-----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, LIkFeUMsKzOJmELs1GUWfJ+MxEK5OA2Oshgw4C3pCrlEk+M5TtpYkkucsZy9hxfm ycm85/fCp2fnwgvigR1/IQ== 0000912057-00-013921.txt : 20000329 0000912057-00-013921.hdr.sgml : 20000329 ACCESSION NUMBER: 0000912057-00-013921 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000131 FILED AS OF DATE: 20000328 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: 580473 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: 580474 BUSINESS ADDRESS: STREET 1: PO BOX 64284 CITY: ST PAUL STATE: MN ZIP: 55164 BUSINESS PHONE: 6517384000 MAIL ADDRESS: STREET 1: PO BOX 64284 CITY: ST PAUL STATE: MN ZIP: 55164 FORMER COMPANY: FORMER CONFORMED NAME: AMEV ADVANTAGE PORTFOLIOS INC DATE OF NAME CHANGE: 19920203 N-30D 1 N-30D [LOGO] FORTIS Solid partners, flexible solutions-SM- Invest for today's needs, tomorrow's dreams Fortis bond funds semiannual report January 31, 2000 Fortis Financial Group FORTIS BOND FUNDS SEMIANNUAL REPORT CONTENTS LETTER TO SHAREHOLDERS 2 SCHEDULES OF INVESTMENTS U.S. GOVERNMENT SECURITIES FUND 5 STRATEGIC INCOME FUND 7 HIGH YIELD PORTFOLIO 11 STATEMENTS OF ASSETS AND LIABILITIES 15 STATEMENTS OF OPERATIONS 16 STATEMENTS OF CHANGES IN NET ASSETS U.S. GOVERNMENT SECURITIES FUND 17 STRATEGIC INCOME FUND 18 HIGH YIELD PORTFOLIO 19 NOTES TO FINANCIAL STATEMENTS 20 BOARD OF DIRECTORS AND OFFICERS 29 OTHER PRODUCTS AND SERVICES 30 - - TOLL-FREE PERSONAL ASSISTANCE - Shareholder Services - (800) 800-2000, Ext. 3012 - 7:30 a.m. to 5:30 p.m. CST, M-Th - 7:30 a.m. to 5:00 p.m. CST, F - - TOLL-FREE INFORMATION LINE - For daily account balances, transaction activity or net asset value information - (800) 800-2000, Ext. 4344 - 24 hours a day FOR MORE INFORMATION ABOUT FORTIS FINANCIAL GROUP'S FAMILY OF PRODUCTS, CALL YOUR INVESTMENT REPRESENTATIVE OR THE HOME OFFICE AT (800) 800-2000. TO ORDER PROSPECTUSES OR SALES LITERATURE FOR ANY FORTIS PRODUCT, CALL (800) 800-2000, EXT. 4579. HOW TO USE THIS REPORT For a quick overview of 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 chart shows the types of securities in which the fund invests, and the pie chart shows a breakdown of the fund's assets by sector or 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, 2000
CLASS A CLASS B CLASS C CLASS E CLASS H ------- ------- ------- ------- ------- U.S. GOVERNMENT SECURITIES FUND NET ASSET VALUE PER SHARE: Beginning of period........................ $ 8.96 $ 8.94 $ 8.93 $ 8.96 $ 8.94 End of period.............................. $ 8.74 $ 8.71 $ 8.70 $ 8.73 $ 8.71 DISTRIBUTIONS PER SHARE From net investment income................. $ .242 $ .210 $ .210 $ .254 $ .210 STRATEGIC INCOME FUND NET ASSET VALUE PER SHARE: Beginning of period........................ $ 9.14 $ 9.14 $ 9.15 -- $ 9.14 End of period.............................. $ 8.98 $ 8.98 $ 8.99 -- $ 8.98 DISTRIBUTIONS PER SHARE From net investment income................. $ .347 $ .311 $ .312 -- $ .312 HIGH YIELD PORTFOLIO NET ASSET VALUE PER SHARE: Beginning of period........................ $ 6.67 $ 6.67 $ 6.66 -- $ 6.66 End of period.............................. $ 6.45 $ 6.45 $ 6.44 -- $ 6.45 DISTRIBUTIONS PER SHARE From net investment income................. $ .280 $ .256 $ .256 -- $ .256
1 PORTFOLIO COMPOSITION BY SECTOR AS OF 1/31/2000 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC FNMA's 46.5% FHLMC's 16.2% Other Direct Federal Obligations 12.5% U.S. Treasury Securities 10.9% Cash Equivalents/Receivables 7.4% GNMA's 6.5%
TOP 10 HOLDINGS AS OF 1/31/2000
Percent of Bonds Net Assets - ------------------------------------------------------------------- 1. Federal Home Loan Bank (7.31%) 2004 11.1% 2. FNMA (6.00%) 2008 9.1% 3. FHLMC (5.00%) 2004 9.1% 4. U.S. Treasury Bond (8.00%) 2021 5.4% 5. FHLMC (6.25%) 2004 3.6% 6. U.S. Treasury Note Inflation-protection (3.625%) 2008 2.7% 7. FNMA (7.50%) 2027 2.6% 8. FNMA (7.184%) 2006 2.5% 9. FNMA (7.00%) 2030 2.4% 10. FNMA (6.50%) 2013 2.2%
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
Since 1 Year Inception+ - ----------------------------------------------------------------------- Class A shares# -2.95% +6.33% Class A shares## -7.32% +5.40% Class B shares# -3.69% +5.52% Class B shares## -6.97% +5.39% Class C shares# -3.69% +5.50% Class C shares## -4.61% +5.50% Class H shares# -3.69% +5.52% Class H shares## -6.97% +5.39%
Past performance is not indicative of future performance. Total returns include reinvestment of all dividend and capital gains distributions. The performance of the separate classes (A, B, C, E and H) will vary based on the differences in sales loads and distribution fees paid by shareholders investing in the different classes. Class E and A have a maximum sales charge of 4.50%, Class B and H have a CDSC of 4.00% if redeemed within two years of purchase, 3.00% if redeemed in year three or four, 2.00% if redeemed in year five and 1.00% if redeemed in year six (with a waiver of 10% of the amount 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, 2000. + Since November 14, 1994 -- Date shares were first offered to the public 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 economy closed out the millenium in grand style, posting a 5.75% annual GDP rate for the second half of the year -- the highest two-quarter growth rate of the current 9-year economic expansion. This growth was particularly impressive given the rise in interest rates that occurred during the six month period. Long rates rose another 0.40%, with the 30-Year U.S. Treasury yielding 6.50%. Short rates rose even more, with 2-Year U.S. Treasury yields rising almost 1.00% to 6.59%. The rise in rates and the inversion in the yield curve (rates of shorter maturities exceeding those of longer maturities) was primarily the result of the Federal Reserve's pre-emptive monetary policy. Despite benign inflation data (the December reading for Core CPI was 1.9% Year-Over-Year vs. 2.1% six months ago), the Fed has raised the Fed Funds rate 0.75% since July, including a .25% increase in February, 2000. Citing strong consumer demand, a diminishing pool of available workers, and rising equity prices, the Fed has made it clear that it will raise rates further if necessary to slow economic growth to its 3.0-3.5% target. Yield premiums for Mortgage Backed Securities (MBS) and Agency Debentures were virtually unchanged from July to January. They did, however, rise significantly toward the end of the third quarter, when the market anticipated greater issuance prior to Y2K. We added to our Non-Treasury investments overweight modestly at that time, taking advantage of the cheapening in both premium MBS and Agency Debentures. In addition, we repositioned the portfolio across the yield curve. Since we anticipated that tightening monetary policy would place the short end of the yield curve under continuous upward pressure and that long term rates would become not only less sensitive to short rate increases, but also be likely to stabilize or decline, we structured the portfolio to benefit from this circumstance. Accordingly, we reduced our exposure to the 3-7 year maturity range and increased the short term and long term (10+years) components, while maintaining a constant duration. This structure is commonly referred to as a barbell in bond portfolio management vernacular. A portfolio so structured gains the benefit of avoiding the part of the yield curve which suffers the most damage in a flattening yield curve. Finally, with the exception of some minor short-term tactical extensions, we remained duration neutral to our benchmark. For the six months ended January 31, 2000, the portfolio returned 0.23% for Class A shares before sales charge, which compares to 0.61% for the Lehman Intermediate Government Index. The Lehman Intermediate Government Index has a duration that is approximately 1.5 years shorter than the portfolio's proprietary benchmark, and should perform much better in a rising rate environment. Going forward, we expect that the Fed will raise short-term interest rates at least two more times in the first half of the year. We also expect the curve to remain inverted, as the Treasury starts retiring outstanding long term debt as part of its recently announced buyback program. Longer term, we believe that the Fed will successfully slow the economy to its non-inflationary growth rate, and that long interest rates will move back below 6%. As long as the market perceives that the Fed is in a tightening mode, however, we will remain cautious about the direction of interest rates. 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, 1990 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
LEHMAN BROTHERS U.S. GOVERNMENT INTERMEDIATE GOVERNMENT Index *** Securities Fund 2/1/90 10,000 9,550 91 11,138 10,731 92 12,459 11,819 93 13,701 12,985 94 14,694 13,995 95 14,529 13,270 96 16,495 15,214 97 17,086 15,671 98 18,575 17,237 99 19,980 18,532 00 19,912 18,013 U.S. GOVERNMENT SECURITIES FUND AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEAR 10 YEAR CLASS E * -7.18% +5.33% +6.06% CLASS E ** -2.80% +6.30% +6.55%
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. 2 PORTFOLIO COMPOSITION BY SECTOR AS OF 1/31/2000 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Foreign Bonds - Investment Grade 28.7% Corporate Bonds - Non-investment Grade 26.0% Foreign Bonds - Non-investment Grade 15.2% Corporate Bonds - Investment Grade 9.9% Cash Equivalents/Receivables 9.3% FNMAs 5.7% U.S. Treasury Securities 3.2% Asset Backed Securities 2.0%
TOP 10 HOLDINGS AS OF 1/31/2000
Percent of Bonds Net Assets - ------------------------------------------------------------------- 1. News America Holdings (8.875%) 2023 2.1% 2. Malaysia (8.75%) 2009 2.1% 3. 360 Communications ALLTEL Corp. (7.50%) 2006 2.0% 4. United Pan-Europe Communications (11.25%) 2009 2.0% 5. PTC International Finance II S.A (11.25%) 2009 2.0% 6. Poland (Republic of) (7.125%) 2004 2.0% 7. Corp Andina de Fomento (7.10%) 2003 2.0% 8. J.P. Morgan Commercial Mortgage Finance Corp. (7.48%) 2028 2.0% 9. YPF Sociedad Anonima (7.25%) 2003 2.0% 10. Sony Corp. (6.125%) 2003 2.0%
CLASS B, C AND H TOTAL RETURNS
Since 1 Year Inception+ - --------------------------------------------------------------- Class B shares # -1.82% +1.03% Class B shares ## -5.10% -0.05% Class C shares # -1.64% +1.10% Class C shares ## -2.56% +1.10% Class H shares # -1.81% +1.05% Class H shares ## -5.09% -0.03%
Past performance is not indicative of future performance. Total returns include reinvestment of all dividend and capital gains distributions. The performance of the separate classes (A, B, C, and H) will vary based on the differences in sales loads and distribution fees paid by shareholders investing in the different classes. Class A has a maximum sales charge of 4.50%, Class B and H have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if redeemed in year three or four, 2.00% if redeemed in year five and 1.00% if redeemed in year six (with a waiver of 10% of the amount invested). Class C has a CDSC of 1.00% if redeemed within one year of purchase. # Without CDSC. ## With CDSC. Assumes redemption on January 31, 2000. + Since December 1, 1997 -- Date shares were first offered to the public YOUR STRATEGIC INCOME FUND THE FUND'S INVESTMENT OBJECTIVE IS TO MAXIMIZE TOTAL RETURN (FROM CURRENT INCOME AND CAPITAL APPRECIATION) BY PRIMARILY INVESTING IN A DIVERSIFIED PORTFOLIO OF U.S. GOVERNMENT SECURITIES, INVESTMENT AND NON-INVESTMENT GRADE BONDS ISSUED BY FOREIGN GOVERNMENTS AND COMPANIES, AND NON-INVESTMENT GRADE BONDS ISSUED BY U.S. COMPANIES. The six-month period ended January 31, 2000, saw a continuation of the upward trend in interest rates. Consecutive quarters of 5+ percent GDP growth, tight labor markets, and rising oil prices all contributed to the rise in rates, as 30-Year Treasury yields rose from 6.10% to 6.50%. 2-Year yields rose even more, from 5.62% to 6.59%, as the Federal Reserve raised the Fed Funds rate 0.50% since our last correspondence (the Fed raised rates another 0.25% to 6.00% prior to this mailing.) The yield premiums on Non-Treasury issues increased through the summer, peaking in mid-September on fears of increased issuance prior to Y2K. We took advantage of the spread widening, adding almost 4% (to 41.2%) to our Non-Investment Grade securities exposure. This helped the portfolio's performance, as issuance was much lower than expected and yield premiums have fallen significantly since then. We also selectively increased our foreign holdings. We currently have almost 44% in non-U.S. exposure, as we believe that the global recovery, especially in Latin America, is now on a more solid footing. In terms of interest rate exposure, we remained duration neutral to our benchmark for the last six-months. Despite the absence of inflation, we recognized that the Fed would continue to be pre-emptive, and felt this would prevent an appreciable drop in the level of rates. For the six month period ended January 31, 2000, the fund produced a 2.07% return for Class A shares before sales charge, compared to 0.66% for the Lehman Aggregate, and 1.40% average return of the fund's competition as defined by Morningstar. Going forward, we believe that technology-driven productivity gains will prevent a marked increase in inflation, and that current rates will prove to be attractive over the long term. However, until the Fed raises short rates enough to slow the economy to its 3.0%-3.5% GDP target, we will remain cautious on interest rates. Furthermore, as the Fed engineers an economic "soft landing", we expect yield premiums on non-Treasury securities to continue to drift lower. Finally, we anticipate that the yield curve will remain inverted (rates on shorter maturity Treasuries exceed those of longer maturity Treasuries.) The combination of the Fed raising short rates and the Treasury shortening the maturity of its outstanding debt through a buyback program, the supply/demand dynamics favor the long end of the Treasury curve. Sincerely, /s/ Dean C. Kopperud /s/ Howard G. Hudson Dean C. Kopperud Howard G. Hudson President Vice President
