<PAGE> 1
Capital
Appreciation
Trust
From Our Family to Yours: The Intelligent Creation of Wealth.
Prospectus
Heritage [LOGO]
--------------------
Capital Appreciation
Trust
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<PAGE> 2
HERITAGE CAPITAL APPRECIATION TRUST(TM) (LOGO)
Heritage Capital Appreciation Trust (the "Trust") is a mutual fund seeking
long-term capital appreciation. The Trust invests principally in those equity
securities that the Trust's portfolio manager believes are undervalued and
therefore offer above-average potential for long-term appreciation. The Trust
offers two classes of shares, Class A shares (sold subject to a front-end sales
load) and Class C shares (sold subject to a contingent deferred sales load).
This Prospectus contains information that should be read before investing
in the Trust and should be kept for future reference. A Statement of Additional
Information dated January 2, 1997 relating to the Trust has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. A copy of the Statement of Additional Information is available free
of charge and shareholder inquiries can be made by writing to Heritage Asset
Management, Inc. or by calling (800) 421-4184.
TRUST SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
HERITAGE ASSET MANAGEMENT, INC. (LOGO)
Registered Investment Advisor--SEC
880 Carillon Parkway
St. Petersburg, Florida 33716
(800) 421-4184
Prospectus Dated January 2, 1997
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
GENERAL INFORMATION..................................................................... 1
About the Trust....................................................................... 1
Total Trust Expenses.................................................................. 1
Financial Highlights.................................................................. 3
Investment Objective, Policies and Risk Factors....................................... 4
Net Asset Value....................................................................... 5
Performance Information............................................................... 5
INVESTING IN THE TRUST.................................................................. 6
Purchase Procedures................................................................... 6
Minimum Investment Required/Accounts With Low Balances................................ 7
Systematic Investment Programs........................................................ 7
Retirement Plans...................................................................... 8
Choosing a Class of Shares............................................................ 8
What Class A Shares Will Cost......................................................... 9
What Class C Shares Will Cost......................................................... 10
How to Redeem Shares.................................................................. 11
Receiving Payment..................................................................... 12
Exchange Privilege.................................................................... 13
MANAGEMENT OF THE TRUST................................................................. 14
SHAREHOLDER AND ACCOUNT POLICIES........................................................ 16
Dividends and Other Distributions..................................................... 16
Distribution Plans.................................................................... 17
Taxes................................................................................. 17
Shareholder Information............................................................... 18
</TABLE>
Prospectus
<PAGE> 4
GENERAL INFORMATION
ABOUT THE TRUST
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Heritage Capital Appreciation Trust (the "Trust") was
established as a Massachusetts business trust under a
Declaration of Trust dated June 21, 1985. The Trust is an
open-end diversified management investment company designed
for individuals, institutions and fiduciaries whose
investment objective is long-term capital appreciation. Any
dividend income will be incidental to this objective. The
Trust offers two classes of shares, Class A shares ("A
shares") and Class C shares ("C shares"). The Trust requires
a minimum initial investment of $1,000, except for certain
investment plans for which lower limits may apply. See
"Investing in the Trust."
TOTAL TRUST EXPENSES
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Shown below are Class A and Class C expenses incurred
by the Trust during its 1996 fiscal year.
<TABLE>
<CAPTION>
CLASS A CLASS C
------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases (as a
percentage of offering price).............. 4.75% None
Maximum contingent deferred sales load (as a
percentage of original purchase price or (declining to 0% at
redemption proceeds, as applicable)........ None 1.00% one year)
Wire redemption fee (per transaction)........ $5.00 $5.00
ANNUAL TRUST OPERATING EXPENSES
Management fee (after fee waiver)............ 0.75% 0.75%
12b-1 distribution fee....................... 0.47% 1.00%
Other expenses............................... 0.32% 0.30%
----- -----
Total Trust operating expenses (after fee
waiver).................................... 1.54% 2.05%
===== =====
</TABLE>
The Trust's manager, Heritage Asset Management, Inc.
(the "Manager"), voluntarily will waive its fees and, if
necessary, reimburse the Trust to the extent that Class A
annual operating expenses exceed 1.60% of the average daily
net assets and to the extent that Class C annual operating
expenses exceed 2.35% of the average daily net assets
attributable to that class for the fiscal year ending August
31, 1997. To the extent that the Manager waives or
reimburses fees with respect to one class, it will do so
with respect to the other class on a proportionate basis.
During fiscal 1996, the Manager waived 25% of its fee on the
first $100 million of average daily net assets. Absent such
fee waiver, the management fee would have been 1.00% for
each class and total Trust operating expenses would have
been 1.79% and 2.30% for A and C shares, respectively.
Effective November 19, 1996 the Manager contractually agreed
to reduce its fee to 0.75% on all Trust assets. Due to the
imposition of Rule 12b-1 distribution fees, it is possible
that long-term shareholders of the Trust may pay more in
total sales charges than the economic equivalent of the
maximum front-end sales load permitted by the rules of the
National Association of Securities Dealers, Inc.
Prospectus 1
<PAGE> 5
The impact of Trust operating expenses on earnings is
illustrated in the example below assuming a hypothetical
$1,000 investment, a 5% annual rate of return, and a
redemption at the end of each period shown.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Total Operating Expenses -- A shares..... $ 62 $94 $ 127 $222
Total Operating Expenses -- C shares..... $ 31 $64 $ 110 $238
</TABLE>
The impact of Trust operating expenses on earnings is
illustrated in the example below assuming a hypothetical
$1,000 investment, a 5% annual rate of return, and no
redemption at the end of each period shown.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Total Operating Expenses -- A shares..... $ 62 $94 $ 127 $222
Total Operating Expenses -- C shares..... $ 21 $64 $ 110 $238
</TABLE>
This is an illustration only and should not be
considered a representation of future expenses. Actual
expenses and performance may be greater or less than that
shown above. The purpose of the above tables is to assist
investors in understanding the various costs and expenses
that will be borne directly or indirectly by shareholders.
For a further discussion of these costs and expenses, see
"Management of the Trust" and "Distribution Plans."
Prospectus 2
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FINANCIAL HIGHLIGHTS
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The following table shows important financial information for an A share
and a C share of the Trust outstanding for the periods indicated, including net
investment income, net realized and unrealized gain on investments, and certain
other information. It has been derived from financial statements appearing in
the Statement of Additional Information ("SAI"). The financial statements and
the information in this table for the fiscal year ended August 31, 1996 have
been audited by Price Waterhouse LLP, independent accountants, whose report
thereon is included in the SAI, which may be obtained by calling the Trust at
(800)421-4184. Information presented for the years ended August 31, 1995 and
prior thereto was audited by other auditors who served as the Trust's
independent accountants for those years.
<TABLE>
<CAPTION>
CLASS A
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FOR THE YEARS ENDED AUGUST 31,
-----------------------------------------------------------------------
1996 1995* 1994 1993 1992 1991 1990
------- ------ ------ ------ ------ ------ -------
<S> <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 $ 14.48
------- ------ ------ ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.00(a)(f) 0.08(a) 0.02(a) 0.03(a) 0.15(a) 0.28(a) 0.29(b)
Net realized and unrealized gain (loss) on
investments....................................... 1.81 1.37 1.05 3.29 1.19 1.97 (2.82)
------- ------ ------ ------ ------ ------ -------
Total from Investment Operations.................... 1.81 1.45 1.07 3.32 1.34 2.25 (2.53)
------- ------ ------ ------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment income................ (0.04) (0.06) (0.03) (0.07) (0.25) (0.32) (0.19)
Distributions from net realized gains............... (1.72) (1.16) (1.36) (1.27) -- -- (1.14)
------- ------ ------ ------ ------ ------ -------
Total Distributions................................. (1.76) (1.22) (1.39) (1.34) (0.25) (0.32) (1.33)
------- ------ ------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD....................... $15.58 $15.53 $15.30 $15.62 $13.64 $12.55 $ 10.62
======== ====== ====== ====== ====== ====== ========
TOTAL RETURN(%)(E)................................... 12.79 10.85 7.07 25.72 10.78 21.73 (18.73)
RATIOS(%)/SUPPLEMENTAL DATA:
Operating expenses net, to average daily net
assets............................................ 1.54(a) 1.62(a) 1.55(a) 1.56(a) 1.66(a) 1.86(a) 1.96(b)
Net investment income to average daily net assets... (.02) .49 .15 .24 1.09 2.38 2.54
Portfolio turnover rate............................. 54 66 65 55 57 80 45
Average commission rate on portfolio transactions
(per share)....................................... $0.0600 -- -- -- -- -- --
Net assets, end of period (millions) ($): 70 73 74 75 65 63 58
<CAPTION>
CLASS C
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FOR THE YEARS ENDED
AUGUST 31,
-----------------------
1989 1988 1987 1996 1995*+
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $10.74 $13.31 $11.52 $15.50 $14.18
------ ------ ------ ------ -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.14(b) 0.08(a) 0.08(b) (0.03)(a)(f) (0.01)(a)
Net realized and unrealized gain (loss) on
investments....................................... 3.77 (1.39) 1.80 1.75 1.33
------ ------ ------ ------ -----
Total from Investment Operations.................... 3.91 (1.31) 1.88 1.72 1.32
------ ------ ------ ------ -----
LESS DISTRIBUTIONS:
Dividends from net investment income................ (0.06) (0.11) (0.05) (0.04) --
Distributions from net realized gains............... (0.11) (1.15) (0.04) (1.72) --
------ ------ ------ ------ -----
Total Distributions................................. (0.17) (1.26) (0.09) (1.76) --
------ ------ ------ ------ -----
NET ASSET VALUE, END OF PERIOD....................... $14.48 $10.74 $13.31 $15.46 $15.50
====== ====== ====== ====== =========
TOTAL RETURN(%)(E)................................... 36.88 (8.75) 16.49 12.16 9.31(d)
RATIOS(%)/SUPPLEMENTAL DATA:
Operating expenses net, to average daily net
assets............................................ 2.00(b) 2.00(a) 2.00(b) 2.05(a) 2.17(a)(c)
Net investment income to average daily net assets... 1.19 0.62 (.57) (.57) (0.33)(c)
Portfolio turnover rate............................. 60 103 48 54 66
Average commission rate on portfolio transactions
(per share)....................................... -- -- -- 0.0600 --
Net assets, end of period (millions) ($): 62 43 55 1 .4
</TABLE>
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* Liberty Investment Management was retained as an additional investment
subadviser to the Fund on February 27, 1995.
+ For the period April 3, 1995 (first offering of 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, $0.03, $0.01 and $0.01 per A share,
respectively. The operating expense ratios including such items would be
1.79%, 1.87%, 1.81%, 1.81%, 1.84%, 1.87% and 2.06% (annualized) for A share,
respectively. Excludes management fees waived by the Manager in the amount
of less than $0.04 and $0.04 per C share. The operating expense ratio
including such items would be 2.30% and 2.42% (annualized) for C shares.
(b) Includes management fees previously waived by the Manager and recovered
during the year of less than $0.01 per share.
(c) Annualized.
(d) Not annualized.
(e) Does not reflect the imposition of a sales charge.
(f) Amounts calculated prior to reclassification of $23,981 relating to
permanent book to tax differences. The effect of such reclassification would
have no effect on net investment income for A shares and would have resulted
in an increase in net investment income of $0.10 for C shares.
Prospectus 3
<PAGE> 7
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
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The Trust's investment objective is long-term capital appreciation. The
Trust believes that this objective can best be achieved through the purchase of
equity securities that, in the opinion of Liberty Investment Management (the
"Subadviser"), represent companies with the potential for attractive long-term
growth in earnings, cash flow and total worth of the business enterprise. The
Trust prefers to purchase such securities at a price that represents a discount
to the real worth of the company's businesses or, in other words, securities
that appear, in the opinion of the Subadviser, to be undervalued in relation to
the company's long-term growth fundamentals. Securities may be undervalued
because of many factors, including: the market does not recognize the growth
potential of the company; a stock market decline; poor economic conditions;
tax-loss selling or actual or anticipated unfavorable developments affecting the
issuer of the security. Any or all of these factors may provide buying
opportunities at attractive prices relative to a company's long-term growth
prospects. However, there can be no assurance that the Trust's investment
objective will be achieved. Trust shares will fluctuate in value as a result of
changes in the value of portfolio investments.
BECAUSE THE TRUST
INVESTS PRIMARILY IN
COMMON STOCKS, THE
VALUE OF YOUR
INVESTMENT WILL
FLUCTUATE. YOU CAN
LOSE MONEY BY
INVESTING IN THE TRUST.
The Trust invests primarily in common stocks, but also may invest in
preferred stocks and securities convertible into common stock. Securities rated
in the lowest category of investment grade securities are considered to have
speculative characteristics. The Trust may purchase securities traded on
recognized securities exchanges and in the over-the-counter market. The Trust
normally will invest at least 65% of its total assets in securities that the
Subadviser believes have the potential to achieve capital appreciation. The
Trust may invest its remaining assets in foreign securities and American
Depository Receipts ("ADRs"), U.S. Government securities, repurchase agreements
or other short-term money market instruments. The Trust also may invest up to
10% of its net assets in illiquid securities. The Trust may purchase and sell a
security without regard to the length of time it will be or has been held.
Repurchase agreements are transactions in which the Trust purchases
securities and simultaneously commits to resell the securities to the original
seller (a member bank of the Federal Reserve System or securities dealers who
are members of a national securities exchange or are market makers in U.S.
Government securities) at an agreed upon date and price reflecting a market rate
of interest unrelated to the coupon rate or the maturity of the purchased
securities. Although repurchase agreements carry certain risks not associated
with direct investments in securities, including possible decline in the market
value of the underlying securities and delays and costs to the Trust if the
other party to the repurchase agreement becomes bankrupt, the Trust intends to
enter into repurchase agreements only with banks and dealers in transactions
believed by the Subadviser to present minimal credit risks in accordance with
guidelines established by the Trust's Board of Trustees (the "Board of Trustees"
or the "Board").
For temporary defensive purposes during anticipated periods of general
market decline, the Trust may invest up to 100% of its assets in money market
instruments, including securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and repurchase agreements secured thereby, as
well as bank certificates of deposit and banker's acceptances issued by banks
having net assets of a least $1 billion as of the end of their most recent
fiscal year, high grade commercial paper, and other long- and short-term debt
instruments that are rated A or higher by Standard & Poor's or Moody's Investors
Service, Inc. See Appendix A to the SAI for a description of the ratings of
money market instruments.
Prospectus 4
<PAGE> 8
THE TRUST'S ASSETS
MAY BE INVESTED IN
FOREIGN SECURITIES.
INVESTING IN FOREIGN
SECURITIES SUBJECTS THE
TRUST TO GREATER RISKS
THAN INVESTING IN
DOMESTIC SECURITIES.
While the Trust may invest in foreign securities and ADRs, such investments
may not exceed 10% of the Trust's portfolio. These investments may involve
greater risks than normally are present in domestic investments. There generally
is less publicly available information about foreign companies and there may be
less governmental regulation and supervision of foreign stock exchanges, brokers
and listed companies. In addition, such companies may use different accounting
and financial standards (and certain currencies may become unavailable for
transfer from a foreign country, resulting in the Trust's possible inability to
convert proceeds realized upon the sale of portfolio securities of the affected
foreign companies immediately into U.S. currency). Before investing in foreign
securities, the Trust will consider possible political and financial instability
abroad, as well as the liquidity and volatility of foreign investments.
Fluctuations in monetary exchange rates will affect the dollar value of foreign
investments. Solely to protect against such uncertainty, the Trust may enter
into forward contracts to purchase or sell foreign currencies at a future date.
The Trust's investment objective is fundamental and may not be changed
without the vote of a majority of the outstanding voting securities of the
Trust, as defined in the Investment Company Act of 1940, as amended (the "1940
Act"). All policies of the Trust described in this prospectus may be changed by
the Board of Trustees without shareholder approval. The SAI contains more
detailed information about the Trust's investment policies and risks.
