-----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, Q/PJOLO3M7x+6E3OWSKYAXrcF3kLf3Polk7J9Xq8zGlgM68LyZnmmB9W2XwCg+GF i118MXco3YdtZEZxxa+Veg== 0001047469-99-011159.txt : 19990325 0001047469-99-011159.hdr.sgml : 19990325 ACCESSION NUMBER: 0001047469-99-011159 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990324 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: SEC FILE NUMBER: 811-02341 FILM NUMBER: 99571866 BUSINESS ADDRESS: STREET 1: 500 BIELENBERG DE CITY: WOODBURY STATE: MN ZIP: 55125 BUSINESS PHONE: 6127384000 MAIL ADDRESS: STREET 1: P O BOX 64284 CITY: ST PAUL STATE: MN ZIP: 55164 FORMER COMPANY: FORMER CONFORMED NAME: 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORTIS ADVANTAGE PORTFOLIOS INC CENTRAL INDEX KEY: 0000823344 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 411594429 STATE OF INCORPORATION: MN FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05355 FILM NUMBER: 99571867 BUSINESS ADDRESS: STREET 1: 500 BIELENBERG DR STREET 2: P O BOX 64284 CITY: ST PAUL STATE: MN ZIP: 55164 BUSINESS PHONE: 6127384000 MAIL ADDRESS: STREET 1: PO BOX 64284 CITY: ST PAUL STATE: MN ZIP: 55164 FORMER COMPANY: FORMER CONFORMED NAME: AMEV ADVANTAGE PORTFOLIOS INC DATE OF NAME CHANGE: 19920203 N-30D 1 N-30D [LOGO] FORTIS SOLID PARTNERS, FLEXIBLE SOLUTIONS-SM- CHOOSE THE RIGHT INVESTMENT [PHOTOS] Fortis Bond Funds Semi-Annual Report JANUARY 31, 1999 FORTIS FINANCIAL GROUP FORTIS BOND FUND SEMI-ANNUAL REPORT CONTENTS LETTER TO SHAREHOLDERS 2 SCHEDULES OF INVESTMENTS U.S. GOVERNMENT 7 STRATEGIC INCOME 10 HIGH YIELD PORTFOLIO 14 STATEMENTS OF ASSETS AND LIABILITIES 19 STATEMENTS OF OPERATIONS 20 STATEMENTS OF CHANGES IN NET ASSETS U.S. GOVERNMENT 21 STRATEGIC INCOME 22 HIGH YIELD PORTFOLIO 23 NOTES TO FINANCIAL STATEMENTS 24 BOARD OF DIRECTORS AND OFFICERS 32 OTHER PRODUCTS AND SERVICES 33 - - 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 fund's performance during the past six months, 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 charts show the types of securities in which the fund invests, and the pie chart shows a breakdown of the fund's assets by industry. The performance chart graphically compares the Fund's total return performance with a selected investment index. Remember, however, that an index may reflect the performance of securities the fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your fund does. Individuals cannot buy an unmanaged index fund without incurring some charges and expenses. This report is just one of several tools you can use to learn more about your investment in the Fortis Family of Mutual Funds. Your investment representative, who understands your personal financial situation, can best explain the features of your investment and how it's designed to help you meet your financial goals. HIGHLIGHTS FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 1999
CLASS A CLASS B CLASS C CLASS E CLASS H -------- -------- -------- -------- -------- U.S. GOVERNMENT NET ASSET VALUE PER SHARE: Beginning of period........................ $ 9.30 $ 9.28 $ 9.27 $ 9.30 $ 9.28 End of period.............................. $ 9.49 $ 9.46 $ 9.45 $ 9.49 $ 9.46 DISTRIBUTIONS PER SHARE From net investment income................... $ .238 $ .202 $ .202 $ .250 $ .202 STRATEGIC INCOME NET ASSET VALUE PER SHARE: Beginning of period........................ $ 10.05 $ 10.05 $ 10.05 -- $ 10.05 End of period.............................. $ 9.75 $ 9.75 $ 9.75 -- $ 9.75 DISTRIBUTIONS PER SHARE From net investment income............... $ .303 $ .267 $ .268 -- $ .267 From net realized gains on investments... $ .013 $ .013 $ .013 -- $ .013 HIGH YIELD PORTFOLIO NET ASSET VALUE PER SHARE: Beginning of period...................... $ 7.41 $ 7.41 $ 7.40 -- $ 7.40 End of period............................ $ 7.00 $ 7.00 $ 6.98 -- $ 6.99 DISTRIBUTIONS PER SHARE From net investment income................. $ .318 $ .294 $ .294 -- $ .294
1 Photo 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. The period of stability that characterized the fixed income markets in the first half of 1998 ended abruptly in August. Concerns over Asia resurfaced, Russia defaulted on its debt obligations, and a number of hedge funds, including Long Term Capital Management, found themselves either in, or on the brink of bankruptcy. This sequence of events culminated in a flight to quality to U.S. Treasuries during the second half of the year. U.S. Treasury yields fell precipitously, yield spreads widened dramatically as investors demanded a greater premium to buy less liquid, non-U.S. Treasury assets. It wasn't until the Federal Reserve lowered the Federal Funds rate by 75 basis points (in three separate moves) to 4.75% that confidence was restored to the marketplace. The net result of these events was that, despite continued strength in the U.S. economy (1998 GDP was 4.1%), interest rates fell dramatically in August and September, and remained at comparatively low levels through January 1999. Specifically, the 30-year U.S. Treasury fell from a yield of 5.7% in late July to a low of 4.7% in early October, ending January 1999 at 5.1%. The Federal Reserve's interest rate cuts also enabled short-term rates to decline more in yield than longer-term rates, with the yield spread between 2 Year Treasuries and 30 Year Treasuries increasing by 30 basis points to .55%. Our positive interest rate outlook added to performance for this six-month period, as the portfolio's duration was greater than its 4.75 year target most of this time (we reduced the portfolio duration to 4.75 years in mid-Jaunary 1999.) We also benefitted by our Mortgage Backed Securities (MBS) underweight earlier in the year, as we were able to significantly increase our MBS and agency debenture exposures at attractive spreads in the third and fourth quarters. As of January 31, 1999, we were 15% overweight in these combined sectors. Both of these strategies enabled the portfolio to earn 4.75% for Class E shares before adjustment for sales charge, compared to the 4.99% return average for the Lehman Brothers Intermediate Government Index, for the six-month period ended January 31, 1999. Going forward, we believe that economic growth will be sustained through 1999 at a pace which, although somewhat below that of last year, will be healthy by historic standards. Nonetheless, it is inevitable that the deflationary forces at work in Asia and Latin America will have some moderating impact on domestic production. Any related reduction of exports will likely result in further suppression of prices and, therefore, a continuation of the low inflation experience of the recent past. This environment is favorable for the bond market as it supports low interest rates and good performance from MBS and agency debentures which currently offer historically high levels of yield in relation to comparable Treasury obligations. Sincerely, /s/ Dean C. Kopperud /s/ Howard G. Hudson - -------------------- -------------------- Dean C. Kopperud Howard G. Hudson President Vice President 2 PORTFOLIO COMPOSITION BY SECTOR AS OF 1/31/99 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC FNMA's 44.5% U.S. Treasury Securities 21.8% Other Direct Federal Obligations 19.4% GNMA's 6.8% FHLMC's 6.3% Cash Equivalents/Receivables 1.2%
TOP 10 HOLDINGS AS OF 1/31/99
Percent of Bonds Net Assets - ------------------------------------------------------------------- 1. Federal Home Loan Bank (7.31%) 2004 8.8% 2. U.S. Treasury Note (6.125%) 2001 6.7% 3. FNMA (6.00%) 2029 6.1% 4. U.S. Treasury Bond (8.125%) 2019 4.8% 5. U.S. Treasury Note (6.125%) 2007 4.6% 6. FNMA Note (7.65%) 2005 3.1% 7. FNMA Note (6.70%) 2007 3.0% 8. FNMA (7.50%) 2027 2.7% 9. FHLMC Global Note (6.75%) 2006 2.4% 10. GNMA II (9.50%) 2019 2.3%
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
Since 1 Year Inception+ - ----------------------------------------------------------------------- Class A shares# 7.24% 8.66% Class A shares## 2.41% 7.48% Class B shares# 6.33% 7.83% Class B shares## 2.73% 7.49% Class C shares# 6.34% 7.81% Class C shares## 5.34% 7.81% Class H shares# 6.44% 7.83% Class H shares## 2.84% 7.49%
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 E and A have a maximum sales charge of 4.50%, Class B and H have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if redeemed in year three or four, 2.00% if redeemed in year five and 1.00% if redeemed in year six (with a waiver of 10% of the amount invested). Class C has a CDSC of 1.00% if redeemed within one year of purchase. # Without sales charge. ## With sales charge. Assumes redemption on January 31, 1999. + Since November 14, 1994 -- Date shares were first offered to the public VALUE OF $10,000 INVESTED FEBRUARY 1, 1989 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
LEHMAN BROTHERS U.S. GOVERNMENT INTERMEDIATE GOVERNMENT SECURITIES Index Fund 2/1/89 $10,000 $9,550 90 $11,088 $10,542 91 $12,349 $11,845 92 $13,814 $13,047 93 $15,192 $14,333 94 $16,292 $15,449 95 $16,130 $14,648 96 $18,375 $16,794 97 $18,840 $17,298 98 $20,482 $19,027 99 $22,030 $20,457 U.S. Government Securities Fund Average Annual Total Return 1 Year 5 Year 10 Year Class E* +2.68% +4.81% +7.42% Class E** +7.52% +5.78% +7.92%
Annual period ended January 31 Past performance is not indicative of future performance. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. * SEC defined total returns, including reinvestment of all dividend and capital gains distributions and the reduction due to the maximum sales charge of 4.50%. ** These are the portfolio's total returns during the period, including reinvestment of all dividend and capital gains distributions without adjustment for sales charge. *** An unmanaged index of government bonds with an average maturity of eight to nine years. 3 Photo YOUR STRATEGIC INCOME FUND THE FUND'S INVESTMENT OBJECTIVE IS TO MAXIMIZE TOTAL RETURN (FROM CURRENT INCOME AND CAPITAL APPRECIATION) BY PRIMARILY INVESTING IN A DIVERSIFIED PORTFOLIO OF U.S. GOVERNMENT SECURITIES, INVESTMENT AND NON-INVESTMENT GRADE BONDS ISSUED BY FOREIGN GOVERNMENTS AND COMPANIES, AND NON-INVESTMENT GRADE BONDS ISSUED BY U.S. COMPANIES. The concerns we expressed in our last letter regarding the stability of global fixed income markets proved to be well deserved. In the second half of 1998, problems in Asia resurfaced, Russia defaulted on its debt obligations, and a number of hedge funds, including Long Term Capital Management, found themselves either in, or on the brink of, bankruptcy. This sequence of events brought about a flight to quality in U.S. Treasuries during the second half of the year. U.S. Treasury yields fell precipitously, and yield spreads (defined as the difference in yields between U.S. Treasury and other sectors) widened dramatically as investors demanded a greater premium to buy less liquid, non-U.S. Treasury assets. It wasn't until the Federal Reserve lowered the Federal Funds rate by 75 basis points, (in three separate moves) to 4.75%, that confidence was restored to the marketplace. As a result, despite continued favorable (strong growth, low inflation) domestic economic conditions, virtually all non-U.S. Treasury fixed income securities underperformed comparable Treasuries. This was especially true of lower quality issues and those issued by non-U.S. entities, as investor fears brought trading in some sectors of these markets to a virtual stand still. This market environment proved to be ideal for our strategy. Initially, we benefitted significantly from our underweighting in "emerging market" bonds, and were able to selectively add foreign issues following the liquidity difficulty at what we felt were very attractive levels. In addition, we continued to maintain a highly diversified portfolio, which significantly reduced the "event risk" that plagued market participants during this period of instability. Despite this extremely volatile market environment, the Strategic Income Fund produced a .22% total return for the past six months, which compares with 5.10% return for the Lehman Brothers Aggregate Index, and the -1.46% produced by the fund's average competition as defined by Morningstar. Looking ahead to the second half of the fiscal year, we will continue the investment strategy that produced last year's strong performance. Specifically, we will look to reduce our foreign sector underweighting, but only where we feel we are being properly compensated for the risks. In addition, we will seek to take advantage of a strong growth, low inflation economic environment which we expect will produce low interest rates and good performance from corporate bonds, currently offering historically high levels of yield in relation to comparable Treasury obligations. Sincerely, [SIGNATURE] [SIGNATURE] Dean C. Kopperud Howard G. Hudson President Vice President
4 PORTFOLIO COMPOSITION BY SECTOR AS OF 1/31/99 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Corporate Bonds - Investment Grade 33.8% FNMAs 21.8% Corporate Bonds - Non-Investment Grade 21.6% Foreign Bonds - Investment Grade 7.6% U.S. Treasury Securities 5.8% Foreign Bonds - Non-Investment Grade 5.1% Asset Backed Securities 4.3%
TOP 10 HOLDINGS AS OF 1/31/99
Percent of Bonds Net Assets - ------------------------------------------------------------------- 1. FNMA (6.00%) 2029 7.0% 2. FNMA Note (6.18%) 2001 4.2% 3. News America Holdings (8.875%) 2023 2.6% 4. U.S. Treasury Note (6.625%) 2002 2.3% 5. 360 Communications Co. (7.50%) 2006 2.3% 6. J.P. Morgan Commercial Mortgage Finance Corp. (7.47%) 2028 2.2% 7. Quebec (Providence of) (7.50%) 2002 2.2% 8. Poland (Republic of) (7.125%) 2004 2.2% 9. Trans-Canada Pipelines, Ltd. (7.06%) 2025 2.2% 10. FNMA (6.54%) 2007 2.2%
CLASS B, C AND H AVERAGE ANNUAL TOTAL RETURNS
Since One Year Inception+ - ------------------------------------------------------------------- Class B shares# 1.33% 3.54% Class B shares## -2.09% 0.56% Class C shares# 1.35% 3.58% Class C shares## 0.35% 3.58% Class H shares# 1.34% 3.57% Class H shares## -2.08% 0.59%
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 (B, C, and H) will vary based on the differences in sales loads and distribution fees paid by shareholders investing in the different classes. Class A has a maximum sales charge of 4.50%, Class B and H have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if redeemed in year three or four, 2.00% if redeemed in year five and 1.00% if redeemed in year six (with a waiver of 10% of the amount invested). Class C has a CDSC of 1.00% if redeemed within one year of purchase. # Without CDSC. ## With CDSC. Assumes redemption on January 31, 1999. + Since December 1, 1997 -- Date shares were first offered to the public VALUE OF $10,000 INVESTED DECEMBER 1, 1997 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
LEHMAN BROTHERS STRATEGIC INCOME FUND SALOMON BROTHERS AGGREGATE BOND INDEX*** CLASS A WORLD INDEX**** 12/1/97 10,000 9,550 10,000 1/31/98 10,230 9,826 10,067 1/31/99 11,055 10,027 11,390 Strategic Income Fund Class A Average Annual Total Return Since 1 Year December 1,1997@ Class A* -2.55% +0.23% Class A** +2.04% +4.25%
Annual period ended January 31 Past performance is not indicative of future performance. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. * SEC defined total returns, including reinvestment of all dividend and capital gains distributions and the reduction due to the maximum sales charge of 4.50%. ** These are the portfolio's total returns during the period, including reinvestment of all dividend and capital gains distributions without adjustment for sales charge. *** An unmanaged index of government, corporate and mortgage-backed securities with an average maturity of approximately nine years. **** An unmanaged index of world government bonds with maturities of at least one year. @ Date shares were first offered to the public. 5 PORTFOLIO COMPOSITION BY INDUSTRY AS OF 1/31/99 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Other 32.4% Telecommunications 21.7% Cable Television 13.0% Broadcasting 6.8% Cash Equivalents/Receivables 5.1% Chemicals 3.4% Energy 3.3% Textile Manufacturing 3.1% Consumer Goods 3.1% Machinery 2.8% Printing 2.8% Publishing 2.5%
TOP 10 HOLDINGS AS OF 1/31/99
Percent of Bonds Net Assets - ------------------------------------------------------------------- 1. Rogers Cantel, Inc. (9.375%) 2008 2.3% 2. Clark Materials Handling Co. (10.75%) 2006 2.1% 3. Comcast Cellular Holdings (9.50%) 2007 2.0% 4. ITC Deltacom, Inc. (11.00%) 2007 2.0% 5. Newport News Ship Building (9.25%) 2006 1.9% 6. Adelphia Communications, Inc. (9.25%) 2002 1.9% 7. Fage Dairy Industries S.A. (9.00%) 2007 1.7% 8. Simonds Industries (10.25%) 2008 1.7% 9. Splitrock Services, Inc. (11.75%) 2008 1.7% 10. Olympus Communication L.P. (10.625%) 2006 1.7%
CLASS B, C AND H AVERAGE ANNUAL TOTAL RETURNS
Since 1 Year Inception+ - ----------------------------------------------------------------------- Class B shares# -1.02% 6.99% Class B shares## -4.24% 6.70% Class C shares# -1.17% 6.93% Class C shares## -1.97% 6.93% Class H shares# -1.16% 6.96% Class H shares## -4.37% 6.67%
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 (B, C, and H) will vary based on the differences in sales loads and distribution fees paid by shareholders investing in the different classes. Class A has a maximum sales charge of 4.50%, Class B and H have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if redeemed in year three or four, 2.00% if redeemed in year five and 1.00% if redeemed in year six (with a waiver of 10% of the amount invested). Class C has a CDSC of 1.00% if redeemed within one year of purchase. # Without CDSC. ## With CDSC. Assumes redemption on January 31, 1999. + Since November 14, 1994 -- Date shares were first offered to the public YOUR HIGH YIELD PORTFOLIO LONG-TERM INVESTORS, WILLING TO ACCEPT GREATER PRICE FLUCTUATIONS, MAY CHOOSE TO DIVERSIFY THEIR STOCK OR BOND INVESTMENTS WITH THIS PORTFOLIO OF HIGHER YIELDING BONDS. ITS MONEY MANAGERS INVEST IN A WIDELY DIVERSIFIED PORTFOLIO OF LOWER-RATED CORPORATE BONDS. REVIEW 1998 can be characterized as a year that the global financial markets almost collapsed. The speed and convergence of the Asian contagion, Russia's default, hedge fund failures and illiquidity in the capital markets were unprecedented. The subsequent quick recovery was primarily attributable to the Fed's intervention through the use of three successive rate reductions. For the six-month period ended January 31, 1999, the High Yield Portfolio recorded a (1.13%) total return for Class A without adjustment for sales charge. The returns of the Lipper High Yield Index and Lehman Brothers High Yield Index were (3.57%) and (1.63%), respectively. Performance since mid-year had improved by a restructuring of the Portfolio to upgrade the quality of the bonds. In the illiquid market which developed following the Russian default, certain distressed bonds became unsaleable at any price. Our overweighting of higher quality credits (BB's) prior to the market correction enhanced the Portfolio's performance. In addition, underweighting in industries such as healthcare, energy, forest products, and chemicals was also helpful. OUTLOOK We believe that economic growth will be sustained through 1999 at a pace which, although somewhat below that of last year, will be healthy by historic standards. The deflationary forces at work in Asia and Latin America will have some moderating impact on domestic production. A continuation of low inflation and interest rates should provide a favorable environment for the bond market. Our current strategy is to continue to improve the overall credit quality of the Portfolio. Although this may result in lower dividends in the future, our efforts will concentrate on improving the total return of the portfolio. Sincerely, /s/ Dean C. Kopperud /s/ Howard G. Hudson - -------------------- -------------------- Dean C. Kopperud Howard G. Hudson President Vice President VALUE OF $10,000 INVESTED FEBRUARY 1, 1989 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