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 98 10,230 9,801 10,067 99 11,056 10,001 11,390 0 10,852 9,894 10,771 STRATEGIC INCOME FUND AVERAGE ANNUAL TOTAL RETURN SINCE 1 YEAR DECEMBER 1, 1997@ CLASS A* -5.52% -0.37% CLASS A** -1.06% +1.77%
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. 3 PORTFOLIO COMPOSITION BY INDUSTRY AS OF 01/31/2000 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Telecommunications 25.2% Other 19.2% Cable Television 17.3% Broadcasting 6.7% Entertainment 6.2% Telephone Services 4.9% Automobile and Motor Vehicle Parts 4.2% Chemicals 3.6% Health Care Services 3.5% Printing 3.5% Cash Equivalents/Receivable 3.2% Waste Disposal 2.5%
TOP 10 HOLDINGS AS OF 1/31/2000
Percent of Bonds Net Assets - ------------------------------------------------------------------- 1. United Pan-Europe Communication, (11.25%) 2009 2.6% 2. Splitrock Services, Inc. (11.75%) 2008 2.4% 3. ITC Deltacom, Inc. (11.00%) 2007 2.3% 4. Williams Communications Group, Inc. (10.875%) 2009 2.2% 5. United International Holdings (12.31%) 2008 2.0% 6. Isle of Capri Casinos (8.75%) 2009 1.9% 7. Olympus Communication L.P. (10.625%) 2006 1.9% 8. Argosy Gaming Co. (10.75%) 2009 1.9% 9. Young Broadcasting Corp. (11.75%) 2004 1.8% 10. Charter Communications Holdings LLC (9.92%) 2011 1.8%
CLASS B, C AND H AVERAGE ANNUAL TOTAL RETURNS
Since 1 Year Inception+ - --------------------------------------------------------------- Class B shares # -0.43% +5.53% Class B shares ## -3.70% +5.43% Class C shares # -0.28% +5.51% Class C shares ## -1.20% +5.51% Class H shares # -0.28% +5.53% Class H shares ## -3.56% +5.43%
Past performance is not indicative of future performance. Total returns include reinvestment of all dividend and capital gains distributions. The performance of the separate classes (A, B, C, and H) will vary based on the differences in sales loads and distribution fees paid by shareholders investing in the different classes. Class A has a maximum sales charge of 4.50%, Class B and H have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if redeemed in year three or four, 2.00% if redeemed in year five and 1.00% if redeemed in year six (with a waiver of 10% of the amount invested). Class C has a CDSC of 1.00% if redeemed within one year of purchase. # Without CDSC. ## With CDSC. Assumes redemption on January 31, 2000. + 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 The six-month period ended January 31, 2000, was a challenging period for the fixed income markets. By mid-year 1999 the financial markets had largely concluded the healing process which began in the aftermath of a global financial crisis in 1998. In the fourth quarter of 1998, the Federal Reserve cut interest rates three times and added liquidity to the financial system. These emergency measures helped stabilize the high yield market early in 1999, and set the stage for a potential recovery to more normal levels. However, attempts by the bond market to move higher were short-lived as the Federal Reserve reversed course mid-year 1999 and started raising rates again. Since investor confidence had been restored and a global recovery appeared underway, the Federal Reserve tightened monetary policy to preemptively deter inflation. Despite a significant increase in interest rates during the second half of 1999, the portfolio returned 0.94% for Class A shares before sales charge, outperforming the average high yield fund return of 0.34%, according to Lipper Analytic Services, the Lehman Brothers High Yield Index return of -0.64% and the Chase Securities Global High Yield Index return of 0.03%. By the second half of 1999, corporate issuers and investors alike began to focus on calendar year-end and the potential implications of "Y2K". Corporations sought to provide for year-end funding needs in advance, creating a temporary bulge in supply, while investors sought incremental safety in their investment portfolios. The downward pressure exerted by these trends caused a decline in high yield bond prices, which offset the interest income earned during the period. The net effect was a flat second half for the high yield market. The Fund's performance for the six-months ended January 31, 2000, was enhanced by its heavy exposure to top-performing sectors such as cable, communications and media. The Fund's performance was held back by our holdings in higher-quality bonds, which tend to be more interest rate sensitive and, therefore generally under-perform when interest rates climb higher. Our minimal exposure to bonds rated CCC or below also helped the fund as a rising market default rate caused lower rated issues to underperform. Outlook: For the coming year, we expect the US economy to decelerate, in part due to the drag on the economy caused by higher short-term interest rates. While the economy is strong and resilient, the labor markets are tight, natural resource prices are firming and wages are creeping upward. This will likely cause the Federal Reserve to continue to raise short-term interest rates, moderately slowing the economy but preventing excesses from building up in the nation's economic and financial systems. Our Fund is well positioned for such an environment with a high quality bias and a focus on industry sectors that tend to generate stable cash flows. In view of the recent increase in bond yields, we feel the high yield market represents good fundamental value and offers investors the potential for attractive returns. 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, 1990 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
LEHMAN BROTHERS HIGH YIELD PORTFOLIO HIGH YIELD INDEX*** CLASS A 2/1/90 10,000 9,550 91 9,493 8,300 92 13,982 13,180 93 16,089 14,997 94 18,708 18,332 95 18,367 17,332 96 21,976 19,656 97 24,282 21,640 98 27,605 23,884 99 28,034 23,763 00 28,162 23,831 HIGH YIELD PORTFOLIO CLASS A AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEAR 10 YEAR CLASS A* -4.22% +5.60% +9.07% CLASS A** +0.29% +6.58% +9.58%
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. 4 FORTIS BOND FUNDS U.S. GOVERNMENT SECURITIES FUND Schedule of Investments January 31, 2000 (Unaudited) U.S. GOVERNMENT SECURITIES-92.61% - --------------------------------------------------------------------------------
Principal Market Amount Cost (a) Value (b) ----------- ------------ ------------ FEDERAL HOME LOAN MORTGAGE CORPORATION - 16.24% MORTGAGE BACKED SECURITIES: $2,216,789 8.00% 2001-2002.............................. $ 2,272,209 $ 2,225,372 1,295,244 9.00% 2001-2022.............................. 1,374,370 1,338,894 67,411 10.50% 2015.................................. 72,488 71,807 171,505 11.25% 2013-2014............................. 183,125 184,517 390,797 11.50% 2015-2019............................. 423,134 423,523 407,599 11.75% 2010-2014............................. 448,943 443,965 97,508 12.50% 2019.................................. 104,002 107,989 ------------ ------------ 4,878,271 4,796,067 ------------ ------------ NOTES: 25,450,000 5.00% 2004................................... 23,676,302 23,546,238 4,900,000 5.75% 2008................................... 4,422,538 4,424,940 9,825,000 6.25% 2004................................... 9,521,506 9,460,217 ------------ ------------ 37,620,346 37,431,395 ------------ ------------ TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION................................ 42,498,617 42,227,462 ------------ ------------ FEDERAL NATIONAL MORTGAGE ASSOCIATION - 46.55% MORTGAGE BACKED SECURITIES: 2,964,157 5.835% 2008.................................. 2,996,282 2,668,168 2,389,493 5.85% 2009................................... 2,389,915 2,149,681 15,227,510 6.00% 2014-2029.............................. 14,664,435 14,115,124 1,435,902 6.01% 2009................................... 1,462,661 1,305,515 2,920,683 6.36% 2008................................... 2,916,732 2,735,681 4,584,644 6.48% 2008................................... 4,623,464 4,325,781 32,585,011 6.50% 2013-2029.............................. 32,009,482 30,600,850 1,420,086 6.54% 2007................................... 1,442,390 1,344,411 1,914,369 6.63% 2005................................... 1,959,817 1,842,240 12,078,117 7.00% 2003-2030 (e).......................... 11,732,927 11,552,110 6,613,556 7.184% 2006.................................. 6,541,633 6,504,387 10,381,849 7.50% 2027-2030 (e).......................... 10,508,841 10,129,585 382,117 8.00% 2025................................... 365,757 381,188 441,935 8.50% 2022................................... 462,487 449,837 48,621 9.00% 2020................................... 48,150 50,290 577,980 9.75% 2020................................... 623,496 607,898 500,253 10.00% 2020.................................. 545,745 530,462 440,011 10.50% 2012-2018............................. 478,637 468,060 150,705 10.75% 2013.................................. 155,226 161,556 1,314,360 11.00% 2015-2020............................. 1,426,845 1,412,144 242,220 11.25% 2013.................................. 254,331 262,876 83,993 11.50% 2015.................................. 89,696 91,025 156,529 12.00% 2011-2016............................. 166,708 171,709 358,022 12.50% 2015.................................. 400,322 400,876 ------------ ------------ 98,265,979 94,261,454 ------------ ------------ NOTES: 25,720,000 6.00% 2008................................... 23,628,902 23,601,469 3,150,000 6.70% 2002................................... 3,182,300 3,129,311 ------------ ------------ 26,811,202 26,730,780 ------------ ------------ TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION................................ 125,077,181 120,992,234 ------------ ------------ GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 6.45% MORTGAGE BACKED SECURITIES: 5,822,968 7.00% 2024................................... 5,747,545 5,540,647 1,546,088 8.00% 2017-2022.............................. 1,578,336 1,542,509 1,155,046 9.00% 2022................................... 1,192,585 1,200,473 7,770,767 9.50% 2016-2019.............................. 8,131,659 8,190,910
5 FORTIS BOND FUNDS U.S. GOVERNMENT SECURITIES FUND (CONTINUED) Schedule of Investments January 31, 2000 (Unaudited) U.S. GOVERNMENT SECURITIES-CONTINUED - --------------------------------------------------------------------------------
Principal Market Amount Cost (a) Value (b) ----------- ------------ ------------ $ 278,852 11.00% 2015-2018............................. $ 300,303 $ 304,367 ------------ ------------ TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION................................ 16,950,428 16,778,906 ------------ ------------ OTHER DIRECT FEDERAL OBLIGATIONS - 12.48% FEDERAL HOME LOAN BANK: 2,325,000 6.625% 2007.................................. 2,397,731 2,233,109 1,500,000 6.995% 2007.................................. 1,580,623 1,475,522 28,650,000 7.31% 2004................................... 28,568,056 28,728,013 ------------ ------------ TOTAL OTHER DIRECT FEDERAL OBLIGATIONS....... 32,546,410 32,436,644 ------------ ------------ U.S. TREASURY SECURITIES - 10.89% BONDS: 15,500,000 6.96% Zero Coupon Strip 2019 (d)............. 4,217,237 4,535,750 12,100,000 8.00% 2021................................... 13,634,255 13,911,225 ------------ ------------ 17,851,492 18,446,975 ------------ ------------ NOTES: 7,292,110 3.625% Inflation-protection 2008 (f)......... 6,922,880 6,957,132 1,400,000 5.50% 2003................................... 1,380,162 1,350,563 1,600,000 6.125% 2007.................................. 1,598,915 1,541,501 ------------ ------------ 9,901,957 9,849,196 ------------ ------------ TOTAL U.S. TREASURY SECURITIES............... 27,753,449 28,296,171 ------------ ------------ TOTAL U.S. GOVERNMENT SECURITIES............. $244,826,085 $240,731,417 ============ ============
SHORT-TERM INVESTMENTS-6.74% - --------------------------------------------------------------------------------
Principal Market Amount Value (b) ----------- ------------ INVESTMENT COMPANY-4.05% $10,525,350 First American Treasury Obligations Fund, Current rate -- 5.04%...................... $ 10,525,350 ------------ U.S. GOVERNMENT AGENCY-1.92% 1,000,000 Federal National Mortgage Association, 5.46%, 2-2-2000................................... 999,701 4,000,000 Federal Home Loan Mortgage Corp., 5.61%, 2-15-2000.................................. 3,990,800 ------------ 4,990,501 ------------ U.S. OTHER DIRECT FEDERAL OBLIGATIONS-0.77% 2,000,000 Federal Home Loan Bank, 5.49%, 2-11-2000..... 1,996,700 ------------ TOTAL SHORT-TERM INVESTMENTS................. 17,512,551 ------------ TOTAL INVESTMENTS IN SECURITIES (COST: $262,338,636)(A)........................... $258,243,968 ============
