<PAGE> 1
April 18, 1996
Dear Fellow Shareholders:
It is my pleasure to provide you with the semiannual report for Heritage
Capital Appreciation Trust (the "Fund") for the six month period ended February
29, 1996. The A Shares and Class C Shares of your Fund had positive total
returns of 11.56% and 11.22%, respectively for this period. These returns are
calculated without the imposition of any front end or back-end sales charges.
For the same period, the Standard & Poor's 500 Composite Stock Price Index and
the Value Line Index returned 15.3% and 4.1%, respectively.
In the letter that follows, Herb Ehlers, the portfolio manager for your
Fund, discusses several of the factors that affected its investment performance
of your Fund. In particular he discusses his thought process in the purchase,
sale, and repurchase of the stock of Hasbro Inc. I hope you find Herb's comments
helpful in understanding how your investments are managed.
In addition to managing your Fund's portfolio, Herb Ehlers is Chairman and
Chief Investment Officer of Liberty Investment Management, your Fund's
investment subadvisor. Liberty manages over $5 billion for institutional
investors, such as the pension plans of Chrysler Corporation, Halliburton
Company, Dunlop Tire Corporation, the States of Florida, Louisiana and Oklahoma,
and the Cities of Baltimore, Boston and Dallas. We remain excited about the
relationship between Heritage and Liberty in providing your Fund with access to
an institutional money management firm of Liberty's caliber.
Thank you for your continuing investment with Heritage. We look forward to
helping serve your investment needs for years to come.
Sincerely,
/s/ Stephen G. Hill
-------------------
Stephen G. Hill
President
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 which consists of the Money Market and Municipal
Money Market Portfolios, Heritage Income Growth Trust, Heritage Income Trust,
which consists of the High Yield and Intermediate Government Portfolios and
Heritage Series Trust, which consists of the Small Cap Stock, Value Equity,
Growth Equity and Eagle International Equity Portfolios. We are pleased that
many of you are also investors in these funds. For information and a prospectus
for any of these funds, please contact your account executive. Read the
Prospectus carefully before you invest in any of the funds.
<PAGE> 2
April 18, 1996
Dear Fellow Shareholder:
Heritage Capital Appreciation Trust (HCAT) recorded good absolute
investment performance with a gain of 11.6% for Class A Shares and 11.2% for
Class C Shares for the six months ended February 29, 1996. During this same time
period, the Standard & Poor's 500 Composite Stock Price Index ("S&P 500") gained
15.3%.
Most important, the companies in HCAT's portfolio continued to achieve good
business results during these six months and for the first calendar quarter of
1996. We believe that attractive buying opportunities are created when a stock
has underperformed even though the company's business fundamentals continue to
perform well. This divergence between good business fundamentals and an
underperforming stock creates what we call a "valuation gap." When the market
fairly values the company's businesses, the stock price rises to close the
valuation gap and therefore generates an incremental return, in addition to the
expected growth of the business.
For the first calendar quarter of 1996, HCAT's investment performance was
6.6% for Class A Shares and 6.5% for Class C Shares, which outperformed the 5.4%
return of the S&P 500 and the 4.2% return of the Value Line Index. We continued
to manage the portfolio as we always have; the only difference between the first
calendar quarter and the six months ended February 29, 1996 was that the market
began to recognize the value of some of the wallflowers in the portfolio.
The portfolio had some terrific stocks in the first fiscal half ending
February 29, 1996. In particular, financials (Freddie Mac and Fannie Mae),
hotels/motels (Marriott and Promus), toys (Hasbro), health care (Pharmacia
Upjohn) and long distance (AT&T) dramatically outperformed the S&P 500.
On the other hand, the stocks in the cable, cable programming
entertainment, gaming, and cellular telephone industries continued to
substantially underperform the S&P 500. We believe the stocks in these
industries could be the opportunities for strong future outperformance. Indeed,
during the first calendar quarter of 1996, the gaming stocks in your Fund have
been very strong with Harrahs, Circus Circus and Mirage all generating market
gains in excess of 20% significantly outperforming the market as investors have
begun to favorably view their fundamental outlook.
