<PAGE>
[LOGO]
FORTIS
SOLID PARTNERS, FLEXIBLE SOLUTIONS-SM-
CHOOSE THE RIGHT INVESTMENT
[PHOTOS] Fortis Bond Funds
Semi-Annual Report
JANUARY 31, 1998
FORTIS FINANCIAL GROUP
<PAGE>
FORTIS BOND FUND SEMI-ANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS 1
SCHEDULES OF INVESTMENTS
U.S. GOVERNMENT SECURITIES FUND 7
STRATEGIC INCOME FUND 9
HIGH YIELD PORTFOLIO 12
STATEMENTS OF ASSETS AND LIABILITIES 17
STATEMENTS OF OPERATIONS 18
STATEMENTS OF CHANGES IN NET ASSETS
U.S. GOVERNMENT SECURITIES FUND 19
STRATEGIC INCOME FUND 20
HIGH YIELD PORTFOLIO 21
NOTES TO FINANCIAL STATEMENTS 22
DIRECTORS AND OFFICERS 29
- - TOLL-FREE PERSONAL ASSISTANCE
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- (800) 800-2638, Ext. 3012
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- 7:30 a.m. to 5:00 p.m. CST, F
- - TOLL-FREE INFORMATION LINE
- For daily account balances,
transaction activity or net asset
value information
- (800) 800-2638, Ext. 4344
- 24 hours a day
FOR MORE INFORMATION ABOUT FORTIS FINANCIAL GROUP'S FAMILY OF PRODUCTS, CALL
YOUR INVESTMENT REPRESENTATIVE OR THE HOME OFFICE AT (800) 800-2638.
TO ORDER PROSPECTUSES OR SALES LITERATURE FOR ANY FORTIS PRODUCT, CALL (800)
800-2638, EXT. 4579.
HOW TO USE THIS REPORT
For a quick overview of the Funds' performance during the past six months, refer
to the Highlights box below. The letters from the portfolio managers and
president provide a more detailed analysis of the Fund and financial markets.
The charts following the letters are useful because they provide more
information about your investments. The top holdings chart shows the types of
securities in which the Fund invests, and the pie chart shows a breakdown of the
Fund's assets by industry.
The performance chart graphically compares the Fund's total return performance
with a selected investment index. Remember, however, that an index may reflect
the performance of securities the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your fund does. Individuals cannot buy an unmanaged index fund without incurring
some charges and expenses.
This report is just one of several tools you can use to learn more about your
investment in the Fortis Family of Mutual Funds. Your investment representative,
who understands your personal financial situation, can best explain the features
of your investment and how it's designed to help you meet your financial goals.
HIGHLIGHTS
FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 1998
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS E CLASS H
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES FUND
NET ASSET VALUE PER SHARE:
Beginning of period........................ $ 9.16 $ 9.14 $ 9.13 $ 9.16 $ 9.14
End of period.............................. $ 9.31 $ 9.29 $ 9.28 $ 9.31 $ 9.28
DISTRIBUTIONS PER SHARE
From net investment income................. $ 0.258 $ 0.228 $ 0.228 $ 0.270 $ 0.228
STRATEGIC INCOME FUND*
NET ASSET VALUE PER SHARE:
Beginning of period........................ $ 10.00 $ 10.00 $ 10.00 -- $ 10.00
End of period.............................. $ 10.19 $ 10.19 $ 10.19 -- $ 10.19
DISTRIBUTIONS PER SHARE
From net investment income................. $ .098 $ .088 $ .090 -- $ .090
HIGH YIELD PORTFOLIO
NET ASSET VALUE PER SHARE:
Beginning of period........................ $ 7.83 $ 7.83 $ 7.82 -- $ 7.82
End of period.............................. $ 7.72 $ 7.71 $ 7.70 -- $ 7.71
DISTRIBUTIONS PER SHARE
From net investment income................. $ .390 $ .366 $ .366 -- $ .366
</TABLE>
* For the period from December 1, 1997 (commencement of operations) to
January 31, 1998.
<PAGE>
Photo
"It was critical I achieve my goals, and I found what I was looking for in the
Fortis U.S. Government Securities Fund. It fit my needs perfectly."
GLOSSARY OF TERMS
Terms defined are in ITALICS in the shareholder letter
DURATION: The measure of a bond fund's sensitivity to interest rate changes.
Traditionally measured in years, higher durations mean potentially greater
fluctuations in bond values, just as lower durations typically mean less
volatility.
GDP (GROSS DOMESTIC PRODUCT): The market value of a countries total output of
goods and services.
YOUR U.S. GOVERNMENT SECURITIES FUND
MANAGED WITH A DISCIPLINED, CONSISTENT INVESTMENT APPROACH, THIS FUND IS
DESIGNED TO SEEK A STRONG TOTAL RETURN, AS WELL AS A RELATIVELY HIGH LEVEL OF
CURRENT INCOME, BY FOCUSING ITS INVESTMENTS IN U.S. GOVERNMENT BONDS, TREASURIES
AND MORTGAGE-BACKED SECURITIES.
REVIEW
In our last shareholder letter, we forecasted that economic growth would pick up
and that the economic expansion would continue well into 1998. We also felt that
the increasingly tight labor market would put pressure on wages and ultimately
result in a modest increase in inflation, prompting the Federal Reserve to raise
short term interest rates. In retrospect, our forecast was right about the
contributing factors. The second half of 1997 did see rapid growth, real GDP was
4.3% in the fourth quarter versus a 3.1% in quarter three. For the entire year,
real GDP was 3.8%, the most rapid gain in almost a decade. Even though the
year-over-year change in average hourly earnings moved up to its current 3.8%
from 3.6% for the July 1997 release (last shareholder letter), these pressures
have not worked their way into the overall inflation rate and the Fed did not
feel compelled to raise short term rates. In addition, the financial crisis in
the Far East resulted in significant inflows into the U.S. Treasury Bond market,
as investors sought a safe-haven for their money. The net result of these events
has resulted in a lower interest rate environment today than the one that
existed six months ago. The ten-year treasury yield has fallen close to 50 basis
points in this time period, with rates now in the 5.5% area versus the 6.0% area
on July 31. The shape of the Treasury yield curve has flattened over the last
six months, as yields on longer maturity Treasuries have fallen more than yields
on shorter maturity Treasuries. For instance, the yield on the two-year Treasury
has fallen by 42 basis points, while 30 year Treasury yields fell by 49 basis
points. The financial crisis in Asia which hit the bond market in October had an
impact on the various other areas of the fixed income market. The flight to
quality generally resulted in all non Treasury areas of the U.S. bond market
underperforming the Treasury market since October.
Our strategy over the last six months was similar in many ways to the strategy
that we applied in the prior period. We extended the portfolio's DURATION as
interest rates rose, given our positive long term outlook on rates, and moved
the portfolio's duration to neutral versus our benchmark when rates fell. Once
the crisis in Asia hit, we felt the prudent move was to expose the portfolio to
minimal interest rate risk. Accordingly, we maintained a neutral duration
relationship relative to our benchmark from mid-September to the end of January.
Our duration currently stands at 4.54 years which is virtually unchanged from
the end of July. Currently, 19.8% of our holdings are in agency notes, as we
continue to believe the extra yield these securities offer will enhance total
return. Relative to our benchmark we are underweighted in Mortgage-Backed
Security Pass-Throughs and CMO's as we believe that the better structured agency
and U.S. Treasury securities are a better investment choice as this point in
time. Overall, the Fund produced a return of 4.66% for Class E before sales
charge, compared to the 5.39% return for the Lehman Government Index. The Fund
underperformed the index primarily due to the fact that the Fund generally
invests in more conservative securities than those contained in the index. The
Fund's performance does however compare favorably to the 4.39% return for the
Morningstar universe of U.S. Intermediate Government Bond funds.
OUTLOOK
Our strategy going forward will depend upon the severity and duration of the
Asian crisis. Specifically, should the difficulties in the Far East continue as
anticipated, it is likely that the spillover will slow U.S. economic growth, due
to a deterioration in net exports. In addition, a continuation of the crisis
should perpetuate the strength of the U.S. Dollar, making foreign goods cheaper
and decreasing the risks of inflation. If this scenario plays out, rates most
likely will move lower, possibly much lower and mortgage-backed securities would
see a large jump in prepayments thus hurting returns in this sector. If the
situation in the Far East is resolved quickly, the current
1
<PAGE>
PORTFOLIO COMPOSITION BY INDUSTRY AS OF 1/31/98
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Treasury Securities 40.1%
FNMA's 29.3%
Other Direct Federal Obligations 10.2%
GNMA's 9.3%
FHLMC's 6.4%
Receivables/Cash Equivalents 4.0%
Other Government Agencies 0.7%
</TABLE>
TOP 10 HOLDINGS AS OF 1/31/98
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. U.S. Treasury Note (6.375%) 2000 10.1%
2. Federal Home Loan Bank (7.31%) 2004 8.2%
3. U.S. Treasury Bond (8.125%) 2019 6.3%
4. U.S. Treasury Note (6.125%) 2001 6.2%
5. U.S. Treasury Note (6.625%) 2002 5.2%
6. FNMA (7.50%) 2028 4.0%
7. U.S. Treasury Note (6.875%) 2006 3.7%
8. U.S. Treasury Bond (8.75%) 2017 3.7%
9. FNMA (7.00%) 2028 3.5%
10. FNMA (6.50%) 2013 3.4%
</TABLE>
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- -----------------------------------------------------------------------
<S> <C> <C>
Class A shares# 9.70% 9.10%
Class A shares## 4.77% 7.55%
Class B shares# 9.12% 8.30%
Class B shares## 5.52% 7.59%
Class C shares# 9.01% 8.27%
Class C shares## 8.01% 8.27%
Class H shares# 8.89% 8.26%
Class H shares## 5.29% 7.56%
</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 (E, A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class E and A have a maximum sales charge of 4.50%, Class B
and H have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if
redeemed in year three or four (with a waiver of 10% of the amount invested).
Class C has a CDSC of 1.00% if redeemed within one year of purchase.
# Without sales charge.
## With sales charge. Assumes redemption on January 31, 1998.
+ Since November 14, 1994 -- Date shares were first offered to the public
underlying strength in the economy should give rise to the modest inflation
pressures we were looking for six months ago. At this time we anticipate that
the Asian situation will not be resolved quickly and that the economy will see
slower rates of growth.
Sincerely,
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
Dean C. Kopperud Howard G. Hudson
President Vice President
</TABLE>
VALUE OF $10,000 INVESTED FEBRUARY 1, 1988
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROTHERS U.S. GOVERNMENT
GOVERNMENT INDEX*** SECURITIES FUND CLASS E
<S> <C> <C> <C>
2/1/88 $10,000 $10,000
89 $10,491 $10,079
90 $11,728 $11,126
91 $13,063 $12,501
92 $14,885 $13,769
93 $17,089 $15,127
94 $20,161 $16,305
95 $18,465 $15,459
96 $21,764 $17,725
97 $22,277 $18,257
98 $24,592 $20,081
Fortis U.S. Government Securities Fund
Average Annual Total Return
1 Year 5 Year 10 Year
Class E* +5.10% +4.87% +7.23%
Class E** +10.05% +5.84% +7.72%
</TABLE>
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 eight to
nine years.
2
<PAGE>
Photo
"The Strategic Income Fund gives me an opportunity to diversify my investments.
With its unique investment approach and monthly income, I plan to achieve my
financial goals."
YOUR FORTIS STRATEGIC INCOME FUND
THE FUND'S INVESTMENT OBJECTIVE IS TO MAXIMIZE TOTAL RETURN (FROM CURRENT INCOME
AND CAPITAL APPRECIATION) BY PRIMARILY INVESTING IN A DIVERSIFIED PORTFOLIO OF
U.S. GOVERNMENT SECURITIES, INVESTMENT AND NON-INVESTMENT GRADE BONDS ISSUED BY
FOREIGN GOVERNMENTS AND COMPANIES, AND NON-INVESTMENT GRADE BONDS ISSUED BY U.S.
COMPANIES.
REVIEW
The Strategic Income Fund commenced operations on December 1, 1997 amidst
turbulent international cross-currents. The currency and banking crisis that
began during the summer in Thailand spread throughout Asia by year end. In
general, fixed income markets in less-developed economies, like Russia and
Brazil, were all negatively affected. Many of these bond markets had been among
the outstanding total return performers for the last two years. As the crisis
worsened in late December and early January, investors continued to flee for the
safe haven of U.S. Treasuries and the U.S. dollar, which pushed up the values
for these assets.
Our initial posture was to minimize the Fund's exposure to the Asian chaos and,
consequently, over 77% of the Fund was invested in U.S.-related securities by
January 31st. Of the 22% exposure to foreign bonds, 19% of the portfolio was
invested in investment-grade issuers, like the Province of Quebec and the Bank
of Austria. Our holdings in the more aggressive foreign markets were limited to
government bonds issued by Mexico. Our lower-rated, U.S. high yield exposure was
approximately 27% as of January 31st. All of our investments in the Fund were
dollar-denominated. The Fund returned 2.89% for Class A before sales charge,
from December 1, 1997 to January 31, 1998. The Lehman Aggregate Bond Index
returned 2.29% during this same time period. The Fund's outperformance of the
index was due mainly to the performance of the Fund's high yield holdings.
OUTLOOK
Going forward, we believe that a slowdown in the global economy precipitated by
the Asian crisis should mute inflationary pressures, which should generally
prove beneficial for bonds. We also believe that some of our best opportunities
in the future may lie within the Pacific Rim markets or other less-developed
foreign markets that have been unfairly tarnished by the recent world-wide
volatility.