(a) At January 31, 2000, the cost of securities for federal income tax purposes was $262,434,824 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation..................................... $ 983,259 Unrealized depreciation..................................... (5,174,115) - -------------------------------------------------------------------------- Net unrealized depreciation................................. $ (4,190,856) - --------------------------------------------------------------------------
(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, 2000, was $9,660,969. (f) U.S. Treasury inflation-protection securities (TIPS) are securities in which the principal amount is adjusted for inflation and the semiannual interest payments equal a fixed percentage of the inflation-adjusted principal amount. 6 FORTIS BOND FUNDS STRATEGIC INCOME FUND Schedule of Investments January 31, 2000 (Unaudited) ASSET BACKED SECURITIES-1.98% - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (a) Value (b) --------- ----------- ----------- ----------- COMMERCIAL LOANS-1.98% $500,000 J.P. Morgan Commercial Mortgage Finance Corp., 7.48% Variable Rate Ser 1997-C4 Class B 12-26-2028 -- UNITED STATES........ AA $ 524,748 $ 486,870 ----------- -----------
CORPORATE BONDS-INVESTMENT GRADE-38.65% - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (a) Value (b) --------- ----------- ----------- ----------- AIRLINES-0.99% $250,000 Delta Air Lines, Inc., 7.70% Note 12-15-2005 -- UNITED STATES (f)............ BBB- $ 249,430 $ 243,176 ----------- ----------- BANKS-6.71% 250,000 ABN Amro Bank N.V., 7.55% Global Note 6-28-2006 -- UNITED STATES................. AA- 251,593 247,465 250,000 Banco Santiago S.A., 7.00% Yankee Sub Note 7-18-2007 -- CHILE......................... BBB 248,053 223,117 500,000 Bank Austria AG, 7.25% Sub Note 2-15-2017 -- AUSTRIA (f)................................ AA+ 519,680 464,550 500,000 Dresdner Funding Trust I, 8.151% Note 6-30-2031 -- UNITED STATES (d)............. A+ 500,000 468,231 250,000 LB Baden-Wuerttemberg, 7.625% Yankee Sub Note 2-1-2023 -- GERMANY........................ AAA 281,833 244,156 ----------- ----------- 1,801,159 1,647,519 ----------- ----------- CAPTIVE AUTO FINANCE-0.96% 250,000 Toyota Motor Credit, 5.625% Global Note 11-13-2003 -- UNITED STATES................ AAA 249,682 234,893 ----------- ----------- ELECTRONIC-MISCELLANEOUS-1.97% 500,000 Sony Corp., 6.125% Global Bond 3-4-2003 -- JAPAN...................................... A+ 499,308 483,481 ----------- ----------- FINANCIAL SERVICES-1.00% 250,000 Newcourt Credit Group, 7.125% Bond Ser A 12-17-2003 -- CANADA....................... A+ 249,477 244,918 ----------- ----------- FOREIGN-GOVERNMENT AGENCIES-0.98% 250,000 Korea Development Bank, 7.125% Global Note 4-22-2004 -- KOREA......................... BBB 248,418 240,017 ----------- ----------- FOREIGN-GOVERNMENT-7.79% 250,000 British Columbia (Province of), 6.50% Yankee Bond 1-15-2026 -- CANADA................... AA- 255,800 221,042 500,000 Generalitat de Catalunya, 6.25% Yankee Bond 12-15-2018 -- SPAIN........................ AA- 498,467 428,598 250,000 Korea (Republic of), 8.875% Global Bond 4-15-2008 -- KOREA......................... BBB 262,783 257,812 500,000 Malaysia, 8.75% Global Bond 6-1-2009 -- MALAYSIA................................... BBB 496,498 514,865 500,000 Poland (Republic of), 7.125% Yankee Note 7-1-2004 -- POLAND......................... BBB 500,819 490,000 ----------- ----------- 2,014,367 1,912,317 ----------- ----------- INDUSTRIAL-0.86% 250,000 Tyco International Group S.A., 6.875% Yankee Bond 1-15-2029 -- LUXEMBOURG............... A- 252,225 211,175 ----------- ----------- MEDIA-2.12% 500,000 News America Holdings, 8.875% Deb 4-26-2023 -- UNITED STATES................. BBB- 574,126 520,939 ----------- ----------- NATURAL GAS TRANSMISSIONS-1.85% 500,000 Trans-Canada Pipelines Ltd., 6.49% Yankee Bond 1-21-2009 -- CANADA................... A- 503,321 453,145 ----------- ----------- OIL-CRUDE PETROLEUM AND GAS-3.81% 500,000 Saga Petroleum ASA, 7.25% Yankee Deb 9-23-2027 -- NORWAY........................ A 508,343 450,251 500,000 YPF Sociedad Anonima, 7.25% Yankee Sr Note 3-15-2003 -- ARGENTINA..................... BBB- 499,470 485,375 ----------- ----------- 1,007,813 935,626 ----------- ----------- OIL-EQUIPMENT WELLS AND SERVICES-1.76% 500,000 Petroleum Geo-Services ASA, 7.125% Yankee Sr Note 3-30-2028 -- NORWAY................... BBB 498,578 431,699 ----------- ----------- SUPRA-NATIONAL-1.98% 500,000 Corp Andina de Fomento, 7.10% Yankee Bond 2-1-2003 -- VENEZUELA...................... A 501,627 487,139 ----------- -----------
7 FORTIS BOND FUNDS STRATEGIC INCOME FUND (CONTINUED) Schedule of Investments January 31, 2000 (Unaudited) CORPORATE BONDS-INVESTMENT GRADE-CONTINUED - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (a) Value (b) --------- ----------- ----------- ----------- TELECOMMUNICATIONS-3.06% $500,000 360 Communications ALLTEL Corp., 7.50% Sr Note 3-1-2006 -- UNITED STATES............. A $ 517,154 $ 497,794 250,000 Telecom Argentina Stet - France Telecom S.A., 9.75% Note 7-12-2001 -- ARGENTINA (d)...... BBB- 249,768 252,500 ----------- ----------- 766,922 750,294 ----------- ----------- TELEPHONE SERVICES-0.95% 250,000 Telecomunicaciones de Puerto Rico, 6.65% Note 5-15-2006 -- UNITED STATES................. BBB 249,915 233,871 ----------- ----------- UTILITIES-ELECTRIC-1.86% 500,000 Empresa Nacional de Electricidad S.A., 7.325% Yankee Bond 2-1-2037 -- CHILE.............. A- 497,131 456,201 ----------- ----------- TOTAL CORPORATE BONDS - INVESTMENT GRADE..... $10,163,499 $ 9,486,410 =========== ===========
CORPORATE BONDS-NON-INVESTMENT GRADE-41.19% - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (a) Value (b) --------- ----------- ----------- ----------- AUTOMOBILE AND MOTOR VEHICLE PARTS-2.01% $250,000 Holley Performance Products, Inc., 12.25% Sr Note 9-15-2007 -- UNITED STATES (f)........ B+ $ 242,590 $ 237,812 250,000 Tenneco Automotive, Inc., 11.625% Sr Sub Note 10-15-2009 -- UNITED STATES (f)............ B+ 250,647 255,312 ----------- ----------- 493,237 493,124 ----------- ----------- BANKS-1.01% 250,000 Sovereign Bancorp, 10.25% Sr Note 5-15-2004 -- UNITED STATES................. BB+ 250,000 247,500 ----------- ----------- BEVERAGE-1.01% 250,000 Coca-Cola Femsa S.A., 8.95% Yankee Note 11-1-2006 -- MEXICO........................ BB+ 253,456 248,750 ----------- ----------- BROADCASTING-1.88% 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 225,804 233,750 250,000 Sinclair Broadcast Group, Inc., 9.00% Sr Sub Note 7-15-2007 -- UNITED STATES............ B 250,964 227,500 ----------- ----------- 476,768 461,250 ----------- ----------- BUILDING EQUIPMENT-0.41% 100,000 Better Minerals & Aggregates, 13.00% Sr Sub Note 9-15-2009 -- UNITED STATES (f)........ B- 100,319 100,000 ----------- ----------- BUSINESS SERVICES-1.05% 250,000 Avis Rent A Car, Inc., 11.00% Sr Sub Note 5-1-2009 -- UNITED STATES.................. BB- 251,314 257,812 ----------- ----------- CABLE TELEVISION-5.17% 500,000 Charter Communications Holdings LLC, 9.92% Sr Disc Note 4-1-2011 (Zero coupon through 4-1-2004, thereafter 9.92%) -- UNITED STATES (e)................................. B+ 337,402 291,875 250,000 Telewest Communication plc, 8.62% Sr Disc Note 4-15-2009 (Zero coupon until 4-15-2004, thereafter 9.25%) -- UNITED KINGDOM (e)(f)............................. B+ 179,083 150,625 500,000 United International Holdings, 10.53% Sr Disc Note 2-15-2008 (Zero coupon through 2-15-2003, thereafter 10.75%) -- UNITED STATES (e)................................. B- 373,123 330,000 500,000 United Pan-Europe Communications, 11.25% Sr Note 11-1-2009 -- NETHERLANDS (f).......... B 497,540 496,250 ----------- ----------- 1,387,148 1,268,750 ----------- ----------- CHEMICALS-1.01% 250,000 Lyondell Chemical Co., 9.875% Sr Secured Note Ser B 5-1-2007 -- UNITED STATES............ BB 251,429 247,187 ----------- ----------- ENTERTAINMENT-1.75% 250,000 Circus Circus (Mandalay Resort Group), 7.625% Sr Sub Deb 7-15-2013 -- UNITED STATES...... BB+ 215,294 206,875 250,000 Isle of Capri Casinos, 8.75% Sr Sub Note 4-15-2009 -- UNITED STATES................. B 223,860 223,750 ----------- ----------- 439,154 430,625 ----------- ----------- FOREIGN-GOVERNMENT-6.15% 250,000 Argentina (Republic of), 11.375% Global Bond 1-30-2017 -- ARGENTINA..................... BB 282,203 237,500 250,000 Brazil (Republic of), 10.125% Global Bond 5-15-2027 -- BRAZIL........................ B+ 251,235 193,750
8 CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (a) Value (b) --------- ----------- ----------- ----------- $250,000 Brazil (Republic of), 11.625% Global Bond 4-15-2004 -- BRAZIL........................ B+ $ 247,950 $ 239,000 250,000 Panama (Republic of), 8.875% Global Bond 9-30-2027 -- PANAMA........................ BB+ 247,538 205,000 500,000 United Mexican States, 6.25% Secured Note Ser W-B 12-31-2019 -- MEXICO................... BB 379,728 386,927 250,000 United Mexican States, 9.875% Global Bond 1-15-2007 -- MEXICO........................ BB 261,423 247,750 ----------- ----------- 1,670,077 1,509,927 ----------- ----------- HEALTH CARE SERVICES-0.85% 125,000 Concentra Operating Corp., 13.00% Sr Sub Note 8-15-2009 -- UNITED STATES (f)............. B- 125,537 106,250 100,000 Unilab Finance Corp., 12.75% Sr Sub Note 10-1-2009 -- UNITED STATES (f)............. B- 97,711 101,500 ----------- ----------- 223,248 207,750 ----------- ----------- METALS-MINING AND MISCELLANEOUS-1.00% 250,000 AK Steel Corp., 9.125% Sr Note 12-15-2006 -- UNITED STATES.............................. BB 250,572 245,000 ----------- ----------- OIL-CRUDE PETROLEUM AND GAS-1.00% 250,000 Swift Energy Co., 10.25% Sr Sub Note 8-1-2009 -- UNITED STATES.................. B- 252,788 245,000 ----------- ----------- PAPER-1.02% 250,000 Packaging Corp. of America, 9.625% Sr Sub Note 4-1-2009 -- UNITED STATES............. B 257,577 250,938 ----------- ----------- RETAIL-GROCERY-2.03% 250,000 Big V Supermarkets, Inc., 11.00% Sr Sub Note Ser B 2-15-2004 -- UNITED STATES........... B- 257,689 245,313 250,000 Stater Brothers Holdings, 10.75% Sr Note 8-15-2006 -- UNITED STATES................. B+ 251,341 252,500 ----------- ----------- 509,030 497,813 ----------- ----------- TELECOMMUNICATIONS-9.87% 250,000 Global Crossing Holdings Ltd., 9.50% Sr Note 11-15-2009 -- UNITED STATES (f)............ BB 246,720 241,250 250,000 Intermedia Communications, Inc., 8.50% Sr Note Ser B 1-15-2008 -- UNITED STATES...... B 250,000 225,000 250,000 McLeodUSA, Inc., 8.125% Sr Note 2-15-2009 -- UNITED STATES.............................. B+ 250,000 225,000 250,000 Microcell Telecommunications, Inc., 12.52% Sr Disc Note 6-1-2006 (Zero coupon through 12-1-2001, thereafter 14.00%) -- CANADA (e)........................................ B3* 209,675 222,500 250,000 Nextlink Communications, 12.125% Sr Disc Note 12-1-2009 (Zero coupon through 12-1-2004, thereafter 12.125%) -- UNITED STATES (e)(f)..................................... B 141,905 141,250 350,000 Nuevo Grupo Iusacell S.A. de C.V., 14.25% Sr Note 12-1-2006 -- MEXICO (d)............... B+ 353,608 367,500 500,000 PTC International Finance II S.A., 11.25% Sr Sub Note 12-1-2009 -- LUXEMBOURG (d)....... B+ 493,633 495,000 250,000 RCN Corp., 10.125% Sr Note 1-15-2010 -- UNITED STATES.............................. B- 250,212 243,125 250,000 Splitrock Services, Inc., 11.75% Sr Sub Note Ser B 7-15-2008 -- UNITED STATES........... NR 251,779 264,375 ----------- ----------- 2,447,532 2,425,000 ----------- ----------- TELEPHONE SERVICES-2.97% 250,000 Alaska Communications SY, 9.375% Sr Sub Note 5-15-2009 -- UNITED STATES................. B+ 251,360 239,063 250,000 Level 3 Communications, Inc., 9.125% Sr Note 5-1-2008 -- UNITED STATES.................. B 249,408 231,875 250,000 Williams Communications Group, Inc., 10.875% Sr Note 10-1-2009 -- UNITED STATES......... BB- 248,876 257,500 ----------- ----------- 749,644 728,438 ----------- ----------- UTILITIES-ELECTRIC-1.00% 250,000 AES Corp., 9.50% Sr Note 6-1-2009 -- UNITED STATES..................................... BB 251,543 246,875 ----------- ----------- TOTAL CORPORATE BONDS - NON-INVESTMENT GRADE...................................... $10,514,836 $10,111,739 =========== ===========
U.S. GOVERNMENT SECURITIES-8.88% - --------------------------------------------------------------------------------
Principal Market Amount Cost (a) Value (b) ------------ ----------- ----------- FEDERAL NATIONAL MORTGAGE ASSOCIATION - 5.67% MORTGAGE BACKED SECURITIES: $ 486,356 6.30% 2008................................... $ 486,914 $ 454,014 259,324 6.48% 2008................................... 261,519 244,681 489,685 6.54% 2007................................... 497,376 463,590
9 FORTIS BOND FUNDS STRATEGIC INCOME FUND (CONTINUED) Schedule of Investments January 31, 2000 (Unaudited) U.S. GOVERNMENT SECURITIES-CONTINUED - --------------------------------------------------------------------------------
Principal Market Amount Cost (a) Value (b) ------------ ----------- ----------- $ 239,296 6.63% 2005................................... $ 244,977 $ 230,280 ----------- ----------- TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION................................ 1,490,786 1,392,565 ----------- ----------- U.S. TREASURY SECURITIES - 3.21% NOTES: 350,000 4.75% 2008................................... 304,607 304,610 350,000 6.125% 2007.................................. 349,763 337,203 ----------- ----------- 654,370 641,813 ----------- ----------- STRIPS: 500,000 7.00% Zero Coupon Strip 2019 (e)............. 134,982 146,315 ----------- ----------- TOTAL U.S. TREASURY SECURITIES............... 789,352 788,128 ----------- ----------- TOTAL U.S. GOVERNMENT SECURITIES............. 2,280,138 2,180,693 =========== =========== TOTAL LONG-TERM INVESTMENTS.................. $23,483,221 $22,265,712 =========== ===========
