<PAGE>
[FORTIS LOGO]
FORTIS
U.S. GOVERNMENT
SECURITIES FUND
Semi-Annual Report
January 31, 1996
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND SEMI-ANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS 2
SCHEDULES OF INVESTMENTS 4
STATEMENTS OF ASSETS AND LIABILITIES 6
STATEMENTS OF OPERATIONS 7
STATEMENTS OF CHANGES IN NET ASSETS 8
NOTES TO FINANCIAL STATEMENTS 9
BOARD OF DIRECTORS AND OFFICERS 11
PRODUCTS AND SERVICES 12
- - 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 SIX-MONTH PERIOD ENDED JANUARY 31, 1996:
<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 period................... $ 9.02 $ 9.02 $ 9.01 $ 9.02 $ 9.02
End of period......................... $ 9.31 $ 9.30 $ 9.30 $ 9.32 $ 9.31
DISTRIBUTIONS PER SHARE
From net investment income............ $ 0.297 $ 0.267 $ 0.267 $ 0.309 $ 0.267
</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 charts show the types of securities in
which the fund invests, and the pie chart shows a breakdown of the funds' assets
by industry.
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.
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.
1
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
[Photo]
"It was critical I achieve my two goals: safety and income. I found what
I was looking for in Fortis U.S. Government Securities Fund. It fit my
needs perfectly."
Kay, Fortis Shareholder
DEAR SHAREHOLDER,
We are pleased to present the Fortis U.S. Government Securities Fund,
semi-annual report for the period ended January 31, 1996, and extend a warm
welcome to all new investors, including those who have moved from the former
Fortis Advantage Government Total Return Portfolio.
ECONOMIC REVIEW AND
INVESTMENT STRATEGIES
Over the past six months, fixed income markets performed well. During this
period, longer-term rates declined about 1 percent. The rally in bond prices has
been caused by signs of an economic slowdown, combined with subdued inflation.
The Federal Reserve confirmed the bond market's recognition of a slowdown by
lowering short-term interest rates in July, December and, most recently, the
first of February.
The consumer is showing some signs of spending fatigue, as indicated by reports
from major retailers of poor holiday
results, after generally small gains all year. In addition, job growth has been
limited, jobless claims have drifted higher, help wanted advertising has
declined and, in general, people feel the job market is tight.
These developments point to the likelihood that economic expansion will
continue, but will probably lose rather than gain momentum as we move into the
first half of 1996. In this environment, with inflation stable or decreasing, it
is likely that monetary policy will be more accommodating: perhaps lowering the
federal funds rate again later in the first or second quarter of 1996.
Meanwhile, near term economic activity will be only nominally impacted by the
outcome of the current budget compromise effort.
In our view, this economic background has been and continues to be extremely
favorable for fixed income markets. As long as productivity continues to rise
and labor cost increases remain minor, inflation should stay below 3 percent.
PORTFOLIO COMPOSITION BY INDUSTRY AS OF 1/31/96
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Treasury Securities 42.1%
FNMAs 27.5%
GNMAs 12.9%
FHLMCs 7.8%
Other Direct Federal Obligations 5.8%
Receivables/Cash Equivalents 2.9%
Other Government Agencies 1.0%
</TABLE>
2
<PAGE>
TOP TEN HOLDINGS AS OF 1/31/96
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. U.S. Treasury Bond (8.125%) 2021 10.9%
2. U.S. Treasury Bond (6.75%) 2000 8.8%
3. U.S. Treasury Note (9.00%) 1998 7.5%
4. FHLB Note (7.31%) 2004 5.8%
5. U.S. Treasury Note (8.75%) 1997 5.6%
6. U.S. Treasury Note (8.875%) 1998 4.6%
7. U.S. Treasury Note (8.25%) 1998 4.5%
8. FNMA Note (7.65%) 2005 3.9%
9. GNMA (9.50%) 2019 3.4%
10. FNMA (7.00%) 2025 3.2%
</TABLE>
PORTFOLIO REVIEW
The changes within this portfolio reflect our positive outlook for the fixed
income market. We extended the portfolio duration from 3.9 years at the end of
July to 4.34 years, which was sustained through year-end. The duration extension
was accomplished by reducing our mortgage-backed securities exposure while we
increased our holdings of noncallable treasury notes and bonds.
