<PAGE>
[LOGO]
[LOGO]
FORTIS
U.S. GOVERNMENT
SECURITIES FUND
Annual Report
July 31, 1995
[LOGO]
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES ANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS 1
SCHEDULE OF INVESTMENTS 4
STATEMENT OF ASSETS AND LIABILITIES 6
STATEMENT OF OPERATIONS 7
STATEMENTS OF CHANGES IN NET ASSETS 8
NOTES TO FINANCIAL STATEMENTS 9
FEDERAL INCOME TAX INFORMATION 11
INDEPENDENT AUDITORS' REPORT 12
BOARD OF DIRECTORS AND OFFICERS 13
- - TOLL-FREE PERSONAL ASSISTANCE
- Shareholder Services
- (800) 800-2638, Ext. 3012
- 7:30 a.m. to 5:30 p.m. CST, M-Th
- 7:30 a.m. to 5:00 p.m. CST, F
- - TOLL-FREE INFORMATION LINE
- For daily account balances,
transaction activity or net asset
value information
- (800) 800-2638, Ext. 4344
- 24 hours a day
FOR MORE INFORMATION ABOUT FORTIS FINANCIAL GROUP'S FAMILY OF PRODUCTS, CALL
YOUR INVESTMENT REPRESENTATIVE OR THE HOME OFFICE AT (800) 800-2638.
TO ORDER PROSPECTUSES OR SALES LITERATURE FOR ANY FORTIS PRODUCT, CALL (800)
800-2638, EXT. 4579.
HIGHLIGHTS
FOR THE YEAR ENDED JULY 31, 1995:
<TABLE>
<CAPTION>
CLASS A* CLASS B* CLASS C* CLASS E CLASS H*
---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE:
Beginning of year...................... $ 8.63 $ 8.63 $ 8.63 $ 9.03 $ 8.63
End of year............................ $ 9.02 $ 9.02 $ 9.01 $ 9.02 $ 9.02
DISTRIBUTIONS PER SHARE:
From net investment income............. $ 0.460 $ 0.411 $ 0.411 $ 0.669 $ 0.411
* Period from November 14, 1994 (commencement of operations) to July 31, 1995.
</TABLE>
HOW TO USE THIS REPORT
For a quick overview of the funds' performance during the past twelve months,
refer to the Highlights box below. The letter from the portfolio manager and
president provides a more detailed analysis of the fund and financial markets.
The charts alongside the letter are useful because they provide more information
about your investments. The top holdings chart shows the types of securities in
which the fund invests, and the pie chart shows a breakdown of the funds' assets
by sector.
The performance chart graphically compares the funds' total return performance
with a selected investment
index. Remember, however, that an index may reflect the performance of
securities the fund may not hold. Also, the index does not deduct investment
advisory fees and other fund expenses, whereas your fund does. Individuals
cannot buy an unmanaged index fund without incurring some charges and expenses.
Sales charges pay for your investment representative's advice.
This report is just one of several tools you can use to learn more about your
investment in the Fortis Family of Mutual Funds. Your investment representative,
who understands your personal financial situation, can best explain the features
of your investment and how it's designed to help you meet your financial goals.
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
[PHOTO]
"Thirty years ago, a 'diversified portfolio' meant a few blue chip
stocks and some U.S. government bonds. That was a good strategy then.
But the world has changed."
DEAR SHAREHOLDER,
We're pleased to present the Fortis U.S. Government Securities Fund annual
report for the period ended July 31, 1995.
ECONOMIC REVIEW AND
INVESTMENT STRATEGIES
Over the past year, fixed income markets performed well. Even though short-term
rates rose due to Federal Reserve tightening, longer-term rates declined about
1/2 of 1 percent. This rally in bond prices was caused by signs of an economic
slowdown, combined with subdued inflation. In fact, the Federal Reserve
confirmed the bond market's recognition of a slowdown by lowering short term
rates in July.
The current pause may be the economic response to the doubling of short-term
interest rates, which the Federal Reserve engineered during 1994. With the cost
of money now moderately lower, we feel economic growth should continue through
the balance of this year and into 1996. As long as productivity continues to
rise and labor cost increases remain small, the expectation for inflation should
remain in the current range of about 2.5 percent to 3 percent.