Sincerely,
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
Dean C. Kopperud Howard G. Hudson
President Vice President
</TABLE>
3
<PAGE>
PORTFOLIO COMPOSITION BY INDUSTRY AS OF 1/31/98
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Corporate Bonds - Non-Investment Grade 27.3%
Foreign Bonds - Investment Grade 19.0%
U.S. Treasury Securities 17.4%
Corporate Bonds - Investment Grade 12.2%
Cash Equivalent/Receivables 6.2%
Asset Backed Securities 5.0%
FNMAs 4.8%
Municipal Bonds 4.7%
Foreign Bonds - Non-Investment Grade 3.4%
</TABLE>
TOP 10 HOLDINGS AS OF 1/31/98
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. U.S. Treasury Note (6.625%) 2002 14.4%
2. News America Holdings (8.875%) 2023 2.8%
3. Bank Austria AG (7.25%) 2017 2.5%
4. J.P. Morgan Commercial Mortgage Finance Corp.
(7.472%) 2028 2.5%
5. Quebec (Providence of) (7.50%) 2002 2.5%
6. Lehman Brothers Holdings (7.375%) 2004 2.5%
7. 360 Communications Co. (7.50%) 2006 2.5%
8. Trans-Canada Pipelines Ltd. (7.06%) 2025 2.5%
9. Empresa Nacional de Electricidad (7.325%) 2037 2.5%
10. Saga Petroleum ASA (7.25%) 2027 2.5%
</TABLE>
CLASS B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
Inception+
- -------------------------------------------------------
<S> <C>
Class B shares# 2.79%
Class B shares## (0.81%)
Class C shares# 2.81%
Class C shares## 1.81%
Class H shares# 2.81%
Class H shares## (0.79%)
</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 (A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class A has a maximum sales charge of 4.50%, Class B and H
have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if
redeemed in year three or four (with a waiver of 10% of the amount invested).
Class C has a CDSC of 1.00% if redeemed within one year of purchase.
# Without CDSC.
## With CDSC. Assumes redemption on January 31, 1998.
+ Since December 1, 1997 -- Date shares were first offered to the public
VALUE OF $10,000 INVESTED DECEMBER 1, 1997
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROTHERS STRATEGIC INCOME
AGGREGATE BOND INDEX*** FUND CLASS A
<S> <C> <C>
12/1/97 $10,000 $10,000
98 $10,230 $10,289
Strategic Income Fund Class A
Two Month Total Return
Since December 1, 1997@
With Sales Charge* -1.74%
Without Sales Charge** +2.89%
</TABLE>
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, corporate and mortgage-backed securities
with an average maturity of approximately nine years.
@ Date shares were first offered to the public.
4
<PAGE>
Photo
"It makes sense to put part of my money into the High Yield Portfolio. I want
the opportunity to earn the kind of returns that high yield bonds can offer."
YOUR FORTIS HIGH YIELD PORTFOLIO
LONG-TERM INVESTORS, WILLING TO ACCEPT GREATER PRICE FLUCTUATIONS, MAY CHOOSE TO
DIVERSIFY THEIR STOCK OR BOND INVESTMENTS WITH THIS PORTFOLIO OF HIGHER YIELDING
BONDS. ITS MONEY MANAGERS INVEST IN A WIDELY DIVERSIFIED PORTFOLIO OF
LOWER-RATED CORPORATE BONDS.
REVIEW
Buoyed by the strength of the global economy, low default rates, low inflation
and robust U.S. stock and Treasury bond markets, high yield securities, on
average, recorded their third straight year of double-digit returns in the
period ended January 31, 1998.
The High Yield Portfolio recorded a disappointing 3.66 percent return for Class
A before sales charge for the semi-annual period. Although the Portfolio
generated well above-average income, it fell short of its goal of delivering
above-average total returns (income plus change in market value) versus its
competitive universe. Most of the shortfall in the 1997's performance can be
attributed to specific bond holdings, rather than industry sector or quality
weightings.
Australis Media, an Australian pay-television operator, had its bonds drop
substantially in price after a failed merger. The bonds of Wireless One, a U.S.
wireless cable television company, declined throughout the year as concerns
increased that the company had insufficient cash to continue the construction of
its cable systems. From an industry sector standpoint, our focus on
telecommunication companies and traditional cable television companies helped
the Portfolio's performance. Also beneficial was our avoidance of supermarket
bonds, and generally, bonds issued by companies sensitive to the business cycle,
like steel, chemical and forest products concerns.
OUTLOOK
Our 1998 outlook for high yield bonds is positive, but cautious. The
near-collapse of the Asian economies may slow the U.S. economy in 1998 and
thereby increase the risk of default among lower-rated issuers of corporate
debt. Although demand for high yielding, lower-rated paper is at all-time highs,
the difference ("spread") between these securities and U.S. government bonds is
historically narrow. In addition, the U.S. stock market, often the primary
source for companies looking to reduce their debt burden, has had an
unprecedented three-year upswing, which may prove hard to match in 1998. Our
current strategy is to work to improve the overall credit quality of the
portfolio. While this may result in lower dividends at some point in the year,
our efforts will be focused on improving the total return of the portfolio.
Sincerely,
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
Dean C. Kopperud Howard G. Hudson
President Vice President
</TABLE>
5
<PAGE>
PORTFOLIO COMPOSITION BY INDUSTRY AS OF 1/31/98
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Other 36.1%
Telecommunications 18.0%
Cable Television 17.4%
Housing 5.1%
Health Care Services 4.8%
Textile Manufacturing 4.8%
Broadcasting 4.3%
Publishing 3.7%
Industrial 3.6%
Cash Equivalent/Receivables 2.2%
</TABLE>
TOP 10 HOLDINGS AS OF 1/31/98
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. MDC Holdings, Inc. (11.25%) 2003 3.2%
2. HMH Properties, Inc. (9.50%) 2005 2.1%
3. Petersen Publishing Co., LLC (11.125%) 2006 2.1%
4. Falcon Holdings Group (11.00%) 2003 2.0%
5. Galaxy Telecom L.P. (12.375%) 2005 2.0%
6. Young Broadcasting, Inc. (11.75%) 2004 2.0%
7. Clark Materials Handling (10.75%) 2006 2.0%
8. Tenet Healthcare Corp. (10.125%) 2005 2.0%
9. Omnipoint Corp. (11.625%) 2006 1.9%
10. Paragon Health Networks (9.79%) 2007 1.9%
</TABLE>
CLASS B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- -----------------------------------------------------------------------
<S> <C> <C>
Class B shares# 9.55% 9.61%
Class B shares## 5.95% 8.92%
Class C shares# 9.56% 9.57%
Class C shares## 8.56% 9.57%
Class H shares# 9.70% 9.61%
Class H shares## 6.10% 8.92%
</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 (A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class A has a maximum sales charge of 4.50%, Class B and H
have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if
redeemed in year three or four (with a waiver of 10% of the amount invested).
Class C has a CDSC of 1.00% if redeemed within one year of purchase.
# Without CDSC.
## With CDSC. Assumes redemption on January 31, 1998.
+ Since November 14, 1994 -- Date shares were first offered to the public
VALUE OF $10,000 INVESTED FEBRUARY 1, 1988
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROTHERS HIGH YIELD
HIGH YIELD INDEX*** PORTFOLIO CLASS A
<S> <C> <C> <C>
2/1/88 $10,000 $9,418
89 $11,081 10,539
90 10,744 9,414
91 10,200 8,181
92 15,023 12,992
93 17,286 14,784
94 20,099 18,070
95 19,738 17,085
96 23,686 19,376
97 25,957 21,331
98 29,315 23,543
High Yield Portfolio Class A
Average Annual Total Return
1 Year 5 Year 10 Year
With Sales Charge* 5.40% 8.75% 8.94%
Without Sales Charge** 10.37% 9.75% 9.44%
</TABLE>
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 lower quality, high yield corporate debt securities.
6
<PAGE>
FORTIS BOND FUNDS
U.S. GOVERNMENT SECURITIES FUND
Schedule of Investments
January 31, 1998 (Unaudited)
U.S. GOVERNMENT SECURITIES-95.96%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Cost (a) Value (b)
------------ ------------- -------------
<C> <S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION -
6.43%
MORTGAGE BACKED SECURITIES:
$ 8,546,214 8.00% 2001-2002.............................. $ 8,759,869 $ 8,741,170
3,344,380 9.00% 2001-2022.............................. 3,543,363 3,555,837
192,845 10.50% 2015.................................. 207,369 211,105
267,279 11.25% 2013-2014............................. 287,601 297,849
816,690 11.50% 2015-2019............................. 883,327 915,457
754,860 11.75% 2010-2015............................. 827,251 849,924
169,219 12.50% 2019.................................. 181,650 192,804
------------- -------------
14,690,430 14,764,146
------------- -------------
NOTES:
8,000,000 6.75% 2006................................... 8,241,630 8,477,480
------------- -------------
REMIC-PAC'S:
1,005,525 9.00% Trust #136-D Pac 2020.................. 1,010,348 1,016,607
------------- -------------
TOTAL FEDERAL HOME LOAN MORTGAGE
CORPORATION................................ 23,942,408 24,258,233
------------- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -
29.26%
MORTGAGE BACKED SECURITIES:
3,980,000 6.00% 2013 (g)............................... 3,933,981 3,938,954
17,605,467 6.50% 2013-2028 (g).......................... 17,659,038 17,616,283
1,448,889 6.54% 2007................................... 1,475,875 1,494,789
17,467,050 7.00% 2003-2028 (g).......................... 17,614,268 17,727,733
6,837,900 7.184% 2006.................................. 6,746,125 7,259,125
21,085,136 7.50% 2022-2028 (g).......................... 21,528,598 21,671,556
1,111,480 8.00% 2025................................... 1,063,895 1,152,466
1,348,668 8.50% 2022................................... 1,417,109 1,405,986
128,538 9.00% 2020................................... 127,292 136,812
1,306,432 9.75% 2020................................... 1,409,314 1,408,904
806,290 10.00% 2023.................................. 879,612 874,573
884,943 10.50% 2012-2018............................. 948,505 968,736
205,286 10.75% 2013.................................. 211,445 226,007
2,388,765 11.00% 2015-2020............................. 2,577,873 2,644,810
389,567 11.25% 2013.................................. 409,045 433,880
171,898 11.50% 2015.................................. 185,082 192,580
384,346 12.00% 2011-2016............................. 410,922 434,672
527,470 12.50% 2015.................................. 591,228 600,822
------------- -------------
79,189,207 80,188,688
------------- -------------
NOTES:
2,000,000 5.25% 2003 (f)............................... 1,993,296 1,967,058
6,065,000 6.58% 2007................................... 6,050,975 6,390,339
3,980,000 7.15% 2007................................... 4,328,610 4,351,533
9,750,000 7.65% 2005................................... 9,886,868 10,797,911
------------- -------------
22,259,749 23,506,841
------------- -------------
REMIC-Z BONDS:
6,650,662 6.89% Z-Tranch Ser 1997-M Class 2A 2035
(e)........................................ 6,288,704 6,634,036
------------- -------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION................................ 107,737,660 110,329,565
------------- -------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -
9.26%
MORTGAGE BACKED SECURITIES:
2,348,440 6.675% American Southwest Financial Services
1996-FHA1 2001 (GNMA Backed)............... 2,352,001 2,360,182
8,160,782 7.00% 2024................................... 8,046,259 8,283,194
2,783,772 8.00% 2017-2022.............................. 2,848,962 2,891,644
2,846,604 9.00% 2022................................... 2,939,118 3,052,982
16,334,787 9.50% 2016-2019.............................. 17,067,519 17,624,286
597,145 11.00% 2015-2018............................. 643,206 655,740
63,443 11.25% 2015.................................. 67,369 70,124
------------- -------------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION................................ 33,964,434 34,938,152
------------- -------------
</TABLE>
7
<PAGE>
FORTIS BOND FUNDS
U.S. GOVERNMENT SECURITIES FUND (CONTINUED)
Schedule of Investments
January 31, 1998 (Unaudited)
U.S. GOVERNMENT SECURITIES-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Cost (a) Value (b)
------------ ------------- -------------
<C> <S> <C> <C>
OTHER DIRECT FEDERAL OBLIGATIONS - 10.25%
FEDERAL HOME LOAN BANK:
$ 7,500,000 5.925% 2000 (f).............................. $ 7,510,842 $ 7,577,175
28,650,000 7.31% 2004................................... 28,570,552 31,073,332
------------- -------------
TOTAL OTHER DIRECT FEDERAL OBLIGATIONS....... 36,081,394 38,650,507
------------- -------------
OTHER GOVERNMENT AGENCIES - 0.70%
RESOLUTION FUNDING CORPORATION:
7,000,000 7.355% 2014 (d).............................. 2,143,989 2,642,073
------------- -------------
U.S. TREASURY SECURITIES - 40.06%
BONDS:
45,000 6.375% 2027 (f).............................. 48,851 48,333
18,630,000 8.125% 2019 (f).............................. 21,446,487 23,648,456
10,400,000 8.75% 2017 (f)............................... 14,021,571 13,819,000
------------- -------------
35,516,909 37,515,789
------------- -------------
NOTES:
1,600,000 6.00% 1999 (f)............................... 1,599,282 1,613,499
22,990,000 6.125% 2001 (f).............................. 22,777,026 23,564,750
37,280,000 6.375% 2000 (f).............................. 37,554,477 38,083,831
24,450,000 6.625% 2002-2007 (f)......................... 25,422,182 25,716,503
12,980,000 6.875% 2006 (f).............................. 13,484,470 14,095,462
------------- -------------
100,837,437 103,074,045
------------- -------------
STRIPS:
20,600,000 6.19% 2009 (d)(f)............................ 10,041,101 10,478,993
------------- -------------
TOTAL U.S. TREASURY SECURITIES............... 146,395,447 151,068,827
------------- -------------
TOTAL U.S. GOVERNMENT SECURITIES............. $ 350,265,332 $ 361,887,357
------------- -------------
------------- -------------
</TABLE>
SHORT-TERM INVESTMENTS-16.36%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
------------ -------------
<C> <S> <C>
INVESTMENT COMPANY-3.99%
$15,048,722 Federated Treasury Obligation Fund, Current
rate -- 5.09%.............................. $ 15,048,722
-------------
U.S. GOVERNMENT AGENCY-12.37%
20,200,000 Federal Home Loan Mortgage Corp., 5.49%,
2-20-1998 (f).............................. 20,139,512
5,000,000 Federal National Mortgage Association, 5.50%,
2-27-1998.................................. 4,979,750
5,000,000 Federal National Mortgage Association, 5.51%,
2-25-1998.................................. 4,981,215
16,600,000 Federal National Mortgage Association, 5.52%,
2-12-1998 (f).............................. 16,569,954
-------------
46,670,431
-------------
TOTAL SHORT-TERM INVESTMENTS................. 61,719,153
-------------
-------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$411,984,485) (a).......................... $ 423,606,510
-------------
-------------
</TABLE>
(a) At January 31, 1998, the cost of securities for federal income tax purposes
was $412,187,006 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $11,802,269
Unrealized depreciation........................... (382,765)
---------------------------------------------------------------
Net unrealized appreciation....................... $11,419,504
---------------------------------------------------------------
</TABLE>
(b) See Note 1 of accompanying Notes to Financial Statements regarding
valuation of securities.
