<PAGE>
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FORTIS
SOLID PARTNERS, FLEXIBLE SOLUTIONS-SM-
CHOOSE THE RIGHT INVESTMENT
[PHOTOS] Fortis Bond Funds
Semi-Annual Report
JANUARY 31, 1999
FORTIS FINANCIAL GROUP
<PAGE>
FORTIS BOND FUND SEMI-ANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS 2
SCHEDULES OF INVESTMENTS
U.S. GOVERNMENT 7
STRATEGIC INCOME 10
HIGH YIELD PORTFOLIO 14
STATEMENTS OF ASSETS AND LIABILITIES 19
STATEMENTS OF OPERATIONS 20
STATEMENTS OF CHANGES IN NET ASSETS
U.S. GOVERNMENT 21
STRATEGIC INCOME 22
HIGH YIELD PORTFOLIO 23
NOTES TO FINANCIAL STATEMENTS 24
BOARD OF DIRECTORS AND OFFICERS 32
OTHER PRODUCTS AND SERVICES 33
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- - TOLL-FREE INFORMATION LINE
- For daily account balances,
transaction activity or net asset
value information
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- 24 hours a day
FOR MORE INFORMATION ABOUT FORTIS FINANCIAL GROUP'S FAMILY OF PRODUCTS, CALL
YOUR INVESTMENT REPRESENTATIVE OR THE HOME OFFICE AT (800) 800-2638.
TO ORDER PROSPECTUSES OR SALES LITERATURE FOR ANY FORTIS PRODUCT, CALL (800)
800-2638, EXT. 4579.
HOW TO USE THIS REPORT
For a quick overview of the fund's performance during the past six months, refer
to the Highlights box below. The letter from the portfolio manager and president
provides a more detailed analysis of the fund and financial markets.
The charts alongside the letter are useful because they provide more information
about your investments. The top holdings charts show the types of securities in
which the fund invests, and the pie chart shows a breakdown of the fund's assets
by industry.
The performance chart graphically compares the Fund's total return performance
with a selected investment index. Remember, however, that an index may reflect
the performance of securities the fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your fund does. Individuals cannot buy an unmanaged index fund without incurring
some charges and expenses.
This report is just one of several tools you can use to learn more about your
investment in the Fortis Family of Mutual Funds. Your investment representative,
who understands your personal financial situation, can best explain the features
of your investment and how it's designed to help you meet your financial goals.
HIGHLIGHTS
FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS E CLASS H
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
NET ASSET VALUE PER SHARE:
Beginning of period........................ $ 9.30 $ 9.28 $ 9.27 $ 9.30 $ 9.28
End of period.............................. $ 9.49 $ 9.46 $ 9.45 $ 9.49 $ 9.46
DISTRIBUTIONS PER SHARE
From net investment income................... $ .238 $ .202 $ .202 $ .250 $ .202
STRATEGIC INCOME
NET ASSET VALUE PER SHARE:
Beginning of period........................ $ 10.05 $ 10.05 $ 10.05 -- $ 10.05
End of period.............................. $ 9.75 $ 9.75 $ 9.75 -- $ 9.75
DISTRIBUTIONS PER SHARE
From net investment income............... $ .303 $ .267 $ .268 -- $ .267
From net realized gains on investments... $ .013 $ .013 $ .013 -- $ .013
HIGH YIELD PORTFOLIO
NET ASSET VALUE PER SHARE:
Beginning of period...................... $ 7.41 $ 7.41 $ 7.40 -- $ 7.40
End of period............................ $ 7.00 $ 7.00 $ 6.98 -- $ 6.99
DISTRIBUTIONS PER SHARE
From net investment income................. $ .318 $ .294 $ .294 -- $ .294
</TABLE>
1
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Photo
YOUR U.S. GOVERNMENT SECURITIES FUND
MANAGED WITH A DISCIPLINED, CONSISTENT INVESTMENT APPROACH, THIS FUND IS
DESIGNED TO SEEK A STRONG TOTAL RETURN, AS WELL AS A RELATIVELY HIGH LEVEL OF
CURRENT INCOME, BY FOCUSING ITS INVESTMENTS IN U.S. GOVERNMENT BONDS, TREASURIES
AND MORTGAGE-BACKED SECURITIES.
The period of stability that characterized the fixed income markets in the first
half of 1998 ended abruptly in August. Concerns over Asia resurfaced, Russia
defaulted on its debt obligations, and a number of hedge funds, including Long
Term Capital Management, found themselves either in, or on the brink of
bankruptcy. This sequence of events culminated in a flight to quality to U.S.
Treasuries during the second half of the year. U.S. Treasury yields fell
precipitously, yield spreads widened dramatically as investors demanded a
greater premium to buy less liquid, non-U.S. Treasury assets. It wasn't until
the Federal Reserve lowered the Federal Funds rate by 75 basis points (in three
separate moves) to 4.75% that confidence was restored to the marketplace.
The net result of these events was that, despite continued strength in the U.S.
economy (1998 GDP was 4.1%), interest rates fell dramatically in August and
September, and remained at comparatively low levels through January 1999.
Specifically, the 30-year U.S. Treasury fell from a yield of 5.7% in late July
to a low of 4.7% in early October, ending January 1999 at 5.1%. The Federal
Reserve's interest rate cuts also enabled short-term rates to decline more in
yield than longer-term rates, with the yield spread between 2 Year Treasuries
and 30 Year Treasuries increasing by 30 basis points to .55%.
Our positive interest rate outlook added to performance for this six-month
period, as the portfolio's duration was greater than its 4.75 year target most
of this time (we reduced the portfolio duration to 4.75 years in mid-Jaunary
1999.) We also benefitted by our Mortgage Backed Securities (MBS) underweight
earlier in the year, as we were able to significantly increase our MBS and
agency debenture exposures at attractive spreads in the third and fourth
quarters. As of January 31, 1999, we were 15% overweight in these combined
sectors. Both of these strategies enabled the portfolio to earn 4.75% for Class
E shares before adjustment for sales charge, compared to the 4.99% return
average for the Lehman Brothers Intermediate Government Index, for the six-month
period ended January 31, 1999.
Going forward, we believe that economic growth will be sustained through 1999 at
a pace which, although somewhat below that of last year, will be healthy by
historic standards. Nonetheless, it is inevitable that the deflationary forces
at work in Asia and Latin America will have some moderating impact on domestic
production. Any related reduction of exports will likely result in further
suppression of prices and, therefore, a continuation of the low inflation
experience of the recent past. This environment is favorable for the bond market
as it supports low interest rates and good performance from MBS and agency
debentures which currently offer historically high levels of yield in relation
to comparable Treasury obligations.
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 1/31/99
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
FNMA's 44.5%
U.S. Treasury Securities 21.8%
Other Direct Federal
Obligations 19.4%
GNMA's 6.8%
FHLMC's 6.3%
Cash Equivalents/Receivables 1.2%
</TABLE>
TOP 10 HOLDINGS AS OF 1/31/99
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. Federal Home Loan Bank (7.31%) 2004 8.8%
2. U.S. Treasury Note (6.125%) 2001 6.7%
3. FNMA (6.00%) 2029 6.1%
4. U.S. Treasury Bond (8.125%) 2019 4.8%
5. U.S. Treasury Note (6.125%) 2007 4.6%
6. FNMA Note (7.65%) 2005 3.1%
7. FNMA Note (6.70%) 2007 3.0%
8. FNMA (7.50%) 2027 2.7%
9. FHLMC Global Note (6.75%) 2006 2.4%
10. GNMA II (9.50%) 2019 2.3%
</TABLE>
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- -----------------------------------------------------------------------
<S> <C> <C>
Class A shares# 7.24% 8.66%
Class A shares## 2.41% 7.48%
Class B shares# 6.33% 7.83%
Class B shares## 2.73% 7.49%
Class C shares# 6.34% 7.81%
Class C shares## 5.34% 7.81%
Class H shares# 6.44% 7.83%
Class H shares## 2.84% 7.49%
</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 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, 2.00% if redeemed in year five and 1.00% if
redeemed in year six (with a waiver of 10% of the amount invested). Class C has
a CDSC of 1.00% if redeemed within one year of purchase.
# Without sales charge.
## With sales charge. Assumes redemption on January 31, 1999.
+ Since November 14, 1994 -- Date shares were first offered to the public
VALUE OF $10,000 INVESTED FEBRUARY 1, 1989
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROTHERS U.S. GOVERNMENT
INTERMEDIATE GOVERNMENT SECURITIES
<S> <C> <C> <C>
Index Fund
2/1/89 $10,000 $9,550
90 $11,088 $10,542
91 $12,349 $11,845
92 $13,814 $13,047
93 $15,192 $14,333
94 $16,292 $15,449
95 $16,130 $14,648
96 $18,375 $16,794
97 $18,840 $17,298
98 $20,482 $19,027
99 $22,030 $20,457
U.S. Government Securities Fund
Average Annual Total Return
1 Year 5 Year 10 Year
Class E* +2.68% +4.81% +7.42%
Class E** +7.52% +5.78% +7.92%
</TABLE>
Annual period ended January 31
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the 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
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Photo
YOUR STRATEGIC INCOME FUND
THE FUND'S INVESTMENT OBJECTIVE IS TO MAXIMIZE TOTAL RETURN (FROM CURRENT INCOME
AND CAPITAL APPRECIATION) BY PRIMARILY INVESTING IN A DIVERSIFIED PORTFOLIO OF
U.S. GOVERNMENT SECURITIES, INVESTMENT AND NON-INVESTMENT GRADE BONDS ISSUED BY
FOREIGN GOVERNMENTS AND COMPANIES, AND NON-INVESTMENT GRADE BONDS ISSUED BY U.S.
COMPANIES.
The concerns we expressed in our last letter regarding the stability of global
fixed income markets proved to be well deserved. In the second half of 1998,
problems in Asia resurfaced, Russia defaulted on its debt obligations, and a
number of hedge funds, including Long Term Capital Management, found themselves
either in, or on the brink of, bankruptcy. This sequence of events brought about
a flight to quality in U.S. Treasuries during the second half of the year. U.S.
Treasury yields fell precipitously, and yield spreads (defined as the difference
in yields between U.S. Treasury and other sectors) widened dramatically as
investors demanded a greater premium to buy less liquid, non-U.S. Treasury
assets. It wasn't until the Federal Reserve lowered the Federal Funds rate by 75
basis points, (in three separate moves) to 4.75%, that confidence was restored
to the marketplace.
As a result, despite continued favorable (strong growth, low inflation) domestic
economic conditions, virtually all non-U.S. Treasury fixed income securities
underperformed comparable Treasuries. This was especially true of lower quality
issues and those issued by non-U.S. entities, as investor fears brought trading
in some sectors of these markets to a virtual stand still.
This market environment proved to be ideal for our strategy. Initially, we
benefitted significantly from our underweighting in "emerging market" bonds, and
were able to selectively add foreign issues following the liquidity difficulty
at what we felt were very attractive levels. In addition, we continued to
maintain a highly diversified portfolio, which significantly reduced the "event
risk" that plagued market participants during this period of instability.
Despite this extremely volatile market environment, the Strategic Income Fund
produced a .22% total return for the past six months, which compares with 5.10%
return for the Lehman Brothers Aggregate Index, and the -1.46% produced by the
fund's average competition as defined by Morningstar.
Looking ahead to the second half of the fiscal year, we will continue the
investment strategy that produced last year's strong performance. Specifically,
we will look to reduce our foreign sector underweighting, but only where we feel
we are being properly compensated for the risks. In addition, we will seek to
take advantage of a strong growth, low inflation economic environment which we
expect will produce low interest rates and good performance from corporate
bonds, currently offering historically high levels of yield in relation to
comparable Treasury obligations.
Sincerely,
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
Dean C. Kopperud Howard G. Hudson
President Vice President
</TABLE>
4
<PAGE>
PORTFOLIO COMPOSITION BY SECTOR AS OF 1/31/99
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Corporate Bonds - Investment Grade 33.8%
FNMAs 21.8%
Corporate Bonds - Non-Investment Grade 21.6%
Foreign Bonds - Investment Grade 7.6%
U.S. Treasury Securities 5.8%
Foreign Bonds - Non-Investment Grade 5.1%
Asset Backed Securities 4.3%
</TABLE>
TOP 10 HOLDINGS AS OF 1/31/99
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. FNMA (6.00%) 2029 7.0%
2. FNMA Note (6.18%) 2001 4.2%
3. News America Holdings (8.875%) 2023 2.6%
4. U.S. Treasury Note (6.625%) 2002 2.3%
5. 360 Communications Co. (7.50%) 2006 2.3%
6. J.P. Morgan Commercial Mortgage Finance Corp.
(7.47%) 2028 2.2%
7. Quebec (Providence of) (7.50%) 2002 2.2%
8. Poland (Republic of) (7.125%) 2004 2.2%
9. Trans-Canada Pipelines, Ltd. (7.06%) 2025 2.2%
10. FNMA (6.54%) 2007 2.2%
</TABLE>
CLASS B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
One Year Inception+
- -------------------------------------------------------------------
<S> <C> <C>
Class B shares# 1.33% 3.54%
Class B shares## -2.09% 0.56%
Class C shares# 1.35% 3.58%
Class C shares## 0.35% 3.58%
Class H shares# 1.34% 3.57%
Class H shares## -2.08% 0.59%
</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, 2.00% if redeemed in year five and 1.00% if redeemed in year six
(with a waiver of 10% of the amount invested). Class C has a CDSC of 1.00% if
redeemed within one year of purchase.
