<PAGE> 1
CAPITAL
APPRECIATION [BAR LOGO]
TRUST
[Pictures of People Working & Playing]
From Our Family to Yours: The Intelligent Creation of Wealth.
ANNUAL REPORT
and Investment Performance
Review for the Year Ended
August 31, 1997
[HERITAGE LOGO]
<PAGE> 2
October 13, 1997
Dear Fellow Shareholders:
I am pleased to provide you with the annual report for Heritage Capital
Appreciation Trust (the "Fund") for the fiscal year ended August 31, 1997. For
this period, your Fund's Class A and Class C shares delivered total returns of
+33.61% and +32.91%, respectively. These returns are calculated without the
imposition of either front or back-end sales charges.
As we reported previously, in February 1997, shareholders of your Fund
approved the proposal by your Fund's Board of Trustees to retain the Liberty
Investment Management division of Goldman Sachs Asset Management as your Fund's
investment subadviser. This action allowed Herb Ehlers to continue as your
Fund's portfolio manager, a position he has held since your Fund's inception in
1985. In the letter that follows, Mr. Ehlers discusses the recent performance of
the stock market and of your Fund in particular. He also places the recent
outstanding stock market returns in some historical perspective, supporting our
optimistic long-term view for the market while suggesting caution may be called
for in the short term. I hope you find his comments informative as to how your
investment portfolio is managed.
On behalf of all of us at Heritage Asset Management, thank you for your
continuing investment in Heritage Capital Appreciation Trust. If there are ever
ways in which you believe we could better serve you, please call us at
800-709-3863.
Sincerely,
/s/ Stephen G. Hill
Stephen G. Hill
President
<PAGE> 3
September 24, 1997
Dear Fellow Shareholders:
In the fiscal year ended August 31, 1997, Heritage Capital Appreciation
Trust ("HCAT") realized a performance gain of 33.61%* for Class A Shares and
32.91%* for Class C Shares. During the same period the S&P 500 Index returned
40.65%, while the S&P 400 Mid-Cap Index gained 37.28%.
We first made note of the S&P 400 in our most recent six-month letter to
shareholders, stating that the companies in that index had an average market
capitalization that was somewhat closer to that of HCAT's portfolio than the
companies that comprise the S&P 500. The effect of this difference became
evident in the last six months, when the price performance of the smaller and
mid-cap companies finally began to gain ground on the S&P 500 after a long
period of underperformance. Similarly, HCAT, which had underperformed the S&P
500 but outperformed the S&P 400 in its fiscal first half, had the opposite
result in the latest six months, as it outperformed the S&P 500 while
underperforming the S&P 400. While we would like to outperform every index in
every period, we are pleased that HCAT is positioned so that it is not unduly
impacted by a shift in market sentiment such as we may now be seeing.
While we are on the subject of performance, we should not lose sight of the
fact that, whether it's 33%, 37% or 40%, in absolute terms these numbers
represent outstanding performance, continue a seven-year string of gains (1990
was the last "down" year) averaging well over 17% annually, and will undoubtedly
return to a more modest rate at some point in the future.
Some observers are concerned that the market may be overvalued based on
several traditional historical measures, including what appears to be a
"disconnect" between stock prices and interest rates. There has been a strong
correlation over many years between stock prices and bond yields, which
generally move in the same direction over any measurable period. However,
interest rates bottomed out (at about 5.80% on the 30-year Treasury) four years
ago in October 1993, and recently, even after a strong rally, were at a 6.40%
yield, or 60 basis points worse than their most favorable reading. During this
same period the stock market is not only up, but has more than doubled.
Therefore, using this measure, it might be concluded that a bit of caution is
called for.
However, taking a longer-term view, one can argue that stock prices are
right where they should be. Over the past 40 years, the compound average annual
earnings growth rate of the Dow Jones Industrial Average ("DJIA") has been 7%.
Remember that when 7% compounds over ten years it leads to a doubling in value.
In 1956, the DJIA first reached 500, and by 1966 it had doubled to about 1000.