SHORT-TERM INVESTMENTS - 6.54% - --------------------------------------------------------------------------------
Principal Market Amount Value (b) ------------ ----------- BANK-2.56% $ 627,810 U.S. Bank N.A. Money Market Variable Rate Time Deposit, Current rate - 5.62%....................... $ 627,810 ----------- DIVERSIFIED FINANCE-1.95% 478,000 Associates Corp., Master Variable Rate Note, Current rate -- 5.43%...................... 478,000 ----------- U.S. GOVERNMENT AGENCY-2.03% 500,000 Federal National Mortgage Association, 5.46%, 2-2-2000................................... 499,851 ----------- TOTAL SHORT-TERM INVESTMENTS................. 1,605,661 =========== TOTAL INVESTMENTS IN SECURITIES (COST: $25,088,882) (A)........................... $23,871,373 ===========
(a) At January 31, 2000, the cost of securities for federal income tax purposes was $25,088,882 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation..................................... $ 112,994 Unrealized depreciation..................................... (1,330,503) - -------------------------------------------------------------------------- Net unrealized depreciation................................. $ (1,217,509) - --------------------------------------------------------------------------
(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 securities represents 28.68% of total net assets in investment grade securities and 15.17% of total net assets in non-investment grade securities. (d) 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 - --------------- ---------- -------- ---------- 1999 500,000 Dresdner Funding Trust I due 2031 - 144A $ 500,000 1999 350,000 Nuevo Grupo Iusacell S.A. de C.V. due 2006 - 144A 353,608 1999 500,000 PTC International Finance II S.A. due 2009 - 144A 493,633 1999 250,000 Telecom Argentina Stet due 2001 - 144A 249,768
The aggregate value of these securities at January 31, 2000, was $1,583,231, which represents 6.45% 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 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, 2000, was $2,537,975, which represents 10.34% of total net assets. * Moody's Rating 10 FORTIS BOND FUNDS HIGH YIELD PORTFOLIO Schedule of Investments January 31, 2000 (Unaudited) CORPORATE BONDS-NON-INVESTMENT GRADE-93.90% - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) ----------- ----------- ------------ ------------ APPAREL-1.58% $2,500,000 Hosiery Corp. of America, Inc., 13.75% Sr Sub Note 8-1-2002.............................. B- $ 2,604,216 $ 2,600,000 ------------ ------------ AUTOMOBILE AND MOTOR VEHICLE PARTS-4.15% 1,500,000 Dura Operating Corp., 9.00% Sr Sub Note 5-1-2009................................... B 1,508,639 1,383,750 2,250,000 Hayes Lemmerz International, Inc., 8.25% Sr Sub Note 12-15-2008........................ B 2,267,805 1,985,625 1,750,000 Holley Performance Products, Inc., 12.25% Sr Note 9-15-2007 (g)......................... B+ 1,698,127 1,664,687 1,750,000 Tenneco Automotive, Inc., 11.625% Sr Sub Note 10-15-2009 (g)............................. B+ 1,754,527 1,787,187 ------------ ------------ 7,229,098 6,821,249 ------------ ------------ BANKS-1.21% 2,000,000 Sovereign Bancorp, 10.50% Sr Note 11-15-2006................................. BB+ 2,000,000 1,990,000 ------------ ------------ BROADCASTING-6.65% 750,000 Ackerley Group, Inc., 9.00% Sr Sub Note 1-15-2009.................................. B 750,000 710,625 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 1,806,435 1,870,000 1,000,000 Shop at Home, Inc., 11.00% Sr Secured Note 4-1-2005................................... B 1,000,000 1,000,000 3,000,000 Sinclair Broadcasting Group, Inc., 10.00% Sr Sub Note 9-30-2005......................... B 3,078,379 2,917,500 1,500,000 Spanish Broadcasting Systems, 9.625% Sr Sub Note 11-1-2009............................. B- 1,497,749 1,455,000 2,885,000 Young Broadcasting Corp., 11.75% Sr Sub Note 11-15-2004................................. B 3,090,815 2,967,944 ------------ ------------ 11,223,378 10,921,069 ------------ ------------ BUILDING EQUIPMENT-1.22% 2,000,000 Better Minerals & Aggregates, 13.00% Sr Sub Note 9-15-2009 (g)......................... B- 2,006,373 2,000,000 ------------ ------------ BUSINESS SERVICES-1.26% 2,000,000 Avis Rent A Car, Inc., 11.00% Sr Sub Note 5-1-2009................................... BB- 2,010,573 2,062,500 ------------ ------------ CABLE TELEVISION-17.32% 3,000,000 Adelphia Communications, 9.375% Sr Note 11-15-2009................................. B+ 2,976,430 2,850,000 10,117,492 Australis Media Ltd., 14.00% Sr Disc Note 5-15-2003 (Zero coupon through 5-15-2000, thereafter 15.75%)(with warrants)(a) (e)(f)..................................... D 7,594,969 101 2,500,000 Century Communications Corp., 8.875% Sr Note 1-15-2007.................................. BB- 2,568,452 2,356,250 5,000,000 Charter Communications Holdings LLC, 9.92% Sr Disc Note 4-1-2011 (Zero coupon through 4-1-2004, thereafter 9.92%) (f)............ B+ 3,374,020 2,918,750 1,000,000 CSC Holdings, Inc., 10.50% Sr Sub Deb 5-15-2016.................................. BB- 1,014,083 1,107,500 2,000,000 Galaxy Telecom L.P., 12.375% Sr Sub Note 10-1-2005.................................. B- 2,151,902 2,105,000 1,000,000 Insight Midwest, 9.75% Sr Note 10-1-2009 (g)........................................ B+ 1,002,612 997,500 500,000 Mediacom LLC/Capital Corp., 7.875% Sr Note 2-15-2011.................................. B+ 450,744 428,750 2,000,000 Mediacom LLC/Capital Corp., 8.50% Sr Note 4-15-2008.................................. B+ 2,000,000 1,820,000 3,000,000 Olympus Communication L.P., 10.625% Sr Note 11-15-2006................................. B+ 3,000,000 3,105,000 2,500,000 Telewest Communication plc, 9.16% Sr Disc Note 4-15-2009 (Zero coupon through 4-15-2004, thereafter 9.25%) (f)(g)........ B+ 1,725,923 1,506,250 5,000,000 United International Holdings, 12.31% Sr Disc Note 2-15-2008 (Zero coupon through 2-15-2003, thereafter 10.75%) (f).......... B- 3,345,711 3,300,000 4,250,000 United Pan-Europe Communications, 11.25% Sr Note 11-1-2009 (g)......................... B 4,229,092 4,218,125 3,250,000 United Pan-Europe Communications, 13.75% Sr Disc Note 2-1-2010 (Zero coupon through 8-1-2005, thereafter 13.75%) (e)(f)........ B 1,672,732 1,730,625 ------------ ------------ 37,106,670 28,443,851 ------------ ------------ CHEMICALS-3.62% 1,750,000 Lyondell Chemical Co., 9.875% Sr Secured Note Ser B 5-1-2007............................. BB 1,743,452 1,730,312 2,500,000 NL Industries, Inc., 11.75% Sr Secured Note 10-15-2003................................. B 2,699,567 2,575,000 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- 2,795,630 1,640,000 ------------ ------------ 7,238,649 5,945,312 ------------ ------------ CONSUMER GOODS-1.17% 1,250,000 Chattem, Inc., 12.75% Sr Sub Note Ser B 6-15-2004.................................. B- 1,251,419 1,325,000 250,000 Scotts Co., 8.625% Sr. Sub Note 1-15-2009 (g)........................................ B+ 250,000 235,000 375,000 Windmere-Durable Holdings, 10.00% Sr Sub Note 7-31-2008.................................. B- 375,000 365,625 ------------ ------------ 1,876,419 1,925,625 ------------ ------------
11 FORTIS BOND FUNDS HIGH YIELD PORTFOLIO (CONTINUED) Schedule of Investments January 31, 2000 (Unaudited) CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) ----------- ----------- ------------ ------------ ENTERTAINMENT-6.20% $3,000,000 Argosy Gaming Co., 10.75% Sr Sub Note 6-1-2009................................... B $ 3,016,585 $ 3,097,500 1,500,000 Circus Circus (Mandalay Resort Group), 7.625% Sr Sub Deb 7-15-2013....................... BB+ 1,291,764 1,241,250 750,000 Florida Panthers Holdings, 9.875% Sr Sub Note 4-15-2009.................................. B- 754,700 693,750 3,500,000 Isle of Capri Casinos, 8.75% Sr Sub Note 4-15-2009.................................. B 3,519,697 3,132,500 2,000,000 Station Casinos, Inc., 10.125% Sr Sub Note 3-15-2006.................................. B+ 2,004,845 2,015,000 ------------ ------------ 10,587,591 10,180,000 ------------ ------------ FOOD-MISCELLANEOUS-0.97% 750,000 Agrilink Foods, Inc., 11.875% Sr Sub Note 11-1-2008.................................. B- 750,000 736,875 1,250,000 Fresh Foods, Inc., 10.75% Sr Sub Note 6-1-2006................................... B 1,250,000 850,000 ------------ ------------ 2,000,000 1,586,875 ------------ ------------ FOREIGN-GOVERNMENT-0.47% 1,000,000 United Mexican States, 6.25% Secured Note Ser W-B 12-31-2019............................. BB 759,457 773,853 ------------ ------------ FOREST PRODUCTS-0.91% 1,500,000 Stone Container Corp., 9.875% Sr Note 2-1-2001................................... B 1,511,735 1,500,000 ------------ ------------ HEALTH CARE SERVICES-3.45% 500,000 Concentra Operating Corp., 13.00% Sr Sub Note 8-15-2009 (g).............................. B- 502,147 425,000 2,000,000 Tenet Healthcare Corp., 8.625% Sr Sub Note 1-15-2007.................................. BB- 2,058,805 1,910,000 1,750,000 Triad Hospitals Holdings, 11.00% Sr Sub Note 5-15 -2009................................. B- 1,767,014 1,811,250 1,500,000 Unilab Finance Corp., 12.75% Sr Sub Note 10-1-2009 (g).............................. B- 1,484,531 1,522,500 ------------ ------------ 5,812,497 5,668,750 ------------ ------------ METALS-MINING AND MISCELLANEOUS-0.45% 750,000 AK Steel Corp., 9.125% Sr Note 12-15-2006.... BB 751,717 735,000 ------------ ------------ OIL-CRUDE PETROLEUM AND GAS-0.90% 500,000 Ocean Energy, Inc., 8.875% Sr Sub Note Ser B 7-15-2007.................................. BB- 500,411 490,000 1,000,000 Swift Energy Co., 10.25% Sr Sub Note 8-1-2009................................... B- 1,008,766 980,000 ------------ ------------ 1,509,177 1,470,000 ------------ ------------ OIL-OFFSHORE DRILLING-1.45% 2,250,000 RBF Finance Co., 11.375% Sr Secured Note 3-15-2009.................................. BB- 2,267,256 2,385,000 ------------ ------------ PAPER-1.22% 2,000,000 Packaging Corp. of America, 9.625% Sr Sub Note 4-1-2009.............................. B 2,012,937 2,007,500 ------------ ------------ PRINTING-3.50% 1,500,000 Cadmus Communication Corp., 9.75% Sr Sub Note 6-1-2009................................... B 1,507,915 1,455,000 1,500,000 Day International Group, Inc., 11.125% Sr Note 6-1-2005.............................. B 1,610,902 1,524,375 2,250,000 Mail-Well Corp., 8.75% Sr Sub Note 12-15-2008................................. B+ 2,268,628 2,058,750 750,000 Phoenix Color Corp., 10.375% Sr Sub Note 2-1-2009................................... B- 756,243 716,250 ------------ ------------ 6,143,688 5,754,375 ------------ ------------ RESTAURANTS AND FRANCHISING-1.10% 1,750,000 Sbarro, Inc., 11.00% Sr Note 9-15-2009 (g)... BB- 1,726,920 1,798,125 ------------ ------------ RETAIL-DISCOUNT STORES-0.93% 1,750,000 Kmart Corp., 7.95% Deb 2-1-2023.............. BB+ 1,534,015 1,527,955 ------------ ------------ RETAIL-GROCERY-0.92% 1,500,000 Stater Brothers Holdings, 10.75% Sr Note 8-15-2006.................................. B+ 1,508,045 1,515,000 ------------ ------------ TECHNOLOGY-1.22% 2,000,000 Fairchild Semiconductor, 10.375% Sr Sub Note 10-1-2007.................................. B 2,038,017 2,005,000 ------------ ------------ TELECOMMUNICATIONS-23.54% 1,250,000 Covad Communications Group, 12.00% Sr Note 2-15-2010 (e).............................. B- 1,250,116 1,256,250 1,500,000 Focal Communications Corp., 11.875% Sr Note 01-15-2010 (e)............................. B 1,489,989 1,541,250 3,000,000 Global Crossing Holdings Ltd., 9.50% Sr Note 11-15-2009 (g)............................. BB 2,960,643 2,895,000 3,500,000 GST Network Funding, Inc., 15.24% Sr Disc Note 5-1-2008 (Zero coupon through 5-1-2003, thereafter 10.50%) (f)........... NR 1,856,738 1,933,750 1,500,000 Hermes Europe Railtel B.V., 10.375% Sr Note 1-15-2009.................................. B 1,500,000 1,436,250 2,500,000 Hyperion Telecommunications, 12.25% Sr Note Ser B 9-1-2004............................. BB- 2,650,164 2,662,500 3,000,000 Intermedia Communications, Inc., 8.50% Sr Note Ser B 1-15-2008....................... B 3,015,566 2,700,000
12 CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED - --------------------------------------------------------------------------------