HIGH YIELD LEHMAN BROTHERS PORTFOLIO HIGH YIELD INDEX*** CLASS A 2/1/89 10,000 9,550 90 9,696 8,531 91 8,205 7,414 92 13,557 11,774 93 15,660 13,397 94 18,138 16,375 95 17,812 15,402 96 21,378 17,658 97 23,425 19,330 98 26,466 21,334 99 26,864 21,227 High Yield Portfolio Class A Anverage Annual Total Return 1 Year 5 Year 10 Year Class A* -4.98% +4.36% +7.82% Class A** -0.51% +5.33% 8.31%
Annual period ended January 31 Past performance is not indicative of future performance. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. * SEC defined total returns, including reinvestment of all dividend and capital gains distributions and the reduction due to the maximum sales charge of 4.50%. ** These are the portfolio's total returns during the period, including reinvestment of all dividend and capital gains distributions without adjustment for sales charge. *** An unmanaged index of lower quality, high yield corporate debt securities. 6 FORTIS BOND FUNDS U.S. GOVERNMENT SECURITIES FUND Schedule of Investments January 31, 1999 (Unaudited) U.S. GOVERNMENT SECURITIES-98.81%
- -------------------------------------------------------------------------------- Principal Market Amount Cost (a) Value (b) ------------ --------------- --------------- FEDERAL HOME LOAN MORTGAGE CORPORATION - 6.32% MORTGAGE BACKED SECURITIES: $ 1,398,741 5.50% 2001................................... $ 1,387,989 $ 1,393,496 4,082,558 8.00% 2001-2002.............................. 4,184,621 4,175,693 2,005,855 9.00% 2001-2022.............................. 2,126,026 2,117,227 123,585 10.50% 2015.................................. 132,892 136,252 179,314 11.25% 2013-2014............................. 191,854 200,552 612,473 11.50% 2015-2019............................. 662,305 689,031 558,941 11.75% 2010-2014............................. 615,797 631,604 107,496 12.50% 2019.................................. 115,024 122,882 --------------- --------------- 9,416,508 9,466,737 --------------- --------------- NOTES: 8,000,000 6.75% 2006................................... 8,218,739 8,729,552 4,000,000 6.80% 2007................................... 4,364,503 4,402,500 --------------- --------------- 12,583,242 13,132,052 --------------- --------------- TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION................................ 21,999,750 22,598,789 --------------- --------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION - 44.46% MORTGAGE BACKED SECURITIES: 9,649,996 5.50% 2014-2014.............................. 9,517,491 9,524,106 2,997,332 5.835% 2008.................................. 3,032,572 3,018,876 28,730,562 6.00% 2013-2029 (e).......................... 28,469,116 28,520,433 2,966,806 6.36% 2008................................... 2,962,429 3,101,624 4,638,589 6.48% 2008................................... 4,681,570 4,884,439 16,536,990 6.50% 2013-2028.............................. 16,547,205 16,754,362 1,435,014 6.54% 2007................................... 1,459,713 1,516,659 1,937,101 6.63% 2005................................... 1,989,675 2,035,873 6,572,107 7.00% 2003-2028.............................. 6,606,060 6,710,518 6,730,080 7.184% 2006.................................. 6,648,005 7,306,041 14,540,428 7.50% 2022-2027.............................. 14,828,986 14,963,017 564,061 8.00% 2025................................... 539,912 585,566 712,315 8.50% 2022................................... 746,952 748,153 126,803 9.00% 2020................................... 125,575 134,134 879,028 9.75% 2020................................... 948,251 943,149 627,945 10.00% 2023.................................. 685,048 676,022 559,455 10.50% 2012-2018............................. 606,950 605,785 191,409 10.75% 2013.................................. 197,152 207,289 1,778,964 11.00% 2015-2020............................. 1,926,185 1,944,073 331,462 11.25% 2013.................................. 348,035 364,090 134,504 11.50% 2015.................................. 144,228 148,501 285,387 12.00% 2011-2016............................. 304,589 317,850 417,468 12.50% 2015.................................. 467,360 469,652 --------------- --------------- 103,783,059 105,480,212 --------------- --------------- NOTES: 6,000,000 5.42% 2001................................... 5,975,617 6,045,444 2,413,000 5.85% 2013 (e)............................... 2,413,458 2,429,589 1,450,000 6.01% 2009 (e)............................... 1,479,227 1,479,227 4,040,000 6.18% 2001................................... 4,078,296 4,132,928 6,160,000 6.48% 2007................................... 6,591,257 6,645,765 6,065,000 6.58% 2007................................... 6,052,070 6,584,528 9,730,000 6.70% 2007................................... 10,138,037 10,637,361 3,980,000 7.15% 2007................................... 4,299,062 4,466,515 9,750,000 7.65% 2005................................... 9,886,868 10,982,585 --------------- --------------- 50,913,892 53,403,942 --------------- --------------- TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION................................ 154,696,951 158,884,154 --------------- ---------------
7 FORTIS BOND FUNDS U.S. GOVERNMENT SECURITIES FUND (CONTINUED) Schedule of Investments January 31, 1999 (Unaudited) U.S. GOVERNMENT SECURITIES-CONTINUED - --------------------------------------------------------------------------------
Principal Market Amount Cost (a) Value (b) ------------ --------------- --------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 6.81% MORTGAGE BACKED SECURITIES: $ 7,028,258 7.00% 2024................................... $ 6,933,425 $ 7,201,785 2,054,728 8.00% 2017-2022.............................. 2,099,461 2,140,780 1,828,275 9.00% 2022................................... 1,887,694 1,950,541 11,661,527 9.50% 2016-2019.............................. 12,197,438 12,510,316 443,537 11.00% 2015-2018............................. 477,823 485,811 28,280 11.25% 2015.................................. 30,009 31,179 --------------- --------------- TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION................................ 23,625,850 24,320,412 --------------- --------------- OTHER DIRECT FEDERAL OBLIGATIONS - 18.55% FEDERAL FARM CREDIT BANK: 5,000,000 5.70% 2001................................... 5,016,186 5,066,785 --------------- --------------- FEDERAL HOME LOAN BANK: 6,650,000 5.60% 2001................................... 6,630,563 6,727,459 5,065,000 5.61% 2001................................... 5,128,478 5,131,807 6,000,000 5.75% 2001................................... 5,995,009 6,090,738 7,500,000 5.925% 2000.................................. 7,507,002 7,608,390 2,325,000 6.625% 2007.................................. 2,405,094 2,537,577 1,500,000 6.995% 2007.................................. 1,589,358 1,670,603 28,650,000 7.31% 2004................................... 28,569,296 31,448,160 --------------- --------------- 57,824,800 61,214,734 --------------- --------------- TOTAL OTHER DIRECT FEDERAL OBLIGATIONS....... 62,840,986 66,281,519 --------------- --------------- OTHER GOVERNMENT AGENCIES - 0.84% RESOLUTION FUNDING CORPORATION: 7,000,000 7.34% Zero Coupon Strip 2014 (d)............. 2,301,091 3,011,533 --------------- --------------- U.S. TREASURY SECURITIES - 21.83% BONDS: 7,100,000 5.19% Zero Coupon Strip 2009 (d)............. 4,077,911 4,111,674 1,250,000 5.59% Zero Coupon Strip 2022 (d)............. 336,786 342,336 9,575,000 5.61% Zero Coupon Strip 2018 (d)............. 3,204,406 3,222,936 14,850,000 5.72% Zero Coupon Strip 2019 (d)............. 4,795,596 4,929,294 17,035,000 8.125% 2019-2021............................. 21,020,587 22,933,260 --------------- --------------- 33,435,286 35,539,500 --------------- --------------- NOTES: 38,190,000 6.125% 2001-2007............................. 39,640,752 40,508,427 1,850,000 6.625% 2002.................................. 1,894,323 1,955,798 --------------- --------------- 41,535,075 42,464,225 --------------- --------------- TOTAL U.S. TREASURY SECURITIES............... 74,970,361 78,003,725 --------------- --------------- TOTAL U.S. GOVERNMENT SECURITIES............. $ 340,434,989 $ 353,100,132 --------------- --------------- --------------- ---------------
8 SHORT-TERM INVESTMENTS - 7.39%
- -------------------------------------------------------------------------------- Principal Market Amount Value (b) ------------ --------------- INVESTMENT COMPANY - 3.73% $13,318,908 First American Treasury Obligations Fund, Current rate -- 4.35%...................... $ 13,318,908 --------------- U.S. GOVERNMENT AGENCY - 3.66% 8,000,000 Federal Home Loan Mortgage Corp., 4.85%, 2-4-1999................................... 7,995,760 5,100,000 Federal Home Loan Bank, 4.85%, 2-12-1999..... 5,091,891 --------------- 13,087,651 --------------- TOTAL SHORT-TERM INVESTMENTS................. 26,406,559 --------------- --------------- TOTAL INVESTMENTS IN SECURITIES (COST: $366,841,548).............................. $ 379,506,691 --------------- ---------------
(a) At January 31, 1999, the cost of securities for federal income tax purposes was $366,965,586 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation........................... $12,883,460 Unrealized depreciation........................... (342,355) --------------------------------------------------------------- Net unrealized appreciation....................... $12,541,105 ---------------------------------------------------------------
(b) See Note 1 of accompanying Notes to Financial Statements regarding valuation of securities. (c) Note: Percentage of investments as shown is the ratio of the total market value to total net assets. (d) The interest rates disclosed for these securities represents the effective yield on the date of acquisition. (e) The cost of securities purchased on a when-issued basis at January 31, 1999, was $25,592,415. 9 FORTIS BOND FUNDS STRATEGIC INCOME FUND Schedule of Investments January 31, 1999 (Unaudited) ASSET BACKED SECURITIES-4.27%
- -------------------------------------------------------------------------------- Standard Principal & Poor's Market Amount Rating Cost (a) Value (b) --------- ------------- ------------- ------------- COMMERCIAL LOANS-4.27% $500,000 GMAC Commercial Mortgage Securities, Inc., 7.085% Ser 1997-C1 Class E 12-15-2010 -- UNITED STATES.............................. Baa2* $ 499,041 $ 489,495 500,000 J.P. Morgan Commercial Mortgage Finance Corp., 7.472% Ser 1997-C4 Class B 12-26-2028 -- UNITED STATES................ AA 525,002 539,030 ------------- ------------- TOTAL ASSET BACKED SECURITIES................ $ 1,024,043 $ 1,028,525 ------------- ------------- ------------- -------------
CORPORATE BONDS-INVESTMENT GRADE-41.38%
- -------------------------------------------------------------------------------- Standard Principal & Poor's Market Amount Rating Cost (a) Value (b) --------- ------------- ------------- ------------- BANKS-5.12% $350,000 Banco Santiago S.A., 7.00% Sub Note 7-18-2007 -- CHILE................................... BBB $ 347,006 $ 293,965 500,000 Bank Austria AG, 7.25% Sub Note 2-15-2017 -- AUSTRIA (f)................................ AA+ 520,276 522,632 400,000 CoreStates Capital Corp., 6.75% Medium Term Note 11-15-2006 -- UNITED STATES........... A- 402,658 417,100 ------------- ------------- 1,269,940 1,233,697 ------------- ------------- BROKERAGE AND INVESTMENT-2.16% 500,000 Lehman Brothers Holdings, Inc., 7.375% Sr Note 5-15-2004 -- UNITED STATES............ A 516,250 519,478 ------------- ------------- CAPTIVE AUTO FINANCE-1.05% 250,000 Toyota Motor Credit, 5.625% Note 11-13-2003 -- UNITED STATES........................... AAA 249,608 253,185 ------------- ------------- CONSUMER FINANCE-2.09% 500,000 Beneficial Corp., 6.33% Medium Term Note 12-18-2000 -- UNITED STATES................ A 501,006 504,849 ------------- ------------- ELECTRONIC-MISCELLANEOUS-2.13% 500,000 Sony Corp., 6.125% Bond 3-4-2003 -- JAPAN.... A+ 499,111 513,298 ------------- ------------- FINANCIAL SERVICES-1.04% 250,000 Newcourt Credit Group, 7.125% 12-17-2003 -- UNITED STATES.............................. BBB 249,362 250,222 ------------- ------------- FOREIGN-GOVERNMENT AGENCIES-2.21% 500,000 Quebec (Province of), 7.50% Yankee Bond 7-15-2002 -- CANADA........................ A+ 516,684 531,465 ------------- ------------- FOREIGN-GOVERNMENT-5.38% 250,000 Canada (Government of), 5.25% 11-5-2008 -- CANADA..................................... Aaa* 249,944 251,060 500,000 Generalitat de Catalunya, 6.25% Yankee Bond 12-15-2018 -- SPAIN........................ AA- 498,425 520,154 500,000 Poland (Republic of), 7.125% Yankee Bond 7-1-2004 -- POLAND......................... BBB- 500,972 525,000 ------------- ------------- 1,249,341 1,296,214 ------------- ------------- INDUSTRIAL-2.22% 250,000 CBS Corp., 7.875% Deb 9-1-2023 -- UNITED STATES..................................... BBB- 276,436 278,479 250,000 Tyco International Group, 6.875% Yankee Bond 1-15-2029 -- LUXEMBOURG.................... A- 252,249 256,168 ------------- ------------- 528,685 534,647 ------------- ------------- MEDIA-2.60% 500,000 News America Holdings, 8.875% Deb 4-26-2023 -- UNITED STATES........................... BBB- 577,316 626,839 ------------- ------------- NATURAL GAS TRANSMISSIONS-2.18% 500,000 Trans-Canada Pipelines Ltd., 7.06% Note 10-14-2025 -- CANADA....................... A- 504,145 524,921 ------------- ------------- OIL-CRUDE PETROLEUM AND GAS-3.86% 500,000 Saga Petroleum ASA, 7.25% Yankee Bond 9-23-2027 -- NORWAY........................ BBB 508,439 463,662 500,000 YPF Sociedad Anonima, 7.25% Sr Note 3-15-2003 -- ARGENTINA (f)........................... BBB- 499,323 467,260 ------------- ------------- 1,007,762 930,922 ------------- ------------- OIL-EQUIPMENT WELLS AND SERVICES-2.04% 500,000 Petroleum Geo-Services, 7.125% Sr Note 3-30-2028 -- NORWAY........................ BBB 498,562 492,869 ------------- ------------- SUPRA-NATIONAL-2.04% 500,000 Corp Andina de Fomento, 7.10% Yankee Bond 2-1-2003 -- VENEZUELA...................... BBB+ 502,098 490,984 ------------- -------------
10 CORPORATE BONDS-INVESTMENT GRADE-CONTINUED - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (a) Value (b) --------- ------------- ------------- ------------- TELECOMMUNICATIONS-3.36% $500,000 360 Communications Co., 7.50% Sr Note 3-1-2006 -- UNITED STATES.................. A $ 519,360 $ 550,145 250,000 U.S. West Capital Funding, Inc., 6.50% 11-15-2018 -- UNITED STATES................ A- 248,572 260,756 ------------- ------------- 767,932 810,901 ------------- ------------- UTILITIES-ELECTRIC-1.90% 500,000 Empresa Nacional de Electricidad, 7.325% Yankee Bond 2-1-2037 -- CHILE.............. A- 497,116 459,041 ------------- ------------- TOTAL CORPORATE BONDS - INVESTMENT GRADE..... $ 9,934,918 $ 9,973,532 ------------- ------------- ------------- -------------
CORPORATE BONDS-NON-INVESTMENT GRADE-26.77%
- -------------------------------------------------------------------------------- Standard Principal & Poor's Market Amount Rating Cost (a) Value (b) --------- ------------- ------------- ------------- AUTOMOBILE AND MOTOR VEHICLE PARTS-1.03% $250,000 Federal-Mogul, 7.375% 1-15-2006 -- UNITED STATES (f)................................. BB+ $ 248,961 $ 248,595 ------------- ------------- BROADCASTING-4.04% 250,000 Chancellor Media Corp. of Los Angeles, 8.125% Sr Sub Note 12-15-2007 -- UNITED STATES.... B 249,409 260,625 250,000 Chancellor Media, 9.00% 10-1-2008 -- UNITED STATES..................................... B 276,250 275,000 250,000 Grupo Televisa S.A., 11.27% Sr Disc Note 5-15-2008 (Zero coupon through 5-15-2001, thereafter 13.25%) -- MEXICO (e)........... BB 209,859 182,500 250,000 Sinclair Broadcasting Group, Inc., 9.00% Sr Sub Note 7-15-2007 -- UNITED STATES (d).... B 251,093 255,625 ------------- ------------- 986,611 973,750 ------------- ------------- CABLE TELEVISION-3.33% 250,000 Adelphia Communications, Inc., 9.25% Sr Note 10-1-2002 -- UNITED STATES................. B+ 254,023 265,625 250,000 CSC Holdings, Inc., 8.125% Sr Deb 8-15-2009 -- UNITED STATES........................... BB+ 256,724 272,500 250,000 Lenfest Communications, 8.25% Sr Sub Note 2-15-2008 -- UNITED STATES................. BB- 249,361 263,750 ------------- ------------- 760,108 801,875 ------------- ------------- COMPUTER-HARDWARE-1.20% 250,000 Unisys Corp., 11.75% Sr Note 10-15-2004 -- UNITED STATES.............................. BB- 282,028 288,125 ------------- ------------- DAIRY PRODUCTS-0.88% 250,000 Fage Dairy Industries S.A., 9.00% Sr Note 2-1-2007 -- GREECE......................... BB 244,212 212,500 ------------- ------------- ENTERTAINMENT-1.08% 250,000 Speedway Motorsports, Inc., 8.50% Sr Sub Deb 8-15-2007 -- UNITED STATES................. B+ 253,431 261,250 ------------- ------------- FOOD-MISCELLANEOUS-1.39% 86,000 Envirodyne Industries, Inc., 12.00% First Priority Sr Secured Note 6-15-2000 -- UNITED STATES.............................. B+ 92,020 86,000 250,000 Luigino's, Inc., 10.00% Sr Note 2-1-2006 -- UNITED STATES (d).......................... B- 250,000 250,000 ------------- ------------- 342,020 336,000 ------------- ------------- FOREIGN-GOVERNMENT-5.12% 250,000 Argentina (Republic of), 11.375% Bond 1-30-2017 -- ARGENTINA..................... BB 282,922 227,500 250,000 Brazil (Republic of), 10.125% Bond 5-15-2027 -- BRAZIL.................................. B+ 251,243 152,500 250,000 Mexican United States, 9.875% Global Bond 1-15-2007 -- MEXICO........................ BB 262,564 248,750 250,000 Panama (Republic of), 8.875% Bond 9-30-2027 -- PANAMA.................................. BB+ 247,518 224,375 500,000 United Mexican States, 6.25% Secured Note Ser W-B 12-31-2019 -- MEXICO................... BB 377,564 381,250 ------------- ------------- 1,421,811 1,234,375 ------------- ------------- MACHINERY-1.05% 250,000 Clark Material Handling Co., 10.75% Sr Note 11-15-2006 -- UNITED STATES................ B+ 264,314 253,125 ------------- ------------- RESTAURANTS AND FRANCHISING-0.65% 150,000 Tricon Global Restaurants, Inc., 7.65% Sr Note 5-15-2008 -- UNITED STATES............ BB 149,680 156,853 ------------- ------------- RETAIL-GROCERY-1.07% 250,000 Big V Supermarkets, Inc., 11.00% Sr Sub Note 2-15-2004 -- UNITED STATES................. B- 259,168 257,500 ------------- -------------