NET ASSET VALUE
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THE NET ASSET VALUE OF
EACH CLASS OF TRUST
SHARES IS CALCULATED
DAILY AS OF THE CLOSE
OF REGULAR TRADING ON
THE NEW YORK STOCK
EXCHANGE.
The net asset values of A shares and C shares are calculated by dividing
the value of the total assets of the Trust attributable to that class, less
liabilities attributable to that class, by the number of shares outstanding of
that class. Shares are valued as of the close of regular trading on the New York
Stock Exchange ("Exchange") each day it is open. Trust securities are stated at
market value based on the last 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. In the absence of a
readily available market quote, or if the Manager or the Subadviser has reason
to question the validity of market quotations it receives, securities and other
assets are valued using such methods as the Board of Trustees believe would
reflect fair value. Short-term investments that will mature in 60 days or less
are valued at amortized cost, which approximates market value. Securities that
are quoted in a foreign currency will be valued daily in U.S. dollars at the
foreign currency exchange rates prevailing at the time the Trust calculates its
net asset value per share. The per share net asset value of A shares and C
shares may differ as a result of the different daily expense accruals applicable
to each class. For more information on the calculation of net asset value, see
"Net Asset Value" in the SAI.
PERFORMANCE INFORMATION
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Total return data of the A shares and C shares from time to time may be
included in advertisements about the Trust. Performance information is computed
separately for A shares and C shares in accordance with the methods described
below. Because C shares bear the expense of a higher distribution fee
attributable to the deferred sales load alternative, the performance of C shares
likely will be lower than that of A shares.
Prospectus 5
<PAGE> 9
Total return with respect to a class for the one-, five- and ten-year
periods or, if such periods have not elapsed, the period since the establishment
of that class through the most recent calendar quarter represents the average
annual compounded rate of return on an investment of $1,000 in that class at the
public offering price (in the case of A shares, giving effect to the maximum
initial sales load of 4.75% and, in the case of C shares, giving effect to the
deduction of any contingent deferred sales load ("CDSL") that would be payable).
In addition, the Trust also may advertise the total return in the same manner,
but without taking into account the initial sales load or CDSL. The Trust also
may advertise total return calculated without annualizing the return and total
return may be presented for other periods. By not annualizing the returns, the
total return calculated in this manner simply will reflect the increase in net
asset value per A share and C share over a period of time, adjusted for
dividends and other distributions. A share and C share performance may be
compared with various indices.
All data is based on the Trust's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Trust's
investment portfolio and the Trust's operating expenses. Investment performance
also often reflects the risks associated with the Trust's investment objective
and policies. These factors should be considered when comparing the Trust's
investment results to those of other mutual funds and other investment vehicles.
Additional performance information is contained in the Trust's annual report,
which may be obtained, without charge, by contacting the Trust at (800)
421-4184. For more information on investment performance, see the SAI.
INVESTING IN THE TRUST
PURCHASE PROCEDURES
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HOW TO BUY SHARES:
YOU MAY BUY SHARES
OF THE TRUST BY:
Shares of the Trust are offered continuously through the Trust's principal
underwriter, Raymond James & Associates, Inc. (the "Distributor"), and through
other participating dealers or banks that have dealer agreements with the
Distributor. The Distributor receives commissions consisting of that portion of
the sales load remaining after the dealer concession is paid to participating
dealers or banks. Such dealers may be deemed to be underwriters pursuant to the
Securities Act of 1933, as amended. For a discussion of the classes of shares
offered by the Trust, see "Choosing a Class of Shares."
- CALLING YOUR
REPRESENTATIVE
Shares of the Trust may be purchased through a registered representative of
the Distributor, a participating dealer or a participating bank
("Representative") by placing an order for Trust shares with your Representative
and remitting payment to the Distributor, participating dealer or bank within
three business days.
All purchase orders received by the Distributor prior to the close of
regular trading on the Exchange -- generally 4:00 p.m., Eastern time -- will be
executed at that day's offering price. Purchase orders received by your
Representative prior to the close of regular trading on the Exchange and
transmitted to the Distributor before 5:00 p.m., Eastern time, on that day also
will receive that day's offering price. Otherwise, all purchase orders accepted
after the offering price is determined will be executed at the offering price
determined as of the close of regular trading on the Exchange on the next
trading day. See "What Class A Shares Will Cost" and "What Class C Shares Will
Cost."
Prospectus 6
<PAGE> 10
- COMPLETING THE
ACCOUNT
APPLICATION
CONTAINED IN THIS
PROSPECTUS AND
SENDING YOUR
CHECK; OR
You also may purchase shares of the Trust directly by completing and
signing the Account Application found in this prospectus and mailing it, along
with your payment, to Heritage Capital Appreciation Trust, Heritage Asset
Management, Inc., P.O. Box 33022, St. Petersburg, FL 33733.
- SENDING A
FEDERAL FUNDS
WIRE.
Shares may be purchased with Federal funds (a commercial bank's deposit
with the Federal Reserve Bank that can be transferred to another member bank on
the same day) sent by Federal Reserve or bank wire to:
State Street Bank and Trust Company
Boston, Massachusetts
ABA #011-000-028
Account #3196-769-8
Heritage Capital Appreciation Trust
The class of shares to be purchased
(Your Account Number Assigned by the Trust)
(Your Name)
To open a new account with Federal funds or by wire, you must contact the
Manager or your Representative to obtain a Heritage Mutual Fund account number.
Commercial banks may elect to charge a fee for wiring funds to State Street Bank
and Trust Company. For more information on how to buy shares, see "Investing in
the Trust" in the SAI.
MINIMUM INVESTMENT REQUIRED/ACCOUNTS WITH LOW BALANCES
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AN INITIAL INVESTMENT
MUST BE AT LEAST
$1,000. A MINIMUM
BALANCE OF $500 MUST
BE MAINTAINED.
Except as provided under "Systematic Investment Programs", the minimum
initial investment in the Trust is $1,000, and a minimum account balance of $500
must be maintained. These minimum requirements may be waived at the discretion
of the Manager. In addition, initial investments in Individual Retirement
Accounts ("IRAs") may be reduced or waived under certain circumstances. Contact
the Manager or your Representative for further information.
Due to the high cost of maintaining accounts with low balances, it is
currently the Trust's policy to redeem Trust shares in any account if the
account balance falls below the required minimum value of $500, except for
retirement accounts. The shareholder will be given 30 days' notice to bring the
account balance to the minimum required or the Trust may redeem shares in the
account and pay the proceeds to the shareholder. The Trust does not apply this
minimum account balance requirement to accounts that fall below the minimum due
to market fluctuation.
SYSTEMATIC INVESTMENT PROGRAMS
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DOLLAR COST AVERAGING PLANS:
- -------------------------------
THE TRUST OFFERS
INVESTORS A VARIETY OF
CONVENIENT FEATURES
AND BENEFITS,
INCLUDING DOLLAR COST
AVERAGING.
A variety of systematic investment options are available for the purchase
of Trust shares. These options provide for systematic monthly investments of $50
or more through systematic investing, payroll or government direct deposit, or
ex-
Prospectus 7
<PAGE> 11
change from another mutual fund advised or administered by the Manager
("Heritage Mutual Fund"). You may change the amount to be automatically invested
or may discontinue this service at any time without penalty. If you discontinue
this service before reaching the required account minimum, the account must be
brought up to the minimum in order to remain open. You will receive a periodic
confirmation of all activity for your account. For additional information on
these options, see the Account Application or contact the Manager at (800)
421-4184 or your Representative.
RETIREMENT PLANS
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Shares of the Trust may be purchased as an investment for Heritage IRA
plans. In addition, shares may be purchased as an investment for self-directed
IRAs, defined contribution plans, Simplified Employee Pension Plans ("SEPs") and
other retirement plans. For more detailed information on retirement plans
contact the Manager at (800) 421-4184 or your Representative and see "Investing
in the Trust" in the SAI.
CHOOSING A CLASS OF SHARES
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A SHARES HAVE A
FRONT-END SALES LOAD
AND LOWER ANNUAL
EXPENSES THAN
C SHARES. C SHARES
HAVE A CDSL ON
REDEMPTIONS WITHIN ONE
YEAR OF PURCHASE.
The Trust offers and sells two classes of shares, A shares and C shares.
The primary difference between the A shares and the C shares lies in their
initial sales load and CDSL structures and in their ongoing expenses, including
asset-based sales charges in the form of distribution fees. A shares may be
purchased at a price equal to their net asset value per share next determined
after receipt of an order, plus a sales load imposed at the time of purchase. C
shares may be purchased at a price equal to their net asset value per share next
determined after receipt of an order. A CDSL of 1% is imposed on C shares if you
hold those shares for less than one year. C shares are subject to higher ongoing
distribution fees than A shares. When you place an order for Trust shares, you
must specify which class of shares you wish to purchase.
YOU CAN CHOOSE A
SHARE CLASS THAT MEETS
YOUR INVESTMENT
OBJECTIVES. CONSULT
WITH YOUR
REPRESENTATIVE.
The purchase plans offered by the Trust enable you to choose the class of
shares that you believe will be most beneficial given the amount of your
intended purchase, the length of time you expect to hold the shares and other
circumstances. You should consider whether, during the anticipated length of
your intended investment in the Trust, the accumulated continuing distribution
and service fees plus the CDSL on C shares would exceed the initial sales load
plus accumulated Rule 12b-1 distribution fees on A shares purchased at the same
time. Another factor to consider is whether the potentially higher yield of A
shares due to lower ongoing charges will offset the initial sales load paid on
such shares. Representatives may receive different compensation for sales of A
shares than sales of C shares.
If you purchase sufficient shares to qualify for a reduced sales load, you
may prefer to purchase A shares because similar reductions are not available on
C shares. For example, if you intend to invest more than $1,000,000 in shares of
the Trust, you should purchase A shares. Moreover, all A shares are subject to a
lower Rule 12b-1 fee and, accordingly, are expected to pay correspondingly
higher dividends on a per share basis. If your purchase will not qualify for a
reduced sales load, you still may wish to purchase A shares if you expect to
hold your shares for an extended period of time because, depending on the number
of years you hold the investment, the continuing distribution and service fees
on C shares eventually would exceed the initial sales load plus the continuing
service fee on A shares during
Prospectus 8
<PAGE> 12
the life of your investment. However, because initial sales loads are deducted
at the time of purchase, not all of the purchase payment for A shares is
invested initially.
You might determine that it would be more advantageous to purchase C shares
in order to have all of your purchase payment invested initially. However, your
investment would remain subject to higher continuing distribution and service
fees and, if you hold your shares for less than one year, be subject to a CDSL.
For example, based on current fees and expenses for the Trust and the maximum
sales load on A shares, you would have to hold A shares approximately eight
years before the accumulated distribution and service fees on the C shares would
exceed the initial sales load plus the accumulated service fees on the A shares.
WHAT CLASS A SHARES WILL COST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE SALES LOAD ON
A SHARES WILL VARY
DEPENDING ON THE
AMOUNT YOU INVEST.
A shares are sold on each day on which the Exchange is open. A shares are
sold at their next determined net asset value plus a sales load as described
below.
<TABLE>
<CAPTION>
SALES LOAD AS A
PERCENTAGE OF
----------------------------
NET AMOUNT DEALER CONCESSION
AMOUNT OF OFFERING INVESTED AS PERCENTAGE OF
PURCHASE PRICE (NET ASSET VALUE) OFFERING PRICE(1)
- --------------------------------- -------- ----------------- -----------------
<S> <C> <C> <C>
Less than $25,000................ 4.75% 4.99% 4.25%
$25,000-$49,999.................. 4.25% 4.44% 3.75%
$50,000-$99,999.................. 3.75% 3.90% 3.25%
$100,000-$249,999................ 3.25% 3.36% 2.75%
$250,000-$499,999................ 2.50% 2.56% 2.00%
$500,000-$999,999................ 1.50% 1.52% 1.25%
$1,000,000 and over.............. 0.00% 0.00% 1.00%(2)
</TABLE>
- ---------------
(1) During certain periods, the Distributor may pay 100% of the sales load to
participating dealers. Otherwise, it will pay the dealer concession shown
above.
(2) The Manager may pay from its own resources up to 1.00% of the purchase
amount to the Distributor for purchases of $1,000,000 or more.
A shares may be sold at net asset value without any sales load to: the
Manager and the Subadviser, current and retired officers and Trustees of the
Trust; directors, officers and full-time employees of the Manager, Subadviser of
any Heritage Mutual Fund, the Distributor and their affiliates; registered
representatives of broker-dealers that are parties to dealer agreements with the
Distributor (or financial institutions that have arrangements with such
broker-dealers); directors, officers and full-time employees of banks that are
parties to agency agreements with the Distributor; and all such persons'
immediate relatives and their beneficial accounts. In addition, the American
Psychiatric Association (the "APA Group") has entered into an agreement with the
Distributor that allows its members to purchase A shares at a sales load equal
to two-thirds of the percentages in the above table. The dealer concession also
will be adjusted in a like manner. A shares also may be purchased without sales
loads by investors who participate in certain broker-dealer wrap fee investment
programs.
Prospectus 9
<PAGE> 13
HERITAGE NET ASSET VALUE ("NAV") TRANSFER PROGRAM
- -----------------------------------------------------------
YOU MAY QUALIFY FOR A
PURCHASE WITH NO
SALES LOAD UNDER THE
HERITAGE NAV
TRANSFER PROGRAM.
A shares of the Trust may be sold at net asset value without any sales load
under the Manager's NAV Transfer Program. To qualify for the NAV Transfer
Program, you must provide adequate proof that within 90 days prior to the
purchase of a Heritage Mutual Fund you redeemed shares from a load or no-load
mutual fund other than a Heritage Mutual Fund or any money market fund. To
provide adequate proof you must complete a qualification form and provide a
statement showing the value liquidated from the other mutual fund.
COMBINED PURCHASE PRIVILEGE (RIGHT OF ACCUMULATION)
- -----------------------------------------------------------
YOU MAY QUALIFY FOR A
REDUCED SALES CHARGE
BY COMBINING
PURCHASES.
You may qualify for the sales load reductions indicated in the above sales
load schedule by combining purchases of A shares into a single "purchase" if the
resulting "purchase" totals at least $25,000. For additional information
regarding the Combined Purchase Privilege, see the Account Application or
"Investing in the Trust" in the SAI.
STATEMENT OF INTENTION
- ------------------------
A STATEMENT OF
INTENTION ALLOWS YOU
TO REDUCE THE SALES
LOAD ON COMBINED
PURCHASES OF $25,000
OR MORE OVER ANY
13-MONTH PERIOD.
You also may obtain the reduced sales loads shown in the above sales load
schedule by means of a written Statement of Intention, which expresses your
intention to invest not less than $25,000 within a period of 13 months in A
shares of the Trust or A shares of any other Heritage Mutual Fund subject to a
sales load ("Statement of Intention"). If you qualify for the Combined Purchase
Privilege, you may purchase A shares of the Heritage Mutual Funds under a single
Statement of Intention. In addition, if you own Class A shares of any other
Heritage Mutual Fund subject to a sales load, you may include those shares in
computing the amount necessary to qualify for a sales load reduction. The
Statement of Intention is not a binding obligation upon the investor to purchase
the full amount indicated. The minimum initial investment under a Statement of
Intention is 5% of such amount. If you would like to enter into a Statement of
Intention in conjunction with your initial investment in A shares of the Trust,
please complete the appropriate portion of the Account Application found in this
prospectus. Current Trust shareholders desiring to do so can obtain a Statement
of Intention by contacting the Manager or the Distributor at the address or
telephone number listed on the cover of this prospectus, or from their
Representative.
For more information on "What Class A Shares Will Cost" and a further
explanation of instances in which the sales load will be waived or reduced, see
"Investing in the Trust" in the SAI.
WHAT CLASS C SHARES WILL COST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE CDSL, IF
APPLICABLE, IS BASED
ON THE LOWER OF
PURCHASE PRICE OR
REDEMPTION PRICE.