PORTFOLIO COMPOSITION BY INDUSTRY AS OF 7/31/95
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Treasury Securities 44
FNMA's 28.8
GNMA's 11.5
FHLMC's 9.1
Other Direct Federal Obligations 5.4
Receivables/Cash Equivalents 0.4
Other Government Agencies 0.8
100
</TABLE>
1
<PAGE>
TOP TEN HOLDINGS AS OF 7/31/95
<TABLE>
<CAPTION>
Percent of
Bonds net assets
- -----------------------------------------------------------------------------
<C> <S> <C>
1. U.S. Treasury Bond (8.125%) 2021 7.9%
2. U.S. Treasury Note (9.00%) 1998 7.4%
3. U.S. Treasury Bond (6.75%) 2000 7.3%
4. U.S. Treasury Note (8.75%) 1997 5.5%
5. FHLB Note (7.31%) 2004 5.4%
6. U.S. Treasury Note (8.875%) 1998 4.5%
7. U.S. Treasury Note (8.25%) 1998 4.4%
8. GNMA (9.50%) 2019 3.8%
9. FNMA Note (7.65%) 2005 3.7%
10. FNMA (8.00%) 2024 3.2%
</TABLE>
PORTFOLIO REVIEW
Changes in this portfolio have been very modest over the past year. Average
duration, which was nearly five years when the fiscal year began, was gradually
reduced to slightly less than four years by the end of July. We have increased
our investment position in mortgage-backed securities by about 5 percent during
the past two months. Currently, there is a nearly 50/50 balance between
government agency mortgage-backed securities and non-mortgage government debt
securities. The shortening of the average duration earlier this year was based
on the belief that rates had declined prematurely. This strategy proved correct
as interest rates did increase in July and August. Recently, with rates up, we
have extended maturities in the portfolio.
IN CLOSING
We appreciate your investment in the Fortis U.S. Government Securities Fund. If
you have any questions, please call us or talk with your investment
professional.
Sincerely,
/s/ DEAN C. KOPPERUD
Dean C. Kopperud
President
/s/ DENNIS M. OTT
Dennis M. Ott
Vice President
Dated: July 19, 1995
FORTIS U.S. GOVERNMENT SECURITIES FUND
CLASS A, B, C AND H TOTAL RETURNS
<TABLE>
<CAPTION>
WITHOUT WITH
SALES SALES
CHARGE CHARGE
<S> <C> <C>
Class A shares+ +10.07 % +5.12 %
WITHOUT WITH
CDSC CDSC++
Class B shares+ +9.47 % +5.87 %
Class C shares+ +9.35 % +8.35 %
Class H shares+ +9.47 % +5.87 %
<FN>
Past performance is not indicative of future performance. Total returns include
investment of all dividend and capital gains distributions. The performance of
the separate classes (A, B, C, E and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class A and E 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, and Class C
has a CDSC of 1.00% if redeemed within one year of purchase.
+ Since November 14, 1994 -- Date shares were first offered to the public
++ Assumes redemption on July 31, 1995.
</TABLE>
FORTIS U.S. GOVERNMENT SECURITIES FUND CLASS E SHARES
Value of $10,000 invested August 1, 1985
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FORTIS U.S. GOVERNMENT SECURITIES
FUND
<S> <C> <C> <C>
Average Annual Total Return
1 Year 5 Year 10 Year
Class E* +2.86% +6.22% +8.26%
Class E** +7.71% +7.20% +8.76%
Lehman Bros. Interme- U.S. Government Secu-
diate rities
Gov't Index*** Fund Class E
08/01/85 10000 9550
86 11759 11397
87 12286 12017
88 13141 12941
89 14805 14523
90 15849 15625
91 17465 17294
92 19874 19406
93 21500 21107
94 21724 20535
95 23561 22119
<FN>
Annual period ended July 31
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the portfolios total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
*** An unmanaged index of government bonds with an average maturity of three to
four years.
</TABLE>
2
<PAGE>
FORTIS FINANCIAL GROUP'S OTHER PRODUCTS AND SERVICES
MUTUAL FUNDS/PORTFOLIOS
Fortis Advantage Portfolios, Inc.
ASSET ALLOCATION PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
GOVERNMENT TOTAL RETURN PORTFOLIO
HIGH YIELD PORTFOLIO
Fortis Capital Fund
Fortis Fiduciary Fund, Inc.
Fortis Global Growth Portfolio
Fortis Growth Fund, Inc.
Fortis Money Fund
Fortis Tax-Free Portfolios, Inc.
MINNESOTA PORTFOLIO
NATIONAL PORTFOLIO
NEW YORK PORTFOLIO
Fortis U.S. Government
Securities Fund
FIXED AND VARIABLE ANNUITIES
Fortis Opportunity Fixed
& Variable Annuity
Masters Variable Annuity
FIXED ACCOUNT
MONEY MARKET
U.S. GOVERNMENT SECURITIES
DIVERSIFIED INCOME
GLOBAL BOND
HIGH YIELD
ASSET ALLOCATION
GLOBAL ASSET ALLOCATION
GROWTH & INCOME
GROWTH STOCK
GLOBAL GROWTH
INTERNATIONAL STOCK
AGGRESSIVE GROWTH
Fortune Fixed Annuities
SINGLE PREMIUM ANNUITY
FLEXIBLE PREMIUM ANNUITY
Income Annuities
GUARANTEED FOR LIFE
GUARANTEED FOR A SPECIFIC PERIOD
LIFE AND DISABILITY
WALL STREET SERIES VUL 220 & VUL 500
FIXED ACCOUNT
MONEY MARKET
U.S. GOVERNMENT SECURITIES
DIVERSIFIED INCOME
GLOBAL BOND
HIGH YIELD
ASSET ALLOCATION
GLOBAL ASSET ALLOCATION
GROWTH & INCOME
GROWTH STOCK
GLOBAL GROWTH
INTERNATIONAL STOCK
AGGRESSIVE GROWTH
Adaptable Life
Universal Life
Disability
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.
