-----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, Vm/MxBW1wpZLRUnCsOaNJwCQu/iInVBR3B3OCSQ/rjCE9Pu5OQ9f6KNpdLNdzXZc pb18fRnkp+VEM6wLau4qlA== 0000912057-96-021036.txt : 19960925 0000912057-96-021036.hdr.sgml : 19960925 ACCESSION NUMBER: 0000912057-96-021036 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960924 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORTIS INCOME PORTFOLIOS INC CENTRAL INDEX KEY: 0000049929 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] 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: 96633901 BUSINESS ADDRESS: STREET 1: POST OFFICE BOX 64284 CITY: ST PAUL STATE: MN ZIP: 55164 BUSINESS PHONE: 6127384000 MAIL ADDRESS: STREET 1: P O BOX 64284 CITY: ST PAUL STATE: MN ZIP: 55164 FORMER COMPANY: FORMER CONFORMED NAME: AMEV U S GOVERNMENT SECURITIES FUND INC DATE OF NAME CHANGE: 19920203 FORMER COMPANY: FORMER CONFORMED NAME: SAINT PAUL INCOME FUND INC DATE OF NAME CHANGE: 19850516 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL INCOME FUND INC DATE OF NAME CHANGE: 19770201 N-30D 1 FORM N-30D Fortis [LOGO] FORTIS BOND FUNDS Annual Report July 31, 1996 [LOGO] FORTIS BOND FUNDS ANNUAL REPORT CONTENTS LETTER TO SHAREHOLDERS 1 SCHEDULES OF INVESTMENTS 5 STATEMENTS OF ASSETS AND LIABILITIES 12 STATEMENTS OF OPERATIONS 13 STATEMENTS OF CHANGES IN NET ASSETS 14 NOTES TO FINANCIAL STATEMENTS 16 INDEPENDENT AUDITORS' REPORT 20 BOARD OF DIRECTORS AND OFFICERS 22 PRODUCTS AND SERVICES 23 - - TOLL-FREE PERSONAL ASSISTANCE - Shareholder Services - (800) 800-2638, Ext. 3012 - 7:30 a.m. to 5:30 p.m. CST, M-Th - 7:30 a.m. to 5:00 p.m. CST, F - - TOLL-FREE INFORMATION LINE - For daily account balances, transaction activity or net asset value information - (800) 800-2638, Ext. 4344 - 24 hours a day FOR MORE INFORMATION ABOUT FORTIS FINANCIAL GROUP'S FAMILY OF PRODUCTS, CALL YOUR INVESTMENT REPRESENTATIVE OR THE HOME OFFICE AT (800) 800-2638. TO ORDER PROSPECTUSES OR SALES LITERATURE FOR ANY FORTIS PRODUCT, CALL (800) 800-2638, EXT. 4579. HOW TO USE THIS REPORT For a quick overview of the funds' performance during the fiscal period, refer to the Highlights box below. The letter from the portfolio manager and president provides a more detailed analysis of the fund and financial markets. The charts alongside the letter are useful because they provide more information about your investments. The top holdings chart shows the types of securities in which the fund invests, and the pie chart shows a breakdown of the funds' assets by sector. The performance chart graphically compares the fund's total return performance with a selected investment index. Remember, however, that an index may reflect the performance of securities the fund may not hold. Also, the index does not deduct investment advisory fees and other fund expenses, whereas your fund does. Individuals cannot buy an unmanaged index fund without incurring some charges and expenses. Sales charges pay for your investment representative's advice. This report is just one of several tools you can use to learn more about your investment in the Fortis Family of Mutual Funds. Your investment representative, who understands your personal financial situation, can best explain the features of your investment and how it's designed to help you meet your financial goals. HIGHLIGHTS FORTIS U.S. GOVERNMENT SECURITIES FUND FOR THE YEAR ENDED JULY 31, 1996
CLASS A CLASS B CLASS C CLASS E CLASS H --------- --------- --------- --------- --------- NET ASSET VALUE PER SHARE: Beginning of year..................... $ 9.02 $ 9.02 $ 9.01 $ 9.02 $ 9.02 End of year........................... $ 8.87 $ 8.86 $ 8.85 $ 8.87 $ 8.86 DISTRIBUTIONS PER SHARE: From net investment income............ $ 0.579 $ 0.519 $ 0.519 $ 0.603 $ 0.519 FORTIS HIGH YIELD PORTFOLIO FOR THE NINE MONTHS ENDED JULY 31, 1996: NET ASSET VALUE PER SHARE: Beginning of period................... $ 7.61 $ 7.60 $ 7.59 -- $ 7.60 End of period......................... $ 7.56 $ 7.56 $ 7.55 -- $ 7.55 DISTRIBUTIONS PER SHARE: From net investment income............ $ 0.570 $ 0.534 $ 0.534 -- $ 0.534
Photo A conservative investment alternative YOUR U.S. GOVERNMENT SECURITIES FUND MANAGED WITH A DISCIPLINED, CONSISTENT INVESTMENT APPROACH, THIS FUND IS DESIGNED TO SEEK A STRONG TOTAL RETURN, AS WELL AS A RELATIVELY HIGH LEVEL OF CURRENT INCOME, BY FOCUSING ITS INVESTMENTS IN U.S. GOVERNMENT BONDS, TREASURIES AND MORTGAGE-BACKED SECURITIES. CHANGING ECONOMIC CONDITIONS WARRANT CLOSE ATTENTION The past year managing this fund has been interesting to say the least. As we moved through the autumn months and into 1996, we slightly extended the portfolio's fourth quarter duration* to approximately 110 percent of its benchmark. (A benchmark is a measure of reference against which the fund is compared and evaluated.) We pursued this strategy to maximize the portfolio's total return in what we were anticipating to be a lower interest rate environment. In addition, we reduced the portfolio's exposure in mortgage backed securities (MBS), which tend to underperform as interest rates decline. This strategy was rewarded during last year's bond rally. The unexpectedly strong employment statistics announced in March, however, changed the interest rate outlook almost instantly. Recognizing the implications for the economy and the level of interest rates, we immediately realigned the portfolio and shortened the duration. We assumed this more defensive posture for the short term as we awaited further evidence of an economic recovery. We also reversed our earlier strategy and increased the portfolio's exposure to higher yielding MBS. We believed these securities would provide a better total return if interest rates continued to rise, as well as provide better coupon income in a stable interest rate environment. *An important concept in managing fixed income securities, duration is the measure of a bond fund's sensitivity to interest rate changes. Traditionally measured in years, higher durations mean potentially greater fluctuations in bond values, just as lower durations typically mean less volatility. "BARBELLED" STRUCTURE HELPED IMPROVE RETURNS While we were caught by surprise in early March, our decision to immediately assume a more defensive posture was the correct one. Interest rates have moved higher since then, as the signs of strong economic growth have gradually emerged. From March through July, we maintained the lower portfolio duration, reflecting our slightly negative bias about the direction of interest rates. We also continued to overweight the exposure to MBS, which has helped significantly as this sector outperformed U.S. Treasuries. Finally, we positioned the portfolio in a more "barbelled" structure, with holdings concentrated at both ends of the interest rate spectrum and fewer intermediate holdings. This strategy improved performance as the market anticipated a rise in short-term interest rates by the Federal Reserve, flattening the yield curve (short rates rose more than long rates). More recently, as the pace of economic growth has slowed, we moved the portfolio's duration to 100 percent of its benchmark, which is currently 4.6 years. Most of these changes contributed to an improved fund return over the last year. For the 12-month period ended July 31, the U.S. Government Securities Fund earned a 5.08 percent total rate of return for Class E shares, which placed it in the top quartile among its Morningstar peer group. 1 PORTFOLIO COMPOSITION BY INDUSTRY AS OF 7/31/96 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC FNMAs 35.7% U.S. Treasury Securities 31.2% GNMAs 14.2% FHLMCs 7.3% Other Direct Federal Obligations 6.2% Cash Equivalents/Receivables 5.0% Other Government Agencies 0.4%
TOP 10 HOLDINGS AS OF 7/31/96
Percent of Bonds Net Assets - ------------------------------------------------------------------- 1. Federal Home Loan Bank (7.31%) 2004 6.2% 2. U.S. Treasury Note (8.25%) 1998 4.4% 3. U.S. Treasury Bond (8.125%) 2021 4.0% 4. U.S. Treasury Note (6.25%) 2001 3.7% 5. FNMA Note (8.50%) 2005 3.3% 6. GNMA (9.50%) 2019 3.3% 7. U.S. Treasury Note (6.50%) 2005 3.1% 8. U.S. Treasury Note (5.75%) 2003 3.0% 9. U.S. Treasury Bond (8.125%) 2019 2.9% 10. U.S. Treasury Note (7.125%) 1999 2.7%
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
Since 1 Year Inception+ - ------------------------------------------------------------- Class A sharesDiamond 4.78% 8.67% Class A sharesDiamond Diamond 0.06% 5.79% Class B sharesDiamond 4.00% 7.86% Class B sharesDiamond Diamond 0.40% 5.85% Class C sharesDiamond 4.00% 7.79% Class C sharesDiamond Diamond 3.00% 7.79% Class H sharesDiamond 4.00% 7.86% Class H sharesDiamond Diamond 0.40% 5.85%
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, E and H) will vary based on the differences in sales loads and distribution fees paid by shareholders investing in the different classes. Class A and E has a maximum sales charge of 4.50%, Class B and H have a CDSC of 4.00% (with a waiver of 10% of the amount invested) if redeemed within two years of purchase, and Class C has a CDSC of 1.00% if redeemed within one year of purchase Diamond Without sales charge. Diamond With sales charge. Assumes redemption on July 31, 1996. Diamond + Since November 14, 1994 -- Date shares were first offered to the public EXPECT INFLATION CONCERNS TO DISSIPATE Over the next three months, we believe that higher interest rates will slow the pace of economic activity. As this occurs, we anticipate having a more positive interest rate outlook as concerns about future inflation dissipate. Assuming this scenario, we will likely increase the portfolio's duration and decrease our holdings in mortgage backed securities to provide investors with a better prospect of capital appreciation as rates decline. WE APPRECIATE YOUR SUPPORT AND CONFIDENCE Today's economic and investment climates remain ever-changing, and we gladly accept the challenge. If you have any questions or comments, please call us or your investment professional. [SIGNATURE] [SIGNATURE] Dean C. Kopperud Howard G. Hudson President Vice President August 12, 1996
VALUE OF $10,000 INVESTED AUGUST 1, 1986 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FORTIS U.S. GOVERNMENT SECURITIES FUND AVERAGE ANNUAL TOTAL RETURN 1 YEAR Class E* .35% Class E** +5.08% Lehman Brothers Intermediate Gov't Index*** U.S. Government Securities Fund Class E 8/1/86 10,000 9,271 87 10,448 10,070 88 11,176 10,844 89 12,590 12,169 90 13,478 13,093 91 14,853 14,491 92 16,901 16,261 93 18,284 17,686 94 18,475 17,207 95 20,038 18,534 96 20,926 19,475 5 YEAR 10 YEAR Class E* +5.12% +6.89% Class E** +6.09% +7.39% 8/1/86 87 88 89 90 91 92 93 94 95 96
