<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 seeks to stabilize its share price at $1.00 per
share. The Money Market Fund offers three classes of shares, Class A shares ("A
shares"), Class B shares ("B shares") and Class C shares ("C shares"). The
Municipal Money Market Fund offers only Class A shares. Each Fund's shares may
be acquired by direct purchase or through exchange of shares of the
corresponding class of another Heritage open-end registered investment company
that is advised or administered by Heritage Asset Management, Inc. ("Heritage
Mutual Fund").
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, 1998 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, 1998
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TABLE OF CONTENTS
================================================================================
<TABLE>
<S> <C>
GENERAL INFORMATION......................................... 1
About the Trust and the Funds............................. 1
Total Fund Expenses....................................... 1
Financial Highlights...................................... 3
Investment Objectives, Policies and Risk Factors.......... 4
Net Asset Value........................................... 7
Yield..................................................... 7
INVESTING IN THE FUNDS...................................... 8
Choosing a Class of Shares................................ 8
Purchase Procedures....................................... 9
Minimum Investment Required/Accounts With Low Balances.... 11
Systematic Investment Programs............................ 11
Retirement Plans.......................................... 11
How to Redeem Shares...................................... 11
Receiving Payment......................................... 13
Exchange Privilege........................................ 13
MANAGEMENT OF THE FUNDS..................................... 14
Board of Trustees......................................... 14
Investment Adviser, Fund Accountant, Administrator and
Transfer Agent......................................... 14
Subadviser................................................ 15
Portfolio Transactions.................................... 15
SHAREHOLDER AND ACCOUNT POLICIES............................ 16
Dividends and Other Distributions......................... 16
Distribution Plans........................................ 16
Taxes..................................................... 17
Shareholder Information................................... 17
</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 three
classes of shares, A shares, B shares and C shares. The Municipal Money Market
Fund offers A shares only. A shares, B shares and C shares may be acquired by
direct purchase or through exchange of shares of the corresponding class of
another Heritage Mutual Fund. 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
================================================================================
The following tables are intended to assist an investor in understanding
the expenses associated with investing in A shares, B shares and C shares of the
Money Market Fund and A shares of the Municipal Money Market Fund. Because B
shares were not offered for sale prior to the date of this Prospectus, operating
expenses for Class B are based on estimated expenses.
<TABLE>
<CAPTION>
MUNICIPAL
MONEY MARKET
MONEY MARKET FUND FUND
CLASS A CLASS B CLASS C CLASS A
------- ------- ------- ------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases.... None None None None
Maximum contingent deferred sales load
("CDSL") (as a percentage of original
purchase price or redemption proceeds, as
applicable).............................. None 5.00%* 1.00%* None
Wire redemption fee (per transaction)...... $5.00 $5.00 $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES
Management fee............................. 0.47% 0.47% 0.47% 0.50%
12b-l fee.................................. 0.15% 0.15% 0.15% 0.15%
Other expenses............................. 0.14% 0.15% 0.15% 0.10%
----- ----- ----- --------
Total Fund operating expenses.............. 0.76% 0.77% 0.77% 0.75%
===== ===== ===== ========
</TABLE>
- ---------------
* A CDSL will be imposed on the redemption of B shares or C shares that do not
satisfy the applicable CDSL holding period. See "Choosing a Class of Shares"
and "Exchange Privilege."
The Funds' manager, Heritage Asset Management, Inc. (the "Manager"),
voluntarily will waive its fees or other expenses and, if necessary, reimburse
the Money Market Fund to the extent that Class A, Class B and Class C annual
operating expenses exceed .75% of the average daily net assets attributable to
that class for the fiscal year ending August 31, 1998. In addition, the Manager
voluntarily will waive its fees and, if necessary,
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<PAGE> 4
reimburse the Municipal Money Market Fund to the extent that Class A annual
operating expenses exceed .75% of its average daily net assets for the fiscal
year ending August 31, 1998.
EXAMPLES OF THE EFFECT OF FUND EXPENSES:
The impact of Fund operating expenses on earnings is illustrated in the
examples below assuming a hypothetical $1,000 investment and a 5% annual rate of
return.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MONEY MARKET FUND
A Shares......................................... $8 $24 $42 $94
B Shares:
Assuming a complete redemption at end of
period(1)(2)................................ $8 $25 $43 $95
Assuming no redemption(2)...................... $8 $25 $43 $95
C Shares......................................... $8 $25 $43 $95
MUNICIPAL MONEY MARKET FUND
A Shares......................................... $8 $25 $43 $95
</TABLE>
- ---------------
(1) Assumes deduction of the maximum applicable contingent deferred sales load
at the end of each period.
(2) Ten-year figures assume conversion of B shares to A shares at end of eighth
year.
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 "Choosing a Class of Shares," "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 years ended August 31, 1996 and 1997
have been audited by Price Waterhouse LLP, independent accountants, whose report
for the fiscal year ended 1997 is included in the SAI, which may be obtained by
calling your Fund at (800) 421-4184. Information presented for the prior years
was audited by other auditors who served as the Trust's independent accountants
for those years. No B shares were outstanding prior to the date of this
Prospectus.