11 FORTIS BOND FUNDS STRATEGIC INCOME FUND (CONTINUED) Schedule of Investments January 31, 1999 (Unaudited) CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (a) Value (b) --------- ------------- ------------- ------------- STEEL AND IRON-0.98% $250,000 Wheeling-Pittsburgh Corp., 9.25% Sr Note 11-15-2007 -- UNITED STATES................ BB- $ 255,301 $ 236,250 ------------- ------------- TELECOMMUNICATIONS-4.61% 250,000 Intermedia Communications, Inc., 8.50% Sr Note 1-15-2008 -- UNITED STATES............ B 250,000 239,375 250,000 Iridium LLC/Capital Corp., 14.00% Sr Note 7-15-2005 -- UNITED STATES................. B- 270,936 231,250 250,000 Microcell Telecommunications, Inc., 12.52% Disc Note 6-1-2006 (Zero coupon through 12-1-2001, thereafter 14.00%) -- CANADA (e)........................................ B3* 187,641 194,375 250,000 Nextel Communications, Inc., 10.21% Sr Disc Note 9-15-2007 (Zero coupon through 9-15-2002, thereafter 10.65%) -- UNITED STATES (e)................................. CCC+ 176,815 171,250 250,000 Rogers Cantel, Inc., 9.375% Sr Secured Deb 6-1-2008 -- CANADA......................... BB+ 264,744 273,750 ------------- ------------- 1,150,136 1,110,000 ------------- ------------- UTILITIES-WATER AND SEWER-0.34% 250,000 Cathay International Ltd., 13.00% Sr Note 4-15-2008 -- HONG KONG (d)................. B 250,000 82,500 ------------- ------------- TOTAL CORPORATE BONDS - NON-INVESTMENT GRADE...................................... $ 6,867,781 $ 6,452,698 ------------- ------------- ------------- -------------
U.S. GOVERNMENT SECURITIES-27.63%
- -------------------------------------------------------------------------------- Principal Market Amount Cost (a) Value (b) ----------- ------------- ------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION - 21.85% MORTGAGE BACKED SECURITIES: $2,189,308 6.00% 2013-2029 (g).......................... $ 2,169,070 $ 2,172,963 494,357 6.30% 2008................................... 494,978 514,898 262,375 6.48% 2008................................... 264,806 276,281 494,833 6.54% 2007................................... 503,349 522,986 242,138 6.63% 2005................................... 248,710 254,484 490,721 7.00% 2028................................... 498,187 500,996 ------------- ------------- 4,179,100 4,242,608 ------------- ------------- NOTES: 1,000,000 6.18% 2001................................... 1,009,479 1,023,002 ------------- ------------- TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION................................ 5,188,579 5,265,610 ------------- ------------- U.S. TREASURY SECURITIES - 5.78% BONDS: 250,000 8.125% 2021.................................. 319,705 339,062 ------------- ------------- NOTES: 500,000 4.00% 2000................................... 494,903 494,532 530,000 6.625% 2002.................................. 541,965 560,310 ------------- ------------- 1,036,868 1,054,842 ------------- ------------- TOTAL U.S. TREASURY SECURITIES............... 1,356,573 1,393,904 ------------- ------------- TOTAL U.S. GOVERNMENT SECURITIES............. 6,545,152 6,659,514 ------------- ------------- ------------- ------------- TOTAL LONG-TERM INVESTMENTS.................. $ 24,371,894 $ 24,114,269 ------------- ------------- ------------- -------------
12 SHORT-TERM INVESTMENTS-7.14%
- -------------------------------------------------------------------------------- Principal Market Amount Value (b) ----------- ------------- BANKS-4.24% $1,023,399 U.S. Bank N.A. Money Market Variable Rate Time Deposit, Current rate -- 4.86%........ $ 1,023,399 ------------- U.S. GOVERNMENT AGENCY-2.90% 700,000 Federal Home Loan Mortgage Corp. Disc. Note, 4.88%, 2-8-1999............................ 699,253 ------------- TOTAL SHORT-TERM INVESTMENTS................. 1,722,652 ------------- ------------- TOTAL INVESTMENTS IN SECURITIES (COST: $26,094,546)(A)............................ $ 25,836,921 ------------- -------------
(a) At January 31, 1999, the cost of securities for federal income tax purposes was $26,094,546 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation........................... $ 450,169 Unrealized depreciation........................... (707,794) --------------------------------------------------------------- Net unrealized depreciation....................... $ (257,625) ---------------------------------------------------------------
(b) See Note 1 of accompanying Notes to Financial Statements regarding valuation of securities. (c) Note: Percentage of investments as shown is the ratio of the total market value to total net assets. Market value of investments in foreign secu rities represents 26.19% of total net assets in investment grade securities and 9.04% of total net assets in non-investment grade securities. (d) Securities issued within the terms of a private placement memorandum, exempt from registration un der Section 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or to other "accredited investors". These investments have been identified by portfolio management as illiquid securities:
Period Acquired Shares/Par Security Cost Basis - ------------------ ----------- ------------------------------------------------------------------------------- ----------- 1998 250,000 Cathay International Ltd. due 2008 - 144A $ 250,000 1999 250,000 Luigino's, Inc. due 2006 - 144A 250,000 1997 250,000 Sinclair Broadcasting Group, Inc. due 2007 - 144A 251,093
The aggregate value of these securities at January 31, 1999, was $588,125, which represents 2.44% of total net assets. (e) The interest rate disclosed for these securities represents the effective yield on the date of acquisition. (f) Securities sold within the terms of a private placement memorandum, exempt form registration under Section 144A of the Secu rities Act of 1933, as amended, and may be sold only to dealers in that program or to other "accredited investors". Pursuant to guidelines adopted by the Board of Directors, these issues are determined to be liquid. The aggregate value of these securities at January 31, 1999, was $1,238,487 which represents 5.14% of total net assets. (g) The cost of securities purchased on a when-issued basis at January 31, 1999, was $1,678,399. * Moody's Rating ** Dominion Bond Rating 13 FORTIS BOND FUNDS HIGH YIELD PORTFOLIO Schedule of Investments January 31, 1999 (Unaudited) CORPORATE BONDS-INVESTMENT GRADE-0.65%
- -------------------------------------------------------------------------------- Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) ----------- ------------- ------------- ------------- FINANCIAL SERVICES-0.65% $1,137,000 Homeside, Inc., 11.25% Second Priority Sr Secured Note 5-15-2003..................... A+ $ 1,166,849 $ 1,307,550 ------------- -------------
CORPORATE BONDS-NON-INVESTMENT GRADE-93.87%
- -------------------------------------------------------------------------------- Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) ------------ ------------- ------------- ------------- APPAREL-1.33% $ 2,500,000 Hosiery Corp. of America, Inc., 13.75% Sr Sub Note 8-1-2002.............................. B- $ 2,638,239 $ 2,650,000 ------------- ------------- AUTOMOBILE AND MOTOR VEHICLE PARTS-2.39% 2,500,000 Diamond Triumph Auto, 9.25% Sr Note 4-1-2008 (e)........................................ B+ 2,549,489 2,493,750 2,250,000 Hayes Lemmerz International, Inc., 8.25% Sr Sub Note 12-15-2008 (g).................... B 2,250,000 2,278,125 ------------- ------------- 4,799,489 4,771,875 ------------- ------------- AUTOMOBILE MANUFACTURERS-1.28% 2,500,000 Navistar International Corp., 8.00% Sr Sub Note 2-1-2008.............................. BB- 2,495,227 2,550,000 ------------- ------------- BROADCASTING-6.84% 750,000 Ackerley Group, Inc., 9.00% Sr Sub Note 1-15-2009 (g).............................. B 750,000 787,500 2,250,000 Chancellor Media Corp. of Los Angeles, 8.125% Sr Sub Note 12-15-2007..................... B 2,244,680 2,345,625 2,500,000 Chancellor Media Corp., 8.00% Sr Note 11-1-2008 (g).............................. B+ 2,479,071 2,718,750 2,000,000 Grupo Televisa S.A., 11.27% Sr Disc Note 5-15-2008 (Zero coupon through 5-15-2001, thereafter 13.25%) (f)................................ BB 1,678,490 1,460,000 1,000,000 Shop at Home, Inc., 11.00% Sr Secured Note 4-1-2005................................... B 1,000,000 1,025,000 3,000,000 Sinclair Broadcasting Group, Inc., 10.00% Sr Sub Note 9-30-2005......................... B 3,088,474 3,187,500 2,000,000 Young Broadcasting Corp., 11.75% Sr Sub Note 11-15-2004................................. B 2,184,126 2,155,000 ------------- ------------- 13,424,841 13,679,375 ------------- ------------- CABLE TELEVISION-12.98% 1,000,000 Adelphia Communications, Inc., 8.375% Sr Note 2-1-2008................................... B+ 1,007,051 1,045,000 3,500,000 Adelphia Communications, Inc., 9.25% Sr Note 10-1-2002.................................. B+ 3,558,065 3,718,750 10,117,492 Australis Media Ltd., Sr Sub Disc Note 5-15-2003 (Zero coupon through 5-15-2000, thereafter 15.75%)(with warrants) (a)(e).............. D 7,594,968 101 2,500,000 Century Communications Corp., 8.875% Sr Note 1-15-2007.................................. BB- 2,575,468 2,781,250 1,000,000 CSC Holdings, Inc., 10.50% Sr Sub Deb 5-15-2016.................................. BB- 1,014,408 1,200,000 1,000,000 CSC Holdings, Inc., 8.125% Sr Deb 8-15-2009.................................. BB+ 1,054,637 1,090,000 2,000,000 CSC Holdings, Inc., 9.25% Sr Sub Note 11-1-2005.................................. BB- 2,095,335 2,160,000 2,000,000 Galaxy Telecom L.P., 12.375% Sr Sub Note 10-1-2005.................................. B- 2,170,645 2,240,000 1,500,000 Lenfest Communications, 7.625% Sr Note 2-15-2008.................................. BB+ 1,496,092 1,560,000 1,750,000 Lenfest Communications, 8.25% Sr Sub Note 2-15-2008.................................. BB- 1,745,529 1,846,250 2,000,000 Mediacom LLC/Capital, 8.50% Sr Note 4-15-2008.................................. B+ 2,000,000 2,050,000 3,000,000 Olympus Communication L.P., 10.625% Sr Note 11-15-2006................................. B 3,000,000 3,300,000 2,000,000 Rifkin Acquisition Partners L.P., 11.125% Sr Sub Note 1-15-2006......................... B- 2,197,700 2,210,000 6,000,000 Wireless One, Inc., 13.00% Sr Note 10-15-2003................................. CC 4,069,118 750,000 ------------- ------------- 35,579,016 25,951,351 ------------- ------------- CHEMICALS-3.44% 2,000,000 Agricultural Minerals & Chemicals, 10.75% Sr Note 9-30-2003............................. BB- 2,079,069 2,050,000 2,500,000 NL Industries, Inc., 11.75% Sr Secured Note 10-15-2003................................. B 2,742,985 2,675,000 4,000,000 Trans-Resources, Inc., 11.93% Sr Disc Note 3-15-2008 (Zero coupon through 3-15-03, thereafter 12.00%) (f)................................ B- 2,492,559 2,150,000 ------------- ------------- 7,314,613 6,875,000 ------------- -------------
14 CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) ------------ ------------- ------------- ------------- COMPUTER-HARDWARE-1.85% $ 2,250,000 Unisys Corp., 11.75% Sr Note 10-15-2004...... BB- $ 2,440,617 $ 2,593,125 1,000,000 Unisys Corp., 12.00% Sr Note 4-15-2003....... B+ 1,095,333 1,110,000 ------------- ------------- 3,535,950 3,703,125 ------------- ------------- CONSUMER FINANCE-0.52% 1,000,000 Renters Choice, Inc., 11.00% Sr Sub Note 8-15-2008 (g).............................. B 1,000,000 1,037,500 ------------- ------------- CONSUMER GOODS-3.07% 3,000,000 Albecca, Inc., 10.75% Sr Sub Note 8-15-2008 (g)........................................ B- 3,000,000 2,730,000 1,250,000 Chattem, Inc., 12.75% Sr Sub Note Ser B 6-15-2004.................................. B- 1,251,721 1,381,250 1,500,000 Drypers Corp., 10.25% Sr Note 6-15-2007...... B 1,550,950 1,425,000 250,000 Scotts Co., 8.625% Sr. Sub Notes 1-15-2009 (g)........................................ B+ 250,000 258,125 375,000 Windmere-Durable Holdings, 10.00% Sr Sub Note 7-31-2008.................................. B- 375,000 341,250 ------------- ------------- 6,427,671 6,135,625 ------------- ------------- DAIRY PRODUCTS-1.70% 4,000,000 Fage Dairy Industries S.A., 9.00% Sr Note 2-1-2007................................... BB 3,879,781 3,400,000 ------------- ------------- ELECTRICAL-COMPONENTS AND PARTS-1.27% 2,500,000 Wesco Distribution, Inc., 9.125% Sr Sub Note 6-1-2008................................... B 2,492,226 2,543,750 ------------- ------------- ENERGY-3.28% 2,000,000 Energy Corp. of America, 9.50% Sr Sub Note 5-15-2007.................................. B 2,009,244 1,890,000 2,500,000 Gulfmark Offshore, 8.75% Sr Note 6-1-2008.... BB- 2,492,084 2,275,000 2,500,000 KCS Energy, Inc., 11.00% Sr Note 1-15-2003... B 2,720,884 2,400,000 ------------- ------------- 7,222,212 6,565,000 ------------- ------------- ENTERTAINMENT-1.18% 2,250,000 Speedway Motorsports, Inc., 8.50% Sr Sub Deb 8-15-2007.................................. B+ 2,274,693 2,351,250 ------------- ------------- FOOD-MISCELLANEOUS-2.13% 750,000 Agrilink Foods, Inc., 11.875% Sr Sub Note 11-1-2008.................................. B 750,000 783,750 344,000 Envirodyne Industries, Inc., 12.00% First Priority Sr Secured Note 6-15-2000......... B+ 360,069 344,000 2,000,000 Fresh Foods, Inc., 10.75% Sr Note 6-1-2006... B 2,000,000 1,880,000 1,250,000 Luigino's, Inc., 10.00% Sr Note 2-1-2006 (e)........................................ B- 1,250,000 1,250,000 ------------- ------------- 4,360,069 4,257,750 ------------- ------------- FOREIGN-GOVERNMENT-0.38% 1,000,000 United Mexican States, 6.25% Secured Note Ser W-B 12-31-2019............................. BB 755,129 762,500 ------------- ------------- FOREST PRODUCTS-1.67% 1,750,000 Domtar, Inc., 8.75% Note 8-1-2006............ BB+ 1,831,229 1,811,250 1,500,000 Stone Container Corp., 9.875% Sr Note 2-1-2001................................... B 1,522,478 1,522,500 ------------- ------------- 3,353,707 3,333,750 ------------- ------------- HEALTH CARE SERVICES-2.00% 2,000,000 Quorum Health Group, Inc., 8.75% Sr Sub Note 11-1-2005.................................. B+ 2,064,920 1,905,000 2,000,000 Tenet Healthcare Corp., 8.625% Sr Sub Note 1-15-2007.................................. BB- 2,064,904 2,090,000 ------------- ------------- 4,129,824 3,995,000 ------------- ------------- LEISURE TIME-AMUSEMENTS-0.83% 216,537 Capital Gaming International, Inc., 12.00% Sr Note 5-15-2001 (e)......................... NR 0 21 1,000,000 Station Casinos, Inc., 10.125% Sr Sub Note 3-15-2006.................................. B+ 967,104 1,062,500 600,000 True Temper Sports, Inc., 10.875% Sr Sub Note 12-1-2008 (e).............................. B- 600,000 588,000 ------------- ------------- 1,567,104 1,650,521 ------------- ------------- MACHINERY-2.79% 1,500,000 Anthony Crane Rental, L.P., 10.375% Sr Note Ser A 8-1-2008 (g)......................... B 1,500,000 1,425,000 4,095,000 Clark Material Handling Co., 10.75% Sr Note 11-15-2006................................. B+ 4,226,496 4,146,187 ------------- ------------- 5,726,496 5,571,187 ------------- -------------