Standard Principal & Poor's Market Amount Rating Cost (b) Value (c) ----------- ----------- ------------ ------------ $2,000,000 Intermedia Communications, Inc., 9.03% Sr Disc Note 7-15-2007 (Zero coupon through 7-15-2002, thereafter 11.25%) (f).......... B $ 1,681,828 $ 1,515,000 3,625,000 ITC Deltacom, Inc., 11.00% Sr Note 6-1-2007................................... B 4,034,581 3,779,063 750,000 McLeodUSA, Inc., 8.125% Sr Note 2-15-2009.... B+ 754,925 675,000 1,000,000 Metromedia Fiber Network, Inc., 10.00% Sr Note 12-15-2009............................ B+ 993,817 1,002,500 1,500,000 Metromedia Fiber Network, Inc., 10.00% Sr Note Ser B 11-15-2008...................... B+ 1,514,643 1,503,750 2,000,000 Nextel Communications, Inc., 9.375% Sr Note 11-15-2009 (e)............................. B 1,987,830 1,922,500 2,750,000 Nextlink Communications, 10.50% Sr Note 12-1-2009 (g).............................. B 2,754,505 2,750,000 2,000,000 Nextlink Communications, 12.125% Sr Disc Note 12-1-2009 (Zero coupon through 12-1-2004, thereafter 12.125%) (f)(g)................. B 1,135,242 1,130,000 1,750,000 NTL Communications Corp., 12.375% Sr Note 10-1-2008 (Zero coupon through 10-1-2003, thereafter 12.375% (f)..................... B- 1,146,338 1,194,375 750,000 Nuevo Grupo Iusacell S.A. de C.V., 14.25% Sr Note 12-1-2006 (e)......................... B+ 777,060 787,500 1,400,000 Omnipoint Corp., 11.625% Sr Note Ser A 8-15-2006.................................. CCC+ 1,368,513 1,491,000 1,750,000 PSInet, Inc., 11.00% Sr Note 8-1-2009........ B- 1,778,038 1,793,750 750,000 RCN Corp., 10.125% Sr Note 1-15-2010......... B- 750,637 729,375 3,750,000 Splitrock Services, Inc., 11.75% Sr Sub Note Ser B 7-15-2008............................ NR 3,714,233 3,965,625 ------------ ------------ 39,115,406 38,664,438 ------------ ------------ TELEPHONE SERVICES-4.86% 2,000,000 Level 3 Communications, Inc., 9.125% Sr Note 5-1-2008................................... B 1,844,613 1,855,000 4,000,000 Telecorp PCS, Inc., 11.625% Sr Sub Note 4-15-2009 (Zero coupon through 4-15-2004, thereafter 11.625%) (f).................... NR 2,512,214 2,530,000 3,500,000 Williams Communications Group, Inc., 10.875% Sr Note 10-1-2009.......................... BB- 3,484,263 3,605,000 ------------ ------------ 7,841,090 7,990,000 ------------ ------------ UTILITIES-ELECTRIC-1.11% 2,000,000 AES Corp., 8.50% Sr Sub Note 11-1-2007....... BB 2,046,740 1,820,000 ------------ ------------ WASTE DISPOSAL-2.52% 2,000,000 IT Group, Inc., 11.25% Sr Sub Note 4-1-2009................................... B+ 2,016,820 1,910,000 2,125,000 Norcal Waste Systems, Inc., 13.50% Increasing Rate Sr Note 11-15-2005.................... BB- 2,125,000 2,236,563 ------------ ------------ 4,141,820 4,146,563 ------------ ------------ TOTAL CORPORATE BONDS - NON-INVESTMENT GRADE...................................... $166,603,484 $154,238,040 ============ ============
PREFERRED STOCKS-0.95% - --------------------------------------------------------------------------------
Market Shares Cost (b) Value (c) ---------- ------------ ------------ OIL-REFINING-0.95% 1,611,000 R&B Falcon Corp., 13.875% Cumm. Preferred 5-1-2009 (Dividend is payable in kind)..... $ 1,469,793 $ 1,563,781 ------------ ------------
COMMON STOCKS AND WARRANTS-1.94% - --------------------------------------------------------------------------------
Market Shares Cost (b) Value (c) ------- ------------ ------------ APPAREL-0.03% 1,250 Hosiery Corp. of America, Inc. Class A (a) (e)........................................ $ 21,150 $ 50,000 ------------ ------------ CABLE TELEVISION-0.00% 7,500 People's Choice T.V. Corp. (Warrants) (a) (e)........................................ 78 1 3,000 Wireless One, Inc. (Warrants) (a) (e)....... 23,493 30 ------------ ------------ 23,571 31 ------------ ------------ OIL-REFINING-0.23% 1,500 R & B Falcon Corp. (Warrants) (a) (g)........ 141,450 375,000 ------------ ------------
13 FORTIS BOND FUNDS HIGH YIELD PORTFOLIO (CONTINUED) Schedule of Investments January 31, 2000 (Unaudited) COMMON STOCKS AND WARRANTS-CONTINUED - --------------------------------------------------------------------------------
Market Shares Cost (b) Value (c) ------- ------------ ------------ PUBLISHING-0.00% 5,542 Marvel Enterprises, Inc. Class A (Warrants) (a)..................... $ 380,277 $ 2,078 9,387 Marvel Enterprises, Inc. Class C (Warrants) (a)..................... 1,288,210 2,347 ------------ ------------ 1,668,487 4,425 ------------ ------------ TELECOMMUNICATIONS-1.68% 1,000 Adelphia Business Solutions, Inc. (Warrants) (a) (e).................... 20,000 175,000 6,600 Clearnet Communications, Inc. (Warrants) (a) (e).................... 76,725 161,455 63,759 e.spire Communications, Inc. (Warrants) (a)........................ 618,165 673,454 750 Highwaymaster Communications, Inc. (Warrants) (a) (e).................... 13,125 11,250 12,800 Powertel, Inc. (Warrants) (a) (e)............ 94,118 1,001,715 3,750 Splitrock Service (Warrants) (a)............. 46,195 731,719 ------------ ------------ 868,328 2,754,593 ------------ ------------ TOTAL COMMON STOCKS AND WARRANTS............. 2,722,986 3,184,049 ============ ============ TOTAL LONG-TERM INVESTMENTS.................. $170,796,263 $158,985,870 ============ ============
SHORT-TERM INVESTMENTS-0.76% - --------------------------------------------------------------------------------
Principal Market Amount Value (c) --------- ------------ BANKS-0.26% $429,021 U.S. Bank N.A. Money Market Variable Rate Time Deposit, Current rate -- 5.62%........ $ 429,021 ------------ DIVERSIFIED FINANCE-0.50% 819,000 Associates Corp. Master Variable Rate Note, Current rate -- 5.43%...................... 819,000 ------------ TOTAL SHORT-TERM INVESTMENTS................. $ 1,248,021 ------------ TOTAL INVESTMENTS IN SECURITIES (COST: $172,044,284)(B)........................... $160,233,891 ============
(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, 2000, the cost of securities for federal income tax purposes was $172,044,284 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation..................................... $4,275,853 Unrealized depreciation..................................... (16,086,246) - ------------------------------------------------------------------------ Net unrealized depreciation................................. $(11,810,393) - ------------------------------------------------------------------------
(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 7.50% of net assets as of January 31, 2000. (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 - --------------- ---------- -------- ---------- 1999 1,000 Adelphia Business Solutions, Inc. (Warrants) $ 20,000 1996-1997 10,117,492 Australis Media Ltd. (with warrants) due 2003 7,594,969 1996 6,600 Clearnet Communications, Inc. (Warrants) - 144A 76,725 1999 1,250,000 Covad Communications Group due 2010 - 144A 1,250,116 2000 1,500,000 Focal Communications Corp. due 2010 - 144A 1,489,989 1997 750 Highwaymaster Communications, Inc. (Warrants) - 144A 13,125 1994 1,250 Hosiery Corp. of America, Inc. Class A - 144A 21,150 1999 2,000,000 Nextel Communications, Inc. due 2009 - 144A 1,987,830 2000 750,000 Nuevo Grupo Iusacell S.A. de C.V. due 2006 - 144A 777,060 1997 7,500 People's Choice T.V. Corp. (Warrants) 78 1997 12,800 Powertel, Inc. (Warrants) 94,118 1998 3,750 Splitrock Service (Warrants) 46,195 2000 3,250,000 United Pan-Europe Communications due 2010 - 144A 1,672,732 1996 3,000 Wireless One, Inc. (Warrants) 23,493
The aggregate value of these securities at January 31, 2000, was $9,369,396, which represents 5.70% 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, 2000, was $23,304,374, which represents 14.19% of total net assets. 14 FORTIS BOND FUNDS Statements of Assets and Liabilities (Unaudited) January 31, 2000 - --------------------------------------------------------------------------------
U.S. GOVERNMENT STRATEGIC SECURITIES INCOME HIGH YIELD FUND FUND PORTFOLIO --------------- --------- --------- ASSETS: Investments in securities, as detailed in the accompanying schedules, at market (cost $262,338,636; $25,088,882; and $172,044,284; respectively) (Note 1)........................ $258,243,968 $23,871,373 $160,233,891 Collateral for securities lending transactions (Note 1)...................................... 35,468,218 -- -- Receivables: Investment securities sold.................... 10,180,258 205,000 1,026,750 Interest and dividends........................ 1,937,668 453,369 3,729,884 Subscriptions of capital stock................ -- 1,784 14,187 Deferred registration costs (Note 1)............ 31,141 26,369 21,100 Deferred organizational costs (Note 1).......... -- 18,398 -- Prepaid expenses................................ 3,934 5,176 5,523 ------------ ----------- ------------ TOTAL ASSETS...................................... 305,865,187 24,581,469 165,031,335 ------------ ----------- ------------ LIABILITIES: Cash portion of dividends payable............... 328,165 5,832 436,070 Payable upon return of securities loaned (Note 1)............................................ 35,468,218 -- -- Payable for investment securities purchased..... 9,660,969 -- -- Redemptions of capital stock.................... 252,967 -- 191,584 Payable for investment advisory and management fees (Note 2)................................. 160,596 16,602 103,008 Payable for distribution fees (Note 2).......... 3,011 819 11,276 Accounts payable and accrued expenses........... 54,411 11,760 30,945 ------------ ----------- ------------ TOTAL LIABILITIES................................. 45,928,337 35,013 772,883 ------------ ----------- ------------ 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.................................. 336,326,472 27,120,364 213,818,824 Unrealized depreciation of investments.......... (4,094,668) (1,217,509) (11,810,393) Undistributed net investment income (excess of distribution over)............................ 345,735 (15,820) 384,543 Accumulated net realized loss from sale of investments................................... (72,640,689) (1,340,579) (38,134,522) ------------ ----------- ------------ TOTAL NET ASSETS.................................. $259,936,850 $24,546,456 $164,258,452 ============ =========== ============ SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE: Class A shares (based on net assets of $45,075,256; $22,723,479; and $94,349,928; respectively and 5,159,665; 2,529,332; and 14,634,026 shares outstanding; respectively).... $8.74 $8.98 $6.45 ------------ ----------- ------------ Class B shares (based on net assets of $4,266,515; $801,337; and $19,119,639; respectively and 489,698; 89,194; and 2,963,619 shares outstanding; respectively)...................... $8.71 $8.98 $6.45 ------------ ----------- ------------ Class C shares (based on net assets of $2,719,797; $205,905; and $5,218,008; respectively and 312,654; 22,907; and 810,264 shares outstanding; respectively)................................... $8.70 $8.99 $6.44 ------------ ----------- ------------ Class E shares (based on net assets of $198,610,273; $0; and $0; respectively and 22,747,064; 0; and 0 shares outstanding; respectively)................................... $8.73 -- -- ------------ ----------- ------------ Class H shares (based on net assets of $9,265,009; $815,735; and $45,570,877; respectively and 1,063,831; 90,824; and 7,069,386 shares outstanding; respectively)...................... $8.71 $8.98 $6.45 ------------ ----------- ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 15 FORTIS BOND FUNDS Statements of Operations (Unaudited) For the Six-Month Period Ended January 31, 2000 - --------------------------------------------------------------------------------
U.S. GOVERNMENT STRATEGIC SECURITIES INCOME HIGH YIELD FUND FUND PORTFOLIO --------------- --------- --------- NET INVESTMENT INCOME: Income: Interest income............................... $ 9,197,521 $1,044,005 $ 9,210,420 Dividend income............................... -- -- 109,797 Fee income (Note 1)........................... 47,340 -- -- ----------- ---------- ------------ Total income.................................... 9,244,861 1,044,005 9,320,217 ----------- ---------- ------------ Expenses: Investment advisory and management fees (Note 2)........................................... 1,018,848 98,251 649,528 Distribution fees (Class A) (Note 2).......... 59,088 28,373 175,832 Distribution fees (Class B) (Note 2).......... 22,497 4,158 105,390 Distribution fees (Class C) (Note 2).......... 15,026 1,090 28,476 Distribution fees (Class H) (Note 2).......... 51,251 4,071 255,660 Registration fees............................. 25,639 16,087 28,555 Shareholders' notices and reports............. 36,699 2,696 23,226 Legal and auditing fees (Note 2).............. 24,131 7,415 14,680 Custodian fees................................ 7,541 1,207 5,530 Directors' fees and expenses.................. 8,848 247 5,781 Amortization of organization costs............ -- 3,270 -- Other......................................... 13,051 830 7,742 ----------- ---------- ------------ Total expenses.................................. 1,282,619 167,695 1,300,400 Less reimbursable expenses (Note 2)........... -- (25,503) -- ----------- ---------- ------------ Net Expenses.................................... 1,282,619 142,192 1,300,400 ----------- ---------- ------------ NET INVESTMENT INCOME............................. 7,962,242 901,813 8,019,817 ----------- ---------- ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1): Net realized loss from security transactions.... (7,362,301) (534,609) (12,158,017) Net change in unrealized appreciation of investments................................... 101,862 120,836 5,418,912 ----------- ---------- ------------ NET LOSS ON INVESTMENTS........................... (7,260,439) (413,773) (6,739,105) ----------- ---------- ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................... $ 701,803 $ 488,040 $ 1,280,712 =========== ========== ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 16 FORTIS BOND FUNDS Statements of Changes in Net Assets U.S. GOVERNMENT SECURITIES FUND - --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED FOR THE JANUARY 31, 2000 YEAR ENDED (UNAUDITED) JULY 31, 1999 ----------------- ------------- OPERATIONS: Net investment income........................... $ 7,962,242 $ 18,144,211 Net realized loss from security transactions.... (7,362,301) (105,226) Net change in unrealized appreciation (depreciation) on investments in securities... 