<TABLE>
<CAPTION>
MONEY MARKET FUND
CLASS A
---------------------------------------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
---------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <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
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(a)(b)..... .047 .048 .050 .029 .025 .038 .063 .077 .084 .065
LESS DISTRIBUTIONS:
Dividends from net investment
income and net realized
gains(a)...................... (.047) (.048) (0.050) (.029) (.025) (.038) (.063) (.077) (.084) (.065)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN %................... 4.85 4.89 5.00 2.87 2.48 3.77 6.27 7.73 8.38 6.46
RATIOS TO AVERAGE DAILY NET
ASSETS (%)/SUPPLEMENTAL DATA:
Operating expenses, net(b)...... .76 .78 .79 .79 .78 .78 .79 .81 .90 .94
Net investment income(b)........ 4.74 4.78 5.00 2.87 2.47 3.75 6.20 7.73 8.51 6.47
Net assets at end of period
(millions)($)................. 2,016 1,641 1,294 982 925 953 890 727 475 230
<CAPTION>
CLASS C
---------------
FOR THE YEARS
ENDED
AUGUST 31,
---------------
1997 1996+
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $1.000 $1.000
------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(a)(b)..... .047 .023
LESS DISTRIBUTIONS:
Dividends from net investment
income and net realized
gains(a)...................... (.047) (.023)
------ ------
NET ASSET VALUE, END OF PERIOD... $1.000 $1.000
====== ======
TOTAL RETURN %................... 4.85 2.34(d)
RATIOS TO AVERAGE DAILY NET
ASSETS (%)/SUPPLEMENTAL DATA:
Operating expenses, net(b)...... .77 .75(c)
Net investment income(b)........ 4.72 4.62(c)
Net assets at end of period
(millions)($)................. .51 --
</TABLE>
- ---------------
+ For the period February 29, 1996 (first issuance of C shares) to August 31,
1996.
(a) Includes net realized gains (losses) that were less than $.001 per share.
(b) Excludes management fees waived by the Manager in the amount of less than
$.001, $.001, $.001 and $.001 for 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 be .81%, .81%, .81%, .78% and
1.01% (annualized), respectively. The year ended August 31, 1997 includes
recovery of previously waived management fees paid to the Manager of less
than $.01 per share. The operating expense ratios excluding such items would
have been .75% for class A and C shares.
(c) Annualized.
(d) Not annualized.
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<PAGE> 6
MUNICIPAL MONEY MARKET FUND
<TABLE>
<CAPTION>
CLASS A
FOR THE YEARS ENDED AUGUST 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993 1992+
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $1.000 $1.000 $1.000 $1.000 $1.000 $1,000
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)........ .030 .030 .030 .019 .020 .005
LESS DISTRIBUTIONS:
Dividends from net investment
income........................ (.030) (.030) (.030) (.019) (.020) (.005)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD.... $1.000 $1.000 $1.000 $1.000 $1.000 $1,000
====== ====== ====== ====== ====== ======
TOTAL RETURN %.................... 3.00 2.98 3.04 1.90 2.02 .47(c)
RATIOS TO AVERAGE DAILY NET ASSETS
(%)/SUPPLEMENTAL DATA:
Operating expenses, net(a)...... .75 .77 .77 .77 .77 .77(b)
Net investment income........... 2.96 2.94 3.05 1.89 1.98 2.32(b)
Net assets, end of period
(millions) ($)................ 419 326 283 212 207 102
</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.
The year ended August 31, 1997 includes recovery of previously waived
management fees paid to the Manager of $.01 per share. The operating expense
ratios excluding such items would have been .74%.
(b) Annualized.
(c) Not annualized.
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.
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 can be changed by the
Trust's Board of Trustees (the "Board of Trustees" or the "Board") without
shareholder approval.
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 and risks, 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 or,
pursuant to authority delegated by the Board, by the Manager, 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 -- 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 or 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 invests
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 that 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, which 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 affect 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 banker's 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-l and MIG-2, or VMIG-l 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 -- Description of Securities Ratings" in the SAI.
POLICIES AND RISK FACTORS APPLICABLE TO BOTH FUNDS
REPURCHASE AGREEMENTS. A repurchase agreement is a transaction 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 bankrupt, a Fund will enter
into repurchase agreements only with banks and dealers in transactions believed
by the Manager or Subadviser, as applicable, to present minimal credit risks in
accordance with guidelines established by the Board of Trustees.
6
<PAGE> 9
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, B 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 separately for each class
immediately after the daily declaration of dividends as of the close of regular
trading -- normally 4:00 p.m. Eastern time -- on the New York Stock Exchange
("Exchange") each day it 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.
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, B shares and
C shares. Yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of a Fund refers to the investment
income in the Fund over a seven-day period. This income is then "annualized."
The "effective yield" is calculated
7
<PAGE> 10
similarly but, when annualized, the investment income earned 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
CHOOSING A CLASS OF SHARES
================================================================================
The primary purpose of purchasing B shares or C shares is to take advantage
of the flexibility to exchange such Money Market Fund shares for shares of
another Heritage Mutual Fund. If an investor does not intend to exchange Money
Market Fund shares for B shares or C shares of another Heritage Mutual Fund, the
investor should purchase A shares.
B SHARES
B shares of the Money Market Fund may be purchased at net asset value, but
are subject to a 5% maximum CDSL on redemptions of B shares held for less than
an eight-year holding period ("B Share Holding Period"). The B Share Holding
Period will be calculated based on the period of time B shares were held in
another Heritage Mutual Fund, excluding the time such shares were held in the
Money Market Fund. The CDSL imposed on redemptions of B shares will be a
percentage of the total sale, declining over the B Share Holding Period as shown
in the following chart.
<TABLE>
<CAPTION>
B SHARE HOLDING PERIOD SALES LOAD
- ---------------------- ----------
<S> <C>
Year 1.................................................... 5.0%
Year 2.................................................... 4.0%
Year 3.................................................... 3.0%
Year 4.................................................... 3.0%
Year 5.................................................... 2.0%
Year 6.................................................... 1.0%
Thereafter................................................ 0%
</TABLE>
A CDSL will not be imposed on B shares of the Money Market Fund that initially
were purchased as such and never exchanged for B shares of another Heritage
Mutual Fund.
In addition, B shares automatically will convert to A shares after the
eighth year of the B Share Holding Period at the end of the calendar month in
which the shareholder's order to purchase was accepted. Dividends and other
distributions paid to shareholders by a Fund in the form of additional B shares
also will convert to A shares on a pro rata basis. The conversion will be
effected at the relative net asset values per share of the two classes (normally
$1.00). Such conversion will not be treated as a taxable event.
8
<PAGE> 11
C SHARES
C shares of the Money Market Fund may be purchased at net asset value, but
are subject to a CDSL of 1% on redemptions of C shares held for less than a
one-year holding period ("C Share Holding Period"). The C Share Holding Period
will be calculated based on the period of time C shares were held in another
Heritage Mutual Fund, excluding the time such shares were held in the Money
Market Fund. The 1% CDSL will be imposed on the lower of net asset value or
purchase price of the C shares redeemed.
As with B shares, a CDSL will not be imposed on C shares of the Money
Market Fund that initially were purchased as such and never exchanged for C
shares of another Heritage Mutual Fund.
MINIMIZING THE CONTINGENT DEFERRED SALES LOAD
When you redeem Money Market Fund B shares and C shares that you have owned
for less than the B Share Holding Period or C Share Holding Period, as
applicable, the Money Market Fund automatically will minimize the sales charge
by assuming you are selling:
- - First, B shares or C shares owned through reinvested dividends, upon which no
CDSL is imposed; and
- - Second, B shares or C shares held in your account the longest.
WAIVER OF THE CONTINGENT DEFERRED SALES LOAD
The CDSL for B shares and C shares currently is waived for: (1) any partial
or complete redemption in connection with a distribution without penalty under
Section 72(t) of the Internal Revenue Code of 1986, as amended (the "Code"),
from a qualified retirement plan, including a Keogh Plan or IRA upon attaining
age 70 1/2; (2) any redemption resulting from a tax-free return of an excess
contribution to a qualified employer retirement plan or an IRA; (3) any partial
or complete redemption following death or disability (as defined in Section
72(m)(7) of the Code) of a shareholder (including one who owns the shares as
joint tenant with his spouse) from an account in which the deceased or disabled
is named, provided the redemption is requested within one year of the death or
initial determination of disability; (4) certain periodic redemptions under the
Systematic Withdrawal Plan from an account meeting certain minimum balance
requirements, in amounts representing certain maximums established from time to
time by the Distributor (currently a maximum of 12% annually of the account
balance at the beginning of the Systematic Withdrawal Plan); or (5) involuntary
redemptions by a Fund of B shares or C shares in shareholder accounts that do
not comply with the minimum balance requirements. The Distributor may require
proof of documentation prior to waiver of the CDSL described in sections (1)
through (4) above, including distribution letters, certification by plan
administrators, applicable tax forms or death or physicians certificates.
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 Funds and the Distributor reserve the right to reject any
purchase order and to suspend the offering of shares for a period of time.
You may purchase 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 Asset Management, Inc., P.O. Box 33022, St. Petersburg, FL
33733. Indicate the Fund, the class of shares and the amount you wish to invest.
9
<PAGE> 12
Your check should be made payable to the specific Fund and class of shares you
are purchasing. All purchase orders that fail to specify a class automatically
will be invested in A shares.
Shares of a Fund also may be purchased through a financial advisor of the
Distributor, a participating dealer or a participating bank ("Financial
Advisor") by placing an order for shares with your Financial Advisor, completing
and signing the Financial Advisor'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 Financial Advisor. 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 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 4:00 p.m. Eastern time will not be invested until the next
business day.
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
The class of shares to be purchased if purchasing Money Market Fund shares
(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 Financial Advisor 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.
10
<PAGE> 13
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 the Money Market
Fund by individual retirement accounts ("IRAs") may be reduced or waived under
certain circumstances. Contact the Manager or your Financial Advisor for further
information.
Due to the high cost of maintaining accounts with low balances, it
currently is the Trust's policy to redeem Fund shares in any account if the
account balance falls below $1,000, except for retirement accounts. You will be
given 30 days' notice to bring your account balance to the minimum required or
the Trust may redeem shares in the account and pay you the proceeds.
SYSTEMATIC INVESTMENT PROGRAMS
================================================================================
A variety of systematic investment options is available for the purchase of
each Fund's 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 service before reaching the required account
minimum, your 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 Financial Advisor.
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, Section 403(b) annuity plans, defined
contribution plans, self-employed individual retirement plans ("Keogh plans"),
Simplified Employer Pension Plans ("SEPs"), Savings Incentive Match Plans for
Employees ("SIMPLEs") and other retirement plans. 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 Financial Advisor and see "Investment Programs" in the
SAI.
HOW TO REDEEM SHARES
================================================================================
Fund shares may be redeemed at their net asset value (subject to any
applicable CDSL). Redemptions of a Fund's shares can be made by:
CONTACTING YOUR FINANCIAL ADVISOR. Your Financial Advisor 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 4:00 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,
11
<PAGE> 14
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 Asset Management, Inc., P.O. Box 33022, St.
Petersburg, FL 33733. Indicate the Fund, the class, the amount of shares you
wish to redeem, along with your account number. 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 Manager reserves the right to cancel systematic withdrawals if
insufficient shares are available for two or more consecutive months.
REINSTATEMENT PRIVILEGE. If you redeem any or all of your B shares or C
shares of the Money Market Fund and paid a CDSL on those shares or held those
shares long enough so that the CDSL no longer applies, you may reinvest all or
any portion of the redemption proceeds in the same class of shares at net asset
value without paying a CDSL on future redemptions of those shares, provided that
such reinvestment is made within 90 calendar days after the redemption date. A
reinstatement pursuant to this privilege will not cancel the redemption
transaction; therefore, (1) any gain realized on the transaction will be
recognized for Federal income tax purposes, while (2) any loss realized will not
be recognized to the extent the proceeds are reinvested in shares of a Fund. The
reinstatement privilege may be utilized by a shareholder only once, irrespective
of the number of shares redeemed, except that the privilege may be utilized
without limitation in connection with transactions whose sole purpose is to
transfer a shareholder's interest in a Fund to his defined contribution plan,
IRA, SEP or SIMPLE. You must notify a Fund if you intend to exercise the
reinstatement privilege.
REDEEMING BY CHECK. At your request, after receipt of a completed
signature card and after good funds become available in the account, the Manager
will establish a checking account for redeeming A shares of a Fund. 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. You may not write a check that would require a
Fund to redeem shares that were purchased by check or pre-authorized automatic
purchase until those purchase proceeds have cleared, which may take up to 15
days. Canceled checks will be sent to you each month. All checkwriting
transactions are
12
<PAGE> 15
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 Fund account; and a $15.00 charge for placing a stop
payment order on a check. Your ability to use this service may be limited by
restrictions on your brokerage account with the Distributor or other
participating dealer. The minimum account balance of $1,000 must be maintained
when redeeming by check.
Contact the Manager or your Financial Advisor for further information, or
see "Redeeming Shares" in the SAI.
RECEIVING PAYMENT
================================================================================
If a request for redemption is received by your Financial Advisor in good
order (as described below), 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 redemption request made in good order.
Proceeds from a redemption of shares purchased by check or pre-authorized
automatic purchase may be delayed until the funds have cleared, which may take
up to 15 days. This delay can be avoided by wiring funds for purchases.
A redemption request will be considered to be received in "good order" if:
- - the number or amount of shares and the class of shares to be redeemed and
shareholder account number have been indicated;
- - any written request is signed by a shareholder and by all co-owners of the
account with exactly the same name or names used in establishing the account;
and
- - the signatures on any written redemption request of $50,000 or more and on any
certificates for shares (or an accompanying stock power) have been guaranteed
by a national bank, a state bank that is insured by the Federal Deposit
Insurance Corporation, a trust company, or by any member firm of the New York,
American, Boston, Chicago, Pacific or Philadelphia Stock Exchanges. Signature
guarantees also will be accepted from savings banks and certain other
financial institutions that are deemed acceptable by Heritage, as transfer
agent, under its current signature guarantee program.
Each Fund has the right to suspend redemption or postpone payment at times
when the Exchange is closed (other than customary weekend 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
13
<PAGE> 16
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. No CDSL is imposed when Money Market Fund B shares
and C shares are exchanged for the corresponding class of shares of other
Heritage Mutual Funds. If after exchange into another Heritage Mutual Fund,
however, you redeem B shares and C shares of that fund, you will be charged the
applicable CDSL. 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 "How to Redeem Shares -- Telephone Request."
Telephone exchanges can be effected by calling the Manager at (800)
421-4184 or by calling your Financial Advisor. In the event that you or your
Financial Advisor 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 4:00 p.m.
Eastern time will be effected on that day. Requests for an exchange received
after 4:00 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 Financial Advisor 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 non-
investment 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 totaling approximately $3.2
billion as of September 30, 1997.
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. The Manager has voluntarily agreed to waive
certain fees from the Municipal Money Market Fund. Absent such waiver, the fee
schedule for the Municipal Money Market Fund would be the same as the Money
Market Fund. Each Fund pays the Manager directly for fund accounting and
transfer agent services.
14
<PAGE> 17
MONEY MARKET FUND
<TABLE>
<CAPTION>
ADVISORY FEE
AVERAGE DAILY AS % OF AVERAGE
NET ASSETS DAILY NET 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
AVERAGE DAILY AS % OF AVERAGE
NET ASSETS DAILY NET 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 $217.3 billion as of
September 30, 1997. 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
15
<PAGE> 18
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 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, B 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 each class of
shares. This fee is computed daily and paid monthly.
The service fees paid to the Distributor are made under Distribution Plans
(each a "Plan") adopted pursuant to Rule 12b-l 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 Financial Advisors, 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 each Fund.
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.
16
<PAGE> 19
TAXES
================================================================================
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended, 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. Each class of shares of the Money
Market Fund has 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.
The Manager has taken steps that it believes are reasonably designed to
address any adverse impact on the Funds due to the potential failure of computer
programs used by the Manager and the Funds' service providers that may occur as
a result of the advent of the year 2000.
17
<PAGE> 20
<TABLE>
<C> <S>
[HERITAGE FAMILY OF FUNDS (TM LOGO] HERITAGE FAMILY OF FUNDS
Account Application
P.O. Box 33022, St. Petersburg, FL 33733
[ ] New Acc ount [ ] 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>
<CAPTION>
Pay
dividends Pay capital
Fund name Share class Investment amount in: gains in:
A B C Shares Cash Shares Cash
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Heritage Series Trust:
[ ] Small Cap Stock Fund [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Growth Equity Fund [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Value Equity Fund [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Mid Cap Growth 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 [ ] N/A N/A $ ---------------- [ ] [ ] [ ] [ ]
If none checked, all reinvested in shares.
TOTAL INVESTMENT $
------------------------
</TABLE>
<PAGE> 21
- --------------------------------------------------------------------------------
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> 22
- -------------------------------------------------------------------------------
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 Date
5th 15th Frequency (check one)
Semi-
Fund Amount Monthly Quarterly Annually Annually
<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
</TABLE>
TO THE BANK NAMED BELOW:
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 you 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> 23
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 $ City, State and ZIP
sheet indicating the amount to -----------------------
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> 24
[Heritage Cash Trust LOGO]
[Pictures of people working and playing]
From Our Family to Yours: The Intelligent Creation of Wealth.
Municipal Money Market Fund
Money Market Fund
Prospectus
[HERITAGE LOGO]
---------------
CASH TRUST (TM)
---------------
January 2, 1998
[HERITAGE LOGO and ADDRESS]
HERITAGE FAMILY OF FUNDS (TM)
From Our Family to Yours:
The Intelligent Creation of Wealth.
HERITAGE MONEY MARKET FUNDS
Cash Trust Money Market
Cash Trust Municipal Money Market
HERITAGE BOND FUNDS
Intermediate Government
High Yield
HERITAGE STOCK FUNDS
Income-Growth
Value Equity
Growth Equity
Capital Appreciation
Mid Cap
Small Cap
International
This report is for the information of shareholders of Heritage Cash Trust.
It may also be used as sales literature when preceded or accompanied
by a prospectus.
230M 12/97 (Recycle Logo) Printed on recycled paper
<PAGE>
HERITAGE CASH TRUST
MUNICIPAL MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") dated January 2, 1998
should be read with the Prospectus of Heritage Cash Trust-Money Market and
Municipal Money Market Funds, dated January 2, 1998. 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..........................................................1
INVESTMENT INFORMATION.......................................................1
Investment Objectives..................................................1
Investment Policies....................................................1
Money Market Fund......................................................3
Municipal Fund.........................................................4
INVESTMENT LIMITATIONS.......................................................6
NET ASSET VALUE..............................................................9
CALCULATING YIELDS..........................................................10
INVESTING IN THE FUNDS......................................................12
INVESTMENT PROGRAMS.........................................................12
Systematic Investment Options.........................................12
Retirement Plans......................................................12
REDEEMING SHARES............................................................13
Systematic Withdrawal Plan............................................13
Telephone Transactions................................................14
Redemptions in Kind...................................................15
Receiving Payment.....................................................15
EXCHANGE PRIVILEGE..........................................................15
CONVERSION OF CLASS B SHARES................................................16
TAXES.......................................................................16
TRUST INFORMATION...........................................................19
Management of the Trust...............................................19
Five Percent Shareholders.............................................22
Investment Adviser and Administrator; Subadviser......................23
Portfolio Transactions................................................25
Distribution of Shares................................................26
Administration of the Funds...........................................27
Potential Liability...................................................28
APPENDIX ..................................................................A-1
REPORTS OF INDEPENDENT ACCOUNTANTS.........................................A-5
FINANCIAL STATEMENTS.......................................................A-7
<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") (each a "Fund" and
collectively the "Funds"). The Money Market Fund offers three classes of shares:
Class A shares that are not subject to any sales load ("A shares"), Class B
shares offered subject to a contingent deferred sales load ("CDSL") on
redemptions made within six years of the holding period ("B shares"), and Class
C shares offered subject to a CDSL on redemptions made in less than 1 year of
the holding period ("C shares"). B shares automatically convert to A shares
after a certain holding period. The Municipal Fund offers A shares only. Each
Fund's shares may be acquired by direct purchase or through exchange of shares
of the corresponding class of other Heritage mutual funds for which Heritage
Asset Management, Inc. (the "Manager") serves as adviser or administrator
("Heritage Mutual Funds").
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 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
1
<PAGE>
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 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.
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, marked to market daily, in an amount at least equal at all
times to the value of the securities loaned, plus accrued interest and
dividends. The borrower pays a Fund an amount equal to any dividends or interest
received on the securities loaned. 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"), 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 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.
2
<PAGE>
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 banker's 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 necessarily be insured
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.
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
3
<PAGE>
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, which 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 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
4
<PAGE>
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
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, banker's 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
5
<PAGE>
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 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, which 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.
6
<PAGE>
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 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 that
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 that are restricted as to
disposition under the 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, banker's 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 regard the entity that has
the primary responsibility for making payment of principal and interest as the
issuer.
7
<PAGE>
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
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
8
<PAGE>
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.
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
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 per share for each class of the Money Market Fund and for
an A share of the Municipal Fund is determined daily at 4:00 p.m. Eastern time
immediately after the daily declaration of dividends, each day the New York
Stock Exchange (the "Exchange") is open for business. 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 assesses 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
9
<PAGE>
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
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 calculate their 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 and income
other than investment income, in the value of a hypothetical pre-existing
account having a balance of one share of such class 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:
10
<PAGE>
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)[SUPERSCRIPT]365/7]-1
For the seven-day period ended August 31, 1997, the A shares of the Money
Market Fund's current and effective yields were 4.84% and 4.96%, respectively.
For the same period, the C shares of the Money Market Fund's current and
effective yields were 4.84% and 4.96%, respectively. No B shares were
outstanding during this period.
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:
[ E ]
[-------]
TAX = EQUIVALENT YIELD = [ 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, 1997, 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 2.69%, 2.72% and 4.50%,
respectively.
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of each class of a Fund fluctuates, it cannot
be compared with yields 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 independent periodicals,
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<PAGE>
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, B 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 "Purchase Procedures." 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
- -------------------
The options below allow you to invest continually in either Fund at
regular intervals.
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.
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
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<PAGE>
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
Individual Retirement Account ("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). In addition, individuals whose earnings (together with their spouse's
earnings) do not exceed a certain level may establish an "education IRA" and/or
a "Roth IRA"; although contributions to these new types of IRAs (established by
the Taxpayer Relief Act of 1997 ("Tax Act")) are nondeductible, withdrawals from
them will not be taxable under certain circumstances. A Heritage IRA also may be
used for certain "rollovers" from qualified benefit plans and from Section
403(b) annuity plans. For more detailed information on the Heritage IRA, please
contact the Manager.
Shares of the Money Market Fund also may be used as the investment medium
for qualified plans (defined benefit or defined contribution plans established
by corporations, partnerships or sole proprietorships). Contributions to
qualified plans may be made (within certain limits) on behalf of the employees,
including owner-employees, of the sponsoring entity.
REDEEMING SHARES
- ----------------
The methods of redemption are described in the section of the
Prospectus entitled "How to Redeem Shares."
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 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, Keogh Plan, SEP, SIMPLE
13
<PAGE>
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 B shares may be charged a CDSL based on the
amount of time such B shares were held in a Heritage Mutual Fund, excluding the
time such shares were held in the Money Market Fund ("B Share Holding Period").
Systematic withdrawals of C shares may be charged a CDSL of 1% if such shares
were held for less than one year ("C Share Holding Period"). Redemptions will be
made at net asset value determined as of 4:00 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 4:00 p.m.
Eastern time on the preceding business day, minus any applicable CDSL for B
shares and 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.
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.
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<PAGE>
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 before 4:00 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 4:00 p.m. Eastern time,
minus any applicable CDSL for B shares and C shares. Requests for redemption
received by the Fund after 4:00 p.m. Eastern time will be executed at the net
asset value determined as of 4:00 p.m. Eastern time on the next trading day on
the Exchange, minus any applicable CDSL for B shares and C shares.
If shares of a Fund are redeemed by a shareholder through the Distributor,
a participating dealer or participating bank ("Financial Advisor"), 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 B shares and 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 Financial Advisor 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 Financial Advisor 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 Financial Advisor 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, B shares or C shares for shares of
the corresponding classes 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. No CDSL is imposed when B shares and C shares are
exchanged for the corresponding class of shares of other Heritage Mutual Funds.
15
<PAGE>
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 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 Financial Advisor. In the event that a shareholder or his
Financial Advisor 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 4:00 p.m. Eastern time will be effected at
4:00 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.
CONVERSION OF CLASS B SHARES
- ----------------------------
B shares of each Fund automatically will convert to A shares, based on the
relative net asset values per share of the two classes (normally $1.00 for each
Class), as of the close of business on the last business day of the month in
which the eighth anniversary of the initial issuance of such B shares occurs.
For the purpose of calculating the holding period required for conversion of B
shares, the date of initial issuance shall mean (1) the date on which such B
shares were issued or (2) for B shares obtained through an exchange, or a series
of exchanges, the date on which the original B shares were issued. For purposes
of conversion to A shares, B shares purchased through the reinvestment of
dividends and other distributions paid in respect of B shares will be held in a
separate sub-account. Each time any B shares in the shareholder's regular
account (other than those in the sub-account) convert to A shares, a pro rata
portion of the B shares in the sub-account will also convert to A shares. The
portion will be determined by the ratio that the shareholder's B shares
converting to A shares bears to the shareholder's total B shares not acquired
through dividends and other distributions.
The availability of the conversion feature is subject to the continuing
availability of an opinion of counsel to the effect that the dividends and other
distributions paid on A shares and B shares will not result in "preferential
dividends" under the Code and the conversion of shares does not constitute a
taxable event. If the conversion feature ceased to be available, the B shares
would not be converted and would continue to be subject to the higher ongoing
expenses of the B shares beyond eight years form the date of purchase. The
Manager has no reason to believe that this condition for the availability of the
conversion feature will not be met.
16
<PAGE>
TAXES
- -----
Each Fund is treated, as a separate corporation for Federal income tax
purposes. In order to continue to qualify for the favorable tax treatment as 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) at
the close of each quarter of the Fund's taxable year, at least 50% of the value
of its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs, and other securities, with those other
securities limited, in respect of any one issuer, to an amount that does not
exceed 5% of the value of the Fund's total assets and that does not represent
more than 10% of the issuer's outstanding voting securities; and (3) at the
close of each quarter of the Fund's taxable year, not more than 25% of the value
of its total assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer.
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
less certain amounts disallowed as deductions.
Tax-exempt interest attributable to certain private activity bonds
("PABs") (including, in the case of the Municipal fund, a proportionate part of
the exempt-interest dividends paid by it) is subject to the AMT. Exempt-interest
dividends received by a corporate shareholder also may be indirectly subject to
the 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 those 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
17
<PAGE>
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 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.
18
<PAGE>
TRUST INFORMATION
- -----------------
Management Of The Trust
-----------------------
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.
Position
with the Principal Occupation
Name Trust During Past Five Years
---- --------- ----------------------
Thomas A. James *(55) Trustee Chairman of the Board since
880 Carillon Parkway 1986 and Chief Executive
St. Petersburg, FL 33716 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 *(48) Trustee Chief Executive Officer of
880 Carillon Parkway Eagle since 1996, President,
St. Petersburg, FL 33716 1995 to present, Chief
Operating Officer, 1988 to
1996, Executive Vice President,
1988 to 1993.
Donald W. Burton (53) Trustee President of South Atlantic
614 W. Bay Street Capital Corporation (venture
Suite 200 capital) since 1981.
Tampa, FL 33606
C. Andrew Graham (57) Trustee Vice President of Financial
Financial Designs, Ltd. Designs Ltd. since 1992;
1775 Sherman Street Executive Vice President of the
Suite 1900 Madison Group, Inc., 1991 to
Denver, CO 80203 1992; Principal of First Denver
Financial Corporation
(investment banking) since
1987.
19
<PAGE>
Position
with the Principal Occupation
Name Trust During Past Five Years
---- --------- ----------------------
David M. Phillips (58) Trustee Chairman and Chief Executive
World Trade Center Chicago Officer of CCC Information
444 Merchandise Mart Services, Inc. since 1994 and
Chicago, IL 60654 of InfoVest Corporation
(information services to the
insurance and auto industries
and consumer households) since
1982.
Eric Stattin (64) Trustee Litigation Consultant/Expert
1975 Evening Star Drive Witness and private investor
Park City, Utah 84060 since 1988.
James L. Pappas (54) Trustee Lykes Professor of Banking and
University of South Florida Finance since 1986 at
College of Business University of South Florida;
Administration Dean of College of Business
Tampa, FL 33620 Administration 1987 to 1996.
Stephen G. Hill (38) President Chief Executive Officer and
880 Carillon Parkway President of the Manager since
St. Petersburg, FL 33716 1989 and Director since 1994;
Director of Eagle since 1995.
H. Peter Wallace (51) Vice Senior Vice President and
880 Carillon Parkway President Director of Fixed Income
St. Petersburg, FL 33716 Investments of the Manager
since 1993; Vice President of
Mortgage Products of Donaldson,
Lufkin & Jenrette, 1990 to
1992.
Donald H. Glassman (40) Treasurer Treasurer of the Manager since
880 Carillon Parkway 1989; Treasurer of Heritage
St. Petersburg, FL 33716 Mutual Funds since 1989.
Clifford J. Alexander (53) Secretary Partner, Kirkpatrick & Lockhart
1800 Massachusetts Ave. LLP (law firm).
Washington, DC 20036
Patricia Schneider (56) Assistant Compliance Administrator of the
880 Carillon Parkway Secretary Manager.
St. Petersburg, FL 33716
20
<PAGE>
Robert J. Zutz (44) Assistant Partner, Kirkpatrick & Lockhart
1800 Massachusetts Ave. Secretary LLP (law firm).
Washington, DC 20036
- ------------------
* 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 $1,334 annually and $500 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, 1997.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or Total Compensation
Retirement Estimated From the Trust
Aggregate Benefits as Annual Benefits and the Heritage
Name of Person, Compensation Part of the Upon Family of Funds*
Position From the Trust Trust's Expenses Retirement Paid to Trustees
-------- -------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Donald W. Burton, Trustee $2,908 $0 $0 $16,000
C. Andrew Graham, Trustee $2,908 $0 $0 $16,000
David M. Phillips, Trustee $2,182 $0 $0 $12,000
Eric Stattin, Trustee $2,908 $0 $0 $16,000
James L. Pappas, Trustee $2,544 $0 $0 $14,000
Richard K. Riess, Trustee $0 $0 $0 $0
Thomas A. James, Trustee $0 $0 $0 $0
- ------------------
* The Heritage Mutual Funds consist of six separate registered investment companies,
including the Trust.
</TABLE>
21
<PAGE>
Five Percent Shareholders
-------------------------
As of December 16, 1997, the following shareholders owned of record, or
were known by the Trust to own beneficially, five percent or more of the
outstanding Class C shares of the Money Market Fund:
NAME AND ADDRESS PERCENTAGE OWNED
---------------- ----------------
Raymond James & Assoc. Inc. 7.40
and Blanche Jewell
and Dianne Clarkson
JT WROS for Elite
12651 Seminole Blvd. Lot 3-A
Largo, FL. 33770-2208
Raymond James & Assoc. Inc. 5.94
and Craig B. Miller
and Janet Ann Miller
JT WROS for Elite
1060 Dunhill, Dr. SE
Marietta, CA. 30067-5471
William J. Mauter 9.37
and Marguerite E. Mauter
JT WROS
560 Retreat Drive Apt. 103
Maples, FL. 34110-8080
Fredrica D. Blue 5.60
395 Albion St
Denver, CO. 80220-4912
Robert Guilford Trustee 8.42
For Guilford Family Trust
VA DTD 12/3/96
2607 S. Holly Place
Denver, CO. 80222-6255
Peggy L. Rice 20.62
5992 S. Annapurna Drive
Evergreen, CO 80439-5315
22
<PAGE>
NAME AND ADDRESS PERCENTAGE OWNED
---------------- ----------------
Norris V. Daniel 11.02
and Getty J. Daniel
JT WROS
4015 Leeward Ln
Sudoy Daisy, TN 37379-8240
Raymond James & Assoc. Inc. 11.45
FBO Grace C. Smith
For Elite
9220 Sunnyshore Ln
Chattanooga, TN 37416-1343
There were no shareholders who owned of record, or were known by the Trust to
own beneficially, five percent or more of the outstanding shares of any other
class of the Trust.
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 those 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 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)
23
<PAGE>
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, Class B and Class C expenses exceed .74% 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 .75% of the average daily net assets
attributable to that class for this fiscal year. For the three fiscal years
ended August 31, 1995, 1996 and 1997, the Manager earned from the Money Market
Fund $5,436,551 (before waiving $244,972 of its fees), $7,253,924 and
$8,891,273, respectively. The Municipal Fund paid the Manager for the fiscal
years ended August 31, 1995, 1996 and 1997, fees of $1,226,671 (before waiving
$40,432 of its fees), $1,538,074 and $1,831,037, respectively. The Manager
recouped in the fiscal year ended August 31, 1997 all of the fees waived by the
Money Market Fund and the Municipal Fund in the fiscal year ended August 31,
1995
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.
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
24
<PAGE>
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, 1995, 1996 and 1997, the
Subadviser earned $267,993, $305,541 and $331,906, 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 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 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 Funds.
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
25
<PAGE>
(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 Financial Advisor 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 0.15% of average daily net assets of
each class of each Fund. For the fiscal year ended August 31, 1997, these fees
amounted to $2,785,331 for the A shares of Money Market Fund and $545,717 for A
shares of the Municipal Fund. For the fiscal year ended August 31, 1997, these
fees amounted to $1,599 for C shares of the Money Market Fund. No B shares were
outstanding during this period. 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, B 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 separate Distribution Plan on behalf of each class
of each Fund ("Class A Plan," "Class B Plan" and "Class C Plan," each a "Plan")
that, among other things, permits each Fund to pay the Distributor the monthly
distribution fee out of its net assets. The Class A and Class C Plans were
approved by the initial shareholder of each Fund. In addition, 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"), approved each Plan after determining that there is
a reasonable likelihood that the Plan will benefit the Fund and its shareholders
by enabling the Fund to increase its assets and thereby realize economies of
scale and its diversification goals.
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 votes of the
26
<PAGE>
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, Class B 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, 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 those 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 Fund accountant and transfer and dividend
disbursing agent 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 two fiscal years ended August 31, 1995 and 1996, the
Manager earned $35,932, and $40,168, respectively, from each Fund for its
services as fund accountant. For the fiscal year ended August 31, 1997, the
Manager earned $39,804 and $40,935 for such services from the Money Market Fund
and the Municipal Fund, respectively.
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, 1997 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
27
<PAGE>
accounting and auditing. The Financial Highlights for the fiscal years ended
prior thereto were audited by other independent accountants.
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 enters
into or signs. 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.
28
<PAGE>
APPENDIX
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.
A-1
<PAGE>
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 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.
A-2
<PAGE>
Construction Loan Notes are sold to provide construction financing. After
successful completion and acceptance, many projects receive permanent 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.
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DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
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Moody's
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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
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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+.
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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, 1997, filed with the Securities and
Exchange Commission on October 29, 1997, Accession No. 0000950144-97-011302
(Money Market Fund) and Accession No. 0000950144-97-011295 (Municipal Fund).
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