<PAGE>
[FORTIS LOGO] -REGISTERED TRADEMARK-
[GRAPHIC]
TRUST IN THE
CONSISTENCY OF TIME . . .
FORTIS
BOND FUNDS
SEMI-ANNUAL REPORT
January 31, 1997
<PAGE>
FORTIS BOND FUND SEMI-ANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS 1
SCHEDULES OF INVESTMENTS
U.S. GOVERNMENT SECURITIES FUND 5
HIGH YIELD PORTFOLIO 7
STATEMENTS OF ASSETS AND LIABILITIES 11
STATEMENTS OF OPERATIONS 12
STATEMENTS OF CHANGES IN NET ASSETS
U.S. GOVERNMENT SECURITIES FUND 13
HIGH YIELD PORTFOLIO 14
NOTES TO FINANCIAL STATEMENTS 15
BOARD OF DIRECTORS AND OFFICERS 19
OTHER PRODUCTS AND SERVICES 20
- - TOLL-FREE PERSONAL ASSISTANCE
- Shareholder Services
- (800) 800-2638, Ext. 3012
- 7:30 a.m. to 5:30 p.m. CST, M-Th
- 7:30 a.m. to 5:00 p.m. CST, F
- - TOLL-FREE INFORMATION LINE
- For daily account balances,
transaction activity or net asset
value information
- (800) 800-2638, Ext. 4344
- 24 hours a day
FOR MORE INFORMATION ABOUT FORTIS FINANCIAL GROUP'S FAMILY OF PRODUCTS, CALL
YOUR INVESTMENT REPRESENTATIVE OR THE HOME OFFICE AT (800) 800-2638.
TO ORDER PROSPECTUSES OR SALES LITERATURE FOR ANY FORTIS PRODUCT, CALL (800)
800-2638, EXT. 4579.
HOW TO USE THIS REPORT
For a quick overview of the fund's performance during the past six months, refer
to the Highlights box below. The letter from the portfolio manager and president
provides a more detailed analysis of the fund and financial markets.
The charts alongside the letter are useful because they provide more information
about your investments. The top holdings charts show the types of securities in
which the fund invests, and the pie chart shows a breakdown of the fund's assets
by industry.
The performance chart graphically compares the fund's total return performance
with a selected investment index. Remember, however, that an index may reflect
the performance of securities the fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your fund does. Individuals cannot buy an unmanaged index fund without incurring
some charges and expenses.
This report is just one of several tools you can use to learn more about your
investment in the Fortis Family of Mutual Funds. Your investment representative,
who understands your personal financial situation, can best explain the features
of your investment and how it's designed to help you meet your financial goals.
HIGHLIGHTS
FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 1997
<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........................ $ 8.87 $ 8.86 $ 8.85 $ 8.87 $ 8.86
End of period.............................. $ 9.00 $ 8.97 $ 8.97 $ 9.00 $ 8.98
DISTRIBUTIONS PER SHARE:
From net investment income................. $ 0.270 $ 0.240 $ 0.240 $ 0.290 $ 0.240
HIGH YIELD PORTFOLIO
NET ASSET VALUE PER SHARE:
Beginning of period........................ $ 7.56 $ 7.56 $ 7.55 -- $ 7.55
End of period.............................. $ 7.72 $ 7.72 $ 7.71 -- $ 7.71
DISTRIBUTIONS PER SHARE:
From net investment income................. $ 0.400 $ 0.380 $ 0.380 -- $ 0.380
</TABLE>
<PAGE>
Photo
A conservative investment alternative
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.
INTEREST RATES MAINTAIN NARROW RANGE
In the six months since our last letter, interest rates have remained in a
relatively narrow range, with yields on 10-year Treasuries trading between 6.35
and 7.15%. Furthermore, the shape of the yield curve (defined as a series of
differences between the yield on short maturity securities and the yield on long
maturity securities) was also quite stable. The difference in yields between
2-year Treasuries and 30-year Treasuries ranged from .45% to .65%. This range
continued a pattern that began in the second quarter of 1996. During that time
period, interest rates moved higher or lower in response to perceived economic
strength or weakness, only to have the trend reverse itself as the signals about
the economy proved unreliable.
Believing that interest rates could remain within this range, we implemented a
duration* strategy designed to outperform in a relatively stable interest rate
environment. Specifically, we looked to shorten duration as interest rates fell
toward the low end of the trading, and lengthen duration as rates rose toward
the high end of the trading range. These duration adjustments were modest,
however, and never exceeded 5% of the overall benchmark duration (currently 4.6
years). At the end of January, the portfolio's current duration was 4.8 years,
which was approximately 104% of the benchmark.
*AN IMPORTANT CONCEPT IN MANAGING FIXED INCOME SECURITIES, DURATION IS THE
MEASURE OF A BOND FUND'S SENSITIVITY TO INTEREST RATE CHANGES. TRADITIONALLY
MEASURED IN YEARS, HIGHER DURATIONS MEAN POTENTIALLY GREATER FLUCTUATIONS IN
BOND VALUES, JUST AS LOWER DURATIONS TYPICALLY MEAN LESS VOLATILITY.
ADJUSTMENTS IN PORTFOLIO HOLDINGS ENHANCES PERFORMANCE
In addition, as of early August, our commitment in mortgage-backed securities
(MBS) and Government Agency Notes was greater than our benchmark by 20% and 5%,
respectively. We felt these securities were undervalued compared to Treasuries,
and that the incremental income (1.25% per year for MBS and .3% per year for
Agency Notes) would enhance performance in a stable interest rate environment.
In September, we reduced our commitment to MBS to a more neutral position, as
spreads on these issues fell compared to Treasuries. In January, we further
reduced our exposure to the MBS sector to slightly below our benchmark, as the
spread to Treasuries narrowed to 1.12%. We continue to maintain an overweighted
position in Government Agency Notes.
These strategies contributed to improved fund performance over the last six
months. For the six months ending January 31, 1997, the U.S. Government
Securities Fund earned a 4.74% total rate of return for Class E shares, compared
to a 4.51% total return for the Lehman Brothers Government Index. For the
12-month period ending January 31, 1997, the Fund earned a 3% total rate of
return, compared to 2.26% for the Lehman Government Index. The Fortis USG fund's
12-month performance placed it in the top 20% among its Morningstar peer group.
Morningstar is a third party mutual fund service.
MODERATE ECONOMIC GROWTH EXPECTED
We believe the economy will continue to expand through 1997 with real Gross
Domestic Product (the measure of the total amount of goods and services produced
in the United States) showing growth between 2% and 3%. We also anticipate that
inflation will be only a modest byproduct, coming in between 3% and 3.5%. Our
outlook for interest rates proceeds from this modest growth assumption. Rates
should move within trading ranges with the ranges moving up or down depending on
the release of economic data. As long as interest rates remain in a range, we
will continue to implement our current strategy, lengthening duration near the
top end of the current range (7% on the long bond) and shortening at the lower
end of this range. (6.40% on the long bond).
1
<PAGE>
PORTFOLIO COMPOSITION BY INDUSTRY AS OF 1/31/97
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Treasury Securities 38.1%
FNMAs 26.5%
GNMAs 15.0%
FHLMCs 7.2%
Other Direct Federal Obligations 6.9%
Receivables/Cash Equivalents 5.8%
Other Government Agencies 0.5%
</TABLE>
TOP 10 HOLDINGS AS OF 1/31/97
<TABLE>
<CAPTION>
Percent of
Bonds Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. Federal Home Loan Bank (7.31%) 2004 6.9%
2. U.S. Treasury Note (5.75%) 2003 6.6%
3. U.S. Treasury Note (7.00%) 2006 5.6%
4. U.S. Treasury Bond (6.125%) 2001 5.5%
5. U.S. Treasury Note (6.875%) 2006 4.9%
6. U.S. Treasury Bond (8.125%) 2021 3.5%
7. American Southwest Financial Services (6.675%)
2001 3.5%
8. GNMA (9.50%) 2019 3.3%
9. U.S. Treasury Bond (8.125%) 2019 3.2%
10. U.S. Treasury Note (7.875%) 2004 3.2%
</TABLE>
CLASS A, B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- -------------------------------------------------------------
<S> <C> <C>
Class A sharesDiamond 2.82% 8.84%
Class A sharesDiamond Diamond -1.80% 6.60%
Class B sharesDiamond 1.93% 7.93%
Class B sharesDiamond Diamond -1.67% 5.23%
Class C sharesDiamond 1.94% 7.94%
Class C sharesDiamond Diamond 0.94% 7.94%
Class H sharesDiamond 1.94% 7.99%
Class H sharesDiamond Diamond -1.66% 5.29%
</TABLE>
Past performance is not indicative of future performance. Total returns include
investment of all dividend and capital gains distributions. The performance of
the separate classes (A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class A has a maximum sales charge of 4.50%, Class B and H
have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if
redeemed in year three or four (with a waiver of 10% of the amount invested),
and Class C has a CDSC of 1.00% if redeemed within one year of purchase.
Diamond Without sales charge.
Diamond With sales charge. Assumes redemption on January 31, 1997.
Diamond
+ Since November 14, 1994 -- Date shares were first offered to the public
WE APPRECIATE YOUR SUPPORT AND CONFIDENCE
Thank you for your investment and your continued support. If you have any
questions or comments, please call us or your investment professional.
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
Dean C. Kopperud Howard G. Hudson
President Vice President
February 12, 1997
</TABLE>
VALUE OF $10,000 INVESTED FEBRUARY 1, 1987
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FORTIS U.S. GOVERNMENT SECURITIES FUND
AVERAGE ANNUAL TOTAL RETURN
<S> <C> <C> <C>
1 Year 5 Year 10 Year
Class E* -1.64% +4.83% +6.78%
Class E** +3.00% +5.80% +7.27%
Lehman Brothers U.S. Government
Intermediate Gov't Index*** Securities Fund Class E
02/01/87 $10,000 $9,173
88 10,523 10,077
89 11,034 10,636
90 12,234 11,740
91 13,626 13,192
92 15,242 14,530
93 16,762 15,962
94 17,976 17,205
95 17,797 16,313
96 20,220 18,703
97 20,788 19,265
</TABLE>
Annual period ended January 31
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the portfolios total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
*** An unmanaged index of government bonds with an average maturity of three to
four years.
2
<PAGE>
Photo
Opportunity for the
informed investor
YOUR FORTIS HIGH YIELD PORTFOLIO
LONG-TERM INVESTORS, WILLING TO ACCEPT GREATER PRICE FLUCTUATIONS, MAY CHOOSE TO
DIVERSIFY THEIR STOCK OR BOND INVESTMENTS WITH THIS PORTFOLIO OF HIGHER YIELDING
BONDS. ITS MONEY MANAGERS INVEST IN A WIDELY DIVERSIFIED PORTFOLIO OF LOWER
RATED CORPORATE BONDS.
HIGH YIELD BOND SECTOR PERFORMS WELL
Aided by moderate growth and low inflation in the United States, a vibrant stock
market and strengthening demand from fixed income investors, the high yield bond
market returned a robust 8.18% as measured by the Lehman Brothers Index. As a
result, the high yield bond sector closes out the 10-year period as the best
performing class of fixed income securities.
For the six months ended January 31, 1997, the High Yield Portfolio
underperformed the total return of the Lehman High Yield Index. We believe there
are two primary reasons for the gap. First, the bonds of Marvel Holdings, which
comprise a 1% position in the portfolio, declined substantially when the company
reported poor operating results and filed for bankruptcy. Second, the
telecommunications and cable television sectors, our two largest industry
allocations, delivered below-average results due to concerns about capital needs
and the zero-coupon structure of many telecommunications issues.
After carefully reviewing our portfolio strategy, we are maintaining our
commitment to the telecommunications and cable television sectors. We believe
these two industries will display the best long-term growth characteristics
among businesses currently issuing high yield debt. Despite the market's recent
appetite for high-yielding, low-credit quality bonds, we are not lowering the
current credit quality of our portfolio. We are concerned that corporate profits
may fall below market expectations in the near term. Finally, and most
importantly, we have renewed our commitment to stringent credit analysis and
review of all portfolio holdings.
CAUTIONARY SIGNS ARE PRESENT
Looking ahead, we believe the formula for positive returns appears to be in
place. Moderate economic growth, low inflation and a soaring stock market
usually propel lower-rated bond prices higher, and yields lower. Cautionary
signs are still present, however. The near-term outlook for interest rates is
uncertain. Should the economy begin to overheat, interest rates will rise,
creating a scenario that can negatively affect the market value of fixed income
securities. U.S. stock prices, which have risen more than 50% in the past two
years, appear overvalued, presenting an overly-optimistic view of corporate
earnings growth.
YOU ARE IMPORTANT TO US
Thank you for your investment and for your continued support. If you have any
questions, please call us or your investment professional.
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
Dean C. Kopperud Howard G. Hudson
President Vice President
February 12, 1997
</TABLE>
3
<PAGE>
COMPOSITION BY INDUSTRY
AS OF 1/31/97
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Other 22.6%
Telecommunications 21.0%
Cable Television 13.9%
Leisure Time--Amusements 8.9%
Steel and Iron 5.7%
Automobile and Motor Vehicle Parts 5.0%
Broadcasting 4.7%
Cash Equivalent/Receivables 4.2%
Health Care Services 3.9%
Chemicals 3.4%
Housing 3.4%
Energy 3.3%
</TABLE>
TOP 10 HOLDINGS AS OF 1/31/97
<TABLE>
<CAPTION>
Percent of
Net Assets
- -------------------------------------------------------------------
<C> <S> <C>
1. Mohegan Tribal Gaming, (13.50%) 2002 3.4%
2. Trump Altantic City Associates, (11.25%) 2006 2.5%
3. Tenet Healthcare City Associates, (10.125%) 2005 2.3%
4. AK Steel Corp., (10.75%) 2004 2.2%
5. Adelphia Communications Corp., (12.50%) 2002 2.1%
6. Sinclair Broadcasting, (10.00%) 2005 2.1%
7. Paging Network, Inc., (10.125%) 2007 2.0%
8. United International Holdings, Inc., (14.0%) 1999 1.9%
9. MDC Holdings, Inc., (11.25%) 2003 1.8%
10. Foamex-JPS Automotive LP, (14.00%) 2004 1.8%
</TABLE>
CLASS B, C AND H AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since
1 Year Inception+
- -------------------------------------------------------------
<S> <C> <C>
Class B sharesDiamond 9.56% 9.63%
Class B sharesDiamond Diamond 5.96% 6.93%
Class C sharesDiamond 9.34% 9.48%
Class C sharesDiamond Diamond 8.34% 9.48%
Class H sharesDiamond 9.42% 9.58%
Class H sharesDiamond Diamond 5.82% 6.88%
</TABLE>
Past performance is not indicative of future performance. Total returns include
reinvestment of all dividend and capital gains distributions. The performance of
the separate classes (A, B, C, and H) will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Class A has a maximum sales charge of 4.50%, Class B and H
have a CDSC of 4.00% if redeemed within two years of purchase, or 3.00% if
redeemed in year three or four (with a waiver of 10% of the amount invested),
and Class C has a CDSC of 1.00% if redeemed within one year of purchase.
Diamond Without CDSC.
Diamond With CDSC. Assumes redemption on January 31, 1997.
Diamond
+ Since November 14, 1994 -- Date shares were first offered to the public
VALUE OF $10,000 INVESTED JANUARY 4, 1988
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HIGH YIELD PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
<S> <C> <C> <C>
1 Year 5 Year Since January 4, 1988@
Class A* +5.14% +9.41% +8.87%
Class A** +10.09% +10.42% +9.43%
Lehman Brothers High Yield Portfolio
High Yield Index*** Class A
01/04/88 $10,000 $9,550
89 11,452 10,686
90 11,103 9,546
91 10,541 8,296
92 15,525 13,174
93 17,865 14,991
94 20,771 18,324
95 20,398 17,325
96 24,478 19,647
97 26,825 21,631
</TABLE>
Annual period ended January 31
Past performance is not indicative of future performance. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
* SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
** These are the portfolios total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
*** An unmanaged index of lower quality, high yield corporate debt securities.
@ Date shares were first offered to the public.
4
<PAGE>
FORTIS BOND FUNDS
U.S. GOVERNMENT SECURITIES FUND
Schedule of Investments
January 31, 1997 (Unaudited)
U.S. GOVERNMENT SECURITIES-94.06%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Cost (a) Value (b)
------------ ------------- -------------
<C> <S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION-7.21%
MORTGAGE BACKED SECURITIES:
$10,989,243 8.00% 2001-2002 (e).......................... $ 11,263,973 $ 11,281,139
4,364,098 9.00% 2001-2022 (e).......................... 4,620,128 4,604,561
8,959,128 9.50% 2016................................... 9,627,457 9,650,656
297,518 10.50% 2015.................................. 319,924 328,664
277,757 11.25% 2013-2014............................. 299,318 312,433
1,049,618 11.50% 2015-2019............................. 1,135,963 1,188,037
1,061,240 11.75% 2010-2015............................. 1,163,170 1,205,998
199,500 12.50% 2019.................................. 214,839 229,238
------------- -------------
28,644,772 28,800,726
------------- -------------
REMIC-PAC'S:
1,831,292 9.00% Trust#136-D PAC 2020................... 1,840,198 1,867,425
532,744 9.50% Trust#1001F 2003....................... 540,574 537,722
------------- -------------
2,380,772 2,405,147
------------- -------------
TOTAL FEDERAL HOME LOAN MORTGAGE
CORPORATION................................ 31,025,544 31,205,873
------------- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION-26.48%
MORTGAGE BACKED SECURITIES:
4,486,382 6.00% 2011................................... 4,378,457 4,316,738
14,198,314 6.50% 2010-2011.............................. 13,993,741 13,945,399
24,552,006 7.00% 2003-2025.............................. 24,161,834 24,272,393
6,937,665 7.184% 2006.................................. 6,836,648 7,033,058
28,567,444 7.50% 2022-2026.............................. 28,315,571 28,594,212
1,304,941 8.00% 2025................................... 1,249,074 1,331,040
1,644,582 8.50% 2022................................... 1,731,528 1,703,684
130,107 9.00% 2020................................... 128,847 137,060
1,644,485 9.75% 2020 (e)............................... 1,773,988 1,789,406
1,191,438 10.00% 2023.................................. 1,299,784 1,306,486
1,310,880 10.50% 2012-2018............................. 1,398,540 1,450,570
267,608 10.75% 2013.................................. 275,636 297,797
3,059,828 11.00% 2015-2020............................. 3,297,882 3,424,137
438,669 11.25% 2013.................................. 460,602 493,776
230,740 11.50% 2015.................................. 249,452 261,240
464,154 12.00% 2011-2016............................. 497,207 530,585
681,505 12.50% 2015.................................. 764,810 784,157
------------- -------------
90,813,601 91,671,738
------------- -------------
NOTES:
12,000,000 6.85% 2000 (e)............................... 12,000,000 12,069,420
9,750,000 7.65% 2005................................... 9,886,868 10,297,745
------------- -------------
21,886,868 22,367,165
------------- -------------
REMIC-PAC'S:
573,424 7.50% Trust#1991-136G 2019................... 594,658 572,651
------------- -------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION................................ 113,295,127 114,611,554
------------- -------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-14.96%
MORTGAGE BACKED SECURITIES:
15,000,000 6.675% American Southwest Financial Services
1996-FHA1 (GNMA Backed) 2001............... 15,027,701 15,018,750
9,015,475 7.00% 2024................................... 8,884,085 8,829,530
3,267,257 8.00% 2017-2022.............................. 3,347,111 3,340,770
14,450,409 9.00% 2016-2022.............................. 15,192,283 15,224,452
20,027,116 9.50% 2016-2019.............................. 20,920,505 21,514,757
682,460 11.00% 2015-2018............................. 735,127 753,478
64,599 11.25% 2015.................................. 68,597 71,826
------------- -------------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION................................ 64,175,409 64,753,563
------------- -------------
</TABLE>
5
<PAGE>
FORTIS BOND FUNDS
U.S. GOVERNMENT SECURITIES FUND (CONTINUED)
Schedule of Investments
January 31, 1997 (Unaudited)
U.S. GOVERNMENT SECURITIES-CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Cost (a) Value (b)
------------ ------------- -------------
<C> <S> <C> <C>
OTHER DIRECT FEDERAL OBLIGATIONS-6.86%
FEDERAL HOME LOAN BANK:
$28,650,000 7.31% 2004................................... $ 28,571,808 $ 29,719,533
------------- -------------
OTHER GOVERNMENT AGENCIES-0.48%
RESOLUTION FUNDING CORPORATION:
7,000,000 7.355% Zero Coupon Strip 2014 (c)............ 1,993,025 2,085,853
------------- -------------
U.S. TREASURY SECURITIES-38.07%
BONDS:
2,250,000 6.75% 2026 (e)............................... 2,236,258 2,226,094
11,650,000 7.50% 2024 (e)............................... 12,435,014 12,538,312
25,490,000 8.125% 2019-2021 (e)......................... 29,443,665 29,103,982
------------- -------------
44,114,937 43,868,388
------------- -------------
NOTES:
29,465,000 5.75% 2003 (e)............................... 28,647,920 28,452,141
1,450,000 5.875% 1999 (e).............................. 1,454,469 1,443,201
24,115,000 6.125% 2001 (e).............................. 23,924,397 23,979,353
5,950,000 6.50% 2005 (e)............................... 5,942,973 5,953,719
20,490,000 6.875% 2006 (e).............................. 21,048,559 21,002,250
23,420,000 7.00% 2006 (e)............................... 24,164,357 24,203,071
1,950,000 7.125% 1999 (e).............................. 1,978,949 2,001,187
12,805,000 7.875% 2004 (e).............................. 13,723,062 13,881,401
------------- -------------
120,884,686 120,916,323
------------- -------------
TOTAL U.S. TREASURY SECURITIES............... 164,999,623 164,784,711
------------- -------------
TOTAL U.S. GOVERNMENT SECURITIES............. $ 404,060,536 $ 407,161,087
------------- -------------
------------- -------------
</TABLE>
SHORT-TERM INVESTMENTS-5.18%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (b)
------------ -------------
<C> <S> <C>
INVESTMENT COMPANY-4.37%
$18,910,529 Federated Treasury Obligation Fund, Current
rate -- 4.90%.............................. $ 18,910,529
-------------
U.S. GOVERNMENT AGENCY-0.81%
3,500,000 Federal Home Loan Mortgage Corp., 5.31%,
2-19-1997.................................. 3,490,358
-------------
TOTAL SHORT-TERM INVESTMENTS................. 22,400,887
-------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$426,461,423) (A).......................... $ 429,561,974
-------------
-------------
</TABLE>
(a) At January 31, 1997, the cost of securities for federal income tax purposes
was $426,675,111 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 4,767,825
Unrealized depreciation........................... (1,880,962)
---------------------------------------------------------------
Net unrealized appreciation....................... $ 2,886,863
---------------------------------------------------------------
</TABLE>
(b) See Note 1 of accompanying Notes to Financial Statements regarding
valuations of securities.
(c) The interest rates disclosed for these securities represents the original
issue discount yields on the date of acquisition.
(d) Note: Percentage of investments as shown is the ratio of the total market
value to total net assets.
(e) Security is fully or partially on loan at January 31, 1997. See Note 1 of
accompanying Notes to Financial Statements.
6
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO
Schedule of Investments
January 31, 1997 (Unaudited)
COMMON STOCKS AND WARRANTS-0.43%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Market
Shares Cost (b) Value (c)
-------- ------------- -------------
<C> <S> <C> <C>
APPAREL-0.04%
1,250 Hosiery Corp. of America, Class A (a) (f).... $ 21,150 $ 68,750
------------- -------------
CABLE TELEVISION-0.00%
10,000 American Telecasting, Inc. (Warrants) (a).... 20,000 2,500
4,000 People's Choice T.V. Corp. (Warrants) (a)
(f)........................................ 29,226 2,000
------------- -------------
49,226 4,500
------------- -------------
CONSUMER GOODS-0.03%
1,800 Chattem, Inc. (Warrants) (a) (f)............. 18,424 6,300
17,400 Drypers Corp. (Warrants) (a) (f)............. 52,200 52,200
------------- -------------
70,624 58,500
------------- -------------
LEISURE TIME-AMUSEMENTS-0.00%
1,000 Boomtown, Inc. (Warrants) (a)................ 6,340 60
26,670 Capital Gaming International, Inc. (a)....... 133,350 933
22,750 Capital Gaming International, Inc. (Warrants)
(a)........................................ 35,440 38
6,000 Hemmeter Enterprises, Inc. (Warrants) (a).... 24,000 1
------------- -------------
199,130 1,032
------------- -------------
MACHINERY-0.01%
2,000 Bar Technologies (Warrants) (a).............. 9,632 12,000
------------- -------------
RETAIL-MISCELLANEOUS-0.03%
1,000 Petro PSC Properties, L.P. (Warrants) (a).... 36,570 53,000
------------- -------------
TELECOMMUNICATIONS-0.32%
4,500 American Communications Services, Inc.
(Warrants) (a) (f)......................... 205,650 337,500
9,900 Clearnet Communications, Inc. (Warrants)
(a)........................................ 126,225 89,100
3,000 Hyperion Telecom (Warrants) (a) (f).......... 11,986 60,000
12,800 Intercel, Inc. (Warrants) (a)................ 94,118 102,400
12,000 Microcell Telecommunications, Inc. (Warrants)
(a) (f).................................... 6,188 43,500
------------- -------------
444,167 632,500
------------- -------------
TOTAL COMMON STOCKS AND WARRANTS............. $ 830,499 $ 830,282
------------- -------------
------------- -------------
</TABLE>
CORPORATE BONDS-NON-INVESTMENT GRADE-95.27%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Standard
Principal & Poor's Market
Amount Rating Cost (b) Value (c)
- ---------- -------- ------------ ------------
<C> <S> <C> <C> <C>
AEROSPACE AND EQUIPMENT-0.82%
$1,500,000 K & F Industries, Inc., 11.875% Sr Secured Note 12-1-2003....... B+ $ 1,453,937 $ 1,608,750
------------ ------------
AIRLINES-2.06%
2,000,000 U.S. Air, Inc., 10.375% Pass Thru Certificate 3-1-2013 (g)...... B+ 1,868,268 2,065,000
2,000,000 U.S. Air, Inc., 9.82% Pass Thru Certificate 1-1-2013............ B+ 1,885,043 1,950,000
------------ ------------
3,753,311 4,015,000
------------ ------------
AUTOMOBILE AND MOTOR VEHICLE PARTS-4.99%
2,500,000 Collins & Aikman Products, 11.50% Sr Sub Note 4-15-2006......... B 2,763,086 2,756,250
4,000,000 Foamex-JPS Automotive LP, 14.00% Sr Disc Note 7-1-2004 (e)...... NR 3,605,407 3,520,000
1,500,000 J.B. Poindexter & Co., 12.50% Sr Note 5-15-2004................. B- 1,456,327 1,481,250
2,000,000 Penda Corp., 10.75% Sr Note Ser B 3-1-2004...................... B 1,980,129 1,965,000
------------ ------------
9,804,949 9,722,500
------------ ------------
BROADCASTING-4.66%
1,750,000 Commodore Media, Inc., 13.14% Sr Sub Note 5-1-2003 (e).......... B3* 1,670,413 1,850,625
250,000 Multicanal SA, 10.5% Note 2-1-2007 (f).......................... NR 249,385 252,500
1,000,000 Paxson Communications Corp., 11.625% Sr Sub Note 10-1-2002
(g)........................................................... B- 1,019,703 1,052,500
4,000,000 Sinclair Broadcasting, 10.00% Sr Sub Note 9-30-2005............. B 4,020,369 4,090,000
1,750,000 Spanish Broadcasting Systems, Inc., 11.52% Sr Note 6-15-2002
(e)........................................................... B 1,793,610 1,846,250
------------ ------------
8,753,480 9,091,875
------------ ------------
</TABLE>
7
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO (CONTINUED)
Schedule of Investments
January 31, 1997 (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>
CABLE TELEVISION-13.88%
$4,000,000 Adelphia Communications Corp., 12.50% Sr Note 5-15-2002 (g)..... B $ 4,113,702 $ 4,110,000
4,000,000 Australis Media Ltd., 14.00% Sr Sub Disc Note 5-15-2003 (Zero
coupon through 5-15-2000, thereafter 14.00%)(and warrants)
(e)........................................................... NR 2,509,214 2,280,000
2,500,000 Cablevision Systems Corp., 10.50% Sr Sub Deb 5-15-2016 (g)...... B 2,537,424 2,550,000
2,500,000 Groupe Videotron, 10.625% Sr Note 2-15-2005..................... BB+ 2,625,199 2,775,000
3,000,000 Olympus Communication L.P., 10.625% Sr Note 11-15-2006 (f)
(g)........................................................... B 3,000,000 3,105,000
4,000,000 People's Choice T.V. Corp., 13.33% Sr Disc Note 6-1-2004 (Zero
coupon until 6-1-2000, thereafter 13.125%) (e)................ CCC+ 2,537,904 1,679,250
2,500,000 Telewest plc, 9.625% Sr Deb 10-1-2006........................... BB 2,581,105 2,537,500
5,000,000 United International Holdings, Inc., 14.00% Zero Coupon Sr
Secured Disc Note Ser B 11-15-1999 (e)........................ B- 3,544,354 3,662,500
500,000 Wireless One, Inc., 13.00% Sr Note 10-15-2003................... CCC+ 492,628 483,750
2,500,000 Wireless One, Inc., 13.00% Sr Note 10-15-2003 (and warrants).... B- 2,585,121 2,418,750
3,000,000 Wireless One, Inc., 13.463% Sr Disc Note 8-1-2006 (Zero coupon
through 8-1-2001, thereafter 13.50%) (and warrants) (e)....... B- 1,659,393 1,470,000
------------ ------------
28,186,044 27,071,750
------------ ------------
CHEMICALS-3.37%
2,000,000 Agricultural Minerals & Chemicals, 10.75% Sr Note 9-30-2003..... B+ 2,103,697 2,190,000
2,000,000 LaRoche Industries, Inc., 13.00% Sr Sub Note 8-15-2004.......... B 2,204,301 2,210,000
2,000,000 Terra Industries, 10.50% Sr Note 6-15-2005...................... B+ 2,121,624 2,180,000
------------ ------------
6,429,622 6,580,000
------------ ------------
COMPUTER-HARDWARE-1.38%
2,500,000 Unisys Corp., 11.75% Sr Notes 10-15-04.......................... B+ 2,699,527 2,693,750
------------ ------------
CONSUMER GOODS-2.08%
1,250,000 Chattem, Inc., 12.75% Sr Sub Note Ser B 6-15-2004............... B- 1,252,285 1,300,000
2,500,000 Samsonite Corp., 11.125% Sr Sub Note 7-15-2005.................. B- 2,735,305 2,762,500
------------ ------------
3,987,590 4,062,500
------------ ------------
CONTAINERS AND PACKAGING-1.51%
2,885,000 Silgan Holdings Corp., 13.25% Sr Disc Deb 12-15-2002 (g)........ B- 2,906,542 2,942,700
------------ ------------
ELECTRONIC-CONTROLS AND EQUIPMENT-0.61%
1,750,000 Electronic Retailing Systems, 13.25% Sr Disc Note 2-1-2004 (Zero
coupon until 2-1-2001, thereafter 13.25%) (and warrants) (e)
(f)........................................................... NR 1,191,153 1,190,000
------------ ------------
ENERGY-3.35%
2,500,000 Benton Oil & Gas, 11.625% Sr Note 5-1-2003...................... NR 2,687,139 2,768,750
1,000,000 Costilla Energy, 10.25% Sr Note 10-1-2006 (g)................... B 1,006,131 1,057,500
2,500,000 Mesa Operating Co., 10.625% Sr Note 7-1-2006.................... B 2,715,225 2,706,250
------------ ------------
6,408,495 6,532,500
------------ ------------
FINANCE COMPANIES-1.02%
1,750,000 Homeside, Inc., 11.25% Sr Secured Second Priority Note
5-15-2003..................................................... B+ 1,789,928 1,995,000
------------ ------------
FOOD-MISCELLANEOUS-1.11%
2,000,000 Envirodyne Industries, Inc., 12.00% First Priority Sr Secured
Note 6-15-2000................................................ B+ 2,044,293 2,160,000
------------ ------------
FOREST PRODUCTS-0.53%
1,000,000 Stone Container Corp., 11.00% Sr Sub Note 8-15-1999 (g)......... B 1,022,814 1,028,750
------------ ------------
HEALTH CARE SERVICES-3.86%
3,000,000 Abbey Healthcare Group, Inc., 9.50% Sr Sub Note 11-1-2002....... BB+ 3,121,636 3,135,000
4,000,000 Tenet Healthcare Corp., 10.125% Sr Sub Note 3-1-2005............ B+ 4,340,333 4,390,000
------------ ------------
7,461,969 7,525,000
------------ ------------
HOTEL AND MOTEL-1.60%
3,000,000 HMH Properties, Inc., 9.50% Sr Note 5-15-2005................... BB- 3,046,563 3,120,000
------------ ------------
HOUSING-3.44%
3,500,000 MDC Holdings, Inc., 11.125% Note 12-15-2003..................... NR 3,429,611 3,561,250
3,000,000 NVR Inc., 11.00% Sr Note 4-15-2003 (g).......................... B 3,053,604 3,150,000
------------ ------------
6,483,215 6,711,250
------------ ------------
</TABLE>
8
<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>
INDUSTRIAL-1.73%
$1,500,000 Amtrol Acquisition, Inc., 10.625% Sr Note 12-31-2006 (f)........ B- $ 1,537,494 $ 1,541,250
1,750,000 Spinnaker Industries, Inc., 10.75% Sr Secured Note 10-15-2006
(f)........................................................... B 1,750,000 1,824,375
------------ ------------
3,287,494 3,365,625
------------ ------------
LEISURE TIME-AMUSEMENTS-8.89%
5,020,000 Mohegan Tribal Gaming, 13.50% Sr Note 11-15-2002................ NR 6,210,719 6,613,850
1,000,000 Showboat, Inc., 13.00% Sr Sub Note 8-1-2009..................... B 1,082,500 1,140,000
1,500,000 Stuart Entertainment, 12.50% Sr Sub Note 11-15-2004 (f) (g)..... B- 1,501,853 1,535,625
5,000,000 Trump Atlantic City Associates, 11.25% First Mtg Bond 5-1-2006
(g)........................................................... BB- 4,790,747 4,800,000
3,500,000 Trump Castle Funding, Inc., 11.75% First Mtg Bond 11-15-2003
(g)........................................................... Caa* 3,253,781 3,255,000
------------ ------------
16,839,600 17,344,475
------------ ------------
MACHINERY-SPECIALTY-0.94%
1,750,000 Goss Graphic Systems, Inc., 12.00% Sr Sub Note 10-15-2006 (g)... B 1,750,000 1,833,125
------------ ------------
MEDIA-0.48%
1,000,000 Adelphia Communications Corp., 9.875% Note 3-1-2005............. B 956,065 945,000
------------ ------------
OIL-CRUDE PETROLEUM AND GAS-1.36%
2,500,000 Flores & Rucks, 9.75% Sr Sub Note 10-1-2006..................... B- 2,555,271 2,646,875
------------ ------------
PUBLISHING-0.18%
2,500,000 Marvel (Parent) Holdings, Inc., 12.69% Sr Secured Zero Coupon
Disc Note 4-15-1998 (e) (g)................................... C 2,146,348 350,000
------------ ------------
RETAIL-GROCERY-0.00%
350,000 Pay 'N' Pak Stores, Inc., 13.50% Sr Sub Deb 6-1-1998 (a)........ NR 350,000 1,750
------------ ------------
RETAIL-HOUSEHOLD FURNITURE-0.69%
2,000,000 Levitz Furniture, 9.625% Sr Sub Note 7-15-2003.................. CCC 1,340,844 1,350,000
------------ ------------
RETAIL-MISCELLANEOUS-0.02%
1,000,000 Color Tile, Inc., 10.75% Sr Note 12-15-2001 (a)................. NR 590,000 35,000
------------ ------------
STEEL AND IRON-5.73%
4,000,000 AK Steel Corp., 10.75% Sr Note 4-1-2004......................... BB- 4,344,151 4,345,000
1,750,000 Algoma Steel, Inc., 12.375% First Mtg Note 7-15-2005 (g)........ B 1,801,541 1,929,375
1,750,000 Bar Technologies, Inc., 13.50% Sr Secured Note 4-1-2001......... B- 1,725,529 1,820,000
3,000,000 Weirton Steel Corp., 11.375% Sr Note 7-1-2004 (g)............... B2* 3,048,448 3,090,000
------------ ------------
10,919,669 11,184,375
------------ ------------
TECHNOLOGY-1.07%
2,000,000 Computervision Corp., 11.375% Sr Sub Note 8-15-1999............. B- 1,724,687 2,080,000
------------ ------------
TELECOMMUNICATIONS-20.64%
5,000,000 American Communications Services, Inc., 13.00% Sr Disc Note
11-1-2005 (Zero coupon until 11-1-2000, thereafter 13.00%) (e)
(g)........................................................... NR 2,958,137 3,100,000
2,500,000 Call-Net Enterprises, Inc., 10.74% Sr Disc Note 12-1-2004 (Zero
coupon until 12-1-1999, thereafter 13.25%) (e)................ B+ 2,006,906 2,078,125
2,500,000 Cellular Communications, Inc., 11.96% Zero Coupon Note 8-15-2000
(e)........................................................... CCC+ 1,688,548 1,737,500
1,000,000 Clearnet Communications, Inc., 14.75% Sr Disc Note 12-15-2005
(Zero coupon until 12-15-2000, 14.75% thereafter) (e)......... B3* 625,408 645,000
3,000,000 Echostar Communications, Inc., 11.30% Sr Disc Note 6-1-2004
(Zero coupon until 6-1-1999) (e) (g).......................... B- 2,456,743 2,422,500
2,000,000 Echostar Satellite Broadcast, 11.069% Sr Disc Note 3-15-2004
(Zero coupon through 3-15-2000, thereafter 13.125%) (e)....... B- 1,522,321 1,410,000
1,500,000 ESAT Holdings Ltd., 12.50% Sr Deferred Coupon Note 2-1-2007
(Zero coupon through 2-1-2002, thereafter 12.50%) (e) (f)..... B+ 818,856 847,500
2,000,000 Fonorola, Inc., 12.50% Sr Secured Note 8-15-2002................ B+ 2,052,327 2,175,000
3,000,000 Hyperion Communications, Inc., 13.00% Sr Disc Note 4-15-2003
(Zero coupon until 4-15-2001, thereafter 13.00%) (e).......... NR 1,758,372 1,740,000
3,000,000 ICG Communications, Inc., 11.461% Sr Disc Note 9-15-2005 (Zero
Coupon until 9-15-2000, thereafter 13.50%) (e)................ NR 2,156,572 2,160,000
4,000,000 Intercel, Inc., 10.935% Sr Disc Note 2-1-2006 (Zero coupon until
2-1-2001, thereafter 12.00%) (e).............................. B- 2,630,511 2,640,000
2,500,000 IXC Communications, Inc., 12.50% Sr Note 10-1-2005.............. B3* 2,649,322 2,787,500
1,500,000 Microcell Telecommunications, Inc., 14.00% Disc Note 6-1-2006
(Zero coupon until 12-1-2001, thereafter 14.00%) (e).......... NR 783,359 840,000
</TABLE>
9
<PAGE>
FORTIS BOND FUNDS
HIGH YIELD PORTFOLIO (CONTINUED)
Schedule of Investments
January 31, 1997 (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>
$4,000,000 Millicom International Cellular, 11.772% Sr Disc Note 6-1-2006
(Zero coupon until 6-1-2001, thereafter 13.50%) (e)........... B- $ 2,593,857 $ 2,630,000
2,500,000 Omnipoint Corp., 11.625% Sr Note 8-15-2006...................... NR 2,624,793 2,600,000
4,000,000 Paging Network, Inc., 10.125% Sr Sub Note 8-1-2007.............. B 4,095,999 3,960,000
4,000,000 Shared Technologies Fairchild, 10.969% Sr Sub Note 3-1-2006
(Zero coupon until 3-1-2001, thereafter 12.25%) (e)........... B- 3,400,464 3,370,000
3,000,000 Western Wireless, 10.50% Sr Sub Note 2-1-2007................... B- 3,000,000 3,105,000
------------ ------------
39,822,495 40,248,125
------------ ------------
TEXTILE MANUFACTURING-0.81%
1,500,000 Pillowtex Corp., 10.00% Sr Sub Note 11-15-2006 (f).............. B+ 1,575,000 1,571,250
------------ ------------
TOBACCO-1.24%
2,350,000 Core-Mark Int'l, 11.375% Sr Sub Note 9-15-2003 (f).............. B 2,390,125 2,408,750
------------ ------------
WASTE DISPOSAL-1.22%
2,125,000 Norcal Waste Systems, Inc., 13.00% Increasing Rate Sr Note
11-15-2005 (e)................................................ BB- 2,094,850 2,380,000
------------ ------------
TOTAL CORPORATE BONDS - NON-INVESTMENT GRADE.................... 185,765,880 185,795,675
------------ ------------
TOTAL LONG-TERM INVESTMENTS..................................... $186,596,379 $186,625,957
------------ ------------
------------ ------------
</TABLE>
SHORT-TERM INVESTMENTS-2.31%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Market
Amount Value (c)
----------- -------------
<C> <S> <C>
BANKS-2.31%
$4,500,000 First Trust Money Market Variable Rate Time
Deposit, Current rate -- 5.19%............. $ 4,500,000
-------------
TOTAL INVESTMENTS IN SECURITIES (COST:
$191,096,379) (B).......................... $ 191,125,957
-------------
-------------
</TABLE>
* Moody's Rating
(a) Presently non income producing. For corporate debt securities, items
identified are in default as to payment of interest and/or principal.
(b) At January 31, 1997 the cost of securities for federal income tax purposes
was $191,119,363 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation........................... $ 5,091,671
Unrealized depreciation........................... (5,085,077)
---------------------------------------------------------------
Net unrealized appreciation....................... $ 6,594
---------------------------------------------------------------
</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 9.32% of net assets as of January 31, 1997.
(e) The interest rate disclosed for these securities represents the effective
yields on the date of acquisition.
(f) Securities sold within terms of a private placement memorandum, exempt from
registration under Section 144A of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or to other "accredited
investors". These investments have been identified by portfolio management
as illiquid securities:
<TABLE>
<CAPTION>
Date Acquired Shares/Par Security Cost Basis
- ------------------ ----------- ------------------------------------------------------------------------------ ----------
<S> <C> <C> <C>
November 10, 1995 4,500 American Communications Services, Inc. (Warrants) $ 205,650
November 7, 1996 750,000 Amtrol Acquisition, Inc. due 2006 768,747
January 28, 1997 750,000 Amtrol Acquisition, Inc. due 2006 768,747
June 10, 1994 1,300 Chattem, Inc. (Warrants) 13,306
April 25, 1995 500 Chattem, Inc. (Warrants) 5,118
October 31, 1996 2,350,000 Core-Mark Int'l, due 2003 2,390,125
November 3, 1992 11,600 Drypers Corp. (Warrants) 34,800
April 29, 1993 5,800 Drypers Corp. (Warrants) 17,400
January 21, 1997 1,750,000 Electronic Retailing Systems, due 2004 1,191,153
January 20, 1997 1,500,000 ESAT Holdings Ltd., due 2007 818,856
October 7, 1994 1,250 Hosiery Corp. of America, Class A 21,150
April 11, 1996 3,000 Hyperion Telecom (Warrants) 11,986
June 13, 1996 12,000 Microcell Telecommunications, Inc. (Warrants) 6,188
January 27, 1997 250,000 Multicanal SA, due 2007 249,385
November 7, 1996 3,000,000 Olympus Communication L.P., due 2006 3,000,000
May 20, 1996 4,000 People's Choice T.V. Corp. (Warrants) 29,226
January 29, 1997 1,500,000 Pillowtex Corp., due 2006 1,575,000
October 18, 1996 1,750,000 Spinnaker Industries, Inc. due 2006 1,750,000
November 7, 1996 1,000,000 Stuart Entertainment, due 2004 1,000,000
December 3, 1996 500,000 Stuart Entertainment, due 2004 501,853
</TABLE>
The value of these securities at January 31, 1997 is $14,844,250 which
represent 7.61% of net assets.
(g) Security is fully or partially on loan at January 31, 1997. See Note 1 of
accompanying Notes to Financial Statements.
10
<PAGE>
FORTIS BOND FUNDS
Statements of Assets and Liabilities
(Unaudited)
January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
US GOVERNMENT
SECURITIES HIGH YIELD
FUND PORTFOLIO
-------------- --------------
<S> <C> <C>
ASSETS:
Investments in securities, as detailed
in the accompanying schedules, at
market (cost $426,461,423; and
$191,096,379; respectively) (Note
1).................................. $ 429,561,974 $ 191,125,957
Collateral for securities lending
transactions (Note 1)............... 182,687,998 26,841,169
Receivables:
Investment securities sold.......... 6,853,590 2,498,345
Interest and dividends.............. 4,758,387 4,187,841
Subscriptions of capital stock...... -- 415,151
Deferred registration costs (Note
1).................................. 60,525 95,122
Prepaid expenses...................... 21,760 13,691
-------------- --------------
TOTAL ASSETS............................ 623,944,234 225,177,276
-------------- --------------
LIABILITIES:
Bank overdraft........................ -- 421
Cash portion of dividends payable..... 662,913 676,092
Payable upon return of securities
loaned (Note 1)..................... 182,687,998 26,841,169
Payable for investment securities
purchased........................... 7,337,096 2,377,510
Redemptions of capital stock.......... 28,052 --
Payable for investment advisory and
management fees (Note 2)............ 261,858 117,900
Payable for distribution fees (Note
2).................................. 1,729 6,360
Accounts payable and accrued
expenses............................ 95,745 127,737
-------------- --------------
TOTAL LIABILITIES....................... 191,075,391 30,147,189
-------------- --------------
NET ASSETS:
Net proceeds of capital stock, par
value $.01 per share-authorized
10,000,000,000 shares............... 503,245,851 206,939,305
Unrealized appreciation of
investments......................... 3,100,551 29,578
Undistributed net investment income... 418,165 284,752
Accumulated net realized loss from
sale of investments................. (73,895,724) (12,223,548)
-------------- --------------
TOTAL NET ASSETS........................ $ 432,868,843 $ 195,030,087
-------------- --------------
SHARES OUTSTANDING AND NET ASSET VALUE
PER SHARE:
Class A shares (based on net assets of
$66,475,329; and $120,002,973;
respectively and 7,387,677; and
15,548,166 shares outstanding;
respectively)......................... $9.00 $7.72
-------------- --------------
Class B shares (based on net assets of
$2,725,517; and $16,496,917;
respectively and 303,708; and
2,137,901 shares outstanding;
respectively)......................... $8.97 $7.72
-------------- --------------
Class C shares (based on net assets of
$1,691,518; and $4,306,595;
respectively and 188,608; and 558,915
shares outstanding; respectively)..... $8.97 $7.71
-------------- --------------
Class E shares (based on net assets of
$351,266,685; and $0; respectively and
39,038,504; and 0 shares outstanding;
respectively)......................... $9.00 $ --
-------------- --------------
Class H shares (based on net assets of
$10,709,794; and $54,223,602;
respectively and 1,192,571; and
7,030,107 shares outstanding;
respectively)......................... $8.98 $7.71
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FORTIS BOND FUNDS
Statements of Operations
(Unaudited)
For the Six-Month Period Ended January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
US GOVERNMENT
SECURITIES HIGH YIELD
FUND PORTFOLIO
------------- -------------
<S> <C> <C>
NET INVESTMENT INCOME:
Income:
Interest income..................... $ 15,669,873 $ 9,779,509
Fee income (Note 1)................. 89,407 8,843
------------- -------------
Total income.......................... 15,759,280 9,788,352
------------- -------------
Expenses:
Investment advisory and management
fees (Note 2)...................... 1,620,420 654,805
Distribution fees (Class A) (Note
2)................................. 86,337 201,770
Distribution fees (Class B) (Note
2)................................. 12,576 71,534
Distribution fees (Class C) (Note
2)................................. 7,282 19,885
Distribution fees (Class H) (Note
2)................................. 52,879 231,592
Registration fees................... 50,411 18,647
Shareholders' notices and reports... 41,275 58,629
Legal and auditing fees (Note 2).... 46,226 12,823
Custodian fees...................... 39,825 33,145
Directors' fees and expenses........ 22,534 4,810
Other............................... 24,702 9,927
------------- -------------
Total expenses........................ 2,004,467 1,317,567
------------- -------------
NET INVESTMENT INCOME................... 13,754,813 8,470,785
------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 1):
Net realized gain (loss) from security
transactions........................ (2,280,097) 4,334,547
Net change in unrealized appreciation
(depreciation) of investments....... 9,297,012 (44,243)
------------- -------------
NET GAIN ON INVESTMENTS................. 7,016,915 4,290,304
------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS......................... $ 20,771,728 $ 12,761,089
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FORTIS BOND FUNDS
Statements of Changes in Net Assets
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE
SIX-MONTH
PERIOD ENDED
JANUARY 31, FOR THE
1997 YEAR ENDED
(UNAUDITED) JULY 31, 1996
-------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income................. $ 13,754,813 $ 31,593,991
Net realized gain (loss) from security
transacations....................... (2,280,097) 2,510,562
Net change in unrealized appreciation
(depreciation) of investments in
securities.......................... 9,297,012 (11,044,725)
-------------- ----------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS......................... 20,771,728 23,059,828
-------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A............................. (1,985,042) (2,116,221)
Class B............................. (64,604) (82,612)
Class C............................. (37,391) (37,715)
Class E............................. (11,167,325) (28,702,692)
Class H............................. (270,608) (448,743)
Excess distributions of net realized
gains
Class A............................. (97,534) (32,271)
Class B............................. (3,174) (1,260)
Class C............................. (1,837) (576)
Class E............................. (548,702) (437,700)
Class H............................. (13,297) (6,841)
-------------- ----------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS..... (14,189,514) (31,866,631)
-------------- ----------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (735,306 and 1,964,078
shares)............................ 6,578,208 17,801,708
Class B (77,399 and 210,461
shares)............................ 694,444 1,912,091
Class C (88,100 and 106,062
shares)............................ 781,868 955,478
Class E (820,012 and 2,660,444
shares)............................ 7,367,285 24,188,981
Class H (189,105 and 833,214
shares)............................ 1,694,846 7,542,489
Proceeds from shares issued as a
result of reinvested dividends
Class A (163,687 and 167,122
shares)............................ 1,471,636 1,497,610
Class B (6,392 and 7,469 shares).... 57,357 67,217
Class C (3,655 and 3,078 shares).... 32,813 27,707
Class E (909,249 and 2,168,387
shares)............................ 8,173,694 19,681,299
Class H (21,760 and 35,275
shares)............................ 195,366 319,043
Less cost of repurchase of shares
Class A (1,140,925 and 1,248,050
shares)............................ (10,249,517) (11,152,321)
Class B (41,413 and 30,332
shares)............................ (372,744) (271,568)
Class C (22,608 and 31,951
shares)............................ (201,719) (289,065)
Class E (6,411,440 and 13,258,065
shares)............................ (57,702,358) (120,107,341)
Class H (160,502 and 314,193
shares)............................ (1,439,442) (2,833,320)
Issuance of shares in connection with
fund merger (Note 4)
Class A (6,202,362 shares).......... -- 56,802,533
Class B (20,202 shares)............. -- 186,146
Class C (6,078 shares).............. -- 55,394
Class H (53,236 shares)............. -- 490,824
-------------- ----------------
NET DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS............................ (42,918,263) (3,125,095)
-------------- ----------------
TOTAL DECREASE IN NET ASSETS............ (36,336,049) (11,931,898)
NET ASSETS:
Beginning of period................... 469,204,892 481,136,790
-------------- ----------------
End of period (includes undistributed
net investment income of $418,165
and $188,322, respectively)......... $ 432,868,843 $ 469,204,892
-------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
FORTIS BOND FUNDS
Statements of Changes in Net Assets
HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE
SIX-MONTH FOR THE
PERIOD ENDED NINE-MONTH
JANUARY 31, PERIOD ENDED
1997 JULY 31, 1996
(UNAUDITED) (NOTE 3)
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income................. $ 8,470,785 $ 11,429,502
Net realized gain (loss) from security
transacations....................... 4,334,547 (739,362)
Net change in unrealized depreciation
of investments in securities........ (44,243) (353,588)
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS......................... 12,761,089 10,336,552
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A............................. (5,666,676) (7,994,179)
Class B............................. (658,500) (704,230)
Class C............................. (184,409) (193,776)
Class H............................. (2,132,824) (2,179,529)
Excess distributions of net realized
gains
Class A............................. (321,022) (329,567)
Class B............................. (37,305) (29,033)
Class C............................. (10,447) (7,989)
Class H............................. (120,826) (89,853)
-------------- --------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS..... (9,132,009) (11,528,156)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sale of shares
Class A (2,447,465 and 2,575,765
shares)............................ 18,754,037 19,742,519
Class B (619,940 and 758,895
shares)............................ 4,748,948 5,820,848
Class C (210,259 and 245,695
shares)............................ 1,604,143 1,880,964
Class H (2,434,698 and 2,624,489
shares)............................ 18,643,338 20,121,276
Proceeds from shares issued as a
result of reinvested dividends
Class A (482,292 and 680,383
shares)............................ 3,702,384 5,216,993
Class B (44,796 and 45,688
shares)............................ 343,976 350,128
Class C (15,393 and 15,147
shares)............................ 118,014 115,856
Class H (144,271 and 144,327
shares)............................ 1,106,919 1,105,206
Less cost of repurchase of shares
Class A (1,852,893 and 3,674,251
shares)............................ (14,195,117) (28,172,079)
Class B (123,736 and 197,976
shares)............................ (947,207) (1,514,841)
Class C (114,478 and 100,249
shares)............................ (873,488) (764,968)
Class H (729,530 and 727,568
shares)............................ (5,584,365) (5,569,818)
-------------- --------------
NET INCREASE IN NET ASSETS FROM SHARE
TRANSACTIONS............................ 27,421,582 18,332,084
-------------- --------------
TOTAL INCREASE IN NET ASSETS............ 31,050,662 17,140,480
NET ASSETS:
Beginning of period................... 163,979,425 146,838,945
-------------- --------------
End of period (includes undistributed
net investment income of $284,752
and $456,376, respectively)......... $ 195,030,087 $ 163,979,425
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
FORTIS BOND FUNDS
Notes to Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: U.S. Government Securities Fund
("U.S. Government"), is a diversified series of Fortis Income Portfolios,
Inc. ("Fortis Income"), an open-end management investment company. The
investment objective of the fund is to maximize total return (from current
income and capital appreciation), while providing shareholders with a high
level of current income consistent with prudent investment risk. Fortis High
Yield Portfolio ("High Yield") is an investment portfolio in Fortis Advantage
Portfolios, Inc. ("Fortis Advantage") which is a diversified, open-end
management investment company. The investment objective of High Yield is to
maximize total return 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 Fortis Advisers Inc. (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 fund offers Class A, Class B, Class C, Class E (for U.S. Government only)
and Class H shares. Class E shares are only available to existing
shareholders on November 14, 1994. Class A and E shares are sold with a
front-end sales charge. Class B and H shares are sold without a front-end
sales charge and may be subject to a contingent deferred sales charge for six
years, and such shares automatically convert to Class A after eight years.
Class C shares are sold without a front-end sales charge and may be subject
to a contingent deferred sales charge for one year. All classes of shares
have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except that the level of distribution fees charged
differs between classes. Income, expenses (other than expenses incurred under
each class's distribution agreement) and realized and unrealized gains or
losses on investments are allocated to each class of shares based on its
relative net assets.
SECURITY VALUATION: Investments in securities traded on U.S. or foreign
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. 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 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, 1997 none of the portfolios had outstanding when-issued or forward
commitments.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions
are accounted for on the trade date. Interest income is recorded on the
accrual basis. Realized security gains and losses are determined using the
identified cost method. For financial reporting purposes, U.S. Government
amortizes original issue discount. For financial reporting purposes the High
Yield Portfolio amortizes bond premium, market discount and original issue
discount.
For the six-month period ended January 31, 1997, the cost of purchases and
proceeds from sales of securities (other than short-term securities) for U.S.
Government were $404,971,328 and $450,378,283, respectively, and for High
Yield were $281,279,105 and $253,885,720 respectively.
LENDING OF PORTFOLIO SECURITIES: At January 31, 1997, securities valued at
$176,367,021 and $26,343,350 were on loan to brokers from U.S. Government and
High Yield. For collateral, the Fund's custodian received $182,687,998 and
$26,841,169 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 $89,407 for U.S. Government and $8,843 for High Yield for
the six-month period ended January 31, 1997. 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.
FEDERAL TAXES: The funds intend to qualify, under the Internal Revenue Code,
as regulated investment companies and if so qualified, will not have to pay
federal income taxes to the extent their taxable net income is distributed.
On a calendar year basis, the funds intend to distribute substantially all of
its net investment income and realized gains, if any, to avoid the payment of
federal excise taxes.
Net investment income and net realized gains differ for financial statement
and tax purposes primarily because of the recognition of market discount as
ordinary income and the deferral of "wash sale" losses for tax purposes. The
character of distributions made during the year from net investment income or
net realized gains may, therefore, differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded
by the fund. The effect on dividend distributions of certain current year
permanent book-to-tax differences is reflected as excess distributions of net
realized gains in the statements of changes in net assets.
For federal income tax purposes U.S. Government had a capital loss carryover
of $70,183,389 and High Yield had $15,880,263 at July 31, 1996, which, if not
offset by subsequent capital gains, will expire in 1997 through 2004. The
capital loss carryover of U.S. Government includes $12,679,000 in connection
with the Government Total Return Portfolio merger (Note 4), of which the
ability to utilize is limited to approximately $3,054,000 per year. 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
15
<PAGE>
FORTIS BOND FUNDS
Notes to Financial Statements (continued)
(Unaudited)
- --------------------------------------------------------------------------------
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, 1997, investments in securities for the
High Yield Portfolio included issues that are illiquid. The fund currently
limits 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, 1997, was $14,844,250 which represents 7.61% of net assets.
Pursuant to guidelines adopted by the Board of Directors, certain
unregistered securities are determined to be liquid and are not included
within the 15% limitation specified above.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of increase and decrease
in net assets from operations during the reporting period. Actual results
could differ from those estimates.
2. PAYMENTS TO RELATED PARTIES: Fortis Advisers, Inc., is the investment adviser
for the fund. Investment advisory and management fees are computed at an
annual rate of .8% of the first $50 million of average daily net assets and
.7% of net assets in excess of $50 million for both U.S. Government 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% U.S. Government (Class A), .35% High Yield
(Class A) and 1.00% U.S. Government and High Yield (Class B, C and H) of
average daily net assets (of the respective classes) on an annual basis, to
be used to compensate those who sell shares of the fund and to pay certain
other expenses of selling fund shares. Fortis Investors, Inc., also received
sales charges for U.S. Government (paid by purchasers or redeemers of the
fund's shares) aggregating $81,741 for Class A, $5,582 for Class B, $355 for
Class C, $20,026 for Class H, and $73,333 for Class E and for High Yield
aggregating $300,970 for Class A, $14,937 for Class B, $2,858 for Class C,
and $107,757 for Class H, for the six-month period ended January 31, 1997.
Legal fees and expenses aggregating $29,742 for U.S. Government and $1,511
for High Yield for the six-month period ended January 31, 1997, were paid to
a law firm of which the secretary of the fund is a partner.
3. CHANGE IN ACCOUNTING PERIOD: Effective July 31, 1996, Fortis High Yield
Portfolio changed its Fiscal accounting and tax year-end to July 31
(previously October 31).
4. FUND MERGER: Effective with the close of business on March 1, 1996, the
Fortis Advantage Portfolios, Inc. -- Government Total Return Portfolio
("Government Total Return") was merged into U.S. Government. The merger was
approved by the shareholders of Government Total Return on February 9, 1996.
U.S. Government is the surviving entity for financial reporting and income
tax purposes. The merger was accomplished by a tax-free exchange as detailed
below:
<TABLE>
<CAPTION>
Net Assets of
Government
Total Return Government Total
on March 1, Return Shares U.S. Government
1996 Exchanged Shares Issued
<S> <C> <C> <C>
- ---------------------------------------------------------------
Class A $ 56,802,533 6,993,916 6,202,362
Class B 186,146 22,874 20,202
Class C 55,394 6,857 6,078
Class H 490,824 60,285 53,236
</TABLE>
Government Total Return's net assets at March 1, 1996 included unrealized
appreciation of $980,635, accumulated net realized losses of ($13,675,129)
and capital stock of $70,229,391.
The net assets of U.S. Government's classes immediately before the merger
were as follows:
<TABLE>
<CAPTION>
U.S. Government Net Assets
<S> <C>
- -------------------------------
Class A $ 14,603,701
Class B 1,560,356
Class C 697,595
Class E 437,242,318
Class H 8,357,112
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
5. FINANCIAL HIGHLIGHTS Selected per share historical data for each of the
Portfolios was as follows:
<TABLE>
<CAPTION>
Class E
--------------------------------------------------------------------------
Year Ended
Year Ended July 31 December 31
------------------------------------------------ ----------------------
U.S. GOVERNMENT SECURITIES FUND 1997*** 1996 1995 1994** 1993 1992
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 8.87 $ 9.02 $ 9.03 $ 9.87 $ 9.86 $ 10.16
--------- --------- --------- --------- --------- ---------
Operations:
Investment income - net............... .29 .60 .67 .42 .75 .84
Net realized and unrealized gain
(loss) on investments............... .13 (.15) (.01) (.84) .05 (.30)
--------- --------- --------- --------- --------- ---------
Total from operations................... .42 .45 .66 (.42) .80 .54
--------- --------- --------- --------- --------- ---------
Distributions to shareholders:
From investment income - net.......... (.28) (.60) (.67) (.42) (.75) (.84)
From net realized gains............... -- -- -- -- (.04) --
Excess distributions of net realized
gains............................... (.01) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions to shareholders..... (.29) (.60) (.67) (.42) (.79) (.84)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period.......... $ 9.00 $ 8.87 $ 9.02 $ 9.03 $ 9.87 $ 9.86
--------- --------- --------- --------- --------- ---------
Total return @.......................... 4.74% 5.08% 7.71% (4.29%) 8.31% 5.60%
Net assets end of period (000s
omitted).............................. $ 351,267 $ 388,006 $ 470,597 $ 555,275 $ 641,977 $ 587,996
Ratio of expenses to average daily net
assets................................ .81%* .81% .77% .77%* .76% .72%
Ratio of net investment income to
average daily net assets.............. 6.09%* 6.59% 7.51% 7.72%* 7.43% 8.48%
Portfolio turnover rate................. 95% 75% 76% 85% 157% 128%
</TABLE>
@ These are the total returns during the periods, including reinvestment
of all dividend and capital gains distributions without adjustments
for sales charge.
* Annualized.
** For the seven-month period ended July 31,1994.
*** For the six-month period ended January 31, 1997.
+ For the period November 14, 1994 (commencement of operations) to July
31, 1995.
<TABLE>
<CAPTION>
Class A Class B
------------------------------- -----------------------------
Year Ended July 31
----------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 1997*** 1996 1995+ 1997*** 1996 1995+
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $ 8.87 $ 9.02 $ 8.63 $ 8.86 $ 9.02 $ 8.63
-------- -------- ------- ------- ------- -------
Operations:
Investment income - net............... .27 .58 .46 .22 .51 .41
Net realized and unrealized gain
(loss) on investments............... .13 (.15) .39 .13 (.15) .39
-------- -------- ------- ------- ------- -------
Total from operations................... .40 .43 .85 .35 .36 .80
-------- -------- ------- ------- ------- -------
Distributions to shareholders:
From investment income - net.......... (.26) (.58) (.46) (.23) (.52) (.41)
Excess distributions of net realized
gains............................... (.01) -- -- (.01) -- --
-------- -------- ------- ------- ------- -------
Total distributions to shareholders..... (.27) (.58) (.46) (.24) (.52) (.41)
-------- -------- ------- ------- ------- -------
Net asset value, end of period.......... $ 9.00 $ 8.87 $ 9.02 $ 8.97 $ 8.86 $ 9.02
-------- -------- ------- ------- ------- -------
Total return @.......................... 4.60% 4.78% 10.07% 4.02% 4.00% 9.74%
Net assets end of period (000s
omitted).............................. $66,475 $ 67,707 $ 4,909 $2,726 $ 2,314 $ 483
Ratio of expenses to average daily net
assets................................ 1.06%* 1.06% 1.02%* 1.81%* 1.81% 1.77%*
Ratio of net investment income to
average daily net assets.............. 5.84%* 6.34% 7.00%* 5.09%* 5.45% 6.24%*
Portfolio turnover rate................. 95% 75% 76% 95% 75% 76%
<CAPTION>
Class C Class H
----------------------- -------------------------------
U.S. GOVERNMENT SECURITIES FUND 1997*** 1996 1995+ 1997*** 1996 1995+
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $8.85 $ 9.01 $ 8.63 $ 8.86 $ 9.02 $ 8.63
-- ------- ------- -------- -------- -------
Operations:
Investment income - net............... .23 .51 .41 .23 .51 .41
Net realized and unrealized gain
(loss) on investments............... .13 (.15) .38 .13 (.15) .39
-- ------- ------- -------- -------- -------
Total from operations................... .36 (.36) .79 .36 .36 .80
-- ------- ------- -------- -------- -------
Distributions to shareholders:
From investment income - net.......... (.23) (.52) (.41) (.23) (.52) (.41)
Excess distributions of net realized
gains............................... (.01) -- -- (.01) -- --
-- ------- ------- -------- -------- -------
Total distributions to shareholders..... (.24) (.52) (.41) (.24) (.52) (.41)
-- ------- ------- -------- -------- -------
Net asset value, end of period.......... $8.97 $ 8.85 $ 9.01 $ 8.98 $ 8.86 $ 9.02
-- ------- ------- -------- -------- -------
Total return @.......................... 4.15% 4.00% 9.35% 4.14% 4.00% 9.47%
Net assets end of period (000s
omitted).............................. $1,692 $ 1,057 $ 326 $10,710 $ 10,120 $ 4,823
Ratio of expenses to average daily net
assets................................ 1.81%* 1.81% 1.77%* 1.81%* 1.81% 1.77%*
Ratio of net investment income to
average daily net assets.............. 5.07%* 5.59% 6.24%* 5.09%* 5.52% 6.24%*
Portfolio turnover rate................. 95% 75% 76% 95% 75% 76%
</TABLE>
@ These are the total returns during the periods, including reinvestment
of all dividend and capital gains distributions without adjustments
for sales charge.
* Annualized.
** For the seven-month period ended July 31,1994.
*** For the six-month period ended January 31, 1997.
+ For the period November 14, 1994 (commencement of operations) to July
31, 1995.
17
<PAGE>
FORTIS BOND FUNDS
Notes to Financial Statements (continued)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5. FINANCIAL HIGHLIGHTS (continued):
Class A
-------------------------------------------------------
Year Ended July 31 Year Ended October 31,
------------------ -----------------------------------
HIGH YIELD PORTFOLIO 1997*** 1996** 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of
period............................. $ 7.56 $ 7.61 $ 7.90 $ 8.65 $ 8.00 $ 7.82
-------- -------- -------- ------- ------- -------
Operations:
Investment income - net............ .37 .56 .86 .86 .87 .85
Net realized and unrealized gain
(loss) on investments............ .19 (.04) (.25) (.72) .68 .22
-------- -------- -------- ------- ------- -------
Total from operations................ .56 .52 .61 .14 1.55 1.07
-------- -------- -------- ------- ------- -------
Distributions to shareholders:
From investment income - net....... (.38) (.55) (.87) (.89) (.89) (.85)
Excess distributions of net
realized gains................... (.02) (.02) (.03) -- (.01) (.04)
-------- -------- -------- ------- ------- -------
Total Distributions to
Shareholders........................ (.40) (.57) (.90) (.89) (.90) (.89)
-------- -------- -------- ------- ------- -------
Net asset value, end of period....... $ 7.72 $ 7.56 $ 7.61 $ 7.90 $ 8.65 $ 8.00
-------- -------- -------- ------- ------- -------
Total return @....................... 7.55% 6.98% 8.07% 1.48% 20.33% 14.20%
Net assets end of period (000s
omitted)........................... $120,003 $109,401 $113,268 $98,611 $73,395 $45,628
Ratio of expenses to average daily
net assets......................... 1.23%* 1.21%* 1.25% 1.23% 1.29% 1.33%
Ratio of net investment income to
average daily net assets........... 9.62%* 9.87%* 10.61% 10.18% 10.43% 10.34%
Portfolio turnover rate.............. 152% 146% 101% 63% 95% 80%
</TABLE>
* Annualized
@ These are the Fund's total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustments for sales charge.
+ For the period from November 14, 1994 (commencement of operations) to
October 31, 1995.
** For the nine-month period ended July 31, 1996.
*** For the six-month period ended January 31, 1997.
<TABLE>
<CAPTION>
Class B Class C Class H
------------------------ ---------------------- -------------------------
Year Ended July 31,
---------------------------------------------------------------------------
HIGH YIELD PORTFOLIO 1997*** 1996** 1995+ 1997*** 1996** 1995+ 1997*** 1996** 1995+
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period............................. $ 7.56 $ 7.60 $ 7.87 $7.55 $7.59 $ 7.87 $ 7.55 $ 7.60 $ 7.87
------- ------- ------ ------ ------ ------ ------- ------- -------
Operations:
Investment income - net............ .35 .53 .80 .35 .53 .79 .35 .52 .80
Net realized and unrealized gain
(loss) on investments............ .19 (.04) (.25) .19 (.04 ) (.25) .19 (.04) (.25)
------- ------- ------ ------ ------ ------ ------- ------- -------
Total from operations................ .54 .49 .55 .54 .49 .54 .54 .48 .55
------- ------- ------ ------ ------ ------ ------- ------- -------
Distributions to shareholders:
From investment income - net....... (.36 ) (.51) (.78) (.36 ) (.51 ) (.77) (.36 ) (.51) (.77)
Excess distributions of net
realized gains................... (.02 ) (.02) (.04) (.02 ) (.02 ) (.05) (.02 ) (.02) (.05)
------- ------- ------ ------ ------ ------ ------- ------- -------
Total Distributions to
Shareholders........................ (.38 ) (.53) (.82) (.38 ) (.53 ) (.82) (.38 ) (.53) (.82)
------- ------- ------ ------ ------ ------ ------- ------- -------
Net asset value, end of period....... $ 7.72 $ 7.56 $ 7.60 $7.71 $7.55 $ 7.59 $ 7.71 $ 7.55 $ 7.60
------- ------- ------ ------ ------ ------ ------- ------- -------
Total return @....................... 7.22% 6.62% 7.25% 7.01% 6.63% 7.12% 7.23% 6.48% 7.26%
Net assets end of period (000s
omitted)........................... $16,497 $12,067 $7,530 $4,307 $3,378 $2,180 $54,224 $39,133 $23,862
Ratio of expenses to average daily
net assets......................... 1.88%* 1.86%* 1.90%* 1.88%* 1.86%* 1.90%* 1.88%* 1.86%* 1.90%*
Ratio of net investment income to
average daily net assets........... 9.00%* 9.20%* 9.66%* 8.99%* 9.21%* 9.83%* 9.00%* 9.21%* 9.81%*
Portfolio turnover rate.............. 152% 146% 101% 152% 146% 101% 152% 146% 101%
</TABLE>
* Annualized
@ These are the Fund's total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustments for sales charge.
+ For the period from November 14, 1994 (commencement of operations) to
October 31, 1995.
** For the nine-month period ended July 31, 1996.
*** For the six-month period ended January 31, 1997.
18
<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 INTERIM PRESIDENT, HAVERFORD COLLEGE.
PRIOR TO JULY 1996, PRESIDENT
MACALESTER COLLEGE
Benjamin S. Jaffray CHAIRMAN, SHEFFIELD GROUP, LTD.
Jean L. King PRESIDENT, COMMUNI-KING
Dean C. Kopperud CHIEF EXECUTIVE OFFICER AND DIRECTOR,
FORTIS ADVISERS, INC. PRESIDENT AND
DIRECTOR, FORTIS INVESTORS, INC.
SENIOR VICE PRESIDENT AND DIRECTOR,
FORTIS BENEFITS INSURANCE COMPANY AND
TIME INSURANCE COMPANY
Edward M. Mahoney PRIOR TO JANUARY, 1995, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER, FORTIS
ADVISERS, INC., FORTIS INVESTORS,
INC.
Robb L. Prince FINANCIAL AND EMPLOYEE BENEFIT
CONSULTANT. PRIOR TO JULY, 1995, VICE
PRESIDENT AND TREASURER, JOSTENS,
INC.
Leonard J. Santow PRINCIPAL, GRIGGS & SANTOW, INC.
Noel Shadko MARKETING CONSULTANT PRIOR TO MAY,
1996, SENIOR VICE PRESIDENT OF
MARKETING & STRATEGIC PLANNING,
ROLLERBLADE INC.
Joseph M. Wikler INVESTMENT CONSULTANT AND PRIVATE
INVESTOR. PRIOR TO JANUARY, 1994,
DIRECTOR OF RESEARCH, CHIEF
INVESTMENT OFFICER, PRINCIPAL, AND
DIRECTOR, THE ROTHSCHILD CO.
OFFICERS
Dean C. Kopperud
PRESIDENT AND DIRECTOR
Robert W. Beltz, Jr.
VICE PRESIDENT
James S. Byrd
VICE PRESIDENT
Tamara L. Fagely
VICE PRESIDENT AND TREASURER
Howard G. Hudson
VICE PRESIDENT
David A. Peterson
VICE PRESIDENT
Scott Plummer
VICE PRESIDENT
Rhonda J. Schwartz
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 Advisers, Inc.
BOX 64284, ST. PAUL, MINNESOTA 55164
CUSTODIAN First Bank National Association
MINNEAPOLIS, MINNESOTA
GENERAL COUNSEL Dorsey & Whitney LLP
MINNEAPOLIS, MINNESOTA
INDEPENDENT AUDITORS KPMG Peat Marwick LLP
MINNEAPOLIS, MINNESOTA
The use of this material is authorized only when preceded or accompanied by a
prospectus.
19
<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 MINNESOTA
SECURITIES PORTFOLIO
TAX-FREE NATIONAL
PORTFOLIO
HIGH YIELD PORTFOLIO
Fortis Stock Funds ASSET ALLOCATION
PORTFOLIO
VALUE FUND
GROWTH & INCOME FUND
CAPITAL FUND
FIDUCIARY FUND
GLOBAL GROWTH PORTFOLIO
GROWTH FUND
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
DIVERSIFIED INCOME
SUBACCOUNT
GLOBAL BOND SUBACCOUNT
HIGH YIELD SUBACCOUNT
ASSET ALLOCATION
SUBACCOUNT
GLOBAL ASSET ALLOCATION
SUBACCOUNT
VALUE SUBACCOUNT
GROWTH & INCOME
SUBACCOUNT
S&P 500 INDEX SUBACCOUNT
BLUE CHIP STOCK
SUBACCOUNT
GLOBAL GROWTH SUBACCOUNT
GROWTH STOCK SUBACCOUNT
INTERNATIONAL 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
ASSET ALLOCATION
SUBACCOUNT
GLOBAL ASSET ALLOCATION
SUBACCOUNT
VALUE SUBACCOUNT
GROWTH & INCOME
SUBACCOUNT
S&P 500 INDEX SUBACCOUNT
BLUE CHIP STOCK
SUBACCOUNT
GLOBAL GROWTH SUBACCOUNT
GROWTH STOCK SUBACCOUNT
INTERNATIONAL 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 TIME INSURANCE COMPANY.
FOR MORE COMPLETE INFORMATION, INCLUDING CHARGES AND EXPENSES, SEND FOR A
PROSPECTUS. WRITE TO: FORTIS INVESTORS, INC., P.O. BOX 64284, ST. PAUL, MN
55164. READ IT CAREFULLY BEFORE INVESTING OR SENDING MONEY.
20
<PAGE>
FORTIS FINANCIAL GROUP
Fortis Financial Group (FFG) provides solutions for customers' financial needs
using mutual funds, annuities and life insurance. Besides our own array of
quality products, we create and deliver customized products for other financial
service providers. Like the Fortis name, which comes from the Latin for strong
and steadfast, we concentrate on the customer relationships we build, the
services we provide, the solutions we offer and the performance we seek.
FFG includes Fortis Advisers, Inc. an established money
manager, as well as Fortis Investors, Inc., a broker dealer [GRAPHIC]
with nationwide sales and marketing influence. The guarantees
in our insurance products are underwritten by Fortis Benefits
Insurance Company and Time Insurance Company.
Fortis Financial Group is part of Fortis, Inc. a financial services company that
provides specialty insurance and investment products to individuals, businesses,
associations and other financial services organizations in the United States.
Fortis, Inc., is part of Fortis, a worldwide group of companies active in the
fields of insurance, banking and investment. Fortis is jointly owned by Fortis,
AMEV of The Netherlands and Fortis AG of Belgium.
[GRAPHIC] FOR MORE INFORMATION, CALL YOUR INVESTMENT REPRESENTATIVE OR FORTIS
AT (800) 800-2638.
[FORTIS LOGO]-REGISTERED TRADEMARK- ---------------
Bulk Rate
FORTIS FINANCIAL GROUP U.S. Postage
P.O. BOX 64284 PAID
ST. PAUL, MN 55164 Permit No. 3794
Minneapolis, MN
---------------
FORTIS BOND FUNDS
[RECYCLE LOGO] Printed on recycled paper with
40% preconsumer waste and 10%
post consumer waste. Please recycle.
[FORTIS LOGO] -REGISTERED TRADEMARK- and Fortis -REGISTERED TRADEMARK- are
registered trademarks of Fortis AMEV and Fortis AG.
98561 (3/97)
