As filed with the Securities and Exchange Commission on October 31, 1997
1933 Act File No. 2-98634
1940 Act File No. 811-4338
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. _15_ [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. _16_
(Check appropriate box or boxes.)
HERITAGE CAPITAL APPRECIATION TRUST
(Exact name of Registrant as Specified in Charter)
880 Carillon Parkway
St. Petersburg, FL 33716
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (813) 573-3800
STEPHEN G. HILL, PRESIDENT
880 Carillon Parkway
St. Petersburg, FL 33716
(Name and Address of Agent for Service)
Copy to:
CLIFFORD J. ALEXANDER, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post- effective amendment.
Page 1 of Pages
Exhibit Index Appears on Page
<PAGE>
HERITAGE CAPITAL APPRECIATION TRUST
CONTENTS OF REGISTRATION STATEMENT
This registration document is comprised of the following:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Combined Prospectus for Class A, Class B and Class C shares of
Heritage Capital Appreciation Trust, Eagle International Equity
Portfolio, Growth Equity Fund, Income-Growth Trust, Mid Cap
Growth Fund, Small Cap Stock Fund and Value Equity Fund
Statement of Additional Information for Class A, Class B and
Class C shares of Heritage Capital Appreciation Trust, Eagle
International Equity Portfolio, Growth Equity Fund, Income-Growth
Trust, Mid Cap Growth Fund, Small Cap Stock Fund and Value Equity
Fund
Part C of Form N-1A
Signature Page
Exhibits
<PAGE>
<TABLE>
<CAPTION>
HERITAGE CAPITAL APPRECIATION TRUST
FORM N-1A CROSS-REFERENCE SHEET
PART A ITEM NO. PROSPECTUS CAPTION
--------------- ------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Total Fund Expenses
3. Condensed Financial Information Financial Highlights; Performance
Information
4. General Description of Registrant Cover Page; About the Trust and the
Funds; Investment Objectives, Policies
and Risk Factors
5. Management of the Fund Management of the Funds
5A. Management's Discussion of Fund Inapplicable
Performance
6. Capital Stock and Other Cover Page; About the Trust and the
Securities Funds; Management of the Funds; Choosing
a Class of Shares; What Class A Shares
Will Cost; What Class B Shares Will Cost;
What Class C Shares Will Cost; Dividends
and Other Distributions; Taxes;
Shareholder Information
7. Purchases of Securities Being Net Asset Value; Purchase Procedures;
Offered Minimum Investment Required/Accounts With
Low Balances; Systematic Investment
Programs; Retirement Plans; Choosing a
Class of Shares; What Class A Shares Will
Cost; What Class B Shares Will Cost; What
Class C Shares Will Cost; Distribution
Plans
8. Redemption or Repurchase Minimum Investment Required/Accounts With Low
Balances; How to Redeem Shares; Receiving
Payment; Exchange Privilege
9. Pending Legal Proceedings Inapplicable
<PAGE>
STATEMENT OF ADDITIONAL
PART B ITEM NO. INFORMATION CAPTION
--------------- -------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information
13. Investment Objectives and Policies Investment Information; Investment
Policies Limitations
14. Management of the Fund Fund Information-Management of the Funds
15. Control Persons and Principal Fund Information-Management of the
Holders of Securities Funds, -Five Percent Shareholders
16. Investment Advisory and Other Fund Information-Management of the Funds,
Services -Investment Advisers and Administrator;
-Subadvisers; Distribution of Shares;
-Administration of the Funds
17. Brokerage Allocation Fund Information-Brokerage Practices
18. Capital Stock and Other General Information; Fund Information
Securities -Management of the Funds; -Potential
Liability; Conversion of Class B Shares
19. Purchase, Redemption and Net Asset Value; Investing in the Funds;
Pricing of Securities Being Redeeming Shares; Exchange Privilege;
Offered Conversion of Class B Shares
20. Tax Status Conversion of Class B Shares; Taxes
21. Underwriters Fund Information - Distribution of Shares
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
PART C. OTHER INFORMATION
-----------------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
HERITAGE
CAPITAL APPRECIATION TRUST
EAGLE INTERNATIONAL EQUITY PORTFOLIO
GROWTH EQUITY FUND
INCOME-GROWTH TRUST
MID CAP GROWTH FUND
SMALL CAP STOCK FUND
VALUE EQUITY FUND
This Prospectus describes the investment portfolios listed below (each,
a "Fund") of Heritage Capital Appreciation Trust, Heritage Income-Growth Trust
and Heritage Series Trust, each of which is an open-end management investment
company in the Heritage Family of Funds. Each Fund's investment objectives and
principal investments are as follows:
o Capital Appreciation Trust Seeks long-term capital appreciation by
investing primarily in equity securities that
are believed to be undervalued.
o Eagle International Equity Seeks capital appreciation principally through
Portfolio investment in an international portfolio of
equity securities. Income is an incidental
consideration.
o Growth Equity Fund Seeks growth through long-term capital
appreciation by investing in commonficient
growth stocks that are believed to have
sufficient growth potential to offer above
average long-term capital appreciation. o
Income-Growth Trust Seeks long-term total
return by seeking, with approximately equal
emphasis, current income and capital
appreciation and investing primarily in income
producing securities consistent with its
investment objective.
o Mid Cap Growth Fund Seeks long-term appreciation by investing
investing in equity securities of companies
with mid-size market capitalization that are
believed to have above average growth
potential.
o Small Cap Stock Fund Seeks long-term capital appreciation by
investing principally in the equity securities
of companies with small market capitalization.
o Value Equity Fund Primarily seeks long-term capital appreciation
and, secondarily, seeks current income by
investing in a diversified portfolio of common
stocks that meet certain quantitative
standards that indicate above average
financial soundness and high intrinsic value
relative to price.
Each Fund offers Class A shares (sold subject to a front-end sales
load) ("A shares"), Class B shares (sold subject to a 5% maximum contingent
deferred sales load, declining over a six-year period) ("B shares") and Class C
shares (sold subject to a 1% contingent deferred sales load) ("C shares"). The
Eagle International Equity Portfolio also offers an additional class of shares.
This Prospectus relates solely to the Class A, Class B and Class C shares of the
Funds. Each Fund requires a minimum initial investment of $1,000, except for
certain investment plans for which lower limits may apply.
This Prospectus contains information that should be read before
investing in any Fund and should be kept for future reference. A Statement of
Additional Information ("SAI") dated January 2, 1998 relating to the Class A,
Class B and Class C shares of the Funds has been filed with the Securities and
Exchange Commission and is incorporated by reference in this Prospectus. A copy
of the SAI is available free of charge and shareholder inquiries can be made by
writing to Heritage Asset Management, Inc. or by calling (800) 421-4184.
FUND 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.
----------------------
Registered Investment Advisor--SEC
880 Carillon Parkway
St. Petersburg, Florida 33716
(800) 421-4184
Prospectus Dated January 2, 1998
<PAGE>
Table of Contents
================================================================================
GENERAL INFORMATION
Total Fund Expenses
Financial Highlights
Investment Objectives, Policies and Risk Factors
Net Asset Value
Performance Information
INVESTING IN THE FUNDS
Purchase Procedures
Minimum Investment Required/Accounts With Low Balances
Systematic Investment Programs
Retirement Plans
Choosing a Class of Shares
What Class A Shares Will Cost
What Class B Shares Will Cost
What Class C Shares Will Cost
Minimizing the Contingent Deferred Sales Load
Waiver of the Contingent Deferred Sales Load
How to Redeem Shares
Receiving Payment
Exchange Privilege
MANAGEMENT OF THE FUNDS
Board of Trustees
Investment Advisers
Subadvisers
Portfolio Management
Brokerage Practices
Fund Accountant, Administrator and Transfer Agent
SHAREHOLDER AND ACCOUNT POLICIES
Dividends and Other Distributions
Distribution Plans
Taxes
About the Trust and the Funds
Shareholder Information
Page 2
<PAGE>
GENERAL INFORMATION
TOTAL FUND EXPENSES
================================================================================
The following tables are intended to assist investors in understanding
the expenses associated with investing in each class of shares of a Fund.
Because B shares were not offered for sale prior to the date of this Prospectus,
all expenses for B shares are based on estimated expenses.
SHAREHOLDER TRANSACTION EXPENSES:
Class A Class B Class C
------- ------- -------
Maximum Sales Load Imposed on 4.75% None None
Purchases(as a % of offering price)
Maximum Contingent Deferred Sales Load None 5%* 1%**
(as a % of original purchase price or
redemption proceeds, whichever is lower
Wire redemption Fee (per transaction) $5 $5 $5
- ------------
* Declining over an eight-year period as follows: 5% during the first year,
4% during the second year, 3% during the third and fourth years, 2% during
the fifth year, 1% during the sixth year and 0% thereafter. Class B shares
will convert to Class A shares eight years after purchase. ** Declining to
0% at the first year.
ANNUAL OPERATING EXPENSES:
Capital Appreciation Trust:
Class A Class B Class C
------- ------- -------
Management fee (after fee waiver)(1) % % %
12b-1 fees 0.25% 1.00% 1.00%
Other expenses % % %
- - -
Total Fund operating expenses (after 1.45% 2.20% 2.20%
fee waiver)(1) ==== ==== ====
Eagle International Equity Portfolio:
Class A Class B Class C
------- ------- -------
Management fee (after fee waiver)(2)(3) % % %
12b-1 fees 0.25% 1.00% 1.00%
Other expenses % % %
----- - -----
Total Fund operating expenses (after fee 1.97% 2.72% 2.72%
waiver)(2)(3) ===== ===== =====
Page 3
<PAGE>
Growth Equity Fund:
Class A Class B Class C
------- ------- -------
Management fee (after fee waiver)(1) % % %
12b-1 fees 0.25% 1.00% 1.00%
Other expenses % % %
----- - -----
Total Fund operating expenses (after fee 1.45% 2.20% 2.20%
waiver)(1) ===== ===== =====
Income-Growth Trust:
Class A Class B Class C
------- ------- -------
Management fee (after fee waiver)(1) % % %
12b-1 fees 0.25% 1.00%% 1.00%
Other expenses % % %
- - -
Total Fund operating expenses (after 1.35% 2.10% 2.10%
===== ===== =====
fee waiver)(1)
Mid Cap Growth Fund:
Class A Class B Class C
------- ------- -------
Management fee (after fee waiver)(1) % % %
12b-1 fees 0.25% 1.00% 1.00%
Other expenses % % %
- - -
Total Fund operating expenses (after fee 1.60% 2.35% 2.35%
waiver)(1) ===== ===== =====
Small Cap Stock Fund:
Class A Class B Class C
------- ------- -------
Management fee (after fee waiver)(1) % % %
12b-1 fees 0.25% 1.00% 1.00%
Other expenses % % %
----- - -----
Total Fund operating expenses (after 1.30% 2.05% 2.05%
fee waiver)(1) ===== ===== =====
Value Equity Fund:
Class A Class B Class C
------- ------- -------
Management fee (after fee waiver)(1) % % %
12b-1 fees 0.25% 1.00% 1.00%
Other expenses % % %
----- - -----
Total Fund operating expenses (after 1.45% 2.20% 2.20%
fee waiver)(1) ===== ===== =====
- ----------
(1) Heritage Asset Management, Inc. voluntarily will waive its investment
advisory fees and, if necessary, reimburse each of the following Funds to
the extent that Class A, Class B and Class C annual operating expenses
exceed that Fund's average daily net assets for that Fund's 1998 fiscal
year as follows:
Page 4
<PAGE>
Class A Class B and Class C
------- -------------------
Capital Appreciation Trust 1.45% 2.20%
Growth Equity Fund 1.45% 2.20%
Income-Growth Trust 1.35% 2.10%
Mid Cap Growth Fund 1.60% 2.35%
Small Cap Fund 1.30% 2.05%
Value Equity Fund 1.45% 2.20%
(2) Eagle Asset Management, Inc. ("Eagle"), the investment adviser to the Eagle
International Equity Portfolio, voluntarily will waive its fees and, if
necessary, reimburse the Eagle International Equity Portfolio to the extent
that Class A annual operating expenses exceed 1.97% of the Fund's average
daily net assets and to the extent that the Class B and Class C annual
operating expenses each exceed 2.72% of that classes' average daily net
assets for the Fund's 1998 fiscal year.
(3) Absent such fee waivers and/or expense reimbursements, annual 1997 Fund
operating expenses for the Funds listed below would have been as follows:
Class A Class B and Class C
------- -------------------
Capital Appreciation Trust % %
Eagle International Equity % %
Portfolio
Growth Equity Fund % %
Income-Growth Trust % %
Small Cap Fund % %
Value Equity Fund % %
EXAMPLES OF THE EFFECT OF FUND EXPENSES:
The impact of Fund operating expenses on earnings is illustrated in the
examples below assuming a hypothetical $1,000 investment and a 5% annual rate of
return.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Capital Appreciation Trust:
A shares $___ $___ $___ $___
B shares (assuming sale of all shares $___ $___ $___ $___
at end of period)
B shares (assuming no sale of shares) $___ $___ $___ $___
C shares $___ $___ $___ $___
Eagle International Equity Portfolio:
A shares $___ $___ $___ $___
B shares (assuming sale of all shares $___ $___ $___ $___
at end of period)
B shares (assuming no sale of shares) $___ $___ $___ $___
C shares $___ $___ $___ $___
Growth Equity Fund:
A shares $___ $___ $___ $___
B shares (assuming sale of all shares $___ $___ $___ $___
at end of period)
B shares (assuming no sale of shares) $___ $___ $___ $___
Page 5
<PAGE>
C shares $___ $___ $___ $___
Income-Growth Trust
A shares $___ $___ $___ $___
B shares (assuming sale of all shares $___ $___ $___ $___
at end of period)
B shares (assuming no sale of shares) $___ $___ $___ $___
C shares $___ $___ $___ $___
Mid Cap Growth Fund:
A shares $___ $___ $___ $___
B hares (assuming sale of all shares $___ $___ $___ $___
at end of period)
B shares (assuming no sale of shares) $___ $___ $___ $___
C Shares $___ $___ $___ $___
Small Cap Stock Fund:
A shares $___ $___ $___ $___
B shares (assuming sale of all shares $___ $___ $___ $___
at end of period)
B shares (assuming no sale of shares) $___ $___ $___ $___
C shares $___ $___ $___ $___
Value Equity Fund:
A shares $___ $___ $___ $___
B shares (assuming sale of all shares $___ $___ $___ $___
at end of period)
B shares (assuming no sale of shares) $___ $___ $___ $___
C shares $___ $___ $___ $___
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. Due to the imposition of Rule
12b-1 fees, it is possible that long-term shareholders of a Fund 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. For a further discussion of these costs and expenses, see "Management of
the Funds" and "Distribution Plans."
Page 6
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
====================================================================================================================================
The following table shows important financial information for an A share and a C share of the Capital Appreciation 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 these tables for the fiscal year ended August 31, 1997 have been audited by Price
Waterhouse LLP, independent accountants, whose report thereon is included in the SAI, which may be obtained by calling your Fund 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 Capital Appreciation Trust's independent accountants for those years. No B shares were outstanding prior to the date of this
Prospectus.
CAPITAL APPRECIATION TRUST
CLASS A
-------------------------------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997** 1996 1995* 1994 1993 1992 1991 1990
---- ---- ----- ---- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF THE PERIOD......... $15.58 $15.53 $15.30 $15.62 $13.64 $12.55 $10.62 $14.48
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income......................... (0.06) 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................................. 4.85 1.81 1.37 1.05 3.29 1.19 1.97 (2.82)
---- ----- ------- ------- ------- ------ ------- -------
Total from Investment Operations.............. 4.79 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......... (1.77) (1.72) (1.16) (1.36) (1.27) - - (1.14)
------ ------ -------- ------- ------- ------ ---- ------
Total Distributions........................... (1.77) (1.76) (1.22) (1.39) (1.34) (0.25) (0.32) (1.33)
------ ------ -------- ------- ------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD................... $18.60 $15.58 $15.53 $15.30 $15.62 $13.64 $12.55 $10.62
====== ====== ======= ====== ====== ====== ====== ======
TOTAL RETURN (%)(E).............................. 33.61 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...................................... 1.48 1.54(a) 1.62(a) 1.55(a) 1.56(a) 1.66(a) 1.86(a) 1.96(b)
Net investment income (loss) to average daily
net assets.................................. (.30) (.02) .49 .15 .24 1.09 2.38 2.54
Portfolio turnover rate....................... 42 54 66 65 55 57 80 45
Average commission rate on portfolio
transactions (per share).................... $0.0600 $0.0600 - - - - - -
Net assets, end of period (millions) ($)...... 81 70 73 74 75 65 63 58
- --------------------
* Liberty Investment Management was retained as an additional investment subadviser to the Fund on February 27, 1995.
** Liberty Investment Management became a Division of Goldman Sachs Asset Management Inc. on January 2, 1997.
+ For the period April 3, 1995 (first offering of C shares) to August 31, 1995.
(a) Excludes management fees waived by Heritage 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 have been 1.79%, 1.87%, 1.81%, 1.81%, 1.84%, 1.87%
and 2.06% (annualized) for A shares, respectively. Excludes management fees waived by Heritage in the amount of less than $0.04
and $0.04 per C share. The operating expense ratio including such items would have been 2.30% and 2.42% (annualized) for C
shares, respectively.
(b) Includes management fees previously waived by Heritage 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. 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.
Page 7a
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION TRUST
CLASS A CLASS C
-------------------------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31, FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1989 1988 1997** 1996 1995*+
---- ---- ---- ---- -----
NET ASSET VALUE, BEGINNING OF THE PERIOD......... $10.74 $13.31 $15.46 $15.50 $14.18
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income......................... 0.14(b) 0.08(a) (0.13) (0.03)(a)(f) (0.01)(a)
Net realized and unrealized gain (loss) on
investments................................. 3.77 (1.39) 4.78 1.75 1.33
---- ------ ------ ------ -------
Total from Investment Operations.............. 3.91 (1.31) 4.65 1.72 1.32
---- ------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment income.......... (0.06) (0.11) ---- (0.04) -
Distributions from net realized gains......... (0.11) (1.15) (1.77) (1.72) -
------ ------ ------- ------ -------
Total Distributions........................... (0.17) (1.26) (1.77) (1.76) -
------ ------ ------- ------ -------
NET ASSET VALUE, END OF PERIOD................... $14.48 $10.74 18.34 $15.46 $15.50
====== ====== ======= ====== =======
TOTAL RETURN (%)(E).............................. 36.88 (8.75) 32.91 12.16 9.31(d)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses net, to average daily net
assets...................................... 2.00(b) 2.00(a) 2.04 2.05(a) 2.17(a)(c)
Net investment income (loss) to average daily
net assets.................................. 1.19 0.62 (.88) (.57) (0.33)(c)
Portfolio turnover rate....................... 60 103 42 54 66
Average commission rate on portfolio
transactions (per share).................... - - $0.0600 0.0600 -
Net assets, end of period (millions) ($)...... 62 43 3 1 .4
- --------------------
* Liberty Investment Management was retained as an additional investment subadviser to the Fund on February 27, 1995.
** Liberty Investment Management became a Division of Goldman Sachs Asset Management Inc. on January 2, 1997.
+ For the period April 3, 1995 (first offering of C shares) to August 31, 1995.
(a) Excludes management fees waived by Heritage 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 have been $1.79%, $1.87%,
1.81%, 1.84%, 1.87% and 2.06% (annualized) [NOTE: ONE RATIO MISSING] for A shares, respectively. Excludes management fees
waived by Heritage in the amount of less than $0.04 and $0.04 per C share. The operating expense ratio including such items
would have been 2.30% and 2.42% (annualized) for C shares, respectively.
(b) Includes management fees previously waived by Heritage 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. 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.
Page 7b
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
====================================================================================================================================
The following table shows important financial information for an A share and a C share of the Eagle International Equity
Portfolio and the Growth Equity Fund 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 these tables for the fiscal year ended
October 31, 1996 have been audited by Price Waterhouse LLP, independent accountants, whose report thereon may be obtained by calling
your Fund at (800) 421-4184. Information presented for the years ended October 31, 1995 and prior thereto was audited by other
auditors who served as the Funds' independent accountants for those years. No B shares were outstanding prior to the date of this
Prospectus.
EAGLE INTERNATIONAL EQUITY PORTFOLIO GROWTH EQUITY FUND
------------------------------------ -----------------------------
CLASS A CLASS C CLASS A CLASS C
-------- ------------ ------- -------
FOR THE YEARS ENDED OCTOBER 31, FOR THE YEAR ENDED OCTOBER 31,
------------------------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996^* 1997 1996^* 1997 1996^^* 1996^^* 1997
---- ---- ---- ---- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF THE PERIOD $21.11 $21.11 $14.29 $14.29
------ ------ ----- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .................... .010(a) (0.07)(a) (.03)(b) (.15)(b)
Net realized and unrealized gain on investments 1.04 1.08 3.48 3.47
---- ---- ---- ----
Total from Investment Operations................. 1.14 1.01 3.45 3.32
---- ---- ---- ----
LESS DISTRIBUTIONS:
Dividends from net investments income............ - -
Distributions from net realized gains............ - -
Total distributions..............................
NET ASSET VALUE, END OF PERIOD...................... $22.25 $22.12 $17.74 $17.61
TOTAL RETURN (%) (D)(E) ====== ====== ====== ======
5.40 4.78 24.14 23.23
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily
assets (c)....................................... 1.97(a) 2.72(a) 1.65(b) 2.40(b)
Net investment income (loss) to average
daily net assets (c)............................ 0.44 (0.32) (.19) (.96)
Portfolio turnover rate (d)...................... 59 59 23 23
Average commission rate on portfolio transactions $ .0289 $.0289 $.0599 $.0599
Net assets, end of period ($ millions)........... 3 1 12 5
- --------------------
* Per share amounts have been calculated using the monthly average share method, which more appropriately represents per
share data for the period since use of the undistributed income method does not correspond with results of operation.
^ For the period December 27, 1995 (first offering of Class A and Class C shares) to October 31, 1996.
^^ For the period November 16, 1995 (commencement operations) to October 31, 1996.
(a) Excludes management fees waived by Eagle in the amount of $.16 per Class A Share for the period ended October 31, 1996. The
operating expenses ratio including such items would have been 2.69% (annualized) for Class A Shares for the period ended
October 31, 1996. Excludes management fees waived by Eagle in the amount of $.16 per Class C Share for the period ended
October 31, 1996. The operating expense ratio including such items would have been 3.44% (annualized) for Class C Shares for
the period ended October 31, 1996.
(b) Excludes management fees waived and expenses reimbursed by Heritage of $.11 per share Class A and Class C Shares for the period
ended October 31, 1996. The operating expenses ratios including such items would have been 2.39% and 3.14% (annualized) for
the period ended October 31, 1996, respectively.
(c) Annualized.
(d) Not annualized.
(e) Does not reflect the imposition of a sales load.
Page 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
====================================================================================================================================
The following table shows important financial information for an A share and a C share of the Income-Growth 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 these tables for the fiscal year ended September 30, 1996 have been audited by Price
Waterhouse LLP, independent accountants, whose report thereon may be obtained by calling your Fund at (800) 421-4184. Information
presented for the years ended September 30, 1995 and prior thereto was audited by other auditors who served as the Income-Growth
Trust's independent accountants for those years. No B shares were outstanding prior to the date of this Prospectus.
INCOME-GROWTH TRUST
CLASS A
-------------------------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF THE PERIOD......... $12.56 $11.33 $12.28 $10.81 $9.87 $8.08 $10.41 $9.18
------ ------ ------ ------ ----- ----- ------ -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a)..................... 0.36 0.27 0.30 0.39 0.28 0.36 0.45 0.45
Net realized and unrealized gain (loss) on
investments................................. 2.35 1.79 (0.09) 1.44 1.02 1.88 (2.06) 1.22
------ ------ ------- ----- ------ ----- ------- -----
Total from Investment Operations.............. 2.71 2.06 .21 1.83 1.30 2.24 (1.61) 1.67
------ ------ ------- ----- ------ ----- ------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income.......... (0.35) (0.34) (0.24) (0.36) (0.36) (0.34) (0.48) (0.44)
Distributions from net realized gain on
investments................................. (0.25) (0.49) (0.92) - - (0.11) (0.24) -
------ ------ ------- ----- ------ -------- ------- ------
Total Distributions........................... (0.60) (0.83) (1.16) (0.36) (0.36) (0.45) (0.72) (0.44)
------ ------ -------- ------ ------ -------- ------- -------
NET ASSET VALUE, END OF PERIOD................... $14.67 $12.56 $11.33 $12.28 $10.81 $9.87 $8.08 $10.41
====== ====== ======= ====== ====== ===== ===== ======
TOTAL RETURN (%)(D).............................. 22.26 19.57 1.80 16.44 13.42 28.72 (16.42) 18.80(c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses net, to average daily net
assets (a).................................. 1.51 1.64 1.64 1.72 1.75 1.75 1.75 1.75
Net investment income to average daily net
assets...................................... 2.66 4.63 2.62 2.67 2.77 4.02 4.77 4.72
Portfolio turnover rate....................... 75 42 98 130 71 81 156 249
Average commission rate on portfolio
transactions................................ $0.0595 - - - - - - -
Net assets, end of period ($ millions)........ 43 34 33 34 27 20 19 24
- --------------
- --------------------
+ For the period December 15, 1986 (commencement of operations) to September 30, 1987.
++ For the period April 3, 1995 (first offering of C shares) to September 30, 1995.
(a) Excludes management fees waived by Heritage through 1992 in the amount of less than $.01, $.01, $.02, $.02, $.01 and $.02 per
A share, respectively. The operating expense ratios including such items would be 1.75%, 1.94%, 1.96%, 1.92%, 1.89%, and
2.11% (annualized) per Class A share, respectively. The year 1993 includes previously waived management fees paid to
Heritage of $.01 per share.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales load.
Page 9a
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME-GROWTH TRUST
CLASS A CLASS C
-------------------------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
<S> <C> <C>
1988 1987+ 1997 1996 1995++
---- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF THE PERIOD......... $9.98 $9.50 $12.51 $11.21
----- ----- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a)..................... 0.44 0.26 0.26 0.18
Net realized and unrealized gain (loss) on
investments................................. (0.81) 0.38 2.34 1.28
------- ------- ---- ----
Total from Investment Operations.............. (0.37) 0.64 2.60 1.46
------- ------- ---- ----
LESS DISTRIBUTIONS:
Dividends from net investment income.......... (0.43) (0.16) (0.29) (0.16)
Distributions from net realized gain on
investments................................. - - (0.25) -
------ ------ ----- -----
Total Distributions........................... (0.43) (0.16) (0.54) (0.16)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD................... $9.18 $9.98 $14.57 $12.51
====== ====== ====== ======
TOTAL RETURN (%)(D).............................. (3.38) 6.79(c) 21.37 13.18(c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses net, to average daily net
assets (a).................................. 1.75 1.75(b) 2.13 2.40(b)
Net investment income to average daily net
assets...................................... 5.01 4.29(b) 2.05 4.61(b)
Portfolio turnover rate....................... 184 91(b) 75 42(b)
Average commission rate on portfolio
transactions................................ - - $0.0595 -
Net assets, end of period ($ millions)........ 20 24 6 0.2
- --------------
- --------------------
+ For the period December 15, 1986 (commencement of operations) to September 30, 1987.
++ For the period April 3, 1995 (first offering of C shares) to September 30, 1995.
(a) Excludes management fees waived by Heritage through 1992 in the amount of less than $.01, $.01, $.02, $.02, $.01 and $.02 per
A share, respectively. The operating expense ratios including such items would be 1.75%, 1.94%, 1.96%, 1.92%, 1.89%, and
2.11% (annualized) per Class A share, respectively. The year 1993 includes previously waived management fees paid to
Heritage of $.01 per share.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales load.
Page 9b
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
====================================================================================================================================
The following table shows important financial information for an A share and a C share of the Small Cap Fund and the Value
Equity Fund 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 these tables for the fiscal year ended October 31, 1996 have been audited
by Price Waterhouse LLP, independent accountants, whose report thereon may be obtained by calling your Fund at (800) 421-4184.
Information presented for the years ended October 31, 1995 and prior thereto was audited by other auditors who served as the Funds'
independent accountants for those years. No B shares were outstanding prior to the date of this Prospectus.
