<PAGE> 1
October 4, 1996
Dear Fellow Shareholders:
On behalf of all of us at Heritage Asset Management, thank you for your
continuing investment in Heritage Capital Appreciation Trust (the "Fund").
During the fiscal year ended August 31, 1996, the A shares and C shares of your
Fund gained 12.8% and 12.2%, respectively. These returns are calculated without
the imposition of either front or back end sales charges.
Your Fund's largest industry group weightings as of August 31 were
Publishing, Finance, Leisure/Amusement, Broadcasting and Telecommunications. One
year earlier, while not in the same order, these industry groups similarly
represented the five largest in your Fund. This should not be surprising given
the long-term outlook we take in investing in companies for the Fund. The
portfolio turnover rate reflects this approach, having remained at or below 66%
for each of the five most recent fiscal years.
In the letter that follows, Herb Ehlers discusses the industry groups and
securities that significantly affected your Fund's performance during the most
recent fiscal year. Herb is Chairman and Chief Executive Officer of Liberty
Investment Management, your Fund's investment subadviser. I hope you find his
comments helpful in understanding further how your investment portfolio is
managed.
Again, thank you for your investment in Heritage Capital Appreciation
Trust. If there are ever ways in which you believe we could serve you better,
please call us at 800-709-3863.
Sincerely,
/s/ Stephen G. Hill
-------------------
Stephen G. Hill
President
<PAGE> 2
October 4, 1996
Dear Fellow Shareholders:
For the five years ended August 31, 1996, the Class A Shares of the
Heritage Capital Appreciation Trust (HCAT) performed in line with the Standard &
Poor's 500 Composite Stock Price Index (cumulative return of 86.5%* for HCAT
versus 89.1% for the S&P 500). Over this same time frame, the Class A Shares of
HCAT have substantially outperformed the Value Line Index by 46% on a cumulative
basis.
For the fiscal year ended August 31, 1996, HCAT turned in a double digit
performance gain of 12.79%* for Class A Shares and 12.16%* for Class C Shares.
During this same time period, the S&P 500 and Value Line Indexes returned 18.74%
and 5.91%, respectively. For calendar year-to-date (through August 31), HCAT*
(Class A +7.97%; Class C +7.59%) has bettered the performance of both the S&P
500 (+7.45%) and Value Line Index (+4.25%).
Over the course of the past twelve months, the portfolio has been
significantly bolstered by investments in some very exceptional businesses. In
particular, certain HCAT holdings including financials (Freddie Mac, Fannie Mae,
AMBAC, MBIA Inc., and MBNA Corp.), diversified energy (AES Corp.), services
(Service Corp. International), hotels/lodging (Marriott International and Promus
Hotel Corp.), and health care products (US Surgical) all dramatically
outperformed the S&P 500.
On the other hand, investments in cable companies (Time Warner, Inc.,
Tele-Communications, Inc.), programming content providers (Gaylord Entertainment
Company, Class "A", Liberty Media Group, Class "A", The Walt Disney Company),
gaming entities (Circus Circus Enterprises, Inc., Harrah's Entertainment, Inc.)
and cellular telephone companies (Airtouch Communications, Inc., Telephone and
Data Systems, Inc.) lagged the return of the S&P 500. We strongly believe,
however, that these companies possess the potential to be the source of HCAT's
future outperformance. On what foundation are our firmly held convictions based?
It is quite simply the time tested logic at the core of our investment
philosophy.
As you may recall, we are buyers of businesses -- predictable, growing
businesses which we thoroughly understand. We analyze each potential investment
not from the viewpoint of a mere purchaser of the stock, but instead from the
viewpoint of a buyer considering the purchase of the company itself. We have
very strong preferences for the types of businesses we want to
own -- preferences, we believe, that result in superior long-term investment
performance.
We favor franchise businesses. Franchise businesses generally possess a
dominant market share, which allows for pricing flexibility and robust profit
margins. In addition, we prefer companies whose products or services have a long
life cycle. This is key to enabling a business to generate revenues which are
recurring in nature. Finally, we look for businesses that produce free cash
flow. Excess cash can be used for many shareholder advantageous actions
including strategic acquisitions, stock buy-back programs, and increased
dividends. Finally, we want to purchase this business at a discount to the
company's fair market value. Then we hope it is simply a matter of time before
the market perceives the business' inherent worth and drives the stock price up
to more accurately reflect this value. Sometimes this acknowledgment occurs
fairly rapidly; other times patience is required in rather large doses.
2
<PAGE> 3
An example of patience meeting its just reward is embodied in Service Corp.
