITY: ST PAUL STATE: MN ZIP: 55164 FORMER COMPANY: FORMER CONFORMED NAME: AMEV ADVANTAGE PORTFOLIOS INC DATE OF NAME CHANGE: 19920203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORTIS INCOME PORTFOLIOS INC CENTRAL INDEX KEY: 0000049929 IRS NUMBER: 410994371 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02341 FILM NUMBER: 02584655 BUSINESS ADDRESS: STREET 1: 500 BIELENBERG DE CITY: WOODBURY STATE: MN ZIP: 55125 BUSINESS PHONE: 6127384000 MAIL ADDRESS: STREET 1: P O BOX 64284 CITY: ST PAUL STATE: MN ZIP: 55164 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL INCOME FUND INC DATE OF NAME CHANGE: 19770201 FORMER COMPANY: FORMER CONFORMED NAME: SAINT PAUL INCOME FUND INC DATE OF NAME CHANGE: 19850516 FORMER COMPANY: FORMER CONFORMED NAME: AMEV U S GOVERNMENT SECURITIES FUND INC DATE OF NAME CHANGE: 19920203 N-30D 1 a2072630zn-30d.txt N-30D Invest for today's needs...tomorrow's dreams [PHOTO OF WOMAN W/ COMPUTER] [PHOTO OF A COMPUTER SCREEN] Fortis bond funds semiannual report January 31, 2002 Fortis High Yield Fund Fortis Strategic Income Fund FORTIS BOND FUNDS SEMIANNUAL REPORT CONTENTS LETTER TO SHAREHOLDERS 2 SCHEDULES OF INVESTMENTS STRATEGIC INCOME FUND 4 HIGH YIELD PORTFOLIO 7 STATEMENTS OF ASSETS AND LIABILITIES 12 STATEMENTS OF OPERATIONS 13 STATEMENTS OF CHANGES IN NET ASSETS STRATEGIC INCOME 14 HIGH YIELD PORTFOLIO 15 NOTES TO FINANCIAL STATEMENTS 16 DIRECTORS AND OFFICERS 23 SHAREHOLDER MEETING INFORMATION 24 - - 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 HOW TO USE THIS REPORT For a quick overview of the fund's performance during the past six months, refer to the Highlights box below. The letter from the president provides a more detailed analysis of the fund and financial markets. The charts alongside the letter are useful because they provide more information about your investments. The top holdings charts show the types of securities in which the fund invests, and the pie chart shows a breakdown of each fund's assets by industry or sector. Additional information concerning fund performance and policies can be found in the Notes to Financial Statements. The performance chart graphically compares each 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 Hartford Funds. Your investment representative, who understands your personal financial situation, can best explain the features of your investment and how it's designed to help you meet your financial goals. HIGHLIGHTS FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 2002
CLASS A CLASS B CLASS C CLASS H ------- ------- ------- ------- STRATEGIC INCOME FUND NET ASSET VALUE PER SHARE: Beginning of period......... $8.53 $8.53 $8.53 $8.52 End of period............... $8.26 $8.25 $8.25 $8.24 DISTRIBUTIONS PER SHARE From net investment income.................... $.305 $.274 $.273 $.272 HIGH YIELD PORTFOLIO NET ASSET VALUE PER SHARE: Beginning of period......... $5.26 $5.27 $5.26 $5.26 End of period............... $4.86 $4.87 $4.86 $4.87 DISTRIBUTIONS PER SHARE From net investment income.................... $.268 $.253 $.253 $.253
1 PORTFOLIO COMPOSITION BY SECTOR AS OF 1/31/2002 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Foreign Bonds-Investment Grade 25.7% Corporate Bonds-Non-Investment Grade 21.6% U.S. Government Securities 20.4% Corporate Bonds-Investment Grade 13.3% Cash Equivalents/Receivables 11.3% Foreign Bonds-Non-Investment Grade 7.7%
TOP 10 HOLDINGS AS OF 1/31/2002
Percent of Bonds Net Assets - ------------------------------------------------------------ 1. French Treasury Note (4.75%) 2002 8.8% 2. FNMA (7.50%) 2031 7.6% 3. FNMA (6.50%) 2031 4.4% 4. FNMA (6.00%) 2016 4.2% 5. Australian Government Note (7.50%) 2009 4.2% 6. AT&T Corp. (6.50%) 2006 3.1% 7. Nextel Communications, Inc. (9.375%) 2009 2.7% 8. Domtar, Inc. (7.875%) 2011 2.4% 9. HealthSouth Corp. (10.75%) 2008 2.4% 10. Telefonica Europe BV (7.75%) 2010 2.4%
CLASS B, C AND H TOTAL RETURNS
Since 1 Year Inception+ - ------------------------------------------------------------------------ Class B shares# -1.14% +1.89% Class B shares## -4.43% +1.57% Class C shares# -1.14% +1.89% Class C shares## -2.07% +1.89% Class H shares# -1.27% +1.87% Class H shares## -4.56% +1.55%
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 (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 A has 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 invested). Class C has a CDSC of 1.00% if redeemed within one year of purchase. # Without CDSC. ## With CDSC. Assumes redemption on January 31, 2002. + Since December 1, 1997 - Date shares were first offered to the public. YOUR STRATEGIC INCOME FUND THE FUND'S INVESTMENT OBJECTIVE IS TO MAXIMIZE TOTAL RETURN (FROM CURRENT INCOME AND CAPITAL APPRECIATION) BY PRIMARILY INVESTING IN A DIVERSIFIED PORTFOLIO OF U.S. GOVERNMENT SECURITIES, INVESTMENT AND NON-INVESTMENT GRADE BONDS ISSUED BY FOREIGN GOVERNMENTS AND COMPANIES, AND NON-INVESTMENT GRADE BONDS ISSUED BY U.S. COMPANIES. HOW DID THE FUND PERFORM? For the six-month period ended January 31, 2002, the fund had a return of 0.39% for Class A before sales charge versus a return of 3.20% for the Lehman Brothers Aggregate Bond Index. WHY DID THE FUND PERFORM THIS WAY? We increased the fund's weighting in U.S. Treasuries which aided portfolio performance. While these securities were relatively low-yielding, their price appreciation overcame the yield disadvantage relative to other fixed income alternatives. Euro-denominated issues enhanced portfolio returns as this currency outperformed the U.S. dollar, Japanese yen, and Canadian dollar during the third quarter. The fund's holdings in investment grade and high yield corporate bonds generally lagged the returns on Treasury securities. Although our overweight in energy and healthcare performed well, our positions in technology and telecommunications and technology industries were particularly lackluster performers. In late November and December, the fund saw substantial cash outflows. WHAT IS YOUR OUTLOOK GOING FORWARD IN 2002? We are managing the fund to meet cash outflow demands. We continue to underweight finance and consumer-related securities. We are emphazing some of the basic industries such as pulp/paper, chemicals, and metals and mining. Individual issuers and security selection is key, and we are working with our traders and analysts to identify those with high potential for attractive returns. We will maintain our current exposure to mortgages, neutral position to the Index. Finally, we are gradually reducing our holdings in U.S. Treasuries. These securities have performed well over the past couple of years, resulting in today's low relative yields. We expect to continue to opportunistically manage the fund's minor allocation to foreign currency-denominated issues. VALUE OF $10,000 INVESTED DECEMBER 1, 1997 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC FORTIS STRATEGIC INCOME FUND AVERAGE ANNUAL TOTAL RETURN
SINCE 1 YEAR DECEMBER 1, 1997@ CLASS A* -4.77% +1.54% CLASS A** -0.28% +2.67%
LEHMAN BROTHERS AGGREGATE SALOMON BROTHERS STRATEGIC INCOME FUND BOND INDEX*** WORLD INDEX**** CLASS A 12/1/97 $10,000 $10,000 $9,550 98 $10,230 $10,067 $9,826 99 $11,056 $11,390 $10,027 00 $10,852 $10,771 $9,920 01 $12,352 $11,193 $10,687 02 $13,287 $10,891 $10,657
Annual period ended January 31 Past performance is not indicative of future performance. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. * SEC defined total returns, including reinvestment of all dividend and capital gains distributions and the reduction due to the maximum sales charge of 4.50%. ** These are the 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 government, corporate and mortgage-backed securities with an average maturity of approximately nine years. **** An unmanaged index of world government bonds with maturities of at least one year. @ Date shares were first offered to the public. 2 PORTFOLIO COMPOSITION BY INDUSTRY AS OF 1/31/2002 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Technology 27.2% Basic Materials 16.5% Services 16.1% Health Care 8.0% Utilities 6.9% Energy 6.5% Cash Equivalents/Receivables 5.5% Finance 4.1% Consumer Cyclical 3.2% Transportation 2.5% Consumer Staples 1.8% Capital Goods 1.7%
TOP 10 HOLDINGS AS OF 1/31/2002
Percent of Bonds Net Assets - ------------------------------------------------------------ 1. Nextel Communications, Inc. (9.375%) 2009 2.8% 2. Level 3 Communications, Inc. (9.125%) 2008 2.4% 3. Lucent Technologies, Inc. (6.45%) 2029 1.8% 4. Fox Family Worldwide, Inc. (11.87%) 2007 1.8% 5. Mission Energy Holding Co. (13.50%) 2008 1.7% 6. Crown Castle International Corp. (9.375%) 2011 1.7% 7. Equistar Chemicals L.P. (7.55%) 2026 1.5% 8. Marconi Corp. plc (8.375%) 2030 1.5% 9. KPNQwest N.V. (8.125%) 2009 1.5% 10. Sierra Pacific Power Co. (8.00%) 2008 1.5%
CLASS B, C AND H AVERAGE ANNUAL TOTAL RETURNS
Since 1 Year 5 Year Inception+ - ------------------------------------------------------------------------------------ Class B shares# -9.43% -0.31% +2.65% Class B shares## -12.29% -0.48% +2.65% Class C shares# -9.45% -0.31% +2.63% Class C shares## -10.27% -0.31% +2.63% Class H shares# -9.42% -0.28% +2.65% Class H shares## -12.29% -0.45% +2.65%