So far, so good. Now, on this basis it should have reached 2000 in 1976, 4000 in
1986 and 8000 by 1996. This progression was derailed in the 1970s and early
1980s by high inflation, so that the 2000 mark was not reached until 1987.
Therefore, from this viewpoint the last few years have been purely a game of
catch-up, and the market, at about 8000 on the DJIA, is priced just right.
What's in the future? Well, while we would not be so presumptuous as to bring up
the possibility of 16,000 in 2006, it does have a nice ring to it, doesn't it?
Now, what helped and what hurt during the past year? As might be expected
in a period when stock prices rose so dramatically, very few portfolio holdings
actually declined in price (of the 33 companies that were held throughout the
entire year, 29 were up and only 4 were down). However, (also as might be
expected), there was a wide disparity in the performance of individual issues.
Thirteen of the 33 outperformed the S&P 500, ranging from AES Corporation
((LOGO)+108%), Valassis Communications, Inc. ((LOGO)+99%) and MBNA Corporation
((LOGO)+90%) to perennial favorite Fannie Mae ((LOGO)+42%). Interestingly, five
of the thirteen were repeats from 1996 -- AES, MBNA Corporation, AMBAC Financial
Group, Inc., Fannie Mae and Freddie Mac. Outperforming groups included
Financials (4 names), Newspaper-related (3), Pharmaceuticals (2) and -- believe
it or not for those who have been with us
awhile -- Telecommunications/Entertainment (Time Warner, Inc. and Liberty Media
Group).
The laggards -- given the strong over-all performance, we figure anything
with less than a double-digit return should be included -- were a somewhat
diverse group, but still had a heavy representation in Communications (Comcast
UK, Telephone & Data Systems, Inc., Reuters Holdings PLC). Two of the three have
already recovered nicely since fiscal year-end, and we continue to like their
prospects. The only other
2
<PAGE> 4
name that we would drag into the spotlight is Circus Circus Enterprises, Inc.,
which was the single worst performer and, unfortunately, made the laggards list
for the second year in a row. Although the fundamental turnaround that we have
been expecting has been repeatedly delayed, we believe we are finally seeing the
light at the end of that particular tunnel.
New names added to the portfolio recently include H&R Block, Corning,
Johnson & Johnson, Nationwide Financial Services, Ralston-Purina and SunAmerica.
We expect them to fully participate in the strong performance we hope to
generate for fellow shareholders in the coming years.
As always, we appreciate your confidence in the Liberty/Goldman Sachs team,
and we will continue to work diligently to produce excellent long-term results
for you.
Sincerely,
/S/ HERBERT E. EHLERS
Herbert E. Ehlers
Managing Director
Goldman Sachs & Co.
Chief Investment Officer
Liberty Investment Management
a division of Goldman Sachs Asset
Management
* These returns are calculated without the imposition of either front- or
back-end sales charges.
3
<PAGE> 5
GROWTH OF A $10,000 INVESTMENT
SINCE SEPTEMBER 1, 1987 OF HERITAGE CAPITAL APPRECIATION TRUST
CLASS A SHARES
The graph contained in the annual report compares the performance of the
Heritage Capital Appreciation Trust Class A share with the S&P and Value Line
index for the ten year period ended August 31, 1997.
GROWTH OF A $10,000 INVESTMENT
SINCE INCEPTION OF HERITAGE CAPITAL APPRECIATION TRUST
CLASS C SHARES
ON APRIL 3, 1995
The second graph contained in the annual report compares the performance of the
Heritage Capital Appreciation Trust Class C share with the S&P and Value Line
index from inception (April 3, 1995) through August 31, 1997.
The Value Line Index does not include reinvestment of dividends.
* Average annual returns for Heritage Capital Appreciation Trust Class A and
C Shares are calculated in conformance with item 22 of Form N-1A, which
assumes the maximum sales load of 4.75% for Class A Shares and reinvestment
of dividends for Class A and C Shares. Performance presented represents
historical data. The investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost. The Fund's results assume the reinvestment
of all capital gain distributions and income dividends. The Fund's past
performance is not indicative of future performance and should be considered
in light of the Fund's investment policy and objectives, the characteristics
and quality of its portfolio securities, and the periods selected.
