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Fortis Bond Funds
Annual Report
JULY 31, 1998
Fortis Financial Group
<PAGE>
FORTIS BOND FUNDS ANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS 2
SCHEDULES OF INVESTMENTS
U.S. GOVERNMENT SECURITIES FUND 7
STRATEGIC INCOME FUND 10
HIGH YIELD PORTFOLIO 14
STATEMENTS OF ASSETS AND LIABILITIES 20
STATEMENTS OF OPERATIONS 21
STATEMENTS OF CHANGES IN NET ASSETS
U.S. GOVERNMENT SECURITIES FUND 22
STRATEGIC INCOME FUND 23
HIGH YIELD PORTFOLIO 24
NOTES TO FINANCIAL STATEMENTS 25
INDEPENDENT AUDITORS' REPORT 31
FEDERAL INCOME TAX INFORMATION 32
BOARD OF DIRECTORS AND OFFICERS 33
- - TOLL-FREE PERSONAL ASSISTANCE
- Shareholder Services
- (800) 800-2000, Ext. 3012
- 7:30 a.m. to 5:30 p.m. CST, M-Th
- 7:30 a.m. to 5:00 p.m. CST, F
- - TOLL-FREE INFORMATION LINE
- For daily account balances,
transaction activity or net asset
value information
- (800) 800-2000, Ext. 4344
- 24 hours a day
FOR MORE INFORMATION ABOUT FORTIS FINANCIAL GROUP'S FAMILY OF PRODUCTS, CALL
YOUR INVESTMENT REPRESENTATIVE OR THE HOME OFFICE AT (800) 800-2000.
TO ORDER PROSPECTUSES OR SALES LITERATURE FOR ANY FORTIS PRODUCT, CALL (800)
800-2000, EXT. 4579.
HOW TO USE THIS REPORT
For a quick overview of the fund's performance during the past twelve months,
refer to the Highlights box below. The letter from the portfolio manager and
president provides a more detailed analysis of the fund and financial markets.
The charts alongside the letter are useful because they provide more information
about your investments. The top holdings chart shows the types of securities in
which the Fund invests, and the pie chart shows a breakdown of the fund's assets
by sector or industry.
The performance chart graphically compares the Fund's total return performance
with a selected investment index. Remember, however, that an index may reflect
the performance of securities the fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your fund does. Individuals cannot buy an unmanaged index fund without incurring
some charges and expenses.
This report is just one of several tools you can use to learn more about your
investment in the Fortis Family of Mutual Funds. Your investment representative,
who understands your personal financial situation, can best explain the features
of your investment and how it's designed to help you meet your financial goals.
HIGHLIGHTS
FOR THE YEAR ENDED JULY 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 year.......................... $ 9.16 $ 9.14 $ 9.13 $ 9.16 $ 9.14
End of year................................ $ 9.30 $ 9.28 $ 9.27 $ 9.30 $ 9.28
DISTRIBUTIONS PER SHARE
From net investment income................. $0.498 $0.432 $0.432 $0.522 $0.432
STRATEGIC INCOME FUND*
NET ASSET VALUE PER SHARE:
Beginning of period........................ $ 9.98 $ 9.98 $ 9.98 -- $ 9.98
End of period.............................. $10.05 $10.05 $10.05 -- $10.05
DISTRIBUTIONS PER SHARE
From net investment income................. $ .421 $ .377 $ .380 -- $ .380
HIGH YIELD PORTFOLIO
NET ASSET VALUE PER SHARE:
Beginning of year.......................... $ 7.83 $ 7.83 $ 7.82 -- $ 7.82
End of year................................ $ 7.41 $ 7.41 $ 7.40 -- $ 7.40
DISTRIBUTIONS PER SHARE
From net investment income................. $ .749 $ .701 $ .701 -- $ .701
</TABLE>
* For the period from December 1, 1997 (commencement of operations) to July
31, 1998.
1
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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."
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.
During the twelve months ended July 31, 1998, the U.S. economy continued its
brisk pace of growth. Fueled by a rapidly expanding work force, nearly 3 million
more jobs were created and with strong consumer demand, real gross domestic
product, or GDP grew at a 3.5 percent annualized rate.
After a scare from the emerging markets in January, it appeared that the
economic problems overseas, Asia in particular, would remain localized, and that
the strong U.S. domestic economy would force the Federal Reserve to raise rates.
As 1998 progressed, however, it became clear that the problems in Asia were more
severe and far reaching than the marketplace originally anticipated. The ripple
effects of Asia began to affect the U.S. economy, negatively impacting GDP.
As a result, growth slowed dramatically from the first quarter 1998, 5.5 percent
real GDP in the first quarter 1998, to 1.4 percent real GDP in the second
quarter of 1998. The net result of these events was that interest rates
increased during both February and April, and then declined significantly later
in the second quarter. The 30-year treasury began the year at 5.92 percent,
increased to as high as 6.0 percent, and fell to 5.72 percent on July 31, 1998.
Year to date, long-term rates decreased more than short-term rates. We did not
believe the problems in Asia would remedy quickly, and used the back-up in
interest rates that accompanied the market's premature relief to extend the
portfolio's duration. Currently, the portfolio's duration is 4.75 years.
Duration is a measure of a bond portfolio's sensitivity to changes in interest
rates; therefore a "long duration" portfolio assumes interest rates will
decline.
Since callable bonds perform poorly in periods of declining interest rates, we
also improved the overall call protection in the portfolio. This involved
selling conventional mortgage-backed securities, or MBS, which are subject to
immediate prepayment; and buying MBS with better call protection and
non-callable agency debentures. If rates either remain at current levels or
decline further, these securities should provide better total rates of return
than the issues we sold.
The fund's return benefitted from our strategies regarding duration, sector
allocation and security selection. Our 12-month total rate of return of 7.42
percent for Class E shares before sales charge compares favorably to the 6.75
percent return for the Morningstar intermediate term govenment bond fund
category average before sales charge and the 6.83 percent for the Lehman
Brothers Intermediate Government Index.
Our strategy going forward will depend once again on the severity and duration
of the Asian crisis. Should Asia's problems continue, we anticipate that the
U.S. dollar will remain strong, exports will continue to be restrained, and the
drag on the U.S. economy will prevent the Federal Reserve from having to raise
short-term interest rates. In addition, foreign investors will look to our
markets for "safe-haven investing". These outcomes all suggest interest rates
will likely remain at these levels or move lower.
Sincerely,
/s/ Dean C. Kopperud /s/ Howard G. Hudson
- -------------------- --------------------
Dean C. Kopperud Howard G. Hudson
President Vice President
2
<PAGE>
PORTFOLIO COMPOSITION BY SECTOR AS OF 7/31/98
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
FNMA's 34.2%
U.S. Treasury Securities 27.7%
Other Direct Federal Obligations 17.8%
GNMA's 8.4%
FHLMC's 6.1%
Cash Equivalents/Receivables 5.8%
</TABLE>
TOP 10 HOLDINGS AS OF 7/31/98
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. Federal Home Loan Bank (7.31%) 2004 8.7%
2. U.S. Treasury Note (6.125%) 2001 6.6%
3. U.S. Treasury Zero Coupon Strip (6.10%) 2019 4.8%
4. U.S. Treasury Note (6.625%) 2002 4.7%
5. U.S. Treasury Bond (8.75%) 2017 3.9%
6. FNMA (7.50%) 2027 3.6%
7. U.S. Treasury Bond (8.125%) 2019 3.6%
8. FNMA Note (7.65%) 2005 3.0%
9. FNMA Note (6.70%) 2007 2.9%
10. GNMA II (9.50%) 2019 2.8%
</TABLE>
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- -----------------------------------------------------------------------
<S> <C> <C>
Class A shares# 7.14% 8.56%
Class A shares## 2.32% 7.22%
Class B shares# 6.40% 7.76%
Class B shares## 2.80% 7.16%
Class C shares# 6.41% 7.73%
Class C shares## 5.41% 7.73%
Class H shares# 6.40% 7.76%
Class H shares## 2.80% 7.16%
</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. Classes 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 July 31, 1998.
+ Since November 14, 1994 -- Date shares were first offered to the public
VALUE OF $10,000 INVESTED AUGUST 1, 1988
<TABLE>
<CAPTION>
LEHMAN BROTHERS INTERMEDIATE U.S. GOVERNMENT
GOVERNMENT INDEX*** SECURITIES FUND CLASS E
<S> <C> <C>
8/1/88 $10,000 $10,000
89 11,266 10,718
90 12,061 11,531
91 13,290 12,763
92 15,123 14,321
93 16,361 15,576
94 16,531 15,154
95 17,930 16,323
96 18,724 17,151
97 20,330 18,878
98 21,717 20,280
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Class E* +2.59% +4.45% +7.33%
Class E** +7.42% +5.42% +7.82%
</TABLE>
Annual period ended July 31
Past performance is not indicative of future performance. Investment
return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
* SEC defined total returns, including reinvestment of all dividend
and capital gains distributions and the reduction due to the
maximum sales charge of 4.50%.
** These are the portfolio's total returns during the period,
including reinvestment of all dividend and capital gains
distributions without adjustment for sales charge.
*** An unmanaged index of government bonds with an average maturity
of eight to nine years.
3
<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 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.
For the U.S. financial markets, in the period since the Strategic Income Fund's
inception on December 1, 1997 through July 31, 1998, domestic economic events
have been overshadowed by a variety of international concerns. These concerns
centered, at least initially, on Southeast Asia and the former Soviet Union. As
time went on, concern spread and worsened to include other "emerging markets"
despite intermittent stopgap efforts of the International Monetary Fund and
other private entities to provide sufficient financing to stop the bleeding.
In this environment, the domestic bond market, which was the beneficiary of a
combination of favorable domestic circumstances, continued to be a sympathetic
partner to the equity market in its climb to lofty valuations. These financial
circumstances included a steady monetary policy which featured the right amount
of carefully worded anti-inflationary commentary from the Chairman of the
Federal Reserve, healthy but not excessive growth ( despite quarterly spikes in
activity ), reduced issuance of public sector debt accruing to the balancing of
our federal budget, and the difficulties abroad. As the problems intensified
internationally, the dollar continued to strengthen. This desirable currency
factor, supported by relatively high real rates and the depth, accessibility and
liquidity of U.S. debt markets, created demand for our bonds from foreign
investors. These related factors combined to push our interest rates lower and,
bond prices higher.
Given the market environment we diversified the portfolio gradually, weighting
domestic issues more heavily than foreign, establishing small positions in only
a few better quality foreign issues while avoiding most of the more troubled
"emerging markets". Since our fund was initiated at a time of lower interest
rates than most all of our competitors, we found ourselves at somewhat of a
disadvantage but, nonetheless, restrained our investments in the higher yielding
areas. This approach is beginning to bear fruit. The total return of the fund
for the period from December 1, 1997 to July 31, 1998 was 4.77 percent for Class
A shares before sales charge, which compares to 5.20 percent return for the
Lehman Brothers Aggregate Bond Index.
Going forward, we will continue to search for opportunities in the foreign
sector which has up to now been underweighted. In the interim, since we believe
the international difficulties to be long-lasting, our domestic high quality
orientation should benefit performance.