We also increased the call protection of our mortgage-backed holdings by moving
out of some of the currently callable securities into more call protected
securities, which improved the portfolio's response to lower interest rates.
IN CLOSING
We appreciate your investment with Fortis, and look forward to serving your
financial needs. If you have any questions, please call us or talk with your
investment professional.
Sincerely,
[SIGNATURE]
Dean C. Kopperud
President
[SIGNATURE]
Howard G. Hudson
Vice President
FORTIS U.S. GOVERNMENT SECURITIES FUND CLASS E SERIES
Value of $10,000 invested February 1, 1986
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FORTIS U.S. GOVERNMENT SECURITIES
FUND
AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Class E** +14.65% +7.23% +8.29%
Class E* +9.49% +6.25% +7.79%
Lehman Bros. U.S. Government
Intermediate Securities
Gov't Index*** Fund Class E
2/1/86 10,000 9,550
87 11,338 10,811
88 11,931 11,408
89 12,510 12,040
90 13,871 13,290
91 15,449 14,934
92 17,281 16,448
93 19,005 18,070
94 20,381 19,477
95 20,178 18,467
96 22,925 21,173
</TABLE>
Semi-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 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.
FORTIS U.S. GOVERNMENT
SECURITIES FUND
CLASS A, B, C AND H TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
---------- ----------
<S> <C> <C>
Class A shares* +14.23% +13.62%
Class A shares** +10.59% +9.75%
Class B shares@ +13.33% +12.73%
Class B shares@@ +9.73% +9.13%
Class C shares@ +13.33% +12.74%
Class C shares@@ +12.33% +11.74%
Class H shares@ +13.45% +12.83%
Class H shares@@ +9.85% +9.23%
</TABLE>
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 will vary based on the differences in sales loads and
distribution fees paid by shareholders investing in the different classes. Class
A and E has a maximum sales charge of 4.50%, Class B and H have a CDSC of 4.00%
if redeemed within two years of purchase, and Class C has a CDSC of 1.00% if
redeemed within one year of purchase.
* Without sales charge.
** With sales charge.
@ Without CDSC.
@@ With CDSC. Assumes redemption on January 31, 1996.
+ Since November 14, 1994 -- Date shares were first offered to the public.
3
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
Schedule of Investments
(Unaudited)
January 31, 1996
U.S. GOVERNMENT SECURITIES-97.05%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Cost (a) Value (b)
- ----------- ------------ ------------
<C> <S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION-7.79%
MORTGAGE BACKED SECURITIES:
$15,691,921 8.00% 2001-2002............................................. $ 16,084,219 $ 16,172,486
5,409,129 9.00% 2022.................................................. 5,752,270 5,698,176
9,334,762 9.50% 2016.................................................. 10,045,079 9,996,942
392,270 10.50% 2015................................................. 421,813 430,271
206,560 11.25% 2013................................................. 224,117 229,604
904,908 11.50% 2015-2019............................................ 985,324 1,008,972
1,205,206 11.75% 2010-2015............................................ 1,318,369 1,348,700
------------ ------------
34,831,191 34,885,151
------------ ------------
REMIC-PAC'S:
2,013,596 9.00% Trust #136-D-PAC 2020................................. 2,023,664 2,078,230
------------ ------------
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION................ 36,854,855 36,963,381
------------ ------------
------------ ------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION-27.49%
MORTGAGE BACKED SECURITIES:
7,938,232 6.50% 2010.................................................. 7,842,048 8,000,222
15,066,263 7.00% 2025.................................................. 14,837,039 15,212,210
8,977,157 7.25% 2005.................................................. 9,290,171 9,470,541
20,310,384 7.50% 2022-2024............................................. 20,171,420 20,837,174
1,611,041 8.00% 2025.................................................. 1,542,068 1,669,944
225,207 9.00% 2020.................................................. 223,025 237,523
2,028,917 9.75% 2020.................................................. 2,188,694 2,201,056
1,698,681 10.00% 2023................................................. 1,853,155 1,864,833
1,483,866 10.50% 2012-2018............................................ 1,577,855 1,641,062
394,668 10.75% 2013................................................. 406,508 438,698
4,068,918 11.00% 2015-2020............................................ 4,373,416 4,545,743
