<PAGE> 1
HERITAGE CASH TRUST(TM) LOGO
MONEY MARKET FUND
AND
MUNICIPAL MONEY MARKET FUND
Heritage Cash Trust is a mutual fund offering shares in two separate
investment portfolios, the Money Market Fund and the Municipal Money Market Fund
(each a "Fund" and collectively, the "Funds"). The Money Market Fund seeks to
achieve maximum current income consistent with stability of principal by
investing exclusively in money market instruments. The Municipal Money Market
Fund seeks to achieve maximum current income that is exempt from Federal income
tax consistent with stability of principal by investing exclusively in money
market instruments. Each Fund will seek to stabilize its share price at $1.00
per share. The Money Market Fund offers two classes of shares, Class A shares
and Class C shares. Class C shares may be acquired only through exchange of
Class C shares of other Heritage Mutual Funds. The Municipal Money Market Fund
offers only Class A shares.
AN INVESTMENT IN EITHER FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO GUARANTEE THAT THE $1.00 PER SHARE PRICE WILL BE
MAINTAINED.
This Prospectus contains information that should be read before investing
in either Fund and should be kept for future reference. A Statement of
Additional Information dated January 2, 1997 relating to the Funds has been
filed with the Securities and Exchange Commission and is incorporated by
reference in this Prospectus. A copy of the Statement of Additional Information
is available free of charge and shareholder inquiries can be made by writing to
Heritage Asset Management, Inc. or by calling (800) 421-4184.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
HERITAGE ASSET MANAGEMENT, INC. LOGO
Registered Investment Advisor--SEC
880 Carillon Parkway
St. Petersburg, Florida 33716
(800) 421-4184
Prospectus Dated January 2, 1997
<PAGE> 2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
GENERAL INFORMATION................................................. 1
About the Trust and the Funds..................................... 1
Total Fund Expenses............................................... 1
Financial Highlights.............................................. 3
Differences Between A Shares and C Shares......................... 4
Investment Objectives, Policies and Risk Factors.................. 4
Net Asset Value................................................... 7
Yield............................................................. 8
INVESTING IN THE FUNDS.............................................. 8
Purchase Procedures............................................... 8
Minimum Investment Required/Accounts With Low Balances............ 9
Systematic Investment Programs.................................... 9
Retirement Plans.................................................. 10
How to Redeem Shares.............................................. 10
Receiving Payment................................................. 11
Exchange Privilege................................................ 11
MANAGEMENT OF THE FUNDS............................................. 12
SHAREHOLDER AND ACCOUNT POLICIES.................................... 14
Dividends and Other Distributions................................. 14
Distribution Plans................................................ 14
Taxes............................................................. 15
Shareholder Information........................................... 15
</TABLE>
<PAGE> 3
GENERAL INFORMATION
ABOUT THE TRUST AND THE FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Heritage Cash Trust (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated June 21, 1985. The Trust is an
open-end diversified management investment company that offers shares in two
separate investment portfolios, the Money Market Fund and the Municipal Money
Market Fund, both of which are designed for individuals, institutions and
fiduciaries as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio limited to money market
instruments maturing in 397 days or less. The Money Market Fund offers two
classes of shares, Class A shares ("A shares") and Class C shares ("C shares").
C shares may be acquired only through exchange of C shares of another Heritage
open-end investment company that is advised or administered by Heritage Asset
Management, Inc. ("Heritage Mutual Fund"). The Municipal Money Market Fund
offers A shares only. Each Fund requires a minimum initial investment of $1,000,
except for certain investment plans for which lower limits may apply. See
"Investing in the Funds."
TOTAL FUND EXPENSES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shown below are Class A and Class C operating expenses incurred by the
Money Market Fund and Class A operating expenses incurred by the Municipal Money
Market Fund during the fiscal year ended August 31, 1996.
<TABLE>
<CAPTION>
MUNICIPAL
MONEY MARKET
MONEY MARKET FUND FUND
CLASS A CLASS C(1) CLASS A
------- ---------- ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases........... None None None
Maximum contingent deferred sales load ("CDSL")
(as a percentage of original purchase price or
redemption proceeds, as applicable)............. None 1.00%(2) None
Wire redemption fee (per transaction)............. $5.00 $ 5.00 $ 5.00
ANNUAL FUND OPERATING EXPENSES
Management fee.................................... 0.47% 0.47% 0.50%
12b-1 distribution fee............................ 0.15% 0.15% 0.15%
Other expenses.................................... 0.16% 0.13% 0.12%
----- ------ -------
Total Fund operating expenses..................... 0.78% 0.75% 0.77%
===== ====== =======
</TABLE>
- ---------------
(1) Class C annual fund operating expenses are based on expenses incurred during
the period February 29, 1996 (first issuance of C shares) to August 31,
1996.
(2) A CDSL will be imposed only on the redemption of C shares acquired through
an exchange of C shares of another Heritage Mutual Fund that did not satisfy
that Fund's CDSL holding period. See "Exchange Privilege."
1
<PAGE> 4
The Funds' manager, Heritage Asset Management, Inc. (the "Manager"),
voluntarily will waive its fees and, if necessary, reimburse the Money Market
Fund to the extent that Class A and Class C annual operating expenses exceed
.79% of the average daily net assets attributable to that class for the fiscal
year ending August 31, 1997. In addition, the Manager voluntarily will waive its
fees and, if necessary, reimburse the Municipal Money Market Fund to the extent
that Class A annual operating expenses exceed .77% of the average daily net
assets for the fiscal year ending August 31, 1997. To the extent that the
Manager waives or reimburses its fees with respect to one class, it will do so
with respect to the other class on a proportionate basis.
The impact of Fund operating expenses on earnings is illustrated in the
example below assuming a hypothetical $1,000 investment, a 5% annual rate of
return, and a redemption at the end of each period shown.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Total Money Market Fund Operating Expenses -- A
shares......................................... $ 8 $25 $43 $97
Total Money Market Fund Operating Expenses -- C
shares......................................... $18 $24 $42 $93
Total Municipal Money Market Fund Operating
Expenses -- A shares........................... $ 8 $25 $43 $95
</TABLE>
The impact of Fund operating expenses on earnings is illustrated in the
example below assuming a hypothetical $1,000 investment, a 5% annual rate of
return, and no redemption at the end of each period shown.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Total Money Market Fund Operating Expenses -- A
shares......................................... $8 $25 $43 $97
Total Money Market Fund Operating Expenses -- C
shares......................................... $8 $24 $42 $93
Total Municipal Money Market Fund Operating
Expenses -- A shares........................... $8 $25 $43 $95
</TABLE>
This is an illustration only and should not be considered a representation
of future expenses. Actual expenses and performance may be greater or less than
that shown above. The purpose of the above tables is to assist investors in
understanding the various costs and expenses that will be borne directly or
indirectly by shareholders. For a further discussion of these costs and
expenses, see "Management of the Funds" and "Distribution Plans."
2
<PAGE> 5
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following tables show important financial information for an A share of
each Fund and a C share of the Money Market Fund outstanding for the periods
indicated, including net investment income, dividends, and certain other
information. It has been derived from financial statements appearing in the
Statement of Additional Information ("SAI"). The financial statements and the
information in these tables for the fiscal year ended August 31, 1996 have been
audited by Price Waterhouse LLP, independent accountants, whose report thereon
is included in the SAI, which may be obtained by calling your Fund at (800)
421-4184. Information presented for the years ended August 31, 1995 and prior
thereto was audited by other auditors who served as the Trust's independent
accountants for those years.
<TABLE>
<CAPTION>
MONEY MARKET FUND
CLASS A CLASS C
------------------------------------------------------------------------------------------------ --------
FOR THE YEARS ENDED AUGUST 31,
------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1996+
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income(a)(b)..... .048 .050 .029 .025 .038 .063 .077 .084 .065 .054 .023
LESS DISTRIBUTIONS:
Dividends from net
investment income
and net realized
gains (a)........ (.048) (0.050) (.029) (.025) (.038) (.063) (.077) (.084) (.065) (.054) (.023)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END
OF PERIOD.......... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN% ...... 4.89 5.00 2.87 2.48 3.77 6.27 7.73 8.38 6.46 5.43 2.34(d)
RATIOS TO AVERAGE
DAILY NET ASSETS
(%)/SUPPLEMENTAL
DATA:
Operating expenses,
net(b)........... .78 .79 .79 .78 .78 .79 .81 .90 .94 1.00 .75(c)
Net investment
income(b)........ 4.78 5.00 2.87 2.47 3.75 6.20 7.73 8.51 6.47 5.45 4.62(c)
Net assets at end
of period
(millions) ($)... 1,641 1,294 982 925 953 890 727 475 230 153 --
</TABLE>
- ---------------
+ For the period February 29, 1996 (first issuance of C shares) to August 31,
1996.
(a) Includes net realized gains (losses) which were less than $.01 per share.
(b) Excludes management fees waived by the Manager in the amount of less than
$.001, $.001, $.001, $.001 and $.001 for the year ended August 31, 1987 and
the four years ended August 31, 1995 per share, respectively. No management
fees were waived or recovered for the years ended August 31, 1988, 1989,
1990, 1991 and 1996. The operating expense ratios including such items would
have been .81%, .81%, .81%, .78% and 1.01% (annualized), respectively.
(c) Annualized.
(d) Not annualized.
3
<PAGE> 6
MUNICIPAL MONEY MARKET FUND
<TABLE>
<CAPTION>
CLASS A
FOR THE YEARS ENDED AUGUST 31,
---------------------------------------------------
1996 1995 1994 1993 1992+
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)...................... .030 .030 .019 .020 .005
LESS DISTRIBUTIONS:
Dividends from net investment income.......... (.030) (.030) (.019) (.020) (.005)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD.................. $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
TOTAL RETURN% .................................. 2.98 3.04 1.90 2.02 .47(c)
RATIOS TO AVERAGE DAILY NET ASSETS
(%)/SUPPLEMENTAL DATA:
Operating expenses, net(a).................... .77 .77 .77 .77 .77(b)
Net investment income......................... 2.94 3.05 1.89 1.98 2.32(b)
Net assets, end of period (millions) ($)...... 326 283 212 207 102
</TABLE>
- ---------------
+ For the period June 17, 1992 (commencement of operations) to August 31,
1992.
(a) Excludes management fees waived by the Manager in the amount of less than
$.001, $.001, $.001 and $.001 per share for the four periods ended August
31, 1995, respectively. The operating expense ratios including such items
would be .79%, .77%, .83% and 1.11% (annualized), respectively. No
management fees were waived or recovered for the year ended August 31, 1996.
(b) Annualized.
(c) Not annualized.
DIFFERENCES BETWEEN A SHARES AND C SHARES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The primary difference between the A shares and the C shares of the Money
Market Fund lies in the possible imposition of a contingent deferred sales load
("CDSL") on C shares. C shares acquired through an exchange from another
Heritage Mutual Fund that were held for a period of less than one year remain
subject to the imposition of a CDSL of 1% upon their sale until the combined
holding period of such shares other than money market fund shares reaches one
year.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Money Market Fund's investment objective is to achieve maximum current
income consistent with stability of principal. The Municipal Money Market Fund's
investment objective is to achieve maximum current income exempt from Federal
income tax consistent with stability of principal. Each Fund pursues its
investment objective by investing in high quality securities with remaining
maturities of 397 days or less. The average dollar-weighted portfolio maturity
of money market instruments in each Fund's investment portfolio will be 90 days
or less. While there is no assurance that either Fund will achieve its
investment objective, each Fund will endeavor to do so by following the
investment policies described in this Prospectus.
The following is a discussion of each Fund's principal investment
securities and practices, including the risks of investing in these securities
or engaging in these practices. For more detailed information about these
securities and Fund practices, see the SAI.
4
<PAGE> 7
MONEY MARKET FUND
The money market instruments in which the Money Market Fund may invest
include:
- - Commercial paper, including U.S. dollar-denominated commercial paper of
foreign issuers, and high quality short-term debt obligations, including
variable rate demand notes, that are rated in the highest rating category
(First Tier Securities) by at least two nationally recognized statistical
rating organizations ("NRSROs") (or by one if only one rating is assigned) and
in unrated securities determined by the Trust's Board of Trustees (the "Board
of Trustees" or the "Board") or pursuant to authority delegated by the Board,
by the Subadviser to be of comparable quality. The Fund also may invest up to
5% of its assets in securities receiving the second highest rating (Second
Tier Securities) or in unrated securities determined to be of comparable
quality. See "Appendix A -- Description of Securities Ratings" in the SAI.
- - Marketable obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, including those obligations purchased on a
when-issued or delayed-delivery basis and repurchase agreements relating to
these obligations. These securities include securities issued and guaranteed
by the U.S. Government, such as U.S. Treasury bills, notes, and bonds;
obligations backed by the "full faith and credit" of the United States, such
as Government National Mortgage Association securities; obligations supported
by the right of the issuer to borrow from the U.S. Treasury, such as those of
the Federal Home Loan Banks; and obligations supported only by the credit of
the issuer, such as those of the Federal Intermediate Credit Banks.
- - Instruments such as certificates of deposit, demand and time deposits, savings
shares and banker's acceptances of domestic banks and savings and loans that
have assets of at least $1 billion and capital, surplus, and undivided profits
of over $100 million as of the close of their most recent fiscal year, or
instruments that are insured by the Federal Deposit Insurance Corporation
("FDIC").
- - U.S. dollar-denominated certificates of deposit, time deposits, and banker's
acceptances of foreign branches of a domestic bank ("domestic Eurodollar
certificates") if such bank has assets of at least $1 billion and capital,
surplus, and undivided profits of over $100 million as of the close of its
most recent fiscal year.
- - U.S. dollar-denominated certificates of deposit, time deposits, and banker's
acceptances of foreign branches of a foreign bank ("foreign Eurodollar
certificates") if such bank has assets that are the equivalent of at least $2
billion as of the close of its most recent fiscal year.
- - U.S. dollar-denominated certificates of deposit, time deposits, and banker's
acceptances of U.S. branches of a foreign bank ("Yankee certificates") if such
bank has assets that are the equivalent of at least $2 billion as of the close
of its most recent fiscal year.
MUNICIPAL MONEY MARKET FUND
As a fundamental policy, the Municipal Money Market Fund normally will
invest at least 80% of its net assets in municipal securities, the interest on
which is, in the opinion of the issuer's bond counsel, exempt from Federal
income tax ("tax-exempt municipal securities") but which may or may not be an
item of tax preference for purposes of the Federal Alternative Minimum Tax (the
"AMT"). Such interest may be subject to state and/or local income taxes. The
remaining portion of the Fund's investment portfolio may be invested in
short-term taxable investments. All of the Fund's investments must be determined
by the Board or, pursuant to authority delegated by the Board, by Alliance
Capital Management L.P. (the "Subadviser") to present minimum credit risks. The
instruments in which the Fund may invest include:
- - Municipal notes that generally are used to provide for short-term capital
needs and generally have maturities of one year or less. These include tax
anticipation and revenue anticipation notes that generally
5
<PAGE> 8
are issued in anticipation of various seasonal revenues, bond anticipation
notes and tax-exempt commercial paper.
- - Short-term municipal bonds, including general obligation bonds, that are
secured by the issuer's pledge of its faith, credit and taxing power for
payment of principal and interest, and revenue bonds, that generally are paid
from the revenues of a particular facility or a specific excise or other
source.
- - Variable rate obligations whose interest rates are adjusted either at
predesignated periodic intervals or whenever there is a change in the market
rate to which the security's interest rate is tied. Such adjustments minimize
changes in the market value of the obligation and, accordingly, enhance the
ability of the Fund to maintain a stable net asset value. Variable rate
securities may include participation interests in industrial development bonds
backed by letters of credit of FDIC member banks having total assets of more
than $1 billion. The letters of credit of any single bank will not apply to
variable rate obligations constituting more than 10% of the Fund's total
assets. Because the Fund invests in securities backed by banks, changes in the
credit quality of these banks could cause losses to the Fund and effect its
share price.
- - Taxable investments including obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities, high quality certificates of
deposit and bankers' acceptances, prime commercial paper and repurchase
agreements with respect to such obligations.
The Fund also may invest in stand-by commitments, which may involve certain
expenses and risks. Such commitments are not expected to comprise more than 5%
of its net assets. The Fund may commit up to 15% of its net assets to the
purchase of when-issued securities. The price of when-issued securities, which
generally is expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for such securities take place at a
later time. Normally, the settlement date occurs from within ten days to one
month after the purchase of the issue. The value of when-issued securities may
fluctuate prior to their settlement, thereby creating an unrealized gain or loss
to the Fund. The Fund also may invest in reverse repurchase agreements and may
lend portfolio securities.
All of the Fund's municipal securities at the time of purchase will be
rated within the two highest quality ratings of Moody's Investors Service, Inc.
(Aaa and Aa, MIG-1 and MIG-2, or VMIG-1 and VMIG-2) or Standard & Poor's (AAA
and AA, SP-1 and SP-2 or A-1 and A-2), or if unrated, judged by the Board or,
pursuant to authority delegated by the Board, by the Subadviser to be of
comparable quality. Securities also must meet credit standards applied by the
Subadviser. See "Appendix A -- Description of Securities Ratings" in the SAI.
Each Fund's investment objective is fundamental and may not be changed
without the vote of a majority of the outstanding voting securities of that
Fund, as defined in the Investment Company Act of 1940, as amended (the "1940
Act"). Except as otherwise stated, all policies of each Fund described in this
Prospectus may be changed by the Board of Trustees without shareholder approval.
Each Fund also may engage in the following types of investments. The SAI
contains more detailed information about each Fund's investment policies and
risks.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Fund purchases securities and simultaneously commits to resell the securities to
the original seller (a member bank of the Federal Reserve System or securities
dealers who are members of a national securities exchange or are market makers
in U.S. Government securities) at an agreed upon date and price reflecting a
market rate of interest unrelated to the coupon rate or the maturity of the
purchased securities. Although repurchase agreements carry certain risks not
associated with direct investments in securities, including possible decline in
the market value of the underlying securities and delays and costs to a Fund if
the other party to the repurchase agreement becomes
6
<PAGE> 9
bankrupt, a Fund intends to enter into repurchase agreements only with banks and
dealers in transactions believed by the Manager or Subadviser to present minimal
credit risks in accordance with guidelines established by the Board of Trustees.
RISKS OF FOREIGN BANK INVESTMENTS. Investments in foreign bank
instruments, including instruments of foreign branches of domestic banks,
present certain additional risks. These risks include the impact of future
political and economic developments, the possible establishment of exchange
controls and/or the adoption of other governmental restrictions that might
affect adversely the payment of principal and interest on such instruments. In
addition, there may be less publicly available information about a foreign bank
than about a domestic bank. See the SAI for a further discussion of these risks.
SECTION 4(2) COMMERCIAL PAPER. Most commercial paper is exempt from
registration requirements imposed by federal securities laws. In addition, some
commercial paper that is not exempt can be purchased and sold without
registration in transactions not involving a public offering pursuant to Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"). The Funds'
investments in Section 4(2) commercial paper will be subject to their
nonfundamental 10% limitation on investments in illiquid securities, unless the
Section 4(2) commercial paper can be sold to qualified institutional buyers
("QIBs") under Rule 144A of the 1933 Act. As permitted by Rule 144A, the Board
has adopted guidelines and delegated the daily function of determining and
monitoring the liquidity of securities so purchased. Because it is not possible
to predict with assurance how the Rule 144A market will develop, the Board will
monitor the Funds' investments in Rule 144A securities, focusing on such factors
as liquidity and availability of information. This investment practice could
have the effect of increasing the level of illiquidity in the Funds to the
extent that QIBs become uninterested in purchasing such securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Funds may purchase
short-term U.S. Government obligations on a when-issued or delayed-delivery
basis (arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time); however, the Funds only will engage in
these transactions for the purpose of acquiring portfolio securities consistent
with their investment objective and policies, and not for investment leverage.
Prior to settlement of these transactions, the market price of the purchased
securities may vary from the purchase price.
NET ASSET VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The net asset values of the Money Market Fund's A shares and C shares and
the net asset value of the Municipal Money Market Fund's A shares are calculated
by dividing the value of the total assets of each Fund attributable to that
class, less liabilities attributable to that class, by the number of shares of
that class outstanding. Shares are valued daily at 12:00 p.m. Eastern time
immediately after the daily declaration of dividends on each day the New York
Stock Exchange ("Exchange") is open. Each Fund will use its best efforts to
maintain its net asset value per share at $1.00 by valuing its portfolio
securities using the amortized cost method, adding other assets, subtracting
liabilities and dividing by the number of shares outstanding. A Fund, however,
cannot guarantee that its net asset value per share will always remain at $1.00.
For more information on the calculation of net asset value, see "Net Asset
Value" in the SAI.
7
<PAGE> 10
YIELD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
From time to time the Funds may advertise "yield" and "effective yield."
The Money Market Fund's yield is computed separately for A shares and C shares.
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of a Fund refers to the income
generated by an investment in the Fund over a seven-day period. This income is
then "annualized." The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "average
yield" because of the compounding effect of this assumed reinvestment.
The Municipal Money Market Fund also may advertise its "tax-equivalent
yield." The "tax-equivalent yield" represents the taxable yield a shareholder
would have to earn before Federal income tax to equal the Fund's tax-free yield.
See "Calculating Yields" in the SAI.
INVESTING IN THE FUNDS
PURCHASE PROCEDURES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of each Fund are offered continuously through the Trust's principal
underwriter, Raymond James & Associates, Inc. (the "Distributor"), and through
other participating dealers or banks that have dealer agreements with the
Distributor.
The Money Market Fund offers two classes of shares, A shares and C shares.
C shares may be acquired only through an exchange of C shares of another
Heritage Mutual Fund. See "Exchange Privilege." The Municipal Money Market Fund
offers and sells only A shares.
You may purchase A shares of a Fund directly by completing and signing the
Account Application found in this prospectus, and mailing it, along with your
payment, to Heritage Cash Trust - Money Market Fund or Municipal Money Market
Fund, as applicable, Heritage Asset Management, Inc., P.O. Box 33022, St.
Petersburg, FL 33733. A shares of a Fund also may be purchased through a
registered representative of the Distributor, a participating dealer or a
participating bank ("Representative") by placing an order for A shares with your
Representative, completing and signing the Representative's account application
and making your check payable to the Fund or the Distributor.
The Distributor and certain participating dealers have established
automatic purchase procedures ("Sweep Programs") for each Fund's shareholders
who maintain a brokerage account with them. Free credit cash balances ("credit
balances") arising from sales of securities for cash, redemptions of debt
securities, dividend and interest payments and funds received from customers may
be invested automatically in A shares on a daily basis. Additional information
regarding this privilege can be obtained from your Representative. For
shareholders participating in Sweep Programs, Fund accounts may be established
as a part of the participating dealer's new account procedure.
Shares of a Fund are sold at their net asset value next determined after an
order is received by the Manager, in its capacity as transfer agent, without a
sales load. Initial and subsequent orders will be considered to be received by
the Manager, in its capacity as transfer agent, after payment by check is
converted into Federal funds (a commercial bank's deposit with the Federal
Reserve Bank that can be transferred to another
8
<PAGE> 11
member bank on the same day) normally two days after receiving the check. If
payment is made by bank wire, the order will be considered received immediately.
However, such orders received by the Manager after 12:00 p.m. Eastern time will
not be invested until the next business day. Each Fund reserves the right to
reject any purchase request.
Purchases of Fund shares by customers of a participating dealer or bank
using a Sweep Program usually will be made on the next business day following
the day that credit balances are generated in the customer's brokerage account.
However, credit balances arising from funds placed in the customer's brokerage
account by personal check are subject to that participating dealer or bank's
cash availability policy. Due to the foregoing practices, the participating
dealer or bank may, under certain circumstances, obtain Federal funds prior to
purchasing Fund shares for its customers and may, as a result, realize some
benefit because of the delay in investing these funds.
Shares may be purchased with Federal funds sent by Federal Reserve or bank
wire to:
State Street Bank and Trust Company
Boston, Massachusetts
ABA#011-000-028
Account # 3196-769-8
Heritage Cash Trust-Money Market Fund or
Heritage Cash Trust-Municipal Money Market Fund
(Your Account Number Assigned by the Fund)
(Your Name)
To open a new account with Federal funds or by wire, you must contact the
Manager or your Representative to obtain a Heritage Mutual Fund account number.
Commercial banks may elect to charge a fee for wiring funds to State Street Bank
and Trust Company. For more information on how to buy shares, see "Investing in
the Funds" in the SAI.
MINIMUM INVESTMENT REQUIRED/ACCOUNTS WITH LOW BALANCES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Except as provided under "Systematic Investment Programs," the minimum
initial investment in each Fund is $1,000, and a minimum account balance of
$1,000 must be maintained. These minimum requirements may be waived at the
discretion of the Manager. In addition, initial investments in Individual
Retirement Accounts ("IRAs") may be reduced or waived under certain
circumstances. Contact the Manager or your Representative for further
information.
Due to the high cost of maintaining accounts with low balances, it is
currently the Trust's policy to redeem Fund shares in any account if the account
balance falls below $1,000, except for retirement accounts. The shareholder will
be given 30 days' notice to bring the account balance to the minimum required or
the Trust may redeem shares in the account and pay the proceeds to the
shareholder.
SYSTEMATIC INVESTMENT PROGRAMS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A variety of systematic investment options are available for the purchase
of each Fund's A shares. These options provide for systematic monthly
investments of $50 or more through systematic investing, payroll or government
direct deposit, or exchange from another Heritage Mutual Fund. You may change
the amount to be automatically invested or may discontinue this service at any
time without penalty. If you discontinue this
9
<PAGE> 12
service before reaching the required account minimum, the account must be
brought up to the minimum in order to remain open. You will receive a periodic
confirmation of all activity for your account. For additional information on
these options, see the Account Application or contact the Manager at (800)
421-4184 or your Representative.
RETIREMENT PLANS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of either Fund may be purchased as an investment for Heritage IRA
plans. In addition, shares of that Fund may be purchased as an investment for
self-directed IRAs, defined contribution plans, Simplified Employer Pension
Plans ("SEPs") and other retirement plan accounts. Generally, it will not be
advantageous to hold shares of the Municipal Money Market Fund in an IRA or
other retirement plans. For more detailed information on retirement plans
contact the Manager at (800) 421-4184 or your Representative and see "Investment
Programs" in the SAI.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Redemptions of a Fund's shares can be made by:
CONTACTING YOUR REPRESENTATIVE. Your Representative will transmit an order
to either Fund for redemption by that Fund and may charge you a fee for this
service.
TELEPHONE REQUEST. You may redeem shares by placing a telephone request to
the Manager (800-421-4184) prior to 12:00 p.m. Eastern Time. If you do not wish
to have telephone exchange/redemption privileges, you should so elect by
completing the appropriate section of the Account Application. The Trust,
Manager, Distributor and their Trustees, directors, officers and employees are
not liable for any loss arising out of telephone instructions they reasonably
believe are authentic. These parties will employ reasonable procedures to
confirm that telephone instructions are authentic. To the extent that the Trust,
Manager, Distributor and their Trustees, directors, officers and employees do
not follow reasonable procedures, some or all of them may be liable for losses
due to unauthorized or fraudulent transactions. For more information on these
procedures, see "Redeeming Shares - Telephone Transactions" in the SAI. You may
elect to have redemption proceeds wired to the bank account specified on the
Account Application. Redemption proceeds normally will be sent the next business
day, and you will be charged a wire fee by the Manager (currently $5.00). For
redemptions of less than $50,000, you may request that a check be mailed to your
address of record, providing that such address has not been changed in the past
30 days. For your protection, the proceeds of all other redemptions will be
transferred to the bank account specified on the Account Application.
WRITTEN REQUEST. Fund shares may be redeemed by sending a written request
for redemption to "Heritage Cash Trust - Money Market Fund or Municipal Money
Market Fund, as applicable, Heritage Asset Management, Inc., P.O. Box 33022, St.
Petersburg, FL 33733". Signature guarantees will be required on the following
types of requests: redemptions from any account that has had an address change
in the past 30 days, redemptions greater than $50,000, redemptions that are sent
to an address other than the address of record and exchanges or transfers into
other Heritage accounts that have different titles. The Manager will transmit an
order to the Fund for redemption.
SYSTEMATIC WITHDRAWAL PLAN. Withdrawal plans are available that provide
for regular periodic withdrawals of $50 or more on a monthly, quarterly,
semiannual or annual basis. Under these plans, sufficient shares of the
applicable Fund are redeemed to provide the amount of the periodic withdrawal
payment. The
10
<PAGE> 13
Manager reserves the right to cancel systematic withdrawals if insufficient
shares are available for two or more consecutive months.
REDEEMING BY CHECK. At your request, after receipt of a completed
signature card and good funds become available in the account, the Manager will
establish a checking account for redeeming Fund shares. With a Fund checking
account, shares may be redeemed simply by writing a check for $100 or more. The
redemption will be made at the net asset value next determined after the Manager
presents the check to the Fund. A check should not be written to close an
account. If you wish to redeem shares and have the proceeds available, a check
may be written on a Fund checking account and negotiated through a local bank
where you have an account. Canceled checks will be sent to you each month. All
checkwriting transactions are available to you at no charge, except as follows:
a $15.00 charge for all attempted check redemptions in which the amount of the
check exceeds the available assets in your account; and a $15.00 charge for
placing a stop payment order on a check.
Contact the Manager or your Representative for further information, or see
"Redeeming Shares" in the SAI.
RECEIVING PAYMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If redemption of Fund shares is requested by contacting your
Representative, you normally will receive payment by check on the first business
day following the receipt of instructions. Redemption payments made by the
Manager to shareholders who have elected to redeem Fund shares by written
request normally are available to be mailed according to instructions within one
day following receipt of a valid redemption request. However, your right to
redeem shares or receive payment therefrom may be suspended or postponed at
times when the Exchange is closed (other than customary weekend and holiday
closings) or during periods of emergency or other periods as permitted by the
Securities and Exchange Commission. In the case of any such suspension, you may
either withdraw your request for redemption or receive payment based upon the
net asset value next determined, less any applicable CDSL, after the suspension
is lifted. If a redemption check remains outstanding after six months, the
Manager reserves the right to redeposit those funds into your account. For more
information on receiving payment, see "Redeeming Shares - Receiving Payment" in
the SAI.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You may exchange some or all of your shares of each Fund for shares of the
same class of any other Heritage Mutual Fund. All exchanges will be based on the
respective net asset values of the Heritage Mutual Funds involved. All exchanges
are subject to the minimum investment requirements and any other applicable
terms set forth in the prospectus for the Heritage Mutual Fund whose shares are
being acquired. A sales load will be charged on the exchange of A shares of the
Fund for the A shares of a Heritage Mutual Fund equal to that charged on a
purchase of such Heritage Mutual Fund shares unless the Fund shares being
exchanged were themselves acquired by the exchange of other Heritage Mutual Fund
shares. A CDSL of 1% will be imposed on the redemption of C shares of the Money
Market Fund acquired through exchange of C shares of another Heritage Mutual
Fund if those shares were held for less than one year. Exchanges involving the
redemption of shares recently purchased by check will be permitted only after
the Heritage Mutual Fund whose shares have been tendered for exchange is
reasonably assured that the check has cleared, normally five business days
following the purchase date. Shares acquired pursuant to a telephone request for
exchange will
11
<PAGE> 14
be held under the same account registration as the shares redeemed through such
exchange. For a discussion of limitation of liability of certain entities, see
"How to Redeem Shares - Telephone Request."
Telephone exchanges can be effected by calling the Manager at (800)
421-4184 or by calling your Representative. In the event that you or your
Representative are unable to reach the Manager by telephone, an exchange can be
effected by sending a telegram to Heritage Asset Management, Inc. Telephone or
telegram requests for an exchange received by the Manager before 12:00 p.m.
Eastern time will be effected on that day. Requests for an exchange received
after 12:00 p.m. will be effected on the following business day. Due to the
volume of calls or other unusual circumstances, telephone exchanges may be
difficult to implement during certain time periods.
Each Heritage Mutual Fund reserves the right to reject any order to acquire
shares through exchange or otherwise to restrict or terminate the exchange
privilege at any time. In addition, each Heritage Mutual Fund may terminate this
exchange privilege upon 60 days' notice. For further information on this
exchange privilege and for a copy of any Heritage Mutual Fund prospectus,
contact the Manager or your Representative and see "Exchange Privilege" in the
SAI.
MANAGEMENT OF THE FUNDS
BOARD OF TRUSTEES
The business and affairs of each Fund are managed by or under the direction
of the Trust's Board of Trustees. The Trustees are responsible for managing the
Funds' business affairs and for exercising all the Funds' powers except those
reserved to the shareholders. A Trustee may be removed by the other Trustees or
a two-thirds vote of the outstanding Trust's shares.
INVESTMENT ADVISER, FUND ACCOUNTANT, ADMINISTRATOR AND TRANSFER AGENT
Heritage Asset Management, Inc. is the investment adviser, fund accountant,
administrator and transfer agent for each Fund. The Manager is responsible for
making investment decisions for the Money Market Fund and for reviewing and
establishing investment policies for each Fund as well as administering its
noninvestment affairs. The Manager is a wholly owned subsidiary of Raymond James
Financial, Inc., which, together with its subsidiaries, provides a wide range of
financial services to retail and institutional clients. The Manager manages,
supervises and conducts the business and administrative affairs of the Trust and
the other Heritage Mutual Funds with net assets totalling approximately $2.6
billion as of November 30, 1996. The Manager's annual investment advisory and
administration fee is paid monthly by each Fund to the Manager and is based on
its average daily net assets as shown in the charts below. Each Fund pays the
Manager directly for fund accounting and transfer agent services.
12
<PAGE> 15
MONEY MARKET FUND
<TABLE>
<CAPTION>
ADVISORY FEE
AS % OF AVERAGE
AVERAGE DAILY DAILY NET
NET ASSETS ASSETS
- ---------------------------------------------
<S> <C>
First $500 million.......... .500%
Second $500 million......... .475%
Third $500 million.......... .450%
Fourth $500 million......... .425%
Fifth $500 million.......... .400%
Over $2.5 billion........... .375%
</TABLE>
MUNICIPAL MONEY MARKET FUND
<TABLE>
<CAPTION>
ADVISORY FEE
AS % OF AVERAGE
AVERAGE DAILY DAILY NET
NET ASSETS ASSETS
- ---------------------------------------------
<S> <C>
First $250 million.......... .500%
Second $250 million......... .475%
Third $250 million.......... .450%
Fourth $250 million......... .425%
Over $1 billion............. .400%
</TABLE>
The Manager reserves the right to discontinue any voluntary waiver of its
fees or reimbursement to a Fund in the future. The Manager also may recover
advisory fees waived in the two previous years. The Manager and the Distributor
also are authorized to use the fees paid to them by each Fund to compensate
third parties who agree to provide administrative or shareholder services to the
Funds. The Manager also may compensate the Distributor or participating dealers
or banks for providing certain administrative or shareholder services to each
Fund. The Manager, as transfer agent for the Funds, maintains a share account
for each shareholder.
SUBADVISER
The Manager has entered into an agreement with Alliance Capital Management
L.P., to provide investment advice and portfolio management services to the
Municipal Money Market Fund for a fee payable by the Manager equal to .125% of
the Fund's average daily net assets up to $100 million, .10% of average daily
net assets from $100 million to $250 million and .05% of average daily net
assets exceeding $250 million. Investment decisions for the Municipal Money
Market Fund are made by the Subadviser subject to review by the Manager and the
Board of Trustees. The Subadviser is a major international investment manager
supervising client accounts with assets totaling over $173 billion as of
September 30, 1996. The Subadviser serves its clients, primarily major corporate
employee benefit funds, public employee retirement systems, investment
companies, foundations and endowment funds, with a staff of more than 1,400
employees operating out of seven domestic offices and the overseas offices of
nine subsidiaries.
The Subadviser is a limited partnership whose general partner, Alliance
Capital Management Corporation, is an indirect wholly owned subsidiary of The
Equitable Life Assurance Society of the United States ("Equitable"). Equitable
and two of its subsidiaries own approximately 57% of the outstanding securities
of the Subadviser. Equitable, one of the largest life insurance companies in the
United States, is a wholly owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA, a member of a large French
insurance group.
PORTFOLIO TRANSACTIONS
Fund purchases of portfolio securities are made from dealers, underwriters
and issuers; sales, if any, prior to maturity, are made to dealers and issuers.
The Funds normally will not incur any brokerage commission expense on such
transactions because money market instruments generally are traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission. The Manager or, for the Municipal Money Market Fund, the Subadviser
will effect transactions with those dealers it believes provide the most
favorable prices and are capable of providing efficient executions. Subject to
those requirements, the Manager or Subadviser, as the case may be, may consider
sales of shares of the Funds (and, if permitted by
13
<PAGE> 16
law, of other funds for which the Manager or Subadviser, as the case may be, is
the adviser or subadviser) as a factor in the selection of broker-dealers to
execute portfolio transactions for each Fund. See the SAI for a further
discussion of portfolio transactions and brokerage services.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS AND OTHER DISTRIBUTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dividends from net investment income are declared daily and paid monthly.
Each Fund's net investment income for Saturdays, Sundays and holidays is
declared as a dividend on the next business day. You receive the dividend
declared on the day following the date on which your shares are purchased. If
you withdraw the entire balance of your account, you will be paid all dividends
declared through the date of the withdrawal. Dividends are declared
automatically and issued in additional Fund shares unless you request cash
payments. You also may elect to have your dividends automatically invested in
any other Heritage Mutual Fund. Distributions of net short-term capital gain, if
any, normally are made once each year near calendar year-end, although such
distributions may be made more frequently in order to maintain a Fund's net
asset value at $1.00 per share. Distribution options can be changed at any time
by notifying the Manager in writing. Dividends paid by the Money Market Fund
with respect to its A shares and C shares are calculated in the same manner and
at the same time and will be in the same amount relative to the aggregate net
asset value of the shares in each class.
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As compensation for services rendered and expenses borne by the Distributor
in connection with the distribution of each class of each Fund's shares and in
connection with personal services rendered to shareholders and the maintenance
of shareholder accounts, each Fund pays the Distributor a service fee of up to
0.15% of that Fund's average daily net assets attributable to that class of
shares. This fee is computed daily and paid monthly.
The above-referenced fees paid to the Distributor are made under
Distribution Plans (each a "Plan") adopted pursuant to Rule 12b-1 under the 1940
Act. These Plans authorize the Distributor to spend such fees on any activities
or expenses intended to result in the sale of a Fund's shares, including:
compensation paid to Representatives, advertising, salaries and other expenses
of the Distributor relating to selling or servicing efforts; expenses of
organizing and conducting sales seminars; printing of prospectuses, SAIs and
reports for other than existing shareholders; and preparation and distribution
of advertising material and sales literature and other sales promotion expenses.
The Distributor has entered into dealer agreements with participating dealers
and/or banks who also will distribute shares of the Funds. In addition, the
Manager may elect to bear additional expenses incurred by the Distributor and
sales agents in providing such services. 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.
14
<PAGE> 17
TAXES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of Federal income
tax on that part of its taxable net investment income and realized net capital
gains that is distributed to its shareholders. Dividends paid by the Money
Market Fund generally are taxable to its shareholders as ordinary income,
notwithstanding that these dividends are paid in additional Fund shares.
Distributions by the Municipal Money Market Fund that it designates as "exempt-
interest dividends" generally may be excluded from gross income by its
shareholders. Interest on indebtedness incurred or continued by a shareholder to
purchase or carry Municipal Money Market Fund shares is not deductible. You will
receive Federal income tax information regarding dividends after the end of each
year including, for the Municipal Money Market Fund, the amount of
exempt-interest dividends (and the portion thereof, if any, that is an item of
tax preference for purposes of the AMT) and the amount of any taxable dividends.
Each Fund is required to withhold 31% of all taxable dividends payable to
individuals and certain other non-corporate shareholders who do not provide the
Fund with a correct taxpayer identification number or who otherwise are subject
to backup withholding.
The foregoing is only a summary of the important Federal income tax
considerations generally affecting the Funds and their shareholders. See the SAI
for a further discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor. You therefore are urged to
consult your tax adviser.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Each share of a Fund gives the shareholder one vote in matters submitted to
shareholders for a vote, except that, in matters affecting only one Fund, only
shares of that Fund are entitled to vote. Both classes of shares of the Money
Market Fund have equal voting rights, except that, in matters affecting only a
particular class, only shares of that class are entitled to vote. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the 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 the Trust's outstanding shares.
15
<PAGE> 18
<TABLE>
<S> <C>
HERITAGE FAMILY OF FUNDS (LOGO) HERITAGE FAMILY OF FUNDS
Account Application
P.O. Box 33022, St. Petersburg, FL 33733
[ ] New Account [ ] Update to Existing Account # ------------------
(Indicate fund in Fund Selection section below)
</TABLE>
- --------------------------------------------------------------------------------
ACCOUNT REGISTRATION
<TABLE>
<S> <C> <C>
[ ] Corporation [ ] Gift to Minor
[ ] Individual [ ] Joint Tenant with Right of Survivorship [ ] Association, Partnership or other
[ ] Trust [ ] Foundation or Exempt Organization organization
- ------------------------------------------------- ---------------------------------------
Name of account owner Social Security or Taxpayer ID #
- ------------------------------------------------- ---------------------------------------
Joint owner/Trustee/Custodian Social Security or Taxpayer ID #
- ------------------------------------------------- ---------------------------------------
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
</TABLE>
FUND SELECTION ($1,000 minimum initial investment unless participating in an
automatic investment plan)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Pay dividends Pay capital
Fund name Share Class amount in gains in:
A C Shares Cash Shares Cash
Heritage Series Trust:
[ ] Small Cap Stock Fund [ ] [ ] $ [ ] [ ] [ ] [ ]
----------------
[ ] Growth Equity Fund [ ] [ ] $ [ ] [ ] [ ] [ ]
----------------
[ ] Value Equity Fund [ ] [ ] $ [ ] [ ] [ ] [ ]
----------------
Eagle International Equity
[ ] Portfolio [ ] [ ] $ [ ] [ ] [ ] [ ]
----------------
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 [ ] $ [ ] [ ] [ ] [ ]
----------------
If none checked, all reinvested
in shares.
TOTAL INVESTMENT $
----------------
</TABLE>
<PAGE> 19
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, Manager, 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.
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.
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.
<TABLE>
<S> <C>
X X
------------------------------------------------ ------------------------------------------------
Signature Date Signature Date
</TABLE>
REDUCED SALES CHARGES
STATEMENT OF INTENT
If you agree in advance to invest at least $25,000 in 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
TELEPHONE TRANSACTIONS
You may redeem shares by calling Heritage and requesting that funds 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> 20
DOLLAR COST AVERAGING PLANS
AUTOMATIC INVESTING
You can instruct us to 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. Complete the Bank Account Information
section below and attach a voided check to this application.
<TABLE>
<CAPTION>
Transfer Frequency (check one)
Date Month- Quar- Semi- Annu-
Fund Amount 5th 15th ly terly Annually ally
<S> <C> <C> <C> <C> <C> <C> <C>
$ [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------- ------------------
$ [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------- ------------------
$ [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------- ------------------
Choose one or both
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
I authorize Heritage to draw on my bank account, by check or electronic transfer, for
ATTACH investment in a Heritage fund. Heritage and my bank are not liable for any loss resulting
VOIDED from delays or dishonored draws. This program can be revoked by Heritage without prior
CHECK notice if any draw is dishonored. I can discontinue this program at any time.
HERE
X X
------------------------------------------- -------------------------------------------
Signature on checking account Signature on checking account
TO THE BANK NAMED BELOW:
</TABLE>
In consideration of your compliance with the request and authorization of the
depositor named above, Heritage Asset Management, Inc. agrees (1) To indemnify
and hold you harmless from any loss you may suffer as a consequence of your
actions resulting from or in connection with the execution and issuance of any
check, draft, or order, whether or not genuine, purporting to be executed and
received by you in the regular course of business under pre-authorized draft
arrangement of the Heritage funds, including any costs or expenses reasonably
incurred in connection therewith; (2) That in the event any such check, draft,
or order shall be dishonored, whether with or without cause, and whether
intentionally or inadvertently, to indemnify you and hold harmless from any loss
resulting from such dishonor including your costs and reasonable expenses,
except any losses due to your payment of any draw against insufficient funds;
(3) To defend at our cost and expense any action which might be brought by any
depositor or any other persons because of your actions taken pursuant to the
foregoing requests, or in any manner arising by reason of your participation in
the foregoing plan; and (4) That your participation in the plan or that of the
depositor may be terminated by notice from either party to the other.
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.
<TABLE>
<S> <C> <C> <C> <C> <C>
Frequency (choose one): [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
Day of month (choose one): [ ] 1st [ ] 5th [ ] 10th [ ] 20th
Fund to exchange from Fund to exchange to Amount
$
- --------------------------------------- --------------------------------------- ---------------
$
---------------
- --------------------------------------- ---------------------------------------
$
---------------
- --------------------------------------- ---------------------------------------
</TABLE>
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 section above, check the box for cash dividends.
<TABLE>
<S> <C>
From fund To fund
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
</TABLE>
<PAGE> 21
SYSTEMATIC WITHDRAWAL PLAN (SWP)
You can receive monthly, quarterly, semiannually, or annually checks from your
account. The checks 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.
You may send checks to more than one place. If you begin a SWP in Class C shares
of a fund, you may redeem up to 12% annually of your current account value
without incurring a contingent deferred sales load.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------- Frequency (choose one): [ ] Monthly
Fund for Withdrawal [ ] Quarterly
[ ] Semiannually
[ ] Annually
</TABLE>
Day of month (choose one): [ ] 1st [ ] 5th [ ] 10th [ ] 20th
<TABLE>
<S> <C> <C>
Send payment to: Amount
[ ] My address of record. $ _________________ ____________________________________
Payee name
[ ] The bank account listed in the
Bank Account Information $ _________________ ____________________________________
section below. Payee address
[ ] The payee listed at the right.
(If you have more than one
payee, please attach a separate $ _________________ ____________________________________
sheet indicating the amount to City, State and ZIP
be sent to each.)
____________________________________
Payee account number (if applicable)
</TABLE>
BANK ACCOUNT INFORMATION
Provide bank checking account information if you are participating in an
Automatic Investment or Systematic Withdrawal Plan or if you wish for redemption
proceeds to be sent directly to your bank.
- ------------------------------------------- --------------------------------
Bank name Bank account number
- ------------------------------------------- --------------------------------
Address Bank routing (ABA) number
(from your bank)
- -------------------------------------------
City, State and ZIP
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
<PAGE> 22
HERITAGE CASH TRUST(TM) (LOGO)
MONEY MARKET FUND
AND
MUNICIPAL MONEY MARKET FUND
PROSPECTUS
January 2, 1997
Heritage Cash Trust
P.O. Box 33022
St. Petersburg, FL 33733
--------------------------------------------
Address Change Requested
Prospectus
INVESTMENT ADVISER/
SHAREHOLDER SERVICING AGENT
Heritage Asset Management, Inc.
P.O. Box 33022
St. Petersburg, FL 33733
(800) 421-4184
DISTRIBUTOR
Raymond James & Associates, Inc.
P.O. Box 12749
St. Petersburg, FL 33733
(813) 573-3800
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
110M HAM003
<PAGE>
HERITAGE CASH TRUST
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") dated January 2, 1997
should be read with the Prospectus of Heritage Cash Trust-Money Market and
Municipal Money Market Funds, dated January 2, 1997. This SAI is not a
prospectus itself. To receive a copy of the Prospectus, write to Heritage Asset
Management, Inc.
at the address below or call (800) 421-4184.
Heritage Asset Management, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION.......................................................... 2
INVESTMENT INFORMATION....................................................... 2
Investment Objectives.............................................. 2
Investment Policies................................................ 2
INVESTMENT LIMITATIONS....................................................... 8
NET ASSET VALUE.............................................................. 11
CALCULATING YIELDS........................................................... 13
INVESTING IN THE FUNDS....................................................... 15
INVESTMENT PROGRAMS...........................................................15
Systematic Investment Options........................................15
Retirement Plans.....................................................16
REDEEMING SHARES............................................................. 16
Systematic Withdrawal Plan.......................................... 17
Telephone Transactions.............................................. 18
Redemptions in Kind................................................. 18
Receiving Payment................................................... 18
EXCHANGE PRIVILEGE........................................................... 19
TAXES........................................................................ 20
TRUST INFORMATION............................................................ 22
Management of the Funds............................................. 22
Five Percent Shareholders........................................... 26
Investment Adviser and Administrator; Subadviser.................... 26
Portfolio Transactions.............................................. 28
Distribution of Shares.............................................. 29
Administration of the Funds......................................... 31
Potential Liability................................................. 32
APPENDIX A.................................................................. A-1
REPORT OF INDEPENDENT ACCOUNTANTS
Money Market Fund...................................................A-5
Municipal Money Market Fund.........................................A-6
FINANCIAL STATEMENTS
Money Market Fund...................................................A-7
Municipal Money Market Fund........................................A-15
- 1 -
<PAGE>
GENERAL INFORMATION
Heritage Cash Trust (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated June 21, 1985. The Trust
currently consists of two separate investment portfolios: the Money Market Fund
and the Municipal Money Market Fund (the "Municipal Fund") (collectively the
"Funds"). The Money Market Fund offers two classes of shares, Class A shares
that are not subject to any sales load ("A shares") and Class C shares offered
subject to a contingent deferred sales load ("CDSL") ("C shares"). C shares may
be acquired only through exchanges of C shares of other Heritage mutual funds
for which Heritage Asset Management, Inc. (the "Manager") serves as adviser or
administrator ("Heritage Mutual Funds"). The Municipal Fund offers A shares
only.
INVESTMENT INFORMATION
- ----------------------
INVESTMENT OBJECTIVES
---------------------
Each Fund's investment objective and certain investment policies are
described in the prospectus. The Funds also have adopted the investment policies
and restrictions described below.
INVESTMENT POLICIES
-------------------
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements
with domestic commercial banks and with registered broker-dealers who are
members of a national securities exchange or market makers in U.S. Government
securities. A Fund's repurchase agreements will require that the underlying
security at all times have a value at least equal to the resale price. If the
seller of a repurchase agreement defaults, the Fund could realize a loss on the
sale of the underlying security to the extent that the proceeds of the sale are
less than the resale price provided in the agreement. In addition, even though
the Federal Bankruptcy Code provides protection for most repurchase agreements,
if the seller should be involved in insolvency proceedings, a Fund may incur
delays and costs in selling the underlying security or may suffer a loss if the
Fund is treated as an unsecured creditor and is required to return the
underlying security to the seller.
REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow by entering into
reverse repurchase agreements with the same parties with whom the Fund may enter
into repurchase agreements. Under a reverse repurchase agreement, a Fund sells
securities and agrees to repurchase them at a mutually agreed upon price. At the
time the 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
- 2 -
<PAGE>
that the market value of securities retained in lieu of sale by the Fund may
decline below the price of the securities the Fund has sold but is obliged to
repurchase. In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, such buyer or its trustee
or receiver may receive an extension of time to determine whether to enforce the
Fund's obligation to repurchase the securities and the Fund's use of the
proceeds of the reverse repurchase agreement effectively may be restricted
pending such decisions. Reverse repurchase agreements create leverage, a
speculative factor, and will be considered borrowings for the purpose of the
Fund's limitation on borrowing.
SECTION 4(2) COMMERCIAL PAPER AND RULE 144A. Each Fund may invest in
Section 4(2) commercial paper. Most commercial paper is exempt from registration
requirements imposed by federal securities laws. In addition, some commercial
paper that is not exempt can be purchased and sold without registration in
transactions not involving a public offering pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act"). The Fund's investments in
Section 4(2) commercial paper will be subject to their nonfundamental 10%
limitation on investments in illiquid securities, unless the Section 4(2)
commercial paper can be sold to qualified institutional buyers ("QIBs") under
Rule 144A of the 1933 Act. As permitted by Rule 144A, the Board has adopted
guidelines and delegated the daily function of determining and monitoring the
liquidity of securities so purchased. Because it is not possible to predict with
assurance how the Rule 144A market will develop, the Board will monitor the
Funds' invstments in Rule 144A securities, focusing on such factors as liquidity
and availability of information.
SECURITIES LOANS. Each Fund may lend its securities. Securities loans
are made to broker-dealers or other financial institutions pursuant to
agreements requiring that loans be secured continuously by collateral in cash or
short-term debt obligations at least equal at all times to the value of the
securities lent. The borrower pays a Fund an amount equal to any dividends or
interest received on the securities lent. The Funds retain all or a portion of
the interest received on investments of the cash collateral or receive a fee
from the borrower. The Funds may call such loans in order to sell the securities
involved. In the event that a Fund reinvests cash collateral, it is subject to
the risk that both the reinvested collateral and the loaned securities will
decline in value. In addition, in such event, it is possible that the securities
loan may not be collateralized fully.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. Each Fund may purchase
and sell securities on a when-issued and delayed-delivery basis. These
transactions are made to secure what the Manager or, for the Municipal Fund,
Alliance Capital Management L.P. (the "Subadviser"), Subadviser considers to be
advantageous prices or yields. Settlement dates may be a month or more after
entering into these transactions, and market values of the securities purchased
may vary from the purchase prices. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Funds, such as
- 3 -
<PAGE>
cash, U.S. Government securities or other liquid high-grade debt obligations,
which will be marked to market daily, sufficient to make payment for the
securities to be purchased, will be segregated by the Funds' custodian on the
Funds' records at the trade date and maintained until the transaction settles.
In when-issued and delayed-delivery transactions, a Fund relies on the seller to
complete the transaction. The seller's failure to perform may cause a Fund to
miss a price or yield considered to be advantageous.
MONEY MARKET FUND
-----------------
ASSET-BACKED SECURITIES. The Money Market Fund may purchase
asset-backed securities, including commercial paper. Asset-backed securities
represent direct or indirect participations in, or are secured by and payable
from, pools of assets such as motor vehicle installment sales contracts,
installment loan contracts, leases of various types of real and personal
property, and receivables from revolving credit (credit card) agreements. These
assets are securitized through the use of trusts and special purpose
corporations. Credit enhancements, such as various forms of cash collateral
accounts or letters of credit, may support payments of principal and interest on
asset-backed securities. Asset-backed securities are subject to the risk of
prepayment and the risk that recovery on repossessed collateral might be
unavailable or inadequate to support payments.
EURODOLLAR AND YANKEE CERTIFICATES. The Money Market Fund may purchase
certificates of deposit, time deposits and bankers' acceptances issued by
foreign branches of domestic banks ("domestic Eurodollar certificates") and
foreign banks ("foreign Eurodollar certificates") or by domestic branches of
foreign banks ("Yankee certificates"). As a result of federal and state laws and
regulations, domestic branches of domestic banks generally are, among other
things, required to maintain specified levels of reserves and are subject to
other supervision and regulation designed to promote financial soundness.
Domestic and foreign Eurodollar certificates, such as certificates of
deposit 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 and 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 that apply to
domestic banks, such as mandatory reserve requirements, loan limitations, and
accounting, auditing and recordkeeping requirements. In addition, less
information may be publicly available about a foreign branch of a domestic bank
or a foreign bank than a domestic bank.
Yankee certificates 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 and by federal and state regulation as well as governmental action in
the country in which the foreign bank has its head office. The deposits of
state-licensed domestic branches of foreign banks may not be insured necessarily
by the Federal Deposit Insurance Corporation ("FDIC").
In view of the foregoing factors associated with the purchase of
domestic and foreign Eurodollar and Yankee certificates, the Money Market Fund
will evaluate carefully such investments on a case-by-case basis.
- 4 -
<PAGE>
GNMA CERTIFICATES. The Money Market Fund may invest in securities
issued by the Government National Mortgage Association ("GNMA"), a wholly owned
U.S. Government corporation that guarantees the timely payment of principal and
interest. The market value and interest yield of these instruments can vary due
to market interest rate fluctuations and early prepayments of underlying
mortgages. These securities represent ownership in a pool of federally insured
mortgage loans. The scheduled monthly interest and principal payments relating
to mortgages in the pool will be "passed through" to investors. GNMA securities
differ from conventional bonds in that principal is paid back to the certificate
holders over the life of the loan rather than at maturity. As a result, the
Money Market Fund will receive monthly scheduled payments of principal and
interest and may receive unscheduled principal payments representing prepayments
on the underlying mortgages. Although GNMA securities may offer yields higher
than those available from other types of U.S. Government securities, GNMA
securities may be less effective than other types of securities as a means of
"locking in" attractive long-term rates because prepayment proceeds will be
invested at prevailing interest rates, that may be lower than the GNMA
securities on which the prepayments were made.
INDUSTRY CLASSIFICATIONS. For purposes of determining industry
classifications, the Money Market Fund relies upon classifications established
by the Manager that are based upon classifications contained in the Directory of
Companies Filing Annual Reports with the Securities and Exchange Commission
("SEC") and in the Standard & Poor's Corporation Industry Classifications.
MUNICIPAL FUND
--------------
ALTERNATIVE MINIMUM TAX. The Municipal Fund may invest without limit in
tax-exempt municipal securities the interest on which is an item of tax
preference for purposes of the Federal alternative minimum tax ("AMT"). Such
bonds ("AMT-Subject Bonds") have provided, and may continue to provide, somewhat
higher yields than other comparable municipal securities. AMT-Subject Bonds
generally are limited obligations of the issuer, supported only by payments from
private business entities that use the facilities financed by the bonds (and the
pledge, if any, of the real and personal property so financed as security for
such payment) and not by the full faith and credit or taxing power of the state
or any governmental subdivision. It is not possible to provide specific details
on each of these obligations in which the Municipal Fund's assets may be
invested.
MUNICIPAL SECURITIES. The Municipal Fund invests primarily in municipal
securities. Yields on municipal securities are dependent on a variety of
factors, including the general condition of the money market and of the
municipal bond and municipal note markets, the size of a particular offering,
the maturity of the obligation
- 5 -
<PAGE>
and the rating of the issue. Municipal securities with longer maturities tend to
produce higher yields and generally are subject to greater price movements than
obligations with shorter maturities. An increase in interest rates generally
will reduce the market value of portfolio investments, and a decline in interest
rates generally will increase the value of portfolio investments. The
achievement of the Municipal Fund's objectives is dependent in part on the
continuing ability of the issuers of municipal securities in which the Municipal
Fund invests to meet their obligations for the payment of principal and interest
when due. Municipal securities have not been subject to registration with the
SEC, although there have been proposals that would require registration in the
future. The Municipal Fund generally will hold securities to maturity rather
than follow a practice of trading. However, the Municipal Fund may seek to
improve portfolio income by selling certain portfolio securities prior to
maturity in order to take advantage of yield disparities that occur in
securities markets. Obligations of issuers of municipal securities are subject
to the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code. In addition, the
obligations of such issuers may become subject to laws enacted in the future by
Congress or state legislatures or referenda extending the time for payment of
principal and/or interest or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. There also is
the possibility that, as a result of litigation or other conditions, the ability
of any issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected.
STANDBY COMMITMENTS. The Municipal Fund may purchase municipal
securities together with the right to resell them to the seller at an
agreed-upon price or yield within specified periods prior to their maturity
dates. Such a right to resell commonly is known as a "standby commitment," and
the aggregate price for securities with a standby commitment may be higher than
the price that otherwise would be paid. The primary purpose of this practice is
to permit the Municipal Fund to be as fully invested as practicable in municipal
securities while preserving the necessary flexibility and liquidity to meet
unanticipated redemptions. In this regard, the Municipal Fund acquires standby
commitments solely to facilitate portfolio liquidity and does not exercise its
rights thereunder for trading purposes. Because the value of a standby
commitment is dependent on the ability of the standby commitment writer to meet
its obligation to repurchase, the Municipal Fund will enter into standby
commitment transactions only with municipal securities dealers that are
determined by the Subadviser to present minimal credit risks. The acquisition of
a standby commitment does not affect the valuation or maturity of the underlying
municipal securities that continue to be valued in accordance with the amortized
cost method. Standby commitments are valued by the Municipal Fund at zero in
- 6 -
<PAGE>
determining net asset value. If the Municipal Fund pays directly or indirectly
for a standby commitment, its cost is reflected as unrealized depreciation for
the period during which the commitment is held. Standby commitments do not
affect the average weighted maturity of the Municipal Fund's investment
portfolio of securities.
TAXABLE SECURITIES. Although the Municipal Fund is, and expects to be,
invested primarily in municipal securities, it may elect to invest up to 20% of
its total assets in taxable money market securities when such action is deemed
to be in the best interests of shareholders. Such taxable money market
securities are limited to remaining maturities of 397 days or less at the time
of investment, and the Municipal Fund's municipal and taxable securities are
maintained at a dollar-weighted average of 90 days or less. Taxable money market
securities purchased by the Municipal Fund are limited to: marketable
obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities; repurchase agreements involving such securities; certificates
of deposit, bankers' acceptances and interest-bearing savings deposits of banks
having total assets of more than $1 billion and that are members of the FDIC;
and commercial paper of prime quality rated A-1 or higher by Standard & Poor's
("S&P") or Prime-1 by Moody's Investors Service, Inc. ("Moody's") or, if not
rated, deemed by the Board of Trustees or, pursuant to authority delegated by
the Board, by the Subadviser to be of equal quality.
VARIABLE RATE OBLIGATIONS. The interest rate payable on certain
"variable rate" municipal securities in which the Municipal Fund may invest is
not fixed and may fluctuate based upon changes in market rates. The interest
rate payable on a variable rate municipal security is adjusted either at
pre-designated periodic intervals or whenever there is a change in the market
rate to which the security's interest rate is tied. Other features may include
the right of the Municipal Fund to demand prepayment of the principal amount of
the obligation prior to its stated maturity and the right of the issuer to
prepay the principal amount prior to maturity. The main benefit of a variable
rate municipal security is that the interest rate adjustment minimizes changes
in the market value of the obligation. As a result, the purchase of variable
rate municipal securities can enhance the ability of the Municipal Fund to
maintain a stable net asset value per share and to sell an obligation prior to
maturity at a price approximating the full principal amount.
The payment of principal and interest by issuers of certain municipal
securities may be guaranteed by letters of credit or other credit facilities
offered by banks or other financial institutions. Such guarantees will be
considered in determining whether a municipal security meets the Municipal
Fund's investment quality requirements. Variable rate obligations purchased by
the Municipal Fund may include participation interests in variable rate
industrial development bonds that are backed by irrevocable letters
- 7 -
<PAGE>
of credit or guarantees of banks that meet the criteria for banks described
above in "Taxable Securities."
Purchase of a participation interest gives the Municipal Fund an
undivided interest in certain such bonds. The Municipal Fund can exercise the
right, on not more than 30 days' notice, to sell such an instrument back to the
bank from which it purchased the instrument and draw on the letter of credit for
all or any part of the principal amount of its participation interest in the
instrument, plus accrued interest, but will do so only (1) as required to
provide liquidity, (2) to maintain a high quality investment portfolio, or (3)
upon a default under the terms of the demand instrument. Banks retain portions
of the interest paid on such variable rate industrial development bonds as their
fees for servicing such instruments and the issuance of related letters of
credit and repurchase commitments. The Municipal Fund will not purchase
participation interests in variable rate industrial development bonds unless it
receives an opinion of counsel or a ruling of the Internal Revenue Service that
interest earned from the bonds in which it holds participation interests is
exempt from Federal income tax. The Subadviser will monitor the pricing, quality
and liquidity of variable rate demand obligations and participation interests
therein held by the Municipal Fund on the basis of published financial
information, rating agency reports and other research services to which the
Subadviser may subscribe.
INVESTMENT LIMITATIONS
- ----------------------
In addition to the limits disclosed in "Investment Policies" above and
the investment limitations described in the prospectus, the Funds are subject to
the following investment limitations, that are fundamental policies of the Funds
and may not be changed without the vote of a majority of the outstanding voting
securities of the Funds. Under the Investment Company Act of 1940, as amended
(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. The Money Market Fund may not invest more than 5% of
its total assets in First Tier Securities (as defined in the Prospectus) of any
one issuer other than the U.S. Government, its agencies and instrumentalities;
however, the Money Market Fund may invest more than 5% of its total assets in
First Tier Securities of a single issuer for a period of up to three business
days after the purchase thereof provided that the Money Market Fund may not make
more than one investment in accordance with the foregoing provision at any time.
The Money Market Fund may not invest more than (1) the greater of 1% of its
total assets or $1 million in securities issued by any single issuer of Second
Tier
- 8 -
<PAGE>
Securities (as defined in the Prospectus); and (2) 5% of its total assets in
Second Tier Securities. The Money Market Fund also may not purchase more than
10% of any class of securities of any issuer. All debt securities of an issuer
are considered as one class.
The Municipal Fund may not, with respect to 75% of its total assets,
invest more than 5% of its total assets in money market instruments of any one
issuer other than the U.S. Government, its agencies, or instrumentalities. The
Municipal Fund may not purchase more than 10% of any class of voting securities
of any issuer except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
ILLIQUID SECURITIES. The Money Market Fund may not commit more than 10%
of its net assets to illiquid obligations, including repurchase agreements with
maturities longer than seven days, certain time deposits, and securities which
are restricted as to disposition under the Federal securities laws. The
Municipal Fund may not commit more than 15% of its net assets to illiquid
obligations, including repurchase agreements with maturities longer than seven
days, certain time deposits, and securities which are restricted as to
disposition under Federal securities law. However, as a matter of nonfundamental
investment policy, the Municipal Fund will not commit more than 10% of its net
assets to such illiquid securities.
CONCENTRATION. The Money Market Fund will not purchase money market
instruments if as a result of such purchase more than 25% of the value of its
total net assets would be invested in any one industry. However, the Money
Market Fund may invest up to 100% of its assets in domestic bank obligations and
obligations of the U.S. Government, its agencies, and instrumentalities,
provided that it may not invest more than 25% of its net assets in (1) domestic
Eurodollar certificates, unless the domestic parent would be unconditionally
liable if its foreign branch failed to make payments on such instruments, and
(2) Yankee certificates, unless the branch issuing such instrument is subject to
the same regulation as U.S. banks.
The Municipal Fund will not purchase instruments if as a result of
such purchase more than 25% of the value of its total net assets would be
invested in any one industry, provided that for purposes of this policy (1)
there is no limitation with respect to tax-exempt municipal securities
(including industrial development bonds), securities issued or guaranteed by the
U.S. Government, its agencies, and instrumentalities, certificates of deposit,
bankers' acceptances and interest-bearing savings deposits issued by domestic
banks, and (2) consumer finance companies, industrial finance companies, and
gas, electric, water and telephone utility companies are each considered to be
separate industries. For purposes of this restriction, the Municipal Fund will
- 9 -
<PAGE>
regard the entity that has the primary responsibility for making payment of
principal and interest as the issuer.
INVESTING IN COMMODITIES, MINERALS OR REAL ESTATE. The Funds may not
invest in commodities, commodity contracts, oil, gas or other mineral programs,
or real estate, except that each may purchase money market instruments issued by
companies that invest in or sponsor such interests.
UNDERWRITING. The Funds may not engage in the underwriting of money
market instruments issued by others except as a Fund may be deemed to be an
underwriter under the 1933 Act in connection with the purchase and sale of
portfolio securities.
LOANS. The Funds may not engage in lending activities. However, this
policy does not apply to securities lending and repurchase agreements. The Money
Market Fund may not make secured loans of its portfolio securities amounting to
more than 25% of its total assets.
ISSUING SENIOR SECURITIES. The Money Market Fund may not issue senior
securities, except as permitted by the investment objective, policies and
investment limitations of the Fund. The Municipal Fund may not issue senior
securities. However, this policy does not apply to investment policies otherwise
permitted by the Municipal Fund, such as making securities loans, borrowing
money and engaging in repurchase agreements and reverse repurchase agreements.
BORROWING MONEY. The Funds may not borrow money except as a temporary
measure for extraordinary or emergency purposes. A Fund may enter into reverse
repurchase agreements and otherwise borrow up to one-third of the value of its
total assets, including the amount borrowed, in order to meet redemption
requests without immediately selling portfolio instruments. This latter practice
is not for investment leverage but solely to facilitate management of the
portfolio by enabling a Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or disadvantageous. However, a Fund
may not purchase additional portfolio investments once borrowed funds exceed 5%
of total assets. When effecting reverse repurchase agreements, Fund assets in an
amount sufficient to make payment for the obligations to be purchased will be
segregated by the borrowing Fund's custodian and on the Fund's records upon
execution of the trade and maintained until the transaction has been settled.
During the period any reverse repurchase agreements are outstanding, to the
extent necessary to assure completion of the reverse repurchase agreements, a
Fund will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse repurchase
agreements. Interest paid on borrowed funds will not be available for
investment. Each Fund will liquidate any such borrowings as soon as possible and
- 10 -
<PAGE>
may not purchase any portfolio instruments while any borrowings are
outstanding.
The Funds have adopted the following additional restrictions that,
together with certain limits described in the Funds' prospectus, are
nonfundamental policies and may be changed by the Board of Trustees without
shareholder approval in compliance with applicable law, regulation or regulatory
policy.
SELLING SHORT AND BUYING ON MARGIN. The Funds may not sell any money
market instruments short or purchase any money market instruments on margin, but
may obtain such short-term credits as may be necessary for clearance of
purchases and sales of money market instruments.
INVESTING IN NEW ISSUERS. Neither Fund may invest more than 5% of its
total assets in securities of issuers that have records of less than three years
of continuous operation.
ACQUIRING SECURITIES. The Funds may not acquire the voting securities
of any issuer, invest in securities for the purpose of exercising control or
management, or invest in securities issued by any other investment company
except as part of a merger, consolidation or other acquisition, or as otherwise
permitted by law.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE
TRUST. The Funds may not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Manager who own individually more than
1/2 of 1% of the issuer's securities together own more than 5% of the issuer's
securities.
DEALING IN PUTS AND CALLS. The Funds may not invest in puts,
calls, straddles, spreads or any combination thereof.
PLEDGING SECURITIES. The Funds may not pledge any securities
except to secure permitted borrowings, and then only in amounts not
to exceed 10% of a Fund's total assets.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the investment, a later increase or decrease in the
percentage resulting from any change in value of net assets will not result in a
violation of such restriction.
NET ASSET VALUE
- ---------------
Each Fund determines its net investment income for dividend purposes
once each business day immediately prior to the determination of net asset
value. Each determination of net investment income includes all accrued interest
on portfolio investments of the Fund, less all accrued expenses of the Fund. (A
- 11 -
<PAGE>
Fund will not have unrealized gains or losses so long as it values its
instruments by the amortized cost method.) Realized gains and losses are
reflected in a Fund's net asset value and are not included in net investment
income. All of a Fund's net investment income is declared as dividends daily.
Net asset value for a share of each class of the Money Market Fund and
for an A share of the Municipal Fund is determined daily at 12:00 p.m. Eastern
time immediately after the daily declaration of dividends, Monday through
Friday, except for the following New York Stock Exchange (the "Exchange")
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Each Fund will
seek to stabilize the net asset value per share of its class(es) at $1.00 by use
of the amortized cost method of valuation, which the Board of Trustees has
determined is the best method for determining the value of portfolio
instruments. Under this method, portfolio instruments are valued at the
acquisition cost as adjusted for amortization of premiums or accumulation of
discounts rather than at current market value. The Board of Trustees
periodically assess the continued use of this valuation method and, if
necessary, will consider valuing Fund assets at their fair value as determined
in good faith by the Board of Trustees.
A Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with Rule 2a-7 under the 1940 Act ("Rule
2a-7"). Rule 2a-7 requires the Board to establish procedures reasonably designed
to stabilize the net asset value per share as computed for purposes of
distribution and redemption. The Board's procedures include monitoring the
relationship between the amortized cost value per share and a net asset value
per share based upon available indications of market value. The Board of
Trustees will decide what, if any, steps should be taken if there is a
difference of more than .5% between the two methods. The Board of Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
Rule 2a-7 requires that a Fund limit its investments to instruments
that, in the opinion of the Board of Trustees, present minimal credit risk and
are of high quality as determined by any major rating agency. If the instruments
are not rated, the Board must determine that they are of comparable quality. The
Rule also requires a Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of maintaining a
stable net asset value. In addition, no instrument with a remaining maturity of
more than 397 days can be purchased by a Fund. For these purposes, each Fund
treats variable rate securities as maturing on the date of their next scheduled
- 12 -
<PAGE>
rate adjustment and instruments purchased subject to repurchase agreements as
maturing as of the date that the repurchase is to be made. Should the
disposition of a portfolio security result in a Fund's dollar-weighted average
portfolio maturity of more than 90 days, the Fund will invest its available cash
to reduce the average maturity to 90 days or less as soon as possible.
It is the Funds' usual practice to hold portfolio securities to
maturity and realize the instruments' stated full value, unless the Manager or,
in the case of the Municipal Fund, the Subadviser, determines that sale or other
disposition is appropriate in light of a Fund's investment objective. Under the
amortized cost method of valuation, neither the amount of daily income nor the
net asset value is affected by any unrealized appreciation or depreciation of
the portfolio.
In periods of declining interest rates the indicated daily yield on
shares of a Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value as computed above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates. In periods of rising interest rates, the daily yield on shares of
a Fund computed the same way may tend to be lower than a similar computation
made by using a method of calculation based upon market prices and estimates.
CALCULATING YIELDS
- ------------------
Each class of a Fund computes its current and effective yield
quotations and A shares of the Municipal Fund calculates its tax- equivalent
yield using standardized methods required by the SEC. Each class of a Fund from
time to time advertises (1) its current yield based on a recently ended
seven-day period, computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from that shareholder account, dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base return by (365/7), with the
resulting yield figure carried to at least the nearest hundredth of one percent,
and (2) its effective yield based on the same seven-day period by compounding
the base period and by adding 1, raising the sum to a power equal to (365/7),
and subtracting 1 from the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)(SUPERSCRIPT)365/7]-1
For the seven-day period ended August 31, 1996, the A shares of the
Money Market Fund's current and effective yields were 4.71% and 4.82%,
respectively. For the same period, the C shares of the
- 13 -
<PAGE>
Money Market Fund's current and effective yields were 4.71% and 4.82%,
respectively.
The Municipal Fund from time to time advertises its Class A
tax-equivalent yield and tax-equivalent effective yield, also based on a
recently ended seven-day period. These quotations are calculated by dividing
that portion of the Municipal Fund's yield (or effective yield, as the case may
be) that is tax-exempt by 1 minus a stated income tax rate and adding the
product to that portion, if any, of the Municipal Fund's yield that is not
tax-exempt, according to the following formula:
TAX-EQUIVALENT YIELD = (E OVER 1-p) + t
where E = the portion of yield that is tax-exempt, p = stated income tax rate,
and t = the portion of yield that is taxable.
For the seven-day period ended August 31, 1996, the A shares of the
Municipal Fund's current, effective and tax-equivalent (assuming the maximum
Federal income tax rate of 39.6%) yields were 2.88%, 2.92% and 4.77%,
respectively.
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of a Fund fluctuates, it cannot be compared
with yield on savings accounts or other investment alternatives that provide an
agreed-to or guaranteed fixed yield for a stated period of time. However, yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the yield of one money market fund to
another, consideration should be given to each fund's investment policies,
including the types of investments made, the average maturity of the portfolio
securities and whether there are any special account charges that may reduce the
yield.
A Fund's class performance data quoted in advertising and other
promotional materials ("Performance Advertisements") represents past performance
and is not intended to predict or indicate future results. The return on an
investment in a class will fluctuate. In Performance Advertisements, a class may
compare its taxable and tax-equivalent yields with data published by Lipper
Analytical Services, Inc. for money market funds ("Lipper"), CDA Investment
Technologies, Inc. ("CDA"), IBC/Donoghue's Money Market Fund Report
("Donoghue"), Wiesenberger Investment Companies Service ("Wiesenberger") or
Investment Company Data Inc. ("ICD"). A Fund also may refer in such materials to
mutual fund performance rankings and other data, such as comparative asset,
expense and fee levels, published by Lipper, CDA, Donoghue, Wiesenberger or ICD.
Performance Advertisements also may refer to discussions of the Fund and
comparative mutual fund data and ratings reported in
- 14 -
<PAGE>
independent periodicals, including The Wall Street Journal, Money Magazine,
Forbes, Business Week, Financial World, Barron's, Fortune, and The New York
Times.
INVESTING IN THE FUNDS
- ----------------------
A shares and C shares are sold at their next determined net asset value
after an order is received, without a front-end sales load. The procedures for
purchasing each class of shares of each Fund is explained in the prospectus
under "How to Buy Shares." For customers of Raymond James & Associates, Inc.
("RJA" or the "Distributor") or its affiliates, credit balances will be invested
automatically. Credit balances arising from deposits made prior to the daily
cashiering deadline (which varies according to branch location of the customer's
account) will be credited to the brokerage account on the day of receipt.
Deposits made after the daily cashiering deadline of the Distributor's office in
which the deposit is made will be credited to the brokerage account on the next
business day following the day of deposit.
INVESTMENT PROGRAMS
- -------------------
A variety of systematic investment options are available for the
purchase of each Fund's A shares. These plans provide for systematic monthly
investments of $50 or more through various methods described below. You may
change the amount to be systematically invested or may discontinue this service
at any time without penalty. If you discontinue this service before reaching the
required account minimum, the account must be brought up to the minimum in order
to remain open. You will receive a periodic confirmation of all activity for
your account.
SYSTEMATIC INVESTMENT OPTIONS
-----------------------------
1. Systematic Investing -- You may authorize the Manager to process a
monthly draft from your personal checking account for investment into either
Fund. The draft is returned by your bank the same way a canceled check is
returned.
2. Payroll Direct Deposit -- If your employer participates in a direct
deposit program (also known as ACH Deposits) you may have all or a portion of
your payroll directed to the 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
either Fund. The U.S. Government or agency will report to you all payments made.
- 15 -
<PAGE>
4. Automatic Exchange -- If you own shares of another Heritage Mutual
Fund, you may elect to have a preset amount redeemed from that fund and
exchanged into the corresponding class of shares of either Fund. You will
receive a statement from the other Heritage Mutual Fund confirming the
redemption.
You may change or terminate any of the above options at any time.
RETIREMENT PLANS
----------------
Shares of the Money Market Fund may be purchased as an investment for
Heritage IRA plans. In addition, shares of that Fund may be purchased as an
investment for self-directed IRAs, defined contribution plans, Simplified
Employee Pension Plans ("SEPs") and other retirement plan accounts. It will not
be advantageous to hold shares of the Municipal Fund in an IRA or other
retirement plans.
HERITAGE IRA. Individuals who earn compensation and who have not
reached age 70 1/2 before the close of the year generally may establish a
Heritage IRA. An individual may make limited contributions to a Heritage IRA
through the purchase of shares of the Money Market Fund and/or other Heritage
Mutual Funds. The Internal Revenue Code of 1986, as amended (the "Code"), limits
the deductibility of IRA contributions to taxpayers who are not active
participants (and whose spouses are not active participants) in
employer-provided retirement plans or who have adjusted gross income below
certain levels. Nevertheless, the Code permits other individuals to make
nondeductible IRA contributions up to $2,000 per year (or $4,000, if such
contributions also are made for a nonworking spouse and a joint return is
filed). 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 the Manager.
Shares of the Money Market Fund 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.
REDEEMING SHARES
- ----------------
The methods of redemption are described in the section of the
prospectus entitled "How to Redeem Shares."
- 16 -
<PAGE>
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. Since the amounts of the withdrawals are selected
by the shareholder, they are not necessarily related to the dividends paid by
the Fund. Accordingly, periodic withdrawals may exceed dividends and may result
in a depletion of the shareholder's original investment in the Fund. The
Systematic Withdrawal Plan may be amended or terminated at any time by the
shareholder or the Fund on notice and, in any event, will be terminated when all
shares owned by the shareholder and available for the Systematic Withdrawal Plan
have been redeemed. For the shareholder's protection any change of payee must be
in writing. A shareholder's Systematic Withdrawal Plan also will be terminated
if the Fund is notified of his or her death. Accounts using the Systematic
Withdrawal Plan are subject to the minimum balance requirements. See "Minimum
Investment Required/Accounts with Low Balances" in the prospectus. The
Systematic Withdrawal Plan currently is not available for shares held in an IRA,
Section 403(b) annuity plan, defined contribution plan, SEP or other retirement
plans, unless the shareholder establishes to the Manager'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 the Manager.
Systematic withdrawals of C shares, if acquired by exchange of C shares
of another Heritage Mutual Fund may be charged a CDSL of 1% if the C shares of
that other Heritage Mutual Fund were held for less than one year. Redemptions
will be made at net asset value determined as of 12:00 p.m. Eastern time on a
day of the month selected by the shareholder or a day of the last month of each
period selected by the shareholder, whichever is applicable, if the Exchange is
open for business on that day. If the Exchange is not open for business on that
day, the shares will be redeemed at net asset value determined as of 12:00 p.m.
Eastern time on the preceding business day, minus any applicable CDSL for C
shares. The check for the withdrawal payment usually will be mailed on the next
business day following redemption. If a shareholder elects to participate in the
Systematic Withdrawal Plan, dividends on all shares in the account must be
automatically reinvested in Fund shares. A shareholder may terminate the
Systematic Withdrawal Plan at any time without charge or penalty by giving
written notice to the Manager or the Distributor. Each Fund, the Manager as
transfer agent, and the Distributor also reserve the right to modify or
terminate the Systematic Withdrawal Plan at any time.
Withdrawal payments are treated as a sale of shares rather than as a
dividend. If the periodic withdrawals exceed reinvested dividends, the amount of
the original investment may be correspondingly reduced.
- 17 -
<PAGE>
A Fund will not knowingly accept purchase orders from shareholders
for additional shares if they maintain a Systematic Withdrawal Plan unless the
purchase is equal to at least one year's scheduled withdrawals. In addition, a
shareholder who maintains such a Plan may not make periodic investments under a
Fund's Automatic Investment Plan.
TELEPHONE TRANSACTIONS
----------------------
Shareholders may redeem shares by placing a telephone request to either
Fund. The Trust, Manager, 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 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 the Trust, Manager, Distributor and their Trustees,
directors, officers and employees do not follow reasonable procedures, some or
all of them may be liable for any such losses.
REDEMPTIONS IN KIND
-------------------
Each Fund is obligated to redeem shares for any shareholder for cash
during any 90-day period up to $250,000 or 1% of the Fund's net asset value,
whichever is less. Any redemption beyond this amount also will be in cash unless
the Board of Trustees determine that further cash payments will have a material
adverse effect on remaining shareholders. In such a case, a Fund will pay all or
a portion of the remainder of the redemption in portfolio instruments, valued in
the same way as the Fund determines net asset value. The portfolio instruments
will be selected in a manner that the Board of Trustees deem fair and equitable.
A redemption in kind is not as liquid as a cash redemption. If a redemption is
made in kind, a shareholder receiving portfolio instruments and selling them
before their maturity could receive less than the redemption value thereof and
could incur certain transaction costs.
RECEIVING PAYMENT
-----------------
If a request for redemption is received by a Fund in good order (as
described below) before 12:00 p.m. Eastern time on a day on which the Exchange
is open for business, the shares will be redeemed at the net asset value per
share determined at 12:00 p.m. Eastern time, minus any applicable CDSL for C
shares. Requests for
- 18 -
<PAGE>
redemption received by the Fund after 12:00 p.m. Eastern time will be executed
at the net asset value determined as of 12:00 p.m. Eastern time on the next
trading day on the Exchange, minus any applicable CDSL for C shares.
Payment for shares redeemed by a Fund normally will be made on the
business day after redemption was made. If the shares to be redeemed have been
recently purchased by personal check, the Fund may delay mailing a redemption
check until the purchase check has cleared, which may take up to five business
days. This delay can be avoided by wiring funds for purchases. The proceeds of a
redemption may be more or less than the original cost of Fund shares.
If shares of a Fund are redeemed by a shareholder through the
Distributor, a participating dealer or participating bank ("Representative"),
the redemption is settled with the shareholder as an ordinary transaction. If a
request for redemption is received before the close of regular trading on the
Exchange, shares will be redeemed at the net asset value per share determined on
that day, minus any applicable CDSL for C shares. Requests for redemption
received after the close of regular trading will be executed on the next trading
day. Payment for shares redeemed normally will be made by the Fund to the
Distributor or a Representative by the third 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 Representative 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 the Distributor, a Representative or to the Manager.
EXCHANGE PRIVILEGE
- ------------------
Shareholders who have held Money Market Fund shares for at least 30
days may exchange some or all of their A shares or C shares for corresponding
classes of shares of any other Heritage Mutual Fund. Exchanges of A shares that
have not been subject to a front-end sales load will be subject to a sales load
upon exchange. Exchanges of C shares for C shares of any other Heritage Mutual
Fund subject to a CDSL will be subject to a CDSL if they are redeemed within the
first year. All exchanges will be based on the respective net asset values of
the Heritage Mutual Funds involved. 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
- 19 -
<PAGE>
receipt by the Heritage Mutual Fund whose shares are being exchanged of (1)
proper instructions and all necessary supporting documents as described in such
fund's prospectus, or (2) a telephone request for such exchange in accordance
with the procedures set forth in the prospectus and below.
Shares acquired pursuant to a telephone request for exchange will be
held under the same account registration as the shares redeemed through such
exchange. For a discussion of limitation of liability of certain entities, see
"Telephone Transactions."
Telephone exchanges can be effected by calling the Manager at
800-421-4184 or by calling a registered representative of the Distributor, a
participating dealer or participating bank ("Representative"). In the event that
a shareholder or his Representative is unable to reach the Manager by telephone,
a telephone exchange can be effected by sending a telegram to Heritage Asset
Management, Inc., attention: Shareholder Services. Telephone or telegram
requests for an exchange received by a Fund before 12:00 p.m. Eastern time will
be effected at 12:00 p.m. Eastern time on that day. Requests for an exchange
received after the close of regular trading will be effected on the Exchange's
next trading day. Due to the volume of calls or other unusual circumstances,
telephone exchanges may be difficult to implement during certain time periods.
TAXES
- -----
Each Fund is treated for tax purposes as a separate corporation. In
order to continue to qualify for the favorable tax treatment afforded to a
regulated investment company ("RIC") under the Code, a Fund must distribute
annually to its shareholders at least 90% of its investment company taxable
income (generally, taxable net investment income and net short-term capital
gain, if any) plus, in the case of the Municipal Fund, its net interest income
excludable from gross income under section 103(a) of the Code, 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 other
income derived with respect to its business of investing in securities; (2) the
Fund must derive less than 30% of its gross income each taxable year from the
sale or other disposition of securities held for less than three months; (3) 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 (4) 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.
- 20 -
<PAGE>
Government securities or the securities of other RICs) of any one issuer.
Dividends paid by the Municipal Fund will qualify as "exempt- interest
dividends" and thus will be excludable from gross income by its shareholders, if
that Fund satisfies the additional requirement that, at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of securities the interest on which is excludable from gross income
under section 103(a); the Municipal Fund intends to continue to satisfy this
requirement. The aggregate amount designated for any year by the Municipal Fund
as exempt-interest dividends may not exceed its excludable interest for the year
over certain amounts disallowed as deductions.
Tax-exempt interest attributable to certain private activity bonds
("PABs") (including, in the case of a RIC receiving interest on such bonds, a
proportionate part of the exempt-interest dividends paid by that RIC) is subject
to the AMT. Exempt-interest dividends received by a corporate shareholder also
may be indirectly subject to that AMT without regard to whether the Municipal
Fund's tax-exempt interest was attributable to such bonds.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by PABs or industrial development
bonds ("IDBs") should consult their tax advisers before purchasing shares of the
Municipal Fund because, for users of certain of these facilities, the interest
on such bonds is not exempt from Federal income tax. For these purposes, the
term "substantial user" is defined generally to include a "non-exempt person"
who regularly uses in trade or business a part of a facility financed from the
proceeds of PABs or IDBs.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the Municipal Fund) plus 50% of their
benefits exceeds certain base amounts. Exempt-interest dividends from the
Municipal Fund still are tax-exempt to the extent described above; they are only
included in the calculation of whether a recipient's income exceeds the
established amounts.
If the Municipal Fund invests in any instruments that generate taxable
income, under the circumstances described in the Prospectus, the portion of any
dividend attributable to the interest earned thereon will be taxable to that
Fund's shareholders as ordinary income to the extent of its earnings and
profits, and only the remaining portion will qualify as an exempt-interest
dividend. Moreover, if the Municipal Fund realizes capital gain as a result of
market transactions, any distribution of that gain will be taxable to its
shareholders. There also may be collateral Federal
- 21 -
<PAGE>
income tax consequences regarding the receipt of tax-exempt dividends by
shareholders such as S corporations, financial institutions, and property and
casualty insurance companies. A shareholder falling into any of these categories
should consult its tax adviser concerning its investment in shares of the
Municipal Fund. The exemption of certain interest income for Federal income tax
purposes does not necessarily result in exemption thereof under the income or
other tax laws of any state or local taxing authority. A shareholder may be
exempt from state and local taxes on distributions of interest income derived
from obligations of the state and/or municipalities of the state in which he or
she is a resident, but generally will be taxed on income derived from
obligations of other jurisdictions.
Each Fund will be subject to a nondeductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary (taxable) 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.
Shareholders (except for qualified retirement plans and accounts and
other tax-exempt investors in the Money Market Fund) will be subject to Federal
income tax on taxable dividends whether received as cash or in additional Fund
shares. No portion of any dividend paid by either Fund is eligible for the
dividends-received deduction available to corporations. Because each Fund
invests primarily for income and normally holds portfolio instruments to
maturity, neither Fund is expected to realize long-term capital gains.
Shareholders should consult their own tax advisers regarding the status of their
investment in either Fund under state and local tax laws.
TRUST INFORMATION
- -----------------
MANAGEMENT OF THE FUNDS
-----------------------
TRUSTEES AND OFFICERS. Trustees and officers are listed below with
their addresses, principal occupations and present positions, including any
affiliation with Raymond James Financial, Inc.
("RJF"), RJA or the Manager.
- 22 -
<PAGE>
POSITION
WITH THE PRINCIPAL OCCUPATION
NAME TRUST DURING PAST FIVE YEARS
---- ----- ----------------------
Thomas A. James* Trustee Chairman of the Board
880 Carillon Parkway since 1986 and Chief
St. Petersburg, FL 33716 Executive Officer since
1969 of RJF; Chairman of
the Board of RJA since
1986; Chairman of the
Board of Eagle Asset
Management, Inc.
("Eagle") since 1984 and
Chief Executive Officer
of Eagle, 1994 to 1996.
Richard K. Riess* Trustee Chief Executive Officer
880 Carillon Parkway of Eagle since 1996,
St. Petersburg, FL 33716 President, 1995 to
present, Chief Operating
Officer, 1988 to
1996, Executive Vice
President, 1988 to 1993;
President of Heritage Mutual
Funds, 1985 to 1991.
Donald W. Burton Trustee President of South
614 W. Bay Street Atlantic Capital
Suite 200 Corporation (venture
Tampa, FL 33606 capital) since 1981.
C. Andrew Graham Trustee Vice President of
Financial Designs, Ltd. Financial Designs Ltd.
1775 Sherman Street since 1992; Executive
Suite 1900 Vice President of the
Denver, CO 80203 Madison Group, Inc.,
1991 to 1992; Principal of
First Denver Financial
Corporation (investment
banking) since 1987.
David M. Phillips Trustee Chairman and Chief
World Trade Center Chicago Executive Officer of CCC
444 Merchandise Mart Information Services,
Chicago, IL 60654 Inc. since 1994 and of
InfoVest Corporation
(information services to
the insurance and auto
industries and consumer
households) since 1982.
- 23 -
<PAGE>
Eric Stattin Trustee Litigation Consultant/
2587 Fairway Village Drive Expert Witness and
Park City, UT 84060 private investor since
1988.
James L. Pappas Trustee Lykes Professor of
University of South Florida Banking and Finance
College of Business since 1986 at University
Administration of South Florida; Dean
Tampa, FL 33620 of College of Business
Administration 1987 to 1996.
Stephen G. Hill President Chief Executive Officer
880 Carillon Parkway and President of the
St. Petersburg, FL 33716 Manager since 1989 and
Director since 1994;
Director of Eagle since
1995.
H. Peter Wallace Vice Senior Vice President
880 Carillon Parkway President and Director of Fixed
St. Petersburg, FL 33716 Income Investments of
the Manager since 1993;
Vice President of
Mortgage Products of
Donaldson, Lufkin &
Jenrette, 1990 to 1992.
Donald H. Glassman Treasurer Treasurer of the Manager
880 Carillon Parkway since 1989; Treasurer of
St. Petersburg, FL 33716 Heritage Mutual Funds
since 1989.
Clifford J. Alexander Secretary Partner, Kirkpatrick &
1800 Massachusetts Ave. Lockhart LLP (law firm).
Washington, DC 20036
Patricia Schneider Assistant Compliance Administrator
880 Carillon Parkway Secretary of the Manager.
St. Petersburg, FL 33716
Robert J. Zutz Assistant Partner, Kirkpatrick &
1800 Massachusetts Ave. Secretary Lockhart LLP (law firm).
Washington, DC 20036
- 24 -
<PAGE>
* 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
the Funds' shares outstanding. The 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 Trust currently pays Trustees who are not "interested persons" of
the Trust $1,455 annually and $364 per meeting of the Board of Trustees.
Trustees also are reimbursed for any expenses incurred in attending meetings.
Because the Manager performs substantially all of the services necessary for the
operation of the Trust, the Trust requires no employees. No officer, director or
employee of the Manager receives any compensation from the Trust for acting as a
director or officer. The following table shows the compensation earned by each
Trustee for the fiscal year ended August 31, 1996.
<TABLE>
<CAPTION>
COMPENSATION TABLE
TOTAL
COMPENSATION
PENSION OR FROM THE TRUST
AGGREGATE RETIREMENT AND THE HERITAGE
COMPENSATION BENEFITS ACCRUED ESTIMATED FAMILY OF FUNDS
NAME OF PERSON, FROM THE AS PART OF THE ANNUAL BENEFITS PAID
POSITION TRUST TRUST'S EXPENSES UPON RETIREMENT TO TRUSTEES
- ---------------- ------------ ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Donald W. Burton, $2,911 $0 $0 $17,000
Trustee
C. Andrew Graham, $2,911 $0 $0 $17,000
Trustee
David M. Phillips, $2,547 $0 $0 $15,000
Trustee
Eric Stattin, $2,911 $0 $0 $17,000
Trustee
James L. Pappas, $2,911 $0 $0 $17,000
Trustee
Richard K. Riess, $0 $0 $0 $0
Trustee
Thomas A. James, $0 $0 $0 $0
Trustee
</TABLE>
- 25 -
<PAGE>
FIVE PERCENT SHAREHOLDERS
-------------------------
As of December 19, 1996, the following shareholders owned of record
five percent or more of C shares of the Money Market Fund:
Lona H. Burns..............................................................5.62%
c/o Fred Gabler
950 S. Cherry Street, Suite 717
Denver, CO 85222
Raymond James & Associates Inc.............................................6.91%
Custodian - Carolyn J. Harris
P.O. Box 12749
St. Petersburg, FL 33733
John F. Neal and Beverly J. Neal...........................................7.26%
P.O. Box 338
Milliken, CO 80543
Raymond James & Associates Inc............................................23.65%
Custodian - Jerry Harris
P.O. Box 12749
St. Petersburg, FL 33733
INVESTMENT ADVISER AND ADMINISTRATOR; SUBADVISER
------------------------------------------------
The Funds' investment adviser and administrator, Heritage Asset
Management, Inc., was organized as a Florida corporation in 1985. All the
capital stock of the Manager 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.
Under an Investment Advisory and Administration Agreement ("Advisory
Agreement") dated November 13, 1985, as amended April 22, 1992, between the
Trust, on behalf of the Money Market Fund and the Municipal Fund, the Manager
provides each Fund with investment advice and portfolio management services as
well as administers the Fund's noninvestment affairs.
The Manager also is obligated to furnish the Funds with office space,
administrative, and certain other services as well as executive and other
personnel necessary for the operation of the Funds. The Manager and its
affiliates also pay all the compensation of Trustees of the Trust who are
employees of the Manager and its affiliates. The Funds pay all of their other
expenses that are not assumed by the Manager. The Funds also are liable for such
nonrecurring expenses as may arise, including litigation to which the Funds may
be a party. The Funds also may have an obligation to indemnify Trustees of the
Trust and its officers with respect to any such litigation.
The Advisory Agreement was approved by the Board of Trustees including
all of the Trustees who are not "interested persons" of the Manager, as defined
under the 1940 Act) and by the shareholders of each Fund in compliance with the
1940 Act. The Agreement will
- 26 -
<PAGE>
continue in force for a period of two years unless its continuance is approved
at least annually 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 the Manager or the applicable Fund, and by (2) the majority vote of
either the full Board of Trustees or the vote of a majority of the outstanding
shares of each Fund. The Agreement automatically terminates on assignment, and
is terminable on not more than 60 days' written notice by a Fund to the Manager.
In addition, the Advisory Agreement may be terminated on not less than 60 days'
written notice by the Manager to a Fund. In the event the Manager ceases to be
the manager of a Fund or the Distributor ceases to be principal distributor of
Fund shares, the right of a Fund to use the identifying name of "Heritage" may
be withdrawn.
The Manager 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 the Manager by the Advisory Agreement or for any loss that may be
sustained in the purchase, holding or sale of any security.
All of the officers of the Trust except for Messrs. Alexander and Zutz
are officers or directors of the Manager. These relationships are described
under "Management of the Funds."
ADVISORY AND ADMINISTRATION FEE. The annual investment advisory and
administration fee paid monthly by each Fund to the Manager is based on each
Fund's average daily net assets as listed in the prospectus.
The Manager has voluntarily agreed to waive management fees to the
extent that the Money Market Fund Class A and Class C expenses exceed .79% of
the average daily net assets attributable to that class for this fiscal year.
The Manager also has agreed to waive its fees for A shares of the Municipal Fund
to the extent that expenses exceed .77% of the average daily net assets
attributable to that class for this fiscal year. For the three fiscal years
ended August 31, 1994, 1995 and 1996, the Manager earned from the Money Market
Fund $4,775,851 (before waiving $207,108 of its fees), $5,436,551 (before
waiving $244,977 of its fees) and $7,253,924, respectively. The Municipal Fund
paid the Manager for the fiscal years ended August 31, 1994, 1995 and 1996, fees
of $1,229,072 (before waiving $6,473 of its fees), $1,226,671 (before waiving
$40,432 of its fees) and $1,538,074, respectively.
CLASS SPECIFIC EXPENSES. The Money Market Fund may determine to
allocate certain of its expenses (in addition to distribution fees) to the
specific classes of the Money Market Fund's shares to which those expenses are
attributable.
- 27 -
<PAGE>
INVESTMENT SUBADVISER. Alliance Capital Management L.P. has been
retained, under an investment subadvisory agreement (the "Subadvisory
Agreement") dated April 22, 1992 with the Manager, as the Municipal Fund's
investment subadviser.
The Subadvisory Agreement will continue in force if its continuance is
approved at least annually 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 the Trust or the Subadviser, and by (2) the majority vote of either the full
Board of Trustees or the vote of a majority of the outstanding shares of the
Municipal Fund. The Subadvisory Agreement automatically terminates on
assignment, and is terminable (1) on not more than 60 days' written notice by
the Trust to the Manager and Subadviser, (2) on not less than 60 days' written
notice by the Manager to the Subadviser, and (3) on not less than 90 days'
notice by the Subadviser to the Manager.
The Subadviser shall not be liable to the Trust, the Manager or any
shareholder for anything done or omitted by them, except acts or omissions
involving willful misfeasance, bad faith, negligence or reckless disregard of
the duties imposed upon the Subadviser by the Subadvisory Agreement.
For the three fiscal years ended August 31, 1994, 1995 and 1996, the
Subadviser earned $267,314, $267,993 and $305,541, respectively, in investment
subadvisory fees from the Manager.
PORTFOLIO TRANSACTIONS
----------------------
Most purchases and sales of portfolio investments will be with the
issuer or with major dealers in money market instruments acting as principal.
Thus, the Funds do not expect to pay significant brokerage commissions. In
underwritten offerings, the price paid by the Fund includes a disclosed, fixed
commission or discount retained by the underwriter. There generally is no stated
commission in the case of securities purchased from or sold to dealers, but the
prices of such securities usually include an undisclosed dealer's mark-up or
mark-down. The Manager or Subadviser will place all orders for the purchase and
sale of portfolio securities for the Funds and will buy and sell securities for
the Funds through a substantial number of brokers and dealers. In doing so, the
Manager or the Subadviser will use its best efforts to obtain for the Funds the
most favorable price and execution available, except to the extent it may be
permitted to pay higher brokerage commissions as described below. Best
execution, however, does not mean that a Fund necessarily will be paying the
lowest price or spread available. Rather the Manager or Subadviser also will
take into account such factors as size of the transaction, the nature of the
market for the security, the amount of commission, the timing of the transaction
taking into account market prices and trends, the reputation, experience and
financial
- 28 -
<PAGE>
stability of the broker-dealer involved and the quality of service rendered
by the broker-dealer in other transactions.
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 Manager or Subadviser may give
consideration to research, statistical and other services furnished by brokers
or dealers. In addition, the Manager or Subadviser 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 Manager or
Subadviser determines in good faith that such commission or spread is reasonable
in relation to the value of brokerage and research services provided. Such
research and analysis may be useful to the Manager or Subadviser in connection
with services to clients other than the Fund.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Board of Trustees may
determine, the Manager or Subadviser may consider sales of shares of the Funds
(and, if permitted by law, of other Heritage Mutual Funds) as a factor in the
selection of broker-dealers to execute portfolio transactions for the Fund.
DISTRIBUTION OF SHARES
----------------------
The Distributor and Representative with whom the Distributor has
entered into dealer agreements offer shares of the Funds as agents on a best
efforts basis and are not obligated to sell any specific amount of shares.
Pursuant to its Distribution Agreements with the Funds, the Distributor bears
the cost of making information about the Funds available through advertising,
sales literature and other means, the cost of printing and mailing prospectuses
to persons other than shareholders, and salaries and other expenses relating to
selling efforts. The Funds pay the cost of registering and qualifying their
shares under state and federal securities laws and typesetting of their
prospectuses and printing and distributing prospectuses to existing
shareholders.
As compensation for the services provided and expenses borne by the
Distributor pursuant to a Distribution Agreement, each class of each Fund will
pay the Distributor a distribution fee in accordance with the Distribution Plan
described below. The distribution fee is accrued daily and paid monthly, and
currently is equal on an annual basis to .15% of average daily net assets of
each class of each Fund. For the fiscal year ended August 31,
- 29 -
<PAGE>
1996, these fees amounted to $2,297,700 for the A shares of Money Market Fund
and $465,974 for A shares of the Municipal Fund. For the period February 29,
1996 (first issuance of C shares) to August 31, 1996, these fees amounted to
$299 for C shares of the Money Market Fund. All of these fees were used by the
Funds for payments to underwriters.
In reporting amounts expended for the Money Market Fund under the
Distribution Plan to the Board of Trustees, the Distributor will allocate
expenses attributable to the sale of A shares and C shares to the applicable
class based on the ratio of sales of shares of that class to the sales of all
Money Market Fund shares. The fees paid by one class of shares will not be used
to subsidize the sale of any other class of shares.
The Trust has adopted a Distribution Plan (the "Plan") on behalf of
each class of each Fund that, among other things, permits each Fund to pay the
Distributor the monthly distribution fee out of its net assets. The Plan was
approved by the initial shareholder of each Fund and the Board of Trustees,
including a majority of the Trustees who are not interested persons of the Trust
(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"), after determining that there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders by enabling the Funds
to increase their assets and thereby realize economies of scale and its
diversification goals. The Plan also was approved by the initial shareholder of
each Fund.
Each Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of the
Funds. The Board of Trustees review 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 of Trustees, including a majority of the Independent Trustees
cast in person at a meeting called for such purpose. Any change in a Plan that
would materially increase the distribution cost to a class of a Fund requires
shareholder approval of that class.
The Distribution Agreement may be terminated at any time on 60 days'
written notice without payment of any penalty by either party. The Trust may
effect such termination by vote of a majority of the outstanding voting
securities of the Trust or by vote of a majority of the Independent Trustees.
For so long as either the Class A Plan or the Class C Plan is in effect,
selection and nomination of the Independent Trustees shall be committed to the
discretion of such disinterested persons.
The Distribution Agreement and each of the above-referenced Plans will
continue in effect for successive one-year periods,
- 30 -
<PAGE>
provided that each such continuance is specifically approved (1) by the vote of
a majority of the Independent Trustees and (2) by the vote of a majority of the
entire Board of Trustees cast in person at a meeting called for that purpose.
ADMINISTRATION OF THE FUNDS
---------------------------
ADMINISTRATIVE, FUND ACCOUNTING AND TRANSFER AGENT SERVICES. The
Manager, subject to the control of the Board of Trustees, will manage, supervise
and conduct the administrative and business affairs of the Funds; furnish office
space and equipment; oversee the activities of the Subadviser and Custodian; and
pay all salaries, fees and expenses of officers and Trustees of the Trust who
are affiliated with the Manager. The Manager also will provide certain
shareholder servicing activities for customers of the Funds.
The Manager also is the dividend paying and shareholder servicing agent
for the Funds and performs fund accounting services for each Fund. Each Fund
pays the Manager the manager's cost plus ten percent for its services as fund
accountant and transfer and dividend disbursing agent. For the three fiscal
years ended August 31, 1994, 1995 and 1996, the Manager earned $1,234,112,
$1,437,554 and $1,653,199, respectively, from the Money Market Fund and $77,830,
$96,963 and $106,727, respectively, from the Municipal Fund for its services as
transfer agent. For the period March 1, 1994 (commencement of Manager's
engagement as fund accountant) to August 31, 1994 and the fiscal years ended
August 31, 1995 and 1996, the Manager earned $14,211, $35,932 and $39,352,
respectively, from each Fund for its services as fund accountant.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 1912, Boston,
Massachusetts 02105, serves as custodian of the Funds' assets and provides
portfolio accounting and certain other services.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP of 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036, serves as counsel to the Trust.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 400 North Ashley
Street, Suite 2800, Tampa, Florida 33602, are the independent public accountants
for the Trust. The Financial Statements and Financial Highlights of the Funds
for the fiscal year ended August 31, 1996 that appear in this SAI have been
audited by Price Waterhouse LLP, and are included herein in reliance upon the
report of said firm of accountants, which is given upon their authority as
experts in accounting and auditing. The Financial Highlights for the fiscal
years ended prior thereto and the Statement of Changes in Net Assets for the
year ended August 31, 1995 were audited by other independent public accountants.
- 31 -
<PAGE>
POTENTIAL LIABILITY
-------------------
Under certain circumstances, shareholders may be held personally liable
as partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation or instrument the Trust or its Board of Trustees enter
into or sign. In the unlikely event a shareholder is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them.
- 32 -
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
- ---------------------------------
COMMERCIAL PAPER
----------------
MOODY'S. Moody's Investors Service, Inc. evaluates the salient features
that affect a commercial paper issuer's financial and competitive position. Its
appraisal includes, but is not limited to, the review of such factors as:
quality of management, industry strengths and risks, vulnerability to business
cycles, competitive position, liquidity measurements, debt structure, operating
trends and access to capital markets. Differing degrees of weight are applied to
these factors as deemed appropriate for individual situations.
Commercial paper issuers rated "Prime-1" are judged to be of the best
quality. Their short-term debt obligations carry the smallest degree of
investment risk. Margins of support for current indebtedness are large or stable
with cash flow and asset protection well assured. Current liquidity provides
ample coverage of near-term liabilities and unused alternative financing
arrangements are generally available. While protection elements may change over
the intermediate or long term, such changes are most unlikely to impair the
fundamentally strong position of short-term obligations. Issuers in the
commercial paper market rated "Prime-2" are of high quality. Protection for
short-term note holders is issued with liquidity and value of current assets as
well as cash generation in sound relationship to current indebtedness. They are
rated lower than the best commercial paper issuers because margins of protection
may not be as large or because fluctuations of protective elements over the near
or intermediate term may be of greater amplitude. Temporary increases in
relative short and overall debt load may occur.
Alternate means of financing remain assured.
STANDARD & POOR'S. Standard & Poor's describes its highest ("A") rating
for commercial paper as follows, with the numbers 1, 2, and 3 being used to
denote relative strength within the "A" classification. Liquidity ratios are
adequate to meet cash requirements. Long-term senior debt rating should be "A"
or better; in some instances "BBB" credits may be allowed if other factors
outweigh the "BBB." The issuer should have access to at least two additional
channels of borrowing. Basic earnings and cash flow should have an upward trend,
with allowances made for unusual circumstances. Typically, the issuer's industry
should be well established and the issuer should have a strong position within
its industry. The reliability and quality of management should be unquestioned.
CORPORATE DEBT
--------------
MOODY'S. Moody's Investors Service, Inc. describes its investment grade
highest ratings for corporate bonds as follows: Bonds that are rated Aaa are
judged to be of the best quality. They carry the smallest degree of investment
risk and are generally
A-1
<PAGE>
referred to as "gilt edge." 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. 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
risk appear somewhat larger than in Aaa securities.
STANDARD & POOR'S. Standard & Poor's describes its investment grade
ratings for corporate bonds as follows: Ratings of AAA are the highest assigned
by Standard & Poor's to debt obligations and indicate an extremely strong
capacity to pay principal and interest. Bonds rated AA also qualify as high
quality obligations. Capacity to pay principal and interest is very strong, and
in the majority of instances they differ from AAA issues only in small degree.
DESCRIPTION OF MUNICIPAL SECURITIES
- -----------------------------------
Municipal Notes generally are used to provide for short-term capital
needs and usually have maturities of one year or less. They include the
following:
PROJECT NOTES, which carry a U.S. Government guarantee, are issued by
public bodies ("local issuing agencies") created under the laws of a state,
territory, or U.S. possession. They have maturities that range up to one year
from the date of issuance. Project Notes are backed by an agreement between the
local issuing agency and the Federal Department of Housing and Urban
Development. These Notes provide financing for a wide range of financial
assistance programs for housing, redevelopment, and related needs (such as
low-income housing programs and renewal programs).
TAX ANTICIPATION NOTES are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of, and are payable
from, seasonal tax revenues, such as income, sales, use and business taxes.
REVENUE ANTICIPATION NOTES are issued in expectation of receipt of
other types of revenues, such as Federal revenues available under the Federal
Revenue Sharing Programs.
BOND ANTICIPATION NOTES are issued to provide interim financing until
long-term financing can be arranged. In most cases, the long-term bonds then
provide the money for the repayment of the Notes.
CONSTRUCTION LOAN NOTES are sold to provide construction financing.
After successful completion and acceptance, many projects receive permanent
A-2
<PAGE>
financing through the Federal Housing Administration under the Federal National
Mortgage Association or the Government National Mortgage Association.
TAX-EXEMPT COMMERCIAL PAPER is a short-term obligation with a stated
maturity of 365 days or less. It is issued by agencies of state and local
governments to finance seasonal working capital needs or as short-term financing
in anticipation of longer-term financing.
Municipal Bonds, which meet longer-term capital needs and generally
have maturities of more than one year when issued, have three principal
classifications:
GENERAL OBLIGATION BONDS are issued by such entities as states,
counties, cities, towns, and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind General Obligation Bonds is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.
REVENUE BONDS generally are secured by the net revenues derived from a
particular facility, group of facilities, or, in some cases, the proceeds of a
special excise or other specific revenue source. Revenue Bonds are issued to
finance a wide variety of capital projects including electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Many of these Bonds provide additional
security in the form of a debt service reserve fund to be used to make principal
and interest payments. Housing authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
INDUSTRIAL DEVELOPMENT BONDS are considered municipal bonds if the
interest paid thereon is exempt from Federal income tax and are issued by or on
behalf of public authorities to raise money to finance various privately
operated facilities for business and manufacturing, housing, sports, and
pollution control. These Bonds are also used to finance public facilities such
as airports, mass transit systems, ports, and parking. The payment of the
principal and interest on such Bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property as security for such payment.
A-3
<PAGE>
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
- -------------------------------------------
MOODY'S
- -------
MUNICIPAL BONDS that are rated Aaa by Moody's are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." 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. Bonds
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 long-term
risks appear somewhat larger than in Aaa securities.
MUNICIPAL NOTES. Moody's ratings for state and municipal notes and
other short-term obligations are designated Moody's Investment Grade ("MIG") and
for variable rate demand obligations are designated Variable Moody's Investment
Grade ("VMIG"). This distinction is in recognition of the differences between
short-term credit risk and long-term credit risk. Notes bearing the designation
MIG-1 or VMIG-1 are of the best quality, enjoying strong protection from
established cash flows for their servicing or from established and broad-based
access to the market for refinancing, or both. Notes bearing the designation
MIG-2 or VMIG- 2 are judged to be of high quality, with margins of protection
ample although not so large as in the preceding group.
STANDARD & POOR'S
- -----------------
MUNICIPAL BONDS rated AAA by S&P are the highest grade obligations.
This rating indicates an extremely strong capacity to pay principal and
interest. Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
MUNICIPAL NOTES. Municipal notes with maturities of three years or less
are usually given note ratings (designated SP-1, -2, or -3) by S&P to
distinguish more clearly the credit quality of notes as compared to bonds. Notes
rated SP-1 have a very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics are given
the designation SP-1+.
A-4
<PAGE>
The Reports of Independent Accountants and Financial Statements are
incorporated herein by reference from each Fund's Annual Report to Shareholders
for the fiscal year ended August 31, 1996, filed with the Securities and
Exchange Commission on October 29, 1996, Accession No. 0000950144-96-007376
(Money Market Fund) and Accession No. 0000950144-96-007377 (Municipal Money
Market Fund).
A-5