A CDSL of 1% is imposed on C shares if, less than one year from the date of
purchase, you redeem an amount that causes the current value of your account to
fall below the total dollar amount of C shares purchased subject to the CDSL.
The CDSL will not be imposed on the redemption of C shares acquired as dividends
or other distributions, or on any increase in the net asset value of the
redeemed C shares above the original purchase price. Thus, the CDSL will be
imposed on the lower of net asset value or purchase price.
Prospectus 10
<PAGE> 14
Redemptions will be processed in a manner intended to minimize the amount
of redemption that will be subject to the CDSL. When calculating the CDSL, it
will be assumed that the redemption is made first of C shares acquired as
dividends, second of C shares that have been held for one year or longer, and
finally of C shares held for less than one year on a first-in first-out basis.
WAIVER OF THE CONTINGENT DEFERRED SALES LOAD. The CDSL currently is waived
for: (1) any partial or complete redemption in connection with a distribution
without penalty under Section 72(t) of the Internal Revenue Code of 1986, as
amended (the "Code"), from a qualified retirement plan, including a Keogh Plan
or IRA upon attaining age 70 1/2; (2) any redemption resulting from a tax-free
return of an excess contribution to a qualified employer retirement plan or an
IRA; (3) any partial or complete redemption following death or disability (as
defined in Section 72(m)(7) of the Code) of a shareholder (including one who
owns the shares as joint tenant with his spouse) from an account in which the
deceased or disabled is named, provided the redemption is requested within one
year of the death or initial determination of disability; (4) certain periodic
redemptions under the Systematic Withdrawal Plan from an account meeting certain
minimum balance requirements, in amounts representing certain maximums
established from time to time by the Distributor (currently a maximum of 12%
annually of the account balance at the beginning of the Systematic Withdrawal
Plan); or (5) involuntary redemptions by the Trust of C shares in shareholder
accounts that do not comply with the minimum balance requirements. The
Distributor may require proof of documentation prior to waiver of the CDSL
described in sections (1) through (4) above, including distribution letters,
certification by plan administrators, applicable tax forms or death or
physicians certificates.
For more information about C shares, see "Reinstatement Privilege" and
"Exchange Privilege."
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THERE ARE SEVERAL
WAYS FOR YOU TO SELL
YOUR SHARES.
Redemptions of Trust shares can be made by:
CONTACTING YOUR REPRESENTATIVE. Your Representative will transmit an order
to the Trust for redemption and may charge you a fee for this service.
TELEPHONE REQUEST. You may redeem shares by placing a telephone request to
the Trust (800-421-4184) prior to the close of regular trading on the Exchange.
If you do not wish to have telephone exchange/redemption privileges, you should
so elect by completing the appropriate section of the Account Application. The
Trust, Manager, Distributor and their Trustees, directors, officers and
employees are not liable for any loss arising out of telephone instructions they
reasonably believe are authentic. These parties will employ reasonable
procedures to confirm that telephone instructions are authentic. To the extent
that the Trust, Manager, Distributor and their Trustees, directors, officers and
employees do not follow reasonable procedures, some or all of them may be liable
for losses due to unauthorized or fraudulent transactions. For more information
on these procedures, see "Redeeming Shares - Telephone Transactions" in the SAI.
You may elect to have redemption proceeds wired to the bank account specified on
the Account Application. Redemption proceeds normally will be sent the next
business day, and you will be charged a wire fee by the Manager (currently
$5.00). For redemptions of less than $50,000, you may request that a check be
mailed to your address of record, providing that such address has not been
changed in the past 30 days. For your protection, the
Prospectus 11
<PAGE> 15
proceeds of all other redemptions will be transferred to the bank account
specified on the Account Application.
WRITTEN REQUEST. Trust shares may be redeemed by sending a written request
for redemption to "Heritage Capital Appreciation Trust, Heritage Asset
Management, Inc., P.O. Box 33022, St. Petersburg, FL 33733". Signature
guarantees will be required on the following types of requests: redemptions from
any account that has had an address change in the past 30 days, redemptions
greater than $50,000, redemptions that are sent to an address other than the
address of record and exchanges or transfers into other Heritage accounts that
have different titles. The Manager will transmit an order to the Trust for
redemption.
SYSTEMATIC WITHDRAWAL PLAN. Withdrawal plans are available that provide
for regular periodic withdrawals of $50 or more on a monthly, quarterly,
semiannual or annual basis. Under these plans, sufficient shares of the Trust
are redeemed to provide the amount of the periodic withdrawal payment. The
purchase of A shares while participating in the Systematic Withdrawal Plan
ordinarily will be disadvantageous to you because you will be paying a sales
load on the purchase of those shares at the same time that you are redeeming A
shares upon which you may already have paid a sales load. Therefore, the Trust
will not knowingly permit the purchase of A shares through a Systematic
Investment Plan if you are at the same time making systematic withdrawals of A
shares. The Manager reserves the right to cancel systematic withdrawals if
insufficient shares are available for two or more consecutive months.
Contact the Manager or your Representative for further information or see
"Redeeming Shares" in the SAI.
YOU WILL NOT BE
CHARGED A SALES LOAD
ON A SHARES REDEEMED
AND REINVESTED WITHIN
90 DAYS OF
REDEMPTION. YOU
MUST NOTIFY THE
FUND WHEN YOU
EXERCISE THIS
PRIVILEGE.
REINSTATEMENT PRIVILEGE. A shareholder who has redeemed any or all of his A
shares of the Trust may reinvest all or any portion of the redemption proceeds
in A shares at net asset value without any sales load, provided that such
reinvestment is made within 90 calendar days after the redemption date. A
shareholder who has redeemed any or all of his C shares of the Trust and has
paid a CDSL on those shares or has held those shares long enough so that the
CDSL no longer applies, may reinvest all or any portion of the redemption
proceeds in C shares at net asset value without paying a CDSL on future
redemptions of those shares, provided that such reinvestment is made within 90
calendar days after the redemption date. A reinstatement pursuant to this
privilege will not cancel the redemption transaction; therefore, (1) any gain
realized on the transaction will be recognized for Federal income tax purposes,
while (2) any loss realized will not be recognized for those purposes to the
extent that the redemption proceeds are reinvested in shares of the Trust. The
reinstatement privilege may be utilized by a shareholder only once, irrespective
of the number of shares redeemed, except that the privilege may be utilized
without limitation in connection with transactions whose sole purpose is to
transfer a shareholder's interest in the Trust to his defined contribution plan,
IRA or SEP. You must notify the Fund if you intend to exercise the reinstatement
privilege.
RECEIVING PAYMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE SALES PRICE
GENERALLY IS THE NEXT
NAV COMPUTED AFTER
THE RECEIPT OF YOUR
REDEMPTION REQUEST.
If a request for redemption is received by the Trust in good order (as
described below) before the close of regular trading on the Exchange, the shares
will be redeemed at the net asset value per share determined at the close of
regular trading on the Exchange on that day, less any applicable CDSL for C
shares. Requests for redemption received by the Trust after the close of regular
trading on the Exchange
Prospectus 12
<PAGE> 16
will be executed at the net asset value determined at the close of regular
trading on the Exchange on the next trading day, less any applicable CDSL for C
shares.
Payment for shares redeemed by the Trust normally will be made on the
business day after the redemption was made. If the shares to be redeemed
recently have been purchased by personal check, the Trust may delay mailing a
redemption check until the purchase check has cleared, which may take up to five
business days. This delay can be avoided by wiring funds for purchases. The
proceeds of a redemption may be more or less than the original cost of Trust
shares.
A redemption request will be considered to be received in "good order" if:
- the number or amount of shares and the class of shares to be redeemed
and shareholder account number have been indicated;
- any written request is signed by the shareholder and by all co-owners
of the account with exactly the same name or names used in establishing
the account;
- any written request is accompanied by certificates representing the
shares that have been issued, if any, and the certificates have been
endorsed for transfer exactly as the name or names appear on the
certificates or an accompanying stock power has been attached; and
- the signatures on any written redemption request of $50,000 or more and
on any certificates for shares (or an accompanying stock power) have
been guaranteed by a national bank, a state bank that is insured by the
Federal Deposit Insurance Corporation, a trust company, or by any
member firm of the New York, American, Boston, Chicago, Pacific or
Philadelphia Stock Exchanges. Signature guarantees also will be
accepted from savings banks and certain other financial institutions
that are deemed acceptable by the Manager, as transfer agent, under its
current signature guarantee program.
The Trust has the right to suspend redemption or postpone payment at times
when the Exchange is closed (other than customary weekend or holiday closings)
or during periods of emergency or other periods as permitted by the Securities
and Exchange Commission. In the case of any such suspension you may either
withdraw your request for redemption or receive payment based upon the net asset
value next determined less any applicable CDSL, after the suspension is lifted.
If a redemption check remains outstanding after six months, the Manager reserves
the right to redeposit those funds into your account. For more information on
receiving payment, see "Redeeming Shares - Receiving Payment" in the SAI.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU MAY EXCHANGE
SHARES OF ONE
HERITAGE MUTUAL
FUND FOR SHARES OF
THE SAME CLASS OF
ANY OTHER HERITAGE
MUTUAL FUND.
If you have held A shares or C shares for at least 30 days, you may
exchange some or all of your shares for shares of the same class of any other
Heritage Mutual Fund. All exchanges will be based on the respective net asset
values of the Heritage Mutual Funds involved. All exchanges are subject to the
minimum investment requirements and any other applicable terms set forth in the
prospectus for the Heritage Mutual Fund whose shares are being acquired.
Exchanges involving the redemption of shares recently purchased by check will be
permitted only after the Heritage Mutual Fund whose shares have been tendered
for exchange is reasonably assured that the check has cleared, normally five
business days following the purchase date. Exchanges of shares of Heritage
Mutual Funds generally will result in the realization of a taxable gain or loss
for Federal income tax purposes.
Prospectus 13
<PAGE> 17
For purposes of calculating the commencement of the CDSL holding period for
shares exchanged from the Trust to the C shares of any other Heritage Mutual
Fund, except Heritage Cash Trust-Money Market Fund ("Money Market Fund"), the
original purchase date of those shares exchanged will be used. Any time period
that the exchanged shares were held in the Money Market Fund will not be
included in this calculation. As a result, if you redeem C shares of the Money
Market Fund before the expiration of the CDSL holding period, you will be
subject to the applicable CDSL.
If you exchange A shares or C shares for corresponding shares of the Money
Market Fund, you may, at any time thereafter, exchange such shares for the
corresponding class of shares of any other Heritage Mutual Fund. If you exchange
shares of the Money Market Fund acquired by purchase (rather than exchange) for
shares of another Heritage Mutual Fund, you will be subject to the sales load,
if any, that would be applicable to a purchase of that Heritage Mutual Fund.
A shares of the Trust may be exchanged for A shares of the Heritage Cash
Trust -- Municipal Money Market Fund, which is the only class of shares offered
by that fund. If you exchange shares of the Heritage Cash Trust -- Municipal
Money Market Fund acquired by purchase (rather than exchange) for shares of
another Heritage Mutual Fund, you also will be subject to the sales load, if
any, that would be applicable to a purchase of that Heritage Mutual Fund. C
shares are not eligible for exchange into the Heritage Cash Trust -- Municipal
Money Market Fund.
Shares acquired pursuant to a telephone request for exchange will be held
under the same account registration as the shares redeemed through such an
exchange. For a discussion of limitation of liability of certain entities, see
"How to Redeem Shares -- Telephone Request."
Telephone exchanges can be effected by calling the Manager at 800-421-4184
or by calling your Representative. In the event that you or your Representative
are unable to reach the Manager by telephone, an exchange can be effected by
sending a telegram to Heritage Asset Management, Inc. Due to the volume of calls
or other unusual circumstances, telephone exchanges may be difficult to
implement during certain time periods.
Each Heritage Mutual Fund reserves the right to reject any order to acquire
its shares through exchange or otherwise to restrict or terminate the exchange
privilege at any time. In addition, each Heritage Mutual Fund may terminate this
exchange privilege upon 60 days' notice. For further information on this
exchange privilege and for a copy of any Heritage Mutual Fund prospectus,
contact the Manager or your Representative and see "Exchange Privilege" in the
SAI.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
HERITAGE ASSET
MANAGEMENT, INC.
SERVES AS MANAGER FOR
THE TRUST, SUBJECT TO
THE DIRECTION OF THE
BOARD OF TRUSTEES.
The business and affairs of the Trust are managed by or under the direction
of its Board of Trustees. The Trustees are responsible for managing the Trust's
business affairs and for exercising all the Trust's powers except those reserved
to the shareholders. A Trustee may be removed by the other Trustees or by a
two-thirds vote of the outstanding Trust shares.
Prospectus 14
<PAGE> 18
INVESTMENT ADVISER, FUND ACCOUNTANT, ADMINISTRATOR AND TRANSFER AGENT
Heritage Asset Management, Inc. is the Trust's investment adviser, fund
accountant, administrator and transfer agent. The Manager is responsible for
reviewing and establishing investment policies for the Trust and determining the
allocation of assets to the subadvisers as well as administering the Trust's
noninvestment affairs. The Manager is a wholly owned subsidiary of Raymond James
Financial, Inc., which, together with its subsidiaries, provides a wide range of
financial services to retail and institutional clients. The Manager manages,
supervises and conducts the business and administrative affairs of the Trust and
the other Heritage Mutual Funds with net assets totaling approximately $2.6
billion as of November 30, 1996. The Manager's annual investment advisory and
administration fee paid monthly by the Trust is equal to 0.75% of the Trust's
average daily net assets. The Trust pays the Manager directly for Fund
Accounting and transfer agent services.
The Manager voluntarily waives fee or reimburses expenses as explained
under "Total Trust Expenses" and reserves the right to discontinue any voluntary
waiver of its fees or reimbursements to the Trust in the future. The Manager
also may recover advisory fees waived in the two previous years.
SUBADVISERS
THE MANAGER EMPLOYS
SUBADVISERS FOR
PROVIDING INVESTMENT
ADVICE AND PORTFOLIO
MANAGEMENT SERVICES
TO THE TRUST.
The Manager has entered into an agreement with Liberty Investment
Management, 2502 Rocky Point Drive, Tampa, Florida 33607, to provide investment
advice and portfolio management services, including placement of brokerage
orders, on behalf of the Trust. For these services, the Manager pays the
Subadviser an annual fee of .25% of the Trust's average daily net assets,
without regard to any reduction in fees actually paid to the Manager as a result
of voluntary fee waivers by the Manager. The Subadviser provides investment
advisory services to institutional clients, including employee benefit plans,
endowments, foundations, other tax-exemption organizations and registered
investment companies; the net assets for these clients totaled approximately
$5.6 billion as of November 30, 1996.
The Manager also has entered into a subadvisory agreement with Eagle Asset
Management, Inc. ("Eagle"). However, the Manager has chosen not to allocate
assets to Eagle at this time.
APPOINTMENT OF GOLDMAN SACHS ASSET MANAGEMENT
On or about January 2, 1997, Liberty sold certain assets to, and the
Trust's portfolio manager, Herbert E. Ehlers, and other key employees entered
into employment agreements with Goldman, Sachs & Co. ("Goldman Sachs"). In order
to retain Mr. Ehlers' services, at its November 18, 1996 meeting, the Board of
Trustees approved the appointment of Liberty Investment Management Division of
Goldman Sachs Asset Management ("GSAM"), which itself is a separate operating
division of Goldman Sachs, as a subadviser to the Trust. This appointment is
subject to a shareholder approval at a Special Shareholders Meeting to be held
on February 28, 1997, or any adjournment(s) thereof.
If approved by shareholders, GSAM would provide investment advice and
portfolio management services with respect to Trust assets allocated to it by
the Manager. GSAM intends to follow substantially the same investment approach
employed by Liberty. For these services, Heritage (and not the Trust) would pay
GSAM a monthly fee at an annual rate equal to 0.25% of the Trust's average daily
net assets allocated to GSAM by Heritage. Goldman Sachs registered as an
investment adviser in 1981. As of November 30, 1996, GSAM, together with its
Prospectus 15
<PAGE> 19
affiliates, acts as investment adviser, administrator or distributor for assets
in excess of $94.2 billion.