3
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
Schedule of Investments
July 31, 1995
U.S. GOVERNMENT SECURITIES-99.56%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Cost (a) Value (b)
- ----------- ------------- -------------
<C> <S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION-9.09%
MORTGAGE BACKED SECURITIES:
$18,656,985 8.00% 2001-2002................ $ 19,123,409 $ 19,094,248
5,933,756 9.00% 2022..................... 6,310,178 6,174,814
10,546,129 9.50% 2016..................... 11,348,624 11,066,844
426,504 10.50% 2015.................... 458,626 463,690
248,872 11.25% 2013.................... 270,026 274,537
1,044,017 11.50% 2015-2019............... 1,136,684 1,155,269
1,265,083 11.75% 2010-2015............... 1,383,795 1,405,033
------------- -------------
40,031,342 39,634,435
------------- -------------
REMICS:
2,404,831 9.00% Trust #136-D PAC 2020.... 2,416,855 2,459,467
108,257 100.00% Trust #1364-L Interest
only strip I/O-ette 2005
(e).......................... 489,148 1,623,856
------------- -------------
2,906,003 4,083,323
------------- -------------
TOTAL FEDERAL HOME LOAN
MORTGAGE CORPORATION......... 42,937,345 43,717,758
------------- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION-28.80%
MORTGAGE BACKED SECURITIES:
15,000,000 7.00% 2025 (g)................. 14,771,875 14,625,000
21,227,505 7.50% 2022-2024................ 21,085,186 21,161,169
15,080,429 8.00% 2024..................... 14,434,798 15,311,340
11,963,741 8.00% 2024-2025................ 11,754,656 12,146,930
226,337 9.00% 2020..................... 224,145 235,391
2,315,203 9.75% 2020..................... 2,497,526 2,471,838
1,882,841 10.00% 2020.................... 2,054,062 2,045,236
1,517,640 10.50% 2012-2018............... 1,612,790 1,663,238
404,443 10.75% 2013.................... 416,576 445,772
4,561,957 11.00% 2015-2020............... 4,901,940 5,056,641
588,197 11.25% 2013.................... 617,607 654,002
417,628 12.00% 2014-2016............... 444,651 469,179
789,482 12.50% 2015.................... 891,621 892,361
------------- -------------
75,707,433 77,178,097
------------- -------------
NOTES:
10,000,000 6.85% 2000 (f)................. 10,000,000 10,014,870
9,000,000 7.40% 2004 (f)................. 9,476,700 9,404,775
16,750,000 7.65% 2005 (f)................. 16,879,211 17,850,106
13,000,000 8.50% 2005 (f)................. 13,453,900 13,911,833
------------- -------------
49,809,811 51,181,584
------------- -------------
REMIC-PAC'S:
3,161,624 7.50% Trust #1991-136G 2019.... 3,278,703 3,174,046
6,500,000 9.00% Trust #1991-39J 2021..... 6,638,125 6,846,899
158,899 13.50% Trust #1989-98G 2017.... 184,522 162,149
------------- -------------
10,101,350 10,183,094
------------- -------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION.................. 135,618,594 138,542,775
------------- -------------
<CAPTION>
Principal Market
Amount Cost (a) Value (b)
- ----------- ------------- -------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION-11.49%
MORTGAGE BACKED SECURITIES:
$ 8,332,978 7.50% 2022..................... $ 8,348,603 $ 8,319,954
18,622,484 9.00% 2016-2022................ 19,560,292 19,504,064
7,721,670 9.50% 2017-2019................ 8,136,895 8,194,622
17,186,184 9.50% 2019..................... 17,865,576 18,045,494
1,066,600 11.00% 2015-2018............... 1,149,150 1,167,927
66,368 11.25% 2015.................... 70,477 73,720
------------- -------------
55,130,993 55,305,781
------------- -------------
OTHER DIRECT FEDERAL
OBLIGATIONS-5.42%
FEDERAL HOME LOAN BANK:
25,150,000 7.31% 2004..................... 25,062,544 26,076,048
------------- -------------
OTHER GOVERNMENT AGENCIES-0.80%
RESOLUTION FUNDING CORPORATION:
15,000,000 7.42% Zero Coupon Strip 2014
(c) 3,772,245 3,849,135
------------- -------------
U.S. TREASURY SECURITIES-43.96%
BOND:
33,500,000 8.125% 2021 (f)................ 35,000,234 38,190,000
------------- -------------
NOTES:
34,500,000 6.75% 2000 (f)................. 35,346,875 35,254,688
4,400,000 7.25% 1996 (f)................. 4,424,063 4,466,000
15,000,000 7.875% 1996 (f)................ 15,189,844 15,173,415
20,000,000 8.25% 1998 (f)................. 22,813,281 21,181,220
25,000,000 8.75% 1997 (f)................. 27,978,516 26,429,650
20,000,000 8.875% 1998 (f)................ 21,665,625 21,643,720
33,000,000 9.00% 1998 (f)................. 35,873,438 35,485,263
13,350,000 9.375% 1996 (f)................ 14,317,977 13,683,750
------------- -------------
177,609,619 173,317,706
------------- -------------
TOTAL U.S. TREASURY
SECURITIES................... 212,609,853 211,507,706
------------- -------------
TOTAL U.S. GOVERNMENT
SECURITIES................... $ 475,131,574 $ 478,999,203
------------- -------------
------------- -------------
</TABLE>
4
<PAGE>
SHORT-TERM INVESTMENTS-0.10%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
- --------- -------------
<C> <S> <C>
MASTER NOTE:
$ 505,350 Federated Treasury Obligation Fund, Current
rate -- 5.70%................................. $ 505,350
-------------
TOTAL INVESTMENTS IN SECURITIES
(COST: $475,636,924) (A).................... $ 479,504,553
-------------
-------------
</TABLE>
(a) At July 31, 1995, the cost of securities for federal income tax purposes
was $476,309,686 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation........................... $ 8,872,246
Unrealized depreciation........................... (5,677,379)
-----------------------------------------------------------------
Net unrealized appreciation....................... $ 3,194,867
-----------------------------------------------------------------
(b) See Note A of accompanying Notes to Financial Statements regarding
valuation of securities
(c) The interest rate disclosed for these securities represents the original
issue discount yields on the date of acquisition.