(c) Note: Percentage of investments as shown is the ratio of the total market
value to total net assets.
(d) The interest rates disclosed for these securities represents the effective
yield on the date of acquisition.
(e) Z-Tranche securities pay no principal or interest during their inital
accrual period, but accrue additional principal at a specified coupon rate.
The interest rate disclosed represents the effective rate at which the
additional principal is currently being accrued.
(f) Security is fully or partially on loan at January 31, 1998. See Note 1 of
accompanying Notes to Financial Statements.
(g) The cost of securities purchased on a when-issued basis at January 31,
1998, was $49,615,962.
8
<PAGE>
FORTIS BOND FUNDS
STRATEGIC INCOME FUND
Schedule of Investments
January 31, 1998 (Unaudited)
MUNICIPAL BONDS-4.69%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
----------- -------- ------------ ------------
<C> <S> <C> <C> <C>
GENERAL OBLIGATIONS-2.32%
$ 500,000 Massachusetts Bay, 5.00% Transportation Auth
Rev Bond Ser C 3-1-2024.................... AA- $ 482,312 $ 487,179
------------ ------------
HIGHER EDUCATION-2.37%
500,000 Pennsylvania State University, 5.00% Rev Bond
Ser A 8-15-2022............................ AA- 487,880 499,286
------------ ------------
TOTAL MUNICIPAL BONDS........................ $ 970,192 $ 986,465
------------ ------------
------------ ------------
</TABLE>
ASSET BACKED SECURITIES-4.95%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
----------- -------- ------------ ------------
<C> <S> <C> <C> <C>
COMMERCIAL LOANS-4.95%
$ 500,000 GMAC Commercial Mortgage Securities, Inc.,
7.085% Ser 1997-C1 Class E 12-15-2010...... Baa* $ 498,992 $ 506,269
500,000 J.P. Morgan Commercial Mortgage Finance
Corp., 7.472% Ser 1997-C4 Class B
12-26-2028................................. AA 525,237 534,922
------------ ------------
TOTAL ASSET BACKED SECURITIES................ $ 1,024,229 $ 1,041,191
------------ ------------
------------ ------------
</TABLE>
CORPORATE BONDS-INVESTMENT GRADE-31.17%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
----------- -------- ------------ ------------
<C> <S> <C> <C> <C>
BANKS-6.20%
$ 350,000 Banco Santiago S.A., 7.00% Sub Note
7-18-2007.................................. BBB $ 346,755 $ 353,109
500,000 Bank Austria AG, 7.25% Sub Note 2-15-2017.... AAA 520,833 535,202
400,000 Corestates Capital Corp., 6.75% Medium Term
Note 11-15-2006............................ A- 402,911 414,648
------------ ------------
1,270,499 1,302,959
------------ ------------
BROKERAGE AND INVESTMENT-2.51%
500,000 Lehman Brothers Holdings, 7.375% Sr Note
5-15-2004.................................. A 518,743 527,204
------------ ------------
CONSUMER FINANCE-2.40%
500,000 Beneficial Corp., 6.33% Medium Term Note
12-18-2000................................. A 501,497 503,692
------------ ------------
FOREIGN-GOVERNMENT-2.44%
500,000 Poland (Republic of), 7.125% Yankee Bond
7-1-2004................................... BBB- 501,115 513,750
------------ ------------
FOREIGN-GOVERNMENT AGENCIES-2.51%
500,000 Quebec (Province of), 7.50% Yankee Bond
7-15-2002.................................. A+ 520,875 528,529
------------ ------------
MEDIA-2.80%
500,000 News America Holdings, 8.875% Deb
4-26-2023.................................. BBB- 580,503 589,058
------------ ------------
NATURAL GAS TRANSMISSIONS-2.47%
500,000 Trans-Canada Pipelines Ltd., 7.06% Note
10-14-2025................................. A- 504,198 519,154
------------ ------------
OIL-CRUDE PETROLEUM AND GAS-2.46%
500,000 Saga Petroleum ASA, 7.25% Yankee Bond
9-23-2027.................................. BBB+ 508,527 517,315
------------ ------------
SUPRANATIONAL-2.42%
500,000 Corp Andina De Fomento, 7.10% Yankee Bond
2-1-2003................................... BBB+ 502,539 509,421
------------ ------------
TELECOMMUNICATIONS-2.50%
500,000 360 Communications Co., 7.50% Sr Note
3-1-2006................................... BBB- 521,429 526,092
------------ ------------
UTILITIES-ELECTRIC-2.46%
500,000 Empresa Nacional de Electricidad, 7.325%
Yankee Bond 2-1-2037....................... A- 497,103 517,349
------------ ------------
TOTAL CORPORATE BONDS - INVESTMENT GRADE..... $ 6,427,028 $ 6,554,523
------------ ------------
------------ ------------
</TABLE>
9
<PAGE>
FORTIS BOND FUNDS
STRATEGIC INCOME FUND (CONTINUED)
Schedule of Investments
January 31, 1998 (Unaudited)
CORPORATE BONDS-NON-INVESTMENT GRADE-30.67%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
----------- -------- ------------ ------------
<C> <S> <C> <C> <C>
BROADCASTING-1.24%
$ 250,000 Sinclair Broadcasting Corp., 9.00% Sr Sub
Note 7-15-2007 (d)......................... B $ 251,222 $ 260,937
------------ ------------
BUSINESS SERVICES AND SUPPLIES - 1.29%
250,000 Dialog Corp. plc, 11.00% Sr Sub Note
11-15-2007 (d)............................. B 261,824 270,625
------------ ------------
CABLE TELEVISION - 3.68%
250,000 Adelphia Communications, Inc., 9.25% Sr Note
10-1-2002.................................. B3* 254,920 260,625
250,000 Cablevision Corp., 8.125% Deb 8-15-2009...... BB+ 257,124 263,125
250,000 Lenfest, 8.25% Sr Sub Note 2-15-2008 (f)..... BB- 249,315 249,315
------------ ------------
761,359 773,065
------------ ------------
COMPUTER-HARDWARE -- 1.38%
250,000 Unisys Corp., 11.75% Sr Note 10-15-2004...... B+ 286,192 290,625
------------ ------------
ENERGY -- 1.17%
250,000 Chesapeake Energy Corp., 7.875% Sr Note
3-15-2004.................................. BB- 246,693 246,875
------------ ------------
FOOD-MISCELLANEOUS - 2.48%
250,000 Envirodyne Industries, Inc., 12.00% First
Priority Sr Secured Note 6-15-2000......... B+ 267,500 266,562
250,000 Imperial Holly Corp., 9.75% Sr Sub Note
12-15-2007 (d)............................. B 250,622 255,937
------------ ------------
518,122 522,499
------------ ------------
FOREIGN-GOVERNMENT - 1.26%
250,000 Mexican United States, 9.875% Global Bond
1-15-2007.................................. BB 263,609 265,313
------------ ------------
HEALTH CARE SERVICES - 2.55%
250,000 Paragon Health Networks, 9.50% Sr Sub Note
11-1-2007.................................. B- 250,309 260,625
250,000 Tenet Healthcare Corp., 10.125% Sr Sub Note
3-1-2005................................... B+ 274,118 275,313
------------ ------------
524,427 535,938
------------ ------------
HOTEL AND MOTEL - 1.27%
250,000 HMH Properties, Inc., 9.50% Sr Note
5-15-2005.................................. BB- 266,999 267,188
------------ ------------
INDUSTRIAL - 1.23%
250,000 Speedway Motorsports, Inc., 8.50% Sr Sub Deb
8-15-2007.................................. B+ 253,699 259,375
------------ ------------
MACHINERY - 1.28%
250,000 Clark Materials Handling, 10.75% Sr Note
11-15-2006................................. B+ 265,519 269,375
------------ ------------
PUBLISHING - 1.36%
250,000 Petersen Publishing Co. LLC, 11.125% Sr Sub
Note 11-15-2006............................ B 283,547 285,000
------------ ------------
RETAIL-GROCERY - 1.24%
250,000 Big V Supermarkets, 11.00% Sr Sub Note
2-15-2004.................................. B- 260,508 261,250
------------ ------------
STEEL AND IRON - 1.27%
250,000 Weirton Steel Corp., 11.375% Sr Note
7-1-2004................................... B 264,736 266,250
------------ ------------
TELECOMMUNICATIONS - 6.76%
250,000 Intermedia Communications, 8.50% Sr Note
1-15-2008.................................. B 250,000 259,375
250,000 Iridium LLC/Capital Corp., 14.00% Sr Note
7-15-2005.................................. B- 272,983 280,000
250,000 Microcell Telecommunications, Inc., 12.30% Sr
Disc Note 6-1-2006 (Zero coupon through
12-1-2001, thereafter 14.00%) (e).......... B3* 165,034 180,000
250,000 Nextel Communications, Inc., 10.03% Sr Disc
Note 9-15-2007 (Zero coupon through
9-15-2002, thereafter 10.65%) (e).......... CCC+ 160,924 166,250
250,000 Omnipoint Corp., 11.625% Sr Note 8-15-2006... CCC+ 264,848 273,750
250,000 Phonetel Technologies, Inc., 12.00% Sr Note
12-15-2006................................. B3* 260,550 262,500
------------ ------------
1,374,339 1,421,875
------------ ------------
TEXTILE MANUFACTURING - 1.21%
250,000 Maxim Group, Inc., 9.25% Sr Note 10-15-2007
(d)........................................ NR 243,828 254,375
------------ ------------
TOTAL CORPORATE BONDS - NON-INVESTMENT
GRADE...................................... $ 6,326,623 $ 6,450,565
------------ ------------
------------ ------------
</TABLE>
10
<PAGE>
U.S. GOVERNMENT SECURITIES - 22.21%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Cost (a) Value (b)
----------- ------------ ------------
<C> <S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 4.84%
MORTGAGE BACKED SECURITIES:
$ 499,617 6.54% 2007................................... $ 508,922 $ 515,445
495,798 7.00% 2028 (f)............................... 503,661 502,460
------------ ------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION................................ 1,012,583 1,017,905
------------ ------------
U.S. TREASURY SECURITIES - 17.37%
NOTES:
400,000 5.75% 2002................................... 399,393 405,500
2,900,000 6.625% 2002.................................. 2,983,832 3,029,592
200,000 6.875% 2006.................................. 212,327 217,187
------------ ------------
TOTAL U.S. TREASURY SECURITIES............... 3,595,552 3,652,279
------------ ------------
TOTAL U.S. GOVERNMENT SECURITIES............. 4,608,135 4,670,184
------------ ------------
------------ ------------
TOTAL LONG-TERM INVESTMENTS.................. $19,356,207 $19,702,928
------------ ------------
------------ ------------
</TABLE>
SHORT-TERM INVESTMENTS -- 6.65%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
----------- ------------
<C> <S> <C>
BANKS - 4.76%
$1,000,645 First Trust Money Market Variable Rate Time
Deposit, Current rate -- 5.47%............. $ 1,000,645
------------
U.S. GOVERNMENT AGENCY - 1.89%
400,000 Federal National Mortgage Association, 5.50%,
2-27-1998.................................. 398,380
------------
TOTAL SHORT-TERM INVESTMENTS................. 1,399,025
------------
------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$20,755,232) (a)........................... $21,101,953
------------
------------
</TABLE>
(a) At January 31, 1998, the cost of securities for federal income tax purposes
was $20,755,232 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 348,860
Unrealized depreciation........................... (2,139)
---------------------------------------------------------------
Net unrealized depreciation....................... $ 346,721
---------------------------------------------------------------
</TABLE>
(b) See Note 1 of accompanying Notes to Financial Statements regarding
valuation of securities.