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 (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 A has a maximum sales charge of 4.50%, Class B and H have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if redeemed in year three or four, 2.00% if redeemed in year five and 1.00% if redeemed in year six (with a waiver of 10% of the amount invested). Class C has a CDSC of 1.00% if redeemed within one year of purchase. # Without CDSC. ## With CDSC. Assumes redemption on January 31, 2002. + Since November 14, 1994 - Date shares were first offered to the public. YOUR HIGH YIELD PORTFOLIO LONG-TERM INVESTORS, WILLING TO ACCEPT GREATER PRICE FLUCTUATIONS, MAY CHOOSE TO DIVERSIFY THEIR STOCK OR BOND INVESTMENTS WITH THIS PORTFOLIO OF HIGHER YIELDING BONDS. ITS MONEY MANAGERS INVEST IN A WIDELY DIVERSIFIED PORTFOLIO OF LOWER-RATED CORPORATE BONDS. HOW DID THE FUND PERFORM? For the six-month period ended January 31, 2002, the fund, had a return of - -2.52% for Class A before sales charge versus a return of 0.53% for the Lehman Brothers High Yield Index. WHY DID THE FUND PERFORM THIS WAY? The tragic events of September 11th reinforced the view we have held for most of the year that consumer-related high yield issuers such as those in the retail, homebuilding and gaming industries, along with lodging and transportation issuers were ripe for a correction. The fund is underweight these sectors. Such issues, however, have actually performed well and therefore appear even less attractive to us, given our continued concerns for rising unemployment and high household debt levels. We have favored and continue to favor issuers in the telecommunications and technology industries. Many of these securities are available at very high yields, and in sharp contrast to our view of early 2000, we believe that the market is currently overestimating the likelihood of default among these issuers. These sectors had a difficult month in January, after positive returns in the fourth quarter of 2001. We focused on our overweight positions in the healthcare and energy sector. Both positions continue to enjoy upgrades in their debt ratings as their financial positions improve. WHAT IS YOUR OUTLOOK GOING FORWARD IN 2002? We maintain our overweight to the telecommunication and technology industries, believing the highly discounted dollar prices don't accurately reflect the potential value of the long haul fiber assets. We believe the extremely high yields available in this sector render it one of the more attractive risk/reward profiles present in the marketplace. We also maintain overweight to cyclical commodity issuers, looking for an increase in spending on business inventories from very low levels. In particular, the chemical market has rebounded nicely, a sector we have been adding to fund over the past several months. We are emphazing some of the basic industries such as pulp/paper, chemicals, and metals and mining. Individual issuers and security selection is key, and we are working with our traders and analysts to identify those with high potential for attractive returns. VALUE OF $10,000 INVESTED FEBRUARY 1, 1992 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC FORTIS HIGH YIELD PORTFOLIO AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEAR 10 YEAR CLASS A* -13.12% -0.60% +4.77% CLASS A** -9.02% +0.32% +5.25%
LEHMAN BROTHERS HIGH YIELD HIGH YIELD INDEX*** PORTFOLIO CLASS A 2/1/92 $10,000 $9,550 93 $11,507 $10,867 94 $13,379 $13,283 95 $13,136 $12,558 96 $15,717 $14,242 97 $17,367 $15,680 98 $19,743 $17,305 99 $20,049 $17,218 00 $20,141 $17,267 01 $20,470 $17,515 02 $20,188 $15,934
Annual period ended January 31 Past performance is not indicative of future performance. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. * SEC defined total returns, including reinvestment of all dividend and capital gains distributions and the reduction due to the maximum sales charge of 4.50%. ** These are the 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 lower quality, high yield corporate debt securities. 3 FORTIS BOND FUNDS STRATEGIC INCOME FUND Schedule of Investments January 31, 2002 (Unaudited) CORPORATE BONDS - INVESTMENT GRADE - 38.99% - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) - ---------- ------------------------------ ----------- ----------- BASIC MATERIALS - 8.21% $ 260,000 Domtar, Inc., 7.875%, 10-15-2011 -- Canada........ BBB- $ 262,367 $ 273,353 55,000 Newmont Mining Corp., 8.625%, 5-15-2011 -- United States...................... BBB 54,751 56,292 125,000 Nova Chemicals Ltd., 7.875%, 9-15-2025 -- Canada......... BBB- 115,616 105,651 45,000 Phelps Dodge Corp., 8.75%, 6-1-2011 -- United States... BBB- 46,123 44,169 60,000 Phelps Dodge Corp., 9.50%, 6-1-2031 -- United States... BBB- 52,661 55,813 125,000 Potash Corp. of Saskatchewan, Inc., 7.125%, 6-15-2007 -- Canada...................... BBB+ 133,259 130,377 70,000 Potash Corp. of Saskatchewan, Inc., 7.75%, 5-31-2011 -- Canada...................... BBB+ 69,563 74,130 110,000 Santa Fe Pacific Gold Corp., 8.375%, 7-1-2005 -- United States...................... BBB 110,927 114,093 70,000 Stora Enso Oyj, 7.375%, 5-15-2011 -- Finland........ BBB+ 69,654 73,794 ----------- ----------- 914,921 927,672 ----------- ----------- CONSUMER CYCLICAL - 1.18% 130,000 Champion International Corp., 7.20%, 11-1-2026 -- United States...................... BBB 134,865 133,799 ----------- ----------- ENERGY - 2.79% 200,000 Kerr-McGee Corp., 6.875%, 9-15-2011 -- United States...................... BBB 202,009 202,092 110,000 Ocean Energy, Inc., 7.25%, 10-1-2011 -- United States...................... BBB- 109,419 113,712 ----------- ----------- 311,428 315,804 ----------- ----------- FINANCE - 17.27% 860,000 Australian Government Note (Australian Dollar), 7.50%, 9-15-2009 -- Australia................... AAA 487,244 475,919 1,150,000 French Treasury Note (Euro), 4.75%, 3-12-2002 -- France...................... AAA 1,005,862 991,244 260,000 Netherlands Government, 5.75%, 9-15-2002 -- Netherlands.... AAA 244,689 226,778 250,000 Toyota Motor Credit Corp., 5.625%, 11-13-2003 -- United States...................... AAA 249,842 258,970 ----------- ----------- 1,987,637 1,952,911 ----------- ----------- HEALTH CARE - 0.73% 80,000 Quest Diagnostic, Inc., 6.75%, 7-12-2006 -- United States...................... BBB- 79,592 82,014 ----------- ----------- TECHNOLOGY - 8.06% 70,000 AT&T Canada, Inc., 7.625%, 3-15-2005 -- Canada......... BBB 31,687 23,070 350,000 AT&T Corp., 6.50%, 11-15-2006 -- United States (g)......................... BBB+ 349,949 355,078 150,000 British Telecommunications plc, 8.875%, 12-15-2030 -- United Kingdom.............. A- 164,036 176,508 10,000 Koninklijke KPN N.V., 8.00%, 10-1-2010 -- Netherlands.... BBB- 8,590 10,362 30,000 Koninklijke KPN N.V., 8.375%, 10-1-2030 -- Netherlands.... BBB- 24,513 30,722 50,000 Nortel Networks Corp., 4.25%, Conv. 9-1-2008 -- Canada (g)......................... BBB- 50,000 48,313 250,000 Telefonica Europe B.V., 7.75%, 9-15-2010 -- Netherlands.... A 259,691 267,226 ----------- ----------- 888,466 911,279 ----------- ----------- TRANSPORTATION - 0.23% 25,000 American Airlines, Inc., 7.858%, Ser 2001-2 Class A-2, 10-1-2011 -- United States (g)........... AA+ 25,000 25,980 ----------- ----------- UTILITIES - 0.52% 60,000 Detroit Edison Co., 6.125%, 10-1-2010 -- United States...................... A- 59,990 58,987 ----------- ----------- TOTAL CORPORATE BONDS - INVESTMENT GRADE............ $4,401,899 $ 4,408,446 ----------- ----------- ----------- -----------
CORPORATE BONDS - NON-INVESTMENT GRADE - 29.35% - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) - ---------- ------------------------------ ----------- ----------- BASIC MATERIALS - 5.02% $ 265,000 Boise Cascade Corp., 7.50%, 2-1-2008 -- United States... BB+ $ 264,719 $ 264,326 75,000 Equistar Chemicals L.P., 7.55%, 2-15-2026 -- United States...................... BB+ 55,484 55,035 250,000 Lyondell Chemical Co., 9.875%, Ser B 5-1-2007 -- United States...................... BB 250,000 248,750 ----------- ----------- 570,203 568,111 ----------- -----------
4 CORPORATE BONDS - NON-INVESTMENT GRADE - CONTINUED - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) - ---------- ------------------------------ ----------- ----------- ENERGY - 2.91% $ 150,000 Pioneer Natural Resources Co., 7.20%, 1-15-2028 -- United States...................... BB+ $ 126,451 $ 127,192 200,000 Swift Energy Co., 10.25%, 8-1-2009 -- United States... B 202,051 202,000 ----------- ----------- 328,502 329,192 ----------- ----------- FINANCE - 1.63% 250,000 Brazil (Republic of), 10.125%, 5-15-2027 -- Brazil......... BB- 251,215 183,750 ----------- ----------- HEALTH CARE - 2.40% 250,000 HealthSouth Corp., 10.75%, 10-1-2008 -- United States...................... BB+ 248,537 271,250 ----------- ----------- SERVICES - 2.24% 250,000 Callahan Nordrhein-Westfalen, 14.00%, 7-15-2010 -- Denmark..................... B- 250,000 117,500 250,000 eKabel Hessen GMBH, 14.50%, 9-1-2010 -- Denmark......... CCC+ 233,886 105,000 35,000 Service Corp. International, 6.50%, 3-15-2008 -- United States...................... BB- 24,721 30,275 ----------- ----------- 508,607 252,775 ----------- ----------- TECHNOLOGY - 12.77% 125,000 Asia Global Crossing Ltd., 13.375%, 10-15-2010 -- Bermuda..................... C 122,661 37,500 200,000 British Sky Broadcasting Group plc, 8.20%, 7-15-2009 -- United Kingdom.............. BB+ 200,434 205,197 150,000 Crown Castle International Corp., 9.375%, 8-1-2011 -- United States............... B 150,000 121,500 42,000 Global Crossing Holdings Ltd., 8.70%, 8-1-2007 (a) -- Bermuda..................... D 12,538 2,940 335,000 Global Crossing Holdings Ltd., 9.50%, 11-15-2009 (a) -- Bermuda..................... D 211,468 17,587 150,000 International Cabletel, Inc., 11.50%, Ser B 2-1-2006 -- United States............... CCC 151,984 55,500 449,000 Marconi Corp. plc, 8.375%, 9-15-2030 -- United Kingdom..................... B- 268,485 191,500 410,000 Nextel Communications, Inc., 9.375%, 11-15-2009 -- United States...................... B 380,856 300,325 200,000 Nextlink Communications, Inc., 12.125%, 12-1-2009 (Zero coupon through 12-1-2004, thereafter 12.125%) -- United States (f)........... C 145,339 17,000 450,000 NTL Communications Corp., 14.42%, Ser B 10-1-2008 (Zero coupon through 10-1-2003, thereafter 12.375%) -- United States (f)........... CCC 347,116 141,750 325,000 PanAmSat Corp., 6.875%, 1-15-2028 -- United States...................... BB 248,076 255,938 200,000 PSINet, Inc., 11.00%, 8-1-2009 (a) -- United States...................... D 129,548 16,000 100,000 United Pan-Europe Communications N.V., 10.875%, Ser B 8-1-2009 -- Netherlands................. CC 80,701 10,750 250,000 Williams Communications Group, Inc., 11.875%, 8-1-2010 -- United States............... CCC- 199,126 70,000 ----------- ----------- 2,648,332 1,443,487 ----------- ----------- UTILITIES - 2.38% 110,000 Azurix Corp., 10.75%, Ser B 2-15-2010 -- United States...................... CC 99,884 84,700 180,000 Kansas Gas & Electric Co., 7.60%, 12-15-2003 -- United States...................... BB+ 180,324 184,594 ----------- ----------- 280,208 269,294 ----------- ----------- TOTAL CORPORATE BONDS - NON-INVESTMENT GRADE........ $4,835,604 $ 3,317,859 ----------- ----------- ----------- -----------
U.S. GOVERNMENT SECURITIES - 20.43% - --------------------------------------------------------------------------------
Principal Market Amount Cost (b) Value (c) - ---------- ----------- ----------- FEDERAL NATIONAL MORTGAGE ASSOCIATION - 20.43% MORTGAGE BACKED SECURITIES: $ 718,838 6.00% 2016-2016.................... $ 712,615 $ 725,783 500,000 6.50% 2031(e)...................... 502,617 502,812 1,039,416 7.50% 2031-2031.................... 1,079,566 1,080,903 ----------- ----------- TOTAL U.S. GOVERNMENT SECURITIES... 2,294,798 2,309,498 ----------- ----------- TOTAL LONG-TERM INVESTMENTS........ $11,532,301 $10,035,803 ----------- ----------- ----------- -----------
5 FORTIS BOND FUNDS STRATEGIC INCOME FUND (continued) Schedule of Investments January 31, 2002 (Unaudited) SHORT-TERM INVESTMENTS - 11.77% - --------------------------------------------------------------------------------