Sincerely,
/s/ Dean C. Kopperud /s/ Howard G. Hudson
- -------------------- --------------------
Dean C. Kopperud Howard G. Hudson
President Vice President
4
<PAGE>
PORTFOLIO COMPOSITION BY SECTOR AS OF 7/31/98
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Foreign Bonds - Investment Grade 23.1%
Corporate Bonds - Non-investment Grade 19.8%
Foreign Bonds - Non-investment Grade 14.3%
FNMAs 13.0%
Corporate Bonds - Investment Grade 11.0%
Cash Equivalent/Receivables 7.4%
U.S. Treasury Securities 7.0%
Asset Backed Securities 4.4%
</TABLE>
TOP 10 HOLDINGS AS OF 7/31/98
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. FNMA Note (6.18%) 2001 4.3%
2. U.S. Treasury Note (5.75%) 2003 3.0%
3. News America Holdings (8.875%) 2023 2.6%
4. U.S. Treasury Note (6.625%) 2002 2.3%
5. Bank Austria AG (7.25%) 2017 2.3%
6. 360 Communications Co. (7.50%) 2006 2.3%
7. J.P. Morgan Commercial Mortgage Finance Corp
(7.472%) 2028 2.3%
8. Lehman Brothers Holdings, Inc. (7.375%) 2004 2.2%
9. Quebec (Providence of) (7.50%) 2002 2.2%
10. Trans-Canada Pipelines, Ltd. (7.06%) 2025 2.2%
</TABLE>
CLASS B, C AND H TOTAL RETURNS
<TABLE>
<CAPTION>
Since
Inception+
- -------------------------------------------------------
<S> <C>
Class B shares# 4.31%
Class B shares## 0.71%
Class C shares# 4.35%
Class C shares## 3.35%
Class H shares# 4.35%
Class H shares## 0.75%
</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 July 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 SALOMON BROTHERS
AGGREGATE BOND INDEX*** FUND CLASS A WORLD INDEX****
<S> <C> <C> <C>
12/1/97 $10,000 $9,569 $10,000
98 10,520 10,005 10,541
Strategic Income Fund
Eight Month Total Return
Since December 1, 1997@
Class A* +0.05%
Class A** +4.77%
</TABLE>
Annual period ended July 31
Past performance is not indicative of future performance. Investment
return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
* SEC defined total returns, including reinvestment of all dividend
and capital gains distributions and the reduction due to the
maximum sales charge of 4.50%.
** These are the portfolio's total returns during the period,
including reinvestment of all dividend and capital gains
distributions without adjustment for sales charge.
*** An unmanaged index of government, corporate and mortgage-backed
securities with an average maturity of approximately nine years.
**** An unmanaged index of world government bonds with maturities of
at least one year.
@ Date shares were first offered to the public.
5
<PAGE>
PORTFOLIO COMPOSITION BY INDUSTRY AS OF 7/31/98
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Other 36.7%
Telecommuncations 18.5%
Cable Television 11.6%
Cash Equivalents/Receivables 5.6%
Broadcasting 4.7%
Steel and Iron 4.3%
Textile Manufacturing 3.6%
Chemicals 3.2%
Energy 3.2%
Forest Products 3.0%
Publishing 3.0%
Machinery 2.6%
</TABLE>
TOP 10 HOLDINGS AS OF 7/31/98
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. Rogers Cantel, Inc. (9.375%) 2008 2.0%
2. Clark Materials Handling Co. (10.75%) 2006 1.9%
3. Weirton Steel Corp. (11.375%) 2004 1.9%
4. Omnipoint Corp. (11.625%) 2006 1.9%
5. Speedway Motorsports, Inc. (8.50%) 2007 1.9%
6. ITC Deltacom, Inc. (11.00%) 2007 1.8%
7. Fage Dairy Industries S.A. (9.00%) 2007 1.7%
8. Newport News Ship Building (9.25%) 2006 1.7%
9. Comcast Cellular Holdings (9.50%) 2007 1.7%
10. Adelphia Communications, Inc. (9.25%) 2002 1.6%
</TABLE>
CLASS B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- -----------------------------------------------------------------------
<S> <C> <C>
Class B shares# 3.67% 8.40%
Class B shares## 0.07% 7.81%
Class C shares# 3.67% 8.37%
Class C shares## 2.67% 8.37%
Class H shares# 3.67% 8.37%
Class H shares## 0.07% 7.78%
</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 (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 July 31, 1998.
+ Since November 14, 1994 -- Date shares were first offered to the public
YOUR HIGH YIELD PORTFOLIO
LONG-TERM INVESTORS, WILLING TO ACCEPT GREATER PRICE FLUCTUATIONS, MAY CHOOSE TO
DIVERSIFY THEIR STOCK OR BOND INVESTMENTS WITH THIS PORTFOLIO OF HIGHER YIELDING
BONDS. ITS MONEY MANAGERS INVEST IN A WIDELY DIVERSIFIED PORTFOLIO OF
LOWER-RATED CORPORATE BONDS.
During this twelve-month reporting period, from August 1, 1997 to July 31, 1998,
we've added a new portfolio manager, Ho Wang. Mr. Wang brings to Fortis more
than twenty eight years of experience as a high-yield specialist. He focuses on
investing in high-yield bonds that will maximize the total return for
shareholders. The fund's total return was 4.31 percent for Class A shares before
sales charge for the twelve months ending July 31, 1998, compared to 9.01
percent for the Lehman Brothers High Yield Index.
The primary reason this fund underperformed expectations was due to ongoing
problems stemming from two specific holdings in our portfolio, Australis and
Wireless One. The negative earnings situation with these companies began late
last year and continued to deteriorate throughout this reporting period. In
addition, our overweighting in the telecommunications sector hurt performance as
that sector lagged the rest of the market during this period.
Our decision to underweight emerging market bonds has significantly helped the
returns for the fund. Specifically, Southeast Asia, Japan and Russia, have
underperformed during 1998.
We have refocused our efforts on selecting higher-quality securities for this
portfolio. This strategy is an important element in producing consistant total
rates of return.
Looking ahead, we see U.S. economic activity beginning to moderate but we do not
expect this to have a significant influence on the fund. Although we're
currently underweighted in the emerging market sector, we will continue to look
for opportunities within the sector that may add value in the coming months.
Sincerely,
/s/ Dean C. Kopperud /s/ Howard G. Hudson
- -------------------- --------------------
Dean C. Kopperud Howard G. Hudson
President Vice President
VALUE OF $10,000 INVESTED AUGUST 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>
8/1/88 $10,000 $10,000
89 10,832 10,320
90 10,976 9,178
91 12,610 10,933
92 15,439 13,371
93 17,807 15,665
94 18,416 16,592
95 21,047 18,034
96 22,729 19,019
97 26,369 21,779
98 28,745 22,719
High Yield Portfolio
Average Annual Total Return
1 Year 5 Year 10 Year
Class A* -0.38% +6.73% +8.55%
Class A** +4.31% +7.72% +9.05%
</TABLE>
Annual period ended July 31
Past performance is not indicative of future performance. Investment
return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
* SEC defined total returns, including reinvestment of all dividend
and capital gains distributions and the reduction due to the
maximum sales charge of 4.50%.
** These are the portfolio's total returns during the period,
including reinvestment of all dividend and capital gains
distributions without adjustment for sales charge.
*** An unmanaged index of lower quality, high yield corporate debt
securities.
6
<PAGE>
FORTIS BOND FUNDS
U.S. GOVERNMENT SECURITIES FUND
Schedule of Investments
July 31, 1998
U.S. GOVERNMENT SECURITIES-94.24%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Cost (a) Value (b)
------------- ------------- -------------
<C> <S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION -
6.12%
MORTGAGE BACKED SECURITIES:
$ 1,770,494 5.50% 2001................................... $ 1,753,580 $ 1,755,556
5,977,908 8.00% 2001-2002.............................. 6,127,356 6,099,338
2,609,218 9.00% 2001-2022.............................. 2,765,260 2,760,805
136,918 10.50% 2015.................................. 147,229 149,583
182,746 11.25% 2013-2014............................. 195,726 203,248
696,003 11.50% 2015-2019............................. 752,385 778,653
649,707 11.75% 2010-2014............................. 711,377 730,109
122,542 12.50% 2019.................................. 131,335 139,353
------------- -------------
12,584,248 12,616,645
------------- -------------
NOTES:
8,000,000 6.75% 2006................................... 8,230,426 8,466,304
------------- -------------
REMIC-PAC'S:
512,679 9.00% Trust #136-D PAC 2020.................. 515,122 515,135
------------- -------------
TOTAL FEDERAL HOME LOAN MORTGAGE
CORPORATION................................ 21,329,796 21,598,084
------------- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -
34.24%
MORTGAGE BACKED SECURITIES:
3,921,262 6.00% 2013................................... 3,863,149 3,873,473
2,989,275 6.36% 2008................................... 2,984,690 3,032,141
4,662,207 6.48% 2008................................... 4,707,181 4,765,382
17,451,595 6.50% 2013-2028.............................. 17,461,363 17,491,623
1,442,078 6.54% 2007................................... 1,467,934 1,479,702
1,947,828 6.63% 2005................................... 2,003,856 1,996,641
3,767,023 7.00% 2003................................... 3,724,311 3,822,353
4,035,239 7.00% 2028 (e)............................... 4,095,768 4,091,987
6,785,036 7.184% 2006.................................. 6,698,054 7,147,612
19,262,537 7.50% 2022-2027.............................. 19,653,950 19,774,209
759,886 8.00% 2025................................... 727,353 787,195
943,133 8.50% 2022................................... 990,003 983,512
127,693 9.00% 2020................................... 126,456 134,956
1,107,618 9.75% 2020................................... 1,194,843 1,190,690
647,991 10.00% 2020.................................. 706,918 701,855
678,167 10.50% 2012-2018............................. 731,635 741,744
198,541 10.75% 2013.................................. 204,497 216,890
2,038,311 11.00% 2015-2020............................. 2,203,336 2,254,881
351,706 11.25% 2013.................................. 369,292 391,273
161,204 11.50% 2015.................................. 173,215 180,347
321,142 12.00% 2011-2016............................. 343,229 362,890
470,984 12.50% 2015.................................. 527,595 536,039
------------- -------------
74,958,628 75,957,395
------------- -------------
NOTES:
6,000,000 5.42% 2001 (f)............................... 5,969,853 5,961,762
3,030,000 5.625% 2001 (f).............................. 3,028,077 3,025,713
4,040,000 6.18% 2001................................... 4,086,803 4,085,890
6,065,000 6.58% 2007 (f)............................... 6,051,513 6,376,747
9,730,000 6.70% 2007 (f)............................... 10,156,653 10,305,607
3,980,000 7.15% 2007 (f)............................... 4,314,182 4,333,906
9,750,000 7.65% 2005 (f)............................... 9,886,867 10,729,797
------------- -------------
43,493,948 44,819,422
------------- -------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION................................ 118,452,576 120,776,817
------------- -------------
</TABLE>
7
<PAGE>
FORTIS BOND FUNDS
U.S. GOVERNMENT SECURITIES FUND (CONTINUED)
Schedule of Investments
July 31, 1998
U.S. GOVERNMENT SECURITIES-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Cost (a) Value (b)
------------- ------------- -------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -
8.36%
MORTGAGE BACKED SECURITIES:
$ 977,152 6.675% American Southwest Financial Services
1996-FHAI 2001 (GNMA Backed)............... $ 978,465 $ 977,074
7,717,458 7.00% 2024................................... 7,611,224 7,835,636
2,495,288 8.00% 2017-2022.............................. 2,551,813 2,588,087
2,208,791 9.00% 2022................................... 2,280,577 2,359,957
14,107,618 9.50% 2016-2019.............................. 14,743,822 15,159,349
498,374 11.00% 2015-2018............................. 536,836 546,031
28,620 11.25% 2015.................................. 30,369 31,562
------------- -------------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION................................ 28,733,106 29,497,696
------------- -------------
OTHER DIRECT FEDERAL OBLIGATIONS - 17.02%
FEDERAL FARM CREDIT BANK:
5,000,000 5.70% 2001 (f)............................... 5,019,843 4,999,270
------------- -------------
FEDERAL HOME LOAN BANK:
6,650,000 5.60% 2001 (f)............................... 6,626,317 6,636,387
6,000,000 5.75% 2001................................... 5,993,972 6,010,674
7,500,000 5.925% 2000 (f).............................. 7,508,967 7,536,240
2,325,000 6.625% 2007.................................. 2,408,620 2,448,704
1,500,000 6.995% 2007.................................. 1,593,579 1,616,136
28,650,000 7.31% 2004 (f)............................... 28,569,929 30,781,159
------------- -------------
52,701,384 55,029,300
------------- -------------
TOTAL OTHER DIRECT FEDERAL OBLIGATIONS....... 57,721,227 60,028,570
------------- -------------
OTHER GOVERNMENT AGENCIES - 0.79%
RESOLUTION FUNDING CORPORATION:
7,000,000 7.34% Zero Coupon Strip 2014 (d)............. 2,218,432 2,769,760
------------- -------------
U.S. TREASURY SECURITIES - 27.71%
BONDS:
55,400,000 5.93% 2019 Zero Coupon Strip (d)(f).......... 16,440,848 16,787,862
6,950,000 5.98% 2009 Zero Coupon Strip (d)(f).......... 3,572,538 3,658,132
2,050,000 6.375% 2027.................................. 2,207,268 2,226,173
10,000,000 8.125% 2019 (f).............................. 11,655,986 12,775,000
10,400,000 8.75% 2017 (f)............................... 13,969,409 13,874,255
------------- -------------
47,846,049 49,321,422
------------- -------------
NOTES:
1,600,000 6.00% 1999 (f)............................... 1,599,529 1,607,501
22,990,000 6.125% 2001 (f).............................. 22,801,276 23,392,325
4,785,000 6.25% 2002 (f)............................... 4,905,593 4,897,151
2,005,000 6.375% 2000 (f).............................. 2,024,562 2,034,449
15,955,000 6.625% 2002 (f).............................. 16,392,182 16,503,453
------------- -------------
47,723,142 48,434,879
------------- -------------
TOTAL U.S. TREASURY SECURITIES............... 95,569,191 97,756,301
------------- -------------
TOTAL U.S. GOVERNMENT SECURITIES............. $ 324,024,328 $ 332,427,228
------------- -------------
------------- -------------
</TABLE>
8
<PAGE>
SHORT-TERM INVESTMENTS-6.07%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
------------ -------------
<C> <S> <C>
INVESTMENT COMPANY-3.84%
$13,544,471 First American Treasury Obligations Fund,
Current rate -- 5.17%...................... $ 13,544,471
-------------
U.S. GOVERNMENT AGENCY-2.23%
7,900,000 Federal Home Loan Mortgage Corp., 5.58%,
8-28-1998.................................. 7,866,412
-------------
TOTAL SHORT-TERM INVESTMENTS................. 21,410,883
-------------
-------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$345,435,211) (a).......................... $ 353,838,111
-------------
-------------
</TABLE>
(a) At July 31, 1998, the cost of securities for federal income tax purposes
was $345,558,442 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 8,548,043
Unrealized depreciation........................... (268,374)
---------------------------------------------------------------
Net unrealized appreciation....................... $ 8,279,669
---------------------------------------------------------------
</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) The cost of securities purchased on a when-issued basis at July 31, 1998,
was $4,095,768.