International. Initially purchased in January 1992, our investment in Service
Corp. garnered a notable 27% annualized return during its first two years in the
portfolio (compared to the S&P 500's 9% annualized return over the same time
frame). The stock then ended 1994 a mere three-quarters of a point higher from
where it had begun the year. After this period of rather lackluster performance,
we made a conscious decision to temporarily ignore the stock market. We,
instead, focused on the company's solid business fundamentals and extraordinary
potential. In the ensuing months through August 31, 1996, Service Corp. has
acquired about $1 billion worth of funeral home chains and cemetery operators,
and has amassed nearly 3,000 funeral homes and more than 300 cemeteries. It now
has the much prized epithet of being the world's largest 'death service'
business. From December 1994 through August 1996, Service Corp. has risen over
50% on an annualized basis and has been one of the most significant contributors
to HCAT's performance. Service Corp. truly illustrates the essence of our
investment style -- emphasizing once again the benefits of investing in a
business and not just a stock.
While technically occurring twelve days after the fiscal year-end, but very
much related to the subject at hand . . .
Overwhelmingly positive is somewhat of an understatement when describing
the market's reaction to news that Gillette Co. would pay $7.1 billion in stock
to buy battery maker Duracell International Inc. In the two days following the
deal's September 12th announcement, Duracell's stock skyrocketed 27%. Given
that, as of September 12, 1996, Duracell is the largest holding within the HCAT
portfolio, a rigorous analysis of the deal, as well as our outlook on what lies
ahead for the newly expanded Gillette will be provided in the next shareholder's
letter.
We anticipate over the next year or two that many other current HCAT
holdings (yes, even those within the telecommunications/entertainment
industries!) will enjoy similar success stories, as either the market or other
companies recognize the value of their excellent underlying businesses.
Again, I appreciate your confidence in me and the Liberty investment team.
We will continue to work diligently to produce solid long-term results for you.
Sincerely,
/s/ Herbert E. Ehlers
----------------------------------
Herbert E. Ehlers
Chairman & Chief Executive Officer
Liberty Investment Management
* These returns are calculated without the imposition of either front or back
end sales charges.
3
<PAGE> 4
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
SINCE SEPTEMBER 1, 1986 OF HCAT CLASS A SHARES
[PERFORMANCE GRAPH]
HCAT S & P VALUE LINE
------- ------- ----------
1986 $ 9,525 $10,000 $10,000
$ 9,137 $ 9,939 $ 9,778
$10,679 $11,424 $11,159
$10,237 $11,751 $10,989
1987 $11,096 $13,454 $12,104
$ 8,295 $ 9,474 $ 7,994
$10,106 $11,118 $ 9,569
$ 9,852 $10,988 $ 9,578
1988 $10,125 $11,059 $ 9,674
$10,483 $11,680 $ 9,596
$11,629 $12,435 $10,278
$12,873 $13,928 $11,135
1989 $13,859 $15,395 $11,763
$13,237 $15,282 $10,934
$12,239 $14,787 $10,140
$12,843 $16,242 $10,470
1990 $11,263 $14,626 $ 8,834
$11,178 $14,749 $ 8,103
$12,574 $16,955 $ 9,718
$13,273 $18,157 $10,407
1991 $13,710 $18,563 $10,388
$13,645 $17,752 $ 9,830
$15,890 $19,666 $11,201
$15,489 $19,947 $10,825
1992 $15,188 $20,033 $10,408
$16,636 $21,029 $11,011
$16,907 $21,759 $11,566
$17,591 $22,261 $11,861
1993 $19,095 $23,080 $12,171
$19,230 $23,153 $12,127
$20,178 $23,575 $12,692
$19,510 $23,209 $11,984
1994 $20,446 $24,342 $12,460
$19,217 $23,393 $11,615
$20,491 $25,304 $12,180
$20,973 $27,890 $12,847
1995 $22,666 $29,558 $13,787
$23,264 $32,044 $13,907
$25,287 $34,088 $14,354
$26,567 $35,823 $15,306
1996 $25,566 $35,096 $14,603
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
SINCE SEPTEMBER 1, 1991 OF HCAT CLASS A SHARES**
[PERFORMANCE GRAPH]
HCAT S & P VALUE LINE
------- ------- ----------
1991 $10,000 $10,000 $10,000
$ 9,952 $ 9,563 $ 9,463
$11,590 $10,595 $10,783
$11,297 $10,746 $10,421
1992 $11,078 $10,792 $10,019
$12,134 $11,329 $10,600
$12,332 $11,722 $11,134
$12,831 $11,993 $11,418
1993 $13,928 $12,433 $11,717
$14,026 $12,473 $11,674
$14,717 $12,700 $12,218
$14,230 $12,503 $11,537
1994 $14,913 $13,113 $11,995
$14,017 $12,602 $11,181
$14,946 $13,632 $11,725
$15,297 $15,025 $12,367
1995 $16,532 $15,923 $13,273
$16,969 $17,262 $13,388
$18,444 $18,364 $13,818
$19,377 $19,298 $14,734
1996 $18,647 $18,907 $14,058
------------------------------------------------------------------------
The Value Index does not include reinvestment of dividends.