Even though I have been investing for over 30 years I continue to be amazed
at how the market (i.e. other investors) will substantially undervalue a company
during a certain time period and then substantially overvalue it in another time
period. Rather than "playing the momentum" and attempting to determine (read:
"lucky guess") when the market will favor or not favor a business, I much prefer
to analyze a company's business to determine if it meets our criteria and then,
if it's attractively valued (i.e. undervalued!), purchase the stock. If the
business is good, the stock should take care of itself in the long run.
The story of Hasbro, Inc. illustrates the above point. Hasbro is a
worldwide leader in the design, manufacture and marketing of toys, games and
puzzles. The company has outstanding brand names known the world over, including
Tonka, Milton Bradley and Parker Brothers which produce Mr. Potato Head,
Tinkertoy, G.I. Joe, Tonka Trucks, Scrabble and Monopoly, to name a few. In
1995, the company's revenues were $2.6 billion, earnings were $175 million, and
gross cash flow was $460 million. Hasbro was net debt free and generated free
cash flow of $170 million. This brand-name financial powerhouse company was
being priced in the stock market at only 5.8 times EBITDA (earnings before
interest, taxes, depreciation and amortization), a very attractive price. During
1995 the stock appreciated from 29 1/8 to $31 per share, a gain of only 6%, in a
market that was up 37%. We expected Hasbro's earnings to grow 12%-15% in 1996 to
$2.25 per share, with EBITDA and free cash flow to have similar increases. With
the stock selling at less than a market valuation,
2
<PAGE> 3
and with financial and business characteristics superior to the market, Hasbro
met most of our criteria for investment. Of course, we did not know if the
market would recognize the attractive characteristics of Hasbro, or if the
market would continue to ignore the stock as it did in 1995. In either case, we
believed we owned a great business whose stock would one day close its
"valuation gap."
Fortunately, that day occurred sooner than we expected. And it wasn't the
market, but rather Mattel, the world's leading toy company, which recognized the
value in Hasbro. In January, Mattel offered $53 per share for Hasbro, whose
stock was selling at $31 per share just a few weeks prior. The question that
should be asked is: "How can the stock market value a company at $31 per share
when the leading company in the industry (Mattel) values it at $53 per share?"
The answer is simple: The stock market is a momentum-driven, manic-depressive!
We believe this herd mentality creates great buying opportunities, which can
produce good results over long periods of time; indeed, sometimes it takes a
long period of time to achieve such results.
As a postscript, our research analysis convinced us that Hasbro was going
to fight Mattel's offer, so we sold the stock at approximately $41 per share.
With a small dividend added in, Hasbro provided the portfolio with a gain of 42%
from December 31, 1994 to January 25, 1996. In other words, Hasbro's stock went
from substantially underperforming the market in 1995 to outperforming the
market. If only the earth had taken 13 months to revolve around the sun, Hasbro
would have been a stellar performer last year! By the way, Hasbro did fight,
causing Mattel to withdraw its offer. We bought Hasbro again for the portfolio
in February at $33 per share.
We believe that many of the other wallflowers (similar to Hasbro) in the
portfolio could also sprout up over the next year or two, as either the market
or other companies recognize their excellent businesses.
Again, I appreciate your confidence in me and the Liberty investment team.
We will continue to work diligently to produce good long-term results for you.