(f) Security is fully or partially on loan at July 31, 1998. See Note 1 of
accompanying Notes to Financial Statements.
9
<PAGE>
FORTIS BOND FUNDS
STRATEGIC INCOME FUND
Schedule of Investments
July 31, 1998
ASSET BACKED SECURITIES-4.42%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
--------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
COMMERCIAL LOAN PARTICIPATIONS-4.42%
$500,000 GMAC Commercial Mortgage Securities, Inc.,
7.085% Ser 1997-C1 Class E
12-15-2010 -- UNITED STATES................ A $ 499,016 $ 503,570
500,000 J.P. Morgan Commercial Mortgage Finance
Corp., 7.472% Ser 1997-C4 Class B
12-26-2028 -- UNITED STATES................ AA 525,121 529,687
------------ ------------
TOTAL ASSET BACKED SECURITIES................ $ 1,024,137 $ 1,033,257
------------ ------------
------------ ------------
</TABLE>
CORPORATE BONDS-INVESTMENT GRADE-34.10%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
--------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
BANKS-5.45%
$350,000 Banco Santiago S.A., 7.00% Sub Note
7-18-2007 -- CHILE......................... BBB $ 346,878 $ 321,628
500,000 Bank Austria AG, 7.25% Sub Note 2-15-2017 (f)
-- AUSTRIA................................. AAA 520,559 539,138
400,000 CoreStates Capital Corp., 6.75% Medium Term
Note 11-15-2006 -- UNITED STATES........... A- 402,788 411,736
------------ ------------
1,270,225 1,272,502
------------ ------------
BROKERAGE AND INVESTMENT-2.25%
500,000 Lehman Brothers Holdings, Inc., 7.375% Note
5-15-2004 -- UNITED STATES................. A 517,526 524,722
------------ ------------
CONSUMER FINANCE-2.15%
500,000 Beneficial Corp., 6.33% Medium Term Note
12-18-2000 -- UNITED STATES................ A 501,257 502,399
------------ ------------
ELECTRONIC-MISCELLANEOUS-2.14%
500,000 Sony Corp., 6.125% Bond 3-4-2003 -- JAPAN.... A+ 499,015 500,667
------------ ------------
FOREIGN-GOVERNMENT-2.20%
500,000 Poland (Republic of), 7.125% Yankee Bond
7-1-2004 -- POLAND......................... BBB- 501,045 515,000
------------ ------------
FOREIGN-GOVERNMENT AGENCIES-2.24%
500,000 Quebec (Province of), 7.50% Yankee Bond
7-15-2002 -- CANADA........................ A+ 518,816 524,310
------------ ------------
MEDIA-2.55%
500,000 News America Holdings, 8.875% Deb
4-26-2023 -- UNITED STATES................. BBB- 578,922 596,490
------------ ------------
NATURAL GAS TRANSMISSIONS-2.21%
500,000 Trans-Canada Pipelines Ltd., 7.06% Note
10-14-2025 -- CANADA....................... A- 504,172 517,469
------------ ------------
OIL-CRUDE PETROLEUM AND GAS-4.22%
500,000 Saga Petroleum ASA, 7.25% Yankee Bond
9-23-2027 -- NORWAY........................ BBB+ 508,484 497,601
500,000 YPF Sociedad Anonima, 7.25% Sr Note 3-15-2003
(f) -- ARGENTINA........................... BBB- 499,253 487,500
------------ ------------
1,007,737 985,101
------------ ------------
OIL-EQUIPMENT WELLS AND SERVICES-2.17%
500,000 Petroleum Geo-Services, 7.125% Sr Note
3-30-2028 -- NORWAY........................ BBB 498,555 505,821
------------ ------------
SUPRANATIONAL-2.19%
500,000 Corp Andina de Fomento, 7.10% Yankee Bond
2-1-2003 -- VENEZUELA...................... BBB+ 502,322 510,930
------------ ------------
TELECOMMUNICATIONS-2.28%
500,000 360 Communications Co., 7.50% Sr Note
3-1-2006 -- UNITED STATES.................. A 520,426 533,258
------------ ------------
UTILITIES-ELECTRIC-2.05%
500,000 Empresa Nacional de Electricidad, 7.325%
Yankee Bond 2-1-2037 -- CHILE.............. A- 497,109 479,746
------------ ------------
TOTAL CORPORATE BONDS - INVESTMENT GRADE..... $ 7,917,127 $ 7,968,415
------------ ------------
------------ ------------
</TABLE>
10
<PAGE>
CORPORATE BONDS-NON-INVESTMENT GRADE-34.11%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
--------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
BROADCASTING-3.10%
$250,000 Chancellor Media Corporation of Los Angeles,
8.125% Sr Sub Note 12-15-2007 -- UNITED
STATES..................................... B $ 249,386 $ 253,125
250,000 Grupo Televisa S.A., 10.04% Sr Disc Note
5-15-2008 (Zero coupon through 5-15-2001,
thereafter 13.25%) (e) -- MEXICO........... BB 200,993 206,875
250,000 Sinclair Broadcasting Group, Inc., 9.00% Sr
Sub Note 7-15-2007 (d) -- UNITED STATES.... B 251,158 263,125
------------ ------------
701,537 723,125
------------ ------------
BUSINESS SERVICES AND SUPPLIES-1.17%
250,000 Dialog Corp. plc, 11.00% Sr Sub Note
11-15-2007 -- UNITED KINGDOM............... B 261,450 273,125
------------ ------------
CABLE TELEVISION-3.38%
250,000 Adelphia Communications, Inc., 9.25% Sr Note
10-1-2002 -- UNITED STATES................. B2* 254,485 260,312
250,000 CSC Holdings, Inc., 8.125% Sr Deb
8-15-2009 -- UNITED STATES................. BB+ 256,929 267,500
250,000 Lenfest Communications, 8.25% Sr Sub Note
2-15-2008 (f) -- UNITED STATES............. BB- 249,337 261,250
------------ ------------
760,751 789,062
------------ ------------
COMPUTER-HARDWARE-1.24%
250,000 Unisys Corp., 11.75% Sr Note
10-15-2004 -- UNITED STATES................ BB- 284,173 290,000
------------ ------------
DAIRY PRODUCTS-1.04%
250,000 Fage Dairy Industries S.A., 9.00% Sr Note
2-1-2007 -- GREECE......................... BB 243,972 243,125
------------ ------------
ENTERTAINMENT-1.11%
250,000 Speedway Motorsports, Inc., 8.50% Sr Sub Deb
8-15-2007 -- UNITED STATES................. B+ 253,568 260,312
------------ ------------
FOOD-MISCELLANEOUS-1.13%
250,000 Envirodyne Industries, Inc., 12.00% First
Priority Sr Secured Note
6-15-2000 -- UNITED STATES................. B+ 267,500 265,000
------------ ------------
FOREIGN-GOVERNMENT-8.33%
250,000 Argentina (Republic of), 11.375% Bond
1-30-2017 -- ARGENTINA..................... BB 283,257 274,125
250,000 Brazil (Republic of), 10.125% Bond
5-15-2027 -- BRAZIL........................ BB- 251,247 224,250
500,000 Korea (Republic of), 8.875% Note
4-15-2008 -- KOREA......................... BB+ 493,358 471,000
250,000 Mexican United States, 9.875% Global Bond
1-15-2007 -- MEXICO........................ BB 263,099 261,875
250,000 Panama (Republic of), 8.875% Bond
9-30-2027 -- PANAMA........................ BB+ 247,508 234,375
500,000 Philippines (Republic of), 8.875% Sr Note
4-15-2008 -- PHILIPPINES................... BB+ 497,427 480,000
------------ ------------
2,035,896 1,945,625
------------ ------------
MACHINERY-1.13%
250,000 Clark Materials Handling Co., 10.75% Sr Note
11-15-2006 -- UNITED STATES................ B+ 264,943 265,000
------------ ------------
RESTAURANTS AND FRANCHISING-1.08%
250,000 Tricon Global Restaurants, Inc., 7.65% Sr
Note 5-15-2008 -- UNITED STATES............ BB 249,447 252,522
------------ ------------
RETAIL-GROCERY-1.11%
250,000 Big V Supermarkets, Inc., 11.00% Sr Sub Note
2-15-2004 -- UNITED STATES................. B- 259,855 260,000
------------ ------------
STEEL AND IRON-2.24%
250,000 Weirton Steel Corp., 11.375% Sr Note
7-1-2004 -- UNITED STATES.................. B 263,894 268,125
250,000 Wheeling-Pittsburgh Corp., 9.25% Sr Note
11-15-2007 -- UNITED STATES................ BB- 255,499 256,250
------------ ------------
519,393 524,375
------------ ------------
TELECOMMUNICATIONS-7.13%
250,000 Intermedia Communications, Inc., 8.50% Sr
Note 1-15-2008 -- UNITED STATES............ B 250,000 253,750
250,000 Iridium LLC/Capital Corp., 14.00% Sr Note
7-15-2005 -- UNITED STATES................. B- 271,991 266,250
250,000 Level 3 Communications, Inc., 9.125% Sr Note
5-1-2008 (f) -- UNITED STATES.............. B 248,964 247,188
250,000 Microcell Telecommunications, Inc., 12.30% Sr
Disc Note 6-1-2006 (Zero coupon through
12-1-2001, thereafter 14.00%)
(e) -- CANADA.............................. B3* 176,534 193,750
250,000 Nextel Communications, Inc., 10.07% Sr Disc
Note 9-15-2007 (Zero coupon through
9-15-2002, thereafter 10.65%) (e) -- UNITED
STATES..................................... CCC+ 168,439 173,438
250,000 Omnipoint Corp., 11.625% Sr Note
8-15-2006 -- UNITED STATES................. CCC+ 264,291 266,563
250,000 Rogers Cantel, Inc., 9.375% Sr Secured Deb
6-1-2008 -- CANADA......................... BB+ 265,261 264,375
------------ ------------
1,645,480 1,665,314
------------ ------------
</TABLE>
11
<PAGE>
FORTIS BOND FUNDS
STRATEGIC INCOME FUND (CONTINUED)
Schedule of Investments
July 31, 1998
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (a) Value (b)
--------- ------------- ------------ ------------
<C> <S> <C> <C> <C>
UTILITIES-WATER AND SEWER-0.92%
$250,000 Cathay International Ltd., 13.00% Sr Note
4-15-2008 (d) -- HONG KONG................. BB- $ 250,000 $ 215,000
------------ ------------
TOTAL CORPORATE BONDS - NON-INVESTMENT
GRADE...................................... $ 7,997,965 $ 7,971,585
------------ ------------
------------ ------------
</TABLE>
U.S. GOVERNMENT SECURITIES-19.99%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Cost (a) Value (b)
----------- ------------ ------------
<C> <S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION -
13.04%
MORTGAGE BACKED SECURITIES:
$ 498,152 6.30% 2008................................... $ 498,804 $ 503,333
263,711 6.48% 2008................................... 266,255 269,547
497,268 6.54% 2007................................... 506,184 510,242
243,479 6.63% 2005................................... 250,482 249,580
495,798 7.00% 2028 (g)............................... 503,235 502,770
------------ ------------
2,024,960 2,035,472
------------ ------------
NOTES:
1,000,000 6.18% 2001................................... 1,011,585 1,011,359
------------ ------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION................................ 3,036,545 3,046,831
------------ ------------
U.S. TREASURY SECURITIES - 6.95%
BONDS:
50,000 5.84% Zero Coupon Strip 2019 (e)............. 15,100 15,152
150,000 6.375% 2027.................................. 161,507 162,891
150,000 8.125% 2021.................................. 189,949 193,219
------------ ------------
366,556 371,262
------------ ------------
NOTES:
700,000 5.75% 2003................................... 705,376 705,469
530,000 6.625% 2002.................................. 543,682 548,219
------------ ------------
1,249,058 1,253,688
------------ ------------
TOTAL U.S. TREASURY SECURITIES............... 1,615,614 1,624,950
------------ ------------
TOTAL U.S. GOVERNMENT SECURITIES............. 4,652,159 4,671,781
------------ ------------
------------ ------------
TOTAL LONG-TERM INVESTMENTS.................. $21,591,388 $21,645,038
------------ ------------
------------ ------------
</TABLE>
SHORT-TERM INVESTMENTS-7.39%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
--------- ------------
<C> <S> <C>
BANKS-0.55%
$128,792 U.S. Bank N.A. Money Market Variable Rate
Time Deposit, Current rate -- 5.43%........ $ 128,792
------------
U.S. GOVERNMENT AGENCY-6.84%
700,000 Federal National Mortgage Association, 5.52%,
8-3-1998................................... 699,683
600,000 Federal Home Loan Mortgage Corp., 5.55%,
8-13-1998.................................. 598,822
300,000 Federal Home Loan Mortgage Corp., 5.57%,
8-28-1998.................................. 298,726
------------
1,597,231
------------
TOTAL SHORT-TERM INVESTMENTS................. 1,726,023
------------
------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$23,317,411) (a)........................... $23,371,061
------------
------------
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
(a) At July 31, 1998, the cost of securities for federal income tax purposes
was $23,317,411 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 258,029
Unrealized depreciation........................... (204,379)
---------------------------------------------------------------
Net unrealized appreciation....................... $ 53,650
---------------------------------------------------------------
</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 23.10% of total
net assets in investment grade securities and 14.31% of total net assets in
non-investment grade securities.