* Average annual returns for HCAT Class "A" Shares are calculated in
conformance with item 22 of Form N-1A, which assumes the maximum sales load
of 4.75% and reinvestment of dividends. Performance presented represents
historical data. The investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Fund's results, assume the reinvestment of
all capital gain distributions and income dividends. The Fund's past
performance is not indicative of future performance and should be considered
in light of the Fund's investment policy and objectives, the characteristics
and quality of its portfolio securities, and the periods selected.
** Return for HCAT Class "A" Shares does not reflect the imposition of front-end
sales load.
4
<PAGE> 5
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
SINCE INCEPTION OF HCAT CLASS C SHARES
ON APRIL 3, 1995
[PERFORMANCE GRAPH]
HCAT S & P VALUE LINE
------- ------- ----------
04/03/95**** $10,000 $ 10,000 $10,000
04/30/95 $ 9,915 $ 10,294 $10,197
05/31/95 $10,099 $ 10,706 $10,398
08/31/95 $10,931 $ 11,346 $11,159
11/30/95 $11,206 $ 12,300 $11,256
02/28/96 $12,157 $ 13,085 $11,617
05/31/96 $12,760 $ 13,751 $12,388
08/31/96 $12,261 $ 13,472 $11,819
- --------------------------------------------------------------------------------
* Average total return for HCAT Class "C" Shares are calculated in conformance
with Item 22 of Form N-1A. Performance presented represents historical data.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Fund's results, assume the reinvestment of all capital
gain distributions and income dividends. The Fund's past performance is not
indicative of future performance and should be considered in light of the
Fund's investment policy and objectives, the characteristics and quality of
its portfolio securities, and the periods selected.
5
<PAGE> 6
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------- -----------
<C> <S> <C>
COMMON STOCKS--96.5%(A)
- -----------------------
BANKING--2.5%
-------------
5,500 Crestar Financial Corporation....................................................... $ 319,687
48,000 MBNA Corporation.................................................................... 1,458,000
-----------
1,777,687
-----------
BROADCASTING--6.4%
------------------
80,000 Bell Cablemedia PLC, ADR*........................................................... 1,177,500
40,000 Comcast UK Cable Partners, Class "A"*............................................... 430,000
47,000 Liberty Media Group, Class "A"*..................................................... 1,239,625
115,000 Tele-Communications, Inc., Class "A"*............................................... 1,710,625
-----------
4,557,750
-----------
COSMETICS/TOILETRIES--2.7%
-----------------------
40,000 Avon Products, Inc. ................................................................ 1,915,000
-----------
DATA PROCESSING--2.0%
--------------------
30,000 Autodesk, Inc. ..................................................................... 690,000
20,000 Intuit, Inc.*....................................................................... 730,000
-----------
1,420,000
-----------
ELECTRONICS/ELECTRIC--3.3%
-----------------------
52,000 Duracell International, Inc. ....................................................... 2,346,500
-----------
FILMED ENTERTAINMENT--3.3%
------------------------
70,000 Time Warner, Inc. .................................................................. 2,336,250
-----------
FINANCE--11.3%
-------------
49,000 AMBAC, Inc. ........................................................................ 2,664,375
25,500 Federal Home Loan Mortgage Corporation.............................................. 2,253,563
64,000 Federal National Mortgage Association............................................... 1,984,000
15,000 First Data Corporation.............................................................. 1,170,000
-----------
8,071,938
-----------
FOOD--3.1%
----------
14,000 Campbell Soup Company............................................................... 911,750
10,000 Nabisco Holdings Corporation, Class "A"............................................. 336,250
18,000 Wm. Wrigley Jr Company.............................................................. 974,250
-----------
2,222,250
-----------
FOOD SERVING--1.0%
-----------------
30,000 IHOP Corporation*................................................................... 742,500
-----------
GLASS PRODUCTS--2.9%
-------------------
75,000 Libbey, Inc. ....................................................................... 2,100,000
-----------
HEALTH CARE CENTERS--2.1%
-----------------------
40,000 Beverly Enterprises, Inc.*.......................................................... 410,000
50,000 Tenet Healthcare Corporation*....................................................... 1,050,000
-----------
1,460,000
-----------
HOTELS/MOTELS/INNS--4.8%
-----------------------
40,000 Marriott International, Inc. ....................................................... 2,195,000
40,000 Promus Hotel Corporation*........................................................... 1,205,000
-----------
3,400,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
AUGUST 31, 1996
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------- -----------
<C> <S> <C>
INSURANCE--2.1%
-------------
10,000 MBIA, Inc........................................................................... $ 815,000