(c) Note: Percentage of investments as shown is the ratio of the total market
value to total net assets. Market value of investments in foreign
securities represents 22.40% of total net assets as of January 31, 1998.
(d) Securities issued within the terms of a private placement memorandum,
exempt from registration under Section 144A of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or to other
"accredited investors". These investments have been identified by portfolio
management as illiquid securities:
<TABLE>
<CAPTION>
Date Acquired Shares/Par Security Cost Basis
- ------------------ ----------- ------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
December 31, 1997 250,000 Dialog Corp. due 2007 - 144A $ 261,824
December 31, 1997 250,000 Imperial Holly Corp. due 2007 - 144A 250,622
November 14, 1997 250,000 Maxim Group, Inc. due 2007 - 144A 243,828
November 14, 1997 250,000 Sinclair Broadcasting Corp. due 2007 - 144A 251,222
</TABLE>
The aggregate value of these securities at January 31, 1998, was $1,041,875,
which represents 4.95% of total net assets.
(e) The interest rate disclosed for this security represents the effective
yield on the date of acquisition.
(f) The cost of securities purchased on a when-issued basis at January 31,
1998, was $752,976.
* Moody's Rating
11
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO
Schedule of Investments
January 31, 1998 (Unaudited)
COMMON STOCKS AND WARRANTS-0.42%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Market
Shares Cost (b) Value (c)
---------- ------------- -------------
<C> <S> <C> <C>
APPAREL-0.04%
1,250 Hosiery Corp. of America Class A (a)(e)...... $ 21,150 $ 87,500
------------- -------------
AUTOMOBILE AND MOTOR VEHICLE PARTS-0.02%
2,500 Highwaymaster Communications, Inc. (Warrants)
(a)(e)..................................... 43,579 43,750
------------- -------------
CABLE TELEVISION-0.00%
10,000 American Telecasting, Inc. (Warrants)
(a)(e)..................................... 20,000 100
8,000 Australis Media Ltd. (Warrants) (a)(e)....... 80 8
4,000 People's Choice T.V. Corp. (Warrants)
(a)(e)..................................... 647 40
------------- -------------
20,727 148
------------- -------------
CONSUMER GOODS-0.01%
1,800 Chattem, Inc. (Warrants) (a)(e).............. 18,424 18,450
3,000 Wireless One, Inc. (Warrants) (a)(e)......... 23,493 3,000
------------- -------------
41,917 21,450
------------- -------------
LEISURE TIME-AMUSEMENTS-0.00%
1,000 Boomtown, Inc. (Warrants) (a)(e)............. 6,340 10
68 Capital Gaming International, Inc. (a)(e).... 133,350 1
6,000 Hemmeter Enterprises, Inc. (Warrants)
(a)(e)..................................... 24,000 0
------------- -------------
163,690 11
------------- -------------
TELECOMMUNICATIONS-0.35%
4,500 American Communications Services, Inc.
(Warrants) (a)(e).......................... 205,650 585,000
6,600 Clearnet Communications, Inc. (Warrants)
(a)(e)..................................... 76,725 46,200
1,000 Hyperion Telecom (Warrants) (a)(e)........... 20,000 60,000
12,800 Powertel, Inc. (Warrants) (a)(e)............. 94,118 96,000
------------- -------------
396,493 787,200
------------- -------------
TOTAL COMMON STOCKS AND WARRANTS............. $ 687,556 $ 940,059
------------- -------------
------------- -------------
</TABLE>
CORPORATE BONDS-NON-INVESTMENT GRADE-97.38%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (b) Value (c)
----------- -------- ------------- -------------
<C> <S> <C> <C> <C>
AIR FREIGHT-0.69%
$1,500,000 Kitty Hawk, Inc., 9.95% Sr Note 11-15-2004
(e)........................................ B+ $ 1,536,983 $ 1,563,750
------------- -------------
APPAREL-1.21%
2,500,000 Hosiery Corp. of America, Inc., 13.75% Sr Sub
Note 8-1-2002.............................. B- 2,668,584 2,731,250
------------- -------------
AUTOMOBILE MANUFACTURERS-1.11%
2,500,000 Navistar International, 8.0% Sr Sub Note
2-1-2008 (g)............................... BB- 2,494,875 2,494,875
------------- -------------
AUTOMOBILE AND MOTOR VEHICLE PARTS-2.15%
2,000,000 Collins & Aikman Products, 11.50% Sr Sub Note
4-15-2006.................................. B 2,191,318 2,250,000
2,500,000 Highwaymaster, Inc., 13.75% Sr Note
9-15-2005.................................. B- 2,501,481 2,606,250
------------- -------------
4,692,799 4,856,250
------------- -------------
BROADCASTING-4.28%
1,750,000 Commodore Media, Inc., 7.50% Sr Sub Note
5-1-2003................................... B2* 1,740,519 1,960,000
3,000,000 Sinclair Broadcasting Group, Inc., 10.00% Sr
Sub Note 9-30-2005......................... B 3,097,695 3,247,500
4,000,000 Young Broadcasting, Inc., 11.75% Sr Sub Note
11-15-2004................................. B 4,413,963 4,460,000
------------- -------------
9,252,177 9,667,500
------------- -------------
BUSINESS SERVICES AND SUPPLIES-2.28%
2,000,000 Dialog Corp. plc, 11.00% Sr Sub Note
11-15-2007 (e)............................. B 2,000,000 2,165,000
3,000,000 T/SF Communications Corp., 10.375% Sr Sub
Note 11-1-2007 (g)......................... B- 3,000,000 2,977,500
------------- -------------
5,000,000 5,142,500
------------- -------------
</TABLE>
12
<PAGE>
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (b) Value (c)
----------- -------- ------------- -------------
<C> <S> <C> <C> <C>
CABLE TELEVISION-17.35%
$3,500,000 Adelphia Communications, Inc., 9.25% Sr Note
10-1-2002.................................. B3* $ 3,571,014 $ 3,648,750
3,500,000 American Telecasting, Inc., 24.17% Sr Disc
Note 8-15-2005 (Zero coupon through
8-15-2000, thereafter 14.50%) (f).......... CCC+ 1,448,988 875,000
10,035,432 Australis Media Ltd., 14.00% Sr Sub Disc Note
5-15-2003 (Zero coupon through 5-15-2000,
thereafter 15.75%) (f)..................... D 7,333,584 4,014,173
1,000,000 Cablevision Systems Corp., 10.50% Sr Sub Deb
5-15-2016.................................. BB- 1,014,704 1,180,000
2,000,000 Cablevision Systems Corp., 9.25% Sr Sub Note
11-1-2005.................................. BB- 2,105,649 2,150,000
2,500,000 Century Communications Corp., 8.875% Sr Note
1-15-2007.................................. BB- 2,581,936 2,618,750
4,275,000 Falcon Holding Group, L.P., 11.00% Sr Sub
Note Ser B 9-15-2003 (Interest is
Payable-in-Kind)........................... NR 4,150,916 4,554,815
4,000,000 Galaxy Telecom L.P., 12.375% Sr Sub Note
10-1-2005.................................. B- 4,375,176 4,460,000
1,500,000 Lenfest, 7.625% Sr Note 2-15-2008 (g)........ BB+ 1,495,800 1,495,800
1,750,000 Lenfest, 8.25% Sr Sub Note 2-15-2008 (g)..... BB- 1,745,205 1,745,205
3,000,000 Olympus Communication L.P., 10.625% Sr Note
11-15-2006................................. B 3,000,000 3,337,500
3,000,000 People's Choice T.V. Corp., 23.14% Sr Disc
Note 6-1-2004 (Zero coupon through
6-1-2000, thereafter 13.125%) (f).......... CCC+ 1,397,321 1,080,000
7,000,000 People's Choice T.V. Corp., 25.22% Sr Disc
Note 6-1-2004 (Zero coupon through
6-1-2000, thereafter 13.125%) (and
warrants) (f).............................. CCC+ 2,988,344 2,520,000
2,000,000 Rifkin Aquisition Partners LP, 11.125% Sr Sub
Note 1-15-2006............................. B3* 2,217,293 2,207,500
1,000,000 Source Media, Inc., 12.00% Sr Secured Note
11-1-2004 (g).............................. B- 1,000,000 985,000
6,000,000 Wireless One, Inc., 13.00% Sr Note
10-15-2003................................. B- 3,893,216 2,040,000
1,500,000 Wireless One, Inc., 13.463% Sr Disc Note
8-1-2006 (Zero coupon through 8-1-2001,
thereafter 13.50%) (f) B- 944,370 270,000
------------- -------------
45,263,516 39,182,493
------------- -------------
CHEMICALS-1.18%
2,000,000 Agricultural Minerals & Chemicals, 10.75% Sr
Note 9-30-2003............................. BB- 2,091,964 2,140,000
500,000 Sterling Chemicals, Inc., 11.75% Sr Sub Note
8-15-2006.................................. B+ 550,307 515,000
------------- -------------
2,642,271 2,655,000
------------- -------------
COMPUTER-HARDWARE-1.67%
2,250,000 Unisys Corp., 11.75% Sr Note 10-15-2004...... B+ 2,464,678 2,615,625
1,000,000 Unisys Corp., 12.00% Sr Note 4-15-2003....... B+ 1,113,190 1,143,750
------------- -------------
3,577,868 3,759,375
------------- -------------
CONSUMER GOODS-0.63%
1,250,000 Chattem, Inc., 12.75% Sr Sub Note Ser B
6-15-2004.................................. B- 1,252,010 1,418,750
------------- -------------
COSMETICS AND SUNDRIES-0.44%
1,000,000 Revlon Consumer Products, 8.625% Sr Note
2-1-2008 (g)............................... B- 999,660 996,810
------------- -------------
DAIRY PRODUCTS-0.86%
2,000,000 Fage Dairy Industries, Inc., 9.00% Sr Note
7-1-2007................................... BB 1,962,383 1,950,000
------------- -------------
ELECTRONIC-DEFENSE-0.46%
1,000,000 Tracor, Inc., 8.50% Sr Sub Note 3-1-2007..... B+ 1,047,450 1,045,000
------------- -------------
ENERGY-2.87%
1,750,000 Chesapeake Energy Corp., 7.875% Sr Note
3-15-2004.................................. BB- 1,726,850 1,728,125
2,000,000 Energy Corp. of America, 9.50% Sr Sub Note
5-15-2007.................................. B 2,009,955 2,010,000
2,500,000 KCS Energy, Inc., 11.00% Sr Note 1-15-2003... B 2,766,350 2,743,750
------------- -------------
6,503,155 6,481,875
------------- -------------
ENTERTAINMENT-0.88%
2,000,000 Fox Kids Worldwide, Inc., 9.25% Sr Note
11-1-2007 (g).............................. B 1,915,833 1,990,000
------------- -------------
FINANCE COMPANIES-0.60%
1,137,000 Homeside, Inc., 11.25% Second Priority Sr
Secured Note 5-15-2003..................... BB+ 1,172,143 1,353,030
------------- -------------
FOOD-MISCELLANEOUS-1.89%
4,000,000 Envirodyne Industries, Inc., 12.00% First
Priority Sr Secured Note 6-15-2000......... B+ 4,185,478 4,265,000
------------- -------------
</TABLE>
13
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO (CONTINUED)
Schedule of Investments
January 31, 1998 (Unaudited)
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (b) Value (c)
----------- -------- ------------- -------------
<C> <S> <C> <C> <C>
FOREST PRODUCTS-2.66%
$2,000,000 Domtar, Inc., 8.75% Note 8-1-2006............ BB+ $ 2,103,000 $ 2,090,000
4,000,000 Riverwood International, Inc., 10.875% Sr Sub
Note 4-1-2008.............................. CCC+ 3,840,208 3,920,000
------------- -------------
5,943,208 6,010,000
------------- -------------
HEALTH CARE SERVICES-4.78%
2,000,000 Genesis Eldercare, 9.00% Sr Sub Note 8-1-2007
(e)........................................ B- 2,014,361 2,040,000
6,500,000 Paragon Health Networks, 9.79% Sr Sub Note
11-1-2007 (Zero coupon through 11-1-2002,
thereafter 10.50%) (f)(g).................. B- 4,206,756 4,338,750
4,000,000 Tenet Healthcare Corp., 10.125% Sr Sub Note
3-1-2005................................... B+ 4,309,625 4,405,000
------------- -------------
10,530,742 10,783,750
------------- -------------
HOTEL AND MOTEL-2.13%
4,500,000 HMH Properties, Inc., 9.50% Sr Note
5-15-2005.................................. BB- 4,630,623 4,809,375
------------- -------------
HOUSING-5.10%
6,500,000 MDC Holdings, Inc., 11.125% Note
12-15-2003................................. BB- 6,607,954 7,182,500
4,000,000 NVR, Inc., 11.00% Sr Note 4-15-2003.......... B+ 4,202,718 4,335,000
------------- -------------
10,810,672 11,517,500
------------- -------------
INDUSTRIAL-3.64%
4,000,000 Inter-City Products Corp. USA, 9.75% Sr
Secured Note 3-1-2000...................... B+ 4,058,794 4,060,000