(d) Securities issued within the terms of a private placement memorandum,
exempt from registration under Section 144A of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or to other
"accredited investors". These investments have been identified by portfolio
management as illiquid securities:
<TABLE>
<CAPTION>
Date Acquired Shares/Par Security Cost Basis
- ------------------ ----------- ------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
1998 250,000 Cathay International Ltd. due 2008 - 144A $ 250,000
1997 250,000 Sinclair Broadcasting Corp. due 2007 - 144A 251,158
</TABLE>
The aggregate value of these securities at July 31, 1998, was $478,125,
which represents 2.05% of total net assets.
(e) The interest rate disclosed for these securities represents the effective
yield on the date of acquisition.
(f) Securities sold within the terms of a private placement memorandum, exempt
form registration under Section 144A of the Securities Act of 1933, as
amended, and may be sold only to dealers in that program or to other
"accredited investors". Pursuant to guidelines adopted by the Board of
Directors, these issues are determined to be liquid. The aggregate value of
these securities at July 31, 1998, was $1,535,076, which represents 6.57%
of total net assets.
(g) The cost of securities purchased on a when-issued basis at July 31, 1998,
was $503,235.
* Moody's Rating
13
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO
Schedule of Investments
July 31, 1998
COMMON STOCKS AND WARRANTS-0.46%
<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-0.00%
1,500 Highwaymaster Communications, Inc. (Warrants)
(a)(e)..................................... 26,250 3,750
------------- -------------
CABLE TELEVISION-0.00%
8,500 American Telecasting, Inc. (Warrants)
(a)(e)..................................... 17,000 --
7,500 People's Choice T.V. Corp. (Warrants)
(a)(e)..................................... 78 --
------------- -------------
17,078 --
------------- -------------
CONSUMER GOODS-0.00%
3,000 Wireless One, Inc. (Warrants) (a)(e)......... 23,493 30
------------- -------------
LEISURE TIME-AMUSEMENTS-0.00%
1,000 Boomtown, Inc. (Warrants) (a)(e)............. 6,340 --
6,000 Hemmeter Enterprises, Inc. (Warrants)
(a)(e)..................................... 24,000 --
------------- -------------
30,340 --
------------- -------------
PUBLISHING-0.02%
197,500 Marvel Entertainment Group, Inc. (a)......... 2,156,224 35,550
------------- -------------
TELECOMMUNICATIONS-0.40%
6,600 Clearnet Communications, Inc. (Warrants)
(a)(e)..................................... 76,725 32,870
4,500 e.spire Communications, Inc. (Warrants)
(a)(e)..................................... 205,650 630,000
1,000 Hyperion Telecom (Warrants) (a)(e)........... 20,000 97,000
12,800 Powertel, Inc. (Warrants) (a)(e)............. 94,118 145,498
------------- -------------
396,493 905,368
------------- -------------
TOTAL COMMON STOCKS AND WARRANTS............. $ 2,671,028 $ 1,032,198
------------- -------------
------------- -------------
</TABLE>
CORPORATE BONDS-INVESTMENT GRADE-0.60%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (b) Value (c)
----------- ------------- ------------- -------------
<C> <S> <C> <C> <C>
FINANCE COMPANIES-0.60%
$1,137,000 Homeside, Inc., 11.25% Sr Secured Second
Priority Note 5-15-2003.................... A+ $ 1,169,581 $ 1,341,660
------------- -------------
</TABLE>
CORPORATE BONDS-NON-INVESTMENT GRADE-93.31%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) 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... B+ $ 1,534,942 $ 1,552,500
------------- -------------
APPAREL-1.23%
2,500,000 Hosiery Corp. of America, Inc., 13.75% Sr Sub
Note 8-1-2002.............................. B- 2,653,846 2,743,750
------------- -------------
AUTOMOBILE MANUFACTURERS-1.13%
2,500,000 Navistar International Corp., 8.00% Sr Sub
Note 2-1-2008.............................. BB- 2,495,049 2,518,750
------------- -------------
AUTOMOBILE AND MOTOR VEHICLE PARTS-1.35%
2,500,000 Diamond Triumph Auto, 9.25% Sr Note 4-1-2008
(e)........................................ B+ 2,551,229 2,562,500
750,000 Highwaymaster, Inc., 13.75% Sr Note 9-15-2005
(e)........................................ B- 753,543 450,000
------------- -------------
3,304,772 3,012,500
------------- -------------
</TABLE>
14
<PAGE>
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (b) Value (c)
------------ ------------- ------------- -------------
<C> <S> <C> <C> <C>
BROADCASTING-4.67%
$ 2,250,000 Chancellor Media Corporation of Los Angeles,
8.125% Sr Sub Note 12-15-2007.............. B $ 2,244,477 $ 2,278,125
2,000,000 Grupo Televisa S.A., 11.27% Sr Disc Note
5-15-2008 (Zero coupon through 5-15-2001,
thereafter 13.25%) (f)..................... BB 1,607,558 1,655,000
1,000,000 Shop at Home, Inc., 11.00% Sr Secured Note
4-1-2005................................... B 1,000,000 1,057,500
3,000,000 Sinclair Broadcasting Group, Inc., 10.00% Sr
Sub Note 9-30-2005......................... B 3,093,242 3,247,500
2,000,000 Young Broadcasting Corp., 11.75% Sr Sub Note
11-15-2004................................. B 2,195,903 2,200,000
------------- -------------
10,141,180 10,438,125
------------- -------------
BUSINESS SERVICES AND SUPPLIES-0.98%
2,000,000 Dialog Corp. plc, 11.00% Sr Sub Note
11-15-2007................................. B 2,000,000 2,185,000
------------- -------------
CABLE TELEVISION-11.61%
1,000,000 Adelphia Communications, Inc., 8.375% Sr Note
2-1-2008................................... B 1,007,312 1,015,000
3,500,000 Adelphia Communications, Inc., 9.25% Sr Note
10-1-2002.................................. B2* 3,564,737 3,644,375
10,117,492 Australis Media Ltd., 14.00% Sr Sub Disc Note
5-15-2003 (Zero coupon through 5-15-2000,
thereafter 15.75%)(with
warrants)(a)(e)(f)......................... D 7,594,969 1,012
2,500,000 Century Communications Corp., 8.875% Sr Note
1-15-2007.................................. BB- 2,578,773 2,687,500
1,000,000 CSC Holdings, Inc., 10.50% Sr Sub Deb
5-15-2016.................................. BB- 1,014,560 1,170,000
1,000,000 CSC Holdings, Inc., 8.125% Sr Deb
8-15-2009.................................. BB+ 1,056,336 1,070,000
2,000,000 CSC Holdings, Inc., 9.25% Sr Sub Note
11-1-2005.................................. BB- 2,100,573 2,135,000
2,000,000 Galaxy Telecom L.P., 12.375% Sr Sub Note
10-1-2005.................................. B- 2,179,412 2,235,000
1,500,000 Lenfest Communications, 7.625% Sr Note
2-15-2008 (g).............................. BB+ 1,495,940 1,537,500
1,750,000 Lenfest Communications, 8.25% Sr Sub Note
2-15-2008 (g).............................. BB- 1,745,359 1,828,750
2,000,000 Mediacom LLC/Capital, 8.50% Sr Note 4-15-2008
(e)........................................ B+ 2,000,000 2,015,000
3,000,000 Olympus Communication L.P., 10.625% Sr Note
11-15-2006................................. B 3,000,000 3,322,500
2,000,000 Rifkin Acquisition Partners L.P., 11.125% Sr
Sub Note 1-15-2006......................... B- 2,207,731 2,215,000
6,000,000 Wireless One, Inc., 13.00% Sr Note
10-15-2003................................. CCC+ 3,974,424 1,080,000
------------- -------------
35,520,126 25,956,637
------------- -------------
CHEMICALS-3.23%
2,000,000 Agricultural Minerals & Chemicals, 10.75% Sr
Note 9-30-2003............................. BB- 2,085,741 2,137,500
2,500,000 NL Industries, Inc., 11.75% Sr Secured Note
10-15-2003................................. B 2,763,487 2,750,000
4,000,000 Trans-Resources, Inc., 11.93% Sr Disc Note
3-15-2008 (Zero coupon through 3-15-03,
thereafter 12.00%) (f)..................... B- 2,351,597 2,330,000
------------- -------------
7,200,825 7,217,500
------------- -------------
COMPUTER-HARDWARE-1.67%
2,250,000 Unisys Corp., 11.75% Sr Note 10-15-2004...... BB- 2,453,037 2,610,000
1,000,000 Unisys Corp., 12.00% Sr Note 4-15-2003....... BB- 1,104,541 1,131,250
------------- -------------
3,557,578 3,741,250
------------- -------------
CONSUMER GOODS-1.50%
1,250,000 Chattem, Inc., 12.75% Sr Sub Note Ser B
6-15-2004.................................. B- 1,251,868 1,403,125
1,500,000 Drypers Corp., 10.25% Sr Note 6-15-2007...... B 1,552,916 1,556,250
375,000 Windmere-Durable Holdings, 10.00% Sr Sub Note
7-31-2008.................................. B- 375,000 382,031
------------- -------------
3,179,784 3,341,406
------------- -------------
DAIRY PRODUCTS-1.74%
4,000,000 Fage Dairy Industries S.A., 9.00% Sr Note
2-1-2007................................... BB 3,874,868 3,890,000
------------- -------------
ELECTRIC-COMPONENTS AND PARTS-1.12%
2,500,000 Wesco Distribution, Inc., 9.125% Sr Sub Note
6-1-2008 (g)............................... B 2,491,954 2,493,750
------------- -------------
ENERGY-3.19%
2,000,000 Energy Corp. of America, 9.50% Sr Sub Note
5-15-2007.................................. B 2,009,610 1,980,000
2,500,000 Gulfmark Offshore, 8.75% Sr Note 6-1-2008
(g)........................................ BB- 2,491,803 2,456,250
2,500,000 KCS Energy, Inc., 11.00% Sr Note 1-15-2003... B 2,744,116 2,687,500
------------- -------------
7,245,529 7,123,750
------------- -------------
</TABLE>
15
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO (CONTINUED)
Schedule of Investments
July 31, 1998
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (b) Value (c)
------------ ------------- ------------- -------------
<C> <S> <C> <C> <C>
ENTERTAINMENT-1.86%
$ 4,000,000 Speedway Motorsports, Inc., 8.50% Sr Sub Deb
8-15-2007.................................. B+ $ 4,039,991 $ 4,165,000
------------- -------------
FOOD SERVICE-1.39%
3,000,000 SC International Services, Inc., 9.25% Sr Sub
Note 9-1-2007.............................. B 3,126,076 3,105,000
------------- -------------
FOOD-MISCELLANEOUS-2.28%
1,000,000 Envirodyne Industries, Inc., 12.00% First
Priority Sr Secured Note 6-15-2000......... B+ 1,062,632 1,060,000
2,000,000 Fresh Foods, Inc., 10.75% Sr Note 6-1-2006
(e)........................................ B 2,003,111 2,005,000