540,241 11.25% 2013................................................. 567,253 605,407
382,066 12.00% 2014-2016............................................ 406,787 432,570
686,875 12.50% 2015................................................. 775,739 782,393
------------ ------------
66,055,178 67,939,376
------------ ------------
NOTES:
10,000,000 6.85% 2000 (e).............................................. 10,000,000 10,418,230
9,000,000 7.40% 2004.................................................. 9,476,700 9,921,339
16,750,000 7.65% 2005 (e).............................................. 16,879,211 18,740,989
13,000,000 8.50% 2005 (e).............................................. 13,453,900 14,140,685
------------ ------------
49,809,811 53,221,243
------------ ------------
REMIC-PAC'S:
2,207,803 7.50% Trust # 1991-136G 2019................................ 2,289,561 2,215,903
6,500,000 9.00% Trust # 1991-39J 2021................................. 6,638,125 7,064,193
42,284 13.50% Trust # 1989-98G 2017................................ 49,102 42,631
------------ ------------
8,976,788 9,322,727
------------ ------------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION................. 124,841,777 130,483,346
------------ ------------
------------ ------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-12.86%
MORTGAGE BACKED SECURITIES:
9,825,538 7.00% 2024.................................................. 9,677,019 9,957,564
7,916,920 7.50% 2022.................................................. 7,931,764 8,149,480
17,043,127 9.00% 2016-2022............................................. 17,912,104 17,958,873
22,474,845 9.50% 2017-2019............................................. 23,473,408 23,862,738
951,119 11.00% 2015-2018............................................ 1,024,790 1,050,987
65,732 11.25% 2015................................................. 69,802 73,743
------------ ------------
60,088,887 61,053,385
------------ ------------
</TABLE>
4
<PAGE>
U.S. GOVERNMENT SECURITIES-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Cost (a) Value (b)
- ----------- ------------ ------------
<C> <S> <C> <C>
OTHER DIRECT FEDERAL OBLIGATIONS-5.78%
FEDERAL HOME LOAN BANK:
$25,150,000 7.31% 2004.................................................. $ 25,062,544 $ 27,445,943
------------ ------------
OTHER GOVERNMENT AGENCIES-0.99%
RESOLUTION FUNDING CORPORATION:
15,000,000 7.42% Zero Coupon Strip (c)................................. 3,912,127 4,668,285
------------ ------------
U.S. TREASURY SECURITIES-42.14%
BOND:
40,950,000 8.125% 2021 (e)............................................. 46,975,252 51,558,548
------------ ------------
NOTES:
39,730,000 6.75% 2000 (e).............................................. 40,657,046 41,977,169
750,000 7.875% 1996 (e)............................................. 759,492 750,702
20,000,000 8.25% 1998 (e).............................................. 22,813,281 21,468,720
25,000,000 8.75% 1997 (e).............................................. 27,978,516 26,507,775
20,000,000 8.875% 1998 (e)............................................. 21,665,625 21,950,000
33,000,000 9.00% 1998 (e).............................................. 35,873,438 35,794,638
------------ ------------
149,747,398 148,449,004
------------ ------------
TOTAL U.S. TREASURY SECURITIES.............................. 196,722,650 200,007,552
------------ ------------
TOTAL U.S. GOVERNMENT SECURITIES............................ $447,482,840 $460,621,892
------------ ------------
------------ ------------
</TABLE>
SHORT-TERM INVESTMENTS-1.96%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
- ---------- ------------
<C> <S> <C>
INVESTMENT COMPANY-1.96%
$9,320,460 Federated Treasury Obligation Fund, Current rate -- 5.70%... $ 9,320,460
------------
TOTAL INVESTMENTS IN SECURITIES (COST: $456,803,300) (A).... $469,942,352
------------
------------
</TABLE>
(a) At January 31, 1996, the cost of securities for federal income tax purposes
was $456,919,048 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $16,337,715
Unrealized depreciation........................... (3,314,411)
---------------------------------------------------------------
Net unrealized appreciation....................... $13,023,304
---------------------------------------------------------------
</TABLE>
(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) Security is fully or partially on loan at January 31, 1996. See Note A of
accompanying Notes to Financial Statements.
