As filed with the Securities and Exchange Commission on December 24, 1997
1933 Act File No. 33-7559
1940 Act File No. 811-4767
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
------
Post-Effective Amendment No. 16 [ X ]
------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 17
--
(Check appropriate box or boxes.)
HERITAGE INCOME-GROWTH TRUST
(Exact name of Registrant as Specified in Charter)
880 Carillon Parkway
St. Petersburg, FL 33716
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (813) 573-3800
STEPHEN G. HILL, PRESIDENT
880 Carillon Parkway
St. Petersburg, FL 33716
(Name and Address of Agent for Service)
Copy to:
CLIFFORD J. ALEXANDER, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ x] on January 2, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ x] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Page 1 of ___ Pages
Exhibit Index Appears on Page
<PAGE>
HERITAGE INCOME-GROWTH TRUST
CONTENTS OF REGISTRATION STATEMENT
This registration document is comprised of the following:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Combined Prospectus for Class A, Class B and Class C share of
Heritage Capital Appreciation Trust, Eagle International
Equity Portfolio, Growth Equity Fund, Income-Growth Trust,
Mid Cap Growth Fund, Small Cap Stock Fund and Value Equity
Fund
Statement of Additional Information for Class A, Class B and
Class C shares of Heritage Capital Appreciation Trust, Eagle
International Equity Portfolio, Growth Equity Fund,
Income-Growth Trust, Mid Cap Growth Fund, Small Cap Stock Fund
and Value Equity Fund
Part C of Form N-1A
Signature Page
Exhibits
<PAGE>
HERITAGE INCOME-GROWTH TRUST
FORM N-1A CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
PART A ITEM NO. PROSPECTUS CAPTION
- -------------- ------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Total Fund Expenses
3. Condensed Financial Information Financial Highlights; Performance Information
4. General Description of Registrant Cover Page; About the Trust and the Funds;
Investment Objectives, Policies and Risk Factors
5. Management of the Fund Management of the Funds
5A. Management's Discussion of Fund Inapplicable
Performance
6. Capital Stock and Other Securities Cover Page; About the Trust and the Funds;
Management of the Funds; Choosing a Class of
Shares; What Class A Shares Will Cost; What Class
B Shares Will Cost; What Class C Shares Will Cost;
Dividends and Other Distributions; Taxes;
Shareholder Information
7. Purchases of Securities Being Offered Net Asset Value; Purchase Procedures; Minimum
Investment Required/Accounts With Low Balances;
Systematic Investment Programs; Retirement Plans;
Choosing a Class of Shares; What Class A Shares
Will Cost; What Class B Shares Will Cost; What
Class C Shares Will Cost; Distribution Plans
8. Redemption or Repurchase Minimum Investment Required/Accounts With Low
Balances; How to Redeem Shares; Receiving Payment;
Exchange Privilege
9. Pending Legal Proceedings Inapplicable
<PAGE>
STATEMENT OF ADDITIONAL
PART B ITEM NO. INFORMATION CAPTION
- --------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information
13. Investment Objectives and Policies Investment Information; Investment Limit-ations
14. Management of the Fund Fund Information-Management of the Funds
15. Control Persons and Principal Holders Fund Information-Management of the Funds, -Five
of Securities Percent Shareholders
16. Investment Advisory and Other Services Fund Information-Management of the Funds,
-Investment Advisers and Administrator;
-Subadvisers; Distribution of Shares;
-Administration of the Funds
17. Brokerage Allocation Fund Information-Brokerage Practices
18. Capital Stock and Other Securities General Information; Fund Information -Management
of the Funds; -Potential Liability; Conversion of
Class B Shares
19. Purchase, Redemption and Pricing of Net Asset Value; Investing in the Funds; Redeeming
Securities Being Offered Shares; Exchange Privilege; Conversion of Class B
Shares
20. Tax Status Conversion of Class B Shares; Taxes
21. Underwriters Fund Information - Distribution of Shares
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
PART C. OTHER INFORMATION
-----------------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
<PAGE> 1
HERITAGE
EQUITY
FUNDS
[Picture of people working and playing]
FROM OUR FAMILY TO YOURS: THE INTELLIGENT CREATION OF WEALTH
CAPITAL APPRECIATION TRUST
EAGLE INTERNATIONAL EQUITY PORTFOLIO
GROWTH EQUITY FUND
INCOME-GROWTH TRUST
MID-CAP GROWTH FUND
SMALL CAP STOCK FUND
VALUE EQUITY FUND
PROSPECTUS
begins on the following page
[LOGO]
HERITAGE
------------
EQUITY FUNDS
---------------
PROSPECTUS DATED JANUARY 2, 1998
<PAGE> 2
[HERITAGE LOGO]
---------------------------
CAPITAL APPRECIATION TRUST
EAGLE INTERNATIONAL EQUITY PORTFOLIO
GROWTH EQUITY FUND
INCOME-GROWTH TRUST
MID CAP GROWTH FUND
SMALL CAP STOCK FUND
VALUE EQUITY FUND
---------------------------
This Prospectus describes the investment portfolios listed below (each, a
"Fund") of Heritage Capital Appreciation Trust, Heritage Income-Growth Trust and
Heritage Series Trust, each of which is an open-end diversified management
investment company in the Heritage Family of Funds. Each Fund's investment
objectives and principal investments are as follows:
<TABLE>
<S> <C> <C>
- - Capital Appreciation Trust Seeks long-term capital appreciation by investing primarily
in equity securities that are believed to be undervalued.
- - Eagle International Equity Portfolio Seeks capital appreciation principally through investment in
an international portfolio of equity securities. Income is
an incidental consideration.
- - Growth Equity Fund Seeks growth through long-term capital appreciation by
investing in common stocks that are believed to have
sufficient growth potential to offer above average long-term
capital appreciation.
- - Income-Growth Trust Seeks long-term total return by seeking, with approximately
equal emphasis, current income and capital appreciation and
investing primarily in income producing securities
consistent with its investment objective.
- - Mid Cap Growth Fund Seeks long-term appreciation by investing in equity
securities of companies with mid-size market capitalization
that are believed to have above average growth potential.
- - Small Cap Stock Fund Seeks long-term capital appreciation by investing
principally in the equity securities of companies with small
market capitalization.
- - Value Equity Fund Primarily seeks long-term capital appreciation and,
secondarily, seeks current income by investing in a
diversified portfolio of common stocks that meet certain
quantitative standards that indicate above average financial
soundness and high intrinsic value relative to price.
</TABLE>
Each Fund offers Class A shares (sold subject to a 4.75% maximum front-end
sales load) ("A shares"), Class B shares (sold subject to a 5% maximum
contingent deferred sales load, declining over an eight-year period) ("B
shares") and Class C shares (sold subject to a 1% contingent deferred sales
load) ("C shares"). The Eagle International Equity Portfolio also offers an
additional class of shares. This Prospectus relates solely to the Class A, Class
B and Class C shares of the Funds. Each Fund requires a minimum initial
investment of $1,000, except for certain investment plans for which lower limits
may apply.
This Prospectus contains information that should be read before investing
in any Fund and should be kept for future reference. A Statement of Additional
Information ("SAI") dated January 2, 1998 relating to the Class A, Class B and
Class C shares of the Funds has been filed with the Securities and Exchange
Commission and is incorporated by reference in this Prospectus. A copy of the
SAI is available free of charge and shareholder inquiries can be made by writing
to Heritage Asset Management, Inc. or by calling (800) 421-4184.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
[HERITAGE ASSET MANAGEMENT, INC. LOGO]
Registered Investment Advisor--SEC
880 Carillon Parkway
St. Petersburg, Florida 33716
(800) 421-4184
Prospectus Dated January 2, 1998
<PAGE> 3
TABLE OF CONTENTS
================================================================================
<TABLE>
<S> <C>
GENERAL INFORMATION......................................... 1
Total Fund Expenses....................................... 1
Financial Highlights...................................... 4
Investment Objectives, Policies and Risk Factors.......... 8
Net Asset Value........................................... 21
Performance Information................................... 21
INVESTING IN THE FUNDS...................................... 22
Purchase Procedures....................................... 22
Minimum Investment Required/Accounts With Low Balances.... 23
Systematic Investment Programs............................ 23
Retirement Plans.......................................... 24
Choosing a Class of Shares................................ 24
What Class A Shares Will Cost............................. 25
What Class B Shares Will Cost............................. 27
What Class C Shares Will Cost............................. 28
Minimizing the Contingent Deferred Sales Load............. 28
Waiver of the Contingent Deferred Sales Load.............. 28
How to Redeem Shares...................................... 29
Receiving Payment......................................... 30
Exchange Privilege........................................ 31
MANAGEMENT OF THE FUNDS..................................... 32
Board of Trustees......................................... 32
Investment Advisers....................................... 32
Subadvisers............................................... 33
Portfolio Management...................................... 34
Brokerage Practices....................................... 35
Fund Accountant, Administrator and Transfer Agent......... 36
SHAREHOLDER AND ACCOUNT POLICIES............................ 36
Dividends and Other Distributions......................... 36
Distribution Plans........................................ 37
Taxes..................................................... 37
About the Trust and the Funds............................. 38
Shareholder Information................................... 39
</TABLE>
Prospectus
<PAGE> 4
GENERAL INFORMATION
TOTAL FUND EXPENSES
================================================================================
The following tables are intended to assist investors in understanding the
expenses associated with investing in each class of shares of a Fund. Because B
shares were not offered for sale prior to the date of this Prospectus, all
expenses for B shares are based on estimated expenses.
SHAREHOLDER TRANSACTION EXPENSES:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a % of
offering price).................................... 4.75% None None
Maximum Contingent Deferred Sales Load (as a % of
original purchase price or redemption proceeds,
whichever is lower)................................ None 5%* 1%**
Wire Redemption Fee (per transaction)................ $5.00 $5.00 $5.00
</TABLE>
- ---------------
* Declining over an eight-year period as follows: 5% during the first year, 4%
during the second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year and 0% thereafter. Class B shares will
convert to Class A shares eight years after purchase. See "What Class B
Shares Will Cost" below for a further discussion.
** Declining to 0% at the first year.
ANNUAL OPERATING EXPENSES:
<TABLE>
<CAPTION>
CLASS A(3) CLASS B CLASS C(3)
---------- ------- ----------
<S> <C> <C> <C>
CAPITAL APPRECIATION TRUST:
Management fee................................. 0.75% 0.75% 0.75%
12b-1 fees..................................... 0.45% 1.00% 1.00%
Other expenses (after fee waiver)(1)........... 0.25% 0.25% 0.25%
--- ---- ---
Total Fund operating expenses (after fee
waiver)(1) 1.45% 2.00% 2.00%
=== ==== ===
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------- ------- ----------
<S> <C> <C> <C>
EAGLE INTERNATIONAL EQUITY PORTFOLIO:
Management fee (after fee waiver)(2)........... 0.74% 0.74% 0.74%
12b-1 fees..................................... 0.25% 1.00% 1.00%
Other expenses................................. 0.98% 0.98% 0.98%
--- ---- ---
Total Fund operating expenses (after fee waiver
and expense reimbursement)(2)................ 1.97% 2.72% 2.72%
=== ==== ===
</TABLE>
<TABLE>
<CAPTION>
CLASS A(3) CLASS B CLASS C(3)
---------- ------- ----------
<S> <C> <C> <C>
GROWTH EQUITY FUND:
Management fee................................. 0.75% 0.75% 0.75%
12b-1 fees..................................... 0.25% 1.00% 1.00%
Other expenses (after fee waiver)(1)........... 0.45% 0.45% 0.45%
--- ---- ---
Total Fund operating expenses (after fee
waiver)(1)................................... 1.45% 2.20% 2.20%
=== ==== ===
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------- ------- ----------
<S> <C> <C> <C>
INCOME-GROWTH TRUST:
Management fee(1).............................. 0.75% 0.75% 0.75%
12b-1 fees..................................... 0.25% 1.00% 1.00%
Other expenses................................. 0.32% 0.32% 0.32%
--- ---- ---
Total Fund operating expenses(1)............... 1.32% 2.07% 2.07%
=== ==== ===
</TABLE>
Prospectus 1
<PAGE> 5
<TABLE>
<CAPTION>
CLASS A(4) CLASS B(4) CLASS C(4)
---------- ---------- ----------
<S> <C> <C> <C>
MID CAP GROWTH FUND:
Management fee (after fee waiver)(1)(4)............. 0.25% 0.25% 0.25%
12b-1 fees.......................................... 0.25% 1.00% 1.00%
Other expenses...................................... 1.10% 1.10% 1.10%
--- --- ---
Total Fund operating expenses (after fee
waiver)(1)(4)..................................... 1.60% 2.35% 2.35%
=== === ===
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C> <C>
SMALL CAP STOCK FUND:
Management fee(1).................................... 0.79% 0.79% 0.79%
12b-1 fees........................................... 0.25% 1.00% 1.00%
Other expenses....................................... 0.21% 0.21% 0.21%
---- ---- ----
Total Fund operating expenses(1)..................... 1.25% 2.00% 2.00%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
CLASS A(3) CLASS B CLASS C(3)
---------- ------- ----------
<S> <C> <C> <C>
VALUE EQUITY FUND:
Management fee (after fee waiver)(1)............... 0.75% 0.75% 0.75%
12b-1 fees......................................... 0.25% 1.00% 1.00%
Other expenses..................................... 0.45% 0.45% 0.45%
--- ---- ---
Total Fund operating expenses (after fee
waiver)(1)....................................... 1.45% 2.20% 2.20%
=== ==== ===
</TABLE>
- ---------------
(1) Heritage Asset Management, Inc. voluntarily will waive its investment
advisory fees and/or reimburse each of the following Funds to the extent
that Class A, Class B and Class C annual operating expenses exceed that
Fund's average daily net assets for that Fund's 1998 fiscal year as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B AND CLASS C
------- -------------------
<S> <C> <C>
Capital Appreciation Trust......................... 1.45% 2.20%
Growth Equity Fund................................. 1.45% 2.20%
Income-Growth Trust................................ 1.35% 2.10%
Mid Cap Growth Fund................................ 1.60% 2.35%
Small Cap Fund..................................... 1.30% 2.05%
Value Equity Fund.................................. 1.45% 2.20%
</TABLE>
(2) Eagle Asset Management, Inc. ("Eagle"), the investment adviser to the Eagle
International Equity Portfolio, voluntarily will waive its fees and, if
necessary, reimburse the Eagle International Equity Portfolio to the extent
that Class A annual operating expenses exceed 1.97% of the Fund's average
daily net assets and to the extent that the Class B and Class C annual
operating expenses each exceed 2.72% of that classes' average daily net
assets for the Fund's 1998 fiscal year. Absent such fee waivers, annual 1997
management fees and total operating expenses for Eagle International Equity
Portfolio A shares would have been 1.00% and 2.23%, and for C shares would
have been 1.00% and 2.98%. Absent such fee waiver, annual 1998 management
fees and total operating expenses for Eagle International Equity Portfolio B
shares are expected to be 1.00% and 2.98%.
(3) The annual operating expenses have been restated to reflect the fee cap for
1998. Actual 1997 other expenses and total Fund operating expenses for the
Funds listed below were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS C
------- -------
<S> <C> <C>
Capital Appreciation Trust
Other expenses............................................ 0.28% 0.28%
Total Fund operating expenses............................. 1.48% 2.03%
Growth Equity Fund
Other expenses............................................ 0.54% 0.54%
Total Fund operating expenses............................. 1.54% 2.29%
Value Equity Fund
Other expenses............................................ 0.53% 0.53%
Total Fund operating expenses............................. 1.53% 2.28%
</TABLE>
(4) Absent such fee waivers, annual 1998 Mid Cap Growth Fund management fees and
total operating expenses are expected to be 0.75% and 2.10% for A shares and
0.75% and 2.85% for B shares and C shares, respectively.
Prospectus 2
<PAGE> 6
EXAMPLES OF THE EFFECT OF FUND EXPENSES:
The impact of Fund operating expenses on earnings is illustrated in the
examples below assuming a hypothetical $1,000 investment and a 5% annual rate of
return.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CAPITAL APPRECIATION TRUST:
A shares............................................. $62 $ 91 $123 $213
B shares (assuming sale of all shares at end of
period)*........................................... $70 $ 93 $128 $219
B shares (assuming no sale of shares)*............... $20 $ 63 $108 $219
C shares............................................. $20 $ 63 $108 $233
EAGLE INTERNATIONAL EQUITY PORTFOLIO:
A shares............................................. $67 $106 $149 $266
B shares (assuming sale of all shares at end of
period)*........................................... $78 $114 $164 $287
B shares (assuming no sale of shares)*............... $28 $ 84 $144 $287
C shares............................................. $28 $ 84 $144 $305
GROWTH EQUITY FUND:
A shares............................................. $62 $ 91 $123 $213
B shares (assuming sale of all shares at end of
period)*........................................... $72 $ 99 $138 $234
B shares (assuming no sale of shares)*............... $22 $ 69 $118 $234
C shares............................................. $22 $ 69 $118 $253
INCOME-GROWTH TRUST
A shares............................................. $61 $ 88 $117 $201
B shares (assuming sale of all shares at end of
period)*........................................... $71 $ 95 $131 $221
B shares (assuming no sale of shares)*............... $21 $ 65 $111 $221
C shares............................................. $21 $ 65 $111 $240
MID CAP GROWTH FUND:
A shares............................................. $63 $ 96 $130 $228
B shares (assuming sale of all shares at end of
period)*........................................... $74 $103 $146 $250
B shares (assuming no sale of shares)*............... $24 $ 73 $126 $250
C Shares............................................. $24 $ 73 $126 $269
SMALL CAP STOCK FUND:
A shares............................................. $60 $ 85 $113 $191
B shares (assuming sale of all shares at end of
period)*........................................... $70 $ 93 $128 $213
B shares (assuming no sale of shares)*............... $20 $ 63 $108 $213
C shares............................................. $20 $ 63 $108 $233
VALUE EQUITY FUND:
A shares............................................. $62 $ 91 $123 $213
B shares (assuming sale of all shares at end of
period)*........................................... $72 $ 99 $138 $234
B shares (assuming no sale of shares)*............... $22 $ 69 $118 $234
C shares............................................. $22 $ 69 $118 $253
</TABLE>
- ---------------
* Ten-year figures assume conversion of B shares to A shares at end of eighth
year.
This is an illustration only and should not be considered a representation
of future expenses. Actual expenses and performance may be greater or less than
that shown above. The purpose of the above tables is to assist investors in
understanding the various costs and expenses that will be borne directly or
indirectly by shareholders. Due to the imposition of Rule 12b-1 fees, it is
possible that long-term shareholders of a Fund 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.
For a further discussion of these costs and expenses, see "Management of the
Funds" and "Distribution Plans."
Prospectus 3
<PAGE> 7
FINANCIAL HIGHLIGHTS
================================================================================
The following table shows important financial information for an A share
and a C share of the Capital Appreciation 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 appearing in the SAI. The financial statements and the information in
these tables for the two fiscal years ended August 31, 1997 have been audited by
Price Waterhouse LLP, independent accountants, whose report thereon is included
in the SAI. Additional performance information is contained in the Capital
Appreciation Trust's Annual Report to Shareholders, which may be obtained,
without charge, by contacting the Fund at (800) 421-4184. Information presented
for the years ended August 31, 1995 and prior thereto was audited by other
auditors who served as the Capital Appreciation Trust's independent accountants
for those years. No B shares were outstanding prior to the date of this
Prospectus.
<TABLE>
<CAPTION>
CAPITAL APPRECIATION TRUST
CLASS A
------------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
------------------------------------------------------------
1997** 1996 1995* 1994 1993 1992
------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD................... $ 15.58 $ 15.53 $15.30 $15.62 $13.64 $12.55
------- ------- ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........ (0.06) 0.00(a)(f) 0.08(a) 0.02(a) 0.03(a) 0.15(a)
Net realized and unrealized
gain (loss) on
investments................ 4.85 1.81 1.37 1.05 3.29 1.19
------- ------- ------ ------ ------ ------
Total from Investment
Operations................. 4.79 1.81 1.45 1.07 3.32 1.34
------- ------- ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income..................... -- (0.04) (0.06) (0.03) (0.07) (0.25)
Distributions from net
realized gains............. (1.77) (1.72) (1.16) (1.36) (1.27) --
------- ------- ------ ------ ------ ------
Total Distributions.......... (1.77) (1.76) (1.22) (1.39) (1.34) (0.25)
------- ------- ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD....................... $18.60 $ 15.58 $15.53 $15.30 $15.62 $13.64
======= ======= ====== ====== ====== ======
TOTAL RETURN(%)(E)............ 33.61 12.79 10.85 7.07 25.72 10.78
RATIOS(%)/SUPPLEMENTAL DATA:
Operating expenses net, to
average daily net assets... 1.48 1.54(a) 1.62(a) 1.55(a) 1.56(a) 1.66(a)
Net investment income (loss)
to average daily net
assets..................... (.30) (.02) .49 .15 .24 1.09
Portfolio turnover rate...... 42 54 66 65 55 57
Average commission rate on
portfolio transactions (per
share)..................... $0.0600 $0.0600 -- -- -- --
Net assets, end of period
(millions) ($):............ 81 70 73 74 75 65
<CAPTION>
CAPITAL APPRECIATION TRUST
CLASS A CLASS C
------------------------------------- -------------------------------
FOR THE YEARS ENDED AUGUST 31, FOR THE YEARS ENDED AUGUST 31,
------------------------------------- -------------------------------
1991 1990 1989 1988 1997** 1996 1995*+
------ ------- ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD................... $10.62 $ 14.48 $10.74 $13.31 $ 15.46 $ 15.50 $14.18
------ ------- ------ ------ ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........ 0.28(a) 0.29(b) 0.14(b) 0.08(a) (0.13) (0.03)(a)(f) (0.01)(a)
Net realized and unrealized
gain (loss) on
investments................ 1.97 (2.82) 3.77 (1.39) 4.78 1.75 1.33
------ ------- ------ ------ ------- ------- ------
Total from Investment
Operations................. 2.25 (2.53) 3.91 (1.31) 4.65 1.72 1.32
------ ------- ------ ------ ------- ------- ------
LESS DISTRIBUTIONS:
Dividends from net investment
income..................... (0.32) (0.19) (0.06) (0.11) -- (0.04) --
Distributions from net
realized gains............. -- (1.14) (0.11) (1.15) (1.77) (1.72) --
------ ------- ------ ------ ------- ------- ------
Total Distributions.......... (0.32) (1.33) (0.17) (1.26) (1.77) (1.76) --
------ ------- ------ ------ ------- ------- ------
NET ASSET VALUE, END OF
PERIOD....................... $12.55 $ 10.62 $14.48 $10.74 $ 18.34 $ 15.46 $15.50
====== ======= ====== ====== ======= ======= ======
TOTAL RETURN(%)(E)............ 21.73 (18.73) 36.88 (8.75) 32.91 12.16 9.31(d)
RATIOS(%)/SUPPLEMENTAL DATA:
Operating expenses net, to
average daily net assets... 1.86(a) 1.96(b) 2.00(b) 2.00(a) 2.04 2.05(a) 2.17(a)(c)
Net investment income (loss)
to average daily net
assets..................... 2.38 2.54 1.19 0.62 (.88) (.57) (0.33)(c)
Portfolio turnover rate...... 80 45 60 103 42 54 66
Average commission rate on
portfolio transactions (per
share)..................... -- -- -- -- $0.0600 $0.0600 --
Net assets, end of period
(millions) ($):............ 63 58 62 43 3 1 .4
</TABLE>
- ---------------
* Liberty Investment Management was retained as an additional investment
subadviser to the Fund on February 27, 1995.
** Liberty Investment Management became a Division of Goldman Sachs Asset
Management Inc. on January 2, 1997.
+ For the period April 3, 1995 (first offering of C shares) to August 31,
1995.
(a) Excludes management fees waived by Heritage in the amount of less than
$0.04, $0.04, $0.04, $0.04, $0.03, $0.01 and $0.01 per A share,
respectively. The operating expense ratios including such items would have
been 1.79%, 1.87%, 1.81%, 1.81%, 1.84%, 1.87% and 2.06% (annualized) for A
shares, respectively. Excludes management fees waived by Heritage in the
amount of less than $0.04 and $0.04 per C share. The operating expense ratio
including such items would have been 2.30% and 2.42% (annualized) for C
shares, respectively.
(b) Includes management fees previously waived by Heritage and recovered during
the year of less than $0.01 per share.
(c) Annualized.
(d) Not annualized.
(e) Does not reflect the imposition of a sales charge.
(f) Amounts calculated prior to reclassification of $23,981. The effect of such
reclassification would have no effect on net investment income for A shares
and would have resulted in an increase in net investment income of $0.10 for
C shares.
Prospectus 4
<PAGE> 8
FINANCIAL HIGHLIGHTS
================================================================================
The following table shows important financial information for an A share
and a C share of the Eagle International Equity Portfolio and the Growth Equity
Fund 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 appearing in the SAI. The financial
statements and the information in these tables have been audited by Price
Waterhouse LLP, independent accountants, whose report thereon is included in the
SAI. Additional performance information is contained in the Series Trust's
Annual Report to Shareholders, which may be obtained, without charge, by
contacting your Fund at (800) 421-4184. No B shares were outstanding prior to
the date of this Prospectus.
<TABLE>
<CAPTION>
EAGLE INTERNATIONAL EQUITY PORTFOLIO GROWTH EQUITY FUND
------------------------------------- -----------------------------------------
CLASS A CLASS C CLASS A CLASS C
---------------- ---------------- ----------------- -------------------
FOR THE YEARS ENDED OCTOBER 31, FOR THE YEARS ENDED OCTOBER 31,
------------------------------------- -----------------------------------------
1997* 1996#* 1997* 1996#* 1997* 1996##* 1997* 1996##*
------ ------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of the period.. $22.25 $21.11 $22.12 $21.11 $17.74 $14.29 $17.61 $14.29
------ ------ ------ ------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income (loss)............. 0.05(a) .010(a) (0.13)(a) (0.07)(a) (0.07)(b) (.03)(b) (0.24)(b) (.15)(b)
Net realized and unrealized gain on
investments............................ 2.28 1.04 2.25 1.08 6.10 3.48 6.05 3.47
------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations......... 2.33 1.14 2.12 1.01 6.03 3.45 5.81 3.32
------ ------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from net investments income.... (0.44) -- (0.34) -- -- -- -- --
Distributions from net realized gains.... (0.17) -- (0.17) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions...................... (0.61) (0.51)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period............ $23.97 $22.25 $23.73 $22.12 $23.77 $17.74 $23.42 $17.61
====== ====== ====== ====== ====== ====== ====== ======
Total Return(%)(e)........................ 10.71(f) 5.40(d) 9.79 4.78(d) 33.99 24.14(d) 32.99 23.23(d)
Ratios(%)/Supplemental Data:
Operating expenses, net, to average daily
assets................................. 1.97(a) 1.97(a)(c) 2.72(a) 2.72(a)(c) 1.61(b) 1.65(b)(c) 2.36(b) 2.40(b)(c)
Net investment income (loss) to average
daily net assets....................... 0.22 0.44(c) (.52) (0.32)(c) (0.35) (.19)(c) (1.14) (.96)(c)
Portfolio turnover rate(d)............... 50 59 50 59 50 23 50 23
Average commission rate on portfolio
transactions........................... $.0164 $.0289 $.0164 $.0289 $.0600 $.0599 $.0600 $.0599
Net assets, end of period ($ millions)... 6 3 4 1 24 12 18 5
</TABLE>
- ---------------
* Per share amounts have been calculated using the monthly average share
method, which more appropriately represents per share data for the period
since use of the undistributed income method does not correspond with results
of operation.
# For the period December 27, 1995 (first offering of Class A and Class C
shares) to October 31, 1996.
## For the period November 16, 1995 (commencement operations) to October 31,
1996.
(a)Excludes management fees waived by Eagle in the amount of $.06 and $.16 per
Class A Share respectively. The operating expense ratio including such items
would have been 2.23% and 2.69% (annualized) for Class A Shares respectively.
Excludes management fees waived by Eagle in the amount of $.06 and $.16 per
Class C Share respectively. The operating expense ratio including such items
would have been 2.98% and 3.44% (annualized) for Class C Shares respectively.
(b)Excludes management fees waived and expenses reimbursed by Heritage of $.11
per Class A and Class C Share for the period ended October 31, 1996. The
operating expense ratios including such items would have been 2.39% and 3.14%
(annualized) for the period ended October 31, 1996, respectively. The period
ended October 31, 1997 includes recovery of previously waived management fees
paid to Heritage of $.01 per Class A and Class C Share. The operating expense
ratio excluding such items would have been 1.54% and 2.29% for Class A and
Class C Shares, respectively.
(c)Annualized.
(d)Not annualized.
(e)Does not reflect the imposition of a sales load.
(f)These returns are calculated based on the published net asset value.
Prospectus 5
<PAGE> 9
FINANCIAL HIGHLIGHTS
================================================================================
The following table shows important financial information for an A share
and a C share of the Income-Growth 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 appearing in the SAI. The financial statements and the information in
these tables for the two fiscal years ended September 30, 1997 have been audited
by Price Waterhouse LLP, independent accountants, whose report thereon is
included in the SAI. Additional performance information is contained in the
Income-Growth Trust's Annual Report to Shareholders, which may be obtained,
without charge, by contacting the Fund at (800) 421-4184. Information presented
for the years ended September 30, 1995 and prior thereto was audited by other
auditors who served as the Income-Growth Trust's independent accountants for
those years. No B shares were outstanding prior to the date of this Prospectus.
INCOME-GROWTH TRUST
<TABLE>
<CAPTION>
FOR THE YEARSCLASSDASEPTEMBER 30,
==========================================================================================
1997* 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------ ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 14.67 $ 12.56 $11.33 $12.28 $10.81 $ 9.87 $ 8.08 $ 10.41 $ 9.18 $ 9.98
------- ------- ------ ------ ------ ------ ------ ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a).......... 0.40 0.36 0.27 0.30 0.39 0.28 0.36 0.45 0.45 0.44
Net realized and unrealized gain
(loss) on investments........... 3.45 2.35 1.79 (0.09) 1.44 1.02 1.88 (2.06) 1.22 (0.81)
------- ------- ------ ------ ------ ------ ------ ------- ------ ------
Total from Investment
Operations...................... 3.85 2.71 2.06 .21 1.83 1.30 2.24 (1.61) 1.67 (0.37)
------- ------- ------ ------ ------ ------ ------ ------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income.......................... (0.38) (0.35) (0.34) (0.24) (0.36) (0.36) (0.34) (0.48) (0.44) (0.43)
Distributions from net realized
gain on investments............. (1.49) (0.25) (0.49) (0.92) -- -- (0.11) (0.24) -- --
------- ------- ------ ------ ------ ------ ------ ------- ------ ------
Total Distributions............... (1.87) (0.60) (0.83) (1.16) (0.36) (0.36) (0.45) (0.72) (0.44) (0.43)
------- ------- ------ ------ ------ ------ ------ ------- ------ ------
NET ASSET VALUE, END OF PERIOD..... $ 16.65 $ 14.67 $12.56 $11.33 $12.28 $10.81 $ 9.87 $ 8.08 $10.41 $ 9.18
======= ======= ====== ====== ====== ====== ====== ======= ====== ======
TOTAL RETURN(%)(D)................. 29.45 22.26 19.57 1.80 16.44 13.42 28.72 (16.42) 18.80 (3.38)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses net, to average
daily net assets(a)............. 1.34 1.51 1.64 1.64 1.72 1.75 1.75 1.75 1.75 1.75
Net investment income to average
daily net assets................ 2.65 2.66 4.63 2.62 2.67 2.77 4.02 4.77 4.72 5.01
Portfolio turnover rate........... 75 75 42 99 130 71 81 156 249 184
Average commission rate on
portfolio transactions.......... $0.0599 $0.0595 -- -- -- -- -- -- -- --
Net assets, end of period ($
millions)....................... 65 43 34 33 34 27 20 19 24 20
<CAPTION>
CLASS C
--------------------------
FOR THE YEARS ENDED
SEPTEMBER 30,
--------------------------
1997* 1996 1995+
------- ------- ------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 14.57 $ 12.51 $11.21
------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a).......... 0.28 0.26 0.18
Net realized and unrealized gain
(loss) on investments........... 3.43 2.34 1.28
------- ------- ------
Total from Investment
Operations...................... 3.71 2.60 1.46
------- ------- ------
LESS DISTRIBUTIONS:
Dividends from net investment
income.......................... (0.30) (0.29) (0.16)
Distributions from net realized
gain on investments............. (1.49) (0.25) --
------- ------- ------
Total Distributions............... (1.79) (0.54) (0.16)
------- ------- ------
NET ASSET VALUE, END OF PERIOD..... $ 16.49 $ 14.57 $12.51
======= ======= ======
TOTAL RETURN(%)(D)................. 28.49 21.37 13.18(c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses net, to average
daily net assets(a)............. 2.07 2.13 2.40(b)
Net investment income to average
daily net assets................ 1.87 2.05 4.61(b)
Portfolio turnover rate........... 75 75 42(b)
Average commission rate on
portfolio transactions.......... $0.0599 $0.0595 --
Net assets, end of period ($
millions)....................... 21 6 0.2
</TABLE>
- ---------------
* Per share amounts have been calculated using the monthly average share
method, which more appropriately presents per share data for the year since
use of the undistributed income method does not correspond with results of
operations.
+ For the period April 3, 1995 (first offering of C shares) to September 30,
1995.
(a) Excludes management fees waived by Heritage for the 5 years ended September
30, 1992 in the amount of less than $.01, $.01, $.02, $.02 and $.01 per A
share, respectively. The operating expense ratios including such items would
have been 1.75%, 1.94%, 1.96%, 1.92%, and 1.89% (annualized) per Class A
share, respectively. The year 1993 includes previously waived management
fees paid to Heritage of $.01 per share.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales load.
Prospectus 6
<PAGE> 10
FINANCIAL HIGHLIGHTS
================================================================================
The following table shows important financial information for an A share
and a C share of the Small Cap Stock Fund and the Value Equity Fund 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 appearing in the SAI. The financial statements
and the information in these tables for the two fiscal years ended October 31,
1997 have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon is included in the SAI. Additional performance information is
contained in the Series Trust's Annual Report to Shareholders, which may be
obtained, without charge, by contacting your Fund at (800) 421-4184. Information
presented for the years ended October 31, 1995 and prior thereto was audited by
other auditors who served the Funds' independent accountants for those years. No
B shares were outstanding prior to the date of this Prospectus.
<TABLE>
<CAPTION>
SMALL CAP STOCK FUND
--------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------- ------------------------
FOR THE YEARS
FOR THE YEARS ENDED OCTOBER 31, ENDED OCTOBER 31,
------------------------------------------- ------------------------
1997* 1996* 1995O 1994 1993+ 1997* 1996* 1995++
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $24.08 $18.86 $16.20 $15.57 $14.29 $23.84 $18.79 $15.67
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)..... (0.02) (.05) .02 (.01)(a) (.01)(a) (0.23) (.22) (.02)
Net realized and unrealized gain
on investments................. 8.21 6.12 3.62 .64 1.29 8.10 6.11 3.14
------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations..................... 8.19 6.07 3.64 .63 1.28 7.87 5.89 3.12
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investments
income......................... -- (.01) (.01) -- -- -- -- --
Distributions from net realized
gains.......................... (1.88) (.84) (.97) -- -- (1.88) (.84) --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions.............. (1.88) (.85) (.98) -- -- (1.88) (.84) --
------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD.... $30.39 $24.08 $18.86 $16.20 $15.57 $29.83 $23.84 $18.79
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN(%)(E)................ 36.68 33.18 23.97 4.05 8.96(d) 35.63 32.22 19.91(d)
RATIOS(%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average daily assets........... 1.25 1.41 1.88 1.91(a) 2.00(a)(c) 2.00 2.13 2.36(c)
Net investment income to average
daily net assets............... (0.09) (.21) .15 (.07) (.15)(c) (0.85) (.94) (.46)(c)
Portfolio turnover rate(d)....... 54 80 89 95 97 54 80 89
Average commission rate on
portfolio transactions......... $.0633 $.0637 -- -- -- $.0633 $.0637 --
Net assets, end of period ($
millions)...................... 222 96 57 42 40 90 25 4
<CAPTION>
VALUE EQUITY FUND
-------------------------------------------------------------
CLASS A* CLASS C*
---------------------------- --------------------------
FOR THE YEARS FOR THE YEARS
ENDED OCTOBER 31, ENDED OCTOBER 31,
---------------------------- --------------------------
1997 1996 1995++ 1997 1996 1995++
------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $20.27 $18.00 $14.29 $20.06 $17.92 $15.27
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)..... 0.22(b) 0.17(b) 0.08(b) 0.05(b) 0.02(b) 0.01(b)
Net realized and unrealized gain
on investments................. 5.23 2.76 3.63 5.20 2.74 2.64
------ ------ ------ ------ ------ ------
Total from Investment
Operations..................... 5.45 2.93 3.71 5.25 2.76 2.65
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investments
income......................... (0.15) (.11) -- (0.03) (.07) --
Distributions from net realized
gains.......................... (1.30) (.55) -- (1.30) (.55) --
------ ------ ------ ------ ------ ------
Total distributions.............. (1.45) (.66) -- (1.33) (.62) --
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD.... $24.27 $20.27 $18.00 $23.98 $20.06 $17.92
====== ====== ====== ====== ====== ======
TOTAL RETURN(%)(E)................ 28.69 16.59 25.96(d) 27.79 15.65 17.35(d)
RATIOS(%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average daily assets........... 1.61(b) 1.65(b) 1.65(b)(c) 2.36(b) 2.40(b) 2.40(b)(c)
Net investment income to average
daily net assets............... 0.96 0.89 1.05(c) 0.21 0.13 0.28(c)
Portfolio turnover rate(d)....... 155 129 82 155 129 82
Average commission rate on
portfolio transactions......... $.0580 $.0550 -- $.0580 $.0550 --
Net assets, end of period ($
millions)...................... 19 15 12 13 10 4
</TABLE>
- ---------------
* Per share amounts have been calculated using the monthly average share
method, which more appropriately represents per share data for the period
since use of the undistributed income method does not correspond with
results of operation.
+ For the period May 7, 1993 (commencement of operations) to October 31, 1993.
++ For the period April 3, 1995 (first offering of C shares) to October 31,
1995.
+++ For the period December 30, 1994 (commencement operations) to October 31,
1995.
o Eagle Asset Management, Inc. became an additional subadviser to the Fund on
August 7, 1995.
(a) Excludes management fees waived by Heritage in fiscal 1993 of less than $.01
per share. The operating expense ratio including such items would have been
2.09% (annualized). The fiscal year 1994 includes recovery of previously
waived management fees paid to Heritage of less than $.01 per share.
(b) Excludes management fees waived and expenses reimbursed by Heritage in the
amount of $.07 and $.13 per Class A Shares, respectively. The operating
expense ratios including such items would have been 1.99% and 3.49% for
Class A Shares, respectively. Excludes management fees waived and expenses
reimbursed by Heritage in the amount of $.07 and $.13 per Class C Shares,
respectively. The operating expense ratio including such items would have
been 2.74% and 4.24% (annualized) for Class C Shares respectively. The
fiscal year ended October 31, 1997 includes recovery of previously waived
management fees paid to Heritage of $.02 per Class A and Class C Share. The
operating expense ratios excluding such items would have been 1.53% and
2.28% for Class A and Class C Shares, respectively.
(c) Annualized.
(d) Not annualized.
(e) Does not reflect the imposition of a sales load.
Prospectus 7
<PAGE> 11
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
================================================================================
BECAUSE THE
FUNDS INVEST
PRIMARILY IN
COMMON STOCKS,
THE VALUE OF YOUR
INVESTMENT WILL
FLUCTUATE. YOU CAN
LOSE MONEY BY
INVESTING IN THE
FUNDS. THERE CAN
BE NO ASSURANCE
THAT A FUND'S
INVESTMENT
OBJECTIVE WILL BE
ACHIEVED.
Each Fund has its own investment objective and seeks to achieve that
objective through separate and distinct investment policies. Each Fund's
investment objective is fundamental and may not be changed without the vote of a
majority of the outstanding voting securities of that Fund, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). Except as otherwise
stated, all policies of each Fund can be changed by that Fund's Board of
Trustees without shareholder approval. Each Fund's shares will fluctuate in
value as a result of value changes in portfolio investments. There can be no
assurance that a Fund's investment objective will be achieved.
Heritage Asset Management, Inc. ("Heritage") serves as the investment
adviser to each Fund, except the Eagle International Equity Portfolio. Eagle
Asset Management, Inc. ("Eagle") serves as the investment adviser to the Eagle
International Equity Portfolio.
The following is a discussion of each Fund's investment objectives,
principal investments and practices, including the risks of investing in these
investments or engaging in these practices. For a further discussion of each
Fund's investment policies, practices and risks, see "Investment Information" in
the SAI.
CAPITAL APPRECIATION TRUST
- ----------------------------
THE CAPITAL
APPRECIATION
TRUST SEEKS LONG-
TERM CAPITAL
APPRECIATION.
THE FUND'S
SUBADVISER IS
LIBERTY
INVESTMENT
MANAGEMENT, A
DIVISION OF GOLDMAN
SACHS ASSET
MANAGEMENT
INC.
The Capital Appreciation Trust's investment objective is long-term capital
appreciation. The Fund believes that this objective can best be achieved through
the purchase of equity securities that, in the opinion of its subadviser,
represent companies with the potential for attractive long-term growth in
earnings, cash flow and total worth of the business enterprise. The Fund's
subadviser is Liberty Investment Management, a Division of Goldman Sachs Asset
Management Inc. ("Liberty"). The Fund prefers to purchase such securities at a
price that represents a discount to the real worth of the company's businesses
or, in other words, securities that appear, in the opinion of its subadviser, to
be undervalued in relation to the company's long-term growth fundamentals.
Securities may be undervalued because of many factors, including: the market
does not recognize the growth potential of the company; a stock market decline;
poor economic conditions; tax-loss selling or actual or anticipated unfavorable
developments affecting the issuer of the security. Any or all of these factors
may provide buying opportunities at attractive prices relative to a company's
long-term growth prospects.
The Fund invests primarily in common stocks, but also may invest in
preferred stocks and securities convertible into common stock. Securities rated
in the lowest category of investment grade securities are considered to have
speculative characteristics. The Fund may purchase securities traded on
recognized securities exchanges and in the over-the-counter market. The Fund
normally invests at least 65% of its total assets in securities as described
above that Liberty believes have the potential to achieve capital appreciation.
The Fund may invest its remaining assets in foreign securities and American
Depository Receipts ("ADRs"), U.S. Government securities, repurchase agreements
or other short-term money market instruments. The Fund's investments in foreign
securities and ADRs may not exceed 10% of its portfolio. The Fund also may
invest up to 10% of its net assets in illiquid securities. The Fund may purchase
and sell a security without regard to the length of time it will be or has been
held.
Prospectus 8
<PAGE> 12
EAGLE INTERNATIONAL EQUITY PORTFOLIO
- ---------------------------------------
THE EAGLE
INTERNATIONAL
EQUITY PORTFOLIO
SEEKS CAPITAL
APPRECIATION
PRINCIPALLY
THROUGH INVESTING
IN A PORTFOLIO OF
INTERNATIONAL
EQUITY SECURITIES.
THE EAGLE
INTERNATIONAL
EQUITY PORTFOLIO'S
SUBADVISER IS
MARTIN CURRIE
INC.
The Eagle International Equity Portfolio seeks capital appreciation
principally through investment in an international portfolio of equity
securities. Income is an incidental consideration. The Fund's subadviser is
Martin Currie Inc. ("Martin Currie").
Under normal market conditions, at least 65% of the Fund's total assets are
invested in common stocks (which may or may not pay dividends), convertible
bonds, convertible preferred stocks, warrants, rights or other equity securities
of foreign issuers and sponsored and unsponsored depository receipts
representing the securities of foreign issuers (including ADRs, European
Depository Receipts, Global Depository Receipts and International Depository
Receipts, among others). The Fund can invest up to 5% of its assets in
convertible securities rated below investment grade by Standard & Poor's ("S&P")
or Moody's Investors Service, Inc. ("Moody's"), or unrated securities deemed to
be below investment grade by the Fund's subadviser. Its remaining assets can be
invested in investment grade non-convertible foreign debt securities, securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities,
repurchase agreements and foreign and domestic short-term investments, as
discussed in the SAI. In addition, the Fund can invest up to 10% of its assets
in securities of other investment companies, such as closed-end investment
companies that invest in foreign markets. As a shareholder of an investment
company, the Fund may indirectly bear service fees, which are in addition to the
fees it pays to its own service providers. The Fund may borrow up to 10% of its
total assets from banks as a temporary measure, such as to meet higher than
anticipated redemption requests. For a further discussion of these investment
objectives and policies, see "Investment Information" in the SAI.
A PORTFOLIO OF
INTERNATIONAL
EQUITY SECURITIES
SUBJECTS THE FUND
TO DIFFERENT RISKS
THAN INVESTING IN
DOMESTIC
SECURITIES.
The Fund normally invests at least 50% of its investment portfolio in
securities traded in developed foreign securities markets, such as those
included in the Morgan Stanley Capital International Europe, Australia, Far East
Index ("EAFE Index"). Countries represented in the EAFE Index include Japan,
France, the United Kingdom, Germany, Hong Kong and Malaysia, among others. The
Fund also invests in emerging markets (which may include investments in
countries such as India, Mexico and Poland for example). Emerging markets are
those countries whose markets may not yet fully reflect the potential of the
developing economy. The Fund can invest in foreign currency and purchase and
sell foreign currency forward contracts and futures contracts. See "Futures
Transactions; Foreign Currency Transactions" below.
