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FORTIS
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Invest for today's needs, tomorrow's dreams
Fortis bond funds
semiannual report
January 31, 2000
Fortis Financial Group
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FORTIS BOND FUNDS SEMIANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS 2
SCHEDULES OF INVESTMENTS
U.S. GOVERNMENT SECURITIES FUND 5
STRATEGIC INCOME FUND 7
HIGH YIELD PORTFOLIO 11
STATEMENTS OF ASSETS AND LIABILITIES 15
STATEMENTS OF OPERATIONS 16
STATEMENTS OF CHANGES IN NET ASSETS
U.S. GOVERNMENT SECURITIES FUND 17
STRATEGIC INCOME FUND 18
HIGH YIELD PORTFOLIO 19
NOTES TO FINANCIAL STATEMENTS 20
BOARD OF DIRECTORS AND OFFICERS 29
OTHER PRODUCTS AND SERVICES 30
- - TOLL-FREE PERSONAL ASSISTANCE
- Shareholder Services
- (800) 800-2000, Ext. 3012
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- 7:30 a.m. to 5:00 p.m. CST, F
- - TOLL-FREE INFORMATION LINE
- For daily account balances,
transaction activity or net asset
value information
- (800) 800-2000, Ext. 4344
- 24 hours a day
FOR MORE INFORMATION ABOUT FORTIS FINANCIAL GROUP'S FAMILY OF PRODUCTS, CALL
YOUR INVESTMENT REPRESENTATIVE OR THE HOME OFFICE AT (800) 800-2000.
TO ORDER PROSPECTUSES OR SALES LITERATURE FOR ANY FORTIS PRODUCT, CALL
(800) 800-2000, EXT. 4579.
HOW TO USE THIS REPORT
For a quick overview of the fund's performance during the past 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 chart shows the types of securities in
which the fund invests, and the pie chart shows a breakdown of the fund's assets
by sector or industry.
The performance chart graphically compares the fund's total return performance
with a selected investment index. Remember, however, that an index may reflect
the performance of securities the fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your fund does. Individuals cannot buy an unmanaged index fund without incurring
some charges and expenses.
This report is just one of several tools you can use to learn more about your
investment in the Fortis Family of Mutual Funds. Your investment representative,
who understands your personal financial situation, can best explain the features
of your investment and how it's designed to help you meet your financial goals.
HIGHLIGHTS
FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 2000
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS E CLASS H
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
SECURITIES FUND
NET ASSET VALUE PER SHARE:
Beginning of period........................ $ 8.96 $ 8.94 $ 8.93 $ 8.96 $ 8.94
End of period.............................. $ 8.74 $ 8.71 $ 8.70 $ 8.73 $ 8.71
DISTRIBUTIONS PER SHARE
From net investment income................. $ .242 $ .210 $ .210 $ .254 $ .210
STRATEGIC INCOME FUND
NET ASSET VALUE PER SHARE:
Beginning of period........................ $ 9.14 $ 9.14 $ 9.15 -- $ 9.14
End of period.............................. $ 8.98 $ 8.98 $ 8.99 -- $ 8.98
DISTRIBUTIONS PER SHARE
From net investment income................. $ .347 $ .311 $ .312 -- $ .312
HIGH YIELD PORTFOLIO
NET ASSET VALUE PER SHARE:
Beginning of period........................ $ 6.67 $ 6.67 $ 6.66 -- $ 6.66
End of period.............................. $ 6.45 $ 6.45 $ 6.44 -- $ 6.45
DISTRIBUTIONS PER SHARE
From net investment income................. $ .280 $ .256 $ .256 -- $ .256
</TABLE>
1
<PAGE>
PORTFOLIO COMPOSITION BY SECTOR AS OF 1/31/2000
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
FNMA's 46.5%
FHLMC's 16.2%
Other Direct Federal Obligations 12.5%
U.S. Treasury Securities 10.9%
Cash Equivalents/Receivables 7.4%
GNMA's 6.5%
</TABLE>
TOP 10 HOLDINGS AS OF 1/31/2000
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. Federal Home Loan Bank (7.31%) 2004 11.1%
2. FNMA (6.00%) 2008 9.1%
3. FHLMC (5.00%) 2004 9.1%
4. U.S. Treasury Bond (8.00%) 2021 5.4%
5. FHLMC (6.25%) 2004 3.6%
6. U.S. Treasury Note Inflation-protection (3.625%)
2008 2.7%
7. FNMA (7.50%) 2027 2.6%
8. FNMA (7.184%) 2006 2.5%
9. FNMA (7.00%) 2030 2.4%
10. FNMA (6.50%) 2013 2.2%
</TABLE>
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- -----------------------------------------------------------------------
<S> <C> <C>
Class A shares# -2.95% +6.33%
Class A shares## -7.32% +5.40%
Class B shares# -3.69% +5.52%
Class B shares## -6.97% +5.39%
Class C shares# -3.69% +5.50%
Class C shares## -4.61% +5.50%
Class H shares# -3.69% +5.52%
Class H shares## -6.97% +5.39%
</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, E 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, 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, 2000.
+ Since November 14, 1994 -- Date shares were first offered to the public
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 economy closed out the millenium in grand style, posting a 5.75% annual GDP
rate for the second half of the year -- the highest two-quarter growth rate of
the current 9-year economic expansion. This growth was particularly impressive
given the rise in interest rates that occurred during the six month period. Long
rates rose another 0.40%, with the 30-Year U.S. Treasury yielding 6.50%. Short
rates rose even more, with 2-Year U.S. Treasury yields rising almost 1.00% to
6.59%.
The rise in rates and the inversion in the yield curve (rates of shorter
maturities exceeding those of longer maturities) was primarily the result of the
Federal Reserve's pre-emptive monetary policy. Despite benign inflation data
(the December reading for Core CPI was 1.9% Year-Over-Year vs. 2.1% six months
ago), the Fed has raised the Fed Funds rate 0.75% since July, including a .25%
increase in February, 2000. Citing strong consumer demand, a diminishing pool of
available workers, and rising equity prices, the Fed has made it clear that it
will raise rates further if necessary to slow economic growth to its 3.0-3.5%
target.
Yield premiums for Mortgage Backed Securities (MBS) and Agency Debentures were
virtually unchanged from July to January. They did, however, rise significantly
toward the end of the third quarter, when the market anticipated greater
issuance prior to Y2K. We added to our Non-Treasury investments overweight
modestly at that time, taking advantage of the cheapening in both premium MBS
and Agency Debentures. In addition, we repositioned the portfolio across the
yield curve. Since we anticipated that tightening monetary policy would place
the short end of the yield curve under continuous upward pressure and that long
term rates would become not only less sensitive to short rate increases, but
also be likely to stabilize or decline, we structured the portfolio to benefit
from this circumstance. Accordingly, we reduced our exposure to the 3-7 year
maturity range and increased the short term and long term (10+years) components,
while maintaining a constant duration. This structure is commonly referred to as
a barbell in bond portfolio management vernacular. A portfolio so structured
gains the benefit of avoiding the part of the yield curve which suffers the most
damage in a flattening yield curve. Finally, with the exception of some minor
short-term tactical extensions, we remained duration neutral to our benchmark.
For the six months ended January 31, 2000, the portfolio returned 0.23% for
Class A shares before sales charge, which compares to 0.61% for the Lehman
Intermediate Government Index. The Lehman Intermediate Government Index has a
duration that is approximately 1.5 years shorter than the portfolio's
proprietary benchmark, and should perform much better in a rising rate
environment.
Going forward, we expect that the Fed will raise short-term interest rates at
least two more times in the first half of the year. We also expect the curve to
remain inverted, as the Treasury starts retiring outstanding long term debt as
part of its recently announced buyback program. Longer term, we believe that the
Fed will successfully slow the economy to its non-inflationary growth rate, and
that long interest rates will move back below 6%. As long as the market
perceives that the Fed is in a tightening mode, however, we will remain cautious
about the direction of interest rates.
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, 1990
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROTHERS U.S. GOVERNMENT
INTERMEDIATE GOVERNMENT
<S> <C> <C> <C> <C>
Index *** Securities Fund
2/1/90 10,000 9,550
91 11,138 10,731
92 12,459 11,819
93 13,701 12,985
94 14,694 13,995
95 14,529 13,270
96 16,495 15,214
97 17,086 15,671
98 18,575 17,237
99 19,980 18,532
00 19,912 18,013
U.S. GOVERNMENT SECURITIES FUND
AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEAR 10 YEAR
CLASS E * -7.18% +5.33% +6.06%
CLASS E ** -2.80% +6.30% +6.55%
</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.
2
<PAGE>
PORTFOLIO COMPOSITION BY SECTOR AS OF 1/31/2000
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Foreign Bonds - Investment Grade 28.7%
Corporate Bonds - Non-investment Grade 26.0%
Foreign Bonds - Non-investment Grade 15.2%
Corporate Bonds - Investment Grade 9.9%
Cash Equivalents/Receivables 9.3%
FNMAs 5.7%
U.S. Treasury Securities 3.2%
Asset Backed Securities 2.0%
</TABLE>
TOP 10 HOLDINGS AS OF 1/31/2000
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. News America Holdings (8.875%) 2023 2.1%
2. Malaysia (8.75%) 2009 2.1%
3. 360 Communications ALLTEL Corp. (7.50%) 2006 2.0%
4. United Pan-Europe Communications (11.25%) 2009 2.0%
5. PTC International Finance II S.A (11.25%) 2009 2.0%
6. Poland (Republic of) (7.125%) 2004 2.0%
7. Corp Andina de Fomento (7.10%) 2003 2.0%
8. J.P. Morgan Commercial Mortgage Finance Corp.
(7.48%) 2028 2.0%
9. YPF Sociedad Anonima (7.25%) 2003 2.0%
10. Sony Corp. (6.125%) 2003 2.0%
</TABLE>
CLASS B, C AND H TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- ---------------------------------------------------------------
<S> <C> <C>
Class B shares # -1.82% +1.03%
Class B shares ## -5.10% -0.05%
Class C shares # -1.64% +1.10%
Class C shares ## -2.56% +1.10%
Class H shares # -1.81% +1.05%
Class H shares ## -5.09% -0.03%
</TABLE>
Past performance is not indicative of future performance. Total returns include
reinvestment of all dividend and capital gains distributions. The performance of
the separate classes (A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class A has a maximum sales charge of 4.50%, Class B and H
have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if
redeemed in year three or four, 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, 2000.
+ Since December 1, 1997 -- Date shares were first offered to the public
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 six-month period ended January 31, 2000, saw a continuation of the upward
trend in interest rates. Consecutive quarters of 5+ percent GDP growth, tight
labor markets, and rising oil prices all contributed to the rise in rates, as
30-Year Treasury yields rose from 6.10% to 6.50%. 2-Year yields rose even more,
from 5.62% to 6.59%, as the Federal Reserve raised the Fed Funds rate 0.50%
since our last correspondence (the Fed raised rates another 0.25% to 6.00% prior
to this mailing.)
The yield premiums on Non-Treasury issues increased through the summer, peaking
in mid-September on fears of increased issuance prior to Y2K. We took advantage
of the spread widening, adding almost 4% (to 41.2%) to our Non-Investment Grade
securities exposure. This helped the portfolio's performance, as issuance was
much lower than expected and yield premiums have fallen significantly since
then. We also selectively increased our foreign holdings. We currently have
almost 44% in non-U.S. exposure, as we believe that the global recovery,
especially in Latin America, is now on a more solid footing. In terms of
interest rate exposure, we remained duration neutral to our benchmark for the
last six-months. Despite the absence of inflation, we recognized that the Fed
would continue to be pre-emptive, and felt this would prevent an appreciable
drop in the level of rates. For the six month period ended January 31, 2000, the
fund produced a 2.07% return for Class A shares before sales charge, compared to
0.66% for the Lehman Aggregate, and 1.40% average return of the fund's
competition as defined by Morningstar.
Going forward, we believe that technology-driven productivity gains will prevent
a marked increase in inflation, and that current rates will prove to be
attractive over the long term. However, until the Fed raises short rates enough
to slow the economy to its 3.0%-3.5% GDP target, we will remain cautious on
interest rates. Furthermore, as the Fed engineers an economic "soft landing", we
expect yield premiums on non-Treasury securities to continue to drift lower.
Finally, we anticipate that the yield curve will remain inverted (rates on
shorter maturity Treasuries exceed those of longer maturity Treasuries.) The
combination of the Fed raising short rates and the Treasury shortening the
maturity of its outstanding debt through a buyback program, the supply/demand
dynamics favor the long end of the Treasury curve.
Sincerely,
<TABLE>
<S> <C>
/s/ Dean C. Kopperud /s/ Howard G. Hudson
Dean C. Kopperud Howard G. Hudson
President Vice President
</TABLE>
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
98 10,230 9,801 10,067
99 11,056 10,001 11,390
0 10,852 9,894 10,771
STRATEGIC INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
SINCE
1 YEAR DECEMBER 1, 1997@
CLASS A* -5.52% -0.37%
CLASS A** -1.06% +1.77%
</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.