Annual period ended July 31 Past performance is not indicative of future performance. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. * SEC defined total returns, including reinvestment of all dividend and capital gains distributions and the reduction due to the maximum sales charge of 4.50%. ** These are the portfolios total returns during the period, including reinvestment of all dividend and capital gains distributions without adjustment for sales charge. *** An unmanaged index of government bonds with an average maturity of three to four years. 2 Photo Opportunity for the informed investor YOUR FORTIS 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. A YEAR OF ECONOMIC CHANGE We have witnessed two substantial shifts in the pace of U.S. economic activity within the past 12 months. A year ago, the U.S. economy appeared to be softening. Retail sales were declining and unsold inventories were building in a number of industry sectors, such as steel and pulp paper. Bond prices, which move higher in response to slackening demand for credit, staged a strong rally in the last half of 1995. In March 1996, an unexpectedly strong employment report, indicating robust job growth, dramatically altered the perception of a flagging economy. More data arrived in the following months that appeared to confirm a resurgence in domestic economic growth. In the second quarter, the U.S. Gross Domestic Product, which is a common indicator of economic activity, has significantly increased over 1995's second quarter. The bond market, startled by the surge in growth and concerned by its inflationary potential, turned bearish. This was clearly illustrated when the price of the "benchmark" 30-year treasury bond issued in February declined over 10 percent, and the yield rose from 6 percent to more than 7 percent by the end of July. Most market participants anticipated that the Federal Reserve would need to raise short-term borrowing rates by August. As we reached the end of the 9-month period, however, market sentiment had shifted once again. Recent economic data suggest that the economy's rapid pace may already be slowing. Most bond investors now believe the Federal Reserve will delay raising interest rates until the fourth quarter of this year. Although we began the year believing that the economy was destined to soften, the employment data that stirred the market in March forced us to reevaluate our portfolio strategy. From March to July, believing that the economy was still capable of significant growth, we maintained a bearish to neutral stance on the bond market. Although the most recent data have delivered mixed signals about the speed at which the U.S. economy is expanding, our outlook is that the current bond market is still vulnerable to the risks of continued vigorous, potentially inflationary business activity. AN EFFECTIVE WAY TO DIVERSIFY High yield bonds generally deliver their best relative performance when the economy is strengthening and stock prices are moving higher. The prospect of an acceleration in economic growth that sent treasury securities' prices lower from mid-February through June had only a subdued effect on the high yield bond market. For the seven months of 1996, high yield bond returns outperformed all other fixed income categories. This relative insensitivity to rising and falling interest rates has historically served to make high yield bonds good diversifiers for fixed income portfolios, in addition to providing the high level of current income many investors seek. OVERALL PORTFOLIO HOLDINGS IMPROVED For the 12 months ended July 31, 1996, the portfolio underperformed the total return of the Lehman High Yield Bond Index. However, most of the portfolio's shortfall relative to the Index occurred last autumn when the market price of several bonds in the portfolio fell due to the poor financial performance of the companies that had issued the securities. We took steps to improve the overall credit quality and liquidity of the portfolio, primarily by selling securities whose issuers fell into the highest risk category. We also reduced the portfolio's focus on the retail and consumer goods sectors and increased its commitment to the telecommunications and cable television sectors, reflecting our belief that the latter two industries will display the best long-term growth characteristics among businesses currently issuing high yield debt. 3 PORTFOLIO COMPOSITION BY INDUSTRY AS OF 7/31/96 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Telecommunications 20.5% Airlines 2.6% Cash Equivalents/Receivables 5.5% Steel and Iron 3.5% Health Care Services 2.2% Containers and Packaging 2.1% Metals-Minning and Miscellaneous 3.3% Chemicals 5.1% Forest Products 2.4% Broadcasting 5.4% Retail Grocery 4.4% Leisure Time-Amusements 7.0% Other 22.9% Cable Television 13.1%
TOP 10 HOLDINGS AS OF 7/31/96
Percent of Net Assets - ------------------------------------------------------------------- 1. United International Holdings, Inc. (14.0%) 1999 2.4% 2. Paging Network, Inc., (10.125%) 2007 1.8% 3. Kash N Karry Corp., (11.5%) 2003 1.8% 4. Panamsat L.P., (8.79%) 2003 1.7% 5. Groupe Videotron, (10.625%) 2005 1.6% 6. IXC Communications, Inc. (12.50%) 2005 1.6% 7. Showboat, Inc., (9.25%) 2008 1.5% 8. A+ Network, Inc., (11.875%) 2005 1.5% 9. Trump Atlantic City Associates, (11.25%) 2006 1.5% 10. NextLink Communications, L.L.C., (12.50%) 2006 1.5%
CLASS B, C AND H AVERAGE ANNUAL TOTAL RETURNS
Since 1 Year Inception+ - ------------------------------------------------------------- Class B sharesDiamond 4.93% 8.15% Class B sharesDiamond Diamond 1.34% 6.14% Class C sharesDiamond 4.80% 8.08% Class C sharesDiamond Diamond 3.81% 8.08% Class H sharesDiamond 4.93% 8.15% Class H sharesDiamond Diamond 1.34% 6.14%
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% (with a waiver of 10% of the amount invested) if redeemed within two years of purchase, and Class C has a CDSC of 1.00% if redeemed within one year of purchase. Diamond Without CDSC. Diamond With CDSC. Assumes redemption on July 31, 1996. Diamond + Since November 14, 1994 -- Date shares were first offered to the public Looking ahead to the remainder of the calendar year, we believe a still buoyant domestic economy will continue to help high yield bonds perform well. However, consistent with our overall view on interest rates over the longer term, we also believe that higher rates will eventually slow the U.S. economy and moderate returns from the high yield bond sector. If we receive clear indications of a slowdown, from either widely followed economic data or an increase in the number of struggling high yield bond issuers, we will attempt to reposition the portfolio in a timely fashion by making further upgrades to the credit quality of the portfolio. YOU ARE IMPORTANT TO US Today's economic and investment climates remain ever-changing, and we gladly accept the challenge. Thank you for your investment. If you have any questions, please call us or your investment professional. [SIGNATURE] [SIGNATURE] Dean C. Kopperud Howard G. Hudson President Vice President August 12, 1996
VALUE OF $10,000 INVESTED JANUARY 4, 1988 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
HIGH YIELD PORTFOLIO CLASS A SINCE AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEAR JANUARY 4, 1988@ With Sales Charge* +72% +10.68% +8.49% Without Sales Charge** +5.47% +11.71% +9.07% Lehman Brothers High Yield High Yield Index*** Portfolio Class A 01/04/88 10,000 9,550 04/30/89 12,938 10,913 04/30/90 13,110 9,705 04/30/91 15,062 11,561 04/30/92 18,440 14,139 04/30/93 21,269 16,565 04/30/94 21,996 14,545 04/30/95 25,140 19,069 04/30/96 27,149 20,111
Past performance is not indicative of future performance. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. * SEC defined total returns, including reinvestment of all dividend and capital gains distributions and the reduction due to the maximum sales charge of 4.50%. ** These are the portfolios total returns during the period, including reinvestment of all dividend and capital gains distributions without adjustment for sales charge. *** An unmanaged index of lower quality, high yield corporate debt securities. @ Date shares were first offered to the public. 4 FORTIS BOND FUNDS U.S. GOVERNMENT SECURITIES FUND Schedule of Investments July 31, 1996 U.S. GOVERNMENT SECURITIES-94.96%
- -------------------------------------------------------------------------------- Principal Market Amount Cost (a) Value (b) ------------ ------------- --------------- FEDERAL HOME LOAN MORTGAGE CORPORATION-7.28% MORTGAGE BACKED SECURITIES: $11,996,007 8.00% 2001-2002.............................. $ 12,295,907 $ 12,194,685 4,810,046 9.00% 2001-2022 (e).......................... 5,089,809 5,013,221 9,702,802 9.50% 2016 (e)............................... 10,428,916 10,330,447 337,973 10.50% 2015.................................. 363,426 368,496 282,461 11.25% 2013-2014............................. 304,610 313,664 1,110,512 11.50% 2015-2019............................. 1,201,892 1,240,996 1,118,499 11.75% 2010-2015............................. 1,225,610 1,254,815 213,403 12.50% 2019.................................. 230,180 241,679 ------------- --------------- 31,140,350 30,958,003 ------------- --------------- REMIC-PAC'S: 2,250,019 9.00% Trust#136-D PAC 2020................... 2,261,037 2,309,890 857,807 9.50% Trust#1001F 2003....................... 871,361 874,525 ------------- --------------- 3,132,398 3,184,415 ------------- --------------- TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION................................ 34,272,748 34,142,418 ------------- --------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION-35.72% MORTGAGE BACKED SECURITIES: 8,595,823 6.00% 2011................................... 8,419,764 8,109,575 23,707,066 6.50% 2010-2011.............................. 23,309,422 22,869,780 28,602,438 7.00% 2003-2026 (f).......................... 28,092,206 27,747,007 6,984,717 7.184% 2006.................................. 6,879,252 6,912,688 9,935,207 7.25% 2005................................... 10,263,612 9,784,986 29,510,197 7.50% 2022-2026 (f).......................... 29,256,618 29,030,658 1,355,274 8.00% 2025................................... 1,297,252 1,362,473 1,740,200 8.50% 2022................................... 1,834,061 1,779,889 223,999 9.00% 2020................................... 221,829 233,517 1,820,345 9.75% 2020................................... 1,963,697 1,953,172 1,412,267 10.00% 2023.................................. 1,540,695 1,524,806 1,559,395 10.50% 2012-2018............................. 1,662,331 1,707,049 313,869 10.75% 2013.................................. 323,285 345,648 3,564,891 11.00% 2015-2020............................. 3,836,540 3,949,229 452,337 11.25% 2013.................................. 474,954 504,285 269,220 11.50% 2015.................................. 291,651 302,031 539,037 12.00% 2011-2016............................. 578,352 609,112 794,177 12.50% 2015.................................. 891,799 902,880 ------------- --------------- 121,137,320 119,628,785 ------------- --------------- NOTES: 12,000,000 6.85% 2000 (e)............................... 12,000,000 11,925,624 9,000,000 7.40% 2004 (e)............................... 9,456,912 9,193,158 9,750,000 7.65% 2005 (e)............................... 9,886,868 10,078,780 15,000,000 8.50% 2005 (e)............................... 15,523,948 15,615,870 ------------- --------------- 46,867,728 46,813,432 ------------- --------------- REMIC-PAC: 1,145,463 7.50% Trust # 1991-136 G 2019................ 1,187,881 1,146,825 ------------- --------------- TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION................................ 169,192,929 167,589,042 ------------- --------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-14.18% MORTGAGE BACKED SECURITIES: 14,429,244 7.00% 2024-2026.............................. 14,162,923 13,788,946 8,920,634 7.50% 2022................................... 8,937,235 8,761,731 3,486,607 8.00% 2017-2022.............................. 3,572,391 3,506,219 15,682,933 9.00% 2016-2022.............................. 16,487,001 16,376,643 21,731,273 9.50% 2016-2019.............................. 22,703,797 23,088,861 837,206 11.00% 2015-2018............................. 902,170 927,991
