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From Our Family to Yours: The Intelligent Creation of Wealth.
Annual Report
and Investment Performance
Review for the Year Ended
September 30, 2000
[logo]
Heritage
----------------
Income-Growth
Trust(trademark)
----------------
<PAGE>
October 30, 2000
Dear Valued Shareholders:
I am pleased to provide you with the annual report for Heritage Income-Growth
Trust (the "Fund") for the fiscal year ended September 30, 2000. For this
one-year period, your Fund had a total return of +4.74%*, +3.95%* and +3.95%*
on its Class A, Class B and Class C shares, respectively. For the same 12 month
period ended September 30, 2000 the Standard & Poor's 500 Composite Stock Price
Index had a total return of +13.28%.
After posting a gain of +14.88% during the fourth quarter of last year, stock
prices have declined during the first nine months of calendar 2000. Technology
stocks declined by -19.7% during the six months ended September 30, 2000. As
noted herein by portfolio managers Lou Kirschbaum and David Blount, the Fund's
technology exposure has been significantly below the S&P 500 Index. This
coupled with the Fund's holdings in more defensive stocks has resulted in the
Fund's outperformance of the market during the past nine months.
For your information, effective October 5, 2000, I assumed the position of
President of the Heritage Income-Growth Trust, replacing Brian Lee. I have
served as a member of the Board of Trustees since the inception of the Fund and
look forward to communicating with you in the future.
Thank you for your continued support of Heritage Family of Funds and for your
investment in Heritage Income-Growth Trust. Please call your financial advisor
or Heritage at (800) 421-4184 if you have any questions.
Sincerely,
/s/ Richard K. Riess
---------------------
Richard K. Riess
President
----------
* These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
<PAGE>
October 27, 2000
Dear Fellow Shareholders:
We are happy to present to you a review for the Heritage Income-Growth Trust
(the "Fund") for the fiscal year ended September 30, 2000. The financial
markets have displayed multiple personalities over the past 12 months. The
first half of the period was dominated (an understatement!) by technology
stocks, which went nearly vertical in October 1999 and kept climbing until
mid-March of this year. The ensuing six months were characterized by wave after
wave of sector rotation, as capital flowed out of the technology sector into
more defensive groups, and back again.
Against a backdrop of slowing demand, deteriorating credit quality, supply
chain disruptions, currency translation adjustments, and rising input costs
(particularly fuel and petrochemicals), the goldilocks economy of the past few
years has fled. The market's recent turbulence reflects, at least in part, a
markdown in earnings growth expectations across a rather broad cross section of
economic sectors.
In our report to you six months ago, we noted that the Fund's relative
performance was showing marked improvement in late March and heading into the
spring. It should come as no surprise that the Income-Growth Trust would
perform better as the stock market environment becomes more volatile. That is
what the Fund is designed for. We believe turbulent markets bring out the
Fund's defensive characteristics.
For the six months ended September 30th, the Fund's Class A shares produced a
positive total return of 1.0%*. This compared to the Standard & Poor's 500
Composite Stock Price Index's ("S&P 500") negative return of (4.0%) and a loss
in the Value Line Composite average of (2.1%). Through the first nine months of
calendar 2000, the Income-Growth Trust's Class A shares produced a positive
return of 1.3%*, vs. losses in the S&P 500 of (1.4%) and the Value Line of
(2.6%).
Contributors to the Fund's performance include classic defensive groups such as
pharmaceutical manufacturers and food/beverage makers. Notable among the drug
stocks in the portfolio are Pfizer, American Home Products, and Alpharma. The
latter, which is not as well known as the others, is a mid-cap company that has
compiled a very impressive earnings growth record over the past three years.
The Fund holds Alpharma in the form of a convertible debenture, which provides
a more defensive way to participate in the company's growth than owning the
stock itself (and an income stream to boot).
PepsiCo and SYSCO are two stocks in the food and beverage categories that have
contributed to the Fund's recent performance. PepsiCo, the perennial second
banana to Coca Cola, has differentiated itself (and the performance of its
stock) by reconstituting its soft drink business while producing powerful
growth in its snack food lines (Frito Lay). SYSCO, the largest distributor of
food and other products to restaurant operators, is one of the steadiest and
best managed growth companies we have found. Its growth is accelerating as its
market share has become more commanding.
On the other side of the ledger, the most meaningful laggards in the portfolio
included the telecommunications stocks --ALLTEL, Verizon, and AT&T. ALLTEL has
been going through an adjustment period in its wireless telephone business, as
has much of the wireless industry. The underlying trends in the business are
very positive, however, and we expect the pace of earnings growth to accelerate
sharply in the coming year. In addition the stock trades at a very material
discount to the underlying value of its assets. Verizon, the product of a
merger between Bell Atlantic and GTE, is in the stock market's penalty box as
earnings expectations had to be recalibrated following the merger. We believe
this adjustment is nearly complete, and we expect the stock to respond
favorably as market confidence in the company's earning power builds. AT&T,
faced with enormous challenges in all of its businesses, is under extraordinary
pressure to restore shareholder value. We think the inherent value of the
company's business franchise is materially mispriced in the stock market at
present, which explains why we hold the shares.
----------
*These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
2
<PAGE>
As we move forward, we will continue to apply the defensive investment
strategies that are the hallmark of the Heritage Income-Growth Trust. We
believe that the portfolio is well diversified, with a prudent mix of companies
that are industry leaders, have strong balance sheets, produce consistent
surplus cash flows, and generally provide above-market dividend yields. The
Fund has virtually no exposure in the commodity-oriented basic industry sector.
Our technology exposure is well below that of the S&P 500 Index, and most of
our holdings in this sector are the premier participants in their respective
fields. We have strategically