15 FORTIS BOND FUNDS HIGH YIELD PORTFOLIO (CONTINUED) Schedule of Investments January 31, 1999 (Unaudited) CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) ------------ ------------- ------------- ------------- MACHINERY-TOOLS-1.70% $ 3,295,000 Simonds Industries, 10.25% Sr Sub Note 7-1-2008................................... B- $ 3,176,227 $ 3,393,850 ------------- ------------- MEDICAL SUPPLIES-1.06% 2,000,000 Maxxim Medical, 10.50% Sr Sub Note 8-1-2006................................... B 2,187,811 2,130,000 ------------- ------------- MISCELLANEOUS-0.74% 1,500,000 La Petite Acad/LPA Holdings, 10.00% Sr Note 5-15-2008.................................. B- 1,500,000 1,488,750 ------------- ------------- PAPER-0.99% 2,500,000 Plainwell, Inc., 11.00% Sr Sub Note 3-1-2008................................... B- 2,500,000 1,975,000 ------------- ------------- PRINTING-2.84% 1,500,000 Day International Group, Inc., 11.125% Sr Note 6-1-2005.............................. B+ 1,626,328 1,616,250 2,250,000 Mail-Well Corp., 8.75% Sr Sub Note 12-15-2008 (g)........................................ B+ 2,250,000 2,295,000 750,000 Phoenix Color Corp., 10.375% Sr Sub Notes 2-1-2009 (e)............................... B- 750,000 750,000 1,000,000 World Color Press, Inc., 8.375% Sr Sub Note 11-15-2008 (e)............................. BB- 1,000,000 1,025,000 ------------- ------------- 5,626,328 5,686,250 ------------- ------------- PUBLISHING-2.52% 2,000,000 Garden State Newspapers, 8.75% Sr Sub Note 10-1-2009.................................. B+ 2,014,124 2,000,000 1,000,000 Primedia, Inc., 10.25% Sr Note 6-1-2004...... BB- 1,070,004 1,050,000 2,000,000 Primedia, Inc., 7.625% Sr Note 4-1-2008...... BB- 1,984,903 1,985,000 ------------- ------------- 5,069,031 5,035,000 ------------- ------------- RESTAURANTS AND FRANCHISING-1.74% 2,000,000 Advantica Restaurant Group, Inc., 11.25% Sr Note 1-15-2008............................. B 2,154,378 2,060,000 1,350,000 Tricon Global Restaurants, Inc., 7.65% Sr Note 5-15-2008............................. BB 1,347,117 1,411,672 ------------- ------------- 3,501,495 3,471,672 ------------- ------------- SHIP BUILDING, SHIPPING-1.89% 3,500,000 Newport News Ship Building, 9.25% Sr Sub Note 12-1-2006.................................. B+ 3,707,987 3,780,000 ------------- ------------- STEEL AND IRON-0.94% 2,000,000 Wheeling-Pittsburgh Corp., 9.25% Sr Note 11-15-2007................................. BB- 2,042,537 1,890,000 ------------- ------------- TELECOMMUNICATIONS-21.71% 2,000,000 Arch Communications Group, Inc., 15.00% Sr Disc Note 3-15-2008 (Zero coupon through 3-15-2001, thereafter 10.875%) (f).................... CCC 1,287,937 1,160,000 750,000 Centennial Cellular, 10.75% Sr Sub Note 12-15-2008 (g)............................. CCC+ 750,000 795,000 3,500,000 Comcast Cellular Holdings, 9.50% Sr Note 5-1-2007................................... BB+ 3,666,936 4,016,250 2,000,000 Globalstar LP/Capital, 11.25% Sr Note 6-15-2004.................................. B 2,059,140 1,520,000 2,250,000 Hermes Europe Railtel B.V., 10.375% Sr Sub Note 1-15-2009 (g)......................... B 2,250,000 2,385,000 2,500,000 Hyperion Telecommunication, 12.25% Sr Note 9-1-2004................................... B+ 2,674,500 2,656,250 2,000,000 Intermedia Communications, Inc., 11.25% Sr Disc Note 7-15-2007 (Zero Coupon through 7-15-2002, thereafter 11.25%) (f).......... B 1,567,257 1,395,000 2,500,000 Intermedia Communications, Inc., 8.50% Sr Note 1-15-2008............................. B 2,587,301 2,393,750 500,000 Iridium LLC/Capital Corp., 14.00% Sr Note 7-15-2005.................................. B- 555,966 462,500 3,625,000 ITC Deltacom, Inc., 11.00% Sr Note 6-1-2007................................... B 4,072,847 3,960,313 500,000 ITC Deltacom, Inc., 9.75% Sr Note 11-15-2008................................. B 500,000 525,000 5,000,000 Level 3 Communications, Inc., 10.50% Sr Disc Note 12-1-2008 (Zero coupon through 12-1-2003,thereafter 10.50%) (e)(f)........ B 3,050,191 2,931,250 2,500,000 McleodUSA, Inc., 9.25% Sr Note 7-15-2007..... B+ 2,684,931 2,631,250 250,000 McleodUSA, Inc., 9.50% Sr Note 11-1-2008 (e)........................................ B+ 250,000 270,625 1,500,000 Metromedia Fiber Network, Inc., 10.00% Sr Note 11-15-2008 (e)........................ B 1,500,000 1,586,250 3,500,000 Nextel Communications, Inc. 10.27% Sr Disc Note 9-15-2007 (Zero coupon through 9-15-2002, thereafter 10.65%) (f)..................... CCC+ 2,500,959 2,397,500 1,750,000 NTL, Inc., 12.742% Sr Note 10-1-2008 (Zero coupon through 10-1-2003, thereafter 12.375%) (f)(g)............................ B- 999,644 1,220,625 1,400,000 Omnipoint Corp., 11.625% Sr Note Ser A 8-15-2006.................................. CCC+ 1,365,497 1,106,000 500,000 Qwest Communications International, 8.29% Sr Disc Note 2-1-2008 (Zero coupon through 2-1-2003, thereafter 8.29%) (f)............ BB+ 361,818 387,500 4,250,000 Rogers Cantel, Inc., 9.375% Sr Secured Deb 6-1-2008................................... BB+ 4,500,655 4,653,750 3,750,000 Splitrock Services, Inc., 11.75% Sr Note 7-15-2008.................................. NR 3,711,894 3,337,500
16 CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) ------------ ------------- ------------- ------------- $ 1,500,000 Verio, Inc., 11.25% Sr Note 12-1-2008 (e).... B- $ 1,500,000 $ 1,605,000 ------------- ------------- 44,397,473 43,396,313 ------------- ------------- TEXTILE MANUFACTURING-3.13% 2,000,000 Anvil Knitwear, Inc., 10.875% Sr Note 3-15-2007.................................. B- 2,038,414 1,300,000 2,250,000 Galey & Lord, Inc., 9.125% Sr Sub Note 3-1-2008................................... B 2,239,437 1,755,000 3,000,000 Pillowtex Corp., 10.00% Sr Sub Note 11-15-2006................................. B+ 3,182,516 3,195,000 ------------- ------------- 7,460,367 6,250,000 ------------- ------------- TRANSPORTATION-1.43% 2,500,000 Greyhound Lines, Inc., 11.50% Sr Note 4-15-2007.................................. B- 2,604,700 2,856,250 ------------- ------------- UTILITIES-ELECTRIC-1.00% 2,000,000 AES Corp., 8.50% Sr Sub Note 11-1-2007....... B+ 2,050,935 2,010,000 ------------- ------------- UTILITIES-WATER AND SEWER-0.08% 500,000 Cathay International Ltd., 13.00% Sr Note 4-15-2008 (e).............................. B 480,703 165,000 ------------- ------------- WASTE DISPOSAL-1.17% 2,125,000 Norcal Waste Systems, Inc., 13.50% Increasing Rate Sr Note 11-15-2005.................... BB- 2,125,000 2,337,500 ------------- ------------- TOTAL CORPORATE BONDS - NON-INVESTMENT GRADE...................................... $ 201,406,881 $ 187,650,144 ------------- ------------- ------------- -------------
COMMON STOCKS AND WARRANTS-0.36%
- -------------------------------------------------------------------------------- Market Shares Cost (b) Value (c) --------- ------------- ------------- APPAREL-0.04% 1,250 Hosiery Corp. of America, Inc. Class A (e)... $ 21,150 $ 80,000 ------------- ------------- AUTOMOBILE AND MOTOR VEHICLE PARTS-0.00% 750 Highwaymaster Communications, Inc. (Warrants) (a)(e)..................................... 13,125 67 ------------- ------------- CABLE TELEVISION-0.00% 8,500 American Telecasting, Inc. (Warrants) (a)(e)..................................... 17,000 1 7,500 People's Choice T.V. Corp. (Warrants) (a)(e)..................................... 78 1 ------------- ------------- 17,078 2 ------------- ------------- CONSUMER GOODS-0.00% 3,000 Wireless One, Inc. (Warrants) (a)(e)......... 23,493 30 ------------- ------------- LEISURE TIME-AMUSEMENTS-0.00% 6,000 Hemmeter Enterprises, Inc. (Warrants) (a)(e)..................................... 24,000 1 ------------- ------------- PUBLISHING-0.02% 197,500 Marvel Entertainment Group, Inc. (a)......... 2,156,224 29,782 ------------- ------------- TELECOMMUNICATIONS-0.30% 6,600 Clearnet Communications, Inc. (Warrants) (a)(e)..................................... 76,725 47,025 63,759 e.spire Communications, Inc.................. 618,165 330,750 1,000 Hyperion Telecom (Warrants) (a)(e)........... 20,000 100,000 12,800 Powertel, Inc. (Warrants) (a)(e)............. 94,118 87,501 3,750 Splitrock Service (Warrants) (a)............. 46,195 41,250 ------------- ------------- 855,203 606,526 ------------- ------------- TOTAL COMMON STOCKS AND WARRANTS............. 3,110,273 716,408 ------------- ------------- ------------- ------------- TOTAL LONG-TERM INVESTMENTS.................. $ 205,684,003 $ 189,674,102 ------------- ------------- ------------- -------------
17 FORTIS BOND FUNDS HIGH YIELD PORTFOLIO (CONTINUED) Schedule of Investments January 31, 1999 (Unaudited) SHORT-TERM INVESTMENTS-3.68%
- -------------------------------------------------------------------------------- Principal Market Amount Value (c) ----------- ------------- BANKS-3.68% $7,356,000 U.S. Bank N.A. Money Market Variable Rate Time Deposit, Current rate -- 4.86%........ $ 7,356,000 ------------- TOTAL INVESTMENTS IN SECURITIES (COST: $213,040,003) (B).......................... $ 197,030,102 ------------- -------------
(a) Presently non-income producing. For long-term debt securities, items identified are in default as to payment of interest and/or principal. (b) At January 31, 1999, the cost of securities for federal income tax purposes was $214,049,362 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation..................................... $ 3,863,737 Unrealized depreciation..................................... (20,882,997) - -------------------------------------------------------------------------- Net unrealized depreciation................................. $(17,019,260) - --------------------------------------------------------------------------
(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 7.32% of net assets as of January 31, 1999. (e) Securities issued within the terms of a private placement memorandum, exempt from registration under Section 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or to other "accredited investors". These investments have been identified by portfolio management as illiquid securities:
Period Acquired Shares/Par Security Cost Basis - ------------------ ---------- ------------------------------------------------------------------------------ ---------- 1994 8,500 American Telecasting, Inc. (Warrants) $ 17,000 1996-1997 10,117,492 Australis Media Ltd. (with warrants) due 2003 7,594,968 1999 216,537 Capital Gaming International due 2001 - 144A 0 1998 500,000 Cathay International Ltd. due 2008 - 144A 480,703 1996 6,600 Clearnet Communications, Inc. (Warrants) - 144A 76,725 1998 2,500,000 Diamond Triumph Auto due 2008 - 144A 2,549,489 1994 6,000 Hemmeter Enterprises, Inc. (Warrants) - 144A 24,000 1997 750 Highwaymaster Communications, Inc. (Warrants) - 144A 13,125 1994 2,500,000 Hosiery Corp. of America, Inc. Class A - 144A 21,150 1997 1,000 Hyperion Telecom (Warrants) - 144A 20,000 1998 5,000,000 Level 3 Communications, Inc. due 2008 - 144A 3,050,191 1999 1,250,000 Luigino's, Inc. due 2006 - 144A 1,250,000 1998 250,000 McleodUSA, Inc. due 2008 - 144A 250,000 1998 1,500,000 Metromedia Fiber Network, Inc. due 2008 - 144A 1,500,000 1997 7,500 People's Choice T.V. Corp. (Warrants) 78 1999 750,000 Phoenix Color Press, Inc. due 2009 - 144A 750,000 1997 12,800 Powertel, Inc. (Warrants) 94,118 1998 600,000 True Temper Sports, Inc. due 2008 - 144A 600,000 1998 1,500,000 Verio, Inc. due 2008 - 144A 1,500,000 1996 3,000 Wireless One, Inc. (Warrants) 23,493 1998 1,000,000 World Color Press, Inc. due 2008 - 144A 1,000,000
The aggregate value of these securities at January 31, 1999, was $12,979,623, which represents 6.49% of total net assets. (f) The interest rate disclosed for these securities represents the effective yield on the date of acquisition. (g) Securities sold within the terms of a private placement memorandum, exempt 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". Pursuant to guidelines adopted by the Board of Directors, these issues are determined to be liquid. The aggregate value of these securities at January 31, 1999, was $17,930,625, which represents 8.97% of total net assets. * Moody's Rating 18 FORTIS BOND FUNDS Statements of Assets and Liabilities (Unaudited) January 31, 1999
- -------------------------------------------------------------------------------- US GOVERNMENT STRATEGIC SECURITIES INCOME FUND FUND -------------- -------------- ASSETS: Investments in securities, as detailed in the accompanying schedules, at market (cost $366,841,548; $26,094,546; and $213,040,003; respectively) (Note 1)........................ $ 379,506,691 $ 25,836,921 Cash on deposit with custodian............................................................... -- 14,219 Collateral for securities lending transactions (Note 1)...................................... 80,437,018 -- Receivables: Investment securities sold................................................................. 16,709 -- Interest and dividends..................................................................... 4,047,500 376,172 Subscriptions of capital stock............................................................. 19,988 32,430 Deferred registration costs (Note 1)......................................................... 35,082 32,821 Deferred organizational costs................................................................ -- 26,818 Prepaid expenses............................................................................. 5,012 10,948 -------------- -------------- TOTAL ASSETS................................................................................... 464,068,000 26,330,329 -------------- -------------- LIABILITIES: Cash portion of dividends payable............................................................ 360,689 2,620 Payable upon return of securities loaned (Note 1)............................................ 80,437,018 -- Payable for investment securities purchased.................................................. 25,592,415 2,204,648 Redemptions of capital stock................................................................. 65,023 -- Payable for investment advisory and management fees (Note 2)................................. 215,624 16,180 Payable for distribution fees (Note 2)....................................................... 3,357 761 Accounts payable and accrued expenses........................................................ 51,895 2,468 -------------- -------------- TOTAL LIABILITIES.............................................................................. 106,726,021 2,226,677 -------------- -------------- NET ASSETS: Net proceeds of capital stock, par value $.01 per share-authorized 10,000,000,000, 10,000,000,000, and 10,000,000,000 shares, respectively.................................... 406,928,387 24,705,909 Unrealized appreciation (depreciation) of investments........................................ 12,665,143 (257,625) Undistributed net investment income (loss)................................................... 40,689 1,500 Accumulated net realized (loss) from sale of investments..................................... (62,292,240) (346,132) -------------- -------------- TOTAL NET ASSETS............................................................................... $ 357,341,979 $ 24,103,652 -------------- -------------- -------------- -------------- SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE: Class A shares (based on net assets of $53,090,835; $22,833,741; and $100,830,215; respectively and 5,592,308; 2,340,775; and 14,407,129 shares outstanding; respectively)................... $9.49 $9.75 -------------- -------------- Class B shares (based on net assets of $4,155,528; $536,739; and $26,321,595; respectively and 439,045; 55,036; and 3,761,350 shares outstanding; respectively)............................. $9.46 $9.75 -------------- -------------- Class C shares (based on net assets of $1,841,886; $289,136; and $6,791,187; respectively and 194,807; 29,647; and 972,253 shares outstanding; respectively)............................... $9.45 $9.75 -------------- -------------- Class E shares (based on net assets of $286,819,946; $0; and $0; respectively and 30,225,355; 0; and 0 shares outstanding; respectively)................................................... $9.49 -- -------------- -------------- Class H shares (based on net assets of $11,433,784; $444,036; and $65,963,166; respectively and 1,208,033; 45,535; and 9,432,733 shares outstanding; respectively)........................... $9.46 $9.75 -------------- -------------- HIGH YIELD PORTFOLIO -------------- ASSETS: Investments in securities, as detailed in the accompanying schedules, at market (cost $366,841,548; $26,094,546; and $213,040,003; respectively) (Note 1)........................ $ 197,030,102 Cash on deposit with custodian............................................................... 17,819 Collateral for securities lending transactions (Note 1)...................................... -- Receivables: Investment securities sold................................................................. 871,750 Interest and dividends..................................................................... 4,742,906 Subscriptions of capital stock............................................................. 164,933 Deferred registration costs (Note 1)......................................................... 28,513 Deferred organizational costs................................................................ -- Prepaid expenses............................................................................. 6,118 -------------- TOTAL ASSETS................................................................................... 202,862,141 -------------- LIABILITIES: Cash portion of dividends payable............................................................ 625,672 Payable upon return of securities loaned (Note 1)............................................ -- Payable for investment securities purchased.................................................. 2,000,000 Redemptions of capital stock................................................................. 151,247 Payable for investment advisory and management fees (Note 2)................................. 122,687 Payable for distribution fees (Note 2)....................................................... 14,688 Accounts payable and accrued expenses........................................................ 41,684 -------------- TOTAL LIABILITIES.............................................................................. 2,955,978 -------------- NET ASSETS: Net proceeds of capital stock, par value $.01 per share-authorized 10,000,000,000, 10,000,000,000, and 10,000,000,000 shares, respectively.................................... 233,621,709 Unrealized appreciation (depreciation) of investments........................................ (16,009,901) Undistributed net investment income (loss)................................................... (104,066) Accumulated net realized (loss) from sale of investments..................................... (17,601,579) -------------- TOTAL NET ASSETS............................................................................... $ 199,906,163 -------------- -------------- SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE: Class A shares (based on net assets of $53,090,835; $22,833,741; and $100,830,215; respectively and 5,592,308; 2,340,775; and 14,407,129 shares outstanding; respectively)................... $7.00 -------------- Class B shares (based on net assets of $4,155,528; $536,739; and $26,321,595; respectively and 439,045; 55,036; and 3,761,350 shares outstanding; respectively)............................. $7.00 -------------- Class C shares (based on net assets of $1,841,886; $289,136; and $6,791,187; respectively and 194,807; 29,647; and 972,253 shares outstanding; respectively)............................... $6.98 -------------- Class E shares (based on net assets of $286,819,946; $0; and $0; respectively and 30,225,355; 0; and 0 shares outstanding; respectively)................................................... -- -------------- Class H shares (based on net assets of $11,433,784; $444,036; and $65,963,166; respectively and 1,208,033; 45,535; and 9,432,733 shares outstanding; respectively)........................... $6.99 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 19 FORTIS BOND FUNDS Statements of Operations (Unaudited) For the Six-Month Period Ended January 31, 1999