3
<PAGE>
PORTFOLIO COMPOSITION BY INDUSTRY AS OF 01/31/2000
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Telecommunications 25.2%
Other 19.2%
Cable Television 17.3%
Broadcasting 6.7%
Entertainment 6.2%
Telephone Services 4.9%
Automobile and Motor Vehicle Parts 4.2%
Chemicals 3.6%
Health Care Services 3.5%
Printing 3.5%
Cash Equivalents/Receivable 3.2%
Waste Disposal 2.5%
</TABLE>
TOP 10 HOLDINGS AS OF 1/31/2000
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. United Pan-Europe Communication, (11.25%) 2009 2.6%
2. Splitrock Services, Inc. (11.75%) 2008 2.4%
3. ITC Deltacom, Inc. (11.00%) 2007 2.3%
4. Williams Communications Group, Inc. (10.875%) 2009 2.2%
5. United International Holdings (12.31%) 2008 2.0%
6. Isle of Capri Casinos (8.75%) 2009 1.9%
7. Olympus Communication L.P. (10.625%) 2006 1.9%
8. Argosy Gaming Co. (10.75%) 2009 1.9%
9. Young Broadcasting Corp. (11.75%) 2004 1.8%
10. Charter Communications Holdings LLC (9.92%) 2011 1.8%
</TABLE>
CLASS B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- ---------------------------------------------------------------
<S> <C> <C>
Class B shares # -0.43% +5.53%
Class B shares ## -3.70% +5.43%
Class C shares # -0.28% +5.51%
Class C shares ## -1.20% +5.51%
Class H shares # -0.28% +5.53%
Class H shares ## -3.56% +5.43%
</TABLE>
Past performance is not indicative of future performance. Total returns include
reinvestment of all dividend and capital gains distributions. The performance of
the separate classes (A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class A has a maximum sales charge of 4.50%, Class B and H
have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if
redeemed in year three or four, 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, 2000.
+ 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
The six-month period ended January 31, 2000, was a challenging period for the
fixed income markets. By mid-year 1999 the financial markets had largely
concluded the healing process which began in the aftermath of a global financial
crisis in 1998. In the fourth quarter of 1998, the Federal Reserve cut interest
rates three times and added liquidity to the financial system. These emergency
measures helped stabilize the high yield market early in 1999, and set the stage
for a potential recovery to more normal levels. However, attempts by the bond
market to move higher were short-lived as the Federal Reserve reversed course
mid-year 1999 and started raising rates again. Since investor confidence had
been restored and a global recovery appeared underway, the Federal Reserve
tightened monetary policy to preemptively deter inflation. Despite a significant
increase in interest rates during the second half of 1999, the portfolio
returned 0.94% for Class A shares before sales charge, outperforming the average
high yield fund return of 0.34%, according to Lipper Analytic Services, the
Lehman Brothers High Yield Index return of -0.64% and the Chase Securities
Global High Yield Index return of 0.03%.
By the second half of 1999, corporate issuers and investors alike began to focus
on calendar year-end and the potential implications of "Y2K". Corporations
sought to provide for year-end funding needs in advance, creating a temporary
bulge in supply, while investors sought incremental safety in their investment
portfolios. The downward pressure exerted by these trends caused a decline in
high yield bond prices, which offset the interest income earned during the
period. The net effect was a flat second half for the high yield market.
The Fund's performance for the six-months ended January 31, 2000, was enhanced
by its heavy exposure to top-performing sectors such as cable, communications
and media. The Fund's performance was held back by our holdings in
higher-quality bonds, which tend to be more interest rate sensitive and,
therefore generally under-perform when interest rates climb higher. Our minimal
exposure to bonds rated CCC or below also helped the fund as a rising market
default rate caused lower rated issues to underperform.
Outlook: For the coming year, we expect the US economy to decelerate, in part
due to the drag on the economy caused by higher short-term interest rates. While
the economy is strong and resilient, the labor markets are tight, natural
resource prices are firming and wages are creeping upward. This will likely
cause the Federal Reserve to continue to raise short-term interest rates,
moderately slowing the economy but preventing excesses from building up in the
nation's economic and financial systems. Our Fund is well positioned for such an
environment with a high quality bias and a focus on industry sectors that tend
to generate stable cash flows. In view of the recent increase in bond yields, we
feel the high yield market represents good fundamental value and offers
investors the potential for attractive returns.
Sincerely,
<TABLE>
<S> <C>
/s/ Dean C. Kopperud /s/ Howard G. Hudson
Dean C. Kopperud Howard G. Hudson
President Vice President
</TABLE>
VALUE OF $10,000 INVESTED FEBRUARY 1, 1990
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROTHERS HIGH YIELD PORTFOLIO
HIGH YIELD INDEX*** CLASS A
<S> <C> <C> <C> <C>
2/1/90 10,000 9,550
91 9,493 8,300
92 13,982 13,180
93 16,089 14,997
94 18,708 18,332
95 18,367 17,332
96 21,976 19,656
97 24,282 21,640
98 27,605 23,884
99 28,034 23,763
00 28,162 23,831
HIGH YIELD PORTFOLIO CLASS
A
AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEAR 10 YEAR
CLASS A* -4.22% +5.60% +9.07%
CLASS A** +0.29% +6.58% +9.58%
</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.
4
<PAGE>
FORTIS BOND FUNDS
U.S. GOVERNMENT SECURITIES FUND
Schedule of Investments
January 31, 2000 (Unaudited)
U.S. GOVERNMENT SECURITIES-92.61%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Cost (a) Value (b)
----------- ------------ ------------
<C> <S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION -
16.24%
MORTGAGE BACKED SECURITIES:
$2,216,789 8.00% 2001-2002.............................. $ 2,272,209 $ 2,225,372
1,295,244 9.00% 2001-2022.............................. 1,374,370 1,338,894
67,411 10.50% 2015.................................. 72,488 71,807
171,505 11.25% 2013-2014............................. 183,125 184,517
390,797 11.50% 2015-2019............................. 423,134 423,523
407,599 11.75% 2010-2014............................. 448,943 443,965
97,508 12.50% 2019.................................. 104,002 107,989
------------ ------------
4,878,271 4,796,067
------------ ------------
NOTES:
25,450,000 5.00% 2004................................... 23,676,302 23,546,238
4,900,000 5.75% 2008................................... 4,422,538 4,424,940
9,825,000 6.25% 2004................................... 9,521,506 9,460,217
------------ ------------
37,620,346 37,431,395
------------ ------------
TOTAL FEDERAL HOME LOAN MORTGAGE
CORPORATION................................ 42,498,617 42,227,462
------------ ------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -
46.55%
MORTGAGE BACKED SECURITIES:
2,964,157 5.835% 2008.................................. 2,996,282 2,668,168
2,389,493 5.85% 2009................................... 2,389,915 2,149,681
15,227,510 6.00% 2014-2029.............................. 14,664,435 14,115,124
1,435,902 6.01% 2009................................... 1,462,661 1,305,515
2,920,683 6.36% 2008................................... 2,916,732 2,735,681
4,584,644 6.48% 2008................................... 4,623,464 4,325,781
32,585,011 6.50% 2013-2029.............................. 32,009,482 30,600,850
1,420,086 6.54% 2007................................... 1,442,390 1,344,411
1,914,369 6.63% 2005................................... 1,959,817 1,842,240
12,078,117 7.00% 2003-2030 (e).......................... 11,732,927 11,552,110
6,613,556 7.184% 2006.................................. 6,541,633 6,504,387
10,381,849 7.50% 2027-2030 (e).......................... 10,508,841 10,129,585
382,117 8.00% 2025................................... 365,757 381,188
441,935 8.50% 2022................................... 462,487 449,837
48,621 9.00% 2020................................... 48,150 50,290
577,980 9.75% 2020................................... 623,496 607,898
500,253 10.00% 2020.................................. 545,745 530,462
440,011 10.50% 2012-2018............................. 478,637 468,060
150,705 10.75% 2013.................................. 155,226 161,556
1,314,360 11.00% 2015-2020............................. 1,426,845 1,412,144
242,220 11.25% 2013.................................. 254,331 262,876
83,993 11.50% 2015.................................. 89,696 91,025
156,529 12.00% 2011-2016............................. 166,708 171,709
358,022 12.50% 2015.................................. 400,322 400,876
------------ ------------
98,265,979 94,261,454
------------ ------------
NOTES:
25,720,000 6.00% 2008................................... 23,628,902 23,601,469
3,150,000 6.70% 2002................................... 3,182,300 3,129,311
------------ ------------
26,811,202 26,730,780
------------ ------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION................................ 125,077,181 120,992,234
------------ ------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -
6.45%
MORTGAGE BACKED SECURITIES:
5,822,968 7.00% 2024................................... 5,747,545 5,540,647
1,546,088 8.00% 2017-2022.............................. 1,578,336 1,542,509
1,155,046 9.00% 2022................................... 1,192,585 1,200,473
7,770,767 9.50% 2016-2019.............................. 8,131,659 8,190,910
</TABLE>
5
<PAGE>
FORTIS BOND FUNDS
U.S. GOVERNMENT SECURITIES FUND (CONTINUED)
Schedule of Investments
January 31, 2000 (Unaudited)
U.S. GOVERNMENT SECURITIES-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Cost (a) Value (b)
----------- ------------ ------------
<C> <S> <C> <C>
$ 278,852 11.00% 2015-2018............................. $ 300,303 $ 304,367
------------ ------------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION................................ 16,950,428 16,778,906
------------ ------------
OTHER DIRECT FEDERAL OBLIGATIONS - 12.48%
FEDERAL HOME LOAN BANK:
2,325,000 6.625% 2007.................................. 2,397,731 2,233,109
1,500,000 6.995% 2007.................................. 1,580,623 1,475,522
28,650,000 7.31% 2004................................... 28,568,056 28,728,013
------------ ------------
TOTAL OTHER DIRECT FEDERAL OBLIGATIONS....... 32,546,410 32,436,644
------------ ------------
U.S. TREASURY SECURITIES - 10.89%
BONDS:
15,500,000 6.96% Zero Coupon Strip 2019 (d)............. 4,217,237 4,535,750
12,100,000 8.00% 2021................................... 13,634,255 13,911,225
------------ ------------
17,851,492 18,446,975
------------ ------------
NOTES:
7,292,110 3.625% Inflation-protection 2008 (f)......... 6,922,880 6,957,132
1,400,000 5.50% 2003................................... 1,380,162 1,350,563
1,600,000 6.125% 2007.................................. 1,598,915 1,541,501
------------ ------------
9,901,957 9,849,196
------------ ------------
TOTAL U.S. TREASURY SECURITIES............... 27,753,449 28,296,171
------------ ------------
TOTAL U.S. GOVERNMENT SECURITIES............. $244,826,085 $240,731,417
============ ============
</TABLE>
SHORT-TERM INVESTMENTS-6.74%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value (b)
----------- ------------
<C> <S> <C>
INVESTMENT COMPANY-4.05%
$10,525,350 First American Treasury Obligations Fund,
Current rate -- 5.04%...................... $ 10,525,350
------------
U.S. GOVERNMENT AGENCY-1.92%
1,000,000 Federal National Mortgage Association, 5.46%,
2-2-2000................................... 999,701
4,000,000 Federal Home Loan Mortgage Corp., 5.61%,
2-15-2000.................................. 3,990,800
------------
4,990,501
------------
U.S. OTHER DIRECT FEDERAL OBLIGATIONS-0.77%
2,000,000 Federal Home Loan Bank, 5.49%, 2-11-2000..... 1,996,700
------------
TOTAL SHORT-TERM INVESTMENTS................. 17,512,551
------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$262,338,636)(A)........................... $258,243,968
============
</TABLE>
(a) At January 31, 2000, the cost of securities for federal income tax purposes
was $262,434,824 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 983,259
Unrealized depreciation..................................... (5,174,115)
- --------------------------------------------------------------------------
Net unrealized depreciation................................. $ (4,190,856)
- --------------------------------------------------------------------------
</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,
2000, was $9,660,969.
(f) U.S. Treasury inflation-protection securities (TIPS) are securities in
which the principal amount is adjusted for inflation and the semiannual
interest payments equal a fixed percentage of the inflation-adjusted
principal amount.