35,000 Western National Corporation........................................................ 660,625
-----------
1,475,625
-----------
LAND DEVELOPMENT/REAL ESTATE--1.1%
---------------------------------
30,000 The Rouse Company*.................................................................. 776,250
-----------
LEISURE/AMUSEMENT--10.7%
- ------------------------
40,000 Circus Circus Enterprises, Inc.*.................................................... 1,360,000
115,500 Gaylord Entertainment Company, Class "A"............................................ 2,829,750
55,000 Harrah's Entertainment, Inc.*....................................................... 1,045,000
23,500 Hasbro, Inc. ....................................................................... 863,625
33,000 Mirage Resorts, Inc.*............................................................... 767,250
13,000 The Walt Disney Company............................................................. 741,000
-----------
7,606,625
-----------
MEDICAL EQUIPMENT/SUPPLY--2.1%
-----------------------------
40,000 U.S. Surgical Corporation........................................................... 1,460,000
-----------
PHARMACEUTICALS--6.1%
-------------------
15,000 Pfizer, Inc......................................................................... 1,065,000
44,000 Pharmacia & Upjohn, Inc............................................................. 1,848,000
26,000 Schering-Plough Corporation......................................................... 1,452,750
-----------
4,365,750
-----------
POLLUTION CONTROL--1.1%
---------------------
54,000 Wheelabrator Technologies, Inc. .................................................... 803,250
-----------
PUBLISHING--12.5%
----------------
20,000 A.H. Belo Corporation, Class "A".................................................... 802,500
30,000 Gannett Company..................................................................... 2,010,000
47,500 New York Times Company, Class "A"................................................... 1,484,375
20,000 Reuters Holdings PLC, ADR........................................................... 1,397,500
26,000 Tribune Company..................................................................... 1,868,750
87,000 Valassis Communications, Inc.*...................................................... 1,326,750
-----------
8,889,875
-----------
REAL ESTATE INVESTMENT TRUST--1.2%
-------------------------------
45,000 Manufactured Home Communities, Inc.................................................. 838,125
-----------
RETAIL STORES--0.7%
-----------------
11,000 Tandy Corporation................................................................... 485,375
-----------
SERVICES--3.2%
-----------
40,000 Service Corporation International................................................... 2,255,000
-----------
TELECOMMUNICATIONS--6.4%
-----------------------
87,500 Airtouch Communications, Inc.*...................................................... 2,406,250
50,000 Telephone & Data Systems, Inc....................................................... 2,131,250
-----------
4,537,500
-----------
UTILITIES-DIVERSIFIED--3.5%
----------------------
70,000 AES Corporation*.................................................................... 2,485,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
AUGUST 31, 1996
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------- -----------
<C> <S> <C>
UTILITIES-GAS--0.4%
-----------------
12,000 UGI Corporation..................................................................... $ 280,500
-----------
Total Common Stocks (cost $52,955,588)............................................................. 68,608,750
-----------
DEBT EXCHANGEABLE FOR COMMON STOCKS (DECS)--1.8%(A)
- ----------------------------------------------------
DATA PROCESSING--1.8%
--------------------
20,000 American Express Company, 6.25%, Maturing 10/15/96.................................. 1,280,000
-----------
Total DECS (cost $735,000)......................................................................... 1,280,000
-----------
REPURCHASE AGREEMENT--1.9%(A)
- ----------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated August 30, 1996, @ 5.15%, to
be repurchased at $1,365,781 on September 3, 1996, collateralized by $1,393,734 United States
Treasury Notes, 8.125%, due August 15, 2019, (market value $1,399,083 including interest) (cost
$1,365,000)........................................................................................ 1,365,000
-----------
TOTAL INVESTMENT PORTFOLIO (cost $55,055,588)(b), 100.2%(a)........................................ 71,253,750
OTHER ASSETS AND LIABILITIES, NET, (0.2%)(a)....................................................... (141,917)
-----------
NET ASSETS 100.0%.................................................................................. $71,111,833
==========
</TABLE>
- ------------------
* Non-income producing security
(a) Percentages indicated are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is
substantially the same. Market value includes net unrealized appreciation of
$16,198,162 which consists of aggregate gross unrealized appreciation for
all securities in which there is an excess of market value over tax cost of
$18,216,208 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value of $2,018,046.
