As filed with the Securities and Exchange Commission on December 29, 2000
1933 Act File No. 2-98634
1940 Act File No. 811-4338
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 20 [ X ]
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 21
---
(Check appropriate box or boxes.)
HERITAGE CAPITAL APPRECIATION TRUST
(Exact name of Registrant as Specified in Charter)
880 Carillon Parkway
St. Petersburg, FL 33716
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (727) 573-3800
RICHARD K. REISS, PRESIDENT
880 Carillon Parkway
St. Petersburg, FL 33716
(Name and Address of Agent for Service)
Copy to:
CLIFFORD J. ALEXANDER, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
Approximate Date of Proposed Public Offering December 29, 2000
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ X ] on December 29, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
HERITAGE CAPITAL APPRECIATION TRUST
CONTENTS OF REGISTRATION STATEMENT
This registration document is comprised of the following:
Cover Sheet
Contents of Registration Statement
Combined Prospectus for Class A, Class B and Class C
shares of Aggressive Growth Fund, Capital Appreciation
Trust, Eagle International Equity Portfolio, Growth Equity
Fund, Income-Growth Trust, Mid Cap Stock Fund, Small Cap
Stock Fund, Technology Fund and Value Equity Fund
Statement of Additional Information for Class A,
Class B and Class C shares of Aggressive Growth Fund,
Capital Appreciation Trust, Eagle International Equity
Portfolio, Growth Equity Fund, Income-Growth Trust, Mid
Cap Stock Fund, Small Cap Stock Fund, Technology Fund and
Value Equity Fund
Part C of Form N-1A
Signature Page
Exhibits
<PAGE>
Heritage
Equity
Funds
[GRAPHIC]
From Our Family to Yours: The Intelligent Creation of Wealth.
Aggressive Growth Fund
Capital Appreciation Trust
Eagle International Equity Portfolio
Growth Equity Fund
Income-Growth Trust
Mid Cap Stock Fund
Small Cap Stock Fund
Technology Fund
Value Equity Fund
Prospectus
January 2, 2001
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
[GRAPHIC]
Heritage
------------
EQUITY FUNDS
------------
880 Carillon Parkway
St. Petersburg, Florida 33716
(800) 421-4184
<PAGE>
<PAGE>
Table of Contents
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
HERITAGE EQUITY FUNDS
Aggressive Growth Fund ....................... 1
Capital Appreciation Trust ................... 4
Eagle International Equity Portfolio ......... 7
Growth Equity Fund ........................... 11
Income-Growth Trust .......................... 14
Mid Cap Stock Fund ........................... 17
Small Cap Stock Fund ......................... 20
Technology Fund .............................. 23
Value Equity Fund ............................ 26
MANAGEMENT OF THE FUNDS
Who Manages Your Fund ........................ 29
Distribution of Fund Shares .................. 31
YOUR INVESTMENT
Before You Invest ............................ 32
Choosing a Class of Shares ................... 32
Sales Charge Reductions and Waivers .......... 34
How to Invest ................................ 35
How to Sell Your Investment .................. 36
How to Exchange Your Shares .................. 38
Account and Transaction Policies ............. 38
Dividends, Capital Gains and Taxes ........... 39
FINANCIAL HIGHLIGHTS
Aggressive Growth Fund ....................... 41
Capital Appreciation Trust ................... 42
Eagle International Equity Portfolio ......... 43
Growth Equity Fund ........................... 44
Income-Growth Trust .......................... 45
Mid Cap Stock Fund ........................... 46
Small Cap Stock Fund ......................... 47
Technology Fund .............................. 48
Value Equity Fund ............................ 49
FOR MORE INFORMATION .......................... Back Cover
</TABLE>
<PAGE>
<PAGE>
Prospectus
Aggressive Growth Fund
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investment Objective. The Aggressive Growth Fund seeks long-term capital
appreciation.
How the Aggressive Growth Fund Pursues its Objective. The Aggressive
Growth Fund seeks to achieve its objective by investing, under normal market
conditions, at least 65% of its total assets in the equity securities of
companies that may have significant growth potential (growth companies).
The fund's portfolio manager uses a "bottom-up" method of analysis based
on fundamental research to determine which common stocks to purchase for the
fund. The portfolio manager attempts to purchase stocks that have the potential
for above-average earnings or sales growth. Such stocks can typically have high
price to earnings ratios. The portfolio manager generally does not emphasize
investment in any particular investment sector or industry. However, due to its
growth characteristics, the fund's investments in technology, from time to
time, may represent a significant portion of its assets. The fund invests a
majority of its assets in common stocks of small- and medium-capitalization
companies, although the fund may invest a portion of its assets in common
stocks of larger companies that it believes have significant growth potential.
The fund will invest primarily in equity securities of growth companies
that the portfolio manager believes have high growth rates and strong prospects
for their business or services. Equity securities include common and preferred
stock, warrants or rights exercisable into common or preferred stock and
high-quality convertible securities. As a temporary defensive measure because
of market, economic or other conditions, the fund may invest up to 100% of its
assets in high-quality, short-term debt instruments. To the extent that the
fund invokes this strategy, its ability to achieve its investment objective may
be affected adversely.
What are the Main Risks of Investing in the Aggressive Growth Fund. The
greatest risk of investing in this fund is that the fund's returns will
fluctuate and you could lose money. This fund invests in common stocks whose
value may decrease in response to the activities of the company that issued the
stock, general market conditions, and/or economic conditions. If this occurs,
the fund's net asset value also may decrease.
Growth Companies. Investment in growth companies entails significant risks
that you should consider before investing. The prices of growth company
securities may rise and fall dramatically, based in part on investors'
perceptions of the company rather than on fundamental analysis of the stocks.
In certain cases, the portfolio manager may identify a company as a growth
company based on a belief that actual or anticipated products or services will
produce future earnings. If the company fails to realize these products or
services, the price of its stocks may decline sharply and become less liquid.
Small and Mid-Cap Companies. Investments in small- and
medium-capitalization companies often involve greater risks than investments in
larger, more established companies because small- and medium-sized companies
may lack the management experience, financial resources, product
diversification and competitive strengths of larger companies.
Investing in Technology Companies. Investments in technology companies
present special and significant risks. For example, if technology continues to
advance at an accelerated rate, and the number of companies and product
offerings continues to expand, increasingly aggressive pricing may affect the
profitability of companies in which the fund invests. In addition, because of
the rapid pace of technological development, products and services produced by
companies in which the fund invests may become obsolete or have relatively
short product cycles. As a result, the fund's returns may be considerably more
volatile than the returns of other mutual funds that do not invest in similarly
related companies.
Portfolio Turnover. The fund may engage in short-term transactions under
various market conditions to a greater extent than certain other mutual funds
with similar investment objectives. The
Prospectus 1
<PAGE>
fund's portfolio turnover could exceed 200%. The fund's turnover rate may vary
greatly from year to year or during periods within a year. A high rate of
portfolio turnover generally leads to greater transaction costs and may result
in additional tax consequences to investors.
Who is the Portfolio Manager. Bert L. Boksen, a Senior Vice President of
the fund's subadviser Eagle Asset Management, Inc., has been responsible for
the day-to-day management since the fund's inception.
How the Aggressive Growth Fund has Performed. The bar chart and table
below illustrate annual fund and market benchmark returns for the periods ended
December 31, 1999. This information is intended to give you some indication of
the risk of investing in the fund by demonstrating how its returns have varied
over time. The bar chart shows the Aggressive Growth Fund's Class A share
performance during 1999. The table shows what the return for each class of
shares would equal if you average out actual performance over various lengths
of time. Because this information is based on past performance, it's not a
guarantee of future results.
[BAR CHART APPEARS HERE]
1999
----
48.38
Since its inception on August 20, 1998 through December 31, 1999, the
Class A shares' highest quarterly return was 36.81% for the quarter ended
December 31, 1999 and the lowest quarterly return was -5.49% for the quarter
ended September 30, 1999. For the period from January 1, 2000 through September
30, 2000, Class A Shares' total return (not annualized) was 19.58%. These
returns do not reflect sales charges. If the sales charges were reflected, the
returns would be lower than those shown.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS (for the periods ended December 31, 1999)*
<S> <C> <C> <C> <C>
Russell
Class A Class B Class C 2000
Period Shares Shares Shares Growth**
--------------------------------- ------ ------ ------ ------
1 Year .......................... 41.33% 43.23% 47.31% 43.10%
Life of Class (8/20/98) ......... 53.17% 55.64% 57.51% 39.89%
</TABLE>
* The Aggressive Growth Fund's returns in this table are after deduction of
sales charges and expenses.
** The Russell 2000 Growth Index is an unmanaged index that measures the
performance of Russell Small Cap companies with higher price to book
ratios and higher forecasted growth value. Its returns do not include the
effect of any sales charges. That means that actual returns would be lower
if they included the effect of sales charges.
Overall economic conditions have been very favorable to the fund's
performance during the reporting periods above and may not be sustainable in
the future. These returns may reflect some benefit from investments in initial
public offerings. This is particularly noteworthy given the fund's relatively
small asset base during 1998 and 1999. To the extent that the fund's assets
remain the same or grow, the impact of investments in initial public offerings
on the fund's returns will be substantially lower.
What are the Costs of Investing in the Aggressive Growth Fund. The tables
below describe the fees and expenses that you may pay if you buy and hold
shares of the Aggressive Growth Fund. The fund's expenses are based on actual
expenses incurred for the fiscal year ended October 31, 2000.
Prospectus 2
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment):
Class A Class B Class C
----------- --------- --------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a % of
offering price) ................................... 4.75% None None
Maximum Deferred Sales Charge (as a % of
original purchase price or redemption proceeds,
whichever is lower) ............................... None^ 5%* 1%**
</TABLE>
^ If you buy $1,000,000 or more of Class A shares and sell these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge at the time of sale.
* Declining over a six-year period as follows: 5% during the first year, 4%
during the second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year and 0% thereafter. Class B shares will
convert to Class A shares eight years after purchase.
** Declining to 0% at the first year.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (expenses deducted from fund assets):
Class A Class B Class C
----------- ----------- -----------
<S> <C> <C> <C>
Management Fees* .............................. 0.98% 0.98% 0.98%
Distribution and Service (12b-1) Fees ......... 0.25% 1.00% 1.00%
Other Expenses* ............................... 0.34% 0.34% 0.34%
----- ----- -----
Total Annual Fund Operating Expenses .......... 1.57% 2.32% 2.32%
===== ===== =====
</TABLE>
* Heritage Asset Management, Inc. has agreed to waive its investment advisory
fees and, if necessary, reimburse the fund to the extent that Class A annual
operating expenses exceed 1.60% of the class' average daily net assets and
Class B and Class C annual operating expenses exceed 2.35% of that class'
average daily net assets for the fund's 2001 fiscal year. Any reduction in
Heritage's management fees is subject to reimbursement by the fund within
the following two fiscal years if overall expenses fall below these
percentage limitations.
Expense Example. This example is intended to help you compare the cost of
investing in the fund with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
the fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Share Class Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
A shares ...................................... $ 627 $ 947 $ 1,290 $ 2,254
B shares
Assuming redemption at end of period ......... $ 635 $ 1,024 $ 1,340 $ 2,468
Assuming no redemption ....................... $ 235 $ 724 $ 1,240 $ 2,468
C shares ...................................... $ 235 $ 724 $ 1,240 $ 2,656
</TABLE>
Prospectus 3
<PAGE>
Capital Appreciation Trust
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investment Objective. The Capital Appreciation Trust seeks long-term
capital appreciation.
How the Capital Appreciation Trust Pursues its Objective. The Capital
Appreciation Trust seeks to achieve its objective by investing, under normal
market conditions, at least 65% of its total assets in common stocks selected
for their potential to achieve capital appreciation over the long term.
The fund's portfolio management team uses a "bottom-up" method of analysis
based on fundamental research to determine which stocks to purchase for the
fund. The portfolio management team purchases stock of companies that have the
potential for attractive long-term growth in earnings, cash flow and total
worth of the company. In addition, the portfolio management team prefers to
purchase such stocks that appear to be undervalued in relation to the company's
long-term growth fundamentals.
The fund will invest primarily in common stocks of companies that the
portfolio management team believes have established positions in their
industries and the potential for favorable long-term returns. The true worth of
the companies' stocks, however, may not be recognized by the market or the
stocks may be currently out of favor with investors. As a temporary defensive
measure because of market, economic or other conditions, the fund may invest up
to 100% of its assets in high-quality, short-term debt instruments. To the
extent that the fund invokes this strategy, its ability to achieve its
investment objective may be affected adversely.
What are the Main Risks of Investing in the Capital Appreciation Trust.
The greatest risk of investing in this fund is that its returns will fluctuate
and you could lose money. This fund invests primarily in common stocks whose
value may decrease in response to the activities of the company that issued the
stock, general market conditions and/or economic conditions. If this occurs,
the fund's net asset value also may decrease.
Value Stocks. This fund may invest its assets in value stocks, which are
subject to the risk that their true worth may never be fully realized by the
market. This may result in the value stocks' prices remaining undervalued for
extended periods of time. The fund's performance also may be affected adversely
if value stocks remain unpopular with or lose favor among investors.
Who is the Portfolio Manager. Herbert E. Ehlers, a Managing Director of
Goldman Sachs, leads the fund's portfolio management team, which consists of
six senior portfolio managers.
How the Capital Appreciation Trust has Performed. The bar chart and table
below illustrate annual fund and market benchmark returns for the periods ended
December 31, 1999. This information is intended to give you some indication of
the risk of investing in the fund by demonstrating how its returns have varied
over time. The bar chart shows the Capital Appreciation Trust's Class A share
performance from one year to another. The table shows what the return for each
class of shares would equal if you average out actual performance over various
lengths of time. Because this information is based on past performance, it's
not a guarantee of future results.
[BAR CHART APPEARS HERE]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-12.89 35.06 9.71 18.41 -2.37 20.27 18.9 42.72 34.18 40.39
Prospectus 4
<PAGE>
For the ten-year period through December 31, 1999, the Class A shares'
highest quarterly return was 27.36% for the quarter ended December 31, 1999 and
the lowest quarterly return was -15.51% for the quarter ended September 30,
1990. For the period from January 1, 2000 through September 30, 2000, Class A
shares' total return (not annualized) was -1.52%. These returns do not reflect
sales charges. If the sales charges were reflected, the returns would be lower
than those shown.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS (for the period ended December 31, 1999)*
Class A Class B Class C
Period Shares Shares^ Shares^ S&P 500**
------------------------ ============ ============ ============ =================
<S> <C> <C> <C> <C>
1 Year ................ 33.72% 35.41% 39.48% 21.04%
5 Years ............... 29.64% n/a 38.22% 28.56%
10 Years .............. 18.51% n/a n/a 18.21%
Life of Class ......... n/a 35.69% 30.65% 24.88%/27.76%
</TABLE>
* The Capital Appreciation Trust's returns in this table are after deduction
of sales charges and expenses.
^ Class B and Class C shares were first offered on January 2, 1998 and April
3, 1995, respectively.
** The S&P 500 is an unmanaged index of 500 U.S. stocks and gives a broad look
at how stock prices have performed. Its returns do not include the effect
of any sales charges. That means the actual returns would be lower if they
included the effect of sales charges. The returns of 24.88% and 27.76% are
for the periods commencing on January 2, 1998 and April 3, 1995,
respectively.
Overall economic conditions have been very favorable to the fund's
performance during the reporting periods above and may not be sustainable in
the future.
What are the Costs of Investing in the Capital Appreciation Trust. The
tables below describe the fees and expenses that you may pay if you buy and
hold shares of the Capital Appreciation Trust. The fund's expenses are based on
actual expenses incurred for the fiscal year ended August 31, 2000.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment):
Class A Class B Class C
=========== ========= ========
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a % of
offering price) ................................... 4.75% None None
Maximum Deferred Sales Charge (as a % of
original purchase price or redemption proceeds,
whichever is lower) ............................... None^ 5%* 1%**
</TABLE>
^ If you buy $1,000,000 or more of Class A shares and sell these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge at the time of sale.
* Declining over a six-year period as follows: 5% during the first year, 4%
during the second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year and 0% thereafter. Class B shares will
convert to Class A shares eight years after purchase.
** Declining to 0% at the first year.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (expenses deducted from fund assets):
Class A Class B Class C
----------- ----------- -----------
<S> <C> <C> <C>
Management Fees* .............................. 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees ......... 0.34% 1.00% 1.00%
Other Expenses* ............................... 0.15% 0.15% 0.15%
----- ----- -----
Total Annual Fund Operating Expenses .......... 1.24% 1.90% 1.90%
===== ===== =====
</TABLE>
* Heritage Asset Management, Inc. has agreed to waive its investment advisory
fees and, if necessary, reimburse the fund to the extent that Class A
annual operating expenses exceed 1.60% of the class' average daily net
assets and Class B and Class C annual operating expenses exceed 2.10% of
that class' average daily net assets for the fund's 2001 fiscal year. Any
reduction in Heritage's management fees is subject to reimbursement by the
fund within the following two fiscal years if overall expenses fall below
these percentage limitations.
Prospectus 5
<PAGE>
Expense Example. This example is intended to help you compare the cost of
investing in the fund with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
the fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Year 1 Year 3 Year 5 Year 10
Share Class -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
A shares ...................................... $ 595 $ 850 $ 1,124 $ 1,904
B shares
Assuming redemption at end of period ......... $ 592 $ 897 $ 1,126 $ 2,050
Assuming no redemption ....................... $ 192 $ 597 $ 1,026 $ 2,050
C shares ...................................... $ 192 $ 597 $ 1,026 $ 2,222
</TABLE>
Prospectus 6
<PAGE>
Eagle International Equity Portfolio
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investment Objective. The Eagle International Equity Portfolio seeks
capital appreciation principally through investment in a portfolio of
international equity securities.
How the Eagle International Equity Portfolio Pursues its Objective. The
Eagle International Equity Portfolio seeks to achieve its objective by
investing, under normal market conditions, at least 65% of its total assets in
equity securities of foreign issuers and depository receipts representing the
securities of foreign issuers.
The fund may invest in securities traded on any securities market in the
world. In allocating the fund's assets among various securities markets of the
world, the portfolio manager considers such factors as the condition and growth
potential of the economies and securities markets, currency and taxation
considerations and financial, social, national and political factors. The
portfolio manager also considers market regulations and liquidity of the
market.
The fund normally invests at least 50% of its investment portfolio in
securities traded in developed foreign securities markets, such as those
included in the Morgan Stanley Capital International Europe, Australia, Far
East Index (EAFE Index). Countries represented in the EAFE Index include Japan,
France, the United Kingdom, Germany, Hong Kong and Singapore. The fund also
invests in emerging markets (which may include investments in countries such as
India, Mexico and Poland). Emerging markets are those countries whose markets
are not yet highly developed. The fund can invest in foreign currency and
purchase and sell foreign currency forward contracts and futures contracts to
improve its returns or protect its assets.
The fund may invest in any type or size of company. It may invest in
companies whose earnings are believed to be in a relatively strong growth trend
or in companies in which significant further growth is not anticipated but
whose market value per share is thought to be undervalued. Because income is an
incidental consideration, the fund also can invest a portion of its assets in
investment-grade fixed-income securities when equity securities appear to be
overvalued. Investing in fixed-income securities affords the fund the
opportunity for capital growth, as in periods of declining interest rates.
The fund will invest primarily in equity securities of foreign companies
that the portfolio manager believes have the potential to capitalize on
worldwide growth trends and global changes. Equity securities include common
and preferred stocks, warrants or rights exercisable into common or preferred
stock, securities convertible into common or preferred stock and depository
receipts. As a temporary defensive measure because of market, economic or other
conditions, the fund may invest up to 100% of its assets in high-quality,
short-term debt instruments. To the extent that the fund invokes this strategy,
its ability to achieve its investment objective may be affected adversely.
What are the Main Risks of Investing in the Eagle International Equity
Portfolio. The greatest risk of investing in this fund is that its returns will
fluctuate and you could lose money. This fund invests primarily in equity
securities whose value may decrease in response to the activities of the
company that issued the security, general market conditions and/or economic
conditions. If this occurs, the fund's net asset value also may decrease.
Foreign Securities. The fund also may invest without limit in foreign
securities, either indirectly (e.g., through depository receipts) or directly
in foreign markets. Investments in foreign securities involve greater risks
than investing in domestic securities. As a result, the fund's returns and net
asset value may be affected to a large degree by fluctuations in currency
exchange rates or political or economic conditions and regulatory requirements
in a particular country. Foreign equity and currency markets -- as well as
foreign economies and political systems -- may be less stable than U.S.
markets, and changes in the exchange rates of foreign currencies can affect the
value of the fund's foreign assets. Foreign laws and accounting standards
typically are not as strict as they are in the U.S., and there may
Prospectus 7
<PAGE>
be less public information available about foreign companies. Because the fund
may invest in emerging markets, there are risks of greater political
uncertainties, an economy's dependence on revenues from particular commodities
or on international aid or development assistance, currency transfer
restrictions, a limited number of potential buyers for such securities and
delays and disruptions in securities settlement procedures.
Derivatives. The fund may use derivatives such as futures contracts,
foreign currency forward contracts and options on futures to adjust the
risk/return characteristics of its investment portfolio. These practices,
however, may present risks different from or in addition to the risks
associated with investments in foreign currencies. There can be no assurance
that any strategy used will succeed. If the fund's portfolio manager
incorrectly forecasts stock market values or currency exchange rates in
utilizing a strategy for the fund, the fund could lose money.
Fixed-Income Securities. Because the fund may invest in investment-grade
fixed-income securities, it is subject to interest rate risk. If interest rates
rise, the market value of the fund's fixed-income securities will fall and,
thus, may reduce the fund's return.
Core Holdings. Although the fund is diversified, the fund normally will
hold a core portfolio of stocks of fewer companies than many other diversified
funds. As a result, the increase or decrease of the value of a single stock may
have a greater impact on the fund's net asset value and total return.
Who is the Portfolio Manager. Investment decisions for the fund are made
by a committee of Martin Currie Inc. organized for that purpose and no single
person is primarily responsible for making recommendations to the committee.
How the Eagle International Equity Portfolio has Performed. The bar chart
and table below illustrate annual fund and market benchmark returns for the
periods ended December 31, 1999. This information is intended to give you some
indication of the risk of investing in the fund by demonstrating how its
returns have varied over time. The bar chart shows the Eagle International
Equity Portfolio's Class A share performance from one year to another. The
table shows what the return of each class of shares would equal if you average
out actual performance over various lengths of time. Because this information
is based on past performance, it's not a guarantee of future results.
[BAR CHART APPEARS HERE]
1996 1997 1998 1999
----- ---- ----- -----
11.27 9.14 15.75 36.19
From its inception on December 27, 1995 through December 31, 1999, the
fund's Class A shares' highest quarterly return was 20.53% for the quarter
ended December 31, 1999 and the lowest quarterly return was -15.28% for the
quarter ended September 30, 1998. For the period from January 1, 2000 through
September 30, 2000, Class A shares' total return (not annualized) was -13.90%.
These returns do not reflect sales charges. If the sales charges were
reflected, the returns would be lower than those shown.
Prospectus 8
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS (for the periods ended December 31, 1999)*
Class A Class B Class C
Period Shares Shares Shares EAFE Index**
--------------------------- ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
1 Year .................. 29.72% 31.13% 35.17% 26.97%
Life of Class ^ ......... 16.04% 23.18% 16.56% 13.17%/23.51%
</TABLE>
* The Eagle International Equity Portfolio's returns in this table are after
deduction of sales charges and expenses.
** The EAFE Index is an unmanaged index representative of the market structure
of approximately 47 developed and emerging markets. Its returns do not
include the effect of any sales charges. That means the actual returns
would be lower if they included the effect of sales charges. The returns of
13.17% and 23.51% are for the periods commencing on December 27, 1995 and
January 2, 1998, respectively.
^ Class A and Class C Shares were first offered December 27, 1995. Class B
Shares were first offered January 2, 1998.
Overall economic conditions have been very favorable to the fund's
performance during the reporting periods above and may not be sustainable in
the future.
What are the Costs of Investing in the Eagle International Equity
Portfolio. The tables below describe the fees and expenses that you may pay if
you buy and hold shares of the Eagle International Equity Portfolio. The fund's
expenses were restated to reflect the fee and expense limit on the fund's total
annual operating expenses in effect for the fiscal year ending October 31,
2001.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment):
Class A Class B Class C
=========== ========= ========
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a % of
offering price) ................................... 4.75% None None
Maximum Deferred Sales Charge (as a % of
original purchase price or redemption proceeds,
whichever is lower) .............................. None^ 5%* 1%**
</TABLE>
^ If you buy $1,000,000 or more of Class A shares and sell these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge at the time of sale.
* Declining over a six-year period as follows: 5% during the first year, 4%
during the second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year and 0% thereafter. Class B shares will
convert to Class A shares eight years after purchase.
** Declining to 0% at the first year.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (expenses deducted from fund assets):
Class A Class B Class C
=========== =========== ===========
<S> <C> <C> <C>
Management Fees* .............................. 1.00% 1.00% 1.00%
Distribution and Service (12b-1) Fees ......... 0.25% 1.00% 1.00%
Other Expenses* ............................... 0.72% 0.72% 0.72%
----- ----- -----
Total Annual Fund Operating Expenses .......... 1.97% 2.72% 2.72%
Fee Waiver* ................................... 0.07% 0.07% 0.07%
----- ----- -----
Net Expenses .................................. 1.90% 2.65% 2.65%
===== ===== =====
</TABLE>
* Eagle Asset Management, Inc., the investment adviser to the Eagle
International Equity Portfolio, has agreed to waive its fees and, if
necessary, reimburse the fund to the extent that Class A annual operating
expenses exceed 1.90% of the class' average daily net assets and to the
extent that the Class B and Class C annual operating expenses each exceed
2.65% of that class' average daily net assets for the fund's 2001 fiscal
year. Any reduction in Eagle's management fees is subject to reimbursement
by the fund within the following two fiscal years if overall expenses fall
below these percentage limitations.
Prospectus 9
<PAGE>
Expense Example. This example is intended to help you compare the cost of
investing in the Eagle International Equity Portfolio with the cost of
investing in other mutual funds. The example assumes that you invest $10,000 in
the fund for the time periods indicated and then redeem all of your shares at
the end of those periods. The example also assumes that your investment has a
5% return each year and that the fund's operating expenses for Year 1 are net
of fee waivers. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
Year 1 Year 3 Year 5 Year 10
Share Class ======== ========== ========== ==========
<S> <C> <C> <C> <C>
A shares ...................................... $ 659 $ 1,058 $ 1,481 $ 2,656
B shares
Assuming redemption at end of period ......... $ 668 $ 1,138 $ 1,533 $ 2,866
Assuming no redemption ....................... $ 268 $ 838 $ 1,433 $ 2,866
C shares ...................................... $ 268 $ 838 $ 1,433 $ 3,046
</TABLE>
Prospectus 10
<PAGE>
Growth Equity Fund
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investment Objective. The Growth Equity Fund seeks growth through
long-term capital appreciation.
How the Growth Equity Fund Pursues its Objective. The Growth Equity Fund
seeks to achieve its objective by investing, under normal market conditions, at
least 65% of its total assets in common stocks that have sufficient growth
potential to offer above average long-term capital appreciation.
The fund's portfolio manager uses a "bottom-up" method of analysis based
on fundamental research to determine which common stocks to purchase. The
portfolio manager focuses on companies believed to have long-term returns
greater than the average for companies included in the S&P 500 Index. At the
time of purchase, each stock should have (1) projected earnings-per-share
growth greater than the average of the S&P 500 Index, (2) a high profit margin,
or (3) consistency and predictability of earnings. The portfolio manager
selects common stocks for the fund based, in part, on the sustainability of a
company's competitive advantage in the marketplace as well as the strength of
its management team. If the stock price appreciates to a level that the
portfolio manager believes is not sustainable, the portfolio manager may sell
the position.
The fund invests primarily in the common stocks of companies selected by
the portfolio manager. Generally, these companies will have sustainable
competitive advantages in their industries, high-quality managements and
recognized brand names. As a temporary defensive measure because of market,
economic or other conditions, the fund may invest up to 100% of its assets in
high-quality, short-term debt instruments. If the portfolio manager invokes
this strategy, the fund's ability to achieve its investment objective may be
affected adversely.
What are the Main Risks of Investing in the Growth Equity Fund. The
greatest risk of investing in this fund is that its returns will fluctuate and
you could lose money. This fund invests primarily in common stocks whose value
may decrease in response to the activities of the company that issued the
stock, and/or general market/economic conditions. If this occurs, the fund's
net asset value also may decrease.
Growth Companies. Growth companies are expected to increase their earnings
at a certain rate. When these expectations are not met, investors can punish
the stocks inordinately, even if earnings showed an absolute increase. Growth
company stocks also typically lack the dividend yield that can cushion stock
prices in market downturns.
Portfolio Turnover. The fund may engage in short-term transactions under
various market conditions to a greater extent than certain other mutual funds
with similar investment objectives. The fund's portfolio turnover could exceed
200%. The fund's turnover rate may vary greatly from year to year or during
periods within a year. A high rate of portfolio turnover generally leads to
greater transaction costs and may result in additional tax consequences to
investors.
Who is the Portfolio Manager. Mr. Ashi Parikh, Managing Director and
Portfolio Manager for the large-capitalization Growth Equity Program at Eagle
Asset Management, Inc., has been responsible for the day-to-day management of
the fund since April 1999.
Prospectus 11
<PAGE>
How the Growth Equity Fund has Performed. The bar chart and table below
illustrate annual fund and market benchmark returns for the periods ended
December 31, 1999. This information is intended to give you some indication of
the risk of investing in the fund by demonstrating how its returns have varied
over time. The bar chart shows the Growth Equity Fund's Class A share
performance from one year to another. The table shows what the return for each
class of shares would equal if you average out actual performance over various
lengths of time. Because this information is based on past performance, it's
not a guarantee of future results.
[BAR CHART APPEARS HERE]
1996 1997 1998 1999
---- ---- ---- ----
24.23 37.61 36.69 66.15
From its inception on November 16, 1995 through December 31, 1999, the
Class A shares' highest quarterly return was 43.77% for the quarter ended
December 31, 1999 and the lowest quarterly return was -11.01% for the quarter
ended September 30, 1998. For the period from January 1, 2000 through September
30, 2000, Class A shares' total return (not annualized) was 10.28%. These
returns do not reflect sales charges. If the sales charges were reflected, the
returns would be lower than those shown.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS (for the periods ended December 31, 1999)*
Class A Class B Class C
Period Shares Shares Shares S&P 500**
--------------------------- ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
1 Year .................. 58.26% 60.97% 64.91% 21.04%
Life of Class ^ ......... 38.13% 48.93% 38.72% 26.56%/24.88%
</TABLE>
* The Growth Equity Fund's returns in this table are after deduction of sales
charges and expenses.
** The S&P 500 is an unmanaged index of 500 U.S. stocks and gives a broad look
at how stock prices have performed. Its returns do not include the effect
of any sales charges. That means the actual returns would be lower if they
included the effect of sales charges. The returns of 26.56% and 24.88% are
for the periods commencing on November 16, 1995 and January 2, 1998,
respectively.
^ Class A and Class C Shares were first offered November 16, 1995. Class B
Shares were first offered January 2, 1998.
Overall economic conditions have been very favorable to the fund's
performance during the reporting periods above and may not be sustainable in
the future. These returns may reflect some benefit from investments in initial
public offerings.
What are the Costs of Investing in the Growth Equity Fund. The tables
below describe the fees and expenses that you may pay if you buy and hold
shares of the Growth Equity Fund. The fund's expenses are based on actual
expenses incurred for the fiscal year ended October 31, 2000.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment):
Class A Class B Class C
=========== ========= ========
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a % of
offering price) ................................... 4.75% None None
Maximum Deferred Sales Charge (as a % of
original purchase price or redemption proceeds,
whichever is lower) ............................... None^ 5%* 1%**
</TABLE>
^ If you buy $1,000,000 or more of Class A shares and sell these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge at the time of sale.
* Declining over a six-year period as follows: 5% during the first year, 4%
during the second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year and 0% thereafter. Class B shares will
convert to Class A shares eight years after purchase.
** Declining to 0% at the first year.
Prospectus 12
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (expenses deducted from fund assets):
Class A Class B Class C
=========== =========== ===========
<S> <C> <C> <C>
Management Fees* .............................. 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees ......... 0.25% 1.00% 1.00%
Other Expenses* ............................... 0.19% 0.19% 0.19%
----- ----- -----
Total Annual Fund Operating Expenses .......... 1.19% 1.94% 1.94%
===== ===== =====
</TABLE>
* Heritage Asset Management, Inc. has agreed to waive its investment advisory
fees and, if necessary, reimburse the fund to the extent that Class A
annual operating expenses exceed 1.35% of the class' average daily net
assets and Class B and Class C annual operating expenses exceed 2.10% of
that class' average daily net assets for the fund's 2001 fiscal year. Any
reductions in Heritage's management fees is subject to reimbursement by the
fund within the following two fiscal years if overall expenses fall below
these percentage limitations.
Expense Example. This example is intended to help you compare the cost of
investing in the Growth Equity Fund with the cost of investing in other mutual
funds. The example assumes that you invest $10,000 in the fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Year 1 Year 3 Year 5 Year 10
Share Class ======== ======== ========== ==========
<S> <C> <C> <C> <C>
A shares ...................................... $ 591 $ 835 $ 1,098 $ 1,850
B shares
Assuming redemption at end of period ......... $ 596 $ 909 $ 1,147 $ 2,070
Assuming no redemption ....................... $ 196 $ 609 $ 1,047 $ 2,070
C shares ...................................... $ 196 $ 609 $ 1,047 $ 2,264
</TABLE>
Prospectus 13
<PAGE>
Income-Growth Trust
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investment Objective. The Income-Growth Trust seeks long-term total return
by seeking, with approximately equal emphasis, current income and capital
appreciation.
How the Income-Growth Trust Pursues its Objective. The Income-Growth Trust
seeks to achieve its objective by investing, under normal market conditions, at
least 65% of its total assets in income-producing securities that offer a high
and steadily growing income stream.
The fund's portfolio managers use a "bottom-up" method of analysis based
on fundamental research to select securities for the fund's portfolio. The
portfolio managers purchase securities that generally have the following
income, growth or stability characteristics: (1) yields or dividend growth at
or above the S&P 500 Index, or a demonstrated commitment to paying and
increasing dividends; (2) growth rate greater than inflation; (3) issued from a
company that is dominant in an expanding industry; and (4) free cash flow and
shareholder-oriented management, or stock price below estimated intrinsic
value. The portfolio managers generally invest primarily in medium- to
large-capitalization companies that are diversified across different industries
and sectors.
The fund will invest primarily in income-producing securities of companies
that the portfolio managers believe focus on delivering primarily dividends
with some growth potential. Income-producing securities typically include
common stocks, convertible bonds, preferred stocks and real estate investment
trusts (REITs). The securities in which the fund may invest may be rated below
investment grade by Moody's Investor Services or by Standard & Poor's or, if
unrated, deemed to be of comparable quality.
The fund may write covered call options not to exceed 10% of its total
assets on common stocks in its portfolio or on common stocks into which
securities held by it are convertible to earn additional income or buy call
options to close out call options it has written. As a temporary defensive
measure because of market, economic or other conditions, the fund may invest up
to 100% of its assets in high-quality, short-term debt instruments. To the
extent that the fund invokes this strategy, its ability to achieve its
investment objective may be affected adversely.
What are the Main Risks of Investing in the Income-Growth Trust. The
greatest risk of investing in this fund is that its returns will fluctuate and
you could lose money. This fund invests primarily in income-producing
securities whose value may decrease in response to the activities of the
company that issued the security, general market conditions and/or economic
conditions. If this occurs, the fund's net asset value also may decrease.
High-Yield Securities. The fund also may invest a portion of its assets in
securities rated below investment grade or "junk bonds." Junk bonds may be
sensitive to economic changes, political changes, or adverse developments
specific to a company. These securities generally involve greater risk of
default or price changes than other types of fixed-income securities and the
fund's performance may vary significantly as a result. Therefore, an investment
in the fund is subject to a higher risk of loss of principal than an investment
in a fund that may not invest in lower-rated securities.
Mid-Cap Companies. The fund may invest in medium-capitalization companies
which generally involve greater risks than investing in larger, more
established companies. Mid-Cap companies often have narrower markets and more
limited managerial and financial resources than larger, more established
companies. As a result, their performance can be more volatile and they face
greater risk of business failure, which could increase the volatility of the
fund's portfolio. Generally, the smaller the company size, the greater these
risks.
Fixed-Income Securities. Because the fund may invest in fixed-income
securities, it is subject to interest rate risk. If interest rates rise, the
market value of the fund's fixed-income securities will fall and, thus, may
reduce the fund's return.
Prospectus 14
<PAGE>
Covered Call Options. Because the fund may write covered call options, the
fund may be exposed to risk stemming from changes in the value of the stock
that the option is written against. While options can limit the fund's losses,
they also can limit gains from market movements.
Who are the Portfolio Managers. Louis Kirschbaum, a Senior Vice President
of Eagle Asset Management, Inc., and David M. Blount, CPA, CFA and a Vice
President of Eagle, share responsibility for the day-to-day management of the
fund's investment portfolio.
How the Income-Growth Trust has Performed. The bar chart and table below
illustrate annual fund and market benchmark returns for the periods ended
December 31, 1999. This information is intended to give you some indication of
the risk of investing in the fund by demonstrating how its returns have varied
over time. The bar chart shows the Income-Growth Trust's Class A share
performance from one year to another. The table shows what the return for each
class of shares would equal if you average out actual performance over various
lengths of time. Because this information is based on past performance, it's
not a guarantee of future results.
[BAR CHART APPEARS HERE]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-11.02 33.9 11.7 11.12 -0.88 27.88 22.49 26.94 3.67 1.68
For the ten-year period through December 31, 1999, the Class A shares'
highest quarterly return was 13.58% for the quarter ended March 31, 1991 and
the lowest quarterly return was -11.34% for the quarter ended September 30,
1990. For the period from January 1, 2000 through September 30, 2000, Class A
shares' total return (not annualized) was 1.30%. These returns do not reflect
sales charges. If the sales charges were reflected, the returns would be lower
than those shown.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS (for the periods ended December 31, 1999)*
Class A Class B Class C
Period Shares Shares^ Shares^ S&P 500**
------------------------ ------------ ------------ ----------- -----------------
<S> <C> <C> <C> <C>
1 Year ................ -3.15% -3.10% 0.90% 21.04%
5 Years ............... 14.83% n/a n/a 28.56%
10 Years .............. 11.24% n/a n/a 18.21%
Life of Class ......... n/a 0.58% 14.45% 24.88%/27.76%
</TABLE>
* The Income-Growth Trust's returns in this table are after deduction of
sales charges and expenses.
^ Class B and Class C shares were first offered on January 2, 1998 and April
3, 1995, respectively.
** The S&P 500 is an unmanaged index of 500 U.S. stocks and gives a broad look
at how stock prices have performed. Its returns do not include the effect
of any sales charges. That means the actual returns would be lower if they
included the effect of sales charges. The returns of 24.88% and 27.76% are
for the periods commencing on January 2, 1998 and April 3, 1995,
respectively.
Prospectus 15
<PAGE>
What are the Costs of Investing in the Income-Growth Trust. The tables
below describe the fees and expenses that you may pay if you buy and hold
shares of the Income-Growth Trust. The fund's expenses are based on actual
expenses incurred for the fiscal year ended September 30, 2000.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment):
Class A Class B Class C
=========== ========= ========
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a % of
offering price) ................................... 4.75% None None
Maximum Deferred Sales Charge (as a % of
original purchase price or redemption proceeds,
whichever is lower) .............................. None^ 5%* 1%**
</TABLE>
^ If you buy $1,000,000 or more of Class A shares and sell these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge at the time of sale.
* Declining over a six-year period as follows: 5% during the first year, 4%
during the second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year and 0% thereafter. Class B shares will
convert to Class A shares eight years after purchase.
** Declining to 0% at the first year.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (expenses deducted from fund assets):
Class A Class B Class C
=========== =========== ===========
<S> <C> <C> <C>
Management Fees* .............................. 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees ......... 0.25% 1.00% 1.00%
Other Expenses* ............................... 0.33% 0.33% 0.33%
----- ----- -----
Total Annual Fund Operating Expenses .......... 1.33% 2.08% 2.08%
===== ===== =====
</TABLE>
* Heritage Asset Management, Inc. has agreed to waive its investment advisory
fees and, if necessary, reimburse the fund to the extent that Class A
annual operating expenses exceed 1.35% of the class' average daily net
assets and Class B and Class C annual operating expenses exceed 2.10% of
that class' average daily net assets for the fund's 2001 fiscal year. Any
reduction in Heritage's management fees is subject to reimbursement by the
fund within the following two fiscal years if overall expenses fall below
these percentage limitations.
Expense Example. This example is intended to help you compare the cost of
investing in the Income-Growth Trust with the cost of investing in other mutual
funds. The example assumes that you invest $10,000 in the fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Year 1 Year 3 Year 5 Year 10
Share Class ======== ======== ========== ==========
<S> <C> <C> <C> <C>
A shares ...................................... $ 604 $ 876 $ 1,169 $ 2,000
B shares
Assuming redemption at end of period ......... $ 611 $ 952 $ 1,219 $ 2,219
Assuming no redemption ....................... $ 211 $ 652 $ 1,119 $ 2,219
C shares ...................................... $ 211 $ 652 $ 1,119 $ 2,410
</TABLE>
Prospectus 16
<PAGE>
Mid Cap Stock Fund
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investment Objective. The Mid Cap Stock Fund seeks long-term capital
appreciation.