5 FORTIS BOND FUNDS U.S. GOVERNMENT SECURITIES FUND (CONTINUED) Schedule of Investments July 31, 1996 U.S. GOVERNMENT SECURITIES-CONTINUED - --------------------------------------------------------------------------------
Principal Market Amount Cost (a) Value (b) ------------ ------------- --------------- $ 65,239 11.25% 2015.................................. $ 69,278 $ 72,742 ------------- --------------- TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION................................ 66,834,795 66,523,133 ------------- --------------- OTHER DIRECT FEDERAL OBLIGATIONS-6.18% FEDERAL HOME LOAN BANK: 28,650,000 7.31% 2004 (e)............................... 28,572,441 29,024,742 ------------- --------------- OTHER GOVERNMENT AGENCIES-0.41% RESOLUTION FUNDING CORPORATION: 7,000,000 7.355% Zero Coupon Strip 2014 (c)............ 1,921,577 1,950,193 ------------- --------------- U.S. TREASURY SECURITIES-31.19% BOND: 28,930,000 8.125% 2019-2021 (e)......................... 33,776,476 32,359,713 ------------- --------------- NOTES: 14,910,000 5.75% 2003 (e)............................... 14,263,883 14,131,877 12,500,000 5.875% 2004 (e).............................. 11,809,023 11,875,000 17,705,000 6.25% 2001 (e)............................... 17,412,201 17,472,622 14,945,000 6.50% 2005 (e)............................... 15,096,669 14,677,090 12,500,000 7.125% 1999 (e).............................. 12,717,348 12,734,375 11,500,000 7.50% 2001 (e)............................... 12,182,679 11,952,812 2,000,000 7.875% 2004 (e).............................. 2,067,742 2,140,622 20,000,000 8.25% 1998 (e)............................... 22,813,281 20,725,000 8,000,000 8.75% 1997 (e)............................... 8,813,796 8,252,488 ------------- --------------- 117,176,622 113,961,886 ------------- --------------- TOTAL U.S. TREASURY SECURITIES............... 150,953,098 146,321,599 ------------- --------------- TOTAL U.S. GOVERNMENT SECURITIES............. $ 451,747,588 $ 445,551,127 ------------- --------------- ------------- ---------------
SHORT-TERM INVESTMENTS-6.40%
- -------------------------------------------------------------------------------- Principal Market Amount Value (b) ------------ --------------- INVESTMENT COMPANY-3.83% $17,974,333 Federated Treasury Obligation Fund, Current rate -- 4.91%.............................. $ 17,974,333 --------------- U.S. GOVERNMENT AGENCY-2.57% 12,100,000 Federal Home Loan Mortgage Corp., 5.31%, 8-13-1996.................................. 12,077,148 --------------- TOTAL SHORT-TERM INVESTMENTS................. 30,051,481 --------------- TOTAL INVESTMENTS IN SECURITIES (COST: $481,799,069) (A).......................... $ 475,602,608 --------------- ---------------
(a) At July 31, 1996, the cost of securities for federal income tax purposes was $482,566,762 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation........................... $ 2,407,214 Unrealized depreciation........................... (9,371,368) --------------------------------------------------------------- Net unrealized depreciation....................... $(6,964,154) ---------------------------------------------------------------
(b) See Note 1 of accompanying Notes to Financial Statements regarding valuation of securities. (c) The interest rates disclosed for these securities represents the effective yields on the date of acquisition. (d) Note: Percentage of investments as shown is the ratio of the total market value to total net assets. (e) Security is fully or partially on loan at July 31, 1996. See Note 1 of accompanying Notes to Financial Statements. (f) Includes securities purchased on a when-issued basis at July 31, 1996, with a cost aggregating $12,749,816. 6 FORTIS BOND FUNDS HIGH YIELD PORTFOLIO Schedule of Investments July 31, 1996 COMMON STOCK AND WARRANTS-0.42%
- -------------------------------------------------------------------------------- Market Shares Cost (b) Value (c) -------- --------- ------------- APPAREL-0.00% 1,250 Hosiery Corp. of America, Class A (a)(f)..... $ 21,150 $ 6,250 --------- ------------- BROADCASTING-0.08% 1,000 Commodore Media, Inc. (Warrants) (a)(f)...... 26,500 130,000 --------- ------------- CABLE TELEVISION-0.04% 10,000 American Telecasting, Inc. (Warrants) (a).... 20,000 55,000 2,500 People's Choice T.V. Corp. (Warrants) (a)(f)..................................... 28,300 7,500 --------- ------------- 48,300 62,500 --------- ------------- CONSUMER GOODS-0.00% 1,800 Chattem, Inc. (Warrants) (a)(f).............. 18,424 4,050 17,400 Drypers Corp. (Warrants) (a)(f).............. 52,200 174 --------- ------------- 70,624 4,224 --------- ------------- LEISURE TIME-AMUSEMENTS-0.00% 1,000 Boomtown, Inc. (Warrants) (a)................ 6,340 150 26,670 Capital Gaming International, Inc. (a)....... 133,350 3,200 22,750 Capital Gaming International, Inc. (Warrants) (a)........................................ 35,440 1,138 6,000 Casino Magic Finance Corp. (Warrants) (a).... 9,000 60 6,000 Hemmeter Enterprises, Inc. (Warrants) (a).... 24,000 60 --------- ------------- 208,130 4,608 --------- ------------- MACHINERY-0.03% 1,250 MVE, Inc. (Warrants) (a)..................... 8,594 43,750 7,500 Terex Corp. (Rights) (a)..................... 18,750 750 --------- ------------- 27,344 44,500 --------- ------------- RETAIL-GROCERY-0.03% 8,197 Grand Union Co. (a).......................... 158,268 50,207 --------- ------------- RETAIL-MISCELLANEOUS-0.10% 1,000 Petro PSC Properties, L.P. (Warrants) (a).... 36,570 36,000 8,550 Thrifty Payless Holdings, Inc. Class B (a)... 160,500 119,700 --------- ------------- 197,070 155,700 --------- ------------- TELECOMMUNICATIONS-0.14% 4,500 American Communications Services, Inc. (Warrants) (a)(f).......................... 205,650 236,250 --------- ------------- TOTAL COMMON STOCK AND WARRANTS.............. $963,036 $ 694,239 --------- ------------- --------- -------------
CORPORATE BONDS-NON-INVESTMENT GRADE-94.07%
- -------------------------------------------------------------------------------- Standard & Poor's Principal Rating Market Amount (Unaudited) Cost (b) Value (c) ----------- ------------- ------------- ------------- AEROSPACE AND EQUIPMENT-0.99% $1,500,000 K & F Industries, Inc., 11.875% Sr Secured Note 12-1-2003............................. B+ $ 1,454,884 $ 1,612,500 ------------- ------------- AIRLINES-2.64% 1,500,000 U.S. Air, Inc., 10.00% Sr Note 7-1-2003...... CCC+ 1,406,299 1,398,750 2,000,000 U.S. Air, Inc., 10.375% Pass Thru Certificate 3-1-2013................................... B+ 1,866,793 1,950,000 1,000,000 U.S. Air, Inc., 9.82% Pass Thru Certificate 1-1-2013................................... B+ 953,892 975,000 ------------- ------------- 4,226,984 4,323,750 ------------- ------------- BEVERAGE-1.47% 2,500,000 Strohs, 11.10% Sr Sub Note 7-1-2006 (g)...... NR 2,400,000 2,400,000 ------------- ------------- BROADCASTING-5.33% 2,000,000 Argyle Television, Inc., 9.75% Sr Sub Note 11-1-2005.................................. B- 1,921,578 1,920,000 1,750,000 Commodore Media, Inc., 13.14% Sr Sub Note 5-1-2003 (7.50% coupon through 5-1-1998, thereafter 13.25%) (e)..................... B3* 1,638,499 1,802,500 1,250,000 EZ Communications, Inc., 9.75% Sr Sub Note 12-1-2005.................................. B- 1,244,395 1,229,687
7 FORTIS BOND FUNDS HIGH YIELD PORTFOLIO (CONTINUED) Schedule of Investments July 31, 1996 CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED - --------------------------------------------------------------------------------
Standard & Poor's Principal Rating Market Amount (Unaudited) Cost (b) Value (c) ----------- ------------- ------------- ------------- $2,000,000 SFX Broadcasting, 10.75% Sr Sub Note 5-15-2006 (f).............................. B- $ 2,000,000 $ 2,010,000 1,750,000 Spanish Broadcasting Systems, Inc., 11.52% Sr Note 6-15-2002 (7.50% coupon through 6-15-1997, 12.50% thereafter) (e).......... B 1,753,820 1,771,875 ------------- ------------- 8,558,292 8,734,062 ------------- ------------- CABLE TELEVISION-13.09% 1,500,000 Adelphia Communications Corp., 12.50% Sr Note 5-15-2002.................................. B 1,555,001 1,541,250 2,500,000 Bell Cablemedia plc, 12.07% Sr Disc Note 9-15-2005 (Zero coupon until 9-15-2000, thereafter 11.875%) (e).................... BB- 1,558,062 1,550,000 2,500,000 Cablevision Systems Corp., 9.875% Sr Sub Note 5-15-2006.................................. B 2,420,995 2,393,750 1,750,000 Century Communications, Inc., 9.50% Sr Note 3-1-2005................................... BB- 1,822,060 1,715,000 2,003,118 Falcon Holding Group, L.P., 11.00% Sr Sub Note Ser B 9-15-2003 (Interest is Payable-in-Kind)........................... NR 1,964,262 1,807,322 2,500,000 Groupe Videotron, 10.625% Sr Note 2-15-2005.................................. BB+ 2,630,275 2,637,500 2,500,000 Marcus Cable Operating Co., 11.27% Sr Disc Note 8-1-2004 (Zero coupon until 8-1-1999, thereafter 13.50%) (e)..................... B 1,874,566 1,784,375 2,500,000 People's Choice T.V. Corp., 13.33% Sr Disc Note 6-1-2004 (Zero coupon until 6-1-2000, thereafter 13.125%) (e).................... CCC+ 1,495,020 1,406,250 2,750,000 Telewest plc, 11.63% Sr Disc Deb 10-1-2007 (Zero coupon until 10-1-2000, thereafter 11.00%) (e)................................ BB 1,670,032 1,601,875 6,000,000 United International Holdings, Inc., 14.00% Sr Sec Zero Coupon Note Ser B 11-15-1999 (e)........................................ B- 3,971,178 3,960,000 1,625,000 Videotron Holdings plc, 11.55% Sr Disc Note 8-15-2005 (Zero coupon until 8-15-2000, thereafter 11.00%) (e)..................... B+ 1,010,172 1,056,250 ------------- ------------- 21,971,623 21,453,572 ------------- ------------- CHEMICALS-5.05% 2,000,000 Agricultural Minerals & Chemicals, 10.75% Sr Note 9-30-2003............................. B+ 2,109,220 2,085,000 2,000,000 Arcadian Partners L.P., 10.75% Sr Note Ser B 5-1-2005................................... BB- 2,086,610 2,155,000 2,000,000 Indspec Chemical Corp., 11.50% Sr Sub Disc Note Ser B 12-1-2003 (Zero coupon until 12-1-1998, thereafter 11.50%) (e).......... BB- 1,531,371 1,710,000 1,000,000 LaRoche Industries, Inc., 13.00% Sr Sub Note 8-15-2004.................................. B 1,046,250 1,062,500 1,250,000 NL Industries, Inc., 11.75% Sr Secured Note 10-15-2003................................. B 1,288,574 1,271,875 ------------- ------------- 8,062,025 8,284,375 ------------- ------------- CONSUMER GOODS-0.66% 750,000 Chattem, Inc., 12.75% Sr Sub Note Ser B 6-15-2004.................................. B- 734,374 772,500 550,000 International Semitech, Inc., 12.83% Sr Secured Note 8-15-2003 (Zero coupon until 8-15-2000, thereafter 11.50%) (e).......... B+ 322,597 310,750 ------------- ------------- 1,056,971 1,083,250 ------------- ------------- CONTAINERS AND PACKAGING-2.11% 1,750,000 Silgan Corp., 11.75% Sr Sub Note 6-15-2002... B- 1,846,250 1,789,375 1,666,000 Silgan Holdings Corp., 13.25% Sr Disc Deb 12-15-2002................................. B- 1,681,163 1,674,330 ------------- ------------- 3,527,413 3,463,705 ------------- ------------- COSMETICS AND SUNDRIES-1.08% 1,750,000 Revlon Consumer Products, 10.50% Sr Sub Note 2-15-2003.................................. B- 1,767,346 1,763,125 ------------- ------------- ENERGY-1.73% 750,000 Benton Oil & Gas Co., 11.625% Sr Note 5-1-2003 (f)............................... B 750,000 787,500 2,000,000 Mesa Operating Co., 10.625% Sr Note 7-1-2006................................... B 2,000,000 2,050,000 ------------- ------------- 2,750,000 2,837,500 ------------- ------------- FINANCE COMPANIES-1.12% 1,750,000 Homeside, Inc., 11.25% Sr Secured Second Priority Notes 5-15-2003 (f)............... B+ 1,792,230 1,828,750 ------------- ------------- FOOD-MISCELLANEOUS-0.79% 1,250,000 Envirodyne Industries, Inc., 12.00% Sr Secured First Priority Notes 6-15-2000..... B+ 1,240,625 1,300,000 ------------- ------------- FOREST PRODUCTS-2.40% 2,000,000 Repap New Brunswick, Inc., 10.625% Sr Secured Second Priority Note 4-15-2005............. B+ 1,898,574 1,910,000 1,000,000 Stone Container Corp., 10.75% First Mtg Note 10-1-2002.................................. B+ 1,017,500 1,017,500 1,000,000 Stone Container Corp., 11.875% Sr Note 8-1-2016 (f)............................... B+ 1,000,000 1,013,750 ------------- ------------- 3,916,074 3,941,250 ------------- -------------