(d) Note:Percentage of investments as shown is the ratio of the total market
value to total net assets.
(e) The interest rate disclosed for the interest only strip represents the
effective yield at July 31, 1995 based upon the estimated timing and amount
of future cash flows. This investment has been identified by portfolio
management as an illiquid security. The aggregate value of this security at
July 31, 1995 is $1,623,856 which represents .34% of total net assets.
(f) Security is fully or partially on loan at July 31, 1995. See Note A of
accompanying Notes to Financial Statements.
(g) The cost of securities purchased on a when-issued basis at July 31, 1995 is
$14,771,875.
5
<PAGE>
Fortis U.S. Government Securities Fund
Statement of Assets and Liabilities
July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, as detailed in the accompanying schedule, at market (cost $475,636,924) (Note A).... $ 479,504,553
Collateral for securities lending transactions (Note A)........................................................ 252,179,800
Receivables:
Investment securities sold................................................................................... 10,866,864
Interest and dividends....................................................................................... 6,767,642
Subscriptions of capital stock............................................................................... 105,824
Deferred registration costs (Note A)........................................................................... 43,544
-------------
TOTAL ASSETS..................................................................................................... 749,468,227
-------------
LIABILITIES
Cash portion of dividends payable.............................................................................. 924,673
Payable upon return of securities loaned (Note A).............................................................. 252,179,800
Payable for investment securities purchased.................................................................... 14,771,875
Redemptions of capital stock................................................................................... 129,849
Payable for investment advisory and management fees............................................................ 293,744
Payable for distribution fees.................................................................................. 745
Accounts payable and accrued expenses.......................................................................... 30,751
-------------
TOTAL LIABILITIES................................................................................................ 268,331,437
-------------
NET ASSETS
Net proceeds of capital stock, par value $.01 per share - authorized 10,000,000,000 shares..................... 537,043,809
Unrealized appreciation of investments......................................................................... 3,867,629
Excess of distributions over net investment income............................................................. (17,686)
Accumulated net realized loss from sale of investments......................................................... (59,756,962)
-------------
TOTAL NET ASSETS................................................................................................. $ 481,136,790
-------------
-------------
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A shares (based on net assets of $4,908,726 and 544,097 shares outstanding).............................. $9.02
-------------
Class B shares (based on net assets of $482,701 and 53,530 shares outstanding)................................. $9.02
-------------
Class C shares (based on net assets of $326,166 and 36,194 shares outstanding)................................. $9.01
-------------
Class E shares (based on net assets of $470,596,689 and 52,149,917 shares outstanding)......................... $9.02
-------------
Class H shares (based on net assets of $4,822,508 and 534,676 shares outstanding).............................. $9.02
-------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
Statement of Operations
For the Year Ended July 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET INVESTMENT INCOME:
<S> <C>
Income
Interest income.............................................................................................. $41,392,499
Fee income (Note A).......................................................................................... 321,417
------------
Total Income................................................................................................... 41,713,916
------------
Expenses:
Investment advisory and management fees (Note B)............................................................. 3,576,719
Distribution fees (Class A) (Note B)......................................................................... 4,306
Distribution fees (Class B) (Note B)......................................................................... 1,773
Distribution fees (Class C) (Note B)......................................................................... 1,062
Distribution fees (Class H) (Note B)......................................................................... 16,010
Legal and auditing fees (Note B)............................................................................. 72,056
Custodian fees............................................................................................... 62,744
Shareholders' notices and reports............................................................................ 112,706
Registration fees............................................................................................ 67,862
Directors' fees and expenses................................................................................. 46,526
Other........................................................................................................ 46,734
------------
Total Expenses................................................................................................. 4,008,498
Less reimbursable expenses (Note B)............................................................................ (84,896 )
------------
Net Expenses................................................................................................... 3,923,602
------------
NET INVESTMENT INCOME............................................................................................ 37,790,314
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE A):
Net realized loss from security transactions................................................................... (33,680,898 )
Net change in unrealized appreciation (depreciation) of investments in securities.............................. 31,855,826
------------
NET LOSS ON INVESTMENTS.......................................................................................... (1,825,072 )
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................................. $35,965,242
------------
------------
</TABLE>
7
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE
YEAR ENDED
JULY 31, 1995
---------------
<S> <C>
OPERATIONS
Net investment income..................................................................................... $ 37,790,314
Net realized loss from security transactions.............................................................. (33,680,898)
Net change in unrealized appreciation (depreciation) of investments....................................... 31,855,826
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................. 35,965,242
---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A................................................................................................. (123,171)
Class B................................................................................................. (11,070)