How the Mid Cap Stock Fund Pursues its Objective. The Mid Cap Stock Fund
seeks to achieve its objective by investing, under normal market conditions, at
least 65% of its total assets in equity securities of medium-capitalization
companies, each of which has a total market capitalization of between $500
million and $10 billion (mid cap companies).
The fund's portfolio manager uses a "bottom-up" method of analysis based
on fundamental research to determine which common stocks to purchase for the
fund. The fund's portfolio manager seeks to purchase mid cap companies that
have above-average earnings, cash flow and growth at a discount from their
market value. The portfolio manager focuses on common stocks of mid cap
companies that have sustainable advantages in their industries or sectors.
The fund will invest primarily in the equity securities of companies that
the portfolio manager believes may be rapidly developing their business
franchises, services and products, and have competitive advantages in their
sectors. Equity securities include common and preferred stocks, warrants or
rights exercisable into common or preferred stock, and securities convertible
into common or preferred stock. As a temporary defensive measure because of
market, economic or other conditions, the fund may invest up to 100% of its
assets in high-quality, short-term debt instruments. To the extent that the
fund invokes this strategy, its ability to achieve its investment objective may
be affected adversely.
What are the Main Risks of Investing in the Mid Cap Stock Fund. The
greatest risk of investing in this fund is that its returns will fluctuate and
you could lose money. This fund invests in common stocks whose value may
decrease in response to the activities of the company that issued the stock,
general market conditions and/or economic conditions. If this occurs, the
fund's net asset value also may decrease.
Mid Cap Companies. Investing in mid cap companies generally involves
greater risk than investing in larger, more established companies but less risk
than investing in small-capitalization companies. Mid cap companies often have
narrower markets and more limited managerial and financial resources than
larger, more established companies. As a result, their performance can be more
volatile and they face greater risk of business failure, which could increase
the volatility of the fund's portfolio. Generally, the smaller the company
size, the greater these risks.
Portfolio Turnover. The fund may engage in short-term transactions under
various market conditions to a greater extent than certain other mutual funds
with similar investment objectives. The fund's portfolio turnover could exceed
200%. The fund's turnover rate may vary greatly from year to year or during
periods within a year. A high rate of portfolio turnover generally leads to
greater transaction costs and may result in additional tax consequences to
investors.
Who is the Portfolio Manager. Todd McCallister, Ph.D., CFA, and a Senior
Vice President of Eagle Asset Management, Inc., has been responsible for the
day-to-day management since the fund's inception.
Prospectus 17
<PAGE>
How the Mid Cap Stock Fund has Performed. The bar chart and table below
illustrate annual fund and market benchmark returns for the periods ended
December 31, 1999. This information is intended to give you some indication of
the risk of investing in the fund by demonstrating how its returns have varied
over time. The bar chart shows the Mid Cap Stock Fund's Class A share
performance from one year to another. The table shows what the return for each
class of shares would equal if you average out actual performance over various
lengths of time. Because this information is based on past performance, it's
not a guarantee of future results.
[BAR CHART APPEARS HERE]
1998 1999
---- ----
9.84 26.75
Since its inception on November 6, 1997 through December 31, 1999, the
Class A shares' highest quarterly return was 21.68% for the quarter ended
December 31, 1999 and the lowest quarterly return was -13.50% for the quarter
ended September 30, 1998. For the period from January 1, 2000 through September
30, 2000, Class A shares' total return (not annualized) was 18.77%. These
returns do not reflect sales charges. If the sales charges were reflected, the
returns would be lower than those shown.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS (for the periods ended December 31, 1999)*
S&P Russell
Class A Class B Class C Mid Cap Mid Cap
Period Shares Shares Shares 400** Growth***
-------------------------- ============ ============ ============ ================= =================
<S> <C> <C> <C> <C> <C>
1 Year .................. 20.73% 21.84% 25.76% 14.71% 51.29%
Life of Class ^ ......... 14.54% 15.93% 16.29% 17.08%/17.11% 30.31%/33.92%
</TABLE>
* The Mid Cap Stock Fund's returns in this table are after deduction of sales
charges and expenses.
** The S&P Mid Cap 400 Index is an unmanaged index that measures the
performance of the mid-sized company segment of the U.S. market. Its
returns do not include the effect of any sales charges. That means the
actual returns would be lower if they included the effect of sales charges.
The returns of 17.08% and 17.11% are for the periods commencing on November
6, 1997 and January 2, 1998, respectively. This index more closely
represents the portfolio's blend of growth and value securities than does
the Russell Mid Cap Growth Index.
*** The Russell Mid Cap Growth Index is an unmanaged index that measures the
performance of Russell Mid Cap companies with higher price to book ratios
and higher forecasted growth value. Its returns do not include the effect
of any sales charges. That means the actual returns would be lower if they
included the effect of sales charges. The returns of 30.31% and 33.92% are
for the periods commencing on November 6, 1997 and January 2, 1998,
respectively.
^ Class A and Class C Shares were first offered November 6, 1997. Class B
Shares were first offered January 2, 1998.
Overall economic conditions have been very favorable to the fund's
performance during the reporting periods above and may not be sustainable in
the future. These returns may reflect some benefit from investments in initial
public offerings. This is particularly noteworthy given the fund's relatively
small asset base during 1998 and 1999. To the extent that the fund's assets
remain the same or grow, the impact of investments in initial public offerings
on the fund's returns will be substantially lower.
Prospectus 18
<PAGE>
What are the Costs of Investing in the Mid Cap Stock Fund. The tables
below describe the fees and expenses that you may pay if you buy and hold
shares of the Mid Cap Stock Fund. The fund's expenses are based on actual
expenses incurred for the fiscal year ended October 31, 2000.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment):
Class A Class B Class C
=========== ========= ========
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a % of
offering price) ................................... 4.75% None None
Maximum Deferred Sales Charge (as a % of
original purchase price or redemption proceeds,
whichever is lower) .............................. None^ 5%* 1%**
</TABLE>
^ If you buy $1,000,000 or more of Class A shares and sell these shares
within 18 months from the date of purchase, you may pay a 1% contingent
sales charge at the time of sale.
* Declining over a six-year period as follows: 5% during the first year, 4%
during the second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year and 0% thereafter. Class B shares will
convert to Class A shares eight years after purchase.
** Declining to 0% at the first year.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (expenses deducted from fund assets):
Class A Class B Class C
=========== =========== ===========
<S> <C> <C> <C>
Management Fees* ................................. 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees ............ 0.25% 1.00% 1.00%
Other Expenses* .................................. 0.63% 0.63% 0.63%
----- ----- -----
Total Annual Fund Operating Expenses ............. 1.63% 2.38% 2.38%
Fee Waiver and/or Expense Reimbursement* ......... 0.08% 0.08% 0.08%
----- ----- -----
Net Expenses ..................................... 1.55% 2.30% 2.30%
===== ===== =====
</TABLE>
* Heritage Asset Management, Inc. has agreed to waive its investment advisory
fees and, if necessary, reimburse the fund to the extent that Class A
annual operating expenses exceed 1.55% of the class' average daily net
assets and Class B and Class C annual operating expenses exceed 2.30% of
that class' average daily net assets for the fund's 2001 fiscal year. Any
reduction in Heritage's management fees is subject to reimbursement by the
fund within the following two fiscal years if overall expenses fall below
these percentage limitations.
Expense Example. This example is intended to help you compare the cost of
investing in the Mid Cap Stock Fund with the cost of investing in other mutual
funds. The example assumes that you invest $10,000 in the fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year and that the fund's operating expenses for Year 1 are net of fee waivers
and/or expense reimbursement. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Year 1 Year 3 Year 5 Year 10
Share Class ======== ========== ========== ==========
<S> <C> <C> <C> <C>
A shares ...................................... $ 625 $ 957 $ 1,312 $ 2,310
B shares
Assuming redemption at end of period ......... $ 633 $ 1,035 $ 1,363 $ 2,524
Assuming no redemption ....................... $ 233 $ 735 $ 1,263 $ 2,524
C shares ...................................... $ 233 $ 735 $ 1,263 $ 2,710
</TABLE>
Prospectus 19
<PAGE>
Small Cap Stock Fund
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investment Objective. The Small Cap Stock Fund seeks long-term capital
appreciation.
How the Small Cap Stock Fund Pursues its Objective. The Small Cap Stock
Fund seeks to achieve its objective by investing at least 65% of its total
assets in equity securities of small-capitalization companies, each of which
has a total market capitalization of less than $2 billion (small cap
companies). The fund will invest in securities of companies that appear to be
undervalued in relation to their long-term earning power or the asset value of
their issuers and that appear to have significant future growth potential. As a
temporary defensive measure because of market, economic or other conditions,
the fund may invest up to 100% of its assets in high-quality, short-term debt
instruments. To the extent that the fund invokes this strategy, its ability to
achieve its investment objective may be affected adversely. The fund has two
subadvisers, Eagle Asset Management, Inc. and Awad Asset Management, Inc. Each
subadviser manages a portion of the fund's assets and has a different
management style.
In making its investment decisions, Eagle generally focuses on investing
in the securities of companies that Eagle believes have accelerating earnings
growth rates, reasonable valuations (typically with a price-to-earnings ratio
of no more than 75% of the earnings growth rate), strong management that
participates in the ownership of the company, reasonable debt levels and a high
or expanding return on equity. Eagle utilizes a "bottom-up" approach to
identifying the companies in which it invests. Eagle also will perform
fundamental financial research.
Awad employs an investment management approach that seeks to provide
investment returns in excess of inflation while attempting to minimize
volatility relative to the overall small cap market. Awad seeks to achieve
these goals through fundamental research consisting of internal research. The
companies in which Awad invests generally will have, in the opinion of Awad,
steady earnings and cash flow growth, good and/or improving balance sheets,
strong positions in their market niches and the ability to perform well in a
stagnant economy. The companies purchased generally will have low
price-to-earnings ratios relative to the stock market in general.
What are the Main Risks of Investing in the Small Cap Stock Fund. The
greatest risk of investing in this fund is that its returns will fluctuate and
you could lose money. This fund invests in common stocks whose value may
decrease in response to the activities of the company that issued the stock,
general market conditions and/or economic conditions. If this occurs, the
fund's net asset value also may decrease.
Value Stocks. This fund may invest its assets in value stocks, which are
subject to the risk that their true worth may not be fully realized by the
market. This may result in the value stocks' prices remaining undervalued for
extended periods of time. The fund's performance also may be affected adversely
if value stocks remain unpopular with or lose favor among investors.
Small Cap Companies. Investing in small cap companies generally involves
greater risks than investing in medium- or large-capitalization companies.
Small cap companies often have narrower markets and more limited managerial and
financial resources than larger, more established companies. As a result, their
performance can be more volatile and they face greater risk of business
failure, which could increase the volatility of the fund's portfolio.
Generally, the smaller the company size, the greater these risks.
Who are the Portfolio Managers. James D. Awad, Chairman of Awad Asset
Management, Inc., has been responsible for the day-to-day management of Awad's
portion of the fund's assets since the fund's inception. Bert L. Boksen, a
Senior Vice President of Eagle Asset Management, Inc., has been responsible for
the day-to-day management of Eagle's portion of the fund's assets since August
1995.
How the Small Cap Stock Fund has Performed. The bar chart and table below
illustrate annual fund and market benchmark returns for the periods ended
December 31, 1999. This information is
Prospectus 20
<PAGE>
intended to give you some indication of the risk of investing in the fund by
demonstrating how its returns have varied over time. The bar chart shows the
Small Cap Stock Fund's Class A share performance from one year to another. The
table shows what the return for each class of shares would equal if you average
out actual performance over various lengths of time. Because this information
is based on past performance, it's not a guarantee of future results.
[BAR CHART APPEARS HERE]
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
0.53 36.9 27.46 29.26 -12.21 7.13
From its inception on May 7, 1993 through December 31, 1999, the Class A
shares' highest quarterly return was 17.67% for the quarter ended June 30, 1997
and the lowest quarterly return was -25.03% for the quarter ended September 30,
1998. For the period from January 1, 2000 through September 30, 2000, Class A
shares' total return (not annualized) was 10.75%. These returns do not reflect
sales charges. If the sales charges were reflected, the returns would be lower
than those shown.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS (for the periods ended December 31, 1999)*
Class A Class B Class C Russell
Period Shares Shares Shares 2000**
--------------------------- ----------- ----------- ----------- -------------------------
<S> <C> <C> <C> <C>
1 Year .................. 2.05% 2.32% 6.31% 21.26%
5 Year .................. 15.11% n/a n/a 16.69%
Life of Class ^ ......... 13.25% -5.02% 15.56% 14.27%/18.71%/16.54%
</TABLE>
* The Small Cap Stock Fund's returns in this table are after deduction of
sales charges and expenses.
** The Russell 2000 Index is an unmanaged index comprised of 2000 companies
with an average market capitalization of more than $580 million as of May
31, 2000. Its returns do not include the effect of sales charges. That
means the actual returns would be lower if they included the effect of
sales charges. Returns of 14.27%, 18.71% and 16.54% are for the periods
commencing on May 7, 1993, January 2, 1998 and April 3, 1995, respectively.
^ Class A, Class B and Class C shares were first offered on May 7, 1993,
January 2, 1998 and April 3, 1995, respectively.
What are the Costs of Investing in the Small Cap Stock Fund. The tables
below describe the fees and expenses that you may pay if you buy and hold
shares of the Small Cap Stock Fund. The fund's expenses are based on actual
expenses incurred for the fiscal year ended October 31, 2000.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment):
Class A Class B Class C
=========== ========= ========
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a % of
offering price) ................................... 4.75% None None
Maximum Deferred Sales Charge (as a % of
original purchase price or redemption proceeds,
whichever is lower) .............................. None^ 5%* 1%**
</TABLE>
^ If you buy $1,000,000 or more of Class A shares and sell these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge at the time of sale.
* Declining over a six-year period as follows: 5% during the first year, 4%
during the second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year and 0% thereafter. Class B shares will
convert to Class A shares eight years after purchase.
** Declining to 0% at the first year.
Prospectus 21
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (expenses deducted from fund assets):
Class A Class B Class C
=========== =========== ===========
<S> <C> <C> <C>
Management Fees* .............................. 0.82% 0.82% 0.82%
Distribution and Service (12b-1) Fees ......... 0.25% 1.00% 1.00%
Other Expenses* ............................... 0.23% 0.23% 0.23%
----- ----- -----
Total Annual Fund Operating Expenses .......... 1.30% 2.05% 2.05%
===== ===== =====
</TABLE>
* Heritage Asset Management, Inc. has agreed to waive its investment advisory
fees and, if necessary, reimburse the fund to the extent that Class A
annual operating expenses exceed 1.30% of the class' average daily net
assets and Class B and Class C annual operating expenses exceed 2.05% of
that class' average daily net assets for the fund's 2001 fiscal year. Any
reduction in Heritage's management fees is subject to reimbursement by the
fund within the following two fiscal years if overall expenses fall below
these percentage limitations.
Expense Example. This example is intended to help you compare the cost of
investing in the Small Cap Stock Fund with the cost of investing in other
mutual funds. The example assumes that you invest $10,000 in the fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Year 1 Year 3 Year 5 Year 10
Share Class ======== ======== ========== ==========
<S> <C> <C> <C> <C>
A shares ...................................... $ 601 $ 868 $ 1,154 $ 1,968
B shares
Assuming redemption at end of period ......... $ 608 $ 943 $ 1,203 $ 2,187
Assuming no redemption ....................... $ 208 $ 643 $ 1,103 $ 2,187
C shares ...................................... $ 208 $ 643 $ 1,103 $ 2,379
</TABLE>
Prospectus 22
<PAGE>
Technology Fund
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investment Objective. The Technology Fund seeks long-term capital
appreciation.
How the Technology Fund Pursues its Objective. The Technology Fund seeks
to achieve its objective by investing, under normal market conditions, at least
65% of its total assets primarily in equity securities of companies that rely
extensively on technology in their processes, products or services, or may be
expected to benefit from technological advances and improvements in industry,
manufacturing and commerce. Special emphasis may be given to companies
employing innovative technology to enhance distribution systems, develop new
products and increase management efficiencies. The fund invests in various
technology subsectors, including personal computer hardware and software,
enterprise hardware and software, data networking, telecommunications, Internet
and electronic commerce, semiconductors, semiconductor equipment,
computer/business services, contract manufacturing and component distribution.
The fund's portfolio manager will use a "bottom-up" method of analysis
based on fundamental research to select companies for the fund's portfolio. In
selecting investments, the fund's portfolio manager will search for companies,
regardless of size, whose stocks appear to be trading below their true value.
The Fund may invest in companies that are positioned for accelerated growth or
higher earnings. The portfolio manager may sell any security in the fund's
portfolio if the company's fundamentals deteriorate, the competitive landscape
of the company or its industry changes, the company's position size in the
fund's portfolio becomes too large, or new investments are more attractive.
The fund will invest primarily in equity securities of companies that rely
extensively on technology in their processes, products or services, or may be
expected to benefit from technological advances and improvements in industry,
manufacturing and commerce. Equity securities include common and preferred
stocks, warrants or rights exercisable into common or preferred stock,
securities convertible into common or preferred stock, and American Depository
Receipts. As a temporary defensive measure because of market, economic or other
conditions, the fund may invest up to 100% of its assets in high-quality,
short-term debt instruments. To the extent that the fund invokes this strategy,
its ability to achieve its investment objective may be affected adversely.
What are the Main Risks of Investing in the Technology Fund. The greatest
risk of investing in this fund is that its returns will fluctuate and investors
could lose their money. This fund invests primarily in the equity securities of
companies whose value may decrease in response to the activities of the company
that issued the securities, and/or general market/economic conditions. If this
occurs, the fund's net asset value also may decrease.
Investing in a Single Sector. The fund concentrates its investments in the
technology sector. As a result, the fund's investments are more likely to be
sensitive to sector-wide conditions. Adverse conditions or developments
affecting one technology subsector may affect other companies within related
technology subsectors. The market prices of companies within these subsectors
may move in tandem, which may cause greater volatility on the fund's net asset
value and performance than on a fund that invests among different and unrelated
sectors.
Technology Companies. Investments in technology companies present special
and significant risks. For example, if technology continues to advance at an
accelerated rate, and the number of companies and product offerings continues
to expand, increasingly aggressive pricing may affect the profitability of
companies in which the fund invests. In addition, because of the rapid pace of
technological development, products and services produced by companies in which
the fund invests may become obsolete or have relatively short product cycles.
As a result the fund's returns may be considerably more volatile than the
returns of other mutual funds that do not invest in similarly related
companies.
Small Cap Companies. The fund may invest in small-capitalization
technology companies. Small cap companies often have narrower markets and more
limited managerial and financial resources than
Prospectus 23
<PAGE>
larger, more established companies. As a result, their performance can be more
volatile. They face greater risk of business failure, which also could increase
the volatility of the fund's portfolio. Generally, the smaller the company
size, the greater these risks.
Interest Rate Risk. A rising interest rate environment tends to negatively
affect companies in the technology sector. Those technology companies having
high market valuations may appear less attractive to investors which may cause
sharp decreases in the companies' market prices. Further, those technology
companies seeking to finance their expansion would have increased borrowing
costs which may negatively impact their earnings. In addition, a rise in
interest rates typically will cause the market value of any fixed-income
securities held by the fund to fall. Consequently, in a rising interest rate
environment, the fund's performance may be reduced.
Illiquid Securities. Because technology securities may be volatile, there
is the possibility that the technology securities in which the fund invests may
become illiquid. Illiquid securities may trade at a discount when compared to
more liquid investments. The fund may be unable to sell illiquid securities in
a timely manner or at a fair price due to the lack of liquidity. In addition,
the sale of such securities may require more time and increased selling
expenses. Consequently, the fund's investments in illiquid securities may have
an adverse impact on its net asset value.
Non-Diversification Risk. The fund is non-diversified, which means it
invests in a limited number of companies. Consequently, the performance of any
one company may have a substantial impact on the fund's performance. In
addition, the fund's net asset value may fluctuate more than a fund investing
in a larger number of companies.
Portfolio Turnover. The fund may engage in short-term transactions under
various market conditions to a greater extent than certain other mutual funds
with similar investment objectives. The fund's portfolio turnover could exceed
200%. The fund's turnover rate may vary greatly from year to year or during
periods within a year. A high rate of portfolio turnover generally leads to
greater transaction costs and may result in additional tax consequences to
investors.
Who is the Portfolio Manager. Duane Eatherly, CFA, a Senior Research
Analyst of the fund's subadviser Eagle Asset Management, Inc., is responsible
for the day-to-day management of the fund.
How the Technology Fund has Performed. Because the fund commenced
operations on November 18, 1999, it did not have annual returns for a full
calendar year when this prospectus was printed.
What are the Costs of Investing in the Technology Fund. The tables below
describe the fees and expenses that you may pay if you buy and hold shares of
the fund. The fund's expenses are based on expenses incurred for the fiscal
year ended October 31, 2000.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment):
Class A Class B Class C
=========== ========= ========
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a % of offering price) ......... 4.75% None None
Maximum Deferred Sales Charge (as a % of original purchase price or redemption
proceeds, whichever is lower) ............................................... None^ 5%* 1%**
</TABLE>
^ If you buy $1,000,000 or more of Class A shares and sell these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge at the time of sale.
* Declining over a six-year period as follows: 5% during the first year, 4%
during the second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year and 0% thereafter. Class B shares will
convert to Class A shares eight years after purchase.
** Declining to 0% at the first year.
Prospectus 24
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (expenses deducted from fund assets):
Class A Class B Class C
=========== =========== ===========
<S> <C> <C> <C>
Management Fees* .............................. 0.95% 0.95% 0.95%
Distribution and Service (12b-1) Fees ......... 0.25% 1.00% 1.00%
Other Expenses* ............................... 0.42% 0.42% 0.42%
----- ----- -----
Total Annual Fund Operating Expenses .......... 1.62% 2.37% 2.37%
===== ===== =====
</TABLE>
* Heritage Asset Management, Inc. has agreed to waive its investment advisory
fees and, if necessary, reimburse the fund to the extent that Class A
annual operating expenses exceed 1.65% of the class' average daily net
assets and Class B and Class C annual operating expenses exceed 2.40% of
that class' average daily net assets for the fund's 2001 fiscal year. Any
reduction in Heritage's management fees is subject to reimbursement by the
fund within the following two fiscal years if overall expenses fall below
these percentage limitations.
Expense Example. This example is intended to help you compare the cost of
investing in the fund with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
the fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Year 1 Year 3
Share Class ======== =========
<S> <C> <C>
A shares ...................................... $ 631 $ 962
B shares
Assuming redemption at end of period ......... $ 640 $ 1,039
Assuming no redemption ....................... $ 240 $ 739
C shares ...................................... $ 240 $ 739
</TABLE>
Prospectus 25
<PAGE>
Value Equity Fund
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investment Objectives. The Value Equity Fund's primary investment
objective is long-term capital appreciation. Current income is its secondary
objective.
How the Value Equity Fund Pursues its Objectives. The Value Equity Fund
seeks to achieve its objectives by investing, under normal market conditions,
at least 65% of its total assets in equity securities that, when purchased,
meet certain quantitative and qualitative standards that indicate above-average
financial soundness and high intrinsic value relative to price.
The fund invests in those companies that have price-to-earnings ratios 20%
below the average of those companies represented by the S&P 500. In addition,
each company may have one or more of the following criteria: (1) high dividend
yield, (2) low valuations compared with its industry, (3) low debt-to-capital
ratio, or (4) favorable cash flow and growth rates.
The portfolio managers use a "bottom-up" approach centered on a company's
fundamentals. Initially, the portfolio managers screen a universe of over 1500
companies. From this universe, they find a number of issuers that meet one or
more of their investment criteria. The portfolio managers then consider
investment viability of those companies. Some of the tests that they use
include: how management uses a company's cash, management's reputation, the
market for the company's products, and future industry growth, among other
factors. The portfolio managers then select 30 to 50 issuers in a variety of
industries for inclusion in the fund's portfolio based on the companies'
potential future market performance. The portfolio managers anticipate selling
all or part of a company's stock when its fundamentals deteriorate, if that
stock's position in the portfolio becomes excessive or if the stock reaches its
price target.
The fund invests primarily in the equity securities of companies that the
portfolio manager believes have attractive business models, prospects and
growth potential, but that may have been overlooked by the market. Equity
securities include common and preferred stocks, warrants or rights exercisable
into common or preferred stock, and securities convertible into common or
preferred stock.
The fund also may write covered call options not to exceed 10% of its
total assets on common stocks in its portfolio or on common stocks into which
securities held by it are convertible to earn additional income or to close out
call options it has written. As a temporary defensive measure because of
market, economic or other conditions, the fund may invest up to 100% of its
assets in high-quality, short-term debt instruments. To the extent that the
fund invokes this strategy, its ability to achieve its investment objective may
be affected adversely.
What are the Main Risks of Investing in the Value Equity Fund. The
greatest risk of investing in this fund is that its returns will fluctuate and
you could lose money. This fund invests in common stocks whose value may
decrease in response to the activities of the company that issued the stock,
general market conditions and/or economic conditions. If this occurs, the
fund's net asset value also may decrease.
Value Stocks. Value stocks are subject to the risk that their intrinsic
value may never be realized by the market or that their prices may go down.
While the fund's investments in value stocks may limit its downside risk over
time, the fund may produce more modest gains than riskier stock funds as a
trade-off for this potentially lower risk.
Covered Call Options. Because the fund may write covered call options, the
fund may be exposed to risk stemming from changes in the value of the stock
that the option is written against. While options can limit the fund's losses,
they also can limit gains from market movements.
Who are the Portfolio Managers. Russell S. Tompkins, a Managing Partner
and the Chief Operating Officer at Osprey Partners Investment Management, LLC,
and Jerome D. Fischer, a
Prospectus 26
<PAGE>
Managing Partner and the Head of Equity Research at Osprey, have shared
responsibility for the day-to-day management of the fund's investment portfolio
since May 1999.
How has the Value Equity Fund Performed. The bar chart and table below
illustrate annual fund and market benchmark returns for the periods ended
December 31, 1999. This information is intended to give you some indication of
the risk of investing in the fund by demonstrating how its returns have varied
over time. The bar chart shows the Value Equity Fund's Class A share
performance from one year to another. The table shows what the return for each
class of shares would equal if you average out actual performance over various
lengths of time. Because this information is based on past performance, it's
not a guarantee of future results.
[BAR CHART APPEARS HERE]
1995 1996 1997 1998 1999
---- ---- ---- ---- -----
36.57 13.29 25.53 -0.65 0.01
From its inception on December 30, 1994 through December 31, 1999, the
Class A shares' highest quarterly return was 16.29% for the quarter ended
December 31, 1998 and the lowest quarterly return was -14.13% for the quarter
ended June 30, 1996. For the period from January 1, 2000 through September 30,
2000, Class A shares' total return (not annualized) was 2.61%. These returns do
not reflect sales charges. If the sales charges were reflected, the returns
would be lower than those shown.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS (for the periods ended December 31, 1999)*
Class A Class B Class C Russell 1000
Period Shares Shares Shares Value** S&P 500***
-------------------------- ------------ ----------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1 Year .................. -4.74% -4.64 -0.66% 5.52% 21.04%
5 Years ................. 12.95% n/a n/a 23.07% 28.56%
Life of Class ^ ......... 12.93% -2.86 12.41% 23.05%/12.69%/22.07% 28.56%/24.88%/27.76%
</TABLE>
* The Value Equity Fund's returns in this table are after deduction of sales
charges and expenses.
** The Russell 1000 Value Index is an unmanaged index that measures the
performance of those Russell 1000 companies with lower price to book ratios
and lower forecasted growth values. Its returns do not include the effect
of any sales charges. That means the actual returns would be lower if they
included the effect of sales charges. Returns of 23.05%, 12.69% and 22.07%
are for the periods commencing December 30, 1994, January 2, 1998 and April
3, 1995, respectively. This Index more closely represents the portfolio's
investments in value securities than does the S&P 500.
*** The S&P 500 is an unmanaged index of 500 U.S. stocks and gives a broad look
at how stock prices have performed. Its returns do not include the effect
of any sales charges. That means the actual returns would be lower if they
included the effect of sales charges. Returns of 28.56%, 24.88% and 27.76%
are for the periods commencing December 30, 1994, January 2, 1998 and April
3, 1995, respectively.
^ Class A, Class B and Class C shares were first offered on December 30,
1994, January 2, 1998 and April 3, 1995, respectively.
What are the Costs of Investing in the Value Equity Fund. The tables below
describe the fees and expenses that you may pay if you buy and hold shares of
the Value Equity Fund. The fund's expenses are based on actual expenses
incurred for the fiscal year ended October 31, 2000.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment):
Class A Class B Class C
=========== ========= ========
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a % of offering price) .. 4.75% None None
Maximum Deferred Sales Charge (as a % of original
purchase price or redemption proceeds, whichever is lower) .......... None^ 5%* 1%**
</TABLE>
^ If you buy $1,000,000 or more of Class A shares and sell these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge at the time of sale.
* Declining over a six-year period as follows: 5% during the first year, 4%
during the second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year and 0% thereafter. Class B shares will
convert to Class A shares eight years after purchase.
** Declining to 0% at the first year.
Prospectus 27
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (expenses deducted from fund assets):
Class A Class B Class C
=========== =========== ===========
<S> <C> <C> <C>
Management Fees* ................................. 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees ............ 0.25% 1.00% 1.00%
Other Expenses* .................................. 0.72% 0.72% 0.72%
----- ----- -----
Total Annual Fund Operating Expenses ............. 1.72% 2.47% 2.47%
Fee Waiver and/or Expense Reimbursement* ......... 0.27% 0.27% 0.27%
----- ----- -----
Net Expenses ..................................... 1.45% 2.20% 2.20%
===== ===== =====
</TABLE>
* Heritage Asset Management, Inc. has agreed to waive its investment advisory
fees and, if necessary, reimburse the fund to the extent that Class A annual
operating expenses exceed 1.45% of the class' average daily net assets and
Class B and Class C annual operating expenses exceed 2.20% of that class'
average daily net assets for the class' 2001 fiscal year. Any reduction in
Heritage's management fees is subject to reimbursement by the fund within
the following two fiscal years if overall expenses fall below these
percentage limitations.
Expense Example. This example is intended to help you compare the cost of
investing in the Value Equity Fund with the cost of investing in other mutual
funds. The example assumes that you invest $10,000 in the fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year and that the fund's operating expenses for Year 1 are net of fee waivers
and/or expense reimbursement. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Year 1 Year 3 Year 5 Year 10
Share Class ======== ========== ========== ==========
<S> <C> <C> <C> <C>
A shares ...................................... $ 616 $ 966 $ 1,340 $ 2,387
B shares
Assuming redemption at end of period ......... $ 623 $ 1,044 $ 1,391 $ 2,601
Assuming no redemption ....................... $ 223 $ 744 $ 1,291 $ 2,601
C shares ...................................... $ 223 $ 744 $ 1,291 $ 2,786
</TABLE>
Prospectus 28
<PAGE>
MANAGEMENT OF THE FUNDS
Who Manages Your Fund
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investment Advisers. Heritage Asset Management, Inc. serves as investment
adviser and administrator for each fund, except for the Eagle International
Equity Portfolio. Heritage manages, supervises and conducts the business and
administrative affairs of these funds and the other Heritage mutual funds with
net assets totaling approximately $6.0 billion as of September 30, 2000. The
table below indicates what Heritage charged each fund for investment advisory
and administration fees during the fund's last fiscal year and contractual fee
rates:
<TABLE>
<CAPTION>
Fees Charged Contractual Fees
-------------- -----------------
<S> <C> <C>
o Aggressive Growth Fund 0.98% 1.00%*
o Capital Appreciation Trust 0.75% 0.75%
o Growth Equity Fund 0.75% 0.75%
o Income-Growth Trust 0.75% 0.75%**
o Mid Cap Stock Fund 0.67% 0.75%
o Small Cap Stock Fund 0.82% 1.00%*
o Technology Fund 0.95% 1.00%^
o Value Equity Fund 0.48% 0.75%
</TABLE>
----------
* Heritage's annual fee is 1.00% of the fund's average daily
net assets on the first $50 million and 0.75% on average
daily net assets over $50 million.
** Heritage's annual fee is 0.75% of the fund's average daily
net assets on the first $100 million and 0.60% on average
daily net assets over $100 million.
^ Heritage's annual fee is 1.00% of the fund's average daily
net assets on the first $100 million and 0.75% on average
daily net assets over $100 million.
Eagle Asset Management, Inc. is the investment adviser for the Eagle
International Equity Portfolio. Eagle has been managing private accounts since
1976 for a diverse group of clients, including individuals, corporations,
municipalities and trusts. Eagle managed approximately $6.8 billion for these
clients as of September 30, 2000. Eagle's investment advisory and
administration contractual fee rate and the fee charged to the Eagle
International Equity Portfolio during the fund's last fiscal year was 1.00%.
Heritage and Eagle are both located at 880 Carillon Parkway, St.
Petersburg, Florida 33716, and each is a wholly owned subsidiary of Raymond
James Financial, Inc. (RJF) which, together with its subsidiaries, provides a
wide range of financial services to retail and institutional clients.
Subadvisers. Heritage may allocate and reallocate the assets of a fund
among one or more investment subadvisers, subject to review by the Board of
Trustees. In the future, Heritage may propose the addition of one or more
additional subadvisers, subject to approval by the Board of Trustees and, if
required by the Investment Company Act of 1940, fund shareholders. Subject to
receiving an exemptive order from the Securities and Exchange Commission,
Heritage may be permitted to enter into new or modified subadvisory agreements
with existing or new subadvisers for the Aggressive Growth Fund, Technology
Fund and Value Equity Fund without approval of fund shareholders, but subject
to approval of the Board. Heritage has selected the following subadvisers to
provide investment advice and portfolio management services to the funds'
portfolios:
o Eagle Asset Management, Inc. serves as the subadviser to the Aggressive
Growth Fund, the Capital Appreciation Trust, the Growth Equity Fund, the
Income-Growth Trust, the Mid Cap Stock Fund, the Small Cap Stock Fund,
the Technology Fund and the Value Equity Fund. However, Heritage Asset
Management, Inc., the Funds' manager, currently has not allocated any of
the assets of the Capital Appreciation Trust or the Value Equity Fund to
Eagle.
o Goldman Sachs Asset Management, 2502 Rocky Point Drive, Tampa, Florida
33607, serves as the subadviser to the Capital Appreciation Trust. As of
September 30, 2000, Goldman Sachs
Prospectus 29
<PAGE>
Asset Management, together with its affiliates, acts as investment
adviser, administrator or distributor for assets in excess of $259.0
billion.
o Awad Asset Management, Inc. also serves as a subadviser to the Small Cap
Stock Fund. Awad, 250 Park Avenue, New York, New York 10177, a wholly
owned subsidiary of RJF, had $661 million of assets under its
discretionary management as of September 30, 2000.
o Osprey Partners Investment Management, LLC, Shrewsbury Executive Center
II, 1040 Broad Street, Shrewsbury, New Jersey 07702, also serves as
subadviser to the Value Equity Fund. Heritage has allocated all of the
Fund's assets to Osprey. As of September 30, 2000, Osprey had
approximately $2.6 billion of assets under its discretionary management.
Eagle also may allocate assets of the Eagle International Equity Portfolio
among one or more investment subadvisers, subject to review by the Board of
Trustees. Eagle has selected Martin Currie, Inc. to serve as the subadviser to
the Eagle International Equity Portfolio. Martin Currie is a wholly owned
subsidiary of Martin Currie Limited, a private limited company incorporated in
Scotland. Martin Currie Limited is one of Scotland's largest professional money
managers and, together with Martin Currie, has $10.7 billion under management
as of September 30, 2000.
Portfolio Managers. The following portfolio managers are responsible for
the day-to-day management of each fund:
o Aggressive Growth Fund -- Bert L. Boksen has been responsible for the
day-to-day management since the fund's inception. Mr. Boksen has been a
Senior Vice President of Eagle since 1995. Prior to that, he was employed
for 16 years by Raymond James & Associates, Inc. in its institutional
research and sales department. While employed by Raymond James &
Associates, Inc., Mr. Boksen served as co-head of Research, Chief
Investment Officer, and Chairman of the Raymond James & Associates, Inc.
Focus List Committee.
o Capital Appreciation Trust -- Herbert E. Ehlers leads the fund's
portfolio management team which consists of six senior portfolio managers.
Mr. Ehlers has been responsible for the day-to-day management since the
fund's inception. Since January 1997, Mr. Ehlers has been a Managing
Director of Goldman Sachs. From 1994 to 1997, Mr. Ehlers served as the
Chairman, Chief Executive Officer and Chief Investment Officer of Liberty
Investment Management.
o Eagle International Equity Portfolio -- Investment decisions for the fund
are made by a committee of Martin Currie organized for that purpose and no
single person is primarily responsible for making recommendations to the
committee.
o Growth Equity Fund -- Ashi Parikh has been responsible for the day-to-day
management of the fund since April 1999. Mr. Parikh has served as Managing
Director and Portfolio Manager for the large capitalization Growth Equity
Program at Eagle since April 1999. Mr. Parikh joined Eagle from Bank One
Investment Advisers, Inc. where he was Managing Director of their Growth
Equity Team and lead manager for the One Group Large Company Growth Fund
and the One Group Growth Opportunities Fund. He joined Bank One
Corporation in 1992 and Bank One Investment Advisers in 1994.
o Income-Growth Trust -- Louis Kirschbaum and David M. Blount share
responsibility for the day-to-day management of the fund's investment
portfolio. Mr. Kirschbaum has been a Senior Vice President and a portfolio
manager of Eagle since 1986. Mr. Blount has been a Vice President of Eagle
since 1993. Mr. Blount is a Chartered Financial Analyst and Certified
Public Accountant.
o Mid Cap Stock Fund -- Todd McCallister, Ph.D., CFA, has been responsible
for the day-to-day management since the fund's inception. Mr. McCallister
is a Senior Vice President of Eagle. Prior to joining Eagle in 1997, Mr.
McCallister served as a portfolio manager for IAI Mutual Funds from 1992
to 1997.
Prospectus 30
<PAGE>
o Small Cap Stock Fund -- James D. Awad has been responsible for the
day-to-day management of Awad Asset Management's portion of the fund's
assets since the fund's inception. Mr. Awad has been Chairman of Awad
since 1992. Bert L. Boksen has been responsible for the day-to-day
management of Eagle's portion of the fund's assets since August 1995. Mr.
Boksen is a Senior Vice President of Eagle and has been employed for 16
years by Raymond James & Associates, Inc. in its institutional research
and sales department. While employed by Raymond James & Associates, Inc.,
Mr. Boksen served as co-head of Research, Chief Investment Officer and
Chairman of the Raymond James & Associates, Inc. Focus List Committee.
o Technology Fund -- Duane Eatherly, a Senior Research Analyst of Eagle,
is responsible for the day-to-day management of the fund's portfolio. From
July 1996 to May 1999, Mr. Eatherly served as a Sector Manager (Technology
Equities) at Banc One Investment Advisors. Prior to that, he was a Vice
President (Acquisitions) with Banc One Private Label Credit Services from
November 1995 to July 1996, and Senior Associate (Merchant Banking Group)
with Banc One Capital Corporations from June 1993 to January 1996. Mr.
Eatherly is a Chartered Financial Analyst and Certified Financial Planner.
o Value Equity Fund -- Russell S. Tompkins and Jerome D. Fischer have
shared responsibility for the day-to-day management of the fund since May
1999. Mr. Tompkins has been a Managing Partner and Chief Operating Officer
at Osprey since September 1998. At the time of his departure from Fox
Asset Management, Inc., Mr. Tompkins was a Managing Director, Director of
Compliance and Senior Portfolio Manager. He was employed at Fox from
January 1988 to September 1998. Mr. Fischer has been a Managing Partner
and Head of Equity Research at Osprey since September 1998. At the time of
his departure from Fox, Mr. Fischer also had served as a Principal,
Director of Large Cap Equity Research and Senior Portfolio Manager. He was
employed at Fox from July 1992 to September 1998.
Distribution of Fund Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Raymond James & Associates, Inc. (Distributor) currently serves as the
distributor of the funds. The Distributor may compensate other broker/dealers
to promote sales of fund shares.
Heritage pays a service fee based on average daily net assets to
broker/dealers, including the Distributor, who have services agreements with
Heritage. Heritage pays these service fees out of amounts received for
investment advisory and administrative services provided to the funds.
Prospectus 31
<PAGE>
YOUR INVESTMENT
Before You Invest
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Before you invest in a fund, please:
o Read this prospectus carefully.
o Decide which fund or funds best suit your needs and your goals,
o Decide which class of shares is best for you, and then
o Decide how much you wish to invest and how you want to open an account.
Choosing A Class Of Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
You can choose from three classes of fund shares: Class A shares, Class B
shares and Class C shares. Each class has a different combination of sales
charges and ongoing fees allowing you to choose the class that best meets your
needs. You should make this decision carefully based on:
o the amount you wish to invest,
o the different sales charges that apply to each share class,
o whether you qualify for any reduction or waiver of sales charges,
o the length of time you plan to keep the investment, and
o the class expenses.
Class A Shares. You may purchase Class A shares at the "offering price" --
a price equal to their net asset value, plus a maximum sales charge of 4.75%
imposed at the time of purchase. Class A shares are subject to ongoing
distribution and service (Rule 12b-1) fees of up to 0.25% of their average
daily net assets. These fees are lower than the ongoing Rule 12b-1 fees for
Class B shares and Class C shares.