Sincerely,
/s/ Herbert E. Ehlers
----------------------------------
Herbert E. Ehlers
Chairman & Chief Executive Officer
Liberty Investment Management
3
<PAGE> 4
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
FEBRUARY 29, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------------- -----------
<C> <S> <C>
COMMON STOCK--92.6%(A)
- --------------------
BANKING--2.4%
---------------
10,000 Crestar Financial Corporation..................................................... $ 585,000
42,000 MBNA Corporation.................................................................. 1,186,500
-----------
1,771,500
-----------
BROADCASTING--7.2%
-------------------
80,000 Bell Cablemedia PLC, ADR.......................................................... 1,220,000
40,000 Comcast UK Cable Partners, Class "A"*............................................. 500,000
47,000 Liberty Media Group, Class "A"*................................................... 1,298,375
115,000 Tele-Communications, Inc., Class "A"*............................................. 2,415,000
-----------
5,433,375
-----------
COSMETICS/TOILETRIES--2.1%
--------------------------
20,000 Avon Products, Inc. .............................................................. 1,607,500
-----------
DATA PROCESSING--1.0%
----------------------
21,000 Autodesk, Inc. ................................................................... 742,875
-----------
ELECTRONICS/ELECTRICAL--4.5%
---------------------------
35,000 Duracell International, Inc. ..................................................... 1,806,875
24,000 Reuters Holdings PLC, ADR......................................................... 1,548,000
-----------
3,354,875
-----------
FILMED ENTERTAINMENT--4.0%
---------------------------
70,000 Time Warner, Inc. ................................................................ 2,992,500
-----------
FINANCE--10.5%
----------------
49,000 AMBAC, Inc. ...................................................................... 2,364,250
30,000 Federal Home Loan Mortgage Corporation............................................ 2,475,000
64,000 Federal National Mortgage Association............................................. 2,024,000
15,000 First Data Corporation............................................................ 1,038,750
-----------
7,902,000
-----------
FOOD--1.9%
-------------
14,000 Campbell Soup Company............................................................. 864,500
17,000 Nabisco Holdings Corporation, Class "A"........................................... 597,125
-----------
1,461,625
-----------
FOOD SERVING--1.6%
--------------------
45,000 IHOP Corporation*................................................................. 1,220,625
-----------
GLASS/PRODUCTS--1.9%
---------------------
65,000 Libbey, Inc....................................................................... 1,462,500
-----------
HEALTH CARE CENTERS--2.1%
--------------------------
40,000 Beverly Enterprises, Inc.*........................................................ 485,000
50,000 Tenet Healthcare Corporation*..................................................... 1,118,750
-----------
1,603,750
-----------
HOTELS/MOTELS/INNS--3.4%
-------------------------
34,000 Marriott International, Inc. ..................................................... 1,670,250
35,000 Promus Hotel Corporation*......................................................... 910,000
-----------
2,580,250
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
FEBRUARY 29, 1996
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------------- -----------
<C> <S> <C>
INSURANCE--2.2%
-----------------
5,000 Aetna Life & Casualty Company..................................................... $ 378,125
10,000 MBIA Inc. ........................................................................ 760,000
35,000 Western National Corporation...................................................... 546,875
-----------
1,685,000
-----------
LAND DEVELOPMENT/REALESTATE--1.3%
----------------------------------
50,000 The Rouse Company*................................................................ 1,006,250
-----------
LEISURE/AMUSEMENT--12.3%
---------------------------
36,000 Circus Circus Enterprises, Inc.*.................................................. 1,147,500
110,000 Gaylord Entertainment Company, Class "A".......................................... 2,942,500
60,000 Harrah's Entertainment, Inc.*..................................................... 1,627,500
23,500 Hasbro, Inc. ..................................................................... 810,750
20,000 Mirage Resorts, Inc.*............................................................. 927,500
27,648 The Walt Disney Company........................................................... 1,810,944
-----------
9,266,694
-----------
MEDICAL EQUIPMENT/SUPPLY--4.5%
--------------------------------
120,000 Amsco International, Inc.*........................................................ 1,875,000
54,000 U. S. Surgical Corporation........................................................ 1,532,250
-----------
3,407,250
-----------
PHARMACEUTICAL--4.2%
----------------------
41,000 Pharmacia & Upjohn, Inc. ......................................................... 1,716,875
26,000 Schering-Plough Corporation....................................................... 1,459,250
-----------
3,176,125
-----------
POLLUTION CONTROL--1.1%
-----------------------
50,000 Wheelabrator Technologies, Inc. .................................................. 793,750
-----------
PUBLISHING--7.7%
-----------------
20,000 A.H. Belo Corporation, Class "A".................................................. 700,000
30,000 Gannett Company................................................................... 2,040,000
26,000 Tribune Company................................................................... 1,735,500
80,000 Valassis Communications, Inc.*.................................................... 1,340,000
-----------
5,815,500
-----------
REAL ESTATE INVESTMENT TRUST--1.0%
----------------------------------