BROKERAGE PRACTICES
The Subadviser may use the Distributor or other affiliated brokers-dealers
as broker for agency transactions in listed and over-the-counter securities at
commission rates and under circumstances consistent with the policy of best
price and execution. See "Brokerage Transactions" in the SAI.
PORTFOLIO MANAGEMENT
Herbert E. Ehlers serves as portfolio manager of the Trust. Mr. Ehlers has
been responsible for the day-to-day management of the Trust's investment
portfolio, subject to the general oversight of the Manager and the Board, since
the Trust's inception in December 1985. On January 2, 1997, Mr. Ehlers became a
Managing Director of Goldman Sachs. He also continues as the Chairman, Chief
Executive Officer and Chief Investment Officer of the Subadviser, positions he
has held since 1994. During 1995 he served as a portfolio manager of Eagle and
from 1984 to 1994, Mr. Ehlers was President, Chief Investment Officer and a
director of Eagle.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS AND OTHER DISTRIBUTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEVERAL OPTIONS EXIST
FOR RECEIVING DIVIDENDS
AND OTHER
DISTRIBUTIONS.
Dividends from net investment income are declared and paid annually. The
Trust distributes to shareholders along with its annual dividend substantially
all net realized capital gains on portfolio securities and net realized gains
from foreign currency transactions, if any, after the end of the year in which
the gains are realized. Dividends and other distributions on shares held in
retirement plans and by shareholders maintaining a Systematic Withdrawal Plan
generally are declared and paid in additional Trust shares. Other shareholders
may elect to:
- receive both dividends and other distributions in additional Trust
shares;
- receive dividends in cash and other distributions in additional Trust
shares;
- receive both dividends and other distributions in cash; or
- receive both dividends and other distributions in cash for investment
in another Heritage Mutual Fund.
If you select none of these options, the first option will apply. In any
case when you receive a dividend or other distribution in additional Trust
shares, your account will be credited with shares valued at the net asset value
of the shares determined at the close of regular trading on the Exchange on the
day following the record date for the dividend or other distribution.
Distribution options can be changed at any time by notifying the Manager in
writing.
Dividends paid by the Trust with respect to its A shares and C shares are
calculated in the same manner and at the same time and will be in the same
amount relative to the aggregate net asset value of the shares in each class,
except that dividends on C shares may be lower than dividends on A shares
primarily as a result of the higher distribution fee and class-specific expenses
applicable to C shares.
Prospectus 16
<PAGE> 20
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE TRUST PAYS
SERVICE FEES AND
DISTRIBUTION FEES TO
THE DISTRIBUTOR.
As compensation for services rendered and expenses borne by the Distributor
in connection with the distribution of A shares and in connection with personal
services rendered to Class A shareholders and the maintenance of Class A
accounts, the Trust may pay the Distributor distribution and service fees of up
to 0.50% of the Trust's average daily net assets attributable to A shares. The
Trust currently pays the Distributor a fee of up to 0.25% on A shares purchased
after April 3, 1995. This fee is computed daily and paid monthly.
As compensation for services rendered and expenses borne by the Distributor
in connection with the distribution of C shares and in connection with personal
services rendered to Class C shareholders and the maintenance of Class C
accounts, the Trust pays the Distributor a service fee of up to 0.25% and a
distribution fee of up to 0.75% of the Trust's average daily net assets
attributable to C shares. This fee is computed daily and paid monthly.
The above-referenced fees paid to the Distributor are made under
Distribution Plans adopted pursuant to Rule 12b-1 under the 1940 Act. These
Plans authorize the Distributor to spend such fees on any activities or expenses
intended to result in the sale of A shares and C shares, including compensation
(in addition to the sales load) paid to Representatives; advertising, salaries
and other expenses of the Distributor relating to selling or servicing efforts;
expenses of organizing and conducting sales seminars; printing of prospectuses,
statements of additional information and reports for other than existing
shareholders; and preparation and distribution of advertising material and sales
literature and other sales promotion expenses. The Distributor has entered into
dealer agreements with participating dealers and/or banks who also will
distribute shares of the Trust.
If either Plan is terminated, the obligation of the Trust to make payments
to the Distributor pursuant to the Plan will cease and the Trust will not be
required to make any payment past the date the Plan terminates.
TAXES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE TRUST IS NOT
EXPECTED TO HAVE ANY
FEDERAL TAX LIABILITY.
HOWEVER, YOUR TAX
OBLIGATIONS ARE
DETERMINED BY YOUR
PARTICULAR TAX
CIRCUMSTANCES.
The Trust intends to continue to qualify for treatment as a regulated
investment company under the Code. By doing so, the Trust (but not its
shareholders) will be relieved of Federal income tax on that part of its
investment company taxable income (generally consisting of net investment
income, net short-term capital gain and net gains from certain foreign currency
transactions) and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) that is distributed to its shareholders.
Dividends from the Trust's investment company taxable income are taxable to
shareholders as ordinary income, to the extent of the Trust's earnings and
profits, whether received in cash or in additional Trust shares. Distributions
of the Trust's net capital gain, when designated as such, are taxable to
shareholders as long-term capital gains, whether received in cash or in
additional Trust shares and regardless of the length of time the shares have
been held. A portion of the dividends paid by the Trust, whether received in
cash or in additional Trust shares, may be eligible for the dividends-received
deduction allowed to corporations. The eligible portion may not exceed the
aggregate dividends received by the Trust from U.S. corporations. However,
dividends received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Prospectus 17
<PAGE> 21
WHEN YOU SELL OR
EXCHANGE SHARES IT
GENERALLY IS
CONSIDERED A TAXABLE
EVENT TO YOU.
Dividends and other distributions declared by the Trust in October,
November or December of any calendar year and payable to shareholders of record
on a date in any of these months will be deemed to have been paid by the Trust
and received by the shareholders on December 31 of that year if they are paid by
the Trust during the following January. Shareholders receive Federal income tax
information regarding dividends and other distributions after the end of each
year. The Trust is required to withhold 31% of all dividends, capital gain
distributions, and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the Trust with a correct taxpayer
identification number. Withholding at that rate also is required from dividends
and capital gain distributions payable to such shareholders who otherwise are
subject to backup withholding. When you sell or exchange shares it generally is
considered a taxable event to you.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting the Trust and its shareholders. See the SAI
for a further discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor. You therefore are urged to
consult your tax adviser.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU MAY VOTE ON
MATTERS SUBMITTED FOR
YOUR APPROVAL. EACH
SHARE YOU OWN ENTITLES
YOU TO ONE VOTE.
Each share of the Trust gives the shareholder one vote in matters submitted
to shareholders for a vote. A shares and C shares of the Trust have equal voting
rights, except that, in matters affecting only a particular class, only shares
of that class are entitled to vote. As a Massachusetts business trust, the Trust
is not required to hold annual shareholder meetings. Shareholder approval will
be sought only for certain changes in the Trust's operation and for the election
of Trustees under certain circumstances. Trustees may be removed by the Trustees
or shareholders at a special meeting. A special meeting of shareholders shall be
called by the Trustees upon the written request of shareholders owning at least
10% of the Trust's outstanding shares.
No dealer, salesman, or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer contained in this Prospectus, and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Trust or the Distributor. This Prospectus does
not constitute an offering in any state in which such offering may not lawfully
be made.
Prospectus 18
<PAGE> 22
<TABLE>
<S> <C>
HERITAGE FAMILY OF FUNDS [LOGO] HERITAGE FAMILY OF FUNDS
Account Application
P.O. Box 33022, St. Petersburg, FL 33733
[ ] New Account [ ] Update to Existing Account # ------------------
(Indicate fund in Fund Selection section below)
</TABLE>
- --------------------------------------------------------------------------------
ACCOUNT REGISTRATION
<TABLE>
<S> <C> <C>
[ ] Corporation [ ] Gift to Minor
[ ] Individual [ ] Joint Tenant with Right of Survivorship [ ] Association, Partnership or other
[ ] Trust [ ] Foundation or Exempt Organization organization
- ------------------------------------------------- --------------------------------------------
Name of account owner Social Security or Taxpayer ID #
- ------------------------------------------------- --------------------------------------------
Joint owner/Trustee/Custodian Social Security or Taxpayer ID #
- ------------------------------------------------- --------------------------------------------
Joint owner/Trustee Date of birth of first named owner
- ------------------------------------------------- --------------------------------------------
Street address Daytime phone number
- ------------------------------------------------- --------------------------------------------
Street address Are you a U.S. citizen? [ ] Yes [ ] No
If no, country of residence
- ------------------------------------------------- -----------------
City, State and ZIP
</TABLE>
FUND SELECTION ($1,000 minimum initial investment unless participating in an
automatic investment plan)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Pay dividends Pay capital
Fund name Share Class amount in gains in:
A C Shares Cash Shares Cash
Heritage Series Trust:
[ ] Small Cap Stock Fund [ ] [ ] $ [ ] [ ] [ ] [ ]
----------------
[ ] Growth Equity Fund [ ] [ ] $ [ ] [ ] [ ] [ ]
----------------
[ ] Value Equity Fund [ ] [ ] $ [ ] [ ] [ ] [ ]
----------------
Eagle International Equity
[ ] Portfolio [ ] [ ] $ [ ] [ ] [ ] [ ]
----------------
Heritage Capital Appreciation
[ ] Trust [ ] [ ] $ [ ] [ ] [ ] [ ]
----------------
[ ] Heritage Income-Growth Trust [ ] [ ] $ [ ] [ ] [ ] [ ]
----------------
Heritage Income Trust:
[ ] High Yield Bond Fund [ ] [ ] $ [ ] [ ] [ ] [ ]
----------------
[ ] Intermediate Government Fund [ ] [ ] $ [ ] [ ] [ ] [ ]
----------------
Heritage Cash Trust:
[ ] Money Market Fund [ ] $ [ ] [ ] [ ] [ ]
----------------
[ ] Municipal Money Market Fund [ ] $ [ ] [ ] [ ] [ ]
----------------
If none checked, all reinvested
in shares.
TOTAL INVESTMENT $
----------------
</TABLE>
<PAGE> 23
SIGNATURES AND TAXPAYER IDENTIFICATION CERTIFICATION
Each person signing on behalf of an entity represents that his/her actions are
authorized. I have received and read a current prospectus for each fund in which
I am investing and understand that its terms are incorporated by reference into
this application. I understand that certain redemptions may be subject to a
contingent deferred sales load. I agree that the Fund, Manager, Distributor and
their Trustees, directors, officers and employees will not be held liable for
any loss, liability, damage, or expense for relying upon this application or any
instructions including telephone instructions they reasonably believe are
authentic. If a taxpayer identification number is not provided and certified,
all dividends paid will be subject to 31% Federal backup withholding.
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me).
2. I am not subject to backup withholding because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
You must cross out item 2 above if you have been notified by the IRS that you
are currently subject to backup withholding because of under reporting interest
or dividends on your tax return.
<TABLE>
<S> <C>
X X
------------------------------------------------ ------------------------------------------------
Signature Date Signature Date
</TABLE>
REDUCED SALES CHARGES
STATEMENT OF INTENT
If you agree in advance to invest at least $25,000 in Heritage Mutual Funds
other than Heritage Cash Trust within 13 months, you will pay a reduced sales
charge on those investments. Investments made up to 90 days before adopting this
agreement are eligible for this discount. All prior investments can be applied
toward meeting the investment requirement.
[ ] I agree to invest at least the amount selected below over a 13-month period
beginning / / . I understand that an additional sales charge must
be paid if I do not complete this Statement of Intent.
[ ] $25,000 [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000
[ ] $1,000,000
RIGHT OF ACCUMULATION
If you, your spouse, or your minor children own shares in other Heritage Mutual
Funds, you may qualify for a reduced sales charge. Class A shares of Heritage
Cash Trust are not eligible unless purchased by exchange from another Heritage
Mutual Fund. These shares can be credited to a Statement of Intent.
[ ] I qualify for the Right of Accumulation. Please link the following Heritage
accounts.
- ------------------------------------------------ ----------------------------
Fund/Account Number Fund/Account Number
- ------------------------------------------------ -----------------------------
Fund/Account Number Fund/Account Number
TELEPHONE TRANSACTIONS
You may redeem shares by calling Heritage and requesting that funds be sent to
your address of record or the bank account listed in the Bank Account
Information section below. We will withdraw up to $50,000 from your account and
mail it to your address of record provided that address has not been changed in
the last 30 days.
You may also exchange between the same class shares of like-registered accounts
in any of the Heritage Mutual Funds by calling Heritage and requesting this
service. Please see the prospectus for certain requirements for exchanging
shares between funds.
If you DO NOT want to be able to process redemptions and exchanges via telephone
order, please check here: [ ]
<PAGE> 24
DOLLAR COST AVERAGING PLANS
AUTOMATIC INVESTING
You can instruct us to transfer funds from a specified bank checking account to
your Heritage Mutual Fund account. This transfer will be effected by either an
electronic transfer or by a paper draft. Complete the Bank Account Information
section below and attach a voided check to this application.
<TABLE>
<CAPTION>
Transfer Frequency (check one)
Date Month- Quar- Semi- Annu-
Fund Amount 5th 15th ly terly Annually ally
<S> <C> <C> <C> <C> <C> <C> <C>
$ [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------- ------------------
$ [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------- ------------------
$ [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------- ------------------
Choose one or both
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
I authorize Heritage to draw on my bank account, by check or electronic transfer, for
ATTACH investment in a Heritage fund. Heritage and my bank are not liable for any loss resulting
VOIDED from delays or dishonored draws. This program can be revoked by Heritage without prior
CHECK notice if any draw is dishonored. I can discontinue this program at any time.
HERE
X X
------------------------------------------- -------------------------------------------
Signature on checking account Signature on checking account
TO THE BANK NAMED BELOW:
</TABLE>
In consideration of your compliance with the request and authorization of the
depositor named above, Heritage Asset Management, Inc. agrees (1) To indemnify
and hold you harmless from any loss you may suffer as a consequence of your
actions resulting from or in connection with the execution and issuance of any
check, draft, or order, whether or not genuine, purporting to be executed and
received by you in the regular course of business under pre-authorized draft
arrangement of the Heritage funds, including any costs or expenses reasonably
incurred in connection therewith; (2) That in the event any such check, draft,
or order shall be dishonored, whether with or without cause, and whether
intentionally or inadvertently, to indemnify you and hold harmless from any loss
resulting from such dishonor including your costs and reasonable expenses,
except any losses due to your payment of any draw against insufficient funds;
(3) To defend at our cost and expense any action which might be brought by any
depositor or any other persons because of your actions taken pursuant to the
foregoing requests, or in any manner arising by reason of your participation in
the foregoing plan; and (4) That your participation in the plan or that of the
depositor may be terminated by notice from either party to the other.
AUTOMATIC EXCHANGE
You can instruct us to periodically exchange funds from one Heritage Mutual Fund
to a like-registered account in the same class of another Heritage Mutual Fund.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Frequency (choose one): [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
Day of month (choose one): [ ] 1st [ ] 5th [ ] 10th [ ] 20th
Fund to exchange from Fund to exchange to Amount
$
- --------------------------------------- --------------------------------------- ---------------
$
- --------------------------------------- --------------------------------------- ---------------
$
- --------------------------------------- --------------------------------------- ---------------
</TABLE>
DIRECTED DIVIDENDS
You can direct the dividend payments from one Heritage Mutual Fund into a
like-registered account in the same class of another Heritage Mutual Fund. In
the Fund Selection section above, check the box for cash dividends.
<TABLE>
<S> <C>
From fund To fund
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
</TABLE>
<PAGE> 25
SYSTEMATIC WITHDRAWAL PLAN (SWP)
You can receive monthly, quarterly, semiannually, or annually checks from your
account. The checks can be sent to you at your address of record, to an account
at a bank or other financial institution, or to another person you designate.