Principal Market Amount Value (c) - ---------- ----------- FINANCE - 11.77% $1,330,000 State Street Bank - Repurchase Agreement, 1.875%, 2-1-2002 (Maturity Value $1,330,069) (See Note 1)........ $ 1,330,000 285 U.S. Bank N.A. Money Market Variable Rate Time Deposit, Current rate - 1.87%................................. 285 ----------- TOTAL SHORT-TERM INVESTMENTS............ 1,330,285 ----------- TOTAL INVESTMENTS IN SECURITIES (COST: $12,862,586) (b)............... $11,366,088 ----------- -----------
(a) Presently non-income producing. For long-term debt securities, items identified are in default as to payment of interest and/or principal. (b) At January 31, 2002, the cost of securities for federal income tax purposes was $12,862,586 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation..................................... $(1,634,675) Unrealized depreciation..................................... 138,177 - ------------------------------------------------------------------------- Net unrealized depreciation................................. $(1,496,498) - -------------------------------------------------------------------------
(c) See Note 1 of accompanying Notes to Financial Statements regarding valuation of securities. (d) Note: Percentage of investments as shown is the ratio of the total market value to total net assets. Market value of investments in foreign securities represents 33.43% of net assets as of January 31, 2002. (e) The cost of securities purchased on a when-issued basis at January 31, 2002, was $502,617. (f) The interest rate disclosed for these securities represents the effective yield on the date of acquisition. (g) Securities sold within the terms of a private placement memorandum, exempt form registration under Section 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or to other "accredited investors". Pursuant to guidelines adopted by the Board of Directors, these issues are determined to be liquid. The aggregate value of these securities at January 31, 2002, was $429,371, which represents 3.80% of total net assets. 6 FORTIS BOND FUNDS HIGH YIELD PORTFOLIO Schedule of Investments January 31, 2002 (Unaudited) CORPORATE BONDS - INVESTMENT GRADE - 14.80% - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) - ----------- ------------------------------ ----------- ----------- BASIC MATERIALS - 4.89% $ 255,000 Domtar, Inc., 7.875%, 10-15-2011.................. BBB- $ 251,733 $ 268,096 410,000 Ferro Corp., 9.125%, 1-1-2009.................... BBB- 404,843 421,515 410,000 Georgia-Pacific Corp., 8.875%, 5-15-2031................... BBB- 375,745 360,270 180,000 Newmont Mining Corp., 8.625%, 5-15-2011................... BBB 179,185 184,228 600,000 Olin Corp., 9.125%, 12-15-2011.................. BBB 600,000 623,964 585,000 Phelps Dodge Corp., 8.75%, 6-1-2011.................... BBB- 583,382 574,197 715,000 Phelps Dodge Corp., 9.50%, 6-1-2031.................... BBB- 624,069 665,105 375,000 Santa Fe Pacific Gold Corp., 8.375%, 7-1-2005............ BBB 378,160 388,953 540,000 Solutia, Inc., 7.375%, 10-15-2027.................. BBB 438,120 375,946 ----------- ----------- 3,835,237 3,862,274 ----------- ----------- CAPITAL GOODS - 0.63% 205,000 Briggs & Stratton Corp., 8.875%, 3-15-2011........... BBB- 201,005 216,275 280,000 Fox Sports Networks LLC, 8.20%, 8-15-2007 (Zero coupon through 8-15-2002, thereafter 9.75%) (f)....... BBB- 281,340 282,800 ----------- ----------- 482,345 499,075 ----------- ----------- CONSUMER CYCLICAL - 0.98% 300,000 American Greetings Corp., 6.10%, 8-1-2028............. BBB- 248,486 254,012 515,000 Commonwealth Edison Co., 8.625%, 2-1-2022............ A- 534,776 523,065 ----------- ----------- 783,262 777,077 ----------- ----------- ENERGY - 0.39% 300,000 Snyder Oil Corp., 8.75%, 6-15-2007................... BBB 315,122 312,000 ----------- ----------- FINANCE - 1.27% 1,150,000 Netherlands Government, 5.75%, 9-15-2002................... AAA 1,079,821 1,003,058 ----------- ----------- HEALTH CARE - 1.23% 200,000 HCA, Inc., 6.91%, 6-15-2005... BBB- 197,727 204,425 745,000 HCA, Inc., 7.125%, 6-1-2006... BBB- 743,371 765,488 ----------- ----------- 941,098 969,913 ----------- ----------- SERVICES - 3.06% 1,290,000 Fox Family Worldwide, Inc., 11.87%, 11-1-2007 (Zero coupon through 11-1-2002, thereafter 10.25%) (f)...... A- 1,166,779 1,402,875 430,000 Liberty Media Corp., 7.75%, 7-15-2009................... Baa3* 430,000 435,213 600,000 Liberty Media Corp., 8.25%, 2-1-2030.................... BBB- 533,987 578,803 ----------- ----------- 2,130,766 2,416,891 ----------- ----------- TECHNOLOGY - 0.87% 300,000 AT&T Canada, Inc., 7.625%, 3-15-2005................... BBB 134,370 98,873 45,000 Koninklijke KPN N.V., 8.00%, 10-1-2010................... BBB- 38,655 46,630 870,000 Motorola, Inc., 5.22%, 10-1-2097................... BBB+ 528,529 538,302 1,426 Voicestream Wireless Corp., 10.375%, 11-15-2009......... A- 1,321 1,626 ----------- ----------- 702,875 685,431 ----------- ----------- UTILITIES - 1.48% 1,100,000 Sierra Pacific Power Co., 8.00%, 6-1-2008............. BBB+ 1,103,547 1,171,290 ----------- ----------- TOTAL CORPORATE BONDS - INVESTMENT GRADE............ $11,374,073 $11,697,009 ----------- ----------- ----------- -----------
CORPORATE BONDS - NON-INVESTMENT GRADE - 78.79% - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) - ----------- ------------------------------ ----------- ----------- BASIC MATERIALS - 11.57% $ 435,000 Acetex Corp., 10.875%, 8-1-2009.................... B+ $ 435,000 $ 439,350 1,065,000 AK Steel Corp., 7.875%, 2-15-2009................... BB 1,040,756 1,043,700
7 FORTIS BOND FUNDS HIGH YIELD PORTFOLIO (continued) Schedule of Investments January 31, 2002 (Unaudited) CORPORATE BONDS - NON-INVESTMENT GRADE - CONTINUED - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) - ----------- ------------------------------ ----------- ----------- $ 590,000 Boise Cascade Corp., 7.50%, 2-1-2008.................... BB+ $ 589,375 $ 588,500 230,000 Crown Cork & Seal Co., Inc., 6.75%, 4-15-2003............ CCC 131,735 163,300 255,000 Crown Cork & Seal Co., Inc., 8.00%, 4-15-2023............ CCC 102,067 132,600 1,650,000 Equistar Chemicals L.P., 7.55%, 2-15-2026............ BB+ 1,220,620 1,210,768 430,000 General Chemical Industrial Products, Inc., 10.625%, 5-1-2009.................... B 267,092 340,775 395,000 IMC Global, Inc., 11.25%, Ser B 6-1-2011.................. BB 416,809 424,625 310,000 Longview Fibre Co., 10.00%, 1-15-2009 (g)............... B+ 308,079 317,750 620,000 Louisiana-Pacific Corp., 8.50%, 8-15-2005............ BB- 598,527 612,546 1,000,000 Lyondell Chemical Co., 9.875%, Ser B 5-1-2007.............. BB 995,197 995,000 820,000 Owens-Brockway Glass Container Co., 8.875%, 2-15-2009 (g)............... BB 820,000 815,900 520,000 Plastipak Holdings, Inc., 10.75%, 9-1-2011 (g)........ B+ 512,377 556,400 690,000 Potlatch Corp., 10.00%, 7-15-2011 (g)............... BB+ 694,634 721,050 810,000 U.S. Steel L.L.C., 10.75%, 8-1-2008 (g)................ BB 800,748 781,650 ----------- ----------- 8,933,016 9,143,914 ----------- ----------- CAPITAL GOODS - 1.06% 350,000 Terex Corp., 10.375%, Ser B 4-1-2011.................... B 352,838 371,000 495,000 Xerox Corp., 9.75%, 1-15-2009 (g)............... BB 471,173 468,394 ----------- ----------- 824,011 839,394 ----------- ----------- CONSUMER CYCLICAL - 2.21% 467,000 Ingles Markets, Inc., 8.875%, 12-1-2011 (g)............... B+ 467,364 464,665 265,000 Integrated Electrical Services, Inc., 9.375%, Ser C 2-1-2009.................. B+ 256,753 238,500 450,000 Owens & Minor, Inc., 8.50%, 7-15-2011................... B+ 450,000 470,250 530,000 United Rentals, Inc., 10.75%, Ser B 4-15-2008............. BB 530,000 572,400 ----------- ----------- 1,704,117 1,745,815 ----------- ----------- CONSUMER STAPLES - 1.79% 125,000 Constellation Brands, Inc., 8.125%, Ser B 1-15-2012..... B+ 125,000 127,500 560,000 Land O'Lakes, Inc., 8.75%, 11-15-2011 (g).............. BB 562,060 551,600 75,000 Smithfield Foods, Inc., 8.00%, Ser B 10-15-2009............ BB+ 75,000 78,187 635,000 Tembec Industries, Inc., 8.50%, 2-1-2011............. BB+ 647,112 657,225 ----------- ----------- 1,409,172 1,414,512 ----------- ----------- ENERGY - 6.08% 780,000 Enron Corp., 6.95%, 7-15-2028 (a)............... D 220,118 126,750 550,000 Georgia Gulf Corp., 10.375%, 11-1-2007................... BB- 571,956 577,500 300,000 Key Energy Services, Inc., 8.375%, Ser B 3-1-2008...... BB- 300,000 304,500 625,000 Nuevo Energy Co., 9.375%, Ser B 10-1-2010................. B+ 625,000 585,937 500,000 Pioneer Natural Resources Co., 6.50%, 1-15-2008............ BB+ 490,280 471,638 1,000,000 Pioneer Natural Resources Co., 9.625%, 4-1-2010............ BB+ 996,891 1,066,745 540,000 Pogo Producing Co., 8.25%, Ser B 4-15-2011................. BB 551,272 556,200 800,000 Swift Energy Co., 10.25%, 8-1-2009.................... B 805,986 808,000 300,000 Tesoro Petroleum Corp., 9.625%, 11-1-2008 (g)....... BB- 300,000 307,500 ----------- ----------- 4,861,503 4,804,770 ----------- ----------- FINANCE - 2.79% 340,000 Armkel Finance, Inc., 9.50%, 8-15-2009 (g)............... B- 346,206 357,850 850,000 IPC Acquistion Corp., 11.50%, 12-15-2009 (g).............. B- 850,000 853,188 1,085,000 Xerox Credit Corp., 6.10%, 12-16-2003.................. BB 951,505 988,185 ----------- ----------- 2,147,711 2,199,223 ----------- ----------- HEALTH CARE - 6.75% 750,000 AdvancePCS, 8.50%, 4-1-2008... BB- 750,000 787,500 275,000 Alaris Medical Systems, Inc., 11.625%, Ser B 12-1-2006.... B+ 275,000 301,813 1,000,000 HealthSouth Corp., 10.75%, 10-1-2008................... BB+ 1,044,139 1,085,000 405,000 IASIS Healthcare Corp., 13.00%, 10-15-2009.......... B- 415,826 443,475 515,000 Magellan Health Services, Inc., 9.00%, 2-15-2008...... B- 492,243 430,025 250,000 Magellan Health Services, Inc., 9.375%, 11-15-2007 (g).............. B+ 250,000 247,500