# Without CDSC.
## With CDSC. Assumes redemption on January 31, 1999.
+ 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 FUND SALOMON BROTHERS
AGGREGATE BOND INDEX*** CLASS A WORLD INDEX****
<S> <C> <C> <C>
12/1/97 10,000 9,550 10,000
1/31/98 10,230 9,826 10,067
1/31/99 11,055 10,027 11,390
Strategic Income Fund Class A
Average Annual Total Return
Since
1 Year December 1,1997@
Class A* -2.55% +0.23%
Class A** +2.04% +4.25%
</TABLE>
Annual period ended January 31
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the 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 1/31/99
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Other 32.4%
Telecommunications 21.7%
Cable Television 13.0%
Broadcasting 6.8%
Cash
Equivalents/Receivables 5.1%
Chemicals 3.4%
Energy 3.3%
Textile Manufacturing 3.1%
Consumer Goods 3.1%
Machinery 2.8%
Printing 2.8%
Publishing 2.5%
</TABLE>
TOP 10 HOLDINGS AS OF 1/31/99
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. Rogers Cantel, Inc. (9.375%) 2008 2.3%
2. Clark Materials Handling Co. (10.75%) 2006 2.1%
3. Comcast Cellular Holdings (9.50%) 2007 2.0%
4. ITC Deltacom, Inc. (11.00%) 2007 2.0%
5. Newport News Ship Building (9.25%) 2006 1.9%
6. Adelphia Communications, Inc. (9.25%) 2002 1.9%
7. Fage Dairy Industries S.A. (9.00%) 2007 1.7%
8. Simonds Industries (10.25%) 2008 1.7%
9. Splitrock Services, Inc. (11.75%) 2008 1.7%
10. Olympus Communication L.P. (10.625%) 2006 1.7%
</TABLE>
CLASS B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- -----------------------------------------------------------------------
<S> <C> <C>
Class B shares# -1.02% 6.99%
Class B shares## -4.24% 6.70%
Class C shares# -1.17% 6.93%
Class C shares## -1.97% 6.93%
Class H shares# -1.16% 6.96%
Class H shares## -4.37% 6.67%
</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, 2.00% if redeemed in year five and 1.00% if redeemed in year six
(with a waiver of 10% of the amount invested). Class C has a CDSC of 1.00% if
redeemed within one year of purchase.
# Without CDSC.
## With CDSC. Assumes redemption on January 31, 1999.
+ Since November 14, 1994 -- Date shares were first offered to the public
YOUR HIGH YIELD PORTFOLIO
LONG-TERM INVESTORS, WILLING TO ACCEPT GREATER PRICE FLUCTUATIONS, MAY CHOOSE TO
DIVERSIFY THEIR STOCK OR BOND INVESTMENTS WITH THIS PORTFOLIO OF HIGHER YIELDING
BONDS. ITS MONEY MANAGERS INVEST IN A WIDELY DIVERSIFIED PORTFOLIO OF
LOWER-RATED CORPORATE BONDS.
REVIEW
1998 can be characterized as a year that the global financial markets almost
collapsed. The speed and convergence of the Asian contagion, Russia's default,
hedge fund failures and illiquidity in the capital markets were unprecedented.
The subsequent quick recovery was primarily attributable to the Fed's
intervention through the use of three successive rate reductions.
For the six-month period ended January 31, 1999, the High Yield Portfolio
recorded a (1.13%) total return for Class A without adjustment for sales charge.
The returns of the Lipper High Yield Index and Lehman Brothers High Yield Index
were (3.57%) and (1.63%), respectively.
Performance since mid-year had improved by a restructuring of the Portfolio to
upgrade the quality of the bonds. In the illiquid market which developed
following the Russian default, certain distressed bonds became unsaleable at any
price. Our overweighting of higher quality credits (BB's) prior to the market
correction enhanced the Portfolio's performance. In addition, underweighting in
industries such as healthcare, energy, forest products, and chemicals was also
helpful.
OUTLOOK
We believe that economic growth will be sustained through 1999 at a pace which,
although somewhat below that of last year, will be healthy by historic
standards. The deflationary forces at work in Asia and Latin America will have
some moderating impact on domestic production. A continuation of low inflation
and interest rates should provide a favorable environment for the bond market.
Our current strategy is to continue to improve the overall credit quality of the
Portfolio. Although this may result in lower dividends in the future, our
efforts will concentrate on improving the total return of the portfolio.
Sincerely,
/s/ Dean C. Kopperud /s/ Howard G. Hudson
- -------------------- --------------------
Dean C. Kopperud Howard G. Hudson
President Vice President
VALUE OF $10,000 INVESTED FEBRUARY 1, 1989
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HIGH YIELD
LEHMAN BROTHERS PORTFOLIO
HIGH YIELD INDEX*** CLASS A
<S> <C> <C> <C>
2/1/89 10,000 9,550
90 9,696 8,531
91 8,205 7,414
92 13,557 11,774
93 15,660 13,397
94 18,138 16,375
95 17,812 15,402
96 21,378 17,658
97 23,425 19,330
98 26,466 21,334
99 26,864 21,227
High Yield Portfolio Class A
Anverage Annual Total Return
1 Year 5 Year 10 Year
Class A* -4.98% +4.36% +7.82%
Class A** -0.51% +5.33% 8.31%
</TABLE>
Annual period ended January 31
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the 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
January 31, 1999 (Unaudited)
U.S. GOVERNMENT SECURITIES-98.81%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Cost (a) Value (b)
------------ --------------- ---------------
<C> <S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION -
6.32%
MORTGAGE BACKED SECURITIES:
$ 1,398,741 5.50% 2001................................... $ 1,387,989 $ 1,393,496
4,082,558 8.00% 2001-2002.............................. 4,184,621 4,175,693
2,005,855 9.00% 2001-2022.............................. 2,126,026 2,117,227
123,585 10.50% 2015.................................. 132,892 136,252
179,314 11.25% 2013-2014............................. 191,854 200,552
612,473 11.50% 2015-2019............................. 662,305 689,031
558,941 11.75% 2010-2014............................. 615,797 631,604
107,496 12.50% 2019.................................. 115,024 122,882
--------------- ---------------
9,416,508 9,466,737
--------------- ---------------
NOTES:
8,000,000 6.75% 2006................................... 8,218,739 8,729,552
4,000,000 6.80% 2007................................... 4,364,503 4,402,500
--------------- ---------------
12,583,242 13,132,052
--------------- ---------------
TOTAL FEDERAL HOME LOAN MORTGAGE
CORPORATION................................ 21,999,750 22,598,789
--------------- ---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -
44.46%
MORTGAGE BACKED SECURITIES:
9,649,996 5.50% 2014-2014.............................. 9,517,491 9,524,106
2,997,332 5.835% 2008.................................. 3,032,572 3,018,876
28,730,562 6.00% 2013-2029 (e).......................... 28,469,116 28,520,433
2,966,806 6.36% 2008................................... 2,962,429 3,101,624
4,638,589 6.48% 2008................................... 4,681,570 4,884,439
16,536,990 6.50% 2013-2028.............................. 16,547,205 16,754,362
1,435,014 6.54% 2007................................... 1,459,713 1,516,659
1,937,101 6.63% 2005................................... 1,989,675 2,035,873
6,572,107 7.00% 2003-2028.............................. 6,606,060 6,710,518
6,730,080 7.184% 2006.................................. 6,648,005 7,306,041
14,540,428 7.50% 2022-2027.............................. 14,828,986 14,963,017
564,061 8.00% 2025................................... 539,912 585,566
712,315 8.50% 2022................................... 746,952 748,153
126,803 9.00% 2020................................... 125,575 134,134
879,028 9.75% 2020................................... 948,251 943,149
627,945 10.00% 2023.................................. 685,048 676,022
559,455 10.50% 2012-2018............................. 606,950 605,785
191,409 10.75% 2013.................................. 197,152 207,289
1,778,964 11.00% 2015-2020............................. 1,926,185 1,944,073
331,462 11.25% 2013.................................. 348,035 364,090
134,504 11.50% 2015.................................. 144,228 148,501
285,387 12.00% 2011-2016............................. 304,589 317,850
417,468 12.50% 2015.................................. 467,360 469,652
--------------- ---------------
103,783,059 105,480,212
--------------- ---------------
NOTES:
6,000,000 5.42% 2001................................... 5,975,617 6,045,444
2,413,000 5.85% 2013 (e)............................... 2,413,458 2,429,589
1,450,000 6.01% 2009 (e)............................... 1,479,227 1,479,227
4,040,000 6.18% 2001................................... 4,078,296 4,132,928
6,160,000 6.48% 2007................................... 6,591,257 6,645,765
6,065,000 6.58% 2007................................... 6,052,070 6,584,528
9,730,000 6.70% 2007................................... 10,138,037 10,637,361
3,980,000 7.15% 2007................................... 4,299,062 4,466,515
9,750,000 7.65% 2005................................... 9,886,868 10,982,585
--------------- ---------------
50,913,892 53,403,942
--------------- ---------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION................................ 154,696,951 158,884,154
--------------- ---------------
</TABLE>
7
<PAGE>
FORTIS BOND FUNDS
U.S. GOVERNMENT SECURITIES FUND (CONTINUED)
Schedule of Investments
January 31, 1999 (Unaudited)
U.S. GOVERNMENT SECURITIES-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Cost (a) Value (b)
------------ --------------- ---------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -
6.81%
MORTGAGE BACKED SECURITIES:
$ 7,028,258 7.00% 2024................................... $ 6,933,425 $ 7,201,785
2,054,728 8.00% 2017-2022.............................. 2,099,461 2,140,780
1,828,275 9.00% 2022................................... 1,887,694 1,950,541
11,661,527 9.50% 2016-2019.............................. 12,197,438 12,510,316
443,537 11.00% 2015-2018............................. 477,823 485,811
28,280 11.25% 2015.................................. 30,009 31,179
--------------- ---------------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION................................ 23,625,850 24,320,412
--------------- ---------------
OTHER DIRECT FEDERAL OBLIGATIONS - 18.55%
FEDERAL FARM CREDIT BANK:
5,000,000 5.70% 2001................................... 5,016,186 5,066,785
--------------- ---------------
FEDERAL HOME LOAN BANK:
6,650,000 5.60% 2001................................... 6,630,563 6,727,459
5,065,000 5.61% 2001................................... 5,128,478 5,131,807
6,000,000 5.75% 2001................................... 5,995,009 6,090,738
7,500,000 5.925% 2000.................................. 7,507,002 7,608,390
2,325,000 6.625% 2007.................................. 2,405,094 2,537,577
1,500,000 6.995% 2007.................................. 1,589,358 1,670,603
28,650,000 7.31% 2004................................... 28,569,296 31,448,160
--------------- ---------------
57,824,800 61,214,734
--------------- ---------------
TOTAL OTHER DIRECT FEDERAL OBLIGATIONS....... 62,840,986 66,281,519
--------------- ---------------
OTHER GOVERNMENT AGENCIES - 0.84%
RESOLUTION FUNDING CORPORATION:
7,000,000 7.34% Zero Coupon Strip 2014 (d)............. 2,301,091 3,011,533
--------------- ---------------
U.S. TREASURY SECURITIES - 21.83%
BONDS:
7,100,000 5.19% Zero Coupon Strip 2009 (d)............. 4,077,911 4,111,674
1,250,000 5.59% Zero Coupon Strip 2022 (d)............. 336,786 342,336
9,575,000 5.61% Zero Coupon Strip 2018 (d)............. 3,204,406 3,222,936
14,850,000 5.72% Zero Coupon Strip 2019 (d)............. 4,795,596 4,929,294
17,035,000 8.125% 2019-2021............................. 21,020,587 22,933,260
--------------- ---------------
33,435,286 35,539,500
--------------- ---------------
NOTES:
38,190,000 6.125% 2001-2007............................. 39,640,752 40,508,427
1,850,000 6.625% 2002.................................. 1,894,323 1,955,798
--------------- ---------------
41,535,075 42,464,225
--------------- ---------------
TOTAL U.S. TREASURY SECURITIES............... 74,970,361 78,003,725
--------------- ---------------
TOTAL U.S. GOVERNMENT SECURITIES............. $ 340,434,989 $ 353,100,132
--------------- ---------------
--------------- ---------------
</TABLE>
8
<PAGE>
SHORT-TERM INVESTMENTS - 7.39%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
------------ ---------------
<C> <S> <C>
INVESTMENT COMPANY - 3.73%
$13,318,908 First American Treasury Obligations Fund,
Current rate -- 4.35%...................... $ 13,318,908
---------------
U.S. GOVERNMENT AGENCY - 3.66%
8,000,000 Federal Home Loan Mortgage Corp., 4.85%,
2-4-1999................................... 7,995,760
5,100,000 Federal Home Loan Bank, 4.85%, 2-12-1999..... 5,091,891
---------------
13,087,651
---------------
TOTAL SHORT-TERM INVESTMENTS................. 26,406,559
---------------
---------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$366,841,548).............................. $ 379,506,691
---------------
---------------
</TABLE>
(a) At January 31, 1999, the cost of securities for federal income tax purposes
was $366,965,586 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $12,883,460
Unrealized depreciation........................... (342,355)
---------------------------------------------------------------
Net unrealized appreciation....................... $12,541,105
---------------------------------------------------------------
</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 January 31,
1999, was $25,592,415.