ADR--American Depository Receipt
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 9
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
- ------
Investments, at market value (identified cost $55,055,588) (Note 1)........................ $71,253,750
Cash....................................................................................... 2,190
Receivables:
Fund shares sold......................................................................... 21,943
Dividends and interest................................................................... 89,148
Deferred state registration expenses (Note 1).............................................. 9,320
Prepaid insurance.......................................................................... 3,535
-----------
Total assets....................................................................... 71,379,886
Liabilities
- -----------
Payables (Note 4):
Fund shares redeemed..................................................................... $138,830
Accrued management fee................................................................... 45,490
Accrued distribution fee................................................................. 28,650
Other accrued expenses................................................................... 55,083
--------
Total liabilities.................................................................. 268,053
-----------
Net assets, at market value................................................................ $71,111,833
==========
Net Assets
Net assets consist of:
Paid-in capital.......................................................................... $48,681,226
Accumulated net realized gain............................................................ 6,232,445
Net unrealized appreciation on investments............................................... 16,198,162
-----------
Net assets, at market value................................................................ $71,111,833
==========
Class A Shares
- --------------
Net asset value and redemption price per share ($69,692,482 divided by 4,473,429 shares of
beneficial interest outstanding, no par value) (Notes 1 and 2)........................... $15.58
Maximum offering price per share (100/95.25 of $15.58)..................................... ======
$16.36
Class C Shares ======
- --------------
Net asset value, offering price and redemption price per share ($1,419,351 divided by
91,806 shares of beneficial interest outstanding, no par value) (Notes 1 and 2).......... $15.46
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 10
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income
- -----------------
Income:
Dividends.............................................................................. $ 871,591
Interest............................................................................... 240,613
-----------
Total income..................................................................... 1,112,204
Expenses (Notes 1 and 4):
Management fee......................................................................... $ 736,180
Distribution fee (Class A Shares)...................................................... 344,067
Distribution fee (Class C Shares)...................................................... 10,838
Professional fees...................................................................... 58,130
Custodian/Fund accounting fees......................................................... 53,586
Shareholder servicing.................................................................. 45,516
Amortization of state registration expenses............................................ 32,957
Reports to shareholders................................................................ 20,752
Trustees' fees and expenses............................................................ 8,594
Insurance.............................................................................. 7,368
Other.................................................................................. 1,927
----------
Total expenses before waiver..................................................... 1,319,915
Fees waived by Manager (Note 4)........................................................ (184,045) 1,135,870
---------- -----------
Net investment loss...................................................................... (23,666)
-----------
Realized and Unrealized Gain on Investments
- -------------------------------------------
Net realized gain from investment transactions........................................... 8,666,732
Net increase in unrealized appreciation of investments during the year................... 263,257
-----------
Net gain on investments.......................................................... 8,929,989
-----------
Net increase in net assets resulting from operations..................................... $ 8,906,323
==========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-----------------------------------
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss)................................................. $ (23,666) $ 346,236
Net realized gain from investment transactions............................... 8,666,732 6,822,883
Net increase in unrealized appreciation of investments during the year....... 263,257 127,074
--------------- ---------------
Net increase in net assets resulting from operations......................... 8,906,323 7,296,193
Distributions to shareholders from:
Net investment income, Class A Shares, ($.04 and $.06 per share,
respectively).............................................................. (201,178) (258,567)
Net investment income, Class C Shares, ($.04 per share)...................... (2,132) --
Net realized gains, Class A Shares, ($1.72 and $1.16 per share,
respectively).............................................................. (7,749,647) (5,533,950)
Net realized gains, Class C Shares ($1.72 per share)......................... (91,089) --
