<PAGE> 1
CAPITAL
APPRECIATION
TRUST
[PHOTOS]
From Our Family to Yours: The Intelligent Creation of Wealth.
Semiannual Report
(Unaudited) and Investment Performance
Review for the Six Month Period Ended
February 28, 1997
[HERITAGE LOGO]
HERITAGE
Capital Appreciation
Trust(TM)
<PAGE> 2
March 31, 1997
Dear Fellow Shareholders:
I am pleased to provide you with the semiannual report for Heritage Capital
Appreciation Trust ("the Fund") for the six month period ended February 28,
1997. During this period, the "A" shares and "C" shares of your Fund returned
+14.9% and +14.6%, respectively.* For the same period, the Standard & Poor's 500
Composite Stock Price Index and the Standard & Poor's 400 Mid-Cap Index returned
+22.5% and +14.1%, respectively. As we have discussed before, the S&P 500
performance is dominated by the returns of a relatively small number of very
large stocks. As Herb Ehlers points out in the accompanying letter, only 50
companies account for nearly one-half of the value of the S&P 500 index. Thus,
this index return is not necessarily representative of how the average stock
performs. While the market for these few companies has moved higher over the
past several months, stock prices for much of the rest of the market have moved
sideways or lower.
In February, shareholders approved the recommendation of the Fund's Board
of Trustees to retain the Liberty Investment Management division of Goldman
Sachs Asset Management as subadviser to manage the Fund's investment portfolio.
This action allows Herb Ehlers and his team at Liberty to continue to manage
your Fund. As you may recall, Liberty Investment Management, your Fund's
previous subadviser, was acquired by Goldman Sachs Asset Management in early
1997. In the letter that follows, Mr. Ehlers discusses how your Fund has
performed and how the portfolio is positioned in light of the recent move by the
Federal Reserve Board to raise interest rates in an attempt to slow economic
growth and control inflation.
On behalf of all of us at Heritage, thank you for your continuing
investment in Heritage Capital Appreciation Trust. If there are ever ways in
which you believe we could better serve you, please call us at 800-709-3863.
Sincerely,
/s/ STEPHEN G. HILL
Stephen G. Hill
President
* These returns are calculated without the imposition of front-or back-end sales
charges.
<PAGE> 3
March 31, 1997
Dear Fellow Shareholders:
A number of factors and events relating to the economy, the stock market
and specific industry groups, affected the performance of the S&P 500 and your
portfolio during the last six months ended February 28, 1997. Foremost among
these has been the continuation of a trend that, for the last few years, has
seen ever larger amounts of money being concentrated in the relatively few
companies that dominate the weighting of the S&P 500. (The top 50 companies, or
10%, account for almost 50% of the S&P's market value, while only 9% of your
fund's assets are invested in this group.) Diversified investment portfolios
such as the Heritage Capital Appreciation Trust (HCAT) have had difficulty
matching the performance of the S&P 500 because of this. As a result, despite
excellent performance (+14.9%* for the Class A shares and +14.6%* for the Class
C shares), HCAT trailed the 22.5% achieved by the S&P 500. However, your Fund
outperformed the S&P 400 Mid-Cap Index (+14.1%) which is comprised of companies
with market capitalization that more closely match the average for your Fund,
thus making it a more representative benchmark at the present time, in our
opinion.
We believe that when this bull market has run its course it will be
remembered as the greatest bull market in history. It has been fueled by a
number of things, including extraordinary continuing inflows into mutual funds
and, importantly, what until now has been a "Goldilocks" economy -- that is, its
growth has been neither too hot nor too cold, but just right. In this favorable
environment interest rates have behaved rather nicely, with the 30-year U.S.
Treasury bond trading in a 6 1/2% to 7% yield range for many months. And these
two factors -- "just right" economy and interest rate stability -- have been the
ideal breeding ground for the Financial sector, one of HCAT's largest
weightings. At 13.2% of the portfolio, up from 12.7% at August 31 (although down
from its peak, as we'll explain later) the group outperformed the market
substantially, led by MBNA Corp. (+58%), Freddie Mac (+35%) and Fannie Mae
(+29%).
Other than the Financial group, the list of outperformers was an eclectic
one, in each case driven by company fundamentals rather than macroeconomic
factors. AES Corporation, by far the best performer in the portfolio with an 84%
gain, was finally given credit by investors for its unique and rapidly-growing
alternative energy business. Incidentally, AES, with an average purchase price
of $16, has now quadrupled in value but, in our opinion, still has potential for
above-average appreciation. Autodesk (+47%), New York Times (+42%), Campbell
Soup (+38%), Schering-Plough (+37%) and Walt Disney (+30%) have nothing in
common except the excellent business characteristics and fundamentals that we
seek and have written to you about in previous letters. Obviously, the market
agreed with our judgment and rewarded shareholders accordingly.
On the other hand, the list of laggards was much more concentrated and, to
our frustration, it was largely comprised of the same companies that made the
list six and twelve months ago. The frustration stems from the fact that, as we
have mentioned in some detail in previous letters, we buy excellent growth
businesses that we believe are undervalued in the knowledge (hope?) that at some
point the market (i.e., other investors) will recognize this and bid up the
price to a level more reflective of the ongoing value of the business. We have
also noted that sometimes this happens fairly quickly, but at other times
"patience is required in rather large doses". In other words, they are "sleeping
beauties" that will awaken at different times and for different reasons. This is
beginning to happen, as several of last year's laggards -- Disney, Time Warner
and Liberty Media -- matched or exceeded the performance of the S&P 500 in the
last six months. However, a number of others, including Airtouch,
Telecommunications Inc., Telephone and Data Systems and Circus Circus still
await the prince's kiss.
Earlier, we referred to the "Goldilocks" economy and added the qualifying
phrase "until now". Obviously, the Federal Reserve (and particularly Mr.
Greenspan) has begun to express concern that the economy may be changing from
"just right" to "too hot," and as a result recently raised the federal funds
rate 1/4% in an attempt to restrain growth and pre-empt the possibility of a
pick-up in inflation (although they admit that few signs of danger are visible
at this point).
The Federal Reserve is paid to control economic growth, interest rates and
inflation, while we claim no expertise in these areas and instead concentrate on
choosing excellent investments for HCAT, one company at
2
<PAGE> 4
a time. We note, however, that our purchase and sale activity over the last few
months leans in a direction that should benefit from the environment that could
result from the Federal Reserve's actions. Specifically, we have reduced
exposure to the Financial sector (and higher interest rates) through the sale of
MBIA and Crestar Financial (plus the partial sale of AMBAC), while adding
holdings that are considered somewhat defensive in nature -- Bristol-Myers
Squibb, Pepsi Co and the retail drug chains (CVS, Rite Aid, Revco and
Walgreen) -- and we believe should outperform in a somewhat less ebullient
market environment.
As always, we thank you for your continued support and confidence, and
assure you that we will continue to work diligently to produce solid long-term
results for you.
Sincerely,
/s/ HERBERT E. EHLERS
Herbert E. Ehlers
Managing Director
Goldman Sachs & Co.
Chief Investment Officer
Liberty Investment Management
a division of Goldman Sachs Asset
Management
* These returns are calculated without the imposition of either front-or
back-end sales charges.
3
<PAGE> 5
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
FEBRUARY 28, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCKS--97.2%(A)
- -----------------------
BANKING--3.4%
-------------
7,000 First USA, Inc.*............................................ $ 340,375
72,000 MBNA Corporation............................................ 2,304,000
-----------
2,644,375
-----------
BEVERAGES--0.9%
--------------
22,000 PepsiCo, Inc................................................ 723,250
-----------
BROADCASTING--5.8%
------------------
55,000 Bell Cablemedia PLC, ADR*................................... 763,125
30,000 Comcast UK Cable Partners, Class "A"........................ 352,500
97,500 Liberty Media Group, Class "A"*............................. 2,047,500
110,000 Tele-Communications, Inc., Class "A"*....................... 1,306,250
-----------
4,469,375
-----------
COSMETICS/TOILETRIES--6.7%
-----------------------
36,000 Avon Products, Inc. ........................................ 2,097,000
39,000 Gillette Company............................................ 3,085,875
-----------
5,182,875
-----------
DATA PROCESSING--1.3%
--------------------
10,000 Autodesk, Inc. ............................................. 338,750
28,000 Intuit, Inc.*............................................... 633,500
-----------
972,250
-----------
FILMED ENTERTAINMENT--3.7%
------------------------
70,000 Time Warner, Inc. .......................................... 2,870,000
-----------
FINANCE--9.1%
------------
26,000 AMBAC, Inc. ................................................ 1,735,500
96,000 Federal Home Loan Mortgage Corporation...................... 2,856,000
60,000 Federal National Mortgage Association....................... 2,400,000
-----------
6,991,500
-----------
FOOD--3.6%
----------
17,000 Campbell Soup Company....................................... 1,532,125
20,000 Wm. Wrigley Jr. Company..................................... 1,197,500
-----------
2,729,625
-----------
GLASS PRODUCTS--2.9%
-------------------
75,000 Libbey, Inc. ............................................... 2,250,000
-----------
HOTELS/MOTELS/INNS--4.6%
-----------------------
40,000 Marriott International, Inc. ............................... 2,120,000
40,000 Promus Hotel Corporation*................................... 1,415,000
-----------
3,535,000
-----------
INSURANCE--1.1%
-------------
35,000 Western National Corporation................................ 805,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 6
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
FEBRUARY 28, 1997
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----------
<C> <S> <C>
LAND DEVELOPMENT/REAL ESTATE--1.0%
---------------------------------
25,000 The Rouse Company*.......................................... $ 731,250
-----------
LEISURE/AMUSEMENT--9.6%
-----------------------
45,000 Circus Circus Enterprises, Inc.*............................ 1,406,250
115,500 Gaylord Entertainment Company, Class "A".................... 2,338,875
33,000 Harrah's Entertainment, Inc.*............................... 610,500
27,000 Hasbro, Inc. ............................................... 1,154,250
33,000 Mirage Resorts, Inc.*....................................... 820,875
14,000 The Walt Disney Company..................................... 1,039,500
-----------
7,370,250
-----------
PHARMACEUTICAL--6.7%
------------------
5,000 Bristol-Myers Squibb Company................................ 652,500
15,000 Pfizer, Inc................................................. 1,374,375
30,000 Pharmacia & Upjohn, Inc..................................... 1,106,250
26,000 Schering-Plough Corporation................................. 1,992,250
-----------
5,125,375
-----------
POLLUTION CONTROL--2.7%
---------------------
60,000 Wheelabrator Technologies, Inc.* ........................... 855,000
38,000 WMX Technologies, Inc. ..................................... 1,201,750
-----------
2,056,750
-----------
PUBLISHING--12.8%
---------------
23,000 A.H. Belo Corporation, Class "A"............................ 868,250
16,000 Gannett Company............................................. 1,276,000
60,500 New York Times Company, Class "A"........................... 2,692,250
20,000 Reuters Holdings PLC, ADR................................... 1,282,500
52,000 Tribune Company............................................. 2,041,000
87,000 Valassis Communications, Inc.*.............................. 1,685,625
-----------
9,845,625
-----------
REAL ESTATE INVESTMENT TRUST--1.3%
-------------------------------
45,000 Manufactured Home Communities, Inc.......................... 1,023,750
-----------
RETAIL STORES--3.0%
-----------------
6,300 CVS Corporation............................................. 291,375
5,000 Revco D.S., Inc.*........................................... 204,375
8,000 Rite Aid Corporation........................................ 337,000
16,000 Tandy Corporation........................................... 806,000
16,000 Walgreen Company............................................ 684,000
-----------
2,322,750
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
FEBRUARY 28, 1997
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----------
<C> <S> <C>
SERVICES--6.6%
------------
56,208 First Data Corporation...................................... $ 2,058,618
27,000 SABRE Group Holdings, Inc.*................................. 762,750
77,000 Service Corporation International........................... 2,233,000
-----------
5,054,368
-----------
TELECOMMUNICATIONS--5.7%
-----------------------
87,500 Airtouch Communications, Inc.*.............................. 2,384,375
50,000 Telephone & Data Systems, Inc............................... 2,000,000
-----------
4,384,375
-----------
UTILITIES-DIVERSIFIED--4.3%
----------------------
51,000 AES Corporation*............................................ 3,334,125
-----------
UTILITIES-GAS--0.4%
-----------------
12,000 UGI Corporation............................................. 298,500
-----------
Total common stocks (cost $53,394,946).................................... 74,720,368
-----------
REPURCHASE AGREEMENT--1.4%(A)
- ----------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated
February 28, 1997, @ 5.28%, to be repurchased at $1,055,464 on March 3,
1997, collateralized by $1,074,019 United States Treasury Notes, 8.375%,
due August 15, 2008, (market value $1,077,873 including interest) (cost
$1,055,000)............................................................... 1,055,000
-----------
TOTAL INVESTMENT PORTFOLIO (cost $54,449,946)(b), 98.6%(a)................ 75,775,368
OTHER ASSETS AND LIABILITIES, NET, 1.4%(a)................................ 1,061,238
-----------
NET ASSETS 100.0%......................................................... $76,836,606
===========
</TABLE>
- ------------------
* Non-income producing security.
(a) Percentages indicated are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is
substantially the same. Market value includes net unrealized appreciation of
$21,325,422 which consists of aggregate gross unrealized appreciation for
all securities in which there is an excess of market value over tax cost of
$22,795,313 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value of $1,469,891.
ADR--American Depository Receipt
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 8
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at market value (identified cost $54,449,946)
(Note 1).................................................. $75,775,368
Cash........................................................ 4,290
Receivables:
Investments sold.......................................... 1,126,258
Fund shares sold.......................................... 17,691
Dividends and interest.................................... 80,370
Deferred state registration expenses (Note 1)............... 12,398
Prepaid insurance........................................... 271
-----------
Total assets........................................ 77,016,646
Liabilities
Payables (Note 4):
Fund shares redeemed...................................... $ 31,282
Accrued management fee.................................... 45,096
Accrued distribution fee.................................. 27,006
Other accrued expenses.................................... 76,656
--------
Total liabilities................................... 180,040
-----------
Net assets, at market value................................. $76,836,606
===========
Net Assets
Net assets consist of:
Paid-in capital........................................... $51,897,164
Net investment loss....................................... (123,615)
Accumulated net realized gain............................. 3,737,635
Net unrealized appreciation on investments................ 21,325,422
-----------
Net assets, at market value................................. $76,836,606
===========
Class A Shares
Net asset value and redemption price per share ($74,880,997
divided by 4,682,141 shares of beneficial interest
outstanding, no par value) (Notes 1 and 2)................ $15.99
===========
Maximum offering price per share (100/95.25 of $15.99)...... $16.79
===========
Class C Shares
Net asset value, offering price and redemption price per
share ($1,955,609 divided by 123,679 shares of beneficial
interest outstanding, no par value) (Notes 1 and 2)....... $15.81
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 9
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED FEBRUARY 28, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income
Income:
Dividends................................................. $ 418,632
Interest.................................................. 33,004
-----------
Total income........................................ 451,636
Expenses (Notes 1 and 4):
Management fee............................................ $ 280,618
Distribution fee (Class A Shares)......................... 164,749
Distribution fee (Class C Shares)......................... 8,194
Professional fees......................................... 41,593
Custodian/Fund accounting fees............................ 26,652
Shareholder servicing..................................... 21,295
Amortization of state registration expenses............... 15,446
Reports to shareholders................................... 8,944
Trustees' fees and expenses............................... 3,731
Insurance................................................. 3,265
Other..................................................... 764
----------
Total expenses...................................... 575,251
-----------
Net investment loss......................................... (123,615)
-----------
Realized and Unrealized Gain on Investments
Net realized gain from investment transactions.............. 5,354,701
Net increase in unrealized appreciation of investments
during the period......................................... 5,127,260
-----------
Net gain on investments............................. 10,481,961
-----------
Net increase in net assets resulting from operations........ $10,358,346
===========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED FOR THE
FEBRUARY 28, 1997 YEAR ENDED
(UNAUDITED) AUGUST 31, 1996
------------------ ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment loss....................................... $ (123,615) $ (23,666)
Net realized gain from investment transactions............ 5,354,701 8,666,732
Net increase in unrealized appreciation of investments
during the period....................................... 5,127,260 263,257
----------- -----------
Net increase in net assets resulting from operations...... 10,358,346 8,906,323
Distributions to shareholders from:
Net investment income, Class A Shares, ($.04 per share)... -- (201,178)
Net investment income, Class C Shares, ($.04 per share)... -- (2,132)
Net realized gains, Class A Shares, ($1.77 and $1.72 per
share, respectively).................................... (7,685,740) (7,749,647)
Net realized gains, Class C Shares ($1.77 and $1.72 per
share, respectively).................................... (163,771) (91,089)
Increase (decrease) in net assets from Fund share
transactions (Note 2)..................................... 3,215,938 (3,030,768)
----------- -----------
Increase (decrease) in net assets........................... 5,724,773 (2,168,491)
Net assets, beginning of period............................. 71,111,833 73,280,324
----------- -----------
Net assets, end of period (including accumulated net
investment loss of $123,615 for the period ended February
28, 1997)................................................. $76,836,606 $71,111,833
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 10
- ------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS C SHARES
------------------------------------------------------------ -------------------------------------
FOR THE SIX FOR THE SIX
MONTH PERIOD MONTH PERIOD
ENDED ENDED FOR THE YEARS ENDED
FEBRUARY 28, FOR THE YEARS ENDED AUGUST 31, FEBRUARY 28, AUGUST 31,
1997 ------------------------------------------- 1997 --------------------
(UNAUDITED) 1996 1995 1994 1993 1992 (UNAUDITED) 1996 1995+
-------------- ------- ------ ------ ------ ------ -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 15.58 $ 15.53 $15.30 $15.62 $13.64 $12.55 $ 15.46 $ 15.50 $ 14.18
------- ------- ------ ------ ------ ------ ------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)(a).............. (0.02) 0.00(e) 0.08 0.02 0.03 0.15 (0.06) (0.03)(e) (0.01)
Net realized and
unrealized gain on
investments............ 2.20 1.81 1.37 1.05 3.29 1.19 2.18 1.75 1.33
------- ------- ------ ------ ------ ------ ------- -------- --------
Total from Investment
Operations............. 2.18 1.81 1.45 1.07 3.32 1.34 2.12 1.72 1.32
------- ------- ------ ------ ------ ------ ------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income...... -- (0.04) (0.06) (0.03) (0.07) (0.25) -- (0.04) --
Distributions from net
realized gains......... (1.77) (1.72) (1.16) (1.36) (1.27) -- (1.77) (1.72) --
------- ------- ------ ------ ------ ------ ------- -------- --------
Total Distributions...... (1.77) (1.76) (1.22) (1.39) (1.34) (0.25) (1.77) (1.76) --
------- ------- ------ ------ ------ ------ ------- -------- --------
NET ASSET VALUE, END OF
PERIOD................... $ 15.99 $ 15.58 $15.53 $15.30 $15.62 $13.64 $ 15.81 $ 15.46 $ 15.50
======= ======= ====== ====== ====== ====== ======= ======== ========
TOTAL RETURN(%)(D)......... 14.87(c) 12.79 10.85 7.07 25.72 10.78 14.58(c) 12.16 9.31(c)
RATIOS (%)/SUPPLEMENTAL
DATA:
Operating expenses, net,
to average daily net
assets................. 1.53(b) 1.54 1.62 1.55 1.56 1.66 2.07(b) 2.05 2.17(b)
Net investment income
(loss) to average daily
net assets(a).......... (.32)(b) (.02) .49 .15 .24 1.09 (.86)(b) (.57) (.33)(b)
Portfolio turnover
rate................... 17 54 66 65 55 57 17 54 66
Average commission rate
on portfolio
transactions (per
share)................. $0.0600 $0.0600 -- -- -- -- $0.0600 $ 0.0600 --
Net assets, end of period
($ millions)........... 75 70 73 74 75 65 2 1 .4
</TABLE>
- ---------------
+ For the period April 3, 1995 (commencement of Class C Shares) to August 31,
1995.
(a) Excludes management fees waived by the Manager in the amount of less than
$0.04, $0.04, $0.04, $0.04 and $0.03 per Class A Share for the five years
ended August 31, 1996, respectively. The operating expense ratios including
such items would have been 1.79%, 1.87%, 1.81%, 1.81% and 1.84% for Class A
Shares for the five years ended August 31, 1996, respectively. Excludes
management fees waived by the Manager in the amount of less than $0.04 and
$0.04 per Class C Share for the two years ended August 31, 1996,
respectively. The operating expense ratio including such items would have
been 2.30% and 2.42% (annualized) for Class C Shares, respectively.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
(e) Amounts calculated prior to reclassification of $23,981 as described in Note
5. The effect of such reclassification would have no effect on net
investment income for Class A Shares and would have resulted in an increase
in net investment income of $0.10 for Class C shares.
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 11
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Note 1: SIGNIFICANT ACCOUNTING POLICIES. Heritage Capital Appreciation Trust
(the "Fund") is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund invests
principally in those equity securities that the Fund's portfolio manager
believes are undervalued and therefore offer above-average potential for
long-term appreciation. The Fund currently issues Class A and Class C
Shares. Class A Shares are sold subject to a maximum sales charge of
4.75% of the amount invested payable at the time of purchase. Class C
Shares, which were offered to shareholders beginning April 3, 1995, are
sold subject to a contingent deferred sales charge of 1% of the lower of
net asset value or purchase price payable upon any redemptions within
one year after purchase. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts and disclosures. Actual results could differ from those
estimates. The following is a summary of significant accounting
policies:
Security Valuation: The Fund values investment securities at market
value based on the last quoted sales price as reported by the principal
securities exchange on which the security is traded. If no sale is
reported, market value is based on the most recent quoted bid price and
in the absence of a market quote, securities are valued using such
methods as the Board of Trustees believes would reflect fair market
value. Short term investments having a maturity of 60 days or less are
valued at cost which, when combined with accrued interest included in
interest receivable or discount earned, approximates market.
Repurchase Agreements: The Fund enters into repurchase agreements
whereby the Fund, through its custodian, receives delivery of the
underlying securities, the market value of which at the time of purchase
is required to be an amount equal to at least 100% of the resale price.
Federal Income Taxes: The Fund's policy is to comply with the
requirements of the Internal Revenue Code of 1986, as amended, which are
applicable to regulated investment companies and to distribute
substantially all of its taxable income to its shareholders.
Accordingly, no provision has been made for federal income and excise
taxes.
Distribution of Income and Gains: Distributions of net investment income
are made annually. Net realized gains from investment transactions
during any particular year in excess of available capital loss
carryforwards, which, if not distributed, would be taxable to the Fund,
will be distributed to shareholders in the following fiscal year. The
Fund uses the identified cost method for determining realized gain or
loss on investments for both financial and federal income tax reporting
purposes.
State Registration Expenses: State registration fees are amortized based
either on the time period covered by the registration or as related
shares are sold, whichever is appropriate for each state.
Capital Accounts: Distributions from net investment income and net
realized gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting
principles. To the extent these "book/tax" differences are permanent in
nature (i.e., that they result from other than timing of
recognition -- "temporary"), such accounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification.
Other: Investment security transactions are accounted for on a trade
date plus one basis. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. Expenses of the Fund are allocated to each class of
shares based upon their relative percentage of current net assets of
dividend eligible shares. All expenses that are directly attributable to
a specific class of shares, such as distribution fees, are allocated to
that class.
Note 2: FUND SHARES. At February 28, 1997, there was an unlimited number of
shares of beneficial interest of no par value authorized.
Transactions in Class A Shares of the Fund during the six month period
ended February 28, 1997 and for the year ended August 31, 1996, were as
follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED
FEBRUARY 28, 1997 FOR THE YEAR ENDED
(UNAUDITED) AUGUST 31, 1996
------------------------- ------------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
-------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Shares sold........................................... 101,375 $ 1,639,825 155,981 $ 2,425,846
Shares issued on reinvestment of distributions........ 504,915 7,508,083 547,280 7,776,848
Shares redeemed....................................... (397,578) (6,409,644) (920,007) (14,196,180)
--------- ------------ --------- -----------
Net increase (decrease)............................... 208,712 $ 2,738,264 (216,746) $(3,993,486)
============ ===========
Shares outstanding:...................................
Beginning of period................................. 4,473,429 4,690,175
--------- ---------
End of period....................................... 4,682,141 4,473,429
========= =========
</TABLE>
10
<PAGE> 12
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
Transactions in Class C Shares of the Fund during the six month period
ended February 28, 1997 and for the year ended August 31, 1996, were as
follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED
FEBRUARY 28, 1997 FOR THE YEAR ENDED
(UNAUDITED) AUGUST 31, 1996
-------------------- -------------------
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
-------------- ------- --------- ------ ---------
<S> <C> <C> <C> <C>
Shares sold........................................... 42,181 $ 676,499 63,749 $ 978,939
Shares issued on reinvestment of distributions........ 11,126 163,771 6,588 93,221
Shares redeemed....................................... (21,434) (362,596) (7,109) (109,442)
------- --------- ------ ---------
Net increase.......................................... 31,873 $ 477,674 63,228 $ 962,718
========= =========
Shares outstanding:
Beginning of period................................. 91,806 28,578
------- ------
End of period....................................... 123,679 91,806
======= ======
</TABLE>
Note 3: PURCHASES AND SALES OF SECURITIES. For the period ended February 28,
1997, purchases and sales of investment securities (excluding repurchase
agreements and short-term obligations) aggregated $12,701,772 and
$18,307,922, respectively.
Note 4: MANAGEMENT, SUBADVISORY, DISTRIBUTION, SHAREHOLDER SERVICING AGENT AND
TRUSTEES' FEES. Under the Fund's Investment Advisory and Administration
Agreement with Heritage Asset Management, Inc. (the "Manager"), the Fund
agrees to pay to the Manager a fee equal to an annualized rate of 1.00%
of the first $100,000,000 of the Fund's average daily net assets, and
0.75% of any excess over $100,000,000 of such net assets, computed daily
and payable monthly. Since January 2, 1992, the Manager has voluntarily
agreed to waive 25% of its fee on the first $100 million of average net
assets. Effective November 19, 1996 the Manager contractually agreed to
reduce its fee to 0.75% on all Trust assets. No fees were waived and no
expenses were reimbursed for the six month period ended February 28,
1997.
At a special meeting of shareholders held on February 28, 1997,
shareholders approved the appointment of Liberty Investment Management,
a division of Goldman Sachs Asset Management ("GSAM-Liberty"), as a
Subadviser to the Trust, replacing Liberty Investment Management
("Liberty"). The Manager entered into an agreement with GSAM-Liberty to
provide to the Fund investment advice, portfolio management services
(including the placement of brokerage orders) and certain compliance and
other services for a fee payable, by the Manager, equal to an annualized
rate of .25% of average daily net assets, computed daily and paid
monthly.
From December 1985 (commencement of operations) through February 26,
1995, Eagle Asset Management, Inc., a wholly-owned subsidiary of Raymond
James Financial, Inc., was the sole subadviser to the Fund. Although
Eagle remains a subadviser to the Fund, there are no assets currently
allocated to Eagle.
The Manager is also the Dividend Paying and Shareholder Servicing Agent
for the Fund. The amount payable to the Manager for such expenses as of
February 28, 1997 was $7,600. In addition, the Manager performs Fund
Accounting services and charged $17,608 during the period of which
$5,904 was payable as of February 28, 1997.
Raymond James & Associates, Inc. (the "Distributor") has advised the
Fund that it received $26,913 in front-end sales charges and $59 in
contingent deferred sales charges for the six month period ended
February 28, 1997. From these fees, the Distributor paid commissions to
salespersons and incurred other distribution costs.
Pursuant to the Class A Distribution Plan adopted in accordance with
Rule 12b-1 of the Investment Company Act of 1940, as amended, the Fund
is authorized to pay the Distributor a fee of up to .50% of the average
daily net assets for Class A Shares. The Class C Distribution Plan
provides for payments at an annual rate of up to 1.00% of the average
daily net assets for Class C Shares. Such fees are accrued daily and
payable monthly. The Manager, Distributor, Fund Accountant and
Shareholder Servicing Agent are all wholly owned subsidiaries of Raymond
James Financial, Inc.
Trustees of the Fund also serve as Trustees for Heritage Cash Trust,
Heritage Income-Growth Trust, Heritage Income Trust, Heritage Series
Trust and Heritage U.S. Government Income Fund, investment companies
that are also advised by the Manager (collectively referred to as the
Heritage Mutual Funds). Each Trustee of the Heritage Mutual Funds who is
not an interested person of the Manager receives an annual fee of $8,000
and an additional fee of $2,000 for each combined quarterly meeting of
the Heritage Mutual Funds attended. Trustees' fees and expenses are paid
equally by each of the Heritage Mutual Funds.
11
<PAGE> 13
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
Note 5: FEDERAL INCOME TAXES. For the year ended August 31, 1996, to reflect
reclassifications arising from permanent book/tax differences primarily
attributable to a net operating loss, the Fund credited accumulated net
investment loss and charged accumulated undistributed net realized gains
$23,981.
Note 6: SHAREHOLDERS MEETING. On February 28, 1997 a special shareholders'
meeting was held for the following purposes:
(1) To approve a Subadvisory Agreement between Heritage Asset
Management Inc. and Liberty Investment Management, a division of
Goldman Sachs Asset Management, with respect to the Trust;
(2) To ratify the selection of Price Waterhouse LLP as the Trust's
independent public accountants for the fiscal year ending August
31, 1997.
The voting results were as follows:
<TABLE>
<CAPTION>
SHARES
----------------------------------
FOR AGAINST ABSTAINING
--------- ------- ----------
<S> <C> <C> <C>
To approve a Subadvisory Agreement between Heritage Asset
Management Inc. and Liberty Investment Management, a
division of Goldman Sachs Asset Management, with respect to
the Trust....................................... 2,334,132 47,076 93,499
To ratify the selection of Price Waterhouse LLP as the
Trust's independent public accountants for the fiscal year
ending August 31, 1997.......................... 2,361,881 37,006 75,820
</TABLE>
12
<PAGE> 14
HERITAGE FAMILY OF FUNDS(TM)
From Our Family to Yours: The Intelligent Creation of Wealth
HERITAGE MONEY MARKET FUNDS
Cash Trust Money Market
Cash Trust Municipal Money Market
HERITAGE BOND FUNDS
High Yield
Intermediate Government
HERITAGE STOCK FUNDS
Income-Growth
Value Equity
Growth Equity
Capital Appreciation
Small Cap
International
This report is for the information of shareholders of Heritage Capital
Appreciation Trust. It may also be used as sales literature when preceded or
accompanied by a prospectus.
(C)1997 Heritage Asset Management, Inc.
8.5M 2/97 [LOGO] PRINTED ON RECYCLED PAPER
[LOGO] HERITAGE CAPITAL APPRECIATION TRUST
P.O. Box 33022
St. Petersburg, FL 33733
- ----------------------------------------------
Address Change Requested