5
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
Statement of Assets and Liabilities
(Unaudited)
January 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, as detailed in the accompanying schedules, at
market (cost $456,803,300) (Note A)......................................... $469,942,352
Collateral for securities lending transactions (Note A)....................... 237,634,842
Receivables:
Investment securities sold.................................................. 35,173
Interest and dividends...................................................... 5,813,678
Subscriptions of capital stock.............................................. 77,018
Deferred registration costs (Note A).......................................... 36,741
Prepaid expenses.............................................................. 16,568
------------
TOTAL ASSETS.................................................................... 713,556,372
------------
LIABILITIES
Cash portion of dividends payable............................................. 805,843
Payable upon return of securities loaned (Note A)............................. 237,634,842
Redemptions of capital stock.................................................. 134,093
Payable for investment advisory and management fees........................... 286,150
Payable for distribution fees................................................. 738
Accounts payable and accrued expenses......................................... 66,434
------------
TOTAL LIABILITIES............................................................... 238,928,100
------------
NET ASSETS
Net proceeds of capital stock, par value $.01 per share- authorized
10,000,000,000 shares....................................................... 515,310,100
Unrealized appreciation of investments........................................ 13,139,052
Excess of distributions over net investment income............................ (70,794)
Accumulated net realized loss from sale of investments........................ (53,750,086)
------------
TOTAL NET ASSETS................................................................ $474,628,272
------------
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A shares (based on net assets of $14,314,193 and 1,536,916 shares
outstanding).................................................................. $9.31
------------
Class B shares (based on net assets of $1,357,184 and 145,938 shares
outstanding).................................................................. $9.30
------------
Class C shares (based on net assets of $606,165 and 65,162 shares
outstanding).................................................................. $9.30
------------
Class E shares (based on net assets of $450,329,073 and 48,340,963 shares
outstanding).................................................................. $9.32
------------
Class H shares (based on net assets of $8,021,657 and 861,982 shares
outstanding).................................................................. $9.31
------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
Statement of Operations
(Unaudited)
For the Six-Month Period Ended January 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME:
Income
Interest income............................................................. $17,887,221
Fee income (Note A)......................................................... 93,075
------------
Total Income.................................................................. 17,980,296
------------
Expenses:
Investment advisory and management fees (Note B)............................ 1,712,358
Distribution fees (Class A) (Note B)........................................ 12,044
Distribution fees (Class B) (Note B)........................................ 4,520
Distribution fees (Class C) (Note B)........................................ 2,386
Distribution fees (Class H) (Note B)........................................ 33,379
Legal and auditing fees (Note B)............................................ 33,698
Custodian fees.............................................................. 35,133
Shareholders' notices and reports........................................... 49,824
Registration fees........................................................... 45,776
Directors' fees and expenses................................................ 23,670
Other....................................................................... 24,091
------------
Total Expenses................................................................ 1,976,879
------------
NET INVESTMENT INCOME........................................................... 16,003,417
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE A):
Net realized gain from security transactions.................................. 6,006,876
Net change in unrealized appreciation of investments in securities............ 9,271,423
------------
NET GAIN ON INVESTMENTS......................................................... 15,278,299
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $31,281,716
------------
</TABLE>
7
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE
SIX-MONTH