If you choose to invest in Class A shares, you will pay a sales charge at
the time of each purchase. The table below shows the charges both as a
percentage of offering price and as a percentage of the amount you invest. If
you invest more, the sales charge will be lower. You may qualify for a reduced
sales charge or the sales charge may be waived as described below.
Class A Sales Charges
<TABLE>
<CAPTION>
As a % of As a % of Your Dealer Concession
Your Investment Offering Price Investment as % of Offering Price(1)
============================= ================ =============== ==========================
<S> <C> <C> <C>
Less than $25,000....... 4.75% 4.99% 4.25%
$25,000 - $49,999....... 4.25% 4.44% 3.75%
$50,000 - $99,999....... 3.75% 3.90% 3.25%
$100,000 - $249,999..... 3.25% 3.36% 2.75%
$250,000 - $499,999..... 2.50% 2.56% 2.00%
$500,000 - $999,999..... 1.50% 1.52% 1.25%
$1,000,000 and over..... 0.00% 0.00% 0.00%(2)
</TABLE>
----------
(1) During certain periods, the fund's distributor may pay 100% of the
sales charge to participating dealers. Otherwise, it will pay the
dealer concession shown above.
(2) For purchases of $1 million or more, Heritage may pay from its own
resources to the distributor, up to 1.00% of the purchase amount on
the first $3 million and 0.80% on assets thereafter. An investor who
redeems those Class A shares within 18 months of purchase may be
subject to a contingent deferred sales charge of 1.00% and Heritage
will retain the Rule 12b-1 fees for the 18-month period.
Prospectus 32
<PAGE>
Class B Shares. You may purchase Class B shares at net asset value with no
initial sales charge. As a result, the entire amount of your purchase is
invested immediately. However, if you sell the shares within 6 years of
purchase, you will pay a "contingent deferred" sales charge (CDSC) at the time
of sale of up to 5.00%. Class B shares are subject to ongoing Rule 12b-1 fees
of up to 1.00% of their average daily net assets. This Rule 12b-1 fee is higher
than the ongoing Rule 12b-1 fees for Class A shares but the same as for the
Class C shares. Class B shares are offered for sale only for purchases of less
than $250,000.
If you choose to invest in Class B shares, you will pay a sales charge if
you sell those shares within 6 years of purchase. The CDSC imposed on sales of
Class B shares will be calculated by multiplying the original purchase cost or
the current market value of the shares being sold, whichever is less, by the
percentage shown on the following chart. The CDSC will decline at the
anniversary of your purchase. The longer you hold the shares, the lower the
rate of the CDSC. The CDSC may be waived as described below. Any period of time
you held Class B shares of the Heritage Cash Trust-Money Market Fund will not
be counted when determining your CDSC.
Class B Deferred Charges
<TABLE>
<CAPTION>
Redemption During: CDSC on Shares Being Sold
========================= ==========================
<S> <C>
1st year .............. 5%
2nd year .............. 4%
3rd year .............. 3%
4th year .............. 3%
5th year .............. 2%
6th year .............. 1%
After 6 years ......... 0%
</TABLE>
Conversion of Class B Shares. If you buy Class B shares and hold them for
8 years, we automatically will convert them to Class A shares without charge.
Any period of time you held Class B shares of the Heritage Cash Trust-Money
Market Fund will be excluded from the 8-year period. At this time, we also will
convert any Class B shares that you purchased with reinvested dividends and
other distributions. We do this to lower your investment costs.
When we do the conversion, you will receive Class A shares in an amount
equal to the value of your Class B shares. However, because Class A and Class B
shares have different prices, you may receive more or less Class A shares after
the conversion. The dollar value will be the same, so you have not lost any
money as a result of the conversion.
Class C Shares. You may purchase Class C shares at net asset value with no
initial sales charge. As a result, the entire amount of your purchase is
invested immediately. However, if you sell the shares less than 1 year after
purchase, you will pay a CDSC at the time of sale of 1.00%. Class C shares are
subject to ongoing Rule 12b-1 fees of up to 1.00% of their average daily net
assets. This Rule 12b-1 fee is higher than the ongoing Rule 12b-1 fees for
Class A shares and is the same as for the Class B shares. Class C shares do not
convert to any other class of shares. Any period of time you held Class C
shares of the Heritage Cash-Trust Money Market Fund will not be counted toward
the 1-year period.
If you choose to invest in Class C shares, you will pay a sales charge if
you sell your shares less than 1 year after purchase. The CDSC imposed on sales
of Class C shares will be calculated based on the original purchase cost or the
current market value of the shares being sold, whichever is less. The CDSC may
be waived as described below.
Understanding Rule 12b-1 Fees. Each fund has adopted a plan under Rule
12b-1 that allows it to pay distribution and sales fees for the sale of its
shares and for services provided to shareholders. Because these fees are paid
out of the fund's assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges. For Capital Appreciation Trust Class A shares purchased
prior to April 3, 1995, the fund pays a Rule 12b-1 fee of up to 0.50% of its
Class A average daily net assets.
Prospectus 33
<PAGE>
Sales Charge Reductions and Waivers
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
We offer a number of ways to reduce or eliminate the initial sales charge
on Class A shares or the CDSC on Class B and Class C shares. If you think you
are eligible, contact Heritage or your financial advisor for further
information.
Reducing Your Class A Sales Charge. We offer three programs designed to
reduce your Class A sales charge. You may choose one of these programs to
combine multiple purchases of Class A shares of Heritage mutual funds to take
advantage of the reduced sales charges listed in the schedule above. Please
complete the appropriate section of your account application or contact your
financial advisor or Heritage if you would like to take advantage of these
programs.
o Rights of Accumulation -- Lets you combine purchases in related accounts
for purposes of calculating sales charges. Under this program, a related
account includes any other direct or beneficial accounts you own, your
spouse's accounts, or accounts held by your minor children.
o Combined Purchase Privilege -- Lets you add the value of your previous
Class A investments for purposes of calculating the sales charge if the
total amount you have invested is at least $25,000.
o Statement of Intention -- Lets you purchase Class A shares of any
Heritage mutual fund over a 13-month period and receive the same sales
charge as if all shares had been purchased at once. You must invest at
least $25,000 to obtain the benefit of this privilege.
Heritage Transfer Program. If you have sold shares of a mutual fund other
than a Heritage mutual fund within the last 90 days, we will waive the Class A
sales charge on your investment. You qualify for this waiver if:
o You purchase Class A shares of a Heritage mutual fund between February
1, 2001 and March 31, 2001,
o You provide a copy of your account statement showing the sale of your
other mutual fund shares, and
o You or your financial advisor submit, at the time of your purchase, a
request that your purchase be processed without a sales charge.
Waiver of Class A Shares Sales Charge. Class A shares may be sold at net
asset value without any sales charge to: (1) Heritage, Eagle and each fund's
subadvisers; (2) current and retired officers and Trustees of a fund; (3)
directors, officers and full-time employees of Heritage, Eagle, any subadviser
of a Heritage mutual fund, their distributor and their affiliates; (4)
registered financial advisors and employees of broker-dealers that are parties
to dealer agreements with the funds' distributor (or financial institutions
that have arrangements with such broker-dealers); (5) directors, officers and
full-time employees of banks that are party to agency agreements with the
distributor; and (6) all such persons' immediate relatives and their beneficial
accounts. In addition, members of the American Psychiatric Association may
purchase Class A shares at a sales charge equal to two-thirds of the
percentages in the above table. The dealer concession also will be adjusted in
a like manner. Class A shares also may be purchased without sales charges by
investors who participate in certain broker-dealer wrap fee investment
programs.
Class A shares also may be sold at net asset value without any sales
charge to individual retirement accounts, qualified retirement plans and
taxable accounts that execute transactions through a single omnibus account per
fund that is maintained by a financial institution or service organization that
has entered into an acceptable administrative or similar agreement with the
applicable Heritage mutual fund, Heritage or the fund's distributor.
In addition, Class A shares may be sold at net asset value without any
sales charges to participants of retirements plans which have at least 100
participants or $50 million dollars. Heritage may pay from
Prospectus 34
<PAGE>
its own resources to the Distributor up to 1.00% of the purchase amount on the
first $3 million and 0.80% on assets thereafter, by these plans. Any
participant in these plans who redeems Class A shares within 18 months of his
or her purchase may be subject to a CDSC of 1.00% and Heritage may retain the
Rule 12b-1 fees for a period up to 18 months.
CDSC Waivers. The CDSC for Class A shares, Class B shares and Class C
shares currently is waived if the shares are sold:
o to make certain distributions from retirement plans,
o because of shareholder death or disability (including shareholders who
own shares in joint tenancy with a spouse),
o to make payments through certain sales from a Systematic Withdrawal Plan
of up to 12% annually of the account balance at the beginning of the
plan, or
o to close out shareholder accounts that do not comply with the minimum
balance requirements.
Reinstatement Privilege. If you sell shares of a Heritage mutual fund,
you may reinvest some or all of the sales proceeds up to 90 days later in the
same share class of any Heritage mutual fund without incurring additional sales
charges. If you paid a CDSC, the reinvested shares will have no holding period
requirement. You must notify your fund if you decide to exercise this
privilege.
How To Invest
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Minimum Initial Investment. Once you have chosen a share class, the next
step is to determine the amount you wish to invest. The minimum initial
investment for each fund is:
<TABLE>
<CAPTION>
Minimum Initial Subsequent
Type of Account Investment Investment
===================================== ================ =======================
<S> <C> <C>
Regular Account ................... $1,000 No minimum
Systematic Investment Program ..... $ 50 $50 on a monthly basis
Retirement Account ................ $ 500 No minimum
</TABLE>
Heritage may waive these minimum requirements at its discretion. Contact
Heritage or your financial advisor for further information.
Opening an Account. You may open an account in the following ways:
Through Your Financial Advisor. You may invest in a fund by contacting
your financial advisor. Your financial advisor can help you open a new account
and help you review your financial needs and formulate long-term investment
goals and objectives. You may be charged a fee if you effect purchases through
you financial advisor or an agent.
By Mail. You may invest in a fund directly by completing and signing the
account application found in this prospectus. Indicate the fund, the class of
shares and the amount you wish to invest. If you do not specify a share class,
we will automatically choose Class A shares, which include a front-end sales
charge. Make your check payable to the specific fund and class of shares you
are purchasing. Mail the application and your payment to:
Heritage Asset Management, Inc.
P.O. Box 33022
St. Petersburg, FL 33733
By Telephone. If you provide your bank account information, Heritage can
initiate a purchase from that account. Complete the appropriate sections of the
account application and attach a voided check to activate this service. This
method cannot be used to open a new account.
By Dollar-Cost Averaging Plans. We offer the following plans to allow you
to make regular, automatic investments into a fund. You determine the amount
and frequency of your investments. You can terminate your plan at any time.
Availability of these plans may be limited by your financial advisor.
Prospectus 35
<PAGE>
o Automatic Investing -- You may instruct us to transfer funds from a
specific bank checking account to your Heritage account. This transfer
will be effected either by electronic transfer or paper draft. Complete
the appropriate sections of the account application or the Heritage Bank
Draft Investing form to activate this service.
o Direct Deposit -- You may instruct your employer to direct all or part
of your paycheck to your Heritage account. You also may direct to your
account other types of payments you receive such as from an insurance
company or another mutual fund family. Contact your financial advisor or
Heritage for the direct deposit enrollment form. Please note the routing
instructions are different than the Federal Reserve wire instructions
discussed below.
o Government Direct Deposit -- Any newly established payments from the
Federal government must be paid through direct deposit. You can have your
Social Security, military pension, paycheck or other Federal government
payment sent to your Heritage account. Your completed Government Direct
Deposit form requires Heritage's review and approval for processing.
Contact your financial advisor or Heritage for an enrollment form.
o Automatic Exchange -- You may make automatic regular exchanges between
two or more Heritage mutual funds. These exchanges are subject to the
exchange requirements discussed below.
If you discontinue any of these plans before your account reaches the required
minimum investment, you must buy more shares to keep your account open.
Through a Retirement Plan. Heritage mutual funds offer a range of
retirement plans, including traditional, Roth, SEP and SIMPLE IRA
plans/accounts. A special application and custodial agreement is required.
Contact your financial advisor or Heritage for more information. Heritage
reserves the right to cancel your plan at any time.
By Wire. You may invest in a fund by Federal Reserve wire sent from your
bank. Mail your completed and signed account application to Heritage. Contact
Heritage at (800) 421-4184 or your financial advisor to obtain your account
number before sending the wire. Your bank may charge a wire fee. Send your
investment and the following information by Federal Reserve or bank wire to:
State Street Bank and Trust Company
ABA # 011-000-028
Account # 3196-769-8
Name of the Fund
The class of shares to be purchased
(Your account number assigned by Heritage)
(Your name)
How To Sell Your Investment
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
You can sell -- or redeem -- shares of your fund for cash at any time,
subject to certain restrictions.
Application of CDSC. To keep your CDSC as low as possible, each time you
place a request to sell shares we will first sell any shares in your account
that carry no CDSC. If there are not enough of these to meet your request, we
will sell those shares that have the lowest CDSC. There is no CDSC on shares
acquired through reinvestment of dividends or other distributions. However, any
period of time you held Class A, Class B or Class C shares of Heritage Cash
Trust-Money Market Fund will not be counted for purposes of calculating the
CDSC.
Prospectus 36
<PAGE>
How to Sell Your Shares. You may contact your financial advisor or
Heritage with instructions to sell your investment in the following ways:
Through Your Financial Advisor. You may sell your shares through your
financial advisor who can prepare the necessary documentation. Your financial
advisor or an agent will transmit your request to sell shares of your fund and
may charge you a fee for this service.
By Telephone. You may sell shares from your account by telephone by
calling your fund at (800) 421-4184 prior to the close of regular trading on
the New York Stock Exchange -- typically 4:00 p.m. Eastern time. If you do not
wish to have telephone redemption privileges, you must complete the appropriate
section of the account application.
By Mail. You may sell shares of your fund by sending a letter of
instruction. Specify the fund name, your share class, your account number, the
name(s) in which the account is registered and the dollar value or number of
shares you wish to sell. Include all signatures and any additional documents
that may be required. Mail the request to Heritage Asset Management, Inc., P.O.
Box 33022, St. Petersburg, FL 33733.
Some circumstances require a written letter requesting sale of shares,
along with a signature guarantee. These include:
o Sales from any account that has had an address change in the past 30
days,
o Sales of greater than $50,000,
o Sales in which payment is to be sent to an address other than the
address of record,
o Sales in which payment is to be made to payees other than the exact
registration of the account or
o Exchanges or transfers into other Heritage accounts that have different
titles.
We will only accept official signature guarantees from participants in our
signature guarantee program, which includes most banks and security dealers. A
notary public cannot guarantee your signature.
By Systematic Withdrawal Plan. This plan may be used for periodic
withdrawals from your account. To establish, complete the appropriate section
of the account application or the Heritage systematic withdrawal form
(available from your financial advisor or Heritage) and send that form to
Heritage. Availability of this plan may be limited by your financial advisor.
You should consider the following factors when establishing a plan:
o Make sure you have a sufficient amount of shares in your account.
o Determine how much you wish to withdraw. You must withdraw a minimum of
$50 for each transaction.
o Make sure you are not planning to invest more money in this account
(buying shares during a period when you also are selling shares of the
same fund is not advantageous to you because of sales charges).
o Determine the schedule: monthly, quarterly, semiannual or annual basis.
o Determine which day of the month you would like the withdrawal to occur.
Available dates are the 1st, 5th, 10th or 20th day of the month. If such
a day falls on the weekend, the withdrawal will take place on the next
business day.
o Heritage reserves the right to cancel systematic withdrawals if
insufficient shares are available for two or more consecutive months.
Receiving Payment. When you sell shares, payment of the proceeds generally
will be made the next business day after your order is received. If you sell
shares that were recently purchased by check or pre-authorized automatic
purchase, payment will be delayed until we verify that those funds have
Prospectus 37
<PAGE>
cleared, which may take up to two weeks. Drafts or ACH transactions initiated
by a third-party are not acceptable redemption instructions and will not be
honored. You may receive payment of your sales proceeds the following ways:
o By Direct Payment to Your Bank -- If you provide your bank account
information, Heritage can send your proceeds to your bank. Funds are
generally available in your bank account two to three business days after
we receive your request. Complete the appropriate sections of the account
application and attach a voided check to activate this service.
o By Check -- We will mail a check to the address of record or bank
account specified on your account application. Checks made payable to a
person other than the registered owners or sent to an address other than
the address of record require written instruction accompanied by a
signature guarantee, as described above.
o By Wire -- You may request that we send your proceeds by Federal Reserve
wire to a bank account you specify. You must provide wiring instructions
to Heritage in writing. We normally will send these proceeds the next
day. A wire fee will be charged to your account.
o To Your Brokerage Account -- If you place your redemption request with
your financial advisor, payment will be directed to your brokerage
account. Payment for these trades generally occurs three business days
after you place your sale request.
How To Exchange Your Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
If you own shares of a fund for at least 30 days, you can exchange those
shares for shares of the same class of any other Heritage mutual fund provided
you satisfy the minimum investment requirements. You may exchange your shares
by calling your financial advisor or Heritage if you exchange to like titled
Heritage accounts. Written instructions with a signature guarantee, as
described above, are required if the accounts are not identically registered.
You may make exchanges without paying any additional sales charges.
However, if you exchange shares of the Heritage Cash Trust-Money Market Fund
acquired by purchase (rather than exchange) for shares of another Heritage
mutual fund, you must pay the applicable sales charge.
Class A, Class B and Class C shares will continue to age from the original
date and will retain the same CDSC rate as they had before the exchange.
However, if you hold Class A, Class B shares or Class C shares in the Heritage
Cash Trust-Money Market Fund, the time you hold those shares in that fund will
not be counted for purposes of calculating the CDSC.
Account and Transaction Policies
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Price of Shares. The funds' regular business days are the same as those of
the New York Stock Exchange, normally Monday through Friday. The net asset
value per share (NAV) for each class of a fund is determined each business day
as of the close of regular trading on the New York Stock Exchange (typically
4:00 p.m. Eastern time). The share price is calculated by dividing a class' net
assets by the number of its outstanding shares. Because the value of a fund's
investment portfolio changes every business day, the NAV usually changes as
well.
In calculating NAV, the funds typically price their securities by using
pricing services or market quotations. However, in cases where these are
unavailable or when the portfolio manager believes that subsequent events have
rendered them unreliable, a fund may use fair-value estimates instead. In
addition, a fund may invest in securities that are primarily listed on foreign
exchanges that trade on weekends and other days when the fund does not price
its shares. As a result, the NAV of a fund's shares may change on days when
shareholders will not be able to purchase or redeem a fund's shares.
Prospectus 38
<PAGE>
Telephone Transactions. For your protection, telephone requests may be
recorded in order to verify their accuracy. In addition, we will take measures
to verify the identity of the caller, such as asking for name, account number,
Social Security or other taxpayer ID number and other relevant information. If
appropriate measures are taken, we are not responsible for any losses that may
occur to any account due to an unauthorized telephone call. Also for your
protection, telephone redemptions are not permitted on accounts whose name or
addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record.
Timing of Orders. All orders to purchase or sell shares are executed as of
the next NAV calculated after the order has been received in good order. Orders
are accepted until the close of regular trading on the New York Stock Exchange
every business day -- normally 4:00 p.m. Eastern time -- and are executed the
same day at that day's NAV. Otherwise, all orders will be executed at the NAV
determined as of the close of regular trading on the next trading day.
Restrictions on Orders. The funds and their distributor reserve the right
to reject any purchase order and to suspend the offering of fund shares for a
period of time. There are certain times when you may not be able to sell shares
of a fund or when we may delay paying you the redemption proceeds. This may
happen during unusual market conditions or emergencies or when a fund cannot
determine the value of its assets or sell its holdings.
Redemption in Kind. We reserve the right to give you securities instead of
cash when you sell shares of your fund. If the amount of the sale is at least
either $250,000 or 1% of a fund's assets, we may give you securities from the
fund's portfolio instead of cash.
Accounts With Below-Minimum Balances. If your account balance falls below
$500 as a result of selling shares (and not because of performance or sales
charges), each fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 30 days
after notification, each fund reserves the right to close your account and send
the proceeds to your address of record.
Market Timers. The funds may restrict or refuse purchases or exchanges by
market timers. You will be considered a market timer if you have (i) requested
an exchange out of the fund within two weeks of an earlier exchange request, or
(ii) exchanged shares out of the fund more than twice in a calendar quarter, or
(iii) exchanged shares equal to at least $5 million, or more than 1% of the
fund's net assets, or (iv) otherwise seem to follow a timing pattern. Shares
under common ownership or control are combined for these limits.
Dividends, Capital Gains and Taxes
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Distributions and Taxes. Each fund distributes to its shareholders
dividends from its net investment income annually, except Income-Growth Trust
which distributes dividends to its shareholders quarterly. Net investment
income generally consists of interest income and dividends received on
investments, less expenses. The dividends you receive from a fund will be taxed
as ordinary income.
Each fund also distributes net capital gains to its shareholders normally
once a year. Capital gains are generated by a fund when it sells assets in its
portfolio for profit. Capital gains are taxed differently depending on how long
the fund held the asset. Distributions of net gains recognized on the sale of
assets held for one year or less are taxed as ordinary income; distributions of
net capital gains recognized on the sale of assets held longer than that
(long-term capital gains) are taxed at lower capital gains rates.
Fund distributions of dividends and net capital gains are automatically
reinvested in additional shares of the distributing fund at NAV (without sales
charge) unless you opt to take your distributions
Prospectus 39
<PAGE>
in cash, in the form of a check or direct them for purchase of shares in
another Heritage mutual fund. However, if you have a retirement plan or a
Systematic Withdrawal Plan, your distributions will be automatically reinvested
in fund shares.
In general, selling or exchanging shares and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These
transactions typically create the following tax liabilities for taxable
accounts:
<TABLE>
<CAPTION>
Type of Transaction Tax Status
======================================================================== =======================================================
<S> <C>
Income dividends ....................................................... Ordinary income rate
Short-term capital gain distributions .................................. Ordinary income rate
Long-term capital gain distributions ................................... Capital gains rate
Sales or exchanges of fund shares owned for more than one year ......... Long-term capital gains or losses (capital gains rate)
Sales or exchanges of fund shares owned for one year or less ........... Gains are taxed at the same rate as ordinary income;
losses are subject to special rules
</TABLE>
Dividend distributions will vary by class and are anticipated to be
generally higher for Class A shares.
Tax Reporting. If you are a non-retirement account holder, each year we
will send you a Form 1099 that tells you the amount of fund distributions you
received for the prior calendar year, and the tax status of those
distributions, and a list of reportable sale transactions. Generally, fund
distributions are taxable to you in the year you receive them. However, any
distributions that are declared in October, November or December but paid in
January generally are taxable as if received in December of the year they are
declared.
Withholding Taxes. If you are a non-corporate shareholder and the fund
does not have your correct Social Security or other taxpayer identification
number or you otherwise are subject to backup withholding, federal law requires
us to withhold 31% of your distributions and sale proceeds. If you are subject
to backup withholding, we also will withhold and pay to the IRS 31% of your
distributions. Any tax withheld may be applied against the tax liability on
your tax return.
Because everyone's tax situation is unique, always consult your tax
professional about federal, state and local tax consequences.
Prospectus 40
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The following table is intended to help you understand the performance of
the Class A shares, Class B shares and Class C shares of the Aggressive Growth
Fund outstanding for the periods indicated. Certain information reflects
financial results for a single Class A share, Class B share or Class C share.
The total returns in the table represent the rate that an investor would have
earned on an investment in the fund (assuming reinvestment of all dividends and
distributions). The information in this table for the periods presented has
been audited by PricewaterhouseCoopers LLP, independent certified public
accountants, whose report, along with the fund's financial statements, is
included in the statement of additional information, which is available upon
request.
Aggressive Growth Fund
<TABLE>
<CAPTION>
Class A Shares*
===============================================
For the Years Ended
October 31
===============================================
2000 1999 1998+
================== =========== ================
<S> <C> <C> <C>
Net asset value, beginning of year ......................... $ 20.80 $ 15.35 $ 14.29
---------- -------- ---------
Income from Investment Operations:
Net investment loss ....................................... ( 0.24) (a) ( 0.15) --
Net realized and unrealized gain on investments ........... 9.10 5.60 1.06
---------- -------- ---------
Total from Investment Operations .......................... 8.86 5.45 1.06
---------- -------- ---------
Less Distributions:
Distributions from net realized gains ..................... ( 2.20) -- --
---------- -------- ---------
Net asset value, end of year ............................... $ 27.46 $ 20.80 $ 15.35
========== ======== =========
Total Return (%) (b) ....................................... 44.87 35.50 7.42 (c)
Ratios and Supplemental Data
Expenses to average daily net assets
With expenses waived/recovered (%) ....................... 1.57 (a) 1.65 1.65 (d)
Without expenses waived/recovered (%) .................... 1.48 1.79 3.64 (d)
Net investment income (loss) to average daily net assets
(%) ...................................................... ( .88) ( .78) .08 (d)
Portfolio turnover rate (%) (c) ........................... 252 195 34
Net assets, end of year ($ millions)....................... 50 27 11
<CAPTION>
Class B Shares*
===================================================
For the Years Ended
October 31
===================================================
2000 1999 1998+
================== =========== ====================
<S> <C> <C> <C>
Net asset value, beginning of year ......................... $ 20.61 $ 15.33 $ 14.29
---------- -------- ----------
Income from Investment Operations:
Net investment loss ....................................... ( 0.43) (a) ( 0.29) ( 0.03)
Net realized and unrealized gain on investments ........... 9.00 5.57 1.07
---------- -------- ----------
Total from Investment Operations .......................... 8.57 5.28 1.04
---------- -------- ----------
Less Distributions:
Distributions from net realized gains ..................... ( 2.20) -- --
---------- -------- ----------
Net asset value, end of year ............................... $ 26.98 $ 20.61 $ 15.33
========== ======== ==========
Total Return (%) (b) ....................................... 43.80 34.44 7.28 (c)
Ratios and Supplemental Data
Expenses to average daily net assets
With expenses waived/recovered (%) ....................... 2.32 (a) 2.40 2.40 (d)
Without expenses waived/recovered (%) .................... 2.23 2.54 4.39 (d)
Net investment income (loss) to average daily net assets
(%) ...................................................... ( 1.64) ( 1.53) ( .77) (d)
Portfolio turnover rate (%) (c) ........................... 252 195 34
Net assets, end of year ($ millions)....................... 19 10 4
<CAPTION>
Class C Shares*
=================================================
For the Years Ended
October 31
=================================================
2000 1999 1998+
================== =========== ==================
<S> <C> <C> <C>
Net asset value, beginning of year ......................... $ 20.61 $ 15.33 $ 14.29
---------- -------- ----------
Income from Investment Operations:
Net investment loss ....................................... ( 0.43) (a) ( 0.29) ( 0.03)
Net realized and unrealized gain on investments ........... 9.00 5.57 1.07
---------- -------- ----------
Total from Investment Operations .......................... 8.57 5.28 1.04
---------- -------- ----------
Less Distributions:
Distributions from net realized gains ..................... ( 2.20) -- --
---------- -------- ----------
Net asset value, end of year ............................... $ 26.98 $ 20.61 $ 15.33
========== ======== ==========
Total Return (%) (b) ....................................... 43.80 34.44 7.28 (c)
Ratios and Supplemental Data
Expenses to average daily net assets
With expenses waived/recovered (%) ....................... 2.32 (a) 2.40 2.40 (d)
Without expenses waived/recovered (%) .................... 2.22 2.54 4.39 (d)
Net investment income (loss) to average daily net assets
(%) ...................................................... ( 1.62) ( 1.53) ( .71) (d)
Portfolio turnover rate (%) (c) ........................... 252 195 34
Net assets, end of year ($ millions)....................... 38 16 3
</TABLE>
-------
* Per share amounts have been calculated using the monthly average share
method.
+ For the period August 20, 1998 (commencement of operations) to October 31,
1998.
(a) The year ended October 31, 2000 includes payment of previously waived
management fees to Heritage for Class A, B and C Shares.
(b) These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
(c) Not annualized.
(d) Annualized.
Prospectus 41
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the
performance of the Class A shares, Class B shares and Class C shares of the
Capital Appreciation Trust for the periods indicated. Certain information
reflects financial results for a single Class A share, Class B share or Class C
share. The total returns in the table represent the rate that an investor would
have earned on an investment in the fund (assuming reinvestment of all
dividends and distributions). The information in this table for the periods
presented has been audited by PricewaterhouseCoopers LLP, independent certified
public accountants, whose report, along with the fund's financial statements,
is included in the statement of additional information, which is available upon
request.
Capital Appreciation Trust
<TABLE>
<CAPTION>
Class A Shares
================================================================
For the Years Ended
August 31,
================================================================
2000 1999 1998 1997 1996
=========== =========== =========== =========== ================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... .... $ 27.18 $ 20.34 $ 18.60 $ 15.58 $ 15.53
-------- -------- -------- -------- ---------
Income from Investment Operations:
Net investment loss (a) ......................... ( 0.16) ( 0.10) ( 0.07) ( 0.06) 0.00 (b)
Net realized and unrealized gain on
investments .................................... 8.01 8.26 3.94 4.85 1.81
-------- -------- -------- -------- ---------
Total from Investment Operations ................ 7.85 8.16 3.87 4.79 1.81
-------- -------- -------- -------- ---------
Less Distributions:
Dividends from net investment income ............ -- -- -- -- ( 0.04)
Distributions from net realized gains ........... ( 2.62) ( 1.32) ( 2.13) ( 1.77) ( 1.72)
-------- -------- -------- -------- ---------
Total Distributions ............................. ( 2.62) ( 1.32) ( 2.13) ( 1.77) ( 1.76)
-------- -------- -------- -------- ---------
Net asset value, end of year ..................... $ 32.41 $ 27.18 $ 20.34 $ 18.60 $ 15.58
======== ======== ======== ======== =========
Total Return (%) (c) ............................. 29.55 41.18 21.45 33.61 12.79
Ratios (%)/ Supplemental Data:
Operating expenses, net, to average daily net
assets ......................................... 1.24 1.29 1.41 1.48 1.54
Net investment income (loss) to average daily
net assets (a) ................................. ( .55) ( .45) ( .34) ( .30) ( .02)
Portfolio turnover rate ......................... 48 44 25 42 54
Net assets, end of year ($ millions) ............ 244 169 104 81 70
<CAPTION>
Class B Shares
==========================================
For the Years Ended
August 31,
==========================================
2000 1999 1998+
=========== =========== ==================
<S> <C> <C> <C>
Net asset value, beginning of year .......... .... $ 26.40 $ 19.91 $ 19.36
-------- -------- ----------
Income from Investment Operations:
Net investment loss (a) ......................... ( 0.29) ( 0.19) ( 0.06)
Net realized and unrealized gain on
investments .................................... 7.71 8.00 0.61
-------- -------- ----------
Total from Investment Operations ................ 7.42 7.81 0.55
-------- -------- ----------
Less Distributions:
Dividends from net investment income ............ -- -- --
Distributions from net realized gains ........... ( 2.62) ( 1.32) --
-------- -------- ----------
Total Distributions ............................. ( 2.62) ( 1.32) --
-------- -------- ----------
Net asset value, end of year ..................... $ 31.20 $ 26.40 $ 19.91
======== ======== ==========
Total Return (%) (c) ............................. 28.75 40.27 2.84 (d)
Ratios (%)/ Supplemental Data:
Operating expenses, net, to average daily net
assets ......................................... 1.90 1.92 2.01 (e)
Net investment income (loss) to average daily
net assets (a) ................................. ( 1.21) ( 1.10) ( .86) (e)
Portfolio turnover rate ......................... 48 44 25
Net assets, end of year ($ millions) ............ 43 20 5
<CAPTION>
Class C Shares
==================================================================
For the Years Ended
August 31,
==================================================================
2000 1999 1998 1997 1996
=========== =========== =========== =========== ==================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... .... $ 26.39 $ 19.90 $ 18.34 $ 15.46 $ 15.50
-------- -------- -------- -------- ----------
Income from Investment Operations:
Net investment loss (a) ......................... ( 0.29) ( 0.19) ( 0.09) ( 0.13) ( 0.03) (b)
Net realized and unrealized gain on
investments .................................... 7.71 8.00 3.78 4.78 1.75
-------- -------- -------- -------- ----------
Total from Investment Operations ................ 7.42 7.81 3.69 4.65 1.72
-------- -------- -------- -------- ----------
Less Distributions:
Dividends from net investment income ............ -- -- -- -- ( 0.04)
Distributions from net realized gains ........... ( 2.62) ( 1.32) ( 2.13) ( 1.77) ( 1.72)
-------- -------- -------- -------- ----------
Total Distributions ............................. ( 2.62) ( 1.32) ( 2.13) ( 1.77) ( 1.76)
-------- -------- -------- -------- ----------
Net asset value, end of year ..................... $ 31.19 $ 26.39 $ 19.90 $ 18.34 $ 15.46
======== ======== ======== ======== ==========
Total Return (%) (c) ............................. 28.76 40.29 20.72 32.91 12.16
Ratios (%)/ Supplemental Data:
Operating expenses, net, to average daily net
assets ......................................... 1.90 1.92 2.00 2.04 2.05
Net investment income (loss) to average daily
net assets (a) ................................. ( 1.21) ( 1.10) ( .90) ( .88) ( .57)
Portfolio turnover rate ......................... 48 44 25 42 54
Net assets, end of year ($ millions) ............ 74 35 12 3 1.0
</TABLE>
-------
+ 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 and $0.04 per Class A and C Shares, respectively, for the year ended
August 31, 1996. The operating expense ratios including such items would
have been 1.87% and 2.30% for Class A and C Shares, respectively, for the
year ended August 31, 1996.
(b) 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.
(c) Does not reflect the imposition of a sales charge.
(d) Not annualized.
(e) Annualized.
Prospectus 42
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The following table is intended to help you understand the performance of
the Class A shares, Class B shares and Class C shares of the Eagle
International Equity Portfolio for the periods indicated. Certain information
reflects financial results for a single Class A share, Class B share or Class C
share. The total returns in the table represent the rate that an investor would
have earned on an investment in the fund (assuming reinvestment of all
dividends and distributions). The information in this table for the periods
presented has been audited by PricewaterhouseCoopers LLP, independent certified
public accountants, whose report, along with the fund's financial statements,
is included in the statement of additional information, which is available upon
request.
Eagle International Equity Portfolio
<TABLE>
<CAPTION>
Class A Shares*
============================================================================
For the Years Ended
October 31
============================================================================
2000 1999 1998 1997 1996+
=========== =========== ================ ================ ==================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... $ 31.56 $ 25.43 $ 23.97 $ 22.25 $ 21.11
-------- -------- --------- --------- -----------
Income from Investment Operations:
Net investment income (loss) ............... ( 0.22) ( 0.09) ( 0.01) 0.05 0.10
Net realized and unrealized gain on
investments ............................... 0.51 6.34 2.14 2.28 1.04
-------- -------- --------- --------- -----------
Total from Investment Operations ........... 0.29 6.25 2.13 2.33 1.14
-------- -------- --------- --------- -----------
Less Distributions:
Dividends from net investment income ....... -- -- ( 0.05) ( 0.44) --
Distributions from net realized gains ...... ( 4.44) ( 0.12) ( 0.62) ( 0.17) --
-------- -------- --------- --------- -----------
Total Distributions ........................ ( 4.44) ( 0.12) ( 0.67) ( 0.61) --
-------- -------- --------- --------- -----------
Net asset value, end of year ................ $ 27.41 $ 31.56 $ 25.43 $ 23.97 $ 22.25
======== ======== ========= ========= ===========
Total Return (%) (a) ........................ ( 1.31) 24.68 9.04 (b) 10.71 (b) 5.40 (c)
Ratios and Supplemental Data
Expenses to average daily net assets
With expenses waived/recovered (%) ........ 1.97 1.97 1.97 1.97 1.97 (d)
Without expenses waived/recovered (%) ..... -- 2.02 2.08 2.23 2.69 (d)
Net investment income (loss) to average
daily net assets (%) ...................... ( .71) ( .32) ( .02) .22 .44 (d)
Portfolio turnover rate (%) (c) ............ 67 78 71 50 59
Net assets, end of year ($ millions)........ 10 8 7 6 3
<CAPTION>
Class B Shares*
===========================================
For the Years Ended
October 31
===========================================
2000 1999 1998++
=========== =========== ===================
<S> <C> <C> <C>
Net asset value, beginning of year .......... $ 30.83 $ 25.03 $ 23.95
-------- -------- -----------
Income from Investment Operations:
Net investment income (loss) ............... ( 0.43) ( 0.30) ( 0.16)
Net realized and unrealized gain on
investments ............................... 0.53 6.22 1.24
-------- -------- -----------
Total from Investment Operations ........... 0.10 5.92 1.08
-------- -------- -----------
Less Distributions:
Dividends from net investment income ....... -- -- --
Distributions from net realized gains ...... ( 4.44) ( 0.12) --
-------- -------- -----------
Total Distributions ........................ ( 4.44) ( 0.12) --
-------- -------- -----------
Net asset value, end of year ................ $ 26.49 $ 30.83 $ 25.03
======== ======== ===========
Total Return (%) (a) ........................ ( 2.00) 23.70 4.51 (c)
Ratios and Supplemental Data
Expenses to average daily net assets
With expenses waived/recovered (%) ........ 2.72 2.72 2.72 (d)
Without expenses waived/recovered (%) ..... -- 2.77 2.83 (d)
Net investment income (loss) to average
daily net assets (%) ...................... ( 1.46) ( 1.04) ( .71) (d)
Portfolio turnover rate (%) (c) ............ 67 78 71
Net assets, end of year ($ millions)........ 1 0.5 0.2
<CAPTION>
Class C Shares*
===========================================================================
For the Years Ended
October 31
===========================================================================
2000 1999 1998 1997 1996+
=========== =========== =============== ================ ==================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... $ 30.83 $ 25.03 $ 23.73 $ 22.12 $ 21.11
-------- -------- ------------- --------- ----------
Income from Investment Operations:
Net investment income (loss) ............... ( 0.44) ( 0.30) ( 0.20) ( 0.13) ( 0.07)
Net realized and unrealized gain on
investments ............................... 0.53 6.22 2.12 2.25 1.08
-------- -------- ------------- --------- ----------
Total from Investment Operations ........... 0.09 5.92 1.92 2.12 1.01
-------- -------- ------------- --------- ----------
Less Distributions:
Dividends from net investment income ....... -- -- -- ( 0.34) --
Distributions from net realized gains ...... ( 4.44) ( 0.12) ( 0.62) ( 0.17) --
-------- -------- ------------- --------- ----------
Total Distributions ........................ ( 4.44) ( 0.12) ( 0.62) ( 0.51) --
-------- -------- ------------- --------- ----------
Net asset value, end of year ................ $ 26.48 $ 30.83 $ 25.03 $ 23.73 $ 22.12
======== ======== ============= ========= ==========
Total Return (%) (a) ........................ ( 2.04) 23.70 8.24 (b) 9.79 (b) 4.78 (c)
Ratios and Supplemental Data
Expenses to average daily net assets
With expenses waived/recovered (%) ........ 2.72 2.72 2.72 2.72 2.72 (d)
Without expenses waived/recovered (%) ..... -- 2.77 2.83 2.98 3.44 (d)
Net investment income (loss) to average
daily net assets (%) ...................... ( 1.45) ( 1.06) ( .79) ( .52) ( .32) (d)
Portfolio turnover rate (%) (c) ............ 67 78 71 50 59
Net assets, end of year ($ millions)........ 8 7 6 4 1
</TABLE>
-------
* Per share amounts have been calculated using the monthly average share
method.
+ For the period December 27, 1995 (commencement of Class A and Class C
Shares) to October 31, 1996.
++ For the period January 2, 1998 (commencement of Class B Shares) to October
31, 1998.
(a) These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
(b) These returns are calculated based on the published net asset value at
October 31, 1997.
(c) Not annualized.
(d) Annualized.
Prospectus 43
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The following table is intended to help you understand the performance of
the Class A shares, Class B shares and Class C shares of the Growth Equity Fund
for the periods indicated. Certain information reflects financial results for a
single Class A share, Class B share or Class C share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the fund (assuming reinvestment of all dividends and distributions). The
information in this table for the periods presented has been audited by
PricewaterhouseCoopers LLP, independent certified public accountants, whose
report, along with the fund's financial statements, is included in the
statement of additional information, which is available upon request.