Decrease in net assets from Fund share transactions (Note 2)................... (3,030,768) (2,600,669)
--------------- ---------------
Decrease in net assets......................................................... (2,168,491) (1,096,993)
Net assets, beginning of year.................................................. 73,280,324 74,377,317
--------------- ---------------
Net assets, end of year (including undistributed net investment income of
$202,995 for the year ended August 31, 1995)................................. $71,111,833 $73,280,324
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 11
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
CLASS C SHARES
CLASS A SHARES FOR THE YEARS ENDED
FOR THE YEARS ENDED AUGUST 31, AUGUST 31,
-------------------------------------------- ---------------------
1996 1995 1994 1993 1992 1996 1995+
------- ------ ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 15.53 $15.30 $15.62 $13.64 $12.55 $ 15.50 $ 14.18
------- ------ ------ ------ ------ -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(a)...................... 0.00(e) 0.08 0.02 0.03 0.15 (0.03)(e) (0.01)
Net realized and unrealized gain on investments...... 1.81 1.37 1.05 3.29 1.19 1.75 1.33
------- ------ ------ ------ ------ -------- --------
Total from Investment
Operations......................................... 1.81 1.45 1.07 3.32 1.34 1.72 1.32
------- ------ ------ ------ ------ -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income................. (0.04) (0.06) (0.03) (0.07) (0.25) (0.04) --
Distributions from net realized gains................ (1.72) (1.16) (1.36) (1.27) -- (1.72) --
------- ------ ------ ------ ------ -------- --------
Total Distributions.................................. (1.76) (1.22) (1.39) (1.34) (0.25) (1.76) --
------- ------ ------ ------ ------ -------- --------
NET ASSET VALUE, END OF PERIOD......................... $ 15.58 $15.53 $15.30 $15.62 $13.64 $ 15.46 $ 15.50
======= ====== ====== ====== ====== ======= =======
TOTAL RETURN(%)(D)..................................... 12.79 10.85 7.07 25.72 10.78 12.16 9.31(c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily net
assets............................................. 1.54 1.62 1.55 1.56 1.66 2.05 2.17(b)
Net investment income (loss) to average daily net
assets(a).......................................... (.02) .49 .15 .24 1.09 (.57) (.33)(b)
Portfolio turnover rate.............................. 54 66 65 55 57 54 66
Average commission rate on portfolio transactions
(per share)........................................ $0.0600 -- -- -- -- $ 0.0600 --
Net assets, end of period ($ millions)............... 70 73 74 75 65 1 .4
</TABLE>
- ---------------
+ For the period April 3, 1995 (commencement of Class C Shares) to August 31,
1995.
(a) Excludes management fees waived by the Manager in the amount of less than
$0.04, $0.04, $0.04, $0.04 and $0.03 per Class A Share for the five years
ended August 31, 1996, respectively. The operating expense ratios including
such items would be 1.79%, 1.87%, 1.81%, 1.81% and 1.84% for Class A Shares
for the five years ended August 31, 1996, respectively. Excludes management
fees waived by the Manager in the amount of less than $0.04 and $0.04 per
Class C Share for the two years ended August 31, 1996, respectively. The
operating expense ratio including such items would be 2.30% and 2.42%
(annualized) for Class C Shares, respectively.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
(e) Amounts calculated prior to reclassification of $23,981 as described in Note
5. The effect of such reclassification would have no effect on net
investment income for Class A Shares and would have resulted in an increase
in net investment income of $0.10 for Class C shares.
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 12
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1: SIGNIFICANT ACCOUNTING POLICIES. Heritage Capital Appreciation Trust
(the "Fund") is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund invests
principally in those equity securities that the Fund's portfolio manager
believes are undervalued and therefore offer above-average potential for
long-term appreciation. The Fund currently issues Class A and Class C
Shares. Class A Shares are sold subject to a maximum sales charge of
4.75% of the amount invested payable at the time of purchase. Class C
Shares, which were offered to shareholders beginning April 3, 1995, are
sold subject to a contingent deferred sales charge of 1% of the lower of
net asset value or purchase price payable upon any redemptions within
one year after purchase. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts and disclosures. Actual results could differ from those
estimates. The following is a summary of significant accounting
policies:
Security Valuation: The Fund values investment securities at market
value based on the last quoted sales price as reported by the principal
securities exchange on which the security is traded. If no sale is
reported, market value is based on the most recent quoted bid price and
in the absence of a market quote, securities are valued using such
methods as the Board of Trustees believes would reflect fair market
value. Short term investments having a maturity of 60 days or less are
valued at cost which, when combined with accrued interest included in
interest receivable or discount earned, approximates market.
Repurchase Agreements: The Fund enters into repurchase agreements
whereby the Fund, through its custodian, receives delivery of the
underlying securities, the market value of which at the time of purchase
is required to be an amount equal to at least 100% of the resale price.
Federal Income Taxes: The Fund's policy is to comply with the
requirements of the Internal Revenue Code of 1986, as amended, which are
applicable to regulated investment companies and to distribute
substantially all of its taxable income to its shareholders.
Accordingly, no provision has been made for federal income and excise
taxes.