- -------------------------------------------------------------------------------- US GOVERNMENT STRATEGIC SECURITIES INCOME FUND FUND -------------- -------------- NET INVESTMENT INCOME (LOSS): Income: Interest income............................................................................ $ 10,584,215 $ 854,955 Fee income (Note 1)........................................................................ 57,044 -- -------------- -------------- Total income................................................................................. 10,641,259 854,955 -------------- -------------- Expenses: Investment advisory and management fees (Note 2)........................................... 1,272,096 93,799 Distribution fees (Class A) (Note 2)....................................................... 67,536 27,942 Distribution fees (Class B) (Note 2)....................................................... 18,598 2,325 Distribution fees (Class C) (Note 2)....................................................... 8,406 1,321 Distribution fees (Class H) (Note 2)....................................................... 56,521 1,835 Registration fees.......................................................................... 26,718 22,685 Shareholders' notices and reports.......................................................... 26,499 1,570 Legal and auditing fees (Note 2)........................................................... 20,643 2,293 Custodian fees............................................................................. 8,419 1,613 Directors' fees and expenses............................................................... 14,396 779 Amortization of organization costs......................................................... -- 1,353 Other...................................................................................... 15,325 396 -------------- -------------- Total expenses............................................................................... 1,535,157 157,911 Less reimbursable expenses (Note 2)........................................................ -- (24,701) -------------- -------------- Net Expenses................................................................................. 1,535,157 133,210 -------------- -------------- NET INVESTMENT INCOME.......................................................................... 9,106,102 721,745 -------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1): Net realized gain (loss) from security transactions.......................................... 2,880,922 (345,430) Net change in unrealized appreciation (depreciation) of investments.......................... 4,262,243 (311,275) -------------- -------------- NET GAIN (LOSS) ON INVESTMENTS................................................................. 7,143,165 (656,705) -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 16,249,267 $ 65,040 -------------- -------------- -------------- -------------- HIGH YIELD PORTFOLIO -------------- NET INVESTMENT INCOME (LOSS): Income: Interest income............................................................................ $ 10,322,076 Fee income (Note 1)........................................................................ -- -------------- Total income................................................................................. 10,322,076 -------------- Expenses: Investment advisory and management fees (Note 2)........................................... 741,545 Distribution fees (Class A) (Note 2)....................................................... 180,950 Distribution fees (Class B) (Note 2)....................................................... 134,099 Distribution fees (Class C) (Note 2)....................................................... 36,707 Distribution fees (Class H) (Note 2)....................................................... 335,534 Registration fees.......................................................................... 34,380 Shareholders' notices and reports.......................................................... 22,180 Legal and auditing fees (Note 2)........................................................... 15,930 Custodian fees............................................................................. 10,082 Directors' fees and expenses............................................................... 6,150 Amortization of organization costs......................................................... -- Other...................................................................................... 8,016 -------------- Total expenses............................................................................... 1,525,573 Less reimbursable expenses (Note 2)........................................................ -- -------------- Net Expenses................................................................................. 1,525,573 -------------- NET INVESTMENT INCOME.......................................................................... 8,796,503 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1): Net realized gain (loss) from security transactions.......................................... (7,156,812) Net change in unrealized appreciation (depreciation) of investments.......................... (5,168,396) -------------- NET GAIN (LOSS) ON INVESTMENTS................................................................. (12,325,208) -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ (3,528,705) -------------- --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 20 FORTIS BOND FUNDS Statements of Changes in Net Assets U.S. GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 1999 (UNAUDITED) -------------- OPERATIONS: Net investment income..................................................................................... $ 9,106,102 Net realized gain from security transactions.............................................................. 2,880,922 Net change in unrealized appreciation (depreciation) on investments in securities......................... 4,262,243 -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................................ 16,249,267 -------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A................................................................................................. (1,344,432) Class B................................................................................................. (79,074) Class C................................................................................................. (35,457) Class E................................................................................................. (7,464,698) Class H................................................................................................. (237,195) -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (9,160,856) -------------- CAPITAL STOCK TRANSACTIONS: Proceeds from sale of shares Class A (1,144,581 and 822,757 shares).................................................................. 10,835,629 Class B (130,100 and 120,670 shares).................................................................... 1,233,421 Class C (178,193 and 83,034 shares)..................................................................... 1,680,175 Class E (2,617,667 and 2,495,810 shares)................................................................ 24,794,536 Class H (279,973 and 451,004 shares).................................................................... 2,646,681 Proceeds from shares issued as a result of reinvested dividends Class A (103,732 and 232,525 shares).................................................................... 987,200 Class B (7,411 and 13,455 shares)....................................................................... 70,316 Class C (3,135 and 5,419 shares)........................................................................ 29,717 Class E (580,439 and 1,337,763 shares).................................................................. 5,522,776 Class H (18,353 and 39,802 shares)...................................................................... 174,131 Less cost of repurchase of shares Class A (1,291,915 and 1,875,615 shares)................................................................ (12,223,047) Class B (39,036 and 102,794 shares)..................................................................... (368,261) Class C (123,175 and 110,004 shares).................................................................... (1,162,258) Class E (3,622,602 and 8,637,714 shares)................................................................ (34,296,547) Class H (256,377 and 489,094 shares).................................................................... (2,412,620) -------------- NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS.......................................................... (2,488,151) -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................................................................... 4,600,260 NET ASSETS: Beginning of period....................................................................................... 352,741,719 -------------- End of period (includes undistributed net investment income of $40,689 and $95,443, respectively)......... $ 357,341,979 -------------- -------------- FOR THE YEAR ENDED JULY 31, 1998 -------------- OPERATIONS: Net investment income..................................................................................... $ 20,795,990 Net realized gain from security transactions.............................................................. 8,346,912 Net change in unrealized appreciation (depreciation) on investments in securities......................... (2,474,357) -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................................ 26,668,545 -------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A................................................................................................. (3,017,377) Class B................................................................................................. (140,663) Class C................................................................................................. (60,964) Class E................................................................................................. (17,164,484) Class H................................................................................................. (524,647) -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (20,908,135) -------------- CAPITAL STOCK TRANSACTIONS: Proceeds from sale of shares Class A (1,144,581 and 822,757 shares).................................................................. 7,604,563 Class B (130,100 and 120,670 shares).................................................................... 1,110,644 Class C (178,193 and 83,034 shares)..................................................................... 767,893 Class E (2,617,667 and 2,495,810 shares)................................................................ 23,021,542 Class H (279,973 and 451,004 shares).................................................................... 4,150,901 Proceeds from shares issued as a result of reinvested dividends Class A (103,732 and 232,525 shares).................................................................... 2,145,251 Class B (7,411 and 13,455 shares)....................................................................... 123,897 Class C (3,135 and 5,419 shares)........................................................................ 49,809 Class E (580,439 and 1,337,763 shares).................................................................. 12,339,811 Class H (18,353 and 39,802 shares)...................................................................... 366,333 Less cost of repurchase of shares Class A (1,291,915 and 1,875,615 shares)................................................................ (17,300,337) Class B (39,036 and 102,794 shares)..................................................................... (946,133) Class C (123,175 and 110,004 shares).................................................................... (1,016,334) Class E (3,622,602 and 8,637,714 shares)................................................................ (79,603,597) Class H (256,377 and 489,094 shares).................................................................... (4,511,053) -------------- NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS.......................................................... (51,696,810) -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................................................................... (45,936,400) NET ASSETS: Beginning of period....................................................................................... 398,678,119 -------------- End of period (includes undistributed net investment income of $40,689 and $95,443, respectively)......... $ 352,741,719 -------------- --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 21 FORTIS BOND FUNDS Statement of Changes in Net Assets STRATEGIC INCOME FUND
- -------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 1999 (UNAUDITED) -------------- OPERATIONS: Net investment income..................................................................................... $ 721,745 Net realized gain (loss) from security transactions....................................................... (345,430) Net change in unrealized appreciation (depreciation) of investments in securities......................... (311,275) -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................................ 65,040 -------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A................................................................................................. (690,494) Class B................................................................................................. (12,649) Class C................................................................................................. (7,173) Class H................................................................................................. (9,929) From net realized gains on investments Class A................................................................................................. (30,085) Class B................................................................................................. (701) Class C................................................................................................. (390) Class H................................................................................................. (510) -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (751,931) -------------- CAPITAL STOCK TRANSACTIONS: Proceeds from sale of shares Class A (77,581 and 2,153,816 shares)................................................................... 753,650 Class B (17,337 and 39,571 shares)...................................................................... 168,733 Class C (17,865 and 21,527 shares)...................................................................... 173,905 Class H (17,101 and 35,910 shares)...................................................................... 165,977 Proceeds from shares issued as a result of reinvested dividends Class A (72,981 and 90,745 shares)...................................................................... 709,149 Class B (1,048 and 500 shares).......................................................................... 10,188 Class C (606 and 327 shares)............................................................................ 5,890 Class H (675 and 466 shares)............................................................................ 6,533 Less cost of repurchase of shares Class A (40,559 and 13,789 shares)...................................................................... (392,217) Class B (2,930 and 490 shares).......................................................................... (28,563) Class C (8,118 and 2,560 shares)........................................................................ (78,375) Class H (7,543 and 1,074 shares)........................................................................ (73,199) -------------- NET INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS.......................................................... 1,421,671 -------------- TOTAL INCREASE IN NET ASSETS................................................................................ 734,780 NET ASSETS: Beginning of period....................................................................................... 23,368,872 -------------- End of period (includes undistributed net investment income of $1,500 and $0, respectively)............... $ 24,103,652 -------------- -------------- FOR THE PERIOD FROM NOVEMBER 10, 1997 (INCEPTION) TO JULY 31, 1998 -------------- OPERATIONS: Net investment income..................................................................................... $ 941,985 Net realized gain (loss) from security transactions....................................................... 30,984 Net change in unrealized appreciation (depreciation) of investments in securities......................... 53,650 -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................................ 1,026,619 -------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A................................................................................................. (921,146) Class B................................................................................................. (9,798) Class C................................................................................................. (4,082) Class H................................................................................................. (6,959) From net realized gains on investments Class A................................................................................................. -- Class B................................................................................................. -- Class C................................................................................................. -- Class H................................................................................................. -- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (941,985) -------------- CAPITAL STOCK TRANSACTIONS: Proceeds from sale of shares Class A (77,581 and 2,153,816 shares)................................................................... 21,553,816 Class B (17,337 and 39,571 shares)...................................................................... 401,612 Class C (17,865 and 21,527 shares)...................................................................... 218,059 Class H (17,101 and 35,910 shares)...................................................................... 363,277 Proceeds from shares issued as a result of reinvested dividends Class A (72,981 and 90,745 shares)...................................................................... 915,639 Class B (1,048 and 500 shares).......................................................................... 5,042 Class C (606 and 327 shares)............................................................................ 3,298 Class H (675 and 466 shares)............................................................................ 4,700 Less cost of repurchase of shares Class A (40,559 and 13,789 shares)...................................................................... (139,504) Class B (2,930 and 490 shares).......................................................................... (4,965) Class C (8,118 and 2,560 shares)........................................................................ (25,900) Class H (7,543 and 1,074 shares)........................................................................ (10,836) -------------- NET INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS.......................................................... 23,284,238 -------------- TOTAL INCREASE IN NET ASSETS................................................................................ 23,368,872 NET ASSETS: Beginning of period....................................................................................... -- -------------- End of period (includes undistributed net investment income of $1,500 and $0, respectively)............... $ 23,368,872 -------------- --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 22 FORTIS BOND FUNDS Statement of Changes in Net Assets HIGH YIELD PORTFOLIO