PERIOD ENDED
JANUARY 31, FOR THE
1996 YEAR ENDED
(UNAUDITED) JULY 31, 1995
------------ ---------------
<S> <C> <C>
OPERATIONS
Net investment income......................................................... $ 16,003,417 $ 37,790,314
Net realized gain (loss) from security transactions........................... 6,006,876 (33,680,898)
Net change in unrealized appreciation of investments.......................... 9,271,423 31,855,826
------------ ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ 31,281,716 35,965,242
------------ ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A..................................................................... (306,672) (123,171)
Class B..................................................................... (27,133) (11,070)
Class C..................................................................... (13,519) (6,511)
Class E..................................................................... (15,516,281) (37,768,650)
Class H..................................................................... (192,920) (101,319)
Excess distributions of net realized gains
Class E..................................................................... -- (56,382)
------------ ---------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............................................. (16,056,525) (38,067,103)
------------ ---------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (1,139,319 and 656,757 shares)...................................... 10,446,224 5,829,103
Class B (95,887 and 55,065 shares).......................................... 878,587 487,212
Class C (41,899 and 36,045 shares).......................................... 383,945 318,057
Class E (1,524,408 and 3,223,444 shares).................................... 13,953,565 28,470,321
Class H (419,966 and 588,648 shares)........................................ 3,839,728 5,220,767
Proceeds from shares issued as a result of reinvested dividends
Class A (26,372 and 10,355 shares).......................................... 243,576 92,733
Class B (2,244 and 701 shares).............................................. 20,680 6,291
Class C (994 and 507 shares)................................................ 9,156 4,548
Class E (1,131,218 and 2,842,973 shares).................................... 10,409,170 25,132,842
Class H (15,231 and 8,959 shares)........................................... 140,235 80,178
Less cost of repurchase of shares
Class A (172,872 and 123,015 shares)........................................ (1,589,149) (1,099,885)
Class B (5,723 and 2,236 shares)............................................ (52,511) (20,025)
Class C (13,925 and 358 shares)............................................. (128,365) (3,216)
Class E (6,464,580 and 15,398,667 shares)................................... (59,296,491) (135,996,432)
Class H (107,891 and 62,931 shares)......................................... (992,059) (558,515)
------------ ---------------
NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS.............................. (21,733,709) (72,036,021)
------------ ---------------
TOTAL DECREASE IN NET ASSETS.................................................... (6,508,518) (74,137,882)
NET ASSETS:
Beginning of period........................................................... 481,136,790 555,274,672
------------ ---------------
End of period (includes excess of distributions over net investment income of
$70,794 and $17,686, respectively).......................................... $474,628,272 $ 481,136,790
------------ ---------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
Notes to Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The fund is the only established
series of Fortis Income Portfolios, Inc., an open-end diversified management
investment company. The primary investment objective of the fund is to
maximize total return (from current income and capital appreciation), while
providing shareholders with a high level of current income consistent with
prudent investment risk. 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 Portfolios 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
January 31, 1996, there were no outstanding when-issued or forward
commitments.
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, the fund amortizes
original issue discount. For bonds held in the fund prior to July 31, 1995,
the fund does not amortize long-term bond premium or discount. For purchases
on or after August 1, 1995, the fund does amortize long-term bond premium and
discount.
For the six-month period ended January 31, 1996, the cost of purchases and
proceeds from sales of securities (other than short-term securities)
aggregated $96,907,264 and $130,562,874, respectively.
LENDING OF PORTFOLIO SECURITIES: At January 31, 1996, securities valued at
$229,373,434 were on loan to brokers from the Fund. For collateral, the
Fund's custodian received $237,634,842 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 $93,075 for the
six-month period ended January 31, 1996. 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 or payable in cash without any charge to the
shareholder.