101,862 (12,599,430) ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................... 701,803 5,439,555 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A....................................... (1,273,917) (2,622,563) Class B....................................... (105,422) (171,776) Class C....................................... (70,598) (88,599) Class E....................................... (6,181,783) (14,630,693) Class H....................................... (240,118) (470,692) ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (7,871,838) (17,984,323) ------------ ------------ CAPITAL STOCK TRANSACTIONS: Proceeds from sale of shares Class A (634,890 and 1,796,539 shares)........ 5,671,019 16,844,144 Class B (47,614 and 289,195 shares)........... 422,228 2,689,827 Class C (23,247 and 364,482 shares)........... 205,916 3,400,685 Class E (260,195 and 3,851,023 shares)........ 2,310,059 36,198,004 Class H (146,803 and 466,452 shares).......... 1,306,437 4,370,480 Proceeds from shares issued as a result of reinvested dividends Class A (107,803 and 208,031 shares).......... 957,219 1,941,525 Class B (10,073 and 16,315 shares)............ 89,211 151,529 Class C (5,040 and 7,080 shares).............. 44,575 65,640 Class E (502,739 and 1,176,290 shares)........ 4,461,394 10,973,982 Class H (20,648 and 37,302 shares)............ 182,768 347,038 Less cost of repurchase of shares Class A (1,080,815 and 2,142,693 shares)...... (9,622,521) (20,065,742) Class B (93,983 and 120,086 shares)........... (835,122) (1,113,932) Class C (59,624 and 164,225 shares)........... (525,879) (1,540,025) Class E (6,379,838 and 7,313,196 shares)...... (56,740,082) (68,212,077) Class H (251,855 and 521,603 shares).......... (2,225,544) (4,842,822) ------------ ------------ NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS.................................... (54,298,322) (18,791,744) ------------ ------------ TOTAL DECREASE IN NET ASSETS...................... (61,468,357) (31,336,512) NET ASSETS: Beginning of period............................. 321,405,207 352,741,719 ------------ ------------ End of period (includes undistributed net investment income of $345,735 and $255,331, respectively)................................. $259,936,850 $321,405,207 ============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 17 FORTIS BOND FUNDS Statement of Changes in Net Assets STRATEGIC INCOME FUND - --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED FOR THE JANUARY 31, 2000 YEAR ENDED (UNAUDITED) JULY 31, 1999 ----------------- ------------- OPERATIONS: Net investment income........................... $ 901,813 $ 1,503,583 Net realized loss from security transactions.... (534,609) (805,970) Net change in unrealized appreciation (depreciation) of investments in securities... 120,836 (1,391,995) ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................. 488,040 (694,382) ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A....................................... (858,050) (1,444,077) Class B....................................... (28,223) (32,866) Class C....................................... (7,397) (14,830) Class H....................................... (27,649) (28,844) From net realized gains on investments Class A....................................... -- (29,418) Class B....................................... -- (685) Class C....................................... -- (384) Class H....................................... -- (497) ----------- ----------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (921,319) (1,551,601) ----------- ----------- CAPITAL STOCK TRANSACTIONS: Proceeds from sale of shares Class A (36,011 and 114,975 shares)........... 328,470 1,112,155 Class B (5,908 and 56,479 shares)............. 53,748 540,543 Class C (4,030 and 27,407 shares)............. 36,731 265,968 Class H (18,664 and 65,798 shares)............ 169,077 628,078 Proceeds from shares issued as a result of reinvested dividends Class A (92,970 and 151,302 shares)........... 844,611 1,446,534 Class B (2,511 and 2,681 shares).............. 22,813 25,499 Class C (586 and 1,153 shares)................ 5,327 11,040 Class H (1,546 and 1,975 shares).............. 14,035 18,736 Less cost of repurchase of shares Class A (28,060 and 68,638 shares)............ (255,433) (657,349) Class B (8,323 and 9,643 shares).............. (75,314) (91,804) Class C (5,668 and 23,895 shares)............. (51,580) (229,098) Class H (11,502 and 20,959 shares)............ (104,644) (201,297) ----------- ----------- NET INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS.................................... 987,841 2,869,005 ----------- ----------- TOTAL INCREASE IN NET ASSETS...................... 554,562 623,022 NET ASSETS: Beginning of period............................. 23,991,894 23,368,872 ----------- ----------- End of period (includes undistributed (excess of distributions over) net investment income of $(15,820) and $3,686, respectively)........... $24,546,456 $23,991,894 =========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 18 FORTIS BOND FUNDS Statement of Changes in Net Assets HIGH YIELD PORTFOLIO - --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED FOR THE JANUARY 31, 2000 YEAR ENDED (UNAUDITED) JULY 31, 1999 ----------------- ------------- OPERATIONS: Net investment income........................... $ 8,019,817 $ 16,580,611 Net realized loss from security transactions.... (12,158,017) (15,531,738) Net change in unrealized appreciation (depreciation) of investments in securities... 5,418,912 (6,387,800) ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................. 1,280,712 (5,338,927) ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A....................................... (4,267,824) (9,110,376) Class B....................................... (818,150) (2,074,725) Class C....................................... (221,567) (553,768) Class H....................................... (1,986,959) (5,185,872) ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (7,294,500) (16,924,741) ------------ ------------ CAPITAL STOCK TRANSACTIONS: Proceeds from sale of shares Class A (1,045,738 and 4,788,487 shares)...... 6,827,469 33,406,189 Class B (152,110 and 462,119 shares).......... 992,951 3,230,762 Class C (51,798 and 179,698 shares)........... 336,842 1,249,109 Class H (407,350 and 1,317,353 shares)........ 2,661,757 9,207,091 Proceeds from shares issued as a result of reinvested dividends Class A (462,319 and 845,799 shares).......... 3,009,595 5,832,807 Class B (55,536 and 138,016 shares)........... 361,747 952,967 Class C (29,451 and 65,909 shares)............ 191,421 454,338 Class H (141,137 and 354,183 shares).......... 918,843 2,444,094 Less cost of repurchase of shares Class A (2,910,637 and 4,924,969 shares)...... (19,010,202) (34,161,183) Class B (665,080 and 1,085,786 shares)........ (4,343,268) (7,512,789) Class C (179,854 and 505,027 shares).......... (1,172,404) (3,489,086) Class H (1,945,538 and 2,988,963 shares)...... (12,708,904) (20,684,500) ------------ ------------ NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS.................................... (21,934,153) (9,070,201) ------------ ------------ TOTAL DECREASE IN NET ASSETS...................... (27,947,941) (31,333,869) NET ASSETS: Beginning of period............................. 192,206,393 223,540,262 ------------ ------------ End of period (includes undistributed (excess of distributions over) net investment income of $384,543 and ($340,774), respectively)........ $164,258,452 $192,206,393 ============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 19 FORTIS BOND FUNDS 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 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) investment and 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 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 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, 2000, U.S. Government Fund had entered into an outstanding when-issued or forward commitments of $9,660,969. 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, 2000, 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.............. $273,866,905 $341,130,485 Strategic Income Fund........................ 8,133,589 7,381,028 High Yield Portfolio......................... 64,359,185 81,548,748
LENDING OF PORTFOLIO SECURITIES: At January 31, 2000, securities valued at $34,618,658 were on loan to brokers from the U.S. Government Fund. For collateral, the Fund's custodian received 20 - -------------------------------------------------------------------------------- $35,468,218 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 $47,340 for the U.S. Government Fund for the period ended January 31, 2000. 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 $64,894,291, Strategic Income had $805,970 and High Yield had $25,970,943 at July 31, 1999, which, if not offset by subsequent capital gains, will expire in 2002 through 2008 . 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, 2000, 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, 2000, was $1,583,231 for Strategic Income and $9,369,396 for High Yield which represents 6.45% and 5.70% of net assets respectively. Pursuant to guidelines adopted by the Board of Directors, certain unregistered securities are determined to be liquid and are not included within the 15% limitation specified above. HIGH-YIELD DEBT SECURITIES: Although High Yield and Strategic Income have diversified portfolios, the funds have 93.90% and 41.19%, respectively, 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. BANK BORROWINGS: Several Fortis Funds including the High Yield Portfolio have a revolving credit agreement with Norwest Bank Minnesota N. A., whereby the portfolio is permitted to have a bank borrowing for temporary and emergency purposes to meet large redemption requests by shareholders; and cover securities purchased when matched or when earlier trades have failed. The agreement, which enables the portfolio to participate with other Fortis Funds, permits borrowings up to $25 million, collectively. Interest is expensed to each participating fund based on its borrowings will be at the borrowers' option of: 1) the Prime Index: 2) the Federal Funds rate plus a "Margin" of 37.5 basis points, or: 3) the Libor rate plus a "Margin" of 37.5 basis points. The Prime index is defined as the higher of; A) the rate that Norwest Bank Minnesota N.A. announces from time to time as its prime rate or B) the Federal Funds rate plus 50 basis points. Each portfolio pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.08% per annum. The High Yield Portfolio had no borrowings outstanding during the six-month period ended January 31, 2000. 2. PAYMENTS TO RELATED PARTIES: Fortis Advisers, Inc., is the investment adviser for the funds. Investment advisory and management fees are computed at an annual rate of .8% of the first $50 million of average daily net assets and .7% of 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 21 FORTIS BOND FUNDS Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- 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 E Class H ----------------------------------------------------------------------------------------------------- U.S. Government Securities Fund $57,293 $ 2,749 $172 $21,689 $ 25,213 Strategic Income Fund 4,532 748 55 -- 1,195 High Yield Portfolio 39,797 53,158 601 -- 171,441
Advisers has voluntarily undertaken to limit annual expenses for Strategic Income (exclusive of interest, taxes, brokerage commissions and non-recurring extraordinary charges and expenses) commencing December 1, 1997, to 1.10% of average daily net assets for Class A, and 1.85% for Classes B, C, and H. During the period ended January 31, 2000, Advisers waived $25,503 of its advisory fee. For the period ended January 31, 2000, 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 $9,049 Strategic Income Fund 628 High Yield Portfolio 4,122
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 2000** 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 8.96 $ 9.30 $ 9.16 $ 8.87 $ 9.02 $ 9.03 -------- -------- -------- -------- -------- -------- Operations: Investment income - net............... .25 .49 .52 .54 .60 .67 Net realized and unrealized gain (losses) on investments......................... (.23) (.34) .14 .32 (.15) (.01) -------- -------- -------- -------- -------- -------- Total from operations................... .02 .15 .66 .86 .45 .66 -------- -------- -------- -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.25) (.49) (.52) (.54) (.60) (.67) Excess distributions of net realized gains............................... -- -- -- (.03) -- -- -------- -------- -------- -------- -------- -------- Total distributions to shareholders..... (.25) (.49) (.52) (.57) (.60) (.67) -------- -------- -------- -------- -------- -------- Net asset value, end of period.......... $ 8.73 $ 8.96 $ 9.30 $ 9.16 $ 8.87 $ 9.02 -------- -------- -------- -------- -------- -------- Total Return @.......................... .25% 1.56% 7.42% 10.07% 5.08% 7.71% Net assets end of period (000s omitted).............................. $198,610 $254,096 $285,060 $324,643 $388,006 $470,597 Ratio of expenses to average daily net assets................................ .80%* .78% .79% .81% .81% .77% Ratio of net investment income to average daily net assets.............. 5.71%* 5.32% 5.62% 6.08% 6.59% 7.51% Portfolio turnover rate................. 102% 75% 118% 161% 75% 76%