9
<PAGE>
FORTIS BOND FUNDS
STRATEGIC INCOME FUND
Schedule of Investments
January 31, 1999 (Unaudited)
ASSET BACKED SECURITIES-4.27%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
--------- ------------- ------------- -------------
<C> <S> <C> <C> <C>
COMMERCIAL LOANS-4.27%
$500,000 GMAC Commercial Mortgage Securities, Inc.,
7.085% Ser 1997-C1 Class E 12-15-2010 --
UNITED STATES.............................. Baa2* $ 499,041 $ 489,495
500,000 J.P. Morgan Commercial Mortgage Finance
Corp., 7.472% Ser 1997-C4 Class B
12-26-2028 -- UNITED STATES................ AA 525,002 539,030
------------- -------------
TOTAL ASSET BACKED SECURITIES................ $ 1,024,043 $ 1,028,525
------------- -------------
------------- -------------
</TABLE>
CORPORATE BONDS-INVESTMENT GRADE-41.38%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
--------- ------------- ------------- -------------
<C> <S> <C> <C> <C>
BANKS-5.12%
$350,000 Banco Santiago S.A., 7.00% Sub Note 7-18-2007
-- CHILE................................... BBB $ 347,006 $ 293,965
500,000 Bank Austria AG, 7.25% Sub Note 2-15-2017 --
AUSTRIA (f)................................ AA+ 520,276 522,632
400,000 CoreStates Capital Corp., 6.75% Medium Term
Note 11-15-2006 -- UNITED STATES........... A- 402,658 417,100
------------- -------------
1,269,940 1,233,697
------------- -------------
BROKERAGE AND INVESTMENT-2.16%
500,000 Lehman Brothers Holdings, Inc., 7.375% Sr
Note 5-15-2004 -- UNITED STATES............ A 516,250 519,478
------------- -------------
CAPTIVE AUTO FINANCE-1.05%
250,000 Toyota Motor Credit, 5.625% Note 11-13-2003
-- UNITED STATES........................... AAA 249,608 253,185
------------- -------------
CONSUMER FINANCE-2.09%
500,000 Beneficial Corp., 6.33% Medium Term Note
12-18-2000 -- UNITED STATES................ A 501,006 504,849
------------- -------------
ELECTRONIC-MISCELLANEOUS-2.13%
500,000 Sony Corp., 6.125% Bond 3-4-2003 -- JAPAN.... A+ 499,111 513,298
------------- -------------
FINANCIAL SERVICES-1.04%
250,000 Newcourt Credit Group, 7.125% 12-17-2003 --
UNITED STATES.............................. BBB 249,362 250,222
------------- -------------
FOREIGN-GOVERNMENT AGENCIES-2.21%
500,000 Quebec (Province of), 7.50% Yankee Bond
7-15-2002 -- CANADA........................ A+ 516,684 531,465
------------- -------------
FOREIGN-GOVERNMENT-5.38%
250,000 Canada (Government of), 5.25% 11-5-2008 --
CANADA..................................... Aaa* 249,944 251,060
500,000 Generalitat de Catalunya, 6.25% Yankee Bond
12-15-2018 -- SPAIN........................ AA- 498,425 520,154
500,000 Poland (Republic of), 7.125% Yankee Bond
7-1-2004 -- POLAND......................... BBB- 500,972 525,000
------------- -------------
1,249,341 1,296,214
------------- -------------
INDUSTRIAL-2.22%
250,000 CBS Corp., 7.875% Deb 9-1-2023 -- UNITED
STATES..................................... BBB- 276,436 278,479
250,000 Tyco International Group, 6.875% Yankee Bond
1-15-2029 -- LUXEMBOURG.................... A- 252,249 256,168
------------- -------------
528,685 534,647
------------- -------------
MEDIA-2.60%
500,000 News America Holdings, 8.875% Deb 4-26-2023
-- UNITED STATES........................... BBB- 577,316 626,839
------------- -------------
NATURAL GAS TRANSMISSIONS-2.18%
500,000 Trans-Canada Pipelines Ltd., 7.06% Note
10-14-2025 -- CANADA....................... A- 504,145 524,921
------------- -------------
OIL-CRUDE PETROLEUM AND GAS-3.86%
500,000 Saga Petroleum ASA, 7.25% Yankee Bond
9-23-2027 -- NORWAY........................ BBB 508,439 463,662
500,000 YPF Sociedad Anonima, 7.25% Sr Note 3-15-2003
-- ARGENTINA (f)........................... BBB- 499,323 467,260
------------- -------------
1,007,762 930,922
------------- -------------
OIL-EQUIPMENT WELLS AND SERVICES-2.04%
500,000 Petroleum Geo-Services, 7.125% Sr Note
3-30-2028 -- NORWAY........................ BBB 498,562 492,869
------------- -------------
SUPRA-NATIONAL-2.04%
500,000 Corp Andina de Fomento, 7.10% Yankee Bond
2-1-2003 -- VENEZUELA...................... BBB+ 502,098 490,984
------------- -------------
</TABLE>
10
<PAGE>
CORPORATE BONDS-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
--------- ------------- ------------- -------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS-3.36%
$500,000 360 Communications Co., 7.50% Sr Note
3-1-2006 -- UNITED STATES.................. A $ 519,360 $ 550,145
250,000 U.S. West Capital Funding, Inc., 6.50%
11-15-2018 -- UNITED STATES................ A- 248,572 260,756
------------- -------------
767,932 810,901
------------- -------------
UTILITIES-ELECTRIC-1.90%
500,000 Empresa Nacional de Electricidad, 7.325%
Yankee Bond 2-1-2037 -- CHILE.............. A- 497,116 459,041
------------- -------------
TOTAL CORPORATE BONDS - INVESTMENT GRADE..... $ 9,934,918 $ 9,973,532
------------- -------------
------------- -------------
</TABLE>
CORPORATE BONDS-NON-INVESTMENT GRADE-26.77%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
--------- ------------- ------------- -------------
<C> <S> <C> <C> <C>
AUTOMOBILE AND MOTOR VEHICLE PARTS-1.03%
$250,000 Federal-Mogul, 7.375% 1-15-2006 -- UNITED
STATES (f)................................. BB+ $ 248,961 $ 248,595
------------- -------------
BROADCASTING-4.04%
250,000 Chancellor Media Corp. of Los Angeles, 8.125%
Sr Sub Note 12-15-2007 -- UNITED STATES.... B 249,409 260,625
250,000 Chancellor Media, 9.00% 10-1-2008 -- UNITED
STATES..................................... B 276,250 275,000
250,000 Grupo Televisa S.A., 11.27% Sr Disc Note
5-15-2008 (Zero coupon through 5-15-2001,
thereafter 13.25%) -- MEXICO (e)........... BB 209,859 182,500
250,000 Sinclair Broadcasting Group, Inc., 9.00% Sr
Sub Note 7-15-2007 -- UNITED STATES (d).... B 251,093 255,625
------------- -------------
986,611 973,750
------------- -------------
CABLE TELEVISION-3.33%
250,000 Adelphia Communications, Inc., 9.25% Sr Note
10-1-2002 -- UNITED STATES................. B+ 254,023 265,625
250,000 CSC Holdings, Inc., 8.125% Sr Deb 8-15-2009
-- UNITED STATES........................... BB+ 256,724 272,500
250,000 Lenfest Communications, 8.25% Sr Sub Note
2-15-2008 -- UNITED STATES................. BB- 249,361 263,750
------------- -------------
760,108 801,875
------------- -------------
COMPUTER-HARDWARE-1.20%
250,000 Unisys Corp., 11.75% Sr Note 10-15-2004 --
UNITED STATES.............................. BB- 282,028 288,125
------------- -------------
DAIRY PRODUCTS-0.88%
250,000 Fage Dairy Industries S.A., 9.00% Sr Note
2-1-2007 -- GREECE......................... BB 244,212 212,500
------------- -------------
ENTERTAINMENT-1.08%
250,000 Speedway Motorsports, Inc., 8.50% Sr Sub Deb
8-15-2007 -- UNITED STATES................. B+ 253,431 261,250
------------- -------------
FOOD-MISCELLANEOUS-1.39%
86,000 Envirodyne Industries, Inc., 12.00% First
Priority Sr Secured Note 6-15-2000 --
UNITED STATES.............................. B+ 92,020 86,000
250,000 Luigino's, Inc., 10.00% Sr Note 2-1-2006 --
UNITED STATES (d).......................... B- 250,000 250,000
------------- -------------
342,020 336,000
------------- -------------
FOREIGN-GOVERNMENT-5.12%
250,000 Argentina (Republic of), 11.375% Bond
1-30-2017 -- ARGENTINA..................... BB 282,922 227,500
250,000 Brazil (Republic of), 10.125% Bond 5-15-2027
-- BRAZIL.................................. B+ 251,243 152,500
250,000 Mexican United States, 9.875% Global Bond
1-15-2007 -- MEXICO........................ BB 262,564 248,750
250,000 Panama (Republic of), 8.875% Bond 9-30-2027
-- PANAMA.................................. BB+ 247,518 224,375
500,000 United Mexican States, 6.25% Secured Note Ser
W-B 12-31-2019 -- MEXICO................... BB 377,564 381,250
------------- -------------
1,421,811 1,234,375
------------- -------------
MACHINERY-1.05%
250,000 Clark Material Handling Co., 10.75% Sr Note
11-15-2006 -- UNITED STATES................ B+ 264,314 253,125
------------- -------------
RESTAURANTS AND FRANCHISING-0.65%
150,000 Tricon Global Restaurants, Inc., 7.65% Sr
Note 5-15-2008 -- UNITED STATES............ BB 149,680 156,853
------------- -------------
RETAIL-GROCERY-1.07%
250,000 Big V Supermarkets, Inc., 11.00% Sr Sub Note
2-15-2004 -- UNITED STATES................. B- 259,168 257,500
------------- -------------
</TABLE>
11
<PAGE>
FORTIS BOND FUNDS
STRATEGIC INCOME FUND (CONTINUED)
Schedule of Investments
January 31, 1999 (Unaudited)
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
--------- ------------- ------------- -------------
<C> <S> <C> <C> <C>
STEEL AND IRON-0.98%
$250,000 Wheeling-Pittsburgh Corp., 9.25% Sr Note
11-15-2007 -- UNITED STATES................ BB- $ 255,301 $ 236,250
------------- -------------
TELECOMMUNICATIONS-4.61%
250,000 Intermedia Communications, Inc., 8.50% Sr
Note 1-15-2008 -- UNITED STATES............ B 250,000 239,375
250,000 Iridium LLC/Capital Corp., 14.00% Sr Note
7-15-2005 -- UNITED STATES................. B- 270,936 231,250
250,000 Microcell Telecommunications, Inc., 12.52%
Disc Note 6-1-2006 (Zero coupon through
12-1-2001, thereafter 14.00%) -- CANADA
(e)........................................ B3* 187,641 194,375
250,000 Nextel Communications, Inc., 10.21% Sr Disc
Note 9-15-2007 (Zero coupon through
9-15-2002, thereafter 10.65%) -- UNITED
STATES (e)................................. CCC+ 176,815 171,250
250,000 Rogers Cantel, Inc., 9.375% Sr Secured Deb
6-1-2008 -- CANADA......................... BB+ 264,744 273,750
------------- -------------
1,150,136 1,110,000
------------- -------------
UTILITIES-WATER AND SEWER-0.34%
250,000 Cathay International Ltd., 13.00% Sr Note
4-15-2008 -- HONG KONG (d)................. B 250,000 82,500
------------- -------------
TOTAL CORPORATE BONDS - NON-INVESTMENT
GRADE...................................... $ 6,867,781 $ 6,452,698
------------- -------------
------------- -------------
</TABLE>
U.S. GOVERNMENT SECURITIES-27.63%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Cost (a) Value (b)
----------- ------------- -------------
<C> <S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION -
21.85%
MORTGAGE BACKED SECURITIES:
$2,189,308 6.00% 2013-2029 (g).......................... $ 2,169,070 $ 2,172,963
494,357 6.30% 2008................................... 494,978 514,898
262,375 6.48% 2008................................... 264,806 276,281
494,833 6.54% 2007................................... 503,349 522,986
242,138 6.63% 2005................................... 248,710 254,484
490,721 7.00% 2028................................... 498,187 500,996
------------- -------------
4,179,100 4,242,608
------------- -------------
NOTES:
1,000,000 6.18% 2001................................... 1,009,479 1,023,002
------------- -------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION................................ 5,188,579 5,265,610
------------- -------------
U.S. TREASURY SECURITIES - 5.78%
BONDS:
250,000 8.125% 2021.................................. 319,705 339,062
------------- -------------
NOTES:
500,000 4.00% 2000................................... 494,903 494,532
530,000 6.625% 2002.................................. 541,965 560,310
------------- -------------
1,036,868 1,054,842
------------- -------------
TOTAL U.S. TREASURY SECURITIES............... 1,356,573 1,393,904
------------- -------------
TOTAL U.S. GOVERNMENT SECURITIES............. 6,545,152 6,659,514
------------- -------------
------------- -------------
TOTAL LONG-TERM INVESTMENTS.................. $ 24,371,894 $ 24,114,269
------------- -------------
------------- -------------
</TABLE>
12
<PAGE>
SHORT-TERM INVESTMENTS-7.14%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
----------- -------------
<C> <S> <C>
BANKS-4.24%
$1,023,399 U.S. Bank N.A. Money Market Variable Rate
Time Deposit, Current rate -- 4.86%........ $ 1,023,399
-------------
U.S. GOVERNMENT AGENCY-2.90%
700,000 Federal Home Loan Mortgage Corp. Disc. Note,
4.88%, 2-8-1999............................ 699,253
-------------
TOTAL SHORT-TERM INVESTMENTS................. 1,722,652
-------------
-------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$26,094,546)(A)............................ $ 25,836,921
-------------
-------------
</TABLE>
(a) At January 31, 1999, the cost of securities for federal income tax purposes
was $26,094,546 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 450,169
Unrealized depreciation........................... (707,794)
---------------------------------------------------------------
Net unrealized depreciation....................... $ (257,625)
---------------------------------------------------------------
</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 secu
rities represents 26.19% of total net assets in investment grade securities
and 9.04% of total net assets in non-investment grade securities.
(d) Securities issued within the terms of a private placement memorandum,
exempt from registration un der 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>
Period Acquired Shares/Par Security Cost Basis
- ------------------ ----------- ------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
1998 250,000 Cathay International Ltd. due 2008 - 144A $ 250,000
1999 250,000 Luigino's, Inc. due 2006 - 144A 250,000
1997 250,000 Sinclair Broadcasting Group, Inc. due 2007 - 144A 251,093
</TABLE>
The aggregate value of these securities at January 31, 1999, was $588,125,
which represents 2.44% 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 Secu rities Act of 1933, as
amended, and may be sold only to dealers in that program or to other
"accredited investors". Pursuant to guidelines adopted by the Board of
Directors, these issues are determined to be liquid. The aggregate value of
these securities at January 31, 1999, was $1,238,487 which represents 5.14%
of total net assets.
(g) The cost of securities purchased on a when-issued basis at January 31,
1999, was $1,678,399.