SMALL CAP STOCK FUND
---------------------------------------------------------------------
CLASS A CLASS C
---------------------------------------------------------------------
FOR THE YEARS
FOR THE YEARS ENDED OCTOBER 31, ENDED OCTOBER 31,
------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996* 1995^ 1994 1993+ 1997 1996* 1995++
---- ----- ---- ---- ---- ---- ----- ----
NET ASSET VALUE, BEGINNING OF THE PERIOD......... $18.86 $16.20 $15.57 $14.29 $18.79 $15.67
------ ------ ------ ------ ------ -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................. (.05) .02 (.01)(a) (.01)(a) (.22) (.02)
Net realized and unrealized gain on
investments.................................. 6.12 3.62 .64 1.29 6.11 3.14
------- ------ ------ ------ ------ -----
Total from Investment Operations............. 6.07 3.64 .63 1.28 5.89 3.12
------- ------ ------ ------ ------ -----
LESS DISTRIBUTIONS:
Dividends from net investments income........ (.01) (.01) - - - -
Distributions from net realized gains........ (.84) (.97) - - (.84) -
------- ------ ------- ------ ------ ------
Total distributions.......................... (.85) (.98) - - (.84) -
------- ------ ------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD................... $24.08 $18.86 $16.20 $15.57 $23.84 $18.79
====== ====== ======= ====== ====== ======
TOTAL RETURN (%)(e).............................. 33.18 23.97 4.05 8.96(d) 32.22 19.91(d)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily
assets........................................... 1.41 1.88 1.91(a) 2.00(a)(c) 2.13 2.36(c)
Net investment income to average daily net
assets........................................... (.21) .15 (.07) (.15)(c) (.94) (.46)(c)
Portfolio turnover rate.......................... 80 89 95 97(c) 80 89
Average commission rate on portfolio
transactions..................................... $0.0637 - - - $0.0637 -
Net assets, end of period ($ millions)........... 96 57 42 40 25 4
- --------------------
* Per share amounts have been calculated using the monthly average share method, which more appropriately represents per
share data for the period since use of the undistributed income method does not correspond
with results of operation.
+ For the period May 7, 1993 (commencement of operations) to October 31, 1993.
++ For the period April 3, 1995 (first offering of C shares) to October 31, 1995.
+++ For the period December 30, 1994 (commencement operations) to October 31, 1995.
^ Eagle Asset Management, Inc. became an additional subadviser to the Fund on August 7, 1995.
(a) Excludes management fees waived by Heritage in fiscal 1993 of less than $.01 per share. The operating expense ratio
including such items would be 2.09% (annualized). The year 1994 includes previously waived management
fees paid to Heritage of less than $.01 per share.
(b) Excludes management fees waived and expenses reimbursed in the amount of $.07 and $.13 per Class A Shares, respectively.
The operating expense ratios including such items would have been 1.99% and 3.49% for Class A
Shares, respectively. Excludes management fees waived and expense reimbursed by Heritage in the amount of $.07 and
$.13 per Class C Shares, respectively. The operating expense ratio including such items would have
been 2.74% and 4.24% (annualized) for Class C Shares.
(c) Annualized.
(d) Not annualized.
(e) Does not reflect the imposition of a sales load.
Page 10a
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUE EQUITY FUND
-------------------------------------------------
CLASS A* CLASS C*
-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS FOR THE YEARS
ENDED OCTOBER 31, ENDED OCTOBER 31,
------------------------ ----------------------
1997 1996 1995+++ 1997 1996 1995++
---- ---- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF THE PERIOD......... $18.00 $14.29 $17.92 $15.27
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................. 0.17(b) 0.08(b) 0.02(b) 0.01(b)
Net realized and unrealized gain on
investments.................................. 2.76 3.63 2.74 2.64
------ ------- ------ ------
Total from Investment Operations............. 2.93 3.71 2.76 2.65
------ ------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net investments income........ (.11) - (.07) -
Distributions from net realized gains........ (.55) - (.55) -
------- ------- ------ ------
Total distributions.......................... (.66) - (.62) -
------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD................... $20.27 $18.00 $20.06 $17.92
======= ======= ====== ======
TOTAL RETURN (%)(e).............................. 16.59 25.96(d) 15.65 17.35(d)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily
assets....................................... 1.65(b) 1.65(b)(c) 2.40(b) 2.40(b)(c)
Net investment income to average daily net
assets....................................... 0.89 1.05(c) .13 0.28(c)
Portfolio turnover rate...................... 129 82(c) 129 82(c)
Average commission rate on portfolio
transactions................................. $0.0550 - $.0550 -
Net assets, end of period ($ millions)....... 15 12 10 4
- --------------------
* Per share amounts have been calculated using the monthly average share method, which more appropriately represents per
share data for the period since use of the undistributed income method does not correspond
with results of operation.
+ For the period May 7, 1993 (commencement of operations) to October 31, 1993.
++ For the period April 3, 1995 (first offering of C shares) to October 31, 1995.
+++ For the period December 30, 1994 (commencement operations) to October 31, 1995.
^ Eagle Asset Management, Inc. became an additional subadviser to the Fund on August 7, 1995.
(a) Excludes management fees waived by Heritage in fiscal 1993 of less than $.01 per share. The operating expense ratio
including such items would be 2.09% (annualized). The year 1994 includes previously waived management
fees paid to Heritage of less than $.01 per share.
(b) Excludes management fees waived and expenses reimbursed in the amount of $.07 and $.13 per Class A Shares, respectively.
The operating expense ratios including such items would have been 1.99% and 3.49% for Class A
Shares, respectively. Excludes management fees waived and expense reimbursed by Heritage in the amount of $.07 and
$.13 per Class C Shares, respectively. The operating expense ratio including such items would have
been 2.74% and 4.24% (annualized) for Class C Shares.
(c) Annualized.
(d) Not annualized.
(e) Does not reflect the imposition of a sales load.
Page 10b
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
================================================
Because the Each Fund has its own investment objective and
Funds invest seeks to achieve that objective through separate and
primarily in distinct investment policies. Each Fund's investment
common stocks, objective is fundamental and may not be changed
the value of your without the vote of a majority of the outstanding
investment will voting securities of that Fund, as defined in the
fluctuate. You can Investment Company Act of 1940, as amended (the
lose money by "1940 Act"). Except as otherwise stated, all
investing in the policies of each Fund can be changed by that Fund's
Funds. There can Board of Trustees without shareholder approval.
be no assurance
that a Fund's Heritage Asset Management, Inc. ("Heritage")
investment serves as the investment adviser to each Fund,
objective will be except the Eagle International Equity Portfolio.
achieved. Eagle Asset Management, Inc. ("Eagle") serves as the
investment adviser to the Eagle International Equity
Portfolio.
The following is a discussion of each Fund's
investment objectives, principal investments and
practices, including the risks of investing in these
investments or engaging in these practices. For a
further discussion of each Fund's investment
policies, practices and risks, see "Investment
Information" in the SAI.
CAPITAL APPRECIATION TRUST
--------------------------
The Capital The Capital Appreciation Trust's investment
Appreciation objective is long-term capital appreciation. The
Trust seeks long- Fund believes that this objective can best be
term capital achieved through the purchase of equity securities
appreication. that, in the opinion of its subadviser, represent
companies with the potential for attractive
long-term growth in earnings, cash flow and total
The Fund's worth of the business enterprise. The Fund's
subadviser is subadviser is Liberty Investment Management, a
Liberty Division of Goldman Sachs Asset Management Inc.
Investment ("Liberty"). The Fund prefers to purchase such
Management, a securities at a price that represents a discount to
Division of the real worth of the company's businesses or, in
Goldman Sachs other words, securities that appear, in the opinion
Asset of its subadviser, to be undervalued in relation to
Management, Inc. 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.
The Fund 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 Fund may purchase securities traded on
recognized securities exchanges and in the
over-the-counter market. The Fund normally invests
at least 65% of its total assets in securities as
described above that Liberty believes have the
potential to achieve capital appreciation. The Fund
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 Fund's investments in foreign
securities and ADRs may not exceed 10% of its
portfolio. The Fund also may invest up to 10% of its
net assets in illiquid securities. The Fund may
purchase and sell a security without regard to the
length of time it will be or has been held.
Page 11
<PAGE>
EAGLE INTERNATIONAL EQUITY PORTFOLIO
------------------------------------
The Eagle The Eagle International Equity Portfolio seeks
International capital appreciation principally through investment
Equity Portfolio in an international portfolio of equity securities.
seeks capital Income is an incidental consideration. The Fund's
appreciation subadviser is Martin Currie Inc. ("Martin Currie")
principally
through investing Under normal market conditions, at least 65% of
in a portfolio of the Fund's total assets are invested in common
international stocks (which may or may not pay dividends),
equity securities. convertible bonds, convertible preferred stocks,
warrants, rights or other equity securities of
foreign issuers and sponsored and unsponsored
The Eagle depository receipts representing the securities of
International foreign issuers (including ADRs, European Depository
Equity Portfolio's Receipts, Global Depository Receipts and
subadviser is International Depository Receipts, among others).
Martin Currie The Fund can invest up to 5% of its assets in
Inc. convertible securities rated below investment grade
by Standard & Poor's ("S&P) or Moody's Investors
Service, Inc. ("Moody's), or unrated securities
deemed to be below investment grade by the Fund's
subadviser. Its remaining assets can PORTFOLIO'S be
invested in foreign debt securities, securities
issued or guaranteed by the U.S. Government, its
agencies and instrumentalities, repurchase
agreements and foreign and domestic short-term
investments, as discussed in the SAI. In addition,
the Fund can invest up to 10% of its assets in
securities of other investment companies, such as
closed-end investment companies that invest in
foreign markets. As a shareholder of an investment
company, the Fund may indirectly bear service fees,
which are in addition to the fees it pays to its own
service providers. The Fund may borrow up to 10% of
its total assets from banks as a temporary measure,
such as to meet higher than anticipated redemption
requests. For a further discussion of these
investment objectives and policies, see "Investment
Information" in the SAI.
The Fund normally invests at least 50% of its
investment portfolio in securities traded in
developed foreign securities markets, such as those
included in the Morgan Stanley Capital International
Europe, Australasia, Far East Index ("EAFE Index").
Countries represented in the EAFE Index include
Japan, France, the United Kingdom, Germany, Hong
Kong and Malaysia, among others. The Fund also
invests in emerging markets (which may include
investments in countries such as India, Mexico and
Poland for example). Emerging markets are those
countries whose markets may not yet fully reflect
the potential of the developing economy. The Fund
can invest in foreign currency and purchase and sell
foreign currency forward contracts and futures
contracts. See "Futures Transactions; Foreign
Currency Transactions" below.
A portfolio of The Fund will not limit its investments to any
international international particular type or size of company. It
equity securities may invest in equity securities companies whose
subjects the Fund earnings are believed by its subjects the Fund
to different risks subadviser to be in a relatively strong growth to
than investing in different risks trend, or in companies in which
domestic significant further than investing in growth is not
securities. anticipated but whose market value per domestic
share is thought by the subadviser to be securities.
undervalued. It may invest in small and relatively
less well known companies, which may have more
restricted product lines or more limited financial
resources than larger, more established companies
and may be more severely affected by economic
downturns or other adverse developments. Trading
volume of these companies' securities may be low and
their market values may be volatile. While its
investment strategy generally emphasizes equity
Page 12
<PAGE>
securities, the Fund can invest a portion of its
assets in investment grade fixed income securities
when, in the opinion of its subadviser, equity
securities appear to be overvalued or the Fund's
subadviser otherwise believes investing in fixed
income securities affords the Fund the opportunity
for capital growth, as in periods of declining
interest rates.
The Fund will In allocating the Fund's assets among the
invest in many various securities markets of the world, its
countries around subadviser considers such factors as the condition
the world. and growth potential of the various economies and
securities markets, currency and taxation
considerations and other pertinent financial,
social, national and political factors. Under
certain adverse investment conditions, the Fund may
restrict the number of securities markets in which
its assets will be invested, although under normal
market circumstances its investments will involve
securities principally traded in at least three
different countries. Otherwise, there are no
prescribed limits on geographic asset distribution,
and the Fund has the authority to invest in
securities traded in securities markets of any
country in the world. The Fund will invest only in
markets where, in the judgment of its subadviser
there exists an acceptable framework of market
regulation and sufficient liquidity.
The Fund may The securities markets of many nations can be
invest a portion of expected to move relatively independently of one
its assets in another because business cycles, and other economic
countries with or political events that influence one country's
emerging securities markets may have little effect on the
economies or securities markets of other countries. By investing
securities in an international securities portfolio, the Fund
markets. seeks to reduce the risks associated with investing
in the economy of only one country. See "Foreign
Securities" below.
Although the Fund will not trade primarily for
short-term profits, its subadviser may make
investments with potential for short-term
appreciation when such action is deemed desirable
and in the best interests of shareholders. The Fund
may invest up to 10% of its net assets in illiquid
securities.
The Eagle The Fund may engage in transactions in futures
International contracts and forward contracts to adjust the
Equity Portfolio risk/return characteristics of its investment
may buy and sell portfolio. The Fund may buy and sell stock index and
futures contracts currency futures contracts. A currency futures
and forward contract is an agreement between two parties to buy
contracts. and sell the underlying currency for a set price on
a future date. A stock index future is an obligation
to make or take a cash settlement, in the future,
based on price movements that occur in the specific
stock index underlying the contract.
If the Fund's subadviser wants to hedge the
Fund's exposure to a broad decline in equity market
prices, it might sell futures contracts on stock
indices. Then, if the value of the underlying
securities declines, the value of the futures
contracts should increase. If, however, the value of
the underlying securities increases, the Fund would
suffer a loss on its futures contract position.
Likewise, if the Fund expects stock prices to rise,
it might purchase stock index futures contracts to
offset potential increases in the acquisition cost
of securities that it intends to acquire. If, as
expected, the market value of the equity indices and
futures contracts with respect thereto increase, the
Page 13
<PAGE>
Fund would benefit from a rise in the value of long-
term securities without actually buying them until
the market had stabilized. However, if the value of
the equity indices decline, the value of the futures
contracts also will decline.
The Fund also may buy and sell foreign
currencies, foreign currency futures contracts and
forward foreign currency contracts. A forward
foreign currency contract is an agreement between
the Fund and a contra party to buy or sell a
specified currency at a specified price and future
date. If a decline in the value of a particular
currency relative to the U.S. dollar is anticipated,
the Fund may enter into a futures contract or
forward contract to sell that currency as a hedge.
If it is anticipated that the value of a foreign
currency will rise, the Fund may purchase a futures
contract or forward contract to protect against an
increase in the price of securities denominated in a
particular currency it intends to purchase. These
practices, however, may present risks different from
or in addition to the risks associated with
investments in foreign currencies.
The Fund might not use any of the strategies
described above, and there can be no assurance that
any strategy used will succeed. If the Fund's
subadviser incorrectly forecasts stock market or
currency exchange rates in utilizing a strategy for
the Fund, the Fund would be in a better position if
it had not hedged at all. Although futures contracts
and forward contracts are intended to replicate
movements in the cash markets for the securities and
currencies in which the Fund invests without the
large cash investments required for dealing in such
markets, those contracts may subject the Fund to
additional risks. The principal risks associated
with the use of futures and forward contracts are:
(1) imperfect correlation between movements in the
market price of the portfolio investment or currency
(held or intended to be purchased) being hedged and
in the price of the futures contract or forward
contract; (2) possible lack of a liquid secondary
market for closing out futures or forward contract
positions; (3) the need for additional portfolio
management skills and techniques; (4) the fact that,
while hedging strategies can reduce the risk of
loss, they also can reduce the opportunity for gain,
or even result in losses, by offsetting favorable
price movements in hedged investments; and (5) the
possible inability of the Fund to purchase or sell a
portfolio security at a time when it would otherwise
be favorable for it to do so, or the possible need
for the Fund to sell a security at a disadvantageous
time, due to its need to maintain "cover" or to
segregate securities in connection with hedging
transactions and its possible inability to close out
or liquidate a hedged position.
For a hedge to be completely effective, the
price change of the hedging instrument should equal
the price change of the security or currency being
hedged. Such equal price changes are not always
possible because the investment underlying the
hedging instrument may not be the same investment
that is being hedged. The Fund's subadviser will
attempt to create a closely correlated hedge, but
hedging activity may not be completely successful in
eliminating market value fluctuation. The ordinary
spreads between prices in the cash and futures
markets, due to differences in the nature of those
markets, are subject to distortion. Due to the
possibility of distortion, a correct forecast of
currency exchange rate or stock market trends by the
Fund's subadviser may still not result in a
successful transaction. The subadviser may be
incorrect in its expectations as to the extent of
various currency exchange rate or stock market
movements or the time span within which the
movements take place.
Page 14
<PAGE>
The Fund may invest in emerging markets. This
includes investments in countries whose economies or
securities markets are not yet highly developed.
Special considerations associated with these
investments (in addition to the considerations
regarding foreign investments generally) may include
greater political uncertainties, an economy's
dependence on revenues from particular commodities
or on international aid or development assistance,
currency transfer restrictions, a limited number of
potential buyers for such securities and delays and
disruptions in securities settlement procedures.
The Fund's investments in foreign currency
denominated debt obligations and hedging activities
likely will produce a difference between its book
income and its taxable income. If the Fund's book
income exceeds its taxable income, a portion of the
Fund's income distributions would constitute returns
of capital for tax purposes because the Fund
distributes substantially all of its net investment
income. See "Dividends and Other Distributions" and
"Taxes." In addition, if the Fund's taxable income
exceeds its book income, it might have to distribute
all or part of that excess to continue to qualify as
a "regulated investment company" for Federal income
tax purposes or to avoid the imposition of a 4%
excise tax on certain undistributed income and
gains. See "Taxes" in the SAI.
GROWTH EQUITY FUND
------------------
The Growth The Growth Equity Fund's primary investment
Equity Fund seeks objective is growth through long-term capital
growth through appreciation. In seeking this objective, the Fund
long-term capital may invest without limitation in common stocks that,
appreciation. when purchased, meet certain qualitative standards
as determined by the Fund's subadviser, Eagle.
The Fund's However, there can be no assurance that the Fund's
subadviser investment objective will be achieved. The Fund is
is Eagle Asset designed for long-term investors who desire to
Management, Inc. participate in the stock market while exposing
themselves to more investment risk and volatility
than the stock market in general, but less
investment risk and volatility than many aggressive
capital appreciation funds.
The Fund's subadviser will invest in common
stocks that it believes have sufficient growth
potential to offer above average long-term capital
appreciation. Companies in which the subadviser will
invest will have at least one of the following
characteristics at the time of purchase:
o expected earnings-per-share growth greater than
the average of the Standard & Poor's 500
Composite Stock Price Index ("S&P 500"), or
o return on equity greater than the average for
the S&P 500.
Under normal market conditions, at least 65% of
the Fund's total assets will be invested in U.S.
common stocks. A majority of the Fund's total assets
will be invested in common stock with market
capitalization of greater than $5 billion at the
time of purchase. With respect to the other 35% of
its total assets, the Fund may invest in common
stocks of foreign issuers, ADRs, foreign currency
transactions with respect to underlying common
stocks, preferred stock, investment grade securities
convertible into common stocks, futures contracts,
options on equity securities or equity security
indices, rights or warrants to subscribe for or
purchase common stocks, obligations of the U.S.
Page 15
<PAGE>
Government, its agencies and instrumentalities
(including repurchase agreements thereon) and in
securities that track the performance of a
broad-based securities index, such as Standard &
Poor's Depository Receipts ("SPDRs"). In no case,
however, may the Fund invest more than 25% of its
net assets in foreign securities and ADRs. The Fund
may loan its portfolio securities. No more than 10%
of the Fund's net assets may be invested in
securities that, at the time of investment, are
illiquid.
The Growth Stock selections are made in part based on the
Equity Fund subadviser's opinion regarding the sustainability of
invests in the company's competitive advantage in the
companies that marketplace as well as its opinion of the company's
have expected management team. The Fund's subadviser invests in
earnings-per- companies that, in its opinion, have long-term
share growth or returns greater than the average for the companies
return on equity included in S&P 500. The subadviser normally
greater than the reevaluates a security if it under performs the S&P
average for the 500 by 15% or more during a three-month period. At
S&P 500. that time a decision is made to sell or hold the
security. If a particular stock appreciates to over
5% of the total assets of the portfolio, the
subadviser generally reduces the position to less
than 5%. If the stock price appreciates to a level
that, in the opinion of the subadviser, is not
sustainable, the position generally is sold to
realize the existing profits and avoid a potential
price correction. If the subadviser identifies a
holding that it considers to be a better investment
than a current holding, it generally considers
selling the current holding to add the new security.
INCOME-GROWTH TRUST
-------------------
The Income- The Income-Growth Trust's investment objective
Growth Trust is long-term total return by seeking, with
seeks long-term approximately equal emphasis, current income and
total return by capital appreciation. The Fund's subadviser is
seeking, with Eagle. The Fund may invest a portion of its assets
approximatley in lower-rated securities, as discussed below.
equal emphasis, Although investing in lower-rated securities may
current income offer the potential for above-average income, it
and capital also increases the risk of loss of principal.
appreciation. Therefore, an investment in the Fund is subject to a
higher risk of loss of principal than an investment
in a fund that does not invest in lower-rated
securities.
The Fund invests primarily in income-producing
securities that its subadviser believes are
The Fund's consistent with the Fund's investment objective.
subadviser is These securities may include equity securities,
Eagle Asset convertible securities, corporate debt obligations,
Management, Inc. U.S. Government securities, money market
instruments, securities of real estate investment
trusts ("REITs"), and INC. repurchase agreements.
The Fund can The Fund also may write covered call options on
invest in high- common stocks in order to earn additional income.
yield bonds The aggregate value of the securities underlying
(commonly call options (based on the lower of the option price
referred to as or market) may not exceed 50% of the Fund's net
"junk bonds"). assets. The Fund may loan portfolio securities and
invest in warrants. The Fund will have a majority of
its investments in common stocks or securities
convertible into common stocks. The Fund may invest
a portion of its assets in securities rated B or Ba
by Moody's or B or BB by S&P or, if unrated, deemed
to be of comparable quality by the Fund's
subadviser. The Fund may purchase and sell
securities without regard to the length of time the
securities have been held. The Fund may invest up to
10% of its net assets in illiquid securities. In
Page 16
<PAGE>
addition, the Fund may invest up to 25% of its total
assets in forward commitments, although it has no
intention of investing in such securities at this
time.
The Fund may invest up to 20% of its assets in
foreign securities, including ADRs and similar
investments. The Fund also may purchase domestic
Eurodollar certificates of deposit without regard to
the 20% limit. The Fund may engage in forward
contracts to purchase or sell foreign currencies at
a future date.
Equity securities The Fund's investments in equities generally
in which the Fund will have a weighted average dividend yield in
invests generally excess of the weighted average dividend yield of the
will have a yield issuers included in the S&P 500. Further, equities
greater than the in which the Fund may invest generally will be those
yield of issuers whose prospects for dividend growth and capital
included in the appreciation are considered favorable by the Fund's
S&P 500. subadviser.
The Fund may The Fund may invest in nonconvertible corporate
invest in debt obligations, primarily for interest income,
investment grade that are rated Baa by Moody's or BBB by S&P or above
debt obligations ("investment grade securities"). In addition, Fund
and lower-rated may invest not more than 10% of its assets in
securities. nonconvertible corporate debt obligations that are
rated below investment grade by Moody's or S&P. The
Fund may invest in convertible securities rated B or
better by Moody's or S&P. However, in no instance
will the Fund invest 35% or more of its assets in
below investment grade convertible and
nonconvertible securities.
The Fund, at the discretion of its subadviser,
may retain a security that has been downgraded below
the initial investment criteria. If an obligation is
unrated, the Fund may invest in it if it is deemed
to be of comparable quality by the Fund's
subadviser.
The table below shows the percentages of the
Fund's assets invested during fiscal year 1997 in
securities assigned to the various ratings
categories by Moody's and S&P and in unrated
securities determined by the Fund's subadviser to be
of comparable quality. These figures are
dollar-weighted averages of month-end Fund holdings
for the fiscal year ended September 30, 1997,
presented as a percentage of total net assets. These
percentages are historical and are not necessarily
indicative of the quality of current or future
investment portfolio holdings, which will vary.
<TABLE>
<CAPTION>
COMPARABLE QUALITY OF
RATED SECURITIES UNRATED SECURITIES AS A
AS A PERCENTAGE OF THE PERCENTAGE OF THE
FUND'S ASSETS FUND'S ASSETS
------------- -------------
<S> <C> <C> <C> <C>
MOODY'S/S&P MOODY'S S&P MOODY'S S&P
----------- ------- --- ------- ---
A 1.45% 3.22% 0.26% 0.04%
BBB/Baa 2.96% 1.88% 0.06% 0.22%
BB/Ba 0.72% 0.21% 0.81% 0.88%
B 4.35% 3.20% 2.05% 2.74%
CCC 0.00% 0.20% 0.09% 0.00%
D 0.00% 0.00% 0.07% 0.07%
Total 9.48% 8.71% 3.33% 3.94%
----- ----- ----- -----
</TABLE>
Page 17
<PAGE>
MID CAP GROWTH FUND
-------------------
The Mid Cap The Mid Cap Growth Fund's investment objective
Growth Fund is long-term capital appreciation. The Fund seeks to
seeks long-term achieve this investment objective, under normal
capital market conditions, by investing at least 80% of its
appreciation. total assets in the equity securities of companies
each of which has a total market capitalization of
between $500 million and $5 billion ("mid cap
The Mid Cap companies") at the time of purchase. By comparison,
Growth Fund's the mean market capitalization for the companies
subadviser is in the S&P 500, an unmanaged index of 500 widely
Eagle Asset held common stocks, is approximately $13.6 billion
Management, Inc. as of June 30, 1997. The mean market capitalization
for the companies in the Standard and Poor's
Midcap 400 Index ("S&P 400") is $1.9 billion as of
June 30, 1997. The weighted average market
market capitalization for the S&P 500 is $51.1
billion compared to $2.9 billion for the S&P 400.
Market capitalization is the total value of a
company's outstanding common stock. The Fund's
subadviser is Eagle.
The Fund invests The Fund invests primarily in common stocks, but
primarily in companies also may invest in preferred stocks securities
with a total market convertible into common stock, ADRs and warrants
capitalization of ("equity securities"). The Fund may invest up to 5%
$500 million to $5 of its assets in convertible securities rated below
billion. investment grade by S&P or Moody's, or unrated
securities deemed to be below investment grade by
Eagle. The Fund may purchase securities traded on
recognized securities exchanges and in the
over-the-counter market.
The Fund may invest its remaining assets in
corporate debt securities, U.S. Government
securities, repurchase agreements or other
short-term money market instruments. The Fund may
invest up to 5% of its net assets in each of the
following types of investments: foreign securities
and SPDRs and other similar securities. The Fund
also may invest up to 15% of its assets in illiquid
securities. The Fund may purchase and sell a
security without regard to the length of time the
security will be or has been held. Although the Fund
will not trade primarily for short-term profits, it
may make investments with potential for short-term
appreciation when such action is deemed desirable
and in the best interest of shareholders. See
"Brokerage Practices" in the SA1.
The Fund's subadviser currently believes that
investments in mid cap companies generally are
considered to be less volatile than less capitalized
emerging companies and slightly more volatile than
large capitalization companies. In addition, such
companies may not generate the dividend income of
larger, more capitalized companies. Dividend income,
if any, is not a primary consideration in the
selection of investments.
Page 18
<PAGE>
SMALL CAP STOCK FUND
---------------------
The Small Cap The Small Cap Stock Fund's investment objective
Stock Fund seeks is long-term capital appreciation. The Fund seeks to
long-term capital achieve this objective primarily through the
appreciation. purchase of equity securities of companies, each of
which has a total market capitalization of less than
$1 billion ("small capitalization companies").
Market capitalization is the total value of a
The Small Cap company's outstanding common stock. The Fund will
Stock Fund's invest in securities of companies that appear to be
subadvisers are undervalued in relation to their long-term earning
Eagle Asset power or the asset value of their issuers and that
Management, Inc. have significant future growth potential, in the
and Awad & opinion of Eagle or Awad & Associates ("Awad"), the
Associates. Fund's subadvisers ("collectively, "Small Cap
Subadvisers"). Securities may be undervalued because
of many factors, including 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 the long-term prospects for the
companies in question. However, there can be no
assurance that the Fund's investment objective will
be achieved.
The Fund invest The Fund invests primarily in common stocks but
primarily in the also may invest in preferred stocks, investment
common stock of grade securities convertible into common stock and
small warrants ("equity securities"). The Fund may
capitalization purchase securities traded on recognized securities
companies. This exchanges and in the over-the-counter market. The
generally involves Fund normally invests at least 80% of its total
greater risk than assets in the equity securities of companies each of
investing in which, at the time of purchase, has a total market
larger, more capitalization of less than $1 billion. By
established comparison, the mean market capitalization for the
companies. companies in the S&P 500 is approximately $11.3
billion as of December 31, 1996.
The Fund may invest its remaining assets in
securities convertible into common stock, ADRs, U.S.
Government securities, repurchase agreements or
other short-term money market instruments. The Fund
may invest up to 5% of its assets in convertible
securities rated below investment grade by S&P or
Moody's, or unrated securities deemed to be below
investment grade by its Subadvisers. The Fund also
may invest up to 15% of its net assets in illiquid
securities. The Fund may purchase and sell a
security without regard to the length of time the
security will be or has been held. Although the Fund
will not trade primarily for short-term profits, it
may make investments with potential for short-term
appreciation when such action is deemed desirable
and in the best interest of shareholders. See
"Brokerage Practices" in the SAI.
The Small Cap Subadvisers currently believe that
investments in small capitalization companies may
offer greater opportunities for growth of capital
than investments in larger, more established
companies. Investing in smaller, newer issuers
generally involves greater risks than investing in
larger more established issuers. Companies in which
the Fund is likely to invest may have limited
product lines, markets or financial resources and
may lack management depth. The securities issued by
such companies may have limited marketability and
may be subject to more abrupt or erratic market
Page 19
<PAGE>
movements than securities of larger, more
established companies or the market averages in
general. In addition, many small capitalization
companies may be in the early stages of development.