- -------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 1999 (UNAUDITED) -------------- OPERATIONS: Net investment income..................................................................................... $ 8,796,503 Net realized gain (loss) from security transactions....................................................... (7,156,812) Net change in unrealized depreciation of investments in securities........................................ (5,168,396) -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................. (3,528,705) -------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A................................................................................................. (4,668,622) Class B................................................................................................. (1,120,418) Class C................................................................................................. (308,196) Class H................................................................................................. (2,806,689) -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (8,903,925) -------------- CAPITAL STOCK TRANSACTIONS: Proceeds from sale of shares Class A (1,045,308 and 3,124,540 shares)................................................................ 7,292,475 Class B (299,918 and 1,886,435 shares).................................................................. 2,106,639 Class C (97,595 and 461,879 shares)..................................................................... 682,346 Class H (865,537 and 3,355,803 shares).................................................................. 6,085,827 Proceeds from shares issued as a result of reinvested dividends Class A (417,199 and 926,975 shares).................................................................... 2,899,737 Class B (74,338 and 145,568 shares)..................................................................... 516,245 Class C (35,904 and 77,721 shares)...................................................................... 248,926 Class H (191,474 and 410,889 shares).................................................................... 1,328,977 Less cost of repurchase of shares Class A (2,382,667 and 4,449,936 shares)................................................................ (16,643,590) Class B (519,610 and 729,969 shares).................................................................... (3,619,349) Class C (329,535 and 271,306 shares).................................................................... (2,274,729) Class H (1,408,142 and 2,136,681 shares)................................................................ (9,824,973) -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS............................................... (11,201,469) -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................................................................... (23,634,099) NET ASSETS: Beginning of period....................................................................................... 223,540,262 -------------- End of period (includes undistributed (excess of distributions over) net investment income of ($104,066) and $3,356, respectively)............................................................................... $ 199,906,163 -------------- -------------- FOR THE YEAR ENDED JULY 31, 1998 -------------- OPERATIONS: Net investment income..................................................................................... $ 20,443,789 Net realized gain (loss) from security transactions....................................................... 1,734,513 Net change in unrealized depreciation of investments in securities........................................ (13,573,415) -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................. 8,604,887 -------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A................................................................................................. (11,659,978) Class B................................................................................................. (2,254,300) Class C................................................................................................. (756,254) Class H................................................................................................. (6,409,279) -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (21,079,811) -------------- CAPITAL STOCK TRANSACTIONS: Proceeds from sale of shares Class A (1,045,308 and 3,124,540 shares)................................................................ 24,024,367 Class B (299,918 and 1,886,435 shares).................................................................. 14,502,208 Class C (97,595 and 461,879 shares)..................................................................... 3,563,413 Class H (865,537 and 3,355,803 shares).................................................................. 25,831,216 Proceeds from shares issued as a result of reinvested dividends Class A (417,199 and 926,975 shares).................................................................... 7,101,158 Class B (74,338 and 145,568 shares)..................................................................... 1,112,838 Class C (35,904 and 77,721 shares)...................................................................... 593,732 Class H (191,474 and 410,889 shares).................................................................... 3,141,131 Less cost of repurchase of shares Class A (2,382,667 and 4,449,936 shares)................................................................ (34,149,757) Class B (519,610 and 729,969 shares).................................................................... (5,594,388) Class C (329,535 and 271,306 shares).................................................................... (2,079,590) Class H (1,408,142 and 2,136,681 shares)................................................................ (16,360,883) -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS............................................... 21,685,445 -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................................................................... 9,210,521 NET ASSETS: Beginning of period....................................................................................... 214,329,741 -------------- End of period (includes undistributed (excess of distributions over) net investment income of ($104,066) and $3,356, respectively)............................................................................... $ 223,540,262 -------------- --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 23 FORTIS BOND FUND Notes to Financial Statements (Unaudited) - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The funds are open-end, diversified management investment companies, each of which has different investment objectives and their own investment portfolios and net asset values. U.S. Government Securities Fund ("U.S. Government") and Strategic Income Fund are series of Fortis Income Portfolios, Inc. ("Fortis Income") and Fortis High Yield Portfolio ("High Yield") is an investment portfolio in Fortis Advantage Portfolios, Inc. ("Fortis Advantage"). The investment objectives of each portfolio are as follows: - The objective of the U.S. Government Securities Fund is to maximize total return (from current income and capital appreciation), while providing shareholders with a level of current income consistent with prudent investment risk. - The objective of the Strategic Income Fund is to maximize total return (from current income and capital appreciation) by primarily investing in (a) U.S. Government securities, (b) investment and non-investment grade fixed income securities issued by foreign governments and companies, and (c) non-investment grade fixed income securities issued by U.S. issuers, which, in the opinion of the portfolio's investment adviser, do not subject the fund to unreasonable investment risk. - The objective of the Fortis High Yield Portfolio is to maximize total return (from current income and capital appreciation) with a focus on high current income by investing primarily in a diversified portfolio of high yielding, fixed income securities which, in the opinion of the 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. The U.S. Government Fund and Fortis High Yield Portfolio began to issue multiple class shares effective November 14, 1994. The inception of Strategic Income Fund was November 10, 1997, and the commencement of operations was December 1, 1997. Class A and E shares are sold with a front-end sales charge. For U.S. Government Fund, Class E shares are only available to existing shareholders on November 14, 1994. Class B and H shares are sold without a front-end sales charge and may be subject to a contingent deferred sales charge for six years, and such shares automatically convert to Class A after eight years. Class C shares are sold without a front-end sales charge and may be subject to a contingent deferred sales charge for one year. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that the level of distribution fees charged differs between classes. Income, expenses (other than expenses incurred under each class's distribution agreement) and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets. The significant accounting policies followed by the Funds are summarized as follows: SECURITY VALUATION: Investments in securities traded on a national securities exchange or on the NASDAQ National Market System are valued at the last reported sales price. Securities for which over-the-counter market quotations are readily available are valued on the basis of the last current bid price. An outside pricing service may be utilized to provide such valuations. For fixed income securities, the pricing service may employ electronic data processing techniques and/or a matrix system to determine valuations using methods which include consideration of yields or prices of bonds of comparable quality, type of issue, coupon, maturity and rating indications as to value from dealers, and general market conditions. Securities for which quotations are not readily available are valued at fair value as determined in good faith by management under supervision of the Board of Directors. Short-term investments, with maturities of less than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued at amortized cost. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS: Delivery and payment for securities that have been purchased by the funds on a forward commitment or when-issued basis can take place a month or more after the transaction date. During this period, such securities are subject to market fluctuation and the portfolio maintains, in a segregated account with its custodian, assets with a market value equal to the amount of its purchase commitments. As of January 31, 1999, U.S. Government Fund and Strategic Income Fund had entered into outstanding when-issued or forward commitments of $25,592,415 and $1,678,399, respectively. Consistent with its ability to purchase securities on a when-issued basis, the U.S. Government Fund and the Strategic Income Fund have entered into transactions to defer settlement of its purchase commitments. As an inducement to defer settlement, the portfolio repurchases a similar security for settlement at a later date at a lower purchase price relative to the current market. This transaction is referred to as a "dollar roll". SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions are accounted for on the trade date. Interest income is recorded on the accrual basis. Realized security gains and losses are determined using the identified cost method. Each fund amortizes original issue discount, long term bond premium, and market discount. For the period ended January 31, 1999, the cost of purchases and proceeds from sales of securities (other than short-term securities) were as follows:
Cost of Proceeds Purchases from Sales - -------------------------------------------------------------------------------- U.S. Government Securities Fund.............. $ 184,265,338 $ 170,735,599 Strategic Income Fund........................ 12,030,651 8,904,715 Fortis High Yield Portfolio.................. 41,404,068 50,358,559
LENDING OF PORTFOLIO SECURITIES: At January 31, 1999, securities valued at $77,949,099 were on loan to brokers from the U.S. Government Fund. For collateral, the Fund's custodian received 24 - -------------------------------------------------------------------------------- $80,437,018 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 $57,044 for the U.S. Government Fund for the six-month period ended January 31, 1999. 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. Organizational costs were incurred with the commencement of operations of the Strategic Income Fund. These costs will be amortized over 60 months on a straight line basis, beginning December 1, 1997. FEDERAL TAXES: The portfolios intend to qualify, under the Internal Revenue Code, as regulated investment companies and if so qualified, will not have to pay federal income taxes to the extent their taxable net income is distributed. Net investment income and net realized gains may differ for financial statement and tax purposes. The character of distributions made during the year from net investment income or net realized gains may, therefore, differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the portfolios. 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. For federal income tax purposes U.S. Government had a capital loss carryover of $65,049,930 and High Yield had $9,435,408 at July 31, 1998 , which, if not offset by subsequent capital gains, will expire in 1999 through 2007. 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 funds will generally make annual distributions of any realized capital gains as required by law. These income and capital gains distributions may be reinvested in additional shares of the fund at net asset value without any charge to the shareholder or payable in cash. ILLIQUID SECURITIES: At January 31, 1999, investments in securities for the Strategic Income Fund and High Yield Portfolio included issues that are illiquid. The funds currently limit investments in illiquid securities to 15% of net assets, at market value, at the date of purchase. The aggregate value of such securities at January 31, 1999, was $588,125 for Strategic Income and $12,979,623 for High Yield which represents 2.44% and 6.49% of net assets respectively. Pursuant to guidelines adopted by the Board of Directors, certain unregistered securities are determined to be liquid and are not included within the 15% limitation specified above. HIGH-YIELD DEBT SECURITIES: Although High Yield has a diversified Portfolio, the fund has 93.87% of total net assets invested in non-investment grade (high-yield) and comparable quality unrated high-yield securities. Participation in high-yielding securities transactions generally involves greater returns in the form of higher average yields. However, participation in such transactions involves greater risks, often related to sensitivity to interest rates, economic changes, solvency, and relative liquidity in the secondary trading market. Lower ratings may reflect a greater possibility that the financial condition of the issuer, or adverse changes in general economic conditions, or both, may impair the ability of the issuer to make payments of interest and principal. The prices and yields of lower rated securities generally fluctuate more than higher quality securities, and such prices may decline significantly in periods of general economic difficulty of rising interest rates. 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 U.S. Government, Strategic Income, and High Yield. In addition to the investment advisory and management fee, Classes A, B, C and H pay Fortis Investors, Inc., (the principal underwriter) distribution fees equal to .25% of average daily net assets for Class A for U.S. Government and Strategic Income and .35% of average daily net assets for Class A of High Yield and 1% of average daily net assets of U.S. Government, Strategic Income, and High Yield Classes B, C and H for each fund on an annual basis, to be used to compensate those who sell shares of the fund and to pay certain other expenses of selling fund shares. Fortis Investors, Inc., also received sales charges (paid by purchasers or redeemers of the fund's shares) as follows:
Class A Class B Class C Class H Class E - -------------------------------------------------------------------------------------------------------------- U.S. Government Securities Fund.............. $ 106,302 $ 1,995 $ 612 $ 19,437 $ 60,601 Strategic Income Fund........................ 10,082 17 103 1,149 0 Fortis High Yield Portfolio.................. 123,419 48,784 1,878 160,638 0
For the six-month period ended January 31, 1999, legal fees and expenses were paid to a law firm of which the secretary of the fund is a partner.