8 CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED - --------------------------------------------------------------------------------
Standard & Poor's Principal Rating Market Amount (Unaudited) Cost (b) Value (c) ----------- ------------- ------------- ------------- FURNITURE-1.07% $1,750,000 Lifestyle, 10.875% Sr Sub Note 8-1-2006 (f)........................................ B $ 1,750,000 $ 1,750,000 ------------- ------------- HEALTH CARE SERVICES-2.22% 2,000,000 Abbey Healthcare Group, Inc., 9.50% Sr Sub Note 11-1-2002............................. BB+ 2,096,611 2,047,500 1,500,000 Tenet Healthcare Corp., 10.125% Sr Sub Note 3-1-2005................................... B+ 1,665,269 1,599,375 ------------- ------------- 3,761,880 3,646,875 ------------- ------------- HOTEL AND MOTEL-1.47% 2,500,000 Host Marriott Properties, Inc., 9.50% Sr Note 5-15-2005.................................. BB- 2,488,035 2,406,250 ------------- ------------- HOUSING-1.79% 1,500,000 MDC Holdings, Inc., 11.125% Note 12-15-2003................................. B 1,416,424 1,447,500 1,500,000 NVR Inc., 11.00% Sr Note 4-15-2003........... B 1,502,628 1,492,500 ------------- ------------- 2,919,052 2,940,000 ------------- ------------- INDUSTRIAL-1.28% 2,000,000 IMC Fertilizer, Inc., 9.45% Sr Deb 12-15-2011................................. BB- 2,053,849 2,100,000 ------------- ------------- LEISURE TIME-AMUSEMENTS-6.98% 850,000 Boomtown, Inc., 11.50% First Mtg Bond 11-1-2003.................................. B 839,690 828,750 1,250,000 Capital Gaming International, Inc., 11.50% Secured Note 2-1-2001 (a).................. Caa* 868,640 575,000 2,000,000 Players International, Inc., 10.875% Sr Note 4-15-2005.................................. BB 2,028,104 2,020,000 1,000,000 Showboat, Inc., 13.00% Sr Sub Note 8-1-2009................................... B 1,082,500 1,125,000 2,500,000 Showboat, Inc., 9.25% First Mtg Bond 5-1-2008................................... BB- 2,561,770 2,475,000 2,500,000 Trump Atlantic City Associates, 11.25% First Mtg Bond 5-1-2006.......................... BB- 2,504,972 2,437,500 2,000,000 Trump Castle Funding, Inc., 11.75% First Mtg Bond 11-15-2003............................ Caa* 1,329,419 1,990,000 ------------- ------------- 11,215,095 11,451,250 ------------- ------------- MACHINERY-0.79% 1,250,000 MVE, Inc., 12.50% Sr Secured Note 2-15-2002.................................. B+ 1,242,656 1,300,000 ------------- ------------- METALS-MINING AND MISCELLANEOUS-3.30% 1,550,000 Haynes International, Inc., 11.25% Sr Secured Note Ser A 6-15-1998....................... CCC+ 1,511,250 1,612,000 1,750,000 Haynes International, Inc., 13.50% Sr Sub Deb 8-15-1999.................................. Ca* 1,115,000 1,767,500 2,000,000 Renco Metals, Inc., 11.50% Sr Note 7-1-2003................................... B 2,000,000 2,035,000 ------------- ------------- 4,626,250 5,414,500 ------------- ------------- PUBLISHING-1.19% 2,500,000 Marvel (Parent) Holdings, Inc., 12.69% Sr Secured Zero Coupon Disc Note 4-15-1998 (e)........................................ B- 2,032,978 1,956,250 ------------- ------------- RETAIL-DEPARTMENT STORES-1.31% 2,175,000 Specialty Retailers, Inc., 10.00% Sr Note 8-15-2000.................................. B+ 2,169,932 2,153,250 ------------- ------------- RETAIL-GROCERY-4.35% 1,224,000 Cumberland Farms, Inc., 10.50% Sr Note 10-1-2003.................................. NR 1,170,408 1,162,800 2,458,682 Farm Fresh Holdings Corp.,14.25% Sr Note 10-1-2002 (Interest is Payable-in-Kind thru 10-1-1997) (f)............................. CCC+ 903,554 717,902 1,000,000 Jitney-Jungle Stores, Inc., 12.00% Sr Note 3-1-2006................................... B 1,000,000 1,032,500 2,945,400 Kash N Karry Corp., 11.50% Sr Note 2-1-2003................................... B- 2,799,149 2,945,400 350,000 Pay 'N' Pak Stores, Inc., 13.50% Sr Sub Deb 6-1-1998 (a)............................... NR 350,000 1,750 1,250,000 Smith's Food & Drug Centers, Inc., 11.25% Sr Sub Note 5-15-2007......................... B- 1,250,000 1,279,688 ------------- ------------- 7,473,111 7,140,040 ------------- ------------- RETAIL-LEISURE TIME-0.46% 750,000 Guitar Centers, Inc., 11.00% Sr Note 7-1-2006 (f)........................................ B 750,000 753,750 ------------- ------------- RETAIL-MISCELLANEOUS-0.91% 1,000,000 Color Tile, Inc., 10.75% Sr Note 12-15-2001 (a)........................................ D 590,000 67,500 1,300,000 Thrifty Payless, Inc., 12.25% Sr Sub Note 4-15-2004.................................. B- 1,222,837 1,430,000 ------------- ------------- 1,812,837 1,497,500 ------------- -------------
9 FORTIS BOND FUNDS HIGH YIELD PORTFOLIO (CONTINUED) Schedule of Investments July 31, 1996 CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED - --------------------------------------------------------------------------------
Standard & Poor's Principal Rating Market Amount (Unaudited) Cost (b) Value (c) ----------- ------------- ------------- ------------- SHIP BUILDING, SHIPPING-1.07% $1,750,000 OMI Corp., 10.25% Sr Note 11-1-2003.......... B- $ 1,719,655 $ 1,750,000 ------------- ------------- STEEL AND IRON-3.46% 2,000,000 AK Steel Corp., 10.75% Sr Note 4-1-2004...... BB 2,174,677 2,162,500 2,000,000 Bar Technologies, Inc., 13.50% Sr Sec Note 4-1-2001(and warrants) (f)................. NR 1,966,543 2,040,000 1,500,000 NS Group, Inc., 13.50% Sr Secured Note 7-15-2003.................................. NR 1,448,197 1,470,000 ------------- ------------- 5,589,417 5,672,500 ------------- ------------- TECHNOLOGY-1.25% 2,000,000 Computervision Corp., 11.375% Sr Sub Note 8-15-1999.................................. B- 1,724,688 2,055,000 ------------- ------------- TELECOMMUNICATIONS-20.37% 2,500,000 A+ Network, Inc., 11.875% Sr Sub Note 11-1-2005.................................. CCC+ 2,515,504 2,462,500 3,750,000 American Communications Services, Inc., 13.00% Sr Disc Note 11-1-2005 (Zero coupon until 11-1-2000, thereafter 13.00%) (e).... NR 2,036,914 2,025,000 870,000 Arch Communications Group, Inc., 10.61% Sr Disc Note 3-15-2008 (Zero coupon until 3-15-2001, thereafter 10.875%) (e)......... B- 543,387 441,525 2,500,000 Call-Net Enterprises, Inc., 10.74% Sr Disc Note 12-1-2004 (Zero coupon until 12-1-1999, thereafter 13.25%) (e).......... B+ 1,875,621 1,856,250 2,500,000 Cellular Communications, Inc., 11.96% Zero Coupon Note 8-15-2000 (e).................. CCC+ 1,569,902 1,525,000 2,500,000 Echostar Communications, Inc., 11.30% Sr Disc Note 6-1-2004 (Zero coupon until 6-1-1999, thereafter 12.875%) (e).................... B- 1,917,025 1,825,000 2,000,000 Fonorola, Inc., 12.50% Sr Secured Note 8-15-2002.................................. B+ 2,055,722 2,170,000 440,000 GST Telecommunications, Inc., 13.875% Sr Conv. Disc Note 12-15-2005 (Zero coupon until 12-15-2000, thereafter 13.875%) (e)(f)..................................... NR 332,210 462,000 3,520,000 GST Telecommunications, Inc., 13.875% Sr Disc Note 12-15-2005 (Zero coupon until 12-15-2000, thereafter 13.875%) (e)........ NR 1,893,521 1,980,000 3,000,000 Hyperion Communications, Inc., 13.00% Sr Disc Note 4-15-2003 (Zero coupon until 4-15-2001, thereafter 13.00%) (and warrants) (e)(f)........................... NR 1,658,675 1,642,500 2,500,000 IXC Communications, Inc., 12.50% Sr Note 10-1-2005 (f).............................. B3* 2,654,481 2,550,000 3,500,000 MFS Communications, Inc., 8.96% Sr Disc Note 1-15-2006 (Zero coupon until 1-15-2001, thereafter 8.875%) (e)..................... B 2,356,202 2,065,000 4,500,000 Microcell Telecommunications, Inc., 14.00% Disc Note 6-1-2006 (Zero coupon until 12-1-2001, thereafter 14.00%) (and warrants) (e)(f)........................... NR 2,186,941 2,115,000 2,500,000 NextLink Communications, L.L.C., 12.50% Sr Note 4-15-2006 (f)......................... NR 2,500,000 2,434,375 3,000,000 Paging Network, Inc., 10.125% Sr Sub Note 8-1-2007................................... B 3,103,449 2,985,000 3,250,000 Panamsat L.P., 8.79% Sr Sub Disc Note 8-1-2003 (Zero coupon until 8-1-1998) (e)........................................ B 2,912,576 2,835,625 3,000,000 Teleport Communications, 11.125% Sr Disc Deb 7-1-2007 (Zero coupon until 7-1-2001, thereafter 11.125%) (e).................... B 1,764,248 1,635,000 400,000 Western Wireless Corp., 10.50% Sr Sub Note 6-1-2006................................... B- 400,000 394,000 ------------- ------------- 34,276,378 33,403,775 ------------- ------------- TOBACCO-0.98% 2,000,000 Liggett Group, Inc., 11.50% Secured Note Ser B 2-1-1999................................. NR 1,492,110 1,600,000 ------------- ------------- WASTE DISPOSAL-1.36% 2,125,000 Norcal Waste Systems, Inc., 13.00% Increasing Rate Sr Note 11-15-2005 (f)................ BB- 2,083,021 2,231,250 ------------- ------------- TOTAL CORPORATE BONDS - NON-INVESTMENT GRADE...................................... 153,905,411 154,248,029 ------------- ------------- TOTAL LONG-TERM INVESTMENTS.................. $ 154,868,447 $ 154,942,268 ------------- ------------- ------------- -------------
10 SHORT-TERM INVESTMENTS-6.20%
- -------------------------------------------------------------------------------- Principal Market Amount Value (c) ----------- ------------- BANKS-1.94% $3,184,000 First Trust Money Market Variable Rate Time Deposit, Current rate -- 5.21%............. $ 3,184,000 ------------- DIVERSIFIED FINANCE-2.50% 4,092,000 Associates Corp. Master Variable Rate Note, Current rate -- 5.41%...................... 4,092,000 ------------- U.S. GOVERNMENT AGENCY-1.76% 2,900,000 Federal Home Loan Mortgage Corp., 5.00%, 8-19-1996.................................. 2,891,995 ------------- TOTAL SHORT-TERM INVESTMENTS................. 10,167,995 ------------- TOTAL INVESTMENTS IN SECURITIES (COST: $165,036,442) (B).......................... $ 165,110,263 ------------- -------------
* Moody's Rating (a) Presently non income producing. For corporate debt securities, items identified are in default as to payment of interest and/or principal. (b) At July 31, 1996, the cost of securities for federal income tax purposes was $165,224,674 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation........................... $ 4,364,408 Unrealized depreciation........................... (4,478,819) --------------------------------------------------------------- Net unrealized depreciation....................... $ (114,411) ---------------------------------------------------------------
(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 9.27% of net assets as of July 31, 1996. (e) The interest rate disclosed for these securities represents the effective yields on the date of acquisition. (f) Securities sold within 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:
Date Acquired Shares/Par Security Cost Basis - ------------------ ----------- ------------------------------------------------------------------------------ ---------- November 3, 1992 11,600 Drypers Corp. (Warrants) $ 34,800 April 29, 1993 5,800 Drypers Corp. (Warrants) 17,400 June 10, 1994 1,300 Chattem, Inc. (Warrants) 16,549 October 7, 1994 1,250 Hosiery Corp. of America, Class A 21,150 January 24, 1995 1,000,000 Farm Fresh Holdings Corp. due 2002 350,082 February 3, 1995 1,000,000 Farm Fresh Holdings Corp. due 2002 378,774 March 14, 1995 142,500 Farm Fresh Holdings Corp. due 2002 53,016 April 13, 1995 1,000 Commodore Media, Inc. (Warrants) 26,500 April 25, 1995 500 Chattem, Inc. (Warrants) 1,875 September 13, 1995 152,653 Farm Fresh Holdings Corp. due 2002 56,630 November 10, 1995 4,500 American Communications Services, Inc. (Warrants) 205,650 November 15, 1995 2,125,000 Norcal Waste Systems, Inc. due 2005 2,083,021 December 14, 1995 440,000 GST Telecommunications, Inc. due 2005 332,210 March 12, 1996 163,529 Farm Fresh Holdings Corp. due 2002 65,052 March 28, 1996 2,000,000 Bar Technologies, Inc. due 2001 1,966,543 April 11, 1996 3,000,000 Hyperion Communications, Inc. due 2003 1,658,675 April 18, 1996 2,500,000 NextLink Communications due 2006 2,500,000 April 29, 1996 750,000 Benton Oil & Gas due 2003 750,000 May 8, 1996 750,000 Homeside, Inc. due 2003 750,000 May 20, 1996 2,500 People's Choice T.V. Corp. (Warrants) 28,300 May 21, 1996 2,500,000 IXC Communications, Inc. due 2005 2,654,481 May 23, 1996 2,000,000 SFX Broadcasting due 2006 2,000,000 June 13, 1996 4,500,000 Microcell Telecommunications, Inc. due 2006 2,186,941 June 26, 1996 750,000 Guitar Centers, Inc. due 2006 750,000 July 3, 1996 1,000,000 Homeside, Inc. due 2003 1,042,230 July 17, 1996 1,000,000 Stone Container Corp. due 2016 1,000,000 July 31, 1996 1,750,000 Lifestyle due 2006 1,750,000
The value of these securities at July 31, 1996 is $23,058,501 which represent 14.06% of net assets. (g) The cost of securities purchased on a when-issued basis at July 31, 1996 is $2,400,000. 11 FORTIS BOND FUNDS Statements of Assets and Liabilities July 31, 1996
- -------------------------------------------------------------------------------- US GOVERNMENT SECURITIES HIGH YIELD FUND PORTFOLIO --------------- ------------ ASSETS: Investments in securities, as detailed in the accompanying schedules, at market (cost $481,799,069; and $165,036,442; respectively)(Note 1)..................... $ 475,602,608 $165,110,263 Cash on deposit with custodian............................ -- 26,291 Collateral for securities lending transactions (Note 1)... 190,856,194 -- Receivables: Investment securities sold.............................. 7,572,198 1,013,750 Interest and dividends.................................. 5,554,993 3,599,933 Subscriptions of capital stock.......................... 9,966 111,651 Deferred registration costs (Note 1)...................... 55,332 28,953 Prepaid expenses.......................................... 10,000 9,261 --------------- ------------ TOTAL ASSETS................................................ 679,661,291 169,900,102 --------------- ------------ LIABILITIES: Cash portion of dividends payable......................... 747,637 570,581 Payable upon return of securities loaned (Note 1)......... 190,856,194 -- Payable for investment securities purchased............... 18,260,272 5,167,500 Redemptions of capital stock.............................. 270,236 48,720 Payable for investment advisory and management fees (Note 2)...................................................... 283,833 101,290 Payable for distribution fees (Note 2).................... 1,650 5,045 Accounts payable and accrued expenses..................... 36,577 27,541 --------------- ------------ TOTAL LIABILITIES........................................... 210,456,399 5,920,677 --------------- ------------ NET ASSETS: Net proceeds of capital stock, par value $.01 per share-authorized 10,000,000,000 and 10,000,000,000 shares, respectively.................................... 546,164,114 179,517,723 Unrealized appreciation (depreciation) of investments..... (6,196,461) 73,821 Undistributed (excess of distributions over) net investment income....................................... 188,322 456,376 Accumulated net realized loss from sale of investments.... (70,951,083) (16,068,495) --------------- ------------ TOTAL NET ASSETS............................................ $ 469,204,892 $163,979,425 --------------- ------------ SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE: Class A shares (based on net assets of $67,706,530; and $109,401,010; respectively and 7,629,609; and 14,471,302 shares outstanding; respectively)......................... $8.87 $7.56 --------------- ------------ Class B shares (based on net assets of $2,314,488; and $12,067,326; respectively and 261,330; and 1,596,901 shares outstanding; respectively)......................... $8.86 $7.56 --------------- ------------ Class C shares (based on net assets of $1,057,159; and $3,378,482; respectively and 119,461; and 447,741 shares outstanding; respectively)................................ $8.85 $7.55 --------------- ------------ Class E shares (based on net assets of $388,006,241; and $0; respectively and 43,720,683; and 0 shares outstanding; respectively)............................................. $8.87 $ -- --------------- ------------ Class H shares (based on net assets of $10,120,474; and $39,132,607; respectively and 1,142,208; and 5,180,668 shares outstanding; respectively)......................... $8.86 $7.55 --------------- ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 12 FORTIS BOND FUNDS Statements of Operations For the Year Ended July 31, 1996
- -------------------------------------------------------------------------------- US GOVERNMENT SECURITIES HIGH YIELD FUND PORTFOLIO* --------------- ------------ Income: Interest income......................................... $ 35,505,727 $13,062,248 Fee income (Note 1)..................................... 186,449 23,168 --------------- ------------ Total income.............................................. 35,692,176 13,085,416 --------------- ------------ Expenses: Investment advisory and management fees (Note 2)........ 3,431,396 866,285 Distribution fees (Class A)(Note 2)..................... 85,795 293,612 Distribution fees (Class B)(Note 2)..................... 14,660 79,029 Distribution fees (Class C)(Note 2)..................... 6,620 21,749 Distribution fees (Class H)(Note 2)..................... 79,716 244,369 Registration fees....................................... 89,500 41,981 Shareholders' notices and reports....................... 107,400 34,803 Legal and auditing fees (Note 2)........................ 91,700 26,539 Custodian fees.......................................... 79,000 28,650 Directors' fees and expenses............................ 49,700 7,775 Other................................................... 62,698 11,122 --------------- ------------ Total expenses............................................ 4,098,185 1,655,914 --------------- ------------ NET INVESTMENT INCOME....................................... 31,593,991 11,429,502 --------------- ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1): Net realized gain (loss) from security transactions....... 2,510,562 (739,362 ) Net change in unrealized appreciation(depreciation) of investments............................................. (11,044,725) (353,588 ) --------------- ------------ NET LOSS ON INVESTMENTS..................................... (8,534,163) (1,092,950 ) --------------- ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 23,059,828 $10,336,552 --------------- ------------ * For the Nine-Month Period Ended July 31, 1996.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 13 FORTIS BOND FUNDS Statements of Changes in Net Assets U.S. GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------------------------- FOR THE FOR THE YEAR ENDED YEAR ENDED JULY 31, 1996 JULY 31, 1995 ----------------- -------------- OPERATIONS: Net investment income................................. $ 31,593,991 $ 37,790,314 Net realized gain (loss) from security transacations....................................... 2,510,562 (33,680,898) Net change in unrealized appreciation (depreciation) of investments in securities........................ (11,044,725) 31,855,826 ----------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 23,059,828 35,965,242 ----------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A............................................. (2,116,221) (123,171) Class B............................................. (82,612) (11,070) Class C............................................. (37,715) (6,511) Class E............................................. (28,702,692) (37,768,650) Class H............................................. (448,743) (101,319) Excess distributions of net realized gains Class A............................................. (32,271) -- Class B............................................. (1,260) -- Class C............................................. (576) -- Class E............................................. (437,700) (56,382) Class H............................................. (6,841) -- ----------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS..................... (31,866,631) (38,067,103) ----------------- -------------- CAPITAL STOCK TRANSACTIONS: Proceeds from sale of shares Class A (1,964,078 and 656,757 shares).............. 17,801,708 5,829,103 Class B (210,461 and 55,065 shares)................. 1,912,091 487,212 Class C (106,062 and 36,045 shares)................. 955,478 318,057 Class E (2,660,444 and 3,223,444 shares)............ 24,188,981 28,470,321 Class H (833,214 and 588,648 shares)................ 7,542,489 5,220,767 Proceeds from shares issued as a result of reinvested dividends Class A (167,122 and 10,355 shares)................. 1,497,610 92,733 Class B (7,469 and 701 shares)...................... 67,217 6,291 Class C (3,078 and 507 shares)...................... 27,707 4,548 Class E (2,168,387 and 2,842,973 shares)............ 19,681,299 25,132,842 Class H (35,275 and 8,959 shares)................... 319,043 80,178 Less cost of repurchase of shares Class A (1,248,050 and 123,015 shares).............. (11,152,321) (1,099,885) Class B (30,332 and 2,236 shares)................... (271,568) (20,025) Class C (31,951 and 358 shares)..................... (289,065) (3,216) Class E (13,258,065 and 15,398,667 shares).......... (120,107,341) (135,996,432) Class H (314,193 and 62,931 shares)................. (2,833,320) (558,515) Issuance of shares in connection with fund merger (Note 4) Class A (6,202,362 shares).......................... 56,802,533 -- Class B (20,202 shares)............................. 186,146 -- Class C (6,078 shares).............................. 55,394 -- Class H (53,236 shares)............................. 490,824 -- ----------------- -------------- NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS...... (3,125,095) (72,036,021) ----------------- -------------- TOTAL DECREASE IN NET ASSETS............................ (11,931,898) (74,137,882) NET ASSETS: Beginning of year..................................... 481,136,790 555,274,672 ----------------- -------------- End of year (includes undistributed (excess of distribution over) net investment income of $188,322 and $(17,686), respectively)........................ $ 469,204,892 $ 481,136,790 ----------------- --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 14 FORTIS BOND FUNDS Statements of Changes in Net Assets HIGH YIELD PORTFOLIO