40,000 Manufactured Home Communities, Inc. .............................................. 785,000
-----------
RETAIL STORES--0.6%
-------------------
20,000 Wal-Mart Stores Inc. ............................................................. 425,000
-----------
SERVICES--3.0%
---------------
50,000 Service Corporation International................................................. 2,268,750
-----------
TELECOMMUNICATIONS--6.7%
--------------------------
87,500 Airtouch Communications, Inc.*.................................................... 2,712,500
50,000 Telephone & Data Systems, Inc. ................................................... 2,306,250
-----------
5,018,750
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
FEBRUARY 29, 1996
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------------- -----------
<C> <S> <C>
TOBACCO--1.8%
----------------
40,000 RJR Nabisco Holdings Corporation.................................................. $ 1,345,000
-----------
UTILITIES-DIVERSIFIED--3.0%
-------------------------
70,000 AES Corporation*.................................................................. 1,715,000
35,000 Sithe Energies, Inc.*............................................................. 507,500
-----------
2,222,500
-----------
UTILITIES-GAS--0.6%
-------------------
20,000 UGI Corporation................................................................... 420,000
-----------
Total common stocks (cost $52,027,131)................................................................. 69,768,944
-----------
DEBT EXCHANGEABLE FOR COMMON STOCKS (DECS)--1.6%(A)
- ------------------------------------------------
DATA PROCESSING--1.6%
----------------------
20,000 American Express Company, 6.25% maturing 10/15/96................................. 1,170,000
-----------
Total DECS (cost $735,000)............................................................................. 1,170,000
-----------
REPURCHASE AGREEMENT--5.6%(A)
- -------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated February 29, 1996, @ 5.28%, to be
repurchased at $4,250,623 on March 1, 1996, collateralized by $4,334,761 United States Treasury Notes,
7.50%,
due October 31, 1999, (market value $4,437,573 including interest) (cost $4,250,000)................... 4,250,000
-----------
TOTAL INVESTMENT PORTFOLIO (cost $57,012,131)(b), 99.8%(a)............................................. 75,188,944
OTHER ASSETS AND LIABILITIES, NET, 0.2%(a)............................................................. 168,503
-----------
NET ASSETS 100.0%...................................................................................... $75,357,447
==========
</TABLE>
- ------------------
* Non-income producing security.
(a) Percentages indicated are based on net assets.
(b) Market value includes net unrealized appreciation of $18,176,813, which
consists of aggregate gross unrealized appreciation for all securities in
which there is an excess of market value over tax cost of $18,753,311 and
aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over market value of $576,498.
ADR--American Depository Receipt
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at market value (identified cost $57,012,131) (Note 1)........................ $75,188,944
Cash....................................................................................... 3,398
Receivables:
Investments sold......................................................................... 377,812
Fund shares sold......................................................................... 20,585
Dividends and interest................................................................... 49,548
Deferred state registration expenses (Note 1).............................................. 17,815
Prepaid insurance.......................................................................... 328
-----------
Total assets....................................................................... 75,658,430
Liabilities
Payables (Note 4):
Investments purchased.................................................................... $108,425
Fund shares redeemed..................................................................... 52,569
Accrued management fee................................................................... 44,345
Accrued distribution fee................................................................. 28,022
Other accrued expenses................................................................... 67,622
--------
Total liabilities.................................................................. 300,983
-----------
Net assets, at market value................................................................ $75,357,447
==========
Net Assets
Net assets consist of:
Paid-in capital.......................................................................... $53,682,780
Net investment loss...................................................................... (21,659)
Accumulated net realized gain............................................................ 3,519,513
Net unrealized appreciation on investments............................................... 18,176,813
-----------
Net assets, at market value................................................................ $75,357,447
==========
Class A Shares
Net asset value and redemption price per share ($74,205,337 divided by 4,815,548 shares of
beneficial interest outstanding, no par value) (Note 2).................................. $15.41
Maximum offering price per share (100/95.25 of $15.41)..................................... $16.18
Class C Shares
Net asset value, offering price and redemption price per share ($1,152,110 divided by
75,138 shares of beneficial interest outstanding, no par value) (Notes 1 and 2).......... $15.33
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED FEBRUARY 29, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income
Income:
Dividends.............................................................................. $ 395,244
Interest............................................................................... 162,666
-----------
Total income..................................................................... 557,910