8 CORPORATE BONDS - NON-INVESTMENT GRADE - CONTINUED - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) - ----------- ------------------------------ ----------- ----------- $ 650,000 Select Medical Corp., 9.50%, 6-15-2009................... B $ 650,000 $ 659,750 500,000 Triad Hospitals Holdings, Inc., 11.00%, Ser B 5-15-2009................... B- 518,188 555,000 200,000 Triad Hospitals, Inc., 8.75%, Ser B 5-1-2009.............. B- 200,000 211,500 460,000 United Surgical Partners International, Inc., 10.00%, 12-15-2011 (g).............. B- 456,451 456,550 150,000 Vanguard Health Systems, Inc., 9.75%, 8-1-2011 (g)......... B- 150,000 157,125 ----------- ----------- 5,201,847 5,335,238 ----------- ----------- SERVICES - 12.99% 500,000 Adelphia Communications Corp., 10.25%, 11-1-2006........... B+ 486,397 516,250 750,000 Adelphia Communications Corp., 10.875%, 10-1-2010.......... B+ 716,752 803,438 1,430,000 Allegiance Telecom, Inc., 22.06%, Ser B 2-15-2008 (Zero coupon through 2-15-2003, thereafter 11.75%) (f)...... B 783,915 500,500 550,000 American Greetings Corp., 11.75%, 7-15-2008........... BB+ 532,043 551,375 10,117,492 Australis Media Ltd., 14.00%, 5-15-2003 (with warrants) (a) (e) (f)....... NR 7,594,969 1,012 635,000 Browning-Ferris Industries, Inc., 7.40%, 9-15-2035...... BB- 527,390 507,763 1,000,000 Building One Services Corp., 10.50%, 5-1-2009............ B 969,147 620,000 750,000 Callahan Nordrhein-Westfalen, 14.00%, 7-15-2010........... B- 750,000 352,500 250,000 Echostar DBS Corp., 9.375%, 2-1-2009.................... B+ 252,883 258,750 1,350,000 eKabel Hessen GMBH, 14.50%, 9-1-2010.................... CCC+ 1,263,743 567,000 1,450,000 Insight Communications Co., Inc., 12.28%, 2-15-2011 (Zero coupon through 2-15-2006, thereafter 12.25%) (f)...... B- 906,483 902,625 600,000 K-III Communications Corp., 8.50%, Ser B 2-1-2006....... BB- 600,862 544,500 350,000 Park Place Entertainment Corp., 9.375%, 2-15-2007.... BB+ 345,762 370,125 1,000,000 Penn National Gaming, Inc., 11.125%, Ser B 3-1-2008..... B- 1,000,000 1,080,000 900,000 Quebecor Media, Inc., 11.125%, 7-15-2011................... BB- 880,803 974,250 1,175,000 Service Corp. International, 6.50%, 3-15-2008............ BB- 818,220 1,016,375 250,000 Service Corp. International, 6.875%, 10-1-2007........... BB- 210,108 222,500 440,000 Stewart Enterprises, Inc., 10.75%, 7-1-2008............ B+ 465,786 477,400 ----------- ----------- 19,105,263 10,266,363 ----------- ----------- TECHNOLOGY - 25.54% 750,000 Asia Global Crossing Ltd., 13.375%, 10-15-2010......... C 735,964 225,000 600,000 British Sky Broadcasting Group plc, 8.20%, 7-15-2009....... BB+ 601,303 615,591 925,000 Charter Communications Holdings, 10.00%, 5-15-2011................... B+ 934,845 923,844 815,000 Charter Communications Holdings, 8.625%, 4-1-2009.................... B+ 773,374 774,250 1,640,000 Crown Castle International Corp., 9.375%, 8-1-2011..... B 1,612,540 1,328,400 500,000 CSC Holdings, Inc., 7.625%, Ser B 4-1-2011.............. BB+ 483,915 493,992 500,000 Echostar Broadband Corp., 10.375%, 10-1-2007.......... B 500,000 532,500 595,000 Focal Communications Corp., 11.875%, Ser B 1-15-2010.... D 335,602 249,900 4,142,000 Global Crossing Holdings Ltd., 9.50%, 11-15-2009 (a)....... D 2,426,251 217,455 1,470,000 Global Crossing Holdings Ltd., 9.625%, 5-15-2008 (a)....... D 223,976 77,175 1,000,000 International Cabletel, Inc., 11.50%, Ser B 2-1-2006...... CCC 1,013,223 370,000 1,980,000 KPNQwest N.V., 8.125%, 6-1-2009.................... BB 1,149,888 1,188,000 540,000 Level 3 Communications, Inc., 11.00%, 3-15-2008........... CCC- 250,898 232,200 250,000 Level 3 Communications, Inc., 14.84%, 3-15-2010 (Zero coupon through 3-15-2005, thereafter 12.875%) (f)..... CCC- 150,050 45,000 4,445,000 Level 3 Communications, Inc., 9.125%, 5-1-2008............ CCC- 2,639,456 1,866,900 2,068,000 Lucent Technologies, Inc., 6.45%, 3-15-2029............ BB- 1,314,956 1,426,920 2,818,000 Marconi Corp. plc, 8.375%, 9-15-2030................... B- 1,603,161 1,201,888 2,330,000 McLeodUSA, Inc., 11.375%, 1-1-2009 (a)................ D 1,698,057 582,500 320,000 Metromedia Fiber Network, Inc., 10.00%, 12-15-2009.... CC 215,559 105,600 2,135,000 Metromedia Fiber Network, Inc., 10.00%, Ser B 11-15-2008.................. CC 1,923,853 704,550 3,070,000 Nextel Communications, Inc., 9.375%, 11-15-2009.......... B 2,709,306 2,248,775 1,200,000 Nextlink Communications, Inc., 10.50%, 12-1-2009 (a)....... D 1,200,000 180,000 900,000 Nextlink Communications, Inc., 14.76%, 12-1-2009 (Zero coupon through 12-1-2004, thereafter 12.125%) (f)..... C 569,779 76,500 470,000 NTL Communications Corp., 11.875%, Ser B 10-1-2010.... CCC 261,843 171,550 2,400,000 NTL Communications Corp., 14.54%, Ser B 10-1-2008 (Zero coupon through 10-1-2003, thereafter 12.375%) (f)..... CCC 1,844,271 756,000
9 FORTIS BOND FUNDS HIGH YIELD PORTFOLIO (continued) Schedule of Investments January 31, 2002 (Unaudited) CORPORATE BONDS - NON-INVESTMENT GRADE - CONTINUED - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) - ----------- ------------------------------ ----------- ----------- $ 270,000 Panamsat Corp., 8.50%, 2-1-2012 (g)................ B $ 270,000 $ 269,325 1,250,000 PSINet, Inc., 11.00%, 8-1-2009 (a)................ D 813,434 100,000 550,000 Rogers Cantel, Inc., 9.375%, 6-1-2008.................... BB+ 518,050 550,000 1,795,000 Spectrasite Holdings, Inc., 16.37%, 4-15-2009 (Zero coupon through 4-15-2004, thereafter 11.25%) (f)...... CCC+ 997,572 466,700 1,000,000 Telewest Communications plc, 11.00%, 10-1-2007........... B 620,214 682,500 275,000 Time Warner Telecom, Inc., 9.75%, 7-15-2008............ B- 178,428 189,750 300,000 United Pan-Europe Communications N.V., 10.875%, Ser B 8-1-2009..... CC 242,104 32,250 840,000 Williams Communications Group, Inc., 10.875%, 10-1-2009.... CCC- 575,839 235,200 2,030,000 Williams Communications Group, Inc., 11.70%, 8-1-2008...... CCC- 1,181,160 568,400 1,750,000 Williams Communications Group, Inc., 11.875%, 8-1-2010..... CCC- 1,393,879 490,000 ----------- ----------- 33,962,750 20,178,615 ----------- ----------- TRANSPORTATION - 2.55% 690,000 Delta Air Lines, Inc., 8.30%, 12-15-2029.................. BB 551,050 577,329 325,000 Delta Air Lines, Inc., 9.00%, 5-15-2016................... BB 289,410 275,581 100,000 Teekay Shipping Corp., 8.875%, 7-15-2011 (g)............... BB- 102,226 103,750 1,760,000 United Air Lines, Inc., 9.75%, 8-15-2021................... B- 1,591,153 1,055,300 ----------- ----------- 2,533,839 2,011,960 ----------- ----------- UTILITIES - 5.46% 500,000 AES Corp., 9.50%, 6-1-2009.... BB 479,184 440,000 650,000 Azurix Corp., 10.75%, Ser B 2-15-2010................... CC 589,898 500,500 300,000 Calpine Corp., 4.00%, Conv. 12-26-2006 (g).............. BB+ 300,000 277,125 130,000 Calpine Corp., 7.875%, 4-1-2008.................... BB+ 113,863 108,948 245,000 Calpine Corp., 8.50%, 2-15-2011................... BB+ 208,502 203,952 150,000 Calpine Corp., 8.625%, 8-15-2010................... BB+ 149,826 126,160 350,000 CMS Energy Corp., 7.50%, 1-15-2009................... BB 332,986 344,995 960,000 Kansas Gas & Electric Co., 7.60%, 12-15-2003........... BB+ 961,727 984,500 1,200,000 Mission Energy Holding Co., 13.50%, 7-15-2008........... BB- 1,182,934 1,329,000 ----------- ----------- 4,318,920 4,315,180 ----------- ----------- TOTAL CORPORATE BONDS - NON-INVESTMENT GRADE........ $85,002,149 $62,254,984 ----------- ----------- ----------- -----------
PREFERRED STOCKS - 0.28% - --------------------------------------------------------------------------------
Market Shares Cost (b) Value (c) - ----------- ----------- ----------- TECHNOLOGY - 0.28% 8,500 Adelphia Communications Corp., Conv. 7.50% Ser F................ $ 212,500 $ 223,125 ----------- -----------
COMMON STOCKS AND WARRANTS - 0.47% - --------------------------------------------------------------------------------
Market Shares Cost (b) Value (c) - ----------- ----------- ----------- CONSUMER CYCLICAL - 0.00% 1,250 Hosiery Corp. of America, Inc. Class A (a) (e).................. $ 21,150 $ 125 ----------- ----------- SERVICES - 0.00% 9,387 Marvel Enterprises, Inc. Class C (Warrants) (a)........... 1,288,210 94 3,750 Splitrock Service (Warrants) (a) (e)....... 46,195 3,750 ----------- ----------- 1,334,405 3,844 ----------- ----------- TECHNOLOGY - 0.47% 750 @Track Communications, Inc. (Warrants) (a) (e).......... 13,125 2,100 6,060 Adelphia Business Solutions, Inc. (with rights) (a)........... 20,019 666 12,800 Powertel, Inc. (Warrants) (a) (e).......... 94,118 310,793
10 COMMON STOCKS AND WARRANTS - CONTINUED - --------------------------------------------------------------------------------
Market Shares Cost (b) Value (c) - ----------- ----------- ----------- 10,797 Telus Corp. (Warrants) (a) (e)......... $ 76,719 $ 54,211 ----------- ----------- 203,981 367,770 ----------- ----------- TOTAL COMMON STOCKS AND WARRANTS... 1,559,536 371,739 ----------- ----------- TOTAL LONG-TERM INVESTMENTS........ $98,148,258 $74,546,857 ----------- ----------- ----------- -----------
SHORT-TERM INVESTMENTS - 2.37% - --------------------------------------------------------------------------------
Principal Market Amount Value (c) - ----------- ----------- FINANCE - 2.37% $1,872,000 State Street Bank - Repurchase Agreement, 1.88%, 2-1-2002 (Maturity Value $1,872,098) (See Note 1)........ $ 1,872,000 1,503 U.S. Bank N.A. Money Market Variable Rate Time Deposit, Current rate - 1.87%.......................... 1,503 ----------- TOTAL SHORT-TERM INVESTMENTS............ 1,873,503 ----------- TOTAL INVESTMENTS IN SECURITIES (COST: $100,021,761) (b).............. $76,420,360 ----------- -----------
(a) Presently non-income producing. For long-term debt securities, items identified are in default as to payment of interest and/or principal. (b) At January 31, 2002, the cost of securities for federal income tax purposes was $100,627,871 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation..................................... $ 1,927,379 Unrealized depreciation..................................... (26,134,890) - ------------------------------------------------------------------------- Net unrealized depreciation................................. $(24,207,511) - -------------------------------------------------------------------------
(c) See Note 1 of accompanying Notes to Financial Statements regarding valuation of securities. (d) Note: Percentage of investments as shown is the ratio of the total market value to total net assets. Market value of investments in foreign securities represents 11.84% of net assets as of January 31, 2002. (e) Securities issued within the terms of a private placement memorandum, exempt from registration under Section 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or to other "accredited investors". These investments have been identified by portfolio management as illiquid securities:
Period Acquired Shares/Par Security Cost Basis - --------------- ---------- -------- ---------- 1997 750 @Track Communications, Inc. (Warrants) - 144A $ 13,125 1996-1997 10,117,492 Australis Media Ltd. (with warrants) due 2003 7,594,969 1994 1,250 Hosiery Corp. of America, Inc. Class A - 144A 21,150 1997 12,800 Powertel, Inc. (Warrants) - 144A 94,118 1998 3,750 Splitrock Service (Warrants) - 144A 46,195 1996 10,797 Telus Corp. (Warrants) - 144A 76,719 The aggregate value of these securities at January 31, 2002, was $371,991, which represents .47% of total net assets.