4
<PAGE> 6
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
AUGUST 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCK--97.4%(A)
- -----------------------
BANKING--3.3%
-------------
72,000 MBNA Corporation............................................ $ 2,767,500
-----------
BROADCASTING--8.8%
------------------
41,600 Comcast UK Cable Partners, Class "A"*....................... 426,400
55,700 Jacor Communications, Inc.*................................. 2,450,800
97,500 Liberty Media Group, Class "A"*............................. 2,571,563
110,000 Tele-Communications, Inc., Class "A"*....................... 1,925,000
-----------
7,373,763
-----------
CONGLOMERATES/DIVERSIFIED--1.7%
----------------------------
14,700 Corning, Inc................................................ 777,262
7,200 Ralston-Purina Group........................................ 648,000
-----------
1,425,262
-----------
COSMETICS/TOILETRIES--6.4%
-----------------------
36,000 Avon Products, Inc. ........................................ 2,306,250
37,000 Gillette Company............................................ 3,064,063
-----------
5,370,313
-----------
FILMED ENTERTAINMENT--3.1%
------------------------
50,300 Time Warner, Inc. .......................................... 2,590,450
-----------
FINANCE--8.9%
------------
21,700 AMBAC Financial Group, Inc. ................................ 1,753,631
60,000 Fannie Mae.................................................. 2,640,000
96,000 Freddie Mac................................................. 3,126,000
-----------
7,519,631
-----------
FOOD--3.0%
----------
15,000 Nabisco Holdings Corporation, Class "A"..................... 622,500
26,400 Wm. Wrigley Jr. Company..................................... 1,914,000
-----------
2,536,500
-----------
GLASS/PRODUCTS--3.0%
-------------------
65,000 Libbey, Inc. ............................................... 2,494,375
-----------
HOTELS/MOTELS/INNS--4.4%
-----------------------
55,700 Marriott International, Inc. ............................... 3,707,531
-----------
INSURANCE--2.5%
-------------
59,900 Nationwide Financial Services, Inc.......................... 1,662,225
8,600 SunAmerica, Inc............................................. 463,325
-----------
2,125,550
-----------
LAND DEVELOPMENT/REAL ESTATE--0.9%
---------------------------------
25,000 The Rouse Company*.......................................... 734,375
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
AUGUST 31, 1997
(CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----------
<C> <S> <C>
LEISURE/AMUSEMENT--3.1%
-----------------------
18,600 Circus Circus Enterprises, Inc.*............................ $ 445,237
40,500 Hasbro, Inc................................................. 1,088,438
14,000 The Walt Disney Company..................................... 1,075,375
-----------
2,609,050
-----------
MEDICAL EQUIPMENT/SUPPLY--0.8%
-----------------------------
11,700 Johnson & Johnson........................................... 663,244
-----------
PHARMACEUTICAL--9.7%
-------------------
30,600 Bristol-Myers Squibb Company................................ 2,325,600
60,600 Pfizer, Inc................................................. 3,355,725
52,000 Schering-Plough Corporation................................. 2,496,000
-----------
8,177,325
-----------
POLLUTION CONTROL--1.0%
---------------------
51,800 Wheelabrator Technologies, Inc. ............................ 812,612
-----------
PUBLISHING--13.5%
---------------
25,800 A.H. Belo Corporation, Class "A"............................ 1,106,175
16,000 Gannett Company............................................. 1,559,000
57,100 New York Times Company, Class "A"........................... 2,697,975
21,800 Reuters Holdings PLC, ADR................................... 1,327,075
52,000 Tribune Company............................................. 2,570,750
69,700 Valassis Communications, Inc.*.............................. 2,117,138
-----------
11,378,113
-----------
REAL ESTATE INVESTMENT TRUST--1.2%
-------------------------------
45,000 Manufactured Home Communities, Inc.......................... 1,054,687
-----------
RETAIL STORES--5.5%
-----------------
25,221 CVS Corporation............................................. 1,421,834
8,000 Rite Aid Corporation........................................ 400,500
22,400 Tandy Corporation........................................... 1,486,800
50,000 Walgreen Company............................................ 1,346,875
-----------
4,656,009
-----------
SERVICES--8.3%
------------
56,208 First Data Corporation...................................... 2,308,041
34,600 Galileo International, Inc.*................................ 914,738
9,000 H&R Block, Inc.............................................. 353,250
30,300 SABRE Group Holdings, Inc.*................................. 931,725