4,000,000 Speedway Motorsports, Inc., 8.50% Sr Sub Deb
8-15-2007.................................. B+ 4,041,455 4,150,000
------------- -------------
8,100,249 8,210,000
------------- -------------
LEISURE TIME-AMUSEMENTS-0.54%
1,000,000 Showboat, Inc., 13.00% Sr Sub Note
8-1-2009................................... B 1,082,500 1,220,000
------------- -------------
MACHINERY-1.95%
4,095,000 Clark Materials Handling, 10.75% Sr Note
11-15-2006................................. B+ 4,237,358 4,412,362
------------- -------------
MEDICAL SUPPLIES-0.98%
2,000,000 Maxxim Medical, 10.50% Sr Sub Note
8-1-2006................................... B 2,204,911 2,205,000
------------- -------------
PUBLISHING-3.74%
1,500,000 Affinity Group, 11.50% Sr Sub Note
10-15-2003................................. B 1,597,325 1,597,500
2,000,000 Garden State Newspapers, 8.75% Sr Sub Note
10-1-2009 (g).............................. B+ 2,014,916 2,060,000
2,500,000 Marvel (Parent) Holdings, Inc., 12.69% Sr
Secured Zero Coupon Discount Note 4-15-1998
(a)(f)..................................... D 2,146,349 87,500
4,125,000 Petersen Publishing Co. LLC, 11.125% Sr Sub
Note 11-15-2006............................ B 4,495,811 4,702,500
------------- -------------
10,254,401 8,447,500
------------- -------------
RESTAURANTS AND FRANCHISING-1.88%
2,000,000 Advantica Restaurant Group, Inc., 11.25% Sr
Note 1-15-2008............................. B2* 2,164,702 2,140,000
2,000,000 Friendly Ice Cream, 10.50% Sr Note
12-1-2007.................................. B 2,052,097 2,110,000
------------- -------------
4,216,799 4,250,000
------------- -------------
RETAIL-GROCERY-0.00%
350,000 Pay 'N' Pak Stores, Inc., 13.50% Sr Sub Deb
6-1-1998 (a)............................... NR 350,000 1,750
------------- -------------
RETAIL-MISCELLANEOUS-0.00%
1,000,000 Color Tile, Inc., 10.75% Sr Note 12-15-2001
(a)........................................ NR 590,000 10,000
------------- -------------
SHIP BUILDING, SHIPPING-0.95%
2,000,000 Newport News Ship Building, 9.25% Sr Sub Note
12-1-2006.................................. B+ 2,124,208 2,140,000
------------- -------------
STEEL AND IRON-1.89%
4,000,000 Weirton Steel Corp., 11.375% Sr Note
7-1-2004................................... B 4,210,313 4,260,000
------------- -------------
TELECOMMUNICATIONS-17.63%
2,500,000 Cellular Communications, Inc., 11.96% Zero
Coupon Note 8-15-2000 (f).................. CCC+ 1,910,870 2,037,500
2,500,000 Comcast Cellular Holdings, 9.50% Sr Note
5-1-2007................................... BB+ 2,649,734 2,662,500
1,500,000 Flag Limited, 8.25% Sr Note 1-30-2008 (e).... B+ 1,500,000 1,541,250
2,000,000 Fonorola, Inc., 12.50% Sr Secured Note
8-15-2002.................................. BB- 2,044,984 2,235,000
2,500,000 Hyperion Telecommunication, 12.25% Sr Note
9-1-2004................................... B 2,696,509 2,850,000
</TABLE>
14
<PAGE>
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (b) Value (c)
----------- -------- ------------- -------------
<C> <S> <C> <C> <C>
$1,000,000 Intermedia Communications, 8.50% Sr Note
1-15-2008 (g).............................. B $ 1,026,174 $ 1,037,500
4,000,000 Intermedia Communications, Inc., 11.25% Sr
Disc Note 7-15-2007 (Zero Coupon through
7-15-2002, thereafter 11.25%) (f).......... B 2,928,470 2,930,000
2,000,000 Iridium LLC/Capital Corp., 14.00% Sr Note
7-15-2005.................................. B- 2,246,262 2,240,000
2,000,000 ITC Deltacom, Inc., 11.00% Sr Note
6-1-2007................................... B 2,241,633 2,250,000
2,500,000 Mcleod USA, Inc., 9.25% Sr Note 7-15-2007.... B 2,699,741 2,687,500
4,000,000 Microcell Telecommunications, Inc., 12.41% Sr
Disc Note 6-1-2006 (Zero coupon through
12-1-2001, thereafter 14.00%) (f).......... B3* 2,654,726 2,880,000
2,000,000 Nextel Communications, Inc., 10.27% Sr Disc
Note 9-15-2007 (Zero coupon through
9-15-2002, thereafter 10.65%) (f).......... CCC+ 1,307,099 1,330,000
500,000 Omnipoint Corp., 11.625% Sr Note 8-15-2006... CCC+ 488,496 547,500
4,000,000 Omnipoint Corp., 11.625% Sr Note Ser A
8-15-2006.................................. CCC+ 3,874,840 4,380,000
3,000,000 Phonetel Technologies, Inc., 12.00% Sr Note
12-15-2006................................. B3* 3,062,466 3,150,000
1,000,000 Poland Telecommunications Finance Corp.,
14.00% Sr Note 12-1-2007 (and warrants)
(e)........................................ NR 1,000,000 1,055,000
3,500,000 Qwest Communications Int'l, 8.29% Sr Disc
Note 2-1-2008 (Zero coupon through
2-1-2003, thereafter 8.29%) (f)(g)......... B+ 2,333,006 2,323,125
2,000,000 Winstar Communications, Inc., 9.83% Sr Disc
Note 10-15-2005 (Zero coupon until
10-15-2000, thereafter 14.00%) (f)......... CCC+ 1,651,578 1,660,000
------------- -------------
38,316,588 39,796,875
------------- -------------
TEXTILE MANUFACTURING-4.81%
2,000,000 Anvil Knitwear, Inc., 10.875% Sr Note
3-15-2007.................................. B+ 2,041,298 2,075,000
4,000,000 Dan River, Inc., 10.125% Sr Sub Note
12-15-2003................................. B 4,280,958 4,280,000
1,750,000 Maxim Group, Inc., 9.25% Sr Note 10-15-2007
(e)........................................ NR 1,714,183 1,780,625
2,500,000 Pillowtex Corp., 10.00% Sr Sub Note
11-15-2006................................. B+ 2,653,942 2,731,250
------------- -------------
10,690,381 10,866,875
------------- -------------
TRANSPORTATION-1.23%
2,500,000 Greyhound Lines, Inc., 11.50% Sr Note
4-15-2007.................................. B- 2,612,422 2,784,375
------------- -------------
UTILITIES-ELECTRIC-1.83%
4,000,000 AES Corp., 8.50% Sr Sub Note 11-2-2007 (e)... B+ 4,109,753 4,130,000
------------- -------------
WASTE DISPOSAL-1.09%
2,125,000 Norcal Waste Systems, Inc., 13.50% Increasing
Rate Sr Note 11-15-2005.................... BB- 2,118,314 2,459,688
------------- -------------
TOTAL CORPORATE BONDS - NON-INVESTMENT
GRADE...................................... 223,300,627 219,868,508
------------- -------------
------------- -------------
TOTAL LONG-TERM INVESTMENTS.................. $ 223,988,183 $ 220,808,567
------------- -------------
------------- -------------
</TABLE>
SHORT-TERM INVESTMENTS-2.50%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (c)
----------- -------------
<C> <S> <C>
BANKS-0.16%
$ 372,000 First Trust Money Market Variable Rate Time
Deposit, Current rate -- 5.47%............. $ 372,000
-------------
DIVERSIFIED FINANCE-0.13%
298,000 Associates Corp. Master Variable Rate Note,
Current rate -- 5.53%...................... 298,000
-------------
U.S. GOVERNMENT AGENCY-2.21%
5,000,000 Federal National Mortgage Association, 5.50%,
2-27-1998.................................. 4,979,750
-------------
TOTAL SHORT-TERM INVESTMENTS................. 5,649,750
-------------
-------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$229,637,933) (b).......................... $ 226,458,317
-------------
-------------
</TABLE>
(a) Presently non-income producing. For long-term debt securities, items
identified are in default as to payment of interest and/or principal.
(b) At January 31, 1998, the cost of securities for federal income tax purposes
was $230,711,376 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 6,443,313
Unrealized depreciation..................................... (10,696,372)
- --------------------------------------------------------------------------
Net unrealized depreciation................................. $ (4,253,059)
- --------------------------------------------------------------------------
</TABLE>
(c) See Note 1 of accompanying Notes to Financial Statements regarding
valuation of securities.
15
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO (CONTINUED)
Schedule of Investments
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
(d) Note: Percentage of investments as shown is the ratio of the total market
value to total net assets. Market value of investments in foreign
securities represents 7.26% of net assets as of January 31, 1998.
(e) Securities issued within the terms of a private placement memorandum,
exempt from registration under Section 144A of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or to other
"accredited investors". These investments have been identified by portfolio
management as illiquid securities:
<TABLE>
<CAPTION>
Date Acquired Shares/Par Security Cost Basis
- ------------------ ----------- ------------------------------------------------------------------------------ ----------
<S> <C> <C> <C>
January 14, 1998 4,000,000 AES Corp. due 2007 - 144A $4,109,753
November 10, 1995 4,500 American Comm. Services, Inc. (Warrants) - 144A 205,650
June 16, 1994 8,500 American Telecasting, Inc. (Warrants) - 144A 17,000
July 28, 1994 1,500 American Telecasting, Inc. (Warrants) - 144A 3,000
June 10,1994 1,300 Chattem, Inc. (Warrants) - 144A 16,549
April 25, 1995 500 Chattem, Inc. (Warrants) - 144A 1,875
November 10, 1997 2,000,000 Dialog Corp. plc due 2007 - 144A 2,000,000
January 23, 1998 1,500,000 Flag Limited due 2008 - 144A 1,500,000
January 5, 1998 500,000 Genesis Eldercare due 2007 - 144A 495,644
January 6, 1998 500,000 Genesis Eldercare due 2007 - 144A 497,510
January 15, 1998 1,000,000 Genesis Eldercare due 2007 - 144A 1,021,207
July 11, 1994 6,000 Hemmeter Enterprises, Inc. (Warrants) - 144A 24,000
September 18, 1997 500 Highwaymaster Communications, Inc. (Warrants) - 144A 8,579
November 10, 1997 2,000 Highwaymaster Communications, Inc. (Warrants) - 144A 35,000
October 7, 1994 1,250 Hosiery Corp. of America Class A (Warrants) - 144A 21,150
February 6, 1997 1,000 Hyperion Telecom (Warrants) - 144A 20,000
December 10, 1997 1,500,000 Kitty Hawk, Inc. due 2004 - 144A 1,536,983
November 17, 1997 1,000,000 Maxim Group, Inc. due 2007 - 144A 975,313
November 25, 1997 750,000 Maxim Group, Inc. due 2007 - 144A 738,870
September 6, 1996 1,000 People's Choice T.V. Corp. (Warrants) - 144A 617
October 3, 1997 3,000 People's Choice T.V. Corp. (Warrants) - 144A 30
November 24, 1997 1,000,000 Poland Telecommunications Finance Corp. due 2007 - 144A 1,000,000
January 10, 1997 12,800 Powertel, Inc. (Warrants) - 144A 94,118
October 17, 1996 1,500 Wireless One, Inc. (Warrants) - 144A 11,857
November 5, 1996 1,500 Wireless One, Inc. (Warrants) - 144A 11,636
November 1, 1996 4,000 Australis Media Ltd. (Warrants) 80
May 29, 1997 2,000 Australis Media Ltd. (Warrants) 20
June 24, 1997 2,000 Australis Media Ltd. (Warrants) 20
November 3, 1993 1,000 Boomtown, Inc. (Warrants) 6,340
January 10, 1994 68 Capital Gaming International, Inc. (Warrants) 133,350
August 5, 1996 1,650 Clearnet Communications, Inc. (Warrants) 24,750
October 1, 1996 4,950 Clearnet Communications, Inc. (Warrants) 51,975
</TABLE>
The aggregate value of these securities at January 31, 1998, was
$15,215,684, which represents 6.74% of total net assets.
(f) The interest rate disclosed for these securities represents the effective
yield on the date of acquisition.
(g) Securities sold within the terms of a private placement memorandum, exempt
form registration under Section 144A of the Securities Act of 1933, as
amended, and may be sold only to dealers in that program or to other
"accredited investors". Pursuant to guidelines adopted by the Board of
Directors, these issues are determined to be liquid. The aggregate value of
these securities at January 31, 1998, was $22,444,565, which represents
9.94% of total net assets.