Class C................................................................................................. (6,511)
Class E................................................................................................. (37,768,650)
Class H................................................................................................. (101,319)
Excess distributions of net realized gains
Class E................................................................................................. (56,382)
---------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (38,067,103)
---------------
CAPITAL STOCK TRANSACTIONS (NOTE B):
Proceeds from sale of shares
Class A (656,757 shares)................................................................................ 5,829,103
Class B (55,065 shares)................................................................................. 487,212
Class C (36,045 shares)................................................................................. 318,057
Class E (3,223,444 and 5,018,611 shares)................................................................ 28,470,321
Class H (588,648 shares)................................................................................ 5,220,767
Proceeds from shares issued as a result of reinvested dividends
Class A (10,355 shares)................................................................................. 92,733
Class B (701 shares).................................................................................... 6,291
Class C (507 shares).................................................................................... 4,548
Class E (2,842,973 and 1,871,208 shares)................................................................ 25,132,842
Class H (8,959 shares).................................................................................. 80,178
Less cost of repurchase of shares
Class A (123,015 shares)................................................................................ (1,099,885)
Class B (2,236 shares).................................................................................. (20,025)
Class C (358 shares).................................................................................... (3,216)
Class E (15,398,667 and 10,418,385 shares).............................................................. (135,996,432)
Class H (62,931 shares)................................................................................. (558,515)
---------------
NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS.......................................................... (72,036,021)
---------------
TOTAL DECREASE IN NET ASSETS................................................................................ (74,137,882)
NET ASSETS:
Beginning of period....................................................................................... 555,274,672
---------------
End of period (includes undistributed (excess of distributions over) net investment income of ($17,686)
and $202,721, respectively)............................................................................. $ 481,136,790
---------------
---------------
<CAPTION>
FOR THE
SEVEN-MONTH
PERIOD ENDED
JULY 31, 1994
(NOTE C)
--------------
<S> <C>
OPERATIONS
Net investment income..................................................................................... $ 26,704,011
Net realized loss from security transactions.............................................................. (25,969,017)
Net change in unrealized appreciation (depreciation) of investments....................................... (28,114,831)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................. (27,379,837)
--------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A................................................................................................. --
Class B................................................................................................. --
Class C................................................................................................. --
Class E................................................................................................. (26,606,994)
Class H................................................................................................. --
Excess distributions of net realized gains
Class E................................................................................................. --
--------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (26,606,994)
--------------
CAPITAL STOCK TRANSACTIONS (NOTE B):
Proceeds from sale of shares
Class A (656,757 shares)................................................................................ --
Class B (55,065 shares)................................................................................. --
Class C (36,045 shares)................................................................................. --
Class E (3,223,444 and 5,018,611 shares)................................................................ 47,438,736
Class H (588,648 shares)................................................................................ --
Proceeds from shares issued as a result of reinvested dividends
Class A (10,355 shares)................................................................................. --
Class B (701 shares).................................................................................... --
Class C (507 shares).................................................................................... --
Class E (2,842,973 and 1,871,208 shares)................................................................ 17,392,603
Class H (8,959 shares).................................................................................. --
Less cost of repurchase of shares
Class A (123,015 shares)................................................................................ --
Class B (2,236 shares).................................................................................. --
Class C (358 shares).................................................................................... --
Class E (15,398,667 and 10,418,385 shares).............................................................. (97,546,638)
Class H (62,931 shares)................................................................................. --
--------------
NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS.......................................................... (32,715,299)
--------------
TOTAL DECREASE IN NET ASSETS................................................................................ (86,702,130)
NET ASSETS:
Beginning of period....................................................................................... 641,976,802
--------------
End of period (includes undistributed (excess of distributions over) net investment income of ($17,686)
and $202,721, respectively)............................................................................. $ 555,274,672
--------------
--------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
Notes to Financial Statements
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The fund is a diversified series
of Fortis Income Portfolios, Inc., an open-end management investment company.
The primary investment objective of the fund is a high level of current
income consistent with prudent investment risk. This objective is sought
principally by investment in debt securities issued, guaranteed, insured or
collateralized by the U.S. Government, its agencies, or its
instrumentalities. The Articles of Incorporation of Fortis Income Portfolio
permit the Board of Directors to create additional portfolios in the future.
The fund offers Class A, Class B, Class C, Class E and Class H shares. Class
E shares are only available to existing shareholders on November 14, 1994.