77,000 Service Corporation International........................... 2,464,000
-----------
6,971,754
-----------
TELECOMMUNICATIONS--4.1%
-----------------------
43,900 Airtouch Communications, Inc.*.............................. 1,484,369
50,000 Telephone & Data Systems, Inc............................... 1,975,000
-----------
3,459,369
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 8
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
AUGUST 31, 1997
(CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----------
<C> <S> <C>
TOBACCO--1.0%
-------------
19,300 Philip Morris Companies, Inc................................ $ 841,962
-----------
UTILITIES--DIVERSIFIED--3.2%
----------------------
71,800 AES Corporation*............................................ 2,656,600
-----------
Total Common Stock (cost $52,913,350)..................................... 81,925,975
-----------
REPURCHASE AGREEMENT--2.7%(A)
- ----------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated
August 29, 1997 @ 5.5% to be repurchased at $2,261,381 on September 2,
1997, collateralized by $2,300,000 United States Treasury Notes, 4.75% due
October 31, 1998 (market value $2,308,719 including interest) (cost
$2,260,000)............................................................... 2,260,000
-----------
TOTAL INVESTMENT PORTFOLIO (cost $55,173,350)(b), 100.1%(a)............... 84,185,975
OTHER ASSETS AND LIABILITIES, NET, (0.1%)(a).............................. (120,432)
-----------
NET ASSETS, 100.0%........................................................ $84,065,543
===========
</TABLE>
- ------------------
* Non-income producing security.
(a) Percentages indicated are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is
substantially the same. Market value includes net unrealized appreciation of
$29,012,625 which consists of aggregate gross unrealized appreciation for
all securities in which there is an excess of market value over tax cost of
$29,551,006 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value of $538,381.
ADR--American Depository Receipt
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 9
HERITAGE CAPITAL APPRECIATION TRUST
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1997
<TABLE>
<S> <C> <C>
Assets
- ------
Investments, at market value (identified cost $55,173,350)
(Note 1).................................................. $84,185,975
Cash........................................................ 391
Receivables:
Fund shares sold.......................................... 6,088
Dividends and interest.................................... 79,077
Deferred state registration expenses (Note 1)............... 7,614
Prepaid insurance........................................... 3,361
-----------
Total assets........................................ 84,282,506
Liabilities
- -----------
Payables (Note 4):
Fund shares redeemed...................................... $ 67,811
Accrued management fee.................................... 54,825
Accrued distribution fee.................................. 32,743
Other accrued expenses.................................... 61,584
--------
Total liabilities................................... 216,963
-----------
Net assets, at market value................................. $84,065,543
===========
Net Assets
- ----------
Net assets consist of:
Paid-in capital........................................... $46,983,856
Accumulated net realized gain............................. 8,069,062
Net unrealized appreciation on investments................ 29,012,625
-----------
Net assets, at market value................................. $84,065,543
===========
Class A Shares
- --------------
Net asset value and redemption price per share ($81,531,407
divided by 4,383,880 shares of beneficial interest
outstanding, no par value) (Notes 1 and 2)................ $18.60
===========
Maximum offering price per share (100/95.25 of $18.60)...... $19.53
===========
Class C Shares
- --------------
Net asset value, offering price and redemption price per
share ($2,534,136 divided by 138,146 shares of beneficial
interest outstanding, no par value) (Notes 1 and 2)....... $18.34
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 10
HERITAGE CAPITAL APPRECIATION TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1997
<TABLE>
<S> <C> <C>
Investment Income
- -----------------
Income:
Dividends................................................. $ 841,281
Interest.................................................. 63,972
-----------
Total income........................................ 905,253
Expenses (Notes 1 and 4):
Management fee............................................ $ 585,991
Distribution fee (Class A Shares)......................... 335,468
Distribution fee (Class C Shares)......................... 19,834
Professional fees......................................... 66,366