Expenses (Notes 1 and 4):
Management fee......................................................................... $ 365,438
Distribution fee (Class A Shares)...................................................... 175,319
Distribution fee (Class C Shares)...................................................... 4,018
Professional fees...................................................................... 35,575
Custodian/Fund accounting fees......................................................... 27,862
Shareholder servicing.................................................................. 23,284
Reports to shareholders................................................................ 14,575
Amortization of state registration expenses............................................ 14,435
Trustees' fees and expenses............................................................ 4,452
Insurance.............................................................................. 3,991
Federal registration fees.............................................................. 677
Other.................................................................................. 970
----------
Total expenses before waiver..................................................... 670,596
Fees waived by Manager (Note 4)........................................................ (91,359) 579,237
---------- -----------
Net investment loss...................................................................... (21,327)
-----------
Realized and Unrealized Gain on Investments
Net realized gain from investment transactions........................................... 5,845,888
Net increase in unrealized appreciation of investments during the period................. 2,241,908
-----------
Net gain on investments.......................................................... 8,087,796
-----------
Net increase in net assets resulting from operations..................................... $ 8,066,469
==========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED FOR THE
FEBRUARY 29, 1996 YEAR ENDED
(UNAUDITED) AUGUST 31, 1995
----------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss).............................................. $ (21,327) $ 346,236
Net realized gain from investment transactions............................ 5,845,888 6,822,883
Net increase in unrealized appreciation of investments during the
period.................................................................. 2,241,908 127,074
----------------- ---------------
Net increase in net assets resulting from operations...................... 8,066,469 7,296,193
Distributions to shareholders from:
Net investment income, Class A Shares, ($.04 and $.06 per share,
respectively)........................................................... (201,195) (258,567)
Net investment income, Class C Shares, ($.04 per share)................... (2,132) --
Net realized gains, Class A Shares, ($1.72 and $1.16 per share,
respectively)........................................................... (7,749,631) (5,533,950)
Net realized gains, Class C Shares ($1.72 per share)...................... (91,089) --
Increase (decrease) in net assets from Fund share transactions (Note 2)..... 2,054,701 (2,600,669)
----------------- ---------------
Increase (decrease) in net assets........................................... 2,077,123 (1,096,993)
Net assets, beginning of period............................................. 73,280,324 74,377,317
----------------- ---------------
Net assets, end of period (including accumulated net investment loss of
$21,659 and undistributed net investment income of $202,995,
respectively)............................................................. $75,357,447 $73,280,324
================= ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 9
- --------------------------------------------------------------------------------
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>
FOR THE FOR THE
SIX MONTH SIX MONTH
PERIOD CLASS A SHARES PERIOD CLASS C
ENDED FOR THE YEARS ENDED AUGUST 31, ENDED SHARES
2/29/96 -------------------------------------------------- 2/29/96 -------
(UNAUDITED) 1995 1994 1993 1992 1991 (UNAUDITED) 1995+
---------- ------ ------ ------ ------ ------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $15.53 $15.30 $15.62 $13.64 $12.55 $10.62 $ 15.50 $14.18
------ ------ ------ ------ ------ ------ ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).... 0.00(a) 0.08(a) 0.02(a) 0.03(a) 0.15(a) 0.28(a) 0.00(a) (0.01) (a)
Net realized and unrealized gain
(loss) on investments......... 1.64 1.37 1.05 3.29 1.19 1.97 1.59 1.33
------ ------ ------ ------ ------ ------ ------- ------
Total from Investment
Operations.................... 1.64 1.45 1.07 3.32 1.34 2.25 1.59 1.32
------ ------ ------ ------ ------ ------ ------- ------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................ (0.04) (0.06) (0.03) (0.07) (0.25) (0.32) (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) (0.32) (1.76) --
------ ------ ------ ------ ------ ------ ------- ------
NET ASSET VALUE, END OF PERIOD.... $15.41 $15.53 $15.30 $15.62 $13.64 $12.55 $ 15.33 $15.50
====== ====== ====== ====== ====== ====== ======= ======
TOTAL RETURN(%)(D)................ 11.56(c) 10.85 7.07 25.72 10.78 21.73 11.22(c) 9.31 (c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average daily net assets...... 1.58(b) 1.62(a) 1.55(a) 1.56(a) 1.66(a) 1.86(a) 2.07(b) 2.17 (a)(b)
Net investment income (loss) to
average daily net assets...... (0.05)(b) .49 .15 .24 1.09 2.38 (0.57)(b) (0.33)(b)
Portfolio turnover rate......... 35 66 65 55 57 80 35 66
Average commission rate on
portfolio transactions........ $ 0.06 -- -- -- -- -- $ 0.06 --
Net assets, end of period ($
millions)..................... 74 73 74 75 65 63 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, $0.03 and $0.01 per Class A Share, respectively. The
operating expense ratios including such items would be 1.87%, 1.81%, 1.81%,
1.84% and 1.87% for Class A Shares, respectively. Excludes management fees
waived by the Manager in the amount of less than $0.04 per Class C Share.