Class A and E shares are sold with a front-end sales charge. Class B and H
shares are sold without a front-end sales charge and may be subject to a
contingent deferred sales charge for six years, and such shares automatically
convert to Class A after eight years. Class C shares are sold without a
front-end sales charge and may be subject to a contingent deferred sales
charge for one year. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
the level of distribution fees charged differs between classes. Income,
expenses (other than expenses incurred under each class's distribution
agreement) and realized and unrealized gains or losses on investments are
allocated to each class of shares based on its relative net assets.
SECURITY VALUATION: Long-term debt securities are valued at current market
prices on the basis of valuations furnished by an independent pricing service.
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 fund on a forward commitment or
when-issued basis can take place a month or more after the transaction date.
During this period, such securities are subject to market fluctuations and the
portfolio maintains, in a segregated account with its custodian, assets with a
market value equal to the amount of its purchase commitments. At July 31,
1995, the fund had entered into outstanding when-issued or forward commitments
of $14,771,875.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Realized security gains and losses are determined using the identified
cost method. For financial reporting purposes, except for original issue
discount, the fund does not amortize long-term bond premium and discount.
For the fiscal year ended July 31, 1995, the cost of purchases and proceeds
from sales of securities (other than short-term securities) aggregated
$375,090,148 and $423,132,157, respectively.
LENDING OF PORTFOLIO SECURITIES: At July 31, 1995, securities valued at
$242,279,288 were on loan to brokers from the Fund. For collateral, the Fund's
custodian received $252,179,800 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 $321,417 for the fiscal year ended
July 31, 1995. The risks to the Fund in security lending transactions are that
the borrower may not provide additional collateral when required or return the
securities when due and that the proceeds from the sale of investments made
with cash collateral received will be less than amounts required to be
returned to the borrowers.
DEFERRED COSTS: Registration costs are deferred and charged to income over the
registration period.
FEDERAL TAXES: The fund intends to qualify, under the Internal Revenue Code,
as a regulated investment company and if so qualified, will not have to pay
federal income taxes to the extent its taxable net income is distributed. On a
calendar year basis, the fund intends to distribute substantially all of its
net investment income and realized gains, if any, to avoid the payment of
federal excise taxes.
Net investment income and net realized gains differ for financial statement
and tax purposes primarily because of the recognition of market discount as
ordinary income and the deferral of "wash sale" losses for 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 fund. 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.
For federal income tax purposes the fund had a capital loss carryover of
$59,084,201 at July 31, 1995, which, if not offset by subsequent capital
gains, will expire in 2002 through 2004. It is unlikely the Board of
Directors will authorize a distribution of any net realized gains until the
available capital loss carryover has been offset or expired.
INCOME AND CAPITAL GAINS DISTRIBUTIONS: Distributions from net investment
income are declared daily and paid monthly. The fund will generally make
annual distributions of any realized capital gains as required by law. These
income and capital gains distributions may be reinvested in additional shares
of the fund at net asset value without any charge to the shareholder or
payable in cash.
B. PAYMENTS TO RELATED PARTIES: Fortis Advisers, Inc., is the investment adviser
for the fund. Investment advisory and management fees are computed at an
annual rate of .8% of the first $50 million of average daily net assets and
.7% of net assets in excess of $50 million. In addition, effective June 1,
1993, if fees and other operating expenses (excluding interest expense,
taxes, brokerage fees and commmissions) exceed .77% of the average daily net
assets, for the two-year period commencing June 1, 1993, such excess will be
reimbursed by Fortis Advisers, Inc. During the ten-month period ended May 31,
1995, Advisers waived $84,896 of its advisory fee in accordance with these
limits.
In addition to the investment advisory and management fee, Classes A, B, C
and H pay Fortis Investors, Inc. (the fund's principal underwriter)
distribution fees equal to .25% (Class A) and 1.00% (Class B, C and H) of
average daily net assets (of the respective classes) on an annual basis, to
be used to compensate those who sell shares of the fund and to pay certain
other expenses of selling fund shares. Fortis Investors, Inc., also received
sales charges (paid by purchasers or redeemers of the fund's shares)
aggregating $160,575 for Class A, $289 for Class B, $4 for Class C, $2,477
for Class H, and $639,641 for Class E for the year ended July 31, 1995.
Legal fees and expenses aggregating $47,156 for the fiscal year ended July
31, 1995, were paid to a law firm of which the secretary of the fund is a
partner.
9
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
C. CHANGE IN ACCOUNTING PERIOD: Effective July 31, 1994, Fortis U.S. Government
Securities Fund changed its Fiscal accounting and tax year-end to July 31
(previously December 31).
D. At the special shareholders' meeting of August 23, 1994, the Amended and
Restated Articles of Incorporation were approved which allows the Fund to
issue multiple class shares effective November 14, 1994.