Distribution of Income and Gains: Distributions of net investment income
are made annually. Net realized gains from investment transactions
during any particular year in excess of available capital loss
carryforwards, which, if not distributed, would be taxable to the Fund,
will be distributed to shareholders in the following fiscal year. The
Fund uses the identified cost method for determining realized gain or
loss on investments for both financial and federal income tax reporting
purposes.
State Registration Expenses: State registration fees are amortized based
either on the time period covered by the registration or as related
shares are sold, whichever is appropriate for each state.
Capital Accounts: Distributions from net investment income and net
realized gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting
principles. To the extent these "book/tax" differences are permanent in
nature (i.e., that they result from other than timing of
recognition -- "temporary"), such accounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification.
Other: Investment security transactions are accounted for on a trade
date plus one basis. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. Expenses of the Fund are allocated to each class of
shares based upon their relative percentage of current net assets of
dividend eligible shares. All expenses that are directly attributable to
a specific class of shares, such as distribution fees, are allocated to
that class.
Note 2: FUND SHARES. At August 31, 1996, there was an unlimited number of shares
of beneficial interest of no par value authorized.
Transactions in Class A Shares of the Fund during the years
ended August 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-----------------------------------------------------------
AUGUST 31, 1996 AUGUST 31, 1995
-------------------------- --------------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 155,981 $ 2,425,846 315,129 $ 4,487,563
Shares issued on reinvestment of distributions....... 547,280 7,776,848 428,528 5,682,169
Shares redeemed...................................... (920,007) (14,196,180) (913,985) (13,189,775)
--------- ------------ --------- ------------
Net decrease......................................... (216,746) $ (3,993,486) (170,328) $ (3,020,043)
============ ============
Shares outstanding:..................................
Beginning of year.................................. 4,690,175 4,860,503
--------- ---------
End of year........................................ 4,473,429 4,690,175
========= =========
</TABLE>
12
<PAGE> 13
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Transactions in Class C Shares of the Fund during the year ended August
31, 1996 and from April 3, 1995 (commencement of Class C Shares) to
August 31, 1995 were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 3, 1995
(COMMENCEMENT OF
FOR THE YEAR ENDED CLASS C SHARES) TO
AUGUST 31, 1996 AUGUST 31, 1995
-------------------- -------------------
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------- ------ --------- ------ --------
<S> <C> <C> <C> <C>
Shares sold............................................. 63,749 $ 978,939 29,005 $425,638
Shares issued on reinvestment of distributions.......... 6,588 93,221 -- --
Shares redeemed......................................... (7,109) (109,442) (427) (6,264)
------ --------- ------ --------
Net increase............................................ 63,228 $ 962,718 28,578 $419,374
========= ========
Shares outstanding:
Beginning of year..................................... 28,578 --
------ ------
End of year........................................... 91,806 28,578
====== ======
</TABLE>
Note 3: PURCHASES AND SALES OF SECURITIES. For the year ended August 31, 1996,
purchases and sales of investment securities (excluding repurchase
agreements and short-term obligations) aggregated $37,338,344 and
$43,579,824, respectively.
Note 4: MANAGEMENT, SUBADVISORY, DISTRIBUTION, SHAREHOLDER SERVICING AGENT AND
TRUSTEES' FEES. Under the Fund's Investment Advisory and Administration
Agreement with Heritage Asset Management, Inc. (the "Manager"), the Fund
agrees to pay to the Manager a fee equal to an annualized rate of 1.00%
of the first $100,000,000 of the Fund's average daily net assets, and
0.75% of any excess over $100,000,000 of such net assets, computed daily
and payable monthly. Since January 2, 1992, the Manager has voluntarily
agreed to waive 25% of its fee on the first $100 million of average net
assets. Fees waived by the Manager for the year ended August 31, 1996
amounted to $184,045.
Effective February 27, 1995, the Manager entered into an agreement with
Liberty Investment Management (the "Subadviser") to provide to the Fund
investment advice, portfolio management services (including the
placement of brokerage orders) and certain compliance and other services
for a fee payable, by the Manager, equal to an annualized rate of .25%
of average daily net assets, computed daily and paid monthly. From
December 1985 (commencement of operations) through February 26, 1995,
Eagle Asset Management, Inc., a wholly-owned subsidiary of Raymond James
Financial, Inc., was the sole subadviser to the Fund. Although Eagle
remains a subadviser to the Fund, there are no assets currently
allocated to Eagle.
The Manager is also the Dividend Paying and Shareholder Servicing Agent
for the Fund. The amount payable to the Manager for such expenses as of
August 31, 1996 was $6,800. In addition, the Manager performs Fund
Accounting services and charged $36,261 during the year of which $5,900
was payable as of August 31, 1996.