Accordingly, an investment in the Fund may not be
appropriate for all investors.
Heritage believes that short-term volatility may
be reduced by allocating the Fund's assets among
multiple subadvisers. While Eagle and Awad will
focus on investments in small capitalization
companies, the different investment disciplines
employed by them may cause the portion of the Fund's
assets allocated to Eagle or Awad to have better or
worse relative performance than the other portion
during certain market conditions. By employing
multiple disciplines, short-term volatility may be
reduced while the Fund participates in returns
available from small capitalization companies. The
potential benefits of this multiple subadviser
approach may be partially reduced, however, because
there currently are only two Small Cap Subadvisers
and because there may be overlap among the
securities portfolios of Eagle and Awad.
Eagle makes investment decisions on behalf of
its allocated portion of the Fund's assets. In
making its investment decisions, Eagle generally
focuses on investing in the securities of companies
that Eagle believes have accelerating earnings
growth rates, reasonable valuations (typically with
a price-to-earnings ratio of no more than 75% of the
earnings growth rate), strong management that
participates in the ownership of the company,
reasonable debt levels and a high or expanding
return on equity. Of course, not all companies in
the portfolio will meet all of these criteria to the
same degree. Eagle utilizes a bottom-up approach to
identifying the companies in which it invests. This
approach will include some reliance on the research
of regional and national securities firms, including
Raymond James & Associates, Inc. Eagle also will
perform fundamental financial research and
frequently will rely on contact with company
management to help identify investment
opportunities.
Awad makes investment decisions on its allocated
portion of the Fund's assets. Awad employs an
investment management approach that seeks to provide
investment returns in excess of inflation while
attempting to minimize volatility relative to the
overall small cap market. Awad seeks to achieve
these goals through fundamental research consisting
of internal research, the use of Raymond James &
Associates, Inc.'s research and the research of high
quality regional and Wall Street firms. There may be
some overlap among the portions of the Fund managed
by Awad and Eagle. The companies in which Awad
invests generally will have, in the opinion of Awad,
steady earnings and cash flow growth, good and/or
improving balance sheets, strong positions in their
market niches and the ability to perform well in a
stagnant economy. The companies purchased generally
will have low price/earnings ratios relative to the
stock market in general.
VALUE EQUITY FUND
-----------------
The Value Equity The Value Equity Fund's primary investment objective
Fund seeks long-term is long-term capital appreciation. Current income
capital appreciation; is a secondary objective. In seeking these
current income is a objectives, the Fund may invest without limit in
secondary objective. common stocks that, when purchased, meet certain
quantitative standards that in the judgment of
the Fund's subadviser, Eagle, indicate above average
financial soundness and high intrinsic value
relative to price. In particular, each common stock
must have at least one of the following attributes
in order to meet the subadviser's investment
criteria when purchased by the Fund:
Page 20
<PAGE>
The Value Equity . LOW PRICE IN RELATION TO THE ISSUER'S EARNINGS
Fund's Subadviser Is OR BOOK VALUE: The stock must have a
Eagle Asset price-to-earnings ratio or price-to-book value
Management ratio of less , INC. than or approximately equal
to 75% of that of the broader equity market (as
measured by the S&P 500);
The Value Equity . HIGH DIVIDEND YIELD: The stock's yield must
Fund Invests In approximate at least 50% of the prevailing
Companies That Meet average yield to maturity of the long-term U.S.
Certain Investment Government bond, as measured by the Lehman
Criteria Relating To Brothers Long Treasury Bond Index (or other
Price, Dividend similar index if this index is not available);
Yield, Going Concern
Value And Debt . HIGH VALUE OF ISSUER AS A GOING CONCERN: The
Levels. stock's per share going concern value (as
estimated by the Fund's subadviser) must exceed
book value and market value; or
. LOW DEBT: The long-term debt of the issuer must
be below, or approximately equivalent to, the
issuer's tangible net worth.
Under normal market conditions, at least 65% of
the Fund's total assets will be invested in U.S.
common stocks. With respect to the other 35% of its
total assets, the Fund may invest in common stocks
of foreign issuers, ADRs, foreign currency
transactions with respect to underlying common
stock, preferred stock, investment grade securities
convertible into common stocks, futures contracts,
options on equity securities or equity security
indices, rights or warrants to subscribe for or
purchase common stocks, obligations of the U.S.
Government, its agencies and instrumentalities
(including repurchase agreements thereon) and in
securities that track the performance of a
broad-based securities index, such as SPDRs. In no
case with the Fund invest more than 15% of its net
assets in foreign securities. The Fund may loan its
portfolio securities.
The portion of total assets invested in common
stocks and debt securities will vary based on the
availability of common stocks meeting the foregoing
criteria and the subadviser's evaluation of the
investment merit of common stocks relative to debt
securities. No more than 10% of the Fund's net
assets may be invested in securities that, at the
time of investment, are illiquid. See "Investment
Information" in the SAI for a more detailed
discussion of these securities, including related
risks.
In selecting securities, the Fund's subadviser
screens a universe of over 2500 companies. From this
universe, it anticipates that only a few hundred
companies will meet one or more of its investment
criteria. Each of these companies is analyzed
individually in terms of its past and present
competitive position within its respective industry.
Selections will be made based on the subadviser's
projections of the companies' growth in earnings and
dividends, earnings momentum, and undervaluation
based on a dividend discount model. Target prices
and value ranges are developed from this analysis
and portfolio selection will be made from among the
top-rated securities.
Page 21
<PAGE>
The subadviser periodically monitors the Fund's
equity securities to assure that they continue to
meet the selection criteria. A security normally
will be sold once it reaches its target price, when
negative changes occur with respect to the company
or its industry, or when there is a significant
change in the security with respect to one or more
of the four selection criteria listed above. The
Fund may at times continue to hold equity securities
that no longer meet the criteria but the subadviser
deems suitable investments in view of the Fund's
investment objectives.
POLICIES AND RISK FACTORS APPLICABLE TO MULTIPLE
FUNDS
----------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS. Each Fund can
invest in ADRs, which typically are issued by a U.S.
bank or trust company and evidence ownership of the
underlying securities of foreign issuers. Generally,
ADRs 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 convened. ADRs are subject to many of the risks
inherent in investing in foreign securities, as
discussed below. For a further discussion of ADRs
and other types of depository receipts, see the SAI.
CONVERTIBLE SECURITIES. Each Fund can invest in
convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for
a prescribed amount of common stock of the same or a
different issue within a particular period of time
at a specified price or formula. A convertible
security entitles the holder to receive interest
paid or accrued on debt or dividends paid on
preferred stock until the convertible stock matures
or is redeemed, converted or exchanged. Convertible
securities have unique investment characteristics in
that they generally have higher yields than common
stocks, but lower yields than comparable
nonconvertible securities, are less subject to
fluctuation in value than the underlying stock
because they have fixed-income characteristics and
provide the potential for capital appreciation if
the market price of the underlying common stock
increases.
FOREIGN SECURITIES. Each Fund, other than the
Small Cap Stock Fund, can invest in foreign
securities. Investments in securities of foreign
issuers, or securities principally traded overseas,
may involve certain special risks due to foreign
economic, political and legal development, including
favorable or unfavorable changes in currency
exchange rates, exchange control regulations,
expropriation of assets or nationalization,
imposition of withholding taxes on dividend or
interest payments, and possible difficulty in
obtaining and enforcing judgments against foreign
entities. Furthermore, foreign issuers are subject
to different, often less comprehensive, accounting,
reporting and disclosure requirements than domestic
issuers. The securities of some foreign companies
and foreign securities markets are less liquid and
at times more volatile than securities of comparable
U.S. companies and U.S. securities markets. Foreign
brokerage commissions and other fees generally are
higher than in the United States. Foreign settlement
procedures and trade regulation may involve certain
risks (such as delay in payment or delivery of
securities or in the recovery of assets held abroad)
and expenses not present in the settlement of
domestic investments. There also are special tax
considerations that apply to foreign currency
denominated securities.
Page 22
<PAGE>
FORWARD COMMITMENTS, WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS. The Eagle International
Equity Portfolio and Income-Growth Trust can make
contracts to purchase securities for a fixed price
at a future date beyond normal settlement time
("forward commitments"). In addition, the Eagle
International Equity Portfolio can purchase
portfolio securities on a when-issued basis and may
purchase and sell such securities for delayed
delivery. Forward commitments, when-issued
transactions and delayed delivery purchases involve
a risk of loss if the value of the securities
declines prior to the settlement date, which risk is
in addition to the risk of decline in the value of
the Fund's other assets. No income accrues to the
purchaser of such securities prior to delivery.
INVESTMENT GRADE AND LOWER-RATED SECURITIES.
Each Fund can invest in securities rated investment
grade. Investment grade securities include
securities rated BBB or above by S&P or Baa by
Moody's or, if unrated, are deemed to be of
comparable quality by a Fund's subadviser.
Securities rated in the lowest category of
investment grade are considered to have speculative
characteristics and changes in economic conditions
are more likely to lead to a weakened capacity to
pay interest and repay principal than is the case
with higher grade bonds. Each Fund may retain a
security that has been downgraded below investment
grade if, in the opinion of its subadviser, it is in
the Fund's best interest.
As described above, the Eagle International
Equity Portfolio, Income-Growth Trust, Mid Cap
Growth Fund and Small Cap Stock Fund can invest in
securities rated below investment grade by S&P or
Moody's, or unrated securities deemed to be below
investment grade by its subadviser. The price of
lower-rated securities tends to be less sensitive to
interest rate changes than the price of higher-rated
securities, but more sensitive to adverse economic
changes or individual corporate developments.
Securities rated below investment grade are deemed
to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay
principal and may involve major risk exposure to
adverse conditions. See the SAI for a discussion of
the risks associated with investment grade and
lower-rated securities and the Appendix to the SAI
for a description of S&P and Moody's corporate bond
ratings.
Lower-rated securities (commonly referred to as
"junk bonds") generally offer a higher current yield
than that available for higher-grade issues.
However, lower-rated securities involve higher
risks, in that they are especially subject to
adverse changes in general economic conditions and
in the industries in which the issuers are engaged,
to changes in the financial condition of the issuers
and to price fluctuations in response to changes in
interest rates. During periods of economic downturn
or rising interest rates, highly leveraged issuers
may experience financial stress that could affect
adversely their ability to make payments of interest
and principal and increase the possibility of
default. In addition, the market for lower rated
securities has expanded rapidly in recent years, and
its growth paralleled a long economic expansion. The
market for lower-rated securities generally is
thinner and less active than that for higher-quality
securities, which may limit a Fund's ability to sell
such securities at fair value in response to changes
in the economy or financial markets. Adverse
publicity and investor perceptions, whether or not
based on fundamental analysis, also may decrease the
values and liquidity of lower-rated securities,
especially in a thinly traded market.
Page 23
<PAGE>
OPTIONS. The Income-Growth Trust and the Value
Equity Fund can sell (write) covered call options on
common stocks in its investment portfolio or on
common stocks into which securities held by it are
convertible to earn additional income. The Funds
receives a premium on the sale of an option but
gives up the opportunity to profit from any increase
in stock value above the exercise price of the
option. The aggregate value of the securities
underlying call options (based on the lower of the
option price or market) may not exceed 50% of the
Income-Growth Trust's net assets. The Funds also may
purchase call options to close out call options it
has written. The principal risks associated with the
use of options are (1) the possible lack of a liquid
market for closing out options positions, (2) the
need for additional portfolio management skills and
techniques, and (3) potential losses due to
unanticipated market price movements.
REAL ESTATE INVESTMENT TRUSTS. Each Fund can
invest in REITs, including 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 1940 Act, and the fact that REITs
are not diversified.
REPURCHASE AGREEMENTS. Each Fund can invest in
repurchase agreements. Repurchase agreements are
transactions in which a Fund purchases securities
and 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 maturity of the purchased
securities. Although repurchase agreements carry
certain risks not associated with direct investment
in securities, including possible declines in the
market value of the underlying securities and delays
and costs to the Fund if the other party becomes
bankrupt, the Funds intend to enter into repurchase
agreements only with banks and dealers in
transactions believed by the applicable subadviser
to present minimal credit risks in accordance with
guidelines established by the Board of Trustees.
TEMPORARY DEFENSIVE PURPOSES. For temporary
defensive purposes during anticipated periods of
general market decline, each Fund, other than the
Eagle International Equity Portfolio, may invest up
to 100% of its net assets in money market
instruments, including securities issued 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 at
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 S&P or Moody's. For a description of
S&P or Moody's commercial paper and corporate debt
ratings, see the Appendix to the SAI.
Page 24
<PAGE>
In addition, for temporary defensive purposes,
the Eagle International Equity Portfolio may invest
all or a major portion of its assets in (1) foreign
debt securities, (2) debt and equity securities of
U.S. issuers, and (3) obligations issued or
guaranteed by the United States or a foreign
government or their respective agencies, authorities
or instrumentalities.
NET ASSET VALUE
====================================================
The net asset value The net asset value of each Fund's shares
of each Fund's fluctuates and is determined separately for each
shares are class as of the close of regular trading - normally
calculated daily as 4:00 p.m. Eastern time - on the New York Stock
of the close of Exchange ("Exchange") each day it is open. Each
regular trading on Fund's net asset value per share is calculated by
the New York Stock dividing the value of the total assets, less
Exchange. liabilities, by the total number of Fund shares
outstanding. The per share net asset value of each
class of shares may differ as a result of the
different daily expense accruals applicable to that
class.
Each Fund values its securities and other assets
based on their market value based on the last sales
price as reported by the principal securities
exchange on which the securities are 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 Heritage or a
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 believes 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 rate
prevailing at the time a Fund calculates its net
asset value per share. Although the Eagle
International Equity Portfolio values its assets in
U.S. dollars on a daily basis, it does not intend to
convert holdings of foreign currencies into U.S.
dollars on a daily basis. For more information on
the calculation of net asset value, see "Net Asset
Value" in the SAI.
PERFORMANCE INFORMATION
====================================================
Total return data of each class from time to
time may be included in advertisements about each
Fund. Performance information is computed separately
for each class in accordance with the methods
described below. Because B shares and C shares bear
higher Rule 12b-1 fees, the performance of B shares
and C shares of a Fund likely will be lower than
that of A shares.
Total return with respect to a class for the
one-, five- and ten-year periods or, if such periods
have not yet 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 B
shares and C shares, giving effect to the deduction
of any contingent deferred sales load ("CDSL") that
would be payable). In addition, each Fund also may
advertise its total return in the same manner, but
without taking into account the initial sales load
or CDSL. Each Fund also may advertise total return
Page 25
<PAGE>
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, B share and C share
over a period of time, adjusted for dividends and
other distributions. A share, B share and C share
performance may be compared with various indices.
All data is based on each Fund'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 a Fund's investment portfolio and a
Fund's operating expenses. Investment performance
also often reflects the risks associated with a
Fund's investment objective and policies. These
factors should be considered when comparing a Fund's
investment results to those of other mutual funds
and other investment vehicles. Additional
performance information is contained in each Fund's
annual report to shareholders, which may be
obtained, without charge, by contacting your Fund at
(800) 421-4184. For more information on investment
performance, see the SAI.
INVESTING IN THE FUNDS
PURCHASE PROCEDURES
====================================================
You may buy Shares of each Fund are offered continuously
shares of each through the Funds' principal underwriter, Raymond
Fund by: 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
each Fund, see "Choosing a Class of Shares."
When placing an order to buy shares, you should
specify whether the order is for A shares, B shares
or C shares of a Fund. All purchase orders that fail
to specify a class automatically will be invested in
A shares, which include a front-end sales load. The
Funds and the Distributor reserve the right to
reject any purchase order and to suspend the
offering of Fund shares for a period of time.
Certificates will not be issued for B shares.
Page 26
<PAGE>
Calling your Shares of each Fund may be purchased through a
Financing Advisor; Financial Advisor of the Distributor, a
participating dealer or a participating bank
("Financial Advisor") by placing an order for Fund
shares with your Financial Advisor 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 Financial Advisor 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", "What Class B Shares Will Cost" and "What
Class C Shares Will Cost."
You also may purchase shares of a Fund directly
by completing and signing the Account Application
Completing the found in this Prospectus and mailing it, along with
Account your payment, to Heritage Asset Management, Inc.,
Application P.O. Box 33022, St. Petersburg, FL 33733. Indicate
contained in this the Fund, the class of shares and the amount you
Prospectus and wish to invest. Your check should be made payable to
sending your the specific Fund and class of shares you are
check; or purchasing.
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
Sending a Federal ABA #011-000-028
funds wire. Account # 3196-769-8
Name of the Fund
The class of Shares to be purchased
(Your Account Number Assigned by the Fund)
(Your Name)
To open a new account with Federal funds or by
wire, you must contact Heritage or your Financial
Advisor 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 Funds" in the SAI.
Page 27
<PAGE>
MINIMUM INVESTMENT REQUIRED/ACCOUNTS WITH LOW
BALANCES
===================================================
An initial Except as provided under "Systematic Investment
investment must Programs," the minimum initial investment in a Fund
be at least $1,000. is $1,000, and a minimum account balance of $500
A minimum balance must be maintained. These minimum requirements may
of $500 must be be waived at the discretion of Heritage. In
maintained. addition, initial investments in Individual
Retirement Accounts ("IRAs") may be reduced or
waived under certain circumstances. Contact Heritage
or your Financial Advisor for further information.
Due to the high cost of maintaining accounts
with low balances, it is currently each Fund's
policy to redeem Fund shares in any account if the
account balance falls below the required minimum
value of $500, except for retirement accounts. You
will be given 30 days' notice to bring your account
balance to the minimum required or the Fund may
redeem shares in the account and pay you the
proceeds. The Funds do not apply this minimum
account balance requirement to accounts that fall
below the minimum due to market fluctuation.
SYSTEMATIC INVESTMENT PROGRAMS
====================================================
Each Fund offers A variety of systematic investment options are
investors a variety available for the purchase of Fund shares. These
of convenient options provide for systematic monthly investments
features and of $50 or more through systematic investing, payroll
benefits, including or government direct deposit, or exchange from
dollar cost another registered mutual fund advised or
averaging. administered by Heritage ("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 Heritage at (800)
421-4184 or your Financial Advisor
RETIREMENT PLANS
===================================================
Shares of the Funds may be purchased as an
investment in Heritage IRA plans. In addition,
shares may be purchased as an investment for
self-directed IRAs, Section 403(b) annuity plans,
defined contribution plans, self-employed individual
retirement plans ("Keogh Plans"), Simplified
Employee Pension Plans ("SEPs"), Savings Incentive
Match Plans for Employees ("SIMPLEs") and other
retirement plans. For more detailed information on
retirement plans contact Heritage at (800) 421-4184
or your Financial Advisor and see "Investing in the
Funds" in the SAI.
Page 28
<PAGE>
CHOOSING A CLASS OF SHARES
===================================================
A shares have a Each Fund offers three classes of shares, A
front-end sales load shares, B shares and C shares. The primary
and lower annual difference among these classes lies in their sales
expenses than B charge structures and ongoing expenses.
shares or C shares.
B shares and C . CLASS A SHARES. A shares may be purchased at a
shares have a CDSL price equal to their net asset value per share
on redemptions made next determined after receipt of an order, plus
within a certain a maximum sales load of 4.75% imposed at the
period after time of purchase. Ongoing Rule 12b-1 fees for A
purchase. shares are lower than the ongoing Rule 12b-1
fees for B shares and C shares.
. CLASS B SHARES. B shares may be purchased at net
asset value with no initial sales charge. As a
result, the entire amount of your purchase is
invested immediately. B shares are subject to
higher ongoing Rule 12b-1 fees than A shares. A
maximum contingent deferred sales load ("CDSL")
of 5% may be imposed on redemptions of B shares
made within six years of purchase. After eight
years, B shares convert to A shares, which have
lower ongoing Rule 12b-1 fees and no CDSL.
. CLASS C SHARES. C shares may be purchased at net
asset value with no initial sales charge. As a
result, the entire amount of your purchase is
invested immediately. C shares are subject to
higher ongoing Rule 12b-1 fees than A shares. A
maximum CDSL of 1% may be imposed on redemptions
of C shares made in less than one year of
purchase. C shares do not convert to any other
class of shares.
The purchase plans offered by each Fund 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 choose You should consider whether, during the
a share class that anticipated length of your intended investment in a
meets your Fund, the accumulated ongoing Rule 12b-1 fees plus
investment the CDSL on B shares and C shares would exceed the
objectives. Please initial sales load plus accumulated ongoing Rule
consult with your 12b-1 fees on A shares purchased at the same time.
Financial Advisor. For short-term investments, A shares are subject to
higher costs than B shares and C shares because of
the initial sales charge. For longer investments, A
shares are more suitable than B shares and C shares
because A shares are subject to lower ongoing Rule
12b-1 fees. Depending on the number of years you
hold A shares, the continuing Rule 12b-1 fees on B
shares or C shares eventually would exceed the
initial sales load plus the ongoing Rule 12b-1 fees
on A shares during the life of your investment.
You might determine that it would be more
advantageous to purchase B shares or C shares in
order to invest all of your purchase payment
initially. However, your investment would remain
subject to higher ongoing Rule 12b-1 fees and
subject to a CDSL if you redeem B shares during the
first six years after purchase and C shares less
than one year after purchase. 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.
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
for purchases of B shares or C shares. For example,
if you intend to invest more than $1,000,000 in a
Fund, you should purchase A shares to take advantage
of the sales load waiver.
Page 29
<PAGE>
Financial Advisors may receive different
compensation for sales of A shares than sales of B
shares or C shares.
WHAT CLASS A SHARES WILL COST
====================================================
The Sales load on
A shares will vary A Fund's public offering price for A shares is
depending on the the next determined net asset value per share plus a
amount you sales charge determined in accordance with the
invest. following schedule:
<TABLE>
<CAPTION>
Sales Load As A Percentage Of
-----------------------------
Net Amount Dealer Concession
Invested as Percentage of
Amount Of Purchase Offering Price (Net Asset Value) Offering Price(1)
------------------ -------------- ---------- -----------------
<S> <C> <C> <C> <C>
Value)
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%
$l00,000-$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% 0.00% (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) Heritage 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.
Page 30
<PAGE>
The sales load on A shares may be sold at net asset value without
A shares may be any sales load to: Heritage, Eagle, and each Fund's
waived under subadvisers; current and retired officers and
certain Trustees of the Trust; directors, officers and
circumstances. full-time employees of Heritage, Eagle, the
Subadviser of any Heritage Mutual Fund, the
Distributor and their affiliates; registered
Financial Advisors and employees 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
party to agency agreements with the Distributor, and
all such persons' immediate relatives and their
beneficial accounts. In addition, the American
Psychiatric Association 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. Members of the APA Group also are
eligible to purchase A shares at net asset value in
amounts equal to the value of shares redeemed from
other mutual funds that were purchased under reduced
sales load programs available to their organization.
A shares also may be purchased without sales loads
by investors who participate in certain
broker-dealer wrap fee investment programs.
Fund shares also may be purchased without a
sales charge if (1) within 90 days of the purchase
of Trust shares the purchaser redeemed shares of one
or more mutual funds for which a retail
broker/dealer or its affiliate was principal
underwriter (proprietary funds), provided that the
purchaser either paid a sales charge to invest in
those funds or held shares of those shares for the
period required not to pay the otherwise applicable
CDSL, and (2) the total value of shares of all
Heritage Mutual Funds purchased under this sales
charge waiver does not exceed the amount of the
purchaser's redemption proceeds from the proprietary
funds. To take advantage of this waiver, you must
provide satisfactory evidence that all the
above-noted conditions are met. Qualifying investors
should contact their Financial Advisors for more
information.
HERITAGE NET ASSET VALUE ("NAV") TRANSFER PROGRAM
-------------------------------------------------
You may qualify A shares of each Fund may be purchased at net
for a purchase asset value without any sales load under Heritage's
with no sales load NAV Transfer Program. To qualify for the NAV
under the Transfer Program, you must provide adequate proof
Heritage NAV that within 90 days prior to the purchase of a
Transfer Heritage Mutual Fund you redeemed shares from a load
Program. 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 You may qualify for the sales load reductions
for a reduced indicated in the above sales load schedule by
sales load by combining purchases of A shares into a single
combining "purchase" if the resulting "purchase" totals at
purchases. least $25,000. For additional information regarding
the Combined Purchase Privilege, see the Account
Application or "Investing in the Funds" in the SAI.
Page 31
<PAGE>
STATEMENT OF INTENTION
A Statement of You also may obtain the reduced sales loads
Intention allows shown in the above sales load schedule by means of a
you to reduce the written Statement of Intention, which expresses your
sales load on intention to invest not less than $25,000 within a
combined period of 13 months in A shares of any Fund or A
purchases of shares of any other Heritage Mutual Fund subject to
$25,000 or more a sales load ("Statement of Intention"). If you
over any 13- qualify for the Combined Purchase Privilege, you may
month period. 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 a Fund,
please complete the appropriate portion of the
Account Application found in this Prospectus.
Current Fund shareholders desiring to do so can
obtain a Statement of Intention by contacting
Heritage or the Distributor at the address or
telephone number listed on the cover of this
prospectus, or from their Financial Advisor.
For more information on the reduction or waiver
of the sales load, see "Investing in the Funds" in
the SAI
WHAT CLASS B SHARES WILL COST
====================================================
The CDSL B shares may be purchased at net asset value
imposed on without a front-end sales charge, but are subject to
redemptions of B a 5% maximum CDSL on redemption of B shares held for
shares will less than an eight-year period. In addition, B
depend on the shares are subject to a Rule 12b-1 fee of 1.00% of
amount of time their respective average daily net assets. B shares
you have held B are offered for sale only for purchases of less than
shares. $250,000.
The CDSL, if The CDSL imposed on redemptions of B shares will
applicable, is be calculated by multiplying the offering price (net
based on the asset value at the time of purchase) or the net
lower of purchase asset value of the shares shares at the time of
price or redemption, whichever is less, by the percentage
redemption price. shown on the following chart. The CDSL will not be
imposed on the redemption of B shares acquired as
dividends or other distributions, or on any increase
in the net asset value of the redeemed B shares
above the original purchase price. Thus, the CDSL
will be imposed on the lower of net asset value or
purchase price.
CDSL as a Percentage
of the Lesser of Net Asset
Value at Redemption or
Redemption During: the Original Purchae Price
------------------ --------------------------
1st year since purchase 5%
2nd year since purchase 4%
3rd year since purchase 3%
4th year since purchase 3%
5th year since purchase 2%
6th year since purchase 1%
Thereafter 0%
The CDSL imposed depends on the amount of time
you have held B shares. If you own B shares for more
than six years, you to not have to pay a sales
Page 32
<PAGE>
charge when redeeming those shares. Any period of
time during which B shares are held in the Heritage
Cash Trust-Money Market Fund ("Money Market Fund")
will be excluded from calculating the holding
period. B shares of the Money Market Fund obtained
through an exchange from another Heritage Mutual
Fund are subject to any applicable CDSL due at
redemption.
Under certain circumstances, the CDSL will be
waived. See "Waiver of the Contingent Deferred Sales
Load" below.
B shares will B shares will convert to A shares eight years
convert to A after the end of the calendar month in which the
shares if you have shareholder's order to purchase was accepted. The
held them for conversion will be effected at the net asset value
more than eight per share. Dividends and other distributions paid to
years. shareholders by a Fund in the form of additional B
shares also will convert to A shares on a pro rata
basis. A conversion to B shares will benefit the
shareholder because A shares have lower ongoing Rule
12b-1 fees than B shares. If you have exchanged B
shares between Heritage Mutual Funds, the length of
the holding period will be calculated from the date
of original purchase, excluding any periods during
which you held B shares of the Money Market Fund.
Such conversion will not be treated as a taxable
event.
The Distributor may pay sales commissions to
dealers who sell a Fund's B shares at the time of
the sale. Payments with respect to B shares will
equal 4% of the purchase price of the B shares.
WHAT CLASS C SHARES WILL COST
====================================================
A CDSL will be A CDSL of 1% is imposed on C shares if, less
imposed on the than one year from the date of purchase, you redeem
redemption of C an amount that causes the current value of your
shares if you have account to fall below the total dollar amount of C
held them for less shares purchased subject to the CDSL. The CDSL will
than one year. not be imposed on the redemption of C shares
acquired as dividends or other distributions, or on
The CDSL, if any increase in the net asset value of the redeemed
applicable, is C shares above . the original purchase price. Thus,
based on the the CDSL will be imposed on the lower of net asset
lower of purchase value or purchase price. In addition, C shares are
price or subject to a Rule 12b-1 fee of 1.00% of their
redemption price. respective average daily net assets.
Under certain circumstances, the CDSL will be
waived. See " Waiver of the Contingent Deferred
Sales Load" below.
The Distributor may pay sales commissions to
dealers who sell the Funds' C shares at the time of
the sale. Payments with respect to C shares will
equal 1% of the purchase price of the C shares.