2,000,000 Smithfield Foods, Inc., 7.625% Sr Sub Note
2-15-2008.................................. BB+ 1,996,176 2,020,000
------------- -------------
5,061,919 5,085,000
------------- -------------
FOREIGN-GOVERNMENT-1.07%
750,000 Korea (Republic of), 8.75% Note 4-15-2003.... BB+ 715,319 730,051
750,000 Korea (Republic of), 8.875% Note 4-15-2008... BB+ 740,037 706,500
1,000,000 Philippines (Republic of), 8.875% Sr Note
4-15-2008.................................. BB+ 994,853 960,000
------------- -------------
2,450,209 2,396,551
------------- -------------
FOREST PRODUCTS-3.01%
2,500,000 Domtar, Inc., 8.75% Note 8-1-2006............ BB+ 2,622,149 2,612,500
2,500,000 Pacific Lumber Co., 10.50% Sr Note
3-1-2003................................... B 2,572,333 2,575,000
1,500,000 Stone Container Corp., 9.875% Sr Note
2-1-2001................................... B 1,527,503 1,546,875
------------- -------------
6,721,985 6,734,375
------------- -------------
HEALTH CARE SERVICES-1.86%
2,000,000 Quorum Health Group, Inc., 8.75% Sr Sub Note
11-1-2005.................................. BB- 2,068,513 2,090,000
2,000,000 Tenet Healthcare Corp., 8.625% Sr Sub Note
1-15-2007.................................. BB- 2,067,783 2,072,500
------------- -------------
4,136,296 4,162,500
------------- -------------
HEALTH PRODUCTS-0.56%
1,250,000 Global Health Sciences, 11.00% Sr Note
5-1-2008 (e)............................... B+ 1,213,836 1,243,750
------------- -------------
HOUSING-1.40%
1,000,000 BlueGreen Corp., 10.50% Sr Note 4-1-2008
(e)........................................ B 1,000,000 970,000
2,000,000 MDC Holdings, Inc., 11.125% Note
12-15-2003................................. BB- 2,118,944 2,170,000
------------- -------------
3,118,944 3,140,000
------------- -------------
LEISURE TIME-AMUSEMENTS-0.98%
2,000,000 Grand Casinos, Inc., 10.125% First Mtg Bond
12-1-2003.................................. BB 2,168,286 2,180,000
------------- -------------
MACHINERY-2.61%
1,500,000 Anthony Crane Rentals, 10.375% Sr Note
8-1-2008 (g)............................... B 1,500,000 1,503,750
4,095,000 Clark Materials Handling Co., 10.75% Sr Note
11-15-2006................................. B+ 4,232,164 4,340,700
------------- -------------
5,732,164 5,844,450
------------- -------------
MACHINERY-TOOLS-0.35%
750,000 Simonds Industries, 10.25% Sr Sub Note
7-1-2008 (g)............................... B- 750,000 770,625
------------- -------------
MEDICAL SUPPLIES-0.98%
2,000,000 Maxxim Medical, 10.50% Sr Sub Note
8-1-2006................................... B 2,196,545 2,195,000
------------- -------------
METALS-FABRICATING-0.87%
2,000,000 Metals USA, Inc., 8.625% Sr Sub Note
2-15-2008 (g).............................. B 2,003,639 1,950,000
------------- -------------
MISCELLANEOUS-0.68%
1,500,000 La Petite Acad/LPA Holdings, 10.00% Sr Note
5-15-2008 (e).............................. B- 1,500,000 1,530,000
------------- -------------
PAPER-1.12%
2,500,000 Plainwell, Inc., 11.00% Sr Sub Note 3-1-2008
(e)........................................ B- 2,500,000 2,512,500
------------- -------------
PRINTING-0.73%
1,500,000 Day International Group, Inc., 11.125% Sr
Note 6-1-2005.............................. B+ 1,633,588 1,631,250
------------- -------------
</TABLE>
16
<PAGE>
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (b) Value (c)
------------ ------------- ------------- -------------
<C> <S> <C> <C> <C>
PUBLISHING-2.99%
$ 1,500,000 Affinity Group, 11.50% Sr Sub Note
10-15-2003................................. B $ 1,590,840 $ 1,582,500
2,000,000 Garden State Newspapers, 8.75% Sr Sub Note
10-1-2009.................................. B+ 2,014,527 2,057,500
1,000,000 Primedia, Inc., 10.25% Sr Note 6-1-2004...... BB- 1,075,138 1,072,500
2,000,000 Primedia, Inc., 7.625% Sr Note 4-1-2008...... BB- 1,984,339 1,970,000
------------- -------------
6,664,844 6,682,500
------------- -------------
RESTAURANTS AND FRANCHISING-1.96%
2,000,000 Advantica Restaurant Group, Inc., 11.25% Sr
Note 1-15-2008............................. B 2,159,736 2,112,500
2,250,000 Tricon Global Restaurants, Inc., 7.65% Sr
Note 5-15-2008............................. BB 2,245,019 2,272,702
------------- -------------
4,404,755 4,385,202
------------- -------------
RETAIL-GROCERY-1.34%
3,000,000 Fred Meyer, Inc., 7.45% Sr Note 3-1-2008..... BB+ 2,992,613 2,991,453
------------- -------------
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-1.67%
3,500,000 Newport News Ship Building, 9.25% Sr Sub Note
12-1-2006.................................. B+ 3,717,402 3,727,500
------------- -------------
STEEL AND IRON-4.30%
4,000,000 Gulf States Steel Corp., 13.50% First Mtg
Bond 4-15-2003............................. B- 4,142,769 3,280,000
4,000,000 Weirton Steel Corp., 11.375% Sr Note
7-1-2004................................... B 4,198,261 4,290,000
2,000,000 Wheeling-Pittsburgh Corp., 9.25% Sr Note
11-15-2007................................. BB- 2,043,989 2,050,000
------------- -------------
10,385,019 9,620,000
------------- -------------
TELECOMMUNICATIONS-18.12%
2,000,000 Arch Communications Group, Inc., 15.00% Sr
Disc Note 3-15-2008 (Zero coupon through
3-15-2001, thereafter 10.875%) (f)......... CCC 1,159,218 1,120,000
3,500,000 Comcast Cellular Holdings, 9.50% Sr Note
5-1-2007................................... BB+ 3,673,850 3,692,500
1,500,000 Flag Limited, 8.25% Sr Note 1-30-2008 (e).... B+ 1,500,000 1,518,750
2,000,000 Fonorola, Inc., 12.50% Sr Secured Note
8-15-2002.................................. NR 2,041,018 2,250,000
2,000,000 Globalstar LP/Capital, 11.25% Sr Note
6-15-2004.................................. B 2,063,195 1,850,000
2,500,000 Hyperion Telecommunication, 12.25% Sr Note
9-1-2004................................... B 2,685,939 2,728,125
2,000,000 Intermedia Communications, Inc., 11.25% Sr
Disc Note 7-15-2007 (Zero Coupon through
7-15-2002, thereafter 11.25%) (f).......... B 1,512,765 1,505,000
2,500,000 Intermedia Communications, Inc., 8.50% Sr
Note 1-15-2008............................. B 2,590,617 2,537,500
500,000 Iridium LLC/Capital Corp., 14.00% Sr Note
7-15-2005.................................. B- 558,848 532,500
3,625,000 ITC Deltacom, Inc., 11.00% Sr Note
6-1-2007................................... B 4,090,918 4,105,312
2,750,000 Level 3 Communications, Inc., 9.125% Sr Note
5-1-2008 (g)............................... B 2,738,609 2,719,063
2,500,000 McleodUSA, Inc., 9.25% Sr Note 7-15-2007..... B+ 2,692,493 2,625,000
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+ 1,364,528 1,387,500
500,000 Omnipoint Corp., 11.625% Sr Note 8-15-2006... CCC+ 488,899 533,125
4,000,000 Omnipoint Corp., 11.625% Sr Note Ser A
8-15-2006.................................. CCC+ 3,879,191 4,265,000
500,000 Qwest Communications International, 8.29% Sr
Disc Note 2-1-2008 (Zero coupon through
2-1-2003, thereafter 8.29%) (f)............ BB+ 347,471 372,500
4,250,000 Rogers Cantel, Inc., 9.375% Sr Secured Deb
6-1-2008................................... BB+ 4,509,444 4,494,375
1,875,000 Splitrock Services, Inc., 11.75% Sr Note
7-15-2008 (with warrants) (g).............. NR 1,891,397 1,877,344
375,000 Time Warner Telecom LLC, 9.75% Sr Note
7-15-2008.................................. B- 375,000 381,900
------------- -------------
40,163,400 40,495,494
------------- -------------
TEXTILE MANUFACTURING-3.65%
2,000,000 Anvil Knitwear, Inc., 10.875% Sr Note
3-15-2007.................................. B+ 2,039,911 2,020,000
3,000,000 Galey & Lord, Inc., 9.125% Sr Sub Note
3-1-2008................................... B 2,985,419 2,902,500
3,000,000 Pillowtex Corp., 10.00% Sr Sub Note
11-15-2006................................. B+ 3,190,599 3,232,500
------------- -------------
8,215,929 8,155,000
------------- -------------
</TABLE>
17
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO (CONTINUED)
Schedule of Investments
July 31, 1998
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Cost (b) Value (c)
------------ ------------- ------------- -------------
<C> <S> <C> <C> <C>
TRANSPORTATION-1.24%
$ 2,500,000 Greyhound Lines, Inc., 11.50% Sr Note
4-15-2007.................................. B- $ 2,608,694 $ 2,768,750
------------- -------------
UTILITIES-ELECTRIC-0.90%
2,000,000 AES Corp., 8.50% Sr Sub Note 11-1-2007....... B+ 2,052,929 2,020,000
------------- -------------
UTILITIES-WATER AND SEWER-0.19%
500,000 Cathay International Ltd., 13.00% Sr Note
4-15-2008 (e).............................. BB- 480,181 430,000
------------- -------------
WASTE DISPOSAL-1.09%
2,125,000 Norcal Waste Systems, Inc., 13.50% Increasing
Rate Sr Note 11-15-2005.................... BB- 2,125,000 2,433,125
------------- -------------
TOTAL CORPORATE BONDS - NON-INVESTMENT
GRADE...................................... 217,954,697 208,579,943
------------- -------------
------------- -------------
TOTAL LONG-TERM INVESTMENTS.................. $ 221,795,306 $ 210,953,801
------------- -------------
------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS - 2.18%
Principal Market
Amount Value (c)
----------- -------------
<C> <S> <C>
BANKS-2.18%
$4,868,000 U.S. Bank N.A. Money Market Variable Rate
Time Deposit, Current rate -- 5.43%........ $ 4,868,000
-------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$226,663,306) (b).......................... $ 215,821,801
-------------
-------------
</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 July 31, 1998, the cost of securities for federal income tax purposes
was $227,672,665 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 4,750,987
Unrealized depreciation..................................... (16,601,851)
- --------------------------------------------------------------------------
Net unrealized depreciation................................. $(11,850,864)
- --------------------------------------------------------------------------
</TABLE>
(c) See Note 1 of accompanying Notes to Financial Statements regarding
valuation of securities.