* Moody's Rating
16
<PAGE>
FORTIS BOND FUNDS
Statements of Assets and Liabilities
(Unaudited)
January 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
US GOVERNMENT STRATEGIC
SECURITIES INCOME HIGH YIELD
FUND FUND PORTFOLIO
------------- ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, as detailed in the
accompanying schedules, at market (cost
$411,984,485; $20,755,232; and $229,637,933;
respectively) (Note 1)........................ $ 423,606,510 $ 21,101,953 $226,458,317
Cash on deposit with custodian.................. -- -- 676
Collateral for securities lending transactions
(Note 1)...................................... 164,483,619 -- --
Receivables:
Investment securities sold.................... 3,978,661 248,594 4,123,189
Interest and dividends........................ 3,944,322 367,052 5,206,133
Subscriptions of capital stock................ 1,501 17,508 228,856
Deferred registration costs (Note 1)............ 24,956 45,304 41,940
Deferred organizational costs (Note 1).......... -- 20,570 --
Prepaid expenses................................ 7,038 2,447 2,407
------------- ------------ ------------
TOTAL ASSETS...................................... 596,046,607 21,803,428 236,061,518
------------- ------------ ------------
LIABILITIES:
Cash portion of dividends payable............... 498,618 154 799,143
Payable upon return of securities loaned (Note
1)............................................ 164,483,619 -- --
Payable for investment securities purchased..... 53,574,819 752,976 9,136,210
Redemptions of capital stock.................... 40,348 -- 72,022
Payable for investment advisory and management
fees (Note 2)................................. 228,590 14,055 136,534
Payable for distribution fees (Note 2).......... 1,660 296 8,042
Accounts payable and accrued expenses........... 81,459 6,323 130,162
------------- ------------ ------------
TOTAL LIABILITIES................................. 218,909,113 773,804 10,282,113
------------- ------------ ------------
NET ASSETS:
Net proceeds of capital stock, par value $.01
per share-authorized 10,000,000,000,
10,000,000,000, and 10,000,000,000 shares,
respectively.................................. 433,439,901 20,644,551 237,734,165
Unrealized appreciation (depreciation) of
investments................................... 11,622,025 346,721 (3,179,616)
Undistributed net investment income............. 8,017 3,448 432,006
Accumulated net realized gain (loss) from sale
of investments................................ (67,932,449) 34,904 (9,207,150)
------------- ------------ ------------
TOTAL NET ASSETS.................................. $ 377,137,494 $ 21,029,624 $225,779,405
------------- ------------ ------------
------------- ------------ ------------
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A shares (based on net assets of
$57,083,867; $20,803,329; and $120,635,192;
respectively and 6,130,757; 2,041,507; and
15,630,843 shares outstanding; respectively).... $9.31 $10.19 $7.72
------------- ------------ ------------
Class B shares (based on net assets of $2,979,247;
$84,095; and $24,331,949; respectively and
320,793; 8,253; and 3,154,477 shares
outstanding; respectively)...................... $9.29 $10.19 $7.71
------------- ------------ ------------
Class C shares (based on net assets of $1,409,184;
$63,498; and $8,492,563; respectively and
151,910; 6,229; and 1,102,327 shares
outstanding; respectively)...................... $9.28 $10.19 $7.70
------------- ------------ ------------
Class E shares (based on net assets of
$303,957,195; $0; and $0 respectively and
32,651,628; 0; and 0 shares outstanding;
respectively)................................... $9.31 -- --
------------- ------------ ------------
Class H shares (based on net assets of
$11,708,001; $78,702; and $72,319,701
respectively and 1,261,210; 7,725; and 9,378,886
shares outstanding; respectively)............... $9.28 $10.19 $7.71
------------- ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
FORTIS BOND FUNDS
Statements of Operations
(Unaudited)
For the Six-Month Period Ended January 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
US GOVERNMENT STRATEGIC
SECURITIES INCOME HIGH YIELD
FUND FUND * PORTFOLIO
------------- ------------ ------------
<S> <C> <C> <C>
NET INVESTMENT INCOME:
Income:
Interest income............................... $12,537,999 $ 294,097 $12,070,432
Fee income (Note 1)........................... 87,195 -- --
------------- ------------ ------------
Total income.................................... 12,625,194 294,097 12,070,432
------------- ------------ ------------
Expenses:
Investment advisory and management fees (Note
2)........................................... 1,376,629 35,189 795,764
Distribution fees (Class A) (Note 2).......... 72,123 10,971 213,708
Distribution fees (Class B) (Note 2).......... 14,520 41 111,231
Distribution fees (Class C) (Note 2).......... 6,930 38 40,008
Distribution fees (Class H) (Note 2).......... 55,263 22 338,960
Registration fees............................. 32,745 4,355 33,775
Shareholders' notices and reports............. 48,107 448 22,685
Legal and auditing fees (Note 2).............. 17,923 3,950 26,818
Custodian fees................................ 26,214 2,431 22,181
Directors' fees and expenses.................. 17,139 64 6,201
Amortization of organization costs............ -- 430 --
Other......................................... 22,466 216 8,167
------------- ------------ ------------
Total expenses.................................. 1,690,059 58,155 1,619,498
Less reimbursable expenses (Note 2)........... -- (5,340) --
------------- ------------ ------------
Net Expenses.................................... 1,690,059 52,815 1,619,498
------------- ------------ ------------
NET INVESTMENT INCOME GAIN........................ 10,935,135 241,282 10,450,934
------------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(NOTE 1):
Net realized gain from security transactions.... 5,587,625 34,904 2,972,130
Net change in unrealized appreciation
(depreciation) of investments................. 744,768 346,721 (5,911,526)
------------- ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS.................... 6,332,393 381,625 (2,939,396)
------------- ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $17,267,528 $ 622,907 $ 7,511,538
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
* FOR THE PERIOD NOVEMBER 10, 1997 (INCEPTION) TO JANUARY 31, 1998.
18
<PAGE>
FORTIS BOND FUNDS
Statements of Changes in Net Assets
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE
SIX-MONTH
PERIOD ENDED
JANUARY 31, FOR THE
1998 YEAR ENDED
(UNAUDITED) JULY 31, 1997
------------ ---------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 10,935,135 $ 25,965,173
Net realized gain (loss) from security
transactions.................................. 5,587,625 (2,463,932)
Net change in unrealized appreciation on
investments in securities..................... 744,768 17,073,718
------------ ---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... 17,267,528 40,574,959
------------ ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (1,610,199) (3,832,687)
Class B....................................... (71,874) (134,130)
Class C....................................... (34,244) (73,505)
Class E....................................... (9,145,266) (21,361,127)
Class H....................................... (273,123) (544,458)
Excess distributions of net realized gains
Class A....................................... -- (190,527)
Class B....................................... -- (6,668)
Class C....................................... -- (3,654)
Class E....................................... -- (1,061,888)
Class H....................................... -- (27,066)
------------ ---------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (11,134,706) (27,235,710)
------------ ---------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (313,085 and 1,111,657 shares)........ 2,879,301 9,952,631
Class B (50,179 and 142,993 shares)........... 459,026 1,283,517
Class C (20,106 and 143,651 shares)........... 184,937 1,279,587
Class E (813,151 and 1,979,573 shares)........ 7,448,448 17,773,525
Class H (208,572 and 373,676 shares).......... 1,911,008 3,342,720
Proceeds from shares issued as a result of
reinvested dividends
Class A (124,328 and 317,250 shares).......... 1,141,806 2,846,964
Class B (6,931 and 13,420 shares)............. 63,538 120,151
Class C (3,132 and 7,146 shares).............. 28,665 64,011
Class E (708,052 and 1,753,810 shares)........ 6,501,781 15,738,566
Class H (20,524 and 43,546 shares)............ 188,031 390,143
Less cost of repurchase of shares
Class A (762,899 and 2,602,273 shares)........ (6,988,613) (23,352,025)
Class B (45,556 and 108,504 shares)........... (416,748) (970,650)
Class C (29,533 and 112,053 shares)........... (269,739) (1,004,606)
Class E (4,323,567 and 12,000,074 shares)..... (39,595,093) (107,796,096)
Class H (132,258 and 395,058 shares).......... (1,209,795) (3,534,460)
------------ ---------------
NET DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... (27,673,447) (83,866,022)
------------ ---------------
TOTAL DECREASE IN NET ASSETS...................... (21,540,625) (70,526,773)
NET ASSETS:
Beginning of period............................. 398,678,119 469,204,892
------------ ---------------
End of period (includes undistributed net
investment income of $8,017 and $207,588,
respectively)................................. $377,137,494 $ 398,678,119
------------ ---------------
------------ ---------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
FORTIS BOND FUNDS
Statement of Changes in Net Assets
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE PERIOD FROM
NOVEMBER 10, 1997
(INCEPTION) TO
JANUARY 31, 1998
(UNAUDITED)
-------------------
<S> <C>
OPERATIONS:
Net investment income........................... $ 241,282
Net realized gain from security transactions.... 34,904
Net change in unrealized appreciation of
investments in securities..................... 346,721
-------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... 622,907
-------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (237,318)
Class B....................................... (210)
Class C....................................... (194)
Class H....................................... (112)
-------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (237,834)
-------------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (2,018,005 shares).................... 20,181,805
Class B (8,611 shares)........................ 87,390
Class C (6,210 shares)........................ 63,124
Class H (7,715 shares)........................ 78,249
Proceeds from shares issued as a result of
reinvested dividends
Class A (23,502 shares)....................... 237,316
Class B (6 shares)............................ 59
Class C (19 shares)........................... 189
Class H (10 shares)........................... 100
Less cost of repurchase of shares
Class B (364 shares).......................... (3,681)
-------------------
NET INCREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... 20,644,551
-------------------
TOTAL INCREASE IN NET ASSETS...................... 21,029,624
NET ASSETS:
Beginning of period............................. --
-------------------
End of period (includes undistributed net
investment income of $3,448).................. $21,029,624
-------------------
-------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
FORTIS BOND FUNDS
Statement of Changes in Net Assets
HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE
SIX-MONTH
PERIOD ENDED FOR THE
JANUARY 31, YEAR ENDED
1998 JULY 31,
(UNAUDITED) 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 10,450,934 $ 18,388,511
Net realized gain from security transactions.... 2,972,130 4,488,160
Net change in unrealized appreciation
(depreciation) of investments in securities... (5,911,526) 2,658,089
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... 7,511,538 25,534,760
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (6,073,701) (11,482,883)
Class B....................................... (1,039,738) (1,494,310)
Class C....................................... (374,269) (458,567)
Class H....................................... (3,167,351) (4,774,094)
Excess distributions of net realized gains
Class A....................................... -- (377,686)
Class B....................................... -- (49,150)
Class C....................................... -- (15,083)
Class H....................................... -- (157,026)
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (10,655,059) (18,808,799)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (1,511,916 and 4,315,013 shares)...... 11,763,215 33,019,998
Class B (785,727 and 1,260,144 shares)........ 6,109,107 9,632,833
Class C (297,114 and 646,824 shares).......... 2,314,108 4,958,258
Class H (1,895,389 and 4,233,141 shares)...... 14,724,453 32,395,020
Proceeds from shares issued as a result of
reinvested dividends
Class A (476,714 and 947,140 shares).......... 3,696,038 7,248,340
Class B (68,901 and 102,566 shares)........... 533,631 784,569
Class C (37,605 and 42,294 shares)............ 290,959 322,788
Class H (201,334 and 319,110 shares).......... 1,558,142 2,439,287
Less cost of repurchase of shares
Class A (2,083,497 and 4,007,745 shares)...... (16,202,377) (30,608,979)
Class B (304,821 and 354,941 shares).......... (2,378,161) (2,713,555)
Class C (132,387 and 236,864 shares).......... (1,030,373) (1,797,762)
Class H (871,690 and 1,579,066 shares)........ (6,785,557) (12,056,442)
------------ ------------
NET INCREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... 14,593,185 43,624,355
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 11,449,664 50,350,316
NET ASSETS:
Beginning of period............................. 214,329,741 163,979,425
------------ ------------
End of period (includes undistributed net
investment income of $432,006 and $636,131,
respectively)................................. $225,779,405 $214,329,741
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
FORTIS BOND FUND
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The funds are open-end,
diversified management investment companies, each of which has different
investment objectives and their own investment portfolios and net asset
values. U.S. Government Securities Fund ("U.S. Government") and Strategic
Income Fund are series of Fortis Income Portfolios, Inc. ("Fortis Income")
and Fortis High Yield Portfolio ("High Yield") is an investment portfolio in
Fortis Advantage Portfolios, Inc. ("Fortis Advantage"). The investment
objectives of each portfolio are as follows:
- The objective of the U.S. Government Securities Fund is to maximize total
return (from current income and capital appreciation), while providing
shareholders with a level of current income consistent with prudent
investment risk.
- The objective of the Strategic Income Fund is to maximize total return
(from current income and capital appreciation) by primarily investing in
(a) U.S. Government securities, (b) investment and non-investment grade
fixed income securities issued by foreign governments and companies, and
(c) non-investment grade fixed income securities issued by U.S. issuers,
which, in the opinion of the portfolio's investment adviser, do not subject
the fund to unreasonable investment risk.
- The objective of the Fortis High Yield Portfolio is to maximize total
return (from current income and capital appreciation) with a focus on high
current income by investing primarily in a diversified portfolio of high
yielding, fixed income securities which, in the opinion of the portfolio's
investment adviser, do not subject the portfolio to unreasonable investment
risk.
The Articles of Incorporation of Fortis Income and Fortis Advantage permit
the Board of Directors to create additional portfolios in the future.
The funds offer Class A, Class B, Class C, Class E (for U.S. Government only)
and Class H shares.
The U.S. Government Fund and Fortis High Yield Portfolio began to issue
multiple class shares effective November 14, 1994. The inception of Strategic
Income Fund was November 10, 1997, and the commencement of operations was
December 1, 1997. Class 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.
The significant accounting policies followed by the Funds are summarized as
follows:
SECURITY VALUATION: Investments in securities traded on a national securities
exchange or on the NASDAQ National Market System are valued at the last
reported sales price. Securities for which over-the-counter market quotations
are readily available are valued on the basis of the last current bid price.
An outside pricing service may be utilized to provide such valuations. For
fixed income securities, the pricing service may employ electronic data
processing techniques and/or a matrix system to determine valuations using
methods which include consideration of yields or prices of bonds of
comparable quality, type of issue, coupon, maturity and rating indications as
to value from dealers, and general market conditions. Securities for which
quotations are not readily available are valued at fair value as determined
in good faith by management under supervision of the Board of Directors.