MINIMIZING THE CONTINGENT DEFERRED SALES LOAD
====================================================
When you redeem B shares and C shares, the Funds
automatically will minimize the CDSL by assuming you
are selling:
o First, B shares or C shares owned through
reinvested dividends, upon which no CDSL is
imposed; and
o Second, B shares or C shares held in the
customer's account the longest.
WAIVER OF THE CONTINGENT DEFERRED SALES LOAD
====================================================
The CDSL on B The CDSL for B shares and C shares currently is
Page 33
<PAGE>
shares and C waived for: (1) any partial or complete redemption
shares will be in connection with a distribution without penalty
waived for certain under Section 72(t) of the Internal Revenue Code of
shareholders. 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 a Fund of B shares or 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 B shares and C
shares, see "Reinstatement Privilege" and "Exchange
Privilege."
HOW TO REDEEM SHARES
====================================================
There are several Redemption of Fund shares can be made by:
ways for you to
redeem your CONTACTING YOUR FINANCIAL ADVISOR. Your
shares. Financial Advisor will transmit an order to a Fund
for redemption by that Fund and may charge you a fee
for this service.
TELEPHONE REQUEST. You may redeem shares by
placing a telephone request to your Fund
(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. Each Fund, Heritage, the
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 a
Fund, Heritage, the 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 Heritage
(currently $5.00). For redemptions of less than
$50,000, you may request that the 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 proceeds of all other redemptions
will be transferred to the bank account specified on
the Account Application.
WRITTEN REQUEST. Fund shares may be redeemed by
sending a written request for redemption to
"Heritage Asset Management, Inc., P. O. Box 33022,
St. Petersburg, FL 33733." Indicate the Fund, the
class, the amount of shares you wish to redeem,
Page 34
<PAGE>
along with your account number. 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. Heritage will transmit the order
to the Fund 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 applicable Fund 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, each Fund will not knowingly
permit the purchase of A shares through the
Systematic Investment Plan if you are at the same
time making systematic withdrawals of A shares.
Heritage reserves the right to cancel systematic
withdrawals if insufficient shares are available for
two or more consecutive months.
You will not be REINSTATEMENT PRIVILEGE. If you redeem any or
charged a sales all of your A shares of a Fund, you may reinvest all
load on A shares or any portion of the redemption proceeds in A
redeemed and shares at net asset value without any sales load,
reinvested within provided that such reinvestment is made within 90
90 days of calendar days after the redemption date. If you
redemption. You redeem any or all of your B shares or C shares of a
must notify your Fund and paid a CDSL on those shares or held those
Fund when you shares long enough so that the CDSL no longer
exercise this applies, you may reinvest all or any portion of the
privilege. redemption proceeds in the same class of 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 to the extent the proceeds are
reinvested in shares of a Fund. 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 purchase is to transfer a shareholder's
interest in a Fund to his defined contribution plan,
IRA, SEP or SIMPLE. You must notify a Fund if you
intend to exercise the reinstatement privilege.
Contact Heritage or your Financial Advisor for
further information or see "Redeeming Shares" in the
SAI.
RECEIVING PAYMENT
====================================================
The redemption If a request for redemption is received by a
price generally is Fund in good order (as described below) before the
the next NAV close of regular trading on the Exchange, the shares
computed after will be redeemed at the net asset value per share
the receipt of determined at the close of regular trading on the
your redemption Exchange on that day, less any applicable CDSL for B
request. shares or C shares. Requests for redemption received
by a Fund after the close of regular trading on the
Exchange 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 B shares or C shares.
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Payment for shares redeemed by a Fund normally
will be made on the business day after redemption
was made. Proceeds from a redemption of shares by
check or pre-authorized automatic purchase may be
delayed until the funds have cleared, which may take
up to 15 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 Fund
shares.
A redemption request will be considered to be
received in "good order" if:
o the number or amount of shares and the class of
shares to be redeemed and shareholder account
number have been indicated;
o any written request is signed by a shareholder
and by all co-owners of the account with exactly
the same name or names used in establishing the
account;
o 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
o 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
Heritage, as transfer agent, under its current
signature guarantee program.
Each Fund 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, Heritage reserves the
right to redeposit those funds into your account.
For more information on receiving payment, see
"Redeeming Shares" in the SAI.
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<PAGE>
EXCHANGE PRIVILEGE
====================================================
You can exchange If you have held A shares, B shares or C shares
shares of one for at least 30 days, you can exchange some or all
Heritage Mutual of your shares for shares of the same class of any
Fund for shares of other Heritage Mutual Fund. All exchanges will be
the same class of based on the respective net asset values of the
another Heritage Heritage Mutual Funds involved. All exchanges are
Mutual Fund. 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 of shares of Heritage
Mutual Funds generally will result in the
realization of a taxable gain or loss for Federal
income tax purposes. See "Taxes."
For purposes of calculating the commencement of
the CDSL holding period for shares exchanged from a
Fund to the B shares or C shares of any other
Heritage Mutual Fund, except the 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 B shares or 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, B 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 a Fund may be exchanged for A shares
of the Heritage Cash Trust-Municipal Money Fund,
which is the only class of shares offered by that
fund. If you exchange shares of the Heritage Cash
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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. B shares and 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
Heritage at (800) 421-4184 or by calling your
Financial Advisor. In the event that you or your
Financial Advisor are unable to reach Heritage by
telephone, an exchange can be effected by sending a
telegram to Heritage. 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
Heritage or your Financial Advisor and see "Exchange
Privilege" in the SAI.
MANAGEMENT OF THE FUNDS
BOARD OF TRUSTEES
====================================================
The business and affairs of each Fund are
managed by or under the direction of the Board of
Trustees. The Trustees are responsible for managing
the Funds' business affairs and for exercising all
the Funds' 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.
INVESTMENT ADVISERS
====================================================
Heritage Asset Heritage Asset Management, Inc. is the
Management, Inc. investment adviser and administrator of each Fund,
serves as except the Eagle International Equity Portfolio.
investment Heritage is responsible for reviewing and
adviser for each establishing investment policies for these Funds as
Fund, except for well as administering their non-investment affairs.
the Eagle Heritage is a wholly owned subsidiary of Raymond
International James Financial, Inc. which, together with its
Equity Portfolio. subsidiaries, provides a wide range of financial
services to retail and institutional clients.
Heritage manages, supervises and conducts the
business and administrative affairs of these Funds
and the other Heritage Mutual Funds, which
collectively, have net assets of approximately $3.2
billion as of September 30, 1997.
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Heritage's annual investment advisory and
administration fee for the Income-Growth Trust is
0.75% of the first $100 million of the Fund's
average daily net assets and 0.60% on any assets
over $100 million of the Fund's average daily net
assets. For the Capital Appreciation Trust, Growth
Equity Fund, Mid Cap Growth Fund and Value Equity
Fund, Heritage's fee is 0.75% of each Fund's average
daily net assets. For the Small Cap Stock Fund,
Heritage's fee is 1% of the Fund's average daily net
assets on the first $50 million and 0.75% on average
daily net assets over $50 million. These fees are
computed daily and paid monthly. Heritage
voluntarily waives fees or reimburses expenses as
explained under "Total Fund Expenses" and reserves
the right to discontinue any voluntary waiver of its
fees or reimbursements to the Funds in the future.
Heritage may recover fees waived in the previous two
years.
Eagle Asset Eagle Asset Management, Inc. is the Eagle
Management, Inc. International Equity Portfolio's investment adviser.
is the investment The annual advisory fee paid monthly by the Eagle
adviser for the International Equity Portfolio to Eagle is based on
Eagle the Fund's average daily net assets and is 1.00% on
International the first $100 million of assets and .80%
Equity Portfolio. thereafter. Eagle voluntarily waives fees or
reimburses expenses as explained under "Total Fund
Expenses" and reserves the right to discontinue any
voluntary waiver of its fees or reimbursements to
the Fund in the future. Eagle may recover fees
waived in the previous two years.
Eagle has been managing private accounts since
1976 for a diverse group of clients, including
individuals, corporations, municipalities and
trusts. Eagle managed approximately $2.8 billion for
these clients as of January 31, 1997. In addition to
advising private accounts, Eagle acts as investment
adviser or subadviser to the Funds discussed herein
and three variable annuity portfolios (Eagle Core
Equity Series and Eagle Small Cap Equity Series for
Jackson National Life and Eagle Value Equity
Portfolio for Golden Select). Eagle 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.
Page 39
<PAGE>
SUBADVISERS
====================================================
The investment CAPITAL APPRECIATION TRUST. Heritage has entered
advisers employ into an agreement with Liberty Investment
subadvisers for Management, a Division of Goldman Sachs Asset
providing Management, Inc. ("GSAM"), 2502 Rocky Point Drive,
investment advice Tampa, Florida 33607, to provide investment advice
and portfolio and portfolio management services, including
management placement of brokerage orders, on behalf of the
service to the Capital Appreciation Trust. GSAM is a separate
Funds. operating division of Goldman Sachs & Co. ("Goldman
Sachs"). Goldman Sachs is registered as an
investment adviser. As of November 30, 1996, GSAM,
together with its affiliates acts as investment
adviser, administrator or distributor for assets in
excess of $94.2 Billion. For these services,
Heritage pays Liberty a monthly fee at an annual
rate equal to 0.25% of the Fund's average daily net
assets. Heritage also has entered into a subadvisory
agreement with Eagle. However, Heritage has chosen
not to allocate assets to Eagle at this time.
EAGLE INTERNATIONAL EQUITY PORTFOLIO. Eagle has
entered into a subadvisory agreement with Martin
Currie, Inc., a New York corporation, to furnish a
continuous investment program for the Eagle
International Equity Portfolio. Martin Currie is a
wholly owned subsidiary of Martin Currie Limited, a
private limited company incorporated in Scotland.
Martin Currie Limited is one of Scotland's largest
professional money managers and, together with
Martin Currie, has $8.5 Billion under management as
of December 31, 1996. Since 1881, Martin Currie
Limited and its predecessors have focused on
providing their clients with investment management
services. Martin Currie makes investment decisions
on behalf of the Fund and places all orders for
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<PAGE>
purchases and sales of securities of the Fund. Under
the agreement, Martin Currie receives an annual fee
from Eagle based on the Fund's average daily net
assets of .50% on the first $100 million of assets
and .40% thereafter.
GROWTH EQUITY FUND, INCOME-GROWTH TRUST, MID CAP
GROWTH FUND AND VALUE EQUITY FUND. Heritage has
entered into an agreement with Eagle to provide
investment advice and portfolio management services,
including placement of brokerage orders, on behalf
of these Funds. For these services, Heritage pays
Eagle a fee equal to 50% of the fees payable to
Heritage by each Fund without regard to any
reduction in fees actually paid to Heritage as a
result of voluntary fee waivers by Heritage.
SMALL CAP STOCK FUND. The assets of the Small
Cap Stock Fund are allocated among one or more
investment subadvisers, subject to review by
Heritage and the Board of Trustees. Heritage
periodically will review the allocation of such
assets and, subject to the oversight of the Board of
Trustees, at its own discretion, may reallocate the
assets between investment subadvisers when it deems
such reallocation in the best interest of the Fund's
shareholders. The Fund's assets currently are
allocated between two investment subadvisers, Eagle
and Awad. Heritage has entered into a separate
agreement with each of the subadvisers to provide
investment advice and portfolio management services,
including placement of brokerage orders, to the Fund
for a fee payable by Heritage. In the future,
Heritage may propose the addition of one or more
additional subadvisers, subject to approval by the
Board of Trustees and, if required by the 1940 Act,
Fund shareholders.
For its services to the Fund, Eagle is paid by
Heritage an annual fee equal to .50% on the first
$50 million of the Fund's average daily net assets
under Eagle's investment discretion and .375% of the
Fund's average daily net assets over $50 million
under its investment discretion. Awad, 477 Madison
Ave., New York, New York 10022, is a division of
Raymond James & Associates, Inc. and makes
investment decisions on its allocated portion of the
Fund's assets. Awad had $575 MILLION of assets under
its discretionary management at DECEMBER 31, 1996.
For its services to the Fund, Awad is paid by
Heritage an annual fee equal to .50% on the first
$50 million of the Fund's average daily net assets
under Awad's investment discretion and .375% on the
Fund's average daily net assets over $50 million
under its investment discretion.
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<PAGE>
PORTFOLIO MANAGEMENT
====================================================
CAPITAL APPRECIATION TRUST. Herbert E. Ehlers
serves as portfolio manager of the Capital
Appreciation Trust. Mr. Ehlers has been responsible
for the day-to-day management of the Fund's
investment portfolio, subject to the general
oversight of Heritage and the Board, since the
Fund's inception. Mr. Ehlers has served as a
Managing Director of Goldman Sachs and as the
Chairman, Chief Executive Officer and Chief
Investment Officer of Liberty since 1997. From 1994
to 1997, Mr. Ehlers served as the Chairman, Chief
Executive Officer and Chief Investment Officer of
Liberty Investment Management. During 1995 he also
served as a portfolio manager of Eagle and from 1984
to 1994, Mr. Ehlers was President, Chief Investment
Officer and a director of Eagle
EAGLE INTERNATIONAL EQUITY PORTFOLIO. Investment
decisions for the Eagle International Equity
Portfolio are made by a Committee of Martin Currie
organized for that purpose, and no single person is
primarily responsible for making recommendations to
the Committee. The Committee is subject to the
general oversight of Martin Currie, Eagle and the
Trustees.
GROWTH EQUITY FUND. The portfolio manager for
the Growth Equity Fund is Kenneth W. Corba. He is
responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Corba is an
Executive Vice President and Chief Investment
Officer of Eagle. Mr. Corba joined Eagle in 1995.
From 1984 to 1995, Mr. Corba held various portfolio
management positions with Stein Roe & Farnham, Inc.
INCOME-GROWTH TRUST. Louis Kirschbaum and David
M. Blount serve as co-portfolio managers for the
Income-Growth Trust. Mr. Kirschbaum and Mr. Blount
are responsible for the day-to-day management of the
Fund's investment portfolio, subject to the general
oversight of Heritage and the Board of Trustees. Mr.
Kirschbanm has been a Senior Vice President and a
portfolio manager of Eagle since July 1986 and
portfolio manager of the Fund since February 1990.
David M. Blount has been a Vice President of Eagle
since September 1993 and a portfolio manager of the
Fund since 1996. Mr. Blount was a Senior Associate
Investment Analyst in the high yield bond research
and portfolio management area of Allstate Life
Insurance Company from 1991 to 1993. Mr. Blount is a
Chartered Financial Analyst and Certified Public
Accountant.
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<PAGE>
MID CAP GROWTH FUND. Todd McCallister, PhD, CFA,
has served as portfolio manager of the Mid Cap
Growth Fund since its inception. He is responsible
for the day-to-day management of the Fund's
investment portfolio, subject to the general
oversight of Heritage and the Board. Mr. McCallister
is a Senior Vice President of Eagle. Prior to
joining Eagle in 1997, Mr. McCallister served as a
portfolio manager for IAI Mutual Funds from 1992 to
1997. Prior to 1992 he was portfolio manager at ANB
Investment Management.
SMALL CAP STOCK FUND. Bert L. Boksen serves as
portfolio manager of the portion of the Fund's
assets allocated to Eagle and James D. Awad serves
as portfolio manager of the portion of the Fund's
assets allocated to Awad. Messrs. Boksen and Awad
have been the portfolio managers since August 7,
1995 and the Fund's inception, respectively, and are
responsible for the day-to-day management of their
respective portions of the Fund's assets. Mr. Boksen
is a Senior Vice President of Eagle. Mr. Boksen was
employed for 16 years by Raymond James & Associates,
Inc. in its institutional research and sales
department. While employed by Raymond James &
Associates, Inc., Mr. Boksen served as co-head of
Research, Chief Investment Officer and Chairman of
the Raymond James & Associates, Inc. Focus List
Committee. Mr. Awad has been Chairman of Awad since
1992. Mr. Awad is assisted by Dennison T. Vern, who
joined Awad & Associates in 1992 and became
President in January 1995. From 1990 to 1992, he was
employed by Smith Barney.
VALUE EQUITY FUND. Michael J. Chren has served
as portfolio manager for the Fund since October 1997
and is responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Chren has been
a Senior Vice President and Portfolio Manager with
Eagle since 1996. From 1994 to 1996, Mr. Chren was a
Senior Research Analyst with Eagle. Prior thereto,
he worked in the Institutional Equity Department of
Raymond James & Associates, Inc. and served as a
Trader/Analyst with Junction Advisors, Inc. and with
Mabon Securities, Inc. Mr. Chren holds a bachelors
of arts and a masters of arts in architecture from
Yale University and an MBA from Carnegie Mellon
University. Mr. Chren also is a Chartered Financial
Analyst.
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<PAGE>
BROKERAGE PRACTICES
====================================================
Each Fund may use the Distributor or other
affiliated broker-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.
In selecting broker-dealers, each subadviser may
consider research and brokerage services furnished
to it and its affiliates. Subject to seeking the
most favorable price and execution available, each
subadviser may consider sales of shares of a Fund as
a factor in the selection of broker-dealers. See
"Brokerage Practices" in the SAI.
FUND ACCOUNTANT, ADMINISTRATOR AND TRANSFER AGENT
====================================================
Heritage is the transfer agent for each Fund and
fund accountant and administrator for each Fund
except Eagle International Equity Portfolio. Each
Fund pays directly for Fund accounting and transfer
agent services. In addition to its duties as
transfer agent, Heritage also may receive a fee from
Eagle for providing certain administrative services
for the Eagle International Equity Portfolio. State
Street Bank & Trust is the fund accountant for the
Eagle International Equity Portfolio.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS AND OTHER DISTRIBUTIONS
====================================================
Several options Dividends from net investment income are
exist for receiving declared and paid annually by each Fund, except
dividends and Income-Growth Trust, which declares and pays
other dividends quarterly. Each Fund also distributes to
distributions. its shareholders substantially all of its net
realized capital gains on portfolio securities and
net realized gains from foreign currency
transactions 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 paid in additional Fund shares.
Other shareholders may elect to:
o receive both dividends and other distributions
in additional Fund shares;
o receive dividends in cash and other
distributions in additional Fund shares;
o receive both dividends and other distributions
in cash; or
o receive both dividends and other distributions
in cash for investment into 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 Fund
shares, your account will be credited with shares
valued at their net asset value 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 Heritage in writing.
Dividends paid by each Fund with respect to its
A shares, B shares and C shares are calculated in
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<PAGE>
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 B shares and C shares of a Fund may be
lower than dividends on its A shares primarily as a
result of the higher distribution fee and
class-specific expenses applicable to B shares and C
shares.
DISTRIBUTION PLANS
====================================================
Each Fund pays As compensation for services rendered and
service and expenses borne by the Distributor in connection with
distribution fees the distribution of A shares and in connection with
to the Distributor. personal services rendered to Class A shareholder
accounts, each Fund may pay the Distributor
distribution and service fees of up to 0.35% of that
Fund's average daily net assets attributable to A
shares of that Fund. Currently, each Fund pays the
Distributor a fee of up to 0.25% of its average
daily net assets attributable to A shares. For
Capital Appreciation Trust A shares purchased prior
to April 3, 1995, the Fund pays the Distributor a
fee of up to 0.50% of that Fund's average daily net
assets attributable to those A shares. These fees
are computed daily and paid monthly.
As compensation for services rendered and
expenses borne by the Distributor in connection with
the distribution of B shares and C shares and in
connection with personal services rendered to Class
B and Class C shareholders and the maintenance of
Class B and Class C shareholder accounts, each Fund
pays the Distributor a service fee of 0.25% and a
distribution fee of' 0.75% of that Fund's average
daily net assets attributable to B shares and C
shares. These fees are computed daily and paid
monthly.
The above-referenced fees are paid to the
Distributor under Distribution Plans adopted
pursuant to Rule 12b-l 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 Fund's A shares, B shares and C
shares, including compensation (in addition to the
sales load) paid to Financial Advisors; 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 each Fund.
If a Plan is terminated, the obligation of a
Fund to make payments to the Distributor pursuant to
the Plan will cease and the Fund will not be
required to make any payment past the date the Plan
terminates.
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<PAGE>
TAXES
====================================================
Each Fund is not Each Fund intends to qualify or to continue to
expected to have qualify for treatment as a regulated investment
any Federal tax company under the Code. By doing so, each Fund (but
liability. not its shareholders) will be relieved of Federal
However, your income tax on that part of its investment company
tax obligations taxable income (generally consisting of net
are determined investment income, net short-term capital gains and
by your net gains from certain foreign currency
particular tax transactions) and net capital gain (the excess of
circumstances. net long-term capital gain over net short-term
capital loss) that is distributed to its
shareholders. Dividends from each Fund's investment
company taxable income are taxable to its
shareholders as ordinary income, to the extent of
that Fund's earnings and profits, whether received
in cash or in additional Fund shares. Distributions
of each Fund's net capital gain, when designated as
such, are taxable to its shareholders as long-term
capital gains, whether received in cash or in
additional Fund shares and regardless of the length
of time the shares have been held. The portion of
the dividends (but not the capital gain
distributions) paid by each Fund (an insubstantial
portion in the case of the Eagle International
Equity Portfolio) that does not exceed the aggregate
dividends received by the Fund from U.S.
corporations will be eligible for the
dividends-received deduction allowed to
corporations; however, dividends received by a
corporate shareholder and deducted by it pursuant to
the dividends-received deduction are subject
indirectly to the Federal alternative minimum tax.
When you sell or Dividends and other distributions declared by
exchange shares, each Fund in October, November or December of any
it generally is year and payable to shareholders of record on a date
considered a in that month will be deemed to have been paid by
taxable event to the Fund and received by its shareholders on
you. December 31 if they are paid by the Fund during the
following January.
Shareholders receive Federal income tax
information regarding dividends and other
distributions after the end of each year. The
information regarding capital gain distributions
designates the portions of those distributions that
are subject to (1) the 20% maximum rate of tax (10%
for investors in the 15% marginal tax bracket)
enacted by the Taxpayer Relief Act of 1997 ("Tax
Act"), which applies to non-corporate taxpayers' net
capital gain on securities and other capital assets
held for more than 18 months, and (2) the 28%
maximum tax rate, applicable to such gain on capital
assets held for more than one year and up to 18
months (which, prior to enactment of the Tax Act,
applied to all such gain on capital assets held for
more than one year).
Each Fund 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
Fund 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
of a Fund, 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 each Fund 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 are
therefore urged to consult your tax adviser.
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<PAGE>
ABOUT THE TRUSTS AND THE FUNDS
====================================================
Heritage Capital Appreciation Trust, Heritage
Income-Growth Trust and Heritage Series Trust
(collectively, the "Trusts") each were established
as a Massachusetts business trust under a
Declaration of Trust dated June 21, 1995, July 25,
1986 and October 28, 1992, respectively. The Capital
Appreciation Trust and the Income-Growth Trust each
offer shares through a single investment portfolio.
The Series Trust offers its shares through five
separate investment portfolios: Eagle International
Equity Portfolio, Growth Equity Fund, Mid Cap Growth
Fund, Small Cap Stock Fund, and Value Equity Fund.
Each Fund offers three classes of shares, A shares,
B shares and C shares . Eagle International Equity
Portfolio also offers Eagle Class shares. To obtain
more information about the Eagle Class shares, which
are not offered in this Prospectus, call (800)
237-3101. Eagle Class shares have different sales
charges and other expenses, which may affect
performance.
SHAREHOLDER INFORMATION
====================================================
You may vote on Each share of a Fund gives the shareholder one
matters submitted vote in matters submitted to shareholders for a
for your approval. vote. A shares, B shares and C shares of each Fund
Each share you have equal voting rights, except that in matters
own entitles you affecting only a particular class or series, only
to one vote. shares of that class or series are entitled to vote.
As Massachusetts business trusts, the Trusts are
not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain
changes in the Trusts' or a Fund's operation and for
the election of Trustees under certain
circumstances. Trustees may be removed by the other
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 each Trust's
outstanding shares.
No dealer, salesman or other person has been
authorized to give any information or to make any
representation other than that 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 Funds or the
Distributor. This Prospectus does not constitute an
offering in any state in which such offering may not
lawfully be made.
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STATEMENT OF ADDITIONAL INFORMATION
HERITAGE
CAPITAL APPRECIATION TRUST
EAGLE INTERNATIONAL EQUITY PORTFOLIO
GROWTH EQUITY FUND
INCOME-GROWTH TRUST
MID CAP GROWTH FUND
SMALL CAP STOCK FUND
VALUE EQUITY FUND
This Statement of Additional Information ("SAI") dated January 2, 1998,
should be read in conjunction with the Prospectus dated January 2, 1998
describing the Class A, Class B and Class C shares of the Capital Appreciation
Trust, the Eagle International Equity Portfolio, the Growth Equity Fund, the
Income-Growth Trust, the Mid Cap Growth Fund, the Small Cap Stock Fund and the
Value Equity Fund (each a "Fund" and, collectively, the "Funds"). The Eagle
International Equity Portfolio also offers an additional class of shares, which
is not discussed in this SAI.
This SAI is not a prospectus itself. To receive a copy of the Funds'
Prospectus, write to Heritage Asset Management, Inc. ("Heritage") 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...........................................................1
INVESTMENT INFORMATION........................................................1
Investment Objectives...................................................1
Investment Policies.....................................................1
Industry Classifications................................................8
Futures, Forwards and Hedging Transactions..............................8
INVESTMENT LIMITATIONS.......................................................17
NET ASSET VALUE..............................................................20
PERFORMANCE INFORMATION......................................................22
INVESTING IN THE FUNDS.......................................................25
Systematic Investment Options..........................................25
Retirement Plans.......................................................25
Class A Combined Purchase Privilege (Right of Accumulation)...........26
Class A Statement of Intention.........................................27
REDEEMING SHARES.............................................................27
Systematic Withdrawal Plan.............................................27
Telephone Transactions.................................................28
Redemptions in Kind....................................................28
Receiving Payment......................................................29
EXCHANGE PRIVILEGE...........................................................29
CONVERSION OF CLASS B SHARES.................................................29
TAXES........................................................................30
FUND INFORMATION.............................................................33
Management of the Funds................................................33
Five Percent Shareholders..............................................36
Investment Advisers and Administrator; Subadvisers.....................38
Brokerage Practices....................................................41
Distribution of Shares.................................................44
Administration of the Funds............................................45
Potential Liability....................................................46
APPENDIX....................................................................A-1
REPORTS OF THE INDEPENDENT ACCOUNTANTS......................................A-4
FINANCIAL STATEMENTS........................................................A-4
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GENERAL INFORMATION
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The Heritage Capital Appreciation Trust ("Capital Appreciation"), the
Heritage Income-Growth Trust ("Income-Growth"), and the Heritage Series Trust
("Series Trust") each was established as a Massachusetts business trust under a
Declaration of Trust dated June 21, 1985, July 25, 1986, and October 28, 1992,
respectively. All are registered as open-end diversified management investment
companies under the Investment Company Act of 1940, as amended (the "1940 Act").
Capital Appreciation and Income-Growth each offer shares through a single
investment portfolio. Series Trust currently offers its shares through five
separate investment portfolios: the Eagle International Equity Portfolio ("Eagle
International"), the Growth Equity Fund ("Growth Equity"), Mid Cap Growth Fund
("Mid Cap"), the Small Cap Stock Fund ("Small Cap") and the Value Equity Fund
("Value Equity"). Each Fund offers three classes of shares, Class A shares sold
subject to a front-end sales load ("A shares"), Class B shares sold subject to a
5% maximum contingent deferred sales load ("CDSL"), declining over a six-year
period ("B Shares"), and Class C shares sold subject to a 1% CDSL ("C shares").
Eagle International also offers Eagle Class shares, which are not covered in
this SAI. To obtain more information about Eagle Class shares, call (800)
237-3101.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVES
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The investment objective of each Fund is stated in the Prospectus.
INVESTMENT POLICIES
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The following information is in addition to and supplements each Fund's
investment policies set forth in the Prospectus.
AMERICAN DEPOSITORY RECEIPTS ("ADRS"), EUROPEAN DEPOSITORY RECEIPTS
("EDRS"), GLOBAL DEPOSITORY RECEIPTS ("GDRS") AND INTERNATIONAL DEPOSITORY
RECEIPTS ("IDRS"). Each Fund, except Capital Appreciation, may invest in
sponsored and unsponsored ADRs. Capital Appreciation may invest only in
sponsored ADRs. ADRs, EDRs, GDRs and IDRs are receipts that represent interests
in or are convertible into, securities of foreign issuers. These receipts are
not necessarily denominated in the same currency as the underlying securities
into which they may be converted.
ADRs may be purchased through "sponsored" or "unsponsored" facilities. A
sponsored facility is established jointly by the issuer of the underlying
security and a depository, whereas a depository may establish an unsponsored
facility without participation by the issuer of the depository security. Holders
of unsponsored depository receipts generally bear all the costs of such
facilities and the depository of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through voting rights to the holders of such
receipts of the deposited securities. Generally, ADRs in registered form are
designed for use in the U.S. securities market and ADRs in bearer form are
designed for use outside the United States. For purposes of certain investment
limitations, ADRs are considered to be foreign securities by Capital
Appreciation, Growth Equity, and Income-Growth.