Amount - -------------------------------------------------------- U.S. Government Securities Fund.............. $5,722 Strategic Income Fund........................ 277 Fortis High Yield Portfolio.................. 3,327
25 FORTIS BOND FUND Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- 3. FINANCIAL HIGHLIGHTS: Selected per share historical data for each of the Portfolios was as follows:
Class E --------------------------------------------------------------------------------------- Year Ended July 31, --------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND 1999** 1998 1997 1996 1995 1994+ 1993++ - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 9.30 $ 9.16 $ 8.87 $ 9.02 $ 9.03 $ 9.87 $ 9.86 --------- --------- --------- --------- --------- --------- --------- Operations: Investment income - net................. .25 .52 .54 .60 .67 .42 .75 Net realized and unrealized gains (losses) on investments........................... .19 .14 .32 (.15) (.01) (.84) .05 --------- --------- --------- --------- --------- --------- --------- Total from operations................... .44 .66 .86 .45 .66 (.42) .80 --------- --------- --------- --------- --------- --------- --------- Distributions to shareholders: From investment income - net............ (.25) (.52) (.54) (.60) (.67) (.42) (.75) From net realized gains................. -- -- -- -- -- -- (.04) Excess distributions of net realized gains................................. -- -- (.03) -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Total distributions to shareholders..... (.25) (.52) (.57) (.60) (.67) (.42) (.79) --------- --------- --------- --------- --------- --------- --------- Net asset value, end of period.......... $ 9.49 $ 9.30 $ 9.16 $ 8.87 $ 9.02 $ 9.03 $ 9.87 --------- --------- --------- --------- --------- --------- --------- Total Return @.......................... 4.75% 7.42% 10.07% 5.08% 7.71% (4.29)% 8.31% Net assets end of period (000s omitted).............................. $ 286,820 $ 285,060 $ 324,643 $ 388,006 $ 470,597 $ 555,275 $ 641,977 Ratio of expenses to average daily net assets................................ .78%* .79% .81% .81% .77% .77%* .76% Ratio of net investment income to average daily net assets...................... 5.20%* 5.62% 6.08% 6.59% 7.51% 7.72%* 7.43% Portfolio turnover rate................. 50% 118% 161% 75% 76% 85% 157%
Class A ------------------------------------------------------- Year Ended January 31, ------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND 1999** 1998 1997 1996 1995+++ - -------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 9.30 $ 9.16 $ 8.87 $ 9.02 $ 8.63 -------- -------- -------- -------- ------- Operations: Investment income - net................. .24 .50 .52 .58 .46 Net realized and unrealized gains (losses) on investments........................... .19 .14 .32 (.15) .39 -------- -------- -------- -------- ------- Total from operations................... .43 .64 .84 .43 .85 -------- -------- -------- -------- ------- Distributions to shareholders: From investment income - net............ (.24) (.50) (.52) (.58) (.46) Excess distributions of net realized gains................................. -- -- (.03) -- -- -------- -------- -------- -------- ------- Total distributions to shareholders..... (.24) (.50) (.55) (.58) (.46) -------- -------- -------- -------- ------- Net asset value, end of period.......... $ 9.49 $ 9.30 $ 9.16 $ 8.87 $ 9.02 -------- -------- -------- -------- ------- Total Return @.......................... 4.62% 7.14% 9.77% 4.78% 10.07% Net assets end of period (000s omitted).............................. $ 53,091 $ 52,439 $ 59,128 $ 67,707 $4,909 Ratio of expenses to average daily net assets................................ 1.03%* 1.04% 1.06% 1.06% 1.02%* Ratio of net investment income to average daily net assets...................... 4.95%* 5.37% 5.83% 6.34% 7.00%* Portfolio turnover rate................. 50% 118% 161% 75% 76%
* Annualized. ** For the six-month period ended January 31, 1999. + For the seven-month period ended July 31, 1994. ++ For the year ended December 31, 1993. +++ For the period from November 14, 1994 (commencement of operations) to July 31, 1995. @ These are the fund's total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustments for sales charge. 26 - --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued): Class B -------------------------------------------------- Year Ended January 31, -------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND 1999** 1998 1997 1996 1995+++ - --------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 9.28 $ 9.14 $ 8.86 $ 9.02 $8.63 ------- ------- ------- ------- ------ Operations: Investment income - net................. .20 .43 .46 .51 .41 Net realized and unrealized gains (losses) on investments........................... .18 .14 .31 (.15) .39 ------- ------- ------- ------- ------ Total from operations................... .38 .57 .77 .36 .80 ------- ------- ------- ------- ------ Distributions to shareholders: From investment income - net............ (.20) (.43) (.47) (.52) (.41) Excess distributions of net realized gains................................. -- -- (.02) -- -- ------- ------- ------- ------- ------ Total distributions to shareholders..... (.20) (.43) (.49) (.52) (.41) ------- ------- ------- ------- ------ Net asset value, end of period.......... $ 9.46 $ 9.28 $ 9.14 $ 8.86 $9.02 ------- ------- ------- ------- ------ Total Return @.......................... 4.13% 6.40% 8.95% 4.00% 9.47% Net assets end of period (000s omitted).............................. $4,156 $ 3,161 $ 2,826 $ 2,314 $ 483 Ratio of expenses to average daily net assets................................ 1.78%* 1.79% 1.81% 1.81% 1.77%* Ratio of net investment income to average daily net assets...................... 4.19%* 4.62% 5.08% 5.45% 6.24%* Portfolio turnover rate................. 50% 118% 161% 75% 76%
Class C -------------------------------------------------- Year Ended January 31, -------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND 1999** 1998 1997 1996 1995+++ - --------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 9.27 $ 9.13 $ 8.85 $ 9.01 $8.63 ------- ------- ------- ------- ------ Operations: Investment income - net................. .20 .43 .46 .51 .41 Net realized and unrealized gains (losses) on investments........................... .18 .14 .31 (.15) .38 ------- ------- ------- ------- ------ Total from operations................... .38 .57 .77 .36 .79 ------- ------- ------- ------- ------ Distributions to shareholders: From investment income - net............ (.20) (.43) (.47) (.52) (.41) Excess distributions of net realized gains................................. -- -- (.02) -- -- ------- ------- ------- ------- ------ Total distributions to shareholders..... (.20) (.43) (.49) (.52) (.41) ------- ------- ------- ------- ------ Net asset value, end of period.......... $ 9.45 $ 9.27 $ 9.13 $ 8.85 $9.01 ------- ------- ------- ------- ------ Total Return @.......................... 4.13% 6.41% 8.96% 4.00% 9.35% Net assets end of period (000s omitted).............................. $1,842 $ 1,267 $ 1,444 $ 1,057 $ 326 Ratio of expenses to average daily net assets................................ 1.78%* 1.79% 1.81% 1.81% 1.77%* Ratio of net investment income to average daily net assets...................... 4.19%* 4.62% 5.07% 5.59% 6.24%* Portfolio turnover rate................. 50% 118% 161% 75% 76%
* Annualized. ** For the six-month period ended January 31, 1999. +++ For the period from November 14, 1994 (commencement of operations) to July 31, 1995. @ These are the fund's total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustments for sales charge. 27 FORTIS BOND FUND Notes to Financial Statements (Unaudited) (continued) - --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued): Class H ------------------------------------------------------- Year Ended January 31, ------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND 1999** 1998 1997 1996 1995+++ - -------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 9.28 $ 9.14 $ 8.86 $ 9.02 $ 8.63 -------- -------- -------- -------- ------- Operations: Investment income - net................. .20 .43 .46 .51 .41 Net realized and unrealized gains (losses) on investments........................... .18 .14 .31 (.15) .39 -------- -------- -------- -------- ------- Total from operations................... .38 .57 .77 .36 .80 -------- -------- -------- -------- ------- Distributions to shareholders: From investment income - net............ (.20) (.43) (.47) (.52) (.41) Excess distributions of net realized gains................................. -- -- (.02) -- -- -------- -------- -------- -------- ------- Total distributions to shareholders..... (.20) (.43) (.49) (.52) (.41) -------- -------- -------- -------- ------- Net asset value, end of period.......... $ 9.46 $ 9.28 $ 9.14 $ 8.86 $ 9.02 -------- -------- -------- -------- ------- Total Return @.......................... 4.13% 6.40% 8.94% 4.00% 9.47% Net assets end of period (000s omitted).............................. $ 11,434 $ 10,816 $ 10,637 $ 10,120 $4,823 Ratio of expenses to average daily net assets................................ 1.78%* 1.79% 1.80% 1.81% 1.77%* Ratio of net investment income to average daily net assets...................... 4.20%* 4.62% 5.08% 5.52% 6.24%* Portfolio turnover rate................. 50% 118% 161% 75% 76%
* Annualized. ** For the six-month period ended January 31, 1999. +++ For the period from November 14, 1994 (commencement of operations) to July 31, 1995. @ These are the fund's total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustments for sales charge. 28 - --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued): Class A Class B -------------------- ------------------ STRATEGIC INCOME FUND 1999** 1998+ 1999** 1998+ - ------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 10.05 $ 10.00 $10.05 $ 10.00 -------- -------- ------- ------- Operations: Investment gain - net................... .30 .42 .27 .38 Net realized and unrealized gain (loss) on investments........................... (.29) .05 (.29) .05 -------- -------- ------- ------- Total from Operations................... .01 .47 (.02) .43 -------- -------- ------- ------- Distributions to shareholders: From investment income - net............ (.30) (.42) (.27) (.38) From net realized gains on investments........................... (.01) -- (.01) -- -------- -------- ------- ------- Total distributions to shareholders..... (.31) (.42) (.28) (.38) -------- -------- ------- ------- Net asset value, end of period.......... $ 9.75 $ 10.05 $ 9.75 $ 10.05 -------- -------- ------- ------- Total Return @.......................... .22% 4.77% (0.16)% 4.31% Net assets end of period (000s omitted).............................. $ 22,834 $ 22,422 $ 537 $ 398 Ratio of expenses to average daily net assets................................ 1.10%* 1.10%* 1.85%* 1.85%* Ratio of net investment income to average daily net assets...................... 6.19%* 6.22%* 5.44%* 5.73%* Portfolio turnover rate................. 40% 136% 40% 136%
Class C Class H ------------------ ------------------ STRATEGIC INCOME FUND 1999** 1998+ 1999** 1998+ - ----------------------------------------------------------------------------------- Net asset value, beginning of period.... $10.05 $ 10.00 $10.05 $ 10.00 ------- ------- ------- ------- Operations: Investment gain - net................... .27 .38 .27 .38 Net realized and unrealized gain (loss) on investments........................... (.29) .05 (.29) .05 ------- ------- ------- ------- Total from Operations................... (.02) .43 (.02) .43 ------- ------- ------- ------- Distributions to shareholders: From investment income - net............ (.27) (.38) (.27) (.38) From net realized gains on investments........................... (.01) -- (.01) -- ------- ------- ------- ------- Total distributions to shareholders..... (.28) (.38) (.28) (.38) ------- ------- ------- ------- Net asset value, end of period.......... $ 9.75 $ 10.05 $ 9.75 $ 10.05 ------- ------- ------- ------- Total Return @.......................... (0.14)% 4.35% (0.16)% 4.35% Net assets end of period (000s omitted).............................. $ 289 $ 194 $ 444 $ 355 Ratio of expenses to average daily net assets................................ 1.85%* 1.85%* 1.85%* 1.85%* Ratio of net investment income to average daily net assets...................... 5.44%* 5.73%* 5.44%* 5.73%* Portfolio turnover rate................. 40% 136% 40% 136%