You may send checks to more than one place. If you begin a SWP in Class C shares
of a fund, you may redeem up to 12% annually of your current account value
without incurring a contingent deferred sales load.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------- Frequency (choose one): [ ] Monthly
Fund for Withdrawal [ ] Quarterly
[ ] Semiannually
[ ] Annually
</TABLE>
Day of month (choose one): [ ] 1st [ ] 5th [ ] 10th [ ] 20th
<TABLE>
<S> <C> <C>
Send payment to: Amount
[ ] My address of record. $_____________ ------------------------------------
Payee name
[ ] The bank account listed in the
Bank Account Information $_____________ ------------------------------------
section below. Payee address
[ ] The payee listed at the right.
(If you have more than one
payee, please attach a separate $_____________ ------------------------------------
sheet indicating the amount to City, State and ZIP
be sent to each.)
------------------------------------
Payee account number (if applicable)
</TABLE>
BANK ACCOUNT INFORMATION
Provide bank checking account information if you are participating in an
Automatic Investment or Systematic Withdrawal Plan or if you wish for redemption
proceeds to be sent directly to your bank.
- --------------------------------- ------------------------------
Bank name Bank account number
- --------------------------------- ------------------------------
Address Bank routing (ABA) number (from your bank)
- ---------------------------------
City, State and ZIP
DEALER INFORMATION
We hereby authorize the Distributor to act as our agent in connection with
transactions under this authorization form and agree to notify the Distributor
of any purchases made under a Letter of Intent or Right of Accumulation. We
guarantee the signatures on this application and the legal capacity of the
signers.
If a Systematic Withdrawal Plan is being established, we believe that the amount
to be withdrawn is reasonable in light of the investor's circumstances and we
recommend establishment of the account.
- -------------------------------- -------------- -----------------------------
Representative's name Branch number Representative's number
- -------------------------------- ---------------------------------------------
Dealer name Branch office location
- -------------------------------- ---------------------------------------------
Main office address Branch phone number
- -------------------------------- X--------------------------------------------
City, State and ZIP Authorized representative's signature
<PAGE> 26
Heritage [LOGO]
---------------
FAMILY OF FUNDS
---------------
From our Family to Yours:
The Intelligent Creation of Wealth
Raymond James & Associates, Inc. Distributor
Member New York Stock Exchange/61PC
P.O. Box 33022, St. Petersburg, FL 33733
813-573-6143 - 800-421-4184
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HERITAGE CAPITAL APPRECIATION TRUST
This Statement of Additional Information ("SAI") dated January 2, 1997
should be read with the Prospectus of the Heritage Capital Appreciation Trust
dated January 2, 1997. This SAI is not a prospectus itself. To receive a copy of
the Prospectus, write to Heritage Asset Management, Inc. at the address below or
call (800) 421-4184.
Heritage Asset Management, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION.......................................................... 2
INVESTMENT INFORMATION....................................................... 2
Investment Objective............................................... 2
Investment Policies................................................ 2
Industry Classifications........................................... 6
INVESTMENT LIMITATIONS....................................................... 7
NET ASSET VALUE.............................................................. 9
PERFORMANCE INFORMATION...................................................... 10
INVESTING IN THE TRUST....................................................... 11
Systematic Investment Options...................................... 12
Retirement Plans................................................... 12
Alternative Purchase Plans......................................... 13
Class A Combined Purchase Privilege (Right of
Accumulation)...................................................... 13
Class A Statement of Intention..................................... 14
REDEEMING SHARES............................................................. 15
Systematic Withdrawal Plan......................................... 15
Telephone Transactions............................................. 16
Redemptions in Kind................................................ 17
Receiving Payment.................................................. 17
EXCHANGE PRIVILEGE.......................................................... .18
TAXES........................................................................ 19
TRUST INFORMATION............................................................ 21
Management of the Trust............................................ 21
Five Percent Shareholders.......................................... 24
Investment Adviser and Administrator; Subadvisers.................. 25
Brokerage Practices................................................ 27
Distribution of Shares............................................. 28
Administration of the Trust........................................ 31
Potential Liability................................................ 31
APPENDIX A...................................................................A-1
REPORT OF INDEPENDENT ACCOUNTANTS............................................A-2
FINANCIAL STATEMENTS.........................................................A-3
<PAGE>
GENERAL INFORMATION
- -------------------
Heritage Capital Appreciation Trust (the "Trust") was established as a
Massachusetts business trust under a Declaration of Trust dated June 21, 1985.
The Trust offers two classes of shares, Class A shares sold subject to a
front-end sales load ("A shares") and Class C shares sold subject to a
contingent deferred sales load ("CDSL") ("C shares").
INVESTMENT INFORMATION
- ----------------------
INVESTMENT OBJECTIVE
--------------------
The Trust's investment objective, as described in the prospectus, is
long-term capital appreciation.
INVESTMENT POLICIES
-------------------
AMERICAN DEPOSITORY RECEIPTS. The Trust may invest in sponsored
American Depository Receipts ("ADRs"). ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities of
foreign issuers and other forms of depository receipts for securities of foreign
issuers. Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed for use in the U.S. securities markets. Thus, these securities
are not denominated in the same currency as the securities into which they may
be converted. ADRs are considered to be foreign securities by the Trust for
purposes of certain investment limitation calculations.
CONVERTIBLE SECURITIES. The Trust may invest in convertible securities.
While no securities investment is without some risk, investments in convertible
securities generally entail less risk than the issuer's common stock, although
the extent to which such risk is reduced depends in large measure upon the
degree to which the convertible security sells above its value as a fixed income
security. The Trust's investment subadvisers, Liberty Investment Management
("Liberty") and Eagle Asset Management, Inc. ("Eagle") (collectively, the
"Subadvisers"), will decide whether to invest in convertible securities based
upon a fundamental analysis of the long-term attractiveness of the issuer and
the underlying common stock, the evaluation of the relative attractiveness of
the current price of the underlying common stock, and the judgment of the value
of the convertible security relative to the common stock at current prices.
Convertible securities in which the Trust may invest include corporate bonds,
notes and preferred stock that can be converted into common stock. Convertible
securities combine the fixed-income characteristics of bonds and preferred stock
with the potential for capital appreciation. As with all debt securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. While
convertible securities
- 2 -
<PAGE>
generally offer lower interest or dividend yields than nonconvertible debt
securities of similar quality, they do enable the investor to benefit from
increases in the market price of the underlying common stock.
FORWARD CURRENCY CONTRACTS. Because investments in foreign companies
usually will involve currencies of foreign countries, and because the Trust
temporarily may hold funds in bank deposits in foreign currencies during the
completion of investment programs, the value of Trust assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and the Trust may incur costs
in connection with conversions between various currencies. The Trust will
conduct its foreign currency exchange transactions on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market. In
addition, in order to protect against uncertainty in the level of future
exchange rates, the Trust may enter into contracts to purchase or sell foreign
currencies at a future date (i.e., a "forward currency contract" or "forward
contract") that is not more than 30 days from the date of the contract.
The Trust may enter into forward contracts to purchase or sell foreign
currencies for a fixed amount of U.S. dollars or another foreign currency or
basket of foreign currencies. Such transactions may serve as long hedges -- for
example the Trust may purchase a forward contract to lock in the U.S. dollar
price of a security denominated in a foreign currency that the Trust intends to
acquire. Forward contract transactions also may serve as short hedges -- for
example, the Trust may sell a forward contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security, or from a
dividend or interest payment on a security, denominated in a foreign currency.
As noted above, the Trust may seek to hedge against changes in the
value of a particular currency by using forward contracts on another foreign
currency or a basket of currencies, the value of which the Subadvisers believe
will have a positive correlation to the values of the currency being hedged. Use
of a different foreign currency magnifies the risk that movements in the price
of the forward contract will not correlate or will correlate unfavorably with
the foreign currency being hedged.
The cost to the Trust of engaging in forward contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts usually are entered
into on a principal basis, no fees or commissions are involved. When the Trust
enters into a forward contract, it relies on its counterparty to make or take
delivery of the underlying currency at the maturity of the contract. Failure by
the counterparty to do so would result in the loss of any expected benefit of
the transaction.
- 3 -
<PAGE>
Sellers or purchasers of forward contracts can enter into offsetting
closing transactions by purchasing or selling, respectively, an instrument
identical to the instrument bought or sold. Secondary markets generally do not
exist for forward contracts, with the result that closing transactions generally
can be made for forward contracts only by negotiating directly with the
counterparty. Thus, there can be no assurance that the Trust will in fact be
able to close out a forward contract at a favorable price prior to maturity. In
addition, in the event of insolvency of the counterparty, the Trust might be
unable to close out a forward contract at any time prior to maturity. In either
event, the Trust would continue to be subject to market risk with respect to the
position, and would continue to be required to maintain a position in the
securities or currencies that are the subject of the hedge or to maintain cash
or securities in a segregated account.
The precise matching of forward contract amounts and the value of the
securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
contract has been established. Thus, the Trust might need to purchase or sell
foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
FOREIGN CURRENCY STRATEGIES - SPECIAL CONSIDERATIONS. The value of
forward contracts depends on the value of the underlying currency relative to
the U.S. dollar. Because foreign currency transactions occurring in the
interbank market might involve substantially larger amounts than those involved
in the use of forward contracts, the Trust could be disadvantaged by having to
deal in the odd-lot market (generally consisting of transactions of less than $1
million) for the underlying foreign currencies at prices that are less favorable
than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
around-the-clock market.
Settlement of transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Trust might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
- 4 -
<PAGE>
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. The Trust may
enter into forward currency contracts or maintain a net exposure to such
contracts only if (1) the consummation of the contracts would not obligate the
Trust to deliver an amount of foreign currency in excess of the value of the
position being hedged by such contracts or (2) the Trust maintains cash, U.S.
Government securities or liquid securities in a segregated account in an amount
not less than the value of its total assets committed to the consummation of the
contract and not covered as provided in (1) above, as marked to market daily.
FOREIGN SECURITIES. The Trust may invest in foreign securities;
however, such investment may not exceed 10% of the Trust's investment portfolio.
Investing in securities issued by companies whose principal business activities
are outside the United States may involve significant risks not present in
domestic investments. For example, there generally is less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of U.S. securities laws. Foreign issuers
generally are not bound by uniform accounting, auditing and financial reporting
requirements comparable to those applicable to domestic issuers. Investments in
foreign securities also involve the risk of possible adverse changes in
investment or exchange control regulations, expropriation or confiscatory
taxation, limitation on the removal of funds or other assets of the Trust,
political or financial instability or diplomatic and other developments that
could affect such investments. Further, the economies of some countries may
differ favorably or unfavorably from the economy of the United States.
It is anticipated that in most cases the best available market for
foreign securities will be on exchanges or in over-the-counter markets located
outside the United States. Foreign stock markets, while growing in volume and
sophistication, generally are not as well developed as those in the United
States, and securities of some foreign issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. In addition, foreign brokerage commissions generally
are higher than commissions on securities traded in the United States. In
general, there is less overall governmental supervision and regulation of
securities exchanges, brokers and listed companies than in the United States.
It is the Trust's policy not to invest in foreign securities when there
are currency or trading restrictions in force or when, in the judgment of the
Subadvisers, such restrictions are likely to be imposed. However, certain
- 5 -
<PAGE>
currencies may become blocked (i.e., not freely available for transfer from a
foreign country), resulting in the possible inability of the Trust to convert
proceeds realized upon the sale of portfolio securities of the affected foreign
companies into U.S. currency.
ILLIQUID SECURITIES. As stated in the prospectus, the Trust will not
purchase or otherwise acquire any security if, as a result, more than 10% of its
net assets (taken at current value) would be invested in securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale.
PREFERRED STOCK. A preferred stock is a blend of the characteristics of
a bond and common stock. It can offer the higher yield of a bond and has
priority over common stock in equity ownership but does not have the seniority
of a bond and its participation in the issuer's growth may be limited. Preferred
stock has a preference over common stock in the receipt of dividends and in any
residual assets after payment to creditors should the issuer be dissolved.
Although the dividend is set at a fixed annual rate, in some circumstances it
can be changed or omitted by the issuer.
REAL ESTATE INVESTMENT TRUSTS. The Trust may invest in different types
of real estate investment trusts ("REITs"), such as equity REITs, which own real
estate properties, and mortgage REITs, which make construction, development and
long-term mortgage loans. The value of an equity REIT may be affected by changes
in the value of the underlying property, while a mortgage REIT may be affected
by the quality of the credit extended. The performance of both types of REITs
depends upon conditions in the real estate industry, management skills and the
amount of cash flow. The risks associated with REITs include defaults by
borrowers, self-liquidation, failure to qualify as a "pass-through" entity under
the Federal tax law, failure to qualify as an exempt entity under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the fact that REITs are
not diversified.
U.S. GOVERNMENT SECURITIES. The Trust may invest in U.S. Government
securities, including a variety of securities that are issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agreements
secured thereby. These securities include securities issued and guaranteed by
the U.S. Government, such as Treasury bills, Treasury notes, and Treasury bonds;
obligations backed by the "full faith and credit" of the United States, such as
Government National Mortgage Association securities; obligations supported by
the right of the issuer to borrow from the U.S. Treasury, such as those of the
Federal Home Loan Banks; and obligations supported only by the credit of the
issuer, such as those of the Federal Intermediate Credit Banks.
WARRANTS. The Trust may purchase warrants, which are instruments that
permit the Trust to acquire, by subscription, the capital stock of a corporation
at a set price, regardless of the market price for such stock. Warrants may be
either perpetual or of limited duration. There is a greater risk that warrants
might drop in value at a faster rate than the underlying stock. The Trust's
investment in warrants is limited to 5% of its total assets, of which no more
than 2% may not be listed on the New York or American Stock Exchange.
INDUSTRY CLASSIFICATIONS
------------------------
For purposes of determining industry classifications, the Trust relies
upon classifications established by Heritage Asset Management, Inc. ("Heritage"
or the "Manager") that are based upon classifications contained in the Directory
- 6 -
<PAGE>
of Companies Filing Annual Reports with the Securities and Exchange Commission
("SEC") and in the Standard & Poor's Corporation Industry Classifications.
INVESTMENT LIMITATIONS
- ----------------------
In addition to the limits disclosed in "Investment Policies" above and
the investment limitations described in the prospectus, the Trust is subject to
the following investment limitations that are fundamental policies of the Trust
and may not be changed without the vote of a majority of the outstanding voting
securities of the Trust. Under the 1940 Act, a "vote of a majority of the
outstanding voting securities" of the Trust means the affirmative vote of the
lesser of (1) more than 50% of the outstanding shares of the Trust or (2) 67% or
more of the shares present at a shareholders meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
DIVERSIFICATION. The Trust may not invest more than 5% of its total
assets (valued at market value) in securities of any one issuer other than the
U.S. Government or its agencies and instrumentalities, or buy more than 10% of
the voting securities or more than 10% of all the securities of any one issuer.
BORROWING MONEY. The Trust may not borrow money except from banks and
only if at the time of such borrowings the total loans to the Trust do not
exceed 5% of the Trust's total assets, and such borrowings can only be made as a
temporary measure for extraordinary or emergency purposes.
INVESTING IN COMMODITIES, MINERALS OR REAL ESTATE. The Trust may not
invest in commodities, commodity contracts, oil, gas or other mineral programs,
or real estate, except that it may purchase securities issued by companies that
invest in or sponsor such interests.
UNDERWRITING. The Trust may not underwrite the securities of other
issuers, except that the Trust may invest in securities that are not readily
marketable without registration under the 1933 Act (restricted securities), if
immediately after the making of such investment not more than 5% of the value of
the Trust's total assets (taken at cost) would be so invested.
LOANS. The Trust may not make loans, except to the extent that the
purchase of a portion of an issue of publicly distributed notes, bonds or other
evidences of indebtedness or deposits with banks and other financial
institutions may be considered loans. The Trust also may enter into repurchase
agreements as permitted under its investment policies.