Custodian/Fund accounting fees............................ 54,941
Shareholder servicing..................................... 42,478
State registration expenses............................... 27,453
Reports to shareholders................................... 20,529
Trustees' fees and expenses............................... 7,678
Insurance expense......................................... 6,433
Other..................................................... 1,786
----------
Total expenses...................................... 1,168,957
-----------
Net investment loss......................................... (263,704)
-----------
Realized and Unrealized Gain on Investments
- -------------------------------------------
Net realized gain from investment transactions.............. 9,949,832
Net increase in unrealized appreciation of investments
during the year........................................... 12,814,463
-----------
Net gain on investments............................. 22,764,295
-----------
Net increase in net assets resulting from operations........ $22,500,591
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------
AUGUST 31, 1997 AUGUST 31, 1996
--------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment loss....................................... $ (263,704) $ (23,666)
Net realized gain from investment transactions............ 9,949,832 8,666,732
Net increase in unrealized appreciation of investments
during the year......................................... 12,814,463 263,257
----------- -----------
Net increase in net assets resulting from operations...... 22,500,591 8,906,323
Distributions to shareholders from:
Net investment income, Class A Shares, ($.04 per share)... -- (201,178)
Net investment income, Class C Shares, ($.04 per share)... -- (2,132)
Net realized gains, Class A Shares, ($1.77 and $1.72 per
share, respectively).................................... (7,685,740) (7,749,647)
Net realized gains, Class C Shares ($1.77 and $1.72 per
share, respectively).................................... (163,771) (91,089)
Decrease in net assets from Fund share transactions (Note
2)........................................................ (1,697,370) (3,030,768)
----------- -----------
Increase (decrease) in net assets........................... 12,953,710 (2,168,491)
Net assets, beginning of year............................... 71,111,833 73,280,324
----------- -----------
Net assets, end of year..................................... $84,065,543 $71,111,833
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 11
HERITAGE CAPITAL APPRECIATION TRUST
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS C SHARES
-------------------------------------------- --------------------------
FOR THE YEARS ENDED FOR THE YEARS ENDED
AUGUST 31, AUGUST 31,
-------------------------------------------- --------------------------
1997 1996 1995 1994 1993 1997 1996 1995+
------- ------- ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 15.58 $ 15.53 $15.30 $15.62 $13.64 $ 15.46 $ 15.50 $14.18
------- ------- ------ ------ ------ ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(a).................. (0.06) 0.00(e) 0.08 0.02 0.03 (0.13) (0.03)(e) (0.01)
Net realized and unrealized gain on investments.. 4.85 1.81 1.37 1.05 3.29 4.78 1.75 1.33
------- ------- ------ ------ ------ ------- ------- ------
Total from Investment
Operations..................................... 4.79 1.81 1.45 1.07 3.32 4.65 1.72 1.32
------- ------- ------ ------ ------ ------- ------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income............. -- (0.04) (0.06) (0.03) (0.07) -- (0.04) --
Distributions from net realized gains............ (1.77) (1.72) (1.16) (1.36) (1.27) (1.77) (1.72) --
------- ------- ------ ------ ------ ------- ------- ------
Total Distributions.............................. (1.77) (1.76) (1.22) (1.39) (1.34) (1.77) (1.76) --
------- ------- ------ ------ ------ ------- ------- ------
NET ASSET VALUE, END OF PERIOD..................... $ 18.60 $ 15.58 $15.53 $15.30 $15.62 $ 18.34 $ 15.46 $15.50
======= ======= ====== ====== ====== ======= ======= ======
TOTAL RETURN(%)(D)................................. 33.61 12.79 10.85 7.07 25.72 32.91 12.16 9.31(c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily net
assets......................................... 1.48 1.54 1.62 1.55 1.56 2.04 2.05 2.17(b)
Net investment income (loss) to average daily net
assets(a)...................................... (.30) (.02) .49 .15 .24 (.88) (.57) (.33)(b)
Portfolio turnover rate.......................... 42 54 66 65 55 42 54 66
Average commission rate on portfolio transactions
(per share).................................... $0.0600 $0.0600 -- -- -- $0.0600 $0.0600 --
Net assets, end of period ($ millions)........... 81 70 73 74 75 3 1 .4
</TABLE>
- ---------------
+ For the period April 3, 1995 (commencement of Class C Shares) to August 31,
1995.