* Moody's Rating
** Dominion Bond Rating
13
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO
Schedule of Investments
January 31, 1999 (Unaudited)
CORPORATE BONDS-INVESTMENT GRADE-0.65%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (b) Value (c)
----------- ------------- ------------- -------------
<C> <S> <C> <C> <C>
FINANCIAL SERVICES-0.65%
$1,137,000 Homeside, Inc., 11.25% Second Priority Sr
Secured Note 5-15-2003..................... A+ $ 1,166,849 $ 1,307,550
------------- -------------
</TABLE>
CORPORATE BONDS-NON-INVESTMENT GRADE-93.87%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (b) Value (c)
------------ ------------- ------------- -------------
<C> <S> <C> <C> <C>
APPAREL-1.33%
$ 2,500,000 Hosiery Corp. of America, Inc., 13.75% Sr Sub
Note 8-1-2002.............................. B- $ 2,638,239 $ 2,650,000
------------- -------------
AUTOMOBILE AND MOTOR VEHICLE PARTS-2.39%
2,500,000 Diamond Triumph Auto, 9.25% Sr Note 4-1-2008
(e)........................................ B+ 2,549,489 2,493,750
2,250,000 Hayes Lemmerz International, Inc., 8.25% Sr
Sub Note 12-15-2008 (g).................... B 2,250,000 2,278,125
------------- -------------
4,799,489 4,771,875
------------- -------------
AUTOMOBILE MANUFACTURERS-1.28%
2,500,000 Navistar International Corp., 8.00% Sr Sub
Note 2-1-2008.............................. BB- 2,495,227 2,550,000
------------- -------------
BROADCASTING-6.84%
750,000 Ackerley Group, Inc., 9.00% Sr Sub Note
1-15-2009 (g).............................. B 750,000 787,500
2,250,000 Chancellor Media Corp. of Los Angeles, 8.125%
Sr Sub Note 12-15-2007..................... B 2,244,680 2,345,625
2,500,000 Chancellor Media Corp., 8.00% Sr Note
11-1-2008 (g).............................. B+ 2,479,071 2,718,750
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 1,678,490 1,460,000
1,000,000 Shop at Home, Inc., 11.00% Sr Secured Note
4-1-2005................................... B 1,000,000 1,025,000
3,000,000 Sinclair Broadcasting Group, Inc., 10.00% Sr
Sub Note 9-30-2005......................... B 3,088,474 3,187,500
2,000,000 Young Broadcasting Corp., 11.75% Sr Sub Note
11-15-2004................................. B 2,184,126 2,155,000
------------- -------------
13,424,841 13,679,375
------------- -------------
CABLE TELEVISION-12.98%
1,000,000 Adelphia Communications, Inc., 8.375% Sr Note
2-1-2008................................... B+ 1,007,051 1,045,000
3,500,000 Adelphia Communications, Inc., 9.25% Sr Note
10-1-2002.................................. B+ 3,558,065 3,718,750
10,117,492 Australis Media Ltd., Sr Sub Disc Note
5-15-2003 (Zero coupon through 5-15-2000,
thereafter
15.75%)(with warrants) (a)(e).............. D 7,594,968 101
2,500,000 Century Communications Corp., 8.875% Sr Note
1-15-2007.................................. BB- 2,575,468 2,781,250
1,000,000 CSC Holdings, Inc., 10.50% Sr Sub Deb
5-15-2016.................................. BB- 1,014,408 1,200,000
1,000,000 CSC Holdings, Inc., 8.125% Sr Deb
8-15-2009.................................. BB+ 1,054,637 1,090,000
2,000,000 CSC Holdings, Inc., 9.25% Sr Sub Note
11-1-2005.................................. BB- 2,095,335 2,160,000
2,000,000 Galaxy Telecom L.P., 12.375% Sr Sub Note
10-1-2005.................................. B- 2,170,645 2,240,000
1,500,000 Lenfest Communications, 7.625% Sr Note
2-15-2008.................................. BB+ 1,496,092 1,560,000
1,750,000 Lenfest Communications, 8.25% Sr Sub Note
2-15-2008.................................. BB- 1,745,529 1,846,250
2,000,000 Mediacom LLC/Capital, 8.50% Sr Note
4-15-2008.................................. B+ 2,000,000 2,050,000
3,000,000 Olympus Communication L.P., 10.625% Sr Note
11-15-2006................................. B 3,000,000 3,300,000
2,000,000 Rifkin Acquisition Partners L.P., 11.125% Sr
Sub Note 1-15-2006......................... B- 2,197,700 2,210,000
6,000,000 Wireless One, Inc., 13.00% Sr Note
10-15-2003................................. CC 4,069,118 750,000
------------- -------------
35,579,016 25,951,351
------------- -------------
CHEMICALS-3.44%
2,000,000 Agricultural Minerals & Chemicals, 10.75% Sr
Note 9-30-2003............................. BB- 2,079,069 2,050,000
2,500,000 NL Industries, Inc., 11.75% Sr Secured Note
10-15-2003................................. B 2,742,985 2,675,000
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- 2,492,559 2,150,000
------------- -------------
7,314,613 6,875,000
------------- -------------
</TABLE>
14
<PAGE>
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (b) Value (c)
------------ ------------- ------------- -------------
<C> <S> <C> <C> <C>
COMPUTER-HARDWARE-1.85%
$ 2,250,000 Unisys Corp., 11.75% Sr Note 10-15-2004...... BB- $ 2,440,617 $ 2,593,125
1,000,000 Unisys Corp., 12.00% Sr Note 4-15-2003....... B+ 1,095,333 1,110,000
------------- -------------
3,535,950 3,703,125
------------- -------------
CONSUMER FINANCE-0.52%
1,000,000 Renters Choice, Inc., 11.00% Sr Sub Note
8-15-2008 (g).............................. B 1,000,000 1,037,500
------------- -------------
CONSUMER GOODS-3.07%
3,000,000 Albecca, Inc., 10.75% Sr Sub Note 8-15-2008
(g)........................................ B- 3,000,000 2,730,000
1,250,000 Chattem, Inc., 12.75% Sr Sub Note Ser B
6-15-2004.................................. B- 1,251,721 1,381,250
1,500,000 Drypers Corp., 10.25% Sr Note 6-15-2007...... B 1,550,950 1,425,000
250,000 Scotts Co., 8.625% Sr. Sub Notes 1-15-2009
(g)........................................ B+ 250,000 258,125
375,000 Windmere-Durable Holdings, 10.00% Sr Sub Note
7-31-2008.................................. B- 375,000 341,250
------------- -------------
6,427,671 6,135,625
------------- -------------
DAIRY PRODUCTS-1.70%
4,000,000 Fage Dairy Industries S.A., 9.00% Sr Note
2-1-2007................................... BB 3,879,781 3,400,000
------------- -------------
ELECTRICAL-COMPONENTS AND PARTS-1.27%
2,500,000 Wesco Distribution, Inc., 9.125% Sr Sub Note
6-1-2008................................... B 2,492,226 2,543,750
------------- -------------
ENERGY-3.28%
2,000,000 Energy Corp. of America, 9.50% Sr Sub Note
5-15-2007.................................. B 2,009,244 1,890,000
2,500,000 Gulfmark Offshore, 8.75% Sr Note 6-1-2008.... BB- 2,492,084 2,275,000
2,500,000 KCS Energy, Inc., 11.00% Sr Note 1-15-2003... B 2,720,884 2,400,000
------------- -------------
7,222,212 6,565,000
------------- -------------
ENTERTAINMENT-1.18%
2,250,000 Speedway Motorsports, Inc., 8.50% Sr Sub Deb
8-15-2007.................................. B+ 2,274,693 2,351,250
------------- -------------
FOOD-MISCELLANEOUS-2.13%
750,000 Agrilink Foods, Inc., 11.875% Sr Sub Note
11-1-2008.................................. B 750,000 783,750
344,000 Envirodyne Industries, Inc., 12.00% First
Priority Sr Secured Note 6-15-2000......... B+ 360,069 344,000
2,000,000 Fresh Foods, Inc., 10.75% Sr Note 6-1-2006... B 2,000,000 1,880,000
1,250,000 Luigino's, Inc., 10.00% Sr Note 2-1-2006
(e)........................................ B- 1,250,000 1,250,000
------------- -------------
4,360,069 4,257,750
------------- -------------
FOREIGN-GOVERNMENT-0.38%
1,000,000 United Mexican States, 6.25% Secured Note Ser
W-B 12-31-2019............................. BB 755,129 762,500
------------- -------------
FOREST PRODUCTS-1.67%
1,750,000 Domtar, Inc., 8.75% Note 8-1-2006............ BB+ 1,831,229 1,811,250
1,500,000 Stone Container Corp., 9.875% Sr Note
2-1-2001................................... B 1,522,478 1,522,500
------------- -------------
3,353,707 3,333,750
------------- -------------
HEALTH CARE SERVICES-2.00%
2,000,000 Quorum Health Group, Inc., 8.75% Sr Sub Note
11-1-2005.................................. B+ 2,064,920 1,905,000
2,000,000 Tenet Healthcare Corp., 8.625% Sr Sub Note
1-15-2007.................................. BB- 2,064,904 2,090,000
------------- -------------
4,129,824 3,995,000
------------- -------------
LEISURE TIME-AMUSEMENTS-0.83%
216,537 Capital Gaming International, Inc., 12.00% Sr
Note 5-15-2001 (e)......................... NR 0 21
1,000,000 Station Casinos, Inc., 10.125% Sr Sub Note
3-15-2006.................................. B+ 967,104 1,062,500
600,000 True Temper Sports, Inc., 10.875% Sr Sub Note
12-1-2008 (e).............................. B- 600,000 588,000
------------- -------------
1,567,104 1,650,521
------------- -------------
MACHINERY-2.79%
1,500,000 Anthony Crane Rental, L.P., 10.375% Sr Note
Ser A 8-1-2008 (g)......................... B 1,500,000 1,425,000
4,095,000 Clark Material Handling Co., 10.75% Sr Note
11-15-2006................................. B+ 4,226,496 4,146,187
------------- -------------
5,726,496 5,571,187
------------- -------------
</TABLE>
15
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO (CONTINUED)
Schedule of Investments
January 31, 1999 (Unaudited)
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (b) Value (c)
------------ ------------- ------------- -------------
<C> <S> <C> <C> <C>
MACHINERY-TOOLS-1.70%
$ 3,295,000 Simonds Industries, 10.25% Sr Sub Note
7-1-2008................................... B- $ 3,176,227 $ 3,393,850
------------- -------------
MEDICAL SUPPLIES-1.06%
2,000,000 Maxxim Medical, 10.50% Sr Sub Note
8-1-2006................................... B 2,187,811 2,130,000
------------- -------------
MISCELLANEOUS-0.74%
1,500,000 La Petite Acad/LPA Holdings, 10.00% Sr Note
5-15-2008.................................. B- 1,500,000 1,488,750
------------- -------------
PAPER-0.99%
2,500,000 Plainwell, Inc., 11.00% Sr Sub Note
3-1-2008................................... B- 2,500,000 1,975,000
------------- -------------
PRINTING-2.84%
1,500,000 Day International Group, Inc., 11.125% Sr
Note 6-1-2005.............................. B+ 1,626,328 1,616,250
2,250,000 Mail-Well Corp., 8.75% Sr Sub Note 12-15-2008
(g)........................................ B+ 2,250,000 2,295,000
750,000 Phoenix Color Corp., 10.375% Sr Sub Notes
2-1-2009 (e)............................... B- 750,000 750,000
1,000,000 World Color Press, Inc., 8.375% Sr Sub Note
11-15-2008 (e)............................. BB- 1,000,000 1,025,000
------------- -------------
5,626,328 5,686,250
------------- -------------
PUBLISHING-2.52%
2,000,000 Garden State Newspapers, 8.75% Sr Sub Note
10-1-2009.................................. B+ 2,014,124 2,000,000
1,000,000 Primedia, Inc., 10.25% Sr Note 6-1-2004...... BB- 1,070,004 1,050,000
2,000,000 Primedia, Inc., 7.625% Sr Note 4-1-2008...... BB- 1,984,903 1,985,000
------------- -------------
5,069,031 5,035,000
------------- -------------
RESTAURANTS AND FRANCHISING-1.74%
2,000,000 Advantica Restaurant Group, Inc., 11.25% Sr
Note 1-15-2008............................. B 2,154,378 2,060,000
1,350,000 Tricon Global Restaurants, Inc., 7.65% Sr
Note 5-15-2008............................. BB 1,347,117 1,411,672
------------- -------------
3,501,495 3,471,672
------------- -------------
SHIP BUILDING, SHIPPING-1.89%
3,500,000 Newport News Ship Building, 9.25% Sr Sub Note
12-1-2006.................................. B+ 3,707,987 3,780,000
------------- -------------
STEEL AND IRON-0.94%
2,000,000 Wheeling-Pittsburgh Corp., 9.25% Sr Note
11-15-2007................................. BB- 2,042,537 1,890,000
------------- -------------
TELECOMMUNICATIONS-21.71%
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 1,287,937 1,160,000
750,000 Centennial Cellular, 10.75% Sr Sub Note
12-15-2008 (g)............................. CCC+ 750,000 795,000
3,500,000 Comcast Cellular Holdings, 9.50% Sr Note
5-1-2007................................... BB+ 3,666,936 4,016,250
2,000,000 Globalstar LP/Capital, 11.25% Sr Note
6-15-2004.................................. B 2,059,140 1,520,000
2,250,000 Hermes Europe Railtel B.V., 10.375% Sr Sub
Note 1-15-2009 (g)......................... B 2,250,000 2,385,000
2,500,000 Hyperion Telecommunication, 12.25% Sr Note
9-1-2004................................... B+ 2,674,500 2,656,250
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 1,567,257 1,395,000
2,500,000 Intermedia Communications, Inc., 8.50% Sr
Note 1-15-2008............................. B 2,587,301 2,393,750
500,000 Iridium LLC/Capital Corp., 14.00% Sr Note
7-15-2005.................................. B- 555,966 462,500
3,625,000 ITC Deltacom, Inc., 11.00% Sr Note
6-1-2007................................... B 4,072,847 3,960,313
500,000 ITC Deltacom, Inc., 9.75% Sr Note
11-15-2008................................. B 500,000 525,000
5,000,000 Level 3 Communications, Inc., 10.50% Sr Disc
Note 12-1-2008 (Zero coupon through
12-1-2003,thereafter 10.50%) (e)(f)........ B 3,050,191 2,931,250
2,500,000 McleodUSA, Inc., 9.25% Sr Note 7-15-2007..... B+ 2,684,931 2,631,250
250,000 McleodUSA, Inc., 9.50% Sr Note 11-1-2008
(e)........................................ B+ 250,000 270,625
1,500,000 Metromedia Fiber Network, Inc., 10.00% Sr
Note 11-15-2008 (e)........................ B 1,500,000 1,586,250
3,500,000 Nextel Communications, Inc. 10.27% Sr Disc
Note 9-15-2007 (Zero coupon through
9-15-2002,
thereafter 10.65%) (f)..................... CCC+ 2,500,959 2,397,500
1,750,000 NTL, Inc., 12.742% Sr Note 10-1-2008 (Zero
coupon through 10-1-2003, thereafter
12.375%) (f)(g)............................ B- 999,644 1,220,625
1,400,000 Omnipoint Corp., 11.625% Sr Note Ser A
8-15-2006.................................. CCC+ 1,365,497 1,106,000
500,000 Qwest Communications International, 8.29% Sr
Disc Note 2-1-2008 (Zero coupon through
2-1-2003, thereafter 8.29%) (f)............ BB+ 361,818 387,500
4,250,000 Rogers Cantel, Inc., 9.375% Sr Secured Deb
6-1-2008................................... BB+ 4,500,655 4,653,750
3,750,000 Splitrock Services, Inc., 11.75% Sr Note
7-15-2008.................................. NR 3,711,894 3,337,500
</TABLE>
16
<PAGE>
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (b) Value (c)
------------ ------------- ------------- -------------
<C> <S> <C> <C> <C>
$ 1,500,000 Verio, Inc., 11.25% Sr Note 12-1-2008 (e).... B- $ 1,500,000 $ 1,605,000
------------- -------------
44,397,473 43,396,313
------------- -------------
TEXTILE MANUFACTURING-3.13%
2,000,000 Anvil Knitwear, Inc., 10.875% Sr Note
3-15-2007.................................. B- 2,038,414 1,300,000
2,250,000 Galey & Lord, Inc., 9.125% Sr Sub Note
3-1-2008................................... B 2,239,437 1,755,000
3,000,000 Pillowtex Corp., 10.00% Sr Sub Note
11-15-2006................................. B+ 3,182,516 3,195,000
------------- -------------
7,460,367 6,250,000
------------- -------------
TRANSPORTATION-1.43%
2,500,000 Greyhound Lines, Inc., 11.50% Sr Note
4-15-2007.................................. B- 2,604,700 2,856,250
------------- -------------
UTILITIES-ELECTRIC-1.00%
2,000,000 AES Corp., 8.50% Sr Sub Note 11-1-2007....... B+ 2,050,935 2,010,000
------------- -------------
UTILITIES-WATER AND SEWER-0.08%
500,000 Cathay International Ltd., 13.00% Sr Note
4-15-2008 (e).............................. B 480,703 165,000
------------- -------------
WASTE DISPOSAL-1.17%
2,125,000 Norcal Waste Systems, Inc., 13.50% Increasing
Rate Sr Note 11-15-2005.................... BB- 2,125,000 2,337,500
------------- -------------
TOTAL CORPORATE BONDS - NON-INVESTMENT
GRADE...................................... $ 201,406,881 $ 187,650,144
------------- -------------
------------- -------------
</TABLE>
COMMON STOCKS AND WARRANTS-0.36%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Market
Shares Cost (b) Value (c)
--------- ------------- -------------
<C> <S> <C> <C>
APPAREL-0.04%
1,250 Hosiery Corp. of America, Inc. Class A (e)... $ 21,150 $ 80,000
------------- -------------
AUTOMOBILE AND MOTOR VEHICLE PARTS-0.00%
750 Highwaymaster Communications, Inc. (Warrants)
(a)(e)..................................... 13,125 67
------------- -------------
CABLE TELEVISION-0.00%
8,500 American Telecasting, Inc. (Warrants)
(a)(e)..................................... 17,000 1
7,500 People's Choice T.V. Corp. (Warrants)
(a)(e)..................................... 78 1
------------- -------------
17,078 2
------------- -------------
CONSUMER GOODS-0.00%
3,000 Wireless One, Inc. (Warrants) (a)(e)......... 23,493 30
------------- -------------
LEISURE TIME-AMUSEMENTS-0.00%
6,000 Hemmeter Enterprises, Inc. (Warrants)
(a)(e)..................................... 24,000 1
------------- -------------
PUBLISHING-0.02%
197,500 Marvel Entertainment Group, Inc. (a)......... 2,156,224 29,782
------------- -------------
TELECOMMUNICATIONS-0.30%
6,600 Clearnet Communications, Inc. (Warrants)
(a)(e)..................................... 76,725 47,025
63,759 e.spire Communications, Inc.................. 618,165 330,750
1,000 Hyperion Telecom (Warrants) (a)(e)........... 20,000 100,000
12,800 Powertel, Inc. (Warrants) (a)(e)............. 94,118 87,501
3,750 Splitrock Service (Warrants) (a)............. 46,195 41,250
------------- -------------
855,203 606,526
------------- -------------
TOTAL COMMON STOCKS AND WARRANTS............. 3,110,273 716,408
------------- -------------
------------- -------------
TOTAL LONG-TERM INVESTMENTS.................. $ 205,684,003 $ 189,674,102
------------- -------------
------------- -------------
</TABLE>
17
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO (CONTINUED)
Schedule of Investments
January 31, 1999 (Unaudited)
SHORT-TERM INVESTMENTS-3.68%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (c)
----------- -------------
<C> <S> <C>
BANKS-3.68%
$7,356,000 U.S. Bank N.A. Money Market Variable Rate
Time Deposit, Current rate -- 4.86%........ $ 7,356,000
-------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$213,040,003) (B).......................... $ 197,030,102
-------------
-------------
</TABLE>
(a) Presently non-income producing. For long-term debt securities, items
identified are in default as to payment of interest and/or principal.