- 7 -
<PAGE>
CONCENTRATION OF INVESTMENTS. The Trust may not purchase securities if
as a result of such purchase more than 25% of the value of its total assets
would be invested in any one industry.
ISSUING SENIOR SECURITIES. The Trust may not issue senior securities,
except as permitted by its investment objective and policies and investment
limitations.
The Trust has adopted the following additional restrictions that,
together with certain limits described in the Trust's prospectus, are
nonfundamental policies and may be changed by the Board of Trustees without
shareholder approval in compliance with applicable law, regulation or regulatory
policy.
INVESTING IN ILLIQUID SECURITIES. The Trust may not purchase any
securities subject to restrictions on resale or purchase securities that are not
readily marketable if, as a result thereof, more than 10% of the net assets of
the Trust would be invested in such illiquid investments and in repurchase
agreements maturing in more than seven days.
SELLING SHORT AND BUYING ON MARGIN. The Trust may not sell any
securities short or purchase any securities on margin but may obtain such
short-term credits as may be necessary for clearance of purchases and sales of
securities.
INVESTING IN OTHER INVESTMENT COMPANIES. The Trust may not invest in
securities issued by other investment companies, except in connection with a
merger, consolidation, acquisition or reorganization or by purchase in the open
market of securities of closed-end investment companies where no underwriter or
dealer commission or profit, other than a customary brokerage commission, is
involved and only if immediately thereafter not more than 5% of the Trust's
total assets (taken at market value) would be invested in such securities.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE
TRUST. The Trust may not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Manager or Subadvisers who own
individually more than 1/2 of 1% of the issuer's securities together own more
than 5% of the issuer's securities.
OPTION WRITING. The Trust may not write put or call options.
PLEDGING. The Trust may not pledge any securities except that it may
pledge assets having a value of not more than 10% of its total assets to secure
permitted borrowing from banks.
UNSEASONED ISSUERS. The Trust may not invest more than 5% of the value
of its total assets in securities of companies that, with their predecessors,
have been in continuous operations for less than three years.
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<PAGE>
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the investment, a later increase or decrease in the
percentage resulting from any change in value of net assets will not result in a
violation of such restriction.
NET ASSET VALUE
- ---------------
The net asset values of A shares and C shares are determined daily
Monday through Friday, except for New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day,
as of the close of regular trading on the New York Stock Exchange (the
"Exchange"). Net asset value for each class is calculated by dividing the value
of the total assets of the Trust attributable to that class, less all
liabilities (including accrued expenses) attributable to that class, by the
number of class shares outstanding, the result being adjusted to the nearest
whole cent. A security listed or traded on the Exchange, or other domestic or
foreign stock exchanges, is valued at its last sales price on the principal
exchange on which it is traded prior to the time when assets are valued. If no
sale is reported at that time or the security is traded in the over-the-counter
market, the most recent bid price is used. Securities and other assets for which
market quotations are not readily available, or for which market quotes are not
deemed to be reliable, are valued at fair value as determined in good faith by
the Board of Trustees. Securities in a foreign currency will be valued daily in
U.S. dollars at the foreign currency exchange rates prevailing at the time the
Trust calculates the daily net asset value of each class. Short-term investments
having a maturity of 60 days or less are valued at cost with accrued interest or
discount earned included in interest receivable.
The Trust is open for business on days on which the Exchange is open
(each a "Business Day"). Trading in securities on European and Far Eastern
securities exchanges and over-the-counter markets normally is completed well
before the Trust's close of business on each Business Day. In addition, European
or Far Eastern securities trading may not take place on all Business Days.
Furthermore, trading takes place in various foreign capital markets on days that
are not Business Days and on which the Trust's net asset value is not
calculated. Calculation of A shares and C shares net asset value does not take
place contemporaneously with the determination of the prices of the majority of
the portfolio securities used in such calculation. The Trust calculates net
asset value per share, and therefore effects sales and redemptions, as of the
close of regular trading on the Exchange each Business Day. If events materially
affecting the value of such securities occur between the time when their prices
are determined and the time when the Trust's net asset value is calculated, such
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<PAGE>
securities will be valued at fair value by methods as determined in good faith
by or under the direction of the Board of Trustees.
The Board of Trustees may suspend the right of redemption or postpone
payment for more than seven days at times (1) during which the Exchange is
closed other than for the customary weekend and holiday closings, (2) during
which trading on the Exchange is restricted as determined by the SEC, (3) during
which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable or it is not reasonably
practical for the Trust fairly to determine the value of its net assets, or (4)
for such other periods as the SEC may by order permit for the protection of the
holders of A shares and C shares.
PERFORMANCE INFORMATION
- -----------------------
The performance data for each class of the Trust quoted in advertising
and other promotional materials represents past performance and is not intended
to indicate future performance. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Average annual total return quotes for each class used
in the Trust's advertising and promotional materials are calculated according to
the following formula:
P(1+T)(SUPERSCRIPT)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of
the 1, 5, 10 year period (or fractional
portion thereof)
In calculating the ending redeemable value for A shares, the current
maximum sales load of 4.75% is deducted from the initial $1,000 payment and all
dividends and other distributions by the Trust are assumed to have been
reinvested at net asset value on the reinvestment dates during the period. Based
on this formula, the total return, or "T" in the formula above, is computed by
finding the average annual compounded rates of return over the period that would
equate the initial amount invested to the ending redeemable value. The average
annualized total returns for A shares using this formula for the fiscal year
ended August 31, 1996, the five years ended August 31, 1996 and for the ten
years ended August 31, 1996 were 7.42%, 12.16% and 9.83%, respectively. The
actual total return would be higher for shareholders who paid a sales load of
less than 4.75%. The average annualized total return for C shares using this
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<PAGE>
formula for the fiscal year ended August 31, 1996, and for the period April 3,
1995 (first offering of C shares) to August 31, 1996, was 12.16% and 15.15%,
respectively.
The A shares cumulative returns using this formula for the one year,
five years and ten years ended August 31, 1996, were 12.79%, 86.46% and 168.37%,
respectively. The C shares cumulative return using this formula for the one year
ended August 31, 1996, and for the period April 3, 1995 (first offering of C
shares) to August 31, 1996, was 12.16% and 22.61%, respectively. By not
annualizing the performance and excluding the effect of the front-end sales load
on A shares and the CDSL on C shares, total return calculated in this manner
simply will reflect the increase in net asset value per share over a period of
time, adjusted for dividends and other distributions. Calculating total return
without taking into account the front-end sales load or CDSL results in a higher
rate of return than calculating total return net of the sales load.
In connection with communicating its total return to current or
prospective shareholders, the Trust also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indexes that may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs. In addition,
the Trust may from time to time include in advertising and promotional materials
total return figures that are not calculated according to the formula set forth
above for each class of shares. For example, in comparing the Trust's aggregate
total return with data published by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc. or with such market indices as the Dow Jones
Industrial Average and the Standard & Poor's 500 Composite Stock Price Index,
the Trust calculates its cumulative total return for each class for the
specified periods of time by assuming an investment of $10,000 in shares of that
class and assuming the reinvestment of each dividend or other distribution at
net asset value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. The Trust does not, for these
purposes, deduct from the initial value invested any amount representing
front-end sales loads charged on A shares or CDSLs charged on C shares.
INVESTING IN THE TRUST
- ----------------------
A shares and C shares are sold at their next determined net asset value
on Business Days. The procedures for purchasing shares of the Trust are
explained in the Trust's prospectus under "Investing in the Trust."
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<PAGE>
SYSTEMATIC INVESTMENT OPTIONS
-----------------------------
1. Systematic Investing -- You may authorize the Manager to process a
monthly draft from your personal checking account for investment into the Trust.
The draft is returned by your bank the same way a canceled check is returned.
2. Payroll Direct Deposit -- If your employer participates in a direct
deposit program (also known as ACH Deposits) you may have all or a portion of
your payroll directed to the Trust. This will generate a purchase transaction
each time you are paid by your employer. Your employer will report to you the
amount sent from each paycheck.
3. Government Direct Deposit -- If you receive a qualifying periodic
payment from the U.S. Government or other agency that participates in Direct
Deposit, you may have all or a part of each check directed to purchase shares of
the Trust. The U.S. Government or agency will report to you all payments made.
4. Automatic Exchange -- If you own shares of another Heritage mutual
fund advised or administered by the Manager ("Heritage Mutual Fund"), you may
elect to have a preset amount redeemed from that fund and exchanged into the
corresponding class of shares of the Trust. You will receive a statement from
the other Heritage Mutual Fund confirming the redemption.
You may change or terminate any of the above options at any time.
RETIREMENT PLANS
----------------
HERITAGE IRA. Individuals who earn compensation and who have not
reached age 70 1/2 before the close of the year generally may establish a
Heritage IRA. An individual may make limited contributions to a Heritage IRA
through the purchase of shares of the Trust and/or other Heritage Mutual Funds.
The Internal Revenue Code of 1986, as amended (the "Code"), limits the
deductibility of IRA contributions to taxpayers who are not active participants
(and whose spouses are not active participants) in employer-provided retirement
plans or who have adjusted gross income below certain levels. Nevertheless, the
Code permits other individuals to make nondeductible IRA contributions up to
$2,000 per year (or $4,000, if such contributions also are made for a nonworking
spouse and a joint return is filed). A Heritage IRA also may be used for certain
"rollovers" from qualified benefit plans and from Section 403(b) annuity plans.
For more detailed information on the Heritage IRA, please contact the Manager.
Trust shares may be used as the investment medium for qualified plans
(defined benefit or defined contribution plans established by corporations,
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<PAGE>
partnerships or sole proprietorships). Contributions to qualified plans may be
made (within certain limits) on behalf of the employees, including
owner-employees, of the sponsoring entity.
OTHER RETIREMENT PLANS. Multiple participant payroll deduction
retirement plans also may purchase A shares of any Heritage Mutual Fund at a
reduced sales load on a monthly basis during the 13-month period following such
a plan's initial purchase. The sales load applicable to an initial purchase of A
shares will be that normally applicable under the schedule of sales loads set
forth in the prospectus to an investment 13 times larger than such initial
purchase. The sales load applicable to each succeeding monthly purchase of A
shares will be that normally applicable, under such schedule, to an investment
equal to the sum of (1) the total purchase previously made during the 13-month
period and (2) the current month's purchase multiplied by the number of months
(including the current month) remaining in the 13- month period. Sales loads
previously paid during such period will not be adjusted retroactively on the
basis of later purchases. Multiple participant payroll deduction retirement
plans may purchase C shares at any time.
ALTERNATIVE PURCHASE PLANS
--------------------------
A shares are sold at their next determined net asset value plus a
front-end sales load on days the Exchange is open for business. C shares are
sold at their next determined net asset value on days the Exchange is open for
business, subject to a 1% CDSL if the investor redeems such shares within one
year. The Manager, as the Trust's transfer agent, will establish an account with
the Trust and will transfer funds to State Street Bank and Trust Company (the
"Custodian"). Normally, orders will be accepted upon receipt of funds and will
be executed at the net asset value determined as of the close of regular trading
on the Exchange on that day plus any applicable sales load. See "Alternative
Purchase Plans" in the prospectus. The Trust reserves the right to reject any
order for Trust shares. The Trust's distributor, Raymond James & Associates,
Inc. ("RJA" or the "Distributor"), has agreed that it will hold the Trust
harmless in the event of loss as a result of cancellation of trades in Trust
shares by the Distributor, its affiliates or its customers.
CLASS A COMBINED PURCHASE PRIVILEGE (RIGHT OF ACCUMULATION)
-----------------------------------------------------------
Certain investors may qualify for the Class A sales load reductions
indicated in the sales load schedule in the prospectus by combining purchases of
A shares into a single "purchase," if the resulting purchase totals at least
$25,000. The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases that, in the aggregate, are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
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<PAGE>
age of 21 years purchasing A shares for his or their own account; a single
purchase by a trustee or other fiduciary purchasing A shares for a single trust,
estate or single fiduciary account although more than one beneficiary is
involved; or a single purchase for the employee benefit plans of a single
employer. The term "purchase" also includes purchases by a "company," as the
term is defined in the 1940 Act, but does not include purchases by any such
company that has not been in existence for at least six months or that has no
purpose other than the purchase of A shares or shares of other registered
investment companies at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit card holders of a company, policy holders of
an insurance company, customers of either a bank or broker-dealer, or clients of
an investment adviser. A "purchase" also may include A shares purchased at the
same time through a single selected dealer of any other Heritage Mutual Fund
that distributes its shares subject to a sales load.
The applicable A shares initial sales load will be based on the total
of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the
previous day) of (a) all A shares held by the investor and (b) all A
shares of any other Heritage mutual fund advised or administered by the
Manager ("Heritage Mutual Fund") held by the investor and purchased at
a time when A shares of such other fund were distributed subject to a
sales load (including Heritage Cash Trust shares acquired by exchange);
and
(iii) the net asset value of all A shares described in
paragraph (ii) owned by another shareholder eligible to combine his
purchases with that of the investor into a single "purchase."
A shares of Heritage Income Trust-Intermediate Government Fund
purchased from February 1, 1992 through July 31, 1992, without payment of a
sales load will be deemed to fall under the provisions of paragraph (ii) as if
they had been distributed without being subject to a sales load, unless those
shares were acquired through an exchange of other shares that were subject to a
sales load.
To qualify for the Combined Purchase Privilege on a purchase through a
selected dealer, the investor or selected dealer must provide the Distributor
with sufficient information to verify that each purchase qualifies for the
privilege or discount.
CLASS A STATEMENT OF INTENTION
------------------------------
Investors also may obtain the reduced sales loads shown in the Trust's
prospectus by means of a written Statement of Intention, which expresses the
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<PAGE>
investor's intention to invest not less than $25,000 within a period of 13
months in A shares of the Trust or any other Heritage Mutual Fund. Each purchase
of A shares under a Statement of Intention will be made at the public offering
price or prices applicable at the time of such purchase to a single transaction
of the dollar amount indicated in the Statement. In addition, if you own Class A
shares of any other Heritage Mutual Fund subject to a sales load, you may
include those shares in computing the amount necessary to qualify for a sales
load reduction.
The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum initial investment
under a Statement of Intention is 5% of such amount. A shares purchased with the
first 5% of such amount will be held in escrow (while remaining registered in
the name of the investor) to secure payment of the higher sales load applicable
to the shares actually purchased if the full amount indicated is not purchased,
and such escrowed A shares will be involuntarily redeemed to pay the additional
sales load, if necessary. When the full amount indicated has been purchased, the
escrow will be released. To the extent an investor purchases more than the
dollar amount indicated on the Statement of Intention and qualifies for a
further reduced sales load, the sales load will be adjusted for the entire
amount purchased at the end of the 13-month period. The difference in sales load
will be used to purchase additional A shares of the Trust, subject to the rate
of sales load applicable to the actual amount of the aggregate purchases. An
investor may amend his/her Statement of Intention to increase the indicated
dollar amount and begin a new 13-month period. In that case, all investments
subsequent to the amendment will be made at the sales load in effect for the
higher amount. The escrow procedures discussed above will apply.
REDEEMING SHARES
- ----------------
The methods of redemption are described in the section of the
prospectus entitled "How to Redeem Shares."
SYSTEMATIC WITHDRAWAL PLAN
--------------------------
Shareholders may elect to make systematic withdrawals from a Trust
account of a minimum of $50 on a periodic basis. The amounts paid each period
are obtained by redeeming sufficient shares from an account to provide the
withdrawal amount specified. The Systematic Withdrawal Plan currently is not
available for shares held in an Individual Retirement Account, Section 403(b)
annuity plan, defined contribution plan, Simplified Employee Pension Plan or
other retirement plans, unless the shareholder establishes to the Manager's
satisfaction that withdrawals from such an account may be made without
imposition of a penalty. Shareholders may change the amount to be paid without
charge not more than once a year by written notice to the Distributor or the
Manager.