Eagle International, Growth Equity, Income-Growth, Small Cap and Value
Equity may invest in sponsored or unsponsored EDRs, GDRs, IDRs or other similar
securities representing interests in or convertible into securities of foreign
issuers ("Depository Receipts"). EDRs and IDRs are receipts typically issued by
a European bank or trust company evidencing ownership of the underlying foreign
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securities. GDRs are issued globally for trading in non-U.S. securities markets
and evidence a similar ownership arrangement. Depository Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. As with ADRs, the issuers of the securities
underlying unsponsored Depository Receipts are not obligated to disclose
material information in the United States and, therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the Depository Receipts.
Depository Receipts also involve the risks of other investments in foreign
securities, as discussed below. For purposes of certain investment limitations,
EDRs, GDRs and IDRs are considered to be foreign securities by Income-Growth.
BANKERS' ACCEPTANCES. A Banker's acceptance is a short-term credit
instrument used to finance commercial transactions. Generally, an acceptance is
a time draft drawn on a bank by an exporter or an importer to obtain a stated
amount of funds to pay for specific merchandise. The draft is then "accepted" by
a bank that, in effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held by the
accepting bank as an asset, or it may be sold in the secondary market at the
going rate of interest for a specified maturity. Although maturities for
acceptances can be as long as 270 days, most acceptances have maturities of six
months or less.
Each Fund may invest in banker's acceptances. Income-Growth Trust may
invest in banker's acceptances of domestic banks and savings and loans that have
assets of at least $1 billion and capital, surplus, and undivided profits of
over $100 million as of the close of their most recent fiscal year, or
instruments that are insured by the Bank Insurance Fund or the Savings
Institution Insurance Fund of the Federal Deposit Insurance Corporation.
CERTIFICATES OF DEPOSIT. Each Fund may invest in bank certificates of
deposit ("CDs") issued by domestic institutions with assets in excess of $1
billion. The Federal Deposit Insurance Corporation is an agency of the U.S.
Government that insures the deposits of certain banks and savings and loan
associations up to $100,000 per deposit. The interest on such deposits may not
be insured if this limit is exceeded. Current federal regulations also permit
such institutions to issue insured negotiable CDs in amounts of $100,000 or
more, without regard to the interest rate ceilings on other deposits. To remain
fully insured, these investments currently must be limited to $100,000 per
insured bank or savings and loan association.
COMMERCIAL PAPER. Each Fund, except Eagle International, may invest in
commercial paper that is limited to obligations rated Prime-1 or Prime-2 by
Moody's Investors Service, Inc. ("Moody's") or A-1 or A-2 by Standard & Poor's
("S&P"). Eagle International may invest in commercial paper that is limited to
obligations rated Prime-1 by Moody's or A-1 by S&P. Commercial paper includes
notes, drafts or similar instruments payable on demand or having a maturity at
the time of issuance not exceeding nine months, exclusive of days of grace or
any renewal thereof. See the Appendix for a description of commercial paper
ratings.
CONVERTIBLE SECURITIES. Each Fund 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. Convertible securities in which each Fund 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 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.
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DEBT SECURITIES. Each Fund except Capital Appreciation may invest in debt
securities. The market value of debt securities is influenced primarily by
changes in the level of interest rates. Generally, as interest rates rise, the
market value of debt securities decreases. Conversely, as interest rates fall,
the market value of debt securities increases. Factors that could result in a
rise in interest rates, and a decrease in the market value of debt securities,
include an increase in inflation or inflation expectations, an increase in the
rate of U.S. economic growth, an increase in the Federal budget deficit or an
increase in the price of commodities such as oil.
EURO/YANKEE BONDS. Eagle International may invest in dollar denominated
bonds issued by foreign branches of domestic banks ("Eurobonds") and dollar
denominated bonds issued by a U.S. branch of a foreign bank and sold in the
United States ("Yankee bonds"). Investment in Eurobonds and Yankee bonds entails
certain risks similar to investment in foreign securities in general. These
risks are discussed below.
EURODOLLAR CERTIFICATES. Income-Growth may purchase CDs issued by foreign
branches of domestic and foreign banks. Domestic and foreign Eurodollar
certificates, such as CDs and time deposits, may be general obligations of the
parent bank in addition to the issuing branch or may be limited by the terms of
a specific obligation or governmental regulation. Such obligations may be
subject to different risks than are those of domestic banks or domestic branches
of foreign banks. These risks include foreign economic and political
developments, foreign governmental restrictions that may affect adversely
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income. Foreign branches of
foreign banks are not necessarily subject to the same or similar regulatory
requirements, loan limitations, and accounting, auditing and recordkeeping
requirements as are domestic banks or domestic branches of foreign banks. In
addition, less information may be publicly available about a foreign branch of a
domestic bank or a foreign bank than a domestic bank.
FOREIGN SECURITIES. Each Fund, except Small Cap, may invest in foreign
securities. 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 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. Investments in foreign
securities also involve the risk of possible adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation, limitation
on or delays in the removal of funds or other assets of a Fund, 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 each Fund's policy not to invest in foreign securities when there
are currency or trading restrictions in force or when, in the judgment of its
subadviser, such restrictions are likely to be imposed. However, certain
currencies may become blocked (i.e., not freely available for transfer from a
foreign country), resulting in the possible inability of the Fund to convert
proceeds realized upon sale of portfolio securities of the affected foreign
companies into U.S. currency.
Because investments in foreign companies usually will involve currencies
of foreign countries and because Capital Appreciation, Growth Equity,
Income-Growth, and Value Equity may temporarily hold funds in bank deposits in
foreign currencies during the completion of investment programs, the value of
any of the assets of these Funds as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
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exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Each Fund 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, as described
below in the discussion of futures, forwards, and hedging transactions, Capital
Appreciation, Income-Growth, Growth Equity and Value Equity may enter into
contracts to purchase or sell foreign currencies at a future date (i.e., a
"forward currency contract" or "forward contract").
FORWARD COMMITMENTS. As described in the Prospectus, Eagle International
and Income-Growth may make contracts to purchase securities for a fixed price at
a future date beyond customary settlement time ("forward commitments"). However,
Income-Growth currently has no intention of engaging in such transactions at
this time. Each Fund may engage in forward commitments if it either (1) holds,
and maintains until the settlement date in a segregated account, cash or
high-grade debt obligations in an amount sufficient to meet the purchase price
or (2) enters into an offsetting contract for the forward sale of securities of
equal value that it owns. Forward commitments may be considered securities in
themselves. They involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of a Fund's other assets. When such purchases are
made through dealers, a fund relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the Fund of an advantageous
yield or price. Although a Fund generally will enter into forward commitments
with the intention of acquiring securities for its investment portfolios, each
Fund may dispose of a commitment prior to settlement and may realize short-term
profits or losses upon such disposition.
ILLIQUID SECURITIES. Capital Appreciation, Eagle International, Growth
Equity, Income-Growth and Value Equity will not purchase or otherwise acquire
any illiquid security, including repurchase agreements maturing in more than
seven days, 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. Similarly, Mid Cap and Small Cap will not purchase or otherwise acquire
any illiquid security if, as a result, more than 15% 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. Small Cap presently has no intention of investing more than 5% of its
assets in illiquid securities.
Over-the-counter ("OTC") options and their underlying collateral are
currently considered to be illiquid investments. Growth Equity, Income-Growth,
Mid Cap and Value Equity may sell OTC options and, in connection therewith,
segregate assets or cover its obligations with respect to OTC options written by
these Funds. The assets used as cover for OTC options will be considered
illiquid unless OTC options are sold to qualified dealers who agree that a Fund
may repurchase any OTC option it writes at a maximum price to be calculated by a
formula set forth in the option agreement. The cover for an OTC option written
subject to this procedure would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic value of
the option.
LOANS OF PORTFOLIO SECURITIES. Mid Cap, Value Equity, Growth Equity and
Income-Growth may loan portfolio securities to qualified broker-dealers. Eagle
International may loan portfolio securities to broker-dealers or other financial
institutions. The collateral for each Fund's loans will be "marked to market"
daily so that the collateral at all times exceeds 100% of the value of the loan.
Each Fund may terminate such loans at any time and the market risk applicable to
any security loaned remains its risk. Although voting rights, or rights to
consent, with respect to the loaned securities pass to the borrower, each Fund
retains the right to call the loans at any time on reasonable notice, and it
will do so in order that the securities may be voted by it if the holders of
such securities are asked to vote upon or consent to matters materially
affecting the investment. Each Fund also may call such loans in order to sell
the securities involved. The borrower must add to the collateral whenever the
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market value of the securities rises above the level of such collateral. Each
Fund could incur a loss if the borrower should fail financially at a time when
the value of the loaned securities is greater than the collateral. The primary
objective of securities lending is to supplement each Fund's income through
investment of the cash collateral in short-term interest bearing obligations.
PREFERRED STOCK. Each Fund may invest in 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 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.
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements. The
period of these repurchase agreements usually will be short, from overnight to
one week, and at no time will the Funds invest in repurchase agreements of more
than one year. The securities that are subject to repurchase agreements,
however, may have maturity dates in excess of one year from the effective date
of the repurchase agreement. The Funds always will receive as collateral
securities whose market value, including accrued interest, will be at least
equal to 100% of the dollar amount invested by the Funds in each agreement, and
the Funds will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the Fund's custodian bank.
REVERSE REPURCHASE AGREEMENTS. Growth Equity, Small Cap Fund and Value
Equity may borrow by entering into reverse repurchase agreements with the same
parties with whom it may enter into repurchase agreements. Under a reverse
repurchase agreement, a Fund sells securities and agrees to repurchase them at a
mutually agreed to price. At the time a Fund enters into a reverse repurchase
agreement, it will establish and maintain a segregated account with an approved
custodian containing liquid high-grade securities, marked-to-market daily,
having a value not less than the repurchase price (including accrued interest).
Reverse repurchase agreements involve the risk that the market value of
securities retained in lieu of sale by a Fund may decline below the price of the
securities the Fund has sold but is obliged to repurchase. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce a Fund's obligation to
repurchase the securities and a Fund's use of the proceeds of the reverse
repurchase agreement effectively may be restricted pending such decisions.
Reverse repurchase agreements create leverage, a speculative factor, and are
considered borrowings for the purpose of a Fund's limitation on borrowing.
RISK FACTORS OF HIGH-YIELD SECURITIES. Eagle International, Income-Growth,
Mid Cap and Small Cap may invest in securities rated below investment grade,
i.e., rated below BBB or Baa by S&P and Moody's, respectively, or unrated
securities determined to be below investment grade by its subadviser, as
described in the Prospectus. These types of securities are commonly referred to
as "junk bonds." These securities are subject to certain risks that may not be
present with investments of higher grade securities. The following supplements
the disclosure in the Prospectus.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. The prices of high-yield
securities tend to be less sensitive to interest rate changes than higher rated
investments, but may be more sensitive to adverse economic changes or individual
corporate developments. Periods of economic uncertainty and changes generally
result in increased volatility in market prices and yields of high-yield
securities and, thus, in a Fund's net asset value. A strong economic downturn or
a substantial period of rising interest rates could affect severely the market
for high-yield securities. In these circumstances, highly leveraged companies
might have difficulty in making principal and interest payments, meeting
projected business goals, and obtaining additional financing. Thus, there could
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be a higher incidence of default. This would affect the value of such securities
and, thus, a Fund's net asset value. Further, if the issuer of a security owned
by the Fund defaults, it might incur additional expenses to seek recovery.
Generally, when interest rates rise, the value of fixed-rate debt
obligations, including high-yield securities, tends to decrease; when interest
rates fall, the value of fixed-rate debt obligations tends to increase. If an
issuer of a high-yield security containing a redemption or call provision
exercises either provision in a declining interest rate market, a Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if a Fund experiences unexpected net redemptions in a
rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which the Fund's expenses could be allocated and in a reduced rate of return for
it. While it is impossible to protect entirely against this risk,
diversification of a Fund's investment portfolio and its subadviser's careful
analysis of prospective investment portfolio securities should minimize the
impact of a decrease in value of a particular security or group of securities in
the Fund's investment portfolio.
THE HIGH-YIELD SECURITIES MARKET. The market for below investment grade
bonds expanded rapidly in the 1980s, and its growth paralleled a long economic
expansion. During that period, the yields on below investment grade bonds rose
dramatically. Such higher yields did not reflect the value of the income stream
that holders of such bonds expected, but rather the risk that holders of such
bonds could lose a substantial portion of their value as a result of the
issuers' financial restructuring or default. In fact, from 1989 to 1991 during a
period of economic recession, the percentage of lower quality bonds that
defaulted rose significantly, although the default rate decreased in subsequent
years. There can be no assurance that such declines in the below investment
grade market will not reoccur. The market for below investment grade bonds
generally is thinner and less active than that for higher quality bonds, which
may limit a Fund's ability to sell such securities at fair value in response to
changes in the economy or financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, also may decrease the
values and liquidity of lower rated securities, especially in a thinly traded
market.
CREDIT RATINGS. The credit ratings issued by credit rating services may
not reflect fully the true risks of an investment. For example, credit ratings
typically evaluate the safety of principal and interest payments, not market
value risk, of high-yield securities. Also, credit rating agencies may fail to
change timely a credit rating to reflect changes in economic or company
conditions that affect a security's market value. Although a Fund's subadviser
considers ratings of recognized rating services such as Moody's and S&P, the
subadviser primarily relies on its own credit analyses, which include a study of
existing debt, capital structure, ability to service debt and to pay dividends,
the issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. A Fund's subadviser continually monitors the
investments in its respective investment portfolios and carefully evaluates
whether to dispose of or retain high-yield securities whose credit ratings have
changed. See the Appendix for a description of Moody's and S&P's corporate debt
ratings.
LIQUIDITY AND VALUATION. Lower rated bonds typically are traded among a
smaller number of broker-dealers than in a broad secondary market. Purchasers of
high-yield securities tend to be institutions, rather than individuals, which is
a factor that further limits the secondary market. To the extent that no
established retail secondary market exists, many high-yield securities may not
be as liquid as higher grade bonds. A less active and thinner market for
high-yield securities than that available for higher quality securities may
limit a Fund's ability to sell such securities at that fair market value in
response to changes in the economy or the financial markets. The ability of a
Fund to value or sell high-yield securities also will be affected adversely to
the extent that such securities are thinly traded or illiquid. During such
periods, there may be less reliable objective information available and thus the
responsibility of the Board to value high-yield securities becomes more
difficult, with judgment playing a greater role. Further, adverse publicity
about the economy or a particular issuer may affect adversely the public's
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perception of the value, and thus liquidity of a high-yield security, whether or
not such perceptions are based on a fundamental analysis. See "Net Asset Value."
STANDARD AND POOR'S DEPOSITORY RECEIPTS ("SPDRS). Growth Equity, Mid Cap
and Value Equity may invest in SPDRs and other similar index securities ("Index
Securities"). Index Securities represent interests in a fixed portfolio of
common stocks designed to track the price and dividend yield performance of a
broad-based securities index, such as the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500 Index"), but are traded on an exchange like shares of
common stock. The value of Index Securities fluctuates in relation to changes in
the value of the underlying portfolio of securities. However, the market price
of Index Securities may not be equivalent to the pro rata value of the index it
tracks. Index Securities are subject to the risks of an investment in a broadly
based portfolio of common stocks.
U.S. GOVERNMENT SECURITIES. Each Fund 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 full faith and credit of the U.S. Government, such as Treasury bills,
Treasury notes, and Treasury bonds; 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. Each Fund may purchase rights and warrants, which are
instruments that permit a Fund to acquire, by subscription, the capital stock of
a corporation at a set price, regardless of the market price for such stock.
Eagle International, Growth Equity, Mid Cap, Small Cap and Value Equity
currently do not intend to invest more than 5% of their respective net assets in
warrants. 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. Eagle International also may invest in warrants or rights
acquired by Eagle International as part of a unit or attached to securities at
the time of purchase without limitation.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. As described in the
Prospectus, Eagle International may enter into agreements with banks or
broker-dealers for the purchase or sale of securities at an agreed-upon price on
a specified future date. Such agreements might be entered into, for example,
when Eagle International anticipates a decline in interest rates and is able to
obtain a more advantageous yield by committing currently to purchase securities
to be issued later. When Eagle International purchases securities on a
when-issued or delayed delivery basis, it is required either (1) to create a
segregated account with Eagle International's custodian and to maintain in that
account cash, U.S. Government securities or other high grade debt obligations in
an amount equal on a daily basis to the amount of Eagle International's
when-issued or delayed delivery commitments or (2) to enter into an offsetting
forward sale of securities it owns equal in value to those purchased. Eagle
International will only make commitments to purchase securities on a when-issued
or delayed-delivery basis with the intention of actually acquiring the
securities. However, Eagle International may sell these securities before the
settlement date if it is deemed advisable as a matter of investment strategy.
When the time comes to pay for when-issued or delayed-delivery securities, Eagle
International will meet its obligations from then available cash flow or the
sale of securities, or, although it would not normally expect to do so, from the
sale of the when-issued or delayed delivery securities themselves (which may
have a value greater or less than Eagle International's payment obligation).
ZERO COUPON SECURITIES. Income-Growth may invest in zero coupon
securities, which are debt obligations that do not entitle the holder to any
periodic payment of interest prior to maturity or a specified date when the
securities begin paying current interest. Zero coupon securities are issued and
traded at a discount from their face amount or par value, which discount rate
varies depending on the time remaining until cash payments begin, prevailing
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interest rates, liquidity of the security, and the perceived credit quality of
the issuer. The market prices of zero coupon securities generally are more
volatile than the prices of securities that pay interest periodically and are
likely to respond to changes in interest rates to a greater degree than do
other types of debt securities having similar maturities and credit value.
INDUSTRY CLASSIFICATIONS
------------------------
For purposes of determining industry classifications, each Fund relies
upon classifications established by each Fund's adviser that are based upon
classifications contained in the Directory of Companies Filing Annual Reports
with the Securities and Exchange Commission ("SEC") and in the Standard & Poor's
Industry Classifications.
FUTURES, FORWARDS AND HEDGING TRANSACTIONS
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GENERAL DESCRIPTION. A Fund may use a variety of financial instruments
("Hedging Instruments"), including futures contracts (sometimes referred to as
"futures"), options, options on futures and forward currency contracts, to
attempt to hedge the Fund's investment portfolio. Capital Appreciation, Growth
Equity, Income-Growth and Value Equity also may use forward currency contracts
to shift exposure from one foreign currency to another.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is the purchase or sale of a Hedging Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in a Fund's investment portfolio. Thus, in a short hedge, a
Fund takes a position in a Hedging Instrument whose price is expected to move in
the opposite direction of the price of the investment being hedged. A long hedge
is the purchase or sale of a Hedging Instrument intended partially or fully to
offset potential increases in the acquisition cost of one or more investments
that the Fund intends to acquire. Thus, in a long hedge, a Fund takes a position
in a Hedging Instrument whose price is expected to move in the same direction as
the price of the prospective investment being hedged.
Hedging Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that a Fund owns
or intends to acquire. Hedging Instruments on indices may be used to hedge broad
market sectors.
The use of Hedging Instruments is subject to applicable regulations of
the SEC, the exchanges upon which they are traded, and the Commodity Futures
Trading Commission ("CFTC"). In addition, a Fund's ability to use Hedging
Instruments will be limited by tax considerations. See "Taxes."
In addition to the products and strategies described below, the Funds
expect to discover additional opportunities in connection with options, futures
contracts, forward currency contracts and other hedging techniques. These new
opportunities may become available as each Fund's subadviser develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures contracts, forward currency contracts
or other techniques are developed. A Fund's subadviser may utilize these
opportunities to the extent that it is consistent with a Fund's investment
objectives and permitted by the Fund's investment limitations and applicable
regulatory authorities.
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Hedging Instruments
involves special considerations and risks, as described below. Risks pertaining
to particular Hedging Instruments are described in the sections that follow.
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(1) Successful use of most Hedging Instruments depends upon a Fund's
subadviser's ability to predict movements of the overall securities, currency
and interest rate markets, which requires different skills than predicting
changes in the prices of individual securities. While each Fund's subadvisers
are experienced in the use of Hedging Instruments, there can be no assurance
that any particular hedging strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Hedging Instrument and price movements of the
investments being hedged. For example, if the value of a Hedging Instrument used
in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Hedging
Instruments are traded. The effectiveness of hedges using Hedging Instruments on
indices will depend on the degree of correlation between price movements in the
index and price movements in the securities being hedged.
To compensate for imperfect correlation, a Fund may purchase or sell
Hedging Instruments in a greater dollar amount than the hedged securities or
currency if the volatility of the hedged securities or currency is historically
greater than the volatility of the Hedging Instruments. Conversely, a Fund may
purchase or sell fewer contracts if the volatility of the price of the hedged
securities or currency is historically less than that of the Hedging
Instruments.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies also can
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund entered into a short
hedge because its subadviser projected a decline in the price of a security in
the Fund's investment portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Hedging Instrument. Moreover, if the price of the
Hedging Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would have
been in a better position had it not hedged at all.
(4) As described below, each Fund might be required to maintain
assets as "cover," maintain segregated accounts or make margin payments when it
takes positions in Hedging Instruments involving obligations to third parties.
If a Fund were unable to close out its positions in such Hedging Instruments, it
might be required to continue to maintain such assets or accounts or make such
payments until the position expired or matured. These requirements might impair
a Fund's ability to sell a portfolio security or make an investment at a time
when it would otherwise be favorable to do so, or require that the Fund sell a
portfolio security at a disadvantageous time. A Fund's ability to close out a
position in a Hedging Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the other party to the transaction ("counterparty")
to enter into a transaction closing out the position. Therefore, there is no
assurance that any hedging position can be closed out at a time and price that
is favorable to the Fund.
COVER FOR HEDGING STRATEGIES. Some Hedging Instruments expose a Fund to an
obligation to another party. A Fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies, forward currency contracts, options or futures contracts or (2) cash
and other liquid assets with a value sufficient at all times to cover its
potential obligations to the extent not covered as provided in (1) above. Each
Fund will comply with SEC guidelines regarding cover for instruments and will,
if the guidelines so require, set aside cash or other liquid assets in a
segregated account with the Funds' custodian ("Custodian"), in the prescribed
amount.
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Assets used as cover or otherwise set aside cannot be sold while the
position in the corresponding Hedging Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of a Fund's assets to cover in segregated accounts could impede its
ability to meet redemption requests or other current obligations.
OPTIONS, FUTURES AND OPTIONS ON FUTURES TRADING. Growth Equity,
Income-Growth and Value Equity may engage in certain options (including options
on securities, equity and debt indices and currencies, futures and options on
futures strategies) in order to hedge their respective investments. Eagle
International may only purchase and sell stock index and currency futures
contracts. Certain special characteristics of and risks with these strategies
are discussed below.
CHARACTERISTICS AND RISKS OF OPTIONS TRADING. A Fund effectively may
terminate its right or obligation under an option by entering into a closing
transaction. If the Fund wished to terminate its obligation to purchase or sell
securities under a put or call option it has written, it may purchase a put or
call option of the same series (i.e., an option identical in its terms to the
option previously written); this is known as a closing purchase transaction.
Conversely, in order to terminate its right to purchase or sell under a call or
put option it has purchased, a Fund may write a call or put option of the same
series. This is known as a closing sale transaction. Closing transactions
essentially permit the Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option. Whether a profit or
loss is realized from a closing transaction depends on the price movement of the
underlying security, index, currency or futures contract and the market value of
the option.
In considering the use of options to hedge, particular note should be
taken of the following:
(1) The value of an option position will reflect, among other
things, the current market price of the underlying security, index, currency or
futures contract, the time remaining until expiration, the relationship of the
exercise price to the market price, the historical price volatility of the
underlying instrument and general market conditions. For this reason, the
successful use of options as a hedging strategy depends upon a Fund's
subadviser's ability to forecast the direction of price fluctuations in the
underlying instrument.
(2) At any given time, the exercise price of an option may be below,
equal to or above the current market value of the underlying instrument.
Purchased options that expire unexercised have no value. Unless an option
purchased by a Fund is exercised or unless a closing transaction is effected
with respect to that position, a loss will be realized in the amount of the
premium paid.
(3) A position in an exchange-listed option may be closed out only
on an exchange that provides a secondary market for identical options. Most
exchange-listed options relate to futures contracts, stocks and currencies. The
ability to establish and close out positions on the exchanges is subject to the
maintenance of a liquid secondary market. Closing transactions may be effected
with respect to options traded in the OTC markets (currently the primary markets
of options on debt securities) only by negotiating directly with the other party
to the option contract, or in a secondary market for the option if such market
exists. Although a Fund intends to purchase or write only those options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market will exist for any particular option at any specific
time. In such event, it may not be possible to effect closing transactions with
respect to certain options, with the result that the Fund would have to exercise
those options that it has purchased in order to realize any profit. With respect
to options written by a Fund, the inability to enter into a closing transaction
may result in material losses to it. For example, because a Fund may maintain a
covered position with respect to any call option it writes on a security, it may
not sell the underlying security during the period it is obligated under such
option. This requirement may impair the Fund's ability to sell a portfolio
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security or make an investment at a time when such a sale or investment might be
advantageous.
(4) Activities in the options market may result in a higher
portfolio turnover rate and additional brokerage costs; however, a Fund also may
save on commissions by using options as a hedge rather than buying or selling
individual securities in anticipation of market movements.
(5) The risks of investment in options on indices may be greater
than options on securities or currencies. Because index options are settled in
cash, when a Fund writes a call on an index it cannot provide in advance for its
potential settlement obligations by acquiring and holding the underlying
securities. A Fund can offset some of the risk of writing a call index option by
holding a diversified portfolio of securities similar to those on which the
underlying index is based. However, the Fund cannot, as a practical matter,
acquire and hold an investment portfolio containing exactly the same securities
as underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.
Even if a Fund could assemble an investment portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, a Fund as the call writer will not
learn that it has been assigned until the next business day at the earliest. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as common stock,
because there the writer's obligation is to deliver the underlying security, not
to pay its value as of a fixed time in the past. So long as the writer already
owns the underlying security, it can satisfy its settlement obligations by
simply delivering it, and the risk that its value may have declined since the
exercise date is borne by the exercising holder. In contrast, even if the writer
of an index call holds securities that exactly match the composition of the
underlying index, it will not be able to satisfy its assignment obligations by
delivering those securities against payment of the exercise price. Instead, it
will be required to pay cash in an amount based on the closing index value on
the exercise date. By the time it learns that it has been assigned, the index
may have declined, with a corresponding decline in the value of its investment
portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding securities positions.
If a Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index subsequently may change. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
COVERED CALL OPTIONS. Income-Growth and Value Equity may write covered
call options on securities to increase income in the form of premiums received
from the purchasers of the options. Because it can be expected that a call
option will be exercised if the market value of the underlying security
increases to a level greater than the exercise price, a Fund will write covered
call options on securities generally when its subadviser believes that the
premium received by the Fund, anticipated appreciation in the market price of
the underlying security up to the exercise price of the option, will be greater
than the total appreciation in the price of the security.
The strategy also may be used to provide limited protection against a
decrease in the market price of the security in an amount equal to the premium
received for writing the call option, less any transaction costs. Thus, if the
market price of the underlying security held by a Fund declines, the amount of
such decline will be offset wholly or in part by the amount of the premium
received by the Fund. If, however, there is an increase in the market price of
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the underlying security and the option is exercised, the Fund will be obligated
to sell the security at less than its market value. A Fund would lose the
ability to participate in the value of such securities above the exercise price
of the call option. A Fund also gives up the ability to sell the portfolio
securities used to cover the call option while the call option is outstanding.
GUIDELINES, CHARACTERISTICS AND RISKS OF FUTURES AND OPTIONS ON FUTURES
TRADING. Although futures contracts by their terms call for actual delivery or
acceptance of currencies or financial instruments, in most cases the contracts
are closed out before the settlement date without the making or taking of
delivery. Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific type of financial
instrument or currency and the same delivery date. If the price of the initial
sale of the futures contract exceeds the price of the offsetting purchase, the
seller is paid the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale, the seller
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the purchaser entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes a gain,
and if the purchase price exceeds the offsetting sale price, he realizes a loss.
A Fund is required to maintain margin deposits with brokerage firms
through which it buys and sells futures contracts or writes options on future
contracts. Initial margin deposits vary from contract to contract and are
subject to change. Margin balances will be adjusted daily to reflect unrealized
gains and losses on open contracts. If the price of an open futures or written
option position declines so that a Fund has market exposure on such contract,
the broker will require the Fund to deposit variation margin. If the value of an
open futures or written option position increases so that a Fund no longer has
market exposure on such contract, the broker will pay any excess variation
margin to the Fund.
Most of the exchanges on which futures contracts and options on futures
are traded limit the amount of fluctuation permitted in futures and options
prices during a single trading day. The daily price limit establishes the
maximum amount that the price of a futures contract or option may vary either up
or down from the previous day's settlement price at the end of a trading
session. Once the daily price limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily price limit governs only price movement during a particular trading day
and therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract and options prices
occasionally have moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures or
options positions and subjecting some traders to substantial losses.
Another risk in employing futures contracts and options as a hedge is the
prospect that prices will correlate imperfectly with the behavior of cash prices
for the following reasons. First, rather than meeting additional margin deposit
requirements, investors may close contracts through offsetting transactions.