* Annualized. ** For the six-month period ended January 31, 2000. @ These are the fund's total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustments for sales charge. 22 - -------------------------------------------------------------------------------- 3. FINANCIAL HIGHLIGHTS (continued):
Class A -------------------------------------------------------------------- Year Ended July 31, -------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND 2000** 1999 1998 1997 1996 1995+ - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 8.96 $ 9.30 $ 9.16 $ 8.87 $ 9.02 $ 8.63 -------- -------- -------- -------- -------- -------- Operations: Investment income - net............... .25 .47 .50 .52 .58 .46 Net realized and unrealized gain (losses) on investments......................... (.23) (.34) .14 .32 (.15) .39 -------- -------- -------- -------- -------- -------- Total from operations................... .02 .13 .64 .84 .43 .85 -------- -------- -------- -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.24) (.47) (.50) (.52) (.58) (.46) Excess distributions of net realized gains............................... -- -- -- (.03) -- -- -------- -------- -------- -------- -------- -------- Total distributions to shareholders..... (.24) (.47) (.50) (.55) (.58) (.46) -------- -------- -------- -------- -------- -------- Net asset value, end of period.......... $ 8.74 $ 8.96 $ 9.30 $ 9.16 $ 8.87 $ 9.02 -------- -------- -------- -------- -------- -------- Total Return @.......................... .23% 1.30% 7.14% 9.77% 4.78% 10.07% Net assets end of period (000s omitted).............................. $ 45,075 $ 49,274 $ 52,439 $ 59,128 $ 67,707 $ 4,909 Ratio of expenses to average daily net assets................................ 1.05%* 1.03% 1.04% 1.06% 1.06% 1.02%* Ratio of net investment income to average daily net assets.............. 5.46%* 5.07% 5.37% 5.83% 6.34% 7.00%* Portfolio turnover rate................. 102% 75% 118% 161% 75% 76%
Class B -------------------------------------------------------------------- Year Ended July 31, -------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND 2000** 1999 1998 1997 1996 1995+ - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 8.94 $ 9.28 $ 9.14 $ 8.86 $ 9.02 $ 8.63 -------- -------- -------- -------- -------- -------- Operations: Investment income - net............... .21 .40 .43 .46 .51 .41 Net realized and unrealized gain (losses) on investments......................... (.23) (.34) .14 .31 (.15) .39 -------- -------- -------- -------- -------- -------- Total from operations................... (.02) .06 .57 .77 .36 .80 -------- -------- -------- -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.21) (.40) (.43) (.47) (.52) (.41) Excess distributions of net realized gains............................... -- -- -- (.02) -- -- -------- -------- -------- -------- -------- -------- Total distributions to shareholders..... (.21) (.40) (.43) (.49) (.52) (.41) -------- -------- -------- -------- -------- -------- Net asset value, end of period.......... $ 8.71 $ 8.94 $ 9.28 $ 9.14 $ 8.86 $ 9.02 -------- -------- -------- -------- -------- -------- Total Return @.......................... (.24)% .53% 6.40% 8.95% 4.00% 9.47% Net assets end of period (000s omitted).............................. $ 4,267 $ 4,703 $ 3,161 $ 2,826 $ 2,314 $ 483 Ratio of expenses to average daily net assets................................ 1.80%* 1.78% 1.79% 1.81% 1.81% 1.77%* Ratio of net investment income to average daily net assets.............. 4.71%* 4.32% 4.62% 5.08% 5.45% 6.24%* Portfolio turnover rate................. 102% 75% 118% 161% 75% 76%
* Annualized. ** For the six-month period ended January 31, 2000. + 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. 23 FORTIS BOND FUNDS Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- 3. FINANCIAL HIGHLIGHTS (continued):
Class C -------------------------------------------------------------------- Year Ended July 31, -------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND 2000** 1999 1998 1997 1996 1995+ - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 8.93 $ 9.27 $ 9.13 $ 8.85 $ 9.01 $ 8.63 -------- -------- -------- -------- -------- -------- Operations: Investment income - net............... .21 .40 .43 .46 .51 .41 Net realized and unrealized gain (losses) on investments......................... (.23) (.34) .14 .31 (.15) .38 -------- -------- -------- -------- -------- -------- Total from operations................... (.02) .06 .57 .77 .36 .79 -------- -------- -------- -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.21) (.40) (.43) (.47) (.52) (.41) Excess distributions of net realized gains............................... -- -- -- (.02) -- -- -------- -------- -------- -------- -------- -------- Total distributions to shareholders..... (.21) (.40) (.43) (.49) (.52) (.41) -------- -------- -------- -------- -------- -------- Net asset value, end of period.......... $ 8.70 $ 8.93 $ 9.27 $ 9.13 $ 8.85 $ 9.01 -------- -------- -------- -------- -------- -------- Total Return @.......................... (.24)% .52% 6.41% 8.96% 4.00% 9.35% Net assets end of period (000s omitted).............................. $ 2,720 $ 3,071 $ 1,267 $ 1,444 $ 1,057 $ 326 Ratio of expenses to average daily net assets................................ 1.80%* 1.78% 1.79% 1.81% 1.81% 1.77%* Ratio of net investment income to average daily net assets.............. 4.71%* 4.32% 4.62% 5.07% 5.59% 6.24%* Portfolio turnover rate................. 102% 75% 118% 161% 75% 76%
Class H -------------------------------------------------------------------- Year Ended July 31, -------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND 2000** 1999 1998 1997 1996 1995+ - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 8.94 $ 9.28 $ 9.14 $ 8.86 $ 9.02 $ 8.63 -------- -------- -------- -------- -------- -------- Operations: Investment income - net............... .21 .40 .43 .46 .51 .41 Net realized and unrealized gain (losses) on investments......................... (.23) (.34) .14 .31 (.15) .39 -------- -------- -------- -------- -------- -------- Total from operations................... (.02) .06 .57 .77 .36 .80 -------- -------- -------- -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.21) (.40) (.43) (.47) (.52) (.41) Excess distributions of net realized gains............................... -- -- -- (.02) -- -- -------- -------- -------- -------- -------- -------- Total distributions to shareholders..... (.21) (.40) (.43) (.49) (.52) (.41) -------- -------- -------- -------- -------- -------- Net asset value, end of period.......... $ 8.71 $ 8.94 $ 9.28 $ 9.14 $ 8.86 $ 9.02 -------- -------- -------- -------- -------- -------- Total Return @.......................... (.24)% .53% 6.40% 8.94% 4.00% 9.47% Net assets end of period (000s omitted).............................. $ 9,265 $ 10,262 $ 10,816 $ 10,637 $ 10,120 $ 4,823 Ratio of expenses to average daily net assets................................ 1.80%* 1.78% 1.79% 1.80% 1.81% 1.77%* Ratio of net investment income to average daily net assets.............. 4.71%* 4.32% 4.62% 5.08% 5.52% 6.24%* Portfolio turnover rate................. 102% 75% 118% 161% 75% 76%
* Annualized. ** For the six-month period ended January 31, 2000. + 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. 24 - -------------------------------------------------------------------------------- 3. FINANCIAL HIGHLIGHTS (continued):
Class A -------------------------------- Year Ended July 31, -------------------------------- STRATEGIC INCOME FUND 2000** 1999 1998+ - ---------------------------------------------------------------------------- Net asset value, beginning of period.... $ 9.14 $ 10.05 $ 10.00 -------- -------- -------- Operations: Investment income - net............... .35 .61 .42 Net realized and unrealized gain (loss) on investments......................... (.16) (.89) .05 -------- -------- -------- Total from operations................... .19 (.28) .47 -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.35) (.62) (.42) From net realized gains on investments......................... -- (.01) -- -------- -------- -------- Total distributions to shareholders..... (.35) (.63) (.42) -------- -------- -------- Net asset value, end of period.......... $ 8.98 $ 9.14 $ 10.05 -------- -------- -------- Total return @.......................... 2.07% (2.86%) 4.77% Net assets end of period (000s omitted).............................. $ 22,723 $ 22,207 $ 22,422 Ratio of expenses to average daily net assets (a)............................ 1.10%* 1.10% 1.10%* Ratio of net investment income to average daily net assets (a).......... 7.40%* 6.38% 6.22%* Portfolio turnover rate................. 33% 79% 136%
Class B -------------------------------- Year Ended July 31, -------------------------------- STRATEGIC INCOME FUND 2000** 1999 1998+ - ---------------------------------------------------------------------------- Net asset value, beginning of period.... $ 9.14 $ 10.05 $ 10.00 -------- -------- -------- Operations: Investment income - net............... .31 .54 .38 Net realized and unrealized gain (loss) on investments......................... (.16) (.89) .05 -------- -------- -------- Total from operations................... .15 (.35) .43 -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.31) (.55) (.38) From net realized gains on investments......................... -- (.01) -- -------- -------- -------- Total distributions to shareholders..... (.31) (.56) (.38) -------- -------- -------- Net asset value, end of period.......... $ 8.98 $ 9.14 $ 10.05 -------- -------- -------- Total return @.......................... 1.66% (3.58%) 4.31% Net assets end of period (000s omitted).............................. $ 801 $ 815 $ 398 Ratio of expenses to average daily net assets (a)............................ 1.85%* 1.85% 1.85%* Ratio of net investment income to average daily net assets (a).......... 6.64%* 5.63% 5.73%* Portfolio turnover rate................. 33% 79% 136%
* Annualized. ** For the six-month period ended January 31, 2000 + For the period December 1, 1997 (commencement of operations) to July 31, 1998. @ These are the fund's total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustment for sales charge. (a) Advisers has voluntarily undertaken to limit annual expenses for the Strategic Income Fund (exclusive of interest, taxes, brokerage commission and non-recurring extraordinary charges and expenses) to 1.10% of average daily net assets for Class A and 1.85% for Classes B. For the six-month period ended January 31, 2000, had the waiver and reimbursement of expenses not been in effect, the ratios of expenses and net investment income to average daily net assets would have been 1.30% and 7.20% for Class A, 2.18% and 6.31% for Class B. For the year ended July 31, 1999, had the waiver and reimbursement of expenses not been in effect, the ratios of expenses and net investment income to average daily net assets would have been 1.44% and 6.04% for Class A and 2.19% and 5.29% for Class B. For the period December 1, 1997 to July 31, 1998, had the waiver and reimbursement of expenses not been in effect, the ratios of expenses and net investment income to average daily net assets would have been 1.39% and 5.93% for Class A and 2.14% and 5.44% for Class B, respectively. 25 FORTIS BOND FUNDS Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- 3. FINANCIAL HIGHLIGHTS (continued):
Class C -------------------------------- Year Ended July 31, -------------------------------- STRATEGIC INCOME FUND 2000** 1999 1998+ - ---------------------------------------------------------------------------- Net asset value, beginning of period.... $ 9.15 $ 10.05 $ 10.00 -------- -------- -------- Operations: Investment income - net............... .31 .55 .38 Net realized and unrealized gain (loss) on investments......................... (.16) (.89) .05 -------- -------- -------- Total from operations................... .15 (.34) .43 -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.31) (.55) (.38) From net realized gains on investments......................... -- (.01) -- -------- -------- -------- Total distributions to shareholders..... (.31) (.56) (.38) -------- -------- -------- Net asset value, end of period.......... $ 8.99 $ 9.15 $ 10.05 -------- -------- -------- Total return @.......................... 1.67% (3.49%) 4.35% Net assets end of period (000s omitted).............................. $ 206 $ 219 $ 194 Ratio of expenses to average daily net assets(a)............................. 1.85%* 1.85% 1.85%* Ratio of net investment income to average daily net assets(a)........... 6.64%* 5.63% 5.73%* Portfolio turnover rate................. 33% 79% 136%
Class H -------------------------------- Year Ended July 31, -------------------------------- STRATEGIC INCOME FUND 2000** 1999 1998+ - ---------------------------------------------------------------------------- Net asset value, beginning of period.... $ 9.14 $ 10.05 $ 10.00 -------- -------- -------- Operations: Investment income - net............... .31 .54 .38 Net realized and unrealized gain (loss) on investments............... (.16) (.89) .05 -------- -------- -------- Total from operations................... .15 (.35) .43 -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.31) (.55) (.38) From net realized gains on investments......................... -- (.01) -- -------- -------- -------- Total distributions to shareholders..... (.31) (.56) (.38) -------- -------- -------- Net asset value, end of period.......... $ 8.98 $ 9.14 $ 10.05 -------- -------- -------- Total return @.......................... 1.67% (3.58%) 4.35% Net assets end of period (000s omitted).............................. $ 816 $ 751 $ 355 Ratio of expenses to average daily net assets(a)............................. 1.85%* 1.85% 1.85%* Ratio of net investment income to average daily net assets(a)........... 6.65%* 5.63% 5.73%* Portfolio turnover rate................. 33% 79% 136%