(a) Excludes management fees waived by the Manager in the amount of less than
$0.04, $0.04, $0.04, $0.04 and $0.03 per Class A Share for the five years
ended August 31, 1996, respectively. The operating expense ratios including
such items would have been 1.79%, 1.87%, 1.81%, 1.81% and 1.84% for Class A
Shares for the five years ended August 31, 1996, respectively. Excludes
management fees waived by the Manager in the amount of less than $0.04 and
$0.04 per Class C Share for the two years ended August 31, 1996,
respectively. The operating expense ratio including such items would have
been 2.30% and 2.42% (annualized) for Class C Shares, respectively.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
(e) Amounts calculated prior to reclassification of $23,981. The effect of such
reclassification would have no effect on net investment income for Class A
Shares and would have resulted in an increase in net investment income of
$0.10 for Class C shares.
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 12
HERITAGE CAPITAL APPRECIATION TRUST
NOTES TO FINANCIAL STATEMENTS
Note 1: SIGNIFICANT ACCOUNTING POLICIES. Heritage Capital Appreciation Trust
(the "Fund") is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund invests
principally in those equity securities that the Fund's portfolio manager
believes are undervalued and therefore offer above-average potential for
long-term appreciation. The Fund currently issues Class A and Class C
Shares. Class A Shares are sold subject to a maximum sales charge of
4.75% of the amount invested payable at the time of purchase. Class C
Shares, which were offered to shareholders beginning April 3, 1995, are
sold subject to a contingent deferred sales charge of 1% of the lower of
net asset value or purchase price payable upon any redemptions within
one year after purchase. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts and disclosures. Actual results could differ from those
estimates. The following is a summary of significant accounting
policies:
Security Valuation: The Fund values investment securities at market
value based on the last quoted sales price as reported by the principal
securities exchange on which the security is traded. If no sale is
reported, market value is based on the most recent quoted bid price and
in the absence of a market quote, securities are valued using such
methods as the Board of Trustees believes would reflect fair market
value. Short term investments having a maturity of 60 days or less are
valued at cost which, when combined with accrued interest included in
interest receivable or discount earned, approximates market.
Repurchase Agreements: The Fund enters into repurchase agreements
whereby the Fund, through its custodian, receives delivery of the
underlying securities, the market value of which at the time of purchase
is required to be an amount equal to at least 100% of the resale price.
Federal Income Taxes: The Fund's policy is to comply with the
requirements of the Internal Revenue Code of 1986, as amended, which are
applicable to regulated investment companies and to distribute
substantially all of its taxable income to its shareholders.
Accordingly, no provision has been made for federal income and excise
taxes.
Distribution of Income and Gains: Distributions of net investment income
are made annually. Net realized gains from investment transactions
during any particular year in excess of available capital loss
carryforwards, which, if not distributed, would be taxable to the Fund,
will be distributed to shareholders in the following fiscal year. The
Fund uses the identified cost method for determining realized gain or
loss on investments for both financial and federal income tax reporting
purposes.
State Registration Expenses: State registration fees are amortized based
either on the time period covered by the registration or as related
shares are sold, whichever is appropriate for each state.