Growth Equity Fund
<TABLE>
<CAPTION>
Class A Shares*
=======================================================================
For the Years Ended
October 31
=======================================================================
2000 1999 1998 1997 1996+
=========== =========== =========== ================ ==================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... $ 43.44 $ 28.82 $ 23.77 $ 17.74 $ 14.29
-------- -------- -------- --------- ----------
Income from Investment Operations:
Net investment loss ........................ ( 0.39) ( 0.20) ( 0.11) ( 0.07)(a) ( 0.03)
Net realized and unrealized gain on
investments ............................... 13.33 14.82 5.48 6.10 3.48
-------- -------- -------- --------- ----------
Total from Investment Operations ........... 12.94 14.62 5.37 6.03 3.45
-------- -------- -------- --------- ----------
Less Distributions:
Distributions from net realized gains ...... ( 5.47) -- ( 0.32) -- --
-------- -------- -------- --------- ----------
Net asset value, end of year ................ $ 50.91 $ 43.44 $ 28.82 $ 23.77 $ 17.74
======== ======== ======== ========= ==========
Total Return (%) (b) ........................ 31.04 50.73 22.84 33.99 24.14 (c)
Ratios and Supplemental Data
Expenses to average daily net assets
With expense reimbursement (%) ............ 1.19 1.24 1.38 1.61 1.65 (d)
Without expense reimbursement (%) (a) ..... -- -- -- 1.54 2.39 (d)
Net investment loss to average daily net
assets (%) ................................ ( .73) ( .56) ( .40) ( .35) ( .19) (d)
Portfolio turnover rate (%) (c) ............ 392 160 54 50 23
Net assets, end of year ($ millions)........ 135 67 40 24 12
<CAPTION>
Class B Shares*
==========================================
For the Years Ended
October 31
==========================================
2000 1999 1998++
=========== =========== ==================
<S> <C> <C> <C>
Net asset value, beginning of year .......... $ 42.17 $ 28.18 $ 24.33
-------- -------- ----------
Income from Investment Operations:
Net investment loss ........................ ( 0.77) ( 0.47) ( 0.23)
Net realized and unrealized gain on
investments ............................... 12.94 14.46 4.08
-------- -------- ----------
Total from Investment Operations ........... 12.17 13.99 3.85
-------- -------- ----------
Less Distributions:
Distributions from net realized gains ...... ( 5.47) -- --
-------- -------- ----------
Net asset value, end of year ................ $ 48.87 $ 42.17 $ 28.18
======== ======== ==========
Total Return (%) (b) ........................ 30.05 49.65 15.82 (c)
Ratios and Supplemental Data
Expenses to average daily net assets
With expense reimbursement (%) ............ 1.94 1.98 2.11 (d)
Without expense reimbursement (%) (a) ..... -- -- --
Net investment loss to average daily net
assets (%) ................................ ( 1.48) ( 1.30) ( 1.10) (d)
Portfolio turnover rate (%) (c) ............ 392 160 54
Net assets, end of year ($ millions)........ 45 16 5
<CAPTION>
Class C Shares*
=======================================================================
For the Years Ended
October 31
=======================================================================
2000 1999 1998 1997 1996+
=========== =========== =========== ================ ==================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... $ 42.15 $ 28.18 $ 23.42 $ 17.61 $ 14.29
-------- -------- -------- --------- ----------
Income from Investment Operations:
Net investment loss ........................ ( 0.76) ( 0.47) ( 0.31) ( 0.24)(a) ( 0.15)
Net realized and unrealized gain on
investments ............................... 12.94 14.44 5.39 6.05 3.47
-------- -------- -------- --------- ----------
Total from Investment Operations ........... 12.18 13.97 5.08 5.81 3.32
-------- -------- -------- --------- ----------
Less Distributions:
Distributions from net realized gains ...... ( 5.47) -- ( 0.32) -- --
-------- -------- -------- --------- ----------
Net asset value, end of year ................ $ 48.86 $ 42.15 $ 28.18 $ 23.42 $ 17.61
======== ======== ======== ========= ==========
Total Return (%) (b) ........................ 30.09 49.57 21.93 32.99 23.23 (c)
Ratios and Supplemental Data
Expenses to average daily net assets
With expense reimbursement (%) ............ 1.94 1.99 2.13 2.36 2.40 (d)
Without expense reimbursement (%) (a) ..... -- -- -- 2.29 3.14 (d)
Net investment loss to average daily net
assets (%) ................................ ( 1.48) ( 1.31) ( 1.15) ( 1.14) ( .96) (d)
Portfolio turnover rate (%) (c) ............ 392 160 54 50 23
Net assets, end of year ($ millions)........ 141 75 39 18 5
</TABLE>
-------
* Per share amounts have been calculated using the monthly average share
method.
+ For the period November 16, 1995 (commencement of operations) to October
31, 1996.
++ For the period January 2, 1998 (commencement of Class B Shares) to October
31, 1998.
(a) The year ended October 31, 1997 includes payment of previously waived
management fees to Heritage for Class A and C Shares.
(b) These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
(c) Not annualized.
(d) Annualized.
Prospectus 44
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The following table is intended to help you understand the performance of
the Class A shares, Class B shares and Class C shares of the Income-Growth
Trust for the periods indicated. Certain information reflects financial results
for a single Class A share, Class B share or Class C share. The total returns
in the table represent the rate that an investor would have earned or lost on
an investment in the fund (assuming reinvestment of all dividends and
distributions). The information in this table for the periods presented has
been audited by PricewaterhouseCoopers LLP, independent certified public
accountants, whose report, along with the fund's financial statements, is
included in the statement of additional information, which is available upon
request.
Income-Growth Trust
<TABLE>
<CAPTION>
Class A Shares
===========================================================
For the Years Ended
September 30
===========================================================
2000* 1999* 1998* 1997* 1996
=========== =========== =========== =========== ===========
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ............ $ 14.95 $ 14.99 $ 16.65 $ 14.67 $ 12.56
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income ........................ 0.19 0.34 0.36 0.40 0.36
Net realized and unrealized gain (loss) on
investments ................................. 0.51 0.57 ( 0.37) 3.45 2.35
-------- -------- -------- -------- --------
Total from Investment Operations ............. 0.70 0.91 ( 0.01) 3.85 2.71
-------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment income ......... ( 0.25) ( 0.33) ( 0.32) ( 0.38) ( 0.35)
Distributions from net realized gains ........ -- ( 0.62) ( 1.33) ( 1.49) ( 0.25)
-------- -------- -------- -------- --------
Total Distributions .......................... ( 0.25) ( 0.95) ( 1.65) ( 1.87) ( 0.60)
-------- -------- -------- -------- --------
Net asset value, end of year .................. $ 15.40 $ 14.95 $ 14.99 $ 16.65 $ 14.67
======== ======== ======== ======== ========
Total Return (%) (a) .......................... 4.74 6.14 ( 0.34) 29.45 22.26
Ratios (%)/ Supplemental Data:
Operating expenses, net, to average
daily net assets ............................ 1.33 1.27 1.29 1.34 1.51
Net investment income to
average daily net assets .................... 1.27 2.19 2.24 2.65 2.66
Portfolio turnover rate ...................... 58 46 66 75 75
Net assets, end of year ($ millions) ......... 46 60 68 65 43
<CAPTION>
Class B Shares*
==========================================
For the Years Ended
September 30
==========================================
2000 1999 1998+
=========== =========== ==================
<S> <C> <C> <C>
Net asset value, beginning of year ............ $ 14.76 $ 14.82 $ 15.62
-------- -------- ----------
Income from Investment Operations:
Net investment income ........................ 0.08 0.22 0.19
Net realized and unrealized gain (loss) on
investments ................................. 0.50 0.56 ( 0.88)
-------- -------- ----------
Total from Investment Operations ............. 0.58 0.78 ( 0.69)
-------- -------- ----------
Less Distributions:
Dividends from net investment income ......... ( 0.13) ( 0.22) ( 0.11)
Distributions from net realized gains ........ -- ( 0.62) --
-------- -------- ----------
Total Distributions .......................... ( 0.13) ( 0.84) ( 0.11)
-------- -------- ----------
Net asset value, end of year .................. $ 15.21 $ 14.76 $ 14.82
======== ======== ==========
Total Return (%) (a) .......................... 3.95 5.32 ( 4.50) (b)
Ratios (%)/ Supplemental Data:
Operating expenses, net, to average
daily net assets ............................ 2.08 2.02 2.04 (c)
Net investment income to
average daily net assets .................... .55 1.44 1.75 (c)
Portfolio turnover rate ...................... 58 46 66
Net assets, end of year ($ millions) ......... 4 7 6
<CAPTION>
Class C Shares
===========================================================
For the Years Ended
September 30
===========================================================
2000* 1999* 1998* 1997* 1996
=========== =========== =========== =========== ===========
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ............ $ 14.76 $ 14.82 $ 16.49 $ 14.57 $ 12.51
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income ........................ 0.08 0.22 0.25 0.28 0.26
Net realized and unrealized gain (loss) on
investments ................................. 0.50 0.56 ( 0.38) 3.43 2.34
-------- -------- -------- -------- --------
Total from Investment Operations ............. 0.58 0.78 ( 0.13) 3.71 2.60
-------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment income ......... ( 0.13) ( 0.22) ( 0.21) ( 0.30) ( 0.29)
Distributions from net realized gains ........ -- ( 0.62) ( 1.33) ( 1.49) ( 0.25)
-------- -------- -------- -------- --------
Total Distributions .......................... ( 0.13) ( 0.84) ( 1.54) ( 1.79) ( 0.54)
-------- -------- -------- -------- --------
Net asset value, end of year .................. $ 15.21 $ 14.76 $ 14.82 $ 16.49 $ 14.57
======== ======== ======== ======== ========
Total Return (%) (a) .......................... 3.95 5.32 ( 1.08) 28.49 21.37
Ratios (%)/ Supplemental Data:
Operating expenses, net, to average
daily net assets ............................ 2.08 2.02 2.04 2.07 2.13
Net investment income to
average daily net assets .................... .55 1.44 1.51 1.87 2.05
Portfolio turnover rate ...................... 58 46 66 75 75
Net assets, end of year ($ millions) ......... 16 26 31 21 6
</TABLE>
-------
* Per share amounts have been calculated using the average share method.
+ For the period January 2, 1998 (commencement of Class B Shares) to
September 30, 1998.
(a) These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
(b) Not annualized.
(c) Annualized.
Prospectus 45
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The following table is intended to help you understand the performance of
the Class A shares, Class B shares and Class C shares of the Mid Cap Stock Fund
outstanding for the periods indicated. Certain information reflects financial
results for a single Class A share, Class B share or Class C share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in the fund (assuming reinvestment of all dividends and
distributions). The information in this table for the periods presented has
been audited by PricewaterhouseCoopers LLP, independent certified public
accountants, whose report, along with the fund's financial statements, is
included in the statement of additional information, which is available upon
request.
Mid Cap Stock Fund
<TABLE>
<CAPTION>
Class A Shares*
==========================================
For the Years Ended
October 31
==========================================
2000 1999 1998+
=========== =========== ==================
<S> <C> <C> <C>
Net asset value, beginning of year ....................... $ 16.56 $ 14.28 $ 14.29
-------- -------- ----------
Income from Investment Operations:
Net investment loss ..................................... ( 0.24) ( 0.18) ( 0.15)
Net realized and unrealized gain on investments ......... 7.17 2.46 0.14
-------- -------- ----------
Total from Investment Operations ........................ 6.93 2.28 ( 0.01)
-------- -------- ----------
Less Distributions:
Distributions from net realized gains ................... ( 0.30) -- --
-------- -------- ----------
Net asset value, end of year ............................. $ 23.19 $ 16.56 $ 14.28
======== ======== ==========
Total Return (%) (a) ..................................... 42.30 15.97 ( 0.07) (b)
Ratios and Supplemental Data
Expenses to average daily net assets ....................
With expenses waived (%) ............................... 1.55 1.60 1.60 (c)
Without expenses waived (%) ............................ 1.63 1.70 1.86 (c)
Net investment loss to average daily net assets (%) ..... ( 1.13) ( 1.19) ( .99) (c)
Portfolio turnover rate (%) (b) ......................... 265 192 129
Net assets, end of year ($ millions) .................... 23 15 16
<CAPTION>
Class B Shares* Class C Shares*
========================================== =======================
For the Years Ended For the Years Ended
October 31 October 31
========================================== =======================
2000 1999 1998++ 2000 1999
=========== =========== ================== =========== ===========
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ....................... $ 16.32 $ 14.17 $ 14.42 $ 16.32 $ 14.18
-------- -------- ---------- -------- --------
Income from Investment Operations:
Net investment loss ..................................... ( 0.39) ( 0.30) ( 0.23) ( 0.39) ( 0.30)
Net realized and unrealized gain on investments ......... 7.03 2.45 ( 0.02) 7.04 2.44
-------- -------- ---------- -------- --------
Total from Investment Operations ........................ 6.64 2.15 ( 0.25) 6.65 2.14
-------- -------- ---------- -------- --------
Less Distributions:
Distributions from net realized gains ................... ( 0.30) -- -- ( 0.30) --
-------- -------- ---------- -------- --------
Net asset value, end of year ............................. $ 22.66 $ 16.32 $ 14.17 $ 22.67 $ 16.32
======== ======== ========== ======== ========
Total Return (%) (a) ..................................... 41.13 15.17 ( 1.73) (b) 41.19 15.09
Ratios and Supplemental Data
Expenses to average daily net assets ....................
With expenses waived (%) ............................... 2.30 2.35 2.35 (c) 2.30 2.35
Without expenses waived (%) ............................ 2.38 2.45 2.61 (c) 2.38 2.45
Net investment loss to average daily net assets (%) ..... ( 1.87) ( 1.94) ( 1.85) (c) ( 1.88) ( 1.95)
Portfolio turnover rate (%) (b) ......................... 265 192 129 265 192
Net assets, end of year ($ millions) .................... 4 2 2 12 9
<CAPTION>
Class C Shares*
==================
For the Years Ended
October 31
==================
1998+
==================
<S> <C>
Net asset value, beginning of year ....................... $ 14.29
----------
Income from Investment Operations:
Net investment loss ..................................... ( 0.25)
Net realized and unrealized gain on investments ......... 0.14
----------
Total from Investment Operations ........................ ( 0.11)
----------
Less Distributions:
Distributions from net realized gains ................... --
----------
Net asset value, end of year ............................. $ 14.18
==========
Total Return (%) (a) ..................................... ( 0.77) (b)
Ratios and Supplemental Data
Expenses to average daily net assets ....................
With expenses waived (%) ............................... 2.35 (c)
Without expenses waived (%) ............................ 2.61 (c)
Net investment loss to average daily net assets (%) ..... ( 1.75) (c)
Portfolio turnover rate (%) (b) ......................... 129
Net assets, end of year ($ millions) .................... 9
</TABLE>
-------
* Per share amounts have been calculated using the monthly average share
method.
+ For the period November 6, 1997 (commencement of operations) to October 31,
1998.
++ For the period January 2, 1998 (commencement of Class B Shares) to October
31, 1998.
(a) These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
(b) Not annualized.
(c) Annualized.
Prospectus 46
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The following table is intended to help you understand the performance of
the Class A shares, Class B shares and Class C shares of the Small Cap Stock
Fund outstanding for the periods indicated. Certain information reflects
financial results for a single Class A share, Class B share or Class C share.
The total returns in the table represent the rate that an investor would have
earned or lost on an investment in the fund (assuming reinvestment of all
dividends and distributions). The information in this table for the periods
presented has been audited by PricewaterhouseCoopers LLP, independent certified
public accountants, whose report, along with the fund's financial statements,
is included in the statement of additional information, which is available upon
request.
Small Cap Stock Fund
<TABLE>
<CAPTION>
Class A Shares*
===========================================================
For the Years Ended
October 31
===========================================================
2000 1999 1998 1997 1996
=========== =========== =========== =========== ===========
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... $ 23.21 $ 22.62 $ 30.39 $ 24.08 $ 18.86
-------- -------- --------- -------- --------
Income from Investment Operations:
Net investment loss ........................ ( 0.12) ( 0.04) ( 0.06) ( 0.02) ( 0.05)
Net realized and unrealized gain (loss)
on investments ............................ 6.08 0.63 ( 5.98) 8.21 6.12
-------- -------- --------- -------- --------
Total from Investment Operations ........... 5.96 0.59 ( 6.04) 8.19 6.07
-------- -------- --------- -------- --------
Less Distributions:
Dividends from net investment income ....... -- -- -- -- ( 0.01)
Distributions from net realized gains ...... -- -- ( 1.73) ( 1.88) ( 0.84)
-------- -------- --------- -------- --------
Total Distributions ........................ -- -- ( 1.73) ( 1.88) ( 0.85)
-------- -------- --------- -------- --------
Net asset value, end of year ................ $ 29.17 $ 23.21 $ 22.62 $ 30.39 $ 24.08
======== ======== ========= ======== ========
Total Return (%) (a) ........................ 25.68 2.61 (20.96) 36.68 33.18
Ratios and Supplemental Data
Expenses to average daily net
assets (%) ................................ 1.30 1.26 1.22 1.25 1.41
Net investment loss to average daily net
assets (%) ................................ ( .44) ( .18) ( .22) ( .09) ( .21)
Portfolio turnover rate (%) (b) ............ 85 42 52 54 80
Net assets, end of year ($ million)......... 107 125 174 222 96
<CAPTION>
Class B Shares*
=========================================
For the Years Ended
October 31
=========================================
2000 1999 1998+
=========== =========== =================
<S> <C> <C> <C>
Net asset value, beginning of year .......... $ 22.41 $ 22.00 $ 27.98
-------- -------- ----------
Income from Investment Operations:
Net investment loss ........................ ( 0.33) ( 0.22) ( 0.20)
Net realized and unrealized gain (loss)
on investments ............................ 5.89 0.63 ( 5.78)
-------- -------- ----------
Total from Investment Operations ........... 5.56 0.41 ( 5.98)
-------- -------- ----------
Less Distributions:
Dividends from net investment income ....... -- -- --
Distributions from net realized gains ...... -- -- --
-------- -------- ----------
Total Distributions ........................ -- -- --
-------- -------- ----------
Net asset value, end of year ................ $ 27.97 $ 22.41 $ 22.00
======== ======== ==========
Total Return (%) (a) ........................ 24.81 1.86 (21.37)(b)
Ratios and Supplemental Data
Expenses to average daily net
assets (%) ................................ 2.05 2.01 1.98 (c)
Net investment loss to average daily net
assets (%) ................................ ( 1.19) ( .95) ( .93)(c)
Portfolio turnover rate (%) (b) ............ 85 42 52
Net assets, end of year ($ million)......... 10 9 9
<CAPTION>
Class C Shares*
===========================================================
For the Years Ended
October 31
===========================================================
2000 1999 1998 1997 1996
=========== =========== =========== =========== ===========
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... $ 22.42 $ 22.01 $ 29.83 $ 23.84 $ 18.79
-------- -------- --------- -------- --------
Income from Investment Operations:
Net investment loss ........................ ( 0.32) ( 0.22) ( 0.26) ( 0.23) ( 0.22)
Net realized and unrealized gain (loss)
on investments ............................ 5.88 0.63 ( 5.83) 8.10 6.11
-------- -------- --------- -------- --------
Total from Investment Operations ........... 5.56 0.41 ( 6.09) 7.87 5.89
-------- -------- --------- -------- --------
Less Distributions:
Dividends from net investment income ....... -- -- -- -- --
Distributions from net realized gains ...... -- -- ( 1.73) ( 1.88) ( 0.84)
-------- -------- --------- -------- --------
Total Distributions ........................ -- -- ( 1.73) ( 1.88) ( 0.84)
-------- -------- --------- -------- --------
Net asset value, end of year ................ $ 27.98 $ 22.42 $ 22.01 $ 29.83 $ 23.84
======== ======== ========= ======== ========
Total Return (%) (a) ........................ 24.80 1.86 (21.55) 35.63 32.22
Ratios and Supplemental Data
Expenses to average daily net
assets (%) ................................ 2.05 2.01 1.97 2.00 2.13
Net investment loss to average daily net
assets (%) ................................ ( 1.18) ( .94) ( .96) ( .85) ( .94)
Portfolio turnover rate (%) (b) ............ 85 42 52 54 80
Net assets, end of year ($ million)......... 51 61 84 90 25
</TABLE>
-------
* Per share amounts have been calculated using the monthly average share
method.
+ For the period January 2, 1998 (commencement of Class B Shares) to October
31, 1998.
(a) These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
(b) Not annualized.
(c) Annualized.
Prospectus 47
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The following table is intended to help you understand the performance of
the Class A shares, Class B shares and Class C shares of the Technology Fund
outstanding for the period indicated. Certain information reflects financial
results for a single Class A share, Class B share or Class C share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in the fund (assuming reinvestment of all dividends and
distributions). The information in this table for the period presented has been
audited by PricewaterhouseCoopers LLP, independent certified public
accountants, whose report, along with the fund's financial statements, is
included in the statement of additional information, which is available upon
request.
Technology Fund
<TABLE>
<CAPTION>
Class A Shares* Class B Shares* Class C Shares*
===================== ===================== =====================
For the Period Ended For the Period Ended For the Period Ended
October 31 October 31 October 31
===================== ===================== =====================
2000+ 2000+ 2000+
===================== ===================== =====================
<S> <C> <C> <C>
Net asset value, beginning of period ......................... $ 14.29 $ 14.29 $ 14.29
-------- -------- --------
Income from Investment Operations:
Net investment loss ......................................... ( 0.26) ( 0.40) ( 0.40)
Net realized and unrealized gain on investments ............. 3.40 3.42 3.41
-------- -------- --------
Total from Investment Operations ............................ 3.14 3.02 3.01
-------- -------- --------
Net asset value, end of period ............................... $ 17.43 $ 17.31 $ 17.30
======== ======== ========
Total Return (%) (a) (b) ..................................... 21.97 21.13 21.06
Ratios and Supplemental Data
Expenses to average daily net assets (%) (c) ................ 1.62 2.37 2.37
Net investment loss to average daily net assets (%) (c) ..... ( 1.37) ( 2.12) ( 2.12)
Portfolio turnover rate (%) (b) ............................. 441 441 441
Net assets, end of period ($ millions) ...................... 65 24 40
</TABLE>
-------
* Per share amounts have been calculated using the monthly average share
method.
+ For the period November 18, 1999 (commencement of operations) to October
31, 2000.
(a) These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
(b) Not annualized.
(c) Annualized.
Prospectus 48
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The following table is intended to help you understand the performance of
the Class A shares, Class B shares and Class C shares of the Value Equity Fund
outstanding for the periods indicated. Certain information reflects financial
results for a single Class A share, Class B share or Class C share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in the fund (assuming reinvestment of all dividends and
distributions). The information in this table for the periods presented has
been audited by PricewaterhouseCoopers LLP, independent certified public
accountants, whose report, along with the fund's financial statements, is
included in the statement of additional information, which is available upon
request.
Value Equity Fund
<TABLE>
<CAPTION>
Class A Shares*
================================================================
For the Years Ended
October 31
================================================================
2000 1999 1998 1997 1996
=========== =========== =========== ================ ===========
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ............... $ 18.33 $ 18.56 $ 24.27 $ 20.27 $ 18.00
-------- -------- -------- --------- --------
Income from Investment Operations:
Net investment income (loss) .................... 0.21 0.12 0.15 0.22 (a) 0.17
Net realized and unrealized gain (loss) on
investments .................................... 2.48 ( 0.07) ( 0.76) 5.23 2.76
-------- -------- -------- --------- --------
Total from Investment Operations ................ 2.69 0.05 ( 0.61) 5.45 2.93
-------- -------- -------- --------- --------
Less Distributions:
Dividends from net investment income ............ ( 0.11) ( 0.16) ( 0.20) ( 0.15) ( 0.11)
Distributions from net realized gains ........... ( 0.42) ( 0.12) ( 4.90) ( 1.30) ( 0.55)
-------- -------- -------- --------- --------
Total Distributions ............................. ( 0.53) ( 0.28) ( 5.10) ( 1.45) ( 0.66)
-------- -------- -------- --------- --------
Net asset value, end of year ..................... $ 20.49 $ 18.33 $ 18.56 $ 24.27 $ 20.27
======== ======== ======== ========= ========
Total Return (%) (b) ............................. 15.13 0.24 ( 3.52) 28.69 16.59
Ratios and Supplemental Data
Expenses to average daily net assets
With expenses waived/recovered (%) ............. 1.45 1.45 1.45 1.61 1.65
Without expenses waived/recovered (%) .......... 1.72 1.70 1.58 1.53 (a) 1.99
Net investment income (loss) to average daily
net assets (%) ................................. 1.14 .63 .74 .96 .89
Portfolio turnover rate (c) ..................... 95 137 132 155 129
Net assets, end of year ($ millions) ............ 13 15 18 19 15
<CAPTION>
Class B Shares*
==========================================
For the Years Ended
October 31
==========================================
2000 1999 1998+
=========== =========== ==================
<S> <C> <C> <C>
Net asset value, beginning of year ............... $ 18.06 $ 18.29 $ 19.60
-------- -------- ----------
Income from Investment Operations:
Net investment income (loss) .................... 0.07 ( 0.02) 0.02
Net realized and unrealized gain (loss) on
investments .................................... 2.45 ( 0.08) ( 1.33)
-------- -------- ----------
Total from Investment Operations ................ 2.52 ( 0.10) ( 1.31)
-------- -------- ----------
Less Distributions:
Dividends from net investment income ............ -- ( 0.01) --
Distributions from net realized gains ........... ( 0.42) ( 0.12) --
-------- -------- ----------
Total Distributions ............................. ( 0.42) ( 0.13) --
-------- -------- ----------
Net asset value, end of year ..................... $ 20.16 $ 18.06 $ 18.29
======== ======== ==========
Total Return (%) (b) ............................. 14.28 ( 0.56) ( 6.68) (c)
Ratios and Supplemental Data
Expenses to average daily net assets
With expenses waived/recovered (%) ............. 2.20 2.20 2.20 (d)
Without expenses waived/recovered (%) .......... 2.47 2.45 2.33 (d)
Net investment income (loss) to average daily
net assets (%) ................................. .40 ( .13) .15 (d)
Portfolio turnover rate (c) ..................... 95 137 132
Net assets, end of year ($ millions) ............ 1 1 1
<CAPTION>
Class C Shares*
================================================================
For the Years Ended
October 31
================================================================
2000 1999 1998 1997 1996
=========== =========== =========== ================ ===========
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ............... $ 18.06 $ 18.28 $ 23.98 $ 20.06 $ 17.92
-------- -------- -------- --------- --------
Income from Investment Operations:
Net investment income (loss) .................... 0.07 ( 0.02) -- 0.05 (a) 0.02
Net realized and unrealized gain (loss) on
investments .................................... 2.45 ( 0.07) ( 0.75) 5.20 2.74
-------- -------- -------- --------- --------
Total from Investment Operations ................ 2.52 ( 0.09) ( 0.75) 5.25 2.76
-------- -------- -------- --------- --------
Less Distributions:
Dividends from net investment income ............ -- ( 0.01) ( 0.05) ( 0.03) ( 0.07)
Distributions from net realized gains ........... ( 0.42) ( 0.12) ( 4.90) ( 1.30) ( 0.55)
-------- -------- -------- --------- --------
Total Distributions ............................. ( 0.42) ( 0.13) ( 4.95) ( 1.33) ( 0.62)
-------- -------- -------- --------- --------
Net asset value, end of year ..................... $ 20.16 $ 18.06 $ 18.28 $ 23.98 $ 20.06
======== ======== ======== ========= ========
Total Return (%) (b) ............................. 14.28 ( 0.50) ( 4.27) 27.79 15.65
Ratios and Supplemental Data
Expenses to average daily net assets
With expenses waived/recovered (%) ............. 2.20 2.20 2.20 2.36 2.40
Without expenses waived/recovered (%) .......... 2.47 2.45 2.33 2.28 (a) 2.74
Net investment income (loss) to average daily
net assets (%) ................................. .40 ( .12) ( .01) .21 .13
Portfolio turnover rate (c) ..................... 95 137 132 155 129
Net assets, end of year ($ millions) ............ 12 12 14 13 10
</TABLE>
-------
* Per share amounts have been calculated using the monthly average share
method.
+ For the period January 2, 1998 (commencement of Class B Shares) to August
31, 1998.
(a) The year ended October 31, 1997 includes payment of previously waived
management fees to Heritage for Class A and C Shares.
(b) These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
(c) Not annualized.
(d) Annualized
Prospectus 49
<PAGE>
<PAGE>
[HERITAGE LOGO] Heritage Family of Funds
Account Application
P. O. Box 33022, St. Petersburg, FL 33733
<TABLE>
<CAPTION>
<S> <C>
[ ] Link to existing Account # _________________ [ ]Assign New Account #
(Indicate fund in Fund Selection section below)
</TABLE>
--------------------------------------------------------------------------------
Account Registration
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
[ ] Individual [ ] Joint Tenant with Right of Survivorship [ ] Gift to Minor
[ ] Trust [ ] Foundation or Exempt Organization [ ] Association,
Partnership or other
organization
[ ] Corporation (Attach corporate resolution)
</TABLE>
<TABLE>
<S> <C>
------------------------------------------- ----------------------------------
Name of account owner Social Security or Taxpayer ID #
------------------------------------------- ----------------------------------
Joint owner/Trustee/Custodian Joint owner's social security #
------------------------------------------- ----------------------------------
Joint owner/Trustee Date of birth of first named owner
------------------------------------------- ----------------------------------
Street address Daytime phone number
------------------------------------------- ----------------------------------
Street address Are you a U.S. citizen? [ ] Yes [ ] No
------------------------------------------- If no, country of residence ______________________
City, State and ZIP Are you an employee of the Distributor or
participating broker-dealer as defined in the
Prospectus? [ ] Yes [ ] No
</TABLE>
--------------------------------------------------------------------------------
Fund Selection ($1,000 minimum initial investment unless participating in
an automatic investment plan)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pay dividends Pay capital
Fund name Share class Investment amount in: gains in:
A B C Shares Cash Shares Cash
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Heritage Series Trust:
[ ] Aggressive Growth Fund [ ] [ ] [ ] $ [ ] [ ] [ ] [ ]
[ ] Eagle International Equity Portfolio [ ] [ ] [ ] $ [ ] [ ] [ ] [ ]
[ ] Growth Equity Fund [ ] [ ] [ ] $ [ ] [ ] [ ] [ ]
[ ] Mid Cap Stock Fund [ ] [ ] [ ] $ [ ] [ ] [ ] [ ]
[ ] Small Cap Stock Fund [ ] [ ] [ ] $ [ ] [ ] [ ] [ ]
[ ] Technology Fund [ ] [ ] [ ] $ [ ] [ ] [ ] [ ]
[ ] Value Equity Fund [ ] [ ] [ ] $ [ ] [ ] [ ] [ ]
[ ] Heritage Capital Appreciation Trust [ ] [ ] [ ] $ [ ] [ ] [ ] [ ]
[ ] Heritage Income-Growth Trust [ ] [ ] [ ] $ [ ] [ ] [ ] [ ]
Heritage Income Trust:
[ ] High Yield Bond Fund [ ] [ ] [ ] $ [ ] [ ] [ ] [ ]
[ ] Intermediate Government Fund [ ] [ ] [ ] $ [ ] [ ] [ ] [ ]
Heritage Cash Trust:
[ ] Money Market Fund [ ] [ ] [ ] $ [ ] [ ] [ ] [ ]
[ ] Municipal Money Market Fund [ ] N/A N/A $ [ ] [ ] [ ] [ ]
If none checked, all reinvested in
shares.
TOTAL INVESTMENT $
</TABLE>
<PAGE>
--------------------------------------------------------------------------------
Signatures and Taxpayer Identification Certification
--------------------------------------------------------------------------------
Each person signing on behalf of an entity represents that his/her actions are
authorized. I have received and read a current prospectus for each fund in
which I am investing and understand that its terms are incorporated by
reference into this application. I understand that certain redemptions may be
subject to a contingent deferred sales load. I agree that the Fund, Heritage,
Distributor and their Trustees, directors, officers and employees will not be
held liable for any loss, liability, damage, or expense for relying upon this
application or any instructions including telephone instructions they
reasonably believe are authentic. If a taxpayer identification number is not
provided and certified, all dividends paid will be subject to 31% Federal
backup withholding.
Taxpayer Identification Number Certification
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me);
2. I am not subject to backup withholding because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am
no longer subject to backup withholding; and
3. I am a U.S. person (includes a U.S. resident alien).
You must cross out item 2 above if you have been notified by the IRS that you
are currently subject to backup withholding because of under reporting interest
or dividends on your tax return. The Internal Revenue Service does not require
your consent to any provision of this document other than the certifications
required to avoid backup withholding.
X _____________________________ X____________________________
Signature Date Signature Date
--------------------------------------------------------------------------------
Dealer Information
--------------------------------------------------------------------------------
We hereby authorize the Distributor to act as our agent in connection with
transactions under this authorization form and agree to notify the Distributor
of any purchases made under a Letter of Intent or Right of Accumulation. We
guarantee the signatures on this application and the legal capacity of the
signers.
If a Systematic Withdrawal Plan is being established, we believe that the
amount to be withdrawn is reasonable in light of the investor's circumstances
and we recommend establishment of the account.
--------------------------------- ----------------- -------------------------
Representative's name Branch number Representative's number
--------------------------------- --------------------------------------------
Dealer name Branch office location
--------------------------------- --------------------------------------------
Main office address Branch phone number
X
--------------------------------- --------------------------------------------
City, State and ZIP Authorized representative's signature
--------------------------------------------------------------------------------
Telephone Transactions
--------------------------------------------------------------------------------
You may redeem shares by calling Heritage and requesting that proceeds be sent
to your address of record or the bank account listed in the Bank Account
Information section below. We will withdraw up to $50,000 from your account and
mail it to your address of record provided that address has not been changed in
the last 30 days.
You may also exchange between the same class shares of like-registered accounts
in any of the Heritage Mutual Funds by calling Heritage and requesting this
service. Please see the prospectus for certain requirements for exchanging
shares between funds.
If you DO NOT want to be able to process redemptions and exchanges via
telephone order, please check here: [ ]
<PAGE>
[HERITAGE LOGO]
Heritage Family of Funds
Account Option Enrollment
Fund ____________________
Complete and attach to application (for new
accounts) to select the following
account options. Acct#____________________
--------------------------------------------------------------------------------
Direct Payment Plan Enrollment
--------------------------------------------------------------------------------
-------
ATTACH
VOIDED
CHECK
HERE
-------
This feature will allow you to initiate investment and redemption
transactions by calling Heritage. Please attach a voided check. We
can not accept a temporary check and can only accept deposit slips
from savings accounts. Please allow 30 days for these programs to
start.
Bank Account Information
Provide bank checking account information if you wish to link your bank account
to your Heritage Fund Account for buying Fund shares or directing redemption
proceeds.
------------------------- ----------------------------------------------------
Bank name Bank account registration
------------------------- ----------------------------------------------------
Address Bank account number [ ] Checking [ ] Savings
------------------------- ----------------------------------------------------
City, State and ZIP Bank Phone Number Bank routing (ABA) number (from
your bank)
By selecting the Electronic Fund Transfer option, I hereby authorize Heritage
Asset Management to initiate credit and debit entries to my (our) account at
the Financial Institution indicated and for the Financial Institution to credit
or debit the same to such account through the Automated Clearing House (ACH)
system subject to the rules of the Financial Institution and the Fund. Heritage
Asset Management may correct any transaction error with a debit or credit to my
Financial Institution account and/or the Fund account. This authorization,
including any credit or debit entries initiated thereunder, is in full force
and effect until I notify Heritage Asset Management of its revocation by
telephone or in writing and Heritage Asset Management has had sufficient time
to act on it.
X X
------------------------ --------------------------------------------------
Signature on bank account Signature on bank account
Automatic Investing
You can instruct us to regularly transfer funds from a specified bank checking
account to your Heritage Fund account. This transfer will be effected by either
an electronic transfer or by a paper draft. There is a minimum monthly
investment of $50.
<TABLE>
<CAPTION>
Transfer
Date Frequency (check one)
5th 15th Semi-
Fund Amount Monthly Quarterly Annual Annual
<S> <C> <C> <C> <C> <C> <C> <C>
______ $________ [ ] [ ] [ ] [ ] [ ] [ ]
______ $________ [ ] [ ] [ ] [ ] [ ] [ ]
______ $________ [ ] [ ] [ ] [ ] [ ] [ ]
Choose one or both
</TABLE>
Systematic Withdrawal Plan (SWP)
You can receive monthly, quarterly, semiannual, or annual payments from your
account. The payments can be sent to you at your address of record, to an
account at a bank or other financial institution, or to another person you
designate (with proper authorization). You may send checks to more than one
place. If you begin a SWP, you may redeem up to 12% annually of your current
account value without incurring a contingent deferred sales load.
----------------------------------
Fund for Withdrawal
Day of month (choose one): [ ] 1st [ ] 5th [ ] 10th [ ] 20th
Frequency (choose one): [ ] Monthly [ ] Quarterly [ ] SemiAnnual [ ] Annual
Send payment to: Amount
[ ] My address of record. $__________________ __________________________
Payee name
[ ] The bank account listed in the Bank
Account Information section below.
(When possible this transaction will be __________________________
affected by Electronic Funds Transfer.) $____ Payee account number
(if applicable)
[ ] The payee listed at the right. (If you __________________________
have more than one payee, please Payee address
attach a separate sheet indicating the $____
amount to be sent to each.)
__________________________
City, State and ZIP
Please Remember to Sign the back of this Form.
<PAGE>
--------------------------------------------------------------------------------
Reduced Sales Charges
--------------------------------------------------------------------------------
Statement of Intent
If you agree in advance to invest at least $25,000 in Class A Shares of
Heritage Mutual Funds other than Heritage Cash Trust within 13 months, you will
pay a reduced sales charge on those investments. Investments made up to 90 days
before adopting this agreement are eligible for this discount. All prior
investments can be applied toward meeting the investment requirement.
[ ] I agree to invest at least the amount selected below over a 13-month period
beginning / / . I understand that an additional sales charge must be
paid if I do not complete this Statement of Intent.
[ ] $25,000 [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
Right of Accumulation
If you, your spouse, or your minor children own shares in other Heritage Mutual
Funds, you may qualify for a reduced sales charge. Class A shares of Heritage
Cash Trust are not eligible unless purchased by exchange from another Heritage
Mutual Fund. These shares can be credited to a Statement of Intent.
[ ] I qualify for the Right of Accumulation. Please link the following Heritage
accounts.
-------------------------------- -------------------------------
Fund/Account Number Fund/Account Number
-------------------------------- -------------------------------
Fund/Account Number Fund/Account Number
--------------------------------------------------------------------------------
Other Options
--------------------------------------------------------------------------------
Automatic Exchange
You can instruct us to periodically exchange funds from one Heritage Mutual
Fund to a like-registered account in the same class of another Heritage Mutual
Fund.
Frequency (choose one): [ ] Monthly [ ] Quarterly [ ] Semiannual [ ] Annual
Day of month (choose one): [ ] 1st [ ] 5th [ ] 10th [ ] 20th
Fund and Class to exchange from Fund and Class to exchange to Amount
________________________________ ______________________________ $____________
________________________________ ______________________________ $____________
________________________________ ______________________________ $____________
Directed Dividends
You can direct the dividend payments from one Heritage Mutual Fund into a
like-registered account in the same class of another Heritage Mutual Fund. In
the Fund Selection above, check the box for cash dividends.
From Fund/Class To Fund/Class
------------------------------- ---------------------------------
------------------------------- ---------------------------------
--------------------------------------------------------------------------------
Client Signature
--------------------------------------------------------------------------------
All account owners must sign and Medallion Signature Guarantee is required if
payments are routed to other than the registered owner at the address of record
or the withdrawal is greater than $50,000.
X ___________________________________ X _________________________________
Signature Date Signature Date
<PAGE>
FOR MORE INFORMATION
More information on the funds is available free upon request,
including the following:
Annual/Semiannual Reports. Provides additional information about the funds'
investments, describes each fund's performance, and contains letters from the
fund managers discussing recent market conditions, economic trends and
fund strategies that significantly affect the fund's
performance during that period.
Statement of Additional Information (SAI). Provides more details about each fund
and its policies. A current SAI is on file with the Securities and Exchange
Commission and is incorporated herein by reference (meaning
it is legally considered part of this prospectus).
To obtain information or make an inquiry, contact Heritage Mutual Funds:
By mail: 880 Carillon Parkway
St. Petersburg, Florida 33716
By telephone: (800) 421-4184
By Internet: www.heritagefunds.com
[GRAPHIC]
These documents and other information about the funds can be reviewed and copied
at the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room may be obtained
by calling the Commission at (202) 942-8090. Reports and other information about
the funds may be viewed on-screen or downloaded from the EDGAR Database on SEC's
Internet web site at http://www.sec.gov. Copies of these documents may be
obtained, after paying a duplicating fee, by electronic request at the
following e-mail address: [email protected], or by writing the SEC's
Public Reference Section, Washington, D.C. 20549-0102.
To eliminate unnecessary duplication, only one copy of the prospectus or other
shareholder reports may be sent to shareholders with the same mailing address.
However, if you wish to receive a copy of the prospectus or other shareholder
reports for each shareholder with the same mailing address, you should call
1-800-421-4184 or send an e-mail to: [email protected].
The funds' Investment Company and Securities Act registration numbers are:
Heritage Capital Appreciation Trust 811-4338 2-98634
Heritage Income-Growth Trust 811-4767 33-7559
Heritage Series Trust 811-7470 33-57986
No dealer, salesman or other person has been authorized to give any information
or to make any representation other than that contained in this Prospectus in
connection with the offer contained in this Prospectus, and, if given or made,
such other information or representations must not be relied upon unless
having been authorized by the funds or their distributor. This Prospectus
does not constitute an offering in any state in which such offering may
not lawfully be made.
130M 12/00
(HERITAGE Raymond James & Associates, Inc.,
LOGO GOES Distributor
HERE) Member New York Stock Exchange/SIPC
P.O. Box 33022, St. Petersburg, FL 33733
727-573-8143 o 800-421-4184
================================================================================
Address Service Requested
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HERITAGE EQUITY FUNDS
O AGGRESSIVE GROWTH FUND O INCOME-GROWTH TRUST
O CAPITAL APPRECIATION TRUST O MID CAP STOCK FUND
O EAGLE INTERNATIONAL EQUITY O SMALL CAP STOCK FUND
PORTFOLIO O TECHNOLOGY FUND
O GROWTH EQUITY FUND O VALUE EQUITY FUND
This Statement of Additional Information ("SAI") dated January 2, 2001,
should be read in conjunction with the Prospectus dated January 2, 2001,
describing the Class A, Class B and Class C shares the Capital Appreciation
Trust, the Income-Growth Trust and the Heritage Series Trust, including its
seven series, the Aggressive Growth Fund, the Eagle International Equity
Portfolio, the Growth Equity Fund, the Mid Cap Stock Fund, the Small Cap Stock
Fund, the Technology Fund and the Value Equity Fund (each a "fund" and,
collectively, the "funds").
This SAI is not a prospectus itself. To receive a copy of the funds'
Prospectus, write to Heritage Asset Management, Inc. ("Heritage") at the address
below or call (800) 421-4184.
HERITAGE ASSET MANAGEMENT, INC.
880 Carillon Parkway, St. Petersburg, Florida 33716
<PAGE>
TABLE OF CONTENTS
PAGE
----
I. GENERAL INFORMATION.......................................................1
A. History.............................................................1
B. Classification and Structure........................................1
II. INVESTMENT INFORMATION...................................................1
A. Investment Policies and Strategies..................................1
B. Industry Classifications...........................................19
III. INVESTMENT LIMITATIONS.................................................20
A. Fundamental Investment Policies....................................20
B. Fundamental Policies Unique to Eagle International.................22
C. Fundamental Policies Unique to Income-Growth.......................22
D. Non-Fundamental Investment Policies................................22
E. Non-Fundamental Policies Unique to Capital Appreciation............23
F. Non-Fundamental Policies Unique to Small Cap.......................23
IV. NET ASSET VALUE.........................................................24
V. PERFORMANCE INFORMATION..................................................25
VI. INVESTING IN THE FUNDS..................................................28
A. Systematic Investment Options......................................28
B. Retirement Plans...................................................29
C. Class A Combined Purchase Privilege (Right of Accumulation)........30
D. Class A Statement of Intention.....................................30
VII. REDEEMING SHARES.......................................................31
A. Systematic Withdrawal Plan.........................................31
B. Telephone Transactions.............................................32
C. Redemptions in Kind................................................32
D. Receiving Payment..................................................32
VIII. EXCHANGE PRIVILEGE....................................................33
IX. CONVERSION OF CLASS B SHARES............................................34
X. TAXES....................................................................34
XI. SHAREHOLDER INFORMATION.................................................38
XII. FUND INFORMATION.......................................................38
A. Management of the Funds............................................38
B. Five Percent Shareholders..........................................41
C. Investment Advisers and Administrator; Subadvisers.................41
D. Brokerage Practices................................................45
E. Distribution of Shares.............................................48
F. Administration of the Funds........................................50
G. Potential Liability................................................51
APPENDIX A - FUND INVESTMENT TABLE.........................................A-1
APPENDIX B - COMMERCIAL PAPER / CORPORATE DEBT RATINGS.....................B-1
REPORTS OF THE INDEPENDENT ACCOUNTANTS & FINANCIAL STATEMENTS..............C-1
i
<PAGE>
1
I. GENERAL INFORMATION
-------------------
A. HISTORY
-------
The Heritage Capital Appreciation Trust ("Capital Appreciation"), the
Heritage Income-Growth Trust ("Income-Growth") and the Heritage Series Trust
("Series Trust") (collectively, the "Trusts") each was established as a
Massachusetts business trust under a Declaration of Trust dated June 21, 1985,
July 25, 1986, and October 28, 1992, respectively.
B. CLASSIFICATION AND STRUCTURE
----------------------------
Each Trust is a registered as an open-end diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"). Capital Appreciation and Income-Growth each offers shares through a
single investment portfolio. Series Trust currently offers its shares through
seven separate investment portfolios: the Aggressive Growth Fund ("Aggressive
Growth"), the Eagle International Equity Portfolio ("Eagle International"), the
Growth Equity Fund ("Growth Equity"), the Mid Cap Stock Fund ("Mid Cap") (prior
to January 3, 2000, named the Mid Cap Growth Fund), the Small Cap Stock Fund
("Small Cap"), the Technology Fund ("Technology Fund") and the Value Equity Fund
("Value Equity"). Each fund currently offers three classes of shares, Class A
shares sold subject to a 4.75% maximum front-end sales charge ("Class A
shares"), Class B shares sold subject to a 5% maximum contingent deferred sales
charge ("CDSC"), declining over a six-year period ("Class B shares") and Class C
shares, sold subject to a 1% CDSC ("Class C shares"). Eagle International also
offers Eagle Class shares, which are not covered in this SAI. To obtain more
information about Eagle Class shares, call (800) 237-3101.
Each fund described in this SAI operates for many purposes as if it were
an independent company. Each fund has its own objective(s), policies, strategies
and portfolio managers, among other characteristics.
The Technology Fund is classified as non-diversified within the meaning of
the 1940 Act, which means that it is not restricted by the 1940 Act in the
proportion of its assets that it may invest in the securities of a single
issuer. The Technology Fund's investments are limited, however, to allow it to
qualify as a "regulated investment company" under current tax law. See "Taxes"
for more information. To the extent that the fund assumes large positions in the
securities of a small number of issuers, its net asset value may fluctuate to a
greater extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers, and the fund
may be more susceptible to any single economic, political or regulatory
occurrence than a diversified company.
II. INVESTMENT INFORMATION
----------------------
A. INVESTMENT POLICIES AND STRATEGIES
----------------------------------
This section provides a detailed description of the securities in which a
fund may invest to achieve its investment objective, the strategies it may
employ and the corresponding risks of such securities and strategies. In
general, each fund invests at least 65% of its total assets in equity
securities, common stocks, income-producing securities or foreign securities.
The remainder of a fund's assets may be invested in the securities specified
below. At APPENDIX A you will find a FUND INVESTMENT TABLE that provides
information regarding the extent to which each fund may invest in a specific
security or instrument. For more information on a fund's principal strategies
and risks, please see the funds' prospectus.
1
<PAGE>
EQUITY SECURITIES:
COMMON STOCKS. Each fund may invest in common stocks. Common stocks
represent the residual ownership interest in the issuer and are entitled to the
income and increase in the value of the assets and business of the entity after
all of its obligations and preferred stock are satisfied. Common stocks
generally have voting rights. Common stocks fluctuate in price in response to
many factors including historical and prospective earnings of the issuer, the
value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
CONVERTIBLE SECURITIES. Each fund may invest in convertible securities.
Convertible securities include corporate bonds, notes and preferred stock that
can be converted into or exchanged for a prescribed amount of common stock of
the same or a different issue within a particular period of time at a specified
price or formula. A convertible security entitles the holder to receive interest
paid or accrued on debt or dividends paid on preferred stock until the
convertible stock matures or is redeemed, converted or exchanged. While no
securities investment is without some risk, investments in convertible
securities generally entail less risk than the issuer's common stock, although
the extent to which such risk is reduced depends in large measure upon the
degree to which the convertible security sells above its value as a fixed income
security. The market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
While convertible securities generally offer lower interest or dividend yields
than nonconvertible debt securities of similar quality, they do enable the
investor to benefit from increases in the market price of the underlying common
stock. Please see the discussion of "Investment Grade/Lower Rated Securities"
for additional information.
PREFERRED STOCK. Each fund may invest in preferred stock. A preferred
stock blends the characteristics of a bond and common stock. It can offer the
higher yield of a bond and has priority over common stock in equity ownership,
but does not have the seniority of a bond and its participation in the issuer's
growth may be limited. Preferred stock has preference over common stock in the
receipt of dividends and in any residual assets after payment to creditors if
the issuer is dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.
REAL ESTATE INVESTMENT TRUSTS ("REITS"). Each fund may invest in REITs.
REITs include equity, mortgage and hybrid REITs. Equity REITs own real estate
properties, and their revenue comes principally from rent. Mortgage REITs loan
money to real estate owners, and their revenue comes principally from interest
earned on their mortgage loans. Hybrid REITs combine characteristics of both
equity and mortgage REITs. The value of an equity REIT may be affected by
changes in the value of the underlying property, while a mortgage REIT may be
affected by the quality of the credit extended. The performance of both types of
REITs depends upon conditions in the real estate industry, management skills and
the amount of cash flow. The risks associated with REITs include defaults by
borrowers, self-liquidation, failure to qualify as a pass-through entity under
the Federal tax law, failure to qualify as an exempt entity under the 1940 Act
and the fact that REITs are not diversified.
WARRANTS AND RIGHTS. Each fund may purchase warrants and rights, which are
instruments that permit a fund to acquire, by subscription, the capital stock of
a corporation at a set price, regardless of the market price for such stock.
Warrants may be either perpetual or of limited duration but they usually do not
have voting rights or pay dividends. The market price of warrants is usually
significantly less than the current price of the underlying stock. Thus, there
is a greater risk that warrants might drop in value at a faster rate than the
underlying stock. Aggressive Growth, Eagle International, Growth Equity, Mid
Cap, Small Cap and Value Equity currently do not intend to invest more than 5%
of their respective net assets in warrants. Eagle International also may invest
in warrants or rights it acquired as part of a unit or attached to securities at
the time of purchase without limitation.
2
<PAGE>
DEBT SECURITIES:
DEBT SECURITIES. Each fund may invest in debt securities. The market value
of debt securities is influenced primarily by changes in the level of interest
rates. Generally, as interest rates rise, the market value of debt securities
decreases. Conversely, as interest rates fall, the market value of debt
securities increases. Factors that could result in a rise in interest rates, and
a decrease in the market value of debt securities, include an increase in
inflation or inflation expectations, an increase in the rate of U.S. economic
growth, an increase in the Federal budget deficit or an increase in the price of
commodities such as oil.
CORPORATE DEBT OBLIGATIONS. Eagle International, Income-Growth and Mid Cap
may invest in corporate debt securities, including corporate bonds, debentures,
notes and other similar corporate debt instruments. The funds invest primarily
in investment grade non-convertible corporate debt. Income-Growth and Mid Cap
may invest no more than 10% and 5%, respectively, of their respective assets in
below investment grade non-convertible corporate debt obligations. Please see
the discussion of "Investment Grade/Lower Rated Securities" for additional
information.
INVESTMENT GRADE/LOWER RATED SECURITIES:
INVESTMENT GRADE SECURITIES. Each fund may invest in securities rated
investment grade. Investment grade securities include securities rated BBB or
above by Standard & Poor's ("S&P"), or Baa by Moody's Investors Service, Inc.
("Moody's") or, if unrated, are deemed to be of comparable quality by a fund's
subadviser. Securities rated in the lowest category of investment grade are
considered to have speculative characteristics and changes in economic
conditions are more likely to lead to a weakened capacity to pay interest and
repay principal than is the case with higher grade bonds. Each fund may retain a
security that has been downgraded below investment grade if, in the opinion of
its subadviser, it is in the fund's best interest.
LOWER RATED / HIGH-YIELD SECURITIES. Aggressive Growth, Eagle
International, Income-Growth, Mid Cap and Small Cap may invest in securities
rated below investment grade, I.E., rated below BBB or Baa by S&P and Moody's,
respectively, or unrated securities determined to be below investment grade by
its subadviser. These securities are commonly referred to as "high yield
securities" and are deemed to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal and may involve major risk
exposure to adverse conditions. These securities are subject to specific risks
that may not be present with investments of higher grade securities.
RISK FACTORS OF LOWER RATED / HIGH-YIELD SECURITIES:
---------------------------------------------------
INTEREST RATE AND ECONOMIC RISK. As with all debt securities, the
market prices of high yield securities tend to decrease when interest rates rise
and increase when interest rates fall. The prices of high yield securities also
will fluctuate greatly during periods of economic uncertainty and changes and,
thus, in a fund's net asset value. During these periods, some highly leveraged
high yield securities issuers may experience a higher incidence of default due
to their inability to meet principal and interest payments, projected business
goals or to obtain additional financing. In addition, a fund may need to replace
or sell a junk bond that it owns at unfavorable prices or returns. Accordingly,
those high yield securities held by a fund may affect its net asset value and
performance adversely during such times.
In a declining interest rate market, if an issuer of a high-yield
security containing a redemption or call provision exercises either provision, a
fund would have to replace the security, which could result in a decreased
return for shareholders. Conversely, if a fund experiences unexpected net
redemptions in a rising interest rate market, it might be forced to sell certain
securities, regardless of investment merit. This could result in decreasing the
assets to which the fund's expenses could be allocated and in a reduced rate of
return for it. While it is impossible to protect entirely against this risk,
diversification of a fund's investment portfolio and its subadviser's careful
3
<PAGE>
analysis of prospective investment portfolio securities should minimize the
impact of a decrease in value of a particular security or group of securities in
the fund's investment portfolio.
CREDIT RISK. Credit ratings usually evaluate the safety of principal
and interest payment of debt securities, such as high yield securities but may
not reflect the true risks of an investment in such securities. A reduction in
an issuer's credit rating may cause that issuer's high yield securities to
decrease in market value. A fund's subadviser continually monitors the
investments in its respective investment portfolio and carefully evaluates
whether to dispose of or retain high yield securities whose credit ratings have
changed. A fund' subadviser primarily relies on its own credit analysis,
including a study of existing debt, capital structure, ability to service debt
and pay dividends, sensitivity to economic conditions and other factors in its
determination. See Appendix A for a description of corporate debt ratings.
LIQUIDITY RISK. The market for high yield securities tends to be
less active and primarily dominated by institutional investors compared to the
market for high-quality debt securities. During periods of economic uncertainty
or adverse economic changes, the market may be further restricted. In these
conditions, a fund may have to dispose of its high yield securities at
unfavorable prices or below fair market value. In addition, during such times,
reliable objective information may be limited or unavailable and negative
publicity may affect adversely the public's perception of the junk bond market.
A Trust's Board of Trustees ("Board") or subadviser may have difficulty
assessing the value of high yield securities during these times. Consequently,
any of these factors may reduce the market value of high yield securities held
by a fund.
SHORT-TERM MONEY MARKET INSTRUMENTS:
BANKERS' ACCEPTANCES. Each fund may invest in bankers' acceptances.
Bankers' acceptances generally are negotiable instruments (time drafts) drawn to
finance the export, import, domestic shipment or storage of goods. They are
termed "accepted" when a bank writes on the draft its agreement to pay it at
maturity, using the word "accepted." The bank is, in effect, unconditionally
guaranteeing to pay the face value of the instrument on its maturity date. The
acceptance may then be held by the accepting bank as an asset, or it may be sold
in the secondary market at the going rate of interest for a specified maturity.
Maturities on bankers' acceptances that are eligible for purchase at times
extend to nine months, but more commonly range from 30 to 180 days.
Income-Growth may invest in bankers' acceptances of domestic banks and
savings and loans that have assets of at least $1 billion and capital, surplus
and undivided profits of over $100 million as of the close of their most recent
fiscal year, or instruments that are insured by the Bank Insurance Fund or the
Savings Institution Insurance Fund of the Federal Deposit Insurance Corporation
("FDIC").
CERTIFICATES OF DEPOSIT ("CDS"). Each fund may invest in CDs issued by
domestic institutions with assets in excess of $1 billion. The FDIC is an agency
of the U.S. Government that insures the deposits of certain banks and savings
and loan associations up to $100,000 per deposit. The interest on such deposits
may not be insured if this limit is exceeded. Current federal regulations also
permit such institutions to issue insured negotiable CDs in amounts of $100,000
or more, without regard to the interest rate ceilings on other deposits. To
remain fully insured, these investments must be limited to $100,000 per insured
bank or savings and loan association.
COMMERCIAL PAPER. Each fund, except Eagle International, may invest in
commercial paper that is limited to obligations rated Prime-1 or Prime-2 by
Moody's or A-1 or A-2 by S&P. Eagle International may invest only in commercial
paper that is rated Prime-1 by Moody's or A-1 by S&P. Commercial paper includes
4
<PAGE>
notes, drafts or similar instruments payable on demand or having a maturity at
the time of issuance not exceeding nine months, exclusive of days of grace or
any renewal thereof. See Appendix B for a description of commercial paper
ratings.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS:
REPURCHASE AGREEMENTS. Each fund may invest in repurchase agreements. In
accordance with the guidelines and procedures established by the Board, a fund
may enter into repurchase agreements with member banks of the Federal Reserve
System, securities dealers who are members of a national securities exchange or
market makers in U.S. Government securities. A repurchase agreement is a
transaction in which a fund purchases securities and commits to resell the
securities to the original seller at an agreed upon date. The resale price
reflects a market rate of interest that is unrelated to the coupon rate or
maturity of the purchased securities. Although repurchase agreements carry
certain risks not associated with direct investment in securities, including
possible declines in the market value of the underlying securities and delays
and costs to a fund if the other party becomes bankrupt, a fund intends to enter
into repurchase agreements only with banks and dealers in transactions believed
by its subadviser to present minimal credit risks.
The period of these repurchase agreements usually will be short, from
overnight to one week, and at no time will the funds invest in repurchase
agreements of more than one year. The securities that are subject to repurchase
agreements, however, may have maturity dates in excess of one year from the
effective date of the repurchase agreement. A fund always will receive as
collateral securities whose market value, including accrued interest, will be at
least equal to 100% of the dollar amount invested by the fund in each agreement,
and the fund will make payment for such securities only upon physical delivery
or evidence of book entry transfer to the account of its custodian, State Street
Bank and Trust Company ("Custodian").
REVERSE REPURCHASE AGREEMENTS. Each fund may borrow by entering into
reverse repurchase agreements with the same parties with whom it may enter into
repurchase agreements. Under a reverse repurchase agreement, a fund sells
securities and agrees to repurchase them at a mutually agreed to price. At the
time a fund enters into a reverse repurchase agreement, it will establish and
maintain a segregated account with an approved custodian containing liquid
high-grade securities, marked-to-market daily, having a value not less than the
repurchase price (including accrued interest). Reverse repurchase agreements
involve the risk that the market value of securities retained in lieu of sale by
a fund may decline below the price of the securities the fund has sold but is
obliged to repurchase. If the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, such buyer or its trustee
or receiver may receive an extension of time to determine whether to enforce a
fund's obligation to repurchase the securities. During that time, a fund's use
of the proceeds of the reverse repurchase agreement effectively may be
restricted. Reverse repurchase agreements create leverage, a speculative factor,
and are considered borrowings for the purpose of a fund's limitation on
borrowing.
U.S. GOVERNMENT AND ZERO COUPON SECURITIES:
U.S. GOVERNMENT SECURITIES. Each fund may invest in U.S. Government
securities. U.S. Government securities include Treasury bills, Treasury notes
and Treasury bonds, Federal Home Loan Bank obligations, Federal Intermediate
Credit Bank obligations, U.S. Government agency obligations and repurchase
agreements secured thereby. U.S. Government securities are issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, supported by the
issuer's right to borrow from the U.S. Treasury or supported by the issuer's
credit.
ZERO COUPON SECURITIES. Income-Growth may invest in zero coupon
securities. Zero coupon securities are debt obligations that do not entitle the
5
<PAGE>
holder to any periodic payment of interest prior to maturity or a specified date
when the securities begin paying current interest. Zero coupon securities are
issued and traded at a discount from their face amount or par value, which
discount rate varies depending on the time remaining until cash payments begin,
prevailing interest rates, liquidity of the security, and the perceived credit
quality of the issuer. The market prices of zero coupon securities generally are
more volatile than the prices of securities that pay interest periodically and
are likely to respond to changes in interest rates to a greater degree than do
other types of debt securities having similar maturities and credit value.
FOREIGN SECURITIES EXPOSURE:
DEPOSITORY RECEIPTS. Aggressive Growth, Eagle International, Growth
Equity, Income-Growth, Small Cap, Technology and Value Equity may invest in
sponsored or unsponsored European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs"), International Depository Receipts ("IDRs") or
other similar securities representing interests in or convertible into
securities of foreign issuers (collectively, "Depository Receipts"). Depository
Receipts are not necessarily denominated in the same currency as the underlying
securities into which they may be converted and are subject to foreign
securities risks, as discussed below.
EDRs and IDRs are receipts typically issued by a European bank or trust
company evidencing ownership of the underlying foreign securities. GDRs are
issued globally for trading in non-U.S. securities markets and evidence a
similar ownership arrangement. Issuers of the securities underlying unsponsored
Depository Receipts are not obligated to disclose material information in the
United States and, therefore, there may be less information available regarding
such issuers and there may not be a correlation between such information and the
market value of these unsponsored Depository Receipts. For purposes of certain
investment limitations, EDRs, GDRs and IDRs are considered to be foreign
securities by Income-Growth.
EURO/YANKEE BONDS. Eagle International may invest in dollar-denominated
bonds issued by foreign branches of domestic banks ("Eurobonds") and
dollar-denominated bonds issued by a U.S. branch of a foreign bank and sold in
the United States ("Yankee bonds"). Investment in Eurobonds and Yankee bonds
entails certain risks similar to investment in foreign securities in general.
These risks are discussed below.
EURODOLLAR CERTIFICATES. Income-Growth may purchase CDs issued by foreign
branches of domestic and foreign banks. Domestic and foreign Eurodollar
certificates, such as CDs and time deposits, may be general obligations of the
parent bank in addition to the issuing branch or may be limited by the terms of
a specific obligation or governmental regulation. Such obligations may be
subject to different risks than are those of domestic banks or domestic branches
of foreign banks. These risks include foreign economic and political
developments, foreign governmental restrictions that may affect adversely
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income. Foreign branches of
foreign banks are not necessarily subject to the same or similar regulatory
requirements, loan limitations, and accounting, auditing and recordkeeping
requirements as are domestic banks or domestic branches of foreign banks. In
addition, less information may be publicly available about a foreign branch of a
domestic bank or a foreign bank than a domestic bank.
FOREIGN SECURITIES. Each fund may invest in foreign securities. In most
cases, the best available market for foreign securities will be on exchanges or
in over-the-counter markets located outside the United States. Foreign stock
markets, while growing in volume and sophistication, generally are not as
developed as those in the United States, and securities of some foreign issuers
(particularly those located in developing countries) may be less liquid and more
volatile than securities of comparable U.S. companies. Their markets and
economies may react differently to specific or global events than the U.S.
market and economy. In addition, foreign brokerage commissions generally are
higher than commissions on securities traded in the United States. In general,
6
<PAGE>
there is less overall governmental supervision and regulation of securities
exchanges, brokers and listed companies than in the United States. Investments
in foreign securities also involve the risk of possible adverse changes in
investment or exchange control regulations, expropriation or confiscatory
taxation, limitation on or delays in the removal of funds or other assets of a
fund, political or financial instability or diplomatic and other developments
that could affect such investments.
Eagle International may invest in emerging markets. Special considerations
(in addition to the considerations regarding foreign investments generally) may
include greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, a limited number of potential buyers for such
securities and delays and disruptions in securities settlement procedures.
No fund will invest in foreign securities when there are currency or
trading restrictions in force or when, in the judgment of its subadviser, such
restrictions are likely to be imposed. However, certain currencies may become
blocked (I.E., not freely available for transfer from a foreign country),
resulting in the possible inability of the fund to convert proceeds realized
upon sale of portfolio securities of the affected foreign companies into U.S.
currency.
Because investments in foreign companies usually will involve currencies
of foreign countries and because Aggressive Growth, Capital Appreciation, Growth
Equity, Income-Growth, Technology and Value Equity may temporarily hold funds in
bank deposits in foreign currencies during the completion of investment
programs, the value of any of the assets of these funds as measured in U.S.
dollars may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and the fund may incur costs in
connection with conversions between various currencies. Each fund will conduct
its foreign currency exchange transactions on a spot (I.E., cash) basis at the
spot rate prevailing in the foreign currency exchange market. Additionally, to
protect against uncertainty in the level of future exchange rates. Capital
Appreciation, Growth Equity, Income-Growth, Technology and Value Equity may
enter into contracts to purchase or sell foreign currencies at a future date (a
"forward currency contract" or "forward contract").
AMERICAN DEPOSITORY RECEIPTS ("ADRS"):
Each fund except Capital Appreciation may invest in both sponsored and
unsponsored ADRs. Capital Appreciation may invest only in sponsored ADRs. ADRs
are receipts that represent interests in, or are convertible into, securities of
foreign issuers. These receipts are not necessarily denominated in the same
currency as the underlying securities into which they may be converted.
ADRs may be purchased through "sponsored" or "unsponsored" facilities. A
sponsored facility is established jointly by the issuer of the underlying
security and a depository, whereas a depository may establish an unsponsored
facility without participation by the issuer of the depository security. Holders
of unsponsored depository receipts generally bear all the costs of such
facilities, and the depository of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through voting rights to the holders of such
receipts of the deposited securities. Generally, ADRs in registered form are
designed for use in the U.S. securities market and ADRs in bearer form are
designed for use outside the United States. For purposes of certain investment
limitations, ADRs are considered to be foreign securities by Capital
Appreciation, Growth Equity and Income-Growth and are subject to many of the
risks inherent in investing in foreign securities, as discussed previously.
7
<PAGE>
HEDGING INSTRUMENTS - FUTURES, FORWARDS, OPTIONS AND HEDGING TRANSACTIONS:
GENERAL DESCRIPTION. Each fund, except Small Cap, may use certain
financial instruments ("Hedging Instruments"), including futures contracts
(sometimes referred to as "futures"), options, options on futures and forward
currency contracts, to attempt to hedge the fund's investment portfolio as
discussed below.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is the purchase or sale of a Hedging Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in a fund's investment portfolio. Thus, in a short hedge, a
fund takes a position in a Hedging Instrument whose price is expected to move in
the opposite direction of the price of the investment being hedged. A long hedge
is the purchase or sale of a Hedging Instrument intended partially or fully to
offset potential increases in the acquisition cost of one or more investments
that the fund intends to acquire. Thus, in a long hedge, a fund takes a position
in a Hedging Instrument whose price is expected to move in the same direction as
the price of the prospective investment being hedged.
Hedging Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that a fund owns
or intends to acquire. Hedging Instruments on indices may be used to hedge broad
market sectors.
The use of Hedging Instruments is subject to applicable regulations of the
SEC, the exchanges upon which they are traded and the Commodity Futures Trading
Commission ("CFTC"). In addition, a fund's ability to use Hedging Instruments
may be limited by tax considerations. See "Taxes."
In addition to the products and strategies described below, the funds
expect to discover additional opportunities in connection with options, futures
contracts, forward currency contracts and other hedging techniques. These new
opportunities may become available as each fund's subadviser develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures contracts, forward currency contracts
or other techniques are developed. A fund's subadviser may utilize these
opportunities to the extent that it is consistent with a fund's investment
objective(s) and permitted by the fund's investment limitations and applicable
regulatory authorities. Although a fund may be permitted to use a variety of
Hedging Instruments, each fund presently intends to purchase and sell and use
for hedging or investment purposes those Hedging Instruments as specified and
discussed in the sections that follow.
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Hedging Instruments
involves special considerations and risks, as described below. Risks pertaining
to particular Hedging Instruments are described in the sections that follow.
(1) Successful use of most Hedging Instruments depends upon a fund's
subadviser's ability to predict movements of the overall securities, currency
and interest rate markets, which requires different skills than predicting
changes in the prices of individual securities. While each fund's subadviser is
experienced in the use of Hedging Instruments, there can be no assurance that
any particular hedging strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Hedging Instrument and price movements of the
investments being hedged. For example, if the value of a Hedging Instrument used
in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Hedging
Instruments are traded. The effectiveness of hedges, using Hedging Instruments
8
<PAGE>
on indices, will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
To compensate for imperfect correlation, a fund may purchase or sell
Hedging Instruments in a greater dollar amount than the hedged securities or
currency if the volatility of the hedged securities or currency is historically
greater than the volatility of the Hedging Instruments. Conversely, a fund may
purchase or sell fewer contracts if the volatility of the price of the hedged
securities or currency is historically less than that of the Hedging
Instruments.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies also can
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a fund entered into a short
hedge because its subadviser projected a decline in the price of a security in
the fund's investment portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Hedging Instrument. Moreover, if the price of the
Hedging Instrument declined by more than the increase in the price of the
security, the fund could suffer a loss. In either such case, the fund would have
been in a better position had it not hedged at all.
(4) As described below, each fund might be required to maintain
assets as "cover," maintain segregated accounts or make margin payments when it
takes positions in Hedging Instruments involving obligations to third parties.
If a fund were unable to close out its positions in such Hedging Instruments, it
might be required to continue to maintain such assets or accounts or make such
payments until the position expired or matured. These requirements might impair
a fund's ability to sell a portfolio security or make an investment at a time
when it would otherwise be favorable to do so, or require that the fund sell a
portfolio security at a disadvantageous time. A fund's ability to close out a
position in a Hedging Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the other party to the transaction ("counterparty")
to enter into a transaction closing out the position. Therefore, there is no
assurance that any hedging position can be closed out at a time and price that
is favorable to the fund.
COVER FOR HEDGING STRATEGIES. Some Hedging Instruments expose a fund
to an obligation to another party. A fund will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position in
securities, currencies, forward currency contracts, options, futures contracts
or forward contracts or (2) cash and other liquid assets with a value,
marked-to-market daily, sufficient at all times to cover its potential
obligations to the extent not covered as provided in (1) above. Each fund will
comply with SEC guidelines regarding cover for instruments and will, if the
guidelines so require, set aside cash or other liquid assets in an account with
the fund's Custodian, in the prescribed amount.
Assets used as cover or otherwise held in an account cannot be sold
while the position in the corresponding Hedging Instrument is open, unless they
are replaced with other appropriate assets. As a result, the commitment of a
large portion of a fund's assets to cover in segregated accounts could impede
its ability to meet redemption requests or other current obligations.
OPTIONS
Each fund, except Aggressive Growth, Capital Appreciation and Small Cap,
may use for hedging or investment purposes, certain options, including options
on securities, equity and debt indices and currencies. However, Income-Growth
may only purchase and sell call options on securities, and write covered call
options on securities as discussed below. Technology may purchase and sell only
options on securities and indices for hedging purposes. Certain special
characteristics of and risks with these strategies are discussed below.
9
<PAGE>
CHARACTERISTICS AND RISKS OF OPTIONS TRADING. A call option gives
the purchaser the right to buy, and obligates the writer to sell, the underlying
investment at the agreed-upon price during the option period. A put option gives
the purchaser the right to sell, and obligates the writer to buy, the underlying
investment at the agreed-upon price during the option period. Purchasers of
options pay an amount, known as a premium, to the option writer in exchange for
the right under the option contract.
The purchase of call options can serve as a long hedge, and the
purchase of put options can serve as a short hedge. Writing put or call options
can enable the fund to enhance income or yield by reason of the premiums paid by
the purchasers of such options. However, if the market price of the security
underlying a put option declines to less than the exercise price of the option,
minus the premium received, the fund would expect to suffer a loss.
Writing call options can serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund will
be obligated to sell the security or currency at less than its market value. If
the call option is an over-the-counter ("OTC") option, the securities or other
assets used as cover would be considered illiquid to the extent described under
"Illiquid and Restricted Securities."
Writing put options can serve as a limited long hedge because
increases in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency depreciates to a price lower than the exercise price of the put option,
it can be expected that the put option will be exercised and the fund will be
obligated to purchase the security or currency at more than its market value. If
the put option is an OTC option, the securities or other assets used as cover
would be considered illiquid to the extent described under "Illiquid and
Restricted Securities."
The value of an option position will reflect, among other things,
the current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
A fund effectively may terminate its right or obligation under an
option by entering into a closing transaction. If the fund wished to terminate
its obligation to purchase or sell securities or currencies under a put or call
option it has written, it may purchase a put or call option of the same series
(I.E., an option identical in its terms to the option previously written); this
is known as a closing purchase transaction. Conversely, in order to terminate
its right to purchase or sell under a call or put option it has purchased, a
fund may write a call or put option of the same series; this is known as a
closing sale transaction. Closing transactions essentially permit the fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. Whether a profit or loss is realized from a closing
transaction depends on the price movement of the underlying security, index,
currency or futures contract and the market value of the option.
In considering the use of options, particular note should be taken
of the following:
(1) The value of an option position will reflect, among other things,
the current market price of the underlying security, index, currency or 10
futures contract, the time remaining until expiration, the relationship of the
exercise price to the market price, the historical price volatility of the
underlying instrument and general market conditions. For this reason, the
successful use of options depends upon a fund's subadviser's ability to forecast
the direction of price fluctuations in the underlying instrument.
10
<PAGE>
(2) At any given time, the exercise price of an option may be below,
equal to or above the current market value of the underlying instrument.
Purchased options that expire unexercised have no value. Unless an option
purchased by a fund is exercised or unless a closing transaction is effected
with respect to that position, a loss will be realized in the amount of the
premium paid.
(3) A position in an exchange-listed option may be closed out only
on an exchange that provides a secondary market for identical options. Most
exchange-listed options relate to futures contracts, stocks and currencies. The
ability to establish and close out positions on the exchanges is subject to the
maintenance of a liquid secondary market. Although a fund intends to purchase or
write only those options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market will exist for any
particular option at any specific time. In such event, it may not be possible to
effect closing transactions with respect to certain options, with the result
that the fund would have to exercise those options that it has purchased in
order to realize any profit.
Unlike exchange-traded options, which are standardized with respect
to the underlying instrument, expiration date, contract size, and strike price,
the terms of OTC options (options not traded on exchanges) generally are
established through negotiation with the other party to the option contract.
While this type of arrangement allows a fund greater flexibility to tailor the
option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchanges where they are traded. Since closing transactions may be effected
with respect to options traded in the OTC markets (currently the primary markets
of options on debt securities) only by negotiating directly with the other party
to the option contract, or in a secondary market for the option if such market
exists, there can be no assurance that a fund will in fact be able to close out
an OTC option position at a favorable price prior to expiration. In the event of
insolvency of the counterparty, the Fund might be unable to close out an OTC
option position at any time prior to its expiration.
With respect to options written by a fund, the inability to enter
into a closing transaction may result in material losses to it. For example,
because a fund may maintain a covered position with respect to any call option
it writes on a security, it may not sell the underlying security during the
period it is obligated under such option. This requirement may impair the fund's
ability to sell a portfolio security or make an investment at a time when such a
sale or investment might be advantageous.
(4) Activities in the options market may result in a higher
portfolio turnover rate and additional brokerage costs; however, a fund also may
save on commissions by using options as a hedge rather than buying or selling
individual securities in anticipation of market movements.
(5) The risks of investment in options on indices may be greater
than options on securities or currencies. Because index options are settled in
cash, when a fund writes a call on an index it cannot provide in advance for its
potential settlement obligations by acquiring and holding the underlying
securities. A fund can offset some of the risk of writing a call index option by
holding a diversified portfolio of securities similar to those on which the
underlying index is based. However, the fund cannot, as a practical matter,
acquire and hold an investment portfolio containing exactly the same securities
as underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.
Even if a fund could assemble an investment portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
11
<PAGE>
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, a fund as the call writer will not
learn that it has been assigned until the next business day at the earliest. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as common stock,
because there the writer's obligation is to deliver the underlying security, not
to pay its value as of a fixed time in the past. So long as the writer already
owns the underlying security, it can satisfy its settlement obligations by
simply delivering it, and the risk that its value may have declined since the
exercise date is borne by the exercising holder. In contrast, even if the writer
of an index call holds securities that exactly match the composition of the
underlying index, it will not be able to satisfy its assignment obligations by
delivering those securities against payment of the exercise price. Instead, it
will be required to pay cash in an amount based on the closing index value on
the exercise date. By the time it learns that it has been assigned, the index
may have declined, with a corresponding decline in the value of its investment
portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding securities positions.
If a fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index subsequently may change. If such a change causes the
exercised option to fall out-of-the-money, the fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
As noted above, Income-Growth and Value Equity may write covered
call options on securities to increase income in the form of premiums received
from the purchasers of the options. Because it can be expected that a call
option will be exercised if the market value of the underlying security
increases to a level greater than the exercise price, a fund will write covered
call options on securities generally when its subadviser believes that the
premium received by the fund plus anticipated appreciation in the market price
of the underlying security up to the exercise price of the option, will be
greater than the total appreciation in the price of the security. For
Income-Growth, the aggregate value of the securities underlying call options
(based on the lower of the option price or market) may not exceed 50% of its net
assets. For Value Equity, its investment in covered call options may not exceed
10% of the fund's total assets.
The strategy also may be used to provide limited protection against
a decrease in the market price of the security in an amount equal to the premium
received for writing the call option, less any transaction costs. Thus, if the
market price of the underlying security held by a fund declines, the amount of
such decline will be offset wholly or in part by the amount of the premium
received by the fund. If, however, there is an increase in the market price of
the underlying security and the option is exercised, the fund will be obligated
to sell the security at less than its market value. A fund would lose the
ability to participate in the value of such securities above the exercise price
of the call option. A fund also gives up the ability to sell the portfolio
securities used to cover the call option while the call option is outstanding.
FUTURES AND OPTIONS ON FUTURES
Growth Equity and Value Equity may purchase and sell futures on
securities, indices or currencies and options on futures for hedging or
investment purposes. Eagle International may purchase and sell only currency and
stock index futures for hedging or investment purposes. Mid Cap and Technology
do not anticipate using futures or options on futures at this time.
GUIDELINES, CHARACTERISTICS AND RISKS OF FUTURES AND OPTIONS ON FUTURES
TRADING. The purchase of futures or call options on futures can serve as a long
hedge, and the sale of futures or the purchase of put options on futures can
serve as a short hedge. Writing call options on futures contracts can serve as a
limited short hedge, using a strategy similar to that used for writing call
options on securities or indices. Similarly, writing put options on futures
contracts can serve as a limited long hedge. Futures contracts and options on
futures contracts can also be purchased and sold to attempt to enhance income or
yield.
12
<PAGE>
Although futures contracts by their terms call for actual delivery
or acceptance of currencies or financial instruments, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific type of financial
instrument or currency and the same delivery date. If the price of the initial
sale of the futures contract exceeds the price of the offsetting purchase, the
seller is paid the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale, the seller
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the purchaser entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes a gain,
and if the purchase price exceeds the offsetting sale price, he realizes a loss.
A fund is required to maintain margin deposits through which it buys
and sells futures contracts or writes options on future contracts. Initial
margin deposits vary from contract to contract and are subject to change. Margin
balances are adjusted daily to reflect unrealized gains and losses on open
contracts. If the price of an open futures or written option position declines
so that a fund has market exposure on such contract, the broker will require the
fund to deposit variation margin. If the value of an open futures or written
option position increases so that a fund no longer has market exposure on such
contract, the broker will pay any excess variation margin to the fund.
Most of the exchanges on which futures contracts and options on
futures are traded limit the amount of fluctuation permitted in futures and
options prices during a single trading day. The daily price limit establishes
the maximum amount that the price of a futures contract or option may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily price limit has been reached in a particular
type of contract, no trades may be made on that day at a price beyond that
limit. The daily price limit governs only price movement during a particular
trading day and therefore does not limit potential losses because the limit may
prevent the liquidation of unfavorable positions. Futures contract and options
prices occasionally have moved to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures or options positions and subjecting some traders to substantial losses.
Another risk in employing futures contracts and options as a hedge
is the prospect that prices will correlate imperfectly with the behavior of cash
prices for the following reasons. First, rather than meeting additional margin
deposit requirements, investors may close contracts through offsetting
transactions. Second, the liquidity of the futures and options markets depends
on participants entering into offsetting transactions rather than making or
taking delivery. To the extent that participants decide to make or take
delivery, liquidity in the futures and options markets could be reduced, thus
producing distortion. Third, from the point of view of speculators, the deposit
requirements in the futures and options markets are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures and options markets may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of general
interest rate, currency exchange rate or security price trends by a subadviser
may still not result in a successful transaction.
In addition to the risks that apply to all options transactions,
there are several special risks relating to options on futures contracts. The
ability to establish and close out positions in such options is subject to the
existence of a liquid secondary market. Compared to the purchase or sale of
futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to a fund because the maximum amount at risk is the
premium paid for the options (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures contract
would result in a loss to a fund when the purchase or sale of a futures contract
would not, such as when there is no movement in the price of the underlying
investment.
13
<PAGE>
STOCK INDEX FUTURES. A stock index assigns relative values to the common
stocks comprising the index. A stock index futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of the last trading day of the contract and
the price at which the futures contract is originally struck. No physical
delivery of the underlying stocks in the index is made.
The risk of imperfect correlation between movements in the price of a
stock index futures contract and movements in the price of the securities that
are the subject of the hedge increases as the composition of a fund's portfolio
diverges from the securities included in the applicable index. The price of the
stock index futures may move more than or less than the price of the securities
being hedged. If the price of the futures contract moves less than the price of
the securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, a fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the stock index futures contracts, a fund may buy or
sell stock index futures contracts in a greater dollar amount than the dollar
amount of securities being hedged if the historical volatility of the prices of
such securities is more than the historical volatility of the stock index. It is
also possible that, where a fund has sold futures contracts to hedge its
securities against decline in the market, the market may advance and the value
of securities held by the fund may decline. If this occurred, the fund would
lose money on the futures contract and also experience a decline in value in its
portfolio securities. However, while this could occur for a very brief period or
to a very small degree, over time the value of a diversified portfolio of
securities will tend to move in the same direction as the market indices upon
which the futures contracts are based.
Where stock index futures contracts are purchased to hedge against a
possible increase in the price of securities before a fund is able to invest in
securities in an orderly fashion, it is possible that the market may decline
instead. If a fund then concludes not to invest in securities at that time
because of concern as to possible further market decline for other reasons, it
will realize a loss on the futures contract that is not offset by a reduction in
the price of the securities it had anticipated purchasing.
LIMITATION ON THE USE OF OPTIONS AND FUTURES. To the extent that a fund
enters into futures contracts and commodity options (including options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange) other than for BONA FIDE hedging purposes (as defined by the CFTC),
the aggregate initial margin and premiums required to establish those positions
(excluding the amount by which options are "in-the-money" at the time of
purchase) will not exceed 5% of the liquidation value of the fund's investment
portfolio, after taking into account unrealized profits and unrealized losses on
any contracts the fund has entered into. This limitation does not limit the
percentage of the fund's assets at risk to 5%.
FOREIGN CURRENCY HEDGING STRATEGIES. Growth Equity and Value Equity may
use options and futures on foreign currencies and Eagle International may only
use futures on foreign currencies. Technology may use options on foreign
currencies.
Currency hedges can protect against price movements in a security that a
fund owns or intends to acquire that are attributable to changes in the value of
the currency in which it is denominated. Such hedges do not, however, protect
against price movements in the securities that are attributable to other causes.
A fund might seek to hedge against changes in the value of a particular
currency when no Hedging Instruments on that currency are available or such
14
<PAGE>
Hedging Instruments are more expensive than certain other Hedging Instruments.
In such cases, a fund may hedge against price movements in that currency by
entering into transactions using Hedging Instruments on another currency or
basket of currencies, the values of which its subadviser believes will have a
high degree of positive correlation to the value of the currency being hedged.
The risk that movements in the price of the Hedging Instrument will not
correlate perfectly with movements in the price of the currency being hedged is
magnified when this strategy is used.
The value of Hedging Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Hedging
Instruments, a fund could be disadvantaged by having to deal in the odd-lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. futures markets are closed while
the markets for the underlying currencies remain open, significant price and
rate movements might take place in the underlying markets that cannot be
reflected in the markets for the Hedging Instruments until they reopen.
Settlement of transactions involving foreign currencies might be required
to take place within the country issuing the underlying currency. Thus, a fund
might be required to accept or make delivery of the underlying foreign currency
in accordance with any U.S. or foreign regulations regarding the maintenance of
foreign banking arrangements by U.S. residents and might be required to pay any
fees, taxes and charges associated with such delivery assessed in the issuing
country.
FORWARD CURRENCY CONTRACTS. Each fund, except Small Cap, may engage in
forward currency contracts as discussed below. Growth Equity, Technology and
Value Equity may enter into forward currency contracts to purchase or sell
foreign currencies for a fixed amount of U.S. dollars or another foreign
currency, in an amount not exceeding 5% of their respective assets. Capital
Appreciation may enter into contracts to purchase or sell foreign currencies at
a future date that is not more than 30 days from the date of the contract. Eagle
International generally will not enter into a forward contract with a term of
greater than one year.
A forward currency contract involves an obligation of a fund to purchase
or sell specified currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties at a price set at
the time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers.
Forward currency transactions may serve as long hedges - for example, a
fund may purchase a forward currency contract to lock in the U.S. dollar price
of a security denominated in a foreign currency that it intends to acquire.
Forward currency contract transactions also may serve as short hedges - for
example, a fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security or from a
dividend or interest payment on a security denominated in a foreign currency.
Income-Growth and Eagle International may enter into a forward contract to
sell the foreign currency for a fixed U.S. dollar amount approximating the value
of some or all of their respective portfolio securities denominated in such
foreign currency. Eagle International may enter into such a forward contract
15
<PAGE>
when its subadviser believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar.
In addition, Capital Appreciation, Eagle International, Growth Equity,
Income-Growth and Value Equity may use forward currency contracts when its
subadviser wishes to "lock in" the U.S. dollar price of a security when Eagle
International is purchasing or selling a security denominated in a foreign
currency or anticipates receiving a dividend or interest payment denominated in
a foreign currency.
Income-Growth and Technology may enter into forward currency contracts for
the purchase or sale of a specified currency at a specified future date either
with respect to specific transactions or with respect to portfolio positions in
order to minimize the risk to either fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies.
Capital Appreciation, Eagle International, Growth Equity, Income-Growth,
Technology and Value Equity may seek to hedge against changes in the value of a
particular currency by using forward contracts on another foreign currency or a
basket of currencies, the value of which the fund's subadviser believes will
have a positive correlation to the values of the currency being hedged. Use of a
different foreign currency magnifies the risk that movements in the price of the
forward contract will not correlate or will correlate unfavorably with the
foreign currency being hedged.
In addition, Eagle International, Growth Equity, Income-Growth, Technology
and Value Equity may use forward currency contracts to shift exposure to foreign
currency fluctuations from one country to another. For example, if a fund owned
securities denominated in a foreign currency and its subadviser believed that
currency would decline relative to another currency, it might enter into a
forward contract to sell an appropriate amount of the first foreign currency,
with payment to be made in the second foreign currency. Transactions that use
two foreign currencies are sometimes referred to as "cross hedging." Use of a
different foreign currency magnifies a fund's exposure to foreign currency
exchange rate fluctuations.
The cost to a fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts usually
are entered into on a principal basis, no fees or commissions are involved. When
a fund enters into a forward currency contract, it relies on the counterparty to
make or take delivery of the underlying currency at the maturity of the
contract. Failure by the counterparty to do so would result in the loss of any
expected benefit of the transaction.
As is the case with futures contracts, sellers or purchasers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by purchasing or selling, respectively, an
instrument identical to the instrument sold or bought. Secondary markets
generally do not exist for forward currency contracts, however, with the result
that closing transactions generally can be made for forward currency contracts
only by negotiating directly with the counterparty. Thus, there can be no
assurance that a fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, a fund might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in the securities or currencies
that are the subject of the hedge or to maintain cash or securities.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the forward
currency contract has been established. Thus, a fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
16
<PAGE>
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
COMBINED TRANSACTIONS. A fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of its overall
position. For example, a fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
A fund's options and futures activities may affect its turnover rate and
brokerage commission payments. The exercise of calls or puts written by a fund,
and the sale or purchase of futures contracts, may cause it to sell or purchase
related investments, thus increasing its turnover rate. Once a fund has received
an exercise notice on an option it has written, it cannot effect a closing
transaction in order to terminate its obligation under the option and must
deliver or receive the underlying securities at the exercise price. The exercise
of puts purchased by a fund may also cause the sale of related investments, also
increasing turnover; although such exercise is within the fund's control,
holding a protective put might cause it to sell the related investments for
reasons that would not exist in the absence of the put. A fund will pay a
brokerage commission each time it buys or sells a put or call or purchases or
sells a futures contract. Such commissions may be higher than those that would
apply to direct purchases or sales.
FORWARD COMMITMENTS:
Eagle International and Income-Growth may make contracts to purchase
securities for a fixed price at a future date beyond customary settlement time
("forward commitments"). However, Income-Growth currently has no intention of
engaging in such transactions at this time. A fund may engage in forward
commitments if it either (1) holds and maintains until the settlement date in a
segregated account, cash or high-grade debt obligations in an amount sufficient
to meet the purchase price or (2) enters into an offsetting contract for the
forward sale of securities of equal value that it owns. Forward commitments may
be considered securities in themselves. They involve a risk of loss if the value
of the security to be purchased declines prior to the settlement date, which
risk is in addition to the risk of decline in value of a fund's other assets.
When such purchases are made through dealers, a fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the loss to the
fund of an advantageous yield or price. Although a fund generally will enter
into forward commitments with the intention of acquiring securities for its
investment portfolios, each fund may dispose of a commitment prior to settlement
and may realize short-term profits or losses upon such disposition.
ILLIQUID AND RESTRICTED SECURITIES:
Capital Appreciation, Eagle International, Growth Equity, Income-Growth
and Value Equity will not purchase or otherwise acquire any illiquid security,
including repurchase agreements maturing in more than seven days, if, as a
result, more than 10% of its net assets (taken at current value) would be
invested in securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale. Similarly,
Aggressive Growth, Mid Cap, Technology and Small Cap will not purchase or
otherwise acquire any illiquid security if, as a result, more than 15% of its
net assets (taken at current value) would be invested in securities that are
illiquid by virtue of the absence of a readily available market or legal or
17
<PAGE>
contractual restrictions on resale. Small Cap presently has no intention of
investing more than 5% of its assets in illiquid securities.
OTC options and their underlying collateral are currently considered to be
illiquid investments. Growth Equity, Income-Growth, Mid Cap, Technology and
Value Equity may sell OTC options and, in connection therewith, segregate assets
or cover its obligations with respect to OTC options written by these funds. The
assets used as cover for OTC options written by a fund will be considered
illiquid unless OTC options are sold to qualified dealers who agree that the
fund may repurchase any OTC option it writes at a maximum price to be calculated
by a formula set forth in the option agreement. The cover for an OTC option
written subject to this procedure would be considered illiquid only to the
extent that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
Rule 144A under the Securities Act of 1933, as amended ("1933 Act"),
establishes a "safe harbor" from the registration requirements of the 1933 Act
for resales of certain securities to qualified institutional buyers.
Institutional markets for restricted securities that have developed as a result
of Rule 144A provide both readily ascertainable values for certain restricted
securities and the ability to liquidate an investment to satisfy share
redemption orders. An insufficient number of qualified institutional buyers
interested in purchasing Rule 144A-eligible securities held by a fund, however,
could affect adversely the marketability of such portfolio securities and a fund
may be unable to dispose of such securities promptly or at reasonable prices.
OTHER INVESTMENT COMPANIES AND INDEX SECURITIES:
INVESTMENT COMPANIES. Each fund may invest in the securities of other
investment companies to the extent that such an investment would be consistent
with the requirements of the 1940 Act. Investments in the securities of other
investment companies may involve duplication of advisory fees and certain other
expenses. By investing in another investment company, a fund becomes a
shareholder of that investment company. As a result, a fund's shareholders
indirectly bear the fund's proportionate share of the fees and expenses paid by
the shareholders of the other investment company, in addition to the fees and
expenses fund shareholders directly bear in connection with the fund's own
operations. Eagle International may invest up to 10% of its assets in securities
of closed-end investment companies that invest in foreign markets. See "Foreign
Securities Exposure" for a discussion of the risks of investing in foreign
securities.
INDEX SECURITIES. Index Securities are considered investments in other
investment companies. Each fund, except Eagle International, may invest in
Standard and Poor's Depositary Receipts, Standard and Poor's MidCap 400
Depositary Receipts, and other similar index securities ("Index Securities").
Index Securities represent interests in a fixed portfolio of common stocks
designed to track the price and dividend yield performance of a broad-based
securities index, such as the Standard & Poor's 500 Composite Stock Price Index
("S&P 500 Index"), but are traded on an exchange like shares of common stock.
18
<PAGE>
The value of Index Securities fluctuates in relation to changes in the value of
the underlying portfolio of securities. However, the market price of Index
Securities may not be equivalent to the pro rata value of the index it tracks.
Index Securities are subject to the risks of an investment in a broadly based
portfolio of common stocks.
OTHER INVESTMENT PRACTICES:
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. Eagle International may
enter into agreements with banks or broker-dealers for the purchase or sale of
securities at an agreed-upon price on a specified future date. Such agreements
might be entered into, for example, when Eagle International anticipates a
decline in interest rates and is able to obtain a more advantageous yield by
committing currently to purchase securities to be issued later. When Eagle
International purchases securities on a when-issued or delayed delivery basis,
it is required either (1) to create a segregated account with Eagle
International's Custodian and to maintain in that account cash, U.S. Government
securities or other high grade debt obligations in an amount equal on a daily
basis to the amount of Eagle International's when-issued or delayed delivery
commitments or (2) to enter into an offsetting forward sale of securities it
owns equal in value to those purchased. Eagle International will only make
commitments to purchase securities on a when-issued or delayed-delivery basis
with the intention of actually acquiring the securities. However, Eagle
International may sell these securities before the settlement date if it is
deemed advisable as a matter of investment strategy. When the time comes to pay
for when-issued or delayed-delivery securities, Eagle International will meet
its obligations from then available cash flow or the sale of securities, or,
although it would not normally expect to do so, from the sale of the when-issued
or delayed delivery securities themselves (which may have a value greater or
less than Eagle International's payment obligation).
LOANS OF PORTFOLIO SECURITIES. Mid Cap, Value Equity, Growth Equity and
Income-Growth may loan portfolio securities to qualified broker-dealers. Eagle
International may loan portfolio securities to broker-dealers or other financial
institutions. The collateral for a fund's loans will be "marked to market" daily
so that the collateral at all times exceeds 100% of the value of the loan. A
fund may terminate such loans at any time and the market risk applicable to any
security loaned remains its risk. Although voting rights, or rights to consent,
with respect to the loaned securities pass to the borrower, a fund retains the
right to call the loans at any time on reasonable notice, and it will do so in
order that the securities may be voted by it if the holders of such securities
are asked to vote upon or consent to matters materially affecting the
investment. A fund also may call such loans in order to sell the securities
involved. The borrower must add to the collateral whenever the market value of
the securities rises above the level of such collateral. A fund could incur a
loss if the borrower should fail financially at a time when the value of the
loaned securities is greater than the collateral. The primary objective of
securities lending is to supplement a fund's income through investment of the
cash collateral in short-term interest bearing obligations.
TEMPORARY DEFENSIVE PURPOSES. For temporary defensive purposes during
anticipated periods of general market decline, each fund, other than Eagle
International, may invest up to 100% of its net assets in money market
instruments, including securities issued by the U.S. Government, its agencies or
instrumentalities and repurchase agreements secured thereby, as well as bank CDs
and banker's acceptances issued by banks having net assets of at least $1
billion as of the end of their most recent fiscal year, high-grade commercial
paper, and other long- and short-term debt instruments that are rated A or
higher by S&P or Moody's. For a description of S&P or Moody's commercial paper
and corporate debt ratings, see the Appendix.
In addition, for temporary defensive purposes, Eagle International may
invest all or a major portion of its assets in (1) foreign debt securities, (2)
debt and equity securities or U.S. issuers and (3) obligations issued or
guaranteed by the United States or a foreign government or their respective
agencies, authorities or instrumentalities.
B. INDUSTRY CLASSIFICATIONS
------------------------
For purposes of determining industry classifications, each fund except
Eagle International relies upon classifications contained in the DIRECTORY OF
COMPANIES FILING ANNUAL REPORTS WITH THE SECURITIES AND EXCHANGE COMMISSION,
except with respect to investments in companies that produce or manufacture
semiconductors. Investments in those companies will be classified as one of the
following four industry groups: logic semiconductors (semiconductors that
perform a processing or controlling function); analog semiconductors
(semiconductors that manipulate unprocessed data, such as movement, temperature
and sound); memory semiconductors (semiconductors that hold programs and data);
and communications semiconductors (semiconductors used primarily in the
transmission, amplification and switching of voice, data and video signals).
19
<PAGE>
Eagle International relies on classifications determined by the Financial Times
Stock Exchange International.
III. INVESTMENT LIMITATIONS
----------------------
A. FUNDAMENTAL INVESTMENT POLICIES
-------------------------------
In addition to the limits disclosed above and the investment limitations
described in the Prospectus, the funds are subject to the following investment
limitations that are fundamental policies and may not be changed without the
vote of a majority of the outstanding voting securities of the applicable fund.
Under the 1940 Act, a "vote of a majority of the outstanding voting securities"
of a fund means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the fund or (2) 67% or more of the shares present at a
shareholders meeting if more than 50% of the outstanding shares are represented
at the meeting in person or by proxy.
DIVERSIFICATION. With respect to 100% of the total assets of Capital
Appreciation and Income-Growth and with respect to 75% of the total assets of
the other funds (excluding Technology), no fund may invest more than 5% of that
fund's assets (valued at market value) in securities of any one issuer other
than the U.S. Government or its agencies and instrumentalities, or purchase more
than 10% of the voting securities of any one issuer.
INDUSTRY CONCENTRATION. No fund may purchase securities if, as a result of
such purchase, more than 25% of the value of such fund's total assets would be
invested in any one industry; however, this restriction does not apply to U.S.
Government securities.
BORROWING MONEY. No fund may borrow money except as a temporary measure
for extraordinary or emergency purposes. Such borrowing is limited as follows:
(1) Income-Growth may not borrow money except from banks. Borrowing in
the aggregate may not exceed 15%, and borrowing for purposes other than meeting
redemptions may not exceed 5% of the value of the fund's total assets at the
time the borrowing is made. The fund may not make additional investments when
borrowings exceed 5% of the fund's total assets.
(2) Capital Appreciation may not borrow money except from banks and only
if at the time of such borrowings the total loans to the fund do not exceed 5%
of the fund's total assets.
(3) Aggressive Growth, Eagle International, Growth Equity, Mid Cap,
Small Cap, Technology and Value Equity may enter into reverse repurchase
agreements in an amount up to 33 1/3% of the value of its total assets in order
to meet redemption requests without immediately selling portfolio securities.
This latter practice is not for investment leverage but solely to facilitate
management of the investment portfolio by enabling the funds to meet redemption
requests when the liquidation of portfolio instruments would be inconvenient or
disadvantageous. However, a fund may not purchase additional portfolio
investments once borrowed obligations exceed 5% of total assets. When effecting
reverse repurchase agreements, fund assets in an amount sufficient to make
payment for the obligations to be purchased will be segregated by the Custodian
and on the funds' records upon execution of the trade and maintained until the
transaction has been settled. During the period any reverse repurchase
agreements are outstanding, to the extent necessary to assure completion of the
reverse repurchase agreements, a fund will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the expiration
date of the reverse repurchase agreements. Interest paid on borrowed obligations
will not be available for investment. The funds will liquidate any such
20
<PAGE>
borrowings as soon as possible and may not purchase any portfolio instruments
while any borrowings are outstanding (except as described above).
(4) Eagle International will not borrow money in excess of 10% of the
value (taken at the lower of cost or current value) of Eagle International's
total assets (not including the amount borrowed) at the time the borrowing is
made, and then only from banks as a temporary measure, such as to facilitate the
meeting of higher redemption requests than anticipated (not for leverage) which
might otherwise require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes. As a matter of nonfundamental investment
policy, Eagle International may not make any additional investments if,
immediately after such investments, outstanding borrowings of money would exceed
5% of the currency value of Eagle International's total assets.
ISSUING SENIOR SECURITIES. No fund may issue senior securities, except as
permitted by the investment objective, policies, and investment limitations of
the fund, except that (1) Aggressive Growth may engage in transactions involving
forward currency contracts or other financial instruments (2) Eagle
International, Growth Equity, Mid Cap, Technology and Value Equity may engage in
transactions involving options, futures, forward currency contracts, or other
financial instruments, as applicable and (3) Income-Growth may purchase and sell
call options and forward contracts.
UNDERWRITING. Subject to the following exceptions, no fund may underwrite
the securities of other issuers: (1) Aggressive Growth, Eagle International,
Growth Equity, Small Cap and Technology may underwrite securities to the extent
that, in connection with the disposition of portfolio securities, that fund may
be deemed to be an underwriter under federal securities laws and (2) Capital
Appreciation and Income-Growth may invest not more than 5% and Aggressive
Growth, Mid Cap, Small Cap and Technology may invest not more than 15% of their
respective net assets (taken at cost immediately after making such investment)
in securities that are not readily marketable without registration under the
1933 Act.
INVESTING IN COMMODITIES, MINERALS OR REAL ESTATE. With the following
exceptions, no fund may invest in commodities, commodity contracts or real
estate (including real estate limited partnerships, in the case of all the funds
except Income-Growth and Eagle International): (1) the funds may purchase
securities issued by companies that invest in or sponsor such interests, (2)
Aggressive Growth may purchase and sell forward currency contracts and other
financial instruments, (3) Growth Equity, Technology and Value Equity may
purchase and sell options, futures contracts, forward currency contracts and
other financial instruments, (4) Eagle International may purchase and sell
forward contracts, futures contracts, options and foreign currency, (5) Eagle
International and Income-Growth may purchase securities that are secured by
interests in real estate, (6) Income-Growth may write and purchase call options,
purchase and sell forward contracts and engage in transactions in forward
commitments and (7) Capital Appreciation, Eagle International, Growth Equity,
Income-Growth, Small Cap and Value Equity may not invest in oil, gas, or other
mineral programs except that they may purchase securities issued by companies
that invest in or sponsor such interests.
LOANS. No funds may make loans, except that each fund except Eagle
International may make loans under the following circumstances: (1) to the
extent that the purchase of a portion of an issue of publicly distributed (and,
in the case of Income-Growth, privately placed) notes, bonds, or other evidences
of indebtedness or deposits with banks and other financial institutions may be
considered loans; (2) where the fund may enter into repurchase agreements as
permitted under that fund's investment policies (3) Mid Cap, Value Equity and
Growth Equity may make loans of portfolio securities as described in this SAI.
Eagle International may make loans by purchase of debt obligations or by
entering into repurchase agreements or through lending of Eagle International's
portfolio securities.
21
<PAGE>
B. FUNDAMENTAL POLICIES UNIQUE TO EAGLE INTERNATIONAL
--------------------------------------------------
Eagle International has adopted the following fundamental policies that
can be changed only by shareholder vote:
MARGIN PURCHASES. Eagle International will not purchase securities on
margin, except such short-term credits as may be necessary for the clearance of
purchases and sales of securities. (For this purpose, the deposit or payment by
Eagle International of initial or variation margin in connection with futures
contracts, forward contracts or options is not considered the purchase of a
security on margin.)
SHORT SALES. Eagle International will not make short sales of securities
or maintain a short position, except that Eagle International may maintain short
positions in connection with its use of options, futures contracts, forward
contracts and options on futures contracts, and Eagle International may sell
short "against the box." As a matter of nonfundamental investment policy, Eagle
International will not sell securities short "against the box."
C. FUNDAMENTAL POLICIES UNIQUE TO INCOME-GROWTH
--------------------------------------------
Income-Growth has adopted the following fundamental policies that can be
changed only by shareholder vote:
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
OF INCOME-GROWTH. Income-Growth may not purchase or retain the securities of any
issuer if the officers and Trustees of the fund or Heritage or its subadviser
owning individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
REPURCHASE AGREEMENTS AND LOANS OF PORTFOLIO SECURITIES. Income-Growth may
not enter into repurchase agreements with respect to more than 25% of its total
assets and may not lend portfolio securities amounting to more than 25% of its
total assets.
MARGIN PURCHASES. Income-Growth may not purchase securities on margin
except to obtain such short-term credits as may be necessary for the clearance
of transactions.
RESTRICTED SECURITIES. Income-Growth may not invest more than 5% of the
its total assets (taken at cost) in securities that are not readily marketable
without registration under the 1933 Act (restricted securities).
D. NON-FUNDAMENTAL INVESTMENT POLICIES
-----------------------------------
Each fund has adopted the following additional restrictions which,
together with certain limits described above, may be changed by the Board
without shareholder approval in compliance with applicable law, regulation or
regulatory policy.
INVESTING IN ILLIQUID SECURITIES. Aggressive Growth, Small Cap and
Technology may not invest more than 15% and Capital Appreciation, Income-Growth
and Value Equity may not invest more than 10% of their net assets in repurchase
agreements maturing in more than seven days or in other illiquid securities,
including securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions as to resale and
including, in the case of Income-Growth, privately placed securities.
22
<PAGE>
Growth Equity and Eagle International may not invest more than 10%, and
Mid Cap may not invest more than 15% of their net assets in securities that are
subject to restrictions on resale or are not readily marketable without
registration under the 1933 Act and in repurchase agreements maturing in more
than seven days.
SELLING SHORT AND BUYING ON MARGIN. Aggressive Growth, Capital
Appreciation, Growth Equity, Mid Cap, Small Cap, Technology and Value Equity may
not sell any securities short or purchase any securities on margin but may
obtain such short-term credits as may be necessary for clearance of purchases
and sales of securities. In addition, Aggressive Growth, Growth Equity, Mid Cap,
Technology and Value Equity may make margin deposits in connection with its use
of options, futures contracts and forward currency contracts, as applicable. In
addition, Growth Equity and Mid Cap may sell short "against the box."
INVESTING IN INVESTMENT COMPANIES. Aggressive Growth, Income-Growth, Mid
Cap, Small Cap, Technology and Value Equity may not invest in securities issued
by other investment companies except as permitted by the 1940 Act.
Capital Appreciation may not invest in securities issued by other
investment companies, except in connection with a merger, consolidation,
acquisition or reorganization by purchase in the open market of securities of
closed-end investment companies where no underwriter or dealer commission or
profit, other than a customary brokerage commission is involved and only if
immediately thereafter not more than 5% of Capital Appreciation's total assets
(taken at market value) would be invested in such securities.
Growth Equity may not invest in the securities of other investment
companies, except by purchase in the open market where no commission or profit
to a sponsor or dealer results from the purchase other than the customary
broker's commission, or except when the purchase is part of a plan of merger,
consolidation, reorganization or acquisition.
Eagle International may not invest more than 10% of its total assets in
securities of other investment companies. For purposes of this restriction,
foreign banks and foreign insurance companies or their respective agents or
subsidiaries are not considered investment companies. In addition, Eagle
International may invest in the securities of other investment companies in
connection with a merger, consolidation or acquisition of assets or other
reorganization approved by Eagle International's shareholders. Eagle
International may incur duplicate advisory or management fees when investing in
another mutual fund.
E. NON-FUNDAMENTAL POLICIES UNIQUE TO CAPITAL APPRECIATION
-------------------------------------------------------
Capital Appreciation has adopted the following non-fundamental policies:
OPTION WRITING. Capital Appreciation may not write put or call options.
PLEDGING. Capital Appreciation may not pledge any securities except that
it may pledge assets having a value of not more than 10% of its total assets to
secure permitted borrowing from banks.
F. NON-FUNDAMENTAL POLICIES UNIQUE TO SMALL CAP
--------------------------------------------
Small Cap has adopted the following non-fundamental policy:
OPTION WRITING. Small Cap may not write put or call options.
23
<PAGE>
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the investment, a later increase or decrease in the
percentage resulting from any change in value of net assets will not result in a
violation of such restriction.
IV. NET ASSET VALUE
The net asset value per share of Class A shares, Class B shares and Class
C shares is separately determined daily as of the close of regular trading on
the New York Stock Exchange (the "Exchange") each day the Exchange is open for
business (each a "Business Day"). The Exchange normally is open for business
Monday through Friday except the following holidays: New Year's Day, Martin
Luther King's Birthday, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas Day. The funds value securities or
assets held in their portfolios as follows:
LISTED SECURITIES. A security listed or traded on the Exchange, or
on The Nasdaq Stock Market, is valued at its last sales price on the principal
exchange on which it is traded prior to the time when assets are valued. If no
sale is reported at that time or the security is traded in the OTC market,
market value is based on the most recent quoted bid price.
OPTIONS AND FUTURES. Options and futures positions are valued based
on market quotations when readily available. Market quotations generally will
not be available for options traded in the OTC market.
FOREIGN ASSETS. Securities and other assets in foreign currency and
foreign currency contracts will be valued daily in U.S. dollars at the foreign
currency exchange rates prevailing at the time a fund calculates the daily net
asset value of each class. Foreign currency exchange rates generally are
determined prior to the close of regular trading on the Exchange. Occasionally,
events affecting the value of foreign securities and such exchange rates occur
between the time at which they are determined and the close of regular trading
on the Exchange, which events will not be reflected in a computation of the
fund's net asset value. If events materially affecting the value of such
securities or assets or currency exchange rates occurred during such time
period, the securities or assets would be valued at their fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the Board. The foreign currency exchange
transactions of a fund conducted on a spot basis are valued at the spot rate for
purchasing or selling currency prevailing on the foreign exchange market.
SHORT-TERM SECURITIES. Short-term investments having a maturity of
60 days or less are valued at cost with accrued interest or discount earned
included in interest receivable.
FAIR VALUE ESTIMATES. Securities and other assets for which market
quotations are not readily available, or for which market quotes are not deemed
to be reliable, are valued at their fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the Board.
The funds are open each Business Day. Trading in securities on European
and Far Eastern securities exchanges and OTC markets normally is completed well
before the funds' close of business on each Business Day. In addition, trading
in various foreign markets may not take place on all Business Days or may take
place on days that are not Business Days and on which the funds' net asset
values per share are not calculated. Calculation of net asset value of Class A
shares, Class B shares and Class C shares does not take place contemporaneously
with the determination of the prices of the majority of the portfolio securities
used in such calculation. The funds calculate net asset value per share and,
therefore, effect sales and redemptions, as of the close of regular trading on
the Exchange each Business Day. If events materially affecting the value of such
securities or other assets occur between the time when their prices are
determined (including their value in U.S. dollars by reference to foreign
currency exchange rates) and the time when the funds' net asset value is
24
<PAGE>
calculated, such securities and other assets may be valued at fair value by
methods as determined in good faith by or under procedures established by the
Board.
The Board may suspend the right of redemption or postpone payment for more
than seven days at times (1) during which the Exchange is closed other than for
the customary weekend and holiday closings, (2) during which trading on the
Exchange is restricted as determined by the SEC, (3) during which an emergency
exists as a result of which disposal by the funds of securities owned by them is
not reasonably practicable or it is not reasonably practicable for the funds
fairly to determine the value of their net assets or (4) for such other periods
as the SEC may by order permit for the protection of the holders of Class A
shares, Class B shares and Class C shares.
V. PERFORMANCE INFORMATION
-----------------------
Total return data of each class from time to time may be included in
advertisements about each fund. Performance information is computed separately
for each class. Because Class B shares and Class C shares bear higher Rule 12b-1
fees, the performance of Class B shares and Class C shares of a fund likely will
be lower than that of Class A shares.
The funds' performance data quoted in advertising and other promotional
materials represents past performance and is not intended to indicate future
performance. The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Average annual total return quotes for each class used
in each fund's advertising and promotional materials are calculated for the
one-year, five-year and ten-year periods (or life of the fund), according to the
following formula:
<TABLE>
<CAPTION>
<S> <C> <C>
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the end of
that period
</TABLE>
In calculating the ending redeemable value for Class A shares, each fund's
current maximum sales charge of 4.75% is deducted from the initial $1,000
payment and, for Class B shares and Class C shares, the applicable CDSC imposed
on a redemption of Class B shares or Class C shares held for the period is
deducted. All dividends and other distributions by a fund are assumed to have
been reinvested at net asset value on the reinvestment dates during the period.
Based on this formula, the total return, or "T" in the formula above, is
computed by finding the average annual compounded rates of return over the
period that would equate the initial amount invested to the ending redeemable
value.
In connection with communicating its average annual total return or
cumulative return (simple change of an investment over a stated period) to
current or prospective shareholders, each fund may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indexes that may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs. Investment
performance also often reflects the risks associated with a fund's investment
objective and policies. These factors should be considered when comparing a
fund's investment results to those of other mutual funds and investment
vehicles.
25
<PAGE>
In addition, each fund may from time to time include in advertising and
promotional materials total return or cumulative figures that are not calculated
according to the formula set forth above or for other periods for each class of
shares. For example, in comparing a fund's aggregate total return with data
published by Lipper Analytical Services, Inc., CDA Investment Technologies,
Inc., Morningstar Mutual Funds or with such market indices as the Dow Jones
Industrial Average and the S&P 500 Index, each fund calculates its cumulative
total return for each class for the specified periods of time by assuming an
investment of $10,000 in that class of shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the beginning
value. The funds do not, for these purposes, deduct from the initial value
invested any amount representing front-end sales charges charged on Class A
shares or CDSCs charged on Class B shares and Class C shares. By not annualizing
the performance and excluding the effect of the front-end sales charge on Class
A shares and the CDSC on Class B shares and Class C shares, the total return
calculated in this manner simply will reflect the increase in net asset value
per share over a period of time, adjusted for dividends and other distributions.
Calculating total return without taking into account the sales charge or CDSC
results in a higher rate of return than calculating total return net of the
front-end sales charge.
The average annualized total return and cumulative total return are as
follows for each period of each fund below. The returns are through October 31,
2000, except for Capital Appreciation and Income-Growth, which are through
August 31, 2000 and September 30, 2000, respectively. The average annual return
calculations below reflect the imposition of the maximum sales charge for Class
A shares and the applicable CDSC for Class B shares and Class C shares. The
cumulative return calculations do not include the imposition of any sales
charges.
<TABLE>
<CAPTION>
CLASS A SHARES
--------------
--------------------------------------------------------------------------------
FUND 1 YEAR 5 YEARS 10 YEARS INCEPTION INITIAL OFFERING DATE
---- ------ ------- -------- ------------------------------
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
o Aggressive August 20, 1998
Growth 37.89% N/A N/A 37.26%
average annual 44.77% N/A N/A 110.72%
return
cumulative return
o Capital Apppreciation December 12, 1985
average annual 23.40% 26.10% 20.43% 16.10%
return 29.55% 234.77% 573.66% 845.99%
cumulative return
o Eagle December 27, 1995
International -5.73% N/A N/A 8.60%
average annual -1.02% N/A N/A 56.61%
return
cumulative return
o Growth Equity November 16, 1995
average annual 24.72% N/A N/A 31.16%
return 30.94% N/A N/A 303.27%
cumulative return
o Income-Growth December 15, 1986
average annual -0.24% 10.80% 13.20% 9.60%
return 4.74% 75.35% 262.84% 271.72%
cumulative return
o Mid Cap Stock November 6, 1997
average annual 35.84% N/A N/A 16.41%
return 42.61% N/A N/A 65.26%
cumulative return
26
<PAGE>
o Small Cap Stock May 7, 1993
average annual 19.67% 12.05% N/A 12.91%
return 25.64% 85.47% N/A 160.65%
cumulative return
o Technology November 18, 1999
average annual N/A N/A N/A 16.18%
return N/A N/A N/A _____%
cumulative return
o Value Equity December 30, 1994
average annual 9.72% 9.75% N/A 12.65%
return 15.19% 67.15% N/A 110.55%
cumulative return
-----------------------------------------------------------------------------
CLASS B SHARES
--------------
------------------------------------------------------------------------------------
FUND 1 YEAR 5 YEARS 10 YEARS INCEPTION INITIAL OFFERING DATE
---- ------ ------- -------- --------- ---------------------
----------------------------------------------------------------------------
o Aggressive August 20, 1998
Growth 39.74% N/A N/A 38.37%
average annual 43.74% N/A N/A 107.31%
return
cumulative return
o Capital January 2, 1998
Appreciation 24.75% N/A N/A 25.60%
average annual 28.75% N/A N/A 86.50%
return
cumulative return
o Eagle January 2, 1998
International -5.67% N/A N/A 7.64%
average annual -1.74% N/A N/A 26.17%
return
cumulative return
o Growth Equity January 2, 1998
average annual 25.97% N/A N/A 32.73%
return 29.97% N/A N/A 125.84%
cumulative return
o Income-Growth January 2, 1998
average annual -0.05% N/A N/A 0.68%
return 3.95% N/A N/A 4.89%
cumulative return
o Mid Cap Stock January 2, 1998
average annual 37.51% N/A N/A 17.38%
return 41.51% N/A N/A 60.37%
cumulative return
o Small Cap Stock January 2, 1998
average annual 20.72% N/A N/A -0.95%
return 24.72% N/A N/A 0.32%
cumulative return
o Technology November 18, 1999
average annual _____% N/A N/A _____%
return _____% N/A N/A _____%
cumulative return
o Value Equity January 2, 1998
average annual 10.34% N/A N/A 0.86%
return 14.34% N/A N/A 5.46%
cumulative return
--------------------------------------------------------------------------------
27
<PAGE>
CLASS C SHARES
--------------
--------------------------------------------------------------------------------
FUND 1 YEAR 5 YEARS 10 YEARS INCEPTION INITIAL OFFERING DATE
---- ------ ------- -------- --------- ---------------------
----------------------------------------------------------------------------
o Aggressive August 20, 1998
Growth 43.69% N/A N/A 39.27%
average annual 43.69% N/A N/A 107.24%
return
cumulative return
o Capital April 3, 1995
Appreciation 28.76% 26.59% N/A 26.38%
average annual 28.76% 225.09% N/A 255.35%
return
cumulative return
o Eagle December 27,
International -1.81% N/A N/A 8.85% 1995
average annual -1.81% N/A N/A 50.90%
return
cumulative return
o Growth Equity November 16,
average annual 29.99% N/A N/A 31.46% 1995
return 29.99% N/A N/A 288.53%
cumulative return
o Income-Growth April 3, 1995
average annual 3.95% 11.05% N/A 12.50%
return 3.95% 68.88% N/A 91.14%
cumulative return
o Mid Cap Stock November 6, 1997
average annual 41.51% N/A N/A 17.44%
return 41.51% N/A N/A 61.61%
cumulative return
o Small Cap Stock April 3, 1995
average annual 24.75% 12.32% N/A 14.63%
return 24.75% 78.78% N/A 114.37%
cumulative return
o Technology November 18, 1999
average annual _____% N/A N/A _____%
return _____% N/A N/A _____%
cumulative return
o Value Equity April 3, 1995
average annual 14.34% 9.99% N/A 12.07%
return 14.34% 60.96% N/A 88.90%
cumulative return
--------------------------------------------------------------------------------
</TABLE>
VI. INVESTING IN THE FUNDS
----------------------
Class A shares, Class B shares and Class C shares are sold at their next
determined net asset value on Business Days. The procedures for purchasing
shares of a fund are explained in the Prospectus under "How to Invest."
A. SYSTEMATIC INVESTMENT OPTIONS
-----------------------------
The options below allow you to invest continually in one or more funds at
regular intervals.
1. Automatic Investing -- You may authorize Heritage to process a monthly
draft from your personal checking account for investment into a fund. The draft
is returned by your bank the same way a canceled check is returned.
28
<PAGE>
2. Direct Deposit -- If your employer participates in a direct deposit
program (also known as ACH Deposits) you may have all or a portion of your
payroll directed to a fund. This will generate a purchase transaction each time
you are paid by your employer. Your employer will report to you the amount sent
from each paycheck.
3. Government Direct Deposit -- If you receive a qualifying periodic
payment from the U.S. Government or other agency that participates in Direct
Deposit, you may have all or a part of each check directed to purchase shares of
a fund. The U.S. Government or agency will report to you all payments made.
4. Automatic Exchange -- If you own shares of another Heritage mutual fund
advised or administered by Heritage ("Heritage Mutual Fund"), you may elect to
have a preset amount redeemed from that fund and exchanged into the
corresponding class of shares of a fund. You will receive a statement from the
other Heritage Mutual Fund confirming the redemption.
You may change or terminate any of the above options at any time.
B. RETIREMENT PLANS
----------------
HERITAGE IRA. An individual who earns compensation and who has not reached
age 70 1/2 before the close of the year generally may establish a Heritage
Individual Retirement Account ("IRA"). An individual may make limited
contributions to a Heritage IRA through the purchase of shares of a fund and/or
other Heritage Mutual Funds. The Internal Revenue Code of 1986, as amended (the
"Code"), limits the deductibility of IRA contributions to taxpayers who are not
active participants (and, under certain circumstances, whose spouses are not
active participants) in employer-provided retirement plans or who have adjusted
gross income below a certain level; however, a married investor who is not an
active participant in such a plan and files a joint income tax return with his
or her spouse (and their combined adjusted gross income does not exceed
$150,000) is not affected by the spouse's active participant status.
Nevertheless, the Code permits other individuals to make nondeductible IRA
contributions up to $2,000 per year (or $4,000, if such contributions also are
made for a nonworking spouse and a joint return is filed). In addition,
individuals whose earnings (together with their spouse's earnings) do not exceed
a certain level may establish an "education IRA" and/or a "Roth IRA"; although
contributions to these types of IRAs are nondeductible, withdrawals from them
will not be taxable under certain circumstances. A Heritage IRA also may be used
for certain "rollovers" from qualified benefit plans and from Section 403(b)
annuity plans. For more detailed information on the Heritage IRA, please contact
Heritage.
Fund shares also may be used as the investment medium for qualified plans
(defined benefit or defined contribution plans established by corporations,
partnerships or sole proprietorships). Contributions to qualified plans may be
made (within certain limits) on behalf of the employees, including
owner-employees, of the sponsoring entity.
OTHER RETIREMENT PLANS. Multiple participant payroll deduction retirement
plans also may purchase Class A shares of any Heritage Mutual Fund at a reduced
sales charge on a monthly basis during the 13-month period following such a
plan's initial purchase. The sales charge applicable to an initial purchase of
Class A shares will be that normally applicable under the schedule of sales
charges set forth in the prospectus to an investment 13 times larger than the
initial purchase. The sales charge applicable to each succeeding monthly
purchase of Class A shares will be that normally applicable, under the schedule,
to an investment equal to the sum of (1) the total purchase previously made
during the 13-month period and (2) the current month's purchase multiplied by
the number of months (including the current month) remaining in the 13-month
period. Sales charges previously paid during such period will not be adjusted
retroactively on the basis of later purchases. Multiple participant payroll
deduction retirement plans may purchase Class C shares at any time.
29
<PAGE>
C. CLASS A COMBINED PURCHASE PRIVILEGE (RIGHT OF ACCUMULATION)
-----------------------------------------------------------
Certain investors may qualify for the Class A sales charge reductions
indicated in the sales charge schedule in the prospectus by combining purchases
of Class A shares into a single "purchase," if the resulting purchase totals at
least $25,000. The term "purchase" refers to a single purchase by an individual,
or to concurrent purchases that, in the aggregate, are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class A shares for his or their own account; a single
purchase by a trustee or other fiduciary purchasing Class A shares for a single
trust, estate or single fiduciary account although more than one beneficiary is
involved; or a single purchase for the employee benefit plans of a single
employer. The term "purchase" also includes purchases by a "company," as the
term is defined in the 1940 Act, but does not include purchases by any such
company that has not been in existence for at least six months or that has no
purpose other than the purchase of Class A shares or shares of other registered
investment companies at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit card holders of a company, policy holders of
an insurance company, customers of either a bank or broker-dealer, or clients of
an investment adviser. A "purchase" also may include Class A shares purchased at
the same time through a single selected dealer of any other Heritage Mutual Fund
that distributes its shares subject to a sales charge.
The applicable Class A shares initial sales charge will be based on the
total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the previous
day) of (a) all Class A shares of a fund held by the investor and (b) all Class
A shares of any other Heritage Mutual Fund held by the investor and purchased at
a time when Class A shares of such other fund were distributed subject to a
sales charge (including Heritage Cash Trust shares acquired by exchange); and
(iii) the net asset value of all Class A shares described in
paragraph (ii) owned by another shareholder eligible to combine his purchase
with that of the investor into a single "purchase."
Class A shares of Heritage Income Trust-Intermediate Government Fund
("Intermediate Government") purchased from February 1, 1992 through July 31,
1992, without payment of a sales charge will be deemed to fall under the
provisions of paragraph (ii) as if they had been distributed without being
subject to a sales charge, unless those shares were acquired through an exchange
of other shares that were subject to a sales charge.
To qualify for the Combined Purchase Privilege on a purchase through a
selected dealer, the investor or selected dealer must provide the Distributor
with sufficient information to verify that each purchase qualifies for the
privilege or discount.
D. CLASS A STATEMENT OF INTENTION
------------------------------
Investors also may obtain the reduced sales charges shown in the
prospectus by means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $25,000 within a period of 13
months in Class A shares of a fund or any other Heritage Mutual Fund subject to
a sales charge. Each purchase of Class A shares under a Statement of Intention
will be made at the public offering price or prices applicable at the time of
such purchase to a single transaction of the dollar amount indicated in the
Statement of Intention. In addition, if you own Class A shares of any other
Heritage Mutual Fund subject to a sales charge, you may include those shares in
computing the amount necessary to qualify for a sales charge reduction.
30
<PAGE>
The Statement of Intention is not a binding obligation upon the investor
to purchase the full amount indicated. The minimum initial investment under a
Statement of Intention is 5% of such amount. Class A shares purchased with the
first 5% of such amount will be held in escrow (while remaining registered in
the name of the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount indicated is not
purchased, and such escrowed Class A shares will be redeemed involuntarily to
pay the additional sales charge, if necessary. When the full amount indicated
has been purchased, the escrow will be released. The difference in sales charge
will be used to purchase additional Class A shares of a fund subject to the rate
of sales charge applicable to the actual amount of the aggregate purchases. An
investor may amend his/her Statement of Intention to increase the indicated
dollar amount and begin a new 13-month period. In that case, all investments
subsequent to the amendment will be made at the sales charge in effect for the
higher amount. The escrow procedures discussed above will apply.
VII. REDEEMING SHARES
The methods of redemption are described in the section of the Prospectus
entitled "How to Sell Your Investment."
A. SYSTEMATIC WITHDRAWAL PLAN
--------------------------
Shareholders may elect to make systematic withdrawals from a fund account
of a minimum of $50 on a periodic basis. The amounts paid each period are
obtained by redeeming sufficient shares from an account to provide the
withdrawal amount specified. The Systematic Withdrawal Plan currently is not
available for shares held in an IRA, Section 403(b) annuity plan, defined
contribution plan, simplified employee pension plan or other retirement plan,
unless the shareholder establishes to Heritage's satisfaction that withdrawals
from such an account may be made without imposition of a penalty. Shareholders
may change the amount to be paid without charge not more than once a year by
written notice to the Distributor or Heritage.
Redemptions will be made at net asset value determined as of the close of
regular trading on the Exchange on a day of each month chosen by the
shareholders or a day of the last month of each period chosen by the
shareholders, whichever is applicable. Systematic withdrawals of Class C shares,
if made in less than one year of the date of purchase, will be charged a CDSC of
1%. Systematic withdrawals of Class B shares, if made in less than six years of
the date of purchase, will be charged the applicable CDSC. If the Exchange is
not open for business on that day, the shares will be redeemed at net asset
value determined as of the close of regular trading on the Exchange on the
preceding Business Day, minus any applicable CDSC for Class B shares and Class C
shares. If a shareholder elects to participate in the Systematic Withdrawal
Plan, dividends and other distributions on all shares in the account must be
reinvested automatically in fund shares. A shareholder may terminate the
Systematic Withdrawal Plan at any time without charge or penalty by giving
written notice to Heritage or the Distributor. The funds, and the transfer agent
and Distributor also reserve the right to modify or terminate the Systematic
Withdrawal Plan at any time.
A withdrawal payment is treated as proceeds from a sale of shares rather
than as a dividend or a capital gain distribution. These payments are taxable to
the extent that the total amount of the payments exceeds the tax basis of the
shares sold. If the periodic withdrawals exceed reinvested dividends and other
distributions, the amount of the original investment may be correspondingly
reduced.
Ordinarily, a shareholder should not purchase additional Class A shares of
a fund if maintaining a Systematic Withdrawal Plan of Class A shares because the
shareholder may incur tax liabilities in connection with such purchases and
withdrawals. A fund will not knowingly accept purchase orders from shareholders
for additional Class A shares if they maintain a Systematic Withdrawal Plan
unless the purchase is equal to at least one year's scheduled withdrawals. In
31
<PAGE>
addition, a shareholder who maintains such a Plan may not make periodic
investments under each fund's Automatic Investment Plan.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE
----------------------------------------------
The CDSC for A shares, B shares and C shares currently is waived for: (1)
any partial or complete redemption in connection with a distribution without
penalty under Section 72(t) of the Internal Revenue Code of 1986, as amended
(the "Code"), from a qualified retirement plan, including a Keogh Plan or IRA
upon attaining age 70 1/2; (2) any redemption resulting from a tax-free return
of an excess contribution to a qualified employer retirement plan or an IRA; (3)
any partial or complete redemption following death or disability (as defined in
Section 72(m)(7) of the Code) of a shareholder (including one who owns the
shares as joint tenant with his spouse) from an account in which the deceased or
disabled is named, provided the redemption is requested within one year of the
death or initial determination of disability; (4) certain periodic redemptions
under the Systematic Withdrawal Plan from an account meeting certain minimum
balance requirements, in amounts representing certain maximums established from
time to time by the Distributor (currently a maximum of 12% annually of the
account balance at the beginning of the Systematic Withdrawal Plan); or (5)
involuntary redemptions by a Fund of A share or B shares or C shares in
shareholder accounts that do not comply with the minimum balance requirements.
The Distributor may require proof of documentation prior to waiver of the CDSC
described in sections (1) through (4) above, including distribution letters,
certification by plan administrators, applicable tax forms or death or
physicians' certificates
B. TELEPHONE TRANSACTIONS
----------------------
Shareholders may redeem shares by placing a telephone request to a fund. A
fund, Heritage, Eagle, the Distributor and their Trustees, directors, officers
and employees are not liable for any loss arising out of telephone instructions
they reasonably believe are authentic. In acting upon telephone instructions,
these parties use procedures that are reasonably designed to ensure that such
instructions are genuine, such as (1) obtaining some or all of the following
information: account number, name(s) and social security number(s) registered to
the account, and personal identification; (2) recording all telephone
transactions; and (3) sending written confirmation of each transaction to the
registered owner. If a fund, Heritage, Eagle, the Distributor and their
Trustees, directors, officers and employees do not follow reasonable procedures,
some or all of them may be liable for any such losses.
C. REDEMPTIONS IN KIND
-------------------
A fund is obligated to redeem shares for any shareholder for cash during
any 90-day period up to $250,000 or 1% of that fund's net asset value, whichever
is less. Any redemption beyond this amount also will be in cash unless the Board
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, a fund will pay all or a portion of the
remainder of the redemption in portfolio instruments, valued in the same way as
each fund determines net asset value. The portfolio instruments will be selected
in a manner that the Board deem fair and equitable. A redemption in kind is not
as liquid as a cash redemption. If a redemption is made in kind, a shareholder
receiving portfolio instruments could receive less than the redemption value
thereof and could incur certain transaction costs.
D. RECEIVING PAYMENT
-----------------
If shares of a fund are redeemed by a shareholder through the Distributor
or a participating dealer, the redemption is settled with the shareholder as an
ordinary transaction. If a request for redemption is received in good order (as
described below) before the close of regular trading on the Exchange, shares
32
<PAGE>
will be redeemed at the net asset value per share determined on that day, minus
any applicable CDSC for Class B shares and Class C shares. Requests for
redemption received after the close of regular trading on the Exchange will be
executed on the next trading day. Payment for shares redeemed normally will be
made by a fund to the Distributor or a participating dealer by the third
business day after the day the redemption request was made, provided that
certificates for shares have been delivered in proper form for transfer to the
fund, or if no certificates have been issued, a written request signed by the
shareholder has been provided to the Distributor or a participating dealer prior
to settlement date.
Other supporting legal documents may be required from corporations or
other organizations, fiduciaries or persons other than the shareholder of record
making the request for redemption. Questions concerning the redemption of fund
shares can be directed to registered representatives of the Distributor, a
participating dealer or to Heritage.
A redemption request will be considered to be received in "good order" if:
o the number or amount of shares and the class of shares to be redeemed and
shareholder account number have been indicated;
o any written request is signed by a shareholder and by all co-owners of the
account with exactly the same name or names used in establishing the
account;
o any written request is accompanied by certificates representing the
shares that have been issued, if any, and the certificates have been
endorsed for transfer exactly as the name or names appear on the
certificates or an accompanying stock power has been attached; and
o the signatures on any written redemption request of $50,000 or more and on
any certificates for shares (or an accompanying stock power) have been
guaranteed by a national bank, a state bank that is insured by the Federal
Deposit Insurance Corporation, a trust company or by any member firm of
the New York, American, Boston, Chicago, Pacific or Philadelphia Stock
Exchanges. Signature guarantees also will be accepted from savings banks
and certain other financial institutions that are deemed acceptable by
Heritage, as transfer agent, under its current signature guarantee
program.
Each fund has the right to suspend redemption or postpone payment at times
when the Exchange is closed (other than customary weekend or holiday closings)
or during periods of emergency or other periods as permitted by the Securities
and Exchange Commission. In the case of any such suspension, you may either
withdraw your request for redemption or receive payment based upon the net asset
value next determined, less any applicable CDSC, after the suspension is lifted.
If a redemption check remains outstanding after six months, Heritage reserves
the right to redeposit those funds into your account.
VIII. EXCHANGE PRIVILEGE
------------------
An exchange is effected through the redemption of the shares tendered for
exchange and the purchase of shares being acquired at their respective net asset
values as next determined following receipt by the Heritage Mutual Fund whose
shares are being exchanged of (1) proper instructions and all necessary
supporting documents or (2) a telephone request for such exchange in accordance
with the procedures set forth in the Prospectus and below. Telephone or telegram
requests for an exchange received by a fund before the close of regular trading
on the Exchange will be effected at the close of regular trading on that day.
Requests for an exchange received after the close of regular trading will be
effected on the Exchange's next trading day.
If you or your Financial Advisor are unable to reach Heritage by telephone,
an exchange can be effected by sending a telegram to Heritage. Due to the volume
of calls or other unusual circumstances, telephone exchanges may be difficult to
implement during certain time periods.
33
<PAGE>
Class A shares of Intermediate Government purchased from February 1, 1992
through July 31, 1992, without payment of an initial sales charge may be
exchanged into Class A shares of a fund without payment of any sales charge.
Class A shares of Intermediate Government purchased after July 31, 1992 without
an initial sales charge will be subject to a sales charge when exchanged into
Class A shares of a fund, unless those shares were acquired through an exchange
of other Class A shares that were subject to an initial sales charge.
Each Heritage Mutual Fund reserves the right to reject any order to
acquire its shares through exchange or otherwise to restrict or terminate the
exchange privilege at any time. In addition, each Heritage Mutual Fund may
terminate this exchange privilege upon 60 days' notice.
IX. CONVERSION OF CLASS B SHARES
----------------------------
Class B shares of a fund automatically will convert to Class A shares of
that fund, based on the relative net asset values per share of the two classes,
eight years after the end of the calendar month in which the shareholder's order
to purchase the Class B shares was accepted. For the purpose of calculating the
holding period required for conversion of Class B shares, the date of purchase
order acceptance shall mean (i) the date on which the Class B shares were issued
or (ii) for Class B shares obtained through an exchange, or a series of
exchanges, the date on which the original Class B shares were issued. For
purposes of conversion to Class A shares, Class B shares purchased through the
reinvestment of dividends and other distributions paid in respect of Class B
shares will be held in a separate sub-account. Each time any Class B shares in
the shareholder's regular account (other than those in the sub-account) convert
to Class A shares, a pro rata portion of the Class B shares in the sub-account
will also convert to Class A shares. The portion will be determined by the ratio
that the shareholder's Class B shares converting to Class A shares bears to the
shareholder's total Class B shares not acquired through dividends and other
distributions.
The availability of the conversion feature is subject to the continuing
availability of an opinion of counsel to the effect that the dividends and other
distributions paid on Class A shares and Class B shares will not result in
"preferential dividends" under the Code and the conversion of shares does not
constitute a taxable event. If the conversion feature ceased to be available,
the Class B shares would not be converted and would continue to be subject to
the higher ongoing expenses of the Class B shares beyond eight years from the
date of purchase. Heritage and Eagle have no reason to believe that this
condition for the availability of the conversion feature will not be met.
X. TAXES
-----
GENERAL. Each fund is treated as a separate corporation for Federal tax
purposes and intends to continue to qualify for favorable tax treatment as a
regulated investment company under the Code ("RIC"). To do so, a fund must
distribute annually to its shareholders at least 90% of its investment company
taxable income (generally consisting of net investment income, net short-term
capital gain and net gains from certain foreign currency transactions,
determined without regard to the dividends-paid deduction) ("Distribution
Requirement") and must meet several additional requirements. With respect to
each fund, these requirements include the following: (1) the fund must derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, futures or forward currency contracts) derived with respect
to its business of investing in securities or those currencies ("Income
Requirement"); (2) at the close of each quarter of the fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with those other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the fund's total assets and
that does not represent more than 10% of the issuer's outstanding voting
34
<PAGE>
securities; and (3) at the close of each quarter of the fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer.
By qualifying for treatment as a RIC, a fund (but not its shareholders)
will be relieved of Federal income tax on the part of its investment company
taxable income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) that it distributes to its shareholders. If a
fund failed to qualify for treatment as a RIC for any taxable year, it would be
taxed on the full amount of its taxable income for that year without being able
to deduct the distributions it makes to its shareholders and the shareholders
would treat all those distributions, including distributions of net capital
gain, as dividends (that is, ordinary income) to the extent of the fund's
earnings and profits. In addition, the fund could be required to recognize
unrealized gains, pay substantial taxes and interest and make substantial
distributions before requalifying for RIC treatment.
Each fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and its capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
DISPOSITION OF FUND SHARES; DISTRIBUTIONS. A redemption of fund shares
will result in a taxable gain or loss to the redeeming shareholder, depending on
whether the redemption proceeds are more or less than the shareholder's adjusted
basis for the redeemed shares (which normally includes any sales charge paid on
Class A shares). An exchange of shares of any fund for shares of another
Heritage Mutual Fund (including another fund) generally will have similar tax
consequences. However, special rules apply when a shareholder disposes of Class
A shares of a fund through a redemption or exchange within 90 days after
purchase thereof and subsequently reacquires Class A shares of that fund or of
another Heritage Mutual Fund without paying a sales charge due to the 90-day
reinstatement or exchange privileges. In these cases, any gain on the
disposition of the original Class A shares will be increased, or loss decreased,
by the amount of the sales charge paid when those shares were acquired, and that
amount will increase the basis of the shares subsequently acquired. In addition,
if shares of a fund are purchased (whether pursuant to the reinstatement
privilege or otherwise) within 30 days before or after redeeming other shares of
that fund (regardless of class) at a loss, all or a portion of that loss will
not be deductible and will increase the basis in the newly purchased shares.
If shares of a fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for a dividend or other distribution, the shareholder will pay full
price for the shares and receive some portion of the price back as a taxable
distribution.
Dividends from a fund's investment company taxable income are taxable to
its shareholders as ordinary income, to the extent of its earnings and profits,
whether received in cash or in additional fund shares. Distributions of a fund's
net capital gain, when designated as such, are taxable to its shareholders as
long-term capital gains, whether received in cash or in additional fund shares
and regardless of the length of time the shares have been held. A portion of the
dividends (but not the capital gain distributions) each fund pays (an
insubstantial portion in the case of Eagle International), not exceeding the
aggregate dividends it receives from U.S. corporations, will be eligible for the
dividends-received deduction allowed to corporations; however, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the Federal alternative
minimum tax.
35
<PAGE>
INCOME FROM FOREIGN SECURITIES. Dividends and interest received by each
fund (other than Small Cap), and gains realized thereby, may be subject to
income, withholding or other taxes imposed by foreign countries and U.S.
possessions ("foreign taxes") that would reduce the yield and/or total return on
its securities. Tax conventions between certain countries and the United States
may reduce or eliminate foreign taxes, however, and many foreign countries do
not impose taxes on capital gains in respect of investments by foreign
investors. If more than 50% of the value of a fund's total assets at the close
of any taxable year consists of securities of foreign corporations, it will be
eligible to, and may, file an election with the Internal Revenue Service that
would enable its shareholders, in effect, to receive the benefit of the foreign
tax credit with respect to any foreign taxes paid by it. It is anticipated that
only Eagle International will be eligible for such election. Pursuant to such
election, the fund would treat those taxes as dividends paid to its shareholders
and each shareholder would be required to (1) include in gross income, and treat
as paid by the shareholder, the shareholder's proportionate share of those
taxes, (2) treat the shareholder's share of those taxes and of any dividend paid
by the fund that represents income from foreign or U.S. possessions sources as
the shareholder's own income from those sources, and (3) either deduct the taxes
deemed paid by the shareholder in computing the shareholder's taxable income or,
alternatively, use the foregoing information in calculating the foreign tax
credit against the shareholder's Federal income tax. Each fund that makes this
election will report to its shareholders shortly after each taxable year their
respective shares of the fund's income from sources within foreign countries and
U.S. possessions and foreign taxes it paid. Individuals who have no more than
$300 ($600 for married persons filing jointly) of creditable foreign taxes
included on Forms 1099 and have no foreign source non-passive income will be
able to claim a foreign tax credit without having to file the detailed Form 1116
that otherwise is required.
Each fund, except Small Cap, may invest in the stock of "passive foreign
investment companies" ("PFICs"). A PFIC is any foreign corporation (with certain
exceptions) that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, a fund will be subject to Federal income tax on a portion of any
"excess distribution" received on the stock of a PFIC or of any gain on
disposition of the stock (collectively "PFIC income"), plus interest thereon,
even if the fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent it distributes that income to its shareholders.
If a fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the fund will be required to include in income each year its PRO
RATA share of the QEF's annual ordinary earnings and net capital gain - which
the fund most likely would have to distribute to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax - even if the fund did not
receive those earnings and gain from the QEF. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.
Each fund may elect to "mark-to-market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of a PFIC's stock over
a fund's adjusted basis therein as of the end of that year. Pursuant to the
election, a fund also would be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock the fund included in income
for prior taxable years under the election (and under regulations proposed in
1992 that provided a similar election with respect to the stock of certain
PFICs). A fund's adjusted basis in each PFIC's stock subject to the election
would be adjusted to reflect the amounts of income included and deductions taken
thereunder.
Gains or losses (1) from the disposition of foreign currencies, including
forward currency contracts, (2) on the disposition of a
36
<PAGE>
foreign-currency-denominated debt security that are attributable to fluctuations
in the value of the foreign currency between the dates of acquisition and
disposition of the security and (3) that are attributable to exchange rate
fluctuations between the time a fund accrues dividends, interest or other
receivables, or expenses or other liabilities, denominated in a foreign currency
and the time the fund actually collects the receivables or pays the liabilities,
generally will be treated as ordinary income or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, increase or
decrease the amount of a fund's investment company taxable income available to
be distributed to its shareholders as ordinary income, rather than affecting the
amount of its net capital gain.
HEDGING STRATEGIES. The use of hedging strategies, such as selling
(writing) and purchasing options and futures contracts and entering into forward
currency contracts, involves complex rules that will determine for income tax
purposes the amount, character and timing of recognition of the gains and losses
a fund realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures and forward currency contracts a fund derives
with respect to its business of investing in securities or foreign currencies,
will be treated as qualifying income under the Income Requirement.
Certain futures, foreign currency contracts and list nonequity options
(such as those on a securities index) in which a fund may invest will be subject
to section 1256 of the Code ("Section 1256 Contracts"). Section 1256 Contracts a
fund holds at the end of each taxable year, other than Section 1256 Contracts
that are part of a "mixed straddle" with respect to which it has made an
election not to have the following rules apply, must be "marked-to-market" (that
is, treated as sold for their fair market value) for Federal income tax
purposes, with the result that unrealized gains or losses will be treated as
though they were realized. Sixty percent of any net gain or loss recognized on
these deemed sales, and 60% of any net realized gain or loss from any actual
sales of Section 1256 Contracts, will be treated as long-term capital gain or
loss, and the balance will be treated as short-term capital gain or loss.
Section 1256 Contracts also may be marked-to-market for purposes of the Excise
Tax. These rules may operate to increase the amount that a fund must distribute
to satisfy the Distribution Requirement (I.E., with respect to the portion
treated as short-term capital gain), which will be taxable to its shareholders
as ordinary income, and to increase the net capital gain a fund recognizes,
without in either case increasing the cash available to the fund.
Code section 1092 (dealing with straddles) also may affect the taxation of
certain Hedging Instruments in which a fund may invest. That section defines a
"straddle" as offsetting positions with respect to actively traded personal
property; for these purposes, options, futures and forward currency contracts
are positions in personal property. Under that section, any loss from the
disposition of a position in a straddle generally may be deducted only to the
extent the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle. In addition, these rules may postpone the recognition of loss that
otherwise would be recognized under the mark-to-market rules discussed above.
The regulations under section 1092 also provides certain "wash sale" rules,
which apply to transactions where a position is sold at a loss and a new
offsetting position is acquired within a prescribed period, and "short sale"
rules applicable to straddles. If a fund makes certain elections, the amount,
character and timing of the recognition of gains and losses from the affected
straddle positions would be determined under rules that vary according to the
elections made. Because only a few of the regulations implementing the straddle
rules have been promulgated, the tax consequences to a fund of straddle
transactions are not entirely clear.
If a fund has an "appreciated financial position" - generally, an interest
(including an interest through an option, futures or forward currency contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis - and enters into a "constructive sale" of the position, the fund
will be treated as having made an actual sale thereof, with the result that it
will recognize gain at that time. A constructive sale generally consists of a
short sale, an offsetting notional principal contract or a futures or forward
currency contract entered into by a fund or a related person with respect to the
same or substantially identical property. In addition, if the appreciated
financial position is itself a short sale or such a contract, acquisition of the
underlying property or substantially identical property will be deemed a
37
<PAGE>
constructive sale. The foregoing will not apply, however, to any transaction by
a fund during any taxable year that otherwise would be treated as a constructive
sale if the transaction is closed within 30 days after the end of that year and
the fund holds the appreciated financial position unhedged for 60 days after
that closing (I.E., at no time during that 60-day period is the fund's risk of
loss regarding that position reduced by reason of certain specified transactions
with respect to substantially identical or related property, such as having an
option to sell, being contractually obligated to sell, making a short sale, or
granting an option to buy substantially identical stock or securities).
ORIGINAL ISSUE DISCOUNT SECURITIES. Income-Growth may acquire zero coupon
or other securities issued with original issue discount ("OID"). As a holder of
those securities, Income-Growth must include in its income the OID that accrues
on them during the taxable year, even if it receives no corresponding payment on
them during the year. Because Income-Growth annually must distribute
substantially all of its investment company taxable income, including any OID,
to satisfy the Distribution Requirement and avoid imposition of the Excise Tax,
Income-Growth may be required in a particular year to distribute as a dividend
an amount that is greater than the total amount of cash it actually receives.
Those distributions will be made from Income-Growth's cash assets or from the
proceeds of sales of portfolio securities, if necessary. Income-Growth may
realize capital gains or losses from those sales, which would increase or
decrease its investment company taxable income and/or net capital gain.
Investors are advised to consult their own tax advisers regarding the
status of an investment in the funds under state and local tax laws.
XI. SHAREHOLDER INFORMATION
-----------------------
Each share of a fund gives the shareholder one vote in matters submitted
to shareholders for a vote. Class A shares, Class B shares and Class C shares of
each fund have equal voting rights, except that, in matters affecting only a
particular class or series, only shares of that class or series are entitled to
vote. As Massachusetts business trusts, Capital Appreciation, Income-Growth and
Heritage Series Trust are not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in a Trust's or a
fund's operation and for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of a Trust's outstanding
shares.
XII. FUND INFORMATION
----------------
A. MANAGEMENT OF THE FUNDS
-----------------------
BOARD OF TRUSTEES. The business affairs of each fund are managed by or
under the direction of the Board. The Trustees are responsible for managing the
funds' business affairs and for exercising all the funds' powers except those
reserved to the shareholders. A Trustee may be removed by the other Trustees or
by a two-thirds vote of the outstanding Trust shares.
BACKGROUND OF THE TRUSTEES AND OFFICERS. Each fund's Trustees and Officers
are listed below with their addresses, principal occupations and present
positions, including any affiliation with Raymond James Financial, Inc. ("RJF"),
Raymond James & Associates, Inc. ("RJA"), Heritage and Eagle.
38
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
NAME EACH TRUST DURING PAST FIVE YEARS
---- ---------- ----------------------
<S> <C> <C>
Thomas A. James* (58) Trustee Chairman of the Board since 1986 and
880 Carillon Parkway Chief Executive Officer since 1969 of
St. Petersburg, FL 33716 RJF; Chairman of the Board of RJA since
1986; Chairman of the Board of Eagle
since 1984 and Chief Executive Officer
of Eagle, 1994 to 1996.
Richard K. Riess (51) President Executive Vice President and Managing
880 Carillon Parkway and Trustee Director for Asset Management of RJF
St. Petersburg, FL 33716 since 1998, Chief Executive Officer of
Eagle since 1996, President of Eagle,
1995 to 2000, Chief Operating Officer
of Eagle, 1988 to 1995. .
Donald W. Burton* (56) Trustee President of South Atlantic Capital
614 W. Bay Street, Suite Corporation (venture capital) since 1981.
200
Tampa, FL 33606
C. Andrew Graham (60) Trustee Vice President of Financial Designs Ltd.
Financial Designs, Ltd. since 1992.
1775 Sherman Street, Suite
1900
Denver, CO 80203
David M. Phillips (62) Trustee Chairman and Chief Executive Officer of
World Trade Center Chicago CCC Information Services, Inc. since
444 Merchandise Mart 1994 and of InfoVest Corporation
Chicago, IL 60654 (information services to the insurance
and auto industries and consumer
households) since 1982.
Eric Stattin (67) Trustee Litigation Consultant/Expert Witness and
1975 Evening Star Drive private investor since 1988.
Park City, UT 84060
James L. Pappas (57) Trustee Lykes Professor of Banking and Finance
University of South Florida since 1986 at University of South College of
Tampa, FL 33620 Business Florida; Dean of College of Business
Administration Administration 1987 to 1996.
K.C. Clark (42) Executive Executive Vice President and Chief
880 Carillon Parkway Vice Operating Officer of Heritage Mutual
St. Petersburg, FL 33716 President Funds since 2000; Senior Vice President
and - Operations and Administration of
Principal Heritage Mutual Funds since 1998; Vice
Executive President - Operations and
Officer Administration of Heritage Mutual Funds
since 1993.
Donald H. Glassman (43) Treasurer Treasurer of Heritage since 1989;
880 Carillon Parkway Treasurer of Heritage Mutual Funds since
St. Petersburg, FL 33716 1989.
39
<PAGE>
Position with Principal Occupation
NAME EACH TRUST DURING PAST FIVE YEARS
---- ---------- ----------------------
Clifford J. Alexander (57) Secretary Partner, Kirkpatrick & Lockhart LLP (law
1800 Massachusetts Ave., firm).
N.W.
Washington, D.C. 20036
Robert J. Zutz (47) Assistant Partner, Kirkpatrick & Lockhart LLP (law
1800 Massachusetts Ave., Secretary firm).
N.W.
Washington, D.C. 20036
-----------------------
</TABLE>
* These Trustees are "interested persons" as defined in section 2(a)(19) of the
1940 Act.
The Trustees and officers of the Trust, as a group, own less than 1% of
each class of each fund's shares outstanding. Each Trust's Declaration of Trust
provides that the Trustees will not be liable for errors of judgment or mistakes
of fact or law. However, they are not protected against any liability to which
they would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
their office.
The Series Trust currently pays Trustees who are not employees of Heritage
or its affiliates $9,692 annually and $1,615 per meeting of the Board.
Income-Growth and Capital Appreciation each pay such Trustees $1,385 annually
and $231 per meeting of the Board. Each Trustee also is reimbursed for any
expenses incurred in attending meetings. Because Heritage or Eagle, as
applicable, performs substantially all of the services necessary for the
operation of each fund, each fund requires no employees. No officer, director or
employee of Heritage or Eagle receives any compensation from either fund for
acting as a director or officer. The following table shows the compensation
earned by each Trustee for the calendar year ended December 31, 2000.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Aggregate Aggregate Total
Compensation Compensation Aggregate Compensation
From Capital From Compensation From the Trust and
Name of Person, Appreciation Income-Growth From the the Heritage Family
POSITION TRUST TRUST SERIES TRUST of Funds Paid
--------- ----- ----- ------------ to Trustees(1)
---------------
<S> <C> <C> <C> <C>
Donald W. Burton, $10,500 $1,500 $1,500 $19,500
Trustee
C. Andrew Graham, $11,664 $1,667 $1,667 $21,666
Trustee
Thomas A. James, $0 $0 $0 $0
Trustee
James L. Pappas, $11,667 $1,667 $1,667 $21,666
Trustee
David M. Phillips, $10,500 $1,500 $1,500 $19,500
Trustee
Richard K. Riess, $0 $0 $0 $0
Trustee
40
<PAGE>
Eric Stattin, $11,667 $1,667 $1,667 $21,666
Trustee
-------------------------
</TABLE>
(1)The Heritage Mutual Funds consist of five separate registered investment
companies, including Capital Appreciation, Income-Growth Trust and Series
Trust, and 13 portfolios of those companies.
No Trustee will receive any benefits upon retirement. Thus, no pension or
retirement benefits have accrued as part of any of any Trust's expenses.
B. FIVE PERCENT SHAREHOLDERS
-------------------------
Listed below are shareholders who owned of record or were known by the
funds to own beneficially five percent or more of the outstanding shares of the
following funds as of December 22, 2000:
EAGLE INTERNATIONAL - CLASS A SHARES:
------------------------------------
Johnson Family Ltd. Partnership
5406 Lakemont Boulevard, SE
Bellevue, WA 98006
EAGLE INTERNATIONAL - CLASS B SHARES:
------------------------------------
Lawrence T. Brannon TTEE TRSTE Raymond James & Assoc., Inc.
For U A DID 12-18-95 Cust. A. Robert Dare
Lawrence T. Brannon MD PSP TR IRA R/O
3213 Embry Hills Drive 855 Winn Lake Road
Atlanta, GA 30341 Lapeer, MI 48446
VALUE EQUITY - CLASS B SHARES
-----------------------------
Raymond James & Assoc., Inc. Raymond James & Assoc., Inc.
For Elite Acct. 51903562 Cust. Charles I. Dunlap
Fad Ann M. Kennedy IRA
PASS 846 McCallie Avenue
142 Oley Furnace Road Chattanooga, TN 37403
Fleetwood, PA 19552
C. INVESTMENT ADVISERS AND ADMINISTRATOR; SUBADVISERS
--------------------------------------------------
The investment adviser and administrator for each fund except Eagle
International is Heritage Asset Management, Inc. Heritage was organized as a
Florida corporation in 1985. The investment adviser for Eagle International is
Eagle Asset Management, Inc. Eagle was organized as a Florida corporation in
1976. All the capital stock of both Heritage and Eagle is owned by RJF. RJF is a
holding company that, through its subsidiaries, is engaged primarily in
providing customers with a wide variety of financial services in connection with
securities, limited partnerships, options, investment banking and related
fields.
With respect to each fund except Eagle International, Heritage is
responsible for overseeing the fund's investment and noninvestment affairs,
subject to the control and direction of the fund's Board. The Series Trust, on
behalf of Aggressive Growth, Growth Equity, Mid Cap, Small Cap, Technology and
41
<PAGE>
Value Equity entered into an Investment Advisory and Administration Agreement
with Heritage dated March 29, 1993 and last supplemented on October 12, 1999.
Capital Appreciation and Income-Growth entered into Investment Advisory and
Administration Agreements dated November 13, 1985 and October 31, 1986,
respectively and, in the case of Capital Appreciation, amended on November 19,
1996. The Investment Advisory and Administration Agreements require that
Heritage review and establish investment policies for each fund and administer
the funds' noninvestment affairs.
On behalf of Eagle International, the Series Trust also entered into an
Investment Advisory and Administration Agreement (collectively with the Advisory
Agreements discussed above, "Advisory Agreements") dated February 14, 1995 with
Eagle to provide oversight of Eagle International's investment and noninvestment
affairs, subject to the control and direction of the Board.
Under separate Subadvisory Agreements, Eagle and Goldman Sachs Asset
Management ("Goldman"), subject to the direction and control of Capital
Appreciation's Board, provide investment advice and portfolio management
services to Capital Appreciation for a fee payable by Heritage. None of Capital
Appreciation's assets currently are allocated to Eagle. Under separate
Subadvisory Agreements, Eagle and Awad Asset Management, Inc. ("Awad") each
provide investment advice and portfolio management services, subject to
direction by Heritage and the Series Trust's Board, to Small Cap for a fee
payable by Heritage. Under a Subadvisory Agreement, Eagle provides investment
advice and portfolio management services, subject to the direction of Heritage
and the Board, to Aggressive Growth, Growth Equity, Income-Growth, Mid Cap and
Value Equity for a fee payable by Heritage. None of Value Equity's assets
currently are allocated to Eagle. Under a Subadvisory Agreement, Osprey Partners
Investment Management, LLC ("Osprey") provides investment adviser and portfolio
management services, subject to the direction by Heritage and the Series Trust's
Board, to Value Equity for a fee payable by Heritage. Under a Subadvisory
Agreement, Martin Currie Inc. ("Martin Currie") provides investment advice and
portfolio management services, subject to the direction of Eagle and the Board,
to Eagle International for a fee payable by Eagle (collectively, the
"Subadvisory Agreements").
Heritage and Eagle, as applicable, also are obligated to furnish each fund
with office space, administrative, and certain other services as well as
executive and other personnel necessary for the operation of a fund. Heritage
and Eagle, as applicable, and their affiliates also pay all the compensation of
Trustees of the Trust who are employees of Heritage or Eagle and their
affiliates. Each fund pays all its other expenses that are not assumed by
Heritage or Eagle, as applicable. Each fund also is liable for such nonrecurring
expenses as may arise, including litigation to which a fund may be a party. Each
fund also may have an obligation to indemnify its Trustees and officers with
respect to any such litigation.
The Advisory Agreements and the Subadvisory Agreements each were approved
by the Board (including all of the Trustees who are not "interested persons" of
Heritage and Eagle or the subadvisers, as defined under the 1940 Act) and by the
shareholders of the applicable funds in compliance with the 1940 Act. Each
Agreement provides that it will be in force for an initial two-year period and
it must be approved each year thereafter by (1) a vote, cast in person at a
meeting called for that purpose, of a majority of those Trustees who are not
"interested persons" of Heritage, Eagle, the subadvisers or the Trust, and by
(2) the majority vote of either the full Board or the vote of a majority of the
outstanding shares of a fund. The Advisory and Subadvisory Agreements each
automatically terminates on assignment, and each is terminable on not more than
60 days written notice by the Trust to either party. In addition, the Advisory
Agreements may be terminated on not less than 60 days written notice by Heritage
or Eagle, as applicable, to a fund and the Subadvisory Agreements may be
terminated on not less than 60 days written notice by Heritage or Eagle, as
applicable, or 90 days `written notice by the subadvisers. Under the terms of
the Advisory Agreement, Heritage and Eagle automatically become responsible for
the obligations of the subadvisers upon termination of the Subadvisory
Agreements. In the event Heritage or Eagle, as applicable, ceases to be the
investment adviser of a fund or the Distributor ceases to be principal
distributor of shares of a fund, the right of a fund to use the identifying name
of "Heritage" may be withdrawn.
42
<PAGE>
Heritage, Eagle and the subadvisers shall not be liable to either fund or
any shareholder for anything done or omitted by them, except acts or omissions
involving willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties imposed upon them by their agreements with a fund or for any
losses that may be sustained in the purchase, holding or sale of any security.
All of the officers of each fund except for Messrs. Alexander and Zutz are
officers or directors of Heritage, Eagle or their affiliates. These
relationships are described under "Management of the Funds."
ADVISORY AND ADMINISTRATION FEE. The annual investment advisory fee paid
monthly by each fund to Heritage or Eagle, as applicable, is based on the
applicable fund's average daily net assets as listed in the Prospectus.
AGGRESSIVE GROWTH. For Aggressive Growth, Heritage contractually has
agreed to waive through the fund's 2000 fiscal year management fees to the
extent that annual operating expenses attributable to Class A shares exceed
1.60% of the average daily net assets or to the extent that annual operating
expenses attributable to Class B shares and Class C shares exceed 2.35% of
average daily net assets attributable to that class during this fiscal year. For
the two fiscal years ended October 31, 2000, Heritage earned $382,703 and
$872,006, respectively. For those same periods, Heritage waived its fees in the
amounts of $55,188 and recovered $81,049, respectively.
Heritage has entered into an agreement with Eagle to provide investment
advice and portfolio management services to the fund for a fee paid by Heritage
to Eagle with respect to the amount of fund assets under management equal to 50%
of the fees payable to Heritage by the fund, without regard to any reduction in
fees actually paid to Heritage as a result of expense limitations. For the two
fiscal years ended October 31, 2000, Heritage paid Eagle subadvisory fees of
$191,381and $395,479, respectively.
CAPITAL APPRECIATION. For Capital Appreciation, Heritage contractually has
agreed to waive through the fund's 2000 fiscal year management fees to the
extent that total annual operating expenses attributable to Class A shares
exceed 1.40% of the average daily net assets or to the extent that total annual
operating expenses attributable to Class C shares exceed 2.15% of average daily
net assets. For the three fiscal years ended August 31, 2000, Heritage earned
$825,313, $1,378,107 and $2,316,092, respectively.
Heritage has entered into agreements with Eagle and Goldman to provide
investment advice and portfolio management services to Capital Appreciation for
an annual fee to be paid by Heritage to Goldman of .25% of Capital
Appreciation's average daily net assets and for an annual fee paid by Heritage
to Eagle of 50% of the fees payable to Heritage by Capital Appreciation, without
regard to any reduction in fees actually paid to Heritage as a result of expense
limitations. Eagle currently does not have any of Capital Appreciation's assets
under management, and, therefore, does not receive a fee from Heritage. For the
three fiscal years ended August 31, 2000, Heritage paid to Goldman subadvisory
fees of $275,104, $459,368 and $772,031, respectively.
EAGLE INTERNATIONAL. For Eagle International, Eagle contractually has
agreed to waive through the fund's 2000 fiscal year management fees to the
extent that Class A annual operating expenses, exclusive of foreign taxes paid,
exceed 1.97% or to the extent that Class B and Class C annual operating expenses
exceed 2.72% of average daily net assets attributable to that class during this
fiscal year. For three fiscal years ended October 31, 2000, Eagle earned
$453,725 $477,822 and $506,058, respectively. For the same periods, Eagle waived
its fees in the amounts of $52,276, $24,049 and $0, respectively.
Eagle has entered into an agreement with Martin Currie to provide
investment advisory advice and portfolio management services to Eagle
43
<PAGE>
[
International for a fee based on Eagle International's average daily net assets
paid by Eagle to Martin Currie equal to .50% on the first $100 million of assets
and .40% thereafter, without regard to any reduction in fees actually paid to
Eagle as a result of expense limitations. For the three fiscal years ended
October 31, 2000, Eagle paid Martin Currie subadvisory fees of $226,862 $238,911
and $253,029, respectively.
GROWTH EQUITY. For Growth Equity, Heritage contractually has agreed to
waive through the fund's 2000 fiscal year management fees to the extent that
Class A annual operating expenses exceed 1.40% or to the extent that Class C
annual operating expenses exceed 2.15% of average daily net assets attributable
to that class during this fiscal year. For the three fiscal years ended October
31, 2000, Heritage earned $471,447, $932,644 and $1,993,560, respectively.
Heritage has entered into an agreement with Eagle to provide investment
advisory advice and portfolio management services to Growth Equity for a fee
paid by Heritage to Eagle equal to 50% of the fees paid to Heritage, without
regard to any reduction in fees actually paid to Heritage as a result of expense
limitations. For three fiscal years ended October 31, 2000, Heritage paid Eagle
subadvisory fees of $235,729, $466,322 and $966,780, respectively.
INCOME-GROWTH. For Income-Growth, Heritage contractually has agreed to
waive through the fund's 2000 fiscal year management fees to the extent that
total annual operating expenses attributable to Class A shares exceed 1.35% of
the average daily net assets or to the extent that total annual operating
expenses attributable to Class C shares exceed 2.10% of average daily net
assets. For the three fiscal years ended September 30, 2000, Heritage earned
$760,605, $783,838 and $588,810, respectively.
Heritage has entered into an agreement with Eagle to provide investment
advice and portfolio management services to Income-Growth for a fee paid by
Heritage equal to 50% of the fees payable to Heritage by Income-Growth, without
regard to any reduction in fees actually paid to Heritage as a result of expense
limitations. For the three fiscal years ended September 30, 2000, Heritage paid
Eagle subadvisory fees of $380,302, $391,919 and $294,405, respectively.
MID CAP. For Mid Cap, Heritage contractually has agreed to waive through
the fund's 2000 fiscal year management fees to the extent that annual operating
expenses attributable to Class A shares exceed 1.55 % of the average daily net
assets or to the extent that annual operating expenses attributable to Class C
shares exceed 2.30% of average daily net assets attributable to that class
during this fiscal year. For the period since the fund's inception through
October 31, 1998 and the two fiscal years ended October 31, 2000, Heritage
earned $178,741, $210,881 and $240,166, respectively. For those same periods,
Heritage waived its fees in the amounts of $60,948, $27,644 and $24,899,
respectively.
Heritage has entered into an agreement with Eagle to provide investment
advice and portfolio management services to Mid Cap for a fee paid by Heritage
to Eagle equal to 50% of the fees payable to Heritage by the fund, without
regard to any reduction in fees actually paid to Heritage as a result of
voluntary fee waivers by Heritage. For the period since the fund's inception to
October 31, 1998 and the two fiscal years ended October 31, 2000, Heritage paid
Eagle $89,371, $105,440 and $120,083, respectively.
SMALL CAP. For Small Cap, Heritage contractually has agreed to waive
through the fund's 2000 fiscal year management fees to the extent that annual
operating expenses attributable to Class A shares exceed 1.30% of the average
daily net assets or to the extent that annual operating expenses attributable to
44
<PAGE>
Class B shares and Class C shares exceed 2.05% of average daily net assets
attributable to that class during this fiscal year. For the three fiscal years
ended October 31, 2000, Heritage earned $2,609,951, $1,960,400 and $1,503,024,
respectively.
Heritage has entered into an agreement with Eagle and Awad to provide
investment advice and portfolio management services to Small Cap for a fee paid
by Heritage to each subadviser with respect to the amount of Small Cap assets
under management equal to 50% of the fees payable to Heritage by Small Cap,
without regard to any reduction in fees actually paid to Heritage as a result of
expense limitations. The Research Department of Raymond James & Associates, Inc.
("Research"), a former subadviser of Small Cap who resigned as its subadviser on
November 20, 1995, received from Heritage for the November 1, 1995 to November
20, 1995 (when Research resigned as subadviser), subadvisory fees of $74,583.
Eagle began as subadviser to Small Cap on August 7, 1995 and received
subadvisory fees from Heritage for the three fiscal years ended October 31, 2000
in the amount of $691,150, $541,662 and $392,941, respectively. For the three
fiscal years ended October 31, 2000, Heritage paid Awad subadvisory fees of
$613,825, $438,538 and $358,571, respectively.
TECHNOLOGY. For Technology, Heritage contractually has agreed to waive
through the fund's 2000 fiscal year management fees to the extent that annual
operating expenses attributable to Class A shares exceed 1.65% of average daily
net assets or to the extent that annual operating expenses attributable to Class
B shares and Class C shares exceed 2.40% of average daily net assets
attributable to that class during this fiscal year. For the period since the
fund's inception through October 31, 2000, Heritage earned $1,026,011 and waived
$0 of its fees.
Heritage has entered into an agreement with Eagle to provide investment
advice and portfolio management services to the fund for a fee paid by Heritage
to Eagle with respect to the amount of fund assets under management equal to 50%
of the fees payable to Heritage by the fund, without regard to any reduction in
fees actually paid to Heritage as a result of expense limitations. For the
period since the fund's inception through October 31, 2000, Heritage paid Eagle
subadvisory fees of $513,006.
VALUE EQUITY. For Value Equity, Heritage contractually has agreed to waive
through the fund's 2000 fiscal year management fees to the extent that annual
operating expenses attributable to Class A shares exceed 1.45% of average daily
net assets or to the extent that annual operating expenses attributable to Class
B shares and Class C shares exceed 2.20% of average daily net assets
attributable to that class during this fiscal year. For the three fiscal years
ended October 31, 2000, Heritage earned $272,954, $227,557 and $193,447,
respectively. For the same periods, Heritage waived its fees in the amounts of
$48,072, $76,169 and $69,913, respectively.
Heritage has entered into separate agreements with Eagle and Osprey to
provide investment advice and portfolio management services to Value Equity for
a fee paid by Heritage. Heritage paid fees to Eagle and Osprey, for the 1999
fiscal year, equal to 0.375% and 0.32% of average daily net assets,
respectively, without regard to any reduction in fees actually paid to Heritage
as a result of expense limitations. For the three fiscal years ended October 31,
1998, Heritage paid Eagle subadvisory fees of $111,334, $136,477 and $0,
respectively. For the period November 1, 1998 through May 17, 1999, Heritage
paid Eagle subadvisory fees of $66,946. Commencing on May 18, 1999, all of the
fund's assets were allocated to Osprey. No assets currently are allocated to
Eagle. From May 18, 1999 to October 31, 1999, Heritage paid Osprey subadvisory
fees of $39,964. For the fiscal year ended October 31, 2000, Heritage paid
Osprey subadvisory fees of $82,537.
CLASS-SPECIFIC EXPENSES. Each fund may determine to allocate certain of
its expenses (in addition to distribution fees) to the specific classes of a
fund's shares to which those expenses are attributable.
D. BROKERAGE PRACTICES
While each fund generally purchases securities for long-term capital
gains, each fund may engage in short-term transactions under various market
45
<PAGE>
conditions to a greater extent than certain other mutual funds with similar
investment objectives. Thus, the turnover rate may vary greatly from year to
year or during periods within a year. A fund's portfolio turnover rate is
computed by dividing the lesser of purchases or sales of securities for the
period by the average value of portfolio securities for that period. A 100%
turnover rate would occur if all the securities in a Fund's portfolio, with the
exception of securities whose maturities at the time of acquisition were one
year or less, were sold and either repurchased or replaced within one year. A
high rate of portfolio turnover (100% or more) generally leads to transaction
costs and may result in a greater number of taxable transactions. Aggressive
Growth's portfolio turnover rates for two fiscal years ending October 31, 1999
and 2000 were 195% and 252%, respectively. Capital Appreciation's portfolio
turnover rates for the two fiscal years ended August 31, 1999 and 2000 were 44%
and 48%, respectively. Eagle International's portfolio turnover rates for the
two fiscal years ended October 31, 1999 and 2000 were 78% and 67%, respectively.
Growth Equity's portfolio turnover rates for the two fiscal years ended October
31, 1999 and 2000 were 160% and 392%, respectively. Income-Growth's portfolio
turnover rates for the two fiscal years ended September 30, 1999 and 2000 were
46% and 58%, respectively. Mid Cap's portfolio turnover rates for the two fiscal
years ended October 31, 1999 and 2000 were 192% and 265%, respectively. Small
Cap's portfolio turnover rates for the two fiscal years ended October 31, 1999
and 2000 were 42% and 85%, respectively. Technology's portfolio turnover rate
for the period November 18, 1999 to October 31, 2000 was 441%. Value Equity's
portfolio turnover rates for two fiscal years ended October 31, 1999 and 2000
were 137% and 95%, respectively.
The subadvisers are responsible for the execution of each fund's portfolio
transactions and must seek the most favorable price and execution for such
transactions. Best execution, however, does not mean that a fund necessarily
will be paying the lowest commission or spread available. Rather, each fund also
will take into account such factors as size of the order, difficulty of
execution, efficiency of the executing broker's facilities and any risk assumed
by the executing broker.
It is a common practice in the investment advisory business for advisers
of investment companies and other institutional investors to receive research,
statistical and quotation services from broker-dealers who execute portfolio
transactions for the clients of such advisers. Consistent with the policy of
most favorable price and execution, the subadvisers may give consideration to
research, statistical and other services furnished by brokers or dealer, and to
potential access to initial public offerings ("IPOs") that may be made available
by such broker-dealers. In addition, the subadvisers may place orders with
brokers who provide supplemental investment and market research and securities
and economic analysis and may pay to these brokers a higher brokerage commission
or spread than may be charged by other brokers, provided that the subadvisers
determine in good faith that such commission is reasonable in relation to the
value of brokerage and research services provided. Such research and analysis
may be useful to the subadvisers in connection with services to clients other
than the funds. Eagle International also may purchase and sell portfolio
securities to and from dealers who provide it with research services. However,
portfolio transactions will not be directed by Eagle International to dealers on
the basis of such research services.
The Trustees may direct Heritage or the subadvisers to allocate a certain
amount of commission business from certain funds to the Pershing Division of
Donaldson, Lufkin & Jenrette as consideration for the annual provision of
certain date provided by Lipper Analytical Securities Corporation (which
provides information useful to the Trustees in reviewing the relationships among
the funds, Heritage and the sub advisers).
Aggressive Growth, Capital Appreciation, Eagle International, Growth
Equity, Income-Growth, Mid Cap, Technology and Value Equity may use the
Distributor, its affiliates or certain affiliates of Heritage and Eagle as a
broker for agency transactions in listed and OTC securities at commission rates
and under circumstances consistent with the policy of best execution.
Commissions paid to the Distributor, its affiliates or certain affiliates of
Heritage and Eagle will not exceed "usual and customary brokerage commissions."
Rule l7e-1 under the 1940 Act defines "usual and customary" commissions to
46
<PAGE>
include amounts that are "reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time."
Although it currently does not intend to do so, Small Cap may use the
Distributor as broker for agency transactions in listed and OTC securities at
commission rates and under circumstances consistent with the policy of best
execution. Provided, however, that if Small Cap does use the Distributor as a
broker, commissions paid to the Distributor will not exceed "usual and customary
brokerage commissions" as defined above.
The subadvisers also may select other brokers to execute portfolio
transactions. In the OTC market, each fund generally deals with primary market
makers unless a more favorable execution can otherwise be obtained.
Aggregate brokerage commissions paid by Aggressive Growth for the period
ended October 31, 1998 and the two fiscal years ended October 31, 2000 amounted
to $26,396, $118,326, and $329,767, respectively. For the same periods,
aggregate brokerage commissions paid by Aggressive Growth to the Distributor, an
affiliated broker-dealer, were $6,696, $16,500 and $33,320, respectively. The
commission to the Distributor for the most recent fiscal year represented 10.10%
of the total aggregate commissions paid on brokerage transactions representing
3.87% of the total aggregate brokerage transactions.
Aggregate brokerage commissions paid by Capital Appreciation for the three
fiscal years ended August 31, 2000 amounted to $68,582, $206,766 and $375,005,
respectively. For the same periods, aggregate brokerage commissions paid by
Capital Appreciation to the Distributor, an affiliated broker-dealer, were $216,
$2,580 and $0, respectively. The commission to the Distributor for the most
recent fiscal year represented 0% of the total aggregate commissions paid on
brokerage transactions representing 0% of the total aggregate brokerage
transactions.
Aggregate brokerage commissions paid by Eagle International for the three
years ended October 31, 2000 amounted to $134,334, $191,194 and $137,739,
respectively.
Aggregate brokerage commissions paid by Growth Equity for the three fiscal
years ended October 31, 2000 amounted to $81,410, $303,840 and $1,284,162,
respectively. For the same periods, aggregate brokerage commissions paid by
Growth Equity to the Distributor, an affiliated broker-dealer, were $0, $0 and
$0, respectively.
Aggregate brokerage commissions paid by Income-Growth for the three fiscal
years ended September 30, 2000 amounted to $195,587, $130,655 and $130,561,
respectively. For the same periods, aggregate brokerage commissions paid by
Income-Growth to the Distributor, an affiliated broker-dealer, were $9,280,
$8,058 and $6,807, respectively. The commission to the Distributor for the most
recent fiscal year represented 5.21% of the total aggregate commissions paid on
brokerage transactions representing 2.0% of the total aggregate brokerage
transactions.
47
<PAGE>
Aggregate brokerage commissions paid by Mid Cap for the period since
inception to October 31, 1998 and the two fiscal years ended October 31, 2000
amounted to $81,410, $127,029 and $119,898, respectively. For the same periods,
aggregate brokerage commissions paid by Mid Cap to the Distributor, an
affiliated broker-dealer, were $0, $540 and $3,180, respectively. The commission
to the Distributor for the most recent fiscal year represented 2.65% of the
total aggregate commissions paid on brokerage transactions representing .9% of
the total aggregate brokerage transactions.
Aggregate brokerage commissions paid by Small Cap for the three years
ended October 31, 2000 amounted to $560,894, $347,665 and $406,607,
respectively. For the same periods, Small Cap paid the Distributor, an
affiliated broker-dealer, commissions of $102,192, $48,580 and $34,317
respectively. The commission to the Distributor for the most recent fiscal year
represented 8.44% of the total aggregate commissions paid on brokerage
transactions representing 2.8% of the total aggregate brokerage transactions.
Aggregate brokerage commissions paid by Technology for the period ended
October 31, 2000 amounted to $506,342. For the same period, aggregate brokerage
commissions paid by Technology to the Distributor, an affiliated broker-dealer,
were $1,290. The commission to the Distributor for the most recent fiscal period
represented .26% of the total aggregate commissions paid on brokerage
transactions representing .1% of the total aggregate brokerage transactions.
Aggregate brokerage commissions paid by Value Equity for the three fiscal
years ended October 31, 2000 amounted to $153,869, $130,194 and $73,625
respectively. For the same periods, aggregate brokerage commissions paid by
Value Equity to the Distributor were $4,212, $300 and $0, respectively. The
commission to the Distributor for the most recent fiscal year represented 0.23%
of the total aggregate commissions paid on brokerage transactions representing
0.05% of the total aggregate brokerage transactions.
Each fund may not buy securities from, or sell securities to, the
Distributor as principal. However, the Board has adopted procedures in
conformity with Rule 10f-3 under the 1940 Act whereby each fund may purchase
securities that are offered in underwritings in which the Distributor is a
participant. The Board will consider the ability to recapture fund expenses on
certain portfolio transactions, such as underwriting commissions and tender
offer solicitation fees, by conducting such portfolio transactions through
affiliated entities, including the Distributor, but only to the extent such
recapture would be permissible under applicable regulations, including the rules
of the National Association of Securities Dealers, Inc. and other
self-regulatory organizations.
Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as
amended, each fund has expressly consented to the Distributor executing
transactions on an exchange on its behalf.
Pursuant to Section 17(j) of the 1940 Act and Rule 17j-1 there under,
Heritage, the Adviser and the distributor have adopted Codes of Ethics
("Codes"). These Codes permit portfolio managers and other access persons of the
Fund to invest in securities that may be owned by the Fund, subject to certain
restrictions.
E. DISTRIBUTION OF SHARES
DISTRIBUTION. Shares of each fund are offered continuously through the
funds' principal underwriter, Raymond James & Associates, Inc. (the
"Distributor"), and through other participating dealers or banks that have
dealer agreements with the Distributor. The Distributor receives commissions
consisting of that portion of the sales load remaining after the dealer
concession is paid to participating dealers or banks. Such dealers may be deemed
to be underwriters pursuant to the 1933 Act. The Distributor and Financial
Advisors or banks with whom the Distributor has entered into dealer agreements
offer shares of each fund as agents on a best efforts basis and are not
obligated to sell any specific amount of shares. In this connection, the
Distributor makes distribution and servicing payments to participating dealers.
DISTRIBUTION AGREEMENT. Each fund had adopted a Distribution Agreement
pursuant to which the Distributor bears the cost of making information about
each fund available through advertising, sales literature and other means, the
48
<PAGE>
cost of printing and mailing prospectuses to persons other than shareholders,
and salaries and other expenses relating to selling efforts. The Distributor
also pays service fees to dealers for providing personal services to Class A,
Class B and Class C shareholders and for maintaining shareholder accounts. Each
fund pays the cost of registering and qualifying its shares under state and
federal securities laws and typesetting of its prospectuses and printing and
distributing prospectuses to existing shareholders.
The Distribution Agreements may be terminated at any time on 60 days
written notice without payment of any penalty by either party. Each fund may
effect such termination by vote of a majority of the outstanding voting
securities of a fund or by vote of a majority of the Independent Trustees. For
so long as either Plan is in effect, selection and nomination of the Independent
Trustees shall be committed to the discretion of such disinterested persons.
RULE 12B-1 DISTRIBUTION PLAN. Each fund has adopted a Distribution Plan
under Rule 12b-1 for each class of shares (each a "Plan" and collectively the
"Plans"). These Plans permit a fund to pay the Distributor the monthly
distribution and service fee out of the fund's net assets to finance activity
that is intended to result in the sale and retention of Class A shares, Class B
shares and Class C shares. The funds used all Class A and Class C 12b-1 fees to
pay the Distributor. The Distributor, on Class C shares, may retain the first 12
months distribution fee for reimbursement of amounts paid to the broker-dealer
at the time of purchase.
As compensation for services rendered and expenses borne by the
Distributor in connection with the distribution of Class A shares and in
connection with personal services rendered to Class A shareholders and the
maintenance of Class A shareholder accounts, each fund may pay the Distributor
distribution and service fees of up to 0.35% of that fund's average daily net
assets attributable to Class A shares of that fund. Currently, each fund pays
the Distributor a fee of up to 0.25% of its average daily net assets
attributable to Class A shares. For Capital Appreciation Class A shares
purchased prior to April 3, 1995, the fund pays the Distributor a fee of up to
0.50% of that fund's average daily net assets attributable to those Class A
shares. These fees are computed daily and paid monthly.
As compensation for services rendered and expenses borne by the
Distributor in connection with the distribution of Class B shares and Class C
shares and in connection with personal services rendered to Class B and Class C
shareholders and the maintenance of Class B and Class C shareholder accounts,
each fund pays the Distributor a service fee of 0.25% and a distribution fee of
0.75% of that fund's average daily net assets attributable to Class B shares and
Class C shares. These fees are computed daily and paid monthly.
The following table illustrates the amount of class specific 12b-1 fees
paid by the funds to the Distributor for the fiscal year end August 31, 2000 for
Capital Appreciation, September 30, 2000 for Income-Growth and October 31, 2000
for the other funds. All 12b-1 fees were paid to the Distributor.
-------------------------------------------------------
FUND CLASS A CLASS B CLASS C
---- ------- ------- -------
-------------------------------------------------------
Aggressive Growth $108,231 $159,752 $ 295,268
Capital Appreciation $738,068 $325,881 $ 580,044
Eagle International $22,342 $ 7,072 $ 88,632
Growth Equity $282,213 $331,910 $1,197,319
Income-Growth $131,347 $56,574 $ 203,119
Mid Cap $47,505 $ 29,937 $100,263
49
<PAGE>
Small Cap $293,578 $105,971 $557,083
Technology $137,043 $199,667 $327,021
Value Equity $33,504 $9,420 $114,492
-------------------------------------------------------
Each Plan was approved by the Board, including a majority of the Trustees
who are not interested persons of a fund (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of the Plan or
the Distribution Agreement (the "Independent Trustees"). In approving such
Plans, the Board determined that there is a reasonable likelihood that each fund
and its shareholders will benefit from each Plan. Each Plan each may be
terminated by vote of a majority of the Independent Trustees, or by vote of a
majority of the outstanding voting securities of a class of a fund. The Board
reviews quarterly a written report of Plan costs and the purposes for which such
costs have been incurred. A Plan may be amended by vote of the Board, including
a majority of the Independent Trustees, cast in person at a meeting called for
such purpose. Any change in a Plan that would increase materially the
distribution cost to a class requires shareholder approval of that class.
The Distribution Agreements and each Plan will continue in effect for
successive one-year periods, provided that each such continuance is specifically
approved (1) by the vote of a majority of the Independent Trustees and (2) by
the vote of a majority of the entire Board cast in person at a meeting called
for that purpose. If a Plan is terminated, the obligation of a fund to make
payments to the Distributor pursuant to the Plan will cease and the fund will
not be required to make any payment past the date the Plan terminates.
F. ADMINISTRATION OF THE FUNDS
ADMINISTRATIVE, FUND ACCOUNTING AND TRANSFER AGENT SERVICES. Heritage or
Eagle, as applicable, subject to the control of the Board, will manage,
supervise and conduct the administrative and business affairs of each fund;
furnish office space and equipment; oversee the activities of the subadvisers
and the Custodian; and pay all salaries, fees and expenses of officers and
Trustees of each fund who are affiliated with Heritage or Eagle, as applicable.
In addition, Heritage provides certain shareholder servicing activities for
customers of the funds. State Street Bank & Trust is the fund accountant for the
Eagle International Equity Portfolio. Each fund pays directly for fund
accounting and transfer agent services.
Under a separate Administration Agreement between Eagle and Heritage,
Heritage provides certain noninvestment services to Eagle International for a
fee payable by Eagle equal to .10% on the first $100 million of average daily
net assets, and .05% thereafter.
Heritage also is the transfer and dividend reimbursing agent for each fund
and serves as fund accountant for each fund except Eagle International. Each
fund pays Heritage its cost plus 10% for its services as fund accountant and
transfer and dividend disbursing agent.
For the period August 20, 1998 to October 31, 1998 and the two fiscal
years ended October 31, 2000, Heritage earned $8,200, $40,829 and $52,270,
respectively, from Aggressive Growth for its services as fund accountant. For
the three fiscal years ended August 31, 2000, Heritage earned $42,486, $49,326
and $54,001, respectively, from Capital Appreciation for its services as fund
accountant. For the three fiscal years ended October 31, 2000, Heritage earned
approximately $39,661, $49,494 and $54,999, respectively, from Growth Equity for
its services as fund accountant. For the three fiscal years ended September 30,
2000, Heritage earned $49,324, $51,947 and $51,128, respectively, from
Income-Growth for its services as fund accountant. For the period November 6,
1997 to October 31, 1998 and the two fiscal years ended October 31, 2000,
Heritage earned approximately $32,403, $38,911 and $45,091 from Mid Cap for its
50
<PAGE>
services as fund accountant. For the three fiscal years ended October 31, 2000,
Heritage earned approximately $47,885, $49,801 and $55,370, respectively, from
Small Cap for its services as fund accountant. For the period November 18, 1999
to October 31, 2000, Heritage earned $48,712 from Technology for its services as
fund accountant. For the three fiscal years ended October 31, 2000, Heritage
earned approximately $35,631, $39,620 and $43,894, respectively, from Value
Equity for its services as fund accountant.
CUSTODIAN. State Street Bank and Trust Company, P.0. Box 1912, Boston,
Massachusetts 02105, serves as custodian of each fund's assets. The Custodian
also provides portfolio accounting and certain other services for the funds.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, NW,
2nd Floor, Washington, D.C. 20036, serves as counsel to the funds.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. PricewaterhouseCoopers LLP, 400
North Ashley Street, Suite 2800, Tampa, Florida 33602, are the certified
independent public accountants for the funds. The Financial Statements of the
funds that appear in this SAI have been audited by PricewaterhouseCoopers LLP,
and are included herein in reliance upon the report of said firm of accountants,
which is give upon their authority as experts in accounting and auditing.
G. POTENTIAL LIABILITY
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of a fund. To protect its
shareholders, each fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
a fund. These documents require notice of this disclaimer to be given in each
agreement, obligation or instrument each fund or its Trustees enter into or
sign. In the unlikely event a shareholder is held personally liable for a fund's
obligations, that fund is required to use its property to protect or compensate
the shareholder. On request, a fund will defend any claim made and pay any
judgment against a shareholder for any act or obligation of a fund. Therefore,
financial loss resulting from liability as a shareholder will occur only if a
fund itself cannot meet its obligations to indemnify shareholders and pay
judgments against them.
51
<PAGE>
APPENDIX A
FUND INVESTMENT TABLE
ALL PERCENTAGE LIMITATIONS ARE BASED ON THE FUND'S TOTAL ASSETS, UNLESS
OTHERWISE SPECIFIED.
N NET ASSETS
10 MINIMUM PERCENT OF ASSETS (ITALIC TYPE)
10 NO MORE THAN SPECIFIED PERCENT OF ASSETS (ROMAN TYPE)
-- NOT PERMITTED
O NO POLICY LIMITATION ON USAGE
|_|PERMITTED, BUT TYPICALLY HAS NOT BEEN USED
** EXCLUDING THOSE SHORT-TERM MONEY MARKET INSTRUMENTS NOT SEPARATELY LISTED.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
EAGLE MID SMALL
AGGRESSIVE CAPITAL INT'L. GROWTH INCOME CAP CAP VALUE
GROWTH APPRECIATION EQUITY EQUITY GROWTH STOCK STOCK TECHNOLOGY EQUITY
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
o EQUITY SECURITIES 65 65 65 65(1) O 65 65 65 65
o CONVERTIBLE
SECURITIES
(TM) INVESTMENT GRADE O O O 35 O O 35 0 35
(TM) BELOW INVESTMENT 5 -- 5 -- 35(2) 5 5 -- --
GRADE
o CORPORATE DEBT -- -- 35(3) -- O(4) 35 -- -- --
o SHORT-TERM 35 35 35 -- O 35 35 35 --
MONEY** MARKET
INSTRUMENTS
o ILLIQUID SECURITIES(N) 15 10 10 10 10 15 15(5) 10
o REPURCHASE 35 35 35 35 25 35 35 35
AGREEMENTS
o REVERSE REPURCHASE 331/3 5 331/3 331/3 5 331/3 331/3 331/3
AGREEMENTS
o U.S. GOVERNMENT 35 35 35 35 0 35 35 35
SECURITIES
---------------------
1 Growth Equity may invest up to 35% of its assets in rights and warrants.
2 Income-Growth will not invest 35% or more of its assets in below investment
grade convertible and nonconvertible securities.
3 Investment grade non-convertible foreign debt.
4 Income-Growth may invest not more than 10% of its assets in non-convertible
corporate debt obligations that are rated below investment grade by Moody's or
S&P.
5 Small Cap currently has no intention of investing more than 5% in these
securities at this time.
A-1
<PAGE>
-------------------------------------------------------------------------------------------------------------
EAGLE MID SMALL
AGGRESSIVE CAPITAL INT'L. GROWTH INCOME CAP CAP VALUE
GROWTH APPRECIATION EQUITY EQUITY GROWTH STOCK STOCK TECHNOLOGY EQUITY
-------------------------------------------------------------------------------------------------------------
o ZERO COUPON -- -- -- -- |_| -- -- -- --
SECURITIES
o FOREIGN SECURITIES 10 10(6) 65 25(N)(7) 20(8) 15(N) 15(N) 15 15(N)
EXPOSURE
o ADRS O 10(6) O 25(N)(7) 20 0 35 O 35
o HEDGING INSTRUMENTS
(TM) FUTURES CONTRACTS -- -- 0 35 -- |_| -- O 35
(TM) OPTIONS CONTRACTS -- O(9) O 35 O(10) |_| -- O 35(11)
(TM) FORWARD CONTRACTS
(INCLUDING FOREIGN O O O 35 O |_| -- O 35
CURRENCY
TRANSACTIONS)
o FORWARD -- -- O -- 25(12) -- -- -- --
COMMITMENTS
o INDEX SECURITIES AND 10 5 10 10 10 5 10 10 10
OTHER INVESTMENT
COMPANIES
o WHEN-ISSUED AND -- -- O -- -- -- -- -- --
DELAYED DELIVERY
TRANSACTIONS
o LOANS OF PORTFOLIO -- -- |_| |_| 25(12) |_| -- -- |_|
SECURITIES
o TEMPORARY 100 100 10 100 100 100 100 100 100
DEFENSIVE
MEASURES
</TABLE>
----------------
6 Capital Appreciation's investments in foreign securities and ADRs may not
exceed 10%.
7 Growth Equity may not invest more than 25% of its net assets in foreign
securities and ADRs.
8 Income-Growth may invest up to 20% in foreign securities, including ADRs and
other similar securities.
9 Capital Appreciation may not write put or call options.
10 Income-Growth may write covered calls. The aggregate value of the securities
underlying call options (based on the lower of the option price or market) may
not exceed 50% of the fund's net assets.
11 Value Equity may write covered call options; however, the fund may not invest
more than 10% of its total assets in covered call options.
12 Income-Growth currently has no intention of engaging in this transaction at
this time.
A-2
<PAGE>
APPENDIX B
COMMERCIAL PAPER RATINGS
The rating services' descriptions of commercial paper ratings in which the fund
may invest are:
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER DEBT RATINGS
PRIME-L. Issuers (or supporting institutions) rated PRIME-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation;
well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2. Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A-1. This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess extremely strong
characteristics are denoted with a plus sign (+) designation.
A-2. Capacity for timely payment of issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
CORPORATE DEBT RATINGS
The rating services' descriptions of corporate debt ratings in which the fund
may invest are:
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. CORPORATE DEBT RATINGS
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
B-1
<PAGE>
Baa - Bonds that are rated Baa are considered medium grade obligations, I.E.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the company ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking and the modifier 3
indicates that the company ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C - Debt rated "BB," "B," "CCC," "CC," and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
B-2
<PAGE>
BB - Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions that could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B - Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC - Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC - The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C - The rating "C" is typically applied to debt subordinated to senior debt that
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI - The rating "CI" is reserved for income bonds on which no interest is being
paid.
D - Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR - Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
B-3
<PAGE>
REPORTS OF THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AND
FINANCIAL STATEMENTS
The Report of the Independent Certified Public Accountants and Financial
Statements are incorporated herein by reference from the Capital Appreciation
Trust's Annual Report to Shareholders for the fiscal year ended August 31, 2000,
filed with the Securities and Exchange Commission on October 27, 2000, Accession
No. 0001016843-00-000813; Income-Growth Trust's Annual Report to Shareholders
for the fiscal year ended September 30, 2000, filed with the Securities and
Exchange Commission on November 27, 2000, Accession No. 0000950168-00-002511;
Series Trust's Annual Report to Shareholders for the fiscal year ended October
31, 2000 filed with the Securities and Exchange Commission on December __, 2000,
Accession No. _____________________.
C-1
<PAGE>
HERITAGE CAPITAL APPRECIATION TRUST
-----------------------------------
PART C. OTHER INFORMATION
-------------------------
Item 23. Exhibits
(a) Declaration of Trust*
(b)(i) Bylaws*
(ii) Amended and Restated Bylaws*
(c) Voting trust agreement -- none
(d)(i)(A) Investment Advisory and Administration Agreement*
(i)(B) Amended and Restated Investment Advisory and Administration
Agreement**
(ii)(A) Subadvisory Agreement between Heritage Asset Management, Inc.
and Eagle Asset Management, Inc.*
(ii)(B) Subadvisory Agreement between Heritage Asset Management, Inc.
and Liberty Investment Management, Inc., d/b/a Liberty
Investment Management*
(e) Distribution Agreement*
(f) Bonus, profit sharing or pension plans - none
(g) Custodian Agreement*
(h)(i) Transfer Agency and Service Agreement*
(ii) Fund Accounting and Pricing Service Agreement*
(i) Opinion and consent of counsel (filed herewith)
(j) Consent of Independent Auditors (filed herewith)
(k) Financial statements omitted from prospectus - none
(l) Letter of investment intent*
(m)(i) Class A Plan pursuant to Rule 12b-1*
(ii) Class C Plan pursuant to Rule 12b-1*
(iii) Class B plan pursuant to Rule 12b-1*^
(n)(i) Plan pursuant to Rule 18f-3**
(ii) Amended Plan pursuant to Rule 18f-3
(o) Reserved
(p) Code of Ethics (filed herewith)
<PAGE>
--------------------------
* Incorporated by reference from Post-Effective Amendment No. 12 to the
Registration Statement of the Trust, SEC File No. 2-98634, filed
previously on December 27, 1995.
** Incorporated by reference from Post-Effective Amendment No. 14 to the
Registration Statement of the Trust, SEC File No. 2-98634, filed
previously on December 27, 1996.
^ Incorporated by reference from Post-Effective Amendment No. 15 to the
Registration Statement of the Trust, SEC File No. 2-98634, filed
previously on October 31, 1997.
Incorporated by reference from Post-Effective Amendment No. 18 to
the Registration Statement of the Trust, SEC File No. 2-98634, filed
previously on December 31, 1998.
Item 24. Persons Controlled by or under
Common Control with Registrant
------------------------------
None.
Item 25. Indemnification
---------------
Article XI, Section 2 of the Trust's Declaration of Trust provides that:
(a) Subject to the exceptions and limitations contained in
Section (b) below:
(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as "Covered Person") shall be indemnified by the
Trust to the fullest extent permitted by law against liability and against all
expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter, and the
words "liability" and "expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office or (B)
not to have acted in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
C-2
<PAGE>
involved in the conduct of his office (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
interested persons of the Trust nor are parties to the matter based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry); provided,
however, that any Shareholder may, by appropriate legal proceedings, challenge
any such determination by the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be exclusive
of or affect any other rights to which any Covered Person may now or hereafter
be entitled, shall continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Trustees and
officers, and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit, or proceeding of the character described in
paragraph (a) of this Section 2 may be paid by the Trust from time to time prior
to final disposition thereof upon receipt of an undertaking by or on behalf of
such Covered Person that such amount will be paid over by him to the Trust if it
is ultimately determined that he is not entitled to indemnification under this
Section 2; provided, however, that:
(i) such Covered Person shall have provided appropriate security
for such undertaking,
(ii) the Trust is insured against losses arising out of any such
advance payments or
(iii) either a majority of the Trustees who are neither
interested persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Section 2.
Paragraph 8 of the Investment Advisory and Administration Agreement
("Advisory Agreement") between the Trust and Heritage provides that Heritage
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the matters to which this Advisory
Agreement relates except a loss resulting from the willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Advisory
Agreement. Any person, even though also an officer, partner, employee, or agent
of Heritage, who may be or become an officer, director, employee or agent of the
Trust shall be deemed, when rendering services to the Trust or acting in any
business of the Trust, to be rendering such services to or acting solely for the
Trust and not as an officer, partner, employee, or agent or one under the
control or direction of Heritage even though paid by it.
C-3
<PAGE>
Paragraph 9 of the Subadvisory Agreements ("Subadvisory Agreements")
between Heritage and Eagle Asset Management, Inc. ("Eagle") and Heritage and
Liberty Investment Management, a Division of Goldman Sachs Asset Management Inc.
("Liberty") ("Subadvisers") provides that, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Subadvisers, or
reckless disregard of its obligations and duties thereunder, the Subadvisers
shall not be subject to any liability to the Trust, or to any shareholder of the
Trust, for any act or omission in the course of, or connected with, rendering
services thereunder.
Paragraph 7 of the Distribution Agreement ("Distribution Agreement")
between the Trust and Raymond James and Associates, Inc. ("Raymond James")
provides as follows, that the Trust agrees to indemnify, defend and hold
harmless Raymond James, its several officers and directors, and any person who
controls Raymond James within the meaning of Section 15 of the 1933 Act from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Raymond James, its officers
or Trustees, or any such controlling person may incur under the 1933 Act or
under common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement, Prospectus
or Statement of Additional Information or arising out of or based upon any
alleged omission to state a material fact required to be stated in either
thereof or necessary to make the statements in either thereof not misleading,
provided that in no event shall anything contained in this Distribution
Agreement be construed so as to protect Raymond James against any liability to
the Trust or its shareholders to which Raymond James would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Distribution Agreement.
Item 26. I. Business and Other Connections of Investment Adviser
----------------------------------------------------
Heritage is a Florida corporation that offers investment management
services and is a registered investment adviser. Heritage's offices are located
at 880 Carillon Parkway, St. Petersburg, Florida 33716. Information as to the
officers and directors of Heritage is included in its current Form ADV filed
with the Securities and Exchange Commission ("SEC") and is incorporated by
reference herein.
II. Business and Other Connections of Subadvisers
---------------------------------------------
Eagle, a Florida corporation, is a registered investment adviser. All of
its stock is owned by Raymond James Financial, Inc. ("RJF"). Eagle is engaged
primarily in the investment advisory business. Eagle's offices are located at
880 Carillon Parkway, St. Petersburg, Florida 33716. Information as to the
officers and directors of Eagle is included in its current Form ADV filed with
the SEC and is incorporated by reference herein.
Liberty, 2502 Rocky Point Drive, Tampa, Florida 33607, is a division of
Goldman Sachs Asset Management Inc., which is a separate operating division of
Goldman Sachs & Co. ("Goldman Sachs"). Goldman Sachs is registered as an
C-4
<PAGE>
investment adviser. Information as to the officers and directors of Liberty is
included in the Goldman Sachs current Form ADV filed with the SEC and is
incorporated by reference herein.
Item 27. Principal Underwriter
---------------------
(a) Raymond James, 880 Carillon Parkway, St. Petersburg, Florida 33716
is the principal underwriter for each of the following investment companies:
Heritage Cash Trust, Heritage Capital Appreciation Trust, Heritage Income-Growth
Trust, Heritage Income Trust and Heritage Series Trust.
(b) The directors and officers of the Registrant's principal underwriter
are:
Positions & Offices Position
Name with Underwriter with Registrant
---- ------------------- ---------------
Thomas A. James Chief Executive Officer, Trustee
Director
Robert F. Shuck Executive Vice None
President, Director
Thomas S. Franke President, Chief Operating None
Officer, Director
Lynn Pippenger Secretary/Treasurer, None
Chief Financial Officer,
Director
Dennis Zank Executive Vice President None
of Operations and
Administration, Director
The business address for each of the above directors and officers is 880
Carillon Parkway, St. Petersburg, Florida 33716.
Item 28. Location of Accounts and Records
--------------------------------
The books and other documents required by Rule 31a-1 under the Investment
Company Act of 1940 are maintained in the physical possession of the Trust's
Custodian through February 28, 1994, except that: Heritage maintains some or all
of the records required by Rule 31a-1(b)(1), (2) and (8); and the Subadviser
will maintain some or all of the records required by Rule 31a-1(b)(2), (5), (6),
(9), (10) and (11). Since March 1, 1994, all required records are maintained by
Heritage.
Item 29. Management Services
-------------------
Not applicable.
C-5
<PAGE>
Item 30. Undertakings
------------
The Trust hereby undertakes to furnish each person to whom a prospectus is
delivered a copy of its latest annual report(s) to shareholders, upon request
and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 20 to its Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of St. Petersburg and the State of Florida, on
December 28, 2000. No other material event requiring prospectus disclosure has
occurred since the latest of the three dates specified in Rule 485(b)(2).
HERITAGE CAPITAL APPRECIATION TRUST
By: /s/ Richard K. Reiss
-----------------------------
Richard K. Reiss, President
Attest:
/s/ Donald H. Glassman
-----------------------------
Donald H. Glassman, Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 20 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
President and December 28, 2000
/s/ Richard K. Riess Trustee
----------------------
Richard K. Riess
/s/Thomas A. James* Trustee December 28, 2000
----------------------
Thomas A. James
/s/C. Andrew Graham* Trustee December 28, 2000
----------------------
C. Andrew Graham
/s/David M. Phillips* Trustee December 28, 2000
----------------------
David M. Phillips
C-7
<PAGE>
/s/James L. Pappas* Trustee December 28, 2000
----------------------
James L. Pappas
/s/Donald W. Burton* Trustee December 28, 2000
--------------------------
Donald W. Burton
Eric Stattin* Trustee December 28, 2000
--------------------------
Eric Stattin
/s/ Donald H. Glassman
--------------------------- Treasurer December 28, 2000
*By /s/ Donald H. Glassman
------------------------------------
Donald H. Glassman, Attorney-In-Fact
2
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
------- ----------- ----
(a) Declaration of Trust*
(b)(i) Bylaws*
(ii) Amended and Restated Bylaws*
(c) Voting trust agreement -- none
(d)(i)(A) Investment Advisory and Administration Agreement*
(i)(B) Amended and Restated Investment Advisory and Administration
Agreement**
(ii)(A) Subadvisory Agreement between Heritage Asset Management,
Inc. and Eagle Asset Management, Inc.*
(ii)(B) Subadvisory Agreement between Heritage Asset Management,
Inc. and Liberty Investment Management, Inc., d/b/a
Liberty Investment Management*
(e) Distribution Agreement*
(f) Bonus, profit sharing or pension plans - none
(g) Custodian Agreement*
(h)(i) Transfer Agency and Service Agreement*
(ii) Fund Accounting and Pricing Service Agreement*
(i) Opinion and consent of counsel (filed herewith)
(j) Consent of Independent Auditors (filed herewith)
(k) Financial statements omitted from prospectus - none
(l) Letter of investment intent*
(m)(i) Class A Plan pursuant to Rule 12b-1*
(ii) Class C Plan pursuant to Rule 12b-1*
(iii) Class B plan pursuant to Rule 12b-1^
(n)(i) Plan pursuant to Rule 18f-3**
(ii) Amended Plan pursuant to Rule 18f-3
(o) Reserved
(p) Code of Ethics (filed herewith)
<PAGE>
--------------------------
* Incorporated by reference from Post-Effective Amendment No. 12 to the
Registration Statement of the Trust, SEC File No. 2-98634, filed
previously on December 27, 1995.
** Incorporated by reference from Post-Effective Amendment No. 14 to the
Registration Statement of the Trust, SEC File No. 2-98634, filed
previously on December 27, 1996.
^ Incorporated by reference from Post-Effective Amendment No.15 to the
Registration Statement of the Trust, SEC File No. 2-98634, filed
previously on October 31, 1997.
Incorporated by reference from Post-Effective Amendment No. 18 to the
Registration Statement of the Trust, SEC File No. 2-98634, filed
previously on December 31, 1998.
- 2-