- -------------------------------------------------------------------------------- FOR THE FOR THE NINE-MONTH YEAR ENDED PERIOD ENDED OCTOBER 31, JULY 31, 1996 1995 ----------------- -------------- OPERATIONS: Net investment income................................. $ 11,429,502 $ 12,733,808 Net realized loss from security transactions.......... (739,362) (13,580,003) Net change in unrealized appreciation (depreciation) of investments in securities........................ (353,588) 9,314,020 ----------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 10,336,552 8,467,825 ----------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A............................................. (7,994,179) (11,554,220) Class B............................................. (704,230) (234,800) Class C............................................. (193,776) (90,925) Class H............................................. (2,179,529) (955,294) Excess distributions of net realized gains Class A............................................. (329,567) (528,575) Class B............................................. (29,033) (10,742) Class C............................................. (7,989) (4,160) Class H............................................. (89,853) (43,702) ----------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS..................... (11,528,156) (13,422,418) ----------------- -------------- CAPITAL STOCK TRANSACTIONS: Proceeds from sale of shares Class A (2,575,765 and 4,938,047 shares)............ 19,742,519 38,455,673 Class B (758,895 and 1,018,845 shares).............. 5,820,848 7,922,888 Class C (245,695 and 289,026 shares)................ 1,880,964 2,255,501 Class H (2,624,489 and 3,315,347 shares)............ 20,121,276 25,836,255 Proceeds from shares issued as a result of reinvested dividends Class A (680,383 and 991,834 shares)................ 5,216,993 7,704,696 Class B (45,688 and 15,217 shares).................. 350,128 117,480 Class C (15,147 and 8,061 shares)................... 115,856 62,290 Class H (144,327 and 64,902 shares)................. 1,105,206 502,965 Less cost of repurchase of shares Class A (3,674,251 and 3,522,187 shares)............ (28,172,079) (27,386,262) Class B (197,976 and 43,768 shares)................. (1,514,841) (337,347) Class C (100,249 and 9,939 shares).................. (764,968) (77,278) Class H (727,568 and 240,829 shares)................ (5,569,818) (1,874,246) ----------------- -------------- NET INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS...... 18,332,084 53,182,615 ----------------- -------------- TOTAL INCREASE IN NET ASSETS............................ 17,140,480 48,228,022 NET ASSETS: Beginning of period................................... 146,838,945 98,610,923 ----------------- -------------- End of year (includes undistributed net investment income of $456,376 and $98,588, respectively)....... $ 163,979,425 $ 146,838,945 ----------------- --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 15 FORTIS BOND FUNDS Notes to Financial Statements - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: U.S. Government Securities Fund ("U.S. Government"), is a diversified series of Fortis Income Portfolios, Inc.("Fortis Income"), an open-end management investment company. The investment objective of the fund is to maximize total return (from current income and capital appreciation), while providing shareholders with a high level of current income consistent with prudent investment risk. Fortis High Yield Portfolio ("High Yield") is an investment portfolio in Fortis Advantage Portfolios, Inc. ("Fortis Advantage") which is a diversified, open-end management investment company. The investment objective of High Yield is maximum current income by investing primarily in high yielding, fixed-income securities which, in the opinion of the portfolio's investment adviser, do not subject the portfolio to unreasonable investment risk. The Articles of Incorporation of Fortis Income and Fortis Advantage permit the Board of Directors to create additional portfolios in the future. The funds offer Class A, Class B, Class C, Class E (for U.S. Government only) and Class H shares. Class E shares are only available to existing shareholders on November 14, 1994. Class A and E shares are sold with a front-end sales charge. Class B and H shares are sold without a front-end sales charge and may be subject to a contingent deferred sales charge for six years, and such shares automatically convert to Class A after eight years. Class C shares are sold without a front-end sales charge and may be subject to a contingent deferred sales charge for one year. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that the level of distribution fees charged differs between classes. Income, expenses (other than expenses incurred under each class's distribution agreement) and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets. 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. When market quotations are not readily available, or when restricted or illiquid securities or other assets are being valued, such securities or other assets are valued at fair value as determined in good faith by management under supervision of the Board of Directors. However, debt securities may be valued on the basis of valuations furnished by a pricing service which utilizes electronic data processing techniques to determine valuations for normal institutional-size trading units of debt securities when such valuations are believed to more accurately reflect the fair market value of such securities. Short-term investments in debt securities with maturities of less than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued at amortized cost. 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 fluctuations and the portfolio maintains, in a segregated account with its custodian, assets with a market value equal to the amount of its purchase commitments. At July 31, 1996, U.S. Government had entered into outstanding when-issued or forward commitments of $12,749,816 and High Yield $2,400,000. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions are accounted for on the trade date. Interest income is recorded on the accrual basis. Realized security gains and losses are determined using the identified cost method. For the year ended July 31, 1996, the cost of purchases and proceeds from sales of securities (other than short-term securities) for U.S. Government were $397,248,790 and $423,142,910, respectively.The amount included in cost of purchases that were associated with the fund merger as described in Note 4 is $53,491,675. For the nine-month period ended July 31, 1996, the cost of purchases and proceeds from sales of securities (other than short-term securities) for High Yield were $243,477,955 and $222,764,620 respectively. LENDING OF PORTFOLIO SECURITIES: At July 31, 1996, securities valued at $184,465,797 were on loan to brokers from U.S. Government. At July 13, 1996 there were no securities on loan for High Yield. For collateral, the Fund's custodian received $190,856,194 in cash which is maintained in a separate account and invested by the custodian in short term investment vehicles. Fee income from securities lending amounted to $186,449 for U.S. Government and $23,168 for High Yield for the fiscal year ended July 31, 1996. The risks to the Funds in security lending transactions are that the borrower may not provide additional collateral when required or return the securities when due and that the proceeds from the sale of investments made with cash collateral received will be less than amounts required to be returned to the borrowers. DEFERRED COSTS: Registration costs are deferred and charged to income over the registration period. FEDERAL TAXES: The funds intend to qualify, under the Internal Revenue Code, as a 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 differ for financial statement and tax purposes primarily because of bond premium and market discount recognition policies and wash sale transactions. 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 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 Statement of Assets and Liabilities for U.S. Government, due to permanent book-to-tax differences, accumulated net realized loss has been decreased $449,094; resulting in a reclassification to paid-in-capital by the same amount. For federal income tax purposes U.S. Government had a capital loss carryover of $70,183,389 and High Yield had $15,880,263 at July 31, 1996, which, if not offset by subsequent capital gains, will expire in 1997 through 2005. The capital loss carryover of U.S. Government includes $12,679,000 in connection with the Government Total Return Portfolio merger (Note 4), of which the ability to utilize is limited to approximately 16 - -------------------------------------------------------------------------------- $3,054,000 per year. 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: Distributions from net investment income are declared daily and paid monthly. The fund 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 payable in cash. ILLIQUID SECURITIES: At July 31, 1996, investments in securities for the High Yield Portfolio included issues that are illiquid. The fund currently limits investments in illiquid securities to 15% of net assets, at market value, at the date of purchase. The aggregate value of such securities at July 31, 1996, was $23,058,501 for the High Yield Portfolio which represents 14.06% of net assets. 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. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the reporting period. Actual results could differ from those estimates. 2. PAYMENTS TO RELATED PARTIES: Fortis Advisers, Inc., is the investment adviser for the fund. 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 net assets in excess of $50 million for both High Yield and U.S. Government. In addition to the investment advisory and management fee, Classes A, B, C and H pay Fortis Investors, Inc. (the fund's principal underwriter) distribution fees equal to .25% U.S. Government (Class A), .35% High Yield (Class A) and 1.00% U.S. Government and High Yield (Classes B, C and H) of average daily net assets (of the respective classes) on an annual basis, to be used to compensate those who sell shares of the fund and to pay certain other expenses of selling fund shares. Fortis Investors, Inc., also received sales charges for U.S. Government (paid by purchasers of the fund's shares) aggregating $359,054 for Class A, $3,784 for Class B, $1,683 for Class C, $36,831 for Class H, $229,854 for Class E and for High Yield aggregating $374,979 for Class A, $23,117 for Class B, $4,080 for Class C, and $114,704 for Class H, for the year ended July 31, 1996. Legal fees and expenses aggregating $59,000 for U.S. Government and $4,176 for High Yield for the fiscal year ended July 31, 1996, were paid to a law firm of which the secretary of the fund is a partner. 3. CHANGE IN ACCOUNTING PERIOD: Effective July 31, 1996, Fortis High Yield Portfolio changed its Fiscal accounting and tax year-end to July 31 (previously October 31). 4. FUND MERGER: Effective with the close of business on March 1, 1996, the Fortis Advantage Portfolios, Inc. -- Government Total Return Portfolio ("Government Total Return") was merged into U.S. Government. The merger was approved by the shareholders of Government Total Return on February 9, 1996. U.S. Government is the surviving entity for financial reporting and income tax purposes. The merger was accomplished by a tax-free exchange as detailed below:
Net Assets of Government Total Return Government Total on March 1, Return Shares U.S. Government 1996 Exchanged Shares Issued - --------------------------------------------------------------- Class A $ 56,802,533 6,993,916 6,202,362 Class B 186,146 22,874 20,202 Class C 55,394 6,857 6,078 Class H 490,824 60,285 53,236
Government Total Return's net assets at March 1, 1996 included unrealized appreciation of $980,635, accumulated net realized losses of ($13,675,129) and capital stock of $70,229,391. The net assets of U.S. Government's classes immediately before the merger were as follows:
U.S. Government Net Assets - ------------------------------- Class A $ 14,603,701 Class B 1,560,356 Class C 697,595 Class E 437,242,318 Class H 8,357,112
17 FORTIS BOND FUNDS Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- 5. FINANCIAL HIGHLIGHTS: Selected per share historical data was as follows:
Class E ------------------------------------------------------------- Year Ended December Year Ended July 31, 31, ----------------------------------- ---------------------- U.S. GOVERNMENT SECURITIES FUND 1996 1995 1994++ 1993 1992 - -------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 9.02 $ 9.03 $ 9.87 $ 9.86 $ 10.16 --------- --------- --------- --------- --------- Operations: Investment income - net............... .60 .67 .42 .75 .84 Net realized and unrealized gains (losses) on investments............. (.15) (.01) (.84) .05 (.30) --------- --------- --------- --------- --------- Total from operations................... .45 .66 (.42) .80 .54 --------- --------- --------- --------- --------- Distribution to shareholders: From investment income - net.......... (.60) (.67) (.42) (.75) (.84) From realized gains................... -- -- -- (.04) -- --------- --------- --------- --------- --------- Total distributions to shareholders..... (.60) (.67) (.42) (.79) (.84) --------- --------- --------- --------- --------- Net asset value, end of period.......... $ 8.87 $ 9.02 $ 9.03 $ 9.87 $ 9.86 --------- --------- --------- --------- --------- Total Return @.......................... 5.08% 7.71% (4.29%) 8.31% 5.60% Net assets end of period (000s omitted).............................. $ 388,006 $ 470,597 $ 555,275 $ 641,977 $ 587,996 Ratio of expenses to average daily net assets................................ .81% .77% .77%* .76% .72% Ratio of net investment income to average daily net assets.............. 6.59% 7.51% 7.72%* 7.43% 8.48% Portfolio turnover rate................. 75% 76% 85% 157% 128%
Class A Class B Class C Class H ------------------- ----------------- ----------------- ------------------- Year Ended July 31, ------------------------------------------------------------------------------------ U.S. GOVERNMENT SECURITIES FUND 1996 1995+ 1996 1995+ 1996 1995+ 1996 1995+ - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 9.02 $ 8.63 $ 9.02 $8.63 $ 9.01 $8.63 $ 9.02 $ 8.63 -------- ------- ------- ------ ------- ------ -------- ------- Operations: Investment income - net............... .58 .46 .51 .41 .51 .41 .51 .41 Net realized and unrealized gains (losses) on investments............. (.15) .39 (.15) .39 (.15) .38 (.15) .39 -------- ------- ------- ------ ------- ------ -------- ------- Total from operations................... .43 .85 .36 .80 .36 .79 .36 .80 -------- ------- ------- ------ ------- ------ -------- ------- Distribution to shareholders: From investment income - net.......... (.58) (.46) (.52) (.41) (.52) (.41) (.52) (.41) From realized gains................... -- -- -- -- -- -- -- -- -------- ------- ------- ------ ------- ------ -------- ------- Total distributions to shareholders..... (.58) (.46) (.52) (.41) (.52) (.41) (.52) (.41) -------- ------- ------- ------ ------- ------ -------- ------- Net asset value, end of period.......... $ 8.87 $ 9.02 $ 8.86 $9.02 $ 8.85 $9.01 $ 8.86 $ 9.02 -------- ------- ------- ------ ------- ------ -------- ------- Total Return @.......................... 4.78% 10.07% 4.00% 9.47% 4.00% 9.35% 4.00% 9.47% Net assets end of period (000s omitted).............................. $ 67,707 $ 4,909 $ 2,314 $ 483 $ 1,057 $ 326 $ 10,120 $ 4,823 Ratio of expenses to average daily net assets................................ 1.06% 1.02%* 1.81% 1.77%* 1.81% 1.77%* 1.81% 1.77%* Ratio of net investment income to average daily net assets.............. 6.34% 7.00%* 5.45% 6.24%* 5.59% 6.24%* 5.52% 6.24%* Portfolio turnover rate................. 75% 76% 75% 76% 75% 76% 75% 76%
@ These are the Fund's total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustments for sales charge. * Annualized. + For the period from November 14, 1994 (commencement of operations) to July 31, 1995. ++ For the seven-month period ended July 31, 1994. 18 - --------------------------------------------------------------------------------
5. FINANCIAL HIGHLIGHTS (continued): Class A ---------------------------------------------------------- YEAR Year Ended October 31, ENDED --------------------------------------------- JULY 31, HIGH YIELD PORTFOLIO 1996** 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 7.61 $ 7.90 $ 8.65 $ 8.00 $ 7.82 --------- --------- -------- -------- -------- Operations: Investment income - net............... .56 .86 .86 .87 .85 Net realized and unrealized gains (losses) on investments............. (.04) (.25) (.72) .68 .22 --------- --------- -------- -------- -------- Total from operations................... .52 .61 .14 1.55 1.07 --------- --------- -------- -------- -------- Distribution to shareholders: From investment income - net.......... (.55) (.86) (.89) (.89) (.85) Excess distributions of net realized gains............................... (.02) (.04) -- (.01) (.04) --------- --------- -------- -------- -------- Total distributions to shareholders..... (.57) (.90) (.89) (.90) (.89) --------- --------- -------- -------- -------- Net asset value, end of period.......... $ 7.56 $ 7.61 $ 7.90 $ 8.65 $ 8.00 --------- --------- -------- -------- -------- Total return @.......................... 6.98% 8.07% 1.48% 20.33% 14.20% Net assets at end of period (000s omitted).............................. $ 109,401 $ 113,268 $ 98,611 $ 73,395 $ 45,628 Ratio of expenses to average daily net assets................................ 1.21%* 1.25% 1.23% 1.29% 1.33% Ratio of net investment income to average daily net assets.............. 9.87%* 10.61% 10.18% 10.43% 10.34% Portfolio turnover rate................. 146% 101% 63% 95% 80%
@ These are the Fund's total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustments for sales charge. * Annualized. ** For the nine-month period ended July 31, 1996. + For the period from November 14, 1994 (commencement of operations) to October 31, 1995.
Class B Class C Class H ------------------- ------------------ -------------------- Year Ended July 31, ----------------------------------------------------------------- HIGH YIELD PORTFOLIO 1996** 1995+ 1996** 1995+ 1996** 1995+ - ------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period.... $ 7.60 $ 7.87 $ 7.59 $ 7.87 $ 7.60 $ 7.87 -------- ------- ------- ------- -------- -------- Operations: Investment income - net............... .53 .78 .53 .78 .52 .78 Net realized and unrealized gains (losses) on investments............. (.04) (.23) (.04) (.24) (.04) (.23) -------- ------- ------- ------- -------- -------- Total from operations................... .49 .55 .49 .54 .48 .55 -------- ------- ------- ------- -------- -------- Distribution to shareholders: From investment income - net.......... (.51) (.78) (.51) (.78) (.51) (.78) Excess distributions of net realized gains............................... (.02) (.04) (.02) (.04) (.02) (.04) -------- ------- ------- ------- -------- -------- Total distributions to shareholders..... (.53) (.82) (.53) (.82) (.53) (.82) -------- ------- ------- ------- -------- -------- Net asset value, end of period.......... $ 7.56 $ 7.60 $ 7.55 $ 7.59 $ 7.55 $ 7.60 -------- ------- ------- ------- -------- -------- Total return @.......................... 6.62% 7.25% 6.63% 7.12% 6.48% 7.25% Net assets at end of period (000s omitted).............................. $ 12,067 $ 7,530 $3,378 $ 2,180 $ 39,133 $ 23,862 Ratio of expenses to average daily net assets................................ 1.86%* 1.90%* 1.86%* 1.90%* 1.86%* 1.90%* Ratio of net investment income to average daily net assets.............. 9.20%* 9.66%* 9.21* 9.83%* 9.21* 9.81%* Portfolio turnover rate................. 146% 101% 146% 101% 146% 101%
@ These are the Fund's total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustments for sales charge. * Annualized. ** For the nine-month period ended July 31, 1996. + For the period from November 14, 1994 (commencement of operations) to October 31, 1995. 19 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Fortis Income Portfolios, Inc. Fortis Advantage Portfolios, Inc.: We have audited the accompanying statements of assets and liabilities, including the schedules of investments in securities, of U.S. Government Securities Fund (a fund within Fortis Income Portfolios, Inc.) and High Yield Portfolio (a fund within Fortis Advantage Portfolios, Inc.) as of July 31, 1996 and the related statements of operations for the year then ended (period from November 1, 1995 to July 31, 1996 for High Yield Fund), the statements of changes in net assets for each of the years in the two-year period then ended (period from November 1, 1995 to July 31, 1996, and the year ended October 31, 1995 for the High Yield Portfolio), and the financial highlights presented in footnote 5 to the financial statements. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Investment securities held in custody are confirmed to us by the custodian. As to securities purchased and sold but not received or delivered, we request confirmations from brokers, and where replies are not received, we carry out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and the financial highlights referred to above present fairly, in all material respects, the financial position of U.S. Government Securities Fund and High Yield Portfolio as of July 31, 1996 and the results of their operations, changes in their net assets and the financial highlights for the periods stated in the first paragraph above, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Minneapolis, Minnesota September 6, 1996 20 FEDERAL INCOME TAX INFORMATION For the fiscal year ended July 31, 1996: INCOME DISTRIBUTIONS -- taxable as income, 0% qualifying for deduction by corporations. Distributions from net investment income were paid monthly through July, 1996, see totals below. Under certain state laws, dividends paid by a regulated investment company, which are derived from interest on federal obligations, may not be taxable to residents of that state. Please consult your tax advisor for the reporting of these amounts. The source of dividends paid by the fund through July, 1996, was as follows: U.S. GOVERNMENT SECURITIES FUND Direct Federal Obligations: U.S. Treasury............... 0.49 % Other....................... 5.82 % ------- Total Direct Federal Obligations.............. 6.31 % Other Securities........ 93.69 % ------- 100.00 % -------
Detailed below are the per share distributions made for the fiscal year ended July 31, 1996.
U.S. Government Securities Fund ---------------------------- Per Share ---------------------------- Class B, PAYABLE DATE Class E Class A C and H ---------------------------- August 31, 1995............... $0.054 $ 0.052 $ 0.047 September 29, 1995............ 0.051 0.049 0.044 October 31, 1995.............. 0.051 0.049 0.044 November 30, 1995............. 0.051 0.049 0.044 December 29, 1995............. 0.051 0.049 0.044 January 31, 1996.............. 0.051 0.049 0.044 February 29, 1996............. 0.051 0.049 0.044 March 29, 1996................ 0.051 0.049 0.044 April 30, 1996................ 0.050 0.048 0.043 May 31, 1996.................. 0.048 0.046 0.041 June 28, 1996................. 0.047 0.045 0.040 July 31, 1996................. 0.047 0.045 0.040 ------- -------- -------- $0.603 $ 0.579 $ 0.519 ------- -------- --------
Detailed below are the per share distributions made for the nine months ended July 31, 1996.
Fortis High Yield Portfolio ------------------- Per Share ------------------- Class B, PAYABLE DATE Class A C and H ------------------- November 30, 1995............. $ 0.063 $ 0.059 December 29, 1995............. 0.063 0.059 January 31, 1996.............. 0.063 0.059 February 29, 1996............. 0.063 0.059 March 29, 1996................ 0.063 0.059 April 30, 1996................ 0.063 0.059 May 31, 1996.................. 0.063 0.059 June 28, 1996................. 0.063 0.059 July 31, 1996................. 0.066 0.062 -------- -------- $ 0.570 $ 0.534 -------- --------
21 DIRECTORS AND OFFICERS DIRECTORS Richard W. Cutting CPA AND FINANCIAL CONSULTANT Allen R. Freedman CHAIRMAN AND CHIEF EXECUTIVE OFFICER, FORTIS, INC. MANAGING DIRECTOR OF FORTIS INTERNATIONAL, N.V. Dr. Robert M. Gavin PRESIDENT, HAVERFORD COLLEGE. PRIOR TO JULY 1996, PRESIDENT MACALESTER COLLEGE Benjamin S. Jaffray CHAIRMAN, SHEFFIELD GROUP, LTD. Jean L. King PRESIDENT, COMMUNI-KING Dean C. Kopperud CHIEF EXECUTIVE OFFICER AND DIRECTOR, FORTIS ADVISERS, INC. PRESIDENT AND DIRECTOR, FORTIS INVESTORS, INC. SENIOR VICE PRESIDENT AND DIRECTOR, FORTIS BENEFITS INSURANCE COMPANY, TIME INSURANCE COMPANY Edward M. Mahoney PRIOR TO JANUARY, 1995, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, FORTIS ADVISERS, INC., FORTIS INVESTORS, INC. Robb L. Prince FINANCIAL AND EMPLOYEE BENEFIT CONSULTANT PRIOR TO JULY, 1995, VICE PRESIDENT AND TREASURER, JOSTENS, INC. Leonard J. Santow PRINCIPAL, GRIGGS & SANTOW, INC. Joseph M. Wikler INVESTMENT CONSULTANT AND PRIVATE INVESTOR PRIOR TO JANUARY, 1994, DIRECTOR OF RESEARCH, CHIEF INVESTMENT OFFICER, PRINCIPAL, AND DIRECTOR, THE ROTHSCHILD CO. OFFICERS Dean C. Kopperud PRESIDENT AND DIRECTOR Robert W. Beltz, Jr. VICE PRESIDENT James S. Byrd VICE PRESIDENT Charles J. Dudley VICE PRESIDENT Thomas D. Gualdoni VICE PRESIDENT Maroun M. Hayek VICE PRESIDENT Howard G. Hudson VICE PRESIDENT Robert C. Lindberg VICE PRESIDENT Charles L. Mehlhouse VICE PRESIDENT Kevin J. Michels VICE PRESIDENT Jon H. Nicholson VICE PRESIDENT Fred Obser VICE PRESIDENT Dennis M. Ott VICE PRESIDENT David A. Peterson VICE PRESIDENT Nicholas L. M. de Peyster VICE PRESIDENT Stephen M. Poling VICE PRESIDENT Stephen M. Rickert VICE PRESIDENT Richard P. Roche VICE PRESIDENT Rhonda J. Schwartz VICE PRESIDENT Keith R. Thomson VICE PRESIDENT Christopher J. Woods VICE PRESIDENT Gary N. Yalen VICE PRESIDENT Michael J. Radmer SECRETARY Tamara L. Fagely TREASURER INVESTMENT MANAGER, REGISTRAR Fortis Advisers, Inc. AND TRANSFER AGENT BOX 64284, ST. PAUL, MINNESOTA 55164 PRINCIPAL UNDERWRITER Fortis Investors, Inc. BOX 64284, ST. PAUL, MINNESOTA 55164 CUSTODIAN First Bank National Association MINNEAPOLIS, MINNESOTA GENERAL COUNSEL Dorsey & Whitney P.L.L.P. MINNEAPOLIS, MINNESOTA INDEPENDENT AUDITORS KPMG Peat Marwick LLP MINNEAPOLIS, MINNESOTA The use of this material is authorized only when preceded or accompanied by a prospectus. 22 FORTIS FINANCIAL GROUP'S OTHER PRODUCTS AND SERVICES MUTUAL Fortis Bond Funds MONEY FUND FUNDS/PORTFOLIOS U.S. GOVERNMENT CONVENIENT ACCESS TO SECURITIES FUND A BROAD RANGE OF TAX-FREE MINNESOTA SECURITIES PORTFOLIO TAX-FREE NATIONAL PORTFOLIO TAX-FREE NEW YORK PORTFOLIO HIGH YIELD PORTFOLIO Fortis Stock Funds ASSET ALLOCATION PORTFOLIO VALUE FUND GROWTH & INCOME FUND CAPITAL FUND FIDUCIARY FUND GLOBAL GROWTH PORTFOLIO GROWTH FUND CAPITAL APPRECIATION PORTFOLIO FIXED AND VARIABLE Fortis Opportunity Fixed FIXED ACCOUNT ANNUITIES & Variable Annuity MONEY MARKET SUBACCOUNT TAX-DEFERRED Masters Variable Annuity U.S. GOVERNMENT INVESTING SECURITIES SUBACCOUNT DIVERSIFIED INCOME SUBACCOUNT GLOBAL BOND SUBACCOUNT HIGH YIELD SUBACCOUNT ASSET ALLOCATION SUBACCOUNT GLOBAL ASSET ALLOCATION SUBACCOUNT VALUE SUBACCOUNT GROWTH & INCOME SUBACCOUNT S&P 500 INDEX SUBACCOUNT BLUE CHIP STOCK SUBACCOUNT GLOBAL GROWTH SUBACCOUNT GROWTH STOCK SUBACCOUNT INTERNATIONAL STOCK SUBACCOUNT AGGRESSIVE GROWTH SUBACCOUNT Fortune Fixed Annuities SINGLE PREMIUM ANNUITY FLEXIBLE PREMIUM ANNUITY Income Annuities GUARANTEED FOR LIFE GUARANTEED FOR A SPECIFIED PERIOD LIFE Wall Street Series FIXED ACCOUNT INSURANCE PROTECTION Variable Universal Life MONEY MARKET SUBACCOUNT AND TAX-DEFERRED Insurance U.S. GOVERNMENT INVESTMENT SECURITIES SUBACCOUNT OPPORTUNITY DIVERSIFIED INCOME SUBACCOUNT GLOBAL BOND SUBACCOUNT HIGH YIELD SUBACCOUNT ASSET ALLOCATION SUBACCOUNT GLOBAL ASSET ALLOCATION SUBACCOUNT VALUE SUBACCOUNT GROWTH & INCOME SUBACCOUNT S&P 500 INDEX SUBACCOUNT BLUE CHIP STOCK SUBACCOUNT GLOBAL GROWTH SUBACCOUNT GROWTH STOCK SUBACCOUNT INTERNATIONAL STOCK SUBACCOUNT AGGRESSIVE GROWTH SUBACCOUNT Adaptable Life Universal Life FORTIS FINANCIAL GROUP manages and distributes mutual funds, annuities and life insurance products. The mutual funds, variable life and variable annuity products are distributed through FORTIS INVESTORS, INC. and managed by FORTIS ADVISERS, INC. The insurance products are issued by FORTIS BENEFITS INSURANCE COMPANY, FIRST FORTIS LIFE INSURANCE COMPANY and TIME INSURANCE COMPANY. FOR MORE COMPLETE INFORMATION, INCLUDING CHARGES AND EXPENSES, SEND FOR A PROSPECTUS. WRITE TO: FORTIS INVESTORS, INC., P.O. BOX 64284, ST. PAUL, MN 55164. READ IT CAREFULLY BEFORE INVESTING OR SENDING MONEY. 23 (This page has been left blank intentionally.) 24 (This page has been left blank intentionally.) Fortis Financial Group Fortis Financial Group (FFG) is a premier provider of insurance and investment portfolios whose fund manager, Fortis Advisers, Inc. has established a nationwide reputation for money management. Through Fortis Investors, Inc., FFG offers mutual funds, annuities and life insurance. Life insurance products are issued and underwritten by Fortis Benefits Insurance Company and Time Insurance Company. Fortis, Inc. is part of Fortis, a wordwide group of [GRAPHIC] companies active in the fields of insurance, banking and investments. Fortis is jointly owned by Fortis AMEV of The Netherlands and Fortis AG of Belgium. Like the Fortis name, which comes from the Latin for steadfast, our focus is on the long-term in all we do: the relationships we build, the performance we seek, the service we provide and the products we offer. ----------------- FORTIS Bulk Rate Fortis Financial Group US Postage P.O. Box 64284 PAID St. Paul, MN 55164 Permit No. 3794 Minneapolis, MN ----------------- Fortis Bond Funds PRINTED ON RECYCLED PAPER WITH 40% PRECONSUMER WASTE AND [LOGO] 10% POST CONSUMER WASTE. PLEASE RECYCLE. 98561 (Ed. 9/96)
-----END PRIVACY-ENHANCED MESSAGE-----