Second, the liquidity of the futures and options markets depends on participants
entering into offsetting transactions rather than making or taking delivery. To
the extent that participants decide to make or take delivery, liquidity in the
futures and options markets could be reduced, thus producing distortion. Third,
from the point of view of speculators, the deposit requirements in the futures
and options markets are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures and
options markets may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest rate, currency exchange rate
or security price trends by a subadviser may still not result in a successful
transaction.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options is subject to the existence of
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a liquid secondary market. Compared to the purchase or sale of futures
contracts, the purchase of call or put options on futures contracts involves
less potential risk to a Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures contract
would result in a loss to a Fund when the purchase or sale of a futures contract
would not, such as when there is no movement in the price of the underlying
investment.
STOCK INDEX FUTURES. A stock index assigns relative values to the common
stocks comprising the index. A stock index futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of the last trading day of the contract and
the price at which the futures contract is originally struck. No physical
delivery of the underlying stocks in the index is made.
The risk of imperfect correlation between movements in the price of a
stock index futures contract and movements in the price of the securities that
are the subject of the hedge increases as the composition of a Fund's portfolio
diverges from the securities included in the applicable index. The price of the
stock index futures may move more than or less than the price of the securities
being hedged. If the price of the futures contract moves less than the price of
the securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, a Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the stock index futures contracts, a Fund may buy or
sell stock index futures contracts in a greater dollar amount than the dollar
amount of securities being hedged if the historical volatility of the prices of
such securities is more than the historical volatility of the stock index. It is
also possible that, where a Fund has sold futures contracts to hedge its
securities against decline in the market, the market may advance and the value
of securities held by the Fund may decline. If this occurred, the Fund would
lose money on the futures contract and also experience a decline in value in its
portfolio securities. However, while this could occur for a very brief period or
to a very small degree, over time the value of a diversified portfolio of
securities will tend to move in the same direction as the market indices upon
which the futures contracts are based.
Where stock index futures contracts are purchased to hedge against a
possible increase in the price of securities before a Fund is able to invest in
securities in an orderly fashion, it is possible that the market may decline
instead. If a Fund then concludes not to invest in securities at that time
because of concern as to possible further market decline for other reasons, it
will realize a loss on the futures contract that is not offset by a reduction in
the price of the securities it had anticipated purchasing.
LIMITATION ON THE USE OF OPTIONS AND FUTURES. To the extent that a Fund
enters into futures contracts and commodity options (including options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange) other than for BONA FIDE hedging purposes (as defined by the CFTC),
the aggregate initial margin and premiums required to establish those positions
(excluding the amount by which options are "in-the-money" at the time of
purchase) will not exceed 5% of the liquidation value of the Fund's investment
portfolio, after taking into account unrealized profits and unrealized losses on
any contracts the Fund has entered into. This limitation does not limit the
percentage of the Fund's assets at risk to 5%.
FOREIGN CURRENCY HEDGING STRATEGIES -- RISK FACTORS. Value Equity may use
options and futures on foreign currencies and Growth Equity and Eagle
International may only use futures on foreign currencies, as described above.
Capital Appreciation, Eagle International, Growth Equity, Income-Growth, and
Value Equity may use foreign currency forward contracts as described below.
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Currency hedges can protect against price movements in a security that a
Fund owns or intends to acquire that are attributable to changes in the value of
the currency in which it is denominated. Such hedges do not, however, protect
against price movements in the securities that are attributable to other causes.
A Fund might seek to hedge against changes in the value of a particular
currency when no Hedging Instruments on that currency are available or such
Hedging Instruments are more expensive than certain other Hedging Instruments.
In such cases, a Fund may hedge against price movements in that currency by
entering into transactions using Hedging Instruments on another currency or
basket of currencies, the values of which its subadviser believes will have a
high degree of positive correlation to the value of the currency being hedged.
The risk that movements in the price of the Hedging Instrument will not
correlate perfectly with movements in the price of the currency being hedged is
magnified when this strategy is used.
The value of Hedging Instruments on foreign currencies 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 such Hedging
Instruments, a Fund 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,
round-the-clock market. To the extent the U.S. futures markets are closed while
the markets for the underlying currencies remain open, significant price and
rate movements might take place in the underlying markets that cannot be
reflected in the markets for the Hedging Instruments until they reopen.
Settlement of transactions involving foreign currencies might be required
to take place within the country issuing the underlying currency. Thus, a Fund
might be required to accept or make delivery of the underlying foreign currency
in accordance with any U.S. or foreign regulations regarding the 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.
FORWARD CURRENCY CONTRACTS. A forward currency contract involves an
obligation of a Fund to purchase or sell specified currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers.
Growth Equity and Value Equity may enter into forward currency contracts
to purchase or sell foreign currencies for a fixed amount of U.S. dollars or
another foreign currency, in an amount not to exceed 5% of their respective
assets. Capital Appreciation may enter into contracts to purchase or sell
foreign currencies at a future date that is not more than 30 days from the date
of the contract. Eagle International generally will not enter into a forward
contract with a term of greater than one year.
Forward currency transactions may serve as long hedges - for example, a
Fund may purchase a forward currency contract to lock in the U.S. dollar price
of a security denominated in a foreign currency that it intends to acquire.
Foreign currency contract transactions also may serve as short hedges - for
example, a Fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security or from a
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dividend or interest payment on a security denominated in a foreign currency.
Growth Equity, Income-Growth and Value Equity may purchase forward currency
contracts to enhance income when a Fund anticipates that the foreign currency
will appreciate in value, but securities denominated in that currency do not
represent attractive investment opportunities.
Income-Growth and Eagle International may enter into a forward contract to
sell the foreign currency for a fixed U.S. dollar amount approximating the value
of some or all of their respective portfolio securities denominated in such
foreign currency. Eagle may enter into such a forward contract when its
subadviser believes that the currency of a particular foreign country may suffer
a substantial decline against the U.S. dollar.
In addition, Eagle International may use currency forward contracts when
its subadviser wishes to "lock in" the U.S. dollar price of a security when
Eagle International is purchasing or selling a security denominated in a foreign
currency or anticipates receiving a dividend or interest payment denominated in
a foreign currency.
Income-Growth may enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date either with respect
to specific transactions or with respect to portfolio positions in order to
minimize the risk to Income-Growth from adverse changes in the relationship
between the U.S. dollar and foreign currencies.
As noted above, Capital Appreciation, Growth Equity, Income-Growth, and
Value Equity 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 Fund's subadviser believes 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.
In addition, Growth Equity, Income-Growth, and Value Equity may use
foreign currency contracts to shift exposure to foreign currency fluctuations
from one country to another. For example, if a Fund owned securities denominated
in a foreign currency and its subadviser believed that currency would decline
relative to another currency, it might enter into a forward contract to sell an
appropriate amount of the first foreign currency, with payment to be made in the
second foreign currency. Transactions that use two foreign currencies are
sometimes referred to as "cross hedging." Use of a different foreign currency
magnifies a Fund's exposure to foreign currency exchange rate fluctuations.
The cost to a Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts usually
are entered into on a principal basis, no fees or commissions are involved. When
a Fund enters into a forward currency contract, it relies on the 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.
As is the case with futures contracts, sellers or purchasers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by purchasing or selling, respectively, an
instrument identical to the instrument sold or bought. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the counterparty. Thus, there can be no assurance
that a Fund will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the counterparty, a Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would continue
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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.
The precise matching of forward currency 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
currency contract has been established. Thus, a Fund 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.
COMBINED TRANSACTIONS. A Fund may enter into multiple futures
transactions, instead of a single transaction, as part of a single or combined
strategy when, in the opinion of its subadviser, it is in the best interests of
a Fund to do so. A combined transaction usually will contain elements of risk
that are present in each of its component transactions. Although combined
transactions normally are entered into based on its subadviser's judgment that
the combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
instead will increase such risks or hinder achievement of the portfolio
management objective.
INVESTMENT LIMITATIONS
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FUNDAMENTAL INVESTMENT POLICIES
-------------------------------
In addition to the limits disclosed in "Investment Policies" above and the
investment limitations described in the Prospectus, the Funds are subject to the
following investment limitations that are fundamental policies and may not be
changed without the vote of a majority of the outstanding voting securities of
the applicable Fund. Under the 1940 Act, a "vote of a majority of the
outstanding voting securities" of a Fund means the affirmative vote of the
lesser of (1) more than 50% of the outstanding shares of the Fund 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. With respect to 100% of the total assets of Capital
Appreciation and Income-Growth and with respect to 75% of the total assets of
the other Funds, no Fund may invest more than 5% of that Fund's assets (valued
at market value) in securities of any one issuer other than the U.S. Government
or its agencies and instrumentalities, or purchase more than 10% of the voting
securities of the voting securities of any one issuer.
INDUSTRY CONCENTRATION. The Funds may not purchase securities if, as a
result of such purchase, more than 25% of the value of each Fund's total assets
would be invested in any one industry; however, this restriction does not apply
to U.S. Government securities.
BORROWING MONEY. The Funds may not borrow money except as a temporary
measure for extraordinary or emergency purposes. Such borrowing is limited
as follows:
Income-Growth may not borrow money except from banks. Borrowing in the
aggregate may not exceed 15%, and borrowing for purposes other than meeting
redemptions may not exceed 5% of the value of the Fund's total assets at the
time the borrowing is made. The Fund may not make additional investments when
borrowings exceed 5% of the Fund's total assets.
-16-
<PAGE>
Capital Appreciation may not borrow money except from banks and only if at
the time of such borrowings the total loans to the Fund do not exceed 5% of the
Fund's total assets.
Eagle International, Growth Equity, Mid Cap Fund, Small Cap and Value
Equity may enter into reverse repurchase agreements in an amount up to 33 1/3%
of the value of its total assets in order to meet redemption requests without
immediately selling portfolio securities. This latter practice is not for
investment leverage but solely to facilitate management of the investment
portfolio by enabling the Funds to meet redemption requests when the liquidation
of portfolio instruments would be inconvenient or disadvantageous. However, a
Fund may not purchase additional portfolio investments once borrowed funds
exceed 5% of total assets. When effecting reverse repurchase agreements, Fund
assets in an amount sufficient to make payment for the obligations to be
purchased will be segregated by the Custodian and on the Funds' records upon
execution of the trade and maintained until the transaction has been settled.
During the period any reverse repurchase agreements are outstanding, to the
extent necessary to assure completion of the reverse repurchase agreements, a
Fund will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse repurchase
agreements. Interest paid on borrowed funds will not be available for
investment. The Funds will liquidate any such borrowings as soon as possible and
may not purchase any portfolio instruments while any borrowings are outstanding
(except as described above).
Eagle International will not borrow money in excess of 10% of the value
(taken at the lower of cost or current value) of Eagle International's total
assets (not including the amount borrowed) at the time the borrowing is made,
and then only from banks as a temporary measure, such as to facilitate the
meeting of higher redemption requests than anticipated (not for leverage) which
might otherwise require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes. As a matter of nonfundamental investment
policy, Eagle International may not make any additional investments if,
immediately after such investments, outstanding borrowings of money would exceed
5% of the currency value of Eagle International's total assets.
ISSUING SENIOR SECURITIES. The Funds may not issue senior securities,
except as permitted by the investment objective, policies, and investment
limitations of the Fund, except that (1) Eagle International, Growth Equity, Mid
Cap and Value Equity may engage in transactions involving options, futures,
forward currency contracts, or other financial instruments, and (2)
Income-Growth may purchase and sell call options and forward contracts.
UNDERWRITING. Subject to the following exceptions, no Fund may underwrite
the securities of other issuers: (1) Eagle International, Growth Equity and
Small Cap Fund may underwrite securities to the extent that, in connection with
the disposition of portfolio securities, that Fund may be deemed to be an
underwriter under federal securities laws, and (2) Capital Appreciation and
Income-Growth may invest not more than 5% and Mid Cap, and Small Cap may invest
not more than 15% of their respective net assets (taken at cost immediately
after making such investment) in securities that are not readily marketable
without registration under the 1933 Act.
INVESTING IN COMMODITIES, MINERALS OR REAL ESTATE. With the following
exceptions, the Funds may not invest in commodities, commodity contracts or real
estate (including real estate limited partnerships, in the case of all the Funds
except Income-Growth and Capital Appreciation): (1) The Funds may purchase
securities issued by companies that invest in or sponsor such interests, (2)
Value Equity may purchase and sell options, futures contracts, forward currency
contracts and other financial instruments, (3) Eagle International may purchase
and sell forward contracts, futures contracts, options and foreign currency, (4)
Eagle International and Income-Growth may purchase securities that are secured
by interests in real estate, (5) Income-Growth may write and purchase call
options, sell forward contracts and engage in transactions in forward
-17-
<PAGE>
commitments, and (6) Capital Appreciation and Income-Growth may not invest in
oil, gas, or other mineral programs except that they may purchase securities
issued by companies that invest in or sponsor such interests.
LOANS. The Funds may not make loans, except that all Funds except Eagle
International may make loans under the following circumstances: (1) to the
extent that the purchase of a portion of an issue of publicly distributed (and,
in the case of Income-Growth, privately placed) notes, bonds, or other evidences
of indebtedness or deposits with banks and other financial institutions may be
considered loans; (2) where the Fund may enter into repurchase agreements as
permitted under that Fund's investment policies; (3) Mid Cap, Value Equity,
Income-Growth, and Growth Equity may make loans of portfolio securities as
described in this SAI. Eagle International may make loans by purchase of debt
obligations or by entering into repurchase agreements or through lending of
Eagle International's portfolio securities.
FUNDAMENTAL POLICIES UNIQUE TO EAGLE INTERNATIONAL
--------------------------------------------------
Eagle International has adopted the following fundamental policies that
can be changed only by shareholder vote:
MARGINS. Eagle International will not purchase securities on margin,
except such short-term credits as may be necessary for the clearance of
purchases and sales of securities. (For this purpose, the deposit or payment by
Eagle International of initial or variation margin in connection with futures
contracts, forward contracts or options is not considered the purchase of a
security on margin.)
SHORT SALES. Eagle International will not make short sales of securities
or maintain a short position, except that Eagle International may maintain short
positions in connection with its use of options, futures contracts, forward
contracts and options on futures contracts, and Eagle International may sell
short "against the box." As a matter of nonfundamental investment policy, Eagle
will not sell securities short "against the box."
FUNDAMENTAL POLICIES UNIQUE TO INCOME-GROWTH
--------------------------------------------
Income-Growth has adopted the following fundamental policies that can be
changed only by shareholder vote:
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
OF THE TRUST. The Trust may not purchase or retain the securities of any issuer
if the officers and Trustees of the Fund or Heritage or its subadviser owning
individually more than 1/2 of 1% of the issuer's securities together own more
than 5% of the issuer's securities.
REPURCHASE AGREEMENTS AND LOANS TO PORTFOLIO SECURITIES. The Fund may not
enter into repurchase agreements with respect to more than 25% of its total
assets and may not lend portfolio securities amounting to more than 25% of its
total assets.
MARGIN PURCHASES. The Fund may not purchase securities on margin
except to obtain such short-term credits as may be necessary for the
clearance of transactions.
RESTRICTED SECURITIES. The Fund may not invest more than 5% of the Fund's
total assets (taken at cost) in securities that are not readily marketable
without registration under the 1933 Act (restricted securities).
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<PAGE>
NON-FUNDAMENTAL INVESTMENT POLICIES
-----------------------------------
Each Fund has adopted the following additional restrictions which,
together with certain limits described in the Prospectus, may be changed by the
Board of Trustees without shareholder approval in compliance with applicable
law, regulation or regulatory policy.
INVESTING IN ILLIQUID SECURITIES. Small Cap may not invest more than 15%
and Capital Appreciation, Income-Growth and Value Equity may not invest more
than 10% of their net assets in repurchase agreements maturing in more than
seven days or in other illiquid securities, including securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions as to resale and including, in the case of
Income-Growth, privately placed securities.
Growth Equity and Eagle International may not invest more than 10%, and
Mid Cap may not invest more than 15% of their net assets in securities that are
subject to restrictions on resale or are not readily marketable without
registration under the 1933 Act and in repurchase agreements maturing in more
than seven days.
SELLING SHORT AND BUYING ON MARGIN. Capital Appreciation, Growth Equity,
Mid Cap, Small Cap, and Value Equity 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; and, in
addition, Growth Equity, Mid Cap, and Value Equity may make margin deposits in
connection with the Fund's use of options, futures contracts, forward currency
contracts in the case of Value Equity and Growth Equity, and other financial
instruments.
INVESTING IN INVESTMENT COMPANIES. Income-Growth, Mid Cap, Small Cap and
Value Equity may not invest in securities issued by other investment companies
except as permitted by the 1940 Act, and with respect to Small Cap and Value
Equity, except in connection with the merger, consolidation or acquisition of
all the securities or assets of such an issuer.
Capital Appreciation may not invest in securities issued by other
investment companies, except in connection with a merger, consolidation,
acquisition or reorganization 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 Capital Appreciation's total assets
(taken at market value) would be invested in such securities.
Growth Equity may not invest in the securities of other investment
companies, except by purchase in the open market where no commission or profit
to a sponsor or dealer results from the purchase other than the customary
broker's commission, or except when the purchase is part of a plan of merger,
consolidation, reorganization or acquisition.
Eagle International may not invest more than 10% of its total assets in
securities of other investment companies. For purposes of this restriction,
foreign banks and foreign insurance companies or their respective agents or
subsidiaries are not considered investment companies. In addition, Eagle
International may invest in the securities of other investment companies in
connection with a merger, consolidation or acquisition of assets or other
reorganization approved by Eagle International's shareholders. Eagle
International may incur duplicate advisory or management fees when investing in
another mutual fund.
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<PAGE>
NON-FUNDAMENTAL POLICIES UNIQUE TO CAPITAL APPRECIATION
-------------------------------------------------------
Capital Appreciation has adopted the following non-fundamental policies:
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.
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 value per share of A shares, B shares and C shares is
determined separately daily as of the close of regular trading on the New York
Stock Exchange (the "Exchange") each day the Exchange is open for business.
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 OTC market the most
recent quoted bid price is used. When market quotations for options and futures
positions held by Value Equity, Growth Equity, Mid Cap and Eagle International
are readily available, those positions will be valued based upon such
quotations. Market quotations generally will not be available for options traded
in the OTC market. 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 and other assets in foreign currency and foreign currency contracts
will be valued daily in U.S. dollars at the foreign currency exchange rates
prevailing at the time a Fund 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.
All securities and other assets quoted in foreign currency and forward
currency contracts are valued daily in U.S. dollars on the basis of the foreign
currency exchange rate prevailing at the time such valuation is determined by
the Fund's custodian. Foreign currency exchange rates generally are determined
prior to the close of the Exchange. Occasionally, events affecting the value of
foreign securities and such exchange rates occur between the time at which they
are determined and the close of the Exchange, which events will not be reflected
in a computation of the Fund's net asset value. If events materially affecting
the value of such securities or assets or currency exchange rates occurred
during such time period, the securities or assets would be valued at their fair
value as determined in good faith under procedures established by and under the
general supervision and responsibility of the Board of Trustees. The foreign
currency exchange transactions of a Fund conducted on a spot basis are valued at
the spot rate for purchasing or selling currency prevailing on the foreign
exchange market.
The Funds are 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 OTC markets normally is completed well before the
Funds' 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 Funds' net asset value is not calculated.
-20-
<PAGE>
Calculation of net asset value of A shares and C shares does not take place
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. The Funds calculate net asset
value per share and, therefore, effect 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 or other assets occur between the time
when their prices are determined (including their value in U.S. dollars by
reference to foreign currency exchange rates) and the time when the Funds' net
asset value is calculated, such securities and other assets 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 Funds of
securities owned by them is not reasonably practicable or it is not reasonably
practical for the Funds fairly to determine the value of their 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 Funds' performance data quoted in advertising and other promotional
materials represents past performance and is not intended to indicate future
performance. 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. Average annual total return quotes for each class used
in each Fund's advertising and promotional materials are calculated according to
the following formula:
n
P(1+T) = 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
period at the end of that period
In calculating the ending redeemable value for A shares, each Fund's
current maximum sales load of 4.75% is deducted from the initial $1,000 payment
and, for B shares and C shares, the applicable CDSL imposed on a redemption of B
shares or C shares held for the period is deducted. All dividends and other
distributions by a Fund 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.
In connection with communicating its total return to current or
prospective shareholders, each Fund 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,
each Fund 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 a Fund'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 S&P 500 Index, each Fund calculates its cumulative
total return for each class for the specified periods of time by assuming an
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<PAGE>
investment of $10,000 in that class of shares 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 Funds do 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 B shares and C shares. By not annualizing the performance and
excluding the effect of the front-end sales load on A shares and the CDSL on B
shares and C shares, the 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 sales load or CDSL results in a higher rate of return
than calculating total return net of the front-end sales load.
The average annualized total return and cumulative return are as follows
for each period of each Fund below. Return information is not available for Mid
Cap because Mid Cap did not commence operations until November 2, 1997. In
addition, return information is not available for B shares because they were not
offered prior to the date of this SAI.
AVERAGE
ANNUALIZED TOTAL
FUND SHARES PERIOD TOTAL RETURN RETURN
---- ------ ------ ------------ ---------
Capital A shares . One-year period ended
Appreciation August 31, 1997 27.27%
. Five-year period ended
August 31, 1997 16.45% ____%
. Ten-year period ended
August 31, 1997 11.35% ____%
. December 12, 1995
(commencement of
operations) to August ____% ____%
31, 1997
C shares . One-year period ended
August 31, 1997 32.91%
. April 3, 1995 (initial
offering of shares) to 22.43% ____%
August 31, 1997
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<PAGE>
AVERAGE CUMULATIVE
ANNUALIZED TOTAL
FUND SHARES PERIOD TOTAL RETURN RETURN
---- ------ ------ ------------ ---------
Eagle A shares . One-year period ended
International October 31, 1997 ____%
. December 27, 1995 (initial
offering of A shares) to ____% ____%
October 31, 1997
C shares . One-year period ended
October 31, 1997 ____%
. December 27 1995 (initial
offering of C shares) to ____% ____%
October 31, 1997
Growth A shares . One-year period ended
Equity October 31, 1997 ____%
. November 16, 1995
(commencement of ____% ____%
operations) to October 31,
1997
C shares . One-year period ended
October 31, 1997 ____%
. November 16, 1995
(commencement of ____% ____%
operations) to October 31,
1997
Income-Growth A Shares . One-year period ended
September 30, 1997 ____%
. Five-year period ended
September 30, 1997 ____% ____%
. Ten-year period ended
September 30, 1997 ____% ____%
. December 15, 1986
(commencement of ____% ____%
operations) to September
30, 1997
C shares . One-year period ended
September 30, 1997 ____%
. April 3, 1995 (initial
offering of shares) to ____% ____%
September 30, 1997
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<PAGE>
AVERAGE CUMULATIVE
ANNUALIZED TOTAL
FUND SHARES PERIOD TOTAL RETURN RETURN
---- ------ ------ ------------ ---------
Small Cap A shares . One-year period ended
October 31, 1997 ____%
. May 7, 1993 (commencement
of operations) to ____% ____%
October 31, 1997
C shares . One-year period ended
October 31, 1997 ____%
. April 3, 1995 (initial
offering of C shares) to ____% ____%
October 31, 1997
Value Equity A shares . One-year period ended
October 31, 1997 ____%
. December 30, 1994
(commencement of ____% ____%
operations) to October 31,
1997
C shares . One-year period ended
October 31, 1997 ____%
. April 3, 1995 (initial
offering of C shares) to ____% ____%
October 31, 1997
INVESTING IN THE FUNDS
- ----------------------
A shares, B shares and C shares are sold at their next determined net
asset value on Business Days. The procedures for purchasing shares of a Fund are
explained in the Prospectus under "Purchase Procedures."
SYSTEMATIC INVESTMENT OPTIONS
-----------------------------
The options below allow you to invest continually in one or more Funds at
regular intervals.
1. Systematic Investing -- You may authorize Heritage to process a monthly
draft from your personal checking account for investment into a Fund. 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 a Fund. 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.
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<PAGE>
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
a Fund. 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 Heritage ("Heritage Mutual Fund"), you may elect to
have a preset amount redeemed from that fund and exchanged into the
corresponding class of shares of a Fund. 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
individual retirement account ("IRA"). An individual may make limited
contributions to a Heritage IRA through the purchase of shares of a Fund 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). In addition, individuals whose earnings (together with their spouse's
earnings) do not exceed a certain level may establish an "education IRA" and/or
a "Roth IRA"; although contributions to these new types of IRAs (established by
the Taxpayer Relief Act of 1997 ("Tax Act")) are nondeductible, withdrawals from
them will not be taxable under certain circumstances. 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 Heritage.
Fund shares also may be used as the investment medium for qualified plans
(defined benefit or defined contribution plans established by corporations,
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 the initial purchase. The
sales load applicable to each succeeding monthly purchase of A shares will be
that normally applicable, under the 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.
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
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
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<PAGE>
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 of a Fund held by the investor and (b) all A shares of
any other 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 purchase with that of
the investor into a single "purchase."
A shares of Heritage Income Trust-Intermediate Government Fund
("Intermediate Government") 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 Prospectus
by means of a written Statement of Intention, which expresses the investor's
intention to invest not less than $25,000 within a period of 13 months in A
shares of a Fund 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 redeemed involuntarily 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 a Fund subject to the rate of
sales load applicable to the actual amount of the aggregate purchases. An
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<PAGE>
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 Fund 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 Heritage'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
Heritage.
Redemptions will be made at net asset value determined as of the close of
regular trading on the Exchange on a day of each month chosen by the
shareholders or a day of the last month of each period chosen by the
shareholders, whichever is applicable. Systematic withdrawals of C shares, if
made in less than 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 B shares
and C shares. 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 Fund shares. A shareholder may terminate the
Systematic Withdrawal Plan at any time without charge or penalty by giving
written notice to Heritage or the Distributor. The Funds, and the 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 of a
Fund if maintaining a Systematic Withdrawal Plan of A shares because the
shareholder may incur tax liabilities in connection with such purchases and
withdrawals. A Fund 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
each Fund's Automatic Investment Plan.
TELEPHONE TRANSACTIONS
----------------------
Shareholders may redeem shares by placing a telephone request to a Fund. A
Fund, Heritage, Eagle, the Distributor and their Trustees, directors, officers
and employees are not liable for any loss arising out of telephone instructions
-27-
<PAGE>
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 a Fund, Heritage, Eagle, the Distributor and their
Trustees, directors, officers and employees do not follow reasonable procedures,
some or all of them may be liable for any such losses.
REDEMPTIONS IN KIND
-------------------
A Fund is obligated to redeem shares for any shareholder for cash during
any 90-day period up to $250,000 or 1% of that Fund'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, a Fund will pay all or a
portion of the remainder of the redemption in portfolio instruments, valued in
the same way as each Fund 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 shares of a Fund 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 B shares
and 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 a Fund 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 Fund, 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 Fund
shares can be directed to registered representatives of the Distributor or a
participating dealer, or to Heritage.
EXCHANGE PRIVILEGE
- ------------------
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
Prospectus and below. Telephone or telegram requests for an exchange received by
a Fund 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.
A shares of 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 a Fund without payment of any sales load. A shares of
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<PAGE>
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 a Fund,
unless those shares were acquired through an exchange of other A shares that
were subject to an initial sales load.
CONVERSION OF CLASS B SHARES
- ----------------------------
B shares of the Funds automatically will convert to A shares, based on
the relative net asset values per share of the two classes, as of the close of
business on the first business day of the month in which the eighth anniversary
of the initial issuance of such B shares occurs. For the purpose of calculating
the holding period required for conversion of B shares, the date of initial
issuance shall mean (i) the date on which such B shares were issued or (ii) for
B shares obtained through an exchange, or a series of exchanges, the date on
which the original B shares were issued. For purposes of conversion to A shares,
B shares purchased through the reinvestment of dividends and other distributions
paid in respect of B shares will be held in a separate sub-account. Each time
any B shares in the shareholder's regular account (other than those in the
sub-account) convert to A shares, a pro rata portion of the B shares in the
sub-account will also convert to A shares. The portion will be determined by the
ratio that the shareholder's B shares converting to A shares bears to the
shareholder's total B shares not acquired through dividends and other
distributions.
The availability of the conversion feature is subject to the continuing
availability of an opinion of counsel to the effect that the dividends and other
distributions paid on A shares and B shares will not result in "preferential
dividends" under the Code and the conversion of shares does not constitute a
taxable event. If the conversion feature ceased to be available, the B shares
would not be converted and would continue to be subject to the higher ongoing
expenses of the B shares beyond six years from the date of purchase. Heritage
and Eagle have no reason to believe that this condition for the availability of
the conversion feature will not be met.
TAXES
- -----
GENERAL. Each Fund is treated as a separate corporation for Federal income
tax purposes. In order to qualify or to continue to qualify for the favorable
tax treatment as a regulated investment company ("RIC") under the Code, each
Fund 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. With respect to each Fund, these requirements include the
following: (1) the Fund 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 options, futures or forward
currency contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) at the close of each
quarter of the Fund'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 Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (3) at the close of each
quarter of the Fund'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.
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<PAGE>
Each Fund 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 Fund 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 shares of any
Fund for shares of another Heritage Mutual Fund (including another Fund)
generally will have similar tax consequences. However, special rules apply when
a shareholder disposes of A shares of a Fund through a redemption or exchange
within 90 days after purchase thereof and subsequently reacquires A shares of
that Fund or acquires A 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 original A 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 shares of a Fund are purchased (whether
pursuant to the reinstatement privilege or otherwise) within 30 days before or
after redeeming other shares of that Fund (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 shares of a Fund 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.
INCOME FROM FOREIGN SECURITIES. Dividends and interest received by each
Fund (other than Small Cap) may be subject to income, withholding or other taxes
imposed by foreign countries and U.S. possessions ("foreign taxes") 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. If more than 50% of the value of a Fund's
total assets at the close of any taxable year consists of securities of foreign
corporations, it will be eligible to, and may, file an election with the
Internal Revenue Service that would enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign taxes
paid by it. Pursuant to any such election, each Fund would treat those taxes as
dividends paid to its shareholders and each shareholder would be required to (1)
include in gross income, and treat as paid by the shareholder, the shareholder's
proportionate share of those taxes, (2) treat the shareholder's share of those
taxes and of any dividend paid by the Fund that represents income from foreign
or U.S. possessions sources as the shareholder's own income from those sources,
and (3) either deduct the taxes deemed paid by the shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against the shareholder's Federal income tax.
Each Fund will report to its shareholders shortly after each taxable year their
respective shares of the Fund's income from sources within foreign countries and
U.S. possessions and foreign taxes paid by it if it makes this election.
Pursuant to the Tax Act, individuals who have no more than $300 ($600 for
married persons filing jointly) of creditable foreign taxes included on Forms
1099 and have no foreign source non-passive income will be able to claim a
foreign tax credit without having to file the detailed Form 1116 that otherwise
is required.
Each Fund, except Small Cap, may invest in the stock of "passive foreign
investment companies" ("PFICs"). A PFIC is a foreign corporation -- other than a
"controlled foreign corporation" (i.e., a foreign corporation in which, on any
day during its taxable year, more than 50% of the total voting power of all
voting stock therein or the total value of all stock therein is owned, directly,
indirectly, or constructively, by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly, or constructively, at least 10% of
that voting power) as to which a Fund is a U.S. shareholder -- 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, a Fund will be
subject to Federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income
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<PAGE>
will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the QEF'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 by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not distributed to the Fund by the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Each Fund may elect to "mark-to-market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of a PFIC's stock over
a Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, a Fund also would be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included by the Fund for
prior taxable years. A Fund's adjusted basis in each PFIC's stock with respect
to which it makes this election will be adjusted to reflect the amounts of
income included and deductions taken under the election. Regulations proposed in
1992 would provide a similar election with respect to the stock of certain
PFICs.
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
dates of acquisition and disposition of the securities and (3) that are
attributable to fluctuations in exchange rates that occur between the time a
Fund accrues dividends, interest or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses, referred to under the
Code as "section 988" gains or losses, may increase or decrease the amount of a
Fund's investment company taxable income to be distributed to its shareholders.
HEDGING STRATEGIES. The use of hedging strategies, such as selling
(writing) and purchasing options and futures contracts and entering into forward
currency contracts, involves complex rules that will determine for income tax
purposes the amount, character and timing of recognition of the gains and losses
a Fund realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures and forward currency contracts derived by a Fund
with respect to its business of investing in securities or foreign currencies,
will qualify as permissible income under the Income Requirement.
Certain options and futures in which a Fund may invest will be "section
1256 contracts." Section 1256 contracts held by a Fund at the end of each
taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which it has made an election not to have the
following rules apply, must be "marked-to-market" (that is, treated as sold for
their fair market value) for Federal income tax purposes, with the result that
unrealized gains or losses will be treated as though they were realized. Sixty
percent of any net gain or loss recognized on these deemed sales, and 60% of any
net realized gain or loss from any actual sales of section 1256 contracts, will
be treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss. It is not entirely clear, as of the date of
preparation of this SAI, whether the 60% portion of that capital gain that is
treated as long-term capital gain will qualify for the reduced maximum tax rates
on net capital gain enacted by the Tax Act -- 20% (10% for taxpayers in the 15%
marginal tax bracket) on capital assets held for more than 18 months -- instead
of the maximum rate in effect before that legislation, 28%, which now applies to
gain on capital assets held for more than one year but not more than 18 months.
Section 1256 contracts also may be marked-to-market for purposes of the Excise
Tax.
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<PAGE>
Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which a Fund may invest. Section 1092 defines a
"straddle" as offsetting positions with respect to personal property; for these
purposes, options and futures contracts are personal property. Section 1092
generally provides that any loss from the disposition of a position in a
straddle may be deducted only to the extent the loss exceeds the unrealized gain
on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If a Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions would be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences to a
Fund of straddle transactions are not entirely clear.
If a Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward contract,
or short sale) with respect to any stock, debt instrument (other than "straight
debt"), or partnership interest the fair market value of which exceeds its
adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by the Fund or a
related person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
ORIGINAL ISSUE DISCOUNT SECURITIES. Income-Growth may acquire zero coupon
or other securities issued with original issue discount ("OID"). As a holder of
those securities, Income-Growth must include in its income the OID that accrues
on them during the taxable year, even if it receives no corresponding payment on
them during the year. Because Income-Growth annually must distribute
substantially all of its investment company taxable income, including any OID,
to satisfy the Distribution Requirement and avoid imposition of the Excise Tax,
Income-Growth may be required in a particular year to distribute as a dividend
an amount that is greater than the total amount of cash it actually receives.
Those distributions will be made from Income-Growth's cash assets or from the
proceeds of sales of portfolio securities, if necessary. Income-Growth may
realize capital gains or losses from those sales, which would increase or
decrease its investment company taxable income and/or net capital gain.
Investors are advised to consult their own tax advisers regarding the
status of an investment in the Funds under state and local tax laws.
FUND INFORMATION
- ----------------
MANAGEMENT OF THE FUNDS
-----------------------
TRUSTEES AND OFFICERS. Each Fund's Trustees and Officers are listed
below with their addresses, principal occupations and present positions,
including any affiliation with Raymond James Financial, Inc. ("RJF"), RJA,
Heritage and Eagle.
Position with Principal Occupation
Name each Trust During Past Five Years
---- ---------- ----------------------
Thomas A. James* (55) 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.
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<PAGE>
Position with Principal Occupation
Name each Trust During Past Five Years
---- ---------- ----------------------
Richard K. Riess* (48) Trustee Chief Executive Officer of
880 Carillon Parkway Eagle since 1996, President,
St. Petersburg, FL 1995 to present, Chief
33716 Operating Officer, 1988 to
1996, Executive Vice
President, 1988 to 1993.
Donald W. Burton (53) Trustee President of South Atlantic
614 W. Bay Street Capital Corporation (venture
Suite 200 capital) since 1981.
Tampa, FL 33606
C. Andrew Graham (57) Trustee Vice President of Financial
Financial Designs, Ltd. Designs Ltd. since 1992;
1775 Sherman Street Executive Vice President of
Suite 1900 the Madison Group, Inc., 1991
Denver, CO 80203 to 1992; Principal of First
Denver Financial Corporation
(investment banking) since
1987.
David M. Phillips (58) Trustee Chairman and Chief Executive
World Trade Center Officer of CCC Information
Chicago Services, Inc. since 1994 and
444 Merchandise Mart of InfoVest Corporation
Chicago, IL 60654 (information services to the
insurance and auto industries
and consumer households) since
1982.
Eric Stattin (54) Trustee Litigation Consultant/Expert
1975 Evening Star Drive Witness and private investor
Park City, UT 84060 since 1988.
James L. Pappas (54) Trustee Lykes Professor of Banking and
University of South Finance since 1986 at
Florida University of South Florida;
College of Business Dean of College of Business
Administration Administration 1987 to 1996.
Tampa, FL 33620
Stephen G. Hill (35) President Chief Executive Officer and
880 Carillon Parkway President of Heritage since
St. Petersburg, FL 1989 and Director since 1994;
33716 Director of Eagle since 1995.
Donald H. Glassman (40) Treasurer Treasurer of Heritage since
880 Carillon Parkway 1989; Treasurer of Heritage
St. Petersburg, FL Mutual Funds since 1989.
33716
Clifford J. Alexander (53) Secretary Partner, Kirkpatrick &
1800 Massachusetts Lockhart LLP (law firm).
Ave., NW
Washington, DC 20036
Patricia Schneider Assistant Compliance Administrator of
880 Carillon Parkway Secretary Heritage.
St. Petersburg, FL
33716
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<PAGE>
Position with Principal Occupation
Name each Trust During Past Five Years
---- ---------- ----------------------
Robert J. Zutz (44) Assistant Partner, Kirkpatrick &
1800 Massachusetts Secretary Lockhart LLP (law firm).
Ave., NW
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 ______% of the
outstanding A shares of Eagle International as of _____________, 1997. The
Trustees and officers of the Trust, as a group, own less than 1% of the other
Fund's shares outstanding and less than 1% of the outstanding C shares of Eagle
International. Each 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 Series Trust currently pays Trustees who are not "interested persons"
of the Trust $2,908 annually and $728 per meeting of the Board of Trustees.
Income-Growth and Capital Appreciation each pay such Trustees $727 annually and
$182 per meeting of the Board of Trustees. Trustees also are reimbursed for any
expenses incurred in attending meetings. Because Heritage or Eagle, as
applicable, performs substantially all of the services necessary for the
operation of each Fund, each Fund requires no employees. No officer, director or
employee of Heritage or Eagle receives any compensation from either Fund for
acting as a director or officer. The following table shows the compensation
earned by each Trustee for each Trust's prior fiscal year ended.
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<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Total
Compensation
Aggregate Aggregate From the Trust
Compensation Compensation Aggregate and the Heritage
From Capital From Compensation Family of Funds
Name of Person, Appreciation Income-Growth From the Paid to
Position Trust(1) Trust(2) Series Trust(3) Trustees(4)
- --------------- ------------ ------------ --------------- --------------
<S> <C> <C> <C> <C>
Donald W. Burton, $1,454 $1,454 $5,820 $17,000
Trustee
C. Andrew Graham, $1,454 $1,454 $5,820 $17,000
Graham, Trustee
David M. Phillips, $1,272 $1,272 $5,092 $15,000
Trustee
Eric Stattin, $1,454 $1,454 $5,820 $17,000
Trustee
James L. Pappas, $1,454 $1,454 $5,820 $17,000
Trustee
Richard K. Riess, $0 $0 $0 $0
Trustee
Thomas A. James, $0 $0 $0 $0
Trustee
</TABLE>
- ---------------------
(1) For the fiscal year ended August 31, 1997.
(2) For the fiscal year ended September 30, 1997.
(3) For the fiscal year ended October 31, 1997.
(4) The Heritage Mutual Funds consist of six separate registered investment
companies, including Capital Appreciation, Income-Trust and Series Trust.
No Trustee will receive any benefits upon retirement. Thus, no pension or
retirement benefits have accrued as part of any of any Trust's expenses.
FIVE PERCENT SHAREHOLDERS
-------------------------
Listed below are shareholders who owned of record or were known by the
Funds to own beneficially five percent or more of the outstanding shares of the
following Funds as of September 30, 1997:
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<PAGE>
INVESTMENT ADVISERS AND ADMINISTRATOR; SUBADVISERS
--------------------------------------------------
The investment adviser and administrator for each Fund except Eagle
International is Heritage Asset Management, Inc. Heritage was organized as a
Florida corporation in 1985. The investment adviser for Eagle International is
Eagle Asset Management, Inc. Eagle was organized as a Florida corporation in
1976. All the capital stock of both Heritage and Eagle is owned by Raymond James
Financial, Inc. ("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.
With respect to each Fund except Eagle International, Heritage is
responsible for overseeing the Fund's investment and noninvestment affairs,
subject to the control and direction of the Fund's Board. The Series Trust, on
behalf of Growth Equity, Mid Cap, Small Cap and Value Equity entered into an
Investment Advisory and Administration Agreement with Heritage dated March 29,
1993 and last supplemented on September 29, 1997. Capital Appreciation and
Income-Growth entered into Investment Advisory and Administration Agreements
dated November 13, 1985 and October 31, 1986, respectively and, in the case of
Capital Appreciation, amended on November 19, 1996. The Investment Advisory and
Administration Agreements require that Heritage review and establish investment
policies for each Fund and administer the Funds' noninvestment affairs.
On behalf of Eagle International, the Series Trust also entered into an
Investment Advisory and Administration Agreement (collectively with the Advisory
Agreements discussed above, "Advisory Agreements") dated February 14, 1995 with
Eagle to provide oversight of Eagle International's investment and noninvestment
affairs, subject to the control and direction of the Board.
Under separate Subadvisory Agreements, Eagle and Liberty Investment
Management, a division of Goldman Sachs Asset Management ("Liberty"), subject to
the direction and control of Capital Appreciation's Board of Trustees, provide
investment advice and portfolio management services to Capital Appreciation for
a fee payable by Heritage. None of Capital Appreciation's assets currently are
allocated to Eagle. Under separate Subadvisory Agreements, Eagle and Awad &
Associates ("Awad") each provide investment advice and portfolio management
services, subject to direction by Heritage and the Series Trust's Board of
Trustees, to Small Cap for a fee payable by Heritage. Under a Subadvisory
Agreement, Eagle provides investment advice and portfolio management services,
subject to the direction of Heritage and the Board of Trustees, to Growth
Equity, Income-Growth, Mid Cap and Value Equity for a fee payable by Heritage.
Under a Subadvisory Agreement, Martin Currie Inc. ("Martin Currie") provides
investment advice and portfolio management services, subject to the direction of
Eagle and the Board of Trustees, to Eagle International for a fee payable by
Eagle (collectively, the "Subadvisory Agreements").
Heritage and Eagle, as applicable, also are obligated to furnish each Fund
with office space, administrative, and certain other services as well as
executive and other personnel necessary for the operation of a Fund. Heritage
and Eagle, as applicable, and their affiliates also pay all the compensation of
Trustees of the Trust who are employees of Heritage or Eagle and their
affiliates. Each Fund pays all its other expenses that are not assumed by
Heritage or Eagle, as applicable. Each Fund also is liable for such nonrecurring
expenses as may arise, including litigation to which a Fund may be a party. Each
Fund also may have an obligation to indemnify its Trustees and officers with
respect to any such litigation.
The Advisory Agreements and the Subadvisory Agreements each were approved
by the Board of Trustees (including all of the Trustees who are not "interested
persons" of Heritage and Eagle or the subadvisers, as defined under the 1940
Act) and by the shareholders of the applicable Funds in compliance with the 1940
Act. Each Agreement provides that it will be in force for an initial two-year
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<PAGE>
period and it must be approved each year 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 Heritage, Eagle, the 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 a Fund. 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 Agreements may be terminated on not less than 60 days'
written notice by Heritage or Eagle, as applicable, to a Fund and the
Subadvisory Agreements may be terminated on not less than 60 days' written
notice by Heritage or Eagle, as applicable, or 90 days' written notice by the
subadvisers. Under the terms of the Advisory Agreement, Heritage and Eagle
automatically become responsible for the obligations of the subadvisers upon
termination of the Subadvisory Agreements. In the event Heritage or Eagle, as
applicable, ceases to be the investment adviser of a Fund or the Distributor
ceases to be principal distributor of shares of a Fund, the right of a Fund to
use the identifying name of "Heritage" may be withdrawn.
Heritage, Eagle and the subadvisers shall not be liable to either Fund 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 a Fund or for any
losses that may be sustained in the purchase, holding or sale of any security.
All of the officers of each Fund except for Messrs. Alexander and Zutz are
officers or directors of Heritage, Eagle or their affiliates. These
relationships are described under "Management of the Funds."
ADVISORY AND ADMINISTRATION FEE. The annual investment advisory fee paid
monthly by each Fund to Heritage or Eagle, as applicable, is based on the
applicable Fund's average daily net assets as listed in the Prospectus.
CAPITAL APPRECIATION. For Capital Appreciation, Heritage has voluntarily
agreed to waive management fees to the extent that total annual operating
expenses attributable to A shares exceed 1.45% of the average daily net assets
or to the extent that total annual operating expenses attributable to C shares
exceed 2.20% of average daily net assets. For the three fiscal years ended
August 31, 1995, 1996 and 1997, Heritage earned $711,510, $736,180 and $585,991
(of which $177,878, $184,045 and $0 was waived), respectively.
Heritage has entered into agreements with Eagle and Liberty to provide
investment advice and portfolio management services to Capital Appreciation for
an annual fee to be paid by Heritage to Liberty of .25% of Capital
Appreciation's average daily net assets and for an annual fee paid by Heritage
to Eagle of 50% of the fees payable to Heritage by Capital Appreciation, without
regard to any reduction in fees actually paid to Heritage as a result of expense
limitations. Eagle currently does not have any of Capital Appreciation's assets
under management, and, therefore, does not receive a fee from Heritage. For the
three fiscal years ended August 31, 1997, Heritage paid $221,041, $184,045 and
$195,330, respectively.
EAGLE INTERNATIONAL. For Eagle International, Eagle has voluntarily agreed
to waive management fees to the extent that Class A annual operating expenses,
exclusive of foreign taxes paid, exceed 1.97% or to the extent that Class B and
Class C annual operating expenses exceed 2.72% of average daily net assets
attributable to that class during this fiscal year. For the period May 1, 1995
(commencement of operations) to October 31, 1995 and for the two fiscal years
ended October 31, 1997, management fees amounted to $32,303, $189,777 and
$________, respectively. Eagle waived its fees in the amount of $32,303 and
$134,735, respectively, for the first two periods and was reimbursed expenses in
the amount of $48,001 for the period ended October 31, 1996.
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<PAGE>
Eagle has entered into an agreement with Martin Currie to provide
investment advisory advice and portfolio management services to Eagle
International for a fee based on Eagle International's average daily net assets
paid by Eagle to Martin Currie equal to .50% on the first $100 million of assets
and .40% thereafter, without regard to any reduction in fees actually paid to
Eagle as a result of expense limitations. For the period May 1, 1995
(commencement of operations) to October 31, 1995 and the two fiscal years ended
October 31, 1997, Eagle paid Martin Currie subadvisory fees of $16,152, $94,888
and $_______, respectively.
GROWTH EQUITY. For Growth Equity, Heritage has voluntarily agreed to waive
management fees to the extent that Class A annual operating expenses exceed
1.60% or to the extent that Class C annual operating expenses exceed 2.35% of
average daily net assets attributable to that class during this fiscal year. For
the period November 16, 1995 (commencement of operations) to October 31, 1996
and the fiscal year ended October 31, 1997, management fees amounted to $77,137
and $______. For the first period Heritage waived $76,210 of its fees.
Heritage has entered into an agreement with Eagle to provide investment
advisory advice and portfolio management services to Growth Equity for a fee
paid by Heritage to Eagle equal to 50% of the fees paid to Heritage, without
regard to any reduction in fees actually paid to Heritage as a result of expense
limitations. For the period November 16, 1995 (commencement of operations) to
October 31, 1996 and the fiscal year ended October 31, 1997, Heritage paid Eagle
subadvisory fees of $38,568 and $________.
INCOME-GROWTH. For Income-Growth, Heritage 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% of average
daily net assets. For the fiscal years ended September 30, 1995, 1996 and 1997,
Heritage earned approximately $242,000, $294,000 and $_______, respectively.
Heritage has entered into an agreement with Eagle to provide investment
advice and portfolio management services to Income-Growth for a fee paid by
Heritage equal to 50% of the fees payable to Heritage by Income-Growth, without
regard to any reduction in fees actually paid to Heritage as a result of expense
limitations. For the three fiscal years ended September 30, 1995, 1996 and 1997,
Heritage paid Eagle approximately $121,000, $147,000 and $________ respectively.
MID CAP. For Mid Cap, Heritage has voluntarily agreed to waive its
management fees to the extent that annual operating expenses attributable to A
shares exceed 1.60 % of the average daily net assets or to the extent that
annual operating expenses attributable to C shares exceed 2.35% of average daily
net assets attributable to that class during this fiscal year. Heritage has
entered into an agreement with Eagle to provide investment advice and portfolio
management services to Mid Cap for a fee paid by Heritage to Eagle equal to 50%
of the fees payable to Heritage by the Fund, without regard to any reduction in
fees actually paid to Heritage as a result of voluntary fee waivers by Heritage.
Because Mid Cap did not commence operations until this fiscal year, Heritage
Eagle has not received any fees relating to Mid Cap.
SMALL CAP. For Small Cap, Heritage has voluntarily agreed to waive its
management fees to the extent that annual operating expenses attributable to A
shares exceed 1.60% of the average daily net assets or to the extent that annual
operating expenses attributable to B shares and C shares exceed 2.35% of average
daily net assets attributable to that class during this fiscal year. For the
three years ended October 31, 1997, management fees amounted to $465,132,
$827,233 and $____________, respectively.
Heritage has entered into an agreement with Eagle and Awad to provide
investment advice and portfolio management services to Small Cap for a fee paid
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<PAGE>
by Heritage to each subadviser with respect to the amount of Small Cap assets
under management equal to 50% of the fees payable to Heritage by Small Cap,
without regard to any reduction in fees actually paid to Heritage as a result of
expense limitations. The Research Department of Raymond James & Associates, Inc.
("Research"), a former subadviser of Small Cap who resigned as its subadviser on
November 20, 1995, received from Heritage for the November 1, 1995 to November
20, 1995 (when Research resigned as subadviser), subadvisory fees of $74,583.
Eagle began as subadviser to Small Cap on August 7, 1995 and received
subadvisory fees from Heritage for the period August 7, 1995 to October 31, 1995
and the two fiscal years ended October 31, 1997 in the amount of $30,725,
$203,492 and $__________, respectively. For the three fiscal years ended October
31, 1997, Heritage paid Awad subadvisory fees of $127,866, $210,124 and
$__________, respectively.
VALUE EQUITY. For Value Equity, effective March 1, 1997, Heritage
voluntarily has agreed to waive management fees to the extent that annual
operating expenses attributable to A shares exceed 1.60% of average daily net
assets or to the extent that annual operating expenses attributable to B shares
and C shares exceed 2.35% of average daily net assets attributable to that class
during this fiscal year. For the period December 30, 1994 (commencement of
operations) to October 31, 1995 and the two fiscal years ended October 31, 1997,
management fees amounted to $47,250, $168,020 and $_______, respectively. For
the first two periods, Heritage waived its fees in the amount of $47,250 and
$76,062, respectively, and reimbursed expenses in the amount of $68,724 for the
period ended October 31, 1995.
Heritage has entered into an agreement with Eagle to provide investment
advice and portfolio management services to Value Equity for a fee paid by
Heritage to Eagle, as applicable, equal to 50% of the fees paid to Heritage,
without regard to any reduction in fees actually paid to Heritage as a result of
expense limitations. For the period December 30, 1994 (commencement of
operations) to October 31, 1995 and the fiscal years ended October 31, 1997,
Heritage paid Eagle subadvisory fees of $23,625, $45,947 and $_______,
respectively. Dreman Value Advisor, Inc. ("Dreman"), a former subadviser of
Value Equity, received from Heritage for the periods June 1, 1996 (when Dreman
began managing Value Equity's assets) to October 31, 1996 and November 1, 1996
to October 1, 1997 (when Heritage allocated Value Equity's assets to Eagle),
subadvisory fees of $38,063 and $____________, respectively.
CLASS-SPECIFIC EXPENSES. Each Fund may determine to allocate certain of
its expenses (in addition to distribution fees) to the specific classes of a
Fund's shares to which those expenses are attributable.
BROKERAGE PRACTICES
-------------------
While each Fund generally purchases securities for long-term capital
gains, each Fund 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. A Fund's 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. Capital
Appreciation's portfolio turnover rate was 54% and 42% for the two years ended
August 31, 1997. Eagle International's portfolio turnover rates for the two
years ended October 31, 1997 were 59% and ______%. Growth Equity's portfolio
turnover rate for the period November 16, 1995 (commencement of operations) to
October 31, 1997 and the fiscal year ended October 31, 1997 were 23% (not
annualized) and ____%. Income-Growth's portfolio turnover rates for the two
years ended September 1997, were 75% and ____%. Mid Cap's turnover rate is
expected to be 100%. Small Cap's portfolio turnover rates for the two years
ended October 31, 1997 were 80% and ____%. Value Equity's annualized portfolio
turnover rate for two years ended October 31, 1997, were 129% and ____%.
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<PAGE>
The subadvisers are responsible for the execution of each Fund's portfolio
transactions and must seek the most favorable price and execution for such
transactions. Best execution, however, does not mean that a Fund necessarily
will be paying the lowest commission or spread available. Rather, each Fund 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 Funds. Eagle International
also may purchase and sell portfolio securities to and from dealers who provide
it with research services. However, portfolio transactions will not be directed
by Eagle International to dealers on the basis of such research services.
Capital Appreciation, Eagle International, Growth Equity, Income-Growth,
Mid Cap and Value Equity may use the Distributor, its affiliates or certain
affiliates of Heritage and Eagle as a broker for agency transactions in listed
and OTC securities at commission rates and under circumstances consistent with
the policy of best execution. Commissions paid to the Distributor, its
affiliates or certain affiliates of Heritage and Eagle will not exceed "usual
and customary brokerage commissions." Rule l7e-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."
Although it currently does not intend to do so, Small Cap may use the
Distributor as broker for agency transactions in listed and OTC securities at
commission rates and under circumstances consistent with the policy of best
execution. Provided, however, that if Small Cap does use the Distributor as a
broker, commissions paid to the Distributor will not exceed "usual and customary
brokerage commissions" as defined above.
The subadvisers also may select other brokers to execute portfolio
transactions. In the OTC market, each Fund generally deals with primary market
makers unless a more favorable execution can otherwise be obtained.
Aggregate brokerage commissions paid by Capital Appreciation for the three
fiscal years ended August 31, 1997 amounted to $125,563, $108,010 and $93,760,
respectively. Those commissions were paid on brokerage transactions worth
$84,219,558, $80,918,168 and $74,876,095, respectively. Aggregate brokerage
commissions paid by Capital Appreciation to the Distributor, an affiliated
broker-dealer, amounted to $3,090, $0 and $68, respectively, for the fiscal
years ended August 31, 1995, 1996 and 1997, or 2.5%, 0% and less than 1%,
respectively of the aggregate commissions paid. These commissions were paid on
aggregate brokerage transactions of $1,911,784 (or 2.3%) and $0 (or 0%) and
$________ (or ____%), respectively, of the total aggregate brokerage
transactions.
Aggregate brokerage commissions paid by Growth Equity for the period
November 26, 1995 (commencement of operations) to October 31, 1996 and the
fiscal year ended October 31, 1997 amounted to $18,075 and $_______, of which
none was paid to RJA.
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<PAGE>
Aggregate brokerage commissions paid by Income-Growth for the three fiscal
years ended September 30, 1997 amounted to $53,748, $61,278 and $________,
respectively. Those commissions were paid on brokerage transactions worth
$28,057,262, $56,150,173 and $_________, respectively. Aggregate brokerage
commissions paid by Income-Growth to the Distributor, an affiliated
broker-dealer, amounted to $7,852 or 14.6%, $12,370 or 16.80% and $__________ or
___%, respectively, of the aggregate commissions paid. These commissions were
paid on aggregate brokerage transactions $1,830,625 (or 6.5%), $2,535,393 (or
4.52%) and $______ or __%, respectively, of the total aggregate brokerage
commissions.
Aggregate brokerage commissions paid by Small Cap for the three years
ended October 31, 1997 amounted to $196,353, $297,557 and $_________,
respectively. For the same periods, RJA was paid $13,416, $59,591 and $________.
Transactions in which Small Cap used RJA as broker involved approximately 7%,
25% and ___%, respectively, of the aggregate dollar amount of transactions
involving the payment of commissions, 7% and 20% and __%, respectively, of the
aggregate commission paid by Small Cap during the period.
Aggregate brokerage commissions paid by Value Equity for the period
December 30, 1994 (commencement of operations) to October 31, 1995 and the two
fiscal years ended October 31, 1997 amounted to $43,552, $71,566 and $______,
respectively. For the same periods, RJA was paid $8,596, $60 and $_____,
respectively. Transactions in which Value Equity used RJA as broker involved
approximately 20%, less than 1% and ___%, respectively, of the aggregate dollar
amount of transactions involving the payment of commissions, and 19.74%, less
than 1% and ___%, respectively, of the aggregate commission paid by Value Equity
during the period.
Each Fund 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 each Fund 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 expenses to each Fund 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, each Fund has expressly consented to the Distributor executing
transactions on an exchange on its behalf.
DISTRIBUTION OF SHARES
----------------------
The Distributor and Representatives with whom the Distributor has entered
into dealer agreements offer shares of each Fund as agents on a best efforts
basis and are not obligated to sell any specific amount of shares. In this
connection, the Distributor makes distribution and servicing payments to
participating dealers in connection with the sale of shares of a Fund. Pursuant
to the Distribution Agreements with respect to A shares, B shares and C shares,
the Distributor bears the cost of making information about each Fund 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, B and C shareholders and for
maintaining shareholder accounts. Each Fund pays the cost of registering and
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<PAGE>
qualifying its shares under state and federal securities laws and typesetting of
its prospectuses and printing and distributing prospectuses to existing
shareholders.
Each Fund has adopted a Distribution Plan for each class of shares (each a
"Plan" and collectively the "Plans"). These Plans permit a Fund to pay the
Distributor the monthly distribution and service fee out of the Fund's net
assets to finance activity that is intended to result in the sale and retention
of A shares, B shares and C shares. The Distributor, on C shares, may retain the
first 12 months distribution fee for reimbursement of amounts paid to the
broker-dealer at the time of purchase. Each Plan was approved by the Board of
Trustees, including a majority of the Trustees who are not interested persons of
a Fund (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
"Independent Trustees"). In approving such Plans, the Board determined that
there is a reasonable likelihood that each Fund and its shareholders will
benefit from each Plan.
Each 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 a
class of a Fund. The Board of Trustees reviews 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, including a majority of the Independent
Trustees, cast in person at a meeting called for such purpose. Any change in a
Plan that would increase materially the distribution cost to a class requires
shareholder approval of that class.
For Capital Appreciation, for the two fiscal years ended August 31, 1997,
the Distributor received Class A 12b-1 fees in the amount of $344,067 and
$335,468. For Eagle International, for the period ended December 27, 1995 (first
offering of A shares) to October 31, 1996 and the fiscal year ended October 31,
1997, the Distributor received Class A 12b-1 fees in the amount of $3,934 and
$__________. For Growth Equity, for the period November 16, 1995 (commencement
of operations) to October 31, 1996 and the fiscal year ended October 31, 1997,
the Distributor received Class A 12b-1 fees in the amount of $19,287 and
$___________. For Income-Growth, for the two fiscal years ended September 30,
1997, the Distributor received Class A 12b-1 fees in the amount of $94,590 and
$_________. For Small Cap, for the three fiscal years ended October 31, 1997,
the Distributor received Class A 12b-1 fees in the amount of $115,551, $197,076
and $________, respectively. For Value Equity, for the period December 30, 1994
(commencement of operations) to October 31, 1995 and the two fiscal years ended
October 31. 1997, the Distributor received Class A 12b-1 fees for Value Equity
in the amount of $13,040, $36,710 and $_______, respectively.
For Capital Appreciation, for the two fiscal years ended August 31, 1997,
the Distributor received Class C 12b-1 fees in the amount of $10,838 and
$19,834. For Eagle International, for the period December 27, 1995 (first
offering of C shares) to October 31, 1996 and the fiscal year ended October 31,
1997, the Distributor received Class C 12b-1 fees in the amount of $5,404 and
$_________. For Growth Equity, for the period November 16, 1995 (commencement of
operations) to October 31, 1996 and the fiscal year ended October 31, 1997, the
Distributor received Class C 12b-1 fees in the amount of $25,704 and
$__________, respectively. For Income-Growth, for the two fiscal years ended
September 30, 1997, the Distributor received Class C 12b-1 fees in the amount of
$13,604 and $________. For the period April 3, 1995 (first offering of C shares)
to October 31, 1995 and the two fiscal years ended October 31, 1997, the
Distributor received $9,098, $146,179 and $___________, respectively in fees for
Small Cap and $10,848, $77,187 and $__________, respectively in fees for Value
Equity.
B shares were not offered for sale prior to the date of this SAI.
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<PAGE>
The Distribution Agreements may be terminated at any time on 60 days'
written notice without payment of any penalty by either party. Each Fund may
effect such termination by vote of a majority of the outstanding voting
securities of a Fund or by vote of a majority of the Independent Trustees. For
so long as either Plan is in effect, selection and nomination of the Independent
Trustees shall be committed to the discretion of such disinterested persons.
The Distribution Agreements and each Plan 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.
ADMINISTRATION OF THE FUNDS
- ---------------------------
ADMINISTRATIVE, FUND ACCOUNTING AND TRANSFER AGENT SERVICES. Heritage or
Eagle, as applicable, subject to the control of the Board of Trustees, will
manage, supervise and conduct the administrative and business affairs of each
Fund; furnish office space and equipment; oversee the activities of the
subadvisers and the Custodian; and pay all salaries, fees and expenses of
officers and Trustees of each Fund who are affiliated with Heritage or Eagle, as
applicable. In addition, Heritage provides certain shareholder servicing
activities for customers of the Funds.
Under a separate Administration Agreement between Eagle and Heritage,
Heritage provides certain noninvestment services to Eagle International for a
fee payable by Eagle equal to .10% on the first $100 million of average daily
net assets, and .05% thereafter.
Heritage also is the transfer and dividend reimbursing agent for each Fund
and serves as fund accountant for each Fund except Eagle International. Each
Fund pays Heritage its cost plus 10% for its services as fund accountant and
transfer and dividend disbursing agent.
For the three fiscal years ended August 31, 1997, Heritage earned $32,742,
$36,261 and $36,310, respectively, from Capital Appreciation for its services as
fund accountant. For the period November 16, 1995 to October 31, 1996 and the
fiscal year ended October 31, 1997, Heritage earned approximately $24,797 and
$________ from Growth Equity for its services as fund accountant. For the three
fiscal years ended September 30, 1997, Heritage earned $28,932, $31,011 and
$_______, respectively, from Income-Growth for its services as fund accountant.
For the period November 1, 1994 (commencement of engagement as fund accountant)
to October 31, 1995 and the two fiscal years ended October 31, 1997, Heritage
earned approximately $29,311, $38,378 and $__________, respectively, from Small
Cap for its services as fund accountant. For the period December 30, 1994
(commencement of operations) to October 31, 1995 and the two fiscal years ended
October 31, 1997, Heritage earned approximately $20,509, $30,208 and
$___________, respectively, from Value Equity for its services as fund
accountant.
CUSTODIAN. State Street Bank and Trust Company, P.0. Box 1912, Boston,
Massachusetts 02105, serves as custodian of each Fund's assets. The
Custodian also provides portfolio accounting and certain other services for
the Funds.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
NW, 2nd Floor, Washington, D.C. 20036, serves as counsel to the Funds.
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<PAGE>
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 400 North Ashley Street,
Suite 2800, Tampa, Florida 33602, is the independent accountant for the Funds.
The Financial Statements and Financial Highlights of Capital Appreciation for
its fiscal year ended August 31, 1997 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 in 1995 and prior thereto were
audited by other independent accountants.
POTENTIAL LIABILITY
- -------------------
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of a Fund. To protect its
shareholders, each Fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
a Fund. These documents require notice of this disclaimer to be given in each
agreement, obligation or instrument each Fund or its Trustees enter into or
sign. In the unlikely event a shareholder is held personally liable for a Fund's
obligations, that Fund is required to use its property to protect or compensate
the shareholder. On request, a Fund will defend any claim made and pay any
judgment against a shareholder for any act or obligation of a Fund. Therefore,
financial loss resulting from liability as a shareholder will occur only if a
Fund itself cannot meet its obligations to indemnify shareholders and pay
judgments against them.
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<PAGE>
APPENDIX
COMMERCIAL PAPER RATINGS
The rating services' descriptions of commercial paper ratings in which the Fund
may invest are:
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER DEBT RATINGS
- ----------------------------------------------------------------------------
PRIME-L. 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".
CORPORATE DEBT RATINGS
The rating services' descriptions of corporate debt ratings in which the Fund
may invest are:
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. CORPORATE DEBT RATINGS
- ---------------------------------------------------------------------
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than the Aaa securities.
A-1
<PAGE>
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds that are rated Baa are considered medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the company ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking and the modifier 3
indicates that the company ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS
- -------------------------------------------------------
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
A-2
<PAGE>
BB, B, CCC, CC, C - Debt rated "BB," "B," "CCC," "CC," and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions that could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B - Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC - Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC - The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C - The rating "C" is typically applied to debt subordinated to senior debt that
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI - The rating "CI" is reserved for income bonds on which no interest is being
paid.
D - Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR - Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
A-3
<PAGE>
The Reports of the Independent Accounts and Financial Statements are
incorporated herein by reference from the Capital Appreciation Trust's Annual
Report to Shareholders for the fiscal year ended August 31, 1997, filed with the
Securities and Exchange Commission on October 29, 1997, Accession No.
0000950144-97-011302.
<PAGE>
HERITAGE CAPITAL APPRECIATION TRUST
-----------------------------------
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
(a) Financial Statements:
Included in Part A of the Registration Statement:
Financial Highlights - Class A Shares for each of the ten
years ended August 31, 1997; Class C Shares for the fiscal
period April 3, 1995 (commencement of operations) to
August 31, 1995 and the two years ended August 31, 1997.
Included in Part B of the Registration Statement:
Investment Portfolio - August 31, 1997
Statement of Assets and Liabilities - August 31, 1997
Statement of Operations - for the year ended August 31, 1997
Statement of Changes in Net Assets for the years ended
August 31, 1997 and August 31, 1996
Notes to Financial Statements
Report of Price Waterhouse LLP, Independent Accountants,
dated October 15, 1997
(b) Exhibits:
(1) Declaration of Trust*
(2) (a) Bylaws*
(b) Amended and Restated Bylaws*
(3) Voting trust agreement -- none
(4) (a) Specimen security for Class A Shares***
(b) Specimen security for Class C Shares***
(5) (a)(i) Investment Advisory and Administration Agreement*
(a)(ii) Amended and Restated Investment Advisory and
Administration Agreement**
(b)(i) Subadvisory Agreement between Heritage Asset
Management, Inc. and Eagle Asset Management,
Inc.*
(b)(ii) Subadvisory Agreement between Heritage Asset
Management, Inc. and Liberty Investment
Management, Inc., d/b/a Liberty Investment
Management*
<PAGE>
(6) Distribution Agreement*
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement*
(9) (a) Transfer Agency and Service Agreement*
(b) Fund Accounting and Pricing Service Agreement*
(10) Opinion and consent of counsel (filed herewith)
(11) Accountants' consent (filed herewith)
(12) Financial statements omitted from prospectus - none
(13) Letter of investment intent*
(14) Prototype retirement plan***
(15) (a) Class A Plan pursuant to Rule 12b-1*
(b) Class C Plan pursuant to Rule 12b-1*
(c) Class B plan pursuant to Rule 12b-1 (filed
herewith)
(16) Performance Computation Schedule **
(17) (a) Financial Data Schedule Relating to
Class A (filed herewith)
(b) Financial Data Schedule Relating to Class C (filed
herewith)
(18) (a) Plan pursuant to Rule 18f-3 **
(b) Amended Plan pursuant to Rule 18f-3***
- --------------------------
* Incorporated by reference from Post-Effective Amendment No. 12 to the
Registration Statement of the Trust, SEC File No. 2-98634, filed
previously on December 27, 1995.
** Incorporated by reference from Post-Effective Amendment No. 14 to the
Registration Statement of the Trust, SEC File No. 2-98634, filed
previously on December 27, 1996.
*** To be filed by subsequent amendment.
Item 25. Persons Controlled by or under
Common Control with Registrant
None.
C-2
<PAGE>
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class September 30, 1997
-------------- ------------------------
Class A Shares 4,060
Class B Shares 0
Class C Shares 203
Item 27. Indemnification
---------------
Article XI, Section 2 of the Trust's Declaration of Trust provides that:
(a) Subject to the exceptions and limitations contained in Section (b)
below:
(i) every person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as "Covered Person") shall be indemnified by
the Trust to the fullest extent permitted by law against liability and against
all expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter, and the
words "liability" and "expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office or (B)
not to have acted in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
interested persons of the Trust nor are parties to the matter based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry); provided,
however, that any Shareholder may, by appropriate legal proceedings, challenge
any such determination by the Trustees, or by independent counsel.
C-3
<PAGE>
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be exclusive
of or affect any other rights to which any Covered Person may now or hereafter
be entitled, shall continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Trustees and
officers, and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit, or proceeding of the character described in
paragraph (a) of this Section 2 may be paid by the Trust from time to time prior
to final disposition thereof upon receipt of an undertaking by or on behalf of
such Covered Person that such amount will be paid over by him to the Trust if it
is ultimately determined that he is not entitled to indemnification under this
Section 2; provided, however, that:
(i) such Covered Person shall have provided appropriate
security for such undertaking,
(ii) the Trust is insured against losses arising out of any
such advance payments or
(iii) either a majority of the Trustees who are neither
interested persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Section 2.
Paragraph 8 of the Investment Advisory and Administration Agreement
("Advisory Agreement") between the Trust and Heritage provides that Heritage
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the matters to which this Advisory
Agreement relates except a loss resulting from the willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Advisory
Agreement. Any person, even though also an officer, partner, employee, or agent
of Heritage, who may be or become an officer, director, employee or agent of the
Trust shall be deemed, when rendering services to the Trust or acting in any
business of the Trust, to be rendering such services to or acting solely for the
Trust and not as an officer, partner, employee, or agent or one under the
control or direction of Heritage even though paid by it.
Paragraph 9 of the Subadvisory Agreements ("Subadvisory Agreements")
between Heritage and Eagle Asset Management, Inc. ("Eagle") and Heritage and
Liberty Investment Management, a Division of Goldman Sachs Asset Management Inc.
("Liberty") ("Subadvisers") provides that, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Subadvisers, or
reckless disregard of its obligations and duties thereunder, the Subadvisers
shall not be subject to any liability to the Trust, or to any shareholder of the
Trust, for any act or omission in the course of, or connected with, rendering
services thereunder.
C-4
<PAGE>
Paragraph 7 of the Distribution Agreement ("Distribution Agreement")
between the Trust and Raymond James and Associates, Inc. ("Raymond James")
provides as follows, that the Trust agrees to indemnify, defend and hold
harmless Raymond James, its several officers and directors, and any person who
controls Raymond James within the meaning of Section 15 of the 1933 Act from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Raymond James, its officers
or Trustees, or any such controlling person may incur under the 1933 Act or
under common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement, Prospectus
or Statement of Additional Information or arising out of or based upon any
alleged omission to state a material fact required to be stated in either
thereof or necessary to make the statements in either thereof not misleading,
provided that in no event shall anything contained in this Distribution
Agreement be construed so as to protect Raymond James against any liability to
the Trust or its shareholders to which Raymond James would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Distribution Agreement.
Item 28. I. Business and Other Connections
of Investment Adviser
------------------------------
Heritage is a Florida corporation that offers investment management
services and is a registered investment adviser. Information as to the officers
and directors of Heritage is included in its current Form ADV filed with the
Securities and Exchange Commission ("SEC") and is incorporated by reference
herein.
II. Business and Other Connections of Subadvisers
---------------------------------------------
Eagle, a Florida corporation, is a registered investment adviser. All of
its stock is owned by Raymond James Financial, Inc. ("RJF"). Eagle is engaged
primarily in the investment advisory business. Information as to the officers
and directors of Eagle is included in its current Form ADV filed with the SEC
and is incorporated by reference herein.
Liberty, 2502 Rocky Point Drive, Tampa, Florida 33607, is a division of
Goldman Sachs Asset Management Inc., which is a separate operating division of
Goldman Sachs & Co. ("Goldman Sachs"). Goldman Sachs is registered as an
investment adviser. Information as to the officers and directors of Liberty is
included in the Goldman Sachs current Form ADV filed with the SEC and is
incorporated by reference herein.
Item 29. Principal Underwriter
---------------------
(a) Raymond James is the principal underwriter for each of the following
investment companies: Heritage Cash Trust, Heritage Capital Appreciation Trust,
Heritage Income-Growth Trust and Heritage Income Trust.
C-5
<PAGE>
(b) The directors and officers of the Registrant's principal underwriter
are:
Positions & Offices Position
Name with Underwriter with Registrant
- ---- ---------------- ---------------
Thomas A. James Chief Executive Officer, Trustee
Director
Robert F. Shuck Executive Vice None
President, Director
Thomas S. Franke President, Chief Operating None
Officer, Director
Lynn Pippenger Secretary/Treasurer, None
Chief Financial Officer,
Director
Dennis Zank Executive Vice President None
of Operations and
Administration, Director
Item 30. Location of Accounts and Records
--------------------------------
The books and other documents required by Rule 31a-1 under the
Investment Company Act of 1940 are maintained in the physical possession of the
Trust's Custodian through February 28, 1994, except that: Heritage maintains
some or all of the records required by Rule 31a-1(b)(1), (2) and (8); and the
Subadviser will maintain some or all of the records required by Rule
31a-1(b)(2), (5), (6), (9), (10) and (11). Since March 1, 1994, all required
records are maintained by Heritage.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
The Trust hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of its latest annual report(s) to Shareholders, upon
request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Post-Effective Amendment No. 15 to its Registration Statement on
Form N-1A to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of St. Petersburg and the State of Florida, on the 31st
day of October, 1997.
HERITAGE CAPITAL APPRECIATION TRUST
/s/ Stephen G. Hill, President
By: _____________________________
Stephen G. Hill, President
Attest:
/s/ Donald H. Glassman
- -----------------------------
Donald H. Glassman, Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 15 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ Stephen G. Hill President October 31, 1997
___________________
Stephen G. Hill
/s/Richard K. Riess* Trustee October 31, 1997
___________________
Richard K. Riess
/s/Thomas A. James* Trustee October 31, 1997
___________________
Thomas A. James
/s/C. Andrew Graham* Trustee October 31, 1997
___________________
C. Andrew Graham
/s/David M. Phillips* Trustee October 31, 1997
___________________
David M. Phillips
/s/James L. Pappas* Trustee October 31, 1997
___________________
James L. Pappas
/s/Donald W. Burton* Trustee October 31, 1997
___________________
Donald W. Burton
/s/Eric Stattin* Trustee October 31, 1997
___________________
Eric Stattin
/s/ Donald H. Glassman Treasurer October 31, 1997
___________________
Donald H. Glassman
/s/ Donald H. Glassman
*By _______________________________________
Donald H. Glassman, Attorney-In-Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------ ----------- ----
1 Declaration of Trust*
2 (a) Bylaws*
(b) Amended and Restated Bylaws*
3 Voting trust agreement - none
4 (a) Specimen security for Class A Shares***
(b) Specimen security Class C Shares***
5 (a)(i) Investment Advisory and Administration Agreement*
(a)(ii) Amended and Restated Investment Advisory and Administration
Agreement**
(b)(i) Subadvisory Agreement between Heritage Asset Management, Inc.
and Eagle Asset Management, Inc.*
(b)(ii) Subadvisory Agreement between Heritage Asset Management, Inc. and
Liberty Investment Management, Inc., d/b/a Liberty Investment
Management*
6 Distribution Agreement*
7 Bonus, profit sharing or pension plans - none
8 Custodian Agreement*
9 (a) Transfer Agency and Service Agreement*
(b) Fund Accounting and Pricing Service Agreement*
10 Opinion and consent of counsel (filed herewith)
11 Accountants' consent (filed herewith)
12 Financial statements omitted from prospectus - none
13 Letter of investment intent*
14 Prototype retirement plan***
15 (a) Class A Plan pursuant to Rule 12b-1*
(b) Class C Plan pursuant to Rule 12b-1*
(c) Class B Plan pursuant to Rule 12b-1 (filed herewith)
16 Performance Computation Schedule**
17 (a) Financial Data Schedule Relating to Class A (filed herewith)
(b) Financial Data Schedule Relating to Class C (filed herewith)
<PAGE>
18 (a) Plan pursuant to Rule 18f-3**
(b) Amended Plan pursuant to Rule 18f-3***
- --------------------------
* Incorporated by reference from Post-Effective Amendment No. 12 to the
Registration Statement of the Trust, SEC File No. 2-98634, filed
previously on December 27, 1995.
** Incorporated by reference from Post-Effective Amendment No. 14 to the
Registration Statement of the Trust, SEC File No. 2-09634, filed
previously on December 27, 1996.
*** To be filed by subsequent amendment.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 55,173,350
<INVESTMENTS-AT-VALUE> 84,185,975
<RECEIVABLES> 85,165
<ASSETS-OTHER> 11,366
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84,282,506
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 216,963
<TOTAL-LIABILITIES> 216,963
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46,983,856
<SHARES-COMMON-STOCK> 4,522,026
<SHARES-COMMON-PRIOR> 4,565,235
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,069,062
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29,012,625
<NET-ASSETS> 84,065,543
<DIVIDEND-INCOME> 841,281
<INTEREST-INCOME> 63,972
<OTHER-INCOME> 0
<EXPENSES-NET> 1,168,957
<NET-INVESTMENT-INCOME> (263,704)
<REALIZED-GAINS-CURRENT> 9,949,832
<APPREC-INCREASE-CURRENT> 12,814,463
<NET-CHANGE-FROM-OPS> 22,500,591
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 7,849,511
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 241,551
<NUMBER-OF-SHARES-REDEEMED> 800,801
<SHARES-REINVESTED> 516,041
<NET-CHANGE-IN-ASSETS> 12,953,710
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 6,232,445
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 585,991
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,128,583
<AVERAGE-NET-ASSETS> 76,148,617
<PER-SHARE-NAV-BEGIN> 15.58
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> 4.85
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 1.77
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.60
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 55,173,350
<INVESTMENTS-AT-VALUE> 84,185,975
<RECEIVABLES> 85,165
<ASSETS-OTHER> 11,366
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84,282,506
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 216,963
<TOTAL-LIABILITIES> 216,963
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46,983,856
<SHARES-COMMON-STOCK> 4,522,026
<SHARES-COMMON-PRIOR> 4,565,235
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,069,062
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29,012,625
<NET-ASSETS> 84,065,543
<DIVIDEND-INCOME> 841,281
<INTEREST-INCOME> 63,972
<OTHER-INCOME> 0
<EXPENSES-NET> 1,168,957
<NET-INVESTMENT-INCOME> (263,704)
<REALIZED-GAINS-CURRENT> 9,949,832
<APPREC-INCREASE-CURRENT> 12,814,463
<NET-CHANGE-FROM-OPS> 22,500,591
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 7,849,511
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 241,551
<NUMBER-OF-SHARES-REDEEMED> 800,801
<SHARES-REINVESTED> 516,041
<NET-CHANGE-IN-ASSETS> 12,953,710
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 6,232,445
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 585,991
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 40,374
<AVERAGE-NET-ASSETS> 1,983,462
<PER-SHARE-NAV-BEGIN> 15.46
<PER-SHARE-NII> (0.13)
<PER-SHARE-GAIN-APPREC> 4.78
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 1.77
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.34
<EXPENSE-RATIO> 2.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Robert J. Zutz
[email protected]
202-778-9059
October 30, 1997
Heritage Capital Appreciation Trust
880 Carillon Parkway
St. Petersburg, Florida 33716
Ladies and Gentlemen:
You have requested our opinion as to certain matters regarding the
issuance by Heritage Capital Appreciation Trust (the "Trust") of Class A shares,
Class B shares and Class C shares of beneficial interest (collectively, the
"Shares"). The Trust is about to file a Registration Statement on Form N-1A (the
"Registration Statement) for the purpose of adding Class B shares, providing
current financial information, and amending such other information as
appropriate.
We have, as counsel, participated in various business and other matters
relating to the Trust. We have examined copies, either certified or otherwise
proved to be genuine, of the Trust's Declaration of Trust and By-Laws and such
other documents relating to the authorization and issuance of the Shares as we
have deemed relevant, and we generally are familiar with the Trust's business
affairs. Based on the foregoing, it is our opinion that the Shares to be issued
pursuant to the Registration Statement may be issued in accordance with the
Trust's Declaration of Trust and By-Laws, subject to compliance with the 1933
Act, the 1940 Act and applicable state laws regulating the distribution of
securities, and when so issued, those Shares will be legally issued, fully paid
and non-assessable.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust. The
Declaration of Trust states that creditors of, contractors with and claimants
against the Trust shall look only to the assets of the Trust for payment. It
also requires that notice of such disclaimer be given in each contract or
instrument made or issued by the officers or the Trustees of the Trust on behalf
of the Trust. The Declaration of Trust further provides: (i) for the Trust to
indemnify and hold each shareholder harmless from Trust assets for all loss and
expense of any shareholder held personally liable for the obligations of the
Trust by virtue of ownership of Shares of the Trust; and (ii) for the Trust to
assume the defense of any claim against the shareholder for any act or
obligation of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Trust would be unable to meet its obligations.
<PAGE>
Heritage Capital Appreciation Trust
October 30, 1997
Page 2
We hereby consent to this opinion accompanying the Registration
Statement that you are about to file with the Securities and Exchange
Commission. We also consent to the reference to our firm in the statement of
additional information filed as part of the Trust's Registration Statement.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Robert J. Zutz
-----------------------------
Robert J. Zutz
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 15 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
October 15, 1997, relating to the financial statements and financial highlights
of the Heritage Capital Appreciation Trust, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Independent Accountants" in
such Statement of Additional Information and to the reference to us under the
heading "Financial Highlights" in such Prospectus.
/s/ Price Waterhouse LLP
- -------------------------------------
Price Waterhouse LLP
400 North Ashley Street, Suite 2800
Tampa, Florida 33602
October 31, 1997
HERITAGE CAPITAL APPRECIATION TRUST
CLASS B
DISTRIBUTION PLAN
WHEREAS, Heritage Capital Appreciation Trust (the "Trust") is engaged
in business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Trust, on behalf of its one or more designated series
presently existing or hereafter established, desires to adopt a Class B
("Class") Distribution Plan pursuant to Rule l2b-1 under the 1940 Act and the
Board of Trustees of the Trust has determined that there is a reasonable
likelihood that adoption of this Distribution Plan will benefit the Trust and
the Class B shareholders; and
WHEREAS, the Trust intends to employ a registered broker-dealer as
Distributor of the securities of which it is the issuer;
NOW, THEREFORE, the Trust, with respect to its Class B shares, hereby
adopts this Distribution Plan (the "Plan") in accordance with Rule l2b-1
under the 1940 Act on the following terms and conditions:
1. PAYMENT OF FEES. The Trust is authorized to pay distribution and
service fees for the Class B shares of up to 1.00% of the average daily net
assets for the Class B shares, on an annualized basis, at such rates as shall
be determined from time to time by the Board of Trustees in the manner
provided for approval of this Plan in Paragraph 4. Such fees shall be
calculated and accrued daily and paid monthly or at such other intervals as
shall be determined by the Board in the manner provided for approval of this
Plan in Paragraph 4. The distribution and service fees shall be payable by
the Trust on behalf of the Class B shares regardless of whether those fees
exceed or are less than the actual expenses, described in Paragraph 2 below,
incurred by the Distributor with respect to such Class in a particular year.
2. DISTRIBUTION AND SERVICE EXPENSES. The fee authorized by Paragraph 1
of this Plan shall be paid pursuant to an appropriate Distribution Agreement
in payment for any activities or expenses intended to result in the sale and
retention of Trust shares, including, but not limited to, compensation paid
to registered representatives of the Distributor and to participating dealers
which have entered into sales agreements with the Distributor, 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, preparation and distribution of
advertising material and sales literature and other sales promotion expenses,
or for providing ongoing services to Class B shareholders.
3. ADDITIONAL COMPENSATION. This Plan shall not be construed to
prohibit or limit additional compensation derived from sales charges or other
sources that may be paid to the Distributor pursuant to the aforementioned
Distribution Agreement.
<PAGE>
4. BOARD APPROVAL. This Plan shall not take effect with respect to any
Class until it has been approved, together with any related agreements, by
vote of a majority of both (a) the Board of Trustees and (b) those members of
the Board who are not "interested persons" of the Trust, as defined in the
1940 Act, and have no direct or indirect financial interest in the operation
of this Plan or any agreements related to it (the "Independent Trustees"),
cast in person at a meeting or meetings called for the purpose of voting on
this Plan and such related agreements.
5. RENEWAL OF PLAN. This Plan shall continue in full force and effect with
respect to the Class B shares for successive periods of one year from its
initial effectiveness for so long as such continuance is specifically approved
at least annually in the manner provided for approval of this Plan in Paragraph
4.
6. REPORTS. Any Distribution Agreement entered into pursuant to this
Plan shall provide that the Distributor shall provide to the Board of
Trustees and the Board shall review, at least quarterly, or at such other
intervals as reasonably requested by the Board, a written report of the
amounts so expended and the purposes for which such expenditures were made.
7. TERMINATION. This Plan may be terminated with respect to the Class B
shares at any time by vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of such Class, voting
separately from any other Class of the Trust.
8. AMENDMENTS. Any change to the Plan that would materially increase
the distribution costs to the Class B shares may not be instituted unless
such amendment is approved in the manner provided for board approval in
Paragraph 4 hereof and approved by a vote of at least a majority of such
Class' outstanding voting securities, as defined in the 1940 Act, voting
separately from any other Class of the Trust. Any other material change to
the Plan may not be instituted unless such change is approved in the manner
provided for initial approval in Paragraph 4 hereof.
9. NOMINATION OF TRUSTEES. While this Plan is in effect, the selection
and nomination of Independent Trustees of the Trust shall be committed to the
discretion of the Independent Trustees then in office.
10. RECORDS. The Trust shall preserve copies of this Plan and any
related agreements and all reports made pursuant to Paragraph 6 hereof for a
period of not less than six years from the date of execution of this Plan, or
of the agreements or of such reports, as the case may be, the first two years
in an easily accessible place.
Date: January 2, 1998