* Annualized. ** For the six-month period ended January 31, 2000 + For the period December 1, 1997 (commencement of operations) to July 31, 1998. @ These are the fund's total returns during the periods, including reinvestment of all dividend and capital gains distributions without adjustment for sales charge. (a) Advisers has voluntarily undertaken to limit annual expenses for the Strategic Income Fund (exclusive of interest, taxes, brokerage commission and non-recurring extraordinary charges and expenses) to 1.85% of average daily net assets for Classes C and H. For the six-month period, had the waiver and reimbursement of expenses not been in effect, the ratios of expenses and net investment income to average daily net assets would have been 2.18% and 6.31% for Classes C and H. For the year ended July 31, 1999, had the waiver and reimbursement of expenses not been in effect, the ratios of expenses and net investment income to average daily net assets would have been 2.19% and 5.19% for Classes C and H. For the period December 1, 1997 to July 31, 1998, had the waiver and reimbursement of expenses not been in effect, the ratios of expenses and net investment income to average daily net assets would have been 2.14% and 5.44%, for Class C, 2.14% and 5.44% for Class H, respectively. 26 - -------------------------------------------------------------------------------- 3. FINANCIAL HIGHLIGHTS (continued):
Class A -------------------------------------------------------------------- Year Ended July 31, -------------------------------------------------------------------- HIGH YIELD PORTFOLIO 2000** 1999 1998 1997 1996+ 1995+++ - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 6.67 $ 7.41 $ 7.83 $ 7.56 $ 7.61 $ 7.90 -------- -------- -------- -------- -------- -------- Operations: Investment income - net............... .30 .59 .73 .76 .56 .86 Net realized and unrealized gain (loss) on investments............... (.24) (.72) (.40) .28 (.04) (.25) -------- -------- -------- -------- -------- -------- Total from operations................... .06 (.13) .33 1.04 .52 .61 -------- -------- -------- -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.28) (.61) (.75) (.75) (.55) (.86) Excess distributions of net realized gains............................... -- -- -- (.02) (.02) (.04) -------- -------- -------- -------- -------- -------- Total distributions to shareholders..... (.28) (.61) (.75) (.77) (.57) (.90) -------- -------- -------- -------- -------- -------- Net asset value, end of period.......... $ 6.45 $ 6.67 $ 7.41 $ 7.83 $ 7.56 $ 7.61 -------- -------- -------- -------- -------- -------- Total return @.......................... .94% (1.76%) 4.31% 14.51% 6.98% 8.07% Net assets end of period (000s omitted).............................. $ 94,350 $106,921 $113,549 $123,115 $109,401 $113,268 Ratio of expenses to average daily net assets................................ 1.17%* 1.16% 1.17% 1.19% 1.21%* 1.25%* Ratio of net investment income to average daily net assets.............. 9.28%* 8.54% 9.46% 9.84% 9.87%* 10.61%* Portfolio turnover rate................. 37% 46% 214% 331% 146% 101%
Class B -------------------------------------------------------------------- Year Ended July 31, -------------------------------------------------------------------- HIGH YIELD PORTFOLIO 2000** 1999 1998 1997 1996+ 1995++ - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 6.67 $ 7.41 $ 7.83 $ 7.56 $ 7.60 $ 7.87 -------- -------- -------- -------- -------- -------- Operations: Investment income - net............... .28 .54 .68 .71 .53 .78 Net realized and unrealized gain (loss) on investments............... (.24) (.72) (.40) .28 (.04) (.23) -------- -------- -------- -------- -------- -------- Total from operations................... .04 (.18) .28 .99 .49 .55 -------- -------- -------- -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.26) (.56) (.70) (.70) (.51) (.78) Excess distributions of net realized gains............................... -- -- -- (.02) (.02) (.04) -------- -------- -------- -------- -------- -------- Total distributions to shareholders..... (.26) (.56) (.70) (.72) (.53) (.82) -------- -------- -------- -------- -------- -------- Net asset value, end of period.......... $ 6.45 $ 6.67 $ 7.41 $ 7.83 $ 7.56 $ 7.60 -------- -------- -------- -------- -------- -------- Total return @.......................... .56% (2.44%) 3.67% 13.80% 6.62% 7.25% Net assets end of period (000s omitted).............................. $ 19,120 $ 22,814 $ 28,935 $ 20,388 $ 12,067 $ 7,530 Ratio of expenses to average daily net assets................................ 1.82%* 1.81% 1.82% 1.83% 1.86%* 1.90%* Ratio of net investment income to average daily net assets.............. 8.62%* 7.90% 8.81% 9.24% 9.20%* 9.66%* Portfolio turnover rate................. 37% 46% 214% 331% 146% 101%
* Annualized ** For the six-month period ended January 31, 2000 + For the nine-month period ended July 31, 1996. ++ For the period from November 14, 1994 (commencement of operations) to October 31, 1995 +++ For the year ended October 31, 1995. @ These are the fund's total returns during the periods, including reinvestment of all dividends and capital gains distributions without adjustments for sales charge. 27 FORTIS BOND FUNDS Notes to Financial Statements (Unaudited) (continued) - -------------------------------------------------------------------------------- 3. FINANCIAL HIGHLIGHTS (continued):
Class C -------------------------------------------------------------------- Year Ended July 31, -------------------------------------------------------------------- HIGH YIELD PORTFOLIO 2000** 1999 1998 1997 1996+ 1995++ - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 6.66 $ 7.40 $ 7.82 $ 7.55 $ 7.59 $ 7.87 -------- -------- -------- -------- -------- -------- Operations: Investment income - net............... .28 .54 .68 .71 .53 .78 Net realized and unrealized gain (loss) on investments............... (.24) (.72) (.40) .28 (.04) (.24) -------- -------- -------- -------- -------- -------- Total from operations................... .04 (.18) .28 .99 .49 .54 -------- -------- -------- -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.26) (.56) (.70) (.70) (.51) (.78) Excess distributions of net realized gains............................... -- -- -- (.02) (.02) (.04) -------- -------- -------- -------- -------- -------- Total distributions to shareholders..... (.26) (.56) (.70) (.72) (.53) (.82) -------- -------- -------- -------- -------- -------- Net asset value, end of period.......... $ 6.44 $ 6.66 $ 7.40 $ 7.82 $ 7.55 $ 7.59 -------- -------- -------- -------- -------- -------- Total return @.......................... .57% (2.44%) 3.67% 13.82% 6.63% 7.12% Net assets end of period (000s omitted).............................. $ 5,218 $ 6,051 $ 8,641 $ 7,037 $ 3,378 $ 2,180 Ratio of expenses to average daily net assets................................ 1.82%* 1.81% 1.82% 1.83% 1.86%* 1.90%* Ratio of net investment income to average daily net assets.............. 8.62%* 7.90% 8.81% 9.26% 9.21%* 9.83%* Portfolio turnover rate................. 37% 46% 214% 331% 146% 101%
Class H -------------------------------------------------------------------- Year Ended July 31, -------------------------------------------------------------------- HIGH YIELD PORTFOLIO 2000** 1999 1998 1997 1996+ 1995++ - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period.... $ 6.66 $ 7.40 $ 7.82 $ 7.55 $ 7.60 $ 7.87 -------- -------- -------- -------- -------- -------- Operations: Investment income - net............... .29 .54 .68 .71 .52 .78 Net realized and unrealized gain (loss) on investments............... (.24) (.72) (.40) .28 (.04) (.23) -------- -------- -------- -------- -------- -------- Total from operations................... .05 (.18) .28 .99 .48 .55 -------- -------- -------- -------- -------- -------- Distributions to shareholders: From investment income - net.......... (.26) (.56) (.70) (.70) (.51) (.78) Excess distributions of net realized gains............................... -- -- -- (.02) (.02) (.04) -------- -------- -------- -------- -------- -------- Total distributions to shareholders..... (.26) (.56) (.70) (.72) (.53) (.82) -------- -------- -------- -------- -------- -------- Net asset value, end of period.......... $ 6.45 $ 6.66 $ 7.40 $ 7.82 $ 7.55 $ 7.60 -------- -------- -------- -------- -------- -------- Total return @.......................... .72% (2.44%) 3.67% 13.82% 6.48% 7.25% Net assets end of period (000s omitted).............................. $ 45,571 $ 56,420 $ 72,415 $ 63,789 $ 39,133 $ 23,862 Ratio of expenses to average daily net assets................................ 1.82%* 1.81% 1.82% 1.83% 1.86%* 1.90%* Ratio of net investment income to average daily net assets.............. 8.62%* 7.90% 8.81% 9.23% 9.21%* 9.81%* Portfolio turnover rate................. 37% 46% 214% 331% 146% 101%
* Annualized ** For the six-month period ended January 31, 2000 + For the nine-month period ended July 31, 1996. ++ For the period from November 14, 1994 (commencement of operations) to October 31, 1995 @ These are the fund's total returns during the periods, including reinvestment of all dividends and capital gains distributions without adjustments for sales charge. 28 DIRECTORS AND OFFICERS DIRECTORS Richard W. Cutting CPA AND FINANCIAL CONSULTANT Allen R. Freedman CHAIRMAN AND CHIEF EXECUTIVE OFFICER, FORTIS, INC. MANAGING DIRECTOR OF FORTIS INTERNATIONAL, N.V. Dr. Robert M. Gavin PRESIDENT, CRANBROOK EDUCATION COMMUNITY. PRIOR TO JULY 1996, PRESIDENT MACALESTER COLLEGE Jean L. King PRESIDENT, COMMUNI-KING Dean C. Kopperud CHIEF EXECUTIVE OFFICER AND DIRECTOR, FORTIS ADVISERS, INC. PRESIDENT AND DIRECTOR, FORTIS INVESTORS, INC. PRESIDENT - FORTIS FINANCIAL GROUP, FORTIS BENEFITS INSURANCE COMPANY AND SENIOR VICE PRESIDENT, FORTIS INSURANCE COMPANY 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 Schenker Shadko MARKETING CONSULTANT. PRIOR TO MAY 1996, SENIOR VICE PRESIDENT OF MARKETING & STRATEGIC PLANNING, ROLLERBLADE, INC. Joseph M. Wikler INVESTMENT CONSULTANT AND PRIVATE INVESTOR. PRIOR TO JANUARY 1994, DIRECTOR OF RESEARCH, CHIEF INVESTMENT OFFICER, PRINCIPAL, AND DIRECTOR, THE ROTHSCHILD CO. OFFICERS Dean C. Kopperud PRESIDENT AND DIRECTOR Robert W. Beltz, Jr. VICE PRESIDENT James S. Byrd VICE PRESIDENT Peggy L. Ettestad VICE PRESIDENT Tamara L. Fagely VICE PRESIDENT AND TREASURER Howard G. Hudson VICE PRESIDENT Dickson W. Lewis VICE PRESIDENT Lucinda S. Mezey VICE PRESIDENT David A. Peterson VICE PRESIDENT Scott R. Plummer VICE PRESIDENT Rhonda J. Schwartz VICE PRESIDENT Melinda S. Urion VICE PRESIDENT Gary N. Yalen VICE PRESIDENT Michael J. Radmer SECRETARY INVESTMENT MANAGER, REGISTRAR Fortis Advisers, Inc. AND TRANSFER AGENT BOX 64284, ST. PAUL, MINNESOTA 55164 PRINCIPAL UNDERWRITER Fortis Investors, Inc. BOX 64284, ST. PAUL, MINNESOTA 55164 CUSTODIAN U.S. Bank National Association MINNEAPOLIS, MINNESOTA GENERAL COUNSEL Dorsey & Whitney LLP MINNEAPOLIS, MINNESOTA INDEPENDENT AUDITORS KPMG LLP MINNEAPOLIS, MINNESOTA The use of this material is authorized only when preceded or accompanied by a prospectus. 29 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. 30 [LOGO] FORTIS Solid partners, flexible solutions-SM- FORTIS MEANS STEADFAST Fortis means "steadfast" in Latin. The worldwide Fortis family of companies lives up to the name, and has each day since the 1800s, with flexible solutions tailored to our customers' individual needs. We deliver the stability you require today ... and tomorrow. You can count on it. Fortis Financial Group offers annuities, life insurance and mutual funds through its broker/dealer Fortis Investors, Inc. We're part of Fortis, Inc., a financial services company that provides specialty insurance and investment products to individuals, businesses, associations and other financial services organizations throughout the United States. Fortis, Inc. is part of the international Fortis group, which operates in the fields of insurance, banking and investments. Fortis' listed companies are Fortis (B) of Belgium and Fortis (NL) of the Netherlands. Fortis: steadfast for YOU! FORTIS FINANCIAL GROUP Fund management offered through Fortis Advisers, Inc. since 1949 Securities offered through Fortis Investors, Inc., member NASD, SIPC Insurance Products issued by Fortis Benefits Insurance Company & Fortis Insurance Company P.O. Box 64284, St. Paul, MN 55164-0284 Telephone (800) 800-2000 http://www.ffg.us.fortis.com FORTIS FINANCIAL GROUP ---------------------- P.O. Box 64284 Bulk Rate St. Paul, MN 55164-0284 U.S. Postage PAID Fortis Bond Funds Permit No. 3794 Minneapolis, MN ---------------------- [RECYCLE LOGO] Printed on recycled paper with 40% preconsumer waste and 10% post consumer waste. Please recycle. The Fortis brandmark and Fortis-Registered Trademark- are servicemarks of Fortis (B) and Fortis (NL). 98754 -C- Fortis 2/00 -----END PRIVACY-ENHANCED MESSAGE-----