Short-term investments, with maturities of less than 60 days when acquired,
or which subsequently are within 60 days of maturity, are valued at amortized
cost.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS: Delivery and payment for
securities that have been purchased by the funds on a forward commitment or
when-issued basis can take place a month or more after the transaction date.
During this period, such securities are subject to market fluctuation and the
portfolio maintains, in a segregated account with its custodian, assets with
a market value equal to the amount of its purchase commitments. As of January
31, 1998, U.S. Government Fund and Strategic Income Fund had entered into
outstanding when-issued or forward commitments of $49,615,962 and $752,976,
respectively.
Consistent with its ability to purchase securities on a when-issued basis,
the U.S. Government Fund and the Strategic Income Fund may enter into
transactions to defer settlement of its purchase commitments. As an
inducement to defer settlement, the portfolio repurchases a similar security
for settlement at a later date at a lower purchase price relative to the
current market. This transaction is referred to as a "dollar roll".
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions
are accounted for on the trade date. Interest income is recorded on the
accrual basis. Realized security gains and losses are determined using the
identified cost method. Each fund amortizes original issue discount, long
term bond premium, and market discount.
For the period ended January 31, 1998, the cost of purchases and proceeds
from sales of securities (other than short-term securities) were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
<S> <C> <C>
- --------------------------------------------------------------------------------
U.S. Government Securities Fund.............. $ 315,817,563 $ 335,547,633
Strategic Income Fund........................ 37,574,030 18,252,727
Fortis High Yield Portfolio.................. 283,543,064 269,420,589
</TABLE>
LENDING OF PORTFOLIO SECURITIES: At January 31, 1998, securities valued at
$160,601,078 were on loan to brokers from U.S. Government. For collateral,
the Fund's custodian received $164,483,619 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 $87,195 for U.S.
Government for the period ended January 31, 1998. The risks to the funds in
security lending transactions are that the borrower may not provide
additional collateral when required or return the securities when due and
that the proceeds from the sale of investments made with cash collateral
received will be less than amounts required to be returned to the borrowers.
22
<PAGE>
- --------------------------------------------------------------------------------
DEFERRED COSTS: Registration costs are deferred and charged to income over
the registration period. Organizational costs were incurred with the
commencement of operations of the Strategic Income Fund. These costs will be
amortized over 60 months on a straight line basis, beginning December 1,
1997.
FEDERAL TAXES: The Portfolios intend to qualify, under the Internal Revenue
Code, as regulated investment companies and if so qualified, will not have to
pay federal income taxes to the extent their taxable net income is
distributed. On a calendar year basis, the Portfolios intend to distribute
substantially all of their net investment income and realized gains, if any,
to avoid the payment of federal excise taxes.
Net investment income and net realized gains may differ for financial
statement and tax purposes. The character of distributions made during the
year from net investment income or net realized gains may, therefore, differ
from their ultimate characterization for federal income tax purposes. Also,
due to the timing of dividend distributions, the fiscal year in which amounts
are distributed may differ from the year that the income or realized gains
(losses) were recorded by the Portfolios. The effect on dividend
distributions of certain current year permanent book-to-tax differences is
reflected as excess distributions of net realized gains in the statements of
changes in net assets and the financial highlights.
For federal income tax purposes U.S. Government had a capital loss carryover
of $72,061,071 and High Yield had $12,157,664 at July 31, 1997, which, if not
offset by subsequent capital gains, will expire in 1998 through 2006. It is
unlikely the Board of Directors will authorize a distribution of any net
realized gains until the available capital loss carryover has been offset or
expired.
INCOME AND CAPITAL GAINS DISTRIBUTIONS: Distributions from net investment
income are declared daily and paid monthly. The funds will generally make
annual distributions of any realized capital gains as required by law. These
income and capital gains distributions may be reinvested in additional shares
of the fund at net asset value without any charge to the shareholder or
payable in cash.
ILLIQUID SECURITIES: At January 31, 1998, investments in securities for the
Strategic Income Fund and High Yield Portfolio included issues that are
illiquid. The funds currently limit investments in illiquid securities to 15%
of net assets, at market value, at the date of purchase. The aggregate value
of such securities at January 31, 1998, was $1,041,874 for Strategic Income
and $15,215,684 for High Yield which represents 4.95% and 6.74 % of net
assets respectively. Pursuant to guidelines adopted by the Board of
Directors, certain unregistered securities are determined to be liquid and
are not included within the 15% limitation specified above.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of increase and decrease
in net assets from operations during the reporting period. Actual results
could differ from those estimates.
2. PAYMENTS TO RELATED PARTIES: Fortis Advisers, Inc., is the investment adviser
for the fund. Investment advisory and management fees are computed at an
annual rate of .8% of the first $50 million of average daily net assets and
.7% of net assets in excess of $50 million for U.S. Government, Strategic
Income, and High Yield. In addition to the investment advisory and management
fee, Classes A, B, C and H pay Fortis Investors, Inc., (the principal
underwriter) distribution fees equal to .25% of average daily net assets for
Class A for U.S. Government and Strategic Income and .35% of average daily
net assets for Class A of High Yield and U.S. Government, Strategic Income,
and High Yield (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) as follows:
<TABLE>
<CAPTION>
Class A Class B Class C Class H Class E
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund.............. $ 61,525 $ 4,353 $ 247 $ 13,981 $ 52,192
Strategic Income Fund........................ 3,157 107 -- -- --
Fortis High Yield Portfolio.................. 241,872 41,148 2,194 131,216 --
</TABLE>
Advisers has voluntarily undertaken to limit annual expenses for Strategic
Income (exclusive of interest, taxes, brokerage commissions and non-recurring
extraordinary charges and expenses) commencing December 1, 1997 to 1.10% of
daily net assets. During the semi-annual period ended January 31, 1998,
Advisers waived $5,340 of its advisory fee.
For the period ended January 31, 1998, legal fees and expenses were paid to a
law firm of which the secretary of the fund is a partner.
<TABLE>
<CAPTION>
Amount
<S> <C>
- --------------------------------------------------------
U.S. Government Securities Fund.............. $6,714
Strategic Income Fund........................ 1,823
Fortis High Yield Portfolio.................. 2,621
</TABLE>
23
<PAGE>
FORTIS BOND FUND
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS: Selected per share historical data for each of the
Portfolios was as follows:
<TABLE>
<CAPTION>
Class E
--------------------------------------------------------------------------
Year Ended July 31,
--------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 1998** 1997 1996 1995 1994++ 1993+
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.16 $ 8.87 $ 9.02 $ 9.03 $ 9.87 $ 9.86
--------- --------- --------- --------- --------- ---------
Operations:
Investment income - net............... .27 .54 .60 .67 .42 .75
Net realized and unrealized gains
(losses) on investments............. .15 .32 (.15) (.01) (.84) .05
--------- --------- --------- --------- --------- ---------
Total from operations................... .42 .86 .45 .66 (.42) .80
--------- --------- --------- --------- --------- ---------
Distributions to shareholders:
From investment income - net.......... (.27) (.54) (.60) (.67) (.42) (.75)
From net realized gains............... -- -- -- -- -- (.04)
Excess distributions of net realized
gains............................... -- (.03) -- -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions to shareholders..... (.27) (.57) (.60) (.67) (.42) (.79)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period.......... $ 9.31 $ 9.16 $ 8.87 $ 9.02 $ 9.03 $ 9.87
--------- --------- --------- --------- --------- ---------
Total return @.......................... 4.66% 10.07% 5.08% 7.71% (4.29)% 8.31%
Net assets end of period (000s
omitted).............................. $ 303,957 $ 324,643 $ 388,006 $ 470,597 $ 555,275 $ 641,977
Ratio of expenses to average daily net
assets................................ .80%* .81% .81% .77% .77%* .76%
Ratio of net investment income to
average daily net assets.............. 5.74%* 6.08% 6.59% 7.51% 7.72%* 7.43%
Portfolio turnover rate................. 62% 161% 75% 76% 85% 157%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
------------------------------------------- ---------------------------------------
Year Ended July 31,
--------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 1998** 1997 1996 1995+++ 1998** 1997 1996 1995+++
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.16 $ 8.87 $ 9.02 $ 8.63 $ 9.14 $ 8.86 $ 9.02 $8.63
-------- -------- -------- ------- ------- ------- ------- ------
Operations:
Investment income - net............... .26 .52 .58 .46 .22 .46 .51 .41
Net realized and unrealized gains
(losses) on investments............. .15 .32 (.15) .39 .15 .31 (.15) .39
-------- -------- -------- ------- ------- ------- ------- ------
Total from operations................... .41 .84 .43 .85 .38 .77 .36 .80
-------- -------- -------- ------- ------- ------- ------- ------
Distributions to shareholders:
From investment income - net.......... (.26) (.52) (.58) (.46) (.23) (.47) (.52) (.41)
Excess distributions of net realized
gains............................... -- (.03) -- -- -- (.02) -- --
-------- -------- -------- ------- ------- ------- ------- ------
Total distributions to shareholders..... (.26) (.55) (.58) (.46) (.23) (.49) (.52) (.41)
-------- -------- -------- ------- ------- ------- ------- ------
Net asset value, end of period.......... $ 9.31 $ 9.16 $ 8.87 $ 9.02 $ 9.29 $ 9.14 $ 8.86 $9.02
-------- -------- -------- ------- ------- ------- ------- ------
Total return @.......................... 4.52% 9.77% 4.78% 10.07% 4.20% 8.95% 4.00% 9.74%
Net assets end of period (000s
omitted).............................. $ 57,084 $ 59,128 $ 67,707 $4,909 $2,979 $ 2,826 $ 2,314 $ 483
Ratio of expenses to average daily net
assets................................ 1.05%* 1.06% 1.06% 1.02%* 1.80%* 1.81% 1.81% 1.77%*
Ratio of net investment income to
average daily net assets.............. 5.49%* 5.83% 6.34% 7.00%* 4.74%* 5.08% 5.45% 6.24%*
Portfolio turnover rate................. 62% 161% 75% 76% 62% 161% 75% 76%
</TABLE>
* Annualized.
** For the six-month period ended January 31, 1998.
+ For the period from December 31, 1992 to December 31, 1993.
++ For the seven-month period ended July 31, 1994.
+++ For the period from November 14, 1994 (commencement of operations) to
July 31, 1995.
@ These are the Fund's total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustments for sales charge.
24
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. FINANCIAL HIGHLIGHTS (continued):
Class C
----------------------------------------
Year Ended July 31,
----------------------------------------
U.S. GOVERNMENT SECURITIES FUND 1998** 1997 1996 1995+++
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.13 $ 8.85 $ 9.01 $ 8.63
------- ------- ------- -------
Operations:
Investment income - net............... .23 .46 .51 .41
Net realized and unrealized gains
(losses) on investments............. .15 .31 (.15) .38
------- ------- ------- -------
Total from operations................... .38 .77 .36 .79
------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.23) (.47) (.52) (.41)
Excess distributions of net realized
gains............................... -- (.02) -- --
------- ------- ------- -------
Total distributions to shareholders..... (.23) (.49) (.52) (.41)
------- ------- ------- -------
Net asset value, end of period.......... $ 9.28 $ 9.13 $ 8.85 $ 9.01
------- ------- ------- -------
Total return @.......................... 4.20% 8.96% 4.00% 9.35%
Net assets end of period (000s
omitted).............................. $1,409 $ 1,444 $ 1,057 $ 326
Ratio of expenses to average daily net
assets................................ 1.80%* 1.81% 1.81% 1.77%*
Ratio of net investment income to
average daily net assets.............. 4.74%* 5.07% 5.59% 6.24%*
Portfolio turnover rate................. 62% 161% 75% 76%
</TABLE>
<TABLE>
<CAPTION>
Class H
-------------------------------------------
Year Ended July 31,
-------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 1998** 1997 1996 1995+++
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.14 $ 8.86 $ 9.02 $ 8.63
-------- -------- -------- -------
Operations:
Investment income - net............... .22 .46 .51 .41
Net realized and unrealized gains
(losses) on investments............. .15 .31 (.15) .39
-------- -------- -------- -------
Total from operations................... .37 .77 .36 .80
-------- -------- -------- -------
Distributions to shareholders:
From investment income - net.......... (.23) (.47) (.52) (.41)
Excess distributions of net realized
gains............................... -- (.02) -- --
-------- -------- -------- -------
Total distributions to shareholders..... (.23) (.49) (.52) (.41)
-------- -------- -------- -------
Net asset value, end of period.......... $ 9.28 $ 9.14 $ 8.86 $ 9.02
-------- -------- -------- -------
Total return @.......................... 4.08% 8.94% 4.00% 9.47%
Net assets end of period (000s
omitted).............................. $ 11,708 $ 10,637 $ 10,120 $4,823
Ratio of expenses to average daily net
assets................................ 1.80%* 1.80% 1.81% 1.77%*
Ratio of net investment income to
average daily net assets.............. 4.74%* 5.08% 5.52% 6.24%*
Portfolio turnover rate................. 62% 161% 75% 76%
</TABLE>
* Annualized.
** For the six-month period ended January 31, 1998.
+++ For the period from November 14, 1994 (commencement of operations) to
July 31, 1995.
@ These are the Fund's total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustments for sales charge.