- --------------------------------------------------------------------------------
E. FINANCIAL HIGHLIGHTS: Selected per share historical data was as follows:
<TABLE>
<CAPTION>
Class E
----------------------------------------------------------
Year Ended July 31, Year Ended December 31,
---------------------- ---------------------------------
1995 1994** 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.............. $ 9.03 $ 9.87 $ 9.86 $ 10.16 $ 9.76
---------- --------- --------- --------- ---------
Operations:
Investment income-net........................... .67 .42 .75 .84 .88
Net realized and unrealized gains (losses) on
investments................................... (.01) (.84) .05 (.30) .41
---------- --------- --------- --------- ---------
Total from operations............................. .66 (.42) .80 .54 1.29
---------- --------- --------- --------- ---------
Distribution to shareholders:
From investment income-net...................... (.67) (.42) (.75) (.84) (.89)
From realized gains............................. -- -- (.04) -- --
---------- --------- --------- --------- ---------
Total distributions to shareholders............... (.67) (.42) (.79) (.84) (.89)
---------- --------- --------- --------- ---------
Net asset value, end of period.................... $ 9.02 $ 9.03 $ 9.87 $ 9.86 $ 10.16
---------- --------- --------- --------- ---------
Total Return@..................................... 7.71% (4.29%) 8.31% 5.60% 13.90%
Net assets end of period (000s omitted)........... $470,597 $ 555,275 $ 641,977 $ 587,996 $ 452,222
Ratio of expenses to average daily net assets..... .77% .77%* .76% .72% .72%
Ratio of net investment income to average daily
net assets....................................... 7.51% 7.72%* 7.43% 8.48% 8.88%
Portfolio turnover rate........................... 76% 85% 157% 128% 95%
@These are the total returns during the periods, including reinvestment of all dividend and capital gains
distributions without adjustments for sales charge.
*Annualized.
**For the seven-month period ended July 31, 1994.
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class C Class H
1995+ 1995+ 1995+ 1995+
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period.............. $ 8.63 $ 8.63 $ 8.63 $ 8.63
--------- --------- --------- ---------
Operations:
Investment income-net........................... .46 .41 .41 .41
Net realized and unrealized gains (losses) on
investments................................... .39 .39 .38 .39
--------- --------- --------- ---------
Total from operations............................. .85 .80 .79 .80
--------- --------- --------- ---------
Distribution to shareholders:
From investment income-net...................... (.46) (.41) (.41) (.41)
From realized gains............................. -- -- -- --
--------- --------- --------- ---------
Total distributions to shareholders............... (.46) (.41) (.41) (.41)
--------- --------- --------- ---------
Net asset value, end of period.................... $ 9.02 $ 9.02 $ 9.01 $ 9.02
--------- --------- --------- ---------
Total Return@..................................... 10.07% 9.47% 9.35% 9.47%
Net assets end of period (000s omitted)........... $ 4,909 $ 483 $ 326 $ 4,823
Ratio of expenses to average daily net assets..... 1.02%* 1.77%* 1.77%* 1.77%*
Ratio of net investment income to average daily
net assets....................................... 7.01%* 6.24%* 6.24%* 6.24%*
Portfolio turnover rate........................... 76%** 76%** 76%** 76%**
@These are the total returns during the periods, including reinvestment of all dividend and
capital gains distributions without adjustments for sales charge.
*Annualized.
**For the year ended July 31, 1995. Portfolio turnover computed at fund level.
+For the period from November 14, 1994 (commencement of operations) to July 31, 1995.
</TABLE>
10
<PAGE>
FEDERAL INCOME TAX INFORMATION:
For the fiscal year ended July 31, 1995:
- --------------------------------------------------------------------------------
INCOME DISTRIBUTIONS -- taxable as income, 0% qualifying for deduction by
corporations. Distributions from net investment income were paid monthly through
July, 1995, see totals below. Under certain state laws, dividends paid by a
regulated investment company, which are derived from interest on federal
obligations, may not be taxable to residents of that state. Please consult your
tax advisor for the reporting of these amounts. The source of dividends paid by
the fund through July, 1995, was as follows:
<TABLE>
<S> <C>
Direct Federal Obligations:
U.S. Treasury................................................ 3.47%
Other........................................................ 4.57
---------
Total Direct Federal Obligations........................... 8.04
Other Securities......................................... 91.96
---------
100.00%
---------
</TABLE>
Detailed below are the per share distributions made for the fiscal year ended
July 31, 1995.
<TABLE>
<CAPTION>
Fortis U.S. Government Securities
---------------------------------------------
Per Share
---------------------------------------------
Payable Date Class E Class A* Class B, C and H*
<S> <C> <C> <C>
- ---------------------------------------------------------------------
August 31, 1994....... $ 0.057 $ N/A $ N/A
September 30, 1994.... 0.057 N/A N/A
October 31, 1994...... 0.057 N/A N/A
November 30, 1994..... 0.056 0.034 0.030
December 30, 1994..... 0.056 0.054 0.048
January 31, 1995...... 0.056 0.054 0.048
February 28, 1995..... 0.056 0.054 0.048
March 31, 1995........ 0.056 0.054 0.048
April 28, 1995........ 0.056 0.054 0.048
May 31, 1995.......... 0.054 0.052 0.047
June 30, 1995......... 0.054 0.052 0.047
July 31, 1995......... 0.054 0.052 0.047
----------- ----------- -------
$ 0.669 $ 0.460 $ 0.411
----------- ----------- -------
*Period from November 14, 1994 (Date shares were first offered to the
public) to July 31, 1995.
