CAPITAL
APPRECIATION
TRUST
[GRAPHIC OMITTED]
FROM OUR FAMILY TO YOURRS: THE INTELLIGENT CREATION OF WEALTH
Annual Report
and Investment Performance
Review for the Year Ended
August 31, 1998
[LOGO]
--------------------
Capital Appreciation
Trust(TM)
--------------------
<PAGE>
October 21, 1998
Dear Fellow Shareholders:
I am pleased to provide you with the annual report for Heritage Capital
Appreciation Trust (the "Fund") for the fiscal year ended August 31, 1998. For
this period, your Fund's Class A and Class C shares delivered total returns of
+21.45% and +20.72%, respectively*. For the same period, the Standard & Poor's
500 Composite Stock Price Index ("S&P 500") gained +8.10%, while the Standard &
Poor's 400 Mid Cap Index ("S&P 400") had a return of -9.30%. Your Fund
introduced Class B shares on January 2, 1998. For the first eight months of
calendar 1998, the Class B shares returned +2.84%*, well ahead of the S&P 500
and the S&P 400 indexes that returned -0.38% and -15.11%, respectively.
The Fund's outperformance versus the market indexes came from a broad
range of industries and securities, including: BROADCASTING -- Liberty Media
Group, Time Warner, Inc. and Tele-Communications, Inc.; PUBLISHING -- Tribune
Company, New York Times Company and Gannett Company; PHARMACEUTICALS -- Pfizer,
Inc., Schering-Plough Corporation, Warner-Lambert Company and Bristol-Myers
Squibb Company; FINANCIALS -- Nationwide Financial Services, Inc., Freddie Mac,
Fannie Mae, and SunAmerica, Inc.; and RETAIL STORES -- Walgreen Company, CVS
Corporation, and Rite Aid Corporation.
The Fund underperformed the market indexes in the following industries:
OIL & GAS -- Schlumberger, Ltd; SERVICES -- First Data Corporation; and
UTILITIES -- AES Corporation.
During the past year the Fund continued to add what we believe will be
quality long-term investments to your portfolio including Chancellor Media
Corporation, American Home Products, Colgate-Palmolive Corporation and State
Street Corporation.
As we have mentioned many times, we view investing as a long term
endeavor. Thus, while we may have concerns about the short-term stock market
volatility we have experienced recently, we do not believe we should make any
changes to the long-term approach to investing that has served our shareholders
well over time. In investing your portfolio's assets, Herb Ehlers and his team
at your subadviser, Goldman Sachs Asset Management, focus on a "buy the
business" approach. They focus on buying high quality growing businesses,
buying businesses with recurring revenue streams and high levels of "free cash
flow" (as opposed to book earnings), and buying businesses with excellent
management and dominant market shares in their key products. They then try to
identify these types of businesses that have stock prices that do not fully
reflect the values of these businesses -- in other words, buying at a discount.
We believe these strategies will still work well throughout long-term market
cycles. I hope you will review the Portfolio Manager's letter that follows to
better understand Herb Ehlers' approach to investing and his current market
outlook.
The recent market corrections may provide an excellent reminder to review
your investment portfolio with your financial advisor to ensure that your asset
allocation strategy is appropriate to meet your individual goals and
objectives. On behalf of all of us at Heritage Asset Management, thank you for
your continuing investment in Heritage Capital Appreciation Trust. If there are
ever ways in which you believe we could better serve you, please call us at
800-709-3863.
Sincerely,
/s/ STEPHEN G. HILL
-------------------
Stephen G. Hill
President
- ----------
* These returns are calculated without the imposition of either front- or
back-end sales charges.
1
<PAGE>
October 21, 1998
Dear Fellow Shareholders:
Given all that's happened recently in the economy and the stock market, I
just decided to tear-up the letter to shareholders which was written only last
month and start all over again.
Volatility! Volatility! Volatility! The incredible worldwide financial,
economic and currency turmoil, and the developing credit crunch have all
accelerated in the past seven weeks and have created extraordinary volatility.
Since the beginning of 1945, the DJIA has traded in a range from -1% to
+1% per day for 83.1% of all trading days. In contrast, for the July 17, 1998
to October 2, 1998 period, the DJIA has traded in the /plus-minus/1% range per
day for only 44.5% of the trading days; in other words, the July to October
1998 period had almost three times the rate (55.5% to 16.9%) with daily percent
changes greater than 1%. Interestingly, bear markets do NOT tend to be
volatile, while corrections can be volatile (and painful -- but hopefully only
for a short period).
If you "wanna" stay in the kitchen, you "gotta" take a little heat.
Legendary investor Bernard Baruch, when asked his views on the stock market,
reportedly had a "stock" answer -- "The market will fluctuate." Given the
remarkable bull market of the last few years, when every minor downtick was
considered to be -- and was -- a buying opportunity, we question whether many
people even remember the meaning of the word.
Until now, that is. The events that have transpired since mid-July have
forcibly inserted "fluctuate," or perhaps something stronger, into investors'
vocabularies. And now we ask ourselves how many know how to deal with what is
happening.
We started thinking about this recently when we became aware that a
substantial individual client had instructed us on August 31, half an hour
before the close, and in the middle of a market freefall, to raise the cash
level in the client's account to 80% by the end of the day. We followed the
instructions and did so. The market has rebounded over 10% since then.
As investors, we need to think about the long-term. We know that stocks
have delivered an average annual return of 11% over the last 72 years. But this
has not happened in a steady, straight-line manner. It has not even happened
because, over time, stocks rise on more days than they fall (although this is
true). Rather, it has happened because the typical pattern has been one of
short periods of sharply rising prices followed by long, sometimes boring
periods when, on balance, nothing has happened.
For example, since January 1, 1995, the S&P 500 gained 82% (price change
only -- excludes income). However, the entire advance occurred during five
relatively brief segments -- from 12 to 55 days each -- totaling 187 days (less
than 29% of the total) and was unchanged during the other six segments (one of
seven months' duration) amounting to 466 days, or 71%. Yet, unless you had
incredible market-timing ability, you had to be invested over the entire
timespan, including the flat to down periods, to capture the 82% gain.
The impact of missing the "best days" in the market is even more dramatic
when viewed over the 15-year time span from 1982-1996. The returns in the table
below are those of the S&P 500 Index with all dividends reinvested.
16.78%
13.39%
7.53%
2.87%
INVESTED ALL MINUS MINUS MINUS
5,478 DAYS 10 BEST DAYS 40 BEST DAYS 70 BEST DAYS
- ----------
* These returns are calculated without the imposition of either front- or
back-end sales charges.
2
<PAGE>
The conclusion: trying to avoid the "worst" days to invest, you may miss
the best days.
We believe these are excellent examples of the "typical" pattern in the
market, but they may not even be the most dramatic ones we could have chosen.
Do you remember 1994? The market meandered within a relatively narrow range
(less than 9% difference between the high and low) and finished the year
virtually unchanged -- actually down 1.5%. Then in 1995, the market exploded
for a 34% gain in a virtually straight-line move. We dare say that only those
investors that "stayed in the kitchen" during 1994 benefited fully from the
outstanding 1995 performance.
But what does all this have to do with what has been going on in the
market since mid-July? One can hardly call the last three months "boring" or
"meandering." Given the recent events and turmoil in Russia and Asia, the
concern that Brazil and the rest of Latin America could soon be similarly
affected, and the economic inter-dependence between the United States and the
rest of the world, some observers have begun to predict the possibility, if not
the likelihood, of a worldwide recession beginning as early as next year.
Although, as our clients know, we neither make nor rely on economic forecasts,
we continually assess the prospects for our portfolio companies on the
assumption that something might go wrong in the macro-economic environment.
However, we also keep in mind that since the stock market anticipates, it will
begin to discount bad news well in advance of that news. These circumstances
have been described as the Cyrano Principle: if the news is as obvious as the
nose on your face, the market will have been aware of it long before its
arrival. So, are we truly in a bear market this time, or has the correction to
date already discounted for all the known news?
We don't know, of course, if we are in a bear market. But if history can
be used as a guide, two things will happen. First, at some point in the future,
the S&P will return to its prior high. Second, at some point after that, it
will resume the rising trend that it has followed for the past 72 years. And
those who stay the course -- who take the heat and remain in the kitchen --
will reap the rewards.
We would like to end as we began, with a quote from Bernard Baruch. He was
once asked, after a period during which the market had risen substantially, if
perhaps it was due for a correction. He did not deny that this was likely to
happen. When asked if this would lead him to sell at least part of his
holdings, he replied that it would not. But why not? "Because then I would lose
my position."
What was Mr. Baruch saying? Simply that if he sold, he did not believe he
would be able to pick the right time to re-enter the market. Nor would we. Nor,
we feel safe in saying, would most people. And that is why at times like this
we should all stay in the kitchen and take the heat. It may take a while, but
there's something good cooking in there.
In closing, we thank you for your investment and look forward to seeking
superior companies to provide excellent long-term results for you.
Sincerely,
/s/ HERBERT E. EHLERS
---------------------
Herbert E. Ehlers
Managing Director
Goldman Sachs & Company
Chief Investment Officer
Liberty Investment Management
a division of Goldman Sachs Asset
Management
3
<PAGE>
GROWTH OF $10,000 INVESTMENT
SINCE SEPTEMBER 1, 1998 OF HERITAGE CAPITAL APPRECIATION TRUST
CLASS A SHARES
[GRAPHIC OMITTED]
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION OF HERITAGE CAPITAL APPRECIATION TRUST
CLASS C SHARES
ON APRIL 3, 1995
[GRAPHIC OMITTED]
The Value Line Index does not include reinvestment of dividends.
- ----------
* Average annual returns for Heritage Capital Appreciation Trust Class A and C
Shares are calculated in conformance with item 21 of Form N-1A, which
assumes the maximum sales load of 4.75% for Class A Shares and reinvestment
of dividends for Class A and C Shares. Performance presented represents
historical data. The investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. The Fund's past performance is not
indicative of future performance and should be considered in light of the
Fund's investment policy and objectives, the characteristics and quality of
its portfolio securities, and the periods selected.
4
<PAGE>
GROWTH OF $10,000 INVESTMENT
SINCE INCEPTION OF HERITAGE CAPITAL APPRECIATION TRUST
CLASS B SHARES
ON JANUARY 2, 1998
[GRAPHIC OMITTED]
The Value Line Index does not include reinvestment of dividends.
- ----------
** Total return for Heritage Capital Appreciation Trust Class B Shares is
calculated in conformance with item 21 of Form N-1A, which assumes
reinvestment of dividends for Class B Shares. Performance presented
represents historical data. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. The Fund's past performance
is not indicative of future performance and should be considered in light
of the Fund's investment policy and objectives, the characteristics and
quality of its portfolio securities, and the periods selected. Since the
period shown is less than one year the aggregate total return in lieu of
the annualized total return is used for Class B Shares.
5
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
AUGUST 31, 1998
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
- ----------- -----------
COMMON STOCKS--94.4%(a)
- -----------------------
BANKING--3.8%
- -----------------------
5,000 Banc One Corporation .............. $ 190,000
97,500 MBNA Corporation .................. 2,291,250
40,900 State Street Corporation .......... 2,129,356
-----------
4,610,606
-----------
BROADCASTING--14.3%
- ---------------------
73,000 CBS Corporation ................... 1,898,000
38,500 Chancellor Media Corporation ...... 1,373,969
98,300 Jacor Communications, Inc. ........ 5,799,700
170,500 Liberty Media Group, Class "A"..... 5,573,219
81,587 Tele-Communications, Inc.,
Class "A"* ........................ 2,692,371
-----------
17,337,259
-----------
COSMETICS/TOILETRIES--1.6%
- ----------------------------
31,600 Avon Products, Inc. ............... 1,986,850
-----------
DATA PROCESSING--0.9%
- -----------------------
49,400 HBO & Company ..................... 1,049,750
-----------
ENTERTAINMENT--3.3%
- ---------------------
50,100 Time Warner, Inc. ................. 4,026,787
-----------
FINANCE--8.0%
- ---------------
49,400 AMBAC Financial Group, Inc......... 2,331,063
62,500 Fannie Mae ........................ 3,550,781
97,200 Freddie Mac ....................... 3,839,400
-----------
9,721,244
-----------
FOOD--3.0%
- ------------
56,300 Ralston-Purina Group .............. 1,481,394
27,400 Wm. Wrigley Jr. Company ........... 2,123,500
-----------
3,604,894
-----------
GLASS/PRODUCTS--1.5%
- ----------------------
58,200 Libbey, Inc. ...................... 1,778,737
-----------
HOTELS/MOTELS/INNS--1.9%
- --------------------------
83,400 Marriott International, Inc.,
Class "A" ......................... 2,340,412
-----------
HOUSEHOLD PRODUCTS--0.5%
- --------------------------
9,000 Colgate-Palmolive Company ......... 649,125
-----------
INSURANCE--4.8%
- -----------------
14,000 Aetna, Inc. ....................... 842,625
69,400 Nationwide Financial
Services, Inc. .................... 3,101,313
29,500 SunAmerica, Inc. .................. 1,827,156
-----------
5,771,094
-----------
INVESTMENT COMPANY--0.1%
- --------------------------
7,000 Waddell & Reed Financial, Inc.,
Class "A" ......................... 116,375
-----------
MARKET
SHARES VALUE
- ------------ -----------
COMMON STOCKS (CONTINUED)
- -------------------------
LEISURE/AMUSEMENT--1.9%
- -------------------------
36,900 Hasbro, Inc.* ..................... $ 1,155,431
42,000 The Walt Disney Company ........... 1,152,375
-----------
2,307,806
-----------
MEDICAL EQUIPMENT/SUPPLY--0.9%
- --------------------------------
16,200 Johnson & Johnson ................. 1,117,800
-----------
OIL & GAS--1.6%
- -----------------
43,000 Schlumberger, Ltd. ................ 1,883,937
-----------
PHARMACEUTICAL--15.7%
- -----------------------
3,300 American Home Products
Corporation ....................... 2,671,663
8,600 Bristol-Meyers Squibb
Company ........................... 3,777,975
9,800 Pfizer, Inc. ...................... 2,771,400
1,000 Schering-Plough Corporation ....... 4,386,000
3,100 Warner-Lambert Company ............ 5,422,275
-----------
19,029,313
-----------
PUBLISHING--14.0%
- -------------------
83,100 A.H. Belo Corporation,
Class "A" ......................... 1,537,350
47,400 Central Newspapers, Inc.,
Class "A"* ........................ 2,938,800
44,900 Gannett Company ................... 2,649,100
126,000 New York Times Company,
Class "A" ......................... 3,654,000
52,000 Tribune Company* .................. 3,350,750
96,800 Valassis Communications, Inc. ..... 2,885,850
-----------
17,015,850
-----------
REAL ESTATE INVESTMENT TRUST--1.4%
- ------------------------------------
45,000 Manufactured Home
Communities, Inc. ................. 1,060,313
22,500 The Rouse Company ................. 646,875
-----------
1,707,188
-----------
RETAIL STORES--6.7%
- ---------------------
55,442 CVS Corporation ................... 2,016,703
29,200 Rite Aid Corporation .............. 1,056,675
52,800 Tandy Corporation* ................ 2,880,900
56,000 Walgreen Company .................. 2,156,000
-----------
8,110,278
-----------
SERVICES--5.3%
- ----------------
67,908 First Data Corporation ............ 1,404,847
39,100 Galileo International, Inc. ....... 1,278,081
15,300 H&R Block, Inc. ................... 598,613
92,800 Service Corporation
International ..................... 3,143,600
-----------
6,425,141
-----------
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
INVESTMENT PORTFOLIO
AUGUST 31, 1998
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
- ----------- ------------
COMMON STOCKS (CONTINUED)
- -------------------------
TELECOMMUNICATIONS--1.1%
- ---------------------------
40,300 Telephone & Data
Systems, Inc. ........................ $ 1,334,937
------------
UTILITIES-DIVERSIFIED--2.1%
- -----------------------------
94,500 AES Corporation* ..................... 2,575,125
------------
Total Common Stocks
(cost $79,945,593)............................... 114,500,508
------------
REPURCHASE AGREEMENT--5.5%(a)
- -----------------------------
Repurchase Agreement with State Street
Bank and Trust Company, dated August 31,
1998 @ 5.7% to be repurchased at $6,652,053
on September 1, 1998, collateralized by
$5,690,000 United States Treasury Notes,
6.875% due August 15, 2025, (market value
$6,807,668 including interest)
(cost $6,651,000).................................. 6,651,000
------------
TOTAL INVESTMENT PORTFOLIO
(cost $86,596,593)(b), 99.9%(a)................... 121,151,508
OTHER ASSETS AND LIABILITIES, net, 0.1%(a) 176,311
------------
NET ASSETS, 100.0% ................................ $121,327,819
============
* 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 $34,554,915 which consists
of aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over
tax cost of $39,243,398 and aggregate gross unrealized
depreciation for all securities in which there is an excess
of tax cost over market value of $4,688,483.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
- ------
Investments, at market value (identified cost $79,945,593) (Note 1) $114,500,508
Repurchase agreement (identified cost $6,651,000) (Note 1)......... 6,651,000
Cash .............................................................. 41
Receivables:
Fund shares sold ................................................. 360,290
Dividends and interest ........................................... 101,092
Deferred state qualification expenses (Note 1) .................... 11,380
Prepaid insurance (Note 1) ........................................ 11,879
------------
Total assets ................................................. 121,636,190
LIABILITIES
- -----------
Payables (Note 4):
Fund shares redeemed ............................................. $72,771
Accrued management fee ........................................... 87,314
Accrued distribution fee ......................................... 53,255
Other accrued expenses ........................................... 95,031
Total liabilities ............................................ 308,371
------------
Net assets, at market value ....................................... $121,327,819
============
NET ASSETS
- ----------
Net assets consist of:
Paid-in capital .................................................. $ 78,337,864
Accumulated net realized gain .................................... 8,435,040
Net unrealized appreciation on investments ....................... 34,554,915
------------
Net assets, at market value ....................................... $121,327,819
============
</TABLE>
<TABLE>
<S> <C>
CLASS A SHARES
- --------------
Net asset value and redemption price per share ($103,751,926 divided by 5,102,047 shares of
beneficial interest outstanding, no par value) (Notes 1 and 2) .......................... $ 20.34
=======
Maximum offering price per share (100/95.25 of $20.34).................................... $ 21.35
=======
CLASS B SHARES
- --------------
Net asset value, offering price and redemption price per share ($5,472,760 divided by
274,910 shares of beneficial interest outstanding, no par value) (Notes 1 and 2) ............... $ 19.91
=======
CLASS C SHARES
- --------------
Net asset value, offering price and redemption price per share ($12,103,133 divided by
608,226 shares of beneficial interest outstanding, no par value) (Notes 1 and 2) ................ $ 19.90
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME
- -----------------
<S> <C> <C>
Income:
Dividends ............................................................ $ 938,451
Interest ............................................................. 244,158
-----------
Total income ..................................................... 1,182,609
Expenses (Notes 1 and 4):
Management fee ....................................................... $825,313
Distribution fee (Class A Shares) .................................... 418,327
Distribution fee (Class B Shares)* ................................... 18,105
Distribution fee (Class C Shares) .................................... 58,186
Professional fees .................................................... 63,655
Custodian/Fund accounting fees ....................................... 62,030
Shareholder servicing fees ........................................... 54,831
State qualification expenses ......................................... 45,256
Reports to shareholders .............................................. 29,080
Federal registration fees ............................................ 9,371
Trustees' fees and expenses .......................................... 8,260
Insurance expense .................................................... 2,173
Other ................................................................ 1,161
--------
Total expenses ...................................................... 1,595,748
-----------
Net investment loss ................................................... (413,139)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -------------------------------------------
Net realized gain from investment transactions ........................ 9,960,883
Net increase in unrealized appreciation of investments during the year 5,542,290
-----------
Net gain on investments ............................................. 15,503,173
-----------
Net increase in net assets resulting from operations .................. $15,090,034
===========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------
AUGUST 31, 1998 AUGUST 31, 1997
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment loss ......................................................... $ (413,139) $ (263,704)
Net realized gain from investment transactions .............................. 9,960,883 9,949,832
Net increase in unrealized appreciation of investments during the year ...... 5,542,290 12,814,463
------------ ------------
Net increase in net assets resulting from operations ........................ 15,090,034 22,500,591
Distributions to shareholders from:
Net realized gains, Class A Shares, ($2.13 and $1.77 per share, respectively) (9,263,114) (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) ...... 31,767,147 (1,697,370)
------------ ------------
Increase in net assets ....................................................... 37,262,276 12,953,710
Net assets, beginning of year ................................................ 84,065,543 71,111,833
------------ ------------
Net assets, end of year ...................................................... $121,327,819 $ 84,065,543
============ ============
<FN>
- ----------
* For the period January 2, 1998 (commencement of Class B Shares) to August 31,
1998.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<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
statements.
<TABLE>
<CAPTION>
CLASS A SHARES
----------------------------------------------------------------
FOR THE YEARS ENDED
AUGUST 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ....... $ 18.60 $ 15.58 $ 15.53 $ 15.30 $ 15.62
-------- -------- --------- -------- --------
Income from
Investment
Operations:
Net investment
income (loss)(a) ....... ( .07) ( .06) .00 (e) .08 .02
Net realized and
unrealized gain on
investments ............ 3.94 4.85 1.81 1.37 1.05
-------- -------- --------- -------- --------
Total from
Investment
Operations ............. 3.87 4.79 1.81 1.45 1.07
-------- -------- --------- -------- --------
Less Distributions:
Dividends from net
investment income....... -- -- ( .04) ( .06) ( .03)
Distributions from
net realized gains...... ( 2.13) ( 1.77) ( 1.72) ( 1.16) ( 1.36)
-------- -------- --------- -------- --------
Total Distributions ..... ( 2.13) ( 1.77) ( 1.76) ( 1.22) ( 1.39)
-------- -------- --------- -------- --------
Net asset value, end of
year .................... $ 20.34 $ 18.60 $ 15.58 $ 15.53 $ 15.30
======== ======== ========= ======== ========
Total Return(%)(d) ....... 21.45 33.61 12.79 10.85 7.07
Rations (%)/
Supplemental Data:
Operating expenses,
net, to average
daily net assets ....... 1.41 1.48 1.54 1.62 1.55
Net investment
income (loss) to
average daily net
assets(a) .............. ( .34) ( .30) ( .02) .49 .15
Portfolio turnover
rate ................... 25 42 54 66 65
Net assets, end of
year ($ millions)....... 104 81 70 73 74
</TABLE>
<TABLE>
CLASS B SHARES CLASS C SHARES
--------------------- ---------------------------------------------------------
FOR THE
PERIOD ENDED FOR THE YEARS ENDED
AUGUST 31, AUGUST 31,
--------------------- ---------------------------------------------------------
1998/double dagger/ 1998 1997 1996 1995/dagger/
--------------------- ----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ....... $ 19.36 $ 18.34 $ 15.46 $ 15.50 $ 14.18
--------- -------- -------- --------- ---------
Income from
Investment
Operations:
Net investment
income (loss)(a) ....... ( .06) ( .09) ( .13) ( .03)(e) ( .01)
Net realized and
unrealized gain on
investments ............ .61 3.78 4.78 1.75 1.33
--------- -------- -------- --------- ---------
Total from
Investment
Operations ............. .55 3.69 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
year .................... $ 19.91 $ 19.90 $ 18.34 $ 15.46 $ 15.50
========= ======== ======== ========= =========
Total Return(%)(d) ....... 2.84 (c) 20.72 32.91 12.16 9.31 (c)
Rations (%)/
Supplemental Data:
Operating expenses,
net, to average
daily net assets ....... 2.01 (b) 2.00 2.04 2.05 2.17 (b)
Net investment
income (loss) to
average daily net
assets(a) .............. ( .86)(b) ( .90) ( .88) ( .57) ( .33)(b)
Portfolio turnover
rate ................... 25 25 42 54 66
Net assets, end of
year ($ millions)....... 5 12 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 August 31, 1998.
(a) Excludes management fees waived by the Manager in the amount of less than
$0.04, $0.04 and $0.04 per Class A Shares for the three years ended August
31, 1996, respectively. The operating expense ratios including such items
would have been 1.79%, 1.87% and 1.81% for Class A Shares for the three
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.
10
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1: SIGNIFICANT ACCOUNTING POLICIES. Heritage Capital Appreciation Trust
(the "Fund") is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund invests
principally in those equity securities that the Fund's portfolio manager
believes are undervalued and therefore offer above-average potential for
long-term appreciation. The Fund currently issues Class A, 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, 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, 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.
PURCHASE 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. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income is recorded on the accrual basis.
Note 2: FUND SHARES. At August 31, 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 year ended
August 31, 1998 and Class B Shares from January 2, 1998 (commencement of
Class B Shares) to August 31, 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 YEAR ENDED AUGUST 31, 1998
Shares sold .......................... 814,994 $ 18,387,400 283,707 $6,354,813 487,516 $10,793,635
Shares issued on reinvestment of
distributions ...................... 470,334 9,072,734 -- -- 17,500 331,791
Shares redeemed ...................... (567,161) (12,188,566) (9,797) (213,028) (34,936) (771,632)
-------- ------------- ------- ---------- ------- -----------
Net increase ......................... 718,167 $ 15,271,568 273,910 $6,141,785 470,080 $10,353,794
============= ========== ===========
Shares outstanding:
Beginning of year ................... 4,383,880 1,000 138,146
--------- ------- -------
End of year ......................... 5,102,047 274,910 608,226
========= ======= =======
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE CAPITAL APPRECIATION TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
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 (decrease) .............. (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 year ended August 31, 1998,
purchases and sales of investment securities (excluding repurchase
agreements and short-term obligations) aggregated $42,656,206 and
$25,572,346, respectively.
Note 4: MANAGEMENT, SUBADVISORY, DISTRIBUTION, SHAREHOLDER SERVICING AGENT,
FUND ACCOUNTING 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 year ended August 31, 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
year ended August 31, 1998 the subadviser earned $275,104, which was paid
by the Manager.
From December 1985 (commencement of operations) through February 26, 1995,
Eagle Asset Management, Inc., a wholly owned subsidiary of Raymond James
Financial, Inc., was the sole subadviser to the Fund. Although Eagle
remains a subadviser to the Fund, there are no assets currently allocated
to Eagle.
The Manager is also the Dividend Paying and Shareholder Servicing Agent
for the Fund. The amount payable to the Manager for such expenses as of
August 31, 1998 was $13,814. In addition, the Manager performs Fund
Accounting services and charged $42,486 during the year of which $7,800
was payable as of August 31, 1998.
Raymond James & Associates, Inc. (the "Distributor") has advised the Fund
that it received $316,556 in front-end sales charges for Class A Shares,
$2,412 in contingent deferred sales charges for Class B Shares and $3,606
in contingent deferred sales charges for Class C Shares for the year ended
August 31, 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 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, 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
employee of the Manager or an employee of an affiliate of the Manager
receives an annual fee of $8,666 and an additional fee of $3,250 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, 1998, 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 paid in capital $413,139.
12
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
Heritage Capital Appreciation Trust
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Heritage Capital Appreciation
Trust (the "Fund") at August 31, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at August 31, 1998 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Tampa, Florida
October 14, 1998
- --------------------------------------------------------------------------------
1998 FEDERAL INCOME TAX NOTICE
(UNAUDITED)
- --------------------------------------------------------------------------------
During the year ended August 31, 1998, the Fund paid to shareholders
$9,060,656 or $2.01 per share from long-term capital gains.
13
<PAGE>
HERITAGE FAMILY OF FUNDS (TM)
FROM OUR FAMILY TO YOURS:THE INTELLEGENT CREATION OF WEALTH
Heritage Money Market Funds
Cash Trust Money Market
Cash Trust Municipal Money Market
Heritage Bond Funds
Intermediate Government
High Yield
Heritage Stock Funds
Aggressive Growth
Capital Appreciation
Growth Equity
Income-Gowth
International
Mid Cap
Small Cap
Value Equity
We are please that many of your are also investors in these funds.
For more information and a prospectus for any of these mutual funds, please
contact your financial advisor. Please read the prospectus carefully before you
invest in any of the funds.
This report is for the information of shareholders of Heritage Capital
Appreciation Trust. It may also be used as sales literature when preceded or
accompanied by a prospectus.
1998 Heritage Asset Management, Inc.
10M
AR5330 CA 8/98
[GRAPHIC OMITTED] Heritage Capital Appreciation Trust
P.O. Box 33022
St. Petersburg, FL 33733
- --------------------------------------------------------------------------------
ADDRESS SERVICE REQUESTED