Raymond James & Associates, Inc. (the "Distributor") has advised the
Fund that it received $51,387 in front end sales charges and $473 in
contingent deferred sales charges for the twelve months ended August 31,
1996. From these fees, the Distributor paid commissions to salespersons
and incurred other distribution costs.
Pursuant to the Class A Distribution Plan adopted in accordance with
Rule 12b-1 of the Investment Company Act of 1940, as amended, the Fund
is authorized to pay the Distributor a fee of up to .50% of the average
daily net assets for Class A Shares. The Class C Distribution Plan
provides for payments at an annual rate of up to 1.00% of the average
daily net assets for Class C Shares. The Distributor, on Class C Shares,
may retain the first 12 months distribution fee for reimbursement of
amounts paid to the broker/dealer at the time of purchase. Such fees are
accrued daily and payable monthly. The Manager, Distributor, Fund
Accountant and Shareholder Servicing Agent are all wholly-owned
subsidiaries of Raymond James Financial, Inc.
Trustees of the Fund also serve as Trustees for Heritage Cash Trust,
Heritage Income-Growth Trust, Heritage Income Trust, Heritage Series
Trust and Heritage U.S. Government Income Fund, investment companies
that are also advised by the Manager (collectively referred to as the
Heritage Mutual Funds). Each Trustee of the Heritage Mutual Funds who is
not an interested person of the Manager receives an annual fee of $8,000
and an additional fee of $2,000 for each combined quarterly meeting of
the Heritage Mutual Funds attended. Trustees' fees and expenses are
shared equally by each of the Heritage Mutual Funds.
Note 5: FEDERAL INCOME TAXES. For the year ended August 31, 1996, to reflect
reclassifications arising from permanent book/tax differences primarily
attributable to a net operating loss, the Fund credited accumulated net
investment loss and charged accumulated undistributed net realized gains
$23,981.
13
<PAGE> 14
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Heritage Capital Appreciation Trust
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Heritage Capital Appreciation Trust
(the "Fund") at August 31, 1996, and the results of its operations, the changes
in its net assets and the financial highlights for the year then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at August 31, 1996 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above. The financial statements of the Fund for the year ended August
31, 1995, including the financial highlights for each of the periods indicated,
were audited by other independent accountants whose report dated October 12,
1995 expressed an unqualified opinion on those statements.
/s/ Price Waterhouse LLP
- -------------------------
PRICE WATERHOUSE LLP
Tampa, Florida
October 11, 1996
- --------------------------------------------------------------------------------
1996 FEDERAL INCOME TAX NOTICE
(UNAUDITED)
- --------------------------------------------------------------------------------
During the year ended August 31, 1996, the Fund paid to shareholders
$6,270,221 or $1.38 per share from long-term capital gains. For such period 59%
of the income dividends qualified for the dividend received deduction available
to corporations.
14
<PAGE> 15
HERITAGE CAPITAL APPRECIATION TRUST is a member of the Heritage family of mutual
funds. Other investment alternatives available to you from Heritage include:
--- HERITAGE CASH TRUST
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
--- HERITAGE INCOME-GROWTH TRUST
--- HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
INTERMEDIATE GOVERNMENT FUND
--- HERITAGE SERIES TRUST
EAGLE INTERNATIONAL EQUITY PORTFOLIO
GROWTH EQUITY FUND
SMALL CAP STOCK FUND
VALUE EQUITY FUND
--- HERITAGE U.S. GOVERNMENT INCOME FUND
(A CLOSED-END FUND THAT TRADES ON THE
NEW YORK STOCK EXCHANGE)
We are pleased that many of you are also investors in these funds. For
information and a prospectus for any of these mutual funds, please contact your
account executive. Please read the Prospectus carefully before you invest in any
of the funds.
<PAGE> 16
Heritage Capital Appreciation Trust
P.O. Box 33022
St. Petersburg, FL 33733
--------------------------------------------
Address Change Requested
This report is for the information of shareholders of
Heritage Capital Appreciation Trust. It may also be used as
sales literature when preceded or accompanied by a prospectus.
5M 10/96 (RECYCLE LOGO) Printed on recycled paper
(LOGO) HERITAGE CAPITAL APPRECIATION TRUST (TM)
A mutual fund
seeking long-term
capital appreciation
ANNUAL REPORT
and Investment Performance
Review for the Year Ended
AUGUST 31, 1996
A member of the
Heritage Family of Mutual Funds(TM)