* Annualized. ** For the six-month period ended January 31, 1999. + For the period from December 1, 1997 (commencement of operations) to July 31, 1998. @ These are the funds total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustment for sales charge. 29 FORTIS BOND FUND Notes to Financial Statements (Unaudited) (continued) - --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued): Class A --------------------------------------------------------------------------------------- Year Ended July 31, --------------------------------------------------------------------------------------- HIGH YIELD FUND 1999** 1998 1997 1996+++ 1995+ 1994+ 1993+ - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 7.41 $ 7.83 $ 7.56 $ 7.61 $ 7.90 $ 8.65 $ 8.00 --------- --------- --------- --------- --------- --------- --------- Operations: Investment income - net................. .31 .73 .76 .56 .86 .86 .87 Net realized and unrealized gains (losses) on investments........................... (.40) (.40) .28 (.04) (.25) (.72) .68 --------- --------- --------- --------- --------- --------- --------- Total from operations................... (.09) .33 1.04 .52 .61 .14 1.55 --------- --------- --------- --------- --------- --------- --------- Distributions to shareholders: From investment income - net............ (.32) (.75) (.75) (.55) (.86) (.89) (.89) Excess distributions of net realized gains................................. -- -- (.02) (.02) (.04) -- (.01) --------- --------- --------- --------- --------- --------- --------- Total distributions to shareholders..... (.32) (.75) (.77) (.57) (.90) (.89) (.90) --------- --------- --------- --------- --------- --------- --------- Net asset value, end of period.......... $ 7.00 $ 7.41 $ 7.83 $ 7.56 $ 7.61 $ 7.90 $ 8.65 --------- --------- --------- --------- --------- --------- --------- Total return @.......................... (1.13%) 4.31% 14.51% 6.98% 8.07% 1.48% 20.33% Net assets end of period (000s omitted).............................. $ 100,830 $ 113,549 $ 123,115 $ 109,401 $ 113,268 $ 98,611 $ 73,395 Ratio of expenses to average daily net assets................................ 1.17%* 1.17% 1.19% 1.21%* 1.25% 1.23% 1.29% Ratio of net investment income to average daily net assets...................... 8.92%* 9.46% 9.84% 9.87%* 10.61% 10.18% 10.43% Portfolio turnover rate................. 21% 214% 331% 146% 101% 63% 95%
Class B ------------------------------------------------------- HIGH YIELD FUND 1999** 1998 1997 1996+++ 1995++ - -------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 7.41 $ 7.83 $ 7.56 $ 7.60 $ 7.87 -------- -------- -------- -------- ------- Operations: Investment income - net................. .28 .68 .71 .53 .78 Net realized and unrealized gains (losses) on investments........................... (.40) (.40) .28 (.04) (.23) -------- -------- -------- -------- ------- Total from operations................... (.12) .28 .99 .49 .55 -------- -------- -------- -------- ------- Distributions to shareholders: From investment income - net............ (.29) (.70) (.70) (.51) (.78) Excess distributions of net realized gains................................. -- -- (.02) (.02) (.04) -------- -------- -------- -------- ------- Total distributions to shareholders..... (.29) (.70) (.72) (.53) (.82) -------- -------- -------- -------- ------- Net asset value, end of period.......... $ 7.00 $ 7.41 $ 7.83 $ 7.56 $ 7.60 -------- -------- -------- -------- ------- Total return @.......................... (1.46%) 3.67% 13.80% 6.62% 7.25% Net assets end of period (000s omitted).............................. $ 26,322 $ 28,935 $ 20,388 $12,067 $7,530 Ratio of expenses to average daily net assets................................ 1.82%* 1.82% 1.83% 1.86%* 1.90%* Ratio of net investment income to average daily net assets...................... 8.27%* 8.81% 9.24% 9.20%* 9.66%* Portfolio turnover rate................. 21% 214% 331% 146% 101%
* Annualized ** For the six-month period ended January 31, 1999. + For the year ended October 31. ++ For the period from November 14, 1994 (commencement of operations) to October 31, 1995. +++ For the nine-month period ended July 31, 1996. @ These are the fund's total returns during the periods, including reinvestment of all dividends and capital gains distributions without adjustments for sales charge. 30 - --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued): Class C --------------------------------------------------- HIGH YIELD FUND 1999** 1998 1997 1996+++ 1995++ - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 7.40 $ 7.82 $ 7.55 $ 7.59 $ 7.87 ------- ------- ------- ------- ------- Operations: Investment income - net................. .28 .68 .71 .53 .78 Net realized and unrealized gains (losses) on investments........................... (.41) (.40) .28 (.04) (.24) ------- ------- ------- ------- ------- Total from operations................... (.13) .28 .99 .49 .54 ------- ------- ------- ------- ------- Distributions to shareholders: From investment income - net............ (.29) (.70) (.70) (.51) (.78) Excess distributions of net realized gains................................. -- -- (.02) (.02) (.04) ------- ------- ------- ------- ------- Total distributions to shareholders..... (.29) (.70) (.72) (.53) (.82) ------- ------- ------- ------- ------- Net asset value, end of period.......... $ 6.98 $ 7.40 $ 7.82 $ 7.55 $ 7.59 ------- ------- ------- ------- ------- Total return @.......................... (1.61%) 3.67% 13.82% 6.63% 7.12% Net assets end of period (000s omitted).............................. $6,791 $ 8,641 $ 7,037 $3,378 $2,180 Ratio of expenses to average daily net assets................................ 1.82%* 1.82% 1.83% 1.86%* 1.90%* Ratio of net investment income to average daily net assets...................... 8.27%* 8.81% 9.26% 9.21%* 9.83%* Portfolio turnover rate................. 21% 214% 331% 146% 101%
Class H -------------------------------------------------------- HIGH YIELD FUND 1999** 1998 1997 1996+++ 1995++ - --------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 7.40 $ 7.82 $ 7.55 $ 7.60 $ 7.87 -------- -------- -------- -------- -------- Operations: Investment income - net................. .28 .68 .71 .52 .78 Net realized and unrealized gains (losses) on investments........................... (.40) (.40) .28 (.04) (.23) -------- -------- -------- -------- -------- Total from operations................... (.12) .28 .99 .48 .55 -------- -------- -------- -------- -------- Distributions to shareholders: From investment income - net............ (.29) (.70) (.70) (.51) (.78) Excess distributions of net realized gains................................. -- -- (.02) (.02) (.04) -------- -------- -------- -------- -------- Total distributions to shareholders..... (.29) (.70) (.72) (.53) (.82) -------- -------- -------- -------- -------- Net asset value, end of period.......... $ 6.99 $ 7.40 $ 7.82 $ 7.55 $ 7.60 -------- -------- -------- -------- -------- Total return @.......................... (1.47%) 3.67% 13.82% 6.48% 7.25% Net assets end of period (000s omitted).............................. $ 65,963 $ 72,415 $ 63,789 $39,133 $ 23,862 Ratio of expenses to average daily net assets................................ 1.82%* 1.82% 1.83% 1.86%* 1.90%* Ratio of net investment income to average daily net assets...................... 8.27%* 8.81% 9.23% 9.21%* 9.81%* Portfolio turnover rate................. 21% 214% 331% 146% 101%
* Annualized ** For the six-month period ended January 31, 1999. ++ For the period from November 14, 1994 (commencement of operations) to October 31, 1995. +++ For the nine-month period ended July 31, 1996. @ These are the fund's total returns during the periods, including reinvestment of all dividends and capital gains distributions without adjustments for sales charge. 31 DIRECTORS AND OFFICERS DIRECTORS Richard W. Cutting CPA AND FINANCIAL CONSULTANT Allen R. Freedman CHAIRMAN AND CHIEF EXECUTIVE OFFICER, FORTIS, INC. MANAGING DIRECTOR OF FORTIS INTERNATIONAL, N.V. Dr. Robert M. Gavin PRESIDENT, CRANBROOK EDUCATION COMMUNITY. PRIOR TO JULY 1996, PRESIDENT MACALESTER COLLEGE Benjamin S. Jaffray CHAIRMAN, SHEFFIELD GROUP, LTD. Jean L. King PRESIDENT, COMMUNI-KING Dean C. Kopperud CHIEF EXECUTIVE OFFICER AND DIRECTOR, FORTIS ADVISERS, INC. PRESIDENT AND DIRECTOR, FORTIS INVESTORS, INC. PRESIDENT - FORTIS FINANCIAL GROUP, FORTIS BENEFITS INSURANCE COMPANY AND SENIOR VICE PRESIDENT, FORTIS INSURANCE COMPANY Edward M. Mahoney PRIOR TO JANUARY 1995, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, FORTIS ADVISERS, INC., FORTIS INVESTORS, INC. Robb L. Prince FINANCIAL AND EMPLOYEE BENEFIT CONSULTANT. PRIOR TO JULY 1995, VICE PRESIDENT AND TREASURER, JOSTENS, INC. Leonard J. Santow PRINCIPAL, GRIGGS & SANTOW, INC. Noel Shadko MARKETING CONSULTANT. PRIOR TO MAY 1996, SENIOR VICE PRESIDENT OF MARKETING & STRATEGIC PLANNING, ROLLERBLADE, INC. Joseph M. Wikler INVESTMENT CONSULTANT AND PRIVATE INVESTOR. PRIOR TO JANUARY 1994, DIRECTOR OF RESEARCH, CHIEF INVESTMENT OFFICER, PRINCIPAL, AND DIRECTOR, THE ROTHSCHILD CO. OFFICERS Dean C. Kopperud PRESIDENT AND DIRECTOR Robert W. Beltz, Jr. VICE PRESIDENT James S. Byrd VICE PRESIDENT Peggy L. Ettestad VICE PRESIDENT Tamara L. Fagely VICE PRESIDENT AND TREASURER Howard G. Hudson VICE PRESIDENT Dickson W. Lewis VICE PRESIDENT Lucinda S. Mezey VICE PRESIDENT David A. Peterson VICE PRESIDENT Scott R. Plummer VICE PRESIDENT Rhonda J. Schwartz VICE PRESIDENT Melinda S. Urion VICE PRESIDENT Gary N. Yalen VICE PRESIDENT Michael J. Radmer SECRETARY INVESTMENT MANAGER, REGISTRAR Fortis Advisers, Inc. AND TRANSFER AGENT BOX 64284, ST. PAUL, MINNESOTA 55164 PRINCIPAL UNDERWRITER Fortis Investors, Inc. BOX 64284, ST. PAUL, MINNESOTA 55164 CUSTODIAN U.S. Bank National Association MINNEAPOLIS, MINNESOTA GENERAL COUNSEL Dorsey & Whitney LLP MINNEAPOLIS, MINNESOTA INDEPENDENT AUDITORS KPMG Peat Marwick LLP MINNEAPOLIS, MINNESOTA The use of this material is authorized only when preceded or accompanied by a prospectus. 32 FORTIS FINANCIAL GROUP'S OTHER PRODUCTS AND SERVICES MUTUAL Fortis Bond Funds MONEY FUND FUNDS/PORTFOLIOS U.S. GOVERNMENT CONVENIENT ACCESS TO SECURITIES FUND A BROAD RANGE OF TAX-FREE NATIONAL SECURITIES PORTFOLIO TAX-FREE MINNESOTA PORTFOLIO STRATEGIC INCOME FUND HIGH YIELD PORTFOLIO Fortis Stock Funds ASSET ALLOCATION PORTFOLIO VALUE FUND GROWTH & INCOME FUND CAPITAL FUND GLOBAL GROWTH PORTFOLIO GROWTH FUND INTERNATIONAL EQUITY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO FIXED AND VARIABLE Fortis Opportunity Fixed FIXED ACCOUNT ANNUITIES & Variable Annuity MONEY MARKET SUBACCOUNT TAX-DEFERRED Masters Variable Annuity U.S. GOVERNMENT INVESTING SECURITIES SUBACCOUNT Empower Variable DIVERSIFIED INCOME Annuity SUBACCOUNT GLOBAL BOND SUBACCOUNT HIGH YIELD SUBACCOUNT GLOBAL ASSET ALLOCATION SUBACCOUNT ASSET ALLOCATION SUBACCOUNT VALUE SUBACCOUNT GROWTH & INCOME SUBACCOUNT S&P 500 INDEX SUBACCOUNT BLUE CHIP STOCK SUBACCOUNT INTERNATIONAL STOCK SUBACCOUNT MID CAP STOCK SUBACCOUNT SMALL CAP VALUE SUBACCOUNT GLOBAL GROWTH SUBACCOUNT LARGE CAP GROWTH SUBACCOUNT GROWTH STOCK SUBACCOUNT AGGRESSIVE GROWTH SUBACCOUNT Fortune Fixed Annuities SINGLE PREMIUM ANNUITY FLEXIBLE PREMIUM ANNUITY Income Annuities GUARANTEED FOR LIFE GUARANTEED FOR A SPECIFIED PERIOD LIFE Wall Street Series FIXED ACCOUNT INSURANCE PROTECTION Variable Universal Life MONEY MARKET SUBACCOUNT AND TAX-DEFERRED Insurance U.S. GOVERNMENT INVESTMENT SECURITIES SUBACCOUNT OPPORTUNITY DIVERSIFIED INCOME SUBACCOUNT GLOBAL BOND SUBACCOUNT HIGH YIELD SUBACCOUNT GLOBAL ASSET ALLOCATION SUBACCOUNT ASSET ALLOCATION SUBACCOUNT VALUE SUBACCOUNT GROWTH & INCOME SUBACCOUNT S&P 500 INDEX SUBACCOUNT BLUE CHIP STOCK SUBACCOUNT INTERNATIONAL STOCK SUBACCOUNT MID CAP STOCK SUBACCOUNT SMALL CAP VALUE SUBACCOUNT GLOBAL GROWTH SUBACCOUNT LARGE CAP GROWTH SUBACCOUNT GROWTH STOCK SUBACCOUNT AGGRESSIVE GROWTH SUBACCOUNT Adaptable Life Universal Life FORTIS FINANCIAL GROUP manages and distributes mutual funds, annuities and life insurance products. The mutual funds, variable life and variable annuity products are distributed through FORTIS INVESTORS, INC. and managed by FORTIS ADVISERS, INC. The insurance products are issued by FORTIS BENEFITS INSURANCE COMPANY, FIRST FORTIS LIFE INSURANCE COMPANY and FORTIS INSURANCE COMPANY. FOR MORE COMPLETE INFORMATION, INCLUDING CHARGES AND EXPENSES, SEND FOR A PROSPECTUS. WRITE TO: FORTIS INVESTORS, INC., P.O. BOX 64284, ST. PAUL, MN 55164. READ IT CAREFULLY BEFORE INVESTING OR SENDING MONEY. 33 [LOGO] FORTIS SOLID PARTNERS, FLEXIBLE SOLUTIONS-SM- - -------------------------------------------------------------------------------- FORTIS MEANS STEADFAST Fortis means "steadfast" in Latin. The worldwide Fortis family of companies lives up to the name, and has each day since the 1800s, with flexible solutions tailored to our customers' individual needs. We deliver the stability you require today ... and tomorrow. You can count on it. Fortis Financial Group offers mutual funds, annuities and life insurance through its broker/dealer Fortis Investors, Inc. We're part of Fortis, Inc., a financial services company that provides specialty insurance and investment products to individuals, businesses, associations and other financial services organizations throughout the United States. Fortis, Inc. is part of Fortis, a worldwide group of companies active in the fields of insurance, banking and investments. Fortis is jointly owned by Fortis AMEV of The Netherlands and Fortis AG of Belgium. Fortis: steadfast for YOU! FORTIS FINANCIAL GROUP Fortis Advisers, Inc. (fund management since 1949) Fortis Investors, Inc. (principal underwriter: member NASD, SIPC) Fortis Benefits Insurance Company & Fortis Insurance Company (issuers of FFG's insurance products) P.O. Box 64284, St. Paul, MN 55164 (800) 800-2000 http://www.ffg.us.fortis.com - -------------------------------------------------------------------------------- --------------- Bulk Rate FORTIS FINANCIAL GROUP U.S. Postage P.O. BOX 64284 PAID ST. PAUL, MN 55164 Permit No. 3794 Minneapolis, MN --------------- FORTIS BOND FUNDS Printed on recycled paper with [LOGO] 40% preconsumer waste and 10% post consumer waste. Please recycle. The Fortis logo and Fortis-Registered Trademark- are registered servicemarks of Fortis AMEV and Fortis AG. 98754 -Copyright-Fortis 3/99 -----END PRIVACY-ENHANCED MESSAGE-----