6
<PAGE>
FORTIS BOND FUNDS
STRATEGIC INCOME FUND
Schedule of Investments
January 31, 2000 (Unaudited)
ASSET BACKED SECURITIES-1.98%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
--------- ----------- ----------- -----------
<C> <S> <C> <C> <C>
COMMERCIAL LOANS-1.98%
$500,000 J.P. Morgan Commercial Mortgage Finance
Corp., 7.48% Variable Rate Ser 1997-C4
Class B 12-26-2028 -- UNITED STATES........ AA $ 524,748 $ 486,870
----------- -----------
</TABLE>
CORPORATE BONDS-INVESTMENT GRADE-38.65%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
--------- ----------- ----------- -----------
<C> <S> <C> <C> <C>
AIRLINES-0.99%
$250,000 Delta Air Lines, Inc., 7.70% Note
12-15-2005 -- UNITED STATES (f)............ BBB- $ 249,430 $ 243,176
----------- -----------
BANKS-6.71%
250,000 ABN Amro Bank N.V., 7.55% Global Note
6-28-2006 -- UNITED STATES................. AA- 251,593 247,465
250,000 Banco Santiago S.A., 7.00% Yankee Sub Note
7-18-2007 -- CHILE......................... BBB 248,053 223,117
500,000 Bank Austria AG, 7.25% Sub Note 2-15-2017 --
AUSTRIA (f)................................ AA+ 519,680 464,550
500,000 Dresdner Funding Trust I, 8.151% Note
6-30-2031 -- UNITED STATES (d)............. A+ 500,000 468,231
250,000 LB Baden-Wuerttemberg, 7.625% Yankee Sub Note
2-1-2023 -- GERMANY........................ AAA 281,833 244,156
----------- -----------
1,801,159 1,647,519
----------- -----------
CAPTIVE AUTO FINANCE-0.96%
250,000 Toyota Motor Credit, 5.625% Global Note
11-13-2003 -- UNITED STATES................ AAA 249,682 234,893
----------- -----------
ELECTRONIC-MISCELLANEOUS-1.97%
500,000 Sony Corp., 6.125% Global Bond 3-4-2003 --
JAPAN...................................... A+ 499,308 483,481
----------- -----------
FINANCIAL SERVICES-1.00%
250,000 Newcourt Credit Group, 7.125% Bond Ser A
12-17-2003 -- CANADA....................... A+ 249,477 244,918
----------- -----------
FOREIGN-GOVERNMENT AGENCIES-0.98%
250,000 Korea Development Bank, 7.125% Global Note
4-22-2004 -- KOREA......................... BBB 248,418 240,017
----------- -----------
FOREIGN-GOVERNMENT-7.79%
250,000 British Columbia (Province of), 6.50% Yankee
Bond 1-15-2026 -- CANADA................... AA- 255,800 221,042
500,000 Generalitat de Catalunya, 6.25% Yankee Bond
12-15-2018 -- SPAIN........................ AA- 498,467 428,598
250,000 Korea (Republic of), 8.875% Global Bond
4-15-2008 -- KOREA......................... BBB 262,783 257,812
500,000 Malaysia, 8.75% Global Bond 6-1-2009 --
MALAYSIA................................... BBB 496,498 514,865
500,000 Poland (Republic of), 7.125% Yankee Note
7-1-2004 -- POLAND......................... BBB 500,819 490,000
----------- -----------
2,014,367 1,912,317
----------- -----------
INDUSTRIAL-0.86%
250,000 Tyco International Group S.A., 6.875% Yankee
Bond 1-15-2029 -- LUXEMBOURG............... A- 252,225 211,175
----------- -----------
MEDIA-2.12%
500,000 News America Holdings, 8.875% Deb
4-26-2023 -- UNITED STATES................. BBB- 574,126 520,939
----------- -----------
NATURAL GAS TRANSMISSIONS-1.85%
500,000 Trans-Canada Pipelines Ltd., 6.49% Yankee
Bond 1-21-2009 -- CANADA................... A- 503,321 453,145
----------- -----------
OIL-CRUDE PETROLEUM AND GAS-3.81%
500,000 Saga Petroleum ASA, 7.25% Yankee Deb
9-23-2027 -- NORWAY........................ A 508,343 450,251
500,000 YPF Sociedad Anonima, 7.25% Yankee Sr Note
3-15-2003 -- ARGENTINA..................... BBB- 499,470 485,375
----------- -----------
1,007,813 935,626
----------- -----------
OIL-EQUIPMENT WELLS AND SERVICES-1.76%
500,000 Petroleum Geo-Services ASA, 7.125% Yankee Sr
Note 3-30-2028 -- NORWAY................... BBB 498,578 431,699
----------- -----------
SUPRA-NATIONAL-1.98%
500,000 Corp Andina de Fomento, 7.10% Yankee Bond
2-1-2003 -- VENEZUELA...................... A 501,627 487,139
----------- -----------
</TABLE>
7
<PAGE>
FORTIS BOND FUNDS
STRATEGIC INCOME FUND (CONTINUED)
Schedule of Investments
January 31, 2000 (Unaudited)
CORPORATE BONDS-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
--------- ----------- ----------- -----------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS-3.06%
$500,000 360 Communications ALLTEL Corp., 7.50% Sr
Note 3-1-2006 -- UNITED STATES............. A $ 517,154 $ 497,794
250,000 Telecom Argentina Stet - France Telecom S.A.,
9.75% Note 7-12-2001 -- ARGENTINA (d)...... BBB- 249,768 252,500
----------- -----------
766,922 750,294
----------- -----------
TELEPHONE SERVICES-0.95%
250,000 Telecomunicaciones de Puerto Rico, 6.65% Note
5-15-2006 -- UNITED STATES................. BBB 249,915 233,871
----------- -----------
UTILITIES-ELECTRIC-1.86%
500,000 Empresa Nacional de Electricidad S.A., 7.325%
Yankee Bond 2-1-2037 -- CHILE.............. A- 497,131 456,201
----------- -----------
TOTAL CORPORATE BONDS - INVESTMENT GRADE..... $10,163,499 $ 9,486,410
=========== ===========
</TABLE>
CORPORATE BONDS-NON-INVESTMENT GRADE-41.19%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
--------- ----------- ----------- -----------
<C> <S> <C> <C> <C>
AUTOMOBILE AND MOTOR VEHICLE PARTS-2.01%
$250,000 Holley Performance Products, Inc., 12.25% Sr
Note 9-15-2007 -- UNITED STATES (f)........ B+ $ 242,590 $ 237,812
250,000 Tenneco Automotive, Inc., 11.625% Sr Sub Note
10-15-2009 -- UNITED STATES (f)............ B+ 250,647 255,312
----------- -----------
493,237 493,124
----------- -----------
BANKS-1.01%
250,000 Sovereign Bancorp, 10.25% Sr Note
5-15-2004 -- UNITED STATES................. BB+ 250,000 247,500
----------- -----------
BEVERAGE-1.01%
250,000 Coca-Cola Femsa S.A., 8.95% Yankee Note
11-1-2006 -- MEXICO........................ BB+ 253,456 248,750
----------- -----------
BROADCASTING-1.88%
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 225,804 233,750
250,000 Sinclair Broadcast Group, Inc., 9.00% Sr Sub
Note 7-15-2007 -- UNITED STATES............ B 250,964 227,500
----------- -----------
476,768 461,250
----------- -----------
BUILDING EQUIPMENT-0.41%
100,000 Better Minerals & Aggregates, 13.00% Sr Sub
Note 9-15-2009 -- UNITED STATES (f)........ B- 100,319 100,000
----------- -----------
BUSINESS SERVICES-1.05%
250,000 Avis Rent A Car, Inc., 11.00% Sr Sub Note
5-1-2009 -- UNITED STATES.................. BB- 251,314 257,812
----------- -----------
CABLE TELEVISION-5.17%
500,000 Charter Communications Holdings LLC, 9.92% Sr
Disc Note 4-1-2011 (Zero coupon through
4-1-2004, thereafter 9.92%) -- UNITED
STATES (e)................................. B+ 337,402 291,875
250,000 Telewest Communication plc, 8.62% Sr Disc
Note 4-15-2009 (Zero coupon until
4-15-2004, thereafter 9.25%) -- UNITED
KINGDOM (e)(f)............................. B+ 179,083 150,625
500,000 United International Holdings, 10.53% Sr Disc
Note 2-15-2008 (Zero coupon through
2-15-2003, thereafter 10.75%) -- UNITED
STATES (e)................................. B- 373,123 330,000
500,000 United Pan-Europe Communications, 11.25% Sr
Note 11-1-2009 -- NETHERLANDS (f).......... B 497,540 496,250
----------- -----------
1,387,148 1,268,750
----------- -----------
CHEMICALS-1.01%
250,000 Lyondell Chemical Co., 9.875% Sr Secured Note
Ser B 5-1-2007 -- UNITED STATES............ BB 251,429 247,187
----------- -----------
ENTERTAINMENT-1.75%
250,000 Circus Circus (Mandalay Resort Group), 7.625%
Sr Sub Deb 7-15-2013 -- UNITED STATES...... BB+ 215,294 206,875
250,000 Isle of Capri Casinos, 8.75% Sr Sub Note
4-15-2009 -- UNITED STATES................. B 223,860 223,750
----------- -----------
439,154 430,625
----------- -----------
FOREIGN-GOVERNMENT-6.15%
250,000 Argentina (Republic of), 11.375% Global Bond
1-30-2017 -- ARGENTINA..................... BB 282,203 237,500
250,000 Brazil (Republic of), 10.125% Global Bond
5-15-2027 -- BRAZIL........................ B+ 251,235 193,750
</TABLE>
8
<PAGE>
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (a) Value (b)
--------- ----------- ----------- -----------
<C> <S> <C> <C> <C>
$250,000 Brazil (Republic of), 11.625% Global Bond
4-15-2004 -- BRAZIL........................ B+ $ 247,950 $ 239,000
250,000 Panama (Republic of), 8.875% Global Bond
9-30-2027 -- PANAMA........................ BB+ 247,538 205,000
500,000 United Mexican States, 6.25% Secured Note Ser
W-B 12-31-2019 -- MEXICO................... BB 379,728 386,927
250,000 United Mexican States, 9.875% Global Bond
1-15-2007 -- MEXICO........................ BB 261,423 247,750
----------- -----------
1,670,077 1,509,927
----------- -----------
HEALTH CARE SERVICES-0.85%
125,000 Concentra Operating Corp., 13.00% Sr Sub Note
8-15-2009 -- UNITED STATES (f)............. B- 125,537 106,250
100,000 Unilab Finance Corp., 12.75% Sr Sub Note
10-1-2009 -- UNITED STATES (f)............. B- 97,711 101,500
----------- -----------
223,248 207,750
----------- -----------
METALS-MINING AND MISCELLANEOUS-1.00%
250,000 AK Steel Corp., 9.125% Sr Note 12-15-2006 --
UNITED STATES.............................. BB 250,572 245,000
----------- -----------
OIL-CRUDE PETROLEUM AND GAS-1.00%
250,000 Swift Energy Co., 10.25% Sr Sub Note
8-1-2009 -- UNITED STATES.................. B- 252,788 245,000
----------- -----------
PAPER-1.02%
250,000 Packaging Corp. of America, 9.625% Sr Sub
Note 4-1-2009 -- UNITED STATES............. B 257,577 250,938
----------- -----------
RETAIL-GROCERY-2.03%
250,000 Big V Supermarkets, Inc., 11.00% Sr Sub Note
Ser B 2-15-2004 -- UNITED STATES........... B- 257,689 245,313
250,000 Stater Brothers Holdings, 10.75% Sr Note
8-15-2006 -- UNITED STATES................. B+ 251,341 252,500
----------- -----------
509,030 497,813
----------- -----------
TELECOMMUNICATIONS-9.87%
250,000 Global Crossing Holdings Ltd., 9.50% Sr Note
11-15-2009 -- UNITED STATES (f)............ BB 246,720 241,250
250,000 Intermedia Communications, Inc., 8.50% Sr
Note Ser B 1-15-2008 -- UNITED STATES...... B 250,000 225,000
250,000 McLeodUSA, Inc., 8.125% Sr Note 2-15-2009 --
UNITED STATES.............................. B+ 250,000 225,000
250,000 Microcell Telecommunications, Inc., 12.52% Sr
Disc Note 6-1-2006 (Zero coupon through
12-1-2001, thereafter 14.00%) -- CANADA
(e)........................................ B3* 209,675 222,500
250,000 Nextlink Communications, 12.125% Sr Disc Note
12-1-2009 (Zero coupon through 12-1-2004,
thereafter 12.125%) -- UNITED STATES
(e)(f)..................................... B 141,905 141,250
350,000 Nuevo Grupo Iusacell S.A. de C.V., 14.25% Sr
Note 12-1-2006 -- MEXICO (d)............... B+ 353,608 367,500
500,000 PTC International Finance II S.A., 11.25% Sr
Sub Note 12-1-2009 -- LUXEMBOURG (d)....... B+ 493,633 495,000
250,000 RCN Corp., 10.125% Sr Note 1-15-2010 --
UNITED STATES.............................. B- 250,212 243,125
250,000 Splitrock Services, Inc., 11.75% Sr Sub Note
Ser B 7-15-2008 -- UNITED STATES........... NR 251,779 264,375
----------- -----------
2,447,532 2,425,000
----------- -----------
TELEPHONE SERVICES-2.97%
250,000 Alaska Communications SY, 9.375% Sr Sub Note
5-15-2009 -- UNITED STATES................. B+ 251,360 239,063
250,000 Level 3 Communications, Inc., 9.125% Sr Note
5-1-2008 -- UNITED STATES.................. B 249,408 231,875
250,000 Williams Communications Group, Inc., 10.875%
Sr Note 10-1-2009 -- UNITED STATES......... BB- 248,876 257,500
----------- -----------
749,644 728,438
----------- -----------
UTILITIES-ELECTRIC-1.00%
250,000 AES Corp., 9.50% Sr Note 6-1-2009 -- UNITED
STATES..................................... BB 251,543 246,875
----------- -----------
TOTAL CORPORATE BONDS - NON-INVESTMENT
GRADE...................................... $10,514,836 $10,111,739
=========== ===========
</TABLE>
U.S. GOVERNMENT SECURITIES-8.88%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Cost (a) Value (b)
------------ ----------- -----------
<C> <S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 5.67%
MORTGAGE BACKED SECURITIES:
$ 486,356 6.30% 2008................................... $ 486,914 $ 454,014
259,324 6.48% 2008................................... 261,519 244,681
489,685 6.54% 2007................................... 497,376 463,590
</TABLE>
9
<PAGE>
FORTIS BOND FUNDS
STRATEGIC INCOME FUND (CONTINUED)
Schedule of Investments
January 31, 2000 (Unaudited)
U.S. GOVERNMENT SECURITIES-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Cost (a) Value (b)
------------ ----------- -----------
<C> <S> <C> <C>
$ 239,296 6.63% 2005................................... $ 244,977 $ 230,280
----------- -----------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION................................ 1,490,786 1,392,565
----------- -----------
U.S. TREASURY SECURITIES - 3.21%
NOTES:
350,000 4.75% 2008................................... 304,607 304,610
350,000 6.125% 2007.................................. 349,763 337,203
----------- -----------
654,370 641,813
----------- -----------
STRIPS:
500,000 7.00% Zero Coupon Strip 2019 (e)............. 134,982 146,315
----------- -----------
TOTAL U.S. TREASURY SECURITIES............... 789,352 788,128
----------- -----------
TOTAL U.S. GOVERNMENT SECURITIES............. 2,280,138 2,180,693
=========== ===========
TOTAL LONG-TERM INVESTMENTS.................. $23,483,221 $22,265,712
=========== ===========
</TABLE>
SHORT-TERM INVESTMENTS - 6.54%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value (b)
------------ -----------
<C> <S> <C>
BANK-2.56%
$ 627,810 U.S. Bank N.A. Money Market Variable Rate
Time Deposit,
Current rate - 5.62%....................... $ 627,810
-----------
DIVERSIFIED FINANCE-1.95%
478,000 Associates Corp., Master Variable Rate Note,
Current rate -- 5.43%...................... 478,000
-----------
U.S. GOVERNMENT AGENCY-2.03%
500,000 Federal National Mortgage Association, 5.46%,
2-2-2000................................... 499,851
-----------
TOTAL SHORT-TERM INVESTMENTS................. 1,605,661
===========
TOTAL INVESTMENTS IN SECURITIES (COST:
$25,088,882) (A)........................... $23,871,373
===========
</TABLE>
(a) At January 31, 2000, the cost of securities for federal income tax purposes
was $25,088,882 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 112,994
Unrealized depreciation..................................... (1,330,503)
- --------------------------------------------------------------------------
Net unrealized depreciation................................. $ (1,217,509)
- --------------------------------------------------------------------------
</TABLE>
(b) See Note 1 of accompanying Notes to Financial Statements regarding
valuation of securities.
