April 13, 1998
Dear Fellow Shareholders:
I am pleased to present the semiannual report for Heritage Capital
Appreciation Trust ("the Fund") for the six month period ended February 28,
1998. During this period, the Class A shares and Class C shares of your Fund
returned +29.03% and +28.72%, respectively.* For the same period, the Standard
& Poor's 500 Composite Stock Price Index ("S & P 500") gained only 17.63%, and
the Standard & Poor's 400 Mid Cap Index returned just +13.27%. Your Fund
introduced Class B shares at the beginning of 1998. For the first two months of
1998, the Class B shares had a total return of +9.61%, again higher than the
market indexes.
We have discussed in previous letters how patience can be a virtue when
investing in the stock market. In managing the portfolio of your fund, Herb
Ehlers and his team of analysts at the Liberty Division of Goldman Sachs Asset
Management invest in stocks as if they are buying the entire business. Often
the business may perform well without the stock market recognizing the value in
the short term. However, the value of the business and the market price for
shares of stock of the business cannot permanently decouple. Thus, a portion of
your Fund's portfolio is often made up of stocks we have owned for many years.
As long as we believe the value of the business is not reflected in the stock
price, we tend to hold these stocks. Recently, many of the stocks we own have
performed very well as the market has begun to recognize the value of the
businesses we own. This obviously is reflected in the recent performance of
your Fund. The table below shows the return for the Class A shares of your Fund
for the one, five and ten year periods ended February 28, 1998.
AVERAGE CUMULATIVE
ANNUAL RETURN(1) TOTAL RETURN(1)
---------------- --------------
ONE YEAR .......... +42.97% + 42.97%
FIVE YEAR ......... +19.94% +148.31%
TEN YEAR .......... +15.29% +315.38%
We are pleased that many of you have been shareholders of the Fund for
many years and have enjoyed the rewards of your long term commitment for
investing in equities.
In the letter that follows, Herb Ehlers shares his thoughts on your Fund's
recent performance as well as his view of the current market environment. I
hope you find his comments helpful in understanding how your Fund's portfolio
is managed.
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 return are calculated without the imposition of either front- or
back-end sales charges.
(1) Performance figures shown pertain only to Class A shares of the Fund. The
Fund offers other share classes, which are subject to different fees and
expenses which will affect their performance. Please see the prospectus for
more information.
Cumulative total returns show the percent change in value of an investment
and average annual total returns represent the average annual increase in
value of an investment over the indicated periods, ended February 28, 1998.
All calculations have been restated to reflect the current maximum 4.75%
initial sales charge and assume reinvestment of dividends and capital gains
at net asset value. Investment return and principal value will fluctuate so
that your shares, when redeemed, may be worth more or less than their
original cost.
<PAGE>
March 31, 1998
Dear Fellow Shareholders:
In the six months ended February 28, 1998, Heritage Capital Appreciation
Trust ("HCAT") turned in superior performance, gaining 29.03%* (Class A Shares)
and 28.72%* (Class C Shares) vs. 17.63% for the S&P 500 Index and 13.27% for
the S&P Mid-Cap Index. This brought trailing twelve month results to 50.10%*
(Class A Shares) and 49.32%* (Class C Shares). For the one year period ended
March 31, 1998, HCAT placed in the top four percent of all funds in the Lipper
Capital Appreciation universe.1
We are especially pleased with this performance in view of the continuing
trend, noted in previous letters, wherein portfolio managers are putting the
majority of their assets in the very largest companies in the S&P 500, creating
a divergence between the performance of these companies and those in the
remainder of the Index. As you may know, HCAT is positioned to be closer in
average market capitalization to the S&P Mid-Cap Index, which led us to begin
including its performance in our letters to you over the past year. As we
stated in our last letter, we normally expect HCAT's results to fall somewhere
between these two indices, particularly when there is a significant difference
between their respective performances. However, we are happy to report that, as
you can see above, we beat them both in the past six months. Furthermore, the
portion of HCAT's assets invested in the largest S&P 500 companies generated
results well in excess of that group of companies as a whole, indicative of
superior stock selection. In summary, it was an excellent six months in every
respect.
We generally try to report to you on the factors, industry sectors and/or
individual stocks that were instrumental in generating our performance results,
and it would be tempting (and essentially true) to simply say that almost
everything contributed in the most recent six months. However, we would like to
call special attention to four major sectors which comprise almost 60% of total
net assets and which, in combination, were responsible for more than 80% of the
outperformance. They are Drugs (15% of net assets, up 52%);
Broadcasting/Entertainment (13% of net assets, up 46%); Financials (17% of net
assets, up 43%); and Publishing (12% of net assets, up 34%). It would not be
fair to single out names for special mention, because of the 22 individual
stocks owned in these four sectors, 21 outperformed the S&P 500, and 20 of the
22 gained at least 27%. On second thought, perhaps it would be appropriate to
just say that almost everything contributed.
As usual, however, there were a few disappointments, although only two
current holdings declined on an absolute basis -- First Data Corporation (down
17%) and Libbey, Inc. (down 4%). Both suffered temporary setbacks which caused
earnings to be below estimates, but we believe that they are now back on track.
Overall, we are quite comfortable with the portfolio as it is currently
constructed, and believe it will continue to generate excellent performance.
But -- it is fair to ask -- after the huge bull market gains of the last
few years, how much performance can we reasonably expect going forward,
particularly in the near term? Of course we do not try to predict the direction
of the overall stock market, but a few observations may be relevant.
First, inflation is virtually nonexistent, currently running at well under
a 2% annual rate. Secondly, interest rates are low and holding steady, with the
30-year U.S. Treasury yielding under 6% and shorter maturities somewhat lower
than that. Furthermore, the "real" interest rate (bond yield minus inflation)
is still historically high, indicating that there is room for rates to drop
even further. Historically, the combination of low inflation and low interest
rates has been good for equities and has supported high ----------------
* These returns are calculated without the imposition of either front- or
back-end sales charges.
1 Lipper Analytical Services Inc. performance rankings for Heritage Capital
Appreciation Trust Class A Shares were 8 out of 232, 13 out of 86 and 25 out
of 55 Capital Appreciation Funds, for the 1, 5, and 10 year periods ended
March 31, 1998, respectively. The performance numbers used for all Funds
did not take into account any front- or back-end sales charges. Past
performance is no guarantee of future results.
2
<PAGE>
price/earnings ratios, so the fact that the S&P 500 is currently priced at over
22 times estimated 1998 earnings is not necessarily a cause for concern.
The economy continues to grow at a moderate rate, and this, along with the
factors noted above, has been instrumental in leading Alan Greenspan, Chairman
of the Federal Reserve Board, to temper his "irrational exuberance" warning of
15 months ago and to state (or at least imply, because Mr. Greenspan seldom
makes definitive statements) that maybe stocks aren't overvalued after all.
Finally, demographics continue to favor an increasing flow of funds into
the stock market. The "graying of America", which over the next decade will
lead to a 40% increase in the 55-64 year old age group, the population sector
most concerned with providing for retirement, is a powerful catalyst for
investing in equities. Therefore, when all factors are considered, it is hard
to make an argument for a meaningful market decline in the near to intermediate
future.
New names added to the portfolio recently include Aetna, Inc., American
Home Products Corporation, HBO & Company, State Street Corporation and
Warner-Lambert Company. As this list indicates, we still believe that health
care is an industry that will continue to outperform market averages.
Thank you for your continued support and confidence. We assure you that we
will continue to work to the best of our abilities to retain your confidence
and trust, and to produce superior results for your long-term benefit.
Sincerely,
/s/ HERBERT E, EGKERS
Herbert E. Ehlers
Managing Director
Goldman Sachs & Company
Chief Investment Officer
Liberty Investment Management
a division of Goldman Sachs Asset
Management
3
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
FEBRUARY 28, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
- ------------------------------------------------------------- -------------
COMMON STOCK--96.5% (a)
- -----------------------
BANKING--5.0%
- -------------
90,000 MBNA Corporation ............................... $ 3,223,125
35,400 State Street Corporation ....................... 2,188,163
-----------
5,411,288
-----------
BROADCASTING--10.3%
- -------------------
80,000 Jacor Communications, Inc.* ................... 4,630,000
166,500 Liberty Media Group, Class "A"* ............... 4,568,344
69,982 Tele-Communications, Inc., Class "A"* ......... 2,033,851
-----------
11,232,195
-----------
CONGLOMERATES/DIVERSIFIED--1.5%
- --------------------------------
16,100 Ralston-Purina Group .......................... 1,633,143
-----------
COSMETICS/TOILETRIES--5.0%
- -------------------------
26,600 Avon Products, Inc. ........................... 1,873,638
32,800 Gillette Company .............................. 3,538,300
-----------
5,411,938
-----------
DATA PROCESSING--0.6%
- ---------------------
12,700 HBO & Company ................................. 687,388
-----------
ENTERTAINMENT--2.7%
- -------------------
43,600 Time Warner, Inc. ............................. 2,943,000
-----------
FINANCE--8.9%
- -------------------
43,400 AMBAC Financial Group, Inc. ................... 2,311,050
53,000 Fannie Mae .................................... 3,382,062
86,700 Freddie Mac ................................... 4,096,575
-----------
9,789,687
-----------
FOOD--1.8%
- ----------
26,400 Wm. Wrigley Jr. Company ....................... 2,016,300
-----------
GLASS/PRODUCTS--1.8%
- --------------------
53,200 Libbey, Inc. .................................. 1,961,750
-----------
HOTELS/MOTELS/INNS--3.9%
- ------------------------
55,700 Marriott International, Inc. .................. 4,219,275
-----------
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
FEBRUARY 28, 1998
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
- ------ -------------
INSURANCE--4.2%
- ---------------
10,000 Aetna, Inc. ................................. $ 873,750
59,900 Nationwide Financial Services, Inc. ......... 2,635,600
24,000 SunAmerica, Inc. ............................ 1,087,500
-----------
4,596,850
-----------
LEISURE/AMUSEMENT--2.7%
- -----------------------
36,900 Hasbro, Inc. ................................ 1,339,931
14,000 The Walt Disney Company ..................... 1,567,125
-----------
2,907,056
-----------
MEDICAL EQUIPMENT/SUPPLY--0.8%
- ------------------------------
11,700 Johnson & Johnson ........................... 883,350
-----------
PHARMACEUTICAL--14.5%
- ---------------------
19,400 American Home Products Corporation .......... 1,818,750
30,600 Bristol-Myers Squibb Company ................ 3,065,737
42,800 Pfizer, Inc. ................................ 3,787,800
47,000 Schering-Plough Corporation ................. 3,574,938
24,700 Warner-Lambert Company ...................... 3,612,375
-----------
15,859,600
-----------
PUBLISHING--12.4%
- -----------------
25,800 A.H. Belo Corporation, Class "A" ............ 1,412,550
37,900 Gannett Company ............................. 2,446,919
54,000 New York Times Company, Class "A" ........... 3,533,625
52,000 Tribune Company ............................. 3,357,250
73,800 Valassis Communications, Inc.* .............. 2,813,625
-----------
13,563,969
-----------
REAL ESTATE INVESTMENT TRUST--1.7%
- ---------------------------------
45,000 Manufactured Home Communities, Inc. ......... 158,750
22,500 The Rouse Company ........................... 748,125
-----------
1,906,875
-----------
RETAIL STORES--5.9%
- -------------------
25,221 CVS Corporation ............................. 1,867,930
24,200 Rite Aid Corporation ........................ 783,475
44,800 Tandy Corporation ........................... 1,993,600
50,000 Walgreen Company ............................ 1,834,375
-----------
6,479,380
-----------
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
FEBRUARY 28, 1998
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------------------------ ---------------
<S> <C> <C>
SERVICES--8.1%
- ----------------------------
59,908 First Data Corporation ..................................................... $ 2,036,872
52,100 Galileo International, Inc. ................................................ 2,057,950
14,300 H&R Block, Inc. ............................................................ 672,994
30,300 SABRE Group Holdings, Inc.* ................................................ 999,900
81,800 Service Corporation International .......................................... 3,098,175
------------
8,865,891
------------
TELECOMMUNICATIONS--2.4%
- ------------------------
20,000 Airtouch Communications, Inc.* ............................................. 898,750
40,300 Telephone & Data Systems, Inc. ............................................. 1,755,569
------------
2,654,319
------------
UTILITIES-DIVERSIFIED--2.3%
- ----------------------------
57,000 AES Corporation* ........................................................... 2,508,000
------------
Total Common Stock (cost $56,089,808) 105,531,254
------------
REPURCHASE AGREEMENT--3.2% (A)
- ------------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated February
27, 1998 @ 5.55% to berepurchased at $3,536,635 on March 2, 1998,
collateralized by $3,395,000 United States Treasury Notes, 6.5%
due May 15, 2005, (market value $3,612,472 including interest) (cost $3,535,000).......... 3,535,000
------------
TOTAL INVESTMENT PORTFOLIO (cost $59,624,808) (b), 99.7%(a)............................... 109,066,254
OTHER ASSETS AND LIABILITIES, net, 0.3% (a) .............................................. 340,487
------------
NET ASSETS, 100.0% ....................................................................... $109,406,741
============
<FN>
- ------------
* 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 $49,441,446 which consists of aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax
cost of $49,450,900 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value of
$9,454.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
- ------
Investments, at market value (identified cost $56,089,808) (Note 1)....... $105,531,254
Repurchase agreement (identified cost $3,535,000) (Note 1)................ 3,535,000
Cash ..................................................................... 3,410
Receivables:
Fund shares sold ........................................................ 374,157
Dividends and interest .................................................. 91,093
Deferred state qualification expenses (Note 1) ........................... 25,995
Prepaid insurance ........................................................ 257
------------
Total assets ........................................................ 109,561,166
LIABILITIES
- -----------
Payables (Note 4):
Fund shares redeemed .................................................... $ 1,536
Accrued management fee .................................................. 60,637
Accrued distribution fee ................................................ 35,112
Other accrued expenses .................................................. 57,140
Total liabilities ................................................... 154,425
------------
Net assets, at market value .............................................. $109,406,741
============
NET ASSETS
- ----------
Net assets consist of:
Paid-in capital ......................................................... $ 57,645,934
Accumulated net investment loss ......................................... (174,335)
Accumulated net realized gain ........................................... 2,493,696
Net unrealized appreciation on investments .............................. 49,441,446
------------
Net assets, at market value .............................................. $109,406,741
============
</TABLE>
<TABLE>
<S> <C>
CLASS A SHARES
- --------------
Net asset value and redemption price per share ($104,057,376 divided by
4,815,003 shares o beneficial interest outstanding, no par value)
(Notes 1 and 2) ................................................................ $ 21.61
=======
Maximum offering price per share (100/95.25 of $21.61)........................ $ 22.69
=======
CLASS B SHARES
- --------------
Net asset value, offering price and redemption price per share ($788,302
divided by 37,156 shares of beneficial interest outstanding, no par value)
(Notes 1 and 2) .............................................................. $ 21.22
=======
CLASS C SHARES
- --------------
Net asset value, offering price and redemption price per share ($4,561,063
divided by 214,963 shares of beneficial interest outstanding, no par value)
(Notes 1 and 2) ................ ............................................. $ 21.22
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED FEBRUARY 28, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME
- -----------------
<S> <C> <C>
Income:
Dividends .............................................................. $ 446,214
Interest ............................................................... 47,810
-----------
Total income ....................................................... 494,024
Expenses (Notes 1 and 4):
Management fee ......................................................... $350,678
Distribution fee (Class A Shares) ...................................... 189,591
Distribution fee (Class B Shares) ...................................... 580
Distribution fee (Class C Shares) ...................................... 16,276
Professional fees ...................................................... 29,153
Custodian/Fund accounting fees ......................................... 27,956
Shareholder servicing fees ............................................. 20,368
State qualification expenses ........................................... 17,427
Reports to shareholders ................................................ 6,138
Trustees' fees and expenses ............................................ 3,362
Federal registration fees .............................................. 3,145
Insurance expense ...................................................... 3,103
Other .................................................................. 582
--------
Total expenses ........................................................ 668,359
-----------
Net investment loss ..................................................... (174,335)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -------------------------------------------
Net realized gain from investment transactions .......................... 4,019,710
Net increase in unrealized appreciation of investments during the period 20,428,821
-----------
Net gain on investments ............................................... 24,448,531
-----------
Net increase in net assets resuling from operations ..................... $24,274,196
===========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED FOR THE
FEBRUARY 28, 1998 YEAR ENDED
(UNAUDITED) AUGUST 31, 1997
=================== ================
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment loss ......................................................... $ (174,335) $ (263,704)
Net realized gain from investment transactions .............................. 4,019,710 9,949,832
Net increase in unrealized appreciation of investments during the period .... 20,428,821 12,814,463
------------ ------------
Net increase in net assets resulting from operations ........................ 24,274,196 22,500,591
Distributions to shareholders from:
Net realized gains, Class A Shares, ($2.13 and $1.77 per share, respectively) (9,263,285) (7,685,740)
Net realized gains, Class C Shares, ($2.13 and $1.77 per share, respectively) (331,791) (163,771)
Increase (decrease) in net assets from Fund share transactions (Note 2) ...... 10,662,078 (1,697,370)
------------ ------------
Increase in net assets ....................................................... 25,341,198 12,953,710
Net assets, beginning of period .............................................. 84,065,543 71,111,833
------------ ------------
Net assets, end of period (including accumulated net investment loss of
$174,335 for the period ended February 28, 1998)............................. $109,406,741 $ 84,065,543
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
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
staements.
<TABLE>
<CAPTION>
CLASS A SHARES
------------------------------------------------------------------------------
FOR THE
SIX MONTH
PERIOD FOR THE
ENDED YEARS ENDED
FEBRUARY 28, AUGUST 31,
1998 ---------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------ --------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period....... $ 18.60 $ 15.58 $ 15.53 $ 15.30 $ 15.62 $ 13.64
-------- --------- -------- -------- -------- --------
Income from
Investment
Operations:
Net investment
income (loss)(a) ........ ( .03) ( .06) .00 (e) .08 .02 .03
Net realized and
unrealized gain on
investments .............. 5.17 4.85 1.81 1.37 1.05 3.29
--------- --------- -------- -------- -------- --------
Total from
Investment
Operations .............. 5.14 4.79 1.81 1.45 1.07 3.32
--------- --------- -------- -------- -------- --------
Less Distributions:
Dividends from net
investment income........ -- -- ( .04) ( .06) ( .03) ( .07)
Distributions from
net realized gains....... ( 2.13) ( 1.77) ( 1.72) ( 1.16) ( 1.36) ( 1.27)
--------- --------- --------- -------- -------- --------
Total Distributions ...... ( 2.13) ( 1.77) ( 1.76) ( 1.22) ( 1.39) ( 1.34)
--------- --------- --------- -------- -------- --------
Net asset value, end of
period ................... $ 21.61 $ 18.60 $ 15.58 $ 15.53 $ 15.30 $ 15.62
========= ========= ========== ======== ======== ========
Total Return(%)(d) ........ 29.03 (c) 33.61 12.79 10.85 7.07 25.72
Rations (%)/
Supplemental Data:
Operating expenses,
net, to average
daily net assets ........ 1.41 (b) 1.48 1.54 1.62 1.55 1.56
Net investment
income (loss) to
average daily net
assets(a) ............... ( .35)(b) ( .30) ( .02) .49 .15 .24
Portfolio turnover
rate .................... 15(c) 42 54 66 65 55
Average commission
rate on portfolio
transactions (per
share) .................. $ 0.0600 $ 0.0600 $ 0.0600 -- -- --
Net assets, end of
period ($ millions)...... 104 81 70 73 74 75
<CAPTION>
CLASS B SHARES CLASS C SHARES
--------------------- --------------------------------------------------------------
FOR THE
FOR THE SIX MONTH
PERIOD PERIOD FOR THE
ENDED ENDED YEARS ENDED
FEBRUARY 28, FEBRUARY 28, AUGUST 31,
1998/double dagger/ 1998 ---------------------------------------------
(UNAUDITED) (UNAUDITED) 1997 1996 1995/dagger/
------------------- -------------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period....... $ 19.36 $ 18.34 $ 15.46 $ 15.50 $ 14.18
-------- -------- --------- -------- ---------
Income from
Investment
Operations:
Net investment
income (loss)(a) ........ ( .01) ( .07) ( .13) ( .03)(e) ( .01)
Net realized and
unrealized gain on
investments .............. 1.87 5.08 4.78 1.75 1.33
---------- --------- --------- --------- ---------
Total from
Investment
Operations .............. 1.86 5.01 4.65 1.72 1.32
---------- --------- --------- --------- ---------
Less Distributions:
Dividends from net
investment income........ -- -- -- ( .04) --
Distributions from
net realized gains....... -- ( 2.13) ( 1.77) ( 1.72) --
---------- --------- --------- --------- ---------
Total Distributions ...... -- ( 2.13) ( 1.77) ( 1.76) --
---------- --------- --------- --------- ---------
Net asset value, end of
period ................... $ 21.22 $ 21.22 $ 18.34 $ 15.46 $ 15.50
========== ========= ========= ========= =========
Total Return(%)(d) ........ 9.61 (c) 28.72 (c) 32.91 12.16 9.31 (c)
Rations (%)/
Supplemental Data:
Operating expenses,
net, to average
daily net assets ........ 2.04 (b) 1.99 (b) 2.04 2.05 2.17 (b)
Net investment
income (loss) to
average daily net
assets(a) ............... ( .78) (b) ( .93)(b) ( .88) ( .57) ( .33)(b)
Portfolio turnover
rate .................... 15 (c) 15 (c) 42 54 66
Average commission
rate on portfolio
transactions (per
share) .................. $ 0.0600 $ 0.0600 $ 0.0600 $ 0.0600 --
Net assets, end of
period ($ millions)...... 1 5 3 1 .4
<FN>
- ----------------
/dagger/ For the period April 3, 1995 (commencement of Class C Shares) to
August 31, 1995.
/double dagger/ For the period January 2, 1998 (commencement of Class B
Shares) to February 28, 1998.
(a) Excludes management fees waived by the Manager in the amount of less than
$0.04, $0.04, $0.04 and $0.04 per Class A Shares for the four years ended
August 31, 1996, respectively. The operating expense ratios including such
items would have been 1.79%, 1.87%, 1.81% and 1.81% for Class A Shares for
the four years ended August 31, 1996, respectively. Excludes management
fees waived by the Manager in the amount of less than $0.04 and $0.04 per
Class C Share for the two years ended August 31, 1996, respectively. The
operating expense ratio including such items would have been 2.30% and
2.42% (annualized) for Class C Shares, respectively.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
(e) Amounts calculated prior to reclassification of $23,981. The effect of such
reclassification would have no effect on net investment income for Class A
Shares and would have resulted in an increase in net investment income of
$0.10 for Class C shares.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
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, Class B 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 B
Shares, which were offered to shareholders beginning January 2, 1998, are
sold subject to a 5% maximum contingent deferred sales load (based on the
lower of purchase price or redemption price), declining over a six-year
period. 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 made in less than one year of 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 amortized
cost which, 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 QUALIFICATION EXPENSES: State qualification fees are amortized based
either on the time period covered by the qualification or as related
shares are sold, whichever is appropriate for each state.
EXPENSES: Each Fund is charged for those expenses that are directly
attributable to it, such as management fee, custodian/fund accounting
fees, distribution fee, etc., while other expenses such as professional
fees, insurance expense, etc., are all allocated proportionately among the
Trust. Expenses of each Fund are allocated to each class of shares based
upon their relative percentage of current net assets. All expenses that
are directly attributable to a specific class of shares, such as
distribution fees are charged directly to that class.
CAPITAL ACCOUNTS: The Fund reports the undistributed net investment income
and accumulated net realized gain (loss) accounts on a basis approximating
amounts available for future tax distributions (or to offset future
taxable realized gains when a capital loss carryforward is available).
Accordingly, the Fund may periodically make reclassifications among
certain capital accounts without impacting the net asset value of the
Fund.
OTHER: For purposes of these financial statements, investment security
transactions are accounted for on a trade date basis (date the order to
buy or sell is executed). Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income is
recorded on the accrual basis.
10
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
Note 2: FUND SHARES. At February 28, 1998, there was an unlimited number of
shares of beneficial interest of no par value authorized.
Transactions in Class A and C Shares of the Fund during the six month
period ended February 28, 1998 and Class B Shares from January 2, 1998
(commencement of Class B Shares) to February 28, 1998, were as follows:
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
----------------------------- -------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED FEBRUARY 28, 1998
(UNAUDITED)
Shares sold ........................... 228,963 $ 4,655,064 37,156 $736,930 66,293 $1,326,379
Shares issued on reinvestment of
distributions ........................ 470,344 9,072,935 -- -- 17,500 331,791
Shares redeemed ....................... (268,184) (5,317,862) -- -- (6,976) (143,159)
-------- ------------ ------ -------- ------ ----------
Net increase .......................... 431,123 $ 8,410,137 37,156 $736,930 76,817 $1,515,011
============ ======== ==========
Shares outstanding:
Beginning of period .................. 4,383,880 -- 138,146
--------- ------ -------
End of period ........................ 4,815,003 37,156 214,963
========= ====== =======
</TABLE>
Transactions in Class A and C Shares of the Fund during the year ended
August 31, 1997, were as follows:
<TABLE>
<CAPTION>
A SHARES C SHARES
------------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
============= ================ ------------ -------------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED AUGUST 31, 1997
Shares sold ............................ 163,088 $ 2,689,715 78,463 $1,290,856
Shares issued on reinvestment of
distributions ........................ 504,915 7,508,083 11,126 163,771
Shares redeemed ........................ (757,552) (12,591,379) (43,249) (758,416)
-------- ------------- ------- ----------
Net increase ........................... (89,549) $ (2,393,581) 46,340 $ 696,211
============= ==========
Shares outstanding:
Beginning of year ..................... 4,473,429 91,806
--------- -------
End of year ........................... 4,383,880 138,146
========= =======
</TABLE>
Note 3: PURCHASES AND SALES OF SECURITIES. For the six month period ended
February 28, 1998, purchases and sales of investment securities
(excluding repurchase agreements and short-term obligations) aggregated
$13,683,175 and $14,513,927, respectively.
Note 4: ANAGEMENT, 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 .75%
of the Fund's average daily net assets, computed daily and payable
monthly. Pursuant to the Prospectus dated January 2, 1998, the Manager
voluntarily agreed to waive its fees and, if necessary, reimburse the
Fund to the extent that Class A annual operating expenses exceed 1.45%
of the Class A Share average daily net assets and to the extent that the
Class B and Class C annual operating expenses each exceed 2.20% of that
classes' average daily net assets for the fiscal year ending August 31,
1998. No fees were waived and no expenses were reimbursed for the six
month period ended February 28, 1998.
The Manager entered into an agreement with Liberty Investment
Management, a division of Goldman Sachs Asset Management (the
"Subadviser") to provide to the Fund investment advice, portfolio
management services (including the placement of brokerage orders) and
certain compliance and other services for a fee payable, by the Manager,
equal to an annualized rate of .25% of average daily net assets,
computed daily and paid monthly. For the six month period ended February
28, 1998 the subadviser earned $116,893, which was paid by the Manager.
From December 1985 (commencement of operations) through February 26,
1995, Eagle Asset Management, Inc., a wholly owned subsidiary of Raymond
James Financial, Inc., was the sole subadviser to the Fund. Although
Eagle remains a subadviser to the Fund, there are no assets currently
allocated to Eagle.
The Manager is also the Dividend Paying and Shareholder Servicing Agent
for the Fund. The amount payable to the Manager for such expenses as of
February 28, 1998 was $7,200. In addition, the Manager performs Fund
Accounting services and charged $18,707 during the period of which
$5,800 was payable as of February 28, 1998.
Raymond James & Associates, Inc. (the "Distributor") has advised the
Fund that it received $73,002 in front-end sales charges for Class A
Shares and $86 in contingent deferred sales charges for Class C Shares
for the six month period ended February 28, 1998. 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
11
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
Shares. The Class B and C Shares Distribution Plan provides for payments
at an annual rate of up to 1.00% of the average daily net assets for Class
B and Class C Shares, respectively. Such fees are accrued daily and
payable monthly. Class B
Shares will convert to Class A Shares eight years after the end of the
calendar month in which the shareholder's order to purchase was accepted.
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, Heritiage 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 $3,000 for each combined quarterly meeting of the
Heritage Mutual Funds attended. Trustees' fees and expenses are paid
equally by each of the Heritage Mutual Funds.
Note 5: FEDERAL INCOME TAXES. For the year ended August 31, 1997, to reflect
reclassifications arising from permanent book/tax differences primarily
attributable to a net operating loss, the Fund credited accumulated net
investment loss and charged accumulated undistributed net realized gains
$263,704.
12