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<PAGE>
Redemptions will be made at net asset value determined as of the close
of regular trading on the Exchange on the 10th day of each month or the 10th day
of the last month of each period, whichever is applicable. Systematic
withdrawals of C shares, if made within one year of the date of purchase, will
be charged a CDSL of 1%. If the Exchange is not open for business on that day,
the shares will be redeemed at net asset value determined as of the close of
regular trading on the Exchange on the preceding Business Day, minus any
applicable CDSL for C shares. The check for the withdrawal payment usually will
be mailed on the next business day following redemption. If a shareholder elects
to participate in the Systematic Withdrawal Plan, dividends and other
distributions on all shares in the account must be reinvested automatically in
Trust shares. A shareholder may terminate the Systematic Withdrawal Plan at any
time without charge or penalty by giving written notice to the Manager or the
Distributor. The Trust and its transfer agent and Distributor also reserve the
right to modify or terminate the Systematic Withdrawal Plan at any time.
Withdrawal payments are treated as a sale of shares rather than as a
dividend or a capital gain distribution. These payments are taxable to the
extent that the total amount of the payments exceeds the tax basis of the shares
sold. If the periodic withdrawals exceed reinvested dividends and other
distributions, the amount of the original investment may be correspondingly
reduced.
Ordinarily, a shareholder should not purchase additional A shares if
maintaining a Systematic Withdrawal Plan of A shares because the shareholder may
incur tax liabilities in connection with such purchases and withdrawals. The
Trust will not knowingly accept purchase orders from shareholders for additional
A shares if they maintain a Systematic Withdrawal Plan unless the purchase is
equal to at least one year's scheduled withdrawals. In addition, a shareholder
who maintains such a Plan may not make periodic investments under the Trust's
Automatic Investment Plan.
TELEPHONE TRANSACTIONS
----------------------
Shareholders may redeem shares by placing a telephone request to the
Trust. The Trust, Manager, Distributor and their Trustees, directors, officers
and employees are not liable for any loss arising out of telephone instructions
they reasonably believe are authentic. In acting upon telephone instructions,
these parties use procedures that are reasonably designed to ensure that such
instructions are genuine, such as (1) obtaining some or all of the following
information: account number, name(s) and social security number registered to
the account, and personal identification; (2) recording all telephone
transactions; and (3) sending written confirmation of each transaction to the
registered owner. If the Trust, Manager, Distributor and their Trustees,
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<PAGE>
directors, officers and employees do not follow reasonable procedures, some or
all of them may be liable for any such losses.
REDEMPTIONS IN KIND
-------------------
The Trust is obligated to redeem shares for any shareholder for cash
during any 90-day period up to $250,000 or 1% of the Trust's net asset value,
whichever is less. Any redemption beyond this amount also will be in cash unless
the Board of Trustees determine that further cash payments will have a material
adverse effect on remaining shareholders. In such a case, the Trust will pay all
or a portion of the remainder of the redemption in portfolio instruments, valued
in the same way as the Trust determines net asset value. The portfolio
instruments will be selected in a manner that the Board of Trustees deem fair
and equitable. A redemption in kind is not as liquid as a cash redemption. If a
redemption is made in kind, a shareholder receiving portfolio instruments could
receive less than the redemption value thereof and could incur certain
transaction costs.
RECEIVING PAYMENT
-----------------
If a request for redemption is received by the Trust in good order (as
described in the prospectus) before the close of regular trading on the
Exchange, the shares will be redeemed at the net asset value per share
determined at such close, minus any applicable CDSL for C shares. Requests for
redemption received by the Trust after the close of regular trading on the
Exchange will be executed at the net asset value determined as of such close on
the next trading day, minus any applicable CDSL for C shares.
If shares of the Trust are redeemed by a shareholder through the
Distributor or a participating dealer, the redemption is settled with the
shareholder as an ordinary transaction. If a request for redemption is received
before the close of regular trading on the Exchange, shares will be redeemed at
the net asset value per share determined on that day, minus any applicable CDSL
for C shares. Requests for redemption received after the close of regular
trading on the Exchange will be executed on the next trading day. Payment for
shares redeemed normally will be made by the Trust to the Distributor or a
participating dealer by the third business day after the day the redemption
request was made, provided that certificates for shares have been delivered in
proper form for transfer to the Trust or, if no certificates have been issued, a
written request signed by the shareholder has been provided to the Distributor
or a participating dealer prior to settlement date.
Other supporting legal documents may be required from corporations or
other organizations, fiduciaries or persons other than the shareholder of record
making the request for redemption. Questions concerning the redemption of Trust
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<PAGE>
shares can be directed to registered representatives of the Distributor or a
participating dealer, or to the Manager.
EXCHANGE PRIVILEGE
- ------------------
Shareholders who have held Trust shares for at least 30 days may
exchange some or all of their A shares or C shares for corresponding classes of
shares of any other Heritage Mutual Fund. All exchanges will be based on the
respective net asset values of the Heritage Mutual Funds involved. An exchange
is effected through the redemption of the shares tendered for exchange and the
purchase of shares being acquired at their respective net asset values as next
determined following receipt by the Heritage Mutual Fund whose shares are being
exchanged of (1) proper instructions and all necessary supporting documents as
described in such fund's prospectus, or (2) a telephone request for such
exchange in accordance with the procedures set forth in the Trust's prospectus
and below.
A shares of Heritage Income Trust-Intermediate Government Fund
("Intermediate Government") purchased from February 1, 1992 through July 31,
1992, without payment of an initial sales load may be exchanged into A shares of
the Trust without payment of any sales load. A shares of Intermediate Government
purchased after July 31, 1992 without an initial sales load will be subject to a
sales load when exchanged into A shares of the Trust, unless those shares were
acquired through an exchange of other shares that were subject to an initial
sales load.
Shares acquired pursuant to a telephone request for exchange will be
held under the same account registration as the shares redeemed through such
exchange. For a discussion of limitation of liability of certain entities, see
"Telephone Transactions" above.
Telephone exchanges can be effected by calling the Manager at
800-421-4184 or by calling a registered representative of the Distributor, a
participating dealer or participating bank ("Representative"). In the event that
a shareholder or his Representative is unable to reach the Manager by telephone,
a telephone exchange can be effected by sending a telegram to Heritage Asset
Management, Inc. Telephone or telegram requests for an exchange received by the
Trust before the close of regular trading on the Exchange will be effected at
the close of regular trading on that day. Requests for an exchange received
after the close of regular trading will be effected on the Exchange's next
trading day. Due to the volume of calls or other unusual circumstances,
telephone exchanges may be difficult to implement during certain time periods.
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<PAGE>
TAXES
- -----
In order to continue to qualify for the favorable tax treatment as a
regulated investment company ("RIC") under the Internal Revenue Code, the Trust
must distribute annually to its shareholders at least 90% of its investment
company taxable income (generally consisting of net investment income, net
short-term capital gain and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. These requirements include the following: (1) the Trust must
derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of securities or foreign currencies, or other income
(including gains from forward contracts) derived with respect to its business of
investing in securities or those currencies ("Income Requirement"); (2) the
Trust must derive less than 30% of its gross income each taxable year from the
sale or other disposition of securities, or foreign currencies or forward
contracts thereon that are not directly related to the Trust's principal
business of investing in securities, that are held for less than three months
("Short-Short Limitation"); (3) at the close of each quarter of the Trust's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. Government securities, securities of other RICs,
and other securities, with those other securities limited, in respect of any one
issuer, to an amount that does not exceed 5% of the value of the Trust's total
assets and that does not represent more than 10% of the issuer's outstanding
voting securities; and (4) at the close of each quarter of the Trust's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. Government securities or the securities of other
RICs) of any one issuer.
The Trust will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and its capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
A redemption of Trust shares will result in a taxable gain or loss to
the redeeming shareholder, depending on whether the redemption proceeds are more
or less than the shareholder's adjusted basis for the redeemed shares (which
normally includes any sales load paid on A shares). An exchange of Trust shares
for shares of another Heritage Mutual Fund generally will have similar tax
consequences. However, special rules apply when a shareholder disposes of Trust
shares through a redemption or exchange within 90 days after purchase thereof
and subsequently reacquires shares of the Trust or acquires shares of another
Heritage Mutual Fund without paying a sales load due to the 90-day reinstatement
or exchange privilege. In these cases, any gain on the disposition of the
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<PAGE>
original Trust shares will be increased, or loss decreased, by the amount of the
sales load paid when those shares were acquired, and that amount will increase
the adjusted basis of the shares subsequently acquired. In addition, if Trust
shares are purchased (whether pursuant to the reinstatement privilege or
otherwise) within 30 days before or after redeeming other Trust shares
(regardless of class) at a loss, all or a portion of that loss will not be
deductible and will increase the basis of the newly purchased shares.
If Trust shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for a dividend or other distribution, the shareholder will pay full
price for the shares and receive some portion of the price back as a taxable
distribution.
Dividends and interest received by the Trust may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
The Trust may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, the Trust will be
subject to Federal income tax on a portion of any "excess distribution" received
on stock it holds in a PFIC or of any gain on disposition of the stock
(collectively "PFIC income"), plus interest thereon, even if the Trust
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Trust's investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders.
If the Trust invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Trust would be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) -- which most likely would have to be distributed to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax -- even if those
earnings and gain were not received by the Trust. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
- 20 -
<PAGE>
Pursuant to proposed regulations, open-end RICs, such as the Trust,
would be entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each taxable
year the excess, as of the end of that year, of the fair market value of a
PFIC's stock over the adjusted basis in that stock (including mark-to-market
gain for each prior year for which an election was in effect).
The use of hedging strategies, such as entering into forward contracts,
involves complex rules that will determine for income tax purposes the character
and timing of recognition of the gains and losses the Trust realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and gains
from forward contracts derived by the Trust with respect to its business of
investing in securities or foreign currencies, will qualify as permissible
income under the Income Requirement. However, income from the disposition of
foreign currencies, and forward contracts thereon, that are not directly related
to the Trust's principal business of investing in securities will be subject to
the Short- Short Limitation if they are held for less than three months.
Investors are advised to consult their own tax advisers regarding the
status of an investment in the Trust under state and local tax laws.
TRUST INFORMATION
- -----------------
MANAGEMENT OF THE TRUST
-----------------------
TRUSTEES AND OFFICERS. Trustees and officers are listed below with
their addresses, principal occupations and present positions, including any
affiliation with Raymond James Financial, Inc. ("RJF"), RJA, the Manager (also
referred to herein as "Heritage"), and Eagle.
POSITION WITH PRINCIPAL OCCUPATION
NAME THE TRUST DURING PAST FIVE YEARS
---- --------- ----------------------
Thomas A. James* Trustee Chairman of the Board since
880 Carillon Parkway 1986 and Chief Executive
St. Petersburg, FL Officer since 1969 of RJF;
33716 Chairman of the Board of
RJA since 1986; Chairman of
the Board of Eagle since 1984
and Chief Executive Officer
of Eagle, 1994 to 1996.
- 21 -
<PAGE>
Richard K. Riess* Trustee Chief Executive Officer of
880 Carillon Parkway Eagle since 1996,
St. Petersburg, FL President, 1995 to
33716 present, Chief Operating
Officer, 1988 to 1996,
Executive Vice President,
1988 to 1993; President of
Heritage Mutual Funds,
1985 to 1991.
Donald W. Burton Trustee President of South Atlantic
614 W. Bay Street Capital Corporation
Suite 200 (venture capital) since
Tampa, FL 33606 1981.
C. Andrew Graham Trustee Vice President of Financial
Financial Designs, Designs Ltd. since 1992;
Ltd. Executive Vice President of
1775 Sherman Street the Madison Group, Inc.,
Suite 1900 1991 to 1992; Principal of
Denver, CO 80203 First Denver Financial
Corporation (investment
banking) since 1987.
David M. Phillips Trustee Chairman and Chief
World Trade Center Executive Officer of CCC
Chicago Information Services, Inc.
444 Merchandise Mart since 1994 and of InfoVest
Chicago, IL 60654 Corporation (information
services to the insurance
and auto industries and
consumer households) since
1982.
Eric Stattin Trustee Litigation
2587 Fairway Village Consultant/Expert Witness
Drive and private investor since
Park City, UT 84060 1988.
James L. Pappas Trustee Lykes Professor of Banking
University of South and Finance since 1986 at
Florida University of South
College of Business Florida; Dean of College of
Administration Business Administration,
Tampa, FL 33620 1987 to 1996.
- 22 -
<PAGE>
Stephen G. Hill President Chief Executive Officer and
880 Carillon Parkway President of the Manager
St. Petersburg, FL since 1989 and Director
33716 since 1994; Director of
Eagle since 1995.
Donald H. Glassman Treasurer Treasurer of the Manager
880 Carillon Parkway since 1989; Treasurer of
St. Petersburg, FL Heritage Mutual Funds since
33716 1989.
Clifford J. Alexander Secretary Partner, Kirkpatrick &
1800 Massachusetts Lockhart LLP (law firm).
Ave., N.W.
Washington, DC 20036
Patricia Schneider Assistant Compliance Administrator of
880 Carillon Parkway Secretary the Manager.
St. Petersburg, FL
33716
Robert J. Zutz Assistant Partner, Kirkpatrick &
1800 Massachusetts Secretary Lockhart LLP (law firm).
Ave., N.W.
Washington, DC 20036
* These Trustees are "interested persons" as defined in section
2(a)(19) of the 1940 Act.
The Trustees and officers of the Trust, as a group, own less than 1% of
the Trust's shares outstanding. The Trust's Declaration of Trust provides that
the Trustees will not be liable for errors of judgment or mistakes of fact or
law. However, they are not protected against any liability to which they would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
office.
The Trust currently pays Trustees who are not "interested persons" of
the Trust $727 annually and $182 per meeting of the Board of Trustees. Trustees
also are reimbursed for any expenses incurred in attending meetings. Because the
Manager performs substantially all of the services necessary for the operation
of the Trust, the Trust requires no employees. No officer, director or employee
of the Manager receives any compensation from the Trust for acting as a director
or officer.
- 23 -
<PAGE>
The following table shows the compensation earned by each Trustee for the fiscal
year ended August 31, 1996.
<TABLE>
<CAPTION>
COMPENSATION TABLE
TOTAL
COMPENSATION
PENSION OR FROM THE TRUST
AGGREGATE RETIREMENT AND THE HERITAGE
COMPENSATION BENEFITS ACCRUED ESTIMATED FAMILY OF FUNDS
NAME OF PERSON, FROM THE AS PART OF THE ANNUAL BENEFITS PAID
POSITION TRUST TRUST'S EXPENSES UPON RETIREMENT TO TRUSTEES
-------- ------------ ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Donald W. Burton, $1,454 $0 $0 $17,000
Trustee
C. Andrew Graham, $1,454 $0 $0 $17,000
Trustee
David M. Phillips, $1,272 $0 $0 $15,000
Trustee
Eric Stattin, $1,454 $0 $0 $17,000
Trustee
James L. Pappas, $1,454 $0 $0 $17,000
Trustee
Richard K. Riess, $0 $0 $0 $0
Trustee
Thomas A. James, $0 $0 $0 $0
Trustee
</TABLE>
FIVE PERCENT SHAREHOLDERS
-------------------------
As of November 30, 1996, the following shareholders owned of record
five percent or more of the Trust's C shares outstanding:
LEC Investments Inc.................................................... 6.61%
333 E. Main Street
Uvalde, TX 78801
William J. Gamble...................................................... 7.89%
2102 Canter Court
Sarasota, FL 34232
INDUSTRICORP & Co...................................................... 14.28%
Custodian - B & E Advisers
312 Central Avenue
Suite 508
Minneapolis, MN 55414
- 24 -
<PAGE>
INVESTMENT ADVISER AND ADMINISTRATOR; SUBADVISERS
-------------------------------------------------
The Trust's investment adviser and administrator, Heritage Asset
Management, Inc., was organized as a Florida corporation in 1985. All the
capital stock of the Manager is owned by RJF. RJF is a holding company that,
through its subsidiaries, is engaged primarily in providing customers with a
wide variety of financial services in connection with securities, limited
partnerships, options, investment banking and related fields.
Under an Investment Advisory and Administration Agreement ("Advisory
Agreement") dated November 13, 1985, as amended November 19, 1996, between the
Trust and the Manager and subject to the control and direction of the Board of
Trustees, the Manager is responsible for reviewing and establishing investment
policies for the Trust as well as administering the Trust's noninvestment
affairs. Under separate Subadvisory Agreements, Eagle and Liberty, subject to
direction by the Manager and Board of Trustees, may provide investment advice
and portfolio management services to the Trust for a fee payable by the Manager.
The Manager has chosen not to allocate assets to Eagle at this time.
On or about January 2, 1997, Liberty sold certain assets to and the
Trust's portfolio manager, Herbert E. Ehlers, and other key employees entered
into employment agreements with Goldman, Sachs & Co. ("Goldman Sachs"). In order
to retain Mr. Ehlers' services, at its November 18, 1996 meeting, the Board of
Trustees approved the appointment of Liberty Investment Management, a division
of Goldman Sachs Asset Management ("GSAM"), an operating division of Goldman
Sachs, as a subadviser to the Trust. This appointment is subject to shareholder
approval at a special shareholder meeting to be held on February 28, 1997, or
any adjournment(s) thereof.
If approved by shareholders, GSAM would provide investment advice and
portfolio management services with respect to Trust assets allocated to it by
the Manager. GSAM intends to follow substantially the same investment approach
employed by Liberty.
The Manager also is obligated to furnish the Trust with office space,
administrative, and certain other services as well as executive and other
personnel necessary for the operation of the Trust. The Manager and its
affiliates also pay all the compensation of Trustees of the Trust who are
employees of the Manager and its affiliates. The Trust pays all its other
expenses that are not assumed by the Manager. The Trust also is liable for such
nonrecurring expenses as may arise, including litigation to which the Trust may
be a party. The Trust also may have an obligation to indemnify its Trustees and
officers with respect to any such litigation.
- 25 -
<PAGE>
The Advisory Agreement and the Subadvisory Agreements each were
approved by the Board of Trustees of the Trust (including all of the Trustees
who are not "interested persons" of the Manager or Subadvisers, as defined under
the 1940 Act) and by the shareholders of the Trust in compliance with the 1940
Act. Each Agreement will continue in force for a period of two years unless its
continuance is approved at least annually thereafter by (1) a vote, cast in
person at a meeting called for that purpose, of a majority of those Trustees who
are not "interested persons" of the Manager, Subadvisers or the Trust, and by
(2) the majority vote of either the full Board of Trustees or the vote of a
majority of the outstanding shares of the Trust. The Advisory and Subadvisory
Agreements each automatically terminates on assignment, and each is terminable
on not more than 60 days' written notice by the Trust to either party. In
addition, the Advisory Agreement may be terminated on not less than 60 days'
written notice by the Manager to the Trust and the Subadvisory Agreement may be
terminated on not less than 60 days' written notice by the Manager or 90 days'
written notice by the Subadvisers. Under the terms of the Advisory Agreement,
the Manager automatically becomes responsible for the obligations of the
Subadvisers upon termination of the Subadvisory Agreement. In the event the
Manager ceases to be the manager of the Trust or the Distributor ceases to be
principal distributor of Trust shares, the right of the Trust to use the
identifying name of "Heritage" may be withdrawn.
The Manager and the Subadvisers shall not be liable to the Trust or any
shareholder for anything done or omitted by them, except acts or omissions
involving willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties imposed upon them by their agreements with the Trust or for any
losses that may be sustained in the purchase, holding or sale of any security.
All of the officers of the Trust except for Messrs. Alexander and Zutz
are officers or directors of the Manager. These relation- ships are described
under "Management of the Trust."
ADVISORY AND ADMINISTRATION FEE. The annual investment advisory fee
paid monthly by the Trust to the Manager is based on the Trust's average daily
net assets as listed in the prospectus.
The Manager has voluntarily agreed to waive management fees to the
extent that total annual operating expenses attributable to A shares exceed
1.60% of the average daily net assets or to the extent that total annual
operating expenses attributable to C shares exceed 2.35%. To the extent that the
Manager waives its fees for one class, it will waive its fees for the other
class on a proportionate basis. The Manager has entered into agreements with the
Subadvisers to provide investment advice and portfolio management services to
the Trust for an annual fee paid by the Manager to Liberty of .25% of the
Trust's average daily net assets and for an annual fee paid by the Manager to
Eagle equal to 50% of the fees payable to the Manager by the Trust, without
regard to any reduction in fees actually paid to the Manager as a result of
- 26 -
<PAGE>
expense limitations. For the three fiscal years ended August 31, 1994, 1995 and
1996, the Manager earned $748,946, $711,510 and $736,180 (of which $187,791,
$177,878 and $184,045 was waived), respectively, and paid the Subadvisers
$280,978, $221,041 and $184,045, respectively.
CLASS-SPECIFIC EXPENSES. The Trust may determine to allocate certain of
its expenses (in addition to distribution fees) to the specific classes of the
Trust's shares to which those expenses are attributable.
BROKERAGE PRACTICES
-------------------
While the Trust generally purchases securities for long-term capital
gains, it may engage in short-term transactions under various market conditions
to a greater extent than certain other mutual funds with similar investment
objectives. Thus, the turnover rate may vary greatly from year to year or during
periods within a year. The portfolio turnover rate is computed by dividing the
lesser of purchases or sales of securities for the period by the average value
of portfolio securities for that period. The Trust's annualized portfolio
turnover rate was 66% and 54% for the fiscal years ended August 31, 1995 and
1996, respectively.
The Subadvisers are responsible for the execution of the Trust's
portfolio transactions and must seek the most favorable price and execution for
such transactions. Best execution, however, does not mean that the Trust
necessarily will be paying the lowest commission or spread available. Rather,
the Trust also will take into account such factors as size of the order,
difficulty of execution, efficiency of the executing broker's facilities, and
any risk assumed by the executing broker.
It is a common practice in the investment advisory business for
advisers of investment companies and other institutional investors to receive
research, statistical and quotation services from broker-dealers who execute
portfolio transactions for the clients of such advisers. Consistent with the
policy of most favorable price and execution, the Subadvisers may give
consideration to research, statistical and other services furnished by brokers
or dealers. In addition, the Subadvisers may place orders with brokers who
provide supplemental investment and market research and securities and economic
analysis and may pay to these brokers a higher brokerage commission or spread
than may be charged by other brokers, provided that the Subadvisers determine in
good faith that such commission is reasonable in relation to the value of
brokerage and research services provided. Such research and analysis may be
useful to the Subadvisers in connection with services to clients other than the
Trust.
The Trust may use the Trust's Distributor as broker for agency
transactions in listed and over-the-counter securities at commission rates and
- 27 -
<PAGE>
under circumstances consistent with the policy of best execution. Commissions
paid to the Distributor will not exceed "usual and customary brokerage
commissions." Rule 17e-1 under the 1940 Act defines "usual and customary"
commissions to include amounts that are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time."
The Subadvisers also may select other brokers to execute portfolio
transactions. In the over-the-counter market, the Trust generally deals with
primary market-makers unless a more favorable execution can otherwise be
obtained.
Aggregate brokerage commissions paid by the Trust for the three fiscal
years ended August 31, 1994, 1995 and 1996 amounted to $108,520, $125,563 and
$108,010, respectively. Those commissions were paid on brokerage transactions
worth $69,736,476, $84,219,558 and $80,918,168, respectively. Aggregate
brokerage commissions paid by the Trust to the Distributor, an affiliated
broker-dealer, amounted to $0, $3,090 and $0, respectively, for the fiscal years
ended August 31, 1994, 1995 and 1996 or 0%, 2.5% and 0%, respectively, of the
aggregate commissions paid. These commissions were paid on aggregate brokerage
transactions of $0 (or 0%), $1,911,784 (or 2.3%) and $0 (or 0%), respectively,
of the total aggregate brokerage transactions.
The Trust may not buy securities from, or sell securities to, the
Distributor as principal. However, the Board of Trustees has adopted procedures
in conformity with Rule 10f-3 under the 1940 Act whereby the Trust may purchase
securities that are offered in underwritings in which the Distributor is a
participant. The Board of Trustees will consider the possibilities of seeking to
recapture for the benefit of the Trust expenses of certain portfolio
transactions, such as underwriting commissions and tender offer solicitation
fees, by conducting such portfolio transactions through affiliated entities,
including the Distributor, but only to the extent such recapture would be
permissible under applicable regulations, including the rules of the National
Association of Securities Dealers, Inc. and other self-regulatory organizations.
Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as
amended, the Trust expressly consented to the Distributor executing transactions
on an exchange on the Trust's behalf.
DISTRIBUTION OF SHARES
----------------------
The Distributor and Representatives with whom the Distributor has
entered into dealer agreements offer shares of the Trust as agents on a best
efforts basis and are not obligated to sell any specific amount of shares.
- 28 -
<PAGE>
Pursuant to its Distribution Agreement with the Trust with respect to A shares
and C shares, the Distributor bears the cost of making information about the
Trust available through advertising, sales literature and other means, the cost
of printing and mailing prospectuses to persons other than shareholders, and
salaries and other expenses relating to selling efforts. The Distributor also
pays service fees to dealers for providing personal services to Class A and C
shareholders and for maintaining shareholder accounts. The Trust pays the cost
of registering and qualifying its shares under state and federal securities laws
and typesetting of its prospectuses and printing and distributing prospectuses
to existing shareholders.
As compensation for the services provided and expenses borne by the
Distributor pursuant to the Distribution Agreement with respect to A shares, the
Trust pays the Distributor the sales load described in the prospectus and a
12b-1 fee in accordance with the Class A Plan described below. The distribution
fee is accrued daily and paid monthly, and the Trust may pay an amount up to
.50% of the average daily net assets attributable to A shares. The Trust
currently pays the Distributor a fee of up to 0.25% on A shares purchased after
April 3, 1995. For the fiscal year ended August 31, 1996, these fees amounted to
$344,067, all of which was paid to the Distributor.
As compensation for the services provided and expenses borne by the
Distributor pursuant to the Distribution Agreement with respect to C shares, the
Trust pays the Distributor a 12b-1 fee in accordance with the Class C Plan
described below. The fee is accrued daily and paid monthly, and currently is
equal on an annual basis of an amount up to .75% of average daily net assets.
The service fee is accrued daily and paid monthly, and currently is equal on an
annual basis of an amount up to .25% of average daily net assets. For the fiscal
year ended August 31, 1996, these fees amount to $10,838, all of which was paid
to the Distributor.
In reporting amounts expended under the Plans to the Board of Trustees,
the Distributor will allocate expenses attributable to the sale of A shares and
C shares to the applicable class based on the ratio of sales of shares of that
class to the sales of all Trust shares. The fees paid by one class of shares
will not be used to subsidize the sale of any other class of shares.
The Trust has adopted a Class A Distribution Plan (the "Class A Plan")
which, among other things, permits it to pay the Distributor the above-described
fee out of its net assets to finance activity that is intended to result in the
sale and retention of A shares. As required by Rule 12b-1 under the 1940 act,
the Class A Plan was approved by the shareholders of the Trust and the Board of
Trustees, including a majority of the Trustees who are not interested persons of
the Trust (as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Plan or the Distribution Agreement
(the
- 29 -
<PAGE>
"Independent Trustees") after determining that there is a reasonable likelihood
that the Trust and its Class A shareholders will benefit from the Class A Plan.
The Trust also has adopted a Class C Distribution Plan (the "Class C
Plan") which, among other things, permits it to pay the Distributor the
above-described fee out of its net assets to finance activity that is intended
to result in the sale and retention of C shares. The Class C Plan was approved
by the Board of Trustees, including a majority of the Independent Trustees after
determining that there is a reasonable likelihood that the Trust and its Class C
shareholders will benefit from the Class C Plan.
The Class A Plan and the Class C Plan each may be terminated by vote of
a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the Trust. The Board of Trustees review
quarterly a written report of Plan costs and the purposes for which such costs
have been incurred. A Plan may be amended by vote of the Board of Trustees,
including a majority of the Independent Trustees cast in person at a meeting
called for such purpose. Any change in a Plan that would materially increase the
distribution cost to a class requires the approval of that class of
shareholders.
The Distribution Agreement may be terminated at any time on 60 days'
written notice without payment of any penalty by either party. The Trust may
effect such termination by vote of a majority of the outstanding voting
securities of the Trust or by vote of a majority of the Independent Trustees.
For so long as either the Class A Plan or the Class C Plan is in effect,
selection and nomination of the Independent Trustees shall be committed to the
discretion of such disinterested persons.
The Distribution Agreement and each of the above-referenced Plans will
continue in effect for successive one-year periods, provided that each such
continuance is specifically approved (1) by the vote of a majority of the
Independent Trustees and (2) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.
For the fiscal years ended August 31, 1994, 1995 and 1996, the
Distributor received $157,275, $82,837 and $51,387, respectively, as
compensation for the sale of A shares, of which it retained $27,316, $11,855 and
$5,781, respectively.
- 30 -
<PAGE>
ADMINISTRATION OF THE TRUST
---------------------------
ADMINISTRATIVE, FUND ACCOUNTING AND TRANSFER AGENT SERVICES.
------------------------------------------------------------
The Manager, subject to the control of the Board of Trustees, will
manage, supervise and conduct the administrative and business affairs of the
Trust; furnish office space and equipment; oversee the activities of the
Subadvisers and Custodian; and pay all salaries, fees and expenses of officers
and Trustees of the Trust who are affiliated with the Manager. The Manager also
will provide certain shareholder servicing activities for customers of the
Trust.
The Manager also is the fund accountant and transfer and dividend
disbursing agent for the Trust. The Trust pays the Manager the Manager's cost
plus ten percent for its services as fund accountant and transfer and dividend
disbursing agent. For the three fiscal years ended August 31, 1994, 1995 and
1996, the Manager earned $57,272, $59,519 and $45,516, respectively, from the
Trust for its services as transfer agent. For the period March 1, 1994
(commencement of Manager's engagement as fund accountant) to August 31, 1994 and
the fiscal years ended August 31, 1995 and 1996, the Manager earned $13,511,
$32,742 and $36,261, respectively, from the Trust for its services as fund
accountant.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 1912, Boston,
Massachusetts 02105, serves as custodian of the Trust's assets and provides
portfolio accounting and certain other services.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP of 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036, serves as counsel to the Trust.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 400 North Ashley Street,
Suite 2800, Tampa, Florida 33602, are the independent public accountants for the
Trust. The Financial Statements and Financial Highlights of the Trust for the
fiscal year ended August 31, 1996 that appear in this SAI have been audited by
Price Waterhouse LLP, and are included herein in reliance upon the report of
said firm of accountants, which is given upon their authority as experts in
accounting and auditing. The Financial Highlights for the fiscal years ended
prior thereto and the Statement of Changes in Net Assets for the year ended
August 31, 1995 audited by other independent public accountants.
POTENTIAL LIABILITY
-------------------
Under certain circumstances, shareholders may be held personally liable
as partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
- 31 -
<PAGE>
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation or instrument the Trust or its Trustees enter into or
sign. In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them.
- 32 -
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
- ------------------------
The rating services' descriptions of commercial paper ratings in which the Trust
may invest are:
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER
- ---------------------------------------------------------------
RATINGS
- -------
PRIME-1. Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; well
established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2. Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
- ---------------------------------------------------------
A-1. This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess extremely strong
characteristics are denoted with a plus sign (+) designation.
A-2. Capacity for timely payment of issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-1
<PAGE>
The Report of Independent Accountants and Financial Statements are
incorporated herein by reference from the Trust's Annual Report to Shareholders
for the fiscal year ended August 31, 1996, filed with the Securities and
Exchange Commission on October 29, 1996, Accession No. 0000950144-96-007378.
A-2