(b) At January 31, 1999, the cost of securities for federal income tax purposes
was $214,049,362 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 3,863,737
Unrealized depreciation..................................... (20,882,997)
- --------------------------------------------------------------------------
Net unrealized depreciation................................. $(17,019,260)
- --------------------------------------------------------------------------
</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 7.32% of net assets as of January 31, 1999.
(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>
Period 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. (with warrants) due 2003 7,594,968
1999 216,537 Capital Gaming International due 2001 - 144A 0
1998 500,000 Cathay International Ltd. due 2008 - 144A 480,703
1996 6,600 Clearnet Communications, Inc. (Warrants) - 144A 76,725
1998 2,500,000 Diamond Triumph Auto due 2008 - 144A 2,549,489
1994 6,000 Hemmeter Enterprises, Inc. (Warrants) - 144A 24,000
1997 750 Highwaymaster Communications, Inc. (Warrants) - 144A 13,125
1994 2,500,000 Hosiery Corp. of America, Inc. Class A - 144A 21,150
1997 1,000 Hyperion Telecom (Warrants) - 144A 20,000
1998 5,000,000 Level 3 Communications, Inc. due 2008 - 144A 3,050,191
1999 1,250,000 Luigino's, Inc. due 2006 - 144A 1,250,000
1998 250,000 McleodUSA, Inc. due 2008 - 144A 250,000
1998 1,500,000 Metromedia Fiber Network, Inc. due 2008 - 144A 1,500,000
1997 7,500 People's Choice T.V. Corp. (Warrants) 78
1999 750,000 Phoenix Color Press, Inc. due 2009 - 144A 750,000
1997 12,800 Powertel, Inc. (Warrants) 94,118
1998 600,000 True Temper Sports, Inc. due 2008 - 144A 600,000
1998 1,500,000 Verio, Inc. due 2008 - 144A 1,500,000
1996 3,000 Wireless One, Inc. (Warrants) 23,493
1998 1,000,000 World Color Press, Inc. due 2008 - 144A 1,000,000
</TABLE>
The aggregate value of these securities at January 31, 1999, was
$12,979,623, which represents 6.49% of total net assets.
(f) The interest rate disclosed for these securities represents the effective
yield on the date of acquisition.
(g) Securities sold within the terms of a private placement memorandum, exempt
from registration under Section 144A of the Securities Act of 1933, as
amended, and may be sold only to dealers in that program or to other
"accredited investors". Pursuant to guidelines adopted by the Board of
Directors, these issues are determined to be liquid. The aggregate value of
these securities at January 31, 1999, was $17,930,625, which represents
8.97% of total net assets.
* Moody's Rating
18
<PAGE>
FORTIS BOND FUNDS
Statements of Assets and Liabilities
(Unaudited)
January 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
US GOVERNMENT STRATEGIC
SECURITIES INCOME
FUND FUND
-------------- --------------
<S> <C> <C>
ASSETS:
Investments in securities, as detailed in the accompanying schedules, at market (cost
$366,841,548; $26,094,546; and $213,040,003; respectively) (Note 1)........................ $ 379,506,691 $ 25,836,921
Cash on deposit with custodian............................................................... -- 14,219
Collateral for securities lending transactions (Note 1)...................................... 80,437,018 --
Receivables:
Investment securities sold................................................................. 16,709 --
Interest and dividends..................................................................... 4,047,500 376,172
Subscriptions of capital stock............................................................. 19,988 32,430
Deferred registration costs (Note 1)......................................................... 35,082 32,821
Deferred organizational costs................................................................ -- 26,818
Prepaid expenses............................................................................. 5,012 10,948
-------------- --------------
TOTAL ASSETS................................................................................... 464,068,000 26,330,329
-------------- --------------
LIABILITIES:
Cash portion of dividends payable............................................................ 360,689 2,620
Payable upon return of securities loaned (Note 1)............................................ 80,437,018 --
Payable for investment securities purchased.................................................. 25,592,415 2,204,648
Redemptions of capital stock................................................................. 65,023 --
Payable for investment advisory and management fees (Note 2)................................. 215,624 16,180
Payable for distribution fees (Note 2)....................................................... 3,357 761
Accounts payable and accrued expenses........................................................ 51,895 2,468
-------------- --------------
TOTAL LIABILITIES.............................................................................. 106,726,021 2,226,677
-------------- --------------
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.................................... 406,928,387 24,705,909
Unrealized appreciation (depreciation) of investments........................................ 12,665,143 (257,625)
Undistributed net investment income (loss)................................................... 40,689 1,500
Accumulated net realized (loss) from sale of investments..................................... (62,292,240) (346,132)
-------------- --------------
TOTAL NET ASSETS............................................................................... $ 357,341,979 $ 24,103,652
-------------- --------------
-------------- --------------
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A shares (based on net assets of $53,090,835; $22,833,741; and $100,830,215; respectively
and 5,592,308; 2,340,775; and 14,407,129 shares outstanding; respectively)................... $9.49 $9.75
-------------- --------------
Class B shares (based on net assets of $4,155,528; $536,739; and $26,321,595; respectively and
439,045; 55,036; and 3,761,350 shares outstanding; respectively)............................. $9.46 $9.75
-------------- --------------
Class C shares (based on net assets of $1,841,886; $289,136; and $6,791,187; respectively and
194,807; 29,647; and 972,253 shares outstanding; respectively)............................... $9.45 $9.75
-------------- --------------
Class E shares (based on net assets of $286,819,946; $0; and $0; respectively and 30,225,355;
0; and 0 shares outstanding; respectively)................................................... $9.49 --
-------------- --------------
Class H shares (based on net assets of $11,433,784; $444,036; and $65,963,166; respectively and
1,208,033; 45,535; and 9,432,733 shares outstanding; respectively)........................... $9.46 $9.75
-------------- --------------
<CAPTION>
HIGH YIELD
PORTFOLIO
--------------
<S> <C>
ASSETS:
Investments in securities, as detailed in the accompanying schedules, at market (cost
$366,841,548; $26,094,546; and $213,040,003; respectively) (Note 1)........................ $ 197,030,102
Cash on deposit with custodian............................................................... 17,819
Collateral for securities lending transactions (Note 1)...................................... --
Receivables:
Investment securities sold................................................................. 871,750
Interest and dividends..................................................................... 4,742,906
Subscriptions of capital stock............................................................. 164,933
Deferred registration costs (Note 1)......................................................... 28,513
Deferred organizational costs................................................................ --
Prepaid expenses............................................................................. 6,118
--------------
TOTAL ASSETS................................................................................... 202,862,141
--------------
LIABILITIES:
Cash portion of dividends payable............................................................ 625,672
Payable upon return of securities loaned (Note 1)............................................ --
Payable for investment securities purchased.................................................. 2,000,000
Redemptions of capital stock................................................................. 151,247
Payable for investment advisory and management fees (Note 2)................................. 122,687
Payable for distribution fees (Note 2)....................................................... 14,688
Accounts payable and accrued expenses........................................................ 41,684
--------------
TOTAL LIABILITIES.............................................................................. 2,955,978
--------------
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.................................... 233,621,709
Unrealized appreciation (depreciation) of investments........................................ (16,009,901)
Undistributed net investment income (loss)................................................... (104,066)
Accumulated net realized (loss) from sale of investments..................................... (17,601,579)
--------------
TOTAL NET ASSETS............................................................................... $ 199,906,163
--------------
--------------
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A shares (based on net assets of $53,090,835; $22,833,741; and $100,830,215; respectively
and 5,592,308; 2,340,775; and 14,407,129 shares outstanding; respectively)................... $7.00
--------------
Class B shares (based on net assets of $4,155,528; $536,739; and $26,321,595; respectively and
439,045; 55,036; and 3,761,350 shares outstanding; respectively)............................. $7.00
--------------
Class C shares (based on net assets of $1,841,886; $289,136; and $6,791,187; respectively and
194,807; 29,647; and 972,253 shares outstanding; respectively)............................... $6.98
--------------
Class E shares (based on net assets of $286,819,946; $0; and $0; respectively and 30,225,355;
0; and 0 shares outstanding; respectively)................................................... --
--------------
Class H shares (based on net assets of $11,433,784; $444,036; and $65,963,166; respectively and
1,208,033; 45,535; and 9,432,733 shares outstanding; respectively)........................... $6.99
--------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
FORTIS BOND FUNDS
Statements of Operations
(Unaudited)
For the Six-Month Period Ended January 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
US GOVERNMENT STRATEGIC
SECURITIES INCOME
FUND FUND
-------------- --------------
<S> <C> <C>
NET INVESTMENT INCOME (LOSS):
Income:
Interest income............................................................................ $ 10,584,215 $ 854,955
Fee income (Note 1)........................................................................ 57,044 --
-------------- --------------
Total income................................................................................. 10,641,259 854,955
-------------- --------------
Expenses:
Investment advisory and management fees (Note 2)........................................... 1,272,096 93,799
Distribution fees (Class A) (Note 2)....................................................... 67,536 27,942
Distribution fees (Class B) (Note 2)....................................................... 18,598 2,325
Distribution fees (Class C) (Note 2)....................................................... 8,406 1,321
Distribution fees (Class H) (Note 2)....................................................... 56,521 1,835
Registration fees.......................................................................... 26,718 22,685
Shareholders' notices and reports.......................................................... 26,499 1,570
Legal and auditing fees (Note 2)........................................................... 20,643 2,293
Custodian fees............................................................................. 8,419 1,613
Directors' fees and expenses............................................................... 14,396 779
Amortization of organization costs......................................................... -- 1,353
Other...................................................................................... 15,325 396
-------------- --------------
Total expenses............................................................................... 1,535,157 157,911
Less reimbursable expenses (Note 2)........................................................ -- (24,701)
-------------- --------------
Net Expenses................................................................................. 1,535,157 133,210
-------------- --------------
NET INVESTMENT INCOME.......................................................................... 9,106,102 721,745
-------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1):
Net realized gain (loss) from security transactions.......................................... 2,880,922 (345,430)
Net change in unrealized appreciation (depreciation) of investments.......................... 4,262,243 (311,275)
-------------- --------------
NET GAIN (LOSS) ON INVESTMENTS................................................................. 7,143,165 (656,705)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 16,249,267 $ 65,040
-------------- --------------
-------------- --------------
<CAPTION>
HIGH YIELD
PORTFOLIO
--------------
<S> <C>
NET INVESTMENT INCOME (LOSS):
Income:
Interest income............................................................................ $ 10,322,076
Fee income (Note 1)........................................................................ --
--------------
Total income................................................................................. 10,322,076
--------------
Expenses:
Investment advisory and management fees (Note 2)........................................... 741,545
Distribution fees (Class A) (Note 2)....................................................... 180,950
Distribution fees (Class B) (Note 2)....................................................... 134,099
Distribution fees (Class C) (Note 2)....................................................... 36,707
Distribution fees (Class H) (Note 2)....................................................... 335,534
Registration fees.......................................................................... 34,380
Shareholders' notices and reports.......................................................... 22,180
Legal and auditing fees (Note 2)........................................................... 15,930
Custodian fees............................................................................. 10,082
Directors' fees and expenses............................................................... 6,150
Amortization of organization costs......................................................... --
Other...................................................................................... 8,016
--------------
Total expenses............................................................................... 1,525,573
Less reimbursable expenses (Note 2)........................................................ --
--------------
Net Expenses................................................................................. 1,525,573
--------------
NET INVESTMENT INCOME.......................................................................... 8,796,503
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1):
Net realized gain (loss) from security transactions.......................................... (7,156,812)
Net change in unrealized appreciation (depreciation) of investments.......................... (5,168,396)
--------------
NET GAIN (LOSS) ON INVESTMENTS................................................................. (12,325,208)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ (3,528,705)
--------------
--------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
FORTIS BOND FUNDS
Statements of Changes in Net Assets
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE
SIX-MONTH
PERIOD ENDED
JANUARY 31,
1999
(UNAUDITED)
--------------
<S> <C>
OPERATIONS:
Net investment income..................................................................................... $ 9,106,102
Net realized gain from security transactions.............................................................. 2,880,922
Net change in unrealized appreciation (depreciation) on investments in securities......................... 4,262,243
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................................ 16,249,267
--------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A................................................................................................. (1,344,432)
Class B................................................................................................. (79,074)
Class C................................................................................................. (35,457)
Class E................................................................................................. (7,464,698)
Class H................................................................................................. (237,195)
--------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (9,160,856)
--------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (1,144,581 and 822,757 shares).................................................................. 10,835,629
Class B (130,100 and 120,670 shares).................................................................... 1,233,421
Class C (178,193 and 83,034 shares)..................................................................... 1,680,175
Class E (2,617,667 and 2,495,810 shares)................................................................ 24,794,536
Class H (279,973 and 451,004 shares).................................................................... 2,646,681
Proceeds from shares issued as a result of reinvested dividends
Class A (103,732 and 232,525 shares).................................................................... 987,200
Class B (7,411 and 13,455 shares)....................................................................... 70,316
Class C (3,135 and 5,419 shares)........................................................................ 29,717
Class E (580,439 and 1,337,763 shares).................................................................. 5,522,776
Class H (18,353 and 39,802 shares)...................................................................... 174,131
Less cost of repurchase of shares
Class A (1,291,915 and 1,875,615 shares)................................................................ (12,223,047)
Class B (39,036 and 102,794 shares)..................................................................... (368,261)
Class C (123,175 and 110,004 shares).................................................................... (1,162,258)
Class E (3,622,602 and 8,637,714 shares)................................................................ (34,296,547)
Class H (256,377 and 489,094 shares).................................................................... (2,412,620)
--------------
NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS.......................................................... (2,488,151)
--------------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................................................................... 4,600,260
NET ASSETS:
Beginning of period....................................................................................... 352,741,719
--------------
End of period (includes undistributed net investment income of $40,689 and $95,443, respectively)......... $ 357,341,979
--------------
--------------
<CAPTION>
FOR THE
YEAR ENDED
JULY 31, 1998
--------------
<S> <C>
OPERATIONS:
Net investment income..................................................................................... $ 20,795,990
Net realized gain from security transactions.............................................................. 8,346,912
Net change in unrealized appreciation (depreciation) on investments in securities......................... (2,474,357)
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................................ 26,668,545
--------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A................................................................................................. (3,017,377)
Class B................................................................................................. (140,663)
Class C................................................................................................. (60,964)
Class E................................................................................................. (17,164,484)
Class H................................................................................................. (524,647)
--------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (20,908,135)
--------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (1,144,581 and 822,757 shares).................................................................. 7,604,563
Class B (130,100 and 120,670 shares).................................................................... 1,110,644
Class C (178,193 and 83,034 shares)..................................................................... 767,893
Class E (2,617,667 and 2,495,810 shares)................................................................ 23,021,542
Class H (279,973 and 451,004 shares).................................................................... 4,150,901
Proceeds from shares issued as a result of reinvested dividends
Class A (103,732 and 232,525 shares).................................................................... 2,145,251
Class B (7,411 and 13,455 shares)....................................................................... 123,897
Class C (3,135 and 5,419 shares)........................................................................ 49,809
Class E (580,439 and 1,337,763 shares).................................................................. 12,339,811
Class H (18,353 and 39,802 shares)...................................................................... 366,333
Less cost of repurchase of shares
Class A (1,291,915 and 1,875,615 shares)................................................................ (17,300,337)
Class B (39,036 and 102,794 shares)..................................................................... (946,133)
Class C (123,175 and 110,004 shares).................................................................... (1,016,334)
Class E (3,622,602 and 8,637,714 shares)................................................................ (79,603,597)
Class H (256,377 and 489,094 shares).................................................................... (4,511,053)
--------------
NET DECREASE IN NET ASSETS FROM SHARE TRANSACTIONS.......................................................... (51,696,810)
--------------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................................................................... (45,936,400)
NET ASSETS:
Beginning of period....................................................................................... 398,678,119
--------------
End of period (includes undistributed net investment income of $40,689 and $95,443, respectively)......... $ 352,741,719
--------------
--------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
FORTIS BOND FUNDS
Statement of Changes in Net Assets
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE
SIX-MONTH
PERIOD ENDED
JANUARY 31,
1999
(UNAUDITED)
--------------
<S> <C>
OPERATIONS:
Net investment income..................................................................................... $ 721,745
Net realized gain (loss) from security transactions....................................................... (345,430)
Net change in unrealized appreciation (depreciation) of investments in securities......................... (311,275)
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................................ 65,040
--------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A................................................................................................. (690,494)
Class B................................................................................................. (12,649)
Class C................................................................................................. (7,173)
Class H................................................................................................. (9,929)
From net realized gains on investments
Class A................................................................................................. (30,085)
Class B................................................................................................. (701)
Class C................................................................................................. (390)
Class H................................................................................................. (510)
--------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (751,931)
--------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (77,581 and 2,153,816 shares)................................................................... 753,650
Class B (17,337 and 39,571 shares)...................................................................... 168,733
Class C (17,865 and 21,527 shares)...................................................................... 173,905
Class H (17,101 and 35,910 shares)...................................................................... 165,977
Proceeds from shares issued as a result of reinvested dividends
Class A (72,981 and 90,745 shares)...................................................................... 709,149
Class B (1,048 and 500 shares).......................................................................... 10,188
Class C (606 and 327 shares)............................................................................ 5,890
Class H (675 and 466 shares)............................................................................ 6,533
Less cost of repurchase of shares
Class A (40,559 and 13,789 shares)...................................................................... (392,217)
Class B (2,930 and 490 shares).......................................................................... (28,563)
Class C (8,118 and 2,560 shares)........................................................................ (78,375)
Class H (7,543 and 1,074 shares)........................................................................ (73,199)
--------------
NET INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS.......................................................... 1,421,671
--------------
TOTAL INCREASE IN NET ASSETS................................................................................ 734,780
NET ASSETS:
Beginning of period....................................................................................... 23,368,872
--------------
End of period (includes undistributed net investment income of $1,500 and $0, respectively)............... $ 24,103,652
--------------
--------------
<CAPTION>
FOR THE PERIOD
FROM
NOVEMBER 10,
1997
(INCEPTION) TO
JULY 31, 1998
--------------
<S> <C>
OPERATIONS:
Net investment income..................................................................................... $ 941,985
Net realized gain (loss) from security transactions....................................................... 30,984
Net change in unrealized appreciation (depreciation) 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)
From net realized gains on investments
Class A................................................................................................. --
Class B................................................................................................. --
Class C................................................................................................. --
Class H................................................................................................. --
--------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (941,985)
--------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (77,581 and 2,153,816 shares)................................................................... 21,553,816
Class B (17,337 and 39,571 shares)...................................................................... 401,612
Class C (17,865 and 21,527 shares)...................................................................... 218,059
Class H (17,101 and 35,910 shares)...................................................................... 363,277
Proceeds from shares issued as a result of reinvested dividends
Class A (72,981 and 90,745 shares)...................................................................... 915,639
Class B (1,048 and 500 shares).......................................................................... 5,042
Class C (606 and 327 shares)............................................................................ 3,298
Class H (675 and 466 shares)............................................................................ 4,700
Less cost of repurchase of shares
Class A (40,559 and 13,789 shares)...................................................................... (139,504)
Class B (2,930 and 490 shares).......................................................................... (4,965)
Class C (8,118 and 2,560 shares)........................................................................ (25,900)
Class H (7,543 and 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 (includes undistributed net investment income of $1,500 and $0, respectively)............... $ 23,368,872
--------------
--------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
FORTIS BOND FUNDS
Statement of Changes in Net Assets
HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE
SIX-MONTH
PERIOD ENDED
JANUARY 31,
1999
(UNAUDITED)
--------------
<S> <C>
OPERATIONS:
Net investment income..................................................................................... $ 8,796,503
Net realized gain (loss) from security transactions....................................................... (7,156,812)
Net change in unrealized depreciation of investments in securities........................................ (5,168,396)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................. (3,528,705)
--------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A................................................................................................. (4,668,622)
Class B................................................................................................. (1,120,418)
Class C................................................................................................. (308,196)
Class H................................................................................................. (2,806,689)
--------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (8,903,925)
--------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (1,045,308 and 3,124,540 shares)................................................................ 7,292,475
Class B (299,918 and 1,886,435 shares).................................................................. 2,106,639
Class C (97,595 and 461,879 shares)..................................................................... 682,346
Class H (865,537 and 3,355,803 shares).................................................................. 6,085,827
Proceeds from shares issued as a result of reinvested dividends
Class A (417,199 and 926,975 shares).................................................................... 2,899,737
Class B (74,338 and 145,568 shares)..................................................................... 516,245
Class C (35,904 and 77,721 shares)...................................................................... 248,926
Class H (191,474 and 410,889 shares).................................................................... 1,328,977
Less cost of repurchase of shares
Class A (2,382,667 and 4,449,936 shares)................................................................ (16,643,590)
Class B (519,610 and 729,969 shares).................................................................... (3,619,349)
Class C (329,535 and 271,306 shares).................................................................... (2,274,729)
Class H (1,408,142 and 2,136,681 shares)................................................................ (9,824,973)
--------------
NET INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS............................................... (11,201,469)
--------------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................................................................... (23,634,099)
NET ASSETS:
Beginning of period....................................................................................... 223,540,262
--------------
End of period (includes undistributed (excess of distributions over) net investment income of ($104,066)
and $3,356, respectively)............................................................................... $ 199,906,163
--------------
--------------
<CAPTION>
FOR THE
YEAR ENDED
JULY 31, 1998
--------------
<S> <C>
OPERATIONS:
Net investment income..................................................................................... $ 20,443,789
Net realized gain (loss) from security transactions....................................................... 1,734,513
Net change in unrealized depreciation of investments in securities........................................ (13,573,415)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................. 8,604,887
--------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A................................................................................................. (11,659,978)
Class B................................................................................................. (2,254,300)
Class C................................................................................................. (756,254)
Class H................................................................................................. (6,409,279)
--------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS......................................................................... (21,079,811)
--------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (1,045,308 and 3,124,540 shares)................................................................ 24,024,367
Class B (299,918 and 1,886,435 shares).................................................................. 14,502,208
Class C (97,595 and 461,879 shares)..................................................................... 3,563,413
Class H (865,537 and 3,355,803 shares).................................................................. 25,831,216
Proceeds from shares issued as a result of reinvested dividends
Class A (417,199 and 926,975 shares).................................................................... 7,101,158
Class B (74,338 and 145,568 shares)..................................................................... 1,112,838
Class C (35,904 and 77,721 shares)...................................................................... 593,732
Class H (191,474 and 410,889 shares).................................................................... 3,141,131
Less cost of repurchase of shares
Class A (2,382,667 and 4,449,936 shares)................................................................ (34,149,757)
Class B (519,610 and 729,969 shares).................................................................... (5,594,388)
Class C (329,535 and 271,306 shares).................................................................... (2,079,590)
Class H (1,408,142 and 2,136,681 shares)................................................................ (16,360,883)
--------------
NET INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS............................................... 21,685,445
--------------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................................................................... 9,210,521
NET ASSETS:
Beginning of period....................................................................................... 214,329,741
--------------
End of period (includes undistributed (excess of distributions over) net investment income of ($104,066)
and $3,356, respectively)............................................................................... $ 223,540,262
--------------
--------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
FORTIS BOND FUND
Notes to Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The funds are open-end,
diversified management investment companies, each of which has different
investment objectives and their own investment portfolios and net asset
values. U.S. Government Securities Fund ("U.S. Government") and Strategic
Income Fund are series of Fortis Income Portfolios, Inc. ("Fortis Income")
and Fortis High Yield Portfolio ("High Yield") is an investment portfolio in
Fortis Advantage Portfolios, Inc. ("Fortis Advantage"). The investment
objectives of each portfolio are as follows:
- The objective of the U.S. Government Securities Fund is to maximize total
return (from current income and capital appreciation), while providing
shareholders with a level of current income consistent with prudent
investment risk.
- The objective of the Strategic Income Fund is to maximize total return
(from current income and capital appreciation) by primarily investing in
(a) U.S. Government securities, (b) investment and non-investment grade
fixed income securities issued by foreign governments and companies, and
(c) non-investment grade fixed income securities issued by U.S. issuers,
which, in the opinion of the portfolio's investment adviser, do not subject
the fund to unreasonable investment risk.
- The objective of the Fortis High Yield Portfolio is to maximize total
return (from current income and capital appreciation) with a focus on high
current income by investing primarily in a diversified portfolio of high
yielding, fixed income securities which, in the opinion of the portfolio's
investment adviser, do not subject the portfolio to unreasonable investment
risk.
The Articles of Incorporation of Fortis Income and Fortis Advantage permit
the Board of Directors to create additional portfolios in the future.
The funds offer Class A, Class B, Class C, Class E (for U.S. Government only)
and Class H shares.
The U.S. Government Fund and Fortis High Yield Portfolio began to issue
multiple class shares effective November 14, 1994. The inception of Strategic
Income Fund was November 10, 1997, and the commencement of operations was
December 1, 1997. Class A and E shares are sold with a front-end sales
charge. For U.S. Government Fund, Class E shares are only available to
existing shareholders on November 14, 1994. Class B and H shares are sold
without a front-end sales charge and may be subject to a contingent deferred
sales charge for six years, and such shares automatically convert to Class A
after eight years. Class C shares are sold without a front-end sales charge
and may be subject to a contingent deferred sales charge for one year. All
classes of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that the level of
distribution fees charged differs between classes. Income, expenses (other
than expenses incurred under each class's distribution agreement) and
realized and unrealized gains or losses on investments are allocated to each
class of shares based on its relative net assets.
The significant accounting policies followed by the Funds are summarized as
follows:
SECURITY VALUATION: Investments in securities traded on a national securities
exchange or on the NASDAQ National Market System are valued at the last
reported sales price. Securities for which over-the-counter market quotations
are readily available are valued on the basis of the last current bid price.
An outside pricing service may be utilized to provide such valuations. For
fixed income securities, the pricing service may employ electronic data
processing techniques and/or a matrix system to determine valuations using
methods which include consideration of yields or prices of bonds of
comparable quality, type of issue, coupon, maturity and rating indications as
to value from dealers, and general market conditions. Securities for which
quotations are not readily available are valued at fair value as determined
in good faith by management under supervision of the Board of Directors.
Short-term investments, with maturities of less than 60 days when acquired,
or which subsequently are within 60 days of maturity, are valued at amortized
cost.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS: Delivery and payment for
securities that have been purchased by the funds on a forward commitment or
when-issued basis can take place a month or more after the transaction date.
During this period, such securities are subject to market fluctuation and the
portfolio maintains, in a segregated account with its custodian, assets with
a market value equal to the amount of its purchase commitments. As of January
31, 1999, U.S. Government Fund and Strategic Income Fund had entered into
outstanding when-issued or forward commitments of $25,592,415 and $1,678,399,
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 period ended January 31, 1999, 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.............. $ 184,265,338 $ 170,735,599
Strategic Income Fund........................ 12,030,651 8,904,715
Fortis High Yield Portfolio.................. 41,404,068 50,358,559
</TABLE>
LENDING OF PORTFOLIO SECURITIES: At January 31, 1999, securities valued at
$77,949,099 were on loan to brokers from the U.S. Government Fund. For
collateral, the Fund's custodian received
24
<PAGE>
- --------------------------------------------------------------------------------
$80,437,018 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 $57,044 for the U.S. Government Fund for the six-month
period ended January 31, 1999. The risks to the funds in security lending
transactions are that the borrower may not provide additional collateral when
required or return the securities when due and that the proceeds from the
sale of investments made with cash collateral received will be less than
amounts required to be returned to the borrowers.
DEFERRED COSTS: Registration costs are deferred and charged to income over
the registration period. Organizational costs were incurred with the
commencement of operations of the Strategic Income Fund. These costs will be
amortized over 60 months on a straight line basis, beginning December 1,
1997.
FEDERAL TAXES: The portfolios intend to qualify, under the Internal Revenue
Code, as regulated investment companies and if so qualified, will not have to
pay federal income taxes to the extent their taxable net income is
distributed.
Net investment income and net realized gains may differ for financial
statement and tax purposes. The character of distributions made during the
year from net investment income or net realized gains may, therefore, differ
from their ultimate characterization for federal income tax purposes. Also,
due to the timing of dividend distributions, the fiscal year in which amounts
are distributed may differ from the year that the income or realized gains
(losses) were recorded by the portfolios. The effect on dividend
distributions of certain current year permanent book-to-tax differences is
reflected as excess distributions of net realized gains in the statements of
changes in net assets and the financial highlights.
For federal income tax purposes U.S. Government had a capital loss carryover
of $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 January 31, 1999, investments in securities for the
Strategic Income Fund and High Yield Portfolio included issues that are
illiquid. The funds currently limit investments in illiquid securities to 15%
of net assets, at market value, at the date of purchase. The aggregate value
of such securities at January 31, 1999, was $588,125 for Strategic Income and
$12,979,623 for High Yield which represents 2.44% and 6.49% 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 has a diversified Portfolio,
the fund has 93.87% of total net assets invested in non-investment grade
(high-yield) and comparable quality unrated high-yield securities.
Participation in high-yielding securities transactions generally involves
greater returns in the form of higher average yields. However, participation
in such transactions involves greater risks, often related to sensitivity to
interest rates, economic changes, solvency, and relative liquidity in the
secondary trading market. Lower ratings may reflect a greater possibility
that the financial condition of the issuer, or adverse changes in general
economic conditions, or both, may impair the ability of the issuer to make
payments of interest and principal. The prices and yields of lower rated
securities generally fluctuate more than higher quality securities, and such
prices may decline significantly in periods of general economic difficulty of
rising interest rates.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of increase and decrease
in net assets from operations during the reporting period. Actual results
could differ from those estimates.
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% of average daily net assets of
U.S. Government, Strategic Income, and High Yield Classes B, C and H for each
fund on an annual basis, to be used to compensate those who sell shares of
the fund and to pay certain other expenses of selling fund shares. Fortis
Investors, Inc., also received sales charges (paid by purchasers or redeemers
of the fund's shares) as follows:
<TABLE>
<CAPTION>
Class A Class B Class C Class H Class E
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund.............. $ 106,302 $ 1,995 $ 612 $ 19,437 $ 60,601
Strategic Income Fund........................ 10,082 17 103 1,149 0
Fortis High Yield Portfolio.................. 123,419 48,784 1,878 160,638 0
</TABLE>
For the six-month period ended January 31, 1999, 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.............. $5,722
Strategic Income Fund........................ 277
Fortis High Yield Portfolio.................. 3,327
</TABLE>
25
<PAGE>
FORTIS BOND FUND
Notes to Financial Statements
(Unaudited) (continued)
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS: Selected per share historical data for each of the
Portfolios was as follows:
<TABLE>
<CAPTION>
Class E
---------------------------------------------------------------------------------------
Year Ended July 31,
---------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 1999** 1998 1997 1996 1995 1994+ 1993++
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.30 $ 9.16 $ 8.87 $ 9.02 $ 9.03 $ 9.87 $ 9.86
--------- --------- --------- --------- --------- --------- ---------
Operations:
Investment income - net................. .25 .52 .54 .60 .67 .42 .75
Net realized and unrealized gains
(losses) on
investments........................... .19 .14 .32 (.15) (.01) (.84) .05
--------- --------- --------- --------- --------- --------- ---------
Total from operations................... .44 .66 .86 .45 .66 (.42) .80
--------- --------- --------- --------- --------- --------- ---------
Distributions to shareholders:
From investment income - net............ (.25) (.52) (.54) (.60) (.67) (.42) (.75)
From net realized gains................. -- -- -- -- -- -- (.04)
Excess distributions of net realized
gains................................. -- -- (.03) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total distributions to shareholders..... (.25) (.52) (.57) (.60) (.67) (.42) (.79)
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period.......... $ 9.49 $ 9.30 $ 9.16 $ 8.87 $ 9.02 $ 9.03 $ 9.87
--------- --------- --------- --------- --------- --------- ---------
Total Return @.......................... 4.75% 7.42% 10.07% 5.08% 7.71% (4.29)% 8.31%
Net assets end of period (000s
omitted).............................. $ 286,820 $ 285,060 $ 324,643 $ 388,006 $ 470,597 $ 555,275 $ 641,977
Ratio of expenses to average daily net
assets................................ .78%* .79% .81% .81% .77% .77%* .76%
Ratio of net investment income to
average
daily net assets...................... 5.20%* 5.62% 6.08% 6.59% 7.51% 7.72%* 7.43%
Portfolio turnover rate................. 50% 118% 161% 75% 76% 85% 157%
</TABLE>
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------
Year Ended January 31,
-------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 1999** 1998 1997 1996 1995+++
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.30 $ 9.16 $ 8.87 $ 9.02 $ 8.63
-------- -------- -------- -------- -------
Operations:
Investment income - net................. .24 .50 .52 .58 .46
Net realized and unrealized gains
(losses) on
investments........................... .19 .14 .32 (.15) .39
-------- -------- -------- -------- -------
Total from operations................... .43 .64 .84 .43 .85
-------- -------- -------- -------- -------
Distributions to shareholders:
From investment income - net............ (.24) (.50) (.52) (.58) (.46)
Excess distributions of net realized
gains................................. -- -- (.03) -- --
-------- -------- -------- -------- -------
Total distributions to shareholders..... (.24) (.50) (.55) (.58) (.46)
-------- -------- -------- -------- -------
Net asset value, end of period.......... $ 9.49 $ 9.30 $ 9.16 $ 8.87 $ 9.02
-------- -------- -------- -------- -------
Total Return @.......................... 4.62% 7.14% 9.77% 4.78% 10.07%
Net assets end of period (000s
omitted).............................. $ 53,091 $ 52,439 $ 59,128 $ 67,707 $4,909
Ratio of expenses to average daily net
assets................................ 1.03%* 1.04% 1.06% 1.06% 1.02%*
Ratio of net investment income to
average
daily net assets...................... 4.95%* 5.37% 5.83% 6.34% 7.00%*
Portfolio turnover rate................. 50% 118% 161% 75% 76%
</TABLE>
* Annualized.
** For the six-month period ended January 31, 1999.
+ For the seven-month period ended July 31, 1994.
++ For the year ended December 31, 1993.
+++ 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.
26
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. FINANCIAL HIGHLIGHTS (continued):
Class B
--------------------------------------------------
Year Ended January 31,
--------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 1999** 1998 1997 1996 1995+++
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.28 $ 9.14 $ 8.86 $ 9.02 $8.63
------- ------- ------- ------- ------
Operations:
Investment income - net................. .20 .43 .46 .51 .41
Net realized and unrealized gains
(losses) on
investments........................... .18 .14 .31 (.15) .39
------- ------- ------- ------- ------
Total from operations................... .38 .57 .77 .36 .80
------- ------- ------- ------- ------
Distributions to shareholders:
From investment income - net............ (.20) (.43) (.47) (.52) (.41)
Excess distributions of net realized
gains................................. -- -- (.02) -- --
------- ------- ------- ------- ------
Total distributions to shareholders..... (.20) (.43) (.49) (.52) (.41)
------- ------- ------- ------- ------
Net asset value, end of period.......... $ 9.46 $ 9.28 $ 9.14 $ 8.86 $9.02
------- ------- ------- ------- ------
Total Return @.......................... 4.13% 6.40% 8.95% 4.00% 9.47%
Net assets end of period (000s
omitted).............................. $4,156 $ 3,161 $ 2,826 $ 2,314 $ 483
Ratio of expenses to average daily net
assets................................ 1.78%* 1.79% 1.81% 1.81% 1.77%*
Ratio of net investment income to
average
daily net assets...................... 4.19%* 4.62% 5.08% 5.45% 6.24%*
Portfolio turnover rate................. 50% 118% 161% 75% 76%
</TABLE>
<TABLE>
<CAPTION>
Class C
--------------------------------------------------
Year Ended January 31,
--------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 1999** 1998 1997 1996 1995+++
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.27 $ 9.13 $ 8.85 $ 9.01 $8.63
------- ------- ------- ------- ------
Operations:
Investment income - net................. .20 .43 .46 .51 .41
Net realized and unrealized gains
(losses) on
investments........................... .18 .14 .31 (.15) .38
------- ------- ------- ------- ------
Total from operations................... .38 .57 .77 .36 .79
------- ------- ------- ------- ------
Distributions to shareholders:
From investment income - net............ (.20) (.43) (.47) (.52) (.41)
Excess distributions of net realized
gains................................. -- -- (.02) -- --
------- ------- ------- ------- ------
Total distributions to shareholders..... (.20) (.43) (.49) (.52) (.41)
------- ------- ------- ------- ------
Net asset value, end of period.......... $ 9.45 $ 9.27 $ 9.13 $ 8.85 $9.01
------- ------- ------- ------- ------
Total Return @.......................... 4.13% 6.41% 8.96% 4.00% 9.35%
Net assets end of period (000s
omitted).............................. $1,842 $ 1,267 $ 1,444 $ 1,057 $ 326
Ratio of expenses to average daily net
assets................................ 1.78%* 1.79% 1.81% 1.81% 1.77%*
Ratio of net investment income to
average
daily net assets...................... 4.19%* 4.62% 5.07% 5.59% 6.24%*
Portfolio turnover rate................. 50% 118% 161% 75% 76%
</TABLE>
* Annualized.
** For the six-month period ended January 31, 1999.
+++ 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
(Unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. FINANCIAL HIGHLIGHTS (continued):
Class H
-------------------------------------------------------
Year Ended January 31,
-------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 1999** 1998 1997 1996 1995+++
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.28 $ 9.14 $ 8.86 $ 9.02 $ 8.63
-------- -------- -------- -------- -------
Operations:
Investment income - net................. .20 .43 .46 .51 .41
Net realized and unrealized gains
(losses) on
investments........................... .18 .14 .31 (.15) .39
-------- -------- -------- -------- -------
Total from operations................... .38 .57 .77 .36 .80
-------- -------- -------- -------- -------
Distributions to shareholders:
From investment income - net............ (.20) (.43) (.47) (.52) (.41)
Excess distributions of net realized
gains................................. -- -- (.02) -- --
-------- -------- -------- -------- -------
Total distributions to shareholders..... (.20) (.43) (.49) (.52) (.41)
-------- -------- -------- -------- -------
Net asset value, end of period.......... $ 9.46 $ 9.28 $ 9.14 $ 8.86 $ 9.02
-------- -------- -------- -------- -------
Total Return @.......................... 4.13% 6.40% 8.94% 4.00% 9.47%
Net assets end of period (000s
omitted).............................. $ 11,434 $ 10,816 $ 10,637 $ 10,120 $4,823
Ratio of expenses to average daily net
assets................................ 1.78%* 1.79% 1.80% 1.81% 1.77%*
Ratio of net investment income to
average
daily net assets...................... 4.20%* 4.62% 5.08% 5.52% 6.24%*
Portfolio turnover rate................. 50% 118% 161% 75% 76%
</TABLE>
* Annualized.
** For the six-month period ended January 31, 1999.
+++ 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.