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 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% (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
$184,692 for Class A, $719 for Class B, $910 for Class C, $15,073 for Class
H, and $108,935 for Class E for the six-month period ended January 31, 1996.
Legal fees and expenses aggregating $21,126 for the six-month period ended
January 31, 1996, were paid to a law firm of which the secretary of the fund
is a partner.
C. At the special shareholder's 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.
9
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
Notes to Financial Statements (continued)
(Unaudited)
- --------------------------------------------------------------------------------
D. FINANCIAL HIGHLIGHTS: Selected per share historical data was as follows:
<TABLE>
<CAPTION>
Class E
-------------------------------------------------------------------------
Year Ended July 31, Year Ended December 31,
--------------------- ----------------------------------
1996* 1995 1994** 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 9.02 $ 9.03 $ 9.87 $ 9.86 $ 10.16 $ 9.76
-------- -------- -------- -------- -------- --------
Operations:
Investment income-net................. .31 .67 .42 .75 .84 .88
Net realized and unrealized gains
(losses) on investments............. .30 (.01) (.84) .05 (.30) .41
-------- -------- -------- -------- -------- --------
Total from operations................... .61 .66 (.42) .80 .54 1.29
-------- -------- -------- -------- -------- --------
Distribution to shareholders:
From investment income-net............ (.31) (.67) (.42) (.75) (.84) (.89)
From realized gains................... -- -- -- (.04) -- --
-------- -------- -------- -------- -------- --------
Total distributions to shareholders..... (.31) (.67) (.42) (.79) (.84) (.89)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 9.32 $ 9.02 $ 9.03 $ 9.87 $ 9.86 $ 10.16
-------- -------- -------- -------- -------- --------
Total Return @.......................... 6.54% 7.71% (4.29%) 8.31% 5.60% 13.90%
Net assets end of period (000s
omitted)............................... $450,329 $470,597 $555,275 $641,977 $587,996 $452,222
Ratio of expenses to average daily net
assets................................. .80%*** .77% .77%*** .76% .72% .72%
Ratio of net investment income to
average daily net assets............... 6.68%*** 7.51% 7.72%*** 7.43% 8.48% 8.88%
Portfolio turnover rate................. 21% 76% 85% 157% 128% 95%
</TABLE>
@ These are the Fund's total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustments for sales charge.
* For the six-month period ended January 31, 1996.
** For the seven-month period ended July 31, 1994.
*** Annualized.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS H
------------------ ------------------ ------------------ ------------------
1996* 1995+ 1996* 1995+ 1996* 1995+ 1996* 1995+
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.02 $ 8.63 $ 9.02 $ 8.63 $ 9.01 $ 8.63 $ 9.02 $ 8.63
------- ------- ------- ------- ------- ------- ------- -------
Operations:
Investment income-net................. .30 .46 .26 .41 .27 .41 .27 .41
Net realized and unrealized gains
(losses) on investments............. .29 .39 .29 .39 .29 .38 .29 .39
------- ------- ------- ------- ------- ------- ------- -------
Total from operations................... .59 .85 .55 .80 .56 .79 .56 .80
------- ------- ------- ------- ------- ------- ------- -------
Distribution to shareholders:
From investment income-net............ (.30) (.46 ) (.27) (.41) (.27) (.41) (.27) (.41)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions to shareholders..... (.30) (.46 ) (.27) (.41) (.27) (.41) (.27) (.41)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period.......... $ 9.31 $ 9.02 $ 9.30 $ 9.02 $ 9.30 $ 9.01 $ 9.31 $ 9.02
------- ------- ------- ------- ------- ------- ------- -------
Total Return @.......................... 6.38% 10.07% 5.87% 9.47% 5.87% 9.35% 5.87% 9.47%
Net assets end of period (000s
omitted)............................... $14,314 $4,909 $ 1,357 $ 483 $ 606 $ 326 $ 8,022 $ 4,823
Ratio of expenses to average daily net
assets................................. 1.05%** 1.02%** 1.80%** 1.77%** 1.80%** 1.77%** 1.80%** 1.77%**
Ratio of net investment income to
average daily net assets............... 6.42%** 7.01%** 5.67%** 6.24%** 5.67%** 6.24%** 5.67%** 6.24%**
Portfolio turnover rate................. 21% 76% 21% 76% 21% 76% 21% 76%
</TABLE>
@ These are the Fund's total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustments for sales charge.