25
<PAGE>
FORTIS BOND FUND
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. FINANCIAL HIGHLIGHTS (continued):
CLASS A CLASS B CLASS C CLASS H
-------- ------- ------- -------
STRATEGIC INCOME FUND 1998+ 1998+ 1998+ 1998+
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.98 $ 9.98 $ 9.98 $ 9.98
-------- ------- ------- -------
Operations:
Investment income - net............... .10 .09 .09 .09
Net realized and unrealized gain
(loss) on investments............... .19 .19 .19 .19
-------- ------- ------- -------
Total from operations................... .29 .28 .28 .28
-------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.10) (.09) (.09) (.09)
-------- ------- ------- -------
Net asset value, end of period.......... $ 10.19 $10.19 $10.19 $10.19
-------- ------- ------- -------
Total return @.......................... 2.89% 2.79% 2.81% 2.81%
Net assets end of period (000s
omitted)............................... $ 20,803 $ 84 $ 63 $ 79
Ratio of expenses to average daily net
assets (a)............................. 1.10%* 1.85%* 1.85%* 1.85%*
Ratio of net investment income to
average daily net assets (a)........... 5.61%* 5.40%* 5.38%* 5.41%*
Portfolio turnover rate................. 93% 93% 93% 93%
</TABLE>
* Annualized
+ For the period December 1, 1997 (commencement of operations) to
January 31, 1998.
@ These are the Funds total returns during the periods, including a
reinvestment of all dividend all dividend and capital gains
distributions without adjustments for sales charge.
(a) Advisers has voluntarily undertaken to limit annual expenses for
Strategic Income (exclusive of interest, taxes, brokerage commission
and non-recurring extraordinary charges and expenses) to 1.10% of
average net assets. For the period presented, had the waiver and
reimbursement of expenses not been in effect, the ratios of expenses
and net investment income to average daily net assets would have been
1.33% and 5.46% for class A, 2.08% and 5.17% for class B, 2.08% and
5.15% for class C, and 2.08% and 5.18% for class H, respectively.
26
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. FINANCIAL HIGHLIGHTS (continued):
Class A
------------------------------------------------------------------------
Year Ended July 31,
------------------------------------------------------------------------
HIGH YIELD PORTFOLIO 1998** 1997 1996+++ 1995+ 1994+ 1993+
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 7.83 $ 7.56 $ 7.61 $ 7.90 $ 8.65 $ 8.00
--------- --------- --------- --------- -------- --------
Operations:
Investment Income - net............... .38 .76 .56 .86 .86 .87
Net realized and unrealized gains
(losses) on investments............. (.10) .28 (.04) (.25) (.72) .68
--------- --------- --------- --------- -------- --------
Total from operations................... .28 1.04 .52 .61 .14 1.55
--------- --------- --------- --------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.39) (.75) (.55) (.86) (.89) (.89)
Excess distributions of net realized
gains............................... -- (.02) (.02) (.04) -- (.01)
--------- --------- --------- --------- -------- --------
Total distributions to shareholders..... (.39) (.77) (.57) (.90) (.89) (.90)
--------- --------- --------- --------- -------- --------
Net asset value, end of period.......... $ 7.72 $ 7.83 $ 7.56 $ 7.61 $ 7.90 $ 8.65
Total Return @.......................... 3.66% 14.51% 6.98% 8.07% 1.48% 20.33%
Net assets end of period (000s
omitted).............................. $ 120,635 $ 123,115 $ 109,401 $ 113,268 $ 98,611 $ 73,395
Ratio of expenses to average daily net
assets................................ 1.18%* 1.19% 1.21%* 1.25% 1.23% 1.29%
Ratio of net investment income to
average daily net assets.............. 9.78%* 9.84% 9.87%* 10.61% 10.18% 10.43%
Portfolio turnover rate................. 130% 331% 146% 101% 63% 95%
</TABLE>
<TABLE>
<CAPTION>
Class B
-------------------------------------------
Year Ended July 31,
-------------------------------------------
HIGH YIELD PORTFOLIO 1998** 1997 1996+++ 1995++
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 7.83 $ 7.56 $ 7.60 $ 7.87
-------- -------- -------- -------
Operations:
Investment Income - net............... .35 .71 .53 .78
Net realized and unrealized gains
(losses) on investments............. (.10) .28 (.04) (.23)
-------- -------- -------- -------
Total from operations................... .25 .99 .49 .55
-------- -------- -------- -------
Distributions to shareholders:
From investment income - net.......... (.37) (.70) (.51) (.78)
Excess distributions of net realized
gains............................... -- (.02) (.02) (.04)
-------- -------- -------- -------
Total distributions to shareholders..... (.37) (.72) (.53) (.82)
-------- -------- -------- -------
Net asset value, end of period.......... $ 7.71 $ 7.83 $ 7.56 $ 7.60
Total Return @.......................... 3.21% 13.80% 6.62% 7.25%
Net assets end of period (000s
omitted).............................. $ 24,332 $ 20,388 $12,067 $7,530
Ratio of expenses to average daily net
assets................................ 1.83%* 1.83% 1.86%* 1.90%*
Ratio of net investment income to
average daily net assets.............. 9.15%* 9.24% 9.20%* 9.66%*
Portfolio turnover rate................. 130% 331% 146% 101%
</TABLE>
* Annualized
** For the six-month period ended January 31, 1998.
+ For the year ended October 31.
++ For the period from November 14, 1994 (commencement of operations) to
October 31, 1995.
+++ For the nine-month period ended July 31, 1996.
@ These are the Fund's total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustments for sales charge.
27
<PAGE>
FORTIS BOND FUND
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. FINANCIAL HIGHLIGHTS (continued):
Class C
----------------------------------------
Year Ended July 31,
----------------------------------------
HIGH YIELD PORTFOLIO 1998** 1997 1996+++ 1995++
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 7.82 $ 7.55 $ 7.59 $ 7.87
------- ------- ------- -------
Operations:
Investment Income - net............... .35 .71 .53 .78
Net realized and unrealized gains
(losses) on investments............. (.10) .28 (.04) (.24)
------- ------- ------- -------
Total from operations................... .25 .99 .49 .54
------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.37) (.70) (.51) (.78)
Excess distributions of net realized
gains............................... -- (.02) (.02) (.04)
------- ------- ------- -------
Total distributions to shareholders..... (.37) (.72) (.53) (.82)
------- ------- ------- -------
Net asset value, end of period.......... $ 7.70 $ 7.82 $ 7.55 $ 7.59
Total Return @.......................... 3.21% 13.82% 6.63% 7.12%
Net assets end of period (000s
omitted).............................. $8,493 $ 7,037 $3,378 $2,180
Ratio of expenses to average daily net
assets................................ 1.83%* 1.83% 1.86%* 1.90%*
Ratio of net investment income to
average daily net assets.............. 9.15%* 9.26% 9.21%* 9.83%*
Portfolio turnover rate................. 130% 331% 146% 101%
</TABLE>
<TABLE>
<CAPTION>
Class H
--------------------------------------------
Year Ended July 31,
--------------------------------------------
HIGH YIELD PORTFOLIO 1998** 1997 1996+++ 1995++
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 7.82 $ 7.55 $ 7.60 $ 7.87
-------- -------- -------- --------
Operations:
Investment Income - net............... .36 .71 .52 .78
Net realized and unrealized gains
(losses) on investments............. (.10) .28 (.04) (.23)
-------- -------- -------- --------
Total from operations................... .26 .99 .48 .55
-------- -------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.37) (.70) (.51) (.78)
Excess distributions of net realized
gains............................... -- (.02) (.02) (.04)
-------- -------- -------- --------
Total distributions to shareholders..... (.37) (.72) (.53) (.82)
-------- -------- -------- --------
Net asset value, end of period.......... $ 7.71 $ 7.82 $ 7.55 $ 7.60
Total Return @.......................... 3.35% 13.82% 6.48% 7.25%
Net assets end of period (000s
omitted).............................. $ 72,320 $ 63,789 $39,133 $ 23,862
Ratio of expenses to average daily net
assets................................ 1.83%* 1.83% 1.86%* 1.90%*
Ratio of net investment income to
average daily net assets.............. 9.14%* 9.23% 9.21%* 9.81%*
Portfolio turnover rate................. 130% 331% 146% 101%
</TABLE>
* Annualized
** For the six-month period ended January 31, 1998.
++ For the period from November 14, 1994 (commencement of operations) to
October 31, 1995.
+++ For the nine-month period ended July 31, 1996.
@ These are the Fund's total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustments for sales charge.
28
<PAGE>
DIRECTORS AND OFFICERS
DIRECTORS Richard W. Cutting CPA AND FINANCIAL CONSULTANT
Allen R. Freedman CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
FORTIS, INC. MANAGING DIRECTOR OF
FORTIS INTERNATIONAL, N.V.
Dr. Robert M. Gavin PRESIDENT, CRANBROOK EDUCATION
COMMUNITY. PRIOR TO JULY 1996,
PRESIDENT MACALESTER COLLEGE
Benjamin S. Jaffray CHAIRMAN, SHEFFIELD GROUP, LTD.
Jean L. King PRESIDENT, COMMUNI-KING
Dean C. Kopperud CHIEF EXECUTIVE OFFICER AND DIRECTOR,
FORTIS ADVISERS, INC. PRESIDENT AND
DIRECTOR, FORTIS INVESTORS, INC.
SENIOR VICE PRESIDENT AND DIRECTOR,
FORTIS BENEFITS INSURANCE COMPANY AND
TIME INSURANCE COMPANY
Edward M. Mahoney PRIOR TO JANUARY, 1995, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER, FORTIS
ADVISERS, INC., FORTIS INVESTORS,
INC.
Robb L. Prince FINANCIAL AND EMPLOYEE BENEFIT
CONSULTANT. PRIOR TO JULY, 1995, VICE
PRESIDENT AND TREASURER, JOSTENS,
INC.
Leonard J. Santow PRINCIPAL, GRIGGS & SANTOW, INC.
Noel Shadko MARKETING CONSULTANT. PRIOR TO MAY,
1996, SENIOR VICE PRESIDENT OF
MARKETING & STRATEGIC PLANNING,
ROLLERBLADE, INC.
Joseph M. Wikler INVESTMENT CONSULTANT AND PRIVATE
INVESTOR. PRIOR TO JANUARY, 1994,
DIRECTOR OF RESEARCH, CHIEF
INVESTMENT OFFICER, PRINCIPAL, AND
DIRECTOR, THE ROTHSCHILD CO.
OFFICERS
Dean C. Kopperud
PRESIDENT AND DIRECTOR
Robert W. Beltz, Jr.
VICE PRESIDENT
James S. Byrd
VICE PRESIDENT
Peggy L. Ettestad
VICE PRESIDENT
Tamara L. Fagely
VICE PRESIDENT AND TREASURER
Howard G. Hudson
VICE PRESIDENT
Dickson W. Lewis
VICE PRESIDENT
Lucinda S. Mezey
VICE PRESIDENT
David A. Peterson
VICE PRESIDENT
Scott R. Plummer
VICE PRESIDENT
Rhonda J. Schwartz
VICE PRESIDENT
Melinda S. Urion
VICE PRESIDENT
Gary N. Yalen
VICE PRESIDENT
Michael J. Radmer
SECRETARY
INVESTMENT MANAGER, REGISTRAR Fortis Advisers, Inc.
AND TRANSFER AGENT BOX 64284, ST. PAUL, MINNESOTA 55164
PRINCIPAL UNDERWRITER Fortis Investors, Inc.
BOX 64284, ST. PAUL, MINNESOTA 55164
CUSTODIAN U.S. Bank National Association
MINNEAPOLIS, MINNESOTA
GENERAL COUNSEL Dorsey & Whitney LLP
MINNEAPOLIS, MINNESOTA
INDEPENDENT AUDITORS KPMG Peat Marwick LLP
MINNEAPOLIS, MINNESOTA
The use of this material is authorized only when preceded or accompanied by a
prospectus.
29
<PAGE>
[LOGO]
FORTIS
SOLID PARTNERS, FLEXIBLE SOLUTIONS-SM-
- --------------------------------------------------------------------------------
FORTIS MEANS STEADFAST
Fortis means "steadfast" in Latin. The worldwide Fortis family of companies
lives up to the name, and has each day since the 1800s, with flexible
solutions tailored to our customers' individual needs. We deliver the
stability you require today ... and tomorrow. You can count on it.
Fortis Financial Group offers mutual funds, annuities and life insurance
through its broker/dealer Fortis Investors, Inc. We're part of Fortis, Inc.,
a financial services company that provides specialty insurance and investment
products to individuals, businesses, associations and other financial services
organizations throughout the United States.
Fortis, Inc. is part of Fortis, a worldwide group of companies active in the
fields of insurance, banking and investments. Fortis is jointly owned by
Fortis AMEV of The Netherlands and Fortis AG of Belgium.
Fortis: steadfast for YOU!
FORTIS FINANCIAL GROUP
Fortis Advisers, Inc.
(fund management since 1949)
Fortis Investors, Inc.
(principal underwriter:
member NASD, SIPC)
Fortis Benefits Insurance Company
& Fortis Insurance Company
(issuers of FFG's insurance products)
P.O. Box 64284, St. Paul, MN 55164
(800) 800-2000
http://www.ffg.us.fortis.com
- --------------------------------------------------------------------------------
---------------
Bulk Rate
FORTIS FINANCIAL GROUP U.S. Postage
P.O. BOX 64284 PAID
ST. PAUL, MN 55164 Permit No. 3794
Minneapolis, MN
---------------
FORTIS BOND FUNDS
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98754 -Copyright-Fortis 3/98
