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[HERITAGE INCOME-GROWTH TRUST(TM) LOGO]
Heritage Income-Growth Trust (the "Trust") is a mutual fund with the
investment objective of long-term total return by seeking, with approximately
equal emphasis, current income and capital appreciation. The Trust invests
primarily in income-producing securities that the Trust's portfolio manager
believes are consistent with its investment objective. The Trust offers two
classes of shares, Class A shares (sold subject to a front-end sales load) and
Class C shares (sold subject to a contingent deferred sales load).
This Prospectus contains information that should be read before investing in
the Trust and should be kept for future reference. A Statement of Additional
Information dated February 1, 1996 relating to the Trust 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.
TRUST 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 February 1, 1996
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
GENERAL INFORMATION................................................. 1
About the Trust........................................... 1
Total Trust Expenses...................................... 1
Financial Highlights...................................... 3
Differences Between A Shares and C Shares................. 3
Investment Objective, Policies and Risk Factors........... 4
Net Asset Value........................................... 7
Performance Information................................... 8
INVESTING IN THE TRUST.............................................. 8
How to Buy Shares......................................... 8
Minimum Investment Required/Accounts With Low Balances.... 9
Investment Programs....................................... 10
Alternative Purchase Plans................................ 11
What Class A Shares Will Cost............................. 12
What Class C Shares Will Cost............................. 14
How to Redeem Shares...................................... 15
Receiving Payment......................................... 16
Exchange Privilege........................................ 16
MANAGEMENT OF THE TRUST............................................. 18
SHAREHOLDER AND ACCOUNT POLICIES.................................... 19
Dividends and Other Distributions......................... 19
Distribution Plans........................................ 19
Taxes..................................................... 20
Shareholder Information................................... 21
</TABLE>
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GENERAL INFORMATION
ABOUT THE TRUST
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Heritage Income-Growth Trust (the "Trust") was established as a
Massachusetts business trust under a Declaration of Trust dated July 25, 1986.
The Trust is an open-end diversified management investment company designed for
individuals, institutions and fiduciaries whose investment objective is
long-term total return by seeking, with approximately equal emphasis, current
income and capital appreciation. The Trust offers two classes of shares, Class A
shares ("A shares") and Class C shares ("C shares"). The Trust requires a
minimum initial investment of $1,000, except for certain retirement accounts and
investment plans for which lower limits may apply. See "Investing in the Trust."
TOTAL TRUST EXPENSES
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Shown below are all Class A expenses that the Trust expects to incur during
its 1996 fiscal year. Anticipated Class A annual operating expenses are shown as
an annualized percentage of fiscal 1995 average daily net assets. Because C
shares were not offered for sale prior to April 3, 1995, Class C annual
operating expenses are based on estimated expenses. Shareholder transaction
expenses for both classes are expressed as a percentage of maximum public
offering price, cost per transaction or as otherwise noted.
<TABLE>
<CAPTION>
CLASS A CLASS C
------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales load "charge" on purchases.......... 4.75% None
Contingent deferred sales load (as a (declining to 0%
percentage of original purchase price or after the first
redemption proceeds, as applicable)..... None 1.00% year)
Wire redemption fee....................... $5.00 $5.00
ANNUAL TRUST OPERATING EXPENSES
Management fee (after fee waiver)......... 0.71% 0.71%
12b-1 Distribution fee.................... 0.25% 1.00%
Other expenses............................ 0.64% 0.64%
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Total Trust operating expenses
(after fee waiver)...................... 1.60% 2.35%
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----- -----
</TABLE>
The Trust's manager, Heritage Asset Management, Inc. (the "Manager"),
voluntarily will waive its fees and, if necessary, reimburse the Trust to the
extent that Class A annual operating expenses exceed 1.60% and to the extent
that Class C annual operating expenses exceed 2.35% of the average daily net
assets attributable to that class beginning February 1, 1996. The above amounts
are restated to reflect this voluntary fee waiver. Absent such fee waiver, the
Management fee would have been 0.75% for each class and the total operating
expenses would have been 1.64% for Class A and 2.39% for Class C. To the extent
that the Manager waives or reimburses its fees with respect to one class, it
will do so with respect to the other class on a proportionate basis. Due to the
imposition of Rule 12b-1 distribution fees, it is possible that long-term
shareholders of the Trust may pay more in total sales charges than the economic
equivalent of the maximum front-end sales load permitted by the rules of the
National Association of Securities Dealers, Inc.
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The impact of Trust operating expenses on earnings is illustrated in the
example below assuming a hypothetical $1,000 investment, a 5% annual rate of
return, and redemption at the end of each period shown.
<TABLE>
<CAPTION>
3 5 10
1 YEAR YEARS YEARS YEARS
------ ------ ------ -------
<S> <C> <C> <C> <C>
Total Operating Expenses -- Class A....... $ 63 $ 96 $130 $ 228
Total Operating Expenses -- Class C....... $ 34 $ 73 $126 $ 268
</TABLE>
The impact of Trust operating expenses on earnings is illustrated in the
example below assuming a hypothetical $1,000 investment, a 5% annual rate of
return, and no redemption at the end of each period shown.
<TABLE>
<CAPTION>
3 5 10
1 YEAR YEARS YEARS YEARS
------ ------ ------ -------
<S> <C> <C> <C> <C>
Total Operating Expenses -- Class A....... $ 63 $ 96 $130 $ 228
Total Operating Expenses -- Class C....... $ 24 $ 73 $126 $ 268
</TABLE>
This is an illustration only and should not be considered a representation
of future expenses. Actual expenses and performance may be greater or less than
that shown above. The purpose of the above tables is to assist investors in
understanding the various costs and expenses that will be borne directly or
indirectly by shareholders. For a further discussion of these costs and
expenses, see "What Class A Shares Will Cost," "What Class C Shares Will Cost,"
"Management of the Trust" and "Distribution Plans."
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FINANCIAL HIGHLIGHTS
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The following table shows important financial information for an A share
and a C share of the Trust outstanding for the periods indicated, including net
investment income, net realized and unrealized gain on investments, and certain
other information. It has been derived from financial statements that have been
audited by Coopers & Lybrand L.L.P., independent accountants, whose report
thereon is included in the Statement of Additional Information ("SAI"), which
may be obtained by calling the Trust at the telephone number on the front page
of this Prospectus.
<TABLE>
<CAPTION>
CLASS A
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CLASS
FOR THE YEARS ENDED SEPTEMBER 30, C
---------------------------------------------------------------------------------- ------
1995 1994 1993 1992 1991 1990 1989 1988 1987+ 1995++
------ ------ ------- ------ ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD......................... $11.33 $12.28 $ 10.81 $ 9.87 $ 8.08 $ 10.41 $ 9.18 $ 9.98 $ 9.50 $11.21
------ ------ ------- ------ ------ ------- ------- ------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (a)...... 0.27 0.30 0.39 0.28 0.36 0.45 0.45 0.44 0.26 0.18
Net realized and unrealized
gain (loss) on investments... 1.79 (0.09) 1.44 1.02 1.88 (2.06) 1.22 (0.81) 0.38 1.28
------ ------ ------- ------ ------ ------- ------- ------- ------ ------
Total from Investment
Operations................... 2.06 0.21 1.83 1.30 2.24 (1.61) 1.67 (0.37) 0.64 1.46
------ ------ ------- ------ ------ ------- ------- ------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income....................... (0.34) (0.24) (0.36) (0.36) (0.34) (0.48) (0.44) (0.43) (0.16) (0.16 )
Distributions from net realized
gain on investments.......... (0.49) (0.92) -- -- (0.11) (0.24) -- -- -- --
------ ------ ------- ------ ------ ------- ------- ------- ------ ------
Total Distributions............ (0.83) (1.16) (0.36) (0.36) (0.45) (0.72) (0.44) (0.43) (0.16) (0.16 )
------ ------ ------- ------ ------ ------- ------- ------- ------ ------
NET ASSET VALUE, END OF THE
PERIOD......................... $12.56 $11.33 $ 12.28 $10.81 $ 9.87 $ 8.08 $ 10.41 $ 9.18 $ 9.98 $12.51
====== ====== ======= ====== ====== ======= ======= ======= ====== ======
TOTAL RETURN (%)(D).............. 19.57 1.80 16.44 13.42 28.72 (16.42) 18.80 (3.38) 6.79(c) $13.18(c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average daily net
assets(a).................... 1.64 1.64 1.72 1.75 1.75 1.75 1.75 1.75 1.75(b) 2.40 (b)
Net investment income to
average daily net assets..... 4.63 2.62 2.67 2.77 4.02 4.77 4.72 5.01 4.29(b) 4.61 (b)
Portfolio turnover rate........ 42 98 130 71 81 156 249 184 91(b) 42
Net assets, end of the period
($millions).................. 34 33 34 27 20 19 24 20 24 0.2
</TABLE>
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+ For the period December 15, 1986 (commencement of operations) to September
30, 1987.
++ For the period April 3, 1995 (commencement of Class C shares) to September
30, 1995.
(a) Excludes management fees waived by the Manager through 1992 in the amount of
less than $.01, $.01, $.02, $.02, $.01 and $.02 per Class A share,
respectively. The operating expense ratios including such items would be
1.75%, 1.94%, 1.96%, 1.92%, 1.89%, and 2.11% (annualized) per Class A share,
respectively. The year 1993 includes previously waived management fees paid
to the Manager of $.01 per share.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales load.
DIFFERENCES BETWEEN A SHARES AND C SHARES
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The primary difference between the A shares and the C shares lies in their
initial sales load and contingent deferred sales load ("CDSL") structures and in
their ongoing expenses, including asset-based sales charges in the form of
distribution fees. These differences are summarized below. In addition, each
class may bear differing amounts of certain class-specific expenses, such as
transfer agent fees, Securities and Exchange
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Commission ("SEC") registration fees, state registration fees and expenses of
administrative personnel and services. Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives. See "How to Buy Shares,"
"Alternative Purchase Plan," "What Class A Shares Will Cost" and "What Class C
Shares Will Cost."
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES AS A
% OF AVERAGE DAILY NET
SALES LOAD ASSETS OTHER INFORMATION
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<S> <C> <C> <C>
A Shares Maximum initial sales Service fee of 0.25% Initial sales load
load of 4.75% waived or reduced for
certain purchases
C Shares Maximum CDSL of 1% of Service fee of 0.25%; CDSL waived for
redemption proceeds; distribution fee of up certain types of
declining to zero to 0.75% redemptions
after 1 year
</TABLE>
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
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The Trust's investment objective is long-term total return by seeking, with
approximately equal emphasis, current income and capital appreciation. The Trust
may invest a portion of its assets in lower-rated securities, as discussed
below. Although investing in lower-rated securities may offer the potential for
above-average income, it also increases the risk of loss of principal.
Therefore, an investment in the Trust is subject to a higher risk of loss of
principal than an investment in a fund that does not invest in lower-rated
securities. There can be no assurance that the Trust's investment objective will
be achieved. Trust shares will fluctuate in value as a result of changes in the
value of portfolio investments.
The Trust invests primarily in income-producing securities that Eagle Asset
Management, Inc. (the "Subadviser") believes are consistent with the Trust's
investment objective. These securities may include equities, convertible
securities, corporate debt obligations, U.S. Government securities, money market
instruments, real estate investment trusts, and repurchase agreements. The Trust
also may write covered call options on common stocks in order to earn additional
income, engage in short sales "against the box," loan portfolio securities and
invest in warrants. The Trust will have a majority of its investments in common
stocks or securities convertible into common stocks. The Trust may purchase and
sell securities without regard to the length of time the securities have been
held.
The Trust may invest up to 20% of its assets in foreign securities,
including American Depository Receipts ("ADRs") and similar investments. The
Trust also may purchase domestic Eurodollar certificates of deposit without
regard to the 20% limit. The Trust may engage in forward contracts to purchase
or sell foreign currencies at a future date.
For temporary defensive purposes during anticipated periods of general
market decline, the Trust may invest up to 100% of its assets in money market
instruments, including securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and repurchase agreements secured thereby, as
well as bank certificates of deposit and banker's acceptances issued by banks
having net assets of at least $1 billion as of the end of their most recent
fiscal year, high grade commercial paper, and other long- and short-term debt
instruments that are rated A or higher by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Rating Services ("S&P"). It is impossible to
predict when, or for how long, such alternative strategies may be utilized. See
the Appendix in the SAI for a description of S&P and Moody's commercial paper
ratings.
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The Trust's investment objective is fundamental and may not be changed
without the vote of a majority of the outstanding voting securities of the
Trust, as defined in the Investment Company Act of 1940, as amended (the "1940
Act"). All policies of the Trust described in this Prospectus may be changed by
the Board of Trustees without shareholder approval. The following is a
discussion of the types of investments in which the Trust may invest, including
the risks of investing in these securities. For a further discussion of the
Trust's investment policies and risks, see "Investment Information" in the SAI.
AMERICAN DEPOSITORY RECEIPTS. Sponsored ADRs are receipts typically issued
by a U.S. bank or trust company evidencing ownership of the underlying
securities of foreign issuers and other forms of depository receipts for
securities of foreign issuers. Investing in ADRs involves greater risks than
normally are present in domestic investments. These risks are similar to the
risks of investing in foreign securities in general, as discussed below.
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issue within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or
dividends paid on preferred stock until the convertible stock matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally have higher yields than common stocks,
but lower yields than comparable non-convertible securities, are less subject to
fluctuation in value than the underlying stock because they have fixed-income
characteristics and provide the potential for capital appreciation if the market
price of the underlying common stock increases. The Trust only will invest in
convertible securities rated B or better by Moody's or S&P or, if unrated,
deemed to be of comparable quality by the Subadviser. The Trust, at the
discretion of the Subadviser, may retain a security that has been downgraded
below the initial investment criteria.
DEBT SECURITIES -- RISK FACTORS. The market value of debt securities is
influenced primarily by the changes in the level of interest rates. Generally,
as interest rates rise, the market value of debt securities decreases.
Conversely, as interest rates fall, the market value of debt securities
increases.
EQUITY SECURITIES. Equity securities in which the Trust may invest
generally will be those that have above-average current dividend yields relative
to the average yield of the issuers included in the Standard & Poor's 500
Composite Stock Price Index ("S&P 500") and whose prospects for dividend growth
and capital appreciation are considered favorable by the Subadviser. However,
the Trust also may invest in equity securities that have dividend yields less
than such average yield if the Subadviser believes these securities will help
the Trust achieve its investment objective.
FOREIGN SECURITIES -- RISK FACTORS. The Trust's foreign investments
involve certain risks not present in domestic investments. Most notably, there
generally is less publicly available information about foreign companies; there
may be less governmental regulation and supervision of foreign stock exchanges,
brokers and listed companies; such companies may use different accounting and
financial standards; the establishment of exchange controls or the adoption of
other foreign governmental restrictions might affect adversely the payment of
principal and/or interest on foreign investments; and fluctuations in monetary
exchange rates will affect the dollar value of foreign investments, dividends
and interest payments.
INVESTMENT GRADE CORPORATE DEBT SECURITIES. The Trust may invest in
nonconvertible corporate debt obligations, primarily for interest income, that
are rated Baa by Moody's or BBB by S&P or above or, if unrated, deemed to be of
comparable quality by the Subadviser ("investment grade securities"). Debt
securities rated in the lowest category of investment grade securities are
deemed to have speculative
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characteristics. The Trust, at the discretion of the Subadviser, may retain a
security that has been downgraded below the initial investment criteria.
LOWER-RATED SECURITIES. The Trust also may invest up to 10% of its assets
in nonconvertible corporate debt obligations that are rated Ba or B by Moody's
or BB or B by S&P or, if unrated, that are deemed to be of comparable quality by
the Subadviser. The Trust, at the discretion of the Subadviser, may retain a
security that has been downgraded below the initial investment criteria. In no
instance will the Trust invest 35% or more of its assets in securities rated
below investment grade. The prices of lower-rated securities tend to be less
sensitive to interest rate changes than higher-rated securities, but more
sensitive to adverse economic changes or individual corporate developments.
Securities rated below investment grade are deemed to be predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal and may involve major risk exposure to adverse conditions. See the
Appendix in the SAI for a description of corporate debt ratings by Moody's and
S&P.
Lower-rated securities (commonly referred to as "junk bonds") generally
offer a higher current yield than that available for higher-grade issues.
However, lower-rated securities involve higher risks, in that they are
especially subject to adverse changes in general economic conditions and in the
industries in which the issuers are engaged, to changes in the financial
condition of the issuers and to price fluctuations in response to changes in
interest rates. During periods of economic downturn or rising interest rates,
highly leveraged issuers may experience financial stress that could affect
adversely their ability to make payments of interest and principal and increase
the possibility of default. In addition, the market for lower-rated securities
has expanded rapidly in recent years, and its growth paralleled a long economic
expansion. The market for lower-rated securities generally is thinner and less
active than that for higher-quality securities, which may limit the Trust's
ability to sell such securities at fair value in response to changes in the
economy or financial markets. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, also may decrease the values and
liquidity of lower-rated securities, especially in a thinly traded market.
The table below shows the percentages of the Trust's assets invested during
fiscal 1995 in securities assigned to the various ratings categories by S&P and
Moody's and in unrated securities determined by the Subadviser to be of
comparable quality. These figures are dollar-weighted averages of month-end
Trust holdings for the fiscal year ended September 30, 1995, presented as a
percentage of total net assets. These percentages are historical and are not
necessarily indicative of the quality of current or future investment portfolio
holdings, which will vary.
<TABLE>
<CAPTION>
COMPARABLE QUALITY OF
RATED SECURITIES UNRATED SECURITIES AS
AS A PERCENTAGE OF A
THE PERCENTAGE OF THE
TRUST'S ASSETS TRUST'S ASSETS
--------------------- ---------------------
S&P/MOODY'S RATINGS S&P MOODY'S S&P MOODY'S
----------------------------------------- ----- ------- ----- -------
<S> <C> <C> <C> <C>
A................................... 2.95% --% --% --%
BBB/Baa............................. 5.98 5.71 -- --
BB/Ba............................... 0.74 5.15 1.26 --
B................................... 7.32 8.33 3.11 2.27
CCC................................. 0.10 -- -- --
----- ------- ----- -------
Total.......................... 17.09% 19.19% 4.37% 2.27%
===== ====== ===== ======
</TABLE>
OPTIONS. The Trust may sell (write) covered call options on common stocks
in its investment portfolio or on common stocks into which securities held by it
are convertible to earn additional income. The Trust receives a premium on the
sale of an option but gives up the opportunity to profit from any increase in
stock value above the exercise price of the option. The aggregate value of the
securities underlying call options
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(based on the lower of the option price or market) may not exceed 50% of the
Trust's net assets. The Trust also may purchase call options to close out call
options it has written. The principal risks associated with the use of options
are (1) possible lack of a liquid market for closing out options positions; (2)
the need for additional portfolio management skills and techniques; and (3)
losses due to unanticipated market price movements.
REAL ESTATE INVESTMENT TRUSTS. The Trust may invest in different types of
real estate investment trusts ("REITs"), such as equity REITs, which own real
estate properties, and mortgage REITs, which make construction, development and
long-term mortgage loans. The value of an equity REIT may be affected by changes
in the value of the underlying property, while a mortgage REIT may be affected
by the quality of the credit extended. The performance of both types of REITs
depends upon conditions in the real estate industry, management skills and the
amount of cash flow. The risks associated with REITs include defaults by
borrowers, self-liquidation, failure to qualify as a "pass-through" entity under
the Federal tax law, failure to qualify as an exempt entity under the 1940 Act,
and the fact that REITs are not diversified.