Capital Accounts: The Fund reports the undistributed net investment
income and accumulated net realized gain (loss) accounts on a basis
approximating amounts available for future tax distributions (or to
offset future taxable realized gains when a capital loss carryforward is
available). Accordingly, the Fund may periodically make
reclassifications among certain capital accounts without impacting the
net asset value of the Fund.
Other: Investment security transactions are accounted for on a trade
date plus one basis. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. Expenses of the Fund are allocated to each class of
shares based upon their relative percentage of current net assets of
dividend eligible shares. All expenses that are directly attributable to
a specific class of shares, such as distribution fees, are charged
directly to that class.
Note 2: FUND SHARES. At August 31, 1997, there was an unlimited number of
shares of beneficial interest of no par value authorized.
Transactions in Class A Shares of the Fund during the years ended August
31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------------------------------------------
AUGUST 31, 1997 AUGUST 31, 1996
------------------------- ------------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
-------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Shares sold........................................... 163,088 $ 2,689,715 155,981 $ 2,425,846
Shares issued on reinvestment of distributions........ 504,915 7,508,083 547,280 7,776,848
Shares redeemed....................................... (757,552) (12,591,379) (920,007) (14,196,180)
--------- ------------ --------- -----------
Net decrease.......................................... (89,549) $ (2,393,581) (216,746) $(3,993,486)
============ ===========
Shares outstanding:...................................
Beginning of year................................... 4,473,429 4,690,175
--------- ---------
End of year......................................... 4,383,880 4,473,429
========= =========
</TABLE>
11
<PAGE> 13
HERITAGE CAPITAL APPRECIATION TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Transactions in Class C Shares of the Fund during the years ended August
31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------------------------
AUGUST 31, 1997 AUGUST 31, 1996
--------------------- -------------------
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
-------------- ------- ---------- ------ ---------
<S> <C> <C> <C> <C>
Shares sold.......................................... 78,463 $1,290,856 63,749 $ 978,939
Shares issued on reinvestment of distributions....... 11,126 163,771 6 ,588 93,221
Shares redeemed...................................... (43,249) (758,416) (7,109) (109,442)
------- ---------- ------ ---------
Net increase......................................... 46,340 $ 696,211 63,228 $ 962,718
========== =========
Shares outstanding:
Beginning of year.................................. 91,806 28,578
------- ------
End of year........................................ 138,146 91,806
======= ======
</TABLE>
Note 3: PURCHASES AND SALES OF SECURITIES. For the year ended August 31, 1997,
purchases and sales of investment securities (excluding repurchase
agreements and short-term obligations) aggregated $32,144,824 and
$42,731,271, respectively.
Note 4: MANAGEMENT, SUBADVISORY, DISTRIBUTION, SHAREHOLDER SERVICING AGENT AND
TRUSTEES' FEES. Under the Fund's Investment Advisory and Administration
Agreement with Heritage Asset Management, Inc. (the "Manager"), the Fund
agrees to pay to the Manager a fee equal to an annualized rate of 1.00%
of the first $100,000,000 of the Fund's average daily net assets, and
0.75% of any excess over $100,000,000 of such net assets, computed daily
and payable monthly. Since January 2, 1992, the Manager has voluntarily
agreed to waive 25% of its fee on the first $100 million of average net
assets. Effective November 19, 1996 the Manager contractually agreed to
reduce its fee to 0.75% on all Trust assets. No fees were waived and no
expenses were reimbursed for the year ended August 31, 1997.
At a special meeting of shareholders held on February 28, 1997,
shareholders approved the appointment of Liberty Investment Management,
a division of Goldman Sachs Asset Management ("GSAM-Liberty"), as a
Subadviser to the Trust, replacing Liberty Investment Management
("Liberty"). The Manager entered into an agreement with GSAM-Liberty to
provide to the Fund investment advice, portfolio management services
(including the placement of brokerage orders) and certain compliance and
other services for a fee payable, by the Manager, equal to an annualized
rate of .25% of average daily net assets, computed daily and paid
monthly. For the year ended August 31, 1997 the subadviser earned
$195,330, which was paid by the Manager.