The operating expense ratio including such items would be 2.42% (annualized)
for Class C Shares.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
9
<PAGE> 10
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
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.
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: The Fund reports the undistributed net investment
income and accumulated net realized gain (loss) accounts on a basis
approximating amounts available for future tax distributions (or to
offset future taxable realized gains when a capital loss carryforward is
available). Accordingly, the Fund may periodically make
reclassifications among certain capital accounts without impacting the
net asset value of the Fund.
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 February 29, 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 six month period ended
February 29, 1996 and fiscal year ended August 31, 1995, were as
follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED
FEBRUARY 29, 1996 FOR THE YEAR ENDED
(UNAUDITED) AUGUST 31, 1995
------------------------- --------------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------ --------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Shares sold........................................... 66,922 $1,027,217 315,129 $ 4,487,563
Shares issued on reinvestment of distributions........ 547,280 7,776,848 428,528 5,682,169
Shares redeemed....................................... (488,829) (7,452,610) (913,985) (13,189,775)
--------- ---------- --------- -----------
Net increase (decrease)............................... 125,373 $1,351,455 (170,328) $(3,020,043)
========== ===========
Shares outstanding:...................................
Beginning of year................................... 4,690,175 4,860,503
--------- ---------
End of year......................................... 4,815,548 4,690,175
========= =========
</TABLE>
10
<PAGE> 11
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Transactions in Class C Shares of the Fund during the six month period
ended February 29, 1996 and from April 3, 1995 (commencement of Class C
Shares) to August 31, 1995 were as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED
FEBRUARY 29, 1996 FOR THE YEAR ENDED
(UNAUDITED) AUGUST 31, 1995
------------------- -------------------
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------- ------ -------- ------ --------
<S> <C> <C> <C> <C>
Shares sold.............................................. 41,852 $638,967 29,005 $425,638
Shares issued on reinvestment of distributions........... 6,588 93,221 -- --
Shares redeemed.......................................... (1,880) (28,942) (427 ) (6,264)
------ -------- ------ --------
Net increase............................................. 46,560 $703,246 28,578 $419,374
======== ========
Shares outstanding:
Beginning of period.................................... 28,578 --
------ ------
End of period.......................................... 75,138 28,578
====== ======
</TABLE>
Note 3: PURCHASES AND SALES OF SECURITIES. For the six month period ended
February 29, 1996, purchases and sales of investment securities
(excluding repurchase agreements and short-term obligations) aggregated
$23,553,366 and $27,928,091, 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 period ended February 29,
1996 amounted to $91,359.
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 sale 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
February 29, 1996 was $7,600. In addition, the Manager performs Fund
Accounting services and charged $18,765 during the six month period of
which $5,800 was payable as of February 29, 1996.
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 Raymond James & Associates, Inc. (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, Mutual Funds 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: DISTRIBUTIONS OF INCOME AND GAINS. The Fund uses the identified cost
method for determining realized gain or loss on investments for both
financial and federal income tax reporting purposes. Of the $6,641,529
of realized gains for the year ended August 31, 1994 the Fund has
designated $2,726,444 as net long-term capital gains on a tax basis paid
in 1995.
11
<PAGE> 12
LOGO
HERITAGE
CAPITAL APPRECIATION
TRUST (TM)
A mutual fund
seeking long-term
capital appreciation
SEMIANNUAL REPORT
(Unaudited) and Investment
Performance Review for the
Six Month Period Ended
FEBRUARY 29, 1996
A member of the
Heritage Family of Mutual Funds(TM)
Heritage Capital Appreciation Trust
P.O. Box 33022
St. Petersburg, FL 33733
--------------------------------------------
Address Change Requested
SEMIANNUAL REPORT
INVESTMENT ADVISOR/
SHAREHOLDER SERVICING AGENT/
FUND ACCOUNTANT
Heritage Asset Management, Inc.
P.O. Box 33022
St. Petersburg, FL 33733
(800) 421-4184
DISTRIBUTOR
Raymond James & Associates, Inc.
P.O. Box 12749
St. Petersburg, FL 33733
(813) 573-3800
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
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.