* For the six-month period ended January 31, 1996.
** Annualized.
+ For the period from November 14, 1994 (commencment of operations) to July
31, 1995.
10
<PAGE>
DIRECTORS AND OFFICERS
DIRECTORS Richard W. Cutting CPA AND FINANCIAL CONSULTANT
Allen R. Freedman CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
PRESIDENT, FORTIS, INC. MANAGING
DIRECTOR OF FORTIS INTERNATIONAL,
N.V.
Dr. Robert M. Gavin PRESIDENT, MACALESTER COLLEGE
Benjamin S. Jaffray CHAIRMAN, SHEFFIELD GROUP, LTD.
Jean L. King PRESIDENT, COMMUNI-KING
Dean C. Kopperud CHIEF EXECUTIVE OFFICER AND DIRECTOR,
FORTIS ADVISERS, INC. PRESIDENT AND
DIRECTOR, FORTIS INVESTORS, INC.
SENIOR VICE PRESIDENT AND DIRECTOR,
FORTIS BENEFITS INSURANCE COMPANY,
SENIOR VICE PRESIDENT AND DIRECTOR,
TIME INSURANCE COMPANY
Edward M. Mahoney PRIOR TO JANUARY, 1995, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER, FORTIS
ADVISERS, INC. AND FORTIS INVESTORS,
INC.
Thomas R. Pellett PRIOR TO JANUARY, 1991, SENIOR VICE
PRESIDENT-ADMINISTRATION AND
CORPORATE AFFAIRS, AND DIRECTOR, PET
INC.
Robb L. Prince PRIOR TO JULY, 1995, VICE PRESIDENT AND
TREASURER,
JOSTENS, INC.
Leonard J. Santow PRINCIPAL, GRIGGS & SANTOW, INC.
Joseph M. Wikler INVESTMENT CONSULTANT AND PRIVATE
INVESTOR, PRIOR TO JANUARY, 1994,
DIRECTOR OF RESEARCH, CHIEF
INVESTMENT OFFICER, PRINCIPAL, AND
DIRECTOR, THE ROTHSCHILD CO.
OFFICERS
Dean C. Kopperud
PRESIDENT AND DIRECTOR
Robert W. Beltz, Jr.
VICE PRESIDENT
James S. Byrd
VICE PRESIDENT
Charles J. Dudley
VICE PRESIDENT
Thomas D. Gualdoni
VICE PRESIDENT
Maroun M. Hayek
VICE PRESIDENT
Howard G. Hudson
VICE PRESIDENT
Robert C. Lindberg
VICE PRESIDENT
Larry A. Medin
VICE PRESIDENT
Kevin J. Michels
VICE PRESIDENT
Jon H. Nicholson
VICE PRESIDENT
Fred Obser
VICE PRESIDENT
Dennis M. Ott
VICE PRESIDENT
David A. Peterson
VICE PRESIDENT
Nicholas L. M. de Peyster
VICE PRESIDENT
Stephen M. Poling
VICE PRESIDENT
Stephen M. Rickert
VICE PRESIDENT
Richard P. Roche
VICE PRESIDENT
Anthony J. Rotondi
VICE PRESIDENT
Rhonda J. Schwartz
VICE PRESIDENT
Keith R. Thomson
VICE PRESIDENT
Christopher J. Woods
VICE PRESIDENT
Gary N. Yalen
VICE PRESIDENT
Michael J. Radmer
SECRETARY
Tamara L. Fagely
TREASURER
INVESTMENT MANAGER, REGISTRAR Fortis Advisers, Inc.