(d) Note: Percentage of investments as shown is the ratio of the total market
value to total net assets.
Market value of investments in foreign securities represents 8.91% of net
assets as of July 31, 1998.
18
<PAGE>
- --------------------------------------------------------------------------------
(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>
1994 8,500 American Telecasting, Inc. (Warrants) $ 17,000
1996-1997 10,117,492 Australis Media Ltd. due 2003 (with warrants) 7,594,969
1998 1,000,000 BlueGreen Corp. due 2008 - 144A 1,000,000
1993 1,000 Boomtown (Warrants) - 144A 6,340
1998 500,000 Cathay International Ltd. due 2008 - 144A 480,181
1996 6,600 Clearnet Communications, Inc. (Warrants) - 144A 76,725
1998 2,500,000 Diamond Triumph Auto due 2008 - 144A 2,551,229
1995 4,500 e.spire Communications, Inc. (Warrants) - 144A 205,650
1998 1,500,000 Flag Limited due 2008 - 144A 1,500,000
1998 2,000,000 Fresh Foods due 2006 - 144A 2,003,111
1998 1,250,000 Global Health Sciences due 2008 - 144A 1,213,836
1994 6,000 Hemmeter Enterprises, Inc. (Warrants) - 144A 24,000
1997 750,000 Highwaymaster Communications, Inc. due 2005 753,543
1997 1,500 Highwaymaster Communications, Inc. (Warrants) - 144A 26,250
1994 1,250 Hosiery Corp. of America Class A - 144A 21,150
1997 1,000 Hyperion Telecom (Warrants) 20,000
1998 1,500,000 La Petite Acad/LPA Holdings due 2008 - 144A 1,500,000
1998 2,000,000 Mediacom LLC/Capital due 2008 - 144A 2,000,000
1997 7,500 People's Choice T.V. Corp. (Warrants) 78
1998 2,500,000 Plainwell, Inc. due 2008 - 144A 2,500,000
1997 12,800 Powertel, Inc. (Warrants) 94,118
1996 3,000 Wireless One, Inc. (Warrants) 23,493
</TABLE>
The aggregate value of these securities at July 31, 1998, was $16,235,160,
which represents 7.26% 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 July 31, 1998, was $17,137,032, which represents 7.67%
of total net assets.
* Moody's Rating
19
<PAGE>
FORTIS BOND FUNDS
Statements of Assets and Liabilities
July 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
$345,435,211; $23,317,411; and $226,663,306;
respectively) (Note 1)........................ $353,838,111 $23,371,061 $215,821,801
Cash on deposit with custodian.................. -- -- 713
Collateral for securities lending transactions
(Note 1)...................................... 164,806,638 -- --
Receivables:
Investment securities sold.................... 88,427 -- 3,116,032
Interest and dividends........................ 3,659,041 398,568 5,557,351
Subscriptions of capital stock................ 2,089 72,783 31,690
Deferred registration costs (Note 1)............ 24,930 26,229 25,711
Deferred organizational costs................... -- 28,171 --
Prepaid expenses................................ -- 479 --
------------ ------------ ------------
TOTAL ASSETS...................................... 522,419,236 23,897,291 224,553,298
------------ ------------ ------------
LIABILITIES:
Cash portion of dividends payable............... 410,331 2,968 664,711
Payable upon return of securities loaned (Note
1)............................................ 164,806,638 -- --
Payable for investment securities purchased..... 4,095,768 503,235 --
Redemptions of capital stock.................... 88,925 -- 155,839
Payable for investment advisory and management
fees (Note 2)................................. 215,655 15,656 138,284
Payable for distribution fees (Note 2).......... 1,548 357 8,195
Accounts payable and accrued expenses........... 58,652 6,203 46,007
------------ ------------ ------------
TOTAL LIABILITIES................................. 169,677,517 528,419 1,013,036
------------ ------------ ------------
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.................................. 409,416,538 23,284,238 244,823,178
Unrealized appreciation (depreciation) of
investments................................... 8,402,900 53,650 (10,841,505)
Undistributed net investment income............. 95,443 -- 3,356
Accumulated net realized gain (loss) from sale
of investments................................ (65,173,162) 30,984 (10,444,767)
------------ ------------ ------------
TOTAL NET ASSETS.................................. $352,741,719 $23,368,872 $223,540,262
------------ ------------ ------------
------------ ------------ ------------
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A shares (based on net assets of
$52,439,289; $22,422,343; and $113,549,315;
respectively and 5,635,910; 2,230,772; and
15,327,289 shares outstanding; respectively).... $9.30 $10.05 $7.41
------------ ------------ ------------
Class B shares (based on net assets of $3,160,505;
$397,812; and $28,935,055; respectively and
340,570; 39,581; and 3,906,704 shares
outstanding; respectively)...................... $9.28 $10.05 $7.41
------------ ------------ ------------
Class C shares (based on net assets of $1,266,505;
$193,963; and $8,640,535; respectively and
136,654; 19,294; and 1,168,289 shares
outstanding; respectively)...................... $9.27 $10.05 $7.40
------------ ------------ ------------
Class E shares (based on net assets of
$285,059,579; $0; and $0 respectively and
30,649,851; 0; and 0 shares outstanding;
respectively)................................... $9.30 -- --
------------ ------------ ------------
Class H shares (based on net assets of
$10,815,841; $354,754; and $72,415,357
respectively and 1,166,084; 35,302; and
9,783,864 shares outstanding; respectively)..... $9.28 $10.05 $7.40
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
FORTIS BOND FUNDS
Statements of Operations
For the Year Ended July 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
US GOVERNMENT STRATEGIC
SECURITIES INCOME HIGH YIELD
FUND FUND* PORTFOLIO
--------------- --------------- ------------
<S> <C> <C> <C>
NET INVESTMENT INCOME:
Income:
Interest income............................... $ 23,905,077 $ 1,114,842 $ 23,734,861
Fee income (Note 1)........................... 154,012 -- --
--------------- --------------- ------------
Total income.................................... 24,059,089 1,114,842 23,734,861
--------------- --------------- ------------
Expenses:
Investment advisory and management fees (Note
2)........................................... 2,670,449 123,200 1,611,812
Distribution fees (Class A) (Note 2).......... 139,628 37,587 418,561
Distribution fees (Class B) (Note 2).......... 30,046 1,720 248,597
Distribution fees (Class C) (Note 2).......... 12,934 716 82,893
Distribution fees (Class H) (Note 2).......... 111,699 1,215 703,775
Registration fees............................. 52,885 30,338 68,142
Shareholders' notices and reports............. 75,806 3,018 48,059
Legal and auditing fees (Note 2).............. 53,938 7,918 44,000
Custodian fees................................ 54,232 2,388 34,000
Directors' fees and expenses.................. 28,047 1,000 12,118
Amortization of organization costs............ -- 4,349 --
Other......................................... 33,435 783 19,115
--------------- --------------- ------------
Total expenses.................................. 3,263,099 214,232 3,291,072
Less reimbursable expenses (Note 2)........... -- (41,375) --
--------------- --------------- ------------
Net Expenses.................................... 3,263,099 172,857 3,291,072
--------------- --------------- ------------
NET INVESTMENT INCOME............................. 20,795,990 941,985 20,443,789
--------------- --------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(NOTE 1):
Net realized gain from security transactions.... 8,346,912 30,984 1,734,513
Net change in unrealized appreciation
(depreciation) of investments in securities... (2,474,357) 53,650 (13,573,415)
--------------- --------------- ------------
NET GAIN (LOSS) ON INVESTMENTS.................... 5,872,555 84,634 (11,838,902)
--------------- --------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $ 26,668,545 $ 1,026,619 $ 8,604,887
--------------- --------------- ------------
--------------- --------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
* FOR THE PERIOD NOVEMBER 10, 1997 (INCEPTION) TO JULY 31, 1998.
21
<PAGE>
FORTIS BOND FUNDS
Statements of Changes in Net Assets
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 20,795,990 $ 25,965,173
Net realized gain (loss) from security
transactions.................................. 8,346,912 (2,463,932)
Net change in unrealized appreciation
(depreciation) of investments in securities... (2,474,357) 17,073,718
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... 26,668,545 40,574,959
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (3,017,377) (3,832,687)
Class B....................................... (140,663) (134,130)
Class C....................................... (60,964) (73,505)
Class E....................................... (17,164,484) (21,361,127)
Class H....................................... (524,647) (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............... (20,908,135) (27,235,710)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (822,757 and 1,111,657 shares)........ 7,604,563 9,952,631
Class B (120,670 and 142,993 shares).......... 1,110,644 1,283,517
Class C (83,034 and 143,651 shares)........... 767,893 1,279,587
Class E (2,495,810 and 1,979,573 shares)...... 23,021,542 17,773,525
Class H (451,004 and 373,676 shares).......... 4,150,901 3,342,720
Proceeds from shares issued as a result of
reinvested dividends
Class A (232,525 and 317,250 shares).......... 2,145,251 2,846,964
Class B (13,455 and 13,420 shares)............ 123,897 120,151
Class C (5,419 and 7,146 shares).............. 49,809 64,011
Class E (1,337,763 and 1,753,810 shares)...... 12,339,811 15,738,566
Class H (39,802 and 43,546 shares)............ 366,333 390,143
Less cost of repurchase of shares
Class A (1,875,615 and 2,602,273 shares)...... (17,300,337) (23,352,025)
Class B (102,794 and 108,504 shares).......... (946,133) (970,650)
Class C (110,004 and 112,053 shares).......... (1,016,334) (1,004,606)
Class E (8,637,714 and 12,000,074 shares)..... (79,603,597) (107,796,096)
Class H (489,094 and 395,058 shares).......... (4,511,053) (3,534,460)
------------ ------------
NET DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... (51,696,810) (83,866,022)
------------ ------------
TOTAL DECREASE IN NET ASSETS...................... (45,936,400) (70,526,773)
NET ASSETS:
Beginning of year............................... 398,678,119 469,204,892
------------ ------------
End of year (includes undistributed net
investment income of $95,443 and $207,588,
respectively)................................. $352,741,719 $398,678,119
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
FORTIS BOND FUNDS
Statement of Changes in Net Assets
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE
PERIOD FROM
NOVEMBER 10,
1997
(INCEPTION)
TO
JULY 31, 1998
-------------
<S> <C>
OPERATIONS:
Net investment income........................... $ 941,985
Net realized gain from security transactions.... 30,984
Net change in unrealized appreciation of
investments in securities..................... 53,650
-------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... 1,026,619
-------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (921,146)
Class B....................................... (9,798)
Class C....................................... (4,082)
Class H....................................... (6,959)
-------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (941,985)
-------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (2,153,816 shares).................... 21,553,816
Class B (39,571 shares)....................... 401,612
Class C (21,527 shares)....................... 218,059
Class H (35,910 shares)....................... 363,277
Proceeds from shares issued as a result of
reinvested dividends
Class A (90,745 shares)....................... 915,639
Class B (500 shares).......................... 5,042
Class C (327 shares).......................... 3,298
Class H (466 shares).......................... 4,700
Less cost of repurchase of shares
Class A (13,789 shares)....................... (139,504)
Class B (490 shares).......................... (4,965)
Class C (2,560 shares)........................ (25,900)
Class H (1,074 shares)........................ (10,836)
-------------
NET INCREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... 23,284,238
-------------
TOTAL INCREASE IN NET ASSETS...................... 23,368,872
NET ASSETS:
Beginning of period............................. --
-------------
End of period................................... $ 23,368,872
-------------
-------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
FORTIS BOND FUNDS
Statements of Changes in Net Assets
HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 20,443,789 $ 18,388,511
Net realized gain from security transactions.... 1,734,513 4,488,160
Net change in unrealized appreciation
(depreciation) of investments in securities... (13,573,415) 2,658,089
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... 8,604,887 25,534,760
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (11,659,978) (11,482,883)
Class B....................................... (2,254,300) (1,494,310)
Class C....................................... (756,254) (458,567)
Class H....................................... (6,409,279) (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............... (21,079,811) (18,808,799)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (3,124,540 and 4,315,013 shares)...... 24,024,367 33,019,998
Class B (1,886,435 and 1,260,144 shares)...... 14,502,208 9,632,833
Class C (461,879 and 646,824 shares).......... 3,563,413 4,958,258
Class H (3,355,803 and 4,233,141 shares)...... 25,831,216 32,395,020
Proceeds from shares issued as a result of
reinvested dividends
Class A (926,975 and 947,140 shares).......... 7,101,158 7,248,340
Class B (145,568 and 102,566 shares).......... 1,112,838 784,569
Class C (77,721 and 42,294 shares)............ 593,732 322,788
Class H (410,889 and 319,110 shares).......... 3,141,131 2,439,287
Less cost of repurchase of shares
Class A (4,449,936 and 4,007,745 shares)...... (34,149,757) (30,608,979)
Class B (729,969 and 354,941 shares).......... (5,594,388) (2,713,555)
Class C (271,306 and 236,864 shares).......... (2,079,590) (1,797,762)
Class H (2,136,681 and 1,579,066 shares)...... (16,360,883) (12,056,442)
------------ ------------
NET INCREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... 21,685,445 43,624,355
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 9,210,521 50,350,316
NET ASSETS:
Beginning of year............................... 214,329,741 163,979,425
------------ ------------
End of year (includes undistributed net
investment income of $3,356 and $636,131,
respectively)................................. $223,540,262 $214,329,741
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
<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) investment and non-investment grade fixed income securities issued by
U.S. issuers, which, in the opinion of the portfolio's investment adviser,
do not subject the fund to unreasonable investment risk.