</TABLE>
11
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Fortis Income Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Fortis U.S. Government Securities
Fund (a fund within Fortis Income Portfolios, Inc.) as of July 31, 1995 and the
related statement of operations for the year then ended, the statements of
changes in net assets for the year ended July 31, 1995 and the seven-month
period ended July 31, 1994 and the financial highlights for the year ended July
31, 1995, the seven-month period ended July 31, 1994 and each of the years in
the three-year period ended December 31, 1993. These financial statements and
the financial highlights are the responsibility of fund management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers, and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
Fortis U.S. Government Securities Fund at July 31, 1995, and the results of its
operations for the year then ended, the changes in its net assets for the year
ended July 31, 1995 and the seven-month period ended July 31, 1994 and the
financial highlights for the year ended July 31, 1995, the seven-month period
ended July 31, 1994 and each of the years in the three-year period ended
December 31, 1993, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 8, 1995
12
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
<S> <C> <C> <C>
RICHARD W. CUTTING DEAN C. KOPPERUD THOMAS R. PELLETT DEAN C. KOPPERUD
CPA and Financial President and Director Prior to January, 1991, President and Director
Consultant Fortis Advisers, Inc. Senior Vice STEPHEN M. POLING
ALLEN R. FREEDMAN Fortis Investors, Inc. President-Administration Vice President
Chairman and Chief Senior Vice President and and Corporate Affairs DENNIS M. OTT
Executive Officer Director of Fortis Benefits and Director Vice President
Fortis, Inc.; Insurance Company Pet, Inc. JAMES S. BYRD
Managing Director of Senior Vice President of ROBB L. PRINCE Vice President
Fortis International, N.V. Time Insurance Prior to July, 1995 ROBERT C. LINDBERG
DR. ROBERT M. GAVIN Company Vice President and Vice President
President EDWARD M. MAHONEY Treasurer KEITH R. THOMSON
Macalester College Prior to January, 1995, Jostens, Inc. Vice President
BENJAMIN S. JAFFRAY Chairman and Chief LEONARD J. SANTOW ROBERT W. BELTZ, JR.
Chairman Executive Officer Principal Vice President
Sheffield Group, Ltd. Fortis Advisers, Inc. Griggs & Santow, Inc. THOMAS D. GUALDONI
JEAN L. KING Fortis Investors, Inc. JOSEPH M. WIKLER Vice President
President Investment Consultant and LARRY A. MEDIN
Communi-King Private Investor Vice President
Prior to January, 1994, JON H. NICHOLSON
Director of Research, Vice President
Chief Investment Officer, JOHN W. NORTON
Principal, and Director Vice President
The Rothschild Co. DAVID A. PETERSON
Vice President
MICHAEL J. RADMER
Secretary
TAMARA L. FAGELY
Treasurer
DAVID G. CARROLL
2nd Vice President
CHRIS J. NEUHARTH
2nd Vice President
INVESTMENT MANAGER, CUSTODIAN
REGISTRAR AND First Bank
TRANSFER AGENT National Association
Fortis Advisers, Inc. Minneapolis, Minnesota
Box 64284 GENERAL COUNSEL
St. Paul, Minnesota 55164 Dorsey & Whitney P.L.L.P.
PRINCIPAL UNDERWRITER Minneapolis, Minnesota
Fortis Investors, Inc. INDEPENDENT AUDITORS
Box 64284 KPMG Peat Marwick LLP
St. Paul, Minnesota 55164 Minneapolis, Minnesota
</TABLE>
THE USE OF THIS MATERIAL IS AUTHORIZED ONLY WHEN PRECEDED OR ACCOMPANIED BY A
PROSPECTUS.
13
<PAGE>
<TABLE>
<S> <C> <C>
FORTIS FINANCIAL GROUP Fortis Financial Group (FFG) is a premier With more than $5 billion in assets under
provider of insurance and investment portfolios management, FFG is part of Fortis, a $100 billion
whose fund manager, Fortis Advisers, Inc. has worldwide financial services and insurance
established a nationwide reputation for money organization represented in 11 countries.
management. Through Fortis Investors, Inc., FFG Like the Fortis name, which comes
offers mutual funds, annuities and variable from the Latin for steadfast, our focus is on the
universal life insurance. Life and disability long-term in all we do: the relationships we
products are issued and underwritten by Time build, the performance we seek, the service we
Insurance Company and Fortis Benefits Insurance provide and the products we offer.
Company.
</TABLE>
[LOGO]
----------------
Bulk Rate
FORTIS FINANCIAL GROUP
US Postage
P.O. Box 64284
PAID
St. Paul, MN 55164
Permit No. 3794
Minneapolis, MN
------------------
FORTIS U.S. GOVERNMENT
SECURITIES FUND
[LOGO]
PRINTED ON RECYCLED PAPER WITH
40% PRECONSUMER WASTE AND
10% POST CONSUMER WASTE.
PLEASE RECYCLE.
95167 (Ed. 9/95)