(f) The interest rate disclosed for these securities represents the effective yield on the date of acquisition. (g) Securities sold within the terms of a private placement memorandum, exempt form registration under Section 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or to other "accredited investors". Pursuant to guidelines adopted by the Board of Directors, these issues are determined to be liquid. The aggregate value of these securities at January 31, 2002, was $7,707,322, which represents 9.75% of total net assets. * Moody's Rating 11 FORTIS BOND FUNDS Statements of Assets and Liabilities (Unaudited) January 31, 2002 - --------------------------------------------------------------------------------
STRATEGIC INCOME HIGH YIELD FUND PORTFOLIO ----------- ------------ ASSETS: Investments in securities, as detailed in the accompanying schedules, at market (cost $12,862,586; and $100,021,761; respectively) (Note 1).................................. $11,366,088 $ 76,420,360 Cash on deposit with custodian........ 364 2,115 Foreign currency on deposit with custodian........................... 44,203 9,682 Receivables: Investment securities sold.......... 112,000 680,000 Interest and dividends.............. 247,134 2,533,412 Subscriptions of capital stock...... -- 7,699 Deferred registration costs (Note 1).................................. -- 30,689 Other Assets.......................... 54,433 9,687 ----------- ------------ TOTAL ASSETS............................ 11,824,222 79,693,644 ----------- ------------ LIABILITIES: Cash portion of dividends payable..... 191 293,946 Payable for investment securities purchased........................... 502,617 270,000 Redemptions of capital stock.......... 453 24,958 Payable for investment advisory and management fees (Note 2)............ 7,856 53,166 Payable for distribution fees (Note 2).................................. 326 5,652 Accounts payable and accrued expenses............................ 8,003 25,666 ----------- ------------ TOTAL LIABILITIES....................... 519,446 673,388 ----------- ------------ NET ASSETS: Net proceeds of capital stock, par value $.01 per share - authorized 10,000,000,000, and 10,000,000,000 shares, respectively................ 15,644,598 162,670,831 Unrealized depreciation of investments......................... (1,498,579) (23,602,851) Undistributed distributions in excess of net investment income............ (2,157) (51,827) Accumulated net realized loss from sale of investments................. (2,839,086) (59,995,897) ----------- ------------ TOTAL NET ASSETS........................ $11,304,776 $ 79,020,256 ----------- ------------ ----------- ------------ SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE: Class A shares (based on net assets of $11,109,548 and $43,086,754; respectively and 1,345,548; and 8,860,203 shares outstanding; respectively)....................... $8.26 $4.86 ----------- ------------ Class B shares (based on net assets of $80,217 and $9,687,476; respectively and 9,727 and 1,989,656 shares outstanding; respectively).......... $8.25 $4.87 ----------- ------------ Class C shares (based on net assets of $34,131 and $2,829,275; respectively and 235,974; 4,135; and 582,089 shares outstanding; respectively)... $8.25 $4.86 ----------- ------------ Class H shares (based on net assets of $80,880 and $23,416,751; respectively and 9,811 and 4,813,242 shares outstanding; respectively)... $8.24 $4.87 ----------- ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 12 FORTIS BOND FUNDS Statements of Operations (Unaudited) For the Six-Month Period Ended January 31, 2002 - --------------------------------------------------------------------------------
STRATEGIC INCOME HIGH YIELD FUND PORTFOLIO ----------- ----------- NET INVESTMENT INCOME: Income: Interest income..................... $ 859,006 $ 5,756,999 ----------- ----------- Expenses: Investment advisory and management fees (Note 2)...................... 87,348 371,119 Distribution fees (Class A) (Note 2)................................. 25,612 104,081 Distribution fees (Class B) (Note 2)................................. 2,562 53,596 Distribution fees (Class C) (Note 2)................................. 711 14,860 Distribution fees (Class H) (Note 2)................................. 3,465 128,331 Registration fees................... 48,548 20,669 Shareholders' notices and reports... 1,974 13,813 Legal and auditing fees (Note 2).... 5,019 12,956 Custodian fees...................... 8,951 3,890 Directors' fees and expenses........ 1,841 4,537 Amortization of organization costs (Note 1)........................... 8,659 -- Other............................... 553 3,680 ----------- ----------- Total expenses........................ 195,243 731,532 Less reimbursable expenses (Note 2)................................. (70,087) -- ----------- ----------- Net Expenses.......................... 125,156 731,532 ----------- ----------- NET INVESTMENT INCOME................... 733,850 5,025,467 ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: (NOTE 1) NET REALIZED GAIN (LOSS) FROM: Investments........................... 498,435 (2,458,274) Foreign currency transactions......... 15,115 (18) ----------- ----------- NET REALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS..... 513,550 (2,458,292) ----------- ----------- NET CHANGES IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Investments........................... (953,330) (4,804,760) Translation of assets and liabliities denominated in foreign currency..... (66,554) (77,312) ----------- ----------- NET CHANGE IN UNREALIZED APPRECIATION OR DEPRECIATION ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS......... (1,019,884) (4,882,072) ----------- ----------- NET LOSS ON INVESTMENTS................. (506,334) (7,340,364) ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. $ 227,516 $(2,314,897) ----------- ----------- ----------- -----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 13 FORTIS BOND FUNDS Statement of Changes in Net Assets STRATEGIC INCOME FUND - --------------------------------------------------------------------------------
FOR THE PERIOD ENDED FOR THE JANUARY 31, 2002 YEAR ENDED (UNAUDITED) JULY 31, 2001 ---------------- ------------- OPERATIONS: Net investment income................. $ 733,850 $ 2,012,225 Net realized gain (loss) on investments and Foreign Currency Transactions........................ 513,550 (1,784,548) Net change in unrealized appreciation (depreciation) on investments and Foreign Currency Transactions....... (1,019,884) 922,777 ------------ ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................... 227,516 1,150,454 ------------ ----------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A............................. (699,305) (1,877,214) Class B............................. (15,008) (51,936) Class C............................. (4,215) (13,607) Class H............................. (20,771) (69,081) ------------ ----------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS..... (739,299) (2,011,838) ------------ ----------- CAPITAL STOCK TRANSACTIONS: Proceeds from sale of shares Class A (32,674 and 632,075 shares)............................ 267,045 5,576,844 Class B (14,218 and 32,454 shares)............................ 119,992 279,383 Class C (1,631 and 3,443 shares).... 13,850 29,783 Class H (2,765 and 70,515 shares)... 23,124 609,459 Proceeds from shares issued as a result of reinvested dividends Class A (80,118 and 213,749 shares)............................ 677,323 1,846,320 Class B (1,304 and 4,817 shares).... 11,061 41,610 Class C (328 and 1,100 shares)...... 2,774 9,510 Class H (1,334 and 4,366 shares).... 11,289 37,668 Less cost of repurchase of shares Class A (1,650,029 and 580,146 shares)............................ (13,933,098) (5,122,272) Class B (95,770 and 38,650 shares)............................ (810,462) (332,941) Class C (20,894 and 2,949 shares)... (176,139) (25,773) Class H (111,699 and 49,297 shares)............................ (943,083) (428,170) ------------ ----------- NET INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS............... (14,736,324) 2,521,421 ------------ ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS................................ (15,248,107) 1,660,037 NET ASSETS: Beginning of period................... 26,552,883 24,892,846 ------------ ----------- End of period (includes distributions in excess of net investment income of $2,157 and $11,823, respectively)....................... $ 11,304,776 $26,552,883 ------------ ----------- ------------ -----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 14 FORTIS BOND FUNDS Statement of Changes in Net Assets HIGH YIELD PORTFOLIO - --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED FOR THE JANUARY 31, 2002 YEAR ENDED (UNAUDITED) JULY 31, 2001 ----------------- ------------- OPERATIONS: Net investment income................. $ 5,025,467 $ 11,934,024 Net realized loss on investments and Foreign Currency Transactions....... (2,458,292) (12,513,401) Net change in unrealized depreciation on investments and Foreign Currency Transactions........................ (4,882,072) (4,558,712) ------------ ------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS....................... (2,314,897) (5,138,089) ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A............................. (3,123,660) (7,685,709) Class B............................. (531,909) (1,252,977) Class C............................. (147,637) (345,802) Class H............................. (1,274,070) (2,966,366) ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS..... (5,077,276) (12,250,854) ------------ ------------ CAPITAL STOCK TRANSACTIONS: Proceeds from sale of shares Class A (844,865 and 2,346,729 shares)............................ 4,246,170 13,261,296 Class B (95,574 and 238,990 shares)............................ 478,180 1,384,559 Class C (15,078 and 50,656 shares)............................ 75,070 284,544 Class H (185,758 and 602,086 shares)............................ 939,953 3,460,394 Proceeds from shares issued as a result of reinvested dividends Class A (441,058 and 990,177 shares)............................ 2,203,042 5,575,516 Class B (54,114 and 104,468 shares)............................ 270,130 589,024 Class C (19,012 and 47,367 shares)............................ 94,744 267,516 Class H (121,333 and 258,946 shares)............................ 605,858 1,459,825 Less cost of repurchase of shares Class A (5,433,926 and 3,911,616 shares)............................ (27,447,806) (22,126,496) Class B (341,000 and 682,888 shares)............................ (1,709,764) (3,896,307) Class C (48,122 and 199,916 shares)............................ (243,171) (1,132,249) Class H (677,343 and 1,647,211 shares)............................ (3,409,891) (9,371,524) ------------ ------------ NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS.......................... (23,897,485) (10,243,902) ------------ ------------ TOTAL DECREASE IN NET ASSETS............ (31,289,658) (27,632,845) NET ASSETS: Beginning of period................... 110,309,914 137,942,759 ------------ ------------ End of period (includes undistributed (excess of distributions over) net investment income of ($51,827) and $0, respectively)................... $ 79,020,256 $110,309,914 ------------ ------------ ------------ ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 15 FORTIS BOND FUND Notes to Financial Statements (Unaudited) - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The funds are open-end, diversified management investment companies, each of which has different investment objectives and their own investment portfolios and net asset values. Strategic Income Fund is a fund of Fortis Income Portfolios, Inc. ("Fortis Income") and Fortis High Yield Portfolio ("High Yield") is a fund within the Fortis Advantage Portfolios, Inc. ("Fortis Advantage"). The investment objectives of each fund are as follows: - The objective of the Strategic Income Fund is to maximize total return (from current income and capital appreciation) by primarily investing in (a) U.S. Government securities, (b) investment and non-investment grade fixed income securities issued by foreign governments and companies, and (c) investment and non-investment grade fixed income securities issued by U.S. issuers, which, in the opinion of the fund's investment adviser, do not subject the fund to unreasonable investment risk. - The objective of the High Yield Portfolio is to maximize total return (from current income and capital appreciation) with a focus on high current income by investing primarily in a diversified portfolio of high yielding, fixed income securities which, in the opinion of the fund's investment adviser, do not subject the fund to unreasonable investment risk. The Articles of Incorporation of Fortis Income and Fortis Advantage permit the Board of Directors to create additional funds in the future. The funds offer Class A, Class B, Class C and Class H shares. The Fortis High Yield Portfolio began to issue multiple class shares effective November 14, 1994. The inception of Strategic Income Fund was November 10, 1997, and the commencement of operations was December 1, 1997. Class A shares are sold with a front-end sales charge. Class B and H shares are sold without a front-end sales charge and may be subject to a contingent deferred sales charge for six years, and such shares automatically convert to Class A after eight years. Class C shares are sold without a front-end sales charge and may be subject to a contingent deferred sales charge for one year. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that the level of distribution fees charged differs between classes. Income, expenses (other than expenses incurred under each class's distribution agreement) and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets. The significant accounting policies followed by the funds are summarized as follows: SECURITY VALUATION: Investments in securities traded on a national securities exchange or on the NASDAQ National Market System are valued at the last reported sales price. Securities for which over-the-counter market quotations are readily available are valued on the basis of the last current bid price. An outside pricing service may be utilized to provide such valuations. For fixed income securities, the pricing service may employ 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. REPURCHASE AGREEMENTS: A repurchase agreement is an agreement by which the seller of a security agrees to repurchase the security sold at a mutually agred upon time and price. At the time the funds enter into a repurchase agreement, the value of the underlying collateral securities, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Securities which serve to collateralize the repurchase agreement are held by each fund's custodian in book entry or physical form in the custidial account of the fund. Repurchase agreements are valued at cost plus accrued interest receivable. All repurchase agreements are handled through the funds' custodian, State Street Bank. Pursuant to an exemptive order issued by the Securities and Exchange Commission, the funds may transfer uninvested cash balances into a joint trading account managed by The Hartford Investment Management Company ("HIMCO"). These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. The Strategic Income Fund and High Yield Portfolio together with other investment management companies having investment advisory agreements with HIMCO has an interest in a $410,399,000 joint repurchase agreement dated January 31, 2002 with State Street Bank, 1.80% due February 4, 2002. This joint repurchase agreement is collateralized by $153,000,000 U.S. Treasury Bonds 7.25% - 12.375% due 2004 and by $265,606,980 U.S. Treasury Bills 1.72% - 1.81% due 2002. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS: Delivery and payment for securities that have been purchased by the funds on a forward commitment or when-issued basis can take place a month or more after the transaction date. During this period, such securities are subject to market fluctuation and the portfolio maintains, in a segregated account with its custodian, assets with a market value equal to the amount of its purchase commitments. As of January 31, 2002, Strategic Income Fund have entered into outstanding when-issued or forward commitments of $502,617. Consistent with its ability to purchase securities on a when-issued basis, the Strategic Income Fund has entered into transactions to defer settlement of its purchase commitments. As an inducement to defer settlement, the portfolio repurchases a similar security for settlement at a later date at a lower purchase price relative to the current market. This transaction is referred to as a "dollar roll". FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS: Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars at the 16 - -------------------------------------------------------------------------------- closing rate of exchange. Foreign currency amounts related to the purchase or sale of securities, income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on security transactions and other translation gains or losses on dividends, interest income and foreign withholding taxes. Certain funds may enter into forward foreign currency exchange contracts for the operational purposes and attempt to minimize the risk from adverse exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the funds and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The funds are subject to the credit risk that the other party will not complete the obligations of the contract. 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. Each fund amortizes original issue discount, long term bond premium, and market discount. For the period ended January 31, 2002, the cost of purchases and proceeds from sales of securities (other than short-term securities) were as follows:
Cost of Proceeds Purchases from Sales ------------------------------------------------------------------ Strategic Income Fund................... $12,363,967 $26,655,013 High Yield Portfolio.................... 30,139,564 49,700,725
DEFERRED COSTS: Registration costs are deferred and charged to income over the registration period. Organizational costs were incurred with the commencement of operations of the Strategic Income Fund. These costs have been completely amortized. FEDERAL 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 net investment income and realized gains, if any, to avoid the payment of federal excise taxes. Net investment income and net realized gains may differ for financial statement and tax purposes. The character of distributions made during the year from net investment income or net realized gains may, therefore, differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the funds. The effect on dividend distributions, if any, of certain current year permanent book-to-tax differences is reflected as "excess distributions" of net realized gains in the statements of changes in net assets and the financial highlights. On the statements of Assets and Liabilities, due to permanent book-to-tax differences, accumulated net realized gain (loss) and undistributed net investment income have been increased (decreased) by the following:
Accumulated Undistributed Paid Net Realized Net Investment In Gain/(Loss) Income (Loss) Capital ---------------------------------------------------------------------------- Strategic Income Fund.............. $(15,115) $15,115 -- High Yield Portfolio............... 18 (18) --
For federal income tax purposes Strategic Income had $3,337,521 and High Yield had $56,987,141 at July 31, 2001, which, if not offset by subsequent capital gains, will expire in 2002 through 2010. It is unlikely the Board of Directors will authorize a distribution of any net realized gains until the available capital loss carryover has been offset or expired. INCOME AND CAPITAL GAINS DISTRIBUTIONS: Effective February 1, 2002 distributions from net investment income are declared and paid monthly. The funds will generally 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 without any charge to the shareholder or paid in cash. ILLIQUID SECURITIES: At January 31, 2002, investments in securities for the High Yield Portfolio included issues that are illiquid. The funds currently limit investments in illiquid securities to 15% of net assets, at market value, at the date of purchase. The aggregate value of such securities at January 31, 2002, was $371,991 for High Yield which represents .47% of net assets respectively. Pursuant to guidelines adopted by the Board of Directors, certain unregistered securities are determined to be liquid and are not included within the 15% limitation specified above. HIGH-YIELD DEBT SECURITIES: Although High Yield and Strategic Income have diversified portfolios, the funds have 78.79% and 29.35% of total net assets invested in non-investment grade (high-yield) and comparable quality unrated high-yield securities. Participation in high-yielding securities transactions generally involves greater returns in the form of higher average yields. However, participation in such transactions involves greater risks, often related to sensitivity to interest rates, economic changes, solvency, and relative liquidity in the secondary trading market. Lower ratings may reflect a greater possibility that the financial condition of the issuer, or adverse changes in general economic conditions, or both, may impair the ability of the issuer to make payments of interest and principal. The prices and yields of lower rated securities generally fluctuate more than higher quality securities, and such prices may decline significantly in periods of general economic difficulty of rising interest rates. 17 FORTIS BOND FUND Notes to Financial Statements (continued) (Unaudited) - -------------------------------------------------------------------------------- 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. BANK BORROWINGS: Several Fortis Funds including the High Yield Portfolio have a revolving credit agreement with U.S. Bank Minnesota N.A., whereby the funds are permitted to have a bank borrowing for temporary and emergency purposes to meet large redemption requests by shareholders; and cover securities purchased when matched or when earlier trades have failed. The agreement, which enables the funds to participate with other Fortis Funds, permits borrowings up to $50 million, collectively. Interest is expensed to each participating fund based on its borrowings and will be calculated at the borrowers' option of: the reserve-adjusted LIBOR plus a "margin" of 20 basis points; or the Federal Funds rate plus a "margin" of 45 basis points. Each fund pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. 2. PAYMENTS TO RELATED PARTIES: Hartford Investment Financial Services Company ("HIFSCO") (See Note 4), is the investment adviser for the funds. Investment advisory and management fees are computed at an annual rate of .8% of the first $50 million of average daily net assets and .7% of average daily net assets in excess of $50 million for Strategic Income, and High Yield. In addition to the investment advisory and management fee, Classes A, B, C and H pay HIFSCO, (the principal underwriter) distribution fees equal to .25% of average daily net assets for Class A for Strategic Income and .35% of average daily net assets for Class A of High Yield and 1.00% of average daily net assets for Strategic Income and High Yield Classes B, C and H for each fund 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. HIFSCO, also received sales charges (paid by purchasers or redeemers of the fund's shares) as follows:
Class A Class B Class C Class H ------------------------------------------------------------------------------ Strategic Income Fund......... $ 5,019 $1,788 $ 12 $ 5,106 Fortis High Yield Portfolio... 29,344 6,390 163 18,738
As adviser for the Fortis Bond Funds, HIFSCO has retained Hartford Investment Management Conpany ("HIMCO") to provide investment advice and, in general, to conduct the management investment program of the fund, subject to the general control of HIFSCO and the Board of Directors of the Fortis Bond Funds. Pursuant to the sub-advisory agreements, HIMCO will regularly provide the funds with investment research, advice and supervision and furnish continuously an investment program consistent with the investment objectives and policies, including the purchase retention and disposition of securities. HIFSCO has voluntarily undertaken to limit annual expenses for Strategic Income (exclusive of interest, taxes, brokerage commissions and non-recurring extraordinary charges and expenses) commencing December 1, 1997 to 1.10% of average daily net assets for Class A and 1.85% for Classes B, C and H. During the six-month period ended January 31, 2002, HIFSCO waived $70,087 of its advisory fee. For the period ended January 31, 2002, legal fees and expenses were paid to a law firm of which the secretary of the fund is a partner.