28
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. FINANCIAL HIGHLIGHTS (continued):
Class A Class B
-------------------- ------------------
STRATEGIC INCOME FUND 1999** 1998+ 1999** 1998+
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 10.05 $ 10.00 $10.05 $ 10.00
-------- -------- ------- -------
Operations:
Investment gain - net................... .30 .42 .27 .38
Net realized and unrealized gain (loss)
on
investments........................... (.29) .05 (.29) .05
-------- -------- ------- -------
Total from Operations................... .01 .47 (.02) .43
-------- -------- ------- -------
Distributions to shareholders:
From investment income - net............ (.30) (.42) (.27) (.38)
From net realized gains on
investments........................... (.01) -- (.01) --
-------- -------- ------- -------
Total distributions to shareholders..... (.31) (.42) (.28) (.38)
-------- -------- ------- -------
Net asset value, end of period.......... $ 9.75 $ 10.05 $ 9.75 $ 10.05
-------- -------- ------- -------
Total Return @.......................... .22% 4.77% (0.16)% 4.31%
Net assets end of period (000s
omitted).............................. $ 22,834 $ 22,422 $ 537 $ 398
Ratio of expenses to average daily net
assets................................ 1.10%* 1.10%* 1.85%* 1.85%*
Ratio of net investment income to
average
daily net assets...................... 6.19%* 6.22%* 5.44%* 5.73%*
Portfolio turnover rate................. 40% 136% 40% 136%
</TABLE>
<TABLE>
<CAPTION>
Class C Class H
------------------ ------------------
STRATEGIC INCOME FUND 1999** 1998+ 1999** 1998+
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
Net asset value, beginning of period.... $10.05 $ 10.00 $10.05 $ 10.00
------- ------- ------- -------
Operations:
Investment gain - net................... .27 .38 .27 .38
Net realized and unrealized gain (loss)
on
investments........................... (.29) .05 (.29) .05
------- ------- ------- -------
Total from Operations................... (.02) .43 (.02) .43
------- ------- ------- -------
Distributions to shareholders:
From investment income - net............ (.27) (.38) (.27) (.38)
From net realized gains on
investments........................... (.01) -- (.01) --
------- ------- ------- -------
Total distributions to shareholders..... (.28) (.38) (.28) (.38)
------- ------- ------- -------
Net asset value, end of period.......... $ 9.75 $ 10.05 $ 9.75 $ 10.05
------- ------- ------- -------
Total Return @.......................... (0.14)% 4.35% (0.16)% 4.35%
Net assets end of period (000s
omitted).............................. $ 289 $ 194 $ 444 $ 355
Ratio of expenses to average daily net
assets................................ 1.85%* 1.85%* 1.85%* 1.85%*
Ratio of net investment income to
average
daily net assets...................... 5.44%* 5.73%* 5.44%* 5.73%*
Portfolio turnover rate................. 40% 136% 40% 136%
</TABLE>
* Annualized.
** For the six-month period ended January 31, 1999.
+ For the period from December 1, 1997 (commencement of operations) to
July 31, 1998.
@ These are the funds total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
29
<PAGE>
FORTIS BOND FUND
Notes to Financial Statements
(Unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. FINANCIAL HIGHLIGHTS (continued):
Class A
---------------------------------------------------------------------------------------
Year Ended July 31,
---------------------------------------------------------------------------------------
HIGH YIELD FUND 1999** 1998 1997 1996+++ 1995+ 1994+ 1993+
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 7.41 $ 7.83 $ 7.56 $ 7.61 $ 7.90 $ 8.65 $ 8.00
--------- --------- --------- --------- --------- --------- ---------
Operations:
Investment income - net................. .31 .73 .76 .56 .86 .86 .87
Net realized and unrealized gains
(losses) on
investments........................... (.40) (.40) .28 (.04) (.25) (.72) .68
--------- --------- --------- --------- --------- --------- ---------
Total from operations................... (.09) .33 1.04 .52 .61 .14 1.55
--------- --------- --------- --------- --------- --------- ---------
Distributions to shareholders:
From investment income - net............ (.32) (.75) (.75) (.55) (.86) (.89) (.89)
Excess distributions of net realized
gains................................. -- -- (.02) (.02) (.04) -- (.01)
--------- --------- --------- --------- --------- --------- ---------
Total distributions to shareholders..... (.32) (.75) (.77) (.57) (.90) (.89) (.90)
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period.......... $ 7.00 $ 7.41 $ 7.83 $ 7.56 $ 7.61 $ 7.90 $ 8.65
--------- --------- --------- --------- --------- --------- ---------
Total return @.......................... (1.13%) 4.31% 14.51% 6.98% 8.07% 1.48% 20.33%
Net assets end of period (000s
omitted).............................. $ 100,830 $ 113,549 $ 123,115 $ 109,401 $ 113,268 $ 98,611 $ 73,395
Ratio of expenses to average daily net
assets................................ 1.17%* 1.17% 1.19% 1.21%* 1.25% 1.23% 1.29%
Ratio of net investment income to
average
daily net assets...................... 8.92%* 9.46% 9.84% 9.87%* 10.61% 10.18% 10.43%
Portfolio turnover rate................. 21% 214% 331% 146% 101% 63% 95%
</TABLE>
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------
HIGH YIELD FUND 1999** 1998 1997 1996+++ 1995++
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 7.41 $ 7.83 $ 7.56 $ 7.60 $ 7.87
-------- -------- -------- -------- -------
Operations:
Investment income - net................. .28 .68 .71 .53 .78
Net realized and unrealized gains
(losses) on
investments........................... (.40) (.40) .28 (.04) (.23)
-------- -------- -------- -------- -------
Total from operations................... (.12) .28 .99 .49 .55
-------- -------- -------- -------- -------
Distributions to shareholders:
From investment income - net............ (.29) (.70) (.70) (.51) (.78)
Excess distributions of net realized
gains................................. -- -- (.02) (.02) (.04)
-------- -------- -------- -------- -------
Total distributions to shareholders..... (.29) (.70) (.72) (.53) (.82)
-------- -------- -------- -------- -------
Net asset value, end of period.......... $ 7.00 $ 7.41 $ 7.83 $ 7.56 $ 7.60
-------- -------- -------- -------- -------
Total return @.......................... (1.46%) 3.67% 13.80% 6.62% 7.25%
Net assets end of period (000s
omitted).............................. $ 26,322 $ 28,935 $ 20,388 $12,067 $7,530
Ratio of expenses to average daily net
assets................................ 1.82%* 1.82% 1.83% 1.86%* 1.90%*
Ratio of net investment income to
average
daily net assets...................... 8.27%* 8.81% 9.24% 9.20%* 9.66%*
Portfolio turnover rate................. 21% 214% 331% 146% 101%
</TABLE>
* Annualized
** For the six-month period ended January 31, 1999.
+ 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 dividends and capital gains distributions without
adjustments for sales charge.
30
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. FINANCIAL HIGHLIGHTS (continued):
Class C
---------------------------------------------------
HIGH YIELD FUND 1999** 1998 1997 1996+++ 1995++
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 7.40 $ 7.82 $ 7.55 $ 7.59 $ 7.87
------- ------- ------- ------- -------
Operations:
Investment income - net................. .28 .68 .71 .53 .78
Net realized and unrealized gains
(losses) on
investments........................... (.41) (.40) .28 (.04) (.24)
------- ------- ------- ------- -------
Total from operations................... (.13) .28 .99 .49 .54
------- ------- ------- ------- -------
Distributions to shareholders:
From investment income - net............ (.29) (.70) (.70) (.51) (.78)
Excess distributions of net realized
gains................................. -- -- (.02) (.02) (.04)
------- ------- ------- ------- -------
Total distributions to shareholders..... (.29) (.70) (.72) (.53) (.82)
------- ------- ------- ------- -------
Net asset value, end of period.......... $ 6.98 $ 7.40 $ 7.82 $ 7.55 $ 7.59
------- ------- ------- ------- -------
Total return @.......................... (1.61%) 3.67% 13.82% 6.63% 7.12%
Net assets end of period (000s
omitted).............................. $6,791 $ 8,641 $ 7,037 $3,378 $2,180
Ratio of expenses to average daily net
assets................................ 1.82%* 1.82% 1.83% 1.86%* 1.90%*
Ratio of net investment income to
average
daily net assets...................... 8.27%* 8.81% 9.26% 9.21%* 9.83%*
Portfolio turnover rate................. 21% 214% 331% 146% 101%
</TABLE>
<TABLE>
<CAPTION>
Class H
--------------------------------------------------------
HIGH YIELD FUND 1999** 1998 1997 1996+++ 1995++
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 7.40 $ 7.82 $ 7.55 $ 7.60 $ 7.87
-------- -------- -------- -------- --------
Operations:
Investment income - net................. .28 .68 .71 .52 .78
Net realized and unrealized gains
(losses) on
investments........................... (.40) (.40) .28 (.04) (.23)
-------- -------- -------- -------- --------
Total from operations................... (.12) .28 .99 .48 .55
-------- -------- -------- -------- --------
Distributions to shareholders:
From investment income - net............ (.29) (.70) (.70) (.51) (.78)
Excess distributions of net realized
gains................................. -- -- (.02) (.02) (.04)
-------- -------- -------- -------- --------
Total distributions to shareholders..... (.29) (.70) (.72) (.53) (.82)
-------- -------- -------- -------- --------
Net asset value, end of period.......... $ 6.99 $ 7.40 $ 7.82 $ 7.55 $ 7.60
-------- -------- -------- -------- --------
Total return @.......................... (1.47%) 3.67% 13.82% 6.48% 7.25%
Net assets end of period (000s
omitted).............................. $ 65,963 $ 72,415 $ 63,789 $39,133 $ 23,862
Ratio of expenses to average daily net
assets................................ 1.82%* 1.82% 1.83% 1.86%* 1.90%*
Ratio of net investment income to
average
daily net assets...................... 8.27%* 8.81% 9.23% 9.21%* 9.81%*
Portfolio turnover rate................. 21% 214% 331% 146% 101%
</TABLE>
* Annualized
** For the six-month period ended January 31, 1999.
++ 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 dividends and capital gains distributions without
adjustments for sales charge.
31
<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.
PRESIDENT - FORTIS FINANCIAL GROUP,
FORTIS BENEFITS INSURANCE COMPANY AND
SENIOR VICE PRESIDENT, FORTIS
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.
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FORTIS FINANCIAL GROUP'S OTHER PRODUCTS AND SERVICES
MUTUAL Fortis Bond Funds MONEY FUND
FUNDS/PORTFOLIOS U.S. GOVERNMENT
CONVENIENT ACCESS TO SECURITIES FUND
A BROAD RANGE OF TAX-FREE NATIONAL
SECURITIES PORTFOLIO
TAX-FREE MINNESOTA
PORTFOLIO
STRATEGIC INCOME FUND
HIGH YIELD PORTFOLIO
Fortis Stock Funds ASSET ALLOCATION
PORTFOLIO
VALUE FUND
GROWTH & INCOME FUND
CAPITAL FUND
GLOBAL GROWTH PORTFOLIO
GROWTH FUND
INTERNATIONAL EQUITY
PORTFOLIO
CAPITAL APPRECIATION
PORTFOLIO
FIXED AND VARIABLE Fortis Opportunity Fixed FIXED ACCOUNT
ANNUITIES & Variable Annuity MONEY MARKET SUBACCOUNT
TAX-DEFERRED Masters Variable Annuity U.S. GOVERNMENT
INVESTING SECURITIES SUBACCOUNT
Empower Variable DIVERSIFIED INCOME
Annuity SUBACCOUNT
GLOBAL BOND SUBACCOUNT
HIGH YIELD SUBACCOUNT
GLOBAL ASSET ALLOCATION
SUBACCOUNT
ASSET ALLOCATION
SUBACCOUNT
VALUE SUBACCOUNT
GROWTH & INCOME
SUBACCOUNT
S&P 500 INDEX SUBACCOUNT
BLUE CHIP STOCK
SUBACCOUNT
INTERNATIONAL STOCK
SUBACCOUNT
MID CAP STOCK SUBACCOUNT
SMALL CAP VALUE
SUBACCOUNT
GLOBAL GROWTH SUBACCOUNT
LARGE CAP GROWTH
SUBACCOUNT
GROWTH STOCK SUBACCOUNT
AGGRESSIVE GROWTH
SUBACCOUNT
Fortune Fixed Annuities SINGLE PREMIUM ANNUITY
FLEXIBLE PREMIUM ANNUITY
Income Annuities GUARANTEED FOR LIFE
GUARANTEED FOR A
SPECIFIED PERIOD
LIFE Wall Street Series FIXED ACCOUNT
INSURANCE PROTECTION Variable Universal Life MONEY MARKET SUBACCOUNT
AND TAX-DEFERRED Insurance U.S. GOVERNMENT
INVESTMENT SECURITIES SUBACCOUNT
OPPORTUNITY DIVERSIFIED INCOME
SUBACCOUNT
GLOBAL BOND SUBACCOUNT
HIGH YIELD SUBACCOUNT
GLOBAL ASSET ALLOCATION
SUBACCOUNT
ASSET ALLOCATION
SUBACCOUNT
VALUE SUBACCOUNT
GROWTH & INCOME
SUBACCOUNT
S&P 500 INDEX SUBACCOUNT
BLUE CHIP STOCK
SUBACCOUNT
INTERNATIONAL STOCK
SUBACCOUNT
MID CAP STOCK SUBACCOUNT
SMALL CAP VALUE
SUBACCOUNT
GLOBAL GROWTH SUBACCOUNT
LARGE CAP GROWTH
SUBACCOUNT
GROWTH STOCK SUBACCOUNT
AGGRESSIVE GROWTH
SUBACCOUNT
Adaptable Life
Universal Life
FORTIS FINANCIAL GROUP manages and distributes mutual funds, annuities and life
insurance products. The mutual funds, variable life and variable annuity
products are distributed through FORTIS INVESTORS, INC. and managed by FORTIS
ADVISERS, INC. The insurance products are issued by FORTIS BENEFITS INSURANCE
COMPANY, FIRST FORTIS LIFE INSURANCE COMPANY and FORTIS INSURANCE COMPANY.
FOR MORE COMPLETE INFORMATION, INCLUDING CHARGES AND EXPENSES, SEND FOR A
PROSPECTUS. WRITE TO: FORTIS INVESTORS, INC., P.O. BOX 64284, ST. PAUL, MN
55164. READ IT CAREFULLY BEFORE INVESTING OR SENDING MONEY.
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[LOGO]
FORTIS
SOLID PARTNERS, FLEXIBLE SOLUTIONS-SM-
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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
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Bulk Rate
FORTIS FINANCIAL GROUP U.S. Postage
P.O. BOX 64284 PAID
ST. PAUL, MN 55164 Permit No. 3794
Minneapolis, MN
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FORTIS BOND FUNDS
Printed on recycled paper with
[LOGO] 40% preconsumer waste and 10%
post consumer waste. Please recycle.
The Fortis logo and Fortis-Registered Trademark- are
registered servicemarks of Fortis AMEV and Fortis AG.
98754 -Copyright-Fortis 3/99