(c) Note: Percentage of investments as shown is the ratio of the total market
value to total net assets. Market value of investments in foreign
securities represents 28.68% of total net assets in investment grade
securities and 15.17% of total net assets in non-investment grade
securities.
(d) Securities issued within the terms of a private placement memorandum,
exempt from registration under Section 144A of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or to other
"accredited investors". These investments have been identified by portfolio
management as illiquid securities:
<TABLE>
<CAPTION>
Period Acquired Shares/Par Security Cost Basis
- --------------- ---------- -------- ----------
<S> <C> <C> <C>
1999 500,000 Dresdner Funding Trust I due 2031 - 144A $ 500,000
1999 350,000 Nuevo Grupo Iusacell S.A. de C.V. due
2006 - 144A 353,608
1999 500,000 PTC International Finance II S.A. due
2009 - 144A 493,633
1999 250,000 Telecom Argentina Stet due 2001 - 144A 249,768
</TABLE>
The aggregate value of these securities at January 31, 2000, was $1,583,231,
which represents 6.45% of total net assets.
(e) The interest rate disclosed for these securities represents the effective
yield on the date of acquisition.
(f) Securities sold within the terms of a private placement memorandum, exempt
form registration under Section 144A of the Securities Act of 1933, as
amended, and may be sold only to dealers in that program or to other
"accredited investors". Pursuant to guidelines adopted by the Board of
Directors, these issues are determined to be liquid. The aggregate value of
these securities at January 31, 2000, was $2,537,975, which represents
10.34% of total net assets.
* Moody's Rating
10
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO
Schedule of Investments
January 31, 2000 (Unaudited)
CORPORATE BONDS-NON-INVESTMENT GRADE-93.90%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (b) Value (c)
----------- ----------- ------------ ------------
<C> <S> <C> <C> <C>
APPAREL-1.58%
$2,500,000 Hosiery Corp. of America, Inc., 13.75% Sr Sub
Note 8-1-2002.............................. B- $ 2,604,216 $ 2,600,000
------------ ------------
AUTOMOBILE AND MOTOR VEHICLE PARTS-4.15%
1,500,000 Dura Operating Corp., 9.00% Sr Sub Note
5-1-2009................................... B 1,508,639 1,383,750
2,250,000 Hayes Lemmerz International, Inc., 8.25% Sr
Sub Note 12-15-2008........................ B 2,267,805 1,985,625
1,750,000 Holley Performance Products, Inc., 12.25% Sr
Note 9-15-2007 (g)......................... B+ 1,698,127 1,664,687
1,750,000 Tenneco Automotive, Inc., 11.625% Sr Sub Note
10-15-2009 (g)............................. B+ 1,754,527 1,787,187
------------ ------------
7,229,098 6,821,249
------------ ------------
BANKS-1.21%
2,000,000 Sovereign Bancorp, 10.50% Sr Note
11-15-2006................................. BB+ 2,000,000 1,990,000
------------ ------------
BROADCASTING-6.65%
750,000 Ackerley Group, Inc., 9.00% Sr Sub Note
1-15-2009.................................. B 750,000 710,625
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 1,806,435 1,870,000
1,000,000 Shop at Home, Inc., 11.00% Sr Secured Note
4-1-2005................................... B 1,000,000 1,000,000
3,000,000 Sinclair Broadcasting Group, Inc., 10.00% Sr
Sub Note 9-30-2005......................... B 3,078,379 2,917,500
1,500,000 Spanish Broadcasting Systems, 9.625% Sr Sub
Note 11-1-2009............................. B- 1,497,749 1,455,000
2,885,000 Young Broadcasting Corp., 11.75% Sr Sub Note
11-15-2004................................. B 3,090,815 2,967,944
------------ ------------
11,223,378 10,921,069
------------ ------------
BUILDING EQUIPMENT-1.22%
2,000,000 Better Minerals & Aggregates, 13.00% Sr Sub
Note 9-15-2009 (g)......................... B- 2,006,373 2,000,000
------------ ------------
BUSINESS SERVICES-1.26%
2,000,000 Avis Rent A Car, Inc., 11.00% Sr Sub Note
5-1-2009................................... BB- 2,010,573 2,062,500
------------ ------------
CABLE TELEVISION-17.32%
3,000,000 Adelphia Communications, 9.375% Sr Note
11-15-2009................................. B+ 2,976,430 2,850,000
10,117,492 Australis Media Ltd., 14.00% Sr Disc Note
5-15-2003 (Zero coupon through 5-15-2000,
thereafter 15.75%)(with warrants)(a)
(e)(f)..................................... D 7,594,969 101
2,500,000 Century Communications Corp., 8.875% Sr Note
1-15-2007.................................. BB- 2,568,452 2,356,250
5,000,000 Charter Communications Holdings LLC, 9.92% Sr
Disc Note 4-1-2011 (Zero coupon through
4-1-2004, thereafter 9.92%) (f)............ B+ 3,374,020 2,918,750
1,000,000 CSC Holdings, Inc., 10.50% Sr Sub Deb
5-15-2016.................................. BB- 1,014,083 1,107,500
2,000,000 Galaxy Telecom L.P., 12.375% Sr Sub Note
10-1-2005.................................. B- 2,151,902 2,105,000
1,000,000 Insight Midwest, 9.75% Sr Note 10-1-2009
(g)........................................ B+ 1,002,612 997,500
500,000 Mediacom LLC/Capital Corp., 7.875% Sr Note
2-15-2011.................................. B+ 450,744 428,750
2,000,000 Mediacom LLC/Capital Corp., 8.50% Sr Note
4-15-2008.................................. B+ 2,000,000 1,820,000
3,000,000 Olympus Communication L.P., 10.625% Sr Note
11-15-2006................................. B+ 3,000,000 3,105,000
2,500,000 Telewest Communication plc, 9.16% Sr Disc
Note 4-15-2009 (Zero coupon through
4-15-2004, thereafter 9.25%) (f)(g)........ B+ 1,725,923 1,506,250
5,000,000 United International Holdings, 12.31% Sr Disc
Note 2-15-2008 (Zero coupon through
2-15-2003, thereafter 10.75%) (f).......... B- 3,345,711 3,300,000
4,250,000 United Pan-Europe Communications, 11.25% Sr
Note 11-1-2009 (g)......................... B 4,229,092 4,218,125
3,250,000 United Pan-Europe Communications, 13.75% Sr
Disc Note 2-1-2010 (Zero coupon through
8-1-2005, thereafter 13.75%) (e)(f)........ B 1,672,732 1,730,625
------------ ------------
37,106,670 28,443,851
------------ ------------
CHEMICALS-3.62%
1,750,000 Lyondell Chemical Co., 9.875% Sr Secured Note
Ser B 5-1-2007............................. BB 1,743,452 1,730,312
2,500,000 NL Industries, Inc., 11.75% Sr Secured Note
10-15-2003................................. B 2,699,567 2,575,000
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- 2,795,630 1,640,000
------------ ------------
7,238,649 5,945,312
------------ ------------
CONSUMER GOODS-1.17%
1,250,000 Chattem, Inc., 12.75% Sr Sub Note Ser B
6-15-2004.................................. B- 1,251,419 1,325,000
250,000 Scotts Co., 8.625% Sr. Sub Note 1-15-2009
(g)........................................ B+ 250,000 235,000
375,000 Windmere-Durable Holdings, 10.00% Sr Sub Note
7-31-2008.................................. B- 375,000 365,625
------------ ------------
1,876,419 1,925,625
------------ ------------
</TABLE>
11
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO (CONTINUED)
Schedule of Investments
January 31, 2000 (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>
ENTERTAINMENT-6.20%
$3,000,000 Argosy Gaming Co., 10.75% Sr Sub Note
6-1-2009................................... B $ 3,016,585 $ 3,097,500
1,500,000 Circus Circus (Mandalay Resort Group), 7.625%
Sr Sub Deb 7-15-2013....................... BB+ 1,291,764 1,241,250
750,000 Florida Panthers Holdings, 9.875% Sr Sub Note
4-15-2009.................................. B- 754,700 693,750
3,500,000 Isle of Capri Casinos, 8.75% Sr Sub Note
4-15-2009.................................. B 3,519,697 3,132,500
2,000,000 Station Casinos, Inc., 10.125% Sr Sub Note
3-15-2006.................................. B+ 2,004,845 2,015,000
------------ ------------
10,587,591 10,180,000
------------ ------------
FOOD-MISCELLANEOUS-0.97%
750,000 Agrilink Foods, Inc., 11.875% Sr Sub Note
11-1-2008.................................. B- 750,000 736,875
1,250,000 Fresh Foods, Inc., 10.75% Sr Sub Note
6-1-2006................................... B 1,250,000 850,000
------------ ------------
2,000,000 1,586,875
------------ ------------
FOREIGN-GOVERNMENT-0.47%
1,000,000 United Mexican States, 6.25% Secured Note Ser
W-B 12-31-2019............................. BB 759,457 773,853
------------ ------------
FOREST PRODUCTS-0.91%
1,500,000 Stone Container Corp., 9.875% Sr Note
2-1-2001................................... B 1,511,735 1,500,000
------------ ------------
HEALTH CARE SERVICES-3.45%
500,000 Concentra Operating Corp., 13.00% Sr Sub Note
8-15-2009 (g).............................. B- 502,147 425,000
2,000,000 Tenet Healthcare Corp., 8.625% Sr Sub Note
1-15-2007.................................. BB- 2,058,805 1,910,000
1,750,000 Triad Hospitals Holdings, 11.00% Sr Sub Note
5-15 -2009................................. B- 1,767,014 1,811,250
1,500,000 Unilab Finance Corp., 12.75% Sr Sub Note
10-1-2009 (g).............................. B- 1,484,531 1,522,500
------------ ------------
5,812,497 5,668,750
------------ ------------
METALS-MINING AND MISCELLANEOUS-0.45%
750,000 AK Steel Corp., 9.125% Sr Note 12-15-2006.... BB 751,717 735,000
------------ ------------
OIL-CRUDE PETROLEUM AND GAS-0.90%
500,000 Ocean Energy, Inc., 8.875% Sr Sub Note Ser B
7-15-2007.................................. BB- 500,411 490,000
1,000,000 Swift Energy Co., 10.25% Sr Sub Note
8-1-2009................................... B- 1,008,766 980,000
------------ ------------
1,509,177 1,470,000
------------ ------------
OIL-OFFSHORE DRILLING-1.45%
2,250,000 RBF Finance Co., 11.375% Sr Secured Note
3-15-2009.................................. BB- 2,267,256 2,385,000
------------ ------------
PAPER-1.22%
2,000,000 Packaging Corp. of America, 9.625% Sr Sub
Note 4-1-2009.............................. B 2,012,937 2,007,500
------------ ------------
PRINTING-3.50%
1,500,000 Cadmus Communication Corp., 9.75% Sr Sub Note
6-1-2009................................... B 1,507,915 1,455,000
1,500,000 Day International Group, Inc., 11.125% Sr
Note 6-1-2005.............................. B 1,610,902 1,524,375
2,250,000 Mail-Well Corp., 8.75% Sr Sub Note
12-15-2008................................. B+ 2,268,628 2,058,750
750,000 Phoenix Color Corp., 10.375% Sr Sub Note
2-1-2009................................... B- 756,243 716,250
------------ ------------
6,143,688 5,754,375
------------ ------------
RESTAURANTS AND FRANCHISING-1.10%
1,750,000 Sbarro, Inc., 11.00% Sr Note 9-15-2009 (g)... BB- 1,726,920 1,798,125
------------ ------------
RETAIL-DISCOUNT STORES-0.93%
1,750,000 Kmart Corp., 7.95% Deb 2-1-2023.............. BB+ 1,534,015 1,527,955
------------ ------------
RETAIL-GROCERY-0.92%
1,500,000 Stater Brothers Holdings, 10.75% Sr Note
8-15-2006.................................. B+ 1,508,045 1,515,000
------------ ------------
TECHNOLOGY-1.22%
2,000,000 Fairchild Semiconductor, 10.375% Sr Sub Note
10-1-2007.................................. B 2,038,017 2,005,000
------------ ------------
TELECOMMUNICATIONS-23.54%
1,250,000 Covad Communications Group, 12.00% Sr Note
2-15-2010 (e).............................. B- 1,250,116 1,256,250
1,500,000 Focal Communications Corp., 11.875% Sr Note
01-15-2010 (e)............................. B 1,489,989 1,541,250
3,000,000 Global Crossing Holdings Ltd., 9.50% Sr Note
11-15-2009 (g)............................. BB 2,960,643 2,895,000
3,500,000 GST Network Funding, Inc., 15.24% Sr Disc
Note 5-1-2008 (Zero coupon through
5-1-2003, thereafter 10.50%) (f)........... NR 1,856,738 1,933,750
1,500,000 Hermes Europe Railtel B.V., 10.375% Sr Note
1-15-2009.................................. B 1,500,000 1,436,250
2,500,000 Hyperion Telecommunications, 12.25% Sr Note
Ser B 9-1-2004............................. BB- 2,650,164 2,662,500
3,000,000 Intermedia Communications, Inc., 8.50% Sr
Note Ser B 1-15-2008....................... B 3,015,566 2,700,000
</TABLE>
12
<PAGE>
CORPORATE BONDS-NON-INVESTMENT GRADE-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Standard
Principal & Poor's Market
Amount Rating Cost (b) Value (c)
----------- ----------- ------------ ------------
<C> <S> <C> <C> <C>
$2,000,000 Intermedia Communications, Inc., 9.03% Sr
Disc Note 7-15-2007 (Zero coupon through
7-15-2002, thereafter 11.25%) (f).......... B $ 1,681,828 $ 1,515,000
3,625,000 ITC Deltacom, Inc., 11.00% Sr Note
6-1-2007................................... B 4,034,581 3,779,063
750,000 McLeodUSA, Inc., 8.125% Sr Note 2-15-2009.... B+ 754,925 675,000
1,000,000 Metromedia Fiber Network, Inc., 10.00% Sr
Note 12-15-2009............................ B+ 993,817 1,002,500
1,500,000 Metromedia Fiber Network, Inc., 10.00% Sr
Note Ser B 11-15-2008...................... B+ 1,514,643 1,503,750
2,000,000 Nextel Communications, Inc., 9.375% Sr Note
11-15-2009 (e)............................. B 1,987,830 1,922,500
2,750,000 Nextlink Communications, 10.50% Sr Note
12-1-2009 (g).............................. B 2,754,505 2,750,000
2,000,000 Nextlink Communications, 12.125% Sr Disc Note
12-1-2009 (Zero coupon through 12-1-2004,
thereafter 12.125%) (f)(g)................. B 1,135,242 1,130,000
1,750,000 NTL Communications Corp., 12.375% Sr Note
10-1-2008 (Zero coupon through 10-1-2003,
thereafter 12.375% (f)..................... B- 1,146,338 1,194,375
750,000 Nuevo Grupo Iusacell S.A. de C.V., 14.25% Sr
Note 12-1-2006 (e)......................... B+ 777,060 787,500
1,400,000 Omnipoint Corp., 11.625% Sr Note Ser A
8-15-2006.................................. CCC+ 1,368,513 1,491,000
1,750,000 PSInet, Inc., 11.00% Sr Note 8-1-2009........ B- 1,778,038 1,793,750
750,000 RCN Corp., 10.125% Sr Note 1-15-2010......... B- 750,637 729,375
3,750,000 Splitrock Services, Inc., 11.75% Sr Sub Note
Ser B 7-15-2008............................ NR 3,714,233 3,965,625
------------ ------------
39,115,406 38,664,438
------------ ------------
TELEPHONE SERVICES-4.86%
2,000,000 Level 3 Communications, Inc., 9.125% Sr Note
5-1-2008................................... B 1,844,613 1,855,000
4,000,000 Telecorp PCS, Inc., 11.625% Sr Sub Note
4-15-2009 (Zero coupon through 4-15-2004,
thereafter 11.625%) (f).................... NR 2,512,214 2,530,000
3,500,000 Williams Communications Group, Inc., 10.875%
Sr Note 10-1-2009.......................... BB- 3,484,263 3,605,000
------------ ------------
7,841,090 7,990,000
------------ ------------
UTILITIES-ELECTRIC-1.11%
2,000,000 AES Corp., 8.50% Sr Sub Note 11-1-2007....... BB 2,046,740 1,820,000
------------ ------------
WASTE DISPOSAL-2.52%
2,000,000 IT Group, Inc., 11.25% Sr Sub Note
4-1-2009................................... B+ 2,016,820 1,910,000
2,125,000 Norcal Waste Systems, Inc., 13.50% Increasing
Rate Sr Note 11-15-2005.................... BB- 2,125,000 2,236,563
------------ ------------
4,141,820 4,146,563
------------ ------------
TOTAL CORPORATE BONDS - NON-INVESTMENT
GRADE...................................... $166,603,484 $154,238,040
============ ============
</TABLE>
PREFERRED STOCKS-0.95%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Cost (b) Value (c)
---------- ------------ ------------
<C> <S> <C> <C>
OIL-REFINING-0.95%
1,611,000 R&B Falcon Corp., 13.875% Cumm. Preferred
5-1-2009 (Dividend is payable in kind)..... $ 1,469,793 $ 1,563,781
------------ ------------
</TABLE>
COMMON STOCKS AND WARRANTS-1.94%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Cost (b) Value (c)
------- ------------ ------------
<C> <S> <C> <C>
APPAREL-0.03%
1,250 Hosiery Corp. of America, Inc. Class A (a)
(e)........................................ $ 21,150 $ 50,000
------------ ------------
CABLE TELEVISION-0.00%
7,500 People's Choice T.V. Corp. (Warrants) (a)
(e)........................................ 78 1
3,000 Wireless One, Inc. (Warrants) (a) (e)....... 23,493 30
------------ ------------
23,571 31
------------ ------------
OIL-REFINING-0.23%
1,500 R & B Falcon Corp. (Warrants) (a) (g)........ 141,450 375,000
------------ ------------
</TABLE>
13
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO (CONTINUED)
Schedule of Investments
January 31, 2000 (Unaudited)
COMMON STOCKS AND WARRANTS-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Cost (b) Value (c)
------- ------------ ------------
<C> <S> <C> <C>
PUBLISHING-0.00%
5,542 Marvel Enterprises, Inc.
Class A (Warrants) (a)..................... $ 380,277 $ 2,078
9,387 Marvel Enterprises, Inc.
Class C (Warrants) (a)..................... 1,288,210 2,347
------------ ------------
1,668,487 4,425
------------ ------------
TELECOMMUNICATIONS-1.68%
1,000 Adelphia Business Solutions,
Inc. (Warrants) (a) (e).................... 20,000 175,000
6,600 Clearnet Communications,
Inc. (Warrants) (a) (e).................... 76,725 161,455
63,759 e.spire Communications,
Inc. (Warrants) (a)........................ 618,165 673,454
750 Highwaymaster Communications,
Inc. (Warrants) (a) (e).................... 13,125 11,250
12,800 Powertel, Inc. (Warrants) (a) (e)............ 94,118 1,001,715
3,750 Splitrock Service (Warrants) (a)............. 46,195 731,719
------------ ------------
868,328 2,754,593
------------ ------------
TOTAL COMMON STOCKS AND WARRANTS............. 2,722,986 3,184,049
============ ============
TOTAL LONG-TERM INVESTMENTS.................. $170,796,263 $158,985,870
============ ============
</TABLE>
SHORT-TERM INVESTMENTS-0.76%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value (c)
--------- ------------
<C> <S> <C>
BANKS-0.26%
$429,021 U.S. Bank N.A. Money Market Variable Rate
Time Deposit, Current rate -- 5.62%........ $ 429,021
------------
DIVERSIFIED FINANCE-0.50%
819,000 Associates Corp. Master Variable Rate Note,
Current rate -- 5.43%...................... 819,000
------------
TOTAL SHORT-TERM INVESTMENTS................. $ 1,248,021
------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$172,044,284)(B)........................... $160,233,891
============
</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, 2000, the cost of securities for federal income tax purposes
was $172,044,284 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $4,275,853
Unrealized depreciation..................................... (16,086,246)
- ------------------------------------------------------------------------
Net unrealized depreciation................................. $(11,810,393)
- ------------------------------------------------------------------------
</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 7.50% of net assets as of January 31, 2000.
(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>
1999 1,000 Adelphia Business Solutions, Inc. (Warrants) $ 20,000
1996-1997 10,117,492 Australis Media Ltd. (with warrants) due 2003 7,594,969
1996 6,600 Clearnet Communications, Inc. (Warrants) - 144A 76,725
1999 1,250,000 Covad Communications Group due 2010 - 144A 1,250,116
2000 1,500,000 Focal Communications Corp. due 2010 - 144A 1,489,989
1997 750 Highwaymaster Communications, Inc. (Warrants) - 144A 13,125
1994 1,250 Hosiery Corp. of America, Inc. Class A - 144A 21,150
1999 2,000,000 Nextel Communications, Inc. due 2009 - 144A 1,987,830
2000 750,000 Nuevo Grupo Iusacell S.A. de C.V. due 2006 - 144A 777,060
1997 7,500 People's Choice T.V. Corp. (Warrants) 78
1997 12,800 Powertel, Inc. (Warrants) 94,118
1998 3,750 Splitrock Service (Warrants) 46,195
2000 3,250,000 United Pan-Europe Communications due 2010 - 144A 1,672,732
1996 3,000 Wireless One, Inc. (Warrants) 23,493
</TABLE>
The aggregate value of these securities at January 31, 2000, was $9,369,396,
which represents 5.70% 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, 2000, was $23,304,374, which represents
14.19% of total net assets.
14
<PAGE>
FORTIS BOND FUNDS
Statements of Assets and Liabilities
(Unaudited)
January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT STRATEGIC
SECURITIES INCOME HIGH YIELD
FUND FUND PORTFOLIO
--------------- --------- ---------
<S> <C> <C> <C>
ASSETS:
Investments in securities, as detailed in the
accompanying schedules, at market (cost
$262,338,636; $25,088,882; and $172,044,284;
respectively) (Note 1)........................ $258,243,968 $23,871,373 $160,233,891
Collateral for securities lending transactions
(Note 1)...................................... 35,468,218 -- --
Receivables:
Investment securities sold.................... 10,180,258 205,000 1,026,750
Interest and dividends........................ 1,937,668 453,369 3,729,884
Subscriptions of capital stock................ -- 1,784 14,187
Deferred registration costs (Note 1)............ 31,141 26,369 21,100
Deferred organizational costs (Note 1).......... -- 18,398 --
Prepaid expenses................................ 3,934 5,176 5,523
------------ ----------- ------------
TOTAL ASSETS...................................... 305,865,187 24,581,469 165,031,335
------------ ----------- ------------
LIABILITIES:
Cash portion of dividends payable............... 328,165 5,832 436,070
Payable upon return of securities loaned (Note
1)............................................ 35,468,218 -- --
Payable for investment securities purchased..... 9,660,969 -- --
Redemptions of capital stock.................... 252,967 -- 191,584
Payable for investment advisory and management
fees (Note 2)................................. 160,596 16,602 103,008
Payable for distribution fees (Note 2).......... 3,011 819 11,276
Accounts payable and accrued expenses........... 54,411 11,760 30,945
------------ ----------- ------------
TOTAL LIABILITIES................................. 45,928,337 35,013 772,883
------------ ----------- ------------
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.................................. 336,326,472 27,120,364 213,818,824
Unrealized depreciation of investments.......... (4,094,668) (1,217,509) (11,810,393)
Undistributed net investment income (excess of
distribution over)............................ 345,735 (15,820) 384,543
Accumulated net realized loss from sale of
investments................................... (72,640,689) (1,340,579) (38,134,522)
------------ ----------- ------------
TOTAL NET ASSETS.................................. $259,936,850 $24,546,456 $164,258,452
============ =========== ============
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A shares (based on net assets of
$45,075,256; $22,723,479; and $94,349,928;
respectively and 5,159,665; 2,529,332; and
14,634,026 shares outstanding; respectively).... $8.74 $8.98 $6.45
------------ ----------- ------------
Class B shares (based on net assets of $4,266,515;
$801,337; and $19,119,639; respectively and
489,698; 89,194; and 2,963,619 shares
outstanding; respectively)...................... $8.71 $8.98 $6.45
------------ ----------- ------------
Class C shares (based on net assets of $2,719,797;
$205,905; and $5,218,008; respectively and
312,654; 22,907; and 810,264 shares outstanding;
respectively)................................... $8.70 $8.99 $6.44
------------ ----------- ------------
Class E shares (based on net assets of
$198,610,273; $0; and $0; respectively and
22,747,064; 0; and 0 shares outstanding;
respectively)................................... $8.73 -- --
------------ ----------- ------------
Class H shares (based on net assets of $9,265,009;
$815,735; and $45,570,877; respectively and
1,063,831; 90,824; and 7,069,386 shares
outstanding; respectively)...................... $8.71 $8.98 $6.45
------------ ----------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
FORTIS BOND FUNDS
Statements of Operations
(Unaudited)
For the Six-Month Period Ended January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT STRATEGIC
SECURITIES INCOME HIGH YIELD
FUND FUND PORTFOLIO
--------------- --------- ---------
<S> <C> <C> <C>
NET INVESTMENT INCOME:
Income:
Interest income............................... $ 9,197,521 $1,044,005 $ 9,210,420
Dividend income............................... -- -- 109,797
Fee income (Note 1)........................... 47,340 -- --
----------- ---------- ------------
Total income.................................... 9,244,861 1,044,005 9,320,217
----------- ---------- ------------
Expenses:
Investment advisory and management fees (Note
2)........................................... 1,018,848 98,251 649,528
Distribution fees (Class A) (Note 2).......... 59,088 28,373 175,832
Distribution fees (Class B) (Note 2).......... 22,497 4,158 105,390
Distribution fees (Class C) (Note 2).......... 15,026 1,090 28,476
Distribution fees (Class H) (Note 2).......... 51,251 4,071 255,660
Registration fees............................. 25,639 16,087 28,555
Shareholders' notices and reports............. 36,699 2,696 23,226
Legal and auditing fees (Note 2).............. 24,131 7,415 14,680
Custodian fees................................ 7,541 1,207 5,530
Directors' fees and expenses.................. 8,848 247 5,781
Amortization of organization costs............ -- 3,270 --
Other......................................... 13,051 830 7,742
----------- ---------- ------------
Total expenses.................................. 1,282,619 167,695 1,300,400
Less reimbursable expenses (Note 2)........... -- (25,503) --
----------- ---------- ------------
Net Expenses.................................... 1,282,619 142,192 1,300,400
----------- ---------- ------------
NET INVESTMENT INCOME............................. 7,962,242 901,813 8,019,817
----------- ---------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(NOTE 1):
Net realized loss from security transactions.... (7,362,301) (534,609) (12,158,017)
Net change in unrealized appreciation of
investments................................... 101,862 120,836 5,418,912
----------- ---------- ------------
NET LOSS ON INVESTMENTS........................... (7,260,439) (413,773) (6,739,105)
----------- ---------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $ 701,803 $ 488,040 $ 1,280,712
=========== ========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
FORTIS BOND FUNDS
Statements of Changes in Net Assets
U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX-MONTH
PERIOD ENDED FOR THE
JANUARY 31, 2000 YEAR ENDED
(UNAUDITED) JULY 31, 1999
----------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 7,962,242 $ 18,144,211
Net realized loss from security transactions.... (7,362,301) (105,226)
Net change in unrealized appreciation
(depreciation) on investments in securities... 101,862 (12,599,430)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... 701,803 5,439,555
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (1,273,917) (2,622,563)
Class B....................................... (105,422) (171,776)
Class C....................................... (70,598) (88,599)
Class E....................................... (6,181,783) (14,630,693)
Class H....................................... (240,118) (470,692)
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (7,871,838) (17,984,323)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (634,890 and 1,796,539 shares)........ 5,671,019 16,844,144
Class B (47,614 and 289,195 shares)........... 422,228 2,689,827
Class C (23,247 and 364,482 shares)........... 205,916 3,400,685
Class E (260,195 and 3,851,023 shares)........ 2,310,059 36,198,004
Class H (146,803 and 466,452 shares).......... 1,306,437 4,370,480
Proceeds from shares issued as a result of
reinvested dividends
Class A (107,803 and 208,031 shares).......... 957,219 1,941,525
Class B (10,073 and 16,315 shares)............ 89,211 151,529
Class C (5,040 and 7,080 shares).............. 44,575 65,640
Class E (502,739 and 1,176,290 shares)........ 4,461,394 10,973,982
Class H (20,648 and 37,302 shares)............ 182,768 347,038
Less cost of repurchase of shares
Class A (1,080,815 and 2,142,693 shares)...... (9,622,521) (20,065,742)
Class B (93,983 and 120,086 shares)........... (835,122) (1,113,932)
Class C (59,624 and 164,225 shares)........... (525,879) (1,540,025)
Class E (6,379,838 and 7,313,196 shares)...... (56,740,082) (68,212,077)
Class H (251,855 and 521,603 shares).......... (2,225,544) (4,842,822)
------------ ------------
NET DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... (54,298,322) (18,791,744)
------------ ------------
TOTAL DECREASE IN NET ASSETS...................... (61,468,357) (31,336,512)
NET ASSETS:
Beginning of period............................. 321,405,207 352,741,719
------------ ------------
End of period (includes undistributed net
investment income of $345,735 and $255,331,
respectively)................................. $259,936,850 $321,405,207
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
FORTIS BOND FUNDS
Statement of Changes in Net Assets
STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX-MONTH
PERIOD ENDED FOR THE
JANUARY 31, 2000 YEAR ENDED
(UNAUDITED) JULY 31, 1999
----------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 901,813 $ 1,503,583
Net realized loss from security transactions.... (534,609) (805,970)
Net change in unrealized appreciation
(depreciation) of investments in securities... 120,836 (1,391,995)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................. 488,040 (694,382)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (858,050) (1,444,077)
Class B....................................... (28,223) (32,866)
Class C....................................... (7,397) (14,830)
Class H....................................... (27,649) (28,844)
From net realized gains on investments
Class A....................................... -- (29,418)
Class B....................................... -- (685)
Class C....................................... -- (384)
Class H....................................... -- (497)
----------- -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (921,319) (1,551,601)
----------- -----------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (36,011 and 114,975 shares)........... 328,470 1,112,155
Class B (5,908 and 56,479 shares)............. 53,748 540,543
Class C (4,030 and 27,407 shares)............. 36,731 265,968
Class H (18,664 and 65,798 shares)............ 169,077 628,078
Proceeds from shares issued as a result of
reinvested dividends
Class A (92,970 and 151,302 shares)........... 844,611 1,446,534
Class B (2,511 and 2,681 shares).............. 22,813 25,499
Class C (586 and 1,153 shares)................ 5,327 11,040
Class H (1,546 and 1,975 shares).............. 14,035 18,736
Less cost of repurchase of shares
Class A (28,060 and 68,638 shares)............ (255,433) (657,349)
Class B (8,323 and 9,643 shares).............. (75,314) (91,804)
Class C (5,668 and 23,895 shares)............. (51,580) (229,098)
Class H (11,502 and 20,959 shares)............ (104,644) (201,297)
----------- -----------
NET INCREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... 987,841 2,869,005
----------- -----------
TOTAL INCREASE IN NET ASSETS...................... 554,562 623,022
NET ASSETS:
Beginning of period............................. 23,991,894 23,368,872
----------- -----------
End of period (includes undistributed (excess of
distributions over) net investment income of
$(15,820) and $3,686, respectively)........... $24,546,456 $23,991,894
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
FORTIS BOND FUNDS
Statement of Changes in Net Assets
HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX-MONTH
PERIOD ENDED FOR THE
JANUARY 31, 2000 YEAR ENDED
(UNAUDITED) JULY 31, 1999
----------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 8,019,817 $ 16,580,611
Net realized loss from security transactions.... (12,158,017) (15,531,738)
Net change in unrealized appreciation
(depreciation) of investments in securities... 5,418,912 (6,387,800)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................. 1,280,712 (5,338,927)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A....................................... (4,267,824) (9,110,376)
Class B....................................... (818,150) (2,074,725)
Class C....................................... (221,567) (553,768)
Class H....................................... (1,986,959) (5,185,872)
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (7,294,500) (16,924,741)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (1,045,738 and 4,788,487 shares)...... 6,827,469 33,406,189
Class B (152,110 and 462,119 shares).......... 992,951 3,230,762
Class C (51,798 and 179,698 shares)........... 336,842 1,249,109
Class H (407,350 and 1,317,353 shares)........ 2,661,757 9,207,091
Proceeds from shares issued as a result of
reinvested dividends
Class A (462,319 and 845,799 shares).......... 3,009,595 5,832,807
Class B (55,536 and 138,016 shares)........... 361,747 952,967
Class C (29,451 and 65,909 shares)............ 191,421 454,338
Class H (141,137 and 354,183 shares).......... 918,843 2,444,094
Less cost of repurchase of shares
Class A (2,910,637 and 4,924,969 shares)...... (19,010,202) (34,161,183)
Class B (665,080 and 1,085,786 shares)........ (4,343,268) (7,512,789)
Class C (179,854 and 505,027 shares).......... (1,172,404) (3,489,086)
Class H (1,945,538 and 2,988,963 shares)...... (12,708,904) (20,684,500)
------------ ------------
NET DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS.................................... (21,934,153) (9,070,201)
------------ ------------
TOTAL DECREASE IN NET ASSETS...................... (27,947,941) (31,333,869)
NET ASSETS:
Beginning of period............................. 192,206,393 223,540,262
------------ ------------
End of period (includes undistributed (excess of
distributions over) net investment income of
$384,543 and ($340,774), respectively)........ $164,258,452 $192,206,393
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
FORTIS BOND FUNDS
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 High Yield Portfolio ("High Yield") is an investment portfolio in Fortis
Advantage Portfolios, Inc. ("Fortis Advantage"). The investment objectives of
each portfolio are as follows:
- The objective of the U.S. Government Securities Fund is to maximize total
return (from current income and capital appreciation), while providing
shareholders with a level of current income consistent with prudent
investment risk.
- The objective of the Strategic Income Fund is to maximize total return
(from current income and capital appreciation) by primarily investing in
(a) U.S. Government securities, (b) investment and non-investment grade
fixed income securities issued by foreign governments and companies, and
(c) investment and non-investment grade fixed income securities issued by
U.S. issuers, which, in the opinion of the portfolio's investment adviser,
do not subject the fund to unreasonable investment risk.
- The objective of the 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 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, 2000, U.S. Government Fund had entered into an outstanding when-issued or
forward commitments of $9,660,969.
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, 2000, 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.............. $273,866,905 $341,130,485
Strategic Income Fund........................ 8,133,589 7,381,028
High Yield Portfolio......................... 64,359,185 81,548,748
</TABLE>
LENDING OF PORTFOLIO SECURITIES: At January 31, 2000, securities valued at
$34,618,658 were on loan to brokers from the U.S. Government Fund. For
collateral, the Fund's custodian received
20
<PAGE>
- --------------------------------------------------------------------------------
$35,468,218 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 $47,340 for the U.S. Government Fund for the period ended
January 31, 2000. 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 $64,894,291, Strategic Income had $805,970 and High Yield had $25,970,943
at July 31, 1999, which, if not offset by subsequent capital gains, will
expire in 2002 through 2008 . 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, 2000, 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, 2000, was $1,583,231 for Strategic Income
and $9,369,396 for High Yield which represents 6.45% and 5.70% of net assets
respectively. Pursuant to guidelines adopted by the Board of Directors,
certain unregistered securities are determined to be liquid and are not
included within the 15% limitation specified above.
HIGH-YIELD DEBT SECURITIES: Although High Yield and Strategic Income have
diversified portfolios, the funds have 93.90% and 41.19%, respectively, 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.
BANK BORROWINGS: Several Fortis Funds including the High Yield Portfolio have
a revolving credit agreement with Norwest Bank Minnesota N. A., whereby the
portfolio is permitted to have a bank borrowing for temporary and emergency
purposes to meet large redemption requests by shareholders; and cover
securities purchased when matched or when earlier trades have failed. The
agreement, which enables the portfolio to participate with other Fortis
Funds, permits borrowings up to $25 million, collectively. Interest is
expensed to each participating fund based on its borrowings will be at the
borrowers' option of: 1) the Prime Index: 2) the Federal Funds rate plus a
"Margin" of 37.5 basis points, or: 3) the Libor rate plus a "Margin" of 37.5
basis points. The Prime index is defined as the higher of; A) the rate that
Norwest Bank Minnesota N.A. announces from time to time as its prime rate or
B) the Federal Funds rate plus 50 basis points. Each portfolio pays a
commitment fee equal to its pro rata share of the amount of the credit
facility at a rate of 0.08% per annum. The High Yield Portfolio had no
borrowings outstanding during the six-month period ended January 31, 2000.
2. PAYMENTS TO RELATED PARTIES: Fortis Advisers, Inc., is the investment adviser
for the funds. 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
21
<PAGE>
FORTIS BOND FUNDS
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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 E Class H
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
U.S. Government Securities Fund $57,293 $ 2,749 $172 $21,689 $ 25,213
Strategic Income Fund 4,532 748 55 -- 1,195
High Yield Portfolio 39,797 53,158 601 -- 171,441
</TABLE>
Advisers has voluntarily undertaken to limit annual expenses for Strategic
Income (exclusive of interest, taxes, brokerage commissions and non-recurring
extraordinary charges and expenses) commencing December 1, 1997, to 1.10% of
average daily net assets for Class A, and 1.85% for Classes B, C, and H.
During the period ended January 31, 2000, Advisers waived $25,503 of its
advisory fee.
For the period ended January 31, 2000, 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 $9,049
Strategic Income Fund 628
High Yield Portfolio 4,122
</TABLE>
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 2000** 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 8.96 $ 9.30 $ 9.16 $ 8.87 $ 9.02 $ 9.03
-------- -------- -------- -------- -------- --------
Operations:
Investment income - net............... .25 .49 .52 .54 .60 .67
Net realized and unrealized gain
(losses) on
investments......................... (.23) (.34) .14 .32 (.15) (.01)
-------- -------- -------- -------- -------- --------
Total from operations................... .02 .15 .66 .86 .45 .66
-------- -------- -------- -------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.25) (.49) (.52) (.54) (.60) (.67)
Excess distributions of net realized
gains............................... -- -- -- (.03) -- --
-------- -------- -------- -------- -------- --------
Total distributions to shareholders..... (.25) (.49) (.52) (.57) (.60) (.67)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 8.73 $ 8.96 $ 9.30 $ 9.16 $ 8.87 $ 9.02
-------- -------- -------- -------- -------- --------
Total Return @.......................... .25% 1.56% 7.42% 10.07% 5.08% 7.71%
Net assets end of period (000s
omitted).............................. $198,610 $254,096 $285,060 $324,643 $388,006 $470,597
Ratio of expenses to average daily net
assets................................ .80%* .78% .79% .81% .81% .77%
Ratio of net investment income to
average daily net assets.............. 5.71%* 5.32% 5.62% 6.08% 6.59% 7.51%
Portfolio turnover rate................. 102% 75% 118% 161% 75% 76%
</TABLE>
* Annualized.
** For the six-month period ended January 31, 2000.
@ These are the fund's total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustments for sales charge.
22
<PAGE>
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued):
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------
Year Ended July 31,
--------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 2000** 1999 1998 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 8.96 $ 9.30 $ 9.16 $ 8.87 $ 9.02 $ 8.63
-------- -------- -------- -------- -------- --------
Operations:
Investment income - net............... .25 .47 .50 .52 .58 .46
Net realized and unrealized gain
(losses) on
investments......................... (.23) (.34) .14 .32 (.15) .39
-------- -------- -------- -------- -------- --------
Total from operations................... .02 .13 .64 .84 .43 .85
-------- -------- -------- -------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.24) (.47) (.50) (.52) (.58) (.46)
Excess distributions of net realized
gains............................... -- -- -- (.03) -- --
-------- -------- -------- -------- -------- --------
Total distributions to shareholders..... (.24) (.47) (.50) (.55) (.58) (.46)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 8.74 $ 8.96 $ 9.30 $ 9.16 $ 8.87 $ 9.02
-------- -------- -------- -------- -------- --------
Total Return @.......................... .23% 1.30% 7.14% 9.77% 4.78% 10.07%
Net assets end of period (000s
omitted).............................. $ 45,075 $ 49,274 $ 52,439 $ 59,128 $ 67,707 $ 4,909
Ratio of expenses to average daily net
assets................................ 1.05%* 1.03% 1.04% 1.06% 1.06% 1.02%*
Ratio of net investment income to
average daily net assets.............. 5.46%* 5.07% 5.37% 5.83% 6.34% 7.00%*
Portfolio turnover rate................. 102% 75% 118% 161% 75% 76%
</TABLE>
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------------
Year Ended July 31,
--------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 2000** 1999 1998 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 8.94 $ 9.28 $ 9.14 $ 8.86 $ 9.02 $ 8.63
-------- -------- -------- -------- -------- --------
Operations:
Investment income - net............... .21 .40 .43 .46 .51 .41
Net realized and unrealized gain
(losses) on
investments......................... (.23) (.34) .14 .31 (.15) .39
-------- -------- -------- -------- -------- --------
Total from operations................... (.02) .06 .57 .77 .36 .80
-------- -------- -------- -------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.21) (.40) (.43) (.47) (.52) (.41)
Excess distributions of net realized
gains............................... -- -- -- (.02) -- --
-------- -------- -------- -------- -------- --------
Total distributions to shareholders..... (.21) (.40) (.43) (.49) (.52) (.41)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 8.71 $ 8.94 $ 9.28 $ 9.14 $ 8.86 $ 9.02
-------- -------- -------- -------- -------- --------
Total Return @.......................... (.24)% .53% 6.40% 8.95% 4.00% 9.47%
Net assets end of period (000s
omitted).............................. $ 4,267 $ 4,703 $ 3,161 $ 2,826 $ 2,314 $ 483
Ratio of expenses to average daily net
assets................................ 1.80%* 1.78% 1.79% 1.81% 1.81% 1.77%*
Ratio of net investment income to
average daily net assets.............. 4.71%* 4.32% 4.62% 5.08% 5.45% 6.24%*
Portfolio turnover rate................. 102% 75% 118% 161% 75% 76%
</TABLE>
* Annualized.
** For the six-month period ended January 31, 2000.
+ 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.
23
<PAGE>
FORTIS BOND FUNDS
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued):
<TABLE>
<CAPTION>
Class C
--------------------------------------------------------------------
Year Ended July 31,
--------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 2000** 1999 1998 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 8.93 $ 9.27 $ 9.13 $ 8.85 $ 9.01 $ 8.63
-------- -------- -------- -------- -------- --------
Operations:
Investment income - net............... .21 .40 .43 .46 .51 .41
Net realized and unrealized gain
(losses) on
investments......................... (.23) (.34) .14 .31 (.15) .38
-------- -------- -------- -------- -------- --------
Total from operations................... (.02) .06 .57 .77 .36 .79
-------- -------- -------- -------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.21) (.40) (.43) (.47) (.52) (.41)
Excess distributions of net realized
gains............................... -- -- -- (.02) -- --
-------- -------- -------- -------- -------- --------
Total distributions to shareholders..... (.21) (.40) (.43) (.49) (.52) (.41)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 8.70 $ 8.93 $ 9.27 $ 9.13 $ 8.85 $ 9.01
-------- -------- -------- -------- -------- --------
Total Return @.......................... (.24)% .52% 6.41% 8.96% 4.00% 9.35%
Net assets end of period (000s
omitted).............................. $ 2,720 $ 3,071 $ 1,267 $ 1,444 $ 1,057 $ 326
Ratio of expenses to average daily net
assets................................ 1.80%* 1.78% 1.79% 1.81% 1.81% 1.77%*
Ratio of net investment income to
average daily net assets.............. 4.71%* 4.32% 4.62% 5.07% 5.59% 6.24%*
Portfolio turnover rate................. 102% 75% 118% 161% 75% 76%
</TABLE>
<TABLE>
<CAPTION>
Class H
--------------------------------------------------------------------
Year Ended July 31,
--------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 2000** 1999 1998 1997 1996 1995+
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 8.94 $ 9.28 $ 9.14 $ 8.86 $ 9.02 $ 8.63
-------- -------- -------- -------- -------- --------
Operations:
Investment income - net............... .21 .40 .43 .46 .51 .41
Net realized and unrealized gain
(losses) on
investments......................... (.23) (.34) .14 .31 (.15) .39
-------- -------- -------- -------- -------- --------
Total from operations................... (.02) .06 .57 .77 .36 .80
-------- -------- -------- -------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.21) (.40) (.43) (.47) (.52) (.41)
Excess distributions of net realized
gains............................... -- -- -- (.02) -- --
-------- -------- -------- -------- -------- --------
Total distributions to shareholders..... (.21) (.40) (.43) (.49) (.52) (.41)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 8.71 $ 8.94 $ 9.28 $ 9.14 $ 8.86 $ 9.02
-------- -------- -------- -------- -------- --------
Total Return @.......................... (.24)% .53% 6.40% 8.94% 4.00% 9.47%
Net assets end of period (000s
omitted).............................. $ 9,265 $ 10,262 $ 10,816 $ 10,637 $ 10,120 $ 4,823
Ratio of expenses to average daily net
assets................................ 1.80%* 1.78% 1.79% 1.80% 1.81% 1.77%*
Ratio of net investment income to
average daily net assets.............. 4.71%* 4.32% 4.62% 5.08% 5.52% 6.24%*
Portfolio turnover rate................. 102% 75% 118% 161% 75% 76%
</TABLE>
* Annualized.
** For the six-month period ended January 31, 2000.
+ For the period from November 14, 1994 (commencement of operations) to July
31, 1995.
@ These are the fund's total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustments for sales charge.
24
<PAGE>
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued):
<TABLE>
<CAPTION>
Class A
--------------------------------
Year Ended July 31,
--------------------------------
STRATEGIC INCOME FUND 2000** 1999 1998+
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.14 $ 10.05 $ 10.00
-------- -------- --------
Operations:
Investment income - net............... .35 .61 .42
Net realized and unrealized gain
(loss) on
investments......................... (.16) (.89) .05
-------- -------- --------
Total from operations................... .19 (.28) .47
-------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.35) (.62) (.42)
From net realized gains on
investments......................... -- (.01) --
-------- -------- --------
Total distributions to shareholders..... (.35) (.63) (.42)
-------- -------- --------
Net asset value, end of period.......... $ 8.98 $ 9.14 $ 10.05
-------- -------- --------
Total return @.......................... 2.07% (2.86%) 4.77%
Net assets end of period (000s
omitted).............................. $ 22,723 $ 22,207 $ 22,422
Ratio of expenses to average daily net
assets (a)............................ 1.10%* 1.10% 1.10%*
Ratio of net investment income to
average daily net assets (a).......... 7.40%* 6.38% 6.22%*
Portfolio turnover rate................. 33% 79% 136%
</TABLE>
<TABLE>
<CAPTION>
Class B
--------------------------------
Year Ended July 31,
--------------------------------
STRATEGIC INCOME FUND 2000** 1999 1998+
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.14 $ 10.05 $ 10.00
-------- -------- --------
Operations:
Investment income - net............... .31 .54 .38
Net realized and unrealized gain
(loss) on
investments......................... (.16) (.89) .05
-------- -------- --------
Total from operations................... .15 (.35) .43
-------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.31) (.55) (.38)
From net realized gains on
investments......................... -- (.01) --
-------- -------- --------
Total distributions to shareholders..... (.31) (.56) (.38)
-------- -------- --------
Net asset value, end of period.......... $ 8.98 $ 9.14 $ 10.05
-------- -------- --------
Total return @.......................... 1.66% (3.58%) 4.31%
Net assets end of period (000s
omitted).............................. $ 801 $ 815 $ 398
Ratio of expenses to average daily net
assets (a)............................ 1.85%* 1.85% 1.85%*
Ratio of net investment income to
average daily net assets (a).......... 6.64%* 5.63% 5.73%*
Portfolio turnover rate................. 33% 79% 136%
</TABLE>
* Annualized.
** For the six-month period ended January 31, 2000
+ For the period December 1, 1997 (commencement of operations) to July 31,
1998.
@ These are the fund's total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
(a) Advisers has voluntarily undertaken to limit annual expenses for the
Strategic Income Fund (exclusive of interest, taxes, brokerage commission
and non-recurring extraordinary charges and expenses) to 1.10% of average
daily net assets for Class A and 1.85% for Classes B. For the six-month
period ended January 31, 2000, had the waiver and reimbursement of
expenses not been in effect, the ratios of expenses and net investment
income to average daily net assets would have been 1.30% and 7.20% for
Class A, 2.18% and 6.31% for Class B. For the year ended July 31, 1999,
had the waiver and reimbursement of expenses not been in effect, the
ratios of expenses and net investment income to average daily net assets
would have been 1.44% and 6.04% for Class A and 2.19% and 5.29% for
Class B. For the period December 1, 1997 to July 31, 1998, had the waiver
and reimbursement of expenses not been in effect, the ratios of expenses
and net investment income to average daily net assets would have been
1.39% and 5.93% for Class A and 2.14% and 5.44% for Class B, respectively.
25
<PAGE>
FORTIS BOND FUNDS
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued):
<TABLE>
<CAPTION>
Class C
--------------------------------
Year Ended July 31,
--------------------------------
STRATEGIC INCOME FUND 2000** 1999 1998+
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.15 $ 10.05 $ 10.00
-------- -------- --------
Operations:
Investment income - net............... .31 .55 .38
Net realized and unrealized gain
(loss) on
investments......................... (.16) (.89) .05
-------- -------- --------
Total from operations................... .15 (.34) .43
-------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.31) (.55) (.38)
From net realized gains on
investments......................... -- (.01) --
-------- -------- --------
Total distributions to shareholders..... (.31) (.56) (.38)
-------- -------- --------
Net asset value, end of period.......... $ 8.99 $ 9.15 $ 10.05
-------- -------- --------
Total return @.......................... 1.67% (3.49%) 4.35%
Net assets end of period (000s
omitted).............................. $ 206 $ 219 $ 194
Ratio of expenses to average daily net
assets(a)............................. 1.85%* 1.85% 1.85%*
Ratio of net investment income to
average daily net assets(a)........... 6.64%* 5.63% 5.73%*
Portfolio turnover rate................. 33% 79% 136%
</TABLE>
<TABLE>
<CAPTION>
Class H
--------------------------------
Year Ended July 31,
--------------------------------
STRATEGIC INCOME FUND 2000** 1999 1998+
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
Net asset value, beginning of period.... $ 9.14 $ 10.05 $ 10.00
-------- -------- --------
Operations:
Investment income - net............... .31 .54 .38
Net realized and unrealized gain
(loss) on investments............... (.16) (.89) .05
-------- -------- --------
Total from operations................... .15 (.35) .43
-------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.31) (.55) (.38)
From net realized gains on
investments......................... -- (.01) --
-------- -------- --------
Total distributions to shareholders..... (.31) (.56) (.38)
-------- -------- --------
Net asset value, end of period.......... $ 8.98 $ 9.14 $ 10.05
-------- -------- --------
Total return @.......................... 1.67% (3.58%) 4.35%
Net assets end of period (000s
omitted).............................. $ 816 $ 751 $ 355
Ratio of expenses to average daily net
assets(a)............................. 1.85%* 1.85% 1.85%*
Ratio of net investment income to
average daily net assets(a)........... 6.65%* 5.63% 5.73%*
Portfolio turnover rate................. 33% 79% 136%
</TABLE>
* Annualized.
** For the six-month period ended January 31, 2000
+ For the period December 1, 1997 (commencement of operations) to July 31,
1998.
@ These are the fund's total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
(a) Advisers has voluntarily undertaken to limit annual expenses for the
Strategic Income Fund (exclusive of interest, taxes, brokerage commission
and non-recurring extraordinary charges and expenses) to 1.85% of average
daily net assets for Classes C and H. For the six-month period, had the
waiver and reimbursement of expenses not been in effect, the ratios of
expenses and net investment income to average daily net assets would have
been 2.18% and 6.31% for Classes C and H. For the year ended July 31,
1999, had the waiver and reimbursement of expenses not been in effect, the
ratios of expenses and net investment income to average daily net assets
would have been 2.19% and 5.19% for Classes C and H. For the period
December 1, 1997 to July 31, 1998, had the waiver and reimbursement of
expenses not been in effect, the ratios of expenses and net investment
income to average daily net assets would have been 2.14% and 5.44%, for
Class C, 2.14% and 5.44% for Class H, respectively.
26
<PAGE>
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued):
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------
Year Ended July 31,
--------------------------------------------------------------------
HIGH YIELD PORTFOLIO 2000** 1999 1998 1997 1996+ 1995+++
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 6.67 $ 7.41 $ 7.83 $ 7.56 $ 7.61 $ 7.90
-------- -------- -------- -------- -------- --------
Operations:
Investment income - net............... .30 .59 .73 .76 .56 .86
Net realized and unrealized gain
(loss) on investments............... (.24) (.72) (.40) .28 (.04) (.25)
-------- -------- -------- -------- -------- --------
Total from operations................... .06 (.13) .33 1.04 .52 .61
-------- -------- -------- -------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.28) (.61) (.75) (.75) (.55) (.86)
Excess distributions of net realized
gains............................... -- -- -- (.02) (.02) (.04)
-------- -------- -------- -------- -------- --------
Total distributions to shareholders..... (.28) (.61) (.75) (.77) (.57) (.90)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 6.45 $ 6.67 $ 7.41 $ 7.83 $ 7.56 $ 7.61
-------- -------- -------- -------- -------- --------
Total return @.......................... .94% (1.76%) 4.31% 14.51% 6.98% 8.07%
Net assets end of period (000s
omitted).............................. $ 94,350 $106,921 $113,549 $123,115 $109,401 $113,268
Ratio of expenses to average daily net
assets................................ 1.17%* 1.16% 1.17% 1.19% 1.21%* 1.25%*
Ratio of net investment income to
average daily net assets.............. 9.28%* 8.54% 9.46% 9.84% 9.87%* 10.61%*
Portfolio turnover rate................. 37% 46% 214% 331% 146% 101%
</TABLE>
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------------
Year Ended July 31,
--------------------------------------------------------------------
HIGH YIELD PORTFOLIO 2000** 1999 1998 1997 1996+ 1995++
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 6.67 $ 7.41 $ 7.83 $ 7.56 $ 7.60 $ 7.87
-------- -------- -------- -------- -------- --------
Operations:
Investment income - net............... .28 .54 .68 .71 .53 .78
Net realized and unrealized gain
(loss) on investments............... (.24) (.72) (.40) .28 (.04) (.23)
-------- -------- -------- -------- -------- --------
Total from operations................... .04 (.18) .28 .99 .49 .55
-------- -------- -------- -------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.26) (.56) (.70) (.70) (.51) (.78)
Excess distributions of net realized
gains............................... -- -- -- (.02) (.02) (.04)
-------- -------- -------- -------- -------- --------
Total distributions to shareholders..... (.26) (.56) (.70) (.72) (.53) (.82)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 6.45 $ 6.67 $ 7.41 $ 7.83 $ 7.56 $ 7.60
-------- -------- -------- -------- -------- --------
Total return @.......................... .56% (2.44%) 3.67% 13.80% 6.62% 7.25%
Net assets end of period (000s
omitted).............................. $ 19,120 $ 22,814 $ 28,935 $ 20,388 $ 12,067 $ 7,530
Ratio of expenses to average daily net
assets................................ 1.82%* 1.81% 1.82% 1.83% 1.86%* 1.90%*
Ratio of net investment income to
average daily net assets.............. 8.62%* 7.90% 8.81% 9.24% 9.20%* 9.66%*
Portfolio turnover rate................. 37% 46% 214% 331% 146% 101%
</TABLE>
* Annualized
** For the six-month period ended January 31, 2000
+ For the nine-month period ended July 31, 1996.
++ For the period from November 14, 1994 (commencement of operations) to
October 31, 1995
+++ For the year ended October 31, 1995.
@ These are the fund's total returns during the periods, including
reinvestment of all dividends and capital gains distributions without
adjustments for sales charge.
27
<PAGE>
FORTIS BOND FUNDS
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
3. FINANCIAL HIGHLIGHTS (continued):
<TABLE>
<CAPTION>
Class C
--------------------------------------------------------------------
Year Ended July 31,
--------------------------------------------------------------------
HIGH YIELD PORTFOLIO 2000** 1999 1998 1997 1996+ 1995++
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 6.66 $ 7.40 $ 7.82 $ 7.55 $ 7.59 $ 7.87
-------- -------- -------- -------- -------- --------
Operations:
Investment income - net............... .28 .54 .68 .71 .53 .78
Net realized and unrealized gain
(loss) on investments............... (.24) (.72) (.40) .28 (.04) (.24)
-------- -------- -------- -------- -------- --------
Total from operations................... .04 (.18) .28 .99 .49 .54
-------- -------- -------- -------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.26) (.56) (.70) (.70) (.51) (.78)
Excess distributions of net realized
gains............................... -- -- -- (.02) (.02) (.04)
-------- -------- -------- -------- -------- --------
Total distributions to shareholders..... (.26) (.56) (.70) (.72) (.53) (.82)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 6.44 $ 6.66 $ 7.40 $ 7.82 $ 7.55 $ 7.59
-------- -------- -------- -------- -------- --------
Total return @.......................... .57% (2.44%) 3.67% 13.82% 6.63% 7.12%
Net assets end of period (000s
omitted).............................. $ 5,218 $ 6,051 $ 8,641 $ 7,037 $ 3,378 $ 2,180
Ratio of expenses to average daily net
assets................................ 1.82%* 1.81% 1.82% 1.83% 1.86%* 1.90%*
Ratio of net investment income to
average daily net assets.............. 8.62%* 7.90% 8.81% 9.26% 9.21%* 9.83%*
Portfolio turnover rate................. 37% 46% 214% 331% 146% 101%
</TABLE>
<TABLE>
<CAPTION>
Class H
--------------------------------------------------------------------
Year Ended July 31,
--------------------------------------------------------------------
HIGH YIELD PORTFOLIO 2000** 1999 1998 1997 1996+ 1995++
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 6.66 $ 7.40 $ 7.82 $ 7.55 $ 7.60 $ 7.87
-------- -------- -------- -------- -------- --------
Operations:
Investment income - net............... .29 .54 .68 .71 .52 .78
Net realized and unrealized gain
(loss) on investments............... (.24) (.72) (.40) .28 (.04) (.23)
-------- -------- -------- -------- -------- --------
Total from operations................... .05 (.18) .28 .99 .48 .55
-------- -------- -------- -------- -------- --------
Distributions to shareholders:
From investment income - net.......... (.26) (.56) (.70) (.70) (.51) (.78)
Excess distributions of net realized
gains............................... -- -- -- (.02) (.02) (.04)
-------- -------- -------- -------- -------- --------
Total distributions to shareholders..... (.26) (.56) (.70) (.72) (.53) (.82)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 6.45 $ 6.66 $ 7.40 $ 7.82 $ 7.55 $ 7.60
-------- -------- -------- -------- -------- --------
Total return @.......................... .72% (2.44%) 3.67% 13.82% 6.48% 7.25%
Net assets end of period (000s
omitted).............................. $ 45,571 $ 56,420 $ 72,415 $ 63,789 $ 39,133 $ 23,862
Ratio of expenses to average daily net
assets................................ 1.82%* 1.81% 1.82% 1.83% 1.86%* 1.90%*
Ratio of net investment income to
average daily net assets.............. 8.62%* 7.90% 8.81% 9.23% 9.21%* 9.81%*
Portfolio turnover rate................. 37% 46% 214% 331% 146% 101%
</TABLE>
* Annualized
** For the six-month period ended January 31, 2000
+ For the nine-month period ended July 31, 1996.
++ For the period from November 14, 1994 (commencement of operations) to
October 31, 1995
@ These are the fund's total returns during the periods, including
reinvestment of all dividends and capital gains distributions without
adjustments for sales charge.
28
<PAGE>
DIRECTORS AND OFFICERS
DIRECTORS Richard W. Cutting CPA AND FINANCIAL CONSULTANT
Allen R. Freedman CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
FORTIS, INC. MANAGING DIRECTOR OF
FORTIS INTERNATIONAL, N.V.
Dr. Robert M. Gavin PRESIDENT, CRANBROOK EDUCATION
COMMUNITY. PRIOR TO JULY 1996,
PRESIDENT MACALESTER COLLEGE
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
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 Schenker 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 LLP
MINNEAPOLIS, MINNESOTA
The use of this material is authorized only when preceded or accompanied by a
prospectus.
29
<PAGE>
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-
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 annuities, life insurance and mutual funds
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 the international Fortis group, which operates in the
fields of insurance, banking and investments. Fortis' listed companies are
Fortis (B) of Belgium and Fortis (NL) of the Netherlands.
Fortis: steadfast for YOU!
FORTIS FINANCIAL GROUP
Fund management offered through
Fortis Advisers, Inc. since 1949
Securities offered through Fortis
Investors, Inc., member NASD, SIPC
Insurance Products issued by
Fortis Benefits Insurance Company
& Fortis Insurance Company
P.O. Box 64284, St. Paul, MN 55164-0284
Telephone (800) 800-2000
http://www.ffg.us.fortis.com
FORTIS FINANCIAL GROUP ----------------------
P.O. Box 64284 Bulk Rate
St. Paul, MN 55164-0284 U.S. Postage
PAID
Fortis Bond Funds Permit No. 3794
Minneapolis, MN
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[RECYCLE LOGO] Printed on recycled paper with
40% preconsumer waste and 10%
post consumer waste. Please recycle.
The Fortis brandmark and Fortis-Registered Trademark- are
servicemarks of Fortis (B) and Fortis (NL).
98754 -C- Fortis 2/00