The Fund will not limit its investments to any particular type or size of
company. It may invest in companies whose earnings are believed by its
subadviser to be in a relatively strong growth trend, or in companies in which
significant further growth is not anticipated but whose market value per share
is thought by the subadviser to be undervalued. It may invest in small and
relatively less well known companies, which may have more restricted product
lines or more limited financial resources than larger, more established
companies and may be more severely affected by economic downturns or other
adverse developments. Trading volume of these companies' securities may be low
and their market values may be volatile. While its investment strategy generally
emphasizes equity securities, the Fund can invest a portion of its assets in
investment grade fixed income securities when, in the opinion of its subadvisor,
equity securities appear to be overvalued or the Fund's subadviser otherwise
believes investing in fixed income securities affords the Fund the opportunity
for capital growth, as in periods of declining interest rates.
Prospectus 9
<PAGE> 13
THE FUND WILL INVEST
IN MANY COUNTRIES
AROUND THE WORLD.
In allocating the Fund's assets among the various securities markets of the
world, its subadviser considers such factors as the condition and growth
potential of the various economies and securities markets, currency and taxation
considerations and other pertinent financial, social, national and political
factors. Under certain adverse investment conditions, the Fund may restrict the
number of securities markets in which its assets will be invested, although
under normal market circumstances its investments will involve securities
principally traded in at least three different countries. Otherwise, there are
no prescribed limits on geographic asset distribution, and the Fund has the
authority to invest in securities traded in securities markets of any country in
the world. The Fund will invest only in markets where, in the judgment of its
subadviser there exists an acceptable framework of market regulation and
sufficient liquidity.
The securities markets of many nations can be expected to move relatively
independently of one another because business cycles, and other economic or
political events that influence one country's securities markets may have little
effect on the securities markets of other countries. By investing in an
international securities portfolio, the Fund seeks to reduce the risks
associated with investing in the economy of only one country. See "Foreign
Securities" below.
THE FUND MAY INVEST
A PORTION OF ITS
ASSETS IN COUNTRIES
WITH EMERGING
ECONOMIES OR
SECURITIES MARKETS.
The Fund may invest in emerging markets. This includes investments in
countries whose economies or securities markets are not yet highly developed.
Special considerations associated with these investments (in addition to the
considerations regarding foreign investments generally) may include greater
political uncertainties, an economy's dependence on revenues from particular
commodities or on international aid or development assistance, currency transfer
restrictions, a limited number of potential buyers for such securities and
delays and disruptions in securities settlement procedures.
The Fund's investments in foreign currency denominated debt obligations and
hedging activities likely will produce a difference between its book income and
its taxable income. If the Fund's book income exceeds its taxable income, a
portion of the Fund's income distributions would constitute returns of capital
for tax purposes because the Fund distributes substantially all of its net
investment income. See "Dividends and Other Distributions" and "Taxes." In
addition, if the Fund's taxable income exceeds its book income, it might have to
distribute all or part of that excess to continue to qualify as a "regulated
investment company" for Federal income tax purposes or to avoid the imposition
of a 4% excise tax on certain undistributed income and gains. See "Taxes" in the
SAI.
Although the Fund will not trade primarily for short-term profits, its
subadviser may make investments with potential for short-term appreciation when
such action is deemed desirable and in the best interests of shareholders. The
Fund may invest up to 10% of its net assets in illiquid securities.
THE EAGLE
INTERNATIONAL EQUITY
PORTFOLIO MAY BUY
AND SELL FUTURES
CONTRACTS AND
FORWARD CONTRACTS.
FUTURES TRANSACTIONS; FOREIGN CURRENCY TRANSACTIONS. The Fund may engage
in transactions in futures contracts and forward contracts to adjust the
risk/return characteristics of its investment portfolio. The Fund may buy and
sell stock index and currency futures contracts. A currency futures contract is
an agreement between two parties to buy and sell the underlying currency for a
set price on a future date. A stock index future is an obligation to make or
take a cash settlement, in the future, based on price movements that occur in
the specific stock index underlying the contract.
If the Fund's subadviser wants to hedge the Fund's exposure to a broad
decline in equity market prices, it might sell futures contracts on stock
indices. Then, if the
Prospectus 10
<PAGE> 14
value of the underlying securities declines, the value of the futures contracts
should increase. If, however, the value of the underlying securities increases,
the Fund would suffer a loss on its futures contract position. Likewise, if the
Fund expects stock prices to rise, it might purchase stock index futures
contracts to offset potential increases in the acquisition cost of securities
that it intends to acquire. If, as expected, the market value of the equity
indices and futures contracts with respect thereto increase, the Fund would
benefit from a rise in the value of long-term securities without actually buying
them until the market had stabilized. However, if the value of the equity
indices decline, the value of the futures contracts also will decline.
The Fund also may buy and sell foreign currencies, foreign currency futures
contracts and forward foreign currency contracts. A forward foreign currency
contract is an agreement between the Fund and a contra party to buy or sell a
specified currency at a specified price and future date. If a decline in the
value of a particular currency relative to the U.S. dollar is anticipated, the
Fund may enter into a futures contract or forward contract to sell that currency
as a hedge. If it is anticipated that the value of a foreign currency will rise,
the Fund may purchase a futures contract or forward contract to protect against
an increase in the price of securities denominated in a particular currency it
intends to purchase. These practices, however, may present risks different from
or in addition to the risks associated with investments in foreign currencies.
The Fund might not use any of the strategies described above, and there can
be no assurance that any strategy used will succeed. If the Fund's subadviser
incorrectly forecasts stock market or currency exchange rates in utilizing a
strategy for the Fund, the Fund would be in a better position if it had not
hedged at all. Although futures contracts and forward contracts are intended to
replicate movements in the cash markets for the securities and currencies in
which the Fund invests without the large cash investments required for dealing
in such markets, those contracts may subject the Fund to additional risks. The
principal risks associated with the use of futures and forward contracts are:
(1) imperfect correlation between movements in the market price of the portfolio
investment or currency (held or intended to be purchased) being hedged and in
the price of the futures contract or forward contract; (2) possible lack of a
liquid secondary market for closing out futures or forward contract positions;
(3) the need for additional portfolio management skills and techniques; (4) the
fact that, while hedging strategies can reduce the risk of loss, they also can
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in hedged investments; and (5) the possible inability
of the Fund to purchase or sell a portfolio security at a time when it would
otherwise be favorable for it to do so, or the possible need for the Fund to
sell a security at a disadvantageous time, due to its need to maintain "cover"
or to segregate securities in connection with hedging transactions and its
possible inability to close out or liquidate a hedged position.
For a hedge to be completely effective, the price change of the hedging
instrument should equal the price change of the security or currency being
hedged. Such equal price changes are not always possible because the investment
underlying the hedging instrument may not be the same investment that is being
hedged. The Fund's subadviser will attempt to create a closely correlated hedge,
but hedging activity may not be completely successful in eliminating market
value fluctuation. The ordinary spreads between prices in the cash and futures
markets, due to differences in the nature of those markets, are subject to
distortion. Due to the possibility of distortion, a correct forecast of currency
exchange rate or stock market
Prospectus 11
<PAGE> 15
trends by the Fund's subadviser may still not result in a successful
transaction. The subadviser may be incorrect in its expectations as to the
extent of various currency exchange rate or stock market movements or the time
span within which the movements take place.
GROWTH EQUITY FUND
- ----------------------
THE GROWTH
EQUITY FUND
SEEKS GROWTH
THROUGH LONG-
TERM CAPITAL
APPRECIATION.
THE FUND'S
SUBADVISER IS
EAGLE ASSET
MANAGEMENT,
INC.
The Growth Equity Fund's primary investment objective is growth through
long-term capital appreciation. In seeking this objective, the Fund may invest
without limitation in common stocks that, when purchased, meet certain
qualitative standards as determined by the Fund's subadviser, Eagle. However,
there can be no assurance that the Fund's investment objective will be achieved.
The Fund is designed for long-term investors who desire to participate in the
stock market while exposing themselves to more investment risk and volatility
than the stock market in general, but less investment risk and volatility than
many aggressive capital appreciation funds.
The Fund's subadviser will invest in common stocks that it believes have
sufficient growth potential to offer above average long-term capital
appreciation. Companies in which the subadviser will invest will have at least
one of the following characteristics at the time of purchase:
- expected earnings-per-share growth greater than the average of the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500"), or
- return on equity greater than the average for the S&P 500.
Under normal market conditions, at least 65% of the Fund's total assets
will be invested in U.S. common stocks. A majority of the Fund's total assets
will be invested in common stock with market capitalization of greater than $5
billion at the time of purchase. With respect to the other 35% of its total
assets, the Fund may invest in common stocks of foreign issuers, ADRs, foreign
currency transactions with respect to underlying common stocks, preferred stock,
investment grade securities convertible into common stocks, futures contracts,
options on equity securities or equity security indices, rights or warrants to
subscribe for or purchase common stocks, obligations of the U.S. Government, its
agencies and instrumentalities (including repurchase agreements thereon) and in
securities that track the performance of a broad-based securities index, such as
Standard & Poor's Depository Receipts ("SPDRs"). In no case, however, may the
Fund invest more than 25% of its net assets in foreign securities and ADRs. The
Fund may loan its portfolio securities. No more than 10% of the Fund's net
assets may be invested in securities that, at the time of investment, are
illiquid.
THE GROWTH
EQUITY FUND
INVESTS IN
COMPANIES THAT
HAVE EXPECTED
EARNINGS-PER-
SHARE GROWTH
OR RETURN ON
EQUITY GREATER
THAN THE
AVERAGE FOR
THE S&P 500.
Stock selections are made in part based on the subadviser's opinion
regarding the sustainability of the company's competitive advantage in the
marketplace as well as its opinion of the company's management team. The Fund's
subadviser invests in companies that, in its opinion, have long-term returns
greater than the average for the companies included in S&P 500. The subadviser
normally reevaluates a security if it underperforms the S&P 500 by 15% or more
during a three-month period. At that time a decision is made to sell or hold the
security. If a particular stock appreciates to over 5% of the total assets of
the portfolio, the subadviser generally reduces the position to less than 5%. If
the stock price appreciates to a level that, in the opinion of the subadviser,
is not sustainable, the position generally is sold to realize the existing
profits and avoid a potential price correction. If the subadviser identifies a
holding that it considers to be a better
Prospectus 12
<PAGE> 16
investment than a current holding, it generally considers selling the current
holding to add the new security.
INCOME-GROWTH TRUST
- -----------------------
THE INCOME-GROWTH
TRUST SEEKS LONG-
TERM TOTAL RETURN
BY SEEKING, WITH
APPROXIMATELY
EQUAL EMPHASIS,
CURRENT INCOME
AND CAPITAL
APPRECIATION.
The Income-Growth Trust's investment objective is long-term total return by
seeking, with approximately equal emphasis, current income and capital
appreciation. The Fund's subadviser is Eagle. The Fund 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 Fund is
subject to a higher risk of loss of principal than an investment in a fund that
does not invest in lower-rated securities.
THE FUND'S
SUBADVISER IS
EAGLE ASSET
MANAGEMENT, INC.
THE FUND CAN
INVEST IN HIGH-
YIELD BONDS
(COMMONLY
REFERRED TO AS
"JUNK BONDS").
The Fund invests primarily in income-producing securities that its
subadviser believes are consistent with the Fund's investment objective. These
securities may include equity securities, convertible securities, corporate debt
obligations, U.S. Government securities, money market instruments, securities of
real estate investment trusts ("REITs"), and repurchase agreements. The Fund
also may write covered call options on common stocks in order to earn additional
income. The aggregate value of the securities underlying call options (based on
the lower of the option price or market) may not exceed 50% of the Fund's net
assets. The Fund may loan portfolio securities and invest in warrants. The Fund
will have a majority of its investments in common stocks or securities
convertible into common stocks. The Fund may invest a portion of its assets in
securities rated B or Ba by Moody's or B or BB by S&P or, if unrated, deemed to
be of comparable quality by the Fund's subadviser. The Fund may purchase and
sell securities without regard to the length of time the securities have been
held. The Fund may invest up to 10% of its net assets in illiquid securities. In
addition, the Fund may invest up to 25% of its total assets in forward
commitments, although it has no intention of investing in such securities at
this time.
The Fund may invest up to 20% of its assets in foreign securities,
including ADRs and similar investments. The Fund also may purchase domestic
Eurodollar certificates of deposit without regard to the 20% limit. The Fund may
engage in forward contracts to purchase or sell foreign currencies at a future
date.
EQUITY SECURITIES
IN WHICH THE FUND
INVESTS GENERALLY
WILL HAVE A YIELD
GREATER THAN THE YIELD
OF ISSUERS INCLUDED
IN THE S&P 500.
The Fund's investments in equities generally will have a weighted average
dividend yield in excess of the weighted average dividend yield of the issuers
included in the S&P 500. Further, equities in which the Fund may invest
generally will be those whose prospects for dividend growth and capital
appreciation are considered favorable by the Fund's subadviser.
THE FUND MAY
INVEST IN
INVESTMENT GRADE
DEBT OBLIGATIONS
AND LOWER-RATED
SECURITIES
The Fund 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
("investment grade securities"). In addition, the Fund may invest not more than
10% of its assets in nonconvertible corporate debt obligations that are rated
below investment grade by Moody's or S&P. The Fund may invest in convertible
securities rated B or better by Moody's or S&P. However, in no instance will the
Fund invest 35% or more of its assets in below investment grade convertible and
nonconvertible securities.
The Fund, at the discretion of its subadviser, may retain a security that
has been downgraded below the initial investment criteria. If an obligation is
unrated,
Prospectus 13
<PAGE> 17
the Fund may invest in it if it is deemed to be of comparable quality by the
Fund's subadviser.
The table below shows the percentages of the Fund's assets invested during
fiscal year 1997 in securities assigned to the various ratings categories by
Moody's and S&P and in unrated securities determined by the Fund's subadviser to
be of comparable quality. These figures are dollar-weighted averages of
month-end Fund holdings for the fiscal year ended September 30, 1997, 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 A PERCENTAGE AS A
OF THE PERCENTAGE OF THE
FUND'S ASSETS FUND'S ASSETS
----------------- -------------------
MOODY'S/S&P RATINGS MOODY'S S&P MOODY'S S&P
- ------------------- -------- ------ --------- -------
<S> <C> <C> <C> <C>
A 1.45% 3.22% 0.26% 0.04%
BBB/Baa 2.96% 1.88% 0.06% 0.22%
BB/Ba 0.72% 0.21% 0.81% 0.88%
B 4.35% 3.20% 2.05% 2.74%
CCC 0.00% 0.20% 0.09% 0.00%
D 0.00% 0.00% 0.07% 0.07%
----- ----- ----- -----
Total 9.48% 8.71% 3.33% 3.94%
===== ===== ===== =====
</TABLE>
MID CAP GROWTH FUND
- -------------------------
THE MID CAP
GROWTH FUND
SEEKS LONG-TERM
CAPITAL
APPRECIATION.
THE MID CAP
GROWTH FUND'S
SUBADVISER IS
EAGLE ASSET
MANAGEMENT, INC.
THE FUND INVESTS
PRIMARILY IN
COMPANIES WITH A
TOTAL MARKET
CAPITALIZATION OF
$500 MILLION TO
$5 BILLION.
The Mid Cap Growth Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve this investment objective, under normal
market conditions, by investing at least 80% of its total assets in the equity
securities of companies each of which has a total market capitalization of
between $500 million and $5 billion ("mid cap companies") at the time of
purchase. By comparison, the mean market capitalization for the companies in the
S&P 500, an unmanaged index of 500 widely held common stocks, is approximately
$14.7 billion as of September 30, 1997. The mean market capitalization for the
companies in the Standard and Poor's Midcap 400 Index ("S&P 400") is $2.2
billion as of September 30, 1997. The weighted average market capitalization for
the S&P 500 is $54.6 billion compared to $3.4 billion for the S&P 400. Market
capitalization is the total value of a company's outstanding common stock. The
Fund's subadviser is Eagle.
The Fund invests primarily in common stocks, but also may invest in
preferred stocks securities convertible into common stock, ADRs and warrants
("equity securities"). The Fund may invest up to 5% of its assets in convertible
securities rated below investment grade by S&P or Moody's, or unrated securities
deemed to be below investment grade by Eagle. The Fund may purchase securities
traded on recognized securities exchanges and in the over-the-counter market.
The Fund may invest its remaining assets in investment grade corporate debt
securities, U.S. Government securities, repurchase agreements or other
short-term money market instruments. The Fund may invest up to 5% of its net
assets in each of the following types of investments: foreign securities and
SPDRs and other similar securities. The Fund also may invest up to 15% of its
net assets in illiquid securities. The Fund may purchase and sell a security
without regard to the length of time the security will be or has been held.
Although the Fund will not trade primarily for short-term profits, it may make
investments with potential for short-
Prospectus 14
<PAGE> 18
term appreciation when such action is deemed desirable and in the best interest
of shareholders. See "Brokerage Practices" in the SA1.
The Fund's subadviser currently believes that investments in mid cap
companies generally are considered to be less volatile than less capitalized
emerging companies and slightly more volatile than large capitalization
companies. In addition, such companies may not generate the dividend income of
larger, more capitalized companies. Dividend income, if any, is not a primary
consideration in the selection of investments.
SMALL CAP STOCK FUND
- ------------------------
THE SMALL CAP STOCK
FUND SEEKS LONG-TERM
CAPITAL APPRECIATION.
THE SMALL CAP STOCK
FUND'S SUBADVISERS ARE
EAGLE ASSET MANAGEMENT,
INC. AND AWAD &
ASSOCIATES.
The Small Cap Stock Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective primarily through the
purchase of equity securities of companies, each of which has a total market
capitalization of less than $1 billion ("small capitalization companies").
Market capitalization is the total value of a company's outstanding common
stock. The Fund will invest in securities of companies that appear to be
undervalued in relation to their long-term earning power or the asset value of
their issuers and that have significant future growth potential, in the opinion
of Eagle or Awad & Associates ("Awad"), the Fund's subadvisers (collectively,
"Small Cap Subadvisers"). Securities may be undervalued because of many factors,
including market decline, poor economic conditions, tax-loss selling or actual
or anticipated unfavorable developments affecting the issuer of the security.
Any or all of these factors may provide buying opportunities at attractive
prices relative to the long-term prospects for the companies in question.
However, there can be no assurance that the Fund's investment objective will be
achieved.
THE FUND INVESTS PRIMARILY
IN THE COMMON STOCK OF
SMALL CAPITALIZATION
COMPANIES. THIS GENERALLY
INVOLVES GREATER RISK THAN
INVESTING IN LARGER, MORE
ESTABLISHED COMPANIES.
The Fund invests primarily in common stocks but also may invest in
preferred stocks, investment grade securities convertible into common stock and
warrants ("equity securities"). The Fund may purchase securities traded on
recognized securities exchanges and in the over-the-counter market. The Fund
normally invests at least 65% of its total assets in common stocks and at least
80% of its total assets in the equity securities of companies each of which, at
the time of purchase, has a total market capitalization of less than $1 billion.
By comparison, the mean market capitalization for the companies in the S&P 500
is approximately $14.7 billion as of September 30, 1997.
The Fund may invest its remaining assets in securities convertible into
common stock, ADRs, U.S. Government securities, repurchase agreements or other
short-term money market instruments. The Fund may invest up to 5% of its assets
in convertible securities rated below investment grade by S&P or Moody's, or
unrated securities deemed to be below investment grade by its Subadvisers. The
Fund also may invest up to 15% of its net assets in illiquid securities. The
Fund may purchase and sell a security without regard to the length of time the
security will be or has been held. Although the Fund will not trade primarily
for short-term profits, it may make investments with potential for short-term
appreciation when such action is deemed desirable and in the best interest of
shareholders. See "Brokerage Practices" in the SAI.
The Small Cap Subadvisers currently believe that investments in small
capitalization companies may offer greater opportunities for growth of capital
than investments in larger, more established companies. Investing in smaller,
newer issuers generally involves greater risks than investing in larger more
established issuers. Companies in which the Fund is likely to invest may have
limited product
Prospectus 15
<PAGE> 19
lines, markets or financial resources and may lack management depth. The
securities issued by such companies may have limited marketability and may be
subject to more abrupt or erratic market movements than securities of larger,
more established companies or the market averages in general. In addition, many
small capitalization companies may be in the early stages of development.
Accordingly, an investment in the Fund may not be appropriate for all investors.
Heritage believes that short-term volatility may be reduced by allocating
the Fund's assets among multiple subadvisers. While Eagle and Awad will focus on
investments in small capitalization companies, the different investment
disciplines employed by them may cause the portion of the Fund's assets
allocated to Eagle or Awad to have better or worse relative performance than the
other portion during certain market conditions. By employing multiple
disciplines, short-term volatility may be reduced while the Fund participates in
returns available from small capitalization companies. The potential benefits of
this multiple subadviser approach may be partially reduced, however, because
there currently are only two Small Cap Subadvisers and because there may be
overlap among the securities portfolios of Eagle and Awad.
Eagle makes investment decisions on behalf of its allocated portion of the
Fund's assets. In making its investment decisions, Eagle generally focuses on
investing in the securities of companies that Eagle believes have accelerating
earnings growth rates, reasonable valuations (typically with a price-to-earnings
ratio of no more than 75% of the earnings growth rate), strong management that
participates in the ownership of the company, reasonable debt levels and a high
or expanding return on equity. Of course, not all companies in the portfolio
will meet all of these criteria to the same degree. Eagle utilizes a bottom-up
approach to identifying the companies in which it invests. This approach will
include some reliance on the research of regional and national securities firms,
including Raymond James & Associates, Inc. Eagle also will perform fundamental
financial research and frequently will rely on contact with company management
to help identify investment opportunities.
Awad makes investment decisions on its allocated portion of the Fund's
assets. Awad employs an investment management approach that seeks to provide
investment returns in excess of inflation while attempting to minimize
volatility relative to the overall small cap market. Awad seeks to achieve these
goals through fundamental research consisting of internal research, the use of
Raymond James & Associates, Inc.'s research and the research of high quality
regional and Wall Street firms. There may be some overlap among the portions of
the Fund managed by Awad and Eagle. The companies in which Awad invests
generally will have, in the opinion of Awad, steady earnings and cash flow
growth, good and/or improving balance sheets, strong positions in their market
niches and the ability to perform well in a stagnant economy. The companies
purchased generally will have low price/earnings ratios relative to the stock
market in general.
Prospectus 16
<PAGE> 20
VALUE EQUITY FUND
- --------------------
THE VALUE EQUITY
FUND SEEKS LONG-
TERM CAPITAL
APPRECIATION;
CURRENT INCOME IS
A SECONDARY OBJECTIVE.
The Value Equity Fund's primary investment objective is long-term capital
appreciation. Current income is a secondary objective. In seeking these
objectives, the Fund may invest without limit in common stocks that, when
purchased, meet certain quantitative standards that in the judgment of the
Fund's subadviser, Eagle, indicate above average financial soundness and high
intrinsic value relative to price. In particular, each common stock must have at
least one of the following attributes in order to meet the subadviser's
investment criteria when purchased by the Fund:
THE VALUE EQUITY
FUND'S
SUBADVISER IS
EAGLE ASSET
MANAGEMENT, INC.
THE VALUE EQUITY
FUND INVESTS IN
COMPANIES THAT
MEET CERTAIN
INVESTMENT
CRITERIA RELATING TO
PRICE, DIVIDEND
YIELD, GOING
CONCERN VALUE AND
DEBT LEVELS.
- LOW PRICE IN RELATION TO THE ISSUER'S EARNINGS OR BOOK VALUE: The stock
must have a price-to-earnings ratio or price-to-book value ratio of
less than or approximately equal to 75% of that of the broader equity
market (as measured by the S&P 500);
- HIGH DIVIDEND YIELD: The stock's yield must approximate at least 50% of
the prevailing average yield to maturity of the long-term U.S.
Government bond, as measured by the Lehman Brothers Long Treasury Bond
Index (or other similar index if this index is not available);
- HIGH VALUE OF ISSUER AS A GOING CONCERN: The stock's per share going
concern value (as estimated by the Fund's subadviser) must exceed book
value and market value; or
- LOW DEBT: The long-term debt of the issuer must be below, or
approximately equivalent to, the issuer's tangible net worth.
Under normal market conditions, at least 65% of the Fund's total assets
will be invested in U.S. common stocks. With respect to the other 35% of its
total assets, the Fund may invest in common stocks of foreign issuers, ADRs,
foreign currency transactions with respect to underlying common stock, preferred
stock, investment grade securities convertible into common stocks, futures
contracts, options on equity securities or equity security indices, rights or
warrants to subscribe for or purchase common stocks, obligations of the U.S.
Government, its agencies and instrumentalities (including repurchase agreements
thereon) and in securities that track the performance of a broad-based
securities index, such as SPDRs. The Fund's investment in covered call options
may not exceed 10% of the Fund's total assets. In no case will the Fund invest
more than 15% of its net assets in foreign securities. The Fund may loan its
portfolio securities.
The portion of total assets invested in common stocks and debt securities
will vary based on the availability of common stocks meeting the foregoing
criteria and the subadviser's evaluation of the investment merit of common
stocks relative to debt securities. No more than 10% of the Fund's net assets
may be invested in securities that, at the time of investment, are illiquid. See
"Investment Information" in the SAI for a more detailed discussion of these
securities, including related risks.
In selecting securities, the Fund's subadviser screens a universe of over
2500 companies. From this universe, it anticipates that only a few hundred
companies will meet one or more of its investment criteria. Each of these
companies is analyzed individually in terms of its past and present competitive
position within its respective industry. Selections will be made based on the
subadviser's projections of the companies' growth in earnings and dividends,
earnings momentum, and undervaluation based on a dividend discount model. Target
prices and value ranges are developed from this analysis and portfolio selection
will be made from among the top-rated securities.
Prospectus 17
<PAGE> 21
The subadviser periodically monitors the Fund's equity securities to assure
that they continue to meet the selection criteria. A security normally will be
sold once it reaches its target price, when negative changes occur with respect
to the company or its industry, or when there is a significant change in the
security with respect to one or more of the four selection criteria listed
above. The Fund may at times continue to hold equity securities that no longer
meet the criteria but the subadviser deems suitable investments in view of the
Fund's investment objectives.
POLICIES AND RISK FACTORS APPLICABLE TO MULTIPLE FUNDS
- ------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS. Each Fund can invest in ADRs, which
typically are issued by a U.S. bank or trust company and evidence ownership of
the underlying securities of foreign issuers. Generally, ADRs are denominated in
U.S. dollars and are designed for use in the U.S. securities markets. Thus,
these securities are not denominated in the same currency as the securities into
which they may be convened. ADRs are subject to many of the risks inherent in
investing in foreign securities, as discussed below. For a further discussion of
ADRs and other types of depository receipts, see the SAI.
CONVERTIBLE SECURITIES. Each Fund can invest in 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 nonconvertible 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.
FOREIGN SECURITIES. Each Fund, other than the Small Cap Stock Fund, can
invest in foreign securities. Investments in securities of foreign issuers, or
securities principally traded overseas, may involve certain special risks due to
foreign economic, political and legal development, including favorable or
unfavorable changes in currency exchange rates, exchange control regulations,
expropriation of assets or nationalization, imposition of withholding taxes on
dividend or interest payments, and possible difficulty in obtaining and
enforcing judgments against foreign entities. Furthermore, foreign issuers are
subject to different, often less comprehensive, accounting, reporting and
disclosure requirements than domestic issuers. The securities of some foreign
companies and foreign securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets. Foreign brokerage commissions and other fees generally are higher than
in the United States. Foreign settlement procedures and trade regulation may
involve certain risks (such as delay in payment or delivery of securities or in
the recovery of assets held abroad) and expenses not present in the settlement
of domestic investments. There also are special tax considerations that apply to
foreign currency denominated securities.
FORWARD COMMITMENTS, WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The
Eagle International Equity Portfolio and Income-Growth Trust can make contracts
to purchase securities for a fixed price at a future date beyond normal
settlement time ("forward commitments"). In addition, the Eagle International
Prospectus 18
<PAGE> 22
Equity Portfolio can purchase portfolio securities on a when-issued basis and
may purchase and sell such securities for delayed delivery. Forward commitments,
when-issued transactions and delayed delivery purchases involve a risk of loss
if the value of the securities declines prior to the settlement date, which risk
is in addition to the risk of decline in the value of the Fund's other assets.
No income accrues to the purchaser of such securities prior to delivery.
INVESTMENT GRADE AND LOWER-RATED SECURITIES. Each Fund can invest in
securities rated investment grade. Investment grade securities include
securities rated BBB or above by S&P or Baa by Moody's or, if unrated, are
deemed to be of comparable quality by a Fund's subadviser. Securities rated in
the lowest category of investment grade are considered to have speculative
characteristics and changes in economic conditions are more likely to lead to a
weakened capacity to pay interest and repay principal than is the case with
higher grade bonds. Each Fund may retain a security that has been downgraded
below investment grade if, in the opinion of its subadviser, it is in the Fund's
best interest.
As described above, the Eagle International Equity Portfolio, Income-Growth
Trust, Mid Cap Growth Fund and Small Cap Stock Fund can invest in securities
rated below investment grade by S&P or Moody's, or unrated securities deemed to
be below investment grade by its subadviser. The price of lower-rated securities
tends to be less sensitive to interest rate changes than the price of
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 SAI for a discussion of the risks associated with investment
grade and lower-rated securities and the Appendix to the SAI for a description
of S&P and Moody's corporate bond ratings.
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 a Fund'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.
OPTIONS. The Income-Growth Trust and the Value Equity Fund can 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 Funds receive a premium on the sale of an option but give
up the opportunity to profit from any increase in stock value above the exercise
price of the option. The Funds also may purchase call options to close out call
options they have written. The principal risks associated with the use of
options are (1) the possible lack of a liquid market for closing out options
positions, (2) the need for additional
Prospectus 19
<PAGE> 23
portfolio management skills and techniques, and (3) potential losses due to
unanticipated market price movements.
REAL ESTATE INVESTMENT TRUSTS. Each Fund can invest in REITs, including
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. Each Fund can invest in repurchase agreements.
Repurchase agreements are transactions in which a Fund purchases securities and
commits to resell the securities to the original seller (a member bank of the
Federal Reserve System or securities dealers who are members of a national
securities exchange or are market makers in U.S. Government securities) at an
agreed upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. Although repurchase
agreements carry certain risks not associated with direct investment in
securities, including possible declines in the market value of the underlying
securities and delays and costs to the Fund if the other party becomes bankrupt,
the Funds intend to enter into repurchase agreements only with banks and dealers
in transactions believed by the applicable subadviser to present minimal credit
risks in accordance with guidelines established by the Board of Trustees.
TEMPORARY DEFENSIVE PURPOSES. For temporary defensive purposes during
anticipated periods of general market decline, each Fund, other than the Eagle
International Equity Portfolio, may invest up to 100% of its net assets in money
market instruments, including securities issued by the U.S. Government, its
agencies or instrumentalities and repurchase agreements secured thereby, as well
as bank 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 S&P or Moody's. For a description of
S&P or Moody's commercial paper and corporate debt ratings, see the Appendix to
the SAI.
In addition, for temporary defensive purposes, the Eagle International
Equity Portfolio may invest all or a major portion of its assets in (1) foreign
debt securities, (2) debt and equity securities of U.S. issuers, and (3)
obligations issued or guaranteed by the United States or a foreign government or
their respective agencies, authorities or instrumentalities.
Prospectus 20
<PAGE> 24
NET ASSET VALUE
================================================================================
THE NET ASSET
VALUE OF EACH
FUND'S SHARES IS
CALCULATED DAILY
AS OF THE CLOSE
OF REGULAR TRADING
ON THE NEW YORK
STOCK EXCHANGE.
The net asset value of each Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading -- normally 4:00
p.m. Eastern time -- of the New York Stock Exchange ("Exchange") each day it is
open. Each Fund's net asset value per share is calculated by dividing the value
of the total assets, less liabilities, by the total number of Fund shares
outstanding. The per share net asset value of each class of shares may differ as
a result of the different daily expense accruals applicable to that class.
Each Fund values its securities and other assets based on their 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 Heritage or a 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 rate prevailing at the time a Fund calculates its net asset value per
share. Although the Eagle International Equity Portfolio values its assets in
U.S. dollars on a daily basis, it does not intend to convert holdings of foreign
currencies into U.S. dollars on a daily basis.
Trading in foreign markets is usually completed each day prior to the close
of the Exchange. However, events may occur that affect the values of such
securities and the exchange rates between the time of valuation and the close of
the Exchange. Should events materially affect the value of such securities
during this period, the securities are priced at fair value, as determined in
good faith and pursuant to procedures approved by the Board.
For more information on the calculation of net asset value, see "Net Asset
Value" in the SAI.
PERFORMANCE INFORMATION
================================================================================
Total return data of each class from time to time may be included in
advertisements about each Fund. Performance information is computed separately
for each class in accordance with the methods described below. Because B shares
and C shares bear higher Rule 12b-1 fees, the performance of B shares and C
shares of a Fund 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 yet 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 B shares and C
shares, giving effect to the deduction of any contingent deferred sales load
("CDSL") that would be payable). In addition, each Fund also may advertise its
total return in the same manner, but without taking into account the initial
sales load or CDSL. Each Fund 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, B share and C
Prospectus 21
<PAGE> 25
share over a period of time, adjusted for dividends and other distributions. A
share, B share and C share performance may be compared with various indices.
All data is based on each Fund'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 a Fund's
investment portfolio and a Fund's operating expenses. Investment performance
also often reflects the risks associated with a Fund's investment objective and
policies. These factors should be considered when comparing a Fund's investment
results to those of other mutual funds and other investment vehicles. Additional
performance information is contained in each Fund's annual report to
shareholders, which may be obtained, without charge, by contacting your Fund at
(800) 421-4184. For more information on investment performance, see the SAI.
INVESTING IN THE FUNDS
PURCHASE PROCEDURES
================================================================================
YOU MAY BUY
SHARES OF EACH
FUND BY:
Shares of each Fund are offered continuously through the Funds' principal
underwriter, Raymond James & Associates, Inc. (the "Distributor"), and through
other participating dealers or banks that have dealer agreements with the
Distributor. The Distributor receives commissions consisting of that portion of
the sales load remaining after the dealer concession is paid to participating
dealers or banks. Such dealers may be deemed to be underwriters pursuant to the
Securities Act of 1933, as amended. For a discussion of the classes of shares
offered by each Fund, see "Choosing a Class of Shares."
When placing an order to buy shares, you should specify whether the order
is for A shares, B shares or C shares of a Fund. All purchase orders that fail
to specify a class automatically will be invested in A shares, which include a
front-end sales load. The Funds and the Distributor reserve the right to reject
any purchase order and to suspend the offering of Fund shares for a period of
time. Certificates will not be issued for B shares.
- - CALLING YOUR
FINANCIAL
ADVISOR;
Shares of each Fund may be purchased through a Financial Advisor of the
Distributor, a participating dealer or a participating bank ("Financial
Advisor") by placing an order for Fund shares with your Financial Advisor and
remitting payment to the Distributor, participating dealer or bank within three
business days.
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
Financial Advisor 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," "What Class B Shares Will
Cost" and "What Class C Shares Will Cost."
- - COMPLETING THE
ACCOUNT APPLICATION
CONTAINED IN THIS
PROSPECTUS AND
SENDING YOUR
CHECK; OR
You also may purchase shares of a Fund directly by completing and signing
the Account Application found in this Prospectus and mailing it, along with your
payment, to Heritage Asset Management, Inc., P.O. Box 33022, St. Petersburg, FL
33733. Indicate the Fund, the class of shares and the amount you wish to invest.
Your check should be made payable to the specific Fund and class of shares you
are purchasing.
Prospectus 22
<PAGE> 26
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:
- - SENDING A FEDERAL
FUNDS WIRE.
State Street Bank and Trust Company
Boston, Massachusetts
ABA #011-000-028
Account #3196-769-8
Name of the Fund
The class of shares to be purchased
(Your Account Number Assigned by the Fund)
(Your Name)
To open a new account with Federal funds or by wire, you must contact
Heritage or your Financial Advisor to obtain a Heritage Mutual Fund account
number. Commercial banks may elect to charge a fee for wiring funds to State
Street Bank and Trust Company. For more information on how to buy shares, see
"Investing in the Funds" in the SAI.
MINIMUM INVESTMENT REQUIRED/ACCOUNTS WITH LOW BALANCES
================================================================================
AN INITIAL
INVESTMENT MUST
BE AT LEAST
$1,000. A MINIMUM
BALANCE OF $500
MUST
BE MAINTAINED.
Except as provided under "Systematic Investment Programs," the minimum
initial investment in a Fund is $1,000, and a minimum account balance of $500
must be maintained. These minimum requirements may be waived at the discretion
of Heritage. In addition, initial investments in Individual Retirement Accounts
("IRAs") may be reduced or waived under certain circumstances. Contact Heritage
or your Financial Advisor for further information.
Due to the high cost of maintaining accounts with low balances, it is
currently each Fund's policy to redeem Fund shares in any account if the account
balance falls below the required minimum value of $500, except for retirement
accounts. You will be given 30 days' notice to bring your account balance to the
minimum required or the Fund may redeem shares in the account and pay you the
proceeds. The Funds do not apply this minimum account balance requirement to
accounts that fall below the minimum due to market fluctuation.
SYSTEMATIC INVESTMENT PROGRAMS
================================================================================
EACH FUND
OFFERS INVESTORS
A VARIETY OF
CONVENIENT FEATURES
AND BENEFITS,
INCLUDING DOLLAR
COST AVERAGING.
A variety of systematic investment options are available for the purchase
of Fund shares. These options provide for systematic monthly investments of $50
or more through systematic investing, payroll or government direct deposit, or
exchange from another registered mutual fund advised or administered by Heritage
("Heritage Mutual Fund"). You may change the amount to be invested automatically
or may discontinue this service at any time without penalty. If you discontinue
this service before reaching the required account minimum, the account must be
brought up to the minimum in order to remain open. You will receive a periodic
confirmation of all activity for your account. For additional information on
these options, see the Account Application or contact Heritage at (800) 421-4184
or your Financial Advisor.
Prospectus 23
<PAGE> 27
RETIREMENT PLANS
================================================================================
Shares of the Funds may be purchased as an investment in Heritage IRA
plans. In addition, shares may be purchased as an investment for self-directed
IRAs, Section 403(b) annuity plans, defined contribution plans, self-employed
individual retirement plans ("Keogh Plans"), Simplified Employee Pension Plans
("SEPs"), Savings Incentive Match Plans for Employees ("SIMPLEs") and other
retirement plans. For more detailed information on retirement plans, contact
Heritage at (800) 421-4184 or your Financial Advisor and see "Investing in the
Funds" in the SAI.
CHOOSING A CLASS OF SHARES
================================================================================
A SHARES HAVE A
FRONT-END SALES
LOAD AND LOWER
ANNUAL EXPENSES
THAN B SHARES OR
C SHARES. B
SHARES AND C
SHARES HAVE A
CDSL ON
REDEMPTIONS MADE
WITHIN A CERTAIN
PERIOD AFTER
PURCHASE.
Each Fund offers three classes of shares, A shares, B shares and C shares.
The primary difference among these classes lies in their sales load structures
and ongoing expenses.
- - CLASS A 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 maximum
sales load of 4.75% imposed at the time of purchase. No contingent deferred
sales load ("CDSL") is charged for A shares. Ongoing Rule 12b-1 fees for A
shares are lower than the ongoing Rule 12b-1 fees for B shares and C shares.
- - CLASS B SHARES. B shares may be purchased at net asset value with no initial
sales charge. As a result, the entire amount of your purchase is invested
immediately. B shares are subject to higher ongoing Rule 12b-1 fees than A
shares. A maximum CDSL of 5% may be imposed on redemptions of B shares made
within eight years of purchase. After eight years, B shares convert to A
shares, which have lower ongoing Rule 12b-1 fees and no CDSL.
- - CLASS C SHARES. C shares may be purchased at net asset value with no initial
sales charge. As a result, the entire amount of your purchase is invested
immediately. C shares are subject to higher ongoing Rule 12b-1 fees than A
shares. A maximum CDSL of 1% may be imposed on redemptions of C shares made in
less than one year of purchase. C shares do not convert to any other class of
shares.
The purchase plans offered by each Fund 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
CHOOSE A SHARE
CLASS THAT MEETS
YOUR INVESTMENT
OBJECTIVES. PLEASE
CONSULT WITH YOUR
FINANCIAL ADVISOR.
You should consider whether, during the anticipated length of your intended
investment in a Fund, the accumulated ongoing Rule 12b-1 fees plus the CDSL on B
shares and C shares would exceed the initial sales load plus accumulated ongoing
Rule 12b-1 fees on A shares purchased at the same time. For short-term
investments, A shares are subject to higher costs than B shares and C shares
because of the initial sales charge. For longer investments, A shares are more
suitable than B shares and C shares because A shares are subject to lower
ongoing Rule 12b-1 fees. Depending on the number of years you hold A shares, the
continuing Rule 12b-1 fees on B shares or C shares eventually would exceed the
initial sales load plus the ongoing Rule 12b-1 fees on A shares during the life
of your investment.
You might determine that it would be more advantageous to purchase B shares
or C shares in order to invest all of your purchase payment initially. However,
your
Prospectus 24
<PAGE> 28
investment would remain subject to higher ongoing Rule 12b-1 fees and subject to
a CDSL if you redeem B shares during the first eight years after purchase and C
shares less than one year after purchase. 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.
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 for
purchases of B shares or C shares. For example, if you intend to invest more
than $1,000,000 in a Fund, you should purchase A shares to take advantage of the
sales load waiver.
Financial Advisors may receive different compensation for sales of A shares
than sales of B shares or C shares.
WHAT CLASS A SHARES WILL COST
================================================================================
THE SALES LOAD
ON A SHARES WILL
VARY DEPENDING ON
THE AMOUNT YOU
INVEST.
A Fund's public offering price for A shares is the next determined net
asset value per share plus a sales load determined in accordance with the
following schedule:
<TABLE>
<CAPTION>
SALES LOAD AS A PERCENTAGE OF
-----------------------------
NET AMOUNT DEALER CONCESSION
OFFERING INVESTED AS PERCENTAGE OF
AMOUNT OF PURCHASE PRICE (NET ASSET VALUE) OFFERING PRICE(1)
- ------------------ -------- ----------------- -----------------
<S> <C> <C> <C>
Less than $25,000.............. 4.75% 4.99% 4.25%
$25,000-$49,999................ 4.25% 4.44% 3.75%
$50,000-$99,999................ 3.75% 3.90% 3.25%
$100,000-$249,999.............. 3.25% 3.36% 2.75%
$250,000-$499,999.............. 2.50% 2.56% 2.00%
$500,000-$999,999.............. 1.50% 1.52% 1.25%
$1,000,000 and over............ 0.00% 0.00% 0.00%(2)
</TABLE>
- ---------------
(1) During certain periods, the Distributor may pay 100% of the sales load to
participating dealers. Otherwise, it will pay the dealer concession shown
above.
(2) For purchases of $1 million or more, Heritage may pay from its own resources
up to 1.00% of the purchase amount on the first $3 million and 0.80% on
assets thereafter. This amount will be paid to the Distributor pro rata over
an 18-month period.
In addition, A shares are subject to a Rule 12b-1 fee of 0.25% of their
respective average daily net assets.
THE SALES LOAD ON
A SHARES MAY BE
WAIVED UNDER
CERTAIN
CIRCUMSTANCES.
A shares may be sold at net asset value without any sales load to:
Heritage, Eagle, and each Fund's subadvisers; current and retired officers and
Trustees of the Trust; directors, officers and full-time employees of Heritage,
Eagle, the Subadviser of any Heritage Mutual Fund, the Distributor and their
affiliates; registered Financial Advisors and 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 party to agency agreements with the
Distributor, and all such persons' immediate relatives and their beneficial
accounts. In addition, the American Psychiatric Association 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. A shares also may be
purchased without sales loads by investors who participate in certain
broker-dealer wrap fee investment programs.
Prospectus 25
<PAGE> 29
HERITAGE NET ASSET VALUE ("NAV") TRANSFER PROGRAM
- -----------------------------------------------------------
YOU MAY QUALIFY
FOR A PURCHASE
WITH NO SALES LOAD
UNDER THE
HERITAGE NAV
TRANSFER
PROGRAM.
Until March 1, 1998, Class A shares of each Fund may be purchased at net
asset value without any sales load under Heritage's NAV Transfer Program. To
qualify for the NAV Transfer Program, you must provide adequate proof that
within 90 days prior to the purchase of a Heritage Mutual Fund you 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.
COMBINED PURCHASE PRIVILEGE (RIGHT OF ACCUMULATION)
- -----------------------------------------------------------
YOU MAY QUALIFY
FOR A REDUCED
SALES LOAD BY
COMBINING
PURCHASES.
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. For additional information
regarding the Combined Purchase Privilege, see the Account Application or
"Investing in the Funds" in the SAI.
STATEMENT OF INTENTION
- ------------------------
A STATEMENT OF
INTENTION ALLOWS
YOU TO REDUCE THE
SALES LOAD ON
COMBINED
PURCHASES OF
$25,000 OR MORE
OVER ANY 13-
MONTH PERIOD.
You also may obtain the reduced sales loads shown in the above sales load
schedule 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 any Fund or A shares of any other Heritage Mutual Fund subject to a
sales load ("Statement of Intention"). If you qualify for the Combined Purchase
Privilege, you may purchase A shares of the Heritage Mutual Funds under a single
Statement of Intention. In addition, if you own Class A shares of any other
Heritage Mutual Fund subject to a sales load, you may include those shares in
computing the amount necessary to qualify for a sales load reduction. 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 a Fund,
please complete the appropriate portion of the Account Application found in this
Prospectus. Current Fund shareholders can obtain a Statement of Intention from
Heritage or the Distributor at the address or telephone number listed on the
cover of this Prospectus or from their Financial Advisor.
For more information on the reduction or waiver of the sales load, see
"Investing in the Funds" in the SAI.
Prospectus 26
<PAGE> 30
WHAT CLASS B SHARES WILL COST
================================================================================
THE CDSL
IMPOSED ON
REDEMPTIONS OF
B SHARES WILL
DEPEND ON THE
AMOUNT OF TIME
YOU HAVE HELD
B SHARES.