AND TRANSFER AGENT BOX 64284, ST. PAUL, MINNESOTA 55164
PRINCIPAL UNDERWRITER Fortis Investors, Inc.
BOX 64284, ST. PAUL, MINNESOTA 55164
CUSTODIAN First Bank National Association
MINNEAPOLIS, MINNESOTA
GENERAL COUNSEL Dorsey & Whitney LLP
MINNEAPOLIS, MINNESOTA
INDEPENDENT AUDITORS KPMG Peat Marwick LLP
MINNEAPOLIS, MINNESOTA
The use of this material is authorized only when preceded or accompanied by a
prospectus.
11
<PAGE>
FORTIS FINANCIAL GROUP'S OTHER PRODUCTS AND SERVICES
MUTUAL FUNDS/PORTFOLIOS
CONVENIENT ACCESS TO A BROAD RANGE
OF SECURITIES
Fortis Bond Funds
FORTIS MONEY FUND
FORTIS U.S. GOVERNMENT SECURITIES FUND
FORTIS TAX-FREE MINNESOTA PORTFOLIO
FORTIS TAX-FREE NATIONAL PORTFOLIO
FORTIS TAX-FREE NEW YORK PORTFOLIO
FORTIS HIGH YIELD PORTFOLIO
Fortis Stock Funds
FORTIS ASSET ALLOCATION PORTFOLIO
FORTIS GROWTH AND INCOME FUND
FORTIS VALUE FUND
FORTIS CAPITAL FUND
FORTIS FIDUCIARY FUND
FORTIS GROWTH FUND
FORTIS CAPITAL APPRECIATION PORTFOLIO
FORTIS GLOBAL GROWTH PORTFOLIO
FIXED AND VARIABLE ANNUITIES
TAX-DEFERRED INVESTING
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
GLOBAL GROWTH
GROWTH STOCK
INTERNATIONAL STOCK
AGGRESSIVE GROWTH
Fortune Fixed Annuities
SINGLE PREMIUM ANNUITY
FLEXIBLE PREMIUM ANNUITY
Income Annuities
GUARANTEED FOR LIFE
GUARANTEED FOR A SPECIFIED PERIOD
VARIABLE UNIVERSAL LIFE
INSURANCE PROTECTION AND TAX-DEFERRED INVESTMENT OPPORTUNITY
Wall Street Series VUL 100, 220 & 500,
Harmony
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
[FORTIS LOGO]
THE 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 and TIME INSURANCE COMPANY.
FOR MORE COMPLETE INFORMATION, INCLUDING CHARGES AND EXPENSES, SEND FOR A
PROSPECTUS. WRITE TO: FORTIS INVESTORS, INC., P.O. BOX 64284, ST. PAUL, MN
55164. READ IT CAREFULLY BEFORE INVESTING OR SENDING MONEY.
12
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
Fortis Financial Group
Fortis Financial Group (FFG) is a premier provider of insurance and
investment portfolios whose fund manager, Fortis Advisers, Inc., has
established a nationwide reputation for money management. Through Fortis
Investors, Inc., FFG offers mutual funds, annuities and variable universal
life insurance. Traditional life insurance products are issued and
underwritten by Time Insurance Company and Fortis Benefits Insurance Company.
FFG is part of Fortis, Inc., a financial services company which owns or
manages approximately $10 billion in assets. Fortis, Inc., is an affiliate of
Fortis, a worldwide, diversified financial services group jointly owned by
Fortis AMEV of the Netherlands and Fortis AG of Belgium with worldwide assets
in excess of $125 billion.
Like the Fortis name, which comes from the Latin for steadfast, our focus is
on the long-term in all we do: the relationships we build, the performance we
seek, the service we provide and the products we offer.
[FORTIS LOGO] ---------------
FORTIS FINANCIAL GROUP Bulk Rate
P.O. Box 64284 US Postage
St. Paul, MN 55164 PAID
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.
95381 (Ed. 3/96)