Amount ---------------------------------------------------------- Strategic Income Fund............................. $ 302 High Yield Portfolio.............................. 1,512
3. FORWARD FOREIGN CURRENCY CONTRACTS: At January 31, 2002, Strategic Income Fund and Advantage High Yield entered into forward foreign currency exchange contracts that obligated the fund to deliver/receive currencies at a specified future date. The unrealized appreciation (depreciation) on these contracts is included in the accompanying financial statements. There were no open contracts as of January 31, 2002. 4. HARTFORD LIFE ACQUISITION: On April 2, 2001, Hartford Life and Accident Insurance Company ("Hartford Life") acquired Fortis Advisers, Inc. ("Fortis Advisers") and its subsidiaries, including Fortis Investors, Inc. ("Fortis Investors"). Hartford Life is a subsidiary of The Hartford Financial Services Group ("The Hartford"), a publicly held company. The Hartford is a leading insurance and financial services company with over $165 billion in assets. Prior to the acquisition, Fortis Advisers served as the investment adviser to the funds and Fortis Investors served as the principal underwriter to the funds. Hartford Investment Financial Services Company ("HIFSCO"), a wholly owned indirect subsidiary of The Hartford, is now the investment adviser to the funds. As a result of the acquisition, HIFSCO became (with approval by the funds' Board of Directors) the interim investment adviser to the funds. Shareholders of record on April 12, 2001 then approved a definitive investment advisory agreement with HIFSCO at a special meeting of the fund's shareholders held on May 31, 2001. Hartford Administrative Services Company, formerly Fortis Advisers, serves as transfer agent and dividend agent to the funds. Woodbury Financial Services, Inc., formerly Fortis Investors, acts as principal underwriter to the funds. 18 - -------------------------------------------------------------------------------- 5. FINANCIAL HIGHLIGHTS: Selected per share historical data for each of the funds was as follows:
Class A ----------------------------------------------- Unaudited Year Ended July 31, --------- ------------------------------------ STRATEGIC INCOME FUND 2002** 2001 1999 1999 1998+ - ----------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 8.53 $ 8.82 $ 9.14 $ 10.05 $ 10.00 ------- ------- ------- ------- ------- Operations: Investment income - net............... .30 .67 .69 .61 .42 Net realized and unrealized gain (loss) on investments............... (.26) (.28) (.30) (.89) .05 ------- ------- ------- ------- ------- Total from operations................... .04 .39 .39 (.28) .47 ------- ------- ------- ------- ------- Distributions to shareholders: From investment income - net.......... (.31) (.68) (.71) (.62) (.42) From net realized gains on investments......................... -- -- -- (.01) -- ------- ------- ------- ------- ------- Total distributions to shareholders..... (.31) (.68) (.71) (.63) (.42) ------- ------- ------- ------- ------- Net asset value, end of period.......... $ 8.26 $ 8.53 $ 8.82 $ 9.14 $ 10.05 ------- ------- ------- ------- ------- Total return @.......................... .39% 4.58% 4.43% (2.86%) 4.77% Net assets end of period (000s omitted).............................. $11,110 $24,588 $23,087 $22,207 $22,422 Ratio of expenses to average daily net assets (a)............................ 1.10%* 1.10% 1.10% 1.10% 1.10%* Ratio of net investment income to average daily net assets (a).......... 6.77%* 7.82% 7.71% 6.38% 6.22%* Portfolio turnover rate................. 63% 79% 67% 79% 136%
Class B ----------------------------------------------- Unaudited Year Ended July 31, --------- ------------------------------------ STRATEGIC INCOME FUND 2002** 2001 1999 1999 1998+ - ----------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 8.53 $ 8.82 $ 9.14 $ 10.05 $ 10.00 ------- ------- ------- ------- ------- Operations: Investment income - net............... .27 .61 .62 .54 .38 Net realized and unrealized gain (loss) on investments............... (.28) (.28) (.30) (.89) .05 ------- ------- ------- ------- ------- Total from operations................... (.01) .33 .32 (.35) .43 ------- ------- ------- ------- ------- Distributions to shareholders: From investment income - net.......... (.27) (.62) (.64) (.55) (.38) From net realized gains on investments......................... -- -- -- (.01) -- ------- ------- ------- ------- ------- Total distributions to shareholders..... (.27) (.62) (.64) (.56) (.38) ------- ------- ------- ------- ------- Net asset value, end of period.......... $ 8.25 $ 8.53 $ 8.82 $ 9.14 $ 10.05 ------- ------- ------- ------- ------- Total Return @.......................... (.09%) 3.83% 3.63% (3.58%) 4.31% Net assets end of period (000s omitted).............................. $ 80 $ 767 $ 806 $ 815 $ 398 Ratio of expenses to average daily net assets (a)............................ 1.85%* 1.85% 1.85% 1.85% 1.85%* Ratio of net investment income to average daily net assets (a).......... 5.87%* 7.07% 6.96% 5.63% 5.73%* Portfolio turnover rate................. 63% 79% 67% 79% 136%
* Annualized. ** For the six-month period ended January 31, 2002. + For the period December 1, 1997 (commencement of operations) to July 31, 1998. @ These are the fund's total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustment for sales charge. (a) Advisers has voluntarily undertaken to limit annual expenses for Strategic Income Fund (exclusive of interest, taxes, brokerage commission and non-recurring extraordinary charges and expenses) to 1.10% of average daily net assets for Class A and 1.85% for Class B. Had the waiver and reimbursement of expenses not been in effect, the ratios of expenses and net investment income to average daily net assets would have been as follows:
2002** 2001 2000 1999 1998 ------ ---- ---- ---- ---- Class A - ------------------------------------------------------------ Ratio of expenses to average net assets..................... 1.70% 1.32% 1.34% 1.44% 1.39% Ratio of net investment income to average daily net 6.17% 7.60% 7.47% 6.04% 5.93% assets...................................................... Class B - ------------------------------------------------------------ Ratio of expenses to average net assets..................... 2.45% 2.07% 2.09% 2.19% 2.14% Ratio of net investment income to average daily net 5.42% 6.85% 6.72% 5.29% 5.44% assets......................................................
19 FORTIS BOND FUND Notes to Financial Statements (continued) (Unaudited) - -------------------------------------------------------------------------------- 5. FINANCIAL HIGHLIGHTS (continued):
Class C ----------------------------------------------- Unaudited Year Ended July 31, --------- ------------------------------------ STRATEGIC INCOME FUND 2002** 2001 1999 1999 1998+ - ----------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 8.53 $ 8.83 $ 9.15 $ 10.05 $ 10.00 ------- ------- ------- ------- ------- Operations: Investment income - net............... .27 .60 .62 .55 .38 Net realized and unrealized gain (loss) on investments............... (.28) (.28) (.30) (.89) .05 ------- ------- ------- ------- ------- Total from operations................... (.01) .32 .32 (.34) .43 ------- ------- ------- ------- ------- Distributions to shareholders: From investment income - net.......... (.27) (.62) (.64) (.55) (.38) From net realized gains on investments......................... -- -- -- (.01) -- ------- ------- ------- ------- ------- Total distributions to shareholders..... (.27) (.62) (.64) (.56) (.38) ------- ------- ------- ------- ------- Net asset value, end of period.......... $ 8.25 $ 8.53 $ 8.83 $ 9.15 $ 10.05 ------- ------- ------- ------- ------- Total Return @.......................... (.11%) 3.73% 3.63% (3.49%) 4.35% Net assets end of period (000s omitted) (a).......................... $ 34 $ 197 $ 190 $ 219 $ 194 Ratio of expenses to average daily net assets (a)............................ 1.85%* 1.85% 1.85% 1.85% 1.85%* Ratio of net investment income to average daily net assets.............. 5.93%* 7.07% 6.96% 5.63% 5.73%* Portfolio turnover rate................. 63% 79% 67% 79% 136%
Class H ----------------------------------------------- Unaudited Year Ended July 31, --------- ------------------------------------ STRATEGIC INCOME FUND 2002** 2001 1999 1999 1998+ - ----------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 8.52 $ 8.82 $ 9.14 $ 10.05 $ 10.00 ------- ------- ------- ------- ------- Operations: Investment income - net............... .27 .60 .62 .54 .38 Net realized and unrealized gain (loss) on investments............... (.28) (.28) (.30) (.89) .05 ------- ------- ------- ------- ------- Total from operations................... (.01) .32 .32 (.35) .43 ------- ------- ------- ------- ------- Distributions to shareholders: From investment income - net.......... (.27) (.62) (.64) (.55) (.38) From net realized gains on investments......................... -- -- -- (.01) -- ------- ------- ------- ------- ------- Total distributions to shareholders..... (.27) (.62) (.64) (.56) (.38) ------- ------- ------- ------- ------- Net asset value, end of period.......... $ 8.24 $ 8.52 $ 8.82 $ 9.14 $ 10.05 ------- ------- ------- ------- ------- Total Return @.......................... (.12%) 3.72% 3.63% (3.58%) 4.35% Net assets end of period (000s omitted).............................. $ 81 $ 1,001 $ 810 $ 751 $ 355 Ratio of expenses to average daily net assets (a)............................ 1.85%* 1.85% 1.85% 1.85% 1.85%* Ratio of net investment income to average daily net assets (a).......... 5.96%* 7.07% 6.96% 5.63% 5.73%* Portfolio turnover rate................. 63% 79% 67% 79% 136%
* Annualized. ** For the six-month period ended January 31, 2002. + For the period December 1, 1997 (commencement of operations) to July 31, 1998. @ These are the fund's total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustments for sales charge. (a) Advisers has voluntarily undertaken to limit annual expenses for strategic Income Fund (exclusive of interest, taxes, brokerage commission and non-recurring extraordinary charges and expenses) to 1.85% of the average net assets for Class C and H. Had the waiver and reimbursement of expenses not been in effect, the ratios of expenses and net investment income to average daily net assets would have been as follows:
2002** 2001 2000 1999 1998 ------ ---- ---- ---- ---- Class C - ------------------------------------------------------------ Ratio of expenses to average net assets..................... 2.45% 2.07% 2.09% 2.19% 2.14% Ratio of net investment income to average daily net 5.42% 6.85% 6.72% 5.29% 5.44% assets...................................................... Class H - ------------------------------------------------------------ Ratio of expenses to average net assets..................... 2.45% 2.07% 2.09% 2.19% 2.14% Ratio of net investment income to average daily net 5.42% 6.85% 6.72% 5.29% 5.44% assets......................................................
20 - -------------------------------------------------------------------------------- 5. FINANCIAL HIGHLIGHTS (continued):
Class A --------------------------------------------------------------- Unaudited Year Ended July 31, --------- --------------------------------------------------- HIGH YIELD PORTFOLIO 2002** 2001 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 5.26 $ 6.06 $ 6.67 $ 7.41 $ 7.83 $ 7.56 ------- ------- ------- -------- -------- -------- Operations: Investment income - net............... .27 .56 .60 .59 .73 .76 Net realized and unrealized gain (loss) on investments............... (.40) (.78) (.64) (.72) (.40) .28 ------- ------- ------- -------- -------- -------- Total from operations................... (.13) (.22) (.04) (.13) .33 1.04 ------- ------- ------- -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.27) (.58) (.57) (.61) (.75) (.75) Excess distributions of net realized gains............................... -- -- -- -- -- (.02) ------- ------- ------- -------- -------- -------- Total distributions to shareholders..... (.27) (.58) (.57) (.61) (.75) (.77) ------- ------- ------- -------- -------- -------- Net asset value, end of period.......... $ 4.86 $ 5.26 $ 6.06 $ 6.67 $ 7.41 $ 7.83 ------- ------- ------- -------- -------- -------- Total Return @.......................... (2.52%) (3.90%) (.57%) (1.76%) 4.31% 14.51% Net assets end of period (000s omitted).............................. $43,087 $68,417 $82,279 $106,921 $113,549 $123,115 Ratio of expenses to average daily net assets................................ 1.22%* 1.18% 1.17% 1.16% 1.17% 1.19% Ratio of net investment income to average daily net assets.............. 10.41%* 9.86% 9.32% 8.54% 9.46% 9.84% Portfolio turnover rate................. 34% 112% 67% 46% 214% 331%
* Annualized. ** For the six-month period ended January 31, 2002. @ These are the total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustments for sales charge.