REPURCHASE AGREEMENTS AND SECURITIES LOANS. The Trust may not enter into
repurchase agreements with respect to more than 25% of its total assets. A
repurchase agreement is a transaction in which the Trust purchases securities
and simultaneously commits to resell the securities to the original seller (a
member bank of the Federal Reserve System or a securities dealer who is a member
of a national securities exchange or is a market maker in U.S. Government
securities) at an agreed upon date and price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
Although repurchase agreements carry certain risks not associated with direct
investment in securities, including possible decline in the market value of the
underlying securities and delays and costs to the Trust if the other party to
the repurchase agreement becomes bankrupt, the Trust intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
the Subadviser to present minimal credit risks in accordance with guidelines
established by the Board of Trustees. The Trust also can lend portfolio
securities (not exceeding 25% of its total assets) to broker-dealers. Securities
loans will be collateralized fully at all times, but involve some risk to the
Trust. If the other party to the securities loan defaults or becomes involved in
bankruptcy proceedings, the Trust may incur delays and costs in selling or
recovering the underlying security or may suffer a loss of principal and
interest.
NET ASSET VALUE
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The net asset values of A shares and C shares are calculated by dividing
the value of the total assets of the Trust attributable to that class, less
liabilities attributable to that class, by the number of shares outstanding of
that class. Shares are valued as of the close of regular trading on the New York
Stock Exchange ("Exchange") each day it is open. Trust securities and other
investments are stated at market value based on the last sales price as reported
by the principal securities exchange on which the securities are traded. If no
sale is reported, market value is based on the most recent quoted bid price. In
the absence of a readily available market quote, or if the Manager or the
Subadviser has reason to question the validity of market quotations it receives,
securities and other assets are valued using such methods as the Board of
Trustees believes would reflect fair value. Short-term investments that will
mature in 60 days or less are valued at amortized cost, which approximates
market value. Securities that are quoted in a foreign currency will be valued
daily in U.S. dollars at the foreign currency exchange rates prevailing at the
time the Trust calculates its net asset value per share. The per share net asset
value of A shares and C shares may differ as a result of the different daily
expense accruals applicable to each class. For more information on the
calculation of net asset value, see "Net Asset Value" in the SAI.
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PERFORMANCE INFORMATION
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Total return data of the A shares and C shares from time to time may be
included in advertisements about the Trust. Performance information is computed
separately for A shares and C shares in accordance with the methods described
below. Because C shares bear the expense of a higher distribution fee
attributable to the deferred sales load alternative, the performance of C shares
likely will be lower than that of A shares.
Total return with respect to a class for the one-, five- and ten-year
periods or, if such periods have not elapsed, the period since the establishment
of that class through the most recent calendar quarter represents the average
annual compounded rate of return on an investment of $1,000 in that class at the
public offering price (in the case of A shares, giving effect to the maximum
initial sales load of 4.75% and, in the case of C shares, giving effect to the
deduction of any CDSL that would be payable). In addition, the Trust also may
advertise the total return in the same manner, but without taking into account
the initial sales load or CDSL. The Trust also may advertise total return
calculated without annualizing the return, and total return may be presented for
other periods. By not annualizing the returns, the total return calculated in
this manner simply will reflect the increase in net asset value per A share and
C share over a period of time, adjusted for dividends and other distributions. A
share and C share performance may be compared with various indices.
The Trust also may from time to time advertise the yield of A shares and C
shares and compare these yields to those of other mutual funds with similar
investment objectives. The yield of each class of the Trust will be computed by
dividing the net investment income per share earned during a 30-day (or one
month) period by the maximum offering price per share on the last day of the
period. Yield accounting methods differ from the methods used for other
accounting purposes; accordingly, the yield for a class may not equal the
dividend income actually paid to shareholders or the net investment income per
share reported in the Trust's financial statements.
All data is based on the Trust's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Trust's
investment portfolio and the Trust's operating expenses. Investment performance
also often reflects the risks associated with the Trust's investment objective
and policies. These factors should be considered when comparing the Trust's
investment results to those of other mutual funds and other investment vehicles.
For more information on investment performance, see the SAI.
INVESTING IN THE TRUST
HOW TO BUY SHARES
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Shares of the Trust 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 Distributor receives commissions consisting of that portion of
the sales load remaining after the dealer concession is paid to participating
dealers or banks. Such dealers may be deemed to be underwriters pursuant to the
Securities Act of 1933, as amended.
Shares of the Trust may be purchased through a registered representative of
the Distributor, a participating dealer or a participating bank
("Representative") by placing an order for Trust shares with your
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Representative, completing and signing the Account Application found in the back
of this Prospectus, and mailing it, along with your payment, within three
business days.
The Trust offers and sells two classes of shares, A shares and C shares. A
shares may be purchased at a price equal to their net asset value per share next
determined after receipt of an order, plus a sales load imposed at the time of
purchase. C shares may be purchased at a price equal to their net asset value
per share next determined after receipt of an order. A CDSL of 1% is imposed on
C shares if you redeem those shares within one year of purchase. When you place
an order for Trust shares, you must specify which class of shares you wish to
purchase. See "Alternative Purchase Plans."
All purchase orders received by the Distributor prior to the close of
regular trading on the Exchange -- generally 4:00 p.m. Eastern time -- will be
executed at that day's offering price. Purchase orders received by your
Representative prior to the close of regular trading on the Exchange and
transmitted to the Distributor before 5:00 p.m. Eastern time on that day also
will receive that day's offering price. Otherwise, all purchase orders accepted
after the offering price is determined will be executed at the offering price
determined as of the close of regular trading on the Exchange on the next
trading day. See "What Class A Shares Will Cost" and "What Class C Shares Will
Cost."
You also may purchase shares of the Trust directly by completing and
signing the Account Application found in the back of this Prospectus and mailing
it, along with your payment, to Heritage Income-Growth Trust, c/o Shareholder
Services, Heritage Asset Management, Inc., P.O. Box 33022, St. Petersburg, FL
33733.
Shares may be purchased with Federal funds (a commercial bank's deposit
with the Federal Reserve Bank that can be transferred to another member bank on
the same day) sent by Federal Reserve or bank wire to State Street Bank and
Trust Company, Boston, Massachusetts, ABA #011-000-028, Account #3196-769-8.
Wire instructions should include (1) the name of the Trust, (2) the class of
shares to be purchased, (3) your account number assigned by the Trust, and (4)
your name. To open a new account with Federal funds or by wire, you must contact
the Manager or your Representative to obtain a Heritage mutual fund account
number. Commercial banks may elect to charge a fee for wiring funds to State
Street Bank and Trust Company. For more information on "How to Buy Shares," see
"Investing in the Trust" in the SAI.
MINIMUM INVESTMENT REQUIRED/ACCOUNTS WITH LOW BALANCES
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Except as provided under "Investment Programs," the minimum initial
investment in the Trust is $1,000, and a minimum account balance of $500 must be
maintained. These minimum requirements may be waived at the discretion of the
Manager. In addition, initial investments in Individual Retirement Accounts
("IRAs") may be reduced or waived under certain circumstances. Contact the
Manager or your Representative for further information.
Due to the high cost of maintaining accounts with low balances, it is
currently the Trust's policy to redeem Trust shares in any account if the
account balance falls below the required minimum value of $500, except for
retirement accounts. The shareholder will be given 30 days' notice to bring the
account balance to the minimum required or the Trust may redeem shares in the
account and pay the proceeds to the shareholder. The Trust does not apply this
minimum account balance requirement to accounts that fall below the minimum due
to market fluctuation.
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<PAGE> 12
INVESTMENT PROGRAMS
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A variety of automated investment options are available for the purchase of
Trust shares. These plans provide for automatic monthly investments of $50 or
more through various methods described below. 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, the account must be brought up to the minimum in order to remain open.
Shareholders desiring this service should complete the appropriate application
available from the Manager. You will receive a periodic confirmation of all
activity for your account.
AUTOMATIC INVESTMENT OPTIONS:
1. Bank Draft Investing -- You may authorize the Manager to process a monthly
draft from your personal checking account for investment into the Trust. 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 Trust. 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 the
Trust. The U.S. Government or agency will report to you all payments made.
4. Automatic Exchange -- If you own shares of another Heritage mutual fund
advised or administered by the Manager ("Heritage Mutual Fund"), you may
elect to have a preset amount redeemed from that fund and exchanged into the
corresponding class of shares of the Trust. 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 Trust may be purchased as an investment for Heritage IRA
plans. In addition, shares may be purchased as an investment for self-directed
IRAs, defined contribution plans, Simplified Employee Pension Plans ("SEPs") and
other retirement plans.
HERITAGE IRA. Individuals who earn compensation and who have not reached
age 70 1/2 before the close of the year generally may establish a Heritage IRA.
You may make limited contributions to a Heritage IRA through the purchase of
shares of the Trust 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
$2,250, if such contributions also are made for a nonworking spouse and a joint
return is filed). A Heritage IRA also may be used for certain "rollovers" from
qualified benefit plans and from Section 403(b) annuity plans. For more detailed
information on the Heritage IRA, please contact the Manager.
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<PAGE> 13
Trust shares may be used as the investment medium for qualified plans
(defined benefit or defined contribution plans established by corporations,
partnerships or sole proprietorships). Contributions to qualified plans may be
made (within certain limits) on behalf of the employees, including
owner-employees, of the sponsoring entity.
OTHER RETIREMENT PLANS. Multiple participant payroll deduction retirement
plans also may purchase A shares of any Heritage Mutual Fund at a reduced sales
load on a monthly basis during the 13-month period following such a plan's
initial purchase. The sales load applicable to such initial purchase of A shares
will be that normally applicable under the schedule of sales loads set forth in
this Prospectus to an investment 13 times larger than such initial purchase. The
sales load applicable to each succeeding monthly purchase of A shares will be
that normally applicable, under such schedule, to an investment equal to the sum
of (1) the total purchase previously made during the 13-month period and (2) the
current month's purchase multiplied by the number of months (including the
current month) remaining in the 13-month period. Sales loads previously paid
during such period will not be adjusted retroactively on the basis of later
purchases. Multiple participant payroll deduction retirement plans may purchase
C shares at any time.
ALTERNATIVE PURCHASE PLANS
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The alternative purchase plans offered by the Trust enable you to choose
the class of shares that you believe will be most beneficial given the amount of
your intended purchase, the length of time you expect to hold the shares and
other circumstances. You should consider whether, during the anticipated length
of your intended investment in the Trust, the accumulated continuing
distribution and service fees plus the CDSL on C shares would exceed the initial
sales load plus accumulated service fees on A shares purchased at the same time.
Another factor to consider is whether the potentially higher yield of A shares
due to lower ongoing charges will offset the initial sales load paid on such
shares. Representatives may receive different compensation for sales of A shares
than sales of C shares.
If you purchase sufficient shares to qualify for a reduced sales load, you
may prefer to purchase A shares because similar reductions are not available on
the C shares. For example, if you intend to invest more than $1,000,000 in
shares of the Trust, you should purchase A shares. Moreover, all A shares are
subject to a lower 12b-1 fee and, accordingly, are expected to pay
correspondingly higher dividends on a per share basis. If your purchase will not
qualify for a reduced sales load, you still may wish to purchase A shares if you
expect to hold your shares for an extended period of time because, depending on
the number of years you hold the investment, the continuing distribution and
service fees on C shares eventually would exceed the initial sales load plus the
continuing service fee on A shares during the life of your investment. However,
because initial sales loads are deducted at the time of purchase, not all of the
purchase payment for A shares is invested initially.
You might determine that it would be more advantageous to purchase C shares
in order to have all of your purchase payment invested initially. However, your
investment would remain subject to continuing distribution and service fees and,
for a one-year period, be subject to a CDSL. For example, based on current fees
and expenses for the Trust and the maximum A shares sales load, you would have
to hold A shares approximately six years before the accumulated distribution and
service fees on the C shares would exceed the initial sales load plus the
accumulated service fees on the A shares.
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<PAGE> 14
WHAT CLASS A SHARES WILL COST
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Class A shares are sold each day on which the Exchange is open. A shares
are sold at their next determined net asset value plus a sales load as described
below.
<TABLE>
<CAPTION>
SALES LOAD AS A PERCENTAGE OF
------------------------------------
NET AMOUNT DEALER CONCESSION
INVESTED AS A PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE (NET ASSET VALUE) OFFERING PRICE(1)
---------------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Less than $25,000........... 4.75% 4.99% 4.25%
$25,000 to $49,999.......... 4.25% 4.44% 3.75%
$50,000 to $99,999.......... 3.75% 3.90% 3.25%
$100,000 to $249,999........ 3.25% 3.36% 2.75%
$250,000 to $499,999........ 2.50% 2.56% 2.00%
$500,000 to $999,999........ 1.75% 1.78% 1.25%
$1,000,000 and over......... 1.00% 1.01% 0.75%
</TABLE>
(1) During certain periods, the Distributor may pay 100% of the sales load to
participating dealers. Otherwise, it will pay the Dealer Concession shown
above.
Class A shares may be sold at net asset value without any sales load to the
Manager and the Subadviser; current and retired officers and Trustees of the
Trust; directors, officers, and full-time employees of the Manager, Subadviser
of any Heritage Mutual Fund, Distributor and their affiliates; registered
representatives or employees of broker-dealers that are parties to dealer
agreements with the Distributor (or financial institutions that have
arrangements with such broker-dealers); directors, officers and full-time
employees of banks that are parties to agency agreements with the Distributor;
and all such persons' immediate relatives and their beneficial accounts. In
addition, the American Psychiatric Association (the "APA Group") has entered
into an agreement with the Distributor that allows its members to purchase A
shares at a sales load equal to two-thirds of the percentages in the above
table. The Dealer Concession also will be adjusted in a like manner. Members of
the APA Group also are eligible to purchase A shares at net asset value in
amounts equal to the value of shares redeemed from other mutual funds that were
purchased under reduced sales load programs available to their organizations. A
shares also may be purchased without sales loads by investors who participate in
certain broker-dealer wrap fee investment programs.
Class A shares also may be purchased at net asset value by trust companies
and bank trust departments for funds over which they exercise exclusive
discretionary authority and are held in a fiduciary, agency, advisory, custodial
or similar capacity. Such purchases are subject to minimum requirements with
respect to amount of purchase. Currently, the minimum purchase required is
$1,000,000, which may be invested over a period of 13 months. The minimum may be
changed from time to time by the Distributor. The minimum may be aggregated
between A shares of the Trust and A shares of any other Heritage Mutual Fund
that would be subject to a sales load. Cities, counties, states or
instrumentalities, and their departments, authorities or agencies are able to
purchase A shares of the Trust at net asset value as long as certain conditions
are met.
HERITAGE NET ASSET VALUE ("NAV") TRANSFER PROGRAM
Class A shares of the Trust may be sold at net asset value without any
sales load under the Manager's NAV Transfer Program. To qualify for the NAV
Transfer Program, you must provide adequate proof that you recently redeemed
shares from a load or no-load mutual fund other than a Heritage Mutual Fund or
any money market fund. To provide adequate proof you must complete a
qualification form and provide a statement showing the value liquidated from the
other mutual fund within time parameters set by the
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<PAGE> 15
Manager. In addition, shares of the other fund must have been liquidated no more
than 90 days prior to the purchase of a Heritage Mutual Fund.
COMBINED PURCHASE PRIVILEGE (RIGHT OF ACCUMULATION)
You may qualify for the sales load reductions indicated in the above sales
load schedule by combining purchases of A shares into a single "purchase" if the
resulting "purchase" totals at least $25,000. The term "purchase" refers to a
single purchase by an individual, or to concurrent purchases that, in the
aggregate, are at least equal to the prescribed amounts, by an individual, his
spouse and their children under the age of 21 years purchasing A shares for his
or their own account; a single purchase by a trustee or other fiduciary
purchasing A shares for a single trust, estate, or single fiduciary account
although more than one beneficiary is involved; or a single purchase for the
employee benefit plans of a single employer. A "purchase" also may include A
shares purchased at the same time through a single selected dealer of any other
Heritage Mutual Fund that distributes its shares subject to a sales load. To
qualify for the Combined Purchase Privilege on a purchase through a selected
dealer, the investor or selected dealer must provide the Distributor with
sufficient information to verify that each purchase qualifies for the privilege
or discount.
STATEMENT OF INTENTION
You also may obtain the reduced sales loads shown under "What Class A
Shares Will Cost" by means of a written Statement of Intention, which expresses
your intention to invest not less than $25,000 within a period of 13 months in A
shares of the Trust or A shares of any other Heritage Mutual Fund subject to a
sales load. ("Statement of Intention")
Investors qualifying for the Combined Purchase Privilege described above
may purchase A shares of the Heritage Mutual Funds under a single Statement of
Intention. For example, if, at the time an investor signs a Statement of
Intention to invest at least $25,000 in A shares of the Trust, the investor and
the investor's spouse each purchase A shares worth $5,000 (for a total of
$10,000), then it will be necessary only to invest a total of $15,000 during the
following 13 months in A shares of the Trust or any other Heritage Mutual Fund
subject to a sales load to qualify for the reduced sales loads on the total
amount being invested.
The Statement of Intention is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Statement of Intention is 5% of such amount. If you would like to enter into a
Statement of Intention in conjunction with your initial investment in A shares
of the Trust, please complete the appropriate portion of the Account Application
at the back of this Prospectus. Current Trust shareholders desiring to do so can
obtain a Statement of Intention form by contacting the Manager or the
Distributor at the address or telephone number listed on the cover of this
Prospectus, or from their Representative.
REINSTATEMENT PRIVILEGE
A shareholder who has redeemed any or all of his A shares of the Trust may
reinvest all or any portion of the redemption proceeds in A shares at net asset
value without any sales load, provided that such reinvestment is made within 90
calendar days after the redemption date. A shareholder who has redeemed any or
all of his C shares of the Trust and has paid a CDSL on those shares or has held
those shares long enough so that the CDSL no longer applies, may reinvest all or
any portion of the redemption proceeds in C shares of the Trust at
13
<PAGE> 16
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 for those purposes to the extent that the redemption proceeds
are reinvested in shares of the Trust. See "Taxes." 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 the Trust to his defined contribution plan, IRA or SEP. Investors
must notify the Fund if they intend to exercise the reinstatement privilege.
For more information on "What Class A Shares Will Cost" and a further
explanation of instances in which the sales load will be waived or reduced, see
"Investing in the Trust" in the SAI.
WHAT CLASS C SHARES WILL COST
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A CDSL of 1% is imposed on C shares if, within one year of purchase, you
redeem an amount that causes the current value of your account to fall below the
total dollar amount of C shares purchased subject to the CDSL. The CDSL will not
be imposed on the redemption of C shares acquired as dividends or other
distributions, or on any increase in the net asset value of the redeemed C
shares above the original purchase price. Thus, the CDSL will be imposed on the
lower of net asset value or purchase price.
Redemptions will be processed in a manner intended to minimize the amount
of redemption that will be subject to the CDSL. When calculating the CDSL, it
will be assumed that the redemption is made first of C shares acquired as
dividends, second of C shares that have been held for over one year, and finally
of C shares held for less than one year on a first-in first-out basis.
For example, assume you purchase 100 C shares at $10 per share (for a total
cost of $1,000) and, during the year you purchase such shares, the net asset
value increases to $12 per share and you acquire 10 additional shares as
dividends. If you redeem 50 shares (or $600) within the first year of purchase,
10 shares would not be subject to the CDSL because redemptions are made first of
shares acquired as dividends. With respect to the remaining shares, the CDSL is
applied only to the original cost of $10 per share and not to the higher net
asset value of $12 per share. Therefore, only 40 of the 50 shares (or $400)
being redeemed would be subject to a CDSL at a rate of 1%.
WAIVER OF THE CONTINGENT DEFERRED SALES LOAD. The CDSL currently is waived
for (1) any partial or complete redemption in connection with a distribution
without penalty under Section 72(t) of 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 a Systematic
Withdrawal Plan from an account meeting certain minimum balance requirements, in
amounts meeting 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
the Trust of 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
14
<PAGE> 17
(4) above, including distribution letters, certification by plan administrators,
applicable tax forms or death certificates or physicians certificates.
For more information about C shares, see "Reinstatement Privilege" and
"Exchange Privilege."
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Redemptions of Trust shares can be made by:
CONTACTING YOUR REPRESENTATIVE. Your Representative will transmit an order
to the Trust for redemption and may charge you a fee for this service.
TELEPHONE REQUEST. You may redeem shares by placing a telephone request to
the Trust (800-421-4184) prior to the close of regular trading on the Exchange.
If you do not wish to have telephone exchange/redemption privileges, you should
so elect by completing the appropriate section of the Account Application. The
Trust, Manager, Distributor and their Trustees, directors, officers and
employees are not liable for any loss arising out of telephone instructions they
reasonably believe are authentic. These parties will employ reasonable
procedures to confirm that telephone instructions are authentic. To the extent
that the Trust, Manager, Distributor and their Trustees, directors, officers and
employees do not follow reasonable procedures, some or all of them may be liable
for losses due to unauthorized or fraudulent transactions. For more information
on these procedures, see "Redeeming Shares - Telephone Transactions" in the SAI.
You may elect to have the funds wired to the bank account specified on the
Account Application. Funds 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 $25,000, you may request that the check be mailed to your address of
record, providing that such address has not been changed in the past 60 days.
For your protection, all other redemption checks will be transferred to the bank
account specified on the Account Application.
WRITTEN REQUEST. Trust shares may be redeemed by sending a written request
for redemption to "Heritage Income-Growth Trust, c/o Shareholder Services,
Heritage Asset Management, Inc., P.O. Box 33022, St. Petersburg, Florida 33733."
Signature guarantees will be required on the following types of
requests: redemptions from any account that has had an address change in the
past 60 days, redemptions greater than $25,000, 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 Trust 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 Trust
are redeemed to provide the amount of the periodic withdrawal payment. The
purchase of A shares while participating in the Systematic Withdrawal Plan
ordinarily will be disadvantageous to you because you will be paying a sales
load on the purchase of those shares at the same time that you are redeeming A
shares upon which you may have already paid a sales load. Therefore, the Trust
will not knowingly permit the purchase of A shares through the Automatic
Investment Plan if you are at the same time making systematic withdrawals of A
shares. The Manager reserves the right to cancel systematic withdrawals if
insufficient shares are available for two or more consecutive months.
Please contact the Manager or your Representative for further information
or see "Redeeming Shares" in the SAI.
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<PAGE> 18
RECEIVING PAYMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If a request for redemption is received by the Trust in good order (as
described below) before the close of regular trading on the Exchange, the shares
will be redeemed at the net asset value per share determined at the close of
regular trading on the Exchange on that day, less any applicable CDSL for C
shares. Requests for redemption received by the Trust after the close of regular
trading on the Exchange will be executed at the net asset value determined at
the close of regular trading on the Exchange on the next trading day, less any
applicable CDSL for C shares.
Payment for shares redeemed by the Trust normally will be made on the
business day after redemption was made. If the shares to be redeemed recently
have been purchased by personal check, the Trust may delay mailing a redemption
check until the purchase check has cleared, which may take up to seven days.
This delay can be avoided by wiring funds for purchases. The proceeds of a
redemption may be more or less than the original cost of Trust shares.
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 the shareholder and by all co-owners of
the account with exactly the same name or names used in establishing the
account;
- any written request is accompanied by certificates representing the
shares that have been issued, if any, and the certificates have been
endorsed for transfer exactly as the name or names appear on the
certificates or an accompanying stock power has been attached; and
- the signatures on any written redemption request of $25,000 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 the Manager, as transfer agent, under its current signature guarantee
program.
The Trust has the right to suspend redemption or postpone payment at times
when the Exchange is closed (other than customary weekend or holiday closings)
or during periods of emergency or other periods as permitted by the SEC. 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 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
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If you have held A shares or C shares for at least 30 days, you may
exchange some or all of your shares for 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.
Exchanges involving the redemption of shares recently purchased by check will be
16
<PAGE> 19
permitted only after the Heritage Mutual Fund whose shares have been tendered
for exchange is reasonably assured that the check has cleared, normally seven
calendar days following the purchase date. Exchanges of shares of Heritage
Mutual Funds generally will result in the realization of a taxable gain or loss
for Federal income tax purposes.
For purposes of calculating the commencement of the one-year CDSL holding
period for shares exchanged from the Trust to the C shares of any other Heritage
Mutual Fund, except Heritage Cash Trust -- Money Market Fund ("Money Market
Fund"), the original purchase date of those shares exchanged will be used. Any
time period that the exchanged shares were held in the Money Market Fund will
not be included in this calculation.
If you exchange A shares or C shares for corresponding shares of the Money
Market Fund, you may, at any time thereafter, exchange such shares for the
corresponding class of shares of any other Heritage Mutual Fund. Because the
Money Market Fund is a no-load mutual fund, if you exchange shares of that fund
acquired by purchase (rather than exchange) for shares of another Heritage
Mutual Fund, you will be subject to the sales load, if any, that would be
applicable to a purchase of that Heritage Mutual Fund. In addition, if you
exchange C shares of the Trust for corresponding shares of the Money Market
Fund, the period during which an investment is held in shares of Money Market
Fund will not count for purposes of calculating the one-year CDSL holding period
for such shares. As a result, if you redeem C shares of the Money Market Fund
before the expiration of the one-year CDSL holding period, you will be subject
to the applicable CDSL. A shares of the Trust may be exchanged for A shares of
the Heritage Cash Trust -- Municipal Money Market Fund, which is the only class
of shares offered by that fund. Because the Heritage Cash Trust -- Municipal
Money Market Fund is a no-load mutual fund, if you exchange shares of that fund
acquired by purchase (rather than exchange) for shares of another Heritage
Mutual Fund, you also will be subject to the sales load, if any, that would be
applicable to a purchase of that Heritage Mutual Fund. C shares are not eligible
for exchange into the Heritage Cash Trust -- Municipal Money Market Fund.
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 Representative. In the event that you or your
Representative are unable to reach the Manager by telephone, an exchange can be
effected by sending a telegram to Heritage Asset Management, Inc., attention:
Shareholder Services. Due to the volume of calls or other unusual circumstances,
telephone exchanges may be difficult to implement during certain time periods.
The exchange privilege is available only in states where shares of the
Heritage Mutual Fund being acquired may be legally sold. Each Heritage Mutual
Fund reserves the right to reject any order to acquire its shares through
exchange or otherwise to restrict or terminate the exchange privilege at any
time. In addition, each Heritage Mutual Fund may terminate this exchange
privilege upon 60 days' notice. For further information on this exchange
privilege, contact the Manager or your Representative and see "Exchange
Privilege" in the SAI.
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<PAGE> 20
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The business and affairs of the Trust are managed by or under the direction
of its Board of Trustees. The Trustees are responsible for managing the Trust's
business affairs and for exercising all the Trust's powers except those reserved
to the shareholders. A Trustee may be removed by the other Trustees or by a
two-thirds vote of the outstanding Trust shares.
INVESTMENT ADVISER, FUND ACCOUNTANT, ADMINISTRATOR AND TRANSFER AGENT
Heritage Asset Management, Inc. is the Trust's investment adviser, fund
accountant, administrator and transfer agent. The Manager is responsible for
reviewing and establishing investment policies for the Trust as well as
administering the Trust's noninvestment affairs. The Manager is a wholly-owned
subsidiary of Raymond James Financial, Inc., which, together with its
subsidiaries, provides a wide range of financial services to retail and
institutional clients. The Manager manages, supervises and conducts the business
and administrative affairs of the Trust and other Heritage Mutual Funds with net
assets totalling approximately $2.0 billion as of December 31, 1995. The
Manager's annual investment advisory and administration fee paid monthly by the
Trust to the Manager is based on the Trust's average daily net assets shown on
the chart below. The Trust pays the Manager directly for fund accounting and
transfer agent services.
<TABLE>
<CAPTION>
ADVISORY FEE
AS A % OF
AVERAGE
DAILY NET
AVERAGE DAILY NET ASSETS ASSETS
- ---------------------------------------- ---------------
<S> <C>
First $100 million...................... .75%
Over $100 million....................... .60%
</TABLE>
This fee is higher than that charged for most other mutual funds with
similar investment objectives. The advisory fee may be reduced pursuant to
regulations in various states where Trust shares are qualified for sale which
impose limitations on the annual expense ratio of the Trust. In addition, the
Manager voluntarily will waive its fees, and if necessary, reimburse the Trust
to the extent that Class A annual operating expenses exceed 1.60% or to the
extent that Class C annual operating expenses exceed 2.35% of the Trust's
average daily net assets attributable to that class for a fiscal year. In the
event that the Manager waives or reimburses its fees with respect to one class
of shares, it will waive or reimburse the Trust with respect to the other class
of shares on an equal basis. The Manager reserves the right to discontinue any
voluntary waiver of its fees or reimbursements to the Trust in the future. The
Manager also may recover advisory fees waived in the previous two years if the
recovery does not cause the Trust to exceed applicable state expense
limitations. It currently is not anticipated that the Manager will recover these
fees.
SUBADVISER
The Manager has entered into an agreement with Eagle Asset Management, Inc.
to provide investment advice and portfolio management services, including
placement of brokerage orders, to the Trust for a fee payable by the Manager
equal to 50% of the fees payable to the Manager by the Trust without regard to
any reduction in fees actually paid to the Manager as a result of state expense
limitations or voluntary total expense limits. The Subadviser is a wholly-owned
subsidiary of Raymond James Financial, Inc. The Subadviser acts as adviser to
the Heritage Series Trust-Eagle International Equity Portfolio. The Subadviser
also acts as subadviser to the Heritage Series Trust-Value Equity Fund, the
Heritage Series Trust-Small Cap
18
<PAGE> 21
Stock Fund, the Heritage Series Trust-Growth Equity Fund and the Heritage
Capital Appreciation Trust (although no assets currently are allocated to the
Subadviser), and advises private investment accounts with net assets totalling
approximately $2.0 billion as of December 31, 1995. The Subadviser may use the
Distributor as broker for agency transactions in listed and over-the-counter
securities at commission rates and under circumstances consistent with the
policy of best price and execution. See "Brokerage Practices" in the SAI.
PORTFOLIO MANAGEMENT
Louis Kirschbaum serves as portfolio manager for the Trust. Mr. Kirschbaum
is responsible for the day-to-day management of the Trust's investment
portfolio, subject to the general oversight of the Manager and the Board of
Trustees. Mr. Kirschbaum has been a Senior Vice President and portfolio manager
of the Subadviser since July 1986 and portfolio manager of the Trust since
February 1990. Mr. Kirschbaum is assisted by Michael J. Chren, a senior Research
Analyst of the Subadviser. Mr. Chren has been affiliated with the Subadviser
since May 1994.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS AND OTHER DISTRIBUTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dividends from net investment income are declared and paid quarterly. The
Trust distributes to shareholders substantially all net realized capital gains
on portfolio securities after the end of the year in which the gains are
realized. Dividends and other distributions on shares held in retirement plans
and by shareholders maintaining a Systematic Withdrawal Plan generally are
declared and paid in additional Trust shares. Other shareholders may elect to:
- receive both dividends and other distributions in additional Trust
shares;
- receive dividends in cash and other distributions in additional Trust
shares;
- receive both dividends and other distributions in cash; or
- receive both dividends and other distributions in cash for investment
into another Heritage Mutual Fund.
If you select none of these options, the first option will apply. In any
case when you receive a dividend or an other distribution in additional Trust
shares, your account will be credited with shares valued at their net asset
value determined at the close of regular trading on the Exchange on the day
following the record date for the dividend or capital gain distribution.
Distribution options can be changed at any time by notifying the Manager in
writing.
Dividends paid by the Trust with respect to its A shares and C shares are
calculated in the same manner and at the same time and will be in the same
amount relative to the aggregate net asset value of the shares in each class,
except that dividends on C shares may be lower than dividends on A shares
primarily as a result of the higher distribution fee and class-specific expenses
applicable to C shares.
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As compensation for services rendered and expenses borne by the Distributor
in connection with the distribution of A shares and in connection with personal
services rendered to Class A shareholders and the
19
<PAGE> 22
maintenance of Class A shareholder accounts, the Trust may pay the Distributor a
service fee of up to 0.25% of the Trust's average daily net assets attributable
to A shares. This fee represents compensation for the maintenance of Class A
accounts. This fee is computed daily and paid monthly.
As compensation for services rendered and expenses borne by the Distributor
in connection with the distribution of C shares and in connection with personal
services rendered to Class C shareholders and the maintenance of C shareholder
accounts, the Trust pays the Distributor a service fee of 0.25% and a
distribution fee of 0.75% of the Trust's average daily net assets attributable
to Class C shares. This fee is computed daily and paid monthly.
The above-referenced fees paid to the Distributor are made under
Distribution Plans adopted pursuant to Rule 12b-1 under the 1940 Act. These
Plans authorize the Distributor to spend such fees on any activities or expenses
intended to result in the sale of A shares and C shares, including compensation
(in addition to the sales load) paid to Representatives, advertising, salaries
and other expenses of the Distributor relating to selling or servicing efforts;
expenses of organizing and conducting sales seminars; printing of prospectuses,
statements of additional information and reports for other than existing
shareholders; and preparation and distribution of advertising material, sales
literature and other sales promotion expenses. The Distributor has entered into
dealer agreements with participating dealers who also will distribute shares of
the Trust.
If either Plan is terminated, the obligation of the Trust to make payments
to the Distributor pursuant to the Plan will cease and the Trust will not be
required to make any payment past the date the Plan terminates.
TAXES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Trust intends to continue to qualify for treatment as a regulated
investment company under Subchapter M of the Code. In each taxable year that it
does so, the Trust (but not its shareholders) will be relieved of Federal income
tax on that part of its investment company taxable income (generally consisting
of net investment income, net short-term capital gains and net gains from
certain foreign currency transactions) and net capital gain (the excess of net
long-term capital gain over net short-term capital loss) that is distributed to
its shareholders. Dividends from the Trust's investment company taxable income
are taxable to its shareholders as ordinary income, to the extent of the Trust's
earnings and profits, whether received in cash or in additional Trust shares.
Distributions of the Trust's net capital gain, when designated as such, are
taxable to its shareholders as long-term capital gains, whether received in cash
or in additional Trust shares and regardless of the length of time the shares
have been held. No substantial portion of the dividends paid by the Trust is
expected to be eligible for the dividends-received deduction allowed to
corporations.
Dividends and other distributions declared by the Trust in November or
December of any year and payable to shareholders of record on a date in one of
those months will be deemed to have been paid by the Trust and received by the
shareholders on December 31 of that year if they are paid by the Trust during
the following January. Shareholders receive Federal income tax information
regarding dividends and other distributions after the end of each year. The
Trust is required to withhold 31% of all dividends, capital gain distributions
and redemption proceeds payable to individuals and certain other non-corporate
shareholders who do not provide the Trust with a correct taxpayer identification
number. Withholding at that rate also is required for from dividends and capital
gain distributions payable to such shareholders who otherwise are subject to
backup withholding.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting the Trust and its shareholders. See the SAI
for a further discussion. There may be other Federal,
20
<PAGE> 23
state or local tax considerations applicable to a particular investor. You are
therefore urged to consult your tax adviser.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Each share of the Trust gives the shareholder one vote in matters submitted
to shareholders for a vote. All A shares and C shares of the Trust have equal
voting rights, except that, in matters affecting only a particular class, only
shares of that class are entitled to vote. As a Massachusetts business trust,
the Trust is not required to hold annual shareholder meetings. Shareholder
approval will be sought only for certain changes in the Trust's operation and
for the election of Trustees under certain circumstances. Trustees may be
removed by the other Trustees or 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.
21
<PAGE> 24
No dealer, salesman or other person has been authorized to give any
information or to make any representation other than that contained in this
Prospectus in connection with the offer contained in this Prospectus, and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Trust or the Distributor. This Prospectus does
not constitute an offering in any state in which such offering may not lawfully
be made.
<PAGE> 25
BULK RATE [HERITAGE INCOME-GROWTH(TM) LOGO]
U.S. POSTAGE PROSPECTUS
PAID February 1, 1996
MODERN MAILING
Heritage Income-Growth Trust
P.O. Box 33022
St. Petersburg, FL 33733
--------------------------------------------
Address Change Requested
Prospectus
INVESTMENT ADVISOR/
SHAREHOLDER SERVICING AGENT
Heritage Asset Management, Inc.
P.O. Box 33022
St. Petersburg, FL 33733
(800) 421-4184
DISTRIBUTOR
Raymond James & Associates, Inc.
P.O. Box 12749
St. Petersburg, FL 33733
(813) 573-3800
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HERITAGE INCOME-GROWTH TRUST
This Statement of Additional Information ("SAI") dated February
1, 1996, should be read with the Prospectus of the Heritage Income-Growth
Trust dated February 1, 1996. 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 Objective . . . . . . . . . . . . . . . . . . . . . 1
Investment Policies . . . . . . . . . . . . . . . . . . . . . 1
Industry Classifications . . . . . . . . . . . . . . . . . . 12
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . 12
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 16
INVESTING IN THE TRUST . . . . . . . . . . . . . . . . . . . . . . . 17
Alternative Purchase Plans . . . . . . . . . . . . . . . . . 17
Class A Purchases at Net Asset Value . . . . . . . . . . . . 18
Class A Combined Purchase Privilege (Right of
Accumulation) . . . . . . . . . . . . . . . . . . . 18
Class A Statement of Intention . . . . . . . . . . . . . . . 19
REDEEMING SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Systematic Withdrawal Plan . . . . . . . . . . . . . . . . . 20
Telephone Transactions . . . . . . . . . . . . . . . . . . . 21
Redemptions in Kind . . . . . . . . . . . . . . . . . . . . 21
Receiving Payment . . . . . . . . . . . . . . . . . . . . . 22
EXCHANGE PRIVILEGE . . . . . . . . . . . . . . . . . . . . . . . . . 22
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
TRUST INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Management of the Trust . . . . . . . . . . . . . . . . . . 27
Investment Adviser and Administrator; Subadviser . . . . . . 30
Brokerage Practices . . . . . . . . . . . . . . . . . . . . 32
Distribution of Shares . . . . . . . . . . . . . . . . . . . 34
Administration of the Trust . . . . . . . . . . . . . . . . 36
Potential Liability . . . . . . . . . . . . . . . . . . . . 37
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
REPORT OF THE INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . A-4
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . A-5
<PAGE>
GENERAL INFORMATION
-------------------
Heritage Income-Growth Trust (the "Trust") was established as a
Massachusetts business trust under a Declaration of Trust dated July 25,
1986. The Trust offers two classes of shares, Class A shares sold subject
to a front-end sales load ("A shares") and Class C shares sold subject to
a contingent deferred sales load ("CDSL") ("C shares").
INVESTMENT INFORMATION
----------------------
Investment Objective
--------------------
The Trust's investment objective, as described in the Prospectus,
is long-term total return by seeking, with approximately equal emphasis,
current income and capital appreciation. This objective cannot be changed
without shareholder approval.
Investment Policies
-------------------
Convertible Securities. The Trust may invest in convertible
securities. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than the
issuer's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security
sells above its value as a fixed-income security. The Trust's investment
subadviser, Eagle Asset Management, Inc. ("Eagle" or the "Subadviser"),
will decide whether to invest in convertible securities based upon a
fundamental analysis of the long-term attractiveness of the issuer and the
underlying common stock, the evaluation of the relative attractiveness of
the current price of the underlying common stock, and the judgment of the
value of the convertible security relative to the common stock at current
prices.