- The objective of the Fortis High Yield Portfolio is to maximize total
return (from current income and capital appreciation) with a focus on high
current income by investing primarily in a diversified portfolio of high
yielding, fixed income securities which, in the opinion of the portfolio's
investment adviser, do not subject the portfolio to unreasonable investment
risk.
The Articles of Incorporation of Fortis Income and Fortis Advantage permit
the Board of Directors to create additional portfolios in the future.
The funds offer Class A, Class B, Class C, Class E (for U.S. Government only)
and Class H shares.
The U.S. Government Fund and Fortis High Yield Portfolio began to issue
multiple class shares effective November 14, 1994. The inception of Strategic
Income Fund was November 10, 1997, and the commencement of operations was
December 1, 1997. Class A and E shares are sold with a front-end sales
charge. For U.S. Government Fund, Class E shares are only available to
existing shareholders on November 14, 1994. Class B and H shares are sold
without a front-end sales charge and may be subject to a contingent deferred
sales charge for six years, and such shares automatically convert to Class A
after eight years. Class C shares are sold without a front-end sales charge
and may be subject to a contingent deferred sales charge for one year. All
classes of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that the level of
distribution fees charged differs between classes. Income, expenses (other
than expenses incurred under each class's distribution agreement) and
realized and unrealized gains or losses on investments are allocated to each
class of shares based on its relative net assets.
The significant accounting policies followed by the Funds are summarized as
follows:
SECURITY VALUATION: Investments in securities traded on a national securities
exchange or on the NASDAQ National Market System are valued at the last
reported sales price. Securities for which over-the-counter market quotations
are readily available are valued on the basis of the last current bid price.
An outside pricing service may be utilized to provide such valuations. For
fixed income securities, the pricing service may employ electronic data
processing techniques and/or a matrix system to determine valuations using
methods which include consideration of yields or prices of bonds of
comparable quality, type of issue, coupon, maturity and rating indications as
to value from dealers, and general market conditions. Securities for which
quotations are not readily available are valued at fair value as determined
in good faith by management under supervision of the Board of Directors.
Short-term investments, with maturities of less than 60 days when acquired,
or which subsequently are within 60 days of maturity, are valued at amortized
cost.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS: Delivery and payment for
securities that have been purchased by the funds on a forward commitment or
when-issued basis can take place a month or more after the transaction date.
During this period, such securities are subject to market fluctuation and the
portfolio maintains, in a segregated account with its custodian, assets with
a market value equal to the amount of its purchase commitments. As of July
31, 1998, U.S. Government Fund and Strategic Income Fund had entered into
outstanding when-issued or forward commitments of $4,095,768 and $503,235,
respectively.
Consistent with its ability to purchase securities on a when-issued basis,
the U.S. Government Fund and the Strategic Income Fund have entered into
transactions to defer settlement of its purchase commitments. As an
inducement to defer settlement, the portfolio repurchases a similar security
for settlement at a later date at a lower purchase price relative to the
current market. This transaction is referred to as a "dollar roll".
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions
are accounted for on the trade date. Interest income is recorded on the
accrual basis. Realized security gains and losses are determined using the
identified cost method. Each fund amortizes original issue discount, long
term bond premium, and market discount.
For the year ended July 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.............. $ 591,810,189 $ 640,540,550
Strategic Income Fund........................ 52,325,433 30,765,029
High Yield Portfolio......................... 471,849,956 458,682,741
</TABLE>
LENDING OF PORTFOLIO SECURITIES: At July 31, 1998, securities valued at
$159,357,067 were on loan to brokers from U.S. Government. For collateral,
the Fund's custodian received $164,806,638 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 $154,012 for U.S.
Government for the year ended July 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.
25
<PAGE>
FORTIS BOND FUND
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
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 funds 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 funds 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 funds. 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.
On the Statement of Assets and Liabilities, due to permanent book-to-tax
differences High Yield's undistributed net investment income has been
increased $3,247 resulting in reclassifications to paid-in-capital by the
same amounts.
For federal income tax purposes U.S. Government had a capital loss carryover
of $65,049,930 and High Yield had $9,435,408 at July 31, 1998, which, if not
offset by subsequent capital gains, will expire in 1999 through 2007. It is
unlikely the Board of Directors will authorize a distribution of any net
realized gains until the available capital loss carryover has been offset or
expired.
INCOME AND CAPITAL GAINS DISTRIBUTIONS: Distributions from net investment
income are declared daily and paid monthly. The funds will generally make
annual distributions of any realized capital gains as required by law. These
income and capital gains distributions may be reinvested in additional shares
of the fund at net asset value without any charge to the shareholder or
payable in cash.
ILLIQUID SECURITIES: At July 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 June 30, 1998, was $478,125 for Strategic Income and
$16,235,160 for High Yield which represents 2.05% and 7.26 % of net assets
respectively. Pursuant to guidelines adopted by the Board of Directors,
certain unregistered securities are determined to be liquid and are not
included within the 15% limitation specified above.
HIGH-YIELD DEBT SECURITIES: Although High Yield and Strategic Income are
diversified portfolios, the funds have 93.31% and 34.11% of total net assets
invested in non-investment grade (high-yield) and comparable quality unrated
high-yield securities, respectively. Participation in high-yielding
securities transactions generally involves greater returns in the form of
higher average yields. However, participation in such
transactions involves greater risks, often related to sensitivity to interest
rates, economic changes, solvency, and relative liquidity in the secondary
trading market. Lower ratings may reflect a greater possibility that the
financial condition of the issuer, or adverse changes in general economic
conditions, or both, may impair the ability of the issuer to make payments of
interest and principal. The prices and yields of lower rated securities
generally fluctuate more than higher quality securities, and such prices may
decline significantly in periods of general economic difficulty of rising
interest rates.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of increase and decrease
in net assets from operations during the reporting period.
Actual results could differ from those estimates.
2. PAYMENTS TO RELATED PARTIES: Fortis Advisers, Inc., is the investment adviser
for the fund. Investment advisory and management fees are computed at an
annual rate of .8% of the first $50 million of average daily net assets and
.7% of net assets in excess of $50 million for U.S. Government, Strategic
Income, and High Yield. In addition to the investment advisory and management
fee, Classes A, B, C and H pay Fortis Investors, Inc., (the principal
underwriter) distribution fees equal to .25% of average daily net assets for
Class A for U.S. Government and Strategic Income and .35% of average daily
net assets for Class A of High Yield and 1.00% 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.............. $ 117,206 $ 12,697 $ 37,948 $ 72,977 $ 112,836
Strategic Income Fund........................ 25,800 113 -- 36 --
High Yield Portfolio......................... 472,687 86,491 4,288 279,277 --
</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
average daily net assets for Class A, and 1.85% for Classes B, C, and H.
During the period from December 1, 1997 (commencement of operations) to July
31, 1998, Advisers waived $41,375 of its advisory fee.
For the year ended July 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.............. $ 10,122
Strategic Income Fund........................ 918*
High Yield Portfolio......................... 7,000
</TABLE>
* For the period from December 1, 1997 (commencement of operations) to July
31, 1998.
26
<PAGE>
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS: Selected per share historical data for each of the
funds 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.......... .52 .54 .60 .67 .42 .75
Net realized and unrealized gains
(losses) on investments........ .14 .32 (.15) (.01) (.84) .05
--------- --------- --------- --------- --------- ---------
Total from operations.............. .66 .86 .45 .66 (.42) .80
--------- --------- --------- --------- --------- ---------
Distributions to shareholders:
From investment income - net..... (.52) (.54) (.60) (.67) (.42) (.75)
From net realized gains.......... -- -- -- -- -- (.04)
Excess distributions of net
realized gains................. -- (.03) -- -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions to
shareholders...................... (.52) (.57) (.60) (.67) (.42) (.79)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period..... $ 9.30 $ 9.16 $ 8.87 $ 9.02 $ 9.03 $ 9.87
--------- --------- --------- --------- --------- ---------
Total return @..................... 7.42% 10.07% 5.08% 7.71% (4.29)% 8.31%
Net assets end of period (000s
omitted)......................... $ 285,060 $ 324,643 $ 388,006 $ 470,597 $ 555,275 $ 641,977
Ratio of expenses to average daily
net assets....................... .79% .81% .81% .77% .77%* .76%
Ratio of net investment income to
average daily net assets......... 5.62% 6.08% 6.59% 7.51% 7.72%* 7.43%
Portfolio turnover rate............ 118% 161% 75% 76% 85% 157%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
------------------------------------------- ---------------------------------------
Year Ended July 31, 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.......... .50 .52 .58 .46 .43 .46 .51 .41
Net realized and unrealized gains
(losses) on investments........ .14 .32 (.15) .39 .14 .31 (.15) .39
-------- -------- -------- ------- ------- ------- ------- ------
Total from operations.............. .64 .84 .43 .85 .57 .77 .36 .80
-------- -------- -------- ------- ------- ------- ------- ------
Distributions to shareholders:
From investment income - net..... (.50) (.52) (.58) (.46) (.43) (.47) (.52) (.41)
From net realized gains.......... -- -- -- -- -- -- -- --
Excess distributions of net
realized gains................. -- (.03) -- -- -- (.02) -- --
-------- -------- -------- ------- ------- ------- ------- ------
Total distributions to
shareholders...................... (.50) (.55) (.58) (.46) (.43) (.49) (.52) (.41)
-------- -------- -------- ------- ------- ------- ------- ------
Net asset value, end of period..... $ 9.30 $ 9.16 $ 8.87 $ 9.02 $ 9.28 $ 9.14 $ 8.86 $9.02
-------- -------- -------- ------- ------- ------- ------- ------
Total return @..................... 7.14% 9.77% 4.78% 10.07% 6.40% 8.95% 4.00% 9.47%
Net assets end of period (000s
omitted)......................... $ 52,439 $ 59,128 $ 67,707 $4,909 $ 3,161 $ 2,826 $ 2,314 $ 483
Ratio of expenses to average daily
net assets....................... 1.04% 1.06% 1.06% 1.02%* 1.79% 1.81% 1.81% 1.77%*
Ratio of net investment income to
average daily net assets......... 5.37% 5.83% 6.34% 7.00%* 4.62% 5.07% 5.59% 6.24%*
Portfolio turnover rate............ 118% 161% 75% 76% 118% 161% 75% 76%
</TABLE>
* Annualized.
+ 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.
27
<PAGE>
FORTIS BOND FUND
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. FINANCIAL HIGHLIGHTS (continued):
Class C Class H
------------------------------------------ -------------------------------------------
Year Ended July 31, 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........................... $ 9.13 $ 8.85 $ 9.01 $8.63 $ 9.14 $ 8.86 $ 9.02 $ 8.63
-------- -------- -------- ------ -------- -------- -------- -------
Operations:
Investment income - net.......... .43 .46 .51 .41 .43 .46 .51 .41
Net realized and unrealized gains
(losses) on investments........ .14 .31 (.15) .38 .14 .31 (.15) .39
-------- -------- -------- ------ -------- -------- -------- -------
Total from operations.............. .57 .77 .36 .79 .57 .77 .36 .80
-------- -------- -------- ------ -------- -------- -------- -------
Distributions to shareholders:
From investment income - net..... (.43) (.47) (.52) (.41) (.43) (.47) (.52) (.41)
From net realized gains.......... -- -- -- -- -- -- -- --
Excess distributions of net
realized gains................. -- (.02) -- -- -- (.02) -- -
-------- -------- -------- ------ -------- -------- -------- -------
Total distributions to
shareholders...................... (.43) (.49) (.52) (.41) (.43) (.49) (.52) (.41)
-------- -------- -------- ------ -------- -------- -------- -------
Net asset value, end of period..... $ 9.27 $ 9.13 $ 8.85 $9.01 $ 9.28 $ 9.14 $ 8.86 $ 9.02
-------- -------- -------- ------ -------- -------- -------- -------
Total return @..................... 6.41% 8.96% 4.00% 9.35% 6.40% 8.94% 4.00% 9.47%
Net assets end of period (000s
omitted)......................... $ 1,267 $ 1,444 $ 1,057 $ 326 $ 10,816 $ 10,637 $ 10,120 $4,823
Ratio of expenses to average daily
net assets....................... 1.79% 1.81% 1.81% 1.77%* 1.79% 1.80% 1.81% 1.77%*
Ratio of net investment income to
average daily net assets......... 4.62% 5.07% 5.59% 6.24%* 4.62% 5.08% 5.52% 6.24%*
Portfolio turnover rate............ 118% 161% 75% 76% 118% 161% 75% 76%
</TABLE>
* Annualized.
++ 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.
<TABLE>
<CAPTION>
Class A Class B Class C Class H
-------- ------- ------- -------
Year Ended July 31,
-----------------------------------------
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............... .42 .38 .38 .38
Net realized and unrealized gains on
investments......................... .07 .07 .07 .07
-------- ------- ------- -------
Total from operations................... .47 .43 .43 .43
-------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.42) (.38) (.38) (.38)
-------- ------- ------- -------
Net asset value, end of period.......... $ 10.05 $10.05 $10.05 $10.05
-------- ------- ------- -------
Total return @.......................... 4.77% 4.31% 4.35% 4.35%
Net assets end of period (000s
omitted).............................. $ 22,422 $ 398 $ 194 $ 355
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).......... 6.22%* 5.73%* 5.73%* 5.73%*
Portfolio turnover rate................. 136% 136% 136% 136%
</TABLE>
* Annualized.
+ For the period December 1, 1997 (commencement of operations) to July
31, 1998.
@ These are the funds total returns during the periods, including
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
commissionand non-recurring extraordinary charges and expenses) to
1.10% of average daily net assets for Class A shares and 1.85% for
Classes B, C, and H. 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
1.39% and 5.93% for Class A, 2.14% and 5.44% for Class B, 2.14% and
5.44% for Class C, and 2.14% and 5.44 for Class H, respectively.
28
<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............... .73 .76 .56 .86 .86 .87
Net realized and unrealized gains
(losses) on investments............. (.40) .28 (.04) (.25) (.72) .68
--------- --------- --------- --------- -------- --------
Total from operations................... .33 1.04 .52 .61 .14 1.55
--------- --------- --------- --------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.75) (.75) (.55) (.86) (.89) (.89)
Excess distributions of net realized
gains............................... -- (.02) (.02) (.04) -- (.01)
--------- --------- --------- --------- -------- --------
Total distributions to shareholders..... (.75) (.77) (.57) (.90) (.89) (.90)
--------- --------- --------- --------- -------- --------
Net asset value, end of period.......... $ 7.41 $ 7.83 $ 7.56 $ 7.61 $ 7.90 $ 8.65
--------- --------- --------- --------- -------- --------
Total return @.......................... 4.31% 14.51% 6.98% 8.07% 1.48% 20.33%
Net assets end of period (000s
omitted).............................. $ 113,549 $ 123,115 $ 109,401 $ 113,268 $ 98,611 $ 73,395
Ratio of expenses to average daily net
assets................................ 1.17% 1.19% 1.21%* 1.25% 1.23% 1.29%
Ratio of net investment income to
average daily net assets.............. 9.46% 9.84% 9.87%* 10.61% 10.18% 10.43%
Portfolio turnover rate................. 214% 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............... .68 .71 .53 .78
Net realized and unrealized gains
(losses) on investments............. (.40) .28 (.04) (.23)
-------- -------- -------- -------
Total from operations................... .28 .99 .49 .55
-------- -------- -------- -------
Distributions to shareholders:
From investment income - net.......... (.70) (.70) (.51) (.78)
Excess distributions of net realized
gains............................... -- (.02) (.02) (.04)
-------- -------- -------- -------
Total distributions to shareholders..... (.70) (.72) (.53) (.82)
-------- -------- -------- -------
Net asset value, end of period.......... $ 7.41 $ 7.83 $ 7.56 $ 7.60
-------- -------- -------- -------
Total return @.......................... 3.67% 13.80% 6.62% 7.25%
Net assets end of period (000s
omitted).............................. $ 28,935 $ 20,388 $12,067 $7,530
Ratio of expenses to average daily net
assets................................ 1.82% 1.83% 1.86%* 1.90%*
Ratio of net investment income to
average daily net assets.............. 8.81% 9.24% 9.20%* 9.66%*
Portfolio turnover rate................. 214% 331% 146% 101%
</TABLE>
* Annualized
+ 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.
29
<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............... .68 .71 .53 .78
Net realized and unrealized gains
(losses) on investments............. (.40) .28 (.04) (.24)
------- ------- ------- -------
Total from operations................... .28 .99 .49 .54
------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.70) (.70) (.51) (.78)
Excess distributions of net realized
gains............................... -- (.02) (.02) (.04)
------- ------- ------- -------
Total distributions to shareholders..... (.70) (.72) (.53) (.82)
------- ------- ------- -------
Net asset value, end of period.......... $ 7.40 $ 7.82 $ 7.55 $ 7.59
------- ------- ------- -------
Total return @.......................... 3.67% 13.82% 6.63% 7.12%
Net assets end of period (000s
omitted).............................. $ 8,641 $ 7,037 $3,378 $2,180
Ratio of expenses to average daily net
assets................................ 1.82% 1.83% 1.86%* 1.90%*
Ratio of net investment income to
average daily net assets.............. 8.81% 9.26% 9.21%* 9.83%*
Portfolio turnover rate................. 214% 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............... .68 .71 .52 .78
Net realized and unrealized gains
(losses) on investments............. (.40) .28 (.04) (.23)
-------- -------- -------- --------
Total from operations................... .28 .99 .48 .55
-------- -------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.70) (.70) (.51) (.78)
Excess distributions of net realized
gains............................... -- (.02) (.02) (.04)
-------- -------- -------- --------
Total distributions to shareholders..... (.70) (.72) (.53) (.82)
-------- -------- -------- --------
Net asset value, end of period.......... $ 7.40 $ 7.82 $ 7.55 $ 7.60
-------- -------- -------- --------
Total return @.......................... 3.67% 13.82% 6.48% 7.25%
Net assets end of period (000s
omitted).............................. $ 72,415 $ 63,789 $39,133 $ 23,862
Ratio of expenses to average daily net
assets................................ 1.82% 1.83% 1.86%* 1.90%*
Ratio of net investment income to
average daily net assets.............. 8.81% 9.23% 9.21%* 9.81%*
Portfolio turnover rate................. 214% 331% 146% 101%
</TABLE>
* Annualized
++ 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.
30
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Fortis Income Portfolios, Inc.
Fortis Advantage Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments in securities, of U.S. Government Securities Fund
and Strategic Income Fund (funds within Fortis Income Portfolios, Inc.) and High
Yield Portfolio (a fund within Fortis Advantage Portfolios, Inc.), as of July
31, 1998 and the related statements of operations, statement of changes in net
assets and the financial highlights for the periods presented. These financial
statements and the financial highlights are the responsibility of fund
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers, and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of U.S.
Government Securities Fund, Strategic Income Fund and High Yield Portfolio as of
July 31, 1998 and the results of their operations, changes in their net assets
and the financial highlights for the periods presented, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 4, 1998
31
<PAGE>
FORTIS BOND FUNDS
FEDERAL INCOME TAX INFORMATION
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<S> <C>
DIRECT FEDERAL OBLIGATIONS:
U.S. Treasury.............................. 34.90%
Other...................................... 13.90%
-------
Total Direct Federal Obligations......... 48.80%
Other Securities....................... 51.20%
-------
100.00%
-------
</TABLE>
<TABLE>
<CAPTION>
RECORD DATE Class A Class B Class C Class E Class H
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------
Net Investment Income Per Share
08/31/1997................................... $0.043 $0.038 $0.038 $0.045 $0.038
09/30/1997................................... 0.043 0.038 0.038 0.045 0.038
10/31/1997................................... 0.043 0.038 0.038 0.045 0.038
11/30/1997................................... 0.043 0.038 0.038 0.045 0.038
12/31/1997................................... 0.043 0.038 0.038 0.045 0.038
01/31/1998................................... 0.043 0.038 0.038 0.045 0.038
02/28/1998................................... 0.040 0.034 0.034 0.042 0.034
03/31/1998................................... 0.040 0.034 0.034 0.042 0.034
04/30/1998................................... 0.040 0.034 0.034 0.042 0.034
05/31/1998................................... 0.040 0.034 0.034 0.042 0.034
06/30/1998................................... 0.040 0.034 0.034 0.042 0.034
07/31/1998................................... 0.040 0.034 0.034 0.042 0.034
------- ------- ------- ------- -------
Total Distributions.......................... $0.498 $0.432 $0.432 $0.522 $0.432
------- ------- ------- ------- -------
</TABLE>
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
RECORD DATE Class A Class B Class C Class H
<S> <C> <C> <C> <C>
-------------------------------------------
Net Investment Income Per Share
12/31/97..................................... $0.048 $0.043 $0.045 $0.044
01/31/98..................................... 0.050 0.045 0.045 0.046
02/28/98..................................... 0.048 0.042 0.042 0.044
03/31/98..................................... 0.056 0.049 0.049 0.050
04/30/98..................................... 0.053 0.045 0.052 0.050
05/31/98..................................... 0.054 0.048 0.049 0.048
06/30/98..................................... 0.057 0.056 0.049 0.050
07/31/98..................................... 0.055 0.049 0.049 0.048
------- ------- ------- -------
Total Distributions.......................... $0.421 $0.377 $0.380 $0.380
------- ------- ------- -------
</TABLE>
HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
RECORD DATE Class A Class B Class C Class H
<S> <C> <C> <C> <C>
-------------------------------------------
Net Investment Income Per Share
08/31/1997................................... $0.061 $0.057 $0.057 $0.057
09/30/1997................................... 0.064 0.060 0.060 0.060
10/31/1997................................... 0.064 0.060 0.060 0.060
11/30/1997................................... 0.067 0.063 0.063 0.063
12/31/1997................................... 0.067 0.063 0.063 0.063
01/31/1998................................... 0.067 0.063 0.063 0.063
02/28/1998................................... 0.067 0.063 0.063 0.063
03/31/1998................................... 0.061 0.057 0.057 0.057
04/30/1998................................... 0.061 0.057 0.057 0.057
05/31/1998................................... 0.061 0.057 0.057 0.057
06/30/1998................................... 0.056 0.052 0.052 0.052
07/31/1998................................... 0.053 0.049 0.049 0.049
------- ------- ------- -------
Total Distributions.......................... $0.749 $0.701 $0.701 $0.701
------- ------- ------- -------
</TABLE>
32
<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.
33
<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
FORTIS FINANCIAL GROUP ----------------------
P.O. Box 64284 Bulk Rate
St. Paul, MN 55164 U.S. Postage
PAID
Fortis Bond Funds Permit No. 3794
Minneapolis, MN
----------------------
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The Fortis logo and Fortis-Registered Trademark- are registered
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98561 -C- Fortis 9/98