Class B --------------------------------------------------------------- Unaudited Year Ended July 31, --------- --------------------------------------------------- HIGH YIELD PORTFOLIO 2002** 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 5.27 $ 6.06 $ 6.67 $ 7.41 $ 7.83 $ 7.56 ------- ------- ------- -------- -------- -------- Operations: Investment income - net............... .25 .52 .56 .54 .68 .71 Net realized and unrealized gain (loss) on investments............... (.40) (.77) (.64) (.72) (.40) .28 ------- ------- ------- -------- -------- -------- Total from operations................... (.15) (.25) (.08) (.18) .28 .99 ------- ------- ------- -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.25) (.54) (.53) (.56) (.70) (.70) Excess distributions of net realized gains............................... -- -- -- -- -- (.02) ------- ------- ------- -------- -------- -------- Total distributions to shareholders..... (.25) (.54) (.53) (.56) (.70) (.72) ------- ------- ------- -------- -------- -------- Net asset value, end of period.......... $ 4.87 $ 5.27 $ 6.06 $ 6.67 $ 7.41 $ 7.83 ------- ------- ------- -------- -------- -------- Total Return @.......................... (2.81%) (4.40%) (1.29%) (2.44%) 3.67% 13.80% Net assets end of period (000s omitted).............................. $ 9,687 $11,485 $15,279 $ 22,814 $ 28,935 $ 20,388 Ratio of expenses to average daily net assets................................ 1.87%* 1.83% 1.82% 1.81% 1.82% 1.83% Ratio of net investment income to average daily net assets.............. 9.80%* 9.22% 8.66% 7.90% 8.81% 9.24% Portfolio turnover rate................. 34% 112% 67% 46% 214% 331%
* Annualized. ** For the six-month period ended January 31, 2002. @ These are the total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustments for sales charge. 21 FORTIS BOND FUND Notes to Financial Statements (continued) (Unaudited) - -------------------------------------------------------------------------------- 5. FINANCIAL HIGHLIGHTS (continued):
Class C -------------------------------------------------------------- Unaudited Year Ended July 31, --------- -------------------------------------------------- HIGH YIELD PORTFOLIO 2002** 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 5.26 $ 6.05 $ 6.66 $ 7.40 $ 7.82 $ 7.55 ------- ------- ------- ------- ------- ------- Operations: Investment income - net............... .25 .52 .56 .54 .68 .71 Net realized and unrealized gain (loss) on investments............... (.40) (.77) (.64) (.72) (.40) .28 ------- ------- ------- ------- ------- ------- Total from operations................... (.15) (.25) (.08) (.18) .28 .99 ------- ------- ------- ------- ------- ------- Distributions to shareholders: From investment income - net.......... (.25) (.54) (.53) (.56) (.70) (.70) Excess distributions of net realized gains............................... -- -- -- -- -- (.02) ------- ------- ------- ------- ------- ------- Total distributions to shareholders... (.25) (.54) (.53) (.56) (.70) (.72) ------- ------- ------- ------- ------- ------- Net asset value, end of period........ $ 4.86 $ 5.26 $ 6.05 $ 6.66 $ 7.40 $ 7.82 ------- ------- ------- ------- ------- ------- Total distributions to shareholders... (2.82%) (4.41%) (1.29%) (2.44%) 3.67% 13.82% Net assets end of period (000s omitted)............................ $ 2,829 $ 3,134 $ 4,224 $ 6,051 $ 8,641 $ 7,037 Ratio of expenses to average daily net assets.............................. 1.87%* 1.83% 1.82% 1.81% 1.82% 1.83% Ratio of net investment income to average daily net assets............ 9.80%* 9.21% 8.66% 7.90% 8.81% 9.26% Portfolio turnover rate............... 34% 112% 67% 46% 214% 331%
* Annualized. ** For the six-month period ended January 31, 2002. @ These are the total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustments for sales charge.
Class H -------------------------------------------------------------- Unaudited Year Ended July 31, --------- -------------------------------------------------- HIGH YIELD PORTFOLIO 2002** 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 5.26 $ 6.06 $ 6.66 $ 7.40 $ 7.82 $ 7.55 ------- ------- ------- ------- ------- ------- Operations: Investment income - net............... .25 .52 .57 .54 .68 .71 Net realized and unrealized gain (loss) on investments............... (.39) (.78) (.64) (.72) (.40) .28 ------- ------- ------- ------- ------- ------- Total from operations................... (.14) (.26) (.07) (.18) .28 .99 ------- ------- ------- ------- ------- ------- Distributions to shareholders: From investment income - net.......... (.25) (.54) (.53) (.56) (.70) (.70) Excess distributions of net realized gains............................... -- -- -- -- -- (.02) ------- ------- ------- ------- ------- ------- Total distributions to shareholders..... (.25) (.54) (.53) (.56) (.70) (.72) ------- ------- ------- ------- ------- ------- Net asset value, end of period.......... $ 4.87 $ 5.26 $ 6.06 $ 6.66 $ 7.40 $ 7.82 ------- ------- ------- ------- ------- ------- Total Return @.......................... (2.62%) (4.57%) (1.13%) (2.44%) 3.67% 13.82% Net assets end of period (000s omitted).............................. $23,417 $27,274 $36,161 $56,420 $72,415 $63,789 Ratio of expenses to average daily net assets................................ 1.87%* 1.83% 1.82% 1.81% 1.82% 1.83% Ratio of net investment income to average daily net assets.............. 9.80%* 9.21% 8.66% 7.90% 8.81% 9.23% Portfolio turnover rate................. 34% 112% 67% 46% 214% 331%
* Annualized. ** For the sixth-month period ended January 31, 2002. @ These are the total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustments for sales charge. 22 DIRECTORS AND OFFICERS INFORMATION ABOUT DIRECTORS The business and affairs of the fund are managed under the direction of the fund's Board of Directors. Information pertaining to the directors of the fund is set forth below.
INDEPENDENT DIRECTORS Number of Portfolios in Position Term of Office Fund Complex Other Held With and Length of Principal Occupation(s) Overseen by Directorships Name, Address, Age the Fund Time Served During Last 5 Years Director Held by Director - ------------------ --------- -------------- ------------------------- ------------- ---------------------- ALLEN R. FREEDMAN (age Director Since 1987 Director, Fortis, Inc.; 38 Systems and Computer 60) One Chase Manhattan prior to July 2000, Technology Corporation Plaza New York, NY Chairman & CEO, Fortis, Inc., and Managing Director of Fortis International, N.V. DR. ROBERT M. GAVIN (age Director Since 1986 Educational consultant; 38 N/A 60) 380 Lone Pine Road prior to September 1, Bloomfield, MI 2001, President, Cranbrook Education Community; prior to July 1996, President, Macalester College, St. Paul, MN. JEAN L. KING (age 56) 12 Director Since 1986 President, Communi-King, 38 N/A Evergreen Lane St. Paul, a communications MN consulting firm. PHILLIP O. PETERSON (age Director Since 2000 Mutual fund industry 38 N/A 55) 11155 Kane Trail consultant; Partner of Northfield, MN KPMG LLP, through June 1999. ROBB L. PRINCE (age 59) Director Since 1986 Financial and employee 38 Analysts International 5108 Duggan Plaza Edina, benefit consultant; prior Corporation MN to July 1995, Vice President and Treasurer, Jostens, Inc., a producer of products and services for youth, education, sports award, and recognition markets. LEONARD J. SANTOW (age Director Since 1986 Principal, Griggs & 38 N/A 64) 75 Wall Street, 21st Santow, Inc., economic Floor New York, NY and financial consultants. NOEL F. SCHENKER (age 46) Director Since 1996 Senior Vice President, 38 N/A 1908 W. 49th Street Marketing and New Minneapolis, MN Business Development, Select Comfort Corporation, a manufacturer, retailer and direct merchant of airbeds and sleep-related products; prior to 2000, marketing consultant; prior to 1996, Senior Vice President, Marketing and Strategic Planning, Rollerblade, Inc., a manufacturer of in-line skates and related gear and accessories. DR. LEMMA W. SENBET (age Director Since 2001 The William E. Mayer 38 N/A 53) 4435 Van Munching Professor of Finance and Hall College Park, MD Chair, Finance Department, University of Maryland, College Park, MD; consultant, international financial institutions. INTERESTED DIRECTORS DAVID M. ZNAMIEROWSKI* President Since 2001 President of HIMCO and 80 N/A (age 41) 55 Farmington and Senior Vice President, Avenue Hartford, CT Director Chief Investment Officer and Director of Investment Strategy for Hartford Life, Inc. Managing Member and Senior Vice President of HIFSCO and HL Advisors.
* Mr. Znamierowski is an interested director because he serves as a Managing Member and Senior Vice President of HIFSCO, the investment adviser to the fund, and is a Senior Vice President, Chief Investment Officer and Director of Investment Strategy for Hartford Life, the parent of HIMCO, the subadviser to the funds. OFFICERS David M. Znamierowski PRESIDENT Robert W. Beltz, Jr. VICE PRESIDENT Peter W. Cummins VICE PRESIDENT Kevin J. Carr VICE PRESIDENT Tamara L. Fagely VICE PRESIDENT AND TREASURER George R. Jay VICE PRESIDENT Stephen T. Joyce VICE PRESIDENT David N. Levenson VICE PRESIDENT Thomas M. Marra VICE PRESIDENT Scott R. Plummer VICE PRESIDENT John C. Walters VICE PRESIDENT Michael J. Radmer SECRETARY INVESTMENT ADVISER Hartford Investment Financial Services Company P.O. BOX 1744, HARTFORD, CT 06144-1744 REGISTRAR AND TRANSFER AGENT Hartford Administrative Services Company P.O. BOX 64284, ST. PAUL, MINNESOTA 55164 PRINCIPAL UNDERWRITER Hartford Investment Financial Services Company P.O. BOX 1744, HARTFORD, CT 06144-1744 CUSTODIAN State Street Bank and Trust Company BOSTON, MASSACHUSETTS 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. 23 SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED): REORGANIZATION OF HIGH YIELD PORTFOLIO: At special meeting of shareholders, held on February 11, 2002, shareholders of Fortis High Yield Portfolio (the "Fund") approved a proposed Agreement and Plan of Reorganization between Hartford-Fortis Series Fund, Inc. and The Hartford Mutual Funds, Inc. (the "Plan"). Shareholders approved the Plan with 9,449,412 shares voted FOR and 292,453 shares voted AGAINST the proposal (446,038 shares abstained). Under the terms of the Plan, and pursuant to the approval of the Fund's shareholders, the assets of the Fund were acquired by The Hartford High Yield Fund (the "Hartford Fund"), a series of The Hartford Mutual Funds, Inc., on February 15, 2002. The Hartford Fund acquired the Fund's assets in exchange for the Hartford Fund's shares, which were distributed pro rata by the Fund to the holders of its shares on February 15, 2002, in complete liquidation of the Fund. CLOSURE OF FORTIS STRATEGIC INCOME FUND: Strategic Income Fund was closed to new shareholders, new accounts and additional investments by existing shareholders on October 1, 2001. Fund management is evaluating the options available with respect to this fund. In the meantime, the fund continues to be actively managed according to its investment objectives. 24 Underwritten and distributed through Woodbury Financial Services, Inc. Member NASD, SIPC P.O Box 64284, St. Paul, MN 55164-0284 Investment manager Hartford Investment Financial Services Company, HIFSCO P.O. Box 2999, Hartford, CT 06104-2999 Investment subadvisers Hartford Investment Management Company, HIMCO P.O Box 2999, Hartford, CT 06104-2999 Wellington Management Company, LLP 75 State Street, Boston, MA 02109 FORTIS FUNDS P.O. Box 64284 St. Paul, MN 55164-0284 Fortis bond funds The Fortis brandmark and Fortis-Registered Trademark- are servicemarks of Fortis (B) and Fortis (NL). 98754 2/02 -----END PRIVACY-ENHANCED MESSAGE-----