Covered Call Options. The Trust may write covered call options
on securities to increase income in the form of premiums received from the
purchasers of the options. Because it can be expected that a call option
will be exercised if the market value of the underlying security increases
to a level greater than the exercise price, the Trust will write covered
call options on securities generally when the Subadviser believes that the
premium received by the Trust, plus anticipated appreciation in the market
price of the underlying security up to the exercise price of the option,
will be greater than the total appreciation in the price of the security.
The strategy also may be used to provide limited protection
against a decrease in the market price of the security in an amount equal
to the premium received for writing the call option, less any transaction
costs. Thus, if the market price of the underlying security held by the
Trust declines, the amount of such decline will be offset wholly or in
part by the amount of the premium received by the Trust. If, however,
there is an increase in the market price of the underlying security and
the option is exercised, the Trust will be obligated to sell the security
at less than its market value. The Trust would lose the ability to
participate in an increase in the value of such securities above the
<PAGE>
exercise price of the call option. The Trust also gives up the ability to
sell the portfolio securities used to cover the call option while the call
option is outstanding.
Eurodollar Certificates. The Trust may purchase certificates of
deposit issued by foreign branches of domestic and foreign banks.
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 or governmental regulation. Such obligations may be
subject to different risks than are those of domestic banks or domestic
branches of foreign banks. These risks include foreign economic and
political developments, foreign governmental restrictions that may affect
adversely payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest
income. Foreign branches of foreign banks are not subject necessarily to
the same or similar regulatory requirements, loan limitations, and
accounting, auditing and recordkeeping requirements as are domestic banks
or domestic branches of foreign banks. In addition, less information may
be publicly available about a foreign branch of a domestic bank or a
foreign bank than a domestic bank.
Foreign Securities. The Trust may invest in foreign securities
and American, European, Global and International Depository Receipts
("ADRs," "EDRs," "GDRs" and "IDRs," respectively); however, such
investments may not exceed 20% of the Trust's investment portfolio.
Investments in these types of securities involve, among other factors, the
risk of possible adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation, limitation on the
removal of funds or other assets of the Trust, political or financial
instability or diplomatic and other developments that could affect such
investments. Further, the economies of particular countries or areas of
the world may differ favorably or unfavorably from the economy of the
United States.
ADRs, EDRs, GDRs and IDRs are receipts that represent interests
in, or are convertible into, securities of foreign issuers. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying securities of foreign issuers and other forms
of depository receipts for securities of foreign issuers. EDRs and IDRs
are receipts typically issued by a European bank or trust company
evidencing ownership of the underlying foreign securities. GDRs are
receipts issued globally for trading in non-U.S. securities markets and
evidence a similar ownership arrangement.
It is anticipated that in most cases the best available market
for foreign securities will be on exchanges or in over-the-counter markets
located outside the United States. Many foreign stock markets, while
growing in volume and sophistication, generally are not as developed as
those in the United States, and securities of some foreign issuers
- 2 -
<PAGE>
(particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable U.S. companies. In
addition, foreign brokerage commissions generally are higher than
commissions on securities traded in the United States. In general, there
is less overall governmental supervision and regulation of securities
exchanges, brokers and listed companies than in the United States.
It is the Trust's policy not to invest in foreign securities from
countries in which currency or trading restrictions are in force or where,
in the judgment of the Subadviser, such restrictions likely are to be
imposed. It should be understood, however, that certain currencies may
become blocked (i.e., not freely available for transfer from a foreign
country), resulting in the possible inability of the Trust to convert
proceeds realized upon the sale of portfolio securities of the affected
foreign companies into U.S. currency.
Because investments in foreign companies usually will involve
currencies of foreign countries, and because the Trust temporarily may
hold funds in bank deposits in foreign currencies during the completion of
investment programs, the value of Trust assets as measured in U.S. dollars
may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and the Trust may incur
costs in connection with conversions between various currencies. The
Trust will conduct its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market. In addition, in order to protect against uncertainty in
the level of future exchange rates, the Trust may enter into contracts to
purchase or sell foreign currencies at a future date (i.e., a "forward
currency contract" or "forward contract").
Foreign Currency Forward Contracts. A forward currency contract
involves an obligation of the Trust to purchase or sell a specified
currency at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial
banks) and their customers.
The Trust may enter into forward currency contracts for the
purchase or sale of a specified currency at a specified future date either
with respect to specific transactions or with respect to portfolio
positions in order to minimize the risk to the Trust from adverse changes
in the relationship between the U.S. dollar and foreign currencies. For
example, when the Subadviser anticipates purchasing or selling a security,
the Trust may enter into a forward contract in order to set the exchange
rate at which the transaction will be made. The Trust also may enter into
a forward contract to sell an amount of a foreign currency approximating
the value of some or all of the Trust's securities positions denominated
in such currency. The Trust also may use forward contracts in one
currency or a basket of currencies to attempt to hedge against
- 3 -
<PAGE>
fluctuations in the value of securities denominated in a different
currency if the Subadviser anticipates that there will be a correlation
between the two currencies.
The Trust may use forward currency contracts to shift the Trust's
exposure to foreign currency exchange rate changes from one foreign
currency to another. For example, if the Trust owns securities
denominated in a foreign currency and the Subadviser believes that
currency will decline relative to another currency, it might enter into a
forward contract to sell the appropriate amount of the first foreign
currency with payment to be made in the second foreign currency.
Transactions that use two foreign currencies are sometimes referred to as
"cross hedging." Use of a different foreign currency magnifies the
Trust's exposure to foreign currency exchange rate fluctuations. The
Trust also may purchase forward currency contracts to enhance income when
the Subadviser anticipates that the foreign currency will appreciate in
value, but securities denominated in that currency do not present
attractive investment opportunities.
A forward currency contract generally has no deposit requirement,
and no commissions are charged at any stage for trades. When the Trust
enters into a forward currency contract, it relies on its counterparty to
make or take delivery of the underlying currency at the maturity of the
contract. Failure by the counterparty to do so would result in the loss
of any expected benefit of the transaction.
Purchasers and sellers of forward currency contracts can enter
into offsetting closing transactions by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts,
with the result that closing transactions generally can be made for
forward currency contracts only by negotiating directly with the
counterparty. Thus, there can be no assurance that the Trust will, in
fact, be able to close out a forward currency contract at a favorable
price prior to maturity. In addition, in the event of insolvency of the
counterparty, the Trust might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Trust would
continue to be subject to market risk with respect to the position, and
would continue to be required to maintain a position in securities
denominated in foreign currency or to maintain cash or securities in a
segregated account.
The precise matching of forward currency contract amounts and the
value of the securities involved generally will not be possible because
the value of such securities, measured in the foreign currency, will
change after the forward currency contract has been established. Thus,
the Trust might need to purchase or sell foreign currencies in the spot
(cash) market to the extent such foreign currencies are not covered by
forward contracts. The projection of short-term currency market movements
- 4 -
<PAGE>
is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain.
The Trust may purchase and sell foreign currency and invest in
foreign currency deposits. Currency conversion involves dealer spreads
and other costs, although commissions usually are not charged.
Successful use of forward currency contracts will depend on the
Subadviser's skill in analyzing and predicting currency values. Forward
contracts may change substantially the Trust's investment exposure to
changes in currency exchange rates, and could result in losses to the
Trust if currencies do not perform as the Subadviser anticipates. There
is no assurance that the Subadviser's use of forward currency contracts
will be advantageous to the Trust or that it will hedge at an appropriate
time.
Foreign Currency Strategies - Special Considerations.
The value of forward currency contracts depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of forward currency
contracts, the Trust could be disadvantaged by having to deal in the odd
lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable
than for round lots.
There is no systematic reporting of last sale information
for foreign currencies or any regulatory requirement that quotations
available through dealers or other market sources be firm or revised on a
timely basis. Quotation information generally is representative of very
large transactions in the interbank market and thus might not reflect odd-
lot transactions when rates might be less favorable. The interbank market
in foreign currencies is a global, round-the-clock market.
Settlement of transactions involving foreign currencies
might be required to take place within the country issuing the underlying
currency. Thus, the Trust might be required to accept or make delivery of
the underlying foreign currency in accordance with any U.S. or foreign
regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
Cover. Transactions using forward currency contracts
expose the Trust to an obligation to another party. The Trust will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in currencies or other forward contracts, or (2)
cash, receivables and short-term debt securities with a value sufficient
at all times to cover its potential obligations not covered as provided in
(1) above. The Trust will comply with Securities and Exchange Commission
("SEC") guidelines regarding cover for these instruments and, if the
- 5 -
<PAGE>
guidelines so require, set aside cash, U.S. Government securities or other
liquid, high-grade debt securities in a segregated account with its
custodian in the prescribed amount.
Assets used as cover or held in a segregated account
cannot be sold while the position in the corresponding forward currency
contract is open, unless they are replaced with other appropriate assets.
As a result, the commitment of a large portion of the Trust's assets to
cover or segregated accounts could impede investment portfolio management
or the Trust's ability to meet redemption requests or other current
obligations.
Forward Commitments. The Trust may make contracts to purchase
securities for a fixed price at a future date beyond customary settlement
time ("forward commitments") if the Trust holds, and maintains until the
settlement date in a segregated account, cash, U.S. Government securities
or high-grade debt obligations in an amount sufficient to meet the
purchase price, or if the Trust enters into offsetting contracts for the
forward sale of other securities it owns. The Trust may invest up to 25%
of its total assets in forward commitments. Forward commitments may be
considered securities in themselves and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in value of the
Trust's other assets. When such purchases are made through dealers, the
Trust relies on the dealer to consummate the sale. The dealer's failure
to do so may result in the loss to the Trust of an advantageous yield or
price. Although the Trust generally will enter into forward commitments
with the intention of acquiring securities for its investment portfolio,
the Trust may dispose of a commitment prior to settlement if the
Subadviser deems it appropriate to do so. The Trust may realize
short-term profits or losses upon the sale of forward commitments.
Money Market Instruments. In addition to the investments
described in the Prospectus, the Trust also may invest in money market
instruments, including the following:
(1) 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 Bank
Insurance Fund or the Savings Institution Insurance Fund of the Federal
Deposit Insurance Corporation.
(2) Commercial paper rated A-1 or A-2 by Standard & Poor's
Ratings Services ("S&P") or Prime-1 or Prime-2 by Moody's Investors
Service, Inc. ("Moody's"). For a description of these ratings, see
"Commercial Paper Ratings" in the attached Appendix.
- 6 -
<PAGE>
(3) High quality short-term corporate debt obligations, including
variable rate demand notes, having a maturity of one year or less.
Because there is no secondary trading market in demand notes, the
inability of the issuer to make required payments could impact adversely
the Trust's ability to resell when it deems advisable to do so.
Repurchase Agreements. The Trust may enter into repurchase
agreements. Although repurchase agreements carry certain risks not
associated with direct investment in securities, including possible
decline in the market value of the underlying securities and delays and
costs to the Trust if the other party to the repurchase agreement becomes
bankrupt, the Trust intends to enter into repurchase agreements only with
banks and dealers in transactions believed by the Subadviser to present
minimal credit risks in accordance with guidelines established by the
Trust's Board of Trustees (the "Board of Trustees" or the "Board"). The
period of these repurchase agreements usually will be short, from
overnight to one week, and at no time will the Trust invest in repurchase
agreements of more than one year. The securities that are subject to
repurchase agreements, however, may have maturity dates in excess of one
year from the effective date of the repurchase agreement. The Trust
always will receive as collateral securities whose market value, including
accrued interest, will be at least equal to 100% of the dollar amount
invested by the Trust in each agreement, and the Trust will make payment
for such securities only upon physical delivery or evidence of book entry
transfer to the account of the Trust's custodian bank.
Restricted and Illiquid Securities. The Trust may invest 10% of
its net assets in illiquid securities, including securities that are
illiquid due to the absence of a readily available market or due to legal
or contractual restrictions on resale, and repurchase agreements maturing
in more than seven days as limited by its investment restrictions. The
assets used as cover for over-the-counter ("OTC") call options written by
the Trust will be considered illiquid unless the OTC call options are sold
to qualified dealers who agree that the Trust may repurchase any OTC call
option it writes at a maximum price to be calculated by a formula set
forth in the option agreement. The cover for an OTC call option written
subject to this procedure would be considered illiquid only to the extent
that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
Risk Factors of High-Yield Securities. The Trust will not invest
35% or more of its assets in convertible securities and nonconvertible
corporate debt obligations rated B or higher, but lower than Baa by
Moody's, or BBB by S&P or, if unrated, deemed to be of comparable quality
by the Subadviser ("below investment grade"), which are commonly referred
to as "junk bonds." The prices of lower-rated securities tend to be less
sensitive to interest rate changes than higher-rated securities, but more
sensitive to adverse economic changes or individual corporate
developments. Securities rated below investment grade are deemed to be
predominantly speculative with respect to the issuer's capacity to pay
- 7 -
<PAGE>
interest and repay principal and may involve major risk exposure to
adverse conditions. The following supplements the disclosure in the
Prospectus.
Effect of Interest Rate and Economic Changes. The prices
of high-yield securities tend to be less sensitive to interest rate
changes than higher-rated investments, but may be more sensitive to
adverse economic changes or individual corporate developments. Periods of
economic uncertainty and changes generally result in increased volatility
in market prices and yields of high-yield securities and thus in the
Trust's net asset value. A strong economic downturn or a substantial
period of rising interest rates could affect severely the market for high-
yield securities. In these circumstances, highly leveraged companies
might have difficulty in making principal and interest payments, meeting
projected business goals, and obtaining additional financing. Thus, there
could be a higher incidence of default. This would affect the value of
such securities and thus the Trust's net assets value. Further, if the
issuer of a security owned by the Trust defaults, the Trust might incur
additional expenses to seek recovery.
Generally, when interest rates rise, the value of fixed-
rate debt obligations, including high-yield securities, tends to decrease;
when interest rates fall, the value of fixed-rate debt obligations tends
to increase. If an issuer of a high-yield security containing a
redemption or call provision exercises either provision in a declining
interest rate market, the Trust would have to replace the security, which
could result in a decreased return for shareholders. Conversely, if the
Trust experiences unexpected net redemptions in a rising interest rate
market, it might be forced to sell certain securities, regardless of
investment merit. This could result in decreasing the assets to which the
Trust's expenses could be allocated and in a reduced rate of return for
the Trust. While it is impossible to protect entirely against this risk,
diversification of the Trust's investment portfolio and the Subadviser's
careful analysis of prospective investment portfolio securities should
minimize the impact of a decrease in value of a particular security or
group of securities in the Trust's investment portfolio.
The High Yield Securities Market. The market for below-
investment grade bonds expanded rapidly in the 1980s, and its growth
paralleled a long economic expansion. During that period, the yields on
below-investment grade bonds rose dramatically. Such higher yields did
not reflect the value of the income stream that holders of such bonds
expected, but rather the risk that holders of such bonds could lose a
substantial portion of their value as a result of the issuers' financial
restructuring or default. In fact, from 1989 to 1991 during a period of
economic recession, the percentage of lower-quality bonds that defaulted
rose significantly, although the default rate decreased in subsequent
years. There can be no assurance that such declines in the below-
investment grade market will not reoccur. The market for below-
investment grade bonds generally is thinner and less active than that for
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<PAGE>
higher-quality bonds, which may limit the Trust's ability to sell such
securities at fair value in response to changes in the economy or
financial markets. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, also may decrease the values and
liquidity of lower-rated securities, especially in a thinly traded market.
Credit Ratings. The credit ratings issued by credit
rating services may not reflect fully the true risks of an investment.
For example, credit ratings typically evaluate the safety of principal and
interest payments, not market value risk, of high-yield securities. Also,
credit rating agencies may fail to change timely a credit rating to
reflect changes in economic or company conditions that affect a security's
market value. Although the Subadviser considers ratings of recognized
rating services such as Moody's and S&P, the Subadviser primarily relies
on its own credit analysis, which includes a study of existing debt,
capital structure, ability to service debt and to pay dividends, the
issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. The Subadviser continually monitors the
investments in the Trust's investment portfolio and carefully evaluates
whether to dispose of or retain high-yield securities whose credit ratings
have changed. See the Appendix for a description of corporate debt
ratings.
Liquidity and Valuation. Lower-rated bonds typically are
traded among a smaller number of broker-dealers than in a broad secondary
market. Purchasers of high-yield securities tend to be institutions,
rather than individuals, which is a factor that further limits the
secondary market. To the extent that no established retail secondary
market exists, many high-yield securities may not be as liquid as higher-
grade bonds. A less active and thinner market for high-yield securities
than that available for higher-quality securities may limit the Trust's
ability to sell such securities at fair market value in response to
changes in the economy or the financial markets. The ability of the Trust
to value or sell high-yield securities also will be affected adversely to
the extent that such securities are thinly traded or illiquid. During
such periods, there may be less reliable, objective information available
and thus the responsibility of the Board to value high-yield, high-risk
securities becomes more difficult, with judgment playing a greater role.
Further, adverse publicity about the economy or a particular issuer may
affect adversely the public's perception of the value, and thus the
liquidity of a high-yield security, whether or not such perceptions are
based on a fundamental analysis. See "Determination of Net Asset Value."
Securities Loans. The Trust may loan investment portfolio
securities to qualified broker-dealers. Such loans may be terminated by
the Trust at any time and the market risk applicable to any security
loaned remains a risk of the Trust. Although voting rights, or rights to
consent, with respect to the loaned securities pass to the borrower, the
Trust retains the right to call the loans at any time on reasonable
notice, and it will do so in order that the securities may be voted by the
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<PAGE>
Trust if the holders of such securities are asked to vote upon or consent
to matters materially affecting the investment. The Trust also may call
such loans in order to sell the securities involved. The borrower must
add to the collateral whenever the market value of the securities rises
above the level of such collateral. The Trust could incur a loss if the
borrower should fail financially at a time when the value of the loaned
securities is grater than the collateral. The primary objective of
securities lending is to supplement the Trust's income through investment
of the cash collateral in short-term interest-bearing obligations.
Short Sales. A short sale involves the sale by the Trust of a
security that it may not own. The Trust may not make short sales of
securities except "against the box." A short sale "against the box" is a
short sale whereby, at the time of the sale, the Trust owns or has the
immediate and unconditional right, at no additional cost, to obtain the
identical security. Not more than 10% of the Trust's net assets may be
held as collateral for such sales at any one time.
U.S. Government Securities. The Trust may invest in U.S.
Government securities, including a variety of securities that are issued
or guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements secured thereby. These securities include
securities issued and guaranteed by the U.S. Government, such as Treasury
bills, Treasury notes, and Treasury 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.
Warrants. The Trust may invest up to 2% of its net assets in
warrants (other than warrants acquired as part of a unit or attached to
securities at the time of purchase), which entitle the holder to buy
equity securities at a specific price for a specific period of time.
Warrants may be considered more speculative than certain other types of
investments in that they do not entitle a holder to dividends or voting
rights with respect to the securities that may be purchased nor do they
represent any rights in the assets of the issuing company. Also, the
value of a warrant does not change necessarily with the value of the
underlying securities, and a warrant ceases to have value if it is not
exercised prior to the expiration date.
Zero Coupon Securities. The Trust may invest in zero coupon
securities, which are debt obligations that do not entitle the holder to
any periodic payment of interest prior to maturity or a specified date
when the securities begin paying current interest. Zero coupon securities
are issued and traded at a discount from their face amount or par value,
which discount rate varies depending on the time remaining until cash
payments begin, prevailing interest rates, liquidity of the security and
the perceived credit quality of the issuer. The market prices of zero
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coupon securities generally are more volatile than the prices of
securities that pay interest periodically and are likely to respond to
changes in interest rates to a greater degree than do other types of debt
securities having similar maturities and credit value.
Industry Classifications
------------------------
For purposes of determining industry classifications, the Trust
relies upon classifications established by Heritage Asset Management, Inc.
("Heritage" or the "Manager") that are based upon classifications
contained in the Directory of Companies Filing Annual Reports with the SEC
and in the Standard & Poor's Corporation Industry Classifications.
INVESTMENT LIMITATIONS
----------------------
In addition to the limits disclosed in "Investment Policies"
above and the investment limitations described in the Prospectus, the
Trust is subject to the following investment limitations that are
fundamental policies of the Trust and may not be changed without the vote
of a majority of the outstanding voting securities of the Trust. Under
the Investment Company Act of 1940, as amended (the "1940 Act"), a "vote
of a majority of the outstanding voting securities" of the Trust means the
affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of the Trust 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.
Investing in Commodities, Minerals or Real Estate. The Trust may
not invest in commodities, commodity contracts, oil, gas or other mineral
programs, or real estate, except that it may (1) purchase securities
secured by real estate or issued by companies that invest in or sponsor
such interests, (2) write and purchase call options and purchase and sell
forward contracts, and (3) engage in transactions in forward commitments.
Underwriting. The Trust may not underwrite the securities of
other issuers, except that the Trust may invest in securities that are not
readily marketable without registration under the Securities Exchange Act
of 1933 Act, as amended (the "1933 Act"), (restricted securities), if
immediately after the making of such investment not more than 5% of the
value of the Trust's total assets (taken at cost) would be so invested.
Loans. The Trust may not make loans, except to the extent that
the purchase of a portion of an issue of publicly distributed or privately
placed notes, bonds or other evidences of indebtedness or deposits with
banks and other financial institutions may be considered loans. The Trust
also may enter into repurchase agreements and securities loans as
permitted under the Trust's investment policies. Privately placed
securities typically are either restricted as to resale or may not have
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readily available market quotations, and therefore may not be as liquid as
other securities.
Issuing Senior Securities. The Trust may not issue senior
securities, except as permitted by its investment objective and policies
and investment limitations of the Trust and except that the Trust may
purchase and sell call options and forward contracts.
Investing in Issuers Whose Securities Are Owned by Officers and
Trustees of the Trust. The Trust may not purchase or retain the
securities of any issuer if the officers and Trustees of the Trust or the
Manager or Subadviser owning individually more than 1/2 of 1% of the
issuer's securities together own more than 5% of the issuer's securities.
Repurchase Agreements and Loans of Portfolio Securities. The
Trust may not enter into repurchase agreements with respect to more than
25% of its total assets and may not lend portfolio securities amounting to
more than 25% of its total assets.
Margin Purchases. The Trust may not purchase securities on
margin except to obtain such short-term credits as may be necessary for
the clearance of transactions.
Restricted Securities. The Trust may not invest more than 5% of
the Trust's total assets (taken at cost) in securities that are not
readily marketable without registration under the 1933 Act (restricted
securities).
The Trust has adopted the following additional restrictions that,
together with certain limits described in the Trust's 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.
Investing in Investment Companies. The Trust may invest in
securities issued by other investment companies to the extent permitted by
the 1940 Act and the rules and regulations thereunder. Under these rules
and regulations, the Trust is prohibited from acquiring the securities of
another investment company if, as a result of such acquisition, the Trust
owns more than 3% of the total voting stock of the company, securities
issued by any one investment company represent more than 5% of the Trust's
total assets, or securities (other than treasury stock) issued by all
investment companies represent more than 10% of the total assets of the
Trust. The Trust's purchase of investment company securities may result
in the layering and duplication of expenses such that shareholders
indirectly bear a proportionate share of the operating expenses of such
companies, including advisory fees.
Control Purpose. The Trust may not make investments for the
purpose of gaining control of an issuer's management.
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<PAGE>
Pledging Securities. The Trust may not pledge any securities,
except in an amount of not more than 15% of its total assets, to secure
borrowings for temporary and emergency purposes or in connection with the
writing of call options. (The deposit in escrow of underlying securities
in connection with the writing of covered call options, and the deposit of
margin in connection with forward contracts, is not deemed to be a pledge
or other encumbrance.)
Unseasoned Issuers. The Trust may not invest more than 5% of its
net assets in securities of companies (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities)
that, including their predecessors, have been in continuous operation for
less than three years and in equity securities that do not have readily
available market quotations (other than restricted securities).
Warrants. The Trust may not invest more than 2% of its net
assets in warrants (other than warrants acquired as part of a unit or
attached to securities at the time of purchase).
Illiquid Investments. The Trust may not invest more than 10% of
its net assets in the aggregate in repurchase agreements of more than
seven days' duration, in securities without readily available market
quotations, and in restricted securities including privately placed
securities.
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. If at any
time, the Trust's borrowings exceed its limitations due to a decline in
net assets, such borrowings will be promptly reduced to the extent
necessary to comply with the limitation.
NET ASSET VALUE
---------------
The net asset values of A shares and C shares are determined
daily, Monday through Friday, except for New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, as of the close of regular trading on the New York
Stock Exchange (the "Exchange"). Net asset value for each class is
calculated by dividing the value of the total assets of the Trust
attributable to that class, less all liabilities (including accrued
expenses) attributable to that class, by the number of class shares
outstanding, the result being adjusted to the nearest whole cent. A
security listed or traded on the Exchange, or other domestic or foreign
stock exchanges, is valued at its last sales price on the principal
exchange on which it is traded prior to the time when assets are valued.
If no sale is reported at that time or the security is traded in the OTC
market, the most recent bid price is used. Securities and other assets
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<PAGE>
for which market quotations are not readily available, or for which market
quotes are not deemed to be reliable, are valued at fair value as
determined in good faith by the Board of Trustees. Securities in a
foreign currency will be valued daily in U.S. dollars at the foreign
currency exchange rates prevailing at the time the Trust calculates the
daily net asset value of each class. Short-term investments having a
maturity of 60 days or less are valued at amortized cost, which
approximates market value.
The Trust is open for business on days on which the Exchange is
open (each a "Business Day"). Trading in securities on European and Far
Eastern securities exchanges and OTC markets normally is completed well
before the Trust's close of business on each Business Day. In addition,
European or Far Eastern securities trading may not take place on all
Business Days. Furthermore, trading takes place in various foreign
capital markets on days that are not Business Days and on which the
Trust's net asset value is not calculated. Calculation of A shares and C
shares net asset value does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities
used in such calculation. The Trust calculates net asset value per share,
and therefore effects sales and redemptions, as of the close of regular
trading on the Exchange each Business Day. If events materially affecting
the value of such securities occur between the time when their prices are
determined and the time when the Trust's net asset value is calculated,
such securities will be valued at fair value by methods as determined in
good faith by or under the direction of the Board of Trustees.
The Board of Trustees may suspend the right of redemption or
postpone payment for more than seven days at times (1) during which the
Exchange is closed other than for the customary weekend and holiday
closings, (2) during which trading on the Exchange is restricted as
determined by the SEC, (3) during which an emergency exists as a result of
which disposal by the Trust of securities owned by it is not reasonably
practicable or it is not reasonably practical for the Trust fairly to
determine the value of its net assets, or (4) for such other periods as
the SEC may by order permit for the protection of the holders of A shares
and C shares.
PERFORMANCE INFORMATION
-----------------------
The performance data for each class of the Trust quoted in
advertising and other promotional materials represents past performance
and is not intended to indicate future performance. The investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Average
annual total return quotes for each class used in the Trust's advertising
and promotional materials are calculated according to the following
formula:
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<PAGE>
n
P(1+T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at
the end of that period.
In calculating the ending redeemable value for A shares, the
current maximum sales load of 4.75% is deducted from the initial $1,000
payment and all dividends and other distributions by the Trust are assumed
to have been reinvested at net asset value on the reinvestment dates
during the period. Based on this formula, the total return, or "T" in the
formula above, is computed by finding the average annual compounded rates
of return over the period that would equate the initial amount invested to
the ending redeemable value. The average annualized total returns for A
shares using this formula for the one- and five-year periods ended
September 30, 1995 and for the period December 15, 1986, (commencement of
operations) through September 30, 1995, were -14.53%, 13.89% and 8.32%,
respectively.
In connection with communicating its total return to current or
prospective shareholders, the Trust also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services
or to other unmanaged indexes that may assume reinvestment of dividends
but generally do not reflect deductions for administrative and management
costs. In addition, the Trust may from time to time include in
advertising and promotional materials total return figures that are not
calculated according to the formula set forth above for each class of
shares. For example, in comparing the Trust's cumulative total return
with data published by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. or with such market indices as the Dow Jones Industrial
Average and the Standard & Poor's 500 Composite Stock Price Index, the
Trust calculates its cumulative total return for each class for the
specified periods of time by assuming an investment of $10,000 in shares
of that class and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage
increases are determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the
beginning value. The Trust does not, for these purposes, deduct from the
initial value invested any amount representing front-end sales loads
charged on A shares or CDSLs charged on C shares.
The A shares cumulative returns using this formula for the one-
and five-year periods ended September 30, 1995 and for the period December
15, 1986, (commencement of operations) through September 30, 1995, were
19.57%, 106.92% and 111.98%, respectively. The C shares cumulative return
using this formula for the period April 3, 1995 (commencement of C shares)
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<PAGE>
to September 30, 1995 was 13.18%. By not annualizing the performance and
excluding the effect of the front-end sales load, the A shares and the
CDSL on C shares, total return calculated in this manner simply will
reflect the increase in net asset value per share over a period of time,
adjusted for dividends and other distributions. Calculating total return
without taking into account the front-end sales load or CDSL results in a
higher rate of return than calculating total return net of the sales load.
INVESTING IN THE TRUST
----------------------
A shares and C shares are sold at their next determined net asset
value on Business Days. The procedures for purchasing shares of the Trust
are explained in the Prospectus under "Investing in the Trust."
Alternative Purchase Plans
--------------------------
A shares are sold at their next determined net asset value plus a
front-end sales load on days the Exchange is open for business. C shares
are sold at their next determined net asset value on days the Exchange is
open for business, subject to a 1% CDSL if the investor redeems such
shares within one year. The Manager, as the Trust's transfer agent, will
establish an account with the Trust and will transfer funds to State
Street Bank and Trust Company (the "Custodian"). Normally, orders will be
accepted upon receipt of funds and will be executed at the net asset value
determined as of the close of regular trading on the Exchange on that day
plus any applicable sales load. See "Alternative Purchase Plans" in the
Prospectus. The Trust reserves the right to reject any order for Trust
shares. The Trust's distributor, Raymond James & Associates, Inc. ("RJA"
or the "Distributor"), has agreed that it will hold the Trust harmless in
the event of loss as a result of cancellation of trades in Trust shares by
the Distributor, its affiliates or its customers.
Class A Purchases at Net Asset Value
------------------------------------
Cities, counties, states or instrumentalities, and their
departments, authorities or agencies are able to purchase A shares at net
asset value as long as certain conditions are met: the governmental
entity is prohibited by applicable investment laws, codes or regulations
from paying an initial sales load in connection with the purchase of
shares of a registered investment company; the governmental entity has
determined that such A shares are a legally permissible investment; and
any relevant minimum purchase amounts are met.
In the instance of discretionary fiduciary assets or trusts, or
Class A purchases by a governmental entity through a registered broker-
dealer with which the Distributor has a dealer agreement, the Manager may
make a payment out of its own resources to the Distributor, who may
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<PAGE>
reallow the payment to the selling broker-dealer. However, the
Distributor and the selling broker-dealer may be required to reimburse the
Manager for these payments if investors redeem A shares within specified
periods.
Class A Combined Purchase Privilege (Right of Accumulation)
-----------------------------------------------------------
Certain investors may qualify for the Class A sales load
reductions indicated in the sales load schedule in the Prospectus by
combining purchases of A shares into a single "purchase," if the resulting
purchase totals at least $25,000. The term "purchase" refers to a single
purchase by an individual, or to concurrent purchases that, in the
aggregate, are at least equal to the prescribed amounts, by an individual,
his spouse and their children under the age of 21 years purchasing A
shares for his or their own account; a single purchase by a trustee or
other fiduciary purchasing A shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved; or a
single purchase for the employee benefit plans of a single employer. The
term "purchase" also includes purchases by a "company," as the term is
defined in the 1940 Act, but does not include purchases by any such
company that has not been in existence for at least six months or that has
no purpose other than the purchase of A shares or shares of other
registered investment companies at a discount; provided, however, that it
shall not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit card
holders of a company, policy holders of an insurance company, customers of
either a bank or broker-dealer, or clients of an investment adviser.
The applicable A shares initial sales load will be based on the
total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the
previous day) of (a) all A shares held by the investor and (b) all A
shares of any other Heritage mutual fund advised or administered by the
Manager ("Heritage Mutual Fund") held by the investor and purchased at a
time when A shares of such other fund were distributed subject to a sales
load (including Heritage Cash Trust shares acquired by exchange); and
(iii) the net asset value of all A shares described in
paragraph (ii) owned by another shareholder eligible to combine his
purchases with that of the investor into a single "purchase."
A shares of Heritage Income Trust-Limited Maturity Government
Portfolio ("Limited Maturity") purchased from February 1, 1992 through
July 31, 1992, without payment of an initial sales load will be deemed to
fall under the provisions of paragraph (ii) as if they had been
distributed without being subject to a sales load, unless those shares
were acquired through an exchange of other shares that were subject to a
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<PAGE>
sales load. Effective February 1, 1996, Limited Maturity will change its
name to Heritage Income Trust-Intermediate Government Fund.
Class A Statement of Intention
------------------------------
Investors also may obtain the reduced sales loads shown in the
Prospectus by means of a written Statement of Intention, which expresses
the investor's intention to invest not less than $25,000 within a period
of 13 months in A shares of the Trust or any other Heritage Mutual Fund.
Each purchase of A shares under a Statement of Intention will be made at
the public offering price or prices applicable at the time of such
purchase to a single transaction of the dollar amount indicated in the
Statement. At the investor's option, a Statement of Intention may include
purchases of A shares of the Trust or any other Heritage Mutual Fund made
not more than 90 days prior to the date that the investor signs a
Statement of Intention. However, the 13-month period during which the
Statement is in effect will begin on the date of the earliest purchase to
be included.
The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum initial
investment under a Statement of Intention is 5% of such amount. A shares
purchased with the first 5% of such amount will be held in escrow (while
remaining registered in the name of the investor) to secure payment of the
higher sales load applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrowed A shares will be
redeemed involuntarily to pay the additional sales load, if necessary.
When the full amount indicated has been purchased, the escrow will be
released. To the extent an investor purchases more than the dollar amount
indicated on the Statement of Intention and qualifies for a further
reduced sales load, the sales load will be adjusted for the entire amount
purchased at the end of the 13-month period. The difference in sales load
will be used to purchase additional A shares of the Trust, subject to the
rate of sales load applicable to the actual amount of the aggregate
purchases. An investor may amend his/her Statement of Intention to
increase the indicated dollar amount and begin a new 13-month period. In
that case, all investments subsequent to the amendment will be made at the
sales load in effect for the higher amount. The escrow procedures
discussed above will apply.
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
Trust account of a minimum of $50 on a periodic basis. The amounts paid
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each period are obtained by redeeming sufficient shares from an account to
provide the withdrawal amount specified. The Systematic Withdrawal Plan
currently is not available for shares held in an Individual Retirement
Account, Section 403(b) annuity plan, defined contribution plan,
Simplified Employee Pension Plan 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.
Redemptions will be made at net asset value determined as of the
close of regular trading on the Exchange on the 10th day of each month or
the 10th day of the last month of each period, whichever is applicable.
Systematic withdrawals of C shares, if made within one year of the date of
purchase, will be charged a CDSL of 1%. If the Exchange is not open for
business on that day, the shares will be redeemed at net asset value
determined as of the close of regular trading on the Exchange on the
preceding Business Day, minus any applicable CDSL for C shares. The check
for the withdrawal payment usually will be mailed on the next Business Day
following redemption. If a shareholder elects to participate in the
Systematic Withdrawal Plan, dividends and other distributions on all
shares in the account must be reinvested automatically in Trust 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. The Trust and its transfer agent and 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 or a capital gain distribution. These payments are taxable
to the extent that the total amount of the payments exceeds the tax basis
of the shares sold. If the periodic withdrawals exceed reinvested
dividends and distributions, the amount of the original investment may be
correspondingly reduced.
Ordinarily, a shareholder should not purchase additional A shares
if maintaining a Systematic Withdrawal Plan of A shares because the
shareholder may incur tax liabilities in connection with such purchases
and withdrawals. The Trust will not knowingly accept purchase orders from
shareholders for additional A 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 the Trust's Automatic
Investment Plan.
Telephone Transactions
----------------------
Shareholders may redeem shares by placing a telephone request to
the Trust. The Trust, Manager, Distributor and their Trustees, directors,
officers and employees are not liable for any loss arising out of
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<PAGE>
telephone instructions they reasonably believe are authentic. In acting
upon telephone instructions, these parties use procedures that are
reasonably designed to ensure that such instructions are genuine, such as
(1) obtaining some or all of the following information: account number,
name(s) and social security number registered to the account, and personal
identification; (2) recording all telephone transactions; and (3) sending
written confirmation of each transaction to the registered owner. If the
Trust, Manager, Distributor and their Trustees, directors, officers and
employees do not follow reasonable procedures, some or all of them may be
liable for any such losses.
Redemptions in Kind
-------------------
The Trust is obligated to redeem shares for any shareholder for
cash during any 90-day period up to $250,000 or 1% of the Trust'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, the Trust will pay all or a portion of the remainder of
the redemption in portfolio instruments, valued in the same way as the
Trust 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
could receive less than the redemption value thereof and could incur
certain transaction costs.
Receiving Payment
-----------------
If a request for redemption is received by the Trust in good
order (as described in the Prospectus) before the close of regular trading
on the Exchange, the shares will be redeemed at the net asset value per
share determined at such close, minus any applicable CDSL for C shares.
Requests for redemption received by the Trust after the close of regular
trading on the Exchange will be executed at the net asset value determined
as of such close on the next trading day, minus any applicable CDSL for C
shares.
If shares of the Trust are redeemed by a shareholder through the
Distributor or a participating dealer, the redemption is settled with the
shareholder as an ordinary transaction. If a request for redemption is
received before the close of regular trading on the Exchange, shares will
be redeemed at the net asset value per share determined on that day, minus
any applicable CDSL for C shares. Requests for redemption received after
the close of regular trading on the Exchange will be executed on the next
trading day. Payment for shares redeemed normally will be made by the
Trust to the Distributor or a participating dealer 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 Trust or, if
no certificates have been issued, a written request signed by the
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<PAGE>
shareholder has been provided to the Distributor or a participating dealer
prior to settlement date.
Other supporting legal documents may be required from
corporations or other organizations, fiduciaries or persons other than the
shareholder of record making the request for redemption. Questions
concerning the redemption of Trust shares can be directed to registered
representatives of the Distributor or a participating dealer, or to the
Manager.
EXCHANGE PRIVILEGE
------------------
Shareholders who have held Trust shares for at least 30 days may
exchange some or all of their A shares or C shares for corresponding
classes of shares of any other Heritage Mutual Fund. 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.
A shares of Limited Maturity purchased from February 1, 1992
through July 31, 1992, without payment of an initial sales load may be
exchanged into A shares of the Trust without payment of any sales load.
Effective February 1, 1996, Limited Maturity will change its name to
Heritage Income Trust-Intermediate Government Fund. A shares of Limited
Maturity purchased after July 31, 1992 without an initial sales load will
be subject to a sales load when exchanged into A shares of the Trust,
unless those shares were acquired through an exchange of other shares that
were subject to an initial sales load.
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" above.
Telephone exchanges can be effected by calling the Manager at
800-421-4184 or by calling a registered representative of the Distributor,
a participating dealer or participating bank ("Representative"). In the
event that a shareholder or his Representative is unable to reach the
Manager by telephone, a telephone exchange can be effected by sending a
telegram to Heritage Asset Management, Inc., attention: Shareholder
Services. Telephone or telegram requests for an exchange received by the
Trust before the close of regular trading on the Exchange will be effected
at the close of regular trading on that day. Requests for an exchange
received after the close of regular trading will be effected on the
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<PAGE>
Exchange's next trading day. Due to the volume of calls or other unusual
circumstances, telephone exchanges may be difficult to implement during
certain time periods.
TAXES
-----
In order to continue to qualify for the favorable tax treatment
afforded to a regulated investment company ("RIC") under the Internal
Revenue Code of 1986, as amended, the Trust must distribute annually to
its shareholders at least 90% of its investment company taxable income
(generally consisting of net investment income, net short-term capital
gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional
requirements. These requirements include the following: (1) the Trust
must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of securities or foreign currencies, or
other income (including gains from options or forward contracts) derived
with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Trust must derive less than 30%
of its gross income each taxable year from the sale or other disposition
of securities or options, or foreign currencies or forward contracts
thereon that are not related directly to the Trust's principal business of
investing in securities, that are held for less than three months ("Short-
Short Limitation"); (3) at the close of each quarter of the Trust'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 Trust's total assets and that does not represent more than
10% of the issuer's outstanding voting securities; and (4) at the close of
each quarter of the Trust'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.
The Trust will be subject to a nondeductible 4% excise tax
("Excise Tax") to the extent it fails to distribute by the end of any
calendar year substantially all of its ordinary income for that year and
its capital gain net income for the one-year period ending on October 31
of that year, plus certain other amounts.
A redemption of Trust shares will result in a taxable gain or
loss to the redeeming shareholder, depending on whether the redemption
proceeds are more or less than the shareholder's adjusted basis for the
redeemed shares (which normally includes any sales load paid on A shares).
An exchange of Trust shares for shares of another Heritage Mutual Fund
generally will have similar tax consequences. However, special rules
apply when a shareholder disposes of Trust shares through a redemption or
exchange within 90 days after purchase thereof and subsequently reacquires
- 22 -
<PAGE>
A shares of the Trust or acquires A shares of another Heritage Mutual Fund
without paying a sales load due to the 30-day reinstatement or exchange
privilege. In these cases, any gain on the disposition of the original
Trust A shares will be increased, or loss decreased, by the amount of the
sales load paid when those shares were acquired, and that amount will
increase the adjusted basis of the shares subsequently acquired. In
addition, if Trust shares are purchased (whether pursuant to the
reinstatement privilege or otherwise) within 30 days before or after
redeeming other Trust shares (regardless of class) at a loss, all or a
portion of that loss will not be deductible and will increase the basis of
the newly purchased shares.
If Trust shares are sold at a loss after being held for six
months or less, the loss will be treated as long-term, instead of
short-term, capital loss to the extent of any capital gain distributions
received on those shares. Investors also should be aware that if shares
are purchased shortly before the record date for a dividend or other
distribution, the shareholder will pay full price for the shares and
receive some portion of the price back as a taxable distribution.
Dividends and interest received by the Trust may be subject to
income, withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on its securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these foreign taxes, however and many foreign countries do not
impose taxes on capital gains in respect of investments by foreign
investors.
The Trust may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general,
meets either of the following tests: (1) at least 75% of its gross income
is passive or (2) an average of at least 50% of its assets produce, or are
held for the production of, passive income. Under certain circumstances,
the Trust will be subject to Federal income tax on a portion of any
"excess distribution" received on stock it holds in a PFIC or of any gain
on disposition of the stock (collectively "PFIC income"), plus interest
thereon, even if the Trust distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be
included in the Trust's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is
distributed to its shareholders.
If the Trust invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Trust will be required to include in income each year its
pro rata share of the qualified electing fund's annual ordinary earnings
and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) -- which probably would have to be distributed to
satisfy the Distribution Requirement and avoid imposition of the Excise
Tax -- even if those earnings and gain were not received by the Trust. In
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<PAGE>
most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
Pursuant to proposed regulations, open-end RICs, such as the
Trust, would be entitled to elect to "mark-to-market" their stock in
certain PFICs. "Marking-to-market," in this context, means recognizing as
gain for each taxable year the excess, as of the end of that year, of the
fair market value of a PFIC's stock over the adjusted basis in that stock
(including mark-to-market gain for each prior year for which an election
was in effect).
The use of hedging strategies, such as purchasing and selling
futures contracts and entering into forward contracts, involves complex
rules that will determine for income tax purposes the character and timing
of recognition of the gains and losses the Trust realizes in connection
therewith. Gains from the disposition of foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and
gains from options and forward contracts derived by the Trust with respect
to its business of investing in securities or foreign currencies, will
qualify as permissible income under the Income Requirement. However,
income from the disposition of options, and from foreign currencies and
forward contracts thereon that are not related directly to the Trust's
principal business of investing in securities, will be subject to the
Short-Short Limitation if they are held for less than three months.
The Trust may acquire zero coupon or other securities issued with
original issue discount ("OID"). As a holder of those securities, the
Trust must include in its income the OID that accrues on them during the
taxable year, even if the Trust receives no corresponding payment on them
during the year. Because the Trust annually must distribute substantially
all of its investment company taxable income, including any OID, to
satisfy the Distribution Requirement and avoid imposition of the Excise
Tax, the Trust may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash it
actually receives. Those distributions will be made from the Trust's cash
assets or from the proceeds of sales of portfolio securities, if
necessary. The Trust may realize capital gains or losses from those
sales, which would increase or decrease its investment company taxable
income and/or net capital gain. In addition, any such gains may be
realized on the disposition of securities held for less than three months.
Because of the Short-Short Limitation, any such gains would reduce the
Trust's ability to sell other securities, or certain options or forward
contracts, held for less than three months that it might wish to sell in
the ordinary course of its portfolio management.
- 24 -
<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,
the Manager and Eagle.
<TABLE>
<CAPTION>
Position with Principal Occupation
Name the Trust During Past Five Years
---- ------------- ----------------------
<S> <C> <C>
Thomas A. James* Trustee Chairman of the Board since 1986 and Chief
880 Carillon Parkway Executive Officer since 1969; Chairman of the
St. Petersburg, FL 33716 Board of RJA since 1986; Chairman of the Board
of Eagle Asset Management, Inc. ("Eagle") since
1984 and Chief Executive Officer of Eagle since
July 1994.
Richard K. Riess* Trustee President of Eagle, January 1995 to present,
880 Carillon Parkway Chief Operating Officer, July 1988 to present,
St. Petersburg, FL 33716 Executive Vice President, July 1988-December
1993; President of Heritage Mutual Funds, June
1985-November 1991.
Donald W. Burton Trustee President of South Atlantic Capital Corporation
614 W. Bay Street (venture capital) since October 1981.
Suite 200
Tampa, FL 33606
C. Andrew Graham Trustee Vice President of Financial Designs Ltd. since
Financial Designs, Ltd. 1992; Executive Vice President of the Madison
1775 Sherman Street Group, Inc., October 1991-1992; Principal of
Suite 1900 First Denver Financial Corporation (investment
Denver, CO 80203 banking) since 1987.
David M. Phillips Trustee Chairman and Chief Executive Officer of CCC
World Trade Center Chicago Information Services, Inc. since 1994 and of
444 Merchandise Mart InfoVest Corporation (information services to
Chicago, IL 60654 the insurance and auto industries and consumer
households) since October 1982.
- 25 -
<PAGE>
Position with Principal Occupation
Name the Trust During Past Five Years
---- ------------- ----------------------
Eric Stattin Trustee Litigation Consultant/Expert Witness and
2587 Fairway Village Drive private investor since February 1988.
Park City, UT 84060
James L. Pappas Trustee Dean of College of Business Administration
University of South Florida since August 1987 and Lykes Professor of
College of Business Banking and Finance since August 1986 at
Administration University of South Florida.
Tampa, FL 33620
Stephen G. Hill President Chief Executive Officer and President of the
880 Carillon Parkway Manager since April 1989 and Director since
St. Petersburg, FL 33716 December 31, 1994.
Donald H. Glassman Treasurer Treasurer of the Manager since May 1989;
880 Carillon Parkway Treasurer of Heritage Mutual Funds since May
St. Petersburg, FL 33716 1989.
Clifford J. Alexander Secretary Partner, Kirkpatrick & Lockhart LLP.
1800 Massachusetts Ave., N.W.
Washington, DC 20036
Patricia Schneider Assistant Compliance Administrator of the Manager.
880 Carillon Parkway Secretary
St. Petersburg, FL 33716
Robert J. Zutz Assistant Partner, Kirkpatrick & Lockhart LLP.
1800 Massachusetts Ave., N.W. Secretary
Washington, DC 20036
</TABLE>
* These Trustees are "interested persons" as
defined in section 2(a)(19) of the 1940 Act.
The Trustees and officers of the Trust, as a group, own less than
1% of the Trust's 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.
- 26 -
<PAGE>
The Trust currently pays Trustees who are not "interested
persons" of the Trust $1,333.33 annually and $333.33 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 who is not
an "interested person of the Trust" for the fiscal year ended September
30, 1995.
<TABLE>
<CAPTION>
Compensation Table
Total Compensation From
Aggregate Pension or Retirement the Fund and the
Compensation From Benefits Accrued as Estimated Annual Heritage Family of
Name of Person, the Part of the Trust's Benefits Upon Trust Paid
Position Trust Expenses Retirement to Trustees
-------------- -------------- ------------------ ------------- ---------------
<S> <C> <C> <C> <C>
Donald W. Burton, Trustee $2,333 $0 $0 $14,000
C. Andrew Graham, Trustee $2,667 $0 $0 $16,000
David M. Phillips, Trustee $2,333 $0 $0 $14,000
Eric Stattin, $2,667 $0 $0 $16,000
Trustee
James L. Pappas, $2,667 $0 $0 $16,000
Trustee
Richard K. Riess, $0 $0 $0 $0
Trustee
Thomas A. James, $0 $0 $0 $0
Trustee
</TABLE>
Investment Adviser and Administrator; Subadviser
------------------------------------------------
The Trust's 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 cus-
- 27 -
<PAGE>
tomers 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 October 31, 1986, between the Trust and the
Manager and subject to the control and direction of the Board of Trustees,
the Manager is responsible for reviewing and establishing investment
policies for the Trust as well as administering the Trust's noninvestment
affairs. Under a Subadvisory Agreement, Eagle Asset Management, Inc.,
subject to direction by the Manager and the Board of Trustees, provides
investment advice and portfolio management services to the Trust for a fee
payable by the Manager.
The Manager also is obligated to furnish the Trust with office
space, administrative, and certain other services as well as executive and
other personnel necessary for the operation of the Trust. The Manager and
its affiliates also pay all the compensation of Trustees of the Trust who
are employees of the Manager and its affiliates. The Trust pays all its
other expenses that are not assumed by the Manager. The Trust also is
liable for such nonrecurring expenses as may arise, including litigation
to which the Trust may be a party. The Trust also may have an obligation
to indemnify its Trustees and officers with respect to any such
litigation.
The Advisory Agreement and the Subadvisory Agreement each were
approved by the Board of Trustees of the Trust (including all of the
Trustees who are not "interested persons" of the Manager or Subadviser, as
defined under the 1940 Act) and by the shareholders of the Trust in
compliance with the 1940 Act. Each Agreement will continue in force for
only so long as 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 Manager,
Subadviser or the Trust, 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 Trust. The Advisory and Subadvisory Agreements each automatically
terminates on assignment, and each is terminable on not more than 60 days'
written notice by the Trust to either party. In addition, the Advisory
Agreement may be terminated on not less than 60 days' written notice by
the Manager to the Trust and the Subadvisory Agreement may be terminated
on not less than 60 days' written notice by the Manager or 90 days'
written notice by the Subadviser. Under the terms of the Advisory
Agreement, the Manager automatically becomes responsible for the
obligations of the Subadviser upon termination of the Subadvisory
Agreement. In the event the Manager ceases to be the Manager of the Trust
or the Distributor ceases to be principal distributor of Trust shares, the
right of the Trust to use the identifying name of "Heritage" may be
withdrawn.
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<PAGE>
The Manager and Subadviser shall not be liable to the Trust or
any shareholder for anything done or omitted by them, except acts or
omissions involving willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties imposed upon them by their agreements
with the Trust or for any losses 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 Trust."
Advisory and Administration Fee. The annual investment advisory
fee paid monthly by the Trust to the Manager is based on the Trust's
average daily net assets as listed in the Prospectus.
The Manager voluntarily has agreed to waive management fees to
the extent that expenses attributable to A shares exceed 1.60% of the
average daily net assets or to the extent that expenses attributable to C
shares exceed 2.35% of average daily net assets. To the extent that the
Manager waives its fees for one class, it will waive its fees for the
other class on a proportionate basis. The Manager has entered into an
agreement with the Subadviser to provide investment advice and portfolio
management services to the Trust for a fee paid by the Manager equal to
50% of the fees payable to the Manager by the Trust, without regard to any
reduction in fees actually paid to the Manager as a result of expense
limitations. For the fiscal year ended September 30, 1993, the Manager
earned $271,212 (inclusive of recapture of approximately $38,000 of fees
waived in the prior two years). For the fiscal years ended September 30,
1994 and 1995, the Manager earned approximately $252,000 and $242,000,
respectively. For the three fiscal years ended September 30, 1993, 1994
and 1995, the Manager paid the Subadviser approximately $117,000, $126,000
and $121,000, respectively.
Class-Specific Expenses. The Trust may determine to allocate
certain of its expenses (in addition to distribution fees) to the specific
classes of the Trust's shares to which those expenses are attributable.
State Expense Limitations. Certain states have established
expense limitations for investment companies whose shares are registered
for sale in that state. If the Trust's operating expenses (including the
investment advisory fee, but not including distribution fees, brokerage
commissions, interest, taxes and extraordinary expenses) exceed state
expense limits, the Manager will reimburse the Trust for its expense over
the limitation. If the Trust's monthly projected operating expenses
exceed applicable state expense limitations, the investment advisory fee
paid will be reduced on a monthly basis by the amount of the excess,
unless waivers of the expense limitations are obtained by the Trust. If
applicable state expense limitations are exceeded, the amount to be
reimbursed by the Manager will be limited to the amount of the investment
advisory fee and the Trust may have to cease offering its shares for sale
- 29 -
<PAGE>
in such states until the expense ratio declines. Any fees waived by the
Manager can be recovered by it from the Trust when such recovery would not
cause the Trust to exceed its expense limits. The most restrictive
current state expense limit is 2.5% of the Trust's first $30 million in
average net assets, 2.0% of the next $70 million in average net assets and
1.5% of all excess average net assets.
Brokerage Practices
-------------------
The Trust may purchase and sell securities without regard to the
length of time the securities have been held. Thus, the turnover rate may
vary greatly from year to year or during periods within a year. The
Trust's portfolio turnover rate is computed by dividing the lesser of
purchases or sales of securities for the period by the average value of
portfolio securities for that period. The Trust's annualized portfolio
turnover rates for the fiscal years ended September 30, 1994 and 1995,
were approximately 98% and 42%, respectively.
The Subadviser is responsible for the execution of the Trust's
portfolio transactions and must seek the most favorable price and
execution for such transactions. Best execution, however, does not mean
that the Trust necessarily will be paying the lowest commission or spread
available. Rather, the Trust also will take into account such factors as
size of the order, difficulty of execution, efficiency of the executing
broker's facilities, and any risk assumed by the executing broker.
It is a common practice in the investment advisory business for
advisers of investment companies and other institutional investors to
receive research, statistical and quotation services from broker-dealers
who execute portfolio transactions for the clients of such advisers.
Consistent with the policy of most favorable price and execution, the
Subadviser may give consideration to research, statistical and other
services furnished by brokers or dealers. In addition, the Subadviser may
place orders with brokers who provide supplemental investment and market
research and securities and economic analysis and may pay to these brokers
a higher brokerage commission or spread than may be charged by other
brokers, provided that the Subadviser determines in good faith that such
commission is reasonable in relation to the value of brokerage and
research services provided. Such research and analysis may be useful to
the Subadviser in connection with services to clients other than the
Trust.
The Trust generally uses the Distributor as broker for agency
transactions in listed and over-the-counter securities at commission rates
and under circumstances consistent with the policy of best execution.
Commissions paid to the Distributor will not exceed "usual and customary
brokerage commissions." Rule l7e-1 under the 1940 Act defines "usual and
customary" commissions to include amounts that are "reasonable and fair
compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions
- 30 -
<PAGE>
involving similar securities being purchased or sold on a securities
exchange during a comparable period of time."
The Subadviser also may select other brokers to execute portfolio
transactions. In the over-the-counter market, the Trust generally deals
with primary market-makers unless a more favorable execution can otherwise
be obtained.
Aggregate brokerage commissions paid by the Trust for the three
fiscal years ended September 30, 1993, 1994 and 1995 amounted to $87,636,
$68,341 and $53,748, respectively. Those commissions were paid on
brokerage transactions worth $42,550,375, $41,920,076 and $28,057,262,
respectively. Aggregate brokerage commissions paid by the Trust to the
Distributor amounted to $42,426, or 48.4%, $9,741, or 14.25%, and $7,852,
or 14.6%, respectively, of the aggregate commissions paid. These
commissions were paid on aggregate brokerage transactions of $20,591,477,
or 48.4%, $3,733,597, or 8.91%, and $1,830,625, or 6.5%, respectively, of
the total aggregate brokerage transactions.
The Trust may not buy securities from, or sell securities to, the
Distributor as principal. However, the Board of Trustees has adopted
procedures in conformity with Rule 10f-3 under the 1940 Act whereby the
Trust may purchase securities that are offered in underwritings in which
the Distributor is a participant. The Board of Trustees will consider the
possibilities of seeking to recapture for the benefit of the Trust
expenses of certain portfolio transactions, such as underwriting
commissions and tender offer solicitation fees, by conducting such
portfolio transactions through affiliated entities, including the
Distributor, but only to the extent such recapture would be permissible
under applicable regulations, including the rules of the National
Association of Securities Dealers, Inc. and other self-regulatory
organizations.
Pursuant to Section 11(a) of the Securities Exchange Act of 1934,
as amended, the Trust expressly consented to the Distributor executing
transactions on an exchange on the Trust's behalf.
Distribution of Shares
----------------------
The Distributor and Representative with whom the Distributor has
entered into dealer agreements offer shares of the Trust as agents on a
best efforts basis and are not obligated to sell any specific amount of
shares. In this connection, the Distributor makes distribution and
service payments to Representatives in connection with the sale of C
shares (in the case of A shares, Representatives are compensated based on
the amount of the initial sales load). Pursuant to its Distribution
Agreement with the Trust with respect to A shares and C shares, the
Distributor bears the cost of making information about the Trust available
through advertising, sales literature and other means, the cost of
printing and mailing prospectuses to persons other than shareholders, and
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<PAGE>
salaries and other expenses relating to selling efforts. The Distributor
also pays service fees to Representatives for providing personal services
to Class A and Class C shareholders and for maintaining shareholder
accounts. The Trust pays the cost of registering and qualifying its
shares under state and federal securities laws and typesetting of its
prospectuses and printing and distributing prospectuses to existing
shareholders.
As compensation for the services provided and expenses borne by
the Distributor pursuant to the Distribution Agreement with respect to A
shares, the Trust pays the Distributor the sales load described in the
Prospectus and a Rule 12b-1 fee in accordance with the Class A Plan
described below. This fee is accrued daily and paid monthly, and
currently is equal on an annual basis to .25% of average daily net assets.
For the fiscal year ended September 30, 1995, the Distributor received A
share Rule 12b-1 fees in the amount of $80,562.
As compensation for the services provided and expenses borne by
the Distributor pursuant to the Distribution Agreement with respect to C
shares, the Trust pays the Distributor a Rule 12b-1 fee and a shareholder
servicing fee in accordance with the Class C Plan described below. The
distribution fee is accrued daily and paid monthly, and currently is equal
on an annual basis to .75% of average daily net assets. The service fee
is accrued daily and paid monthly, and currently is equal on an annual
basis to .25% of average daily net assets. For the fiscal period April 3,
1995 (commencement of C shares) to September 30, 1995, the Distributor
received C share Rule 12b-1 fees amounting to $647.
In reporting amounts expended under the Plans to the Board of
Trustees, the Distributor will allocate expenses attributable to the sale
of A shares and C shares to the applicable class based on the ratio of
sales of shares of that class to the sales of all Trust 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 Class A Distribution Plan (the "Class A
Plan") which, among other things, permits it to pay the Distributor the
above-described fee out of its net assets to finance activity that is
intended to result in the sale and retention of A shares. As required by
Rule 12b-1 under the 1940 Act, the Class A Plan was approved by the Board
of Trustees, including a majority of the Trustees who are not interested
persons of the Trust (as defined in the 1940 Act) and who have no direct
or indirect financial interest in the operation of the Plan or the
Distribution Agreement (the "Independent Trustees") after determining that
there is a reasonable likelihood that the Trust and its Class A
shareholders will benefit from the Class A Plan.
The Trust also has adopted a Class C Distribution Plan (the
"Class C Plan") which, among other things, permits it to pay the
Distributor the above-described fee out of its net assets to finance
- 32 -
<PAGE>
activity that is intended to result in the sale and retention of C shares.
The Distributor, on C shares, may retain the first 12 months distribution
fee for reimbursement of amounts paid to the broker-dealer at the time of
purchase. The Class C Plan was approved by the Board of Trustees,
including a majority of the Independent Trustees after determining that
there is a reasonable likelihood that the Trust and its Class C
shareholders will benefit from the Class C Plan.
The Class A Plan and the Class C Plan each may be terminated by
vote of a majority of the Independent Trustees, or by vote of a majority
of the outstanding voting securities of the Trust. The Board of Trustees
review quarterly a written report of Plan costs and the purposes for which
such costs have been incurred. A Plan may be amended by vote of the Board
of Trustees, including a majority of the Independent Trustees cast in
person at a meeting called for such purpose. Any change in a Plan that
would materially increase the distribution cost to a class requires
approval of that class of shareholder.
The Distribution Agreement may be terminated at any time on 60
days' written notice without payment of any penalty by either party. The
Trust may effect such termination by vote of a majority of the outstanding
voting securities of the Trust or by vote of a majority of the Independent
Trustees. For so long as either the Class A Plan or the Class C Plan is
in effect, selection and nomination of the Independent Trustees shall be
committed to the discretion of such disinterested persons.
The Distribution Agreement and each of the above-referenced Plans
will continue in effect for successive one-year periods, 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.
For the three fiscal years ended September 30, 1993, 1994 and
1995, the Distributor received $182,370, $92,322 and $27,055,
respectively, as compensation for the sale of A shares, of which it
retained $27,698, $13,334 and $3,490, respectively.
Administration of the Trust
---------------------------
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
Trust; furnish office space and equipment; oversee the activities of the
Subadviser and Custodian; and pay all salaries, fees and expenses of
officers and Trustees of the Trust who are affiliated with the Manager.
The Manager also will provide certain shareholder servicing activities for
customers of the Trust.
- 33 -
<PAGE>
The Manager also is the fund accountant and transfer and dividend
disbursing agent for the Trust. The Trust pays the Manager the Manager's
cost plus ten percent for its services as fund accountant and transfer and
dividend disbursing agent. For the three fiscal years ended September 30,
1993, 1994 and 1995, the Manager earned $26,092, $29,355 and $28,570,
respectively, from the Trust for its services as transfer agent. For the
period March 1, 1994 (commencement of the Manager's engagement as fund
accountant) to September 30, 1994, and the fiscal year ended September 30,
1995, the Manager earned $11,969 and $28,932, respectively, from the Trust
for its services as fund accountant.
Custodian. State Street Bank and Trust Company, P.0. Box 1912,
Boston, Massachusetts 02105, serves as custodian of the Trust's assets.
Legal Counsel. Kirkpatrick & Lockhart LLP of 1800 Massachusetts
Ave., N.W., Washington, D.C., 20036, serves as counsel to the Trust.
Schifino & Fleischer, P.A. of 1 Tampa City Center, Suite 2700, Tampa,
Florida, 33602, serves as counsel to the Distributor and the Manager.
Independent Accountants. Coopers & Lybrand L.L.P., One Post
Office Square, Boston, Massachusetts, 02109, are the independent
accountants for the Trust. The Financial Statements and Financial
Highlights of the Trust, which appear in this Statement of Additional
Information, have been audited by Coopers & Lybrand L.L.P. and included
herein in reliance upon the report of said firm of accountants, which is
given upon their authority as experts in accounting and auditing.
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 Trustees enter into or sign. In the unlikely event a
shareholder is held personally liable for the Trust's obligations, the
Trust is required to use its property to protect or compensate the share-
holder. 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.
- 34 -
<PAGE>
APPENDIX
CORPORATE DEBT RATINGS
The rating services' description of corporate bond ratings in which the
Trust may invest are:
Description of Moody's Investor's Service, Inc. Corporate Debt Ratings:
-----------------------------------------------------------------------
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are 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.
Aa - Bonds that are rated Aa are judged to be of high quality by all stan-
dards. Together with the Aaa group, they comprise what generally are
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present that make the long-term risks appear
somewhat larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present that suggest a susceptibility to impairment
sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact has speculative
characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
A-1
<PAGE>
Description of Standard & Poor's Corporate Debt Ratings:
--------------------------------------------------------
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated catego-
ries.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
BB and B -- Debt rated BB and B is regarded, on balance, as somewhat
speculative with respect to the issuer's capacity to pay interest and
repay principal in accordance with the terms of the obligation. While
such debt likely will have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions. Debt rated "BB" has less near-term vulnerability to
default than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions that could lead to inadequate capacity to meet timely interest
and principal payments. The "BB" rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied "BBB"
rating. Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions likely
will impair capacity or willingness to pay interest and repay principal.
The "B" rating category also is used for debt subordinated to senior debt
that is assigned an actual or implied "BB" or "BB-" rating.
A-2
<PAGE>
COMMERCIAL PAPER RATINGS
The rating services' descriptions of commercial paper ratings in which the
Trust may invest are:
Description of Moody's Investors Service, Inc.:
-----------------------------------------------
Prime-1. Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability often will be evidenced by many of the following
characteristics: leading market positions in well-established industries;
high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal
cash generation; well-established access to a range of financial markets
and assured sources of alternative liquidity.
Prime-2. Issuers (or supporting institutions) rated Prime-2 (P-2) have a
strong ability for repayment of senior short-term debt obligations. This
normally will be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics, while still
appropriate, may be affected more by external conditions. Ample
alternative liquidity is maintained.
Description of Standard & Poor's Commercial Paper Ratings:
---------------------------------------------------------
A-1. This designation indicates that the degree of safety regarding
timely payment is very strong. Those issues determined to possess
extremely strong characteristics are denoted with a plus sign (+)
designation.
A-2. Capacity for timely payment of issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3
<PAGE>
<PAGE> 1
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Heritage Income-Growth Trust:
We have audited the accompanying statement of assets and liabilities of
Heritage Income-Growth Trust, including the investment portfolio, as of
September 30, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Heritage Income-Growth Trust as of September 30, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
/s/Coopers & Lybrand
Boston, Massachusetts
November 27, 1995
15
<PAGE> 2
- --------------------------------------------------------------------------------
HERITAGE INCOME-GROWTH TRUST
INVESTMENT PORTFOLIO
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
-----------
<C> <S> <C>
REPURCHASE AGREEMENT--7.8%(A)
Repurchase Agreement with State Street Bank and Trust Company, dated September 29, 1995 @ 6.10%, to be repurchased
at $2,716,380 on October 2, 1995, (collateralized by $2,125,000 United States Treasury Bonds, 10.375% due November
15, 2009 with a market value of $2,794,577, including interest) (cost $2,715,000)................................... $ 2,715,000
-----------
SHARES
COMMON STOCKS--61.0%(A)
- ---------------------
ADVERTISING/COMMUNICATIONS--1.9%
----------------------------
10,000 Omnicom Group, Inc.............................................................................. 651,250
-----------
BANKING--4.8%
-----------
4,000 Capital One Financial Corporation............................................................... 117,500
10,000 Corestates Financial Corporation................................................................ 366,250
15,000 Mellon Bank Corporation(d)...................................................................... 669,375
6,000 NationsBank Corporation......................................................................... 403,500
4,000 Signet Banking Corporation...................................................................... 105,000
-----------
1,661,625
-----------
CONGLOMERATES/DIVERSIFIED--2.7%
-------------------------
15,000 Chemed Corporation.............................................................................. 530,625
7,000 Harsco Corporation.............................................................................. 389,375
-----------
920,000
-----------
COSMETICS/TOILETRIES--2.7%
--------------------
10,000 Gillette Company................................................................................ 476,250
6,000 Procter & Gamble Company........................................................................ 462,000
-----------
938,250
-----------
DATA PROCESSING--1.2%
-----------------
6,000 Automatic Data Processing, Inc.................................................................. 408,750
-----------
ELECTRONICS/ELECTRIC--3.4%
--------------------
10,000 General Electric Company........................................................................ 637,500
10,000 Reuters Holdings, PLC, ADR...................................................................... 528,750
-----------
1,166,250
-----------
FILMED ENTERTAINMENT--0.6%
---------------------
10,000 Carmike Cinemas, Inc., Class "A"*............................................................... 220,000
-----------
FINANCE--2.0%
-----------
10,000 American Express Company........................................................................ 443,750
2,500 Federal National Mortgage Association........................................................... 258,750
-----------
702,500
-----------
GRAPHIC ARTS--1.1%
--------------
10,000 R. R. Donnelley & Sons Company.................................................................. 390,000
-----------
HOTELS/MOTELS/INNS--0.8%
--------------------
7,500 Marriott International, Inc..................................................................... 280,312
-----------
INSURANCE--2.6%
------------
5,000 Marsh & Mclennan Companies, Inc................................................................. 439,375
6,500 MBIA, Inc....................................................................................... 458,250
-----------
897,625
-----------
LEISURE/AMUSEMENT--0.9%
--------------------
5,000 Eastman Kodak Company(d)........................................................................ 296,250
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 3
- --------------------------------------------------------------------------------
HERITAGE INCOME-GROWTH TRUST
INVESTMENT PORTFOLIO
SEPTEMBER 30, 1995
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ----------------- -----------
<C> <S> <C>
OFFICE EQUIPMENT--1.6%
------------------
10,000 Wallace Computer Services, Inc.................................................................. $ 570,000
-----------
OIL & GAS--5.2%
------------
6,000 Amoco Corporation............................................................................... 384,750
10,000 Chevron Corporation............................................................................. 486,250
3,000 Mobil Corporation............................................................................... 298,875
10,000 Petroleum Geo-Services, ADR*.................................................................... 245,000
6,000 Schlumberger Ltd................................................................................ 391,500
-----------
1,806,375
-----------
PHARMACEUTICAL--4.4%
----------------
6,000 Merck & Company, Inc............................................................................ 336,000
10,000 Schering-Plough Corporation..................................................................... 515,000
6,000 Smithkline Beecham, PLC, ADR.................................................................... 303,750
4,000 Warner-Lambert Corporation(d)................................................................... 381,000
-----------
1,535,750
-----------
PUBLISHING--2.5%
-------------
4,000 McGraw-Hill Companies, Inc...................................................................... 327,000
8,000 Tribune Company................................................................................. 531,000
-----------
858,000
-----------
REAL ESTATE/LAND DEVELOPMENT--0.6%
----------------------------
10,000 The Rouse Company............................................................................... 218,750
-----------
REAL ESTATE INVESTMENT TRUSTS (REIT)--8.5%
----------------------------------
22,000 Allied Capital Commercial Corporation........................................................... 398,750
10,000 Columbus Realty Trust........................................................................... 190,000
15,000 Debartolo Realty Corporation.................................................................... 210,000
17,500 Security Capital Industrial Trust............................................................... 284,375
10,000 Simon Property Group, Inc....................................................................... 253,750
10,000 Sovran Self Storage, Inc.*...................................................................... 248,750
10,000 Evans Withycombe Residential, Inc. ............................................................. 202,500
10,000 Health Care Property Investors, Inc. ........................................................... 338,750
12,000 Alexander Haagen Properties, Inc. .............................................................. 139,500
5,000 Duke Realty Investments, Inc. .................................................................. 155,625
10,000 Patriot American Hospitality, Inc.*............................................................. 256,250
12,500 Storage Trust Realty............................................................................ 254,688
-----------
2,932,938
-----------
SERVICES--0.5%
-----------
5,000 H&R Block, Inc.(d).............................................................................. 190,000
-----------
TELECOMMUNICATIONS--6.1%
--------------------
12,000 ALLTEL Corporation.............................................................................. 358,500
15,000 AT&T Corporation................................................................................ 986,250
10,000 GTE Corporation................................................................................. 392,500
9,000 Vodafone Group, PLC, Sponsored ADR.............................................................. 369,000
-----------
2,106,250
-----------
TEXTILES--0.4%
-----------
8,000 Interface, Inc., Class "A"...................................................................... 137,000
-----------
TOBACCO--1.8%
-----------
7,500 Philip Morris Companies, Inc.................................................................... 626,250
-----------
UTILITIES-DIVERSIFIED--0.6%
-------------------
12,500 Long Island Lighting Company.................................................................... 215,625
-----------
UTILITIES-GAS--3.3%
--------------
25,000 UGI Corporation................................................................................. 515,625
10,000 Wicor, Inc...................................................................................... 302,500
8,000 Williams Companies, Inc......................................................................... 312,000
-----------
1,130,125
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 4
- --------------------------------------------------------------------------------
HERITAGE INCOME-GROWTH TRUST
INVESTMENT PORTFOLIO
SEPTEMBER 30, 1995
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
-----------
<C> <S> <C>
UTILITIES-WATER--0.7%
----------------
8,000 American Water Works Company, Inc............................................................... $ 245,000
-----------
Total common stocks (cost $16,877,993).............................................................................. 21,104,875
-----------
CONVERTIBLE PREFERRED STOCKS--9.4%(A)
- -----------------------------
AUTO/TRUCK MANUFACTURERS--0.9%
-------------------------
3,000 Ford Motor Company, Series "A", $4.20........................................................... 307,125
-----------
CHEMICALS--0.4%
------------
4,000 LSB Industries, Inc., Series 2, $3.25........................................................... 136,000
-----------
CONTAINERS--0.7%
-------------
4,000 Sonoco Products Company, Series "A", $2.25...................................................... 241,000
-----------
DATA PROCESSING--1.9%
-----------------
10,000 General Motors Corporation, Series "C", $6.50................................................... 648,750
-----------
FILMED ENTERTAINMENT--1.4%
---------------------
15,000 AMC Entertainment, Inc., Series "B", $1.75...................................................... 495,000
-----------
FINANCE--1.1%
-----------
5,000 Travelers Group, Inc., $2.75.................................................................... 370,000
-----------
FOOD--1.2%
---------
10,000 Conagra, Inc., Series "E", $1.69................................................................ 402,500
-----------
GLASS/PRODUCTS--0.7%
----------------
5,000 Corning, Inc., Series "M", 6.0%, MIPS........................................................... 233,750
-----------
REAL ESTATE--0.6%
--------------
4,000 The Rouse Company, Series "A", 6.5%............................................................. 219,500
-----------
TOBACCO--0.6%
-----------
30,000 RJR Nabisco Holdings Corporation, Series "C", PERCS, $.6012..................................... 202,500
-----------
Total convertible preferred stocks (cost $2,816,938)................................................................ 3,256,125
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MATURITY
AMOUNT DATE
- ---------------- --------
<C> <S> <C> <C>
CORPORATE BONDS--20.3%(A)
AUTO PARTS/EQUIPMENT--0.9%
----------------------
$350,000 Venture Holdings Trust, 9.75%....................................................... 04/01/04 301,000
-----------
BUILDING--1.4%
-----------
300,000 Cemex S.A. de C.V., 4.25%(c)........................................................ 11/01/97 250,500
225,000 Continental Homes Holdings Corporation, 12%......................................... 08/01/99 235,125
-----------
485,625
-----------
CONGLOMERATES/DIVERSIFIED--2.8%
-------------------------
200,000 Thermo Electron Corporation, 4.625%(c).............................................. 08/01/97 434,000
350,000 Thermo Electron Corporation, 5%(c).................................................. 04/15/01 528,500
-----------
962,500
-----------
DATA PROCESSING--1.7%
-----------------
400,000 First Financial Management Corporation, 5%(c)....................................... 12/15/99 600,552
-----------
FOOD SERVING--0.5%
---------------
200,000 TPI Enterprises, Inc., 8.25%(c)..................................................... 07/15/02 184,000
-----------
HEALTH CARE CENTERS--2.2%
--------------------
300,000 Genesis Health Ventures, Inc., 6%(c)................................................ 11/30/03 469,500
250,000 OrNda HealthCorp, 12.25%............................................................ 05/15/02 277,500
-----------
747,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 5
- --------------------------------------------------------------------------------
HERITAGE INCOME-GROWTH TRUST
INVESTMENT PORTFOLIO
SEPTEMBER 30, 1995
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
- ---------------- -------- -----------
<C> <S> <C> <C>
HOTELS/MOTELS/INNS--0.8%
--------------------
$250,000 Prime Hospitality Corporation, 7%(c)................................................ 04/15/02 $ 267,500
-----------
LEISURE/AMUSEMENT--1.2%
--------------------
300,000 Carnival Corporation, 4.5%(c)....................................................... 07/01/97 424,320
-----------
MANUFACTURING/DISTRIBUTIONS--0.6%
---------------------------
200,000 Interface, Inc., 8%(c).............................................................. 09/15/13 217,790
-----------
MEDICAL EQUIPMENT/SUPPLY--0.6%
--------------------------
250,000 Amsco International Corporation, 4.5% to 10/15/95, 6.5% to maturity(c).............. 10/15/02 237,500
-----------
POLLUTION CONTROL--1.0%
------------------
300,000 Laidlaw, Inc., 6%(c)................................................................ 01/15/99 351,000
-----------
PUBLISHING--1.6%
-------------
800,000 Time Warner, Inc., Zero Coupon Bond, 5%(c)(e)....................................... 06/22/13 324,096
250,000 Webcraft Technologies, 9.375%....................................................... 02/15/02 232,500
-----------
556,596
-----------
REAL ESTATE INVESTMENT TRUSTS (REIT)--1.9%
---------------------------------
250,000 Alexander Haagen Properties, Inc., 7.5%(c).......................................... 01/15/01 208,125
300,000 Developers Diversified Realty Corporation, 7%(c).................................... 08/15/99 293,874
150,000 Liberty Property Trust, 8%(c)....................................................... 07/01/01 156,282
-----------
658,281
-----------
RETAIL--0.8%
---------
300,000 Big 5 Holdings, 13.625%............................................................. 09/15/02 294,000
-----------
SERVICES--2.2%
-----------
400,000 Service Corporation International, 6.5%(c).......................................... 09/01/01 756,580
-----------
Total corporate bonds (cost $5,991,502).................................................................. 7,044,244
-----------
DEBT EXCHANGEABLE FOR COMMON STOCK (DECS)--1.9%(A)
- --------------------------------------------
SHARES
DATA PROCESSING
------------
12,500 American Express Company, 6.25%..................................................... 10/15/96 650,000
-----------
Total DECS (cost $459,375)............................................................................... 650,000
-----------
TOTAL INVESTMENT PORTFOLIO (COST $28,860,808)(B), 100.4%(A).............................................. 34,770,244
OTHER ASSETS AND LIABILITIES, INCLUDING COVERED CALL OPTIONS WRITTEN, (0.4%)(A).......................... (148,266)
-----------
NET ASSETS, 100.0%....................................................................................... $34,621,978
============
</TABLE>
- ---------------
* Not an income producing security.
(a) Percentages indicated are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is the same.
Market value includes net unrealized appreciation of $5,909,436, which
consists of aggregate gross unrealized appreciation for all securities in
which there is an excess of market value over tax cost of $6,227,726 and
aggregate gross unrealized depreciation for all securities in which there
is an excess of tax cost over market value of $318,290.
(c) Convertible security.
(d) A portion of these shares were held by the custodian in connection with
covered call options written.
(e) Yield to maturity (unaudited).
ADR-American Depository Receipt
MIPS-Monthly Income Preferred Stock
PERCS-Preferred Equity Redemption Cumulative Stock
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 6
- --------------------------------------------------------------------------------
HERITAGE INCOME-GROWTH TRUST
INVESTMENT PORTFOLIO
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
COVERED CALL OPTIONS WRITTEN
<TABLE>
<CAPTION>
SHARES
SUBJECT MARKET
TO CALL VALUE
------- --------
<S> <C> <C>
Eastman Kodak Company, January 1996 @ $65...................................................... 2,500 $ 3,125
H&R Block, Inc., October 1995 @ $40............................................................ 2,000 1,125
Mellon Bank Corporation, October 1995 @ $45.................................................... 5,000 7,188
Warner-Lambert Company, January 1996 @ $90..................................................... 2,000 18,750
--------
Total liability for covered call options written (premiums received $34,477)................... $ 30,188(a)
========
</TABLE>
- ---------------
(a) At September 30, 1995 Fund securities valued @ $637,750 were held by the
custodian in connection with covered call options written by the Fund.
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 7
- --------------------------------------------------------------------------------
HERITAGE INCOME-GROWTH TRUST
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
- -----
Investments, at market value (identified cost $26,145,808) (Note 1)...................... $32,055,244
Repurchase agreement (identified cost $2,715,000) (Note 1)............................... 2,715,000
Cash..................................................................................... 1,817
Receivables:
Fund shares sold....................................................................... 3,788
Dividends and interest................................................................. 216,854
Deferred state registration expenses (Note 1)............................................ 9,770
Prepaid insurance........................................................................ 2,730
-----------
Total assets..................................................................... 35,005,203
Liabilities
- --------
Payables (Note 4):
Investments purchased.................................................................. $ 240,000
Fund shares redeemed................................................................... 13,227
Accrued professional fees.............................................................. 33,621
Accrued management fee................................................................. 21,095
Accrued distribution fee............................................................... 7,154
Other accrued expenses................................................................. 37,940
Covered call options written, at market value (premiums received $34,477) (Notes 1 and
3)..................................................................................... 30,188
----------
Total liabilities................................................................ 383,225
-----------
Net assets, at market value.............................................................. $34,621,978
==========
Net Assets
- ---------
Net assets consist of:
Undistributed net investment income (Note 1)........................................... $ 193,122
Net unrealized appreciation on investments............................................. 5,909,436
Net unrealized appreciation on covered call options written............................ 4,289
Accumulated net realized loss (Note 1)................................................. (203,275)
Accumulated net realized gain on covered call options written.......................... 543,452
Paid-in capital (Note 1)............................................................... 28,174,954
-----------
Net assets, at market value.............................................................. $34,621,978
==========
Class A Shares
- -------------
Net asset value and redemption price per share ($34,403,848 divided by 2,739,571 shares
of beneficial interest outstanding, no par value) (Note 2)............................. $12.56
Maximum offering price per share (100/95.25 of $12.56)................................... $13.19
Class C Shares
- ------------
Net asset value, offering price and redemption price per share ($218,130 divided by
17,433 shares of beneficial interest outstanding, no par value) (Notes 1 and 2)........ $12.51
-----
-----
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 8
- --------------------------------------------------------------------------------
HERITAGE INCOME-GROWTH TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income
Income:
Dividends................................................................................. $ 886,472
Interest.................................................................................. 608,341
----------
Total income........................................................................ 1,494,813
Expenses (Notes 1 and 4):
Management fee............................................................................ $242,172
Distribution fee.......................................................................... 81,209
Professional fees......................................................................... 73,459
Custodian/Fund accounting fees............................................................ 46,287
State registration expenses............................................................... 31,121
Shareholder servicing fees................................................................ 28,570
Reports to shareholders................................................................... 11,084
Trustees' fees and expenses............................................................... 9,823
Insurance................................................................................. 5,168
Other expenses............................................................................ 1,211
--------
Total expenses...................................................................... 530,104
----------
Net investment income....................................................................... 964,709
----------
Realized and Unrealized Gain on Investments
Net realized gain from investment transactions.............................................. 411,468
Net realized gain from covered call options written (Note 1)................................ 38,733
Net increase in unrealized appreciation of investments during the year...................... 4,383,236
Net increase in unrealized appreciation of covered call options written during the year..... 21,411
----------
Net gain on investments............................................................. 4,854,848
----------
Net increase in net assets resulting from operations................................ $5,819,557
=========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-----------------------------------------
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------ ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.................................................... $ 964,709 $ 879,829
Net realized gain from investment transactions........................... 411,468 1,874,511
Net realized gain from covered call options written...................... 38,733 82,702
Net increase (decrease) in unrealized appreciation of investments and
covered call options written during the year........................... 4,404,647 (2,221,027)
------------------ ------------------
Net increase in net assets resulting from operations..................... 5,819,557 616,015
Distributions to shareholders from:
Net investment income, Class A Shares ($.34 and $.24 per share,
respectively).......................................................... (1,157,068) (722,439)
Net investment income, Class C Shares ($.16 per share)................... (1,164) --
Net realized gains, Class A shares ($.49 and $.92 per share,
respectively).......................................................... (1,189,190) (2,522,760)
Increase (decrease) in net assets from Fund share transactions (Note 2).... (1,459,209) 789,411
------------------ ------------------
Increase (decrease) in net assets.......................................... 2,012,926 (1,839,773)
Net assets, beginning of year.............................................. 32,609,052 34,448,825
------------------ ------------------
Net assets, end of year (including undistributed net investment income of
$193,122 and $236,491, respectively)..................................... $ 34,621,978 $ 32,609,052
================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 9
- --------------------------------------------------------------------------------
HERITAGE INCOME-GROWTH TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
CLASS A SHARES
-------------------------------------------------------------------------------
CLASS C
FOR THE YEARS ENDED SEPTEMBER 30, SHARES
---------------------------------------------------------------------- -------
1995 1994 1993 1992 1991 1990 1989 1988 1987+ 1995++
------ ------ ------ ------ ------ ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................. $11.33 $12.28 $10.81 $ 9.87 $ 8.08 $ 10.41 $ 9.18 $ 9.98 $ 9.50 $11.21
------ ------ ------ ------ ------ ------- ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)........... 0.27 0.30 0.39 0.28 0.36 0.45 0.45 0.44 0.26 0.18
Net realized and unrealized gain
(loss) on investments............ 1.79 (0.09) 1.44 1.02 1.88 (2.06) 1.22 (0.81) 0.38 1.28
------ ------ ------ ------ ------ ------- ------ ------ ------ -------
Total from Investment
Operations....................... 2.06 0.21 1.83 1.30 2.24 (1.61) 1.67 (0.37) 0.64 1.46
------ ------ ------ ------ ------ ------- ------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... (0.34) (0.24) (0.36) (0.36) (0.34) (0.48) (0.44) (0.43) (0.16) (0.16 )
Distributions from net realized
gain on investments.............. (0.49) (0.92) -- -- (0.11) (0.24) -- -- -- --
------ ------ ------ ------ ------ ------- ------ ------ ------ -------
Total Distributions................ (0.83) (1.16) (0.36) (0.36) (0.45) (0.72) (0.44) (0.43) (0.16) (0.16 )
------ ------ ------ ------ ------ ------- ------ ------ ------ -------
NET ASSET VALUE, END OF THE PERIOD... $12.56 $11.33 $12.28 $10.81 $ 9.87 $ 8.08 $10.41 $ 9.18 $ 9.98 $12.51
====== ====== ====== ====== ====== ======= ====== ====== ====== =======
TOTAL RETURN (%)(D).................. 19.57 1.80 16.44 13.42 28.72 (16.42) 18.80 (3.38) 6.79(c) 13.18 (c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average
daily net assets(a).............. 1.64 1.64 1.72 1.75 1.75 1.75 1.75 1.75 1.75(b) 2.40 (b)
Net investment income to average
daily net assets................. 4.63 2.62 2.67 2.77 4.02 4.77 4.72 5.01 4.29(b) 4.61 (b)
Portfolio turnover rate............ 42 99 130 71 81 156 249 184 91(b) 42
Net assets, end of the period ($
millions)........................ 34 33 34 27 20 19 24 20 24 0.2
</TABLE>
- ---------------
+ For the period December 15, 1986 (commencement of operations) to September
30, 1987.
++ For the period April 3, 1995 (commencement of Class C Shares) to August 31,
1995.
(a) Excludes management fees waived by the Manager through 1992 in the amount of
less than $.01, $.01, $.02, $.02, $.01 and $.02 per Class A Share,
respectively. The operating expense ratios including such items would be
1.75%, 1.94%, 1.96%, 1.92%, 1.89%, and 2.11% (annualized) per Class A
Shares, respectively. The year 1993 includes previously waived management
fees paid to the Manager of $.01 per share.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
11
<PAGE> 10
- --------------------------------------------------------------------------------
HERITAGE INCOME-GROWTH TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1: SIGNIFICANT ACCOUNTING POLICIES. Heritage Income-Growth Trust (the
"Fund") is organized as a Massachusetts business trust and is registered
under the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. The Fund currently issues Class
A and Class C Shares. Class A Shares are sold subject to a maximum sales
charge of 4.75% of the amount invested payable at the time of purchase.
Class C Shares, which were offered to shareholders beginning April 3,
1995, are sold subject to a contingent deferred sales charge of 1% of
the lower of net asset value or purchase price payable upon any
redemptions within one year after purchase. The policies described below
are followed consistently by the Fund in the preparation of its
financial statements in conformity with generally accepted accounting
principles.
Security Valuation: The Fund values investment securities at market
value based on the last quoted sales price as reported by the principal
securities exchange on which the security is traded. If no sale is
reported, market value is based on the mean between the last bid and
asked price and in the absence of a market quote, securities are valued
using such methods as the Board of Trustees believe would reflect fair
market value. Short term investments having a maturity of 60 days or
less are valued at cost, which when combined with accrued interest
included in interest receivable or discount earned, approximates market.
Repurchase Agreements: The Fund enters into repurchase agreements
whereby the Fund, through its custodian, receives delivery of the
underlying securities, the market value of which at the time of purchase
is required to be an amount equal to at least 100% of the resale price.
Federal Income Taxes: The Fund's policy is to comply with the
requirements of the Internal Revenue Code of 1986, as amended, which are
applicable to regulated investment companies and to distribute
substantially all of its taxable income to its shareholders.
Accordingly, no provision has been made for federal income and excise
taxes.
Distribution of Income and Gains: Distributions of net investment income
are made quarterly. Net realized gains from investment transactions
during any particular year in excess of available capital loss
carryforwards, which, if not distributed, would be taxable to the Fund,
will be distributed to shareholders in the following fiscal year. The
Fund uses the identified cost method for determining realized gain or
loss on investments for both financial and federal income tax reporting
purposes. Of the $1,189,190 net realized gain distributions paid in
fiscal 1995, the Fund has designated such amount as net long-term
capital gains on a tax basis.
State Registration Expenses: State registration fees are amortized based
either on the time period covered by the registration or as related
shares are sold, whichever is appropriate for each state.
Option Accounting Principles: When the Fund writes a covered call
option, an amount equal to the premium received by the Fund is included
in the Fund's Statement of Assets and Liabilities as an asset and as an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option
written. The current market value of a written option is the last
offering price on the principal exchange on which such option is traded.
The Fund receives a premium on the sale of an option, but gives up the
opportunity to profit from any increase in stock value above the
exercise price of the option. If an option which the Fund has written
either expires on its stipulated expiration date, or the Fund enters
into a closing purchase transaction, the Fund realizes a gain (or loss
if the cost of a closing purchase transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain
or loss on the underlying security, and the liability related to such
option is extinguished. If a call option which the Fund has written is
exercised, the Fund realizes a capital gain or loss from the sale of the
underlying security, and the proceeds from such sale are increased by
the premium originally received.
Capital Accounts: The Fund reports the undistributed net investment
income and accumulated net realized gain (loss) accounts on a basis
approximating amounts available for future tax distributions (or to
offset future taxable realized gains when a capital loss carryforward is
available). Accordingly, the Fund may periodically make
reclassifications among certain capital accounts without impacting the
net asset value of Class A or Class C Shares of the Fund. As a result,
as of September 30, 1995, the Fund has reclassified $104,505 to increase
undistributed net investment income, $139,213 to decrease accumulated
net realized gain and $34,708 to increase paid in capital. These
reclassifications which have no impact on the net asset value for each
class of shares of the Fund, are primarily attributable to non-taxable
dividends in the computation of distributable income and capital gains
under Federal income tax rules and regulations versus generally accepted
accounting principles.
Other: Investment security transactions are accounted for on a trade
date plus one basis. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. All original issue discounts are accreted for both tax
and financial reporting purposes. Expenses of the Fund are allocated to
each class of shares based upon their relative percentage of current net
assets. Expenses that are directly attributable to a specific class of
shares, such as distribution fees, are allocated to that class.
12
<PAGE> 11
- --------------------------------------------------------------------------------
HERITAGE INCOME-GROWTH TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Note 2: FUND SHARES. At September 30, 1995, there was an unlimited number of
shares of beneficial interest of no par value authorized.
Transactions in Class A Shares of the Fund during the years ended
September 30, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------------
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------ ------------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold............................................... 164,214 $ 1,854,451 323,567 $ 3,745,587
Shares issued on reinvestment of distributions............ 208,793 2,247,195 271,222 3,109,646
Shares redeemed........................................... (511,309) (5,762,051) (522,958) (6,065,822)
--------- ----------- --------- -----------
Net increase (decrease)................................... (138,302) $(1,660,405) 71,831 $ 789,411
========== ==========
Shares outstanding:
Beginning of year....................................... 2,877,873 2,806,042
--------- ---------
End of year............................................. 2,739,571 2,877,873
======== ========
</TABLE>
Transactions for Class C Shares of the Fund from April 3, 1995
(commencement of Class C Shares) to September 30, 1995 were as follows:
<TABLE>
<CAPTION>
CLASS C SHARES SHARES AMOUNT
--------------------------------------------------------------- ------ --------
<S> <C> <C>
Shares sold.................................................... 17,555 $202,648
Shares issued on reinvestment of distributions................. 100 1,164
Shares redeemed................................................ (222) (2,616)
------ --------
Net increase................................................... 17,433 $201,196
========
Shares outstanding:
Beginning of period.......................................... --
------
End of period................................................ 17,433
======
</TABLE>
Note 3: PURCHASES AND SALES OF SECURITIES. For the year ended September 30,
1995, purchases and sales of investment securities (excluding repurchase
agreements) aggregated $12,522,560 and $15,534,702, respectively. Agency
brokerage commissions for the same period aggregated $53,748, of which
$7,852 was paid to Raymond James & Associates, Inc.
Transactions in covered call options written on equity securities were
as follows:
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Outstanding September 30, 1994................................................... 125 $ 28,534
Written........................................................................ 898 205,728
Terminated..................................................................... (440) (115,399 )
Exercised...................................................................... (370) (65,480 )
Expired........................................................................ (98) (18,906 )
--------- ---------
Outstanding September 30, 1995................................................... 115 $ 34,477
========== =========
</TABLE>
Note 4: MANAGEMENT, SUBADVISORY, DISTRIBUTION, SHAREHOLDER SERVICING AGENT AND
TRUSTEES' FEES. Under the Fund's Investment Advisory and Administration
Agreement with Heritage Asset Management, Inc. (the "Manager"), the Fund
agrees to pay to the Manager a fee equal to an annualized rate of 0.75%
of the first $100,000,000 of the Fund's average daily net assets, and
0.60% of any excess over $100,000,000 of such net assets, computed daily
and payable monthly. The agreement also provides for a reduction in such
fees in any year to the extent that operating expenses of the Fund
exceed applicable state expense limitations. Currently, the Manager has
voluntarily agreed to waive its fee to the extent that Fund operating
expenses exceed 1.65% and 2.4% on Class A Shares and Class C Shares
respectively, on an annual basis, of the Fund's average daily net assets
attributable to each class of shares. This agreement is more restrictive
than any state expense limitation.
13
<PAGE> 12
- --------------------------------------------------------------------------------
HERITAGE INCOME-GROWTH TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
The Manager has entered into an agreement with Eagle Asset Management,
Inc. (the "Subadviser") for the Subadviser to provide to the Fund
investment advice, portfolio management services (including the
placement of brokerage orders) and certain compliance and other services
for a fee payable by the Manager equal to 50% of the fees payable by the
Fund to the Manager without regard to any reduction due to the
imposition of expense limitations.
The Manager is also the Dividend Paying and Shareholder Servicing Agent
for the Fund. The amount payable to the Manager for such expenses as of
September 30, 1995 was $7,500. In addition, the Manager performs Fund
accounting services and charged $28,932 during the current year of which
$7,200 was payable as of September 30, 1995.
Pursuant to the Class A Distribution Plan adopted in accordance with
Rule 12b-1 of the Investment Company Act of 1940, as amended, the Fund
is authorized to pay Raymond James & Associates, Inc. (the
"Distributor") a fee, equal to .25% of the average daily net assets for
Class A Shares. Under the Class C Distribution Plan the Fund paid the
Distributor a fee equal to 1.00% of the average daily net assets for
Class C Shares. The Distributor, on Class C Shares, may retain the first
12 months distribution fee for reimbursement of amounts paid to the
broker/dealer at the time of purchase. Such fees are accrued daily and
payable monthly. During the period $80,562 and $647 were paid as
distribution fees for Class A Shares and Class C Shares, respectively.
The Manager, Distributor, Fund Accountant and Shareholder Servicing
Agent are all wholly-owned subsidiaries of Raymond James Financial, Inc.
Trustees of the Fund also serve as Trustees for Heritage Cash Trust,
Heritage Capital Appreciation Trust, Heritage Income Trust, Heritage
Series Trust and Heritage U.S. Government Income Fund, mutual funds
which are also advised by the Manager of the Fund (collectively called
the Heritage mutual funds). Each Trustee of the Heritage mutual funds
who is not an interested person of the Manager receives an annual fee of
$8,000 and an additional fee of $2,000 for each combined quarterly
meeting of the Heritage mutual funds attended. Trustees' fees and
expenses are shared equally by each of the Heritage mutual funds.
14
<PAGE>