From December 1985 (commencement of operations) through February 26,
1995, Eagle Asset Management, Inc., a wholly owned subsidiary of Raymond
James Financial, Inc., was the sole subadviser to the Fund. Although
Eagle remains a subadviser to the Fund, there are no assets currently
allocated to Eagle.
The Manager is also the Dividend Paying and Shareholder Servicing Agent
for the Fund. The amount payable to the Manager for such expenses as of
August 31, 1997 was $7,200. In addition, the Manager performs Fund
Accounting services and charged $36,310 during the year of which $6,200
was payable as of August 31, 1997.
Raymond James & Associates, Inc. (the "Distributor") has advised the
Fund that it received $50,141 in front-end sales charges and $349 in
contingent deferred sales charges for the year ended August 31, 1997.
From these fees, the Distributor paid commissions to salespersons and
incurred other distribution costs.
Pursuant to the Class A Distribution Plan adopted in accordance with
Rule 12b-1 of the Investment Company Act of 1940, as amended, the Fund
is authorized to pay the Distributor a fee of up to .50% of the average
daily net assets for Class A Shares. The Class C Distribution Plan
provides for payments at an annual rate of up to 1.00% of the average
daily net assets for Class C Shares. Such fees are accrued daily and
payable monthly. The Manager, Distributor, Fund Accountant and
Shareholder Servicing Agent are all wholly owned subsidiaries of Raymond
James Financial, Inc.
Trustees of the Fund also serve as Trustees for Heritage Cash Trust,
Heritage Income-Growth Trust, Heritage Income Trust, Heritage Series
Trust and Heritage U.S. Government Income Fund, investment companies
that are also advised by the Manager (collectively referred to as the
Heritage Mutual Funds). Each Trustee of the Heritage Mutual Funds who is
not an interested person of the Manager receives an annual fee of $8,000
and an additional fee of $2,000 for each combined quarterly meeting of
the Heritage Mutual Funds attended. Trustees' fees and expenses are paid
equally by each of the Heritage Mutual Funds.
Note 5: FEDERAL INCOME TAXES. For the year ended August 31, 1997, to reflect
reclassifications arising from permanent book/tax differences primarily
attributable to a net operating loss, the Fund credited accumulated net
investment loss and charged accumulated undistributed net realized gains
$263,704.
12
<PAGE> 14
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
Heritage Capital Appreciation Trust
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Heritage Capital Appreciation Trust
(the "Fund") at August 31, 1997, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for each of
the two years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at August 31, 1997 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above. The
financial statements of the Fund for the year ended August 31, 1995, including
the financial highlights for each of the periods indicated, were audited by
other independent accountants whose report dated October 12, 1995 expressed an
unqualified opinion on those statements.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Tampa, Florida
October 15, 1997
1997 FEDERAL INCOME TAX NOTICE
(UNAUDITED)
During the year ended August 31, 1997, the Fund paid to shareholders
$6,297,322 or $1.42 per share from long-term capital gains. For such period 46%
of the income dividends qualified for the dividend received deduction available
to corporations.
13
<PAGE> 15
HERITAGE FAMILY OF FUNDS [TM]
From Our Family to Yours: The Intelligent Creation of Wealth
HERITAGE MONEY MARKET FUNDS
Cash Trust Money Market
Cash Trust Municipal Money Market
HERITAGE BOND FUNDS
Intermediate Government
High Yield
HERITAGE STOCK FUNDS
Income-Growth
Value Equity
Growth Equity
Capital Appreciation
Mid Cap (effective September 29, 1997)
Small Cap
International
We are pleased that many of you are also investors in these funds. For
information and a prospectus for any of these mutual funds, please contact your
financial advisor. Please read the prospectus carefully before you invest in
any of the funds.
This report is for the information of shareholders of Heritage Capital
Appreciation Trust. It may also be used as sales literature when preceded or
accompanied by a prospectus.
[C] 1997 Heritage Asset Management, Inc.
[Heritage Logo]
Heritage Capital Appreciation Trust
P.O. Box 33022
St. Petersburg, FL 33733
Address Change Requested