THE CDSL, IF
APPLICABLE,
IS BASED ON
THE LOWER OF
PURCHASE PRICE
OR REDEMPTION
PRICE.
B shares may be purchased at net asset value without a front-end sales
charge, but are subject to a 5% maximum CDSL on redemption of B shares held for
less than an eight-year period. In addition, B shares are subject to a Rule
12b-1 fee of 1.00% of their respective average daily net assets. B shares are
offered for sale only for purchases of less than $250,000.
The CDSL imposed on redemptions of B shares will be calculated by
multiplying the offering price (net asset value at the time of purchase) or the
net asset value of the shares at the time of redemption, whichever is less, by
the percentage shown on the following chart. The CDSL will not be imposed on the
redemption of B shares acquired as dividends or other distributions, or on any
increase in the net asset value of the redeemed B shares above the original
purchase price. Thus, the CDSL will be imposed on the lower of net asset value
or purchase price.
<TABLE>
<CAPTION>
CDSL AS A PERCENTAGE
OF THE LESSER OF NET ASSET VALUE
AT REDEMPTION OR THE
REDEMPTION DURING: ORIGINAL PURCHASE PRICE
- ------------------ --------------------------------
<S> <C>
1st year since purchase.............. 5%
2nd year since purchase.............. 4%
3rd year since purchase.............. 3%
4th year since purchase.............. 3%
5th year since purchase.............. 2%
6th year since purchase.............. 1%
Thereafter........................... 0%
</TABLE>
The CDSL imposed depends on the amount of time you have held B shares. For
example, if you invest $10,000 in a Fund's B shares and redeem those shares
within one year of investment you will be charged a CDSL of 5% or $500. If you
own B shares for more than six years, you do not have to pay a sales charge when
redeeming those shares. Any period of time during which B shares are held in the
Heritage Cash Trust-Money Market Fund ("Money Market Fund") will be excluded
from calculating the holding period. B shares of the Money Market Fund obtained
through an exchange from another Heritage Mutual Fund are subject to any
applicable CDSL due at redemption.
Under certain circumstances, the CDSL will be waived. See "Waiver of the
Contingent Deferred Sales Load" below.
B SHARES WILL
CONVERT TO
A SHARES IF
YOU HAVE HELD
THEM FOR MORE
THAN EIGHT
YEARS.
B shares will convert to A shares eight years after the end of the calendar
month in which the shareholder's order to purchase was accepted. The conversion
will be effected at the net asset value per share. Dividends and other
distributions paid to shareholders by a Fund in the form of additional B shares
also will convert to A shares on a pro rata basis. A conversion to B shares will
benefit the shareholder because A shares have lower ongoing Rule 12b-1 fees than
B shares. If you have exchanged B shares between Heritage Mutual Funds, the
length of the holding period will be calculated from the date of original
purchase, excluding any periods during which you held B shares of the Money
Market Fund. Such conversion will not be treated as a taxable event.
The Distributor may pay sales commissions to dealers who sell a Fund's B
shares at the time of the sale. Payments with respect to B shares will equal 4%
of the purchase price of the B shares.
Prospectus 27
<PAGE> 31
WHAT CLASS C SHARES WILL COST
================================================================================
A CDSL WILL
BE IMPOSED ON
THE REDEMPTION
OF C SHARES IF
YOU HAVE HELD THEM
FOR LESS THAN
ONE YEAR.
THE CDSL, IF
APPLICABLE, IS
BASED ON THE
LOWER OF PURCHASE
PRICE OR
REDEMPTION
PRICE.
A CDSL of 1% is imposed on C shares if, less than one year from the date 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. Class C shares will
not convert to Class A shares. In addition, C shares are subject to a Rule 12b-1
fee of 1.00% of their respective average daily net assets.
Under certain circumstances, the CDSL will be waived. See "Waiver of the
Contingent Deferred Sales Load" below.
The Distributor may pay sales commissions to dealers who sell the Funds' C
shares at the time of the sale. Payments with respect to C shares will equal 1%
of the purchase price of the C shares.
MINIMIZING THE CONTINGENT DEFERRED SALES LOAD
================================================================================
When you redeem B shares and C shares, the Funds automatically will
minimize the CDSL by assuming you are selling:
- First, B shares or C shares owned through reinvested dividends, upon
which no CDSL is imposed; and
- Second, B shares or C shares held in the customer's account the
longest.
WAIVER OF THE CONTINGENT DEFERRED SALES LOAD
================================================================================
THE CDSL ON
B SHARES
AND C SHARES
WILL BE WAIVED
FOR CERTAIN
SHAREHOLDERS.
The CDSL for B shares and C shares currently is waived for: (1) any partial
or complete redemption in connection with a distribution without penalty under
Section 72(t) of the Internal Revenue Code of 1986, as amended (the "Code"),
from a qualified retirement plan, including a Keogh Plan or IRA upon attaining
age 70 1/2; (2) any redemption resulting from a tax-free return of an excess
contribution to a qualified employer retirement plan or an IRA; (3) any partial
or complete redemption following death or disability (as defined in Section
72(m)(7) of the Code) of a shareholder (including one who owns the shares as
joint tenant with his spouse) from an account in which the deceased or disabled
is named, provided the redemption is requested within one year of the death or
initial determination of disability; (4) certain periodic redemptions under the
Systematic Withdrawal Plan from an account meeting certain minimum balance
requirements, in amounts representing certain maximums established from time to
time by the Distributor (currently a maximum of 12% annually of the account
balance at the beginning of the Systematic Withdrawal Plan); or (5) involuntary
redemptions by a Fund of B shares or C shares in shareholder accounts that do
not comply with the minimum balance requirements. The Distributor may require
proof of documentation prior to waiver of the CDSL described in sections (1)
through (4) above, including distribution letters, certification by plan
administrators, applicable tax forms or death or physicians' certificates.
For more information about B shares and C shares, see "Reinstatement
Privilege" and "Exchange Privilege."
Prospectus 28
<PAGE> 32
HOW TO REDEEM SHARES
================================================================================
THERE ARE SEVERAL
WAYS FOR YOU TO
REDEEM YOUR
SHARES.
Redemption of Fund shares can be made by:
Contacting Your Financial Advisor. Your Financial Advisor will transmit an
order to a Fund for redemption by that Fund and may charge you a fee for this
service.
Telephone Request. You may redeem shares by placing a telephone request to
your Fund (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. Each
Fund, Heritage, the Distributor and their Trustees, directors, officers and
employees are not liable for any loss arising out of telephone instructions they
reasonably believe are authentic. These parties will employ reasonable
procedures to confirm that telephone instructions are authentic. To the extent
that a Fund, Heritage, the Distributor and their Trustees, directors, officers
and employees do not follow reasonable procedures, some or all of them may be
liable for losses due to unauthorized or fraudulent transactions. For more
information on these procedures, see "Redeeming Shares -- Telephone
Transactions" in the SAI. You may elect to have redemption proceeds wired to the
bank account specified on the Account Application. Redemption proceeds normally
will be sent the next business day, and you will be charged a wire fee by
Heritage (currently $5.00). For redemptions of less than $50,000, you may
request that the check be mailed to your address of record, providing that such
address has not been changed in the past 30 days. For your protection, the
proceeds of all other redemptions will be transferred to the bank account
specified on the Account Application.
Written Request. Fund shares may be redeemed by sending a written request
for redemption to Heritage Asset Management, Inc., P.O. Box 33022, St.
Petersburg, FL 33733. Indicate the Fund, the class, the amount of shares you
wish to redeem, along with your account number. Signature guarantees will be
required on the following types of requests: redemptions from any account that
has had an address change in the past 30 days, redemptions greater than $50,000,
redemptions that are sent to an address other than the address of record and
exchanges or transfers into other Heritage accounts that have different titles.
Heritage will transmit the order to the Fund for redemption.
Systematic Withdrawal Plan. Withdrawal plans are available that provide
for regular periodic withdrawals of $50 or more on a monthly, quarterly,
semiannual or annual basis. Under these plans, sufficient shares of the
applicable Fund are redeemed to provide the amount of the periodic withdrawal
payment. The 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 already have paid a sales load.
Therefore, each Fund will not knowingly permit the purchase of A shares through
the Systematic Investment Plan if you are at the same time making systematic
withdrawals of A shares. Heritage reserves the right to cancel systematic
withdrawals if insufficient shares are available for two or more consecutive
months.
Prospectus 29
<PAGE> 33
YOU WILL NOT BE
CHARGED A SALES
LOAD ON A SHARES
REDEEMED AND
REINVESTED WITHIN
90 DAYS OF
REDEMPTION. YOU
MUST NOTIFY YOUR
FUND WHEN YOU
EXERCISE THIS
PRIVILEGE.
Reinstatement Privilege. If you redeem any or all of your A shares of a
Fund, you 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. If you redeem any or all
of your B shares or C shares of a Fund and paid a CDSL on those shares or held
those shares long enough so that the CDSL no longer applies, you may reinvest
all or any portion of the redemption proceeds in the same class of shares at net
asset value without paying a CDSL on future redemptions of those shares,
provided that such reinvestment is made within 90 calendar days after the
redemption date. A reinstatement pursuant to this privilege will not cancel the
redemption transaction; therefore, (1) any gain realized on the transaction will
be recognized for Federal income tax purposes, while (2) any loss realized will
not be recognized to the extent the proceeds are reinvested in shares of a Fund.
The reinstatement privilege may be utilized by a shareholder only once,
irrespective of the number of shares redeemed, except that the privilege may be
utilized without limitation in connection with transactions whose sole purpose
is to transfer a shareholder's interest in a Fund to his defined contribution
plan, IRA, SEP or SIMPLE. You must notify a Fund if you intend to exercise the
reinstatement privilege.
Contact Heritage or your Financial Advisor for further information or see
"Redeeming Shares" in the SAI.
RECEIVING PAYMENT
================================================================================
THE REDEMPTION PRICE
GENERALLY IS THE NEXT
NAV COMPUTED AFTER
THE RECEIPT OF YOUR
REDEMPTION REQUEST.
If a request for redemption is received by a Fund 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 B
shares or C shares. Requests for redemption received by a Fund 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 B shares or C shares.
Payment for shares redeemed by a Fund normally will be made on the business
day after redemption was made. Proceeds from a redemption of shares by pre-
authorized automatic purchase may be delayed until the funds have cleared, which
may take up to 15 days. This delay can be avoided by wiring funds for purchases.
The proceeds of a redemption may be more or less than the original cost of Fund
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 a 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 $50,000 or more and
on any certificates for shares (or an accompanying stock power) have
been guaranteed by a national bank, a state bank that is insured by the
Federal
Prospectus 30
<PAGE> 34
Deposit Insurance Corporation, a trust company, or by any member firm
of the New York, American, Boston, Chicago, Pacific or Philadelphia
Stock Exchanges. Signature guarantees also will be accepted from
savings banks and certain other financial institutions that are deemed
acceptable by Heritage, as transfer agent, under its current signature
guarantee program.
Each Fund has the right to suspend redemption or postpone payment at times
when the Exchange is closed (other than customary weekend or holiday closings)
or during periods of emergency or other periods as permitted by the Securities
and Exchange Commission. In the case of any such suspension, you may either
withdraw your request for redemption or receive payment based upon the net asset
value next determined, less any applicable CDSL, after the suspension is lifted.
If a redemption check remains outstanding after six months, Heritage reserves
the right to redeposit those funds into your account. For more information on
receiving payment, see "Redeeming Shares" in the SAI.
EXCHANGE PRIVILEGE
================================================================================
YOU CAN EXCHANGE
SHARES OF ONE
HERITAGE MUTUAL
FUND FOR SHARES OF
THE SAME CLASS OF
ANOTHER HERITAGE
MUTUAL FUND.
If you have held A shares, B shares or C shares for at least 30 days, you
may exchange some or all of your shares for shares of the same class of any
other Heritage Mutual Fund. All exchanges will be based on the respective net
asset values of the Heritage Mutual Funds involved. All exchanges are subject to
the minimum investment requirements and any other applicable terms set forth in
the prospectus for the Heritage Mutual Fund whose shares are being acquired.
Exchanges of shares of Heritage Mutual Funds generally will result in the
realization of a taxable gain or loss for Federal income tax purposes. See
"Taxes."
For purposes of calculating the commencement of the CDSL holding period for
shares exchanged from a Fund to the B shares or C shares of any other Heritage
Mutual Fund, except the 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. As a
result, if you redeem B shares or C shares of the Money Market Fund before the
expiration of the CDSL holding period, you will be subject to the applicable
CDSL
If you exchange A shares, B 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. If you
exchange shares of the Money Market 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.
A shares of a Fund may be exchanged for A shares of the Heritage Cash
Trust-Municipal Money Fund, which is the only class of shares offered by that
fund. If you exchange shares of the Heritage Cash Trust-Municipal Money Market
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. B shares and 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 an
exchange. For a discussion of limitation of liability of certain entities, see
"How to Redeem Shares-Telephone Request."
Prospectus 31
<PAGE> 35
Telephone exchanges can be effected by calling Heritage at (800) 421-4184
or by calling your Financial Advisor. In the event that you or your Financial
Advisor are unable to reach Heritage by telephone, an exchange can be effected
by sending a telegram to Heritage. Due to the volume of calls or other unusual
circumstances, telephone exchanges may be difficult to implement during certain
time periods.
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 and for a copy of any Heritage Mutual Fund prospectus,
contact Heritage or your Financial Advisor and see "Exchange Privilege" in the
SAI.
MANAGEMENT OF THE FUNDS
BOARD OF TRUSTEES
================================================================================
The business and affairs of each Fund are managed by or under the direction
of the Board of Trustees. The Trustees are responsible for managing the Funds'
business affairs and for exercising all the Funds' powers except those reserved
to the shareholders. A Trustee may be removed by the other Trustees or by a
two-thirds vote of the outstanding Trust shares.
INVESTMENT ADVISERS
================================================================================
HERITAGE ASSET
MANAGEMENT, INC.
SERVES AS
INVESTMENT ADVISER
FOR EACH FUND,
EXCEPT FOR THE
EAGLE INTERNATIONAL
EQUITY PORTFOLIO.
Heritage Asset Management, Inc. is the investment adviser and administrator
of each Fund, except the Eagle International Equity Portfolio. Heritage is
responsible for reviewing and establishing investment policies for these Funds
as well as administering their non-investment affairs. Heritage 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. Heritage manages, supervises and conducts the business
and administrative affairs of these Funds and the other Heritage Mutual Funds
with net assets totalling approximately $3.2 billion as of September 30, 1997.
Heritage's annual investment advisory and administration fee for the
Income-Growth Trust is 0.75% of the first $100 million of the Fund's average
daily net assets and 0.60% on any assets over $100 million of the Fund's average
daily net assets. For the Capital Appreciation Trust, Growth Equity Fund, Mid
Cap Growth Fund and Value Equity Fund, Heritage's fee is 0.75% of each Fund's
average daily net assets. For the Small Cap Stock Fund, Heritage's fee is 1% of
the Fund's average daily net assets on the first $50 million and 0.75% on
average daily net assets over $50 million. These fees are computed daily and
paid monthly. Heritage voluntarily waives fees or reimburses expenses as
explained under "Total Fund Expenses" and reserves the right to discontinue any
voluntary waiver of its fees or reimbursements to the Funds in the future.
Heritage may recover fees waived in the previous two years.
EAGLE ASSET
MANAGEMENT, INC.
IS THE INVESTMENT
ADVISER FOR THE
EAGLE INTERNATIONAL
EQUITY PORTFOLIO.
Eagle Asset Management, Inc. is the Eagle International Equity Portfolio's
investment adviser. The annual advisory fee paid monthly by the Eagle
International Equity Portfolio to Eagle is based on the Fund's average daily net
assets and is 1.00% on the first $100 million of assets and .80% thereafter.
Eagle voluntarily waives fees or reimburses expenses as explained under "Total
Fund Expenses" and
Prospectus 32
<PAGE> 36
reserves the right to discontinue any voluntary waiver of its fees or
reimbursements to the Fund in the future. Eagle may recover fees waived in the
previous two years.
Eagle has been managing private accounts since 1976 for a diverse group of
clients, including individuals, corporations, municipalities and trusts. Eagle
managed approximately $4.0 billion for these clients as of September 30, 1997.
In addition to advising private accounts, Eagle acts as investment adviser or
subadviser to the Funds discussed herein and three variable annuity portfolios
(Eagle Core Equity Series and Eagle Small Cap Equity Series for Jackson National
Life and Eagle Value Equity Portfolio for Golden Select). Eagle 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.
SUBADVISERS
================================================================================
THE INVESTMENT
ADVISERS EMPLOY
SUBADVISERS FOR
PROVIDING INVESTMENT
ADVICE AND PORTFOLIO
MANAGEMENT SERVICE
TO THE FUNDS.
CAPITAL APPRECIATION TRUST. Heritage has entered into an agreement with
Liberty Investment Management, a Division of Goldman Sachs Asset Management Inc.
("GSAM"), 2502 Rocky Point Drive, Tampa, Florida 33607, to provide investment
advice and portfolio management services, including placement of brokerage
orders, on behalf of the Capital Appreciation Trust. GSAM is a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"). Goldman Sachs is
registered as an investment adviser. As of September 30, 1997, GSAM, together
with its affiliates acts as investment adviser, administrator or distributor for
assets in excess of $127.6 billion. For these services, Heritage pays Liberty a
monthly fee at an annual rate equal to 0.25% of the Fund's average daily net
assets. Heritage also has entered into a subadvisory agreement with Eagle.
However, Heritage has chosen not to allocate assets to Eagle at this time.
EAGLE INTERNATIONAL EQUITY PORTFOLIO. Eagle has entered into a subadvisory
agreement with Martin Currie, Inc., a New York corporation, to furnish a
continuous investment program for the Eagle International Equity Portfolio.
Martin Currie is a wholly owned subsidiary of Martin Currie Limited, a private
limited company incorporated in Scotland. Martin Currie Limited is one of
Scotland's largest professional money managers and, together with Martin Currie,
has $10.2 billion under management as of September 30, 1997. Since 1881, Martin
Currie Limited and its predecessors have focused on providing their clients with
investment management services. Martin Currie makes investment decisions on
behalf of the Fund and places all orders for purchases and sales of securities
of the Fund. Under the agreement, Martin Currie receives an annual fee from
Eagle based on the Fund's average daily net assets of .50% on the first $100
million of assets and .40% thereafter.
GROWTH EQUITY FUND, INCOME-GROWTH TRUST, MID CAP GROWTH FUND AND VALUE
EQUITY FUND. Heritage has entered into an agreement with Eagle to provide
investment advice and portfolio management services, including placement of
brokerage orders, on behalf of these Funds. For these services, Heritage pays
Eagle a fee equal to 50% of the fees payable to Heritage by each Fund without
regard to any reduction in fees actually paid to Heritage as a result of
voluntary fee waivers by Heritage.
SMALL CAP STOCK FUND. The assets of the Small Cap Stock Fund are allocated
among one or more investment subadvisers, subject to review by Heritage and the
Board of Trustees. Heritage periodically will review the allocation of such
assets and, subject to the oversight of the Board of Trustees, at its own
discretion,
Prospectus 33
<PAGE> 37
may reallocate the assets between investment subadvisers when it deems such
reallocation in the best interest of the Fund's shareholders. The Fund's assets
currently are allocated between two investment subadvisers, Eagle and Awad.
Heritage has entered into a separate agreement with each of the subadvisers to
provide investment advice and portfolio management services, including placement
of brokerage orders, to the Fund for a fee payable by Heritage. In the future,
Heritage may propose the addition of one or more additional subadvisers, subject
to approval by the Board of Trustees and, if required by the 1940 Act, Fund
shareholders.
For its services to the Fund, Eagle is paid by Heritage an annual fee equal
to .50% on the first $50 million of the Fund's average daily net assets under
Eagle's investment discretion and .375% of the Fund's average daily net assets
over $50 million under its investment discretion. Awad, 477 Madison Ave., New
York, New York 10022, is a division of Raymond James & Associates, Inc. and
makes investment decisions on its allocated portion of the Fund's assets. Awad
had $948 million of assets under its discretionary management at September 30,
1997. For its services to the Fund, Awad is paid by Heritage an annual fee equal
to .50% on the first $50 million of the Fund's average daily net assets under
Awad's investment discretion and .375% on the Fund's average daily net assets
over $50 million under its investment discretion.
PORTFOLIO MANAGEMENT
================================================================================
CAPITAL APPRECIATION TRUST. Herbert E. Ehlers serves as portfolio manager
of the Capital Appreciation Trust. Mr. Ehlers has been responsible for the
day-to-day management of the Fund's investment portfolio, subject to the general
oversight of Heritage and the Board, since the Fund's inception. Mr. Ehlers has
served as a Managing Director of Goldman Sachs and as the Chairman, Chief
Executive Officer and Chief Investment Officer of Liberty since 1997. From 1994
to 1997, Mr. Ehlers served as the Chairman, Chief Executive Officer and Chief
Investment Officer of Liberty Investment Management. During 1995 he also served
as a portfolio manager of Eagle and from 1984 to 1994, Mr. Ehlers was President,
Chief Investment Officer and a director of Eagle.
EAGLE INTERNATIONAL EQUITY PORTFOLIO. Investment decisions for the Eagle
International Equity Portfolio are made by a Committee of Martin Currie
organized for that purpose, and no single person is primarily responsible for
making recommendations to the Committee. The Committee is subject to the general
oversight of Martin Currie, Eagle and the Trustees.
GROWTH EQUITY FUND. The portfolio manager for the Growth Equity Fund is
Kenneth W. Corba. He is responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Corba is an Executive Vice President and Chief
Investment Officer of Eagle. Mr. Corba joined Eagle in 1995. From 1984 to 1995,
Mr. Corba held various portfolio management positions with Stein Roe & Farnham,
Inc.
INCOME-GROWTH TRUST. Louis Kirschbaum and David M. Blount serve as co-
portfolio managers for the Income-Growth Trust. Mr. Kirschbaum and Mr. Blount
are responsible for the day-to-day management of the Fund's investment
portfolio, subject to the general oversight of Heritage and the Board of
Trustees. Mr. Kirschbaum has been a Senior Vice President and a portfolio
manager of Eagle
Prospectus 34
<PAGE> 38
since July 1986 and portfolio manager of the Fund since February 1990. David M.
Blount has been a Vice President of Eagle since September 1993 and a portfolio
manager of the Fund since 1996. Mr. Blount was a Senior Associate Investment
Analyst in the high yield bond research and portfolio management area of
Allstate Life Insurance Company from 1991 to 1993. Mr. Blount is a Chartered
Financial Analyst and Certified Public Accountant.
MID CAP GROWTH FUND. Todd McCallister, PhD, CFA, has served as portfolio
manager of the Mid Cap Growth Fund since its inception. He is responsible for
the day-to-day management of the Fund's investment portfolio, subject to the
general oversight of Heritage and the Board. Mr. McCallister is a Senior Vice
President of Eagle. Prior to joining Eagle in 1997, Mr. McCallister served as a
portfolio manager for IAI Mutual Funds from 1992 to 1997. Prior to 1992 he was
portfolio manager at ANB Investment Management.
SMALL CAP STOCK FUND. Bert L. Boksen serves as portfolio manager of the
portion of the Fund's assets allocated to Eagle and James D. Awad serves as
portfolio manager of the portion of the Fund's assets allocated to Awad. Messrs.
Boksen and Awad have been the portfolio managers since August 7, 1995 and the
Fund's inception, respectively, and are responsible for the day-to-day
management of their respective portions of the Fund's assets. Mr. Boksen is a
Senior Vice President of Eagle. Mr. Boksen was employed for 16 years by Raymond
James & Associates, Inc. in its institutional research and sales department.
While employed by Raymond James & Associates, Inc., Mr. Boksen served as co-head
of Research, Chief Investment Officer and Chairman of the Raymond James &
Associates, Inc. Focus List Committee. Mr. Awad has been Chairman of Awad since
1992. Mr. Awad is assisted by Dennison T. Veru, who joined Awad & Associates in
1992 and became President in January 1995. From 1990 to 1992, he was employed by
Smith Barney.
VALUE EQUITY FUND. Michael J. Chren has served as portfolio manager for
the Fund since October 1997 and is responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Chren has been a Senior Vice President and
Portfolio Manager with Eagle since 1996. From 1994 to 1996, Mr. Chren was a
Senior Research Analyst with Eagle. Prior thereto, he worked in the
Institutional Equity Department of Raymond James & Associates, Inc. and served
as a Trader/Analyst with Junction Advisors, Inc. and with Mabon Securities, Inc.
Mr. Chren holds a bachelors of arts and a masters of arts in architecture from
Yale University and an MBA from Carnegie Mellon University. Mr. Chren also is a
Chartered Financial Analyst.
BROKERAGE PRACTICES
================================================================================
Each Fund may use the Distributor or other affiliated broker-dealers 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.
In selecting broker-dealers, the Manager or the Subadviser, as applicable,
may consider research and brokerage services furnished to it and its affiliates.
Subject to seeking the most favorable price and execution available, the Manager
or the Subadviser may consider sales of shares of a Fund as a factor in the
selection of broker-dealers. See "Brokerage Practices" in the SAI.
Prospectus 35
<PAGE> 39
FUND ACCOUNTANT, ADMINISTRATOR AND TRANSFER AGENT
================================================================================
Heritage is the transfer agent for each Fund and fund accountant and
administrator for each Fund except Eagle International Equity Portfolio. Each
Fund pays directly for Fund accounting and transfer agent services. In addition
to its duties as transfer agent, Heritage also may receive a fee from Eagle for
providing certain administrative services for the Eagle International Equity
Portfolio. State Street Bank & Trust is the fund accountant for the Eagle
International Equity Portfolio.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS AND OTHER DISTRIBUTIONS
================================================================================
SEVERAL OPTIONS
EXIST FOR RECEIVING
DIVIDENDS AND
OTHER DISTRIBUTIONS.
Dividends from net investment income are declared and paid annually by each
Fund, except Income-Growth Trust, which declares and pays dividends quarterly.
Each Fund also distributes to its shareholders substantially all of its net
realized capital gains on portfolio securities and net realized gains from
foreign currency transactions 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 paid
in additional Fund shares. Other shareholders may elect to:
- receive both dividends and other distributions in additional Fund shares;
- receive dividends in cash and other distributions in additional Fund
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 other distribution in additional Fund
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 other distribution. Distribution
options can be changed at any time by notifying Heritage in writing.
Dividends paid by each Fund with respect to its A shares, B shares and C
shares are calculated in the same manner and at the same time and will be in the
same amount relative to the aggregate net asset value of the shares in each
class, except that dividends on B shares and C shares of a Fund may be lower
than dividends on its A shares primarily as a result of the higher distribution
fee and class-specific expenses applicable to B shares and C shares.
Prospectus 36
<PAGE> 40
DISTRIBUTION PLANS
================================================================================
EACH FUND PAYS
SERVICE AND
DISTRIBUTION FEES
TO THE DISTRIBUTOR.
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 maintenance of Class A
shareholder accounts, each Fund may pay the Distributor distribution and service
fees of up to 0.35% of that Fund's average daily net assets attributable to A
shares of that Fund. Currently, each Fund pays the Distributor a fee of up to
0.25% of its average daily net assets attributable to A shares. For Capital
Appreciation Trust A shares purchased prior to April 3, 1995, the Fund pays the
Distributor a fee of up to 0.50% of that Fund's average daily net assets
attributable to those A shares. These fees are computed daily and paid monthly.
As compensation for services rendered and expenses borne by the Distributor
in connection with the distribution of B shares and C shares and in connection
with personal services rendered to Class B and Class C shareholders and the
maintenance of Class B and Class C shareholder accounts, each Fund pays the
Distributor a service fee of 0.25% and a distribution fee of 0.75% of that
Fund's average daily net assets attributable to B shares and C shares. These
fees are computed daily and paid monthly.
The above-referenced fees are paid to the Distributor under Distribution
Plans adopted pursuant to Rule 12b-l under the 1940 Act. These Plans authorize
the Distributor to spend such fees on any activities or expenses intended to
result in the sale of a Fund's A shares, B shares and C shares, including
compensation (in addition to the sales load) paid to Financial Advisors;
advertising; salaries and other expenses of the Distributor relating to selling
or servicing efforts; expenses of organizing and conducting sales seminars;
printing of prospectuses, statements of additional information and reports for
other than existing shareholders; and preparation and distribution of
advertising material and sales literature and other sales promotion expenses.
The Distributor has entered into dealer agreements with participating dealers
and/or banks who also will distribute shares of each Fund.
If a Plan is terminated, the obligation of a Fund to make payments to the
Distributor pursuant to the Plan will cease and the Fund will not be required to
make any payment past the date the Plan terminates.
TAXES
================================================================================
EACH FUND IS NOT
EXPECTED TO HAVE
ANY FEDERAL TAX
LIABILITY. HOWEVER,
YOUR TAX OBLIGATIONS
ARE DETERMINED BY
YOUR PARTICULAR TAX
CIRCUMSTANCES.
Each Fund intends to qualify or to continue to qualify for treatment as a
regulated investment company under the Code. By doing so, each Fund (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 each Fund's investment company taxable income are taxable to its
shareholders as ordinary income, to the extent of that Fund's earnings and
profits, whether received in cash or in additional Fund shares. Distributions of
each Fund's net capital gain, when designated as such, are taxable to its
shareholders as long-term capital gains, whether received in cash or in
additional Fund shares and regardless of the length of time the shares have been
held. The portion of the dividends (but not the capital gain distributions) paid
by each Fund (an insubstantial portion in the case of the Eagle International
Equity
Prospectus 37
<PAGE> 41
Portfolio) that does not exceed the aggregate dividends received by the Fund
from U.S. corporations will be eligible for the dividends-received deduction
allowed to corporations; however, dividends received by a corporate shareholder
and deducted by it pursuant to the dividends-received deduction are subject
indirectly to the Federal alternative minimum tax.
WHEN YOU SELL OR
EXCHANGE SHARES,
IT GENERALLY IS
CONSIDERED A
TAXABLE EVENT
TO YOU.
Dividends and other distributions declared by each Fund in October,
November or December of any year and payable to shareholders of record on a date
in that month will be deemed to have been paid by the Fund and received by its
shareholders on December 31 if they are paid by the Fund during the following
January.
Shareholders receive Federal income tax information regarding dividends and
other distributions after the end of each year. The information regarding
capital gain distributions designates the portions of those distributions that
are subject to (1) the 20% maximum rate of tax (10% for investors in the 15%
marginal tax bracket) enacted by the Taxpayer Relief Act of 1997 ("Tax Act"),
which applies to non-corporate taxpayers' net capital gain on securities and
other capital assets held for more than 18 months, and (2) the 28% maximum tax
rate, applicable to such gain on capital assets held for more than one year and
up to 18 months (which, prior to enactment of the Tax Act, applied to all such
gain on capital assets held for more than one year).
Each Fund 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 Fund with a correct taxpayer
identification number. Withholding at that rate also is required from dividends
and capital gain distributions payable to such shareholders who otherwise are
subject to backup withholding. When you sell or exchange shares of a Fund, it
generally is considered a taxable event to you.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting each Fund and its shareholders. See the SAI
for a further discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are therefore urged to
consult your tax adviser.
ABOUT THE TRUSTS AND THE FUNDS
================================================================================
Heritage Capital Appreciation Trust, Heritage Income-Growth Trust and
Heritage Series Trust (collectively, the "Trusts") each were established as a
Massachusetts business trust under a Declaration of Trust dated June 21, 1995,
July 25, 1986 and October 28, 1992, respectively. The Capital Appreciation Trust
and the Income-Growth Trust each offer shares through a single investment
portfolio. The Series Trust offers its shares through five separate investment
portfolios: Eagle International Equity Portfolio, Growth Equity Fund, Mid Cap
Growth Fund, Small Cap Stock Fund, and Value Equity Fund. Each Fund offers three
classes of shares, A shares, B shares and C shares. Eagle International Equity
Portfolio also offers Eagle Class shares. To obtain more information about the
Eagle Class shares, which are not offered in this Prospectus, call (800)
237-3101. Eagle Class shares have different sales charges and other expenses,
which may affect performance.
Prospectus 38
<PAGE> 42
SHAREHOLDER INFORMATION
================================================================================
YOU MAY VOTE ON
MATTERS SUBMITTED FOR
YOUR APPROVAL. EACH
SHARE YOU OWN ENTITLES
YOU TO ONE VOTE.
Each share of a Fund gives the shareholder one vote in matters submitted to
shareholders for a vote. A shares, B shares and C shares of each Fund have equal
voting rights, except that in matters affecting only a particular class or
series, only shares of that class or series are entitled to vote. As
Massachusetts business trusts, the Trusts are not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trusts' or a Fund'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 each Trust's outstanding shares.
Heritage and Eagle have taken steps that they believe are reasonably
designed to address any adverse impact on the Funds due to the potential failure
of computer programs used by Heritage, Eagle and the Funds' service providers as
a result of the advent of the year 2000.
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 Funds or the Distributor. This Prospectus does
not constitute an offering in any state in which such offering may not lawfully
be made.
Prospectus 39
<PAGE> 43
<TABLE>
<C> <S>
(LOGO) HERITAGE FAMILY OF FUNDS HERITAGE FAMILY OF FUNDS
Account Application
P.O. Box 33022, St. Petersburg, FL 33733
[ ] New Account [ ] Update to Existing Account # ------------------
(Indicate fund in Fund Selection section below)
</TABLE>
- --------------------------------------------------------------------------------
ACCOUNT REGISTRATION
<TABLE>
<S> <C> <C>
[ ] Corporation [ ] Gift to Minor
[ ] Individual [ ] Joint Tenant with Right of Survivorship [ ] Association, Partnership or other
[ ] Trust [ ] Foundation or Exempt Organization organization
- ----------------------------------------------------------- ---------------------------------------------
Name of account owner Social Security or Taxpayer ID #
- ----------------------------------------------------------- ---------------------------------------------
Joint owner/Trustee/Custodian Social Security or Taxpayer ID #
- ----------------------------------------------------------- ---------------------------------------------
Joint owner/Trustee Date of birth of first named owner
- ----------------------------------------------------------- ---------------------------------------------
Street address Daytime phone number
- ----------------------------------------------------------- ---------------------------------------------
Street address Are you a U.S. citizen? [ ] Yes [ ] No
If no, country of residence ----------------
- -----------------------------------------------------------
City, State and ZIP
</TABLE>
FUND SELECTION ($1,000 minimum initial investment unless participating in an
automatic investment plan)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pay
dividends Pay capital
Fund name Share class Investment amount in: gains in:
A B C Shares Cash Shares Cash
Heritage Series Trust:
[ ] Small Cap Stock Fund [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Growth Equity Fund [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Value Equity Fund [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Mid Cap Growth Fund [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Eagle International Equity Portfolio [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Heritage Capital Appreciation Trust [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Heritage Income-Growth Trust [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
Heritage Income Trust:
[ ] High Yield Bond Fund [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Intermediate Government Fund [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
Heritage Cash Trust:
[ ] Money Market Fund [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Municipal Money Market Fund [ ] [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
If none checked, all
reinvested in shares.
TOTAL INVESTMENT $ ----------------
</TABLE>
<PAGE> 44
SIGNATURES AND TAXPAYER IDENTIFICATION CERTIFICATION
Each person signing on behalf of an entity represents that his/her actions are
authorized. I have received and read a current prospectus for each fund in which
I am investing and understand that its terms are incorporated by reference into
this application. I understand that certain redemptions may be subject to a
contingent deferred sales load. I agree that the Fund, Manager, Distributor and
their Trustees, directors, officers and employees will not be held liable for
any loss, liability, damage, or expense for relying upon this application or any
instructions including telephone instructions they reasonably believe are
authentic. If a taxpayer identification number is not provided and certified,
all dividends paid will be subject to 31% Federal backup withholding.
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me).
2. I am not subject to backup withholding because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
You must cross out item 2 above if you have been notified by the IRS that you
are currently subject to backup withholding because of under reporting interest
or dividends on your tax return.
<TABLE>
<S> <C>
X X
------------------------------------------------ ------------------------------------------------
Signature Date Signature Date
</TABLE>
REDUCED SALES CHARGES
STATEMENT OF INTENT
If you agree in advance to invest at least $25,000 in Heritage Mutual Funds
other than Heritage Cash Trust within 13 months, you will pay a reduced sales
charge on those investments. Investments made up to 90 days before adopting this
agreement are eligible for this discount. All prior investments can be applied
toward meeting the investment requirement.
[] I agree to invest at least the amount selected below over a 13-month period
beginning / / . I understand that an additional sales charge must
be paid if I do not complete this Statement of Intent.
[] $25,000 [] $50,000 [] $100,000 [] $250,000 [] $500,000 [] $1,000,000
RIGHT OF ACCUMULATION
If you, your spouse, or your minor children own shares in other Heritage Mutual
Funds, you may qualify for a reduced sales charge. Class A shares of Heritage
Cash Trust are not eligible unless purchased by exchange from another Heritage
Mutual Fund. These shares can be credited to a Statement of Intent.
[] I qualify for the Right of Accumulation. Please link the following Heritage
accounts.
=======================================================
Fund/Account Number Fund/Account
Number
=======================================================
Fund/Account Number Fund/Account
Number
TELEPHONE TRANSACTIONS
You may redeem shares by calling Heritage and requesting that funds be sent to
your address of record or the bank account listed in the Bank Account
Information section below. We will withdraw up to $50,000 from your account and
mail it to your address of record provided that address has not been changed in
the last 30 days.
You may also exchange between the same class shares of like-registered accounts
in any of the Heritage Mutual Funds by calling Heritage and requesting this
service. Please see the prospectus for certain requirements for exchanging
shares between funds.
If you DO NOT want to be able to process redemptions and exchanges via telephone
order, please check here: []
<PAGE> 45
DOLLAR COST AVERAGING PLANS
AUTOMATIC INVESTING
You can instruct us to transfer funds from a specified bank checking account to
your Heritage Fund account. This transfer will be effected by either an
electronic transfer or by a paper draft. Complete the Bank Account Information
section below and attach a voided check to this application.
<TABLE>
<CAPTION>
Transfer Date Frequency (check one)
Semi-
Fund Amount 5th 15th Monthly Quarterly Annually Annually
<S> <C> <C> <C> <C> <C> <C> <C>
$ [] [] [] [] [] []
- ------------------------------------- ------------------
$ [] [] [] [] [] []
------------------
- -------------------------------------
$ [] [] [] [] [] []
------------------
- -------------------------------------
Choose one or both
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
I authorize Heritage to draw on my bank account, by check or electronic transfer, for
ATTACH investment in a Heritage Fund. Heritage and my bank are not liable for any loss resulting
VOIDED from delays or dishonored draws. This program can be revoked by Heritage without prior
CHECK notice if any draw is dishonored. I can discontinue this program at any time.
HERE
X X
------------------------------------------- -------------------------------------------
Signature on checking account Signature on checking account
TO THE BANK NAMED BELOW:
</TABLE>
In consideration of your compliance with the request and authorization of the
depositor named above, Heritage Asset Management, Inc. agrees (1) To indemnify
and hold you harmless from any loss you may suffer as a consequence of your
actions resulting from or in connection with the execution and issuance of any
check, draft, or order, whether or not genuine, purporting to be executed and
received by you in the regular course of business under pre-authorized draft
arrangement of the Heritage Funds, including any costs or expenses reasonably
incurred in connection therewith; (2) That in the event any such check, draft,
or order shall be dishonored, whether with or without cause, and whether
intentionally or inadvertently, to indemnify you and hold you harmless from any
loss resulting from such dishonor including your costs and reasonable expenses,
except any losses due to your payment of any draw against insufficient funds;
(3) To defend at our cost and expense any action which might be brought by any
depositor or any other persons because of your actions taken pursuant to the
foregoing requests, or in any manner arising by reason of your participation in
the foregoing plan; and (4) That your participation in the plan or that of the
depositor may be terminated by notice from either party to the other.
AUTOMATIC EXCHANGE
You can instruct us to periodically exchange funds from one Heritage Mutual Fund
to a like-registered account in the same class of another Heritage Mutual Fund.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Frequency (choose one): [] Monthly [] Quarterly [] Semiannually [] Annually
Day of month (choose one): [] 1st [] 5th [] 10th [] 20th
Fund to exchange from Fund to exchange to Amount
$
- --------------------------------------- --------------------------------------- ---------------
$
---------------
- --------------------------------------- ---------------------------------------
$
---------------
- --------------------------------------- ---------------------------------------
</TABLE>
DIRECTED DIVIDENDS
You can direct the dividend payments from one Heritage Mutual Fund into a
like-registered account in the same class of another Heritage Mutual Fund. In
the Fund Selection section above, check the box for cash dividends.
<TABLE>
<S> <C> <C> <C>
From Fund To Fund
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
</TABLE>
<PAGE> 46
SYSTEMATIC WITHDRAWAL PLAN (SWP)
You can receive monthly, quarterly, semiannually, or annually checks from your
account. The checks can be sent to you at your address of record, to an account
at a bank or other financial institution, or to another person you designate.
You may send checks to more than one place. If you begin a SWP in Class C shares
of a fund, you may redeem up to 12% annually of your current account value
without incurring a contingent deferred sales load.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------- Frequency (choose one): [] Monthly
Fund for Withdrawal [] Quarterly
[] Semiannually
[] Annually
</TABLE>
Day of month (choose one): [] 1st [] 5th [] 10th [] 20th
<TABLE>
<S> <C> <C>
Send payment to: Amount
[] My address of record. $ ------------------------------------
Payee name
[] The bank account listed in the
Bank Account Information section $ ------------------------------------
below. Payee address
[] The payee listed at the right.
(If you have more than one
payee, please attach a separate $ ------------------------------------
sheet indicating the amount to City, State and ZIP
be sent to each.)
------------------------------------
Payee account number (if applicable)
</TABLE>
BANK ACCOUNT INFORMATION
Provide bank checking account information if you are participating in an
Automatic Investment or Systematic Withdrawal Plan or if you wish for redemption
proceeds to be sent directly to your bank.
=======================================================
Bank name Bank account
number
=======================================================
Address Bank routing
(ABA) number (from your bank)
- -------------------------------------------------------
City, State and ZIP
DEALER INFORMATION
We hereby authorize the Distributor to act as our agent in connection with
transactions under this authorization form and agree to notify the Distributor
of any purchases made under a Letter of Intent or Right of Accumulation. We
guarantee the signatures on this application and the legal capacity of the
signers.
If a Systematic Withdrawal Plan is being established, we believe that the amount
to be withdrawn is reasonable in light of the investor's circumstances and we
recommend establishment of the account.
- -------------------------------------------------------
- ------------------
- ----------------------------
Representative's name Branch number
Representative's
number
=======================================================
Dealer name Branch office
location
=======================================================
Main office address Branch phone
number
- ------------------------------------------------------- X
- ----------------------------------------------------
City, State and ZIP Authorized
representative's signature
<PAGE> 47
[Picture of people working and playing]
[LOGO]
HERITAGE
--------------
FAMILY OF FUNDS(TM)
----------------
From our Family to Yours:
The Intelligent Creation of Wealth
Raymond James & Associates, Inc., Distributor
Member New York Stock Exchange/81PC
P.O. Box 33022, St. Petersburg, FL 33733
813-573-8143 800-421-4184
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HERITAGE
CAPITAL APPRECIATION TRUST
EAGLE INTERNATIONAL EQUITY PORTFOLIO
GROWTH EQUITY FUND
INCOME-GROWTH TRUST
MID CAP GROWTH FUND
SMALL CAP STOCK FUND
VALUE EQUITY FUND
This Statement of Additional Information ("SAI") dated January 2, 1998,
should be read in conjunction with the Prospectus dated January 2, 1998
describing the Class A, Class B and Class C shares of the Capital Appreciation
Trust, the Eagle International Equity Portfolio, the Growth Equity Fund, the
Income-Growth Trust, the Mid Cap Growth Fund, the Small Cap Stock Fund and the
Value Equity Fund (each a "Fund" and, collectively, the "Funds"). The Eagle
International Equity Portfolio also offers an additional class of shares, which
is not discussed in this SAI.
This SAI is not a prospectus itself. To receive a copy of the Funds'
Prospectus, write to Heritage Asset Management, Inc. ("Heritage") at the
address below or call (800) 421-4184.
HERITAGE ASSET MANAGEMENT, INC.
880 Carillon Parkway, St. Petersburg, Florida 33716
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION..........................................................1
INVESTMENT INFORMATION.......................................................1
Investment Objectives..................................................1
Investment Policies....................................................1
Industry Classifications...............................................8
Futures, Forwards and Hedging Transactions.............................8
INVESTMENT LIMITATIONS......................................................17
NET ASSET VALUE.............................................................20
PERFORMANCE INFORMATION.....................................................22
INVESTING IN THE FUNDS......................................................25
Systematic Investment Options.........................................25
Retirement Plans......................................................25
Class A Combined Purchase Privilege (Right of Accumulation)...........26
Class A Statement of Intention........................................27
REDEEMING SHARES............................................................27
Systematic Withdrawal Plan............................................27
Telephone Transactions................................................28
Redemptions in Kind...................................................28
Receiving Payment.....................................................29
EXCHANGE PRIVILEGE..........................................................29
CONVERSION OF CLASS B SHARES................................................29
TAXES ......................................................................30
FUND INFORMATION............................................................33
Management of the Funds...............................................33
Five Percent Shareholders.............................................36
Investment Advisers and Administrator; Subadvisers....................37
Brokerage Practices...................................................41
Distribution of Shares................................................43
Administration of the Funds...........................................44
Potential Liability...................................................45
APPENDIX...................................................................A-1
REPORTS OF THE INDEPENDENT ACCOUNTANTS.....................................A-4
FINANCIAL STATEMENTS.......................................................A-5
<PAGE>
GENERAL INFORMATION
- -------------------
The Heritage Capital Appreciation Trust ("Capital Appreciation"), the
Heritage Income-Growth Trust ("Income-Growth"), and the Heritage Series Trust
("Series Trust") each was established as a Massachusetts business trust under a
Declaration of Trust dated June 21, 1985, July 25, 1986, and October 28, 1992,
respectively. All are registered as open-end diversified management investment
companies under the Investment Company Act of 1940, as amended (the "1940 Act").
Capital Appreciation and Income-Growth each offer shares through a single
investment portfolio. Series Trust currently offers its shares through five
separate investment portfolios: the Eagle International Equity Portfolio ("Eagle
International"), the Growth Equity Fund ("Growth Equity"), Mid Cap Growth Fund
("Mid Cap"), the Small Cap Stock Fund ("Small Cap") and the Value Equity Fund
("Value Equity"). Each Fund offers three classes of shares, Class A shares sold
subject to a 4.75% maximum front-end sales load ("A shares"), Class B shares
sold subject to a 5% maximum contingent deferred sales load ("CDSL"), declining
over an eight-year period ("B Shares"), and Class C shares sold subject to a 1%
CDSL ("C shares"). Eagle International also offers Eagle Class shares, which are
not covered in this SAI. To obtain more information about Eagle Class shares,
call (800) 237-3101.
INVESTMENT INFORMATION
- ----------------------
Investment Objectives
---------------------
The investment objective of each Fund is stated in the Prospectus.
Investment Policies
-------------------
The following information is in addition to and supplements each Fund's
investment policies set forth in the Prospectus.
AMERICAN DEPOSITORY RECEIPTS ("ADRS"), EUROPEAN DEPOSITORY RECEIPTS
("EDRS"), GLOBAL DEPOSITORY RECEIPTS ("GDRS") AND INTERNATIONAL DEPOSITORY
RECEIPTS ("IDRS"). Each Fund, except Capital Appreciation, may invest in
sponsored and unsponsored ADRs. Capital Appreciation may invest only in
sponsored ADRs. ADRs, EDRs, GDRs and IDRs are receipts that represent interests
in or are convertible into, securities of foreign issuers. These receipts are
not necessarily denominated in the same currency as the underlying securities
into which they may be converted.
ADRs may be purchased through "sponsored" or "unsponsored" facilities. A
sponsored facility is established jointly by the issuer of the underlying
security and a depository, whereas a depository may establish an unsponsored
facility without participation by the issuer of the depository security. Holders
of unsponsored depository receipts generally bear all the costs of such
facilities and the depository of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through voting rights to the holders of such
receipts of the deposited securities. Generally, ADRs in registered form are
designed for use in the U.S. securities market and ADRs in bearer form are
designed for use outside the United States. For purposes of certain investment
limitations, ADRs are considered to be foreign securities by Capital
Appreciation, Growth Equity, and Income-Growth.
Eagle International, Growth Equity, Income-Growth, Small Cap and Value
Equity may invest in sponsored or unsponsored EDRs, GDRs, IDRs or other similar
securities representing interests in or convertible into securities of foreign
issuers ("Depository Receipts"). EDRs and IDRs are receipts typically issued by
<PAGE>
a European bank or trust company evidencing ownership of the underlying foreign
securities. GDRs are issued globally for trading in non-U.S. securities markets
and evidence a similar ownership arrangement. Depository Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. As with ADRs, the issuers of the securities
underlying unsponsored Depository Receipts are not obligated to disclose
material information in the United States and, therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the Depository Receipts.
Depository Receipts also involve the risks of other investments in foreign
securities, as discussed below. For purposes of certain investment limitations,
EDRs, GDRs and IDRs are considered to be foreign securities by Income-Growth.
BANKERS' ACCEPTANCES. A Banker's acceptance is a short-term credit
instrument used to finance commercial transactions. Generally, an acceptance is
a time draft drawn on a bank by an exporter or an importer to obtain a stated
amount of funds to pay for specific merchandise. The draft is then "accepted" by
a bank that, in effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held by the
accepting bank as an asset, or it may be sold in the secondary market at the
going rate of interest for a specified maturity. Although maturities for
acceptances can be as long as 270 days, most acceptances have maturities of six
months or less.
Each Fund may invest in banker's acceptances. Income-Growth Trust may
invest in 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.
CERTIFICATES OF DEPOSIT. Each Fund may invest in bank certificates of
deposit ("CDs") issued by domestic institutions with assets in excess of $1
billion. The Federal Deposit Insurance Corporation is an agency of the U.S.
Government that insures the deposits of certain banks and savings and loan
associations up to $100,000 per deposit. The interest on such deposits may not
be insured if this limit is exceeded. Current federal regulations also permit
such institutions to issue insured negotiable CDs in amounts of $100,000 or
more, without regard to the interest rate ceilings on other deposits. To remain
fully insured, these investments currently must be limited to $100,000 per
insured bank or savings and loan association.
COMMERCIAL PAPER. Each Fund, except Eagle International, may invest in
commercial paper that is limited to obligations rated Prime-1 or Prime-2 by
Moody's Investors Service, Inc. ("Moody's") or A-1 or A-2 by Standard & Poor's
("S&P"). Eagle International may invest in commercial paper that is limited to
obligations rated Prime-1 by Moody's or A-1 by S&P. Commercial paper includes
notes, drafts or similar instruments payable on demand or having a maturity at
the time of issuance not exceeding nine months, exclusive of days of grace or
any renewal thereof. See the Appendix for a description of commercial paper
ratings.
CONVERTIBLE SECURITIES. Each Fund 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. Convertible securities in which each Fund may invest include corporate
bonds, notes and preferred stock that can be converted into common stock.
Convertible securities combine the fixed-income characteristics of bonds and
preferred stock with the potential for capital appreciation. As with all debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
-2-
<PAGE>
While convertible securities generally offer lower interest or dividend yields
than nonconvertible debt securities of similar quality, they do enable the
investor to benefit from increases in the market price of the underlying common
stock.
DEBT SECURITIES. Each Fund except Capital Appreciation may invest in debt
securities. The market value of debt securities is influenced primarily by
changes in the level of interest rates. Generally, as interest rates rise, the
market value of debt securities decreases. Conversely, as interest rates fall,
the market value of debt securities increases. Factors that could result in a
rise in interest rates, and a decrease in the market value of debt securities,
include an increase in inflation or inflation expectations, an increase in the
rate of U.S. economic growth, an increase in the Federal budget deficit or an
increase in the price of commodities such as oil.
EURO/YANKEE BONDS. Eagle International may invest in dollar denominated
bonds issued by foreign branches of domestic banks ("Eurobonds") and dollar
denominated bonds issued by a U.S. branch of a foreign bank and sold in the
United States ("Yankee bonds"). Investment in Eurobonds and Yankee bonds entails
certain risks similar to investment in foreign securities in general. These
risks are discussed below.
EURODOLLAR CERTIFICATES. Income-Growth may purchase CDs issued by foreign
branches of domestic and foreign banks. Domestic and foreign Eurodollar
certificates, such as CDs and time deposits, may be general obligations of the
parent bank in addition to the issuing branch or may be limited by the terms of
a specific obligation or governmental regulation. Such obligations may be
subject to different risks than are those of domestic banks or domestic branches
of foreign banks. These risks include foreign economic and political
developments, foreign governmental restrictions that may affect adversely
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income. Foreign branches of
foreign banks are not necessarily subject to the same or similar regulatory
requirements, loan limitations, and accounting, auditing and recordkeeping
requirements as are domestic banks or domestic branches of foreign banks. In
addition, less information may be publicly available about a foreign branch of a
domestic bank or a foreign bank than a domestic bank.
FOREIGN SECURITIES. Each Fund, except Small Cap, may invest in foreign
securities. 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. Foreign stock markets, while growing in volume and
sophistication, generally are not as developed as those in the United States,
and securities of some foreign issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of comparable
U.S. companies. 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. Investments in foreign
securities also involve the risk of possible adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation, limitation
on or delays in the removal of funds or other assets of a Fund, political or
financial instability or diplomatic and other developments that could affect
such investments. Further, the economies of some countries may differ favorably
or unfavorably from the economy of the United States.
It is each Fund's policy not to invest in foreign securities when there
are currency or trading restrictions in force or when, in the judgment of its
subadviser, such restrictions are likely to be imposed. However, certain
currencies may become blocked (I.E., not freely available for transfer from a
foreign country), resulting in the possible inability of the Fund to convert
proceeds realized upon sale of portfolio securities of the affected foreign
companies into U.S. currency.
-3-
<PAGE>
Because investments in foreign companies usually will involve currencies
of foreign countries and because Capital Appreciation, Growth Equity,
Income-Growth, and Value Equity may temporarily hold funds in bank deposits in
foreign currencies during the completion of investment programs, the value of
any of the assets of these Funds as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Each Fund will conduct its foreign
currency exchange transactions on a spot (I.E., cash) basis at the spot rate
prevailing in the foreign currency exchange market. In addition, in order to
protect against uncertainty in the level of future exchange rates, as described
below in the discussion of futures, forwards, and hedging transactions, Capital
Appreciation, Income-Growth, Growth Equity and Value Equity may enter into
contracts to purchase or sell foreign currencies at a future date (I.E., a
"forward currency contract" or "forward contract").
FORWARD COMMITMENTS. As described in the Prospectus, Eagle International
and Income-Growth may make contracts to purchase securities for a fixed price at
a future date beyond customary settlement time ("forward commitments"). However,
Income-Growth currently has no intention of engaging in such transactions at
this time. Each Fund may engage in forward commitments if it either (1) holds,
and maintains until the settlement date in a segregated account, cash or
high-grade debt obligations in an amount sufficient to meet the purchase price
or (2) enters into an offsetting contract for the forward sale of securities of
equal value that it owns. Forward commitments may be considered securities in
themselves. They involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of a Fund's other assets. When such purchases are
made through dealers, a fund relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the Fund of an advantageous
yield or price. Although a Fund generally will enter into forward commitments
with the intention of acquiring securities for its investment portfolios, each
Fund may dispose of a commitment prior to settlement and may realize short-term
profits or losses upon such disposition.
ILLIQUID SECURITIES. Capital Appreciation, Eagle International, Growth
Equity, Income-Growth and Value Equity will not purchase or otherwise acquire
any illiquid security, including repurchase agreements maturing in more than
seven days, if, as a result, more than 10% of its net assets (taken at current
value) would be invested in securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual restrictions on
resale. Similarly, Mid Cap and Small Cap will not purchase or otherwise acquire
any illiquid security if, as a result, more than 15% of its net assets (taken at
current value) would be invested in securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale. Small Cap presently has no intention of investing more than 5% of its
assets in illiquid securities.
Over-the-counter ("OTC") options and their underlying collateral are
currently considered to be illiquid investments. Growth Equity, Income-Growth,
Mid Cap and Value Equity may sell OTC options and, in connection therewith,
segregate assets or cover its obligations with respect to OTC options written by
these Funds. The assets used as cover for OTC options will be considered
illiquid unless OTC options are sold to qualified dealers who agree that a Fund
may repurchase any OTC option it writes at a maximum price to be calculated by a
formula set forth in the option agreement. The cover for an OTC option written
subject to this procedure would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic value of
the option.
LOANS OF PORTFOLIO SECURITIES. Mid Cap, Value Equity, Growth Equity and
Income-Growth may loan portfolio securities to qualified broker-dealers. Eagle
International may loan portfolio securities to broker-dealers or other financial
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institutions. The collateral for each Fund's loans will be "marked to market"
daily so that the collateral at all times exceeds 100% of the value of the loan.
Each Fund may terminate such loans at any time and the market risk applicable to
any security loaned remains its risk. Although voting rights, or rights to
consent, with respect to the loaned securities pass to the borrower, each Fund
retains the right to call the loans at any time on reasonable notice, and it
will do so in order that the securities may be voted by it if the holders of
such securities are asked to vote upon or consent to matters materially
affecting the investment. Each Fund also may call such loans in order to sell
the securities involved. The borrower must add to the collateral whenever the
market value of the securities rises above the level of such collateral. Each
Fund could incur a loss if the borrower should fail financially at a time when
the value of the loaned securities is greater than the collateral. The primary
objective of securities lending is to supplement each Fund's income through
investment of the cash collateral in short-term interest bearing obligations.
PREFERRED STOCK. Each Fund may invest in preferred stock. A preferred
stock is a blend of the characteristics of a bond and common stock. It can offer
the higher yield of a bond and has priority over common stock in equity
ownership, but does not have the seniority of a bond and its participation in
the issuer's growth may be limited. Preferred stock has preference over common
stock in the receipt of dividends and in any residual assets after payment to
creditors should the issuer be dissolved. Although the dividend is set at a
fixed annual rate, in some circumstances it can be changed or omitted by the
issuer.
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements. The
period of these repurchase agreements usually will be short, from overnight to
one week, and at no time will the Funds invest in repurchase agreements of more
than one year. The securities that are subject to repurchase agreements,
however, may have maturity dates in excess of one year from the effective date
of the repurchase agreement. The Funds 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 Funds in each agreement, and
the Funds will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the Fund's custodian bank.
REVERSE REPURCHASE AGREEMENTS. Growth Equity, Small Cap Fund and Value
Equity may borrow by entering into reverse repurchase agreements with the same
parties with whom it may enter into repurchase agreements. Under a reverse
repurchase agreement, a Fund sells securities and agrees to repurchase them at a
mutually agreed to price. At the time a Fund enters into a reverse repurchase
agreement, it will establish and maintain a segregated account with an approved
custodian containing liquid high-grade securities, marked-to-market daily,
having a value not less than the repurchase price (including accrued interest).
Reverse repurchase agreements involve the risk that the market value of
securities retained in lieu of sale by a Fund may decline below the price of the
securities the Fund has sold but is obliged to repurchase. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce a Fund's obligation to
repurchase the securities and a Fund's use of the proceeds of the reverse
repurchase agreement effectively may be restricted pending such decisions.
Reverse repurchase agreements create leverage, a speculative factor, and are
considered borrowings for the purpose of a Fund's limitation on borrowing.
RISK FACTORS OF HIGH-YIELD SECURITIES. Eagle International, Income-Growth,
Mid Cap and Small Cap may invest in securities rated below investment grade,
i.e., rated below BBB or Baa by S&P and Moody's, respectively, or unrated
securities determined to be below investment grade by its subadviser, as
described in the Prospectus. These types of securities are commonly referred to
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as "junk bonds." These securities are subject to certain risks that may not be
present with investments of higher grade securities. 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 a Fund'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, a Fund's net asset value. Further, if the issuer of a security owned
by the Fund defaults, it 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, a Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if a Fund experiences unexpected net redemptions in a
rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which the Fund's expenses could be allocated and in a reduced rate of return for
it. While it is impossible to protect entirely against this risk,
diversification of a Fund's investment portfolio and its subadviser's careful
analysis of prospective investment portfolio securities should minimize the
impact of a decrease in value of a particular security or group of securities in
the Fund's investment portfolio.
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 higher quality bonds, which
may limit a Fund'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 a Fund's subadviser
considers ratings of recognized rating services such as Moody's and S&P, the
subadviser primarily relies on its own credit analyses, which include 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. A Fund's subadviser continually monitors the
investments in its respective investment portfolios and carefully evaluates
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whether to dispose of or retain high-yield securities whose credit ratings have
changed. See the Appendix for a description of Moody's and S&P's 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 a Fund's ability to sell such securities at that fair market value in
response to changes in the economy or the financial markets. The ability of a
Fund 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 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 liquidity of a high-yield security, whether or
not such perceptions are based on a fundamental analysis. See "Net Asset Value."
STANDARD AND POOR'S DEPOSITORY RECEIPTS ("SPDRS). Growth Equity, Mid Cap
and Value Equity may invest in SPDRs and other similar index securities ("Index
Securities"). Index Securities represent interests in a fixed portfolio of
common stocks designed to track the price and dividend yield performance of a
broad-based securities index, such as the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500 Index"), but are traded on an exchange like shares of
common stock. The value of Index Securities fluctuates in relation to changes in
the value of the underlying portfolio of securities. However, the market price
of Index Securities may not be equivalent to the pro rata value of the index it
tracks. Index Securities are subject to the risks of an investment in a broadly
based portfolio of common stocks.
U.S. GOVERNMENT SECURITIES. Each Fund 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 full faith and credit of the U.S. Government, such as Treasury bills,
Treasury notes, and Treasury bonds; 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. Each Fund may purchase rights and warrants, which are
instruments that permit a Fund to acquire, by subscription, the capital stock of
a corporation at a set price, regardless of the market price for such stock.
Eagle International, Growth Equity, Mid Cap, Small Cap and Value Equity
currently do not intend to invest more than 5% of their respective net assets in
warrants. Warrants may be either perpetual or of limited duration. There is a
greater risk that warrants might drop in value at a faster rate than the
underlying stock. Eagle International also may invest in warrants or rights
acquired by Eagle International as part of a unit or attached to securities at
the time of purchase without limitation.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. As described in the
Prospectus, Eagle International may enter into agreements with banks or
broker-dealers for the purchase or sale of securities at an agreed-upon price on
a specified future date. Such agreements might be entered into, for example,
when Eagle International anticipates a decline in interest rates and is able to
obtain a more advantageous yield by committing currently to purchase securities
to be issued later. When Eagle International purchases securities on a
when-issued or delayed delivery basis, it is required either (1) to create a
segregated account with Eagle International's custodian and to maintain in that
account cash, U.S. Government securities or other high grade debt obligations in
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an amount equal on a daily basis to the amount of Eagle International's
when-issued or delayed delivery commitments or (2) to enter into an offsetting
forward sale of securities it owns equal in value to those purchased. Eagle
International will only make commitments to purchase securities on a when-issued
or delayed-delivery basis with the intention of actually acquiring the
securities. However, Eagle International may sell these securities before the
settlement date if it is deemed advisable as a matter of investment strategy.
When the time comes to pay for when-issued or delayed-delivery securities, Eagle
International will meet its obligations from then available cash flow or the
sale of securities, or, although it would not normally expect to do so, from the
sale of the when-issued or delayed delivery securities themselves (which may
have a value greater or less than Eagle International's payment obligation).
ZERO COUPON SECURITIES. Income-Growth 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 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, each Fund relies
upon classifications established by each Fund's adviser that are based upon
classifications contained in the Directory of Companies Filing Annual Reports
with the Securities and Exchange Commission ("SEC") and in the Standard & Poor's
Corporation Industry Classifications.
Futures, Forwards And Hedging Transactions
------------------------------------------
GENERAL DESCRIPTION. A Fund may use a variety of financial instruments
("Hedging Instruments"), including futures contracts (sometimes referred to as
"futures"), options, options on futures and forward currency contracts, to
attempt to hedge the Fund's investment portfolio. Capital Appreciation, Growth
Equity, Income-Growth and Value Equity also may use forward currency contracts
to shift exposure from one foreign currency to another.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is the purchase or sale of a Hedging Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in a Fund's investment portfolio. Thus, in a short hedge, a
Fund takes a position in a Hedging Instrument whose price is expected to move in
the opposite direction of the price of the investment being hedged. A long hedge
is the purchase or sale of a Hedging Instrument intended partially or fully to
offset potential increases in the acquisition cost of one or more investments
that the Fund intends to acquire. Thus, in a long hedge, a Fund takes a position
in a Hedging Instrument whose price is expected to move in the same direction as
the price of the prospective investment being hedged.
Hedging Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that a Fund owns
or intends to acquire. Hedging Instruments on indices may be used to hedge broad
market sectors.
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The use of Hedging Instruments is subject to applicable regulations of
the SEC, the exchanges upon which they are traded, and the Commodity Futures
Trading Commission ("CFTC"). In addition, a Fund's ability to use Hedging
Instruments will be limited by tax considerations. See "Taxes."
In addition to the products and strategies described below, the Funds
expect to discover additional opportunities in connection with options, futures
contracts, forward currency contracts and other hedging techniques. These new
opportunities may become available as each Fund's subadviser develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures contracts, forward currency contracts
or other techniques are developed. A Fund's subadviser may utilize these
opportunities to the extent that it is consistent with a Fund's investment
objectives and permitted by the Fund's investment limitations and applicable
regulatory authorities.
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Hedging Instruments
involves special considerations and risks, as described below. Risks pertaining
to particular Hedging Instruments are described in the sections that follow.
(1) Successful use of most Hedging Instruments depends upon a Fund's
subadviser's ability to predict movements of the overall securities, currency
and interest rate markets, which requires different skills than predicting
changes in the prices of individual securities. While each Fund's subadvisers
are experienced in the use of Hedging Instruments, there can be no assurance
that any particular hedging strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Hedging Instrument and price movements of the
investments being hedged. For example, if the value of a Hedging Instrument used
in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Hedging
Instruments are traded. The effectiveness of hedges using Hedging Instruments on
indices will depend on the degree of correlation between price movements in the
index and price movements in the securities being hedged.
To compensate for imperfect correlation, a Fund may purchase or sell
Hedging Instruments in a greater dollar amount than the hedged securities or
currency if the volatility of the hedged securities or currency is historically
greater than the volatility of the Hedging Instruments. Conversely, a Fund may
purchase or sell fewer contracts if the volatility of the price of the hedged
securities or currency is historically less than that of the Hedging
Instruments.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies also can
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund entered into a short
hedge because its subadviser projected a decline in the price of a security in
the Fund's investment portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Hedging Instrument. Moreover, if the price of the
Hedging Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would have
been in a better position had it not hedged at all.
(4) As described below, each Fund might be required to maintain
assets as "cover," maintain segregated accounts or make margin payments when it
takes positions in Hedging Instruments involving obligations to third parties.
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If a Fund were unable to close out its positions in such Hedging Instruments, it
might be required to continue to maintain such assets or accounts or make such
payments until the position expired or matured. These requirements might impair
a Fund's ability to sell a portfolio security or make an investment at a time
when it would otherwise be favorable to do so, or require that the Fund sell a
portfolio security at a disadvantageous time. A Fund's ability to close out a
position in a Hedging Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the other party to the transaction ("counterparty")
to enter into a transaction closing out the position. Therefore, there is no
assurance that any hedging position can be closed out at a time and price that
is favorable to the Fund.
COVER FOR HEDGING STRATEGIES. Some Hedging Instruments expose a Fund to an
obligation to another party. A Fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies, forward currency contracts, options or futures contracts or (2) cash
and other liquid assets with a value sufficient at all times to cover its
potential obligations to the extent not covered as provided in (1) above. Each
Fund will comply with SEC guidelines regarding cover for instruments and will,
if the guidelines so require, set aside cash or other liquid assets in a
segregated account with the Funds' custodian ("Custodian"), in the prescribed
amount.
Assets used as cover or otherwise set aside cannot be sold while the
position in the corresponding Hedging Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of a Fund's assets to cover in segregated accounts could impede its
ability to meet redemption requests or other current obligations.
OPTIONS, FUTURES AND OPTIONS ON FUTURES TRADING. Growth Equity,
Income-Growth and Value Equity may engage in certain options (including options
on securities, equity and debt indices and currencies, futures and options on
futures strategies) in order to hedge their respective investments. Eagle
International may only purchase and sell stock index and currency futures
contracts. Certain special characteristics of and risks with these strategies
are discussed below.
CHARACTERISTICS AND RISKS OF OPTIONS TRADING. A Fund effectively may
terminate its right or obligation under an option by entering into a closing
transaction. If the Fund wished to terminate its obligation to purchase or sell
securities under a put or call option it has written, it may purchase a put or
call option of the same series (I.E., an option identical in its terms to the
option previously written); this is known as a closing purchase transaction.
Conversely, in order to terminate its right to purchase or sell under a call or
put option it has purchased, a Fund may write a call or put option of the same
series. This is known as a closing sale transaction. Closing transactions
essentially permit the Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option. Whether a profit or
loss is realized from a closing transaction depends on the price movement of the
underlying security, index, currency or futures contract and the market value of
the option.
In considering the use of options to hedge, particular note should be
taken of the following:
(1) The value of an option position will reflect, among other
things, the current market price of the underlying security, index, currency or
futures contract, the time remaining until expiration, the relationship of the
exercise price to the market price, the historical price volatility of the
underlying instrument and general market conditions. For this reason, the
successful use of options as a hedging strategy depends upon a Fund's
subadviser's ability to forecast the direction of price fluctuations in the
underlying instrument.
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(2) At any given time, the exercise price of an option may be below,
equal to or above the current market value of the underlying instrument.
Purchased options that expire unexercised have no value. Unless an option
purchased by a Fund is exercised or unless a closing transaction is effected
with respect to that position, a loss will be realized in the amount of the
premium paid.
(3) A position in an exchange-listed option may be closed out only
on an exchange that provides a secondary market for identical options. Most
exchange-listed options relate to futures contracts, stocks and currencies. The
ability to establish and close out positions on the exchanges is subject to the
maintenance of a liquid secondary market. Closing transactions may be effected
with respect to options traded in the OTC markets (currently the primary markets
of options on debt securities) only by negotiating directly with the other party
to the option contract, or in a secondary market for the option if such market
exists. Although a Fund intends to purchase or write only those options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market will exist for any particular option at any specific
time. In such event, it may not be possible to effect closing transactions with
respect to certain options, with the result that the Fund would have to exercise
those options that it has purchased in order to realize any profit. With respect
to options written by a Fund, the inability to enter into a closing transaction
may result in material losses to it. For example, because a Fund may maintain a
covered position with respect to any call option it writes on a security, it may
not sell the underlying security during the period it is obligated under such
option. This requirement may impair the Fund's ability to sell a portfolio
security or make an investment at a time when such a sale or investment might be
advantageous.
(4) Activities in the options market may result in a higher
portfolio turnover rate and additional brokerage costs; however, a Fund also may
save on commissions by using options as a hedge rather than buying or selling
individual securities in anticipation of market movements.
(5) The risks of investment in options on indices may be greater
than options on securities or currencies. Because index options are settled in
cash, when a Fund writes a call on an index it cannot provide in advance for its
potential settlement obligations by acquiring and holding the underlying
securities. A Fund can offset some of the risk of writing a call index option by
holding a diversified portfolio of securities similar to those on which the
underlying index is based. However, the Fund cannot, as a practical matter,
acquire and hold an investment portfolio containing exactly the same securities
as underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.
Even if a Fund could assemble an investment portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, a Fund as the call writer will not
learn that it has been assigned until the next business day at the earliest. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as common stock,
because there the writer's obligation is to deliver the underlying security, not
to pay its value as of a fixed time in the past. So long as the writer already
owns the underlying security, it can satisfy its settlement obligations by
simply delivering it, and the risk that its value may have declined since the
exercise date is borne by the exercising holder. In contrast, even if the writer
of an index call holds securities that exactly match the composition of the
underlying index, it will not be able to satisfy its assignment obligations by
delivering those securities against payment of the exercise price. Instead, it
will be required to pay cash in an amount based on the closing index value on
the exercise date. By the time it learns that it has been assigned, the index
may have declined, with a corresponding decline in the value of its investment
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portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding securities positions.
If a Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index subsequently may change. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
COVERED CALL OPTIONS. Income-Growth and Value Equity may write covered
call options on securities to increase income in the form of premiums received
from the purchasers of the options. Because it can be expected that a call
option will be exercised if the market value of the underlying security
increases to a level greater than the exercise price, a Fund will write covered
call options on securities generally when its subadviser believes that the
premium received by the Fund, 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 a Fund declines, the amount of
such decline will be offset wholly or in part by the amount of the premium
received by the Fund. If, however, there is an increase in the market price of
the underlying security and the option is exercised, the Fund will be obligated
to sell the security at less than its market value. A Fund would lose the
ability to participate in the value of such securities above the exercise price
of the call option. A Fund also gives up the ability to sell the portfolio
securities used to cover the call option while the call option is outstanding.
GUIDELINES, CHARACTERISTICS AND RISKS OF FUTURES AND OPTIONS ON FUTURES
TRADING. Although futures contracts by their terms call for actual delivery or
acceptance of currencies or financial instruments, in most cases the contracts
are closed out before the settlement date without the making or taking of
delivery. Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific type of financial
instrument or currency and the same delivery date. If the price of the initial
sale of the futures contract exceeds the price of the offsetting purchase, the
seller is paid the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale, the seller
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the purchaser entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes a gain,
and if the purchase price exceeds the offsetting sale price, he realizes a loss.
A Fund is required to maintain margin deposits with brokerage firms
through which it buys and sells futures contracts or writes options on future
contracts. Initial margin deposits vary from contract to contract and are
subject to change. Margin balances will be adjusted daily to reflect unrealized
gains and losses on open contracts. If the price of an open futures or written
option position declines so that a Fund has market exposure on such contract,
the broker will require the Fund to deposit variation margin. If the value of an
open futures or written option position increases so that a Fund no longer has
market exposure on such contract, the broker will pay any excess variation
margin to the Fund.
Most of the exchanges on which futures contracts and options on futures
are traded limit the amount of fluctuation permitted in futures and options
prices during a single trading day. The daily price limit establishes the
maximum amount that the price of a futures contract or option may vary either up
or down from the previous day's settlement price at the end of a trading
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<PAGE>
session. Once the daily price limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily price limit governs only price movement during a particular trading day
and therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract and options prices
occasionally have moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures or
options positions and subjecting some traders to substantial losses.
Another risk in employing futures contracts and options as a hedge is the
prospect that prices will correlate imperfectly with the behavior of cash prices
for the following reasons. First, rather than meeting additional margin deposit
requirements, investors may close contracts through offsetting transactions.
Second, the liquidity of the futures and options markets depends on participants
entering into offsetting transactions rather than making or taking delivery. To
the extent that participants decide to make or take delivery, liquidity in the
futures and options markets could be reduced, thus producing distortion. Third,
from the point of view of speculators, the deposit requirements in the futures
and options markets are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures and
options markets may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest rate, currency exchange rate
or security price trends by a subadviser may still not result in a successful
transaction.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options is subject to the existence of
a liquid secondary market. Compared to the purchase or sale of futures
contracts, the purchase of call or put options on futures contracts involves
less potential risk to a Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures contract
would result in a loss to a Fund when the purchase or sale of a futures contract
would not, such as when there is no movement in the price of the underlying
investment.
STOCK INDEX FUTURES. A stock index assigns relative values to the common
stocks comprising the index. A stock index futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of the last trading day of the contract and
the price at which the futures contract is originally struck. No physical
delivery of the underlying stocks in the index is made.
The risk of imperfect correlation between movements in the price of a
stock index futures contract and movements in the price of the securities that
are the subject of the hedge increases as the composition of a Fund's portfolio
diverges from the securities included in the applicable index. The price of the
stock index futures may move more than or less than the price of the securities
being hedged. If the price of the futures contract moves less than the price of
the securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, a Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the stock index futures contracts, a Fund may buy or
sell stock index futures contracts in a greater dollar amount than the dollar
amount of securities being hedged if the historical volatility of the prices of
such securities is more than the historical volatility of the stock index. It is
also possible that, where a Fund has sold futures contracts to hedge its
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<PAGE>
securities against decline in the market, the market may advance and the value
of securities held by the Fund may decline. If this occurred, the Fund would
lose money on the futures contract and also experience a decline in value in its
portfolio securities. However, while this could occur for a very brief period or
to a very small degree, over time the value of a diversified portfolio of
securities will tend to move in the same direction as the market indices upon
which the futures contracts are based.
Where stock index futures contracts are purchased to hedge against a
possible increase in the price of securities before a Fund is able to invest in
securities in an orderly fashion, it is possible that the market may decline
instead. If a Fund then concludes not to invest in securities at that time
because of concern as to possible further market decline for other reasons, it
will realize a loss on the futures contract that is not offset by a reduction in
the price of the securities it had anticipated purchasing.
LIMITATION ON THE USE OF OPTIONS AND FUTURES. To the extent that a Fund
enters into futures contracts and commodity options (including options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange) other than for BONA FIDE hedging purposes (as defined by the CFTC),
the aggregate initial margin and premiums required to establish those positions
(excluding the amount by which options are "in-the-money" at the time of
purchase) will not exceed 5% of the liquidation value of the Fund's investment
portfolio, after taking into account unrealized profits and unrealized losses on
any contracts the Fund has entered into. This limitation does not limit the
percentage of the Fund's assets at risk to 5%.
FOREIGN CURRENCY HEDGING STRATEGIES -- RISK FACTORS. Value Equity may use
options and futures on foreign currencies and Growth Equity and Eagle
International may only use futures on foreign currencies, as described above.
Capital Appreciation, Eagle International, Growth Equity, Income-Growth, and
Value Equity may use foreign currency forward contracts as described below.
Currency hedges can protect against price movements in a security that a
Fund owns or intends to acquire that are attributable to changes in the value of
the currency in which it is denominated. Such hedges do not, however, protect
against price movements in the securities that are attributable to other causes.
A Fund might seek to hedge against changes in the value of a particular
currency when no Hedging Instruments on that currency are available or such
Hedging Instruments are more expensive than certain other Hedging Instruments.
In such cases, a Fund may hedge against price movements in that currency by
entering into transactions using Hedging Instruments on another currency or
basket of currencies, the values of which its subadviser believes will have a
high degree of positive correlation to the value of the currency being hedged.
The risk that movements in the price of the Hedging Instrument will not
correlate perfectly with movements in the price of the currency being hedged is
magnified when this strategy is used.
The value of Hedging Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Hedging
Instruments, a Fund could be disadvantaged by having to deal in the odd-lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
-14-
<PAGE>
round-the-clock market. To the extent the U.S. futures markets are closed while
the markets for the underlying currencies remain open, significant price and
rate movements might take place in the underlying markets that cannot be
reflected in the markets for the Hedging Instruments until they reopen.
Settlement of transactions involving foreign currencies might be required
to take place within the country issuing the underlying currency. Thus, a Fund
might be required to accept or make delivery of the underlying foreign currency
in accordance with any U.S. or foreign regulations regarding the maintenance of
foreign banking arrangements by U.S. residents and might be required to pay any
fees, taxes and charges associated with such delivery assessed in the issuing
country.
FORWARD CURRENCY CONTRACTS. A forward currency contract involves an
obligation of a Fund to purchase or sell specified currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers.
Growth Equity and Value Equity may enter into forward currency contracts
to purchase or sell foreign currencies for a fixed amount of U.S. dollars or
another foreign currency, in an amount not to exceed 5% of their respective
assets. Capital Appreciation may enter into contracts to purchase or sell
foreign currencies at a future date that is not more than 30 days from the date
of the contract. Eagle International generally will not enter into a forward
contract with a term of greater than one year.
Forward currency transactions may serve as long hedges - for example, a
Fund may purchase a forward currency contract to lock in the U.S. dollar price
of a security denominated in a foreign currency that it intends to acquire.
Foreign currency contract transactions also may serve as short hedges - for
example, a Fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security or from a
dividend or interest payment on a security denominated in a foreign currency.
Growth Equity, Income-Growth and Value Equity may purchase forward currency
contracts to enhance income when a Fund anticipates that the foreign currency
will appreciate in value, but securities denominated in that currency do not
represent attractive investment opportunities.
Income-Growth and Eagle International may enter into a forward contract to
sell the foreign currency for a fixed U.S. dollar amount approximating the value
of some or all of their respective portfolio securities denominated in such
foreign currency. Eagle may enter into such a forward contract when its
subadviser believes that the currency of a particular foreign country may suffer
a substantial decline against the U.S. dollar.
In addition, Eagle International may use currency forward contracts when
its subadviser wishes to "lock in" the U.S. dollar price of a security when
Eagle International is purchasing or selling a security denominated in a foreign
currency or anticipates receiving a dividend or interest payment denominated in
a foreign currency.
Income-Growth 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 Income-Growth from adverse changes in the relationship
between the U.S. dollar and foreign currencies.
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<PAGE>
As noted above, Capital Appreciation, Growth Equity, Income-Growth, and
Value Equity may seek to hedge against changes in the value of a particular
currency by using forward contracts on another foreign currency or a basket of
currencies, the value of which the Fund's subadviser believes will have a
positive correlation to the values of the currency being hedged. Use of a
different foreign currency magnifies the risk that movements in the price of the
forward contract will not correlate or will correlate unfavorably with the
foreign currency being hedged.
In addition, Growth Equity, Income-Growth, and Value Equity may use
foreign currency contracts to shift exposure to foreign currency fluctuations
from one country to another. For example, if a Fund owned securities denominated
in a foreign currency and its subadviser believed that currency would decline
relative to another currency, it might enter into a forward contract to sell an
appropriate amount of the first foreign currency, with payment to be made in the
second foreign currency. Transactions that use two foreign currencies are
sometimes referred to as "cross hedging." Use of a different foreign currency
magnifies a Fund's exposure to foreign currency exchange rate fluctuations.
The cost to a Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts usually
are entered into on a principal basis, no fees or commissions are involved. When
a Fund enters into a forward currency contract, it relies on the counterparty to
make or take delivery of the underlying currency at the maturity of the
contract. Failure by the counterparty to do so would result in the loss of any
expected benefit of the transaction.
As is the case with futures contracts, sellers or purchasers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by purchasing or selling, respectively, an
instrument identical to the instrument sold or bought. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the counterparty. Thus, there can be no assurance
that a Fund will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the counterparty, a Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would continue
to be subject to market risk with respect to the position, and would continue to
be required to maintain a position in the securities or currencies that are the
subject of the hedge or to maintain cash or securities.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, a Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
COMBINED TRANSACTIONS. A Fund may enter into multiple futures
transactions, instead of a single transaction, as part of a single or combined
strategy when, in the opinion of its subadviser, it is in the best interests of
a Fund to do so. A combined transaction usually will contain elements of risk
that are present in each of its component transactions. Although combined
transactions normally are entered into based on its subadviser's judgment that
the combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
instead will increase such risks or hinder achievement of the portfolio
management objective.
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<PAGE>
INVESTMENT LIMITATIONS
- ----------------------
Fundamental Investment Policies
-------------------------------
In addition to the limits disclosed in "Investment Policies" above and the
investment limitations described in the Prospectus, the Funds are subject to the
following investment limitations that are fundamental policies and may not be
changed without the vote of a majority of the outstanding voting securities of
the applicable Fund. Under the 1940 Act, a "vote of a majority of the
outstanding voting securities" of a Fund means the affirmative vote of the
lesser of (1) more than 50% of the outstanding shares of the Fund or (2) 67% or
more of the shares present at a shareholders meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
DIVERSIFICATION. With respect to 100% of the total assets of Capital
Appreciation and Income-Growth and with respect to 75% of the total assets of
the other Funds, no Fund may invest more than 5% of that Fund's assets (valued
at market value) in securities of any one issuer other than the U.S. Government
or its agencies and instrumentalities, or purchase more than 10% of the voting
securities of the voting securities of any one issuer.
INDUSTRY CONCENTRATION. The Funds may not purchase securities if, as a
result of such purchase, more than 25% of the value of each Fund's total assets
would be invested in any one industry; however, this restriction does not apply
to U.S. Government securities.
BORROWING MONEY. The Funds may not borrow money except as a temporary
measure for extraordinary or emergency purposes. Such borrowing is limited
as follows:
Income-Growth may not borrow money except from banks. Borrowing in the
aggregate may not exceed 15%, and borrowing for purposes other than meeting
redemptions may not exceed 5% of the value of the Fund's total assets at the
time the borrowing is made. The Fund may not make additional investments when
borrowings exceed 5% of the Fund's total assets.
Capital Appreciation may not borrow money except from banks and only if at
the time of such borrowings the total loans to the Fund do not exceed 5% of the
Fund's total assets.
Eagle International, Growth Equity, Mid Cap Fund, Small Cap and Value
Equity may enter into reverse repurchase agreements in an amount up to 33 1/3%
of the value of its total assets in order to meet redemption requests without
immediately selling portfolio securities. This latter practice is not for
investment leverage but solely to facilitate management of the investment
portfolio by enabling the Funds to meet redemption requests when the liquidation
of portfolio instruments would be inconvenient or disadvantageous. However, a
Fund may not purchase additional portfolio investments once borrowed funds
exceed 5% of total assets. When effecting reverse repurchase agreements, Fund
assets in an amount sufficient to make payment for the obligations to be
purchased will be segregated by the Custodian and on the Funds' records upon
execution of the trade and maintained until the transaction has been settled.
During the period any reverse repurchase agreements are outstanding, to the
extent necessary to assure completion of the reverse repurchase agreements, a
Fund will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse repurchase
agreements. Interest paid on borrowed funds will not be available for
investment. The Funds will liquidate any such borrowings as soon as possible and
may not purchase any portfolio instruments while any borrowings are outstanding
(except as described above).
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<PAGE>
Eagle International will not borrow money in excess of 10% of the value
(taken at the lower of cost or current value) of Eagle International's total
assets (not including the amount borrowed) at the time the borrowing is made,
and then only from banks as a temporary measure, such as to facilitate the
meeting of higher redemption requests than anticipated (not for leverage) which
might otherwise require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes. As a matter of nonfundamental investment
policy, Eagle International may not make any additional investments if,
immediately after such investments, outstanding borrowings of money would exceed
5% of the currency value of Eagle International's total assets.
ISSUING SENIOR SECURITIES. The Funds may not issue senior securities,
except as permitted by the investment objective, policies, and investment
limitations of the Fund, except that (1) Eagle International, Growth Equity, Mid
Cap and Value Equity may engage in transactions involving options, futures,
forward currency contracts, or other financial instruments, and (2)
Income-Growth may purchase and sell call options and forward contracts.
UNDERWRITING. Subject to the following exceptions, no Fund may underwrite
the securities of other issuers: (1) Eagle International, Growth Equity and
Small Cap Fund may underwrite securities to the extent that, in connection with
the disposition of portfolio securities, that Fund may be deemed to be an
underwriter under federal securities laws, and (2) Capital Appreciation and
Income-Growth may invest not more than 5% and Mid Cap, and Small Cap may invest
not more than 15% of their respective net assets (taken at cost immediately
after making such investment) in securities that are not readily marketable
without registration under the 1933 Act.
INVESTING IN COMMODITIES, MINERALS OR REAL ESTATE. With the following
exceptions, the Funds may not invest in commodities, commodity contracts or real
estate (including real estate limited partnerships, in the case of all the Funds
except Income-Growth and Capital Appreciation): (1) The Funds may purchase
securities issued by companies that invest in or sponsor such interests, (2)
Value Equity may purchase and sell options, futures contracts, forward currency
contracts and other financial instruments, (3) Eagle International may purchase
and sell forward contracts, futures contracts, options and foreign currency, (4)
Eagle International and Income-Growth may purchase securities that are secured
by interests in real estate, (5) Income-Growth may write and purchase call
options, sell forward contracts and engage in transactions in forward
commitments, and (6) Capital Appreciation and Income-Growth may not invest in
oil, gas, or other mineral programs except that they may purchase securities
issued by companies that invest in or sponsor such interests.
LOANS. The Funds may not make loans, except that all Funds except Eagle
International may make loans under the following circumstances: (1) to the
extent that the purchase of a portion of an issue of publicly distributed (and,
in the case of Income-Growth, privately placed) notes, bonds, or other evidences
of indebtedness or deposits with banks and other financial institutions may be
considered loans; (2) where the Fund may enter into repurchase agreements as
permitted under that Fund's investment policies; (3) Mid Cap, Value Equity,
Income-Growth, and Growth Equity may make loans of portfolio securities as
described in this SAI. Eagle International may make loans by purchase of debt
obligations or by entering into repurchase agreements or through lending of
Eagle International's portfolio securities.
Fundamental Policies Unique To Eagle International
--------------------------------------------------
Eagle International has adopted the following fundamental policies that
can be changed only by shareholder vote:
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<PAGE>
MARGINS. Eagle International will not purchase securities on margin,
except such short-term credits as may be necessary for the clearance of
purchases and sales of securities. (For this purpose, the deposit or payment by
Eagle International of initial or variation margin in connection with futures
contracts, forward contracts or options is not considered the purchase of a
security on margin.)
SHORT SALES. Eagle International will not make short sales of securities
or maintain a short position, except that Eagle International may maintain short
positions in connection with its use of options, futures contracts, forward
contracts and options on futures contracts, and Eagle International may sell
short "against the box." As a matter of nonfundamental investment policy, Eagle
will not sell securities short "against the box."
Fundamental Policies Unique To Income-Growth
--------------------------------------------
Income-Growth has adopted the following fundamental policies that can be
changed only by shareholder vote:
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
OF THE TRUST. The Trust may not purchase or retain the securities of any issuer
if the officers and Trustees of the Fund or Heritage or its subadviser owning
individually more than 1/2 of 1% of the issuer's securities together own more
than 5% of the issuer's securities.
REPURCHASE AGREEMENTS AND LOANS TO PORTFOLIO SECURITIES. The Fund 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 Fund 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 Fund may not invest more than 5% of the Fund's
total assets (taken at cost) in securities that are not readily marketable
without registration under the 1933 Act (restricted securities).
Non-Fundamental Investment Policies
-----------------------------------
Each Fund has adopted the following additional restrictions which,
together with certain limits described in the Prospectus, may be changed by the
Board of Trustees without shareholder approval in compliance with applicable
law, regulation or regulatory policy.
INVESTING IN ILLIQUID SECURITIES. Small Cap may not invest more than 15%
and Capital Appreciation, Income-Growth and Value Equity may not invest more
than 10% of their net assets in repurchase agreements maturing in more than
seven days or in other illiquid securities, including securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions as to resale and including, in the case of
Income-Growth, privately placed securities.
Growth Equity and Eagle International may not invest more than 10%, and
Mid Cap may not invest more than 15% of their net assets in securities that are
subject to restrictions on resale or are not readily marketable without
registration under the 1933 Act and in repurchase agreements maturing in more
than seven days.
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<PAGE>
SELLING SHORT AND BUYING ON MARGIN. Capital Appreciation, Growth Equity,
Mid Cap, Small Cap, and Value Equity may not sell any securities short or
purchase any securities on margin but may obtain such short-term credits as may
be necessary for clearance of purchases and sales of securities; and, in
addition, Growth Equity, Mid Cap, and Value Equity may make margin deposits in
connection with the Fund's use of options, futures contracts, forward currency
contracts in the case of Value Equity and Growth Equity, and other financial
instruments.
INVESTING IN INVESTMENT COMPANIES. Income-Growth, Mid Cap, Small Cap and
Value Equity may not invest in securities issued by other investment companies
except as permitted by the 1940 Act, and with respect to Small Cap and Value
Equity, except in connection with the merger, consolidation or acquisition of
all the securities or assets of such an issuer.
Capital Appreciation may not invest in securities issued by other
investment companies, except in connection with a merger, consolidation,
acquisition or reorganization by purchase in the open market of securities of
closed-end investment companies where no underwriter or dealer commission or
profit, other than a customary brokerage commission is involved and only if
immediately thereafter not more than 5% of Capital Appreciation's total assets
(taken at market value) would be invested in such securities.
Growth Equity may not invest in the securities of other investment
companies, except by purchase in the open market where no commission or profit
to a sponsor or dealer results from the purchase other than the customary
broker's commission, or except when the purchase is part of a plan of merger,
consolidation, reorganization or acquisition.
Eagle International may not invest more than 10% of its total assets in
securities of other investment companies. For purposes of this restriction,
foreign banks and foreign insurance companies or their respective agents or
subsidiaries are not considered investment companies. In addition, Eagle
International may invest in the securities of other investment companies in
connection with a merger, consolidation or acquisition of assets or other
reorganization approved by Eagle International's shareholders. Eagle
International may incur duplicate advisory or management fees when investing in
another mutual fund.
Non-Fundamental Policies Unique To Capital Appreciation
-------------------------------------------------------
Capital Appreciation has adopted the following non-fundamental policies:
OPTION WRITING. The Trust may not write put or call options.
PLEDGING. The Trust may not pledge any securities except that it may
pledge assets having a value of not more than 10% of its total assets to secure
permitted borrowing from banks.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the investment, a later increase or decrease in the
percentage resulting from any change in value of net assets will not result in a
violation of such restriction.
NET ASSET VALUE
- ---------------
The net asset value per share of A shares, B shares and C shares is
determined separately daily as of the close of regular trading on the New York
Stock Exchange (the "Exchange") each day the Exchange is open for business.
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<PAGE>
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 quoted bid price is used. When market quotations for options and futures
positions held by Value Equity, Growth Equity, Mid Cap and Eagle International
are readily available, those positions will be valued based upon such
quotations. Market quotations generally will not be available for options traded
in the OTC market. Securities and other assets for which market quotations are
not readily available, or for which market quotes are not deemed to be reliable,
are valued at fair value as determined in good faith by the Board of Trustees.
Securities and other assets in foreign currency and foreign currency contracts
will be valued daily in U.S. dollars at the foreign currency exchange rates
prevailing at the time a Fund calculates the daily net asset value of each
class. Short-term investments having a maturity of 60 days or less are valued at
cost with accrued interest or discount earned included in interest receivable.
All securities and other assets quoted in foreign currency and forward
currency contracts are valued daily in U.S. dollars on the basis of the foreign
currency exchange rate prevailing at the time such valuation is determined by
the Fund's custodian. Foreign currency exchange rates generally are determined
prior to the close of the Exchange. Occasionally, events affecting the value of
foreign securities and such exchange rates occur between the time at which they
are determined and the close of the Exchange, which events will not be reflected
in a computation of the Fund's net asset value. If events materially affecting
the value of such securities or assets or currency exchange rates occurred
during such time period, the securities or assets would be valued at their fair
value as determined in good faith under procedures established by and under the
general supervision and responsibility of the Board of Trustees. The foreign
currency exchange transactions of a Fund conducted on a spot basis are valued at
the spot rate for purchasing or selling currency prevailing on the foreign
exchange market.
The Funds are 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
Funds' 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 Funds' net asset value is not calculated.
Calculation of net asset value of A shares and C shares does not take place
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. The Funds calculate net asset
value per share and, therefore, effect sales and redemptions, as of the close of
regular trading on the Exchange each Business Day. If events materially
affecting the value of such securities or other assets occur between the time
when their prices are determined (including their value in U.S. dollars by
reference to foreign currency exchange rates) and the time when the Funds' net
asset value is calculated, such securities and other assets 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 Funds of
securities owned by them is not reasonably practicable or it is not reasonably
practical for the Funds fairly to determine the value of their net assets, or
(4) for such other periods as the SEC may by order permit for the protection of
the holders of A shares and C shares.
-21-
<PAGE>
PERFORMANCE INFORMATION
- -----------------------
The Funds' performance data quoted in advertising and other promotional
materials represents past performance and is not intended to indicate future
performance. The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Average annual total return quotes for each class used
in each Fund's advertising and promotional materials are calculated according to
the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period at the end of that period
In calculating the ending redeemable value for A shares, each Fund's
current maximum sales load of 4.75% is deducted from the initial $1,000 payment
and, for B shares and C shares, the applicable CDSL imposed on a redemption of B
shares or C shares held for the period is deducted. All dividends and other
distributions by a Fund are assumed to have been reinvested at net asset value
on the reinvestment dates during the period. Based on this formula, the total
return, or "T" in the formula above, is computed by finding the average annual
compounded rates of return over the period that would equate the initial amount
invested to the ending redeemable value.
In connection with communicating its total return to current or
prospective shareholders, each Fund 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,
each Fund 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 a Fund's aggregate
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 S&P 500 Index, each Fund calculates its cumulative
total return for each class for the specified periods of time by assuming an
investment of $10,000 in that class of shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the beginning
value. The Funds do not, for these purposes, deduct from the initial value
invested any amount representing front-end sales loads charged on A shares or
CDSLs charged on B shares and C shares. By not annualizing the performance and
excluding the effect of the front-end sales load on A shares and the CDSL on B
shares and C shares, the total return calculated in this manner simply will
reflect the increase in net asset value per share over a period of time,
adjusted for dividends and other distributions. Calculating total return without
taking into account the sales load or CDSL results in a higher rate of return
than calculating total return net of the front-end sales load.
The average annualized total return and cumulative return are as follows
for each period of each Fund below. Return information is not available for Mid
Cap because Mid Cap did not commence operations until November 2, 1997. In
addition, return information is not available for B shares because they were not
offered prior to the date of this SAI.
-22-
<PAGE>
AVERAGE
ANNUALIZED TOTAL
FUND SHARES PERIOD TOTAL RETURN RETURN
---- ------ ------ ------------ ------
Capital A shares One-year period ended
Appreciation August 31, 1997 27.27%
Five-year period ended
August 31, 1997 16.45% 124.89%
Ten-year period ended
August 31, 1997 11.35% 207.82%
December 12, 1985
(commencement of 12.68% 325.87%
operations) to August 31,
1997
C shares One-year period ended
August 31, 1997 32.91%
April 3, 1995 (initial
offering of shares) to 22.43% 62.96%
August 31, 1997
Eagle A shares One-year period ended
International October 31, 1997 9.98%
December 27, 1995 (initial
offering of A shares) to 5.89% 16.68%
October 31, 1997
C shares One-year period ended
October 31, 1997 9.79%
December 27 1995 (initial
offering of C shares) to 7.87% 15.04%
October 31, 1997
Growth A shares One-year period ended
Equity October 31, 1997 27.63%
November 16, 1995
(commencement of 26.48% 66.34%
operations) to October 31,
1997
C shares One-year period ended
October 31, 1997 32.99%
November 16, 1995
(commencement of 28.68% 63.89%
operations) to October 31,
1997
Income- A Shares One-year period ended
Growth September 30, 1997 23.30%
-23-
<PAGE>
Five-year period ended
September 30, 1997 16.39% 124.32%
Ten-year period ended
September 30, 1997 11.57% 214.18%
December 15, 1986
(commencement of 11.36% 235.51%
operations) to September
30, 1997
C shares One-year period ended
September 30, 1997 28.49%
April 3, 1995 (initial
offering of shares) to 25.55% 76.49%
September 30, 1997
Small Cap A shares One-year period ended
October 31, 1997 30.18%
May 7, 1993 (commencement
of operations) to 21.95% 155.80%
October 31, 1997
C shares One-year period ended
October 31, 1997 35.63%
April 3, 1995 (initial
offering of C shares) to 34.54% 115.03%
October 31, 1997
Value Equity A shares One-year period ended
October 31, 1997 22.57%
December 30, 1994
(commencement of 23.01% 88.99%
operations) to October 31,
1997
C shares One-year period ended
October 31, 1997 27.79%
April 3, 1995 (initial
offering of C shares) to 23.79% 73.45%
October 31, 1997
-24-
<PAGE>
INVESTING IN THE FUNDS
- ----------------------
A shares, B shares and C shares are sold at their next determined net
asset value on Business Days. The procedures for purchasing shares of a Fund are
explained in the Prospectus under "Purchase Procedures."
Systematic Investment Options
-----------------------------
The options below allow you to invest continually in one or more Funds at
regular intervals.
1. Systematic Investing -- You may authorize Heritage to process a monthly
draft from your personal checking account for investment into a Fund. The draft
is returned by your bank the same way a canceled check is returned.
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 a Fund. This will generate a purchase transaction each
time you are paid by your employer. Your employer will report to you the amount
sent from each paycheck.
3. Government Direct Deposit -- If you receive a qualifying periodic
payment from the U.S. Government or other agency that participates in Direct
Deposit, you may have all or a part of each check directed to purchase shares of
a Fund. The U.S. Government or agency will report to you all payments made.
4. Automatic Exchange -- If you own shares of another Heritage mutual fund
advised or administered by Heritage ("Heritage Mutual Fund"), you may elect to
have a preset amount redeemed from that fund and exchanged into the
corresponding class of shares of a Fund. You will receive a statement from the
other Heritage Mutual Fund confirming the redemption.
You may change or terminate any of the above options at any time.
Retirement Plans
----------------
HERITAGE IRA. Individuals who earn compensation and who have not reached
age 70 1/2 before the close of the year generally may establish a Heritage
Individual Retirement Account ("IRA"). An individual may make limited
contributions to a Heritage IRA through the purchase of shares of a Fund and/or
other Heritage Mutual Funds. The Internal Revenue Code of 1986, as amended (the
"Code"), limits the deductibility of IRA contributions to taxpayers who are not
active participants (and whose spouses are not active participants) in
employer-provided retirement plans or who have adjusted gross income below
certain levels. Nevertheless, the Code permits other individuals to make
nondeductible IRA contributions up to $2,000 per year (or $4,000, if such
contributions also are made for a nonworking spouse and a joint return is
filed). In addition, individuals whose earnings (together with their spouse's
earnings) do not exceed a certain level may establish an "education IRA" and/or
a "Roth IRA"; although contributions to these new types of IRAs (established by
the Taxpayer Relief Act of 1997 ("Tax Act")) are nondeductible, withdrawals from
them will not be taxable under certain circumstances. A Heritage IRA also may be
used for certain "rollovers" from qualified benefit plans and from Section
403(b) annuity plans. For more detailed information on the Heritage IRA, please
contact Heritage.
Fund shares also may be used as the investment medium for qualified plans
(defined benefit or defined contribution plans established by corporations,
partnerships or sole proprietorships). Contributions to qualified plans may be
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<PAGE>
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 an initial purchase of A shares
will be that normally applicable under the schedule of sales loads set forth in
the Prospectus to an investment 13 times larger than the initial purchase. The
sales load applicable to each succeeding monthly purchase of A shares will be
that normally applicable, under the schedule, to an investment equal to the sum
of (1) the total purchase previously made during the 13-month period and (2) the
current month's purchase multiplied by the number of months (including the
current month) remaining in the 13-month period. Sales 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.
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. 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.
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 of a Fund held by the investor and (b) all A shares of
any other 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 purchase with that of
the investor into a single "purchase."
A shares of Heritage Income Trust-Intermediate Government Fund
("Intermediate Government") purchased from February 1, 1992 through July 31,
1992, without payment of a sales load will be deemed to fall under the
provisions of paragraph (ii) as if they had been distributed without being
-26-
<PAGE>
subject to a sales load, unless those shares were acquired through an exchange
of other shares that were 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.
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 a Fund 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. In addition, if you own Class A shares
of any other Heritage Mutual Fund subject to a sales load, you may include those
shares in computing the amount necessary to qualify for a sales load reduction.
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 a Fund 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 Fund account
of a minimum of $50 on a periodic basis. The amounts paid each period are
obtained by redeeming sufficient shares from an account to provide the
withdrawal amount specified. The Systematic Withdrawal Plan currently is not
available for shares held in an individual retirement account, Section 403(b)
annuity plan, defined contribution plan, simplified employee pension plan, or
other retirement plans, unless the shareholder establishes to Heritage's
satisfaction that withdrawals from such an account may be made without
imposition of a penalty. Shareholders may change the amount to be paid without
charge not more than once a year by written notice to the Distributor or
Heritage.
-27-
<PAGE>
Redemptions will be made at net asset value determined as of the close of
regular trading on the Exchange on a day of each month chosen by the
shareholders or a day of the last month of each period chosen by the
shareholders, whichever is applicable. Systematic withdrawals of C shares, if
made in less than 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 B shares
and C shares. If a shareholder elects to participate in the Systematic
Withdrawal Plan, dividends and other distributions on all shares in the account
must be reinvested automatically in Fund shares. A shareholder may terminate the
Systematic Withdrawal Plan at any time without charge or penalty by giving
written notice to Heritage or the Distributor. The Funds, and the transfer agent
and Distributor also reserve the right to modify or terminate the Systematic
Withdrawal Plan at any time.
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 other
distributions, the amount of the original investment may be correspondingly
reduced.
Ordinarily, a shareholder should not purchase additional A shares of a
Fund if maintaining a Systematic Withdrawal Plan of A shares because the
shareholder may incur tax liabilities in connection with such purchases and
withdrawals. A Fund will not knowingly accept purchase orders from shareholders
for additional 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
each Fund's Automatic Investment Plan.
Telephone Transactions
----------------------
Shareholders may redeem shares by placing a telephone request to a Fund. A
Fund, Heritage, Eagle, the Distributor and their Trustees, directors, officers
and employees are not liable for any loss arising out of telephone instructions
they reasonably believe are authentic. In acting upon telephone instructions,
these parties use procedures that are reasonably designed to ensure that such
instructions are genuine, such as (1) obtaining some or all of the following
information: account number, name(s) and social security number registered to
the account, and personal identification; (2) recording all telephone
transactions; and (3) sending written confirmation of each transaction to the
registered owner. If a Fund, Heritage, Eagle, the Distributor and their
Trustees, directors, officers and employees do not follow reasonable procedures,
some or all of them may be liable for any such losses.
Redemptions In Kind
-------------------
A Fund is obligated to redeem shares for any shareholder for cash during
any 90-day period up to $250,000 or 1% of that Fund's net asset value, whichever
is less. Any redemption beyond this amount also will be in cash unless the Board
of Trustees determine that further cash payments will have a material adverse
effect on remaining shareholders. In such a case, a Fund will pay all or a
portion of the remainder of the redemption in portfolio instruments, valued in
the same way as each Fund determines net asset value. The portfolio instruments
will be selected in a manner that the Board of Trustees deem fair and equitable.
A redemption in kind is not as liquid as a cash redemption. If a redemption is
made in kind, a shareholder receiving portfolio instruments could receive less
than the redemption value thereof and could incur certain transaction costs.
-28-
<PAGE>
Receiving Payment
-----------------
If shares of a Fund are redeemed by a shareholder through the Distributor
or a participating dealer, the redemption is settled with the shareholder as an
ordinary transaction. If a request for redemption is received before the close
of regular trading on the Exchange, shares will be redeemed at the net asset
value per share determined on that day, minus any applicable CDSL for B shares
and C shares. Requests for redemption received after the close of regular
trading on the Exchange will be executed on the next trading day. Payment for
shares redeemed normally will be made by a Fund to the Distributor or a
participating dealer by the third business day after the day the redemption
request was made, provided that certificates for shares have been delivered in
proper form for transfer to the Fund, or if no certificates have been issued, a
written request signed by the shareholder has been provided to the Distributor
or a participating dealer prior to settlement date.
Other supporting legal documents may be required from corporations or
other organizations, fiduciaries or persons other than the shareholder of record
making the request for redemption. Questions concerning the redemption of Fund
shares can be directed to registered representatives of the Distributor or a
participating dealer, or to Heritage.
EXCHANGE PRIVILEGE
- ------------------
An exchange is effected through the redemption of the shares tendered for
exchange and the purchase of shares being acquired at their respective net asset
values as next determined following receipt by the Heritage Mutual Fund whose
shares are being exchanged of (1) proper instructions and all necessary
supporting documents 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. Telephone or telegram requests for an exchange received by
a Fund before the close of regular trading on the Exchange will be effected at
the close of regular trading on that day. Requests for an exchange received
after the close of regular trading will be effected on the Exchange's next
trading day.
A shares of Intermediate Government purchased from February 1, 1992
through July 31, 1992, without payment of an initial sales load may be exchanged
into A shares of a Fund without payment of any sales load. A shares of
Intermediate Government purchased after July 31, 1992 without an initial sales
load will be subject to a sales load when exchanged into A shares of a Fund,
unless those shares were acquired through an exchange of other A shares that
were subject to an initial sales load.
CONVERSION OF CLASS B SHARES
- ----------------------------
B shares of the Funds automatically will convert to A shares, based on the
relative net asset values per share of the two classes, eight years after the
end of the calendar month in which the shareholder's order to purchase was
accepted. For the purpose of calculating the holding period required for
conversion of B shares, the date of initial issuance shall mean (i) the date on
which such B shares were issued or (ii) for B shares obtained through an
exchange, or a series of exchanges, the date on which the original B shares were
issued. For purposes of conversion to A shares, B shares purchased through the
reinvestment of dividends and other distributions paid in respect of B shares
will be held in a separate sub-account. Each time any B shares in the
shareholder's regular account (other than those in the sub-account) convert to A
shares, a pro rata portion of the B shares in the sub-account will also convert
to A shares. The portion will be determined by the ratio that the shareholder's
B shares converting to A shares bears to the shareholder's total B shares not
acquired through dividends and other distributions.
-29-
<PAGE>
The availability of the conversion feature is subject to the continuing
availability of an opinion of counsel to the effect that the dividends and other
distributions paid on A shares and B shares will not result in "preferential
dividends" under the Code and the conversion of shares does not constitute a
taxable event. If the conversion feature ceased to be available, the B shares
would not be converted and would continue to be subject to the higher ongoing
expenses of the B shares beyond eight years from the date of purchase. Heritage
and Eagle have no reason to believe that this condition for the availability of
the conversion feature will not be met.
TAXES
- -----
GENERAL. Each Fund is treated as a separate corporation for Federal income
tax purposes. In order to qualify or to continue to qualify for the favorable
tax treatment as a regulated investment company ("RIC") under the Code, each
Fund must distribute annually to its shareholders at least 90% of its investment
company taxable income (generally consisting of net investment income, net
short-term capital gain and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. With respect to each Fund, these requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures or forward
currency contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. Government securities,
securities of other RICs and other securities, with those other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (3) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. Government securities or
the securities of other RICs) of any one issuer.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and its capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
A redemption of Fund shares will result in a taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds are more or
less than the shareholder's adjusted basis for the redeemed shares (which
normally includes any sales load paid on A shares). An exchange of shares of any
Fund for shares of another Heritage Mutual Fund (including another Fund)
generally will have similar tax consequences. However, special rules apply when
a shareholder disposes of A shares of a Fund through a redemption or exchange
within 90 days after purchase thereof and subsequently reacquires A shares of
that Fund or acquires A shares of another Heritage Mutual Fund without paying a
sales load due to the 90-day reinstatement or exchange privilege. In these
cases, any gain on the disposition of the original 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 shares of a Fund are purchased (whether
pursuant to the reinstatement privilege or otherwise) within 30 days before or
after redeeming other shares of that Fund (regardless of class) at a loss, all
or a portion of that loss will not be deductible and will increase the basis of
the newly purchased shares.
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
-30-
<PAGE>
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.
INCOME FROM FOREIGN SECURITIES. Dividends and interest received by each
Fund (other than Small Cap) may be subject to income, withholding or other taxes
imposed by foreign countries and U.S. possessions ("foreign taxes") 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. If more than 50% of the value of a Fund's
total assets at the close of any taxable year consists of securities of foreign
corporations, it will be eligible to, and may, file an election with the
Internal Revenue Service that would enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign taxes
paid by it. Pursuant to any such election, each Fund would treat those taxes as
dividends paid to its shareholders and each shareholder would be required to (1)
include in gross income, and treat as paid by the shareholder, the shareholder's
proportionate share of those taxes, (2) treat the shareholder's share of those
taxes and of any dividend paid by the Fund that represents income from foreign
or U.S. possessions sources as the shareholder's own income from those sources,
and (3) either deduct the taxes deemed paid by the shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against the shareholder's Federal income tax.
Each Fund will report to its shareholders shortly after each taxable year their
respective shares of the Fund's income from sources within foreign countries and
U.S. possessions and foreign taxes paid by it if it makes this election.
Pursuant to the Tax Act, individuals who have no more than $300 ($600 for
married persons filing jointly) of creditable foreign taxes included on Forms
1099 and have no foreign source non-passive income will be able to claim a
foreign tax credit without having to file the detailed Form 1116 that otherwise
is required.
Each Fund, except Small Cap, may invest in the stock of "passive foreign
investment companies" ("PFICs"). A PFIC is a foreign corporation -- other than a
"controlled foreign corporation" (I.E., a foreign corporation in which, on any
day during its taxable year, more than 50% of the total voting power of all
voting stock therein or the total value of all stock therein is owned, directly,
indirectly, or constructively, by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly, or constructively, at least 10% of
that voting power) as to which a Fund is a U.S. shareholder -- that, in general,
meets either of the following tests: (1) at least 75% of its gross income is
passive or (2) an average of at least 50% of its assets produce, or are held for
the production of, passive income. Under certain circumstances, a Fund will be
subject to Federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income
will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) -- which
most likely would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not distributed to the Fund by the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Each Fund may elect to "mark-to-market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of a PFIC's stock over
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<PAGE>
a Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, a Fund also would be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included by the Fund for
prior taxable years. A Fund's adjusted basis in each PFIC's stock with respect
to which it makes this election will be adjusted to reflect the amounts of
income included and deductions taken under the election. Regulations proposed in
1992 would provide a similar election with respect to the stock of certain
PFICs.
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
dates of acquisition and disposition of the securities and (3) that are
attributable to fluctuations in exchange rates that occur between the time a
Fund accrues dividends, interest or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses, referred to under the
Code as "section 988" gains or losses, may increase or decrease the amount of a
Fund's investment company taxable income to be distributed to its shareholders.
HEDGING STRATEGIES. The use of hedging strategies, such as selling
(writing) and purchasing options and futures contracts and entering into forward
currency contracts, involves complex rules that will determine for income tax
purposes the amount, character and timing of recognition of the gains and losses
a Fund realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures and forward currency contracts derived by a Fund
with respect to its business of investing in securities or foreign currencies,
will qualify as permissible income under the Income Requirement.
Certain options and futures in which a Fund may invest will be "section
1256 contracts." Section 1256 contracts held by a Fund at the end of each
taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which it has made an election not to have the
following rules apply, must be "marked-to-market" (that is, treated as sold for
their fair market value) for Federal income tax purposes, with the result that
unrealized gains or losses will be treated as though they were realized. Sixty
percent of any net gain or loss recognized on these deemed sales, and 60% of any
net realized gain or loss from any actual sales of section 1256 contracts, will
be treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss. The 60% portion of that capital gain that is
treated as long-term capital gain will qualify for the reduced maximum tax rates
on net capital gain of 20% (10% for taxpayers in the 15% marginal tax bracket)
on capital assets held for more than 18 months. Section 1256 contracts also may
be marked-to-market for purposes of the Excise Tax.
Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which a Fund may invest. Section 1092 defines a
"straddle" as offsetting positions with respect to personal property; for these
purposes, options and futures contracts are personal property. Section 1092
generally provides that any loss from the disposition of a position in a
straddle may be deducted only to the extent the loss exceeds the unrealized gain
on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If a Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions would be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences to a
Fund of straddle transactions are not entirely clear.
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<PAGE>
If a Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward contract,
or short sale) with respect to any stock, debt instrument (other than "straight
debt"), or partnership interest the fair market value of which exceeds its
adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by the Fund or a
related person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
ORIGINAL ISSUE DISCOUNT SECURITIES. Income-Growth may acquire zero coupon
or other securities issued with original issue discount ("OID"). As a holder of
those securities, Income-Growth must include in its income the OID that accrues
on them during the taxable year, even if it receives no corresponding payment on
them during the year. Because Income-Growth annually must distribute
substantially all of its investment company taxable income, including any OID,
to satisfy the Distribution Requirement and avoid imposition of the Excise Tax,
Income-Growth may be required in a particular year to distribute as a dividend
an amount that is greater than the total amount of cash it actually receives.
Those distributions will be made from Income-Growth's cash assets or from the
proceeds of sales of portfolio securities, if necessary. Income-Growth may
realize capital gains or losses from those sales, which would increase or
decrease its investment company taxable income and/or net capital gain.
Investors are advised to consult their own tax advisers regarding the
status of an investment in the Funds under state and local tax laws.
FUND INFORMATION
- ----------------
Management Of The Funds
-----------------------
TRUSTEES AND OFFICERS. Each Fund's Trustees and Officers are listed
below with their addresses, principal occupations and present positions,
including any affiliation with Raymond James Financial, Inc. ("RJF"), RJA,
Heritage and Eagle.
<TABLE>
<CAPTION>
Position with Principal Occupation
Name each Trust During Past Five Years
---- ---------- ----------------------
<S> <C> <C>
Thomas A. James* (55) Trustee Chairman of the Board since
880 Carillon Parkway 1986 and Chief Executive
St. Petersburg, FL Officer since 1969 of RJF;
33716 Chairman of the Board of RJA
since 1986; Chairman of the
Board of Eagle since 1984
and Chief Executive Officer
of Eagle, 1994 to 1996.
Richard K. Riess* (48) Trustee Chief Executive Officer of
880 Carillon Parkway Eagle since 1996, President,
St. Petersburg, FL 1995 to present, Chief
33716 Operating Officer, 1988 to
1996, Executive Vice
President, 1988 to 1993.
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<PAGE>
Donald W. Burton (53) Trustee President of South Atlantic
614 W. Bay Street Capital Corporation (venture
Suite 200 capital) since 1981.
Tampa, FL 33606
C. Andrew Graham (57) Trustee Vice President of Financial
Financial Designs, Ltd. Designs Ltd. since 1992;
1775 Sherman Street Executive Vice President of
Suite 1900 the Madison Group, Inc., 1991
Denver, CO 80203 to 1992; Principal of First
Denver Financial Corporation
(investment banking) since
1987.
David M. Phillips (58) Trustee Chairman and Chief Executive
World Trade Center Officer of CCC Information
Chicago Services, Inc. since 1994 and
444 Merchandise Mart of InfoVest Corporation
Chicago, IL 60654 (information services to the
insurance and auto industries
and consumer households) since
1982.
Eric Stattin (64) Trustee Litigation Consultant/Expert
1975 Evening Star Drive Witness and private investor
Park City, UT 84060 since 1988.
James L. Pappas (54) Trustee Lykes Professor of Banking and
University of South Finance since 1986 at
Florida University of South Florida;
College of Business Dean of College of Business
Administration Administration 1987 to 1996.
Tampa, FL 33620
Stephen G. Hill (38) President Chief Executive Officer and
880 Carillon Parkway President of Heritage since
St. Petersburg, FL 1989 and Director since 1994;
33716 Director of Eagle since 1995.
Donald H. Glassman (40) Treasurer Treasurer of Heritage since
880 Carillon Parkway 1989; Treasurer of Heritage
St. Petersburg, FL Mutual Funds since 1989.
33716
Clifford J. Alexander (53) Secretary Partner, Kirkpatrick &
1800 Massachusetts Lockhart LLP (law firm).
Ave., NW
Washington, DC 20036
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<PAGE>
Patricia Schneider (56) Assistant Compliance Administrator of
880 Carillon Parkway Secretary Heritage.
St. Petersburg, FL
33716
Robert J. Zutz (44) Assistant Partner, Kirkpatrick &
1800 Massachusetts Secretary Lockhart LLP (law firm).
Ave., NW
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
each class of each Fund's shares outstanding. Each Trust's Declaration of Trust
provides that the Trustees will not be liable for errors of judgment or mistakes
of fact or law. However, they are not protected against any liability to which
they would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
their office.
The Series Trust currently pays Trustees who are not "interested persons"
of the Trust $2,908 annually and $728 per meeting of the Board of Trustees.
Income-Growth and Capital Appreciation each pay such Trustees $727 annually and
$182 per meeting of the Board of Trustees. Trustees also are reimbursed for any
expenses incurred in attending meetings. Because Heritage or Eagle, as
applicable, performs substantially all of the services necessary for the
operation of each Fund, each Fund requires no employees. No officer, director or
employee of Heritage or Eagle receives any compensation from either Fund for
acting as a director or officer. The following table shows the compensation
earned by each Trustee for each Trust's prior fiscal year ended.
-35-
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Total
Aggregate Aggregage Compensation From
Compensation Compensation Aggregate the Trust And The
From Capital From Compensation Heritage Family of
Name of Person, Appreciation Income-Growth From the Funds Paid
Position Trust(1) Trust(2) Series Trust(3) To Trustees(4)
- -------------- ------------ ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Donald W. Burton, $1,454 $1,454 $5,820 $17,000
Trustee
C. Andrew Graham, $1,454 $1,454 $5,820 $17,000
Trustee
David M. Phillips, $1,272 $1,272 $5,092 $15,000
Trustee
Eric Stattin, $1,454 $1,454 $5,820 $17,000
Trustee
James L. Pappas, $1,454 $1,454 $5,820 $17,000
Trustee
Richard K. Riess, $0 $0 $0 $0
Trustee
Thomas A. James, $0 $0 $0 $0
Trustee
- -------------------------
</TABLE>
(1) For the fiscal year ended August 31, 1997.
(2) For the fiscal year ended September 30, 1997.
(3) For the fiscal year ended October 31, 1997.
(4) The Heritage Mutual Funds consist of six separate registered investment
companies, including Capital Appreciation, Income-Trust and Series Trust.
No Trustee will receive any benefits upon retirement. Thus, no pension or
retirement benefits have accrued as part of any of any Trust's expenses.
Five Percent Shareholders
-------------------------
Listed below are shareholders who owned of record or were known by the
Funds to own beneficially five percent or more of the outstanding Class C shares
of the Capital Appreciation Trust as of November 30, 1997.
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<PAGE>
Name And Address Percent Owned
---------------- -------------
William J. Gamble 7.825%
2101 Cantu Court
Sarasota, FL 34232-6240
Raymond James & Assoc. Inc. 6.494%
Cust. Jerry Harris
P.O. Box 12749
St. Petersburg, FL 33733-2749
Investment Advisers And Administrator; Subadvisers
--------------------------------------------------
The investment adviser and administrator for each Fund except Eagle
International is Heritage Asset Management, Inc. Heritage was organized as a
Florida corporation in 1985. The investment adviser for Eagle International is
Eagle Asset Management, Inc. Eagle was organized as a Florida corporation in
1976. All the capital stock of both Heritage and Eagle is owned by Raymond James
Financial, Inc. ("RJF"). RJF is a holding company that, through its
subsidiaries, is engaged primarily in providing customers with a wide variety of
financial services in connection with securities, limited partnerships, options,
investment banking and related fields.
With respect to each Fund except Eagle International, Heritage is
responsible for overseeing the Fund's investment and noninvestment affairs,
subject to the control and direction of the Fund's Board. The Series Trust, on
behalf of Growth Equity, Mid Cap, Small Cap and Value Equity entered into an
Investment Advisory and Administration Agreement with Heritage dated March 29,
1993 and last supplemented on September 29, 1997. Capital Appreciation and
Income-Growth entered into Investment Advisory and Administration Agreements
dated November 13, 1985 and October 31, 1986, respectively and, in the case of
Capital Appreciation, amended on November 19, 1996. The Investment Advisory and
Administration Agreements require that Heritage review and establish investment
policies for each Fund and administer the Funds' noninvestment affairs.
On behalf of Eagle International, the Series Trust also entered into an
Investment Advisory and Administration Agreement (collectively with the Advisory
Agreements discussed above, "Advisory Agreements") dated February 14, 1995 with
Eagle to provide oversight of Eagle International's investment and noninvestment
affairs, subject to the control and direction of the Board.
Under separate Subadvisory Agreements, Eagle and Liberty Investment
Management, a division of Goldman Sachs Asset Management ("Liberty"), subject to
the direction and control of Capital Appreciation's Board of Trustees, provide
investment advice and portfolio management services to Capital Appreciation for
a fee payable by Heritage. None of Capital Appreciation's assets currently are
allocated to Eagle. Under separate Subadvisory Agreements, Eagle and Awad &
Associates ("Awad") each provide investment advice and portfolio management
services, subject to direction by Heritage and the Series Trust's Board of
Trustees, to Small Cap for a fee payable by Heritage. Under a Subadvisory
Agreement, Eagle provides investment advice and portfolio management services,
subject to the direction of Heritage and the Board of Trustees, to Growth
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<PAGE>
Equity, Income-Growth, Mid Cap and Value Equity for a fee payable by Heritage.
Under a Subadvisory Agreement, Martin Currie Inc. ("Martin Currie") provides
investment advice and portfolio management services, subject to the direction of
Eagle and the Board of Trustees, to Eagle International for a fee payable by
Eagle (collectively, the "Subadvisory Agreements").
Heritage and Eagle, as applicable, also are obligated to furnish each Fund
with office space, administrative, and certain other services as well as
executive and other personnel necessary for the operation of a Fund. Heritage
and Eagle, as applicable, and their affiliates also pay all the compensation of
Trustees of the Trust who are employees of Heritage or Eagle and their
affiliates. Each Fund pays all its other expenses that are not assumed by
Heritage or Eagle, as applicable. Each Fund also is liable for such nonrecurring
expenses as may arise, including litigation to which a Fund may be a party. Each
Fund also may have an obligation to indemnify its Trustees and officers with
respect to any such litigation.
The Advisory Agreements and the Subadvisory Agreements each were approved
by the Board of Trustees (including all of the Trustees who are not "interested
persons" of Heritage and Eagle or the subadvisers, as defined under the 1940
Act) and by the shareholders of the applicable Funds in compliance with the 1940
Act. Each Agreement provides that it will be in force for an initial two-year
period and it must be approved each year thereafter by (1) a vote, cast in
person at a meeting called for that purpose, of a majority of those Trustees who
are not "interested persons" of Heritage, Eagle, the subadvisers or the Trust,
and by (2) the majority vote of either the full Board of Trustees or the vote of
a majority of the outstanding shares of a Fund. The Advisory and Subadvisory
Agreements each automatically terminates on assignment, and each is terminable
on not more than 60 days' written notice by the Trust to either party. In
addition, the Advisory Agreements may be terminated on not less than 60 days'
written notice by Heritage or Eagle, as applicable, to a Fund and the
Subadvisory Agreements may be terminated on not less than 60 days' written
notice by Heritage or Eagle, as applicable, or 90 days' written notice by the
subadvisers. Under the terms of the Advisory Agreement, Heritage and Eagle
automatically become responsible for the obligations of the subadvisers upon
termination of the Subadvisory Agreements. In the event Heritage or Eagle, as
applicable, ceases to be the investment adviser of a Fund or the Distributor
ceases to be principal distributor of shares of a Fund, the right of a Fund to
use the identifying name of "Heritage" may be withdrawn.
Heritage, Eagle and the subadvisers shall not be liable to either Fund or
any shareholder for anything done or omitted by them, except acts or omissions
involving willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties imposed upon them by their agreements with a Fund or for any
losses that may be sustained in the purchase, holding or sale of any security.
All of the officers of each Fund except for Messrs. Alexander and Zutz are
officers or directors of Heritage, Eagle or their affiliates. These
relationships are described under "Management of the Funds."
ADVISORY AND ADMINISTRATION FEE. The annual investment advisory fee paid
monthly by each Fund to Heritage or Eagle, as applicable, is based on the
applicable Fund's average daily net assets as listed in the Prospectus.
CAPITAL APPRECIATION. For Capital Appreciation, Heritage has voluntarily
agreed to waive management fees to the extent that total annual operating
expenses attributable to A shares exceed 1.45% of the average daily net assets
or to the extent that total annual operating expenses attributable to C shares
exceed 2.20% of average daily net assets. For the three fiscal years ended
August 31, 1995, 1996 and 1997, Heritage earned $711,510, $736,180 and $585,991
(of which $177,878, $184,045 and $0 was waived), respectively.
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<PAGE>
Heritage has entered into agreements with Eagle and Liberty to provide
investment advice and portfolio management services to Capital Appreciation for
an annual fee to be paid by Heritage to Liberty of .25% of Capital
Appreciation's average daily net assets and for an annual fee paid by Heritage
to Eagle of 50% of the fees payable to Heritage by Capital Appreciation, without
regard to any reduction in fees actually paid to Heritage as a result of expense
limitations. Eagle currently does not have any of Capital Appreciation's assets
under management, and, therefore, does not receive a fee from Heritage. For the
three fiscal years ended August 31, 1997, Heritage paid $221,041, $184,045 and
$195,330, respectively.
EAGLE INTERNATIONAL. For Eagle International, Eagle has voluntarily agreed
to waive management fees to the extent that Class A annual operating expenses,
exclusive of foreign taxes paid, exceed 1.97% or to the extent that Class B and
Class C annual operating expenses exceed 2.72% of average daily net assets
attributable to that class during this fiscal year. For the period May 1, 1995
(commencement of operations) to October 31, 1995 and for the two fiscal years
ended October 31, 1997, management fees amounted to $32,303, $189,777 and
$351,913, respectively. For the same periods, Eagle waived its fees in the
amounts of $32,303, $134,735 and $91,433, respectively, and was reimbursed
expenses in the amount of $48,001 for the period ended October 31, 1995.
Eagle has entered into an agreement with Martin Currie to provide
investment advisory advice and portfolio management services to Eagle
International for a fee based on Eagle International's average daily net assets
paid by Eagle to Martin Currie equal to .50% on the first $100 million of assets
and .40% thereafter, without regard to any reduction in fees actually paid to
Eagle as a result of expense limitations. For the period May 1, 1995
(commencement of operations) to October 31, 1995 and the two fiscal years ended
October 31, 1997, Eagle paid Martin Currie subadvisory fees of $16,152, $94,888
and $175,957, respectively.
GROWTH EQUITY. For Growth Equity, Heritage has voluntarily agreed to waive
management fees 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
average daily net assets attributable to that class during this fiscal year. For
the period November 16, 1995 (commencement of operations) to October 31, 1996
and the fiscal year ended October 31, 1997, management fees amounted to $77,137
and $240,084. For the first period Heritage waived $76,210 of its fees.
Heritage has entered into an agreement with Eagle to provide investment
advisory advice and portfolio management services to Growth Equity for a fee
paid by Heritage to Eagle equal to 50% of the fees paid to Heritage, without
regard to any reduction in fees actually paid to Heritage as a result of expense
limitations. For the period November 16, 1995 (commencement of operations) to
October 31, 1996 and the fiscal year ended October 31, 1997, Heritage paid Eagle
subadvisory fees of $38,568 and $110,273.
INCOME-GROWTH. For Income-Growth, Heritage has voluntarily agreed to waive
management fees to the extent that total annual operating expenses attributable
to A shares exceed 1.60% of the average daily net assets or to the extent that
total annual operating expenses attributable to C shares exceed 2.35% of average
daily net assets. For the fiscal years ended September 30, 1995, 1996 and 1997,
Heritage earned approximately $242,000, $294,000 and $483,882, respectively.
Heritage has entered into an agreement with Eagle to provide investment
advice and portfolio management services to Income-Growth for a fee paid by
Heritage equal to 50% of the fees payable to Heritage by Income-Growth, without
regard to any reduction in fees actually paid to Heritage as a result of expense
-39-
<PAGE>
limitations. For the three fiscal years ended September 30, 1995, 1996 and 1997,
Heritage paid Eagle approximately $121,000, $147,000 and $241,941 respectively.
MID CAP. For Mid Cap, Heritage has voluntarily agreed to waive its
management fees to the extent that annual operating expenses attributable to A
shares exceed 1.60 % of the average daily net assets or to the extent that
annual operating expenses attributable to C shares exceed 2.35% of average daily
net assets attributable to that class during this fiscal year. Heritage has
entered into an agreement with Eagle to provide investment advice and portfolio
management services to Mid Cap for a fee paid by Heritage to Eagle equal to 50%
of the fees payable to Heritage by the Fund, without regard to any reduction in
fees actually paid to Heritage as a result of voluntary fee waivers by Heritage.
Because Mid Cap did not commence operations until this fiscal year, Heritage
Eagle has not received any fees relating to Mid Cap.
SMALL CAP. For Small Cap, Heritage has voluntarily agreed to waive its
management fees to the extent that annual operating expenses attributable to A
shares exceed 1.60% of the average daily net assets or to the extent that annual
operating expenses attributable to B shares and C shares exceed 2.35% of average
daily net assets attributable to that class during this fiscal year. For the
three years ended October 31, 1997, management fees amounted to $465,132,
$827,233 and $1,609,998, respectively.
Heritage has entered into an agreement with Eagle and Awad to provide
investment advice and portfolio management services to Small Cap for a fee paid
by Heritage to each subadviser with respect to the amount of Small Cap assets
under management equal to 50% of the fees payable to Heritage by Small Cap,
without regard to any reduction in fees actually paid to Heritage as a result of
expense limitations. The Research Department of Raymond James & Associates, Inc.
("Research"), a former subadviser of Small Cap who resigned as its subadviser on
November 20, 1995, received from Heritage for the November 1, 1995 to November
20, 1995 (when Research resigned as subadviser), subadvisory fees of $74,583.
Eagle began as subadviser to Small Cap on August 7, 1995 and received
subadvisory fees from Heritage for the period August 7, 1995 to October 31, 1995
and the two fiscal years ended October 31, 1997 in the amount of $30,725,
$203,492 and $427,907, respectively. For the three fiscal years ended October
31, 1997, Heritage paid Awad subadvisory fees of $127,866, $210,124 and
$377,092, respectively.
VALUE EQUITY. For Value Equity, effective March 1, 1997, Heritage
voluntarily has agreed to waive management fees to the extent that annual
operating expenses attributable to A shares exceed 1.60% of average daily net
assets or to the extent that annual operating expenses attributable to B shares
and C shares exceed 2.35% of average daily net assets attributable to that class
during this fiscal year. For the period December 30, 1994 (commencement of
operations) to October 31, 1995 and the two fiscal years ended October 31, 1997,
management fees amounted to $47,250, $168,020 and $263,164, respectively. For
the first two periods, Heritage waived its fees in the amount of $47,250 and
$76,062, respectively, and reimbursed expenses in the amount of $68,724 for the
period ended October 31, 1995.
Heritage has entered into an agreement with Eagle to provide investment
advice and portfolio management services to Value Equity for a fee paid by
Heritage to Eagle, as applicable, equal to 50% of the fees paid to Heritage,
without regard to any reduction in fees actually paid to Heritage as a result of
expense limitations. For the period December 30, 1994 (commencement of
operations) to October 31, 1995 and the fiscal years ended October 31, 1997,
Heritage paid Eagle subadvisory fees of $23,625, $45,947 and $111,334,
respectively. Dreman Value Advisor, Inc. ("Dreman"), a former subadviser of
Value Equity, received from Heritage for the periods June 1, 1996 (when Dreman
began managing Value Equity's assets) to October 31, 1996 and November 1, 1996
to October 1, 1997 (when Heritage allocated Value Equity's assets to Eagle),
subadvisory fees of $38,063 and $99,243, respectively.
-40-
<PAGE>
CLASS-SPECIFIC EXPENSES. Each Fund may determine to allocate certain of
its expenses (in addition to distribution fees) to the specific classes of a
Fund's shares to which those expenses are attributable.
Brokerage Practices
-------------------
While each Fund generally purchases securities for long-term capital
gains, each Fund may engage in short-term transactions under various market
conditions to a greater extent than certain other mutual funds with similar
investment objectives. Thus, the turnover rate may vary greatly from year to
year or during periods within a year. A Fund's portfolio turnover rate is
computed by dividing the lesser of purchases or sales of securities for the
period by the average value of portfolio securities for that period. Capital
Appreciation's portfolio turnover rate was 54% and 42% for the two years ended
August 31, 1997. Eagle International's portfolio turnover rates for the two
years ended October 31, 1997 were 59% and 50%. Growth Equity's portfolio
turnover rate for the period November 16, 1995 (commencement of operations) to
October 31, 1997 and the fiscal year ended October 31, 1997 were 23% (not
annualized) and 50%. Income-Growth's portfolio turnover rates for the two years
ended September 1997, were 75% and 75%. Mid Cap's turnover rate is expected to
be 100%. Small Cap's portfolio turnover rates for the two years ended October
31, 1997 were 80% and 54%. Value Equity's portfolio turnover rate for two years
ended October 31, 1997, were 129% and 155%.
The subadvisers are responsible for the execution of each Fund's portfolio
transactions and must seek the most favorable price and execution for such
transactions. Best execution, however, does not mean that a Fund necessarily
will be paying the lowest commission or spread available. Rather, each Fund also
will take into account such factors as size of the order, difficulty of
execution, efficiency of the executing broker's facilities, and any risk assumed
by the executing broker.
It is a common practice in the investment advisory business for advisers
of investment companies and other institutional investors to receive research,
statistical and quotation services from broker-dealers who execute portfolio
transactions for the clients of such advisers. Consistent with the policy of
most favorable price and execution, the subadvisers may give consideration to
research, statistical and other services furnished by brokers or dealers. In
addition, the subadvisers may place orders with brokers who provide supplemental
investment and market research and securities and economic analysis and may pay
to these brokers a higher brokerage commission or spread than may be charged by
other brokers, provided that the subadvisers determine in good faith that such
commission is reasonable in relation to the value of brokerage and research
services provided. Such research and analysis may be useful to the subadvisers
in connection with services to clients other than the Funds. Eagle International
also may purchase and sell portfolio securities to and from dealers who provide
it with research services. However, portfolio transactions will not be directed
by Eagle International to dealers on the basis of such research services.
Capital Appreciation, Eagle International, Growth Equity, Income-Growth,
Mid Cap and Value Equity may use the Distributor, its affiliates or certain
affiliates of Heritage and Eagle as a broker for agency transactions in listed
and OTC securities at commission rates and under circumstances consistent with
the policy of best execution. Commissions paid to the Distributor, its
affiliates or certain affiliates of Heritage and Eagle will not exceed "usual
and customary brokerage commissions." Rule l7e-1 under the 1940 Act defines
"usual and customary" commissions to include amounts that are "reasonable and
fair compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time."
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<PAGE>
Although it currently does not intend to do so, Small Cap may use the
Distributor as broker for agency transactions in listed and OTC securities at
commission rates and under circumstances consistent with the policy of best
execution. Provided, however, that if Small Cap does use the Distributor as a
broker, commissions paid to the Distributor will not exceed "usual and customary
brokerage commissions" as defined above.
The subadvisers also may select other brokers to execute portfolio
transactions. In the OTC market, each Fund generally deals with primary market
makers unless a more favorable execution can otherwise be obtained.
Aggregate brokerage commissions paid by Capital Appreciation for the three
fiscal years ended August 31, 1997 amounted to $125,563, $108,010 and $93,760,
respectively. Those commissions were paid on brokerage transactions worth
$84,219,558, $80,918,168 and $74,876,095, respectively. Aggregate brokerage
commissions paid by Capital Appreciation to the Distributor, an affiliated
broker-dealer, for the same periods amounted to $3,090, $0 and $168,
respectively, or 2.5%, 0% and less than 1%, respectively of the aggregate
commissions paid. These commissions to the Distributor were paid on aggregate
brokerage transactions of $1,911,784, $0 and $133,398, respectively or 2.3%,
0% and less than 1%, respectively of the total aggregate brokerage transactions.
Aggregate brokerage commissions paid by Growth Equity for the period
November 26, 1995 (commencement of operations) to October 31, 1996 and the
fiscal year ended October 31, 1997 amounted to $18,075 and $36,721,
respectively. Those commissions were paid on brokerage transactions worth
$33,451,360 for the period ended October 31, 1997. Aggregate brokerage
commissions paid by Growth Equity to the Distributor for the periods November
26, 1995 to October 31, 1996 and the year ended October 31, 1997 were $0 and
$1,560, respectively, or 4.2% of the aggregate commissions paid for the most
recent period. The commissions to the Distributor for the period ended October
31, 1997 were paid on aggregate brokerage transactions of 1,300,764 or 3.9% of
total aggregate brokerage transactions.
Aggregate brokerage commissions paid by Income-Growth for the three fiscal
years ended September 30, 1997 amounted to $53,748, $61,278 and $141,722,
respectively. These commissions were paid on brokerage transactions worth
$28,057,262, $56,150,173 and $76,915,866, respectively. Aggregate brokerage
commissions paid by Income-Growth to the Distributor, an affiliated
broker-dealer, amounted to $7,852 or 14.6%, $12,370 or 16.80% and $30,879 or
21.8%, respectively, of the aggregate commissions paid. These commissions were
paid on aggregate brokerage transactions $1,830,625 (or 6.5%), $2,535,393 (or
4.52%) and $3,498,292 (or 4.5%), respectively, of the total aggregate brokerage
commissions.
Aggregate brokerage commissions paid by Small Cap for the three years
ended October 31, 1997 amounted to $196,353, $297,557 and $490,512,
respectively. These commissions were paid on brokerage transactions worth
$149,629,636 for the period ended October 31, 1997. For the three years ended
October 31, 1997, the Distributor was paid commissions of $13,416, $59,591 and
$114,416. These commissions involved approximately 7%, 25% and 27%,
respectively, of the aggregate dollar amount of transactions involving the
payment of commissions, 7% and 20% and 23%, respectively, of the aggregate
commissions paid by Small Cap during the period.
Aggregate brokerage commissions paid by Value Equity for the period
December 30, 1994 (commencement of operations) to October 31, 1995 and the two
fiscal years ended October 31, 1997 amounted to $43,552, $71,566 and $100,688,
respectively. These commissions were paid on brokerage transactions worth
$86,464,424 for the period ended October 31, 1997. For the three years ended
October 31, 1997, the Distributor was paid commissions of $8,596, $60 and $0,
respectively. These commissions involved approximately 20%, less than 1% and 0%,
respectively, of the aggregate dollar amount of transactions involving the
payment of commissions, and 19.74%, less than 1% and 0%, respectively, of the
aggregate commissions paid by Value Equity during the period.
Each Fund 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 each Fund may purchase
-42-
<PAGE>
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 expenses to each Fund 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, each Fund has expressly consented to the Distributor executing
transactions on an exchange on its behalf.
Distribution Of Shares
----------------------
The Distributor and Representatives with whom the Distributor has entered
into dealer agreements offer shares of each Fund as agents on a best efforts
basis and are not obligated to sell any specific amount of shares. In this
connection, the Distributor makes distribution and servicing payments to
participating dealers in connection with the sale of shares of a Fund. Pursuant
to the Distribution Agreements with respect to A shares, B shares and C shares,
the Distributor bears the cost of making information about each Fund available
through advertising, sales literature and other means, the cost of printing and
mailing prospectuses to persons other than shareholders, and salaries and other
expenses relating to selling efforts. The Distributor also pays service fees to
dealers for providing personal services to Class A, B and C shareholders and for
maintaining shareholder accounts. Each Fund pays the cost of registering and
qualifying its shares under state and federal securities laws and typesetting of
its prospectuses and printing and distributing prospectuses to existing
shareholders.
Each Fund has adopted a Distribution Plan for each class of shares (each a
"Plan" and collectively the "Plans"). These Plans permit a Fund to pay the
Distributor the monthly distribution and service fee out of the Fund's net
assets to finance activity that is intended to result in the sale and retention
of A shares, B shares and C shares. The Funds used all Class A and Class C 12b-1
fees to pay the Distributor. 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. Each Plan was approved by the Board of
Trustees, including a majority of the Trustees who are not interested persons of
a Fund (as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of the Plan or the Distribution Agreement (the
"Independent Trustees"). In approving such Plans, the Board determined that
there is a reasonable likelihood that each Fund and its shareholders will
benefit from each Plan.
Each Plan each may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of a
class of a Fund. The Board of Trustees reviews quarterly a written report of
Plan costs and the purposes for which such costs have been incurred. A Plan may
be amended by vote of the Board, including a majority of the Independent
Trustees, cast in person at a meeting called for such purpose. Any change in a
Plan that would increase materially the distribution cost to a class requires
shareholder approval of that class.
For Capital Appreciation, for the two fiscal years ended August 31, 1997,
the Distributor received Class A 12b-1 fees in the amount of $344,067 and
$335,468. For Eagle International, for the period ended December 27, 1995 (first
offering of A shares) to October 31, 1996 and the fiscal year ended October 31,
1997, the Distributor received Class A 12b-1 fees in the amount of $3,934 and
$12,772. For Growth Equity, for the period November 16, 1995 (commencement of
operations) to October 31, 1996 and the fiscal year ended October 31, 1997, the
Distributor received Class A 12b-1 fees in the amount of $19,287 and $47,584.
For Income-Growth, for the two fiscal years ended September 30, 1997, the
-43-
<PAGE>
Distributor received Class A 12b-1 fees in the amount of $94,590 and $130,805.
For Small Cap, for the three fiscal years ended October 31, 1997, the
Distributor received Class A 12b-1 fees in the amount of $115,551, $197,076 and
$369,980, respectively. For Value Equity, for the period December 30, 1994
(commencement of operations) to October 31, 1995 and the two fiscal years ended
October 31. 1997, the Distributor received Class A 12b-1 fees for Value Equity
in the amount of $13,040, $36,710 and $46,759, respectively.
For Capital Appreciation, for the two fiscal years ended August 31, 1997,
the Distributor received Class C 12b-1 fees in the amount of $10,838 and
$19,834. For Eagle International, for the period December 27, 1995 (first
offering of C shares) to October 31, 1996 and the fiscal year ended October 31,
1997, the Distributor received Class C 12b-1 fees in the amount of $5,404 and
$25,783. For Growth Equity, for the period November 16, 1995 (commencement of
operations) to October 31, 1996 and the fiscal year ended October 31, 1997, the
Distributor received Class C 12b-1 fees in the amount of $25,704 and $103,726,
respectively. For Income-Growth, for the two fiscal years ended September 30,
1997, the Distributor received Class C 12b-1 fees in the amount of $13,604 and
$121,957. For the period April 3, 1995 (first offering of C shares) to October
31, 1995 and the two fiscal years ended October 31, 1997, the Distributor
received $9,098, $146,179 and $500,078, respectively in fees for Small Cap and
$10,848, $77,187 and $130,243, respectively in fees for Value Equity.
B shares were not offered for sale prior to the date of this SAI.
The Distribution Agreements may be terminated at any time on 60 days'
written notice without payment of any penalty by either party. Each Fund may
effect such termination by vote of a majority of the outstanding voting
securities of a Fund or by vote of a majority of the Independent Trustees. For
so long as either Plan is in effect, selection and nomination of the Independent
Trustees shall be committed to the discretion of such disinterested persons.
The Distribution Agreements and each Plan will continue in effect for
successive one-year periods, provided that each such continuance is specifically
approved (1) by the vote of a majority of the Independent Trustees and (2) by
the vote of a majority of the entire Board of Trustees cast in person at a
meeting called for that purpose.
Administration Of The Funds
- ---------------------------
ADMINISTRATIVE, FUND ACCOUNTING AND TRANSFER AGENT SERVICES. Heritage or
Eagle, as applicable, subject to the control of the Board of Trustees, will
manage, supervise and conduct the administrative and business affairs of each
Fund; furnish office space and equipment; oversee the activities of the
subadvisers and the Custodian; and pay all salaries, fees and expenses of
officers and Trustees of each Fund who are affiliated with Heritage or Eagle, as
applicable. In addition, Heritage provides certain shareholder servicing
activities for customers of the Funds.
Under a separate Administration Agreement between Eagle and Heritage,
Heritage provides certain noninvestment services to Eagle International for a
fee payable by Eagle equal to .10% on the first $100 million of average daily
net assets, and .05% thereafter.
Heritage also is the transfer and dividend reimbursing agent for each Fund
and serves as fund accountant for each Fund except Eagle International. Each
Fund pays Heritage its cost plus 10% for its services as fund accountant and
transfer and dividend disbursing agent.
-44-
<PAGE>
For the three fiscal years ended August 31, 1997, Heritage earned $32,742,
$36,261 and $36,310, respectively, from Capital Appreciation for its services as
fund accountant. For the period November 16, 1995 to October 31, 1996 and the
fiscal year ended October 31, 1997, Heritage earned approximately $24,797 and
$29,782 from Growth Equity for its services as fund accountant. For the three
fiscal years ended September 30, 1997, Heritage earned $28,932, $31,011 and
$34,570, respectively, from Income-Growth for its services as fund accountant.
For the period November 1, 1994 (commencement of engagement as fund accountant)
to October 31, 1995 and the two fiscal years ended October 31, 1997, Heritage
earned approximately $29,311, $38,378 and $38,822, respectively, from Small Cap
for its services as fund accountant. For the period December 30, 1994
(commencement of operations) to October 31, 1995 and the two fiscal years ended
October 31, 1997, Heritage earned approximately $20,509, $30,208 and $29,795,
respectively, from Value Equity for its services as fund accountant.
CUSTODIAN. State Street Bank and Trust Company, P.0. Box 1912, Boston,
Massachusetts 02105, serves as custodian of each Fund's assets. The
Custodian also provides portfolio accounting and certain other services for
the Funds.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
NW, 2nd Floor, Washington, D.C. 20036, serves as counsel to the Funds.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 400 North Ashley Street,
Suite 2800, Tampa, Florida 33602, is the independent accountant for the Funds.
The Financial Statements and Financial Highlights of Heritage Capital
Appreciation Trust, Heritage Income-Growth Trust and Heritage Series Trust for
the fiscal years ended August 31, 1997, September 30, 1997 and October 31, 1997,
respectively, that appear in this SAI have been audited by Price Waterhouse LLP,
and are included herein in reliance upon their authority as experts in
accounting and auditing. The Financial Highlights for the fiscal years ended
August 31, 1995, September 30, 1995 and October 31, 1995, respectively, and
years prior thereto were audited by other independent accountants.
POTENTIAL LIABILITY
- -------------------
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of a Fund. To protect its
shareholders, each Fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
a Fund. These documents require notice of this disclaimer to be given in each
agreement, obligation or instrument each Fund or its Trustees enter into or
sign. In the unlikely event a shareholder is held personally liable for a Fund's
obligations, that Fund is required to use its property to protect or compensate
the shareholder. On request, a Fund will defend any claim made and pay any
judgment against a shareholder for any act or obligation of a Fund. Therefore,
financial loss resulting from liability as a shareholder will occur only if a
Fund itself cannot meet its obligations to indemnify shareholders and pay
judgments against them.
-45-
<PAGE>
APPENDIX
COMMERCIAL PAPER RATINGS
The rating services' descriptions of commercial paper ratings in which the Fund
may invest are:
Description Of Moody's Investors Service, Inc. Commercial Paper Debt Ratings
- ----------------------------------------------------------------------------
PRIME-L. Issuers (or supporting institutions) rated PRIME-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation;
well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2. Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Description Of Standard & Poor's Commercial Paper Ratings
- ---------------------------------------------------------
A-1. This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess extremely strong
characteristics are denoted with a plus sign (+) designation.
A-2. Capacity for timely payment of issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
CORPORATE DEBT RATINGS
The rating services' descriptions of corporate debt ratings in which the Fund
may invest are:
Description Of Moody's Investors Service, Inc. Corporate Debt Ratings
- ---------------------------------------------------------------------
AAA - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
A-1
<PAGE>
Baa - Bonds that are rated Baa are considered medium grade obligations, I.E.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the company ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking and the modifier 3
indicates that the company ranks in the lower end of its generic rating
category.
Description Of Standard & Poor's Corporate Debt Ratings
- -------------------------------------------------------
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C - Debt rated "BB," "B," "CCC," "CC," and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
A-2
<PAGE>
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions that could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B - Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC - Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC - The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C - The rating "C" is typically applied to debt subordinated to senior debt that
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI - The rating "CI" is reserved for income bonds on which no interest is being
paid.
D - Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR - Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
A-3
<PAGE>
The Report of the Independent Accountants and Financial Statements are
incorporated herein by reference from the Capital Appreciation Trust's Annual
Report to Shareholders for the fiscal year ended August 31, 1997, filed with the
Securities and Exchange Commission on October 29, 1997, Accession No.
0000950144-97-011302, and the Income-Growth Trust's Annual Report to
Shareholders for the fiscal year ended September 30, 1997, filed with the
Securities and Exchange Commission on November 26, 1997, Accession No.
0000950144-97-012870.
A-4
<PAGE>
HERITAGE INCOME-GROWTH TRUST
PART C OTHER INFORMATION
------------------------
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements:
Included in Part A of the Registration Statement:
Financial Highlights for the Capital Appreciation Trust
- Class A Shares for each of the ten years ended August
31, 1997; Class C Shares for the fiscal period April 3,
1995 (commencement of operations) to August 31, 1995
and the two years ended August 31, 1997.
Financial Highlights for the Income Growth Trust -
Class A Shares for each of the ten years ended
September 30, 1997; Class C Shares for the period April
3, 1995 (first offering of Class C Shares) to September
30, 1995, and the two years ended September 30, 1997.
Financial Highlights for the following series of the
Series Trust - Eagle International Equity Portfolio
Class A and Class C shares, the period December 27,
1997 (commencement of operations) to October 31, 1996,
and the fiscal year ended October 31, 1997; Growth
Equity Fund Class A and Class C shares, the period
November 16, 1995 (commencement of operations) to
October 31, 1996, and the fiscal year ended October 31,
1997; Small Cap Stock Fund, Class A shares for the
period May 7, 1993 (commencement of operations) to
October 31, 1994 and the three fiscal years ended
October 31, 1997, Class C shares for the period April
3, 1995 to October 31, 1995 and the two fiscal years
ended October 31, 1997; Value Equity Fund, Class A
shares for the period December 30, 1994 (commencement
of operations) to October 31, 1995 and the two fiscal
years ended October 31, 1997, Class C shares for the
period April 3, 1995 (first offering of Class C shares)
to October 31, 1995 and the two fiscal years ended
October 31, 1997.
Included in Part B of the Registration Statement:
On behalf of the Capital Appreciation Trust:
Investment Portfolio - August 31, 1997
Statement of Assets and Liabilities - August 31, 1997
Statement of Operations - for the year ended August 31,
1997
Statement of Changes in net Assets for the years ended
August 31, 1997 and August 31, 1996
Notes to Financial Statements
Report of Price Waterhouse LLP, Independent
Accountants, dated October 15, 1997
<PAGE>
On behalf of the Income-Growth Trust:
Investment Portfolio - September 30, 1997
Statement of Assets and Liabilities - September 30,
1997
Statement of Operations - September 30, 1997
Statements of Changes in Net Assets for the years ended
September 30, 1997 and 1996
Notes to Financial Statements
Report of Price Waterhouse LLP, Independent Accountants
dated November 12, 1997
(b) Exhibits:
(1) Declaration of Trust*
(2) (a) Bylaws*
(b) Amended and Restated Bylaws*
(3) Voting trust agreement-none
(4) (a) Specimen security relating to Class A Shares**
(b) Specimen security relating to Class C Shares**
(5) (a) Investment Advisory and Administration
Agreement*
(b) Subadvisory Agreement with Eagle Asset
Management, Inc.*
(6) Distribution Agreement*
(7) Bonus, profit sharing or pension plans-none
(8) Custodian Agreement*
(9) (a) Transfer Agency and Service Agreement*
(b) Fund Accounting and Pricing Service Agreement*
<PAGE>
(10) Opinion and consent of counsel (filed herewith)
(11) Accountants' consent (filed herewith)
(12) Financial statements omitted from prospectus--none
(13) Letter of investment intent*
(14) Prototype retirement plan (filed herewith)
(15) (a) Class A Plan pursuant to Rule 12b-1*
(b) Class C Plan pursuant to Rule 12b-1*
(c) Class B Plan pursuant to Rule 12b-1****
(16) Performance Computation Schedule*
(17) Electronic Filers--Financial Data Schedule
(a) Financial Data Schedule relating to Class A
(filed herewith)
(b) Financial Data Schedule relating to Class C
(filed herewith)
(18) (a) Plan pursuant to Rule 18f-3***
(b) Amended Plan pursuant to Rule 18f-3 (filed
herewith)
- ---------------
* Incorporated by reference from Post-Effective Amendment No. 12 to the
Registration Statement of the Trust, SEC File No. 33-7559, filed
previously on January 26, 1996.
** To be filed by subsequent amendment.
*** Incorporated by reference from Post-Effective Amendment No. 14 to the
Registration Statement of the Trust, SEC File No. 33-7559, filed
previously on January 31, 1997.
**** Incorporated by reference from Post-Effective Amendment No. 15 to the
Registration Statement of the Trust, SEC File No. 33-7559, filed
previously on October 31, 1997.
Item 25. Persons Controlled by or under
Common Control With Registrant
------------------------------
None.
C-3
<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class November 30, 1997
- -------------- -----------------
Class A Shares 3395
Class B Shares 0
Class C Shares 1772
Item 27. Indemnification
---------------
Article XI, Section 2 of the Trust's Declaration of Trust provides
that:
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as "Covered Person") shall be indemnified by the
Trust to the fullest extent permitted by law against liability and against all
expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter, and the
words "liability" and "expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or (B) not to have acted in
good faith in the reasonable belief that his action was in the best interest of
the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
interested persons of the Trust nor are parties to the matter based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry); provided,
C-4
<PAGE>
however, that any Shareholder may, by appropriate legal proceedings, challenge
any such determination by the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be such
Trustee or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Trustees and
officers, and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit, or proceeding of the character described in
paragraph (a) of this Section 2 may be paid by the Trust from time to time prior
to final disposition thereof upon receipt of an undertaking by or on behalf of
such Covered Person that such amount will be paid over by him to the Trust if it
is ultimately determined that he is not entitled to indemnification under this
Section 2; provided, however, that:
(i) such Covered Person shall have provided appropriate security
for such undertaking,
(ii) the Trust is insured against losses arising out of any such
advance payments or
(iii) either a majority of the Trustees who are neither interested
persons of the Trust nor parties to the matter, or independent legal counsel in
a written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a trial-type inquiry or full investigation), that
there is reason to believe that such Covered Person will be found entitled to
indemnification under this Section 2.
According to Article XII, Section 1 of the Declaration of Trust, the
Trust is a trust, not a partnership. Trustees are not liable personally to any
person extending credit to, contracting with or having any claim against the
Trust.
Article XII, Section 2 of the Declaration of Trust provides that,
subject to the provisions of Section 1 of Article XII and to Article XI, the
Trustees are not liable for errors of judgment or mistakes of fact or law, or
for any act or omission in accordance with advice of counsel or other experts or
for failing to follow such advice. A Trustee, however, is not protected from
liability due to willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Paragraph 8 of the Investment Advisory and Administration Agreement of
Heritage Income-Growth Trust ("Advisory Agreement") between the Trust and
Heritage Asset Management, Inc. ("Heritage") provides that, Heritage shall not
C-5
<PAGE>
be liable for any error of judgment or mistake of law for any loss suffered by
the Trust in connection with the matters to which the Advisory Agreement relates
except a loss resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless disregard by it of
its obligations and duties under the Advisory Agreement. Any person, even though
also an officer, partner, employee, or agent of Heritage, who may be or become
an officer, director, employee or agent of the Trust shall be deemed, when
rendering services to the Trust or acting in any business of the Trust, to be
rendering such services to or acting solely for the Trust and not as an officer,
partner, employee, or agent or one under the control or direction of Heritage
even though paid by it.
Paragraph 9 of the Subadvisory Agreement for Heritage Income-Growth
Trust ("Subadvisory Agreement") between Heritage and Eagle Asset Management,
Inc. ("Eagle") provides that, in the absence of willful misfeasance, bad faith
or gross negligence on the part of Eagle or reckless disregard of its
obligations and duties under the Subadvisory Agreement, Eagle shall not be
subject to any liability to the Trust, or to any shareholder of the Trust, for
any act or omission in the course of, or connected with, rendering services
under the Subadvisory Agreement.
Paragraph 7 of the Distribution Agreement of Heritage Income-Growth
Trust ("Distribution Agreement") between the Trust and Raymond James &
Associates, Inc. ("Raymond James") provides that the Trust agrees to indemnify,
defend and hold harmless Raymond James, its several officers and directors, and
any person who controls Raymond James within the meaning of Section 15 of the
Securities Act of 1933, as amended (the "1933 Act"), from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Raymond James, its officers or
Trustees, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement, Prospectus
or Statement of Additional Information or arising out of or based upon any
alleged omission to state a material fact required to be stated in either
thereof or necessary to make the statements in either thereof not misleading,
provided that in no event shall anything contained in the Distribution Agreement
be construed so as to protect Raymond James against any liability to the Trust
or its shareholder to which Raymond James would otherwise be subject by reason
of willful misfeasance, bad faith, or gross negligence in the performance of its
duties, or by reason of its reckless disregard of its obligations and duties
under this Distribution Agreement.
Paragraph 13 of the Heritage Funds Accounting and Pricing Services
Agreement ("Accounting Agreement") between the Trust and Heritage provides that
the Trust agrees to indemnify and hold harmless Heritage and its nominees from
all losses, damages, costs, charges, payments, expenses (including reasonable
counsel fees), and liabilities arising directly or indirectly from any action
that Heritage takes or does or omits to take to do (i) at the request or on the
direction of or in reasonable reliance on the written advice of the Trust or
(ii) upon Proper Instructions (as defined in the Accounting Agreement),
provided, that neither Heritage nor any of its nominees shall be indemnified
against any liability to the Trust or to its shareholders (or any expenses
incident to such liability) arising out of Heritage's own willful misfeasance,
C-6
<PAGE>
willful misconduct, gross negligence or reckless disregard of its duties and
obligations specifically described in the Accounting Agreement or its failure to
meet the standard of care set forth in the Accounting Agreement.
Item 28.I. Business and Other Connections of Investment Adviser
----------------------------------------------------
Heritage is a Florida corporation which offers investment management
services. Information as to the officers and directors of Heritage is included
in its current Form ADV filed with the Securities and Exchange Commission
("SEC") and is included by reference herein (File No. 801-25067).
II. Business and Other Connections of Subadviser
--------------------------------------------
Eagle, a Florida corporation, is a registered investment adviser. All
of its stock is owned by Raymond James Financial, Inc. ("RJF"). Eagle is
primarily engaged in the investment advisory business. Information as to the
officers and directors of Eagle is included in its current Form ADV filed with
the SEC and is incorporated by reference herein.
Item 29. Principal Underwriter
---------------------
(a) Raymond James is the principal underwriter for each of the
following investment companies: Heritage Cash Trust, Heritage Capital
Appreciation Trust, Heritage Income-Growth Trust, Heritage Income Trust and
Heritage Series Trust.
(b) The directors and officers of the Registrant's principal
underwriter are:
Positions & Offices Position
Name with Underwriter with Registrant
- ---- ---------------- --------------
Thomas A. James Chief Executive Officer, Trustee
Director
Robert F. Shuck Executive VP, Director None
Thomas S. Franke President, Chief Operating None
Officer, Director
Lynn Pippenger Secretary/Treasurer, None
Chief Financial Officer,
Director
C-7
<PAGE>
Dennis Zank Executive VP of Operations None
and Administration, Director
Thom Tremaine Senior Vice President None
Francis Godbold Executive Vice President None
Paul Matecki Chief Legal Officer None
Joseph Tuorto Chief Compliance Officer None
Anne Rettig Assistant Treasurer None
Jodi Campos Vice President Controller None
Michael Cahill Assistant Vice President None
Controller
Sharry Mauney Assistant Secretary None
Grace Palsha Assistant Secretary None
Item 30. Location of Accounts and Records
--------------------------------
The books and other documents required by Rule 31a-1 under the
Investment Company Act of 1940 are maintained in the physical possession of the
Trust's Custodian through February 28, 1994, except that: Heritage maintains
some or all of the records required by Rule 31a-1(b)(1), (2) and (8); and the
Subadviser maintains some or all of the records required by Rule 31a-1(b)(2),
(5), (6), (9), (10) and (11). Since March 1, 1994, all required records are
maintained by Heritage.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
The Trust hereby undertakes to furnish each person to whom a prospectus
is delivered a copy of the its latest annual report(s) to shareholders, upon
request and without charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this amendment to its
Registration Statement pursuant to rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 16 to its Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of St. Petersburg and the State of Florida, on the
24th day of December, 1997. No other material event requiring prospectus
disclosure has occurred since the latest of the three dates specified in Rule
485(b)(2).
HERITAGE INCOME-GROWTH TRUST
By: /s/ Stephen G. Hill
-------------------------------
Stephen G. Hill, President
Attest:
/s/ Donald H. Glassman
- -----------------------------
Donald H. Glassman, Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 16 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
/s/ Stephen G. Hill
- ------------------------ President December 24, 1997
Stephen G. Hill
Thomas A. James* Trustee December 24, 1997
- ------------------------------
Thomas A. James
Richard K. Riess* Trustee December 24, 1997
- ------------------------------
Richard K. Riess
C. Andrew Graham* Trustee December 24, 1997
- ------------------------------
C. Andrew Graham
David M. Phillips* Trustee December 24, 1997
- ------------------------------
David M. Phillips
James L. Pappas* Trustee December 24, 1997
- ------------------------------
James L. Pappas
Donald W. Burton* Trustee December 24, 1997
- ------------------------------
Donald W. Burton
Eric Stattin* Trustee December 24, 1997
- ------------------------------
Eric Stattin
*By /s/ Donald H. Glassman
---------------------------------------
Donald H. Glassman, Attorney-In-Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------ ----------- ----
1 Declaration of Trust*
2 (a) Bylaws*
(b) Amended and Restated Bylaws*
3 Voting trust agreement - none
4 (a) Specimen security for Class A Shares**
(b) Specimen security for Class C Shares**
5 (a) Investment Advisory and Administration Agreement*
(b) Subadvisory Agreement*
6 Distribution Agreement*
7 Bonus, profit sharing or pension plans - none
8 Custodian Agreement*
9 (a) Transfer Agency and Service Agreement*
(b) Fund Accounting and Pricing Service Agreement*
10 Opinion and consent of counsel (filed herewith)
11 Accountants' consent (filed herewith)
12 Financial statements omitted from prospectus - none
13 Letter of investment intent*
14 Prototype retirement plan (filed herewith)
15 (a) Class A Plan pursuant to Rule 12b-1*
(b) Class C Plan pursuant to Rule 12b-1*
(c) Class B Plan pursuant to Rule 12b-1****
16 Performance Computation Schedule*
17 Electronic Filers - Financial Data Schedule:
(a) Financial Data Schedule relating to Class A (filed
herewith)
(b) Financial Data Schedule relating to Class C (filed
herewith)
18 (a) Plan pursuant to Rule 18f-3***
(b) Amended Plan pursuant to Rule 18f-3 (filed herewith)
- ---------------------
* Incorporated by reference from Post-Effective Amendment No. 12 to the
Registration Statement of the Trust, SEC File No. 33-7559, filed
previously on January 26, 1996.
<PAGE>
** To be filed by subsequent amendment.
*** Incorporated by reference from Post-Effective Amendment No. 14 to the
Registration Statement of the Trust, SEC File No. 33-7559, filed
previously on January 31, 1997.
**** Incorporated by reference from Post-Effective Amendment No. 15 to the
Registration Statement of the Trust, SEC File No. 33-7559, filed
previously on October 31, 1997.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> HERITAGE INCOME GROWTH TRUST CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 71,470,461
<INVESTMENTS-AT-VALUE> 87,888,676
<RECEIVABLES> 8,954,739
<ASSETS-OTHER> 590,550
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 97,433,965
<PAYABLE-FOR-SECURITIES> 11,563,052
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 739,614
<TOTAL-LIABILITIES> 12,302,666
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62,322,317
<SHARES-COMMON-STOCK> 5,123,751
<SHARES-COMMON-PRIOR> 3,336,227
<ACCUMULATED-NII-CURRENT> 236,695
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,154,071
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,418,216
<NET-ASSETS> 85,131,299
<DIVIDEND-INCOME> 1,776,778
<INTEREST-INCOME> 790,492
<OTHER-INCOME> 0
<EXPENSES-NET> 951,566
<NET-INVESTMENT-INCOME> 1,615,704
<REALIZED-GAINS-CURRENT> 6,655,879
<APPREC-INCREASE-CURRENT> 8,804,490
<NET-CHANGE-FROM-OPS> 17,076,073
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,478,319
<DISTRIBUTIONS-OF-GAINS> 5,246,324
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,945,701
<NUMBER-OF-SHARES-REDEEMED> 629,008
<SHARES-REINVESTED> 470,831
<NET-CHANGE-IN-ASSETS> 36,229,564
<ACCUMULATED-NII-PRIOR> 253,608
<ACCUMULATED-GAINS-PRIOR> 4,723,204
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 483,882
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 698,854
<AVERAGE-NET-ASSETS> 52,321,925
<PER-SHARE-NAV-BEGIN> 14.67
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> 3.45
<PER-SHARE-DIVIDEND> 0.38
<PER-SHARE-DISTRIBUTIONS> 1.49
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.65
<EXPENSE-RATIO> 1.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> HERITAGE INCOME GROWTH TRUST CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 71,470,461
<INVESTMENTS-AT-VALUE> 87,888,676
<RECEIVABLES> 8,954,739
<ASSETS-OTHER> 590,550
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 97,433,965
<PAYABLE-FOR-SECURITIES> 11,563,052
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 739,614
<TOTAL-LIABILITIES> 12,302,666
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62,322,317
<SHARES-COMMON-STOCK> 5,123,751
<SHARES-COMMON-PRIOR> 3,336,227
<ACCUMULATED-NII-CURRENT> 236,695
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,154,071
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,418,216
<NET-ASSETS> 85,131,299
<DIVIDEND-INCOME> 1,776,778
<INTEREST-INCOME> 790,492
<OTHER-INCOME> 0
<EXPENSES-NET> 951,566
<NET-INVESTMENT-INCOME> 1,615,704
<REALIZED-GAINS-CURRENT> 6,655,879
<APPREC-INCREASE-CURRENT> 8,804,490
<NET-CHANGE-FROM-OPS> 17,076,073
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,478,319
<DISTRIBUTIONS-OF-GAINS> 5,246,324
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,945,701
<NUMBER-OF-SHARES-REDEEMED> 629,008
<SHARES-REINVESTED> 470,831
<NET-CHANGE-IN-ASSETS> 36,229,564
<ACCUMULATED-NII-PRIOR> 253,608
<ACCUMULATED-GAINS-PRIOR> 4,723,204
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 483,882
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 252,711
<AVERAGE-NET-ASSETS> 12,195,674
<PER-SHARE-NAV-BEGIN> 14.57
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 3.43
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 1.49
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.49
<EXPENSE-RATIO> 2.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, DC 20036-1800
December 24, 1997
Heritage Income-Growth Trust
880 Carillon Parkway
St. Petersburg, Florida 33716
Ladies and Gentlemen:
You have requested our opinion as to certain matters regarding the
issuance by Heritage Income-Growth Trust (the "Trust") of Class A shares, Class
B shares and Class C shares of beneficial interest (collectively, the "Shares").
The Trust is about to file Post-Effective Amendment No. 16 to its Registration
Statement on Form N-1A ("PEA No. 16") for the purpose of providing current
financial information and amending such other information as appropriate.
We have, as counsel, participated in various business and other matters
relating to the Trust. We have examined copies, either certified or otherwise
proved to be genuine, of the Trust's Declaration of Trust and By-Laws and such
other documents relating to the authorization and issuance of the Shares as we
have deemed relevant, and we generally are familiar with the Trust's business
affairs. Based on the foregoing, it is our opinion that the Shares to be issued
pursuant to PEA No. 16 may be issued in accordance with the Trust's Declaration
of Trust and By-Laws, subject to compliance with the Securities Act of 1933, as
amended, the Investment Company Act of 1940 as amended and applicable federal
and state laws regulating the distribution of securities, and when so issued,
those Shares will be legally issued, fully paid and non-assessable.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust. The
Declaration of Trust states that creditors of, contractors with and claimants
against the Trust shall look only to the assets of the Trust for payment. It
also requires that notice of such disclaimer be given in each contract or
instrument made or issued by the officers or the Trustees of the Trust on behalf
of the Trust. The Declaration of Trust further provides: (i) for the Trust to
indemnify and hold each shareholder harmless from Trust assets for all loss and
expense of any shareholder held personally liable for the obligations of the
Trust by virtue of ownership of Shares of the Trust; and (ii) for the Trust to
assume the defense of any claim against the shareholder for any act or
obligation of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Trust would be unable to meet its obligations.
<PAGE>
Heritage Income-Growth Trust
December 24, 1997
Page 2
We hereby consent to this opinion accompanying the Registration
Statement that you are about to file with the Securities and Exchange
Commission. We also consent to the reference to our firm in the statement of
additional information filed as part of PEA No. 16.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Robert J. Zutz
-----------------------
Robert J. Zutz
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 16 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
October 15, 1997, relating to the financial statements and financial highlights
of the Heritage Capital Appreciation Trust, our report dated November 12, 1997,
relating to the financial statements and financial highlights of the Heritage
Income-Growth Trust, and our report dated December 17, 1997, relating to the
financial statements and financial highlights of the Heritage Series Trust -
Eagle International Equity Portfolio, Growth Equity Fund, Small Cap Stock Fund
and Value Equity Fund, which appear in such Statement of Additional Information,
and to the incorporation by reference of our reports into the Prospectus which
constitutes part of this Registration Statement. We also consent to the
reference to us under the heading "Independent Accountants" in such Statement of
Additional Information and to the reference to us under the heading "Financial
Highlights" in such Prospectus.
/s/ Price Waterhouse LLP
- --------------------------------------
Price Waterhouse LLP
400 North Ashley Street, Suite 2800
Tampa, Florida 33602
December 22, 1997
<PAGE> 1
INDIVIDUAL
RETIREMENT
ACCOUNT
[Assorted black and white photos of people working and playing.]
From Our Family to Yours: The Intelligent Creation of Wealth.
TAX DEFERRING TODAY'S INCOME
FOR TOMORROW'S NEEDS
[LOGO]
Authorized for distribution only if accompanied or preceded by a current
prospectus of the Heritage Asset Management, Inc. sponsored mutual funds, which
contains information concerning the applicable sales charge or fees and other
important facts. Please read it before investing.
<PAGE> 2
HERITAGE IRA
DISCLOSURE STATEMENT
- ------------------------------------------------------------
This Disclosure Statement describes the general requirements of an Individual
Retirement Account ("IRA"), as well as the specific features of the Heritage
Individual Retirement Custodial Account Agreement (the "Heritage IRA"). It is
provided in accordance with Internal Revenue Service regulations.
I. REVOCATION
If you receive this Disclosure Statement and the accompanying IRA Custodial
Account Agreement less than seven days before you establish your IRA, you are
entitled to revoke your Heritage IRA at any time within seven days after it is
established. You may do so by mailing or delivering a written notice of
revocation to Heritage Asset Management, Inc., P.O. Box 33022, St. Petersburg,
FL 33733. Any notice of revocation will be deemed mailed on the date of postmark
(or if sent by certified or registered mail, the date of certification or
registration) if it is deposited in the United States mail in a properly
addressed envelope, or other appropriate wrapper, first class postage prepaid.
Upon revocation, you will be entitled to a full refund of your entire IRA
contribution without adjustment for administrative expenses, sales commissions
(if any) or fluctuations in market value. If you have any questions about your
right of revocation, please call 800-421-4184 during normal business hours.
II. ESTABLISHING YOUR HERITAGE IRA ACCOUNT
A. STATUTORY REQUIREMENTS
An IRA is a trust or custodial account established for the exclusive benefit of
you or your beneficiaries. An IRA must be created by a written document which
meets all of the following requirements:
BANK TRUSTEE OR CUSTODIAN. An IRA must be established with a qualified trustee
or custodian which is a bank or other person approved by the Internal Revenue
Service. You cannot be your own trustee or custodian. The custodian of your
Heritage IRA is State Street Bank and Trust Company.
CASH CONTRIBUTIONS UP TO $2,000. All contributions to your IRA must be made in
cash. The total amount of contributions for any taxable year, excluding any
rollover contributions or SEP contributions as described in Article VI, may not
exceed the lesser of $2,000 or 100% of your compensation for that year.
NONFORFEITABILITY. The balance of your IRA account is fully vested and
nonforfeitable at all times.
PROHIBITIONS AGAINST LIFE INSURANCE AND COMMINGLING. No part of your IRA assets
may be invested in life insurance contracts, nor may your IRA assets be
commingled with other property except in a common trust fund or common
investment fund.
DISTRIBUTION RULES. Your IRA must comply with certain minimum distribution
requirements, which are described in detail in Article VII, both during your
lifetime and after your death.
B. TAX CONSEQUENCES
The primary Federal income tax consequences of establishing an IRA are the
following:
TAX-DEFERRED EARNINGS. Earnings on the contributions to your IRA will not be
subject to tax until you actually start receiving distributions (or are deemed
to receive distributions) from your IRA. However, your IRA may be subject to tax
if you engage in transactions that generate unrelated business taxable income
for your IRA.
CONTRIBUTIONS; TOTAL OR PARTIAL
DEDUCTIBILITY. You are permitted to make contributions each year to your IRA in
an amount up to the lesser of $2,000 ($4,000 if you also establish a spousal
IRA), or 100% of your current year's compensation. Generally, your contribution
is fully tax-deductible if you file as a single taxpayer and your adjusted gross
income does not exceed $25,000 or if you file a joint income tax return and you
and your spouse's combined adjusted gross income does not exceed $40,000. (There
are special rules for married individuals who file separate tax returns.) Above
those levels, the deduction phases out, that is, your contribution is partially
deductible; the deduction is eliminated altogether if your adjusted gross income
exceeds a second, higher level. These rules are explained in detail in Article
III(B).
NONDEDUCTIBLE CONTRIBUTIONS. You are permitted to make "designated nondeductible
contributions" to your IRA. See Article III(C) for more details.
TAXABLE DISTRIBUTIONS. Distributions from your IRA (other than certain returns
of excess IRA contributions) that are not rolled over to another retirement plan
are generally taxable as ordinary income in the year of receipt. However,
distributions from an IRA that contains designated nondeductible contributions
may be treated partly as a nontaxable return of the nondeductible IRA
contributions and partly as a taxable distribution of IRA earnings and any
deductible IRA contributions. See Article VII(A) for more details.
TAX-FREE ROLLOVERS. You may be eligible to make a rollover contribution to your
IRA of cash you receive or are eligible to receive from another individual
retirement plan or employer-maintained retirement plan. In addition, you may be
eligible to roll over the taxable amount you withdraw from your IRA to another
individual retirement plan or, in certain cases, to an employer-maintained
retirement plan. See Article V for further details.
III. IRA CONTRIBUTIONS
A. AMOUNT AND TIMING OF CONTRIBUTIONS
MAXIMUM ANNUAL CONTRIBUTIONS. The total amount of contributions to your IRA for
any taxable year (excluding any rollover contributions as described in Article V
or SEP contributions as described in Article VI) may not exceed the lesser of
$2,000 or 100% of your compensation for the taxable year. You cannot make any
contributions (other than rollover contributions described in Article V or SEP
contributions described in Article VI) to your IRA for the taxable year in which
you attain age 70 1/2 or thereafter. Remember that all permissible contributions
to your IRA are not necessarily tax-deductible. The rules for deductibility are
described in Paragraph B below.
SPOUSAL IRA. You can also open an IRA for your spouse for any year, if you and
your spouse file a joint income tax return for the year, your spouse is less
than 70 1/2 years of age at the end of the year, and your spouse has (or elects
to be treated as having) no compensation for the year. Your total contribution
could then be increased to the lesser of $4,000 or 100% of your compensation for
the year. The total permissible contribution may be allocated among your IRA and
the IRA you open for your spouse so long as no more than $2,000 is allocated to
a single IRA. (If you are 70 1/2 years of age or older at the end of a year but
your spouse is less than 70 1/2, you may open an IRA for your spouse if the
above conditions are satisfied; the maximum
1
<PAGE> 3
permissible contribution to that IRA would then be the lesser of $2,000 or 100%
of your compensation.) Distributions from a spousal IRA do not have to begin
until the spouse for whom the account is maintained reaches age 70 1/2. With the
exception of the contribution limitations, all rules that apply to an IRA
generally apply to a spousal IRA.
DEFINITION OF COMPENSATION. For purposes of the IRA contribution limits, your
compensation includes all taxable wages, salaries, fees, bonuses and other
amounts you receive for providing personal services, and any earned income from
self-employment (even if that earned income is not subject to self-employment
tax because of your religious beliefs). It does not include earnings and profits
from property such as dividends, interest or capital gains, or amounts received
as a pension or annuity, or as deferred compensation. Your compensation includes
any taxable alimony or separate maintenance payments you may receive under a
decree of divorce or separate maintenance.
CONTRIBUTIONS IN CASH. All contributions to your IRA must be made in cash or by
check or money order. Thus, you cannot make contributions of property to your
IRA. If you wish to use shares of a previously established Heritage Fund account
for your annual IRA contribution, you must first redeem the amount of shares you
wish to invest, and then use the cash proceeds as your IRA contribution.
CONTRIBUTIONS UP TO THE DATE YOUR RETURN IS DUE (April 15). You may make
contributions to your IRA for a taxable year at any time during the year, either
periodically or in a lump sum, up to the due date for filing your Federal income
tax return for the taxable year, but not including extensions. For taxpayers who
file on a calendar-year basis, the latest date for any year is April 15 of the
following year. If you do not inform the Custodian of the year for which an IRA
contribution is made, the Custodian will assume the contribution is being made
for the year in which it is received.
MAXIMUM CONTRIBUTIONS NOT REQUIRED. You do not have to contribute to your IRA
every year, nor are you required to make the maximum contribution for any year.
However, if you decide in any year not to make the maximum IRA contribution, you
may not make up the missed contribution amount in later years. Under the
Heritage IRA, there is a minimum initial contribution required when you
establish your account, as described in Article X.
CUSTODIAL OR TRUSTEE FEES. The Internal Revenue Service has ruled that a
custodian's or trustee's administrative fees, which are billed separately and
paid by you in connection with your IRA, may be separately deductible as
expenses. (The deduction for all such expenses is generally limited to the
amount of such expenses that, when combined with certain other miscellaneous
deductions, exceeds 2% of an individual's adjusted gross income; this deduction
is also subject to reduction in the case of a high-income individual whose
adjusted gross income exceeds $100,000, or $50,000 in the case of a separate
return by a married individual). Thus, the separate payment of your IRA
custodial or trustee's fees should not serve to limit the maximum amount of
contributions you are otherwise eligible to make to your IRA. Under the Heritage
IRA, you are provided the opportunity to pay your annual custodial fee
separately, as explained in Article X.
B. DEDUCTIBLE IRA CONTRIBUTIONS
The deductibility of your IRA contributions is determined by the rules explained
below.
a. INDIVIDUALS WHO ARE NOT "ACTIVE PARTICIPANTS" IN OTHER RETIREMENT
ARRANGEMENTS. If neither you nor your spouse are an active participant in an
employer-maintained retirement arrangement, the full amount of your permissible
contribution to an IRA will be tax deductible. Your marital status for this
purpose is determined as of the end of the year, except that in the taxable year
of the death of a spouse, active participation is determined as if the spouse
were alive at year-end.
b. ACTIVE PARTICIPANT DEFINED. Generally, an individual is an active participant
in an employer-maintained retirement arrangement if he or she is not excluded
from eligibility under a defined benefit arrangement, such as a pension plan, or
if contributions -- whether made by the employer or the employee -- or
forfeitures are allocated to the individual's account under a defined
contribution plan such as a profit sharing or 401(k) plan. You are not
considered an active participant if you have not satisfied the plan's minimum
age or service conditions required for participation. The determination whether
you are an active participant is made without regard to whether your rights
under the plan are nonforfeitable (that is, vested). Employer-maintained
retirement arrangements include, for this purpose, tax qualified pension or
profit sharing plans, annuity plans of various kinds, certain deferred
compensation arrangements maintained by state and local governments or tax
exempt organizations, simplified employee pension plans, and certain
arrangements to which only employees contribute. Coverage under the social
security or railroad retirement systems does not itself count as coverage by an
employer-maintained arrangement, and you are not considered an active
participant in a previous employer's plan merely because you are receiving
retirement benefits from that plan. The Form W-2 that you receive should have a
check in the "Pension Plan" check box if you are an active participant in a
retirement arrangement of the employer involved. You should be certain to
contact your employer if you are not sure whether you are covered by a
retirement plan at work, or you are otherwise unsure of your status as an active
participant, because the rules as to "active participation" can be complicated
in particular situations.
c. INDIVIDUALS WHO ARE "ACTIVE PARTICIPANTS" IN OTHER RETIREMENT ARRANGEMENTS.
If you are an active participant in a retirement arrangement, or your spouse is
an active participant and you file a joint income tax return, or even if you
file a separate return but lived with your spouse at any time during the taxable
year, the degree to which your contribution to an IRA will be tax deductible
depends on your income tax filing status and the level of your adjusted gross
income (your "AGI") or the AGI of you and your spouse in the case of a joint
return.
i. Adjusted Gross Income ("AGI") Thresholds. Your contribution remains fully
deductible if your AGI falls below the dollar threshold for your filing
status. Above that threshold, your deduction phases out, that is, your
contribution is partially deductible; the deduction is eliminated
altogether if your AGI exceeds a second, higher level. The following
chart illustrates the effect of the AGI thresholds on an IRA deduction,
for each income tax filing status.
ii. Computation of AGI. In computing your AGI to determine the limit of your
IRA deduction, you can consult your tax return. Adjusted gross income for
this purpose is generally the amount shown on Form 1040 as Total Income
reduced by the sum of the amounts listed as adjustments to income (other
than you or your spouse's IRA deduction) on Form 1040. You will note that
your adjusted gross income is not reduced, for this purpose, by any
deductible IRA contributions you make for the taxable year.
2
<PAGE> 4
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
STATUS FULL DEDUCTION PHASEOUT LEVELS NO DEDUCTION
<S> <C> <C> <C>
If you (or your spouse if Your contribution Your deduction Your contribution
you file a joint return or if is fully deductible is reduced if is not deductible
you file a separate return and if your AGI is your AGI is if your AGI is:
you and your spouse lived within the full within the
together at any time during deduction range phaseout range
the year) are an active partici- of: of:
pant and you file as:
Single, or $25,000 $25,001 - $35,000 or
Head of $34,999 more
household
Married -- joint $40,000 $40,001 - $50,000 or
return, or $49,999 more
Qualifying
widow(er)
Married -- None $0 - $10,000 or
separate $9,999 more
return
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
iii. Phaseout of Deduction. If you are an active participant whose AGI is no
more than $10,000 above the dollar threshold for your filing status, you
are entitled to a partial tax deduction for the amount of your contribution
to an IRA. The deduction phases out (that is, becomes smaller) as your AGI
approaches the $10,000 limit. The following worksheet can be used to figure
the maximum permissible deduction for an individual who is an active
participant and whose AGI is in the $10,000 phaseout range.
MAXIMUM PARTIAL DEDUCTION
(Use this worksheet only if you are within the AGI phaseout range)
<TABLE>
<S> <C>
IF YOU FILE AS: ENTER ON LINE 1:
Single, or Head of
household $35,000
Married -- joint return
or Qualifying widow(er) $50,000
Married -- separate
return $10,000
1) Amount from above $
----------
2) Adjusted gross income
----------
3) Subtract line 2 from line 1 $
----------
4) Maximum partial deduction. Multiply
Line 3 by 20% (.20). If the result
is not a multiple of $10, round it
to the next highest multiple of $10
(for example, $611.40 rounded to
$620). However, if the result is
less than $200, but more than zero,
enter $200. $
----------
</TABLE>
This is the maximum partial deduction you can claim. You will note that you are
permitted a minimum deduction of $200, so long as your AGI is within the
phaseout range.
Please Note: More detailed worksheets for computing your IRA deduction appear in
your Form 1040 instruction book.
If you file a joint income tax return, the maximum partial deduction applies
independently to you and to your spouse. Remember, however, that your deduction
cannot exceed 100% of your taxable compensation for the year, your spouse cannot
make use of any part of your maximum permissible deduction that you cannot or do
not use, and you cannot make use of any part of your spouse's maximum
permissible deduction that your spouse cannot or does not use.
SPOUSAL IRA. If you are an active participant and open a spousal IRA, the
maximum deduction that you may claim is also reduced pursuant to the rules
outlined above if your AGI is in the phaseout range and is eliminated if your
AGI exceeds the phaseout range. In order to compute the maximum permissible
deduction for a spousal IRA, you should first compute your maximum permissible
deduction, using the worksheet that appears above; you should then compute your
maximum permissible deduction for the combination of your IRA and the spousal
IRA, by using the same worksheet, but multiplying the number on line 3 by 40%
rather than 20%. The result of the second computation is the maximum amount that
may be deducted for contributions to the two IRAs; the result of the first
computation is the maximum deduction that may be claimed for contribution to a
single one of the two IRAs.
The following chart summarizes the various rules as to the deductibility of an
IRA contribution.
3
<PAGE> 5
CAN YOU TAKE AN IRA DEDUCTION?
THIS CHART SUMS UP WHETHER YOU CAN TAKE A FULL DEDUCTION, A PARTIAL DEDUCTION OR
NO DEDUCTION AS DISCUSSED EARLIER.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF YOU ARE NOT
IF COVERED BY A
YOUR IF YOU ARE COVERED BY A RETIREMENT PLAN AT WORK RETIREMENT PLAN
AGI IS AND YOUR FILING STATUS IS: AT WORK AND YOUR
FILING STATUS IS:
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
* Single, or * Married Filing * Married Filing * Married Filing
Jointly (even Separately (even Jointly (and
* Head of if your spouse if your spouse is your spouse is
Household is covered by covered by a covered by a
a plan at work) plan at work) plan at work)
BUT * Qualifying
AT LESS Widow(er)
LEAST THAN
YOU CAN TAKE YOU CAN TAKE YOU CAN TAKE YOU CAN TAKE
- ---------------------------------------------------------------------------------------------------------
$-0- $10,000 Full deduction Full deduction Partial deduction Full deduction
$10,001 $25,000 Full deduction Full deduction No deduction Full deduction
$25,001 $35,000 Partial deduction Full deduction No deduction Full deduction
$35,001 $40,000 No deduction Full deduction No deduction Full deduction
$40,001 $50,000 No deduction Partial deduction No deduction Partial deduction
$50,001 or over No deduction No deduction No deduction No deduction
<CAPTION>
IF
YOUR
AGI IS IF YOU ARE NOT COVERED BY A RETIREMENT PLAN
AT WORK AND YOUR FILING STATUS IS:
---------------------------------------------------------------
<S> <C> <C> <C> <C>
* Married Filing * Single, or * Married Filing
Separately Jointly or
(even if your * Head of Separately (and
spouse is Household, or your spouse is
covered by a not covered by a
plan at work) * Married Filing plan at work)
Separately (and
you have lived * Qualifying
BUT apart from your Widow(er)
AT LESS spouse the
LEAST THAN entire year)
YOU CAN TAKE YOU CAN TAKE YOU CAN TAKE
- ----------------------------------------------------------------------------------------------------------------------------------
$-0- $10,000 Partial deduction
$10,001 $25,000 No deduction
Full Full
$25,001 $35,000 No deduction Deduction Deduction
$35,001 $40,000 No deduction
$40,001 $50,000 No deduction
$50,001 or over No deduction
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Maximum Deduction: You can deduct IRA contributions up to the amount of the
deduction (full or partial) you can take, or 100% of your taxable compensation,
whichever is less.
$200 floor: The partial deduction has a $200 floor. For example, if your
deduction would have been reduced to less than $200, (but not zero), you can
deduct IRA contributions up to $200 or 100% of your taxable compensation,
whichever is less. If the deduction is completely phased out (reduced to zero),
no deduction is allowed.
4
<PAGE> 6
C. NONDEDUCTIBLE IRA CONTRIBUTIONS.
As indicated above, the maximum contribution that you are permitted to make to
an Accumulation IRA each year may well exceed the amount of the contribution
that is tax-deductible. You may make a nondeductible contribution in the amount
of the difference between the maximum permissible contribution amount and the
amount, if any, of the contribution that is tax-deductible. Thus, your maximum
permissible nondeductible contribution is the lesser of $2,000 ($4,000 in the
case of a spousal IRA) or 100% of your taxable compensation, minus the amount of
your IRA contribution that you can claim as a tax deduction. You may make
nondeductible contributions in lieu of deductible contributions (up to the
maximum permissible amount); you might wish to do so, for example, if you had no
taxable income for the year after taking into account your other deductions.
TAX ADVANTAGE OF NONDEDUCTIBLE IRA CONTRIBUTIONS. The primary tax advantage of
nondeductible IRA contributions is that all earnings attributable to those
contributions will be free of income tax until distribution. Unlike deductible
contributions, your nondeductible contributions themselves are not taxed when
they are distributed to you. (Nondeductible contributions create a "cost basis"
in your IRA). If you have made both deductible and nondeductible contributions
to an IRA, part of each distribution is treated as a nontaxable return of
capital to the extent it represents your actual nondeductible IRA contributions;
the remainder of each distribution (attributable to deductible contributions and
earnings on deductible and nondeductible contributions) is included in taxable
income. You should retain careful and complete records of the amount of your
nondeductible contributions, since you will be responsible for calculating the
extent to which any distributions from your IRA are nontaxable because they
represent a return of nondeductible contributions; neither the custodian of your
IRA nor the Heritage Family of Funds will possess the information to tell you
what portion of your contributions was nondeductible.
You must designate on your income tax return the amount of your IRA contribution
that constitutes a nondeductible contribution for the year. You should exercise
care in doing so, because an overstatement of the amount of your nondeductible
IRA contributions may subject you to a $100 penalty unless you can show that the
overstatement was due to reasonable cause. (You need not inform the Heritage
Family of Funds or State Street Bank and Trust Company whether your
contributions are deductible or nondeductible.) In addition, you will be
required each year to include with your tax return a completed Internal Revenue
Service Form 8606 to indicate the amount of designated nondeductible
contributions you have made for all preceding taxable years, the aggregate
distributions you have received from your IRA(s) and the value of all your IRAs.
A penalty of $50 is imposed if you do not do so.
D. EXCESS CONTRIBUTIONS
Generally, an excess contribution is the amount of any contributions to your IRA
(other than a proper rollover contribution as described in Article V) for a
taxable year which exceeds your IRA contribution limit for the taxable year. An
excise tax equal to 6% of the amount of any excess contribution will be assessed
for the year for which the excess contribution is made and for each subsequent
year until the excess amount is eliminated.
RETURN OF EXCESS CONTRIBUTION BY DATE YOUR RETURN IS DUE. If you make a
contribution to your IRA for a taxable year which exceeds your IRA contribution
limit, whether deductible or nondeductible, you may be permitted to designate
the contribution as a nondeductible IRA contribution by the due date for filing
your Federal income tax return, not including extensions. As an alternative, you
may withdraw the contribution from your IRA and the earnings thereon at any time
prior to the due date for filing your Federal income tax return, including
extensions, for the taxable year for which the contribution was made. If this is
done, the return of the contribution will not be includible in your gross income
as an IRA distribution, and the contribution will not be subject to the 6%
excise tax on excess contributions (assuming the contribution is not deducted on
your return). However, the earnings on the contribution will be taxable income
in the year for which the contribution was made, and may possibly be subject to
the 10% tax on early distributions if you are under age 59 1/2 (see Article
VII(A) below).
RETURN OF EXCESS CONTRIBUTION AFTER DATE YOUR RETURN IS DUE. If you make an
excess contribution to your IRA which exceeds your IRA contribution limit, and
you withdraw the excess contribution after the due date for filing your Federal
income tax return (including extensions), the returned excess contribution will
not be includible in your gross income as an IRA distribution (subject to
possible premature distribution penalties) if: (1) your total IRA contributions
for the year were not more than $4,000 and (2) you did not deduct the excess
contribution on your return (or if the deduction you claimed was disallowed by
the Internal Revenue Service). However, you must pay the 6% excise tax on the
excess contribution for each taxable year that it is still in your IRA at the
end of the following year. Under this procedure, you are not required to
withdraw any earnings attributable to the excess contribution.
APPLYING EXCESS CONTRIBUTION TO SUBSEQUENT YEAR. You may also eliminate an
excess contribution from your IRA in a subsequent year by not contributing the
maximum amount for that year and applying the excess contribution to the
subsequent year's contribution. You may be entitled to a deduction for the
amount of the excess contribution that is applied in the subsequent year,
provided you did not previously deduct the excess contribution (or if the
deduction you claimed was disallowed by the Internal Revenue Service). However,
if you incorrectly deducted an excess contribution in a closed taxable year
(i.e., one for which the period to assess a deficiency has expired), the amount
of the excess contribution cannot be deducted again in the subsequent year in
which it is applied.
IV. TRANSFERS
A. TRANSFER FROM EXISTING IRA TO HERITAGE IRA.
To give you greater investment flexibility, you are permitted to transfer IRA
assets directly from one trustee or custodian to another on a tax-free basis.
Thus, if you already have an IRA with another trustee or custodian, you may
authorize a direct transfer of your IRA assets to a Heritage IRA without paying
taxes, subject to the rules and restrictions of your existing account. Of
course, such a transfer of assets to the Heritage IRA is not tax-deductible. If
you wish to authorize the Custodian to arrange a direct transfer of assets from
the trustee or custodian of your existing IRA to a Heritage IRA, please complete
Heritage's IRA Asset Transfer Authorization Form in addition to the IRA
Agreement.
B. TRANSFER FROM HERITAGE IRA.
If you so direct in writing, the Custodian will transfer all or any portion of
the assets held in your Heritage IRA directly to the trustee or custodian of
another IRA established on your behalf, provided the trustee or custodian
certifies in writing that it will accept the direct transfer of assets and will
deposit the transferred assets in an IRA established on your behalf.
C. TRANSFER INCIDENT TO DIVORCE.
All or any portion of your IRA assets may be transferred tax-free to your spouse
or former spouse pursuant to a divorce or separation instrument, in which case
the transferred assets will be held as a separate IRA for the benefit of your
spouse or former spouse.
5
<PAGE> 7
V. ROLLOVER CONTRIBUTIONS
A. TAX-FREE ROLLOVERS IN GENERAL.
A rollover contribution is a contribution to your IRA of cash or other assets
you receive or are eligible to receive as a distribution from another individual
retirement arrangement or employer retirement plan. A rollover transaction is
tax-free, in that the amounts properly rolled over to your IRA will not be
currently taxable in the year of receipt. Of course, a rollover contribution to
your IRA is not tax-deductible.
NOTE: The rules applicable to eligible rollover distributions from an employer
retirement plan are different from those applicable to distributions from
another IRA. As described in Section C below, an eligible rollover distribution
that is paid to you, rather than paid directly to your IRA, will be subject to
20% income tax withholding.
B. ROLLOVER FROM EXISTING IRA TO HERITAGE IRA.
If you receive a distribution of assets from an existing IRA, you may make a
tax-free rollover contribution, in cash, of all or part of the assets you
receive, to a Heritage IRA. The rollover must be completed within 60 days after
you receive the distribution from your existing IRA. You may only make such a
tax-free rollover once every 12 months (beginning on the date you receive the
IRA distribution that is rolled over, not on the date you make the rollover
contribution). You may not roll over any minimum distribution amounts you are
required to receive from your IRA upon attaining age 70 1/2 (see Article VII
below).
NOTE: A tax-free transfer of funds from one trustee or custodian to another, as
described in Article IV, Section A or B above, is not a rollover and is not
affected by the 12-month waiting period applicable to IRA rollovers.
C. ROLLOVER FROM EMPLOYER RETIREMENT PLAN TO HERITAGE IRA.
Most any distribution from your employer's qualified retirement plan (such as a
pension, profit-sharing or stock bonus plan) or section 403(b) annuity or
custodial account program may be rolled over to an IRA without regard to whether
it is a total or a partial distribution, except for certain distributions which
are not eligible rollover distributions. The distributions which are not
eligible for rollover treatment include, in general, the following: one of a
series of substantially equal periodic payments made at least annually for your
life or joint lives (or life expectancy/expectancies) of you and your
beneficiary, or for a specified period of ten years or more; minimum required
distributions; distributions which are not includible in your gross income;
returns of elective deferrals or other corrective distributions; certain loans;
and certain payments to non-spouse beneficiaries and alternate payees.
DIRECT ROLLOVER OF ELIGIBLE DISTRIBUTION. If you are entitled to receive a
distribution from your employer's qualified retirement plan or section 403(b)
program, you may wish to have your eligible rollover distribution paid directly
to a Heritage IRA in order to avoid mandatory 20% income tax withholding on the
distribution. If you have a direct rollover of your eligible distribution, no
income tax will be withheld and your distribution will not be taxed until it is
distributed or withdrawn from your IRA.
RECEIPT OF ELIGIBLE ROLLOVER DISTRIBUTION. If your eligible rollover
distribution is paid to you, rather than directly to your IRA, the distribution
will be subject to mandatory 20% income tax withholding (which will be sent to
the Internal Revenue Service and credited against your Federal income tax
liability). Accordingly, you will receive only 80% of the payment, all or a
portion of which may be rolled over into a Heritage IRA within 60 days after you
receive the payment. The amount which is properly rolled over will not be taxed
until it is distributed or withdrawn from your IRA. In order to avoid being
taxed on the amount that is withheld, you will need to find other money to
replace the 20% that was withheld and contribute it to your IRA within the
60-day period. If you receive a payment before you reach age 59 1/2 and you do
not roll it over, then, in addition to the regular income tax, you may have to
pay an additional tax equal to 10% of the taxable portion of the payment, as
described further in Article VII, Section A below.
An eligible rollover distribution that is not rolled over may be eligible for
special tax treatment. If your eligible rollover distribution is not rolled over
and it qualifies as a "lump sum distribution," it may be eligible for special
tax treatment. A lump sum distribution generally is a payment, within one year,
of your entire balance under your employer's qualified retirement plan or
section 403(b) program that is payable to you because you have reached age
59 1/2 or have separated from service with your employer (or, in the case of a
self-employed individual, because you have reached age 59 1/2 or have become
disabled). For a payment to qualify as a lump sum distribution, you must have
been a participant in the plan for at least 5 years. If you receive a lump sum
distribution after you are age 59 1/2, you may be able to make a one-time
election to figure the tax on the payment by using 5-year averaging. If you
receive a lump sum distribution and you were born before January 1, 1936, you
may make a one-time election to figure the tax on the payment by using 10-year
averaging (using 1986 tax rates) instead of 5-year averaging (using current tax
rates). In addition, if you receive a lump sum distribution and you were born
before January 1, 1936, you may elect to have the part of your payment that is
attributable to your pre-1974 participation in your employer's qualified
retirement plan or section 403(b) program (if any) taxed as long-term capital
gain at a rate of 20%.
You can generally elect this special tax treatment for lump sum distributions
only once in your lifetime, and the election applies to all lump sum
distributions that you receive in that same year. If you have previously rolled
over a payment from your employer's qualified retirement plan or section 403(b)
program (or certain other similar plans of the employer), you cannot use this
special tax treatment for later payments from your employer's qualified
retirement plan or section 403(b) program. If you roll over your payment to an
IRA, you will not be able to use this special tax treatment for later payments
from the IRA. Also, if you roll over only a portion of your payment to an IRA,
this special tax treatment is not available for the rest of the payment.
DISTRIBUTIONS OF PROPERTY. If you receive an eligible rollover distribution from
an employer retirement plan that consists of property other than cash, you may
sell the property received and roll over the cash proceeds to your IRA within 60
days of the date of your receipt of the distribution, in which case no gain or
loss will be recognized on the sale if the entire proceeds are rolled over.
ROLLOVER BY SURVIVING SPOUSE. A surviving spouse of a deceased employee may
choose to have an eligible rollover distribution paid directly to an IRA or paid
to the surviving spouse, in which latter case the distribution may then be
rolled over into an IRA within 60 days after received.
ROLLOVER PURSUANT TO DIVORCE OR SIMILAR PROCEEDINGS. If you are entitled to
receive an eligible rollover distribution from an employer's qualified
retirement plan pursuant to a "qualified domestic relations order" (within the
meaning of section 414(p) of the Internal Revenue Code) resulting from divorce
or similar proceedings, you may choose to have the distribution paid directly to
your IRA or paid to you, in which latter case the distribution may then be
rolled over into an IRA within 60 days after received.
IMPORTANT: Because of the strict limitations and complex rules that apply to IRA
rollovers to or from employer retirement plans, you should seek competent tax
advice in this area.
6
<PAGE> 8
D. ROLLOVERS FROM A HERITAGE IRA.
The rules for rollover of assets withdrawn from your Heritage IRA to a different
IRA are the same as the rules for rollover of assets from an existing IRA to a
Heritage IRA, described above. Also, a withdrawal of the full amount of a
Heritage IRA that was maintained solely to hold and invest the proceeds of a
prior rollover of a total distribution from an employer maintained retirement
plan may be eligible for rollover to a second employer retirement plan by which
you subsequently become covered.
VI. SIMPLIFIED EMPLOYEE PENSION
A Simplified Employee Pension or "SEP" is a special IRA plan which permits
employers to make deductible contributions to the separate IRAs established for
their employees. If your employer has adopted a SEP, your employer may make
deductible SEP contributions directly to your Heritage IRA each year in an
amount up to the lesser of $30,000 or 15% of your current-year compensation.
(The $30,000 figure may be reduced for certain highly compensated employees in
certain circumstances.)
EXCLUSION FROM GROSS INCOME. The amount of SEP contributions made by your
employer to your IRA will be excludible from your gross income provided they do
not exceed the $30,000/15% of compensation limit. (Previously, SEP contributions
were includible in gross income but employees were permitted to deduct these
contributions on their Federal income tax return.) In addition, you may make
your own annual contributions to your IRA each year up to the lesser of $2,000
or 100% of current-year compensation. Thus, if you are covered by a SEP, it is
possible to have total contributions of up to $32,000 made to your IRA for any
taxable year (or $34,000 if a Spousal IRA is also established). Of course, your
own contributions may not be tax deductible, or may be only partially
deductible.
DETERMINATION OF COMPENSATION. The 15% of compensation limit that applies to SEP
contributions includes only the amount of your current-year compensation from
the employer making the SEP contribution, (but not the amount of the SEP
contribution). In the case of a self-employed individual, the term
"compensation" includes the individual's earned income from self-employment,
reduced by the amount of deductible retirement plan contributions.
CONTRIBUTIONS AFTER AGE 70 1/2.
SEP contributions may be made to your IRA by your employer even after you have
attained age 70 1/2.
VII. DISTRIBUTIONS
A. TAX TREATMENT
In general, distributions from your IRA are includible in your gross income in
the year of receipt and are taxed as ordinary income. However, as indicated
above, no tax is imposed on a distribution that is properly rolled over to
another IRA (or in some cases to an employer retirement plan), no tax is imposed
on the part of any distribution that represents nondeductible IRA contributions
made by you, and no tax is imposed on certain returns of excess IRA
contributions.
NONTAXABLE AMOUNT OF DISTRIBUTION FROM IRA THAT CONTAINS NONDEDUCTIBLE IRA
CONTRIBUTIONS. The nontaxable portion of a distribution from an IRA that
contains nondeductible contributions is the percentage of the distribution that
is the same as the percentage of the total value of your IRAs (including
rollover IRAs and SEPs) represented by your aggregate nondeductible
contributions. For this purpose all distributions in a given year are treated as
one distribution.
<TABLE>
<S> <C> <C> <C>
1) Amount distributed from
IRAs during the year. $
------
2) Total nondeductible
contributions for all years to
IRAs minus any tax-free
withdrawals in prior years. $
------
3) Fair market value of all IRAs
at end of year plus amount on
line 1. $
------
4) Divide line 2 by line 3. (Enter
decimal figure.)
------
5) Multiply line 1 by line 4. This
is the amount that may be
excluded from gross income. $
------
6) Subtract line 5 from line 1.
This is the amount that must be
included in gross income. $
------
</TABLE>
EXAMPLE: An individual withdraws a total of $3,000 from several IRAs during a
year. At the end of the year, the aggregate balance of his IRA is $21,000 and
the aggregate amount of his designated nondeductible contributions not
previously withdrawn is $4,000. $500 of the withdrawal is non-taxable.
<TABLE>
<S> <C> <C> <C>
1) Amounts distributed from IRAs during
the year. $ 3,000
2) Total nondeductible contributions for
all years to IRAs minus any tax-free
withdrawals in prior year. $ 4,000
3) Fair market value of all IRAs at end
of year plus amount on line 1 ($21,000
+ $3,000). $ 24,000
4) Divide line 2 by line 3. (Enter
decimal figure.) .167
5) Multiply line 1 by line 4. This is the
amount that may be excluded from gross
income. $ 500
6) Subtract line 5 from line 1. This is
the amount that must be included in
gross income. $ 2,500
</TABLE>
10% ADDITIONAL TAX ON EARLY DISTRIBUTIONS. Your IRA is intended to provide you
with retirement income. For this reason, the law imposes a special additional
tax on a distribution from your IRA before you reach age 59 1/2 for any reason
other than those indicated below. This special tax is equal to 10% of the amount
of the distribution that is includible in your gross income, and must be paid in
addition to the ordinary income tax on the distribution. The additional tax is
not imposed on distributions paid because you separate from service with your
employer during or after the year you reach age 55, paid because you retire due
to disability or when used to pay certain medical expenses. The additional tax
will also not apply to any distribution that is part of a series of
substantially equal periodic payments made (not less frequently than annually)
for your life or life expectancy, or for the joint lives or life expectancies of
you and your beneficiary (see Section B below). The additional tax may apply if
you are deemed to receive a distribution from your IRA before age 59 1/2 as a
result of borrowing from your IRA or pledging your IRA as security for a loan,
as described in Article IX.
15% EXCISE TAX ON EXCESS DISTRIBUTIONS FROM ALL RETIREMENT PLANS. If you receive
aggregate distributions from your IRA and from any qualified retirement plans
and tax-sheltered annuities in excess of the current maximum for the calendar
year, you may be subject to a 15% excise tax on the excess distributions
(although certain exceptions and transitional rules may apply). You should
consult with your tax advisor if it is likely you will be receiving aggregate
distributions from your IRA and your other retirement plans in excess of the
allowable amount, the base amount upon which the indexed figure is determined,
for any calendar year.
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<PAGE> 9
B. METHOD OF DISTRIBUTION
Under the Heritage IRA, you may elect to have all or a portion of your account
distributed in one or a combination of the following ways:
(1) a lump-sum payment, or
(2) monthly, quarterly or annual installment payments over a period not
extending beyond your life expectancy or the joint and last survivor life
expectancy of you and your designated beneficiary.
The method of distribution you select must comply with the minimum distribution
requirements described in Section C below. You may change your selected method
of distribution at any time by notifying the Custodian in writing.
DISTRIBUTIONS IN CASH OR IN KIND. Distributions from the Heritage IRA will be
made in cash.
C. MINIMUM DISTRIBUTION REQUIREMENTS
COMMENCEMENT OF DISTRIBUTION. You must start receiving distributions from your
IRA no later than April 1 following the calendar year in which you attain age
70 1/2. You may receive your distribution either in a lump sum or in a series of
equal or substantially equal payments for a specified period that may not be
longer than your life expectancy or the life expectancy of you and your
designated beneficiary. Even if distributions begin to be made on a periodic
basis, you may at any time elect to receive the balance in your account as a
lump sum. If you do not elect a method of distribution by April 1 of the year
following the year you reach age 70 1/2, distribution will be made to you in a
single lump sum payment. In subsequent years, the annual distribution must be
made from your account by December 31 of that year.
MINIMUM AMOUNT REQUIRED TO BE DISTRIBUTED. The minimum amount required to be
distributed to you each year, beginning no later than the date your distribution
is required to commence, is determined by dividing the entire value of your
account as of the beginning of the year by your life expectancy, or the joint
and last survivor life expectancy of you and your designated beneficiary.
However, if there is a significant difference between your life expectancy and
the life expectancy of your beneficiary the minimum amount required to be
distributed to you each year may have to be increased, under Internal Revenue
Service regulations, to ensure that you, rather than your beneficiary, receive a
significant portion of your total benefit.
RECALCULATION OF LIFE EXPECTANCY. Your life expectancy, or the joint and last
survivor expectancy of you and your designated beneficiary, will be determined
according to Internal Revenue Service regulations. Your life expectancy and the
life expectancy of your spouse (if your spouse is your designated beneficiary)
will be recalculated annually unless you elect not to have those life
expectancies recalculated. You may not recalculate the life expectancy of any
beneficiary other than your spouse.
PENALTY TAX ON INSUFFICIENT DISTRIBUTIONS. An excise tax will be imposed if the
amount actually distributed to you each year beginning after you attain age
70 1/2 is less than the minimum amount required to be distributed. The tax is
50% of the difference between the amount actually distributed and the minimum
amount required to be distributed. This penalty tax may be waived in certain
cases provided you can establish to the satisfaction of the Internal Revenue
Service that the deficit in the amount distributed was due to reasonable error
and you are taking steps to remedy the problem.
D. DISTRIBUTION UPON DEATH
If you die prior to the complete distribution of your account, the remaining
balance in your Heritage IRA will be distributed to your designated beneficiary
in a lump-sum payment or a series of payments, subject to the requirements
stated below. In general, distributions your beneficiary receives from your IRA
that are includible in gross income will be taxed as ordinary income (with the
exception that, if your designated beneficiary is your surviving spouse, your
spouse may make a tax-free rollover, within 60 days of receipt, to another
individual retirement arrangement).
IF DISTRIBUTION HAD ALREADY COMMENCED. If distribution of your account had
already commenced prior to your death, the balance of your Heritage IRA must be
distributed to your designated beneficiary at least as rapidly as under the
method of distribution in effect prior to your death.
IF DISTRIBUTION HAD NOT COMMENCED. If distribution of your account had not
commenced prior to your death, the general rule is that the balance of your
Heritage IRA must be distributed to your designated beneficiary within five
years after your death. However, the balance of your account may be distributed
in substantially equal monthly, quarterly, or annual installment payments over
your beneficiary's life expectancy if distribution commences (i) within one year
after the date of your death or (ii) if your beneficiary is your surviving
spouse, within the later of one year after the date of your death and the date
you would have attained age 70 1/2. Your beneficiary must elect the form in
which he or she will receive the distribution from your IRA by December 31 of
the year following the year of your death. If no election is made, distribution
will be made within five years of your death to any beneficiary other than your
spouse, and distribution will be made over the life or life expectancy of your
beneficiary if your beneficiary is your spouse.
DESIGNATION OF BENEFICIARY. Under the Heritage IRA, you may designate one or
more persons (who may be designated contingently or successively) as your
beneficiary. You will initially designate your beneficiary by completing the
Application and Agreement for the Heritage IRA. You may subsequently change or
revoke your beneficiary designation at any time by notifying the Custodian or
Heritage Asset Management, Inc. in writing. If you fail to designate a
beneficiary or if your designated beneficiary (or each of your designated
beneficiaries) predeceases you, your beneficiary will be your estate.
E. FEDERAL ESTATE AND GIFT TAXATION
GIFT TAX CONSEQUENCES. Your designation of a beneficiary (or beneficiaries) to
receive distributions from your IRA upon your death will not be considered a
transfer of property for Federal gift tax purposes.
ESTATE TAX CONSEQUENCES. Generally amounts remaining in your IRA after your
death will be includible in your gross estate for Federal estate tax purposes.
In many cases, the impact of the inclusion of your IRA will be offset by the
unlimited Federal estate tax marital deduction that applies where your spouse is
your designated beneficiary. In other cases, the impact may be offset by the
increased unified credit against Federal estate and gift taxes.
F. FEDERAL INCOME TAX WITHHOLDING
The Internal Revenue Code requires the withholding of Federal income tax on
payments from an IRA unless the recipient affirmatively elects not to have
withholding apply. The amount of Federal income tax required to be withheld on
any payment under the Heritage IRA will generally equal 10% of the amount
redeemed from the account. Upon a request for a distribution under the Heritage
IRA, the Custodian will notify the recipient of his or her right to elect not to
have withholding apply (or to revoke any prior election), and will supply the
recipient with an appropriate election form.
VIII. INCOME TAX RETURNS; ETC.
If you are eligible to make deductible contributions to your IRA, you may claim
your deduction for IRA contributions on your Federal income tax return (Form
1040 or Form 1040A) even if you do not itemize deductions. In May of each year,
the Custodian will send you a Form 5498 (Individual Retirement Arrangement
Information) showing your preceding-year IRA contributions. If you make
designated
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<PAGE> 10
nondeductible contributions to your IRA for the taxable year, or if you receive
any distributions from your IRA during the year and you have at any time made
nondeductible contributions to any of your IRAs, you will be required to
complete Form 8606 as part of your Federal income tax return for that year.
PENALTY TAXES. If one or more of the following situations occur, you will be
required to file Form 5329 (Return for Individual Retirement Account Taxes) with
the Internal Revenue Service:
(1) payment of a 6% excise tax because of an excess contribution;
(2) payment of a 10% additional tax because of an early distribution before
age 59 1/2; or
(3) payment of a 50% excise tax because of an insufficient distribution from
your IRA after age 70 1/2.
If Form 5329 must be filed, it should be attached to your Federal income tax
return, or should be filed separately if you are not required to file a Federal
income tax return.
DISTRIBUTIONS. When you receive taxable distributions from your Heritage IRA,
the Custodian will send you form 1099-R showing your total distributions.
Distributions from your IRA to you or your beneficiary are subject to Federal
income tax withholding unless the distributee elects otherwise. Further
information about your IRA can be obtained from any district office of the
Internal Revenue Service.
IX. PROHIBITED TRANSACTIONS
Generally, a prohibited transaction is any improper use of your IRA. Examples of
prohibited transactions include borrowing money from your account or selling
property to the account.
EFFECT ON IRA. Generally, if you engage in a prohibited transaction, your IRA
will lose its tax-exempt status and you will be required to include the entire
value of the account in your gross income. If your account is disqualified
before you reach 59 1/2, you may also be required to pay the 10% additional tax
on early distributions referred to in Article VII.
PLEDGING YOUR IRA AS SECURITY. Pledging your IRA as security for a loan will
cause the portion pledged to be treated as a distribution to you, includible in
gross income and subject to the 10% additional tax on early distributions if you
are under age 59 1/2.
INVESTMENT IN COLLECTIBLES. If your IRA is invested in collectibles, the amount
invested will be considered a distribution to you in the year of investment. For
this reason, the Heritage IRA specifically precludes investments in collectibles
which include art works, rugs, antiques, metals, gems, stamps, coins (but not
gold or silver coins issued by the United States or by an individual state
thereof), alcoholic beverages and certain other tangible personal property.
X. OTHER INFORMATION
A. THE CUSTODIAN
The custodian of your Heritage IRA is State Street Bank and Trust Company, a
trust company incorporated under Massachusetts banking laws.
B. AMENDMENTS
The Custodian is specifically authorized to make any amendments to the Heritage
IRA necessary to comply with the applicable provisions of the Internal Revenue
Code. The Custodian will inform you of any such amendments.
C. HERITAGE IRA INVESTMENTS
Your Heritage IRA may be invested in shares of the mutual funds advised by
Heritage Asset Management, Inc. (the "Heritage Funds").
REINVESTMENT OF EARNINGS. All dividends and capital gains received on shares of
a Heritage Fund held in your Heritage IRA which are permitted to be paid in
additional shares of the Heritage Fund shall be automatically paid in additional
shares of the Heritage Fund. Otherwise, any distribution of earnings received
with respect to assets held in your account shall be reinvested solely at your
direction in shares of another Heritage Fund.
GROWTH IN VALUE. The growth in value of your Heritage IRA will depend on the
investment decisions made by you and is neither guaranteed nor projected.
D. HERITAGE IRA MINIMUMS
MINIMUM CONTRIBUTIONS. Under the Heritage IRA, the minimum initial contribution
is generally $1,000 for each Heritage Fund account established for your IRA.
E. CUSTODIAL FEE AND OTHER EXPENSES
There is an annual custodial fee of $10 for each Heritage IRA that is open at
any time during the calendar year. You may pay this fee annually by separate
check, provided that payment for any calendar year must be received by the
Custodian no later than December 31 of that year (if received later, the payment
will be applied to the next year's custodial fee). If you do not choose to pay
your annual custodial fee by separate check, the Custodian will redeem
sufficient shares from your account of each year to pay the fee for the
preceding calendar year.
HERITAGE FUND INFORMATION. For complete information about the advisory fees and
other expenses, and the method of calculating the price per share for each
Heritage Fund you may select for your Heritage IRA, you should read the Fund's
prospectus.
F. CUSTODIAL ACCOUNT AGREEMENT--FORM 5305-A
This IRA makes use of Form 5305-A, which has been prepared by the Internal
Revenue Service as a model custodial account agreement that satisfies the
requirements of section 408(a) of the Internal Revenue Code. The provisions of
Article VIII of the Custodial Agreement were prepared by Heritage and the
Custodian, State Street Bank and Trust Company, as an addition to the Form, as
contemplated by the Form. However, neither the provisions of Article VIII nor
other aspects of this IRA, except the model custodial account agreement, have
been approved by the Internal Revenue Service.
9
<PAGE> 11
HERITAGE INDIVIDUAL
RETIREMENT CUSTODIAL
ACCOUNT AGREEMENT
(UNDER SECTION 408(A) OF THE INTERNAL REVENUE CODE)
FORM 5305-A* (Revised October 1992)
- ------------------------------------------------------------
Department of the Treasury
Internal Revenue Service
The Depositor and the Custodian make the following agreement:
ARTICLE I
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c) (but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in section 408(k). Rollover contributions
before January 1, 1993, include rollovers described in section 402(a)(5),
402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3), or an employer
contribution to a simplified employee pension plan as described in section
408(k).
ARTICLE II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning of
section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section 408(m)(3)
which provides an exception for certain gold and silver coins and coins issued
under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be made
in accordance with the following requirements and shall otherwise comply with
section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Depositor under paragraph 3, or to the surviving spouse under paragraph 4,
other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the Depositor
and the surviving spouse and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or begin to
be, distributed by the Depositor's required beginning date. (April 1 following
the calendar year end in which the Depositor reaches age 70 1/2). By that date,
the Depositor may elect, in a manner acceptable to the Custodian, to have the
balance in the custodial account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period that
may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period that
may not be longer than the joint life and last survivor expectancy of the
Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to him
or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her interest has
begun, distribution must continue to be made in accordance with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest has begun,
the entire remaining interest will, at the election of the Depositor or, if the
Depositor has not so elected, at the election of the beneficiary or
beneficiaries, either:
(i) Be distributed by the December 31 of the year containing the fifth
anniversary of the Depositor's death; or
(ii) Be distributed in equal or substantially equal payments over the life or
life expectancy of the designated beneficiary or beneficiaries starting by
December 31 of the year following the year of the Depositor's death. If,
however, the beneficiary is the Depositor's surviving spouse, then this
distribution is not required to begin before December 31 of the year in
which the Depositor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the requirements
of section 408(b)(3) and its related regulations has irrevocably commenced,
distributions are treated as having begun on the Depositor's required beginning
date, even though payments may actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been distributed
and if the beneficiary is other than the surviving spouse, no additional cash
contributions or rollover contributions may be accepted in the account.
5. In the case of a distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Depositor's entire interest in the Custodial account as of the close
of business on December 31 of the preceding year by the life expectancy of the
Depositor (or the joint life and last survivor expectancy of the Depositor and
the Depositor's designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under paragraph 3,
determine the initial life expectancy (or joint life and last survivor
expectancy) using the attained ages of the Depositor and designated beneficiary
as of their birthdays in the year the Depositor reaches age 70 1/2. In the case
of a distribution in accordance with
* Introductory information and signature lines are omitted herein because they
are included in the Application and Agreement governing the Account.
A complete copy of Form 5305-A is available upon request of the Internal
Revenue Service.
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<PAGE> 12
paragraph 4(b)(ii), determine life expectancy using the attained age of the
designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
ARTICLE V
1. The Depositor agrees to provide the Custodian with information necessary for
the Custodian to prepare any reports required under section 408(i) and
Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and the related
regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear below.
ARTICLE VIII
The following provisions constitute Article VIII of the Individual Retirement
Custodial Account Agreement for use with the Heritage Individual Retirement
Account program. Article VIII deals with the Depositor's individual retirement
custodial account and the appointment, obligations, and rights of State Street
Bank and Trust Company as custodian of that account. Although Article VIII is a
part of the agreement contained in Internal Revenue Service Form 5305-A, Article
VIII was written by representatives of Heritage Asset Management, Inc. and State
Street Bank and Trust Company.
1. DEFINITIONS.
For purposes of this Article VIII, the following terms, when capitalized, shall
have the following meanings:
(a) "Account" shall mean the individual retirement custodial account established
by the Depositor by execution of this Agreement.
(b) "Agreement" means the Individual Retirement Custodial Account agreement (on
Internal Revenue Service Form 5305-A) of which this Article VIII forms a part,
for use in establishing an individual retirement account in the Heritage
Individual Retirement Account program.
(c) "Beneficiary" shall mean the person or persons designated in accordance with
section 7 of this Article VIII to receive any amount remaining in the Account
upon the death of the Depositor.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Custodian" shall mean State Street Bank and Trust Company, a trust company
incorporated under the laws of Massachusetts.
(f) "Excess Contribution" shall mean (i) the excess (if any) of the Regular
Contributions made to the Account for a taxable year over the amount allowable
as a deduction for such contribution under section 219 of the Code for such
year, plus (ii) any other amount permitted to be distributed from the Account
without inclusion in gross income by virtue of the provisions of sections
408(d)(4) or 408(d)(5) of the Code.
(g) "Regular Contribution" shall mean a contribution by the Depositor to the
Account, under the provisions of Article I of the Agreement, other than a
Rollover Contribution or a SEP Contribution.
(h) "Rollover Contribution" shall mean a contribution to the Account of the
Depositor (i) of a distribution of all or any portion of the balance to the
credit of the Depositor in a qualified plan, as described in sections 402(c) or
403(a)(4) of the Code, or (ii) that is qualified as a rollover contribution from
an annuity contract, another individual retirement account, an individual
retirement annuity, a qualified bond purchase plan, or a U.S. retirement bond,
as described, respectively, in sections 403(b)(8) and 408(d)(3) of the Code, or
former sections 405(d)(3) or 409(b)(3)(C) of the Internal Revenue Code of 1954,
as amended.
(i) "SEP Contribution" shall mean a contribution to the Account on behalf of the
Depositor by his or her employer under a simplified employee pension arrangement
described in section 408(k) of the Code.
(j) "Heritage" shall mean Heritage Asset Management, Inc., a Florida
corporation, or any successor thereto.
(k) "Heritage Funds" shall mean one or more mutual funds for which Heritage
serves as an investment advisor and for which Raymond James and Associates,
Inc., an affiliate of Heritage, serves as principal underwriter, that are
available for investment by individual retirement accounts in the Heritage
Individual Retirement Account program.
2. APPOINTMENT OF CUSTODIAN.
The Depositor, by execution of this Agreement, has appointed State Street Bank
and Trust Company to serve, under the terms of the Agreement, as custodian of
the Account.
3. CONTRIBUTIONS.
(a) General. All contributions to the Account by or on behalf of the Depositor
shall be made in cash.
(b) Regular Contributions. The Depositor shall designate, in such manner as the
Custodian may prescribe, the year for which any Regular Contribution is made.
The Depositor shall have, and by execution of this Agreement accepts, full and
sole responsibility for assuring that each Regular Contribution made to the
Account complies with the rules for, and does not exceed the limitations on,
permissible contributions to individual retirement accounts under applicable
provisions of the Code.
(c) Rollover Contributions. A Rollover Contribution may be made by the Depositor
to the Account at any time and must be designated as such. Prior to the making
of a contribution that is designated as a Rollover Contribution, the Depositor
shall complete such forms as the Custodian may require describing the source of
such contribution and containing such other information as the Custodian shall
reasonably request. By making a contribution that is designated as a Rollover
Contribution, the Depositor more specifically warrants that:
(i) the entire amount of such contribution was received by the Depositor within
sixty days prior to its transfer to the Custodian (if such contribution was
not paid directly to the Custodian by the administrator of the employer plan
or the payor of a section 403(b) program);
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<PAGE> 13
(ii) the entire amount of such contribution satisfies the definition of
Rollover Contribution in section 1(h) of this Agreement and all of the
requirements for rollover contributions contained in applicable
provisions of the Code;
(iii) any such contribution of a distribution from an employee's trust or
employee annuity contains only the amount of such distribution in excess
of amounts contributed to the distribution trust or annuity by the
Depositor (other than accumulated deductible employee contributions,
within the meaning of section 72(o)(5) of the Code, that may be the
subject of a rollover contribution); and
(iv) if the contribution involves a distribution from an individual retirement
account or annuity, the Depositor did not receive, within 12 months prior
to the date of receipt of such distribution, another distribution of the
same funds from such an account or annuity, or of other funds from the
distributor account or annuity, that the Depositor transferred to an
individual retirement account as a "rollover contribution."
The Depositor shall have, and by execution of this Agreement accepts, full and
sole responsibility for determining whether a contribution to the Account
designated as a Rollover Contribution qualifies as such under this Agreement and
applicable provisions of the Code.
(d) SEP Contributions. Any SEP Contribution must be designated as such, and must
be accompanied by a designation of the year for which such SEP Contribution is
made. Prior to the making of a contribution that is designated as a SEP
Contribution, the Depositor shall complete such forms as the Custodian may
require to certify that the Depositor is covered under a simplified employee
pension, as described in section 408(k) of the Code, established by his or her
employer and containing such other information as the Custodian shall reasonably
request. The Depositor shall have, and by execution of this Agreement accepts,
full and sole responsibility for determining whether a contribution to the
Account designated as a SEP Contribution qualifies as such under this Agreement
and applicable provisions of the Code.
(e) Excess Contributions. If the Depositor notifies the Custodian in writing
that all or any portion of the amount contributed to the account constitutes an
Excess Contribution, the Custodian shall, if so directed by the Depositor,
distribute an amount equal to all or part of such Excess Contribution to the
Depositor in accordance with the provisions of section 5(a) of this Article
VIII. If the Depositor's notice states that the distribution is intended to
comply with section 408(d)(4) of the Code (concerning a return of Excess
Contributions and net income attributable thereto prior to the due date for the
Depositor's Federal income tax return for the taxable year for which the
contribution is made), the Custodian shall include in the amount of such
distribution an amount equal to the net income attributable to the Excess
Contribution (or portion hereof) so distributed. The Depositor shall have the
sole responsibility for determining whether any return of an Excess Contribution
under this section 3(e) satisfies the requirements of sections 408(d)(4) or
408(d)(5) of the Code.
(f) Responsibility of Custodian and Heritage. Neither the Custodian nor Heritage
shall have any responsibility for determining (i) whether or the extent to which
any contribution by or on behalf of the Depositor to the Account is deductible
for Federal income tax purposes, (ii) whether any Regular Contribution complies
with the rules for, and does not exceed the limitations on, permissible
contributions to Individual Retirement Accounts, (iii) whether any contribution
to the Account qualifies as a Rollover Contribution or SEP Contribution, or (iv)
whether any return of an Excess Contribution satisfies the requirements of
Sections 408(d)(4) or 408(d)(5) of the Code.
4. INVESTMENT OF CONTRIBUTIONS.
(a) Heritage Funds. The Depositor directs the Custodian to invest all
contributions to the Account in shares of one or more Heritage Funds in
accordance with such specific designation as may be made by the Depositor on
such forms as Heritage or the Custodian may provide for that purpose. By
directing that assets of the Account be invested in a particular Heritage Fund,
the Depositor will be deemed to have acknowledged receipt of the current
prospectus for such Fund.
(b) Reinvestment. All dividend and capital gain distributions received with
respect to shares of a Heritage Fund by the Account shall, unless payable to the
Account in additional shares of such Fund, be reinvested in such shares. If no
such shares are available for reinvestment, the Custodian shall so inform the
Depositor and such distributions shall be invested in shares of a money market
fund pending receipt of instructions from the Depositor. If any distribution
from a Heritage Fund is payable in additional shares of such Fund at the
election of a shareholder, the Custodian shall elect to receive such
distribution in the form of additional shares of such Fund.
(c) Change in Designation of Fund. The Depositor may change his or her
designation of the Heritage Fund or Heritage Funds in which the Account is to be
invested by following such procedures as the Custodian shall specify from time
to time.
(d) Registration and Voting of Fund Shares. All Heritage Fund shares held in the
Account shall be registered in the name of the Custodian or of its nominee. The
Custodian shall deliver, or cause to be delivered, to the Depositor all notices,
prospectuses, financial statements, proxies, and proxy soliciting materials
relating to Heritage Fund shares held in the Account. The Custodian shall not
vote any such Heritage Fund shares except in accordance with the written
instructions of the Depositor.
(e) Responsibility of Custodian and Heritage. In making any investment or
reinvestment of assets in the Account, the Custodian shall be fully entitled to
rely on the directions furnished to it by the Depositor under the terms of this
Agreement and shall have no obligation to make any inquiry or investigation with
respect thereto. The Depositor hereby acknowledges that neither the Custodian
nor Heritage undertakes to render any investment advice whatsoever to the
Depositor in connection with this Agreement.
5. DISTRIBUTIONS.
(a) Order for Distributions. Distribution of the assets of the Account shall be
made only on the written order of the Depositor (or of the Depositor's
Beneficiary or authorized representative, if the Depositor is deceased), or as
otherwise required by the terms of this Agreement. Such order shall (i) be made
by completion of such form or forms as the Custodian shall specify, (ii) shall
specify the occasion for the distribution and (unless the distribution is a
distribution of Excess Contributions pursuant to section 3(e) of this Article
VIII) the elected manner of distribution (as described in sections 3(a), 3(d),
or 3(e) or, in the case of a Beneficiary, section 4(b)(i-ii), of Article IV of
this Agreement), and (iii) shall contain any declaration required by Article V
of this Agreement. Any such order once made may be altered, once distributions
begin, only to the extent permitted by Article IV of this Agreement.
(b) Rules for Installment Distributions.
(i) Installments Must be Permitted Under Fund Rules. A distribution may be made
in installments if and to the extent that the rules of the Heritage Fund or
Heritage Funds whose shares are held in the Account permit periodic
liquidation to yield the cash to pay each installment.
(ii) Form. An installment distribution must be one that is permitted to be made
from an individual retirement account by Article IV of this Agreement and
by applicable provisions of section 408(a)(6) of the Code and the
regulations promulgated thereunder or with respect thereto.
12
<PAGE> 14
(iii) Life Expectancies. The life expectancies referred to in this Agreement
shall be determined pursuant to, and by using such actuarial tables as may
be adopted to comply with, section 408(a)(6) of the Code and the
regulations promulgated thereunder or with respect thereto. Under proposed
Treasury Regulation section 1.401(a)(9)-1, Q & A E3 and E4, those tables
are Tables V and VI found in Treasury Regulation section 1.72-9.
(iv) Incidental Benefit Requirement. An installment distribution under this
Agreement must satisfy any applicable incidental benefit requirement
imposed by section 408(a)(6) of the Code and the regulations promulgated
thereunder or with respect thereto. The tables necessary for measuring
compliance with the incidental benefit requirement, are found in Q & A 4
through 6 of proposed Treasury Regulation section 1.401(a)(9)-2.
(c) Treatment of Payments to Children. For purposes of Article IV of this
Agreement, any amounts paid from the Account to the child of the Depositor shall
be treated as if such amounts had been paid to the surviving spouse of the
Depositor if such amounts shall become payable to such surviving spouse when
such child reaches the age of majority.
(d) Responsibility of Depositor and Custodian. The Custodian shall have no
responsibility to make any distribution until an order that meets the
requirements of this section is received. It is the sole responsibility of the
Depositor or, in the case of distributions following the death of the Depositor,
of any Beneficiary entitled to receive such distributions, (i) to notify the
Custodian of such individual's age and the timing and manner of such
distributions in sufficient time to permit the commencement of distributions
from the Account, (A) in the case of the Depositor, prior to the April 1 next
following the year in which the Depositor attains age 70 1/2, or (B) in the case
of such Beneficiary, at the time required by section 4 of Article IV of this
Agreement, and (ii) to order a distribution in a sufficient amount to satisfy
the applicable provisions of Article IV of this Agreement and the minimum
distribution rules contained in such Article IV and in section 408(a)(6) of the
Code and any regulations promulgated thereunder or with respect thereto. The
Custodian shall have no liability for failing to commence distributions in any
year in the absence of receipt of such notice of the Depositor's age and a fully
completed order for such distributions that is in full compliance with the
requirements of Articles IV, V, and VIII of this Agreement, provided that (i) if
notice of the age of the Depositor and an order for commencement of
distributions is received without any indication of the manner of such
distribution, such distribution shall be made in a single lump sum, and (ii) if
the Custodian has received notice of the death of the Depositor, prior to the
commencement of distributions from the Account, and no election of a manner of
distribution is made by the applicable Beneficiary, the Custodian shall make
distributions in accordance with the provisions of section 4(b)(ii) of Article
IV of this Agreement.
(e) Taxes on Distributions and Excess Contributions. The Custodian shall have no
responsibility for the income or other tax consequences, to the Depositor or any
Beneficiary, of any contribution to or distribution from the Account, provided
that the Custodian shall withhold and pay over to the Internal Revenue Service
or any state tax authority any amount required to be so withheld from any
distribution by the Code or other applicable law. In the absence of
instructions, the Custodian shall have no obligation to withhold any taxes from
distributions made from the Account, except to the extent the Custodian is
required to withhold such taxes by applicable law.
6. TRANSFERS.
(a) Transfers to Account. Assets held on behalf of the Depositor in another
individual retirement account may be transferred by the trustee or custodian
thereof directly to the Custodian, in a form or manner acceptable to the
Custodian, to be held in the Account on behalf of the Depositor under this
Agreement. In accepting any such direct transfer of assets, the Custodian
assumes no responsibility for the tax consequences of the transfer, and
responsibility for any such tax consequences rests solely with the Depositor.
(b) Transfers from Account. If so directed by the Depositor in a manner
acceptable to the Custodian, the Custodian shall, subject to the provisions of
section 8 of this Article VIII, transfer assets held in the Account directly to
the trustee or custodian of another individual retirement account established on
behalf of the Depositor. In making any such direct transfer of assets, the
Custodian assumes no responsibility for the tax consequences of the transfer,
and responsibility for any such tax consequences rests solely with the
Depositor.
(c) Transfers Incident to Divorce. All or any portion of the Depositor's
interest in the Account may be transferred to a spouse or former spouse under a
divorce or separation instrument as provided in section 408(d)(6) of the Code,
in which event the transferred portion of the Account shall be held as a
separate individual retirement account for the benefit of such spouse in
accordance with the terms and conditions of this Agreement.
7. BENEFICIARIES.
(a) Designation. The Depositor may designate a person or persons to receive any
amount remaining in the Account at the time of the Depositor's death. The person
or persons so designated shall be the Depositor's Beneficiaries while such
designation is effective. If no designation is made or is in effect at the time
of the Depositor's death, the Depositor's Beneficiary shall be his or her
estate.
(b) Change in Designation. Any change in the designation of a Beneficiary or
designation of an additional Beneficiary subsequent to the date of this
Agreement shall be made on such form as the Custodian or Heritage shall provide.
To be effective, the designation of Beneficiary form must be signed by the
Depositor and filed with the Custodian or Heritage during the Depositor's
lifetime. The effective designation form last received from a person by the
Custodian or Heritage before a distribution is to commence shall be controlling
and, whether or not fully dispositive of the Account, shall revoke all forms
previously filed by that person. The Custodian shall accept all forms relating
to the designation of Beneficiaries only in the Commonwealth of Massachusetts,
and Heritage shall accept all forms relating to the designation of beneficiaries
only in the State of Florida, and such forms, once effective, shall be
considered a part of this Agreement.
(c) Status of Beneficiaries, Designations by Beneficiaries. When, but only when,
distribution of an Account or an interest therein to a Beneficiary commences,
all rights and obligations assigned to the Depositor under the Agreement shall
inure to and be enjoyed or exercised, as the case may be, by such Beneficiary to
the extent of such Beneficiary's interest in the Account. The term "Depositor"
shall include, for purposes of the rules of this Agreement relating to the
designation of Beneficiaries, and the investment and maintenance of the Account,
the person or persons who begin to receive a portion of the Account pursuant to
a prior designation (by the Depositor or a prior Beneficiary), but designations
by such a person or persons shall relate solely to the balance of such person's
interest remaining in the Account as of the date a distribution pursuant to a
designation by such person is to commence.
8. TERMINATION OF ACCOUNT.
(a) Final Distribution. This Agreement shall terminate upon the complete
distribution of the Account to the Depositor or his Beneficiaries or the
complete transfer of the Account to such successor individual retirement
accounts or annuities as the Depositor shall designate.
(b) Effect of Termination. Upon termination of the Account, the Custodian shall
be relieved from all further liability with respect to this
13
<PAGE> 15
Agreement, the Account, and all assets thereof so distributed. Neither Heritage
nor the Custodian shall be liable for, or in any way responsible with respect
to, any penalty or any other loss incurred by any person with respect to a
distribution or transfer made hereunder.
9. MAINTENANCE OF RECORDS; REPORTS BY CUSTODIAN; PROVISION OF INFORMATION TO
CUSTODIAN.
(a) Records, Annual Reports. The Custodian shall keep adequate records of the
transaction and status of the Account and the performance of the Custodian's
obligations under this Agreement. The Custodian shall render an annual report to
the Depositor (or, following the Depositor's death, each Beneficiary) on or
before January 31 of each calendar year, showing the fair market value of the
Account as determined as of December 31 of the immediately preceding calendar
year. The Custodian shall also render another report to the Depositor (or,
following the Depositor's death, each Beneficiary) on or before May 31 of each
calendar year, containing such information with respect to the immediately
preceding calendar year as is required to be furnished on Internal Revenue
Service Form 5498 (Individual Retirement Arrangement Information) or its
equivalent (if the Form 5498 contains any information other than the fair market
value of the Account on December 31 of the immediately preceding calendar year).
(b) Information Required by, and Reports to, the Internal Revenue Service. The
Depositor shall provide information to the Custodian at such times and in such
manner and detail as will enable the Custodian to prepare reports required by
the Internal Revenue Service pursuant to section 408(i) of the Code and the
regulations promulgated thereunder or to any other section of the Code relating
to reporting of contributions to, operation of, or distributions from individual
retirement accounts. The Custodian shall submit such reports to the Internal
Revenue Service and to the Depositor, the Depositor's Beneficiary, or both, in
such manner and at such times as may be required by the Code and any applicable
regulations.
10. PAYMENT OF CUSTODIAN'S FEES AND TAXES AND EXPENSES OF THE ACCOUNT.
The Custodian shall be entitled to receive such reasonable fees with respect to
the administration of the Account as are established by it from time to time,
and to receive reimbursement for all reasonable expenses incurred by it in the
performance of this Agreement. The Custodian may change its fee schedule upon
thirty (30) days prior written notice to the Depositor. The custodian's fees,
any taxes of any kind imposed on the assets of the Account, and all other
administrative expenses incurred by the Custodian in the performance of this
Agreement, including fees for legal services rendered to the Custodian, may be
charged to the Account, and the Custodian shall have the right to liquidate
Heritage Fund shares held in the Account to secure cash for payment of such
fees, taxes, and expenses.
11. DUTIES OF CUSTODIAN; INDEMNIFICATION.
(a) Limitation of Liability of Custodian. The Custodian shall have no investment
responsibility or discretion with respect to the assets of the Account. The
Custodian's service hereunder shall not be construed as an endorsement of the
Heritage Funds.
(b) Delegation by Custodian. The Custodian may perform any of its administrative
duties through other persons designated by the Custodian from time to time,
except that Heritage Fund shares must be registered as stated in sections 4(d)
of this Article VIII.
(c) Indemnification. The Depositor shall always fully indemnify the Custodian
and hold it harmless from any and all liability whatsoever which may arise in
connection with this Agreement and the matters which it contemplates, except
that which arises due to the Custodian's bad faith, gross negligence or willful
misconduct.
(d) Reliance on Authenticity of Documents. The Custodian may conclusively rely
upon and shall be protected in acting in good faith upon any written order from
or authorized by the Depositor or any Beneficiary or upon any other document
believed by it to be genuine and to have been issued in proper form and with
proper authority.
12. AMENDMENT.
The Custodian and Heritage are authorized to amend the Agreement in any respect
and at any time (including retroactively) to comply with the applicable
provisions of the Code and the regulations thereunder. Any other amendment to
the Agreement may be made by the Custodian but shall require the consent of the
Depositor. For these purposes, the Depositor shall be deemed to have consented
to any amendment to the Agreement unless, within thirty (30) days after having
received written notice of the amendment from the Custodian, the Depositor
either (i) gives the Custodian a proper written order for a lump-sum
distribution of the Account, or (ii) removes the Custodian and simultaneously
appoints a successor custodian as provided in section 13 of this Article VIII.
The Custodian's freedom to change its fee schedules or delegate responsibilities
hereunder shall not be deemed to be an amendment of this Agreement.
13. RESIGNATION OR REMOVAL OF CUSTODIAN.
(a) Resignation; Removal; Successor. The Custodian may resign at any time upon
at least thirty (30) days prior notice in writing to the Depositor and may be
removed by the Depositor any time upon at least thirty (30) days prior notice in
writing to the Custodian. Upon such resignation or removal, the Depositor shall
appoint a successor to serve as custodian under the Agreement. If within forty
(40) days after the Custodian's resignation or removal, the Depositor has not
appointed a successor, the Custodian may itself appoint such a successor. Every
successor custodian appointed to serve under this Agreement must be a bank, as
defined in section 408(n)(1) of the Code, or such other person as qualifies to
serve as Custodian under section 408(a)(2) of the Code, and must satisfy the
Depositor, the Custodian, or both, upon request as to such qualification.
(b) Effect of Appointment of Successor. Upon receipt by the Custodian of written
acceptance of appointment by its successor the Custodian shall transfer to such
successor the assets of the Account and all necessary records (or copies
thereof) pertaining thereto, after reserving such reasonable amount as it deems
necessary for payment of its fees and expenses. The Custodian shall then be
relieved of all further responsibility with respect to this Agreement, the
Account, and the assets thereof.
14. ACCEPTANCE OF AGREEMENT.
This Agreement shall be deemed accepted by the Custodian upon the earlier of (i)
the date this Agreement is executed by an authorized representative of the
Custodian, and (ii) the date the Custodian accepts for investment the
Depositor's initial contribution made in accordance with the terms of this
Agreement and the Depositor's individual retirement account application.
15. MISCELLANEOUS.
(a) Exclusive Benefit; Nonforfeitability. The Account is established for the
exclusive benefit of the Depositor and his or her Beneficiary or Beneficiaries.
The interest of the Depositor in the balance of the Account shall at all times
be nonforfeitable.
(b) Non-alienation. Neither the Depositor nor any Beneficiary shall have any
right or power to anticipate any part of his or her interest in the
14
<PAGE> 16
Account or to sell, assign, transfer, pledge or hypothecate any part thereof.
The Account shall not be liable for the debts of the Depositor or any
Beneficiary or subject to any seizure, attachment, execution or other legal
process in respect thereto.
(c) Prohibited Transactions. The Depositor shall not engage in any transaction
with respect to the Account which is prohibited under section 4975 of the Code
and which, under section 408(e) of the Code, would cause the Account no longer
to qualify as an individual retirement account.
(d) Entire Agreement. This document constitutes the entire contract between
Depositor and Custodian. No representative of Heritage, nor of any
broker-dealer, shall be deemed to be a representative of or acting on behalf of
the Custodian nor shall any representative have any authority to make
representations or to bind the Custodian beyond the terms of this document.
(e) Notices. Except where otherwise specifically required in this Agreement, any
notice from the Custodian to any person provided for in this Agreement shall be
effective if sent by first-class mail to such person at that person's last
address on the Custodian's records.
(f) Governing Law. This Agreement is accepted by the Custodian in the
Commonwealth of Massachusetts and shall be construed and administered in
accordance with the law of such commonwealth, except to the extent such law is
superseded by applicable Federal law. This Agreement is intended to qualify
under section 408 of the Code as an individual retirement custodian account
agreement and for the retirement savings deduction, if any, permitted under
section 219 of the Code. If any provision hereof is subject to more than one
interpretation or any term used herein is subject to more than one construction,
such ambiguity shall be resolved in favor of that interpretation or construction
which is consistent with such intent.
GENERAL INSTRUCTIONS
(Section references are to the Internal Revenue Code unless otherwise noted.)
PURPOSE OF FORM
Form 5305-A is a model custodial account agreement that meets the requirements
of section 408(a) and has been automatically approved by the IRS. An individual
retirement account (IRA) is established after the form is fully executed by both
the individual (Depositor) and the Custodian and must be completed not later
than the due date of the individual's income tax return for the tax year
(without regard to extensions). This account must be created in the United
States for the exclusive benefit of the Depositor or his/her beneficiaries.
Individuals may rely on regulations for the Tax Reform Act of 1986 to the extent
specified in those regulations.
Do not file Form 5305-A with the IRS. Instead, keep it for your records.
For more information on IRAs, including the required disclosure statement you
can get from your custodian, get Publication 590, Individual Retirement
Arrangements (IRAs).
DEFINITIONS
"Custodian" - The custodian must be a bank or savings and loan association, as
defined in section 408(n), or other person who has the approval of the IRS to
act as custodian.
"Depositor" - The Depositor is the person who establishes the custodial account.
IDENTIFYING NUMBER
The depositor's social security number will serve as the identification number
of his or her IRA. An employer identification number is only required for an IRA
for which a return is filed to report unrelated business taxable income. An
employer identification number is required for a common fund created for IRAs.
IRA FOR NON-WORKING SPOUSE
Form 5305-A may be used to establish the IRA custodial account for a non-working
spouse.
Contributions to an IRA custodial account for a non-working spouse must be made
to a separate IRA custodial account established by the non-working spouse.
SPECIFIC INSTRUCTIONS
Article IV - Distributions made under this Article may be made in a single sum,
periodic payment, or a combination of both. The distribution option should be
reviewed in the year the Depositor reaches age 70 1/2 to make sure the
requirements of section 408(a)(6) have been met.
Article VIII - This Article and any that follow it may incorporate additional
provisions that are agreed upon by the depositor and custodian to complete the
agreement. They may include, for example: definitions, investment powers, voting
rights, exculpatory provisions, amendment and termination, removal of custodian,
custodian's fees, state law requirements, beginning date of distributions,
accepting only cash, treatment of excess contributions, prohibited transactions
with the depositor, etc.
15
<PAGE> 17
This page is intentionally left blank.
<PAGE> 18
LOGO HERITAGE IRA APPLICATION AND AGREEMENT
The individual named below ("Depositor") hereby adopts a Heritage IRA,
appointing State Street Bank and Trust Co. of Boston, MA to serve as
"Custodian," to perform the administrative services required by the Individual
Retirement Custodial Account Agreement, effective upon acceptance by the
Custodian.
TYPE OF ACCOUNT
- --------------------------------------------------------------------------------
[ ] Individual [ ] Spousal* [ ] SEP** [ ] SIMPLE**
[ ] Rollover (letter attached) [ ] Transfer of Assets (letter attached)
* A spousal IRA may be opened by a spouse without earned income. You may invest
a total of $4,000 in both IRAs each year ($2,000 annual maximum for either
spouse). If you and your spouse are establishing a Heritage IRA, each of you
must complete a separate IRA Application and Agreement.
** Depositor should verify that his or her employer has established a Plan.
ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Name
---------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City State Zip
------------------ -------------------- ------------------------
Social Security Number Birthdate
--------------------------- -------------------
Investment (List amount to be invested in each Fund separately)
<TABLE>
<S> <C>
$
- ------------------------------------------------------------ ----------------
$
- ------------------------------------------------------------ ----------------
$
- ------------------------------------------------------------ ----------------
Establishment Fee $ 5.00
----------------
Total $
----------------
</TABLE>
[ ] I qualify for a reduced sales charge under the Rights of Accumulation
privilege as described in the Fund's Prospectus. Below are listed all the
accounts which should be considered in determining the Rights of
Accumulation.
- --------------------------- --------------------------- ----------------------
APPLICANT MUST SIGN AND DATE THIS AGREEMENT ON REVERSE.
DEALER INFORMATION (COMPLETED BY INVESTMENT DEALER)
- --------------------------------------------------------------------------------
We hereby authorize the Distributor, Raymond James and Associates, Inc. to act
as our agent in connection with transactions under this agreement and agree to
notify the Distributor of any purchases made under the Rights of Accumulation
privilege. We guarantee the shareholder's signature.
<TABLE>
<S> <C>
- ---------------------------------------- --------------------------------------------
Name of Investment Dealer Name and No. of Registered Representative
- ---------------------------------------- --------------------------------------------
Name and No. of Branch Office Signature of Registered Representative
</TABLE>
<PAGE> 19
IRA ROLLOVER
- --------------------------------------------------------------------------------
[ ] This is a rollover from a qualified corporate pension or profit-sharing
plan, Keogh plan or 403(b) tax-sheltered annuity,* or a distribution from
another IRA. (*Distributions in which you actually receive proceeds from these
plans may be invested in an IRA within 60 days after they are received.)
TELEPHONE EXCHANGE*
- --------------------------------------------------------------------------------
[ ] If you do not want to have Telephone Exchange privilege, please check here.
* I understand the Trust, Manager, Distributor and their Trustees, directors,
officers and employees are not responsible for any loss arising out of
telephone instructions that they reasonably believe are authentic, provided
they follow reasonable procedures as described in the Prospectus and SAI.
BENEFICIARY INSTRUCTIONS
- --------------------------------------------------------------------------------
I name the beneficiary(ies) below according to the provisions of my Individual
Retirement Custodial Account Agreement. I direct that all benefits to which I
may be entitled shall be paid as follows upon my death:
Primary Beneficiary(ies)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Name Address Relationship SSN Birthdate Allocation %
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Contingent Beneficiary(ies)
- ------------------------------------------------------------------------------------------------------------------------
Name Address Relationship SSN Birthdate Allocation %
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(If more than one person is listed, all persons in the group living at the time
of Depositor's death will share equally, unless otherwise provided.)
CONSENT OF SPOUSE (APPLICABLE IN COMMUNITY PROPERTY STATES WHEN SPOUSE IS NOT
SOLE PRIMARY BENEFICIARY): I consent to the above beneficiary designation. By
signing this consent, I intend to change the portion (if any) of this Individual
Retirement Account which is community property into the separate property of my
spouse.
Signature Date
----------------------------- ------------------------------------
PLACE SIGNATURE GUARANTEE HERE.
IRA AGREEMENT AND CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
- --------------------------------------------------------------------------------
By execution of this Application and Agreement, I adopt and accept the
Individual Retirement Custodial Account Agreement (IRS Form 5305-A) for use in
connection with the Heritage IRA Program. The executed Custodial Account
Agreement establishes an Individual Retirement Custodial Account, of which State
Street Bank and Trust Company is appointed Custodian. I have received and read
the text of Form 5305-A, in which I am directing an investment and the
accompanying IRA disclosure statement. I have also read and received a current
prospectus for each Fund in which I am directing an investment and a description
of any option selected, and I agree that an annual maintenance fee of $10.00
will be deducted from each IRA plan in February of each year for the prior
calendar year unless I have paid such fee by December 31 of the prior year.
Heritage may be required to withhold Federal income tax of 31% from all
dividends, capital gains and liquidations if I have not certified my Taxpayer ID
Number, and unless I certify that I am not subject to backup withholding. I will
strike out clause (2) below if the IRS has notified me that I am subject to
backup withholding and the IRS has not since notified me that backup withholding
has ended. Under penalties of perjury, I certify (1) that my Taxpayer ID Number
under Account Information is correct, and (2) that I am not subject to backup
withholding because (a) I have not been notified that I am subject to backup
withholding as a result of failure to report all interest or dividends, or (b)
the IRS has notified me that I am no longer subject to backup withholding.
Signature of Depositor Date
------------------------------ ---------------------
Signature of Custodian Date
----------------------------- ---------------------
(Custodian's signature is not intended to certify Depositor's Taxpayer ID
Number)
MAILING INSTRUCTIONS
- --------------------------------------------------------------------------------
Mail Agreement and check(s) made payable to State Street Bank and Trust Co.
to: Heritage Asset Management,Inc.
PO Box 33022
St. Petersburg, FL 33733
<PAGE> 20
LOGO HERITAGE IRA APPLICATION AND AGREEMENT
The individual named below ("Depositor") hereby adopts a Heritage IRA,
appointing State Street Bank and Trust Co. of Boston, MA to serve as
"Custodian," to perform the administrative services required by the Individual
Retirement Custodial Account Agreement, effective upon acceptance by the
Custodian.
TYPE OF ACCOUNT
- --------------------------------------------------------------------------------
[ ] Individual [ ] Spousal* [ ] SEP** [ ] SIMPLE**
[ ] Rollover (letter attached) [ ] Transfer of Assets (letter attached)
* A spousal IRA may be opened by a spouse without earned income. You may invest
a total of $4,000 in both IRAs each year ($2,000 annual maximum for either
spouse). If you and your spouse are establishing a Heritage IRA, each of you
must complete a separate IRA Application and Agreement.
** Depositor should verify that his or her employer has established a Plan.
ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Name
---------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City State Zip
------------------ -------------------- ------------------------
Social Security Number Birthdate
--------------------------- -------------------
Investment (List amount to be invested in each Fund separately)
<TABLE>
<S> <C>
$
- ------------------------------------------------------------ ----------------
$
- ------------------------------------------------------------ ----------------
$
- ------------------------------------------------------------ ----------------
Establishment Fee $ 5.00
----------------
Total $
----------------
</TABLE>
[ ] I qualify for a reduced sales charge under the Rights of Accumulation
privilege as described in the Fund's Prospectus. Below are listed all the
accounts which should be considered in determining the Rights of
Accumulation.
- --------------------------- --------------------------- ----------------------
APPLICANT MUST SIGN AND DATE THIS AGREEMENT ON REVERSE.
DEALER INFORMATION (COMPLETED BY INVESTMENT DEALER)
- --------------------------------------------------------------------------------
We hereby authorize the Distributor, Raymond James and Associates, Inc. to act
as our agent in connection with transactions under this agreement and agree to
notify the Distributor of any purchases made under the Rights of Accumulation
privilege. We guarantee the shareholder's signature.
<TABLE>
<S> <C>
- ---------------------------------------- --------------------------------------------
Name of Investment Dealer Name and No. of Registered Representative
- ---------------------------------------- --------------------------------------------
Name and No. of Branch Office Signature of Registered Representative
</TABLE>
<PAGE> 21
IRA ROLLOVER
- --------------------------------------------------------------------------------
[ ] This is a rollover from a qualified corporate pension or profit-sharing
plan, Keogh plan or 403(b) tax-sheltered annuity,* or a distribution from
another IRA. (*Distributions in which you actually receive proceeds from these
plans may be invested in an IRA within 60 days after they are received.)
TELEPHONE EXCHANGE*
- --------------------------------------------------------------------------------
[ ] If you do not want to have Telephone Exchange privilege, please check here.
* I understand the Trust, Manager, Distributor and their Trustees, directors,
officers and employees are not responsible for any loss arising out of
telephone instructions that they reasonably believe are authentic, provided
they follow reasonable procedures as described in the Prospectus and SAI.
BENEFICIARY INSTRUCTIONS
- --------------------------------------------------------------------------------
I name the beneficiary(ies) below according to the provisions of my Individual
Retirement Custodial Account Agreement. I direct that all benefits to which I
may be entitled shall be paid as follows upon my death:
Primary Beneficiary(ies)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Name Address Relationship SSN Birthdate Allocation %
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Contingent Beneficiary(ies)
- ------------------------------------------------------------------------------------------------------------------------
Name Address Relationship SSN Birthdate Allocation %
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(If more than one person is listed, all persons in the group living at the time
of Depositor's death will share equally, unless otherwise provided.)
CONSENT OF SPOUSE (APPLICABLE IN COMMUNITY PROPERTY STATES WHEN SPOUSE IS NOT
SOLE PRIMARY BENEFICIARY): I consent to the above beneficiary designation. By
signing this consent, I intend to change the portion (if any) of this Individual
Retirement Account which is community property into the separate property of my
spouse.
Signature Date
----------------------------- ------------------------------------
PLACE SIGNATURE GUARANTEE HERE.
IRA AGREEMENT AND CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
- --------------------------------------------------------------------------------
By execution of this Application and Agreement, I adopt and accept the
Individual Retirement Custodial Account Agreement (IRS Form 5305-A) for use in
connection with the Heritage IRA Program. The executed Custodial Account
Agreement establishes an Individual Retirement Custodial Account, of which State
Street Bank and Trust Company is appointed Custodian. I have received and read
the text of Form 5305-A, in which I am directing an investment and the
accompanying IRA disclosure statement. I have also read and received a current
prospectus for each Fund in which I am directing an investment and a description
of any option selected, and I agree that an annual maintenance fee of $10.00
will be deducted from each IRA plan in February of each year for the prior
calendar year unless I have paid such fee by December 31 of the prior year.
Heritage may be required to withhold Federal income tax of 31% from all
dividends, capital gains and liquidations if I have not certified my Taxpayer ID
Number, and unless I certify that I am not subject to backup withholding. I will
strike out clause (2) below if the IRS has notified me that I am subject to
backup withholding and the IRS has not since notified me that backup withholding
has ended. Under penalties of perjury, I certify (1) that my Taxpayer ID Number
under Account Information is correct, and (2) that I am not subject to backup
withholding because (a) I have not been notified that I am subject to backup
withholding as a result of failure to report all interest or dividends, or (b)
the IRS has notified me that I am no longer subject to backup withholding.
Signature of Depositor Date
------------------------------ ---------------------
Signature of Custodian Date
----------------------------- ---------------------
(Custodian's signature is not intended to certify Depositor's Taxpayer ID
Number)
MAILING INSTRUCTIONS
- --------------------------------------------------------------------------------
Mail Agreement and check(s) made payable to State Street Bank and Trust Co.
to: Heritage Asset Management,Inc.
PO Box 33022
St. Petersburg, FL 33733
<PAGE> 22
HERITAGE FAMILY OF FUNDS(TM)
REQUEST FOR TRANSFER OR DIRECT ROLLOVER
1. GENERAL INFORMATION:
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------------
Name of Current Custodian Name of Account Holder
- ------------------------------------------------------------ ---------------------------------------------
Address of Current Custodian Social Security Number
- ------------------------------------------------------------ ---------------------------------------------
City State Zip Daytime Phone Number
- ------------------------------------------------------------
Current Fund and Account Number
</TABLE>
[ ] TRANSFER REQUEST: (CHECK HERE IF TRANSFERRING FROM AN IRA)
I authorize and direct you, the above current Custodian/Trustee of my IRA,
to send as a transfer to State Street Bank and Trust Company as successor
fiduciary the assets indicated in section 2 below.
[ ] DIRECT ROLLOVER REQUEST: (CHECK HERE FOR DIRECT ROLLOVERS FROM A QUALIFIED
PLAN)
I authorize and direct you, the above Plan Administrator of my qualified
plan or tax sheltered annuity, to directly rollover to State Street Bank and
Trust Company as successor fiduciary the assets indicated in section 2
below.
2. PAYMENT INFORMATION:
A. I authorize and direct you to send my assets as follows:
_________ 1. Immediately liquidate all assets and send the cash proceeds.
_________ 2. Immediately liquidate and send cash proceeds in the amount of
__________________.
_________ 3. Send cash proceeds of all investments at maturity.
B. I authorize you to send the proceeds indicated above to State Street Bank
and Trust Company as successor fiduciary payable as follows:
HERITAGE ASSET MANAGEMENT, INC.
ATTN: RETIREMENT PLAN COORDINATOR
FBO ___________________
P.O. BOX 33022
ST. PETERSBURG, FL 33733
C. Conduit IRA. I would like to keep these funds in a separate IRA
_________ Yes
_________ No
3. INSTRUCTIONS FOR TRANSFEREE CUSTODIAN:
_________ A. I am opening a new account and have attached a Heritage
Individual Retirement Account Agreement.
_________ B. Deposit the proceeds to my existing Heritage Account _______
Fund: ___________________________________ Percentage ____________________
Fund: ___________________________________ Percentage ____________________
Fund: ___________________________________ Percentage ____________________
4. SIGNATURES:
I certify that I have/will establish an IRA with the State Street Bank and Trust
Company Custodian/Trustee. I agree to the terms of this form. I understand that
I am responsible for determining my eligibility for all transfers or direct
rollovers and I agree to indemnify and to hold the Custodian/Trustee harmless
against any and all situations arising from an ineligible transfer or direct
rollover. I acknowledge that the Custodian/Trustee cannot provide legal advice
and I agree to consult with my own tax professional for advice. I certify that I
am aware of any fees or penalties that may be imposed by the present
Custodian/Trustee. I have received and read the prospectus for the fund(s) in
which I am making my investment. I understand that if I am 70 1/2, I must meet
my Required Minimum Distribution obligation from my current account before I can
transfer any assets into my State Street Bank & Trust Custodial Account.
State Street Bank and Trust Company has established an IRA plan qualified under
IRC Section 408 for this individual and will accept the transfer or direct
rollover of assets.
Executed this __________ day of _________________, 19________.
<TABLE>
<S> <C>
__________________________________________________________ __________________________________________________________
Signature of Individual Place Signature Guarantee Here
Accepted by Transferee Custodian, State Street Bank and Trust Company
By: ______________________________________________________ __________________________
Signature of Custodian/Trustee Date
</TABLE>
QUESTIONS CONCERNING THIS FORM?
PLEASE CALL OUR CLIENT SERVICE REPRESENTATIVES AT 1-800-421-4184.
<PAGE> 23
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<PAGE> 24
LOGO
HERITAGE FAMILY OF
MUTUAL FUNDS
HERITAGE SERIES TRUST-
EAGLE INTERNATIONAL EQUITY PORTFOLIO
Capital appreciation
principally through investment in an
international portfolio of equity securities.
HERITAGE SERIES TRUST-
SMALL CAP STOCK FUND
Long-term capital appreciation
through the purchase of equity securities
of companies with small market capitalization.
HERITAGE SERIES TRUST-
GROWTH EQUITY FUND
Growth through long-term capital appreciation.
HERITAGE CAPITAL APPRECIATION TRUST
Long-term capital appreciation.
HERITAGE SERIES TRUST-
VALUE EQUITY FUND
Long-term capital appreciation
with a secondary objective of current income.
HERITAGE INCOME-GROWTH TRUST
Long-term total return
by seeking, with approximately equal emphasis,
current income and capital appreciation.
HERITAGE INCOME TRUST-
HIGH YIELD BOND FUND
High current income
by investing in a portfolio of lower-
and medium-rated high yield,
fixed income securities.
HERITAGE INCOME TRUST-
INTERMEDIATE GOVERNMENT FUND
High current income consistent with the
preservation of capital.
HERITAGE CASH TRUST-
MUNICIPAL MONEY MARKET FUND
Maximum current income
exempt from
Federal income tax consistent
with stability of principal.
HERITAGE CASH TRUST-
MONEY MARKET FUND
Maximum current income
consistent with the stability of principal.
For complete information, including charges and expenses,
please ask your financial advisor for a prospectus.
Read it carefully before you invest or send money.
<PAGE> 25
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<PAGE> 26
[Assorted black and white photos of people working and playing.]
The Heritage Individual Retirement Custodial Account Agreement and related
documents are intended to comply with current provisions of the Internal
Revenue Code. However Heritage Asset Management, Inc. assumes no responsibility
as to the efficiency or legal sufficiency under federal, state or local law of
this Agreement in a particular case.
[LOGO]
HERITAGE ASSET MANAGEMENT, INC.
880 CARILLON PARKWAY, P.O. BOX 33022
ST. PETERSBURG, FL. 33733
(813) 573-8143, (800) 421-4184
RAYMOND JAMES & ASSOCIATES, INC. DISTRIBUTOR
MEMBER NEW YORK STOCK EXCHANGE/SIPC
HERITAGE CASH TRUST
HERITAGE CAPITAL APPRECIATION TRUST
HERITAGE INCOME-GROWTH TRUST
HERITAGE INCOME TRUST
HERITAGE SERIES TRUST
Multiple Class Plan Pursuant to Rule 18f-3
The investment companies listed on Appendix A attached hereto (each a
"Fund" and collectively, the "Funds") hereby adopt this Multiple Class Plan
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act").
A. CLASSES OFFERED
---------------
1. Class A. Class A shares are offered to investors of each of the
Funds subject to an initial sales charge. The maximum sales charge varies
between 0.00% and 4.75% of the amount invested and may decline based on
discounts for volume purchases. The initial sales charge may be waived for
certain eligible purchasers or under certain circumstances.
If the initial sales charge is waived on a purchase of shares, a
contingent deferred sales load ("CDSL") of up to 1.0% may be imposed on any
redemption of those sales within two (2) years of the purchase. Class A shares
also are subject to an annual service fee ranging from 0.15% to 0.25% and a
distribution fee ranging from 0.00% to 0.25% of the average daily net assets of
the Class A shares paid pursuant to a plan of distribution adopted pursuant to
Rule 12b-1. Class A shares require an initial investment of $1,000, except for
certain retirement accounts and investment plans for which lower limits may
apply.
2. Class B. Class B shares are offered to investors of each of the
Funds subject to a CDSL, but without imposition of an initial sales charge. The
maximum CDSL for Class B shares of each Fund is equal to 5% of the lower of: (1)
the net asset value of the shares at the time of purchase or (2) the net asset
value of the shares at the time of redemption. The CDSL will decline over a
eight-year period after purchase to 0%, at the end of which the Class B shares
will convert to Class A shares at relative net asset value.
Class B shares are subject to an annual service fee of up to 0.25% of
average daily net assets and a distribution fee of up to 0.75% of average daily
net assets of the Class B shares of each Fund, each paid pursuant to a plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act. Class B shares
require an initial investment of $1,000, except for certain retirement accounts
and investment plans for which lower limits may apply.
3. Class C. Class C shares are offered to investors of each of the
Funds subject to a CDSL on redemptions of shares held less than one year. The
Class C CDSL is equal to 1% of the lower of: (1) the net asset value of the
shares at the time of purchase or (2) the net asset value of the shares at the
time of redemption. Class C shares held longer than one year and Class C shares
acquired through reinvestment of dividends or capital gains distributions on
shares otherwise subject to a Class C CDSL are not subject to the CDSL. The CDSL
for Class C shares of the Funds may be waived under certain circumstances. Class
C shares are subject to an annual service fee ranging from 0.15% to 0.25% of
average daily net assets and a distribution fee ranging from 0.00% to 0.75% of
average daily net assets of the Class C shares of the Fund, each paid pursuant
to a plan of distribution adopted pursuant to Rule 12b-1. Class C shares require
an initial investment of $1,000, except for certain retirement accounts and
investment plans for which lower limits may apply.
<PAGE>
4. Eagle Class. The Eagle International Equity Portfolio of Heritage
Series Trust offers the Eagle Class of Shares. Eagle Class shares are offered to
all investors without the imposition of an initial sales charge or a contingent
deferred sales load. Eagle Class shares require an initial investment of
$50,000, except for investors who already maintain an account with Eagle Asset
Management, Inc. for which a $25,000 minimum initial investment applies. Eagle
Class shareholders incur an annual service fee of .25% of average daily net
assets and a distribution fee of .75% of average daily net assets of the Eagle
Class shares of the Portfolio, each paid pursuant to a plan of distribution
adopted pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1"). All of the
shares of the Portfolio issued pursuant to a Portfolio prospectus effective
prior to the Implementation Date and that are outstanding on the Implementation
Date will be designated as Eagle Class shares.
B. EXPENSE ALLOCATIONS OF EACH CLASS
---------------------------------
Certain expenses may be attributable to a particular class of shares of
each Fund ("Class Expenses"). Class Expenses are charged directly to the net
assets of the particular class and, thus are borne on a pro rata basis by the
outstanding shares of that class.
Each class may pay a different amount of the following other expenses:
(1) distribution and service fees, (2) transfer agent fees identified as being
attributable to a specific class, (3) stationery, printing, postage, and
delivery expenses related to preparing and distributing materials such as
shareholder reports, prospectuses, and proxy statements to current shareholders
of a class, (4) Blue Sky registration fees incurred by a specific class of
shares, (5) Securities and Exchange Commission registration fees incurred by a
specific class of shares, (6) expenses of administrative personnel and services
required to support the shareholders of a specific class, (7) trustees' fees or
expenses incurred as a result of issues relating to a specific class of shares,
(8) accounting expenses relating solely to a specific class of shares, (9)
auditors' fees, litigation expenses, and legal fees and expenses relating to a
specific class of shares, and (10) expenses incurred in connection with
shareholders meetings as a result of issues relating to a specific class of
shares.
C. EXCHANGE FEATURES
-----------------
If an investor has held Class A, Class B or Class C shares for at least
30 days, the investor may exchange those shares for shares of the corresponding
class of any other mutual fund for which Heritage Asset Management, Inc. serves
as investment adviser ("Heritage mutual funds"). All exchanges are subject to
the minimum investment requirements and any other applicable terms set forth in
the prospectus for the Heritage mutual funds whose shares are being acquired.
Class C shares, however, are not eligible for exchange into the Heritage
Municipal Money Market Fund. Eagle Class Shares are not exchangeable.
These exchange privileges may be modified or terminated by a Fund, and
exchanges may be made only into Funds that are registered legally for sale in
the investor's state of residence.
D. ADDITIONAL INFORMATION
----------------------
This Multiple Class Plan is qualified by and subject to the terms of
the then current prospectus for the applicable classes; provided, however, that
none of the terms set forth in any such prospectus shall be inconsistent with
the terms of the classes contained in this Plan. The prospectuses for the Eagle
Class and for the Class A, Class B and Class C shares contain additional
information about those classes and each Fund's multiple class structure.
Dated: January 2, 1998
2
<PAGE>
APPENDIX A
to the Heritage Mutual Funds
Multiple Class Plan Pursuant to Rule 18f-3
Heritage Cash Trust:
Money Market Fund -- Class A, Class B and Class C shares
Municipal Money Market Fund - Class A shares
Heritage Capital Appreciation Trust -- Class A, Class B and Class C shares
Heritage Income-Growth Trust -- Class A, Class B and Class C shares
Heritage Income Trust:
High Yield Bond Fund -- Class A, Class B and Class C shares
Intermediate Government Fund -- Class A, Class B and Class C shares
Heritage Series Trust:
Small Cap Stock Fund -- Class A, Class B and Class C shares
Value Equity Fund -- Class A, Class B and Class C shares
Growth Equity Fund -- Class A Class B and Class C shares
Mid Cap Growth Fund - Class A, Class B and Class C shares
Eagle International Equity Portfolio -- Class A, Class B, Class C and
Eagle Class shares
Dated: January 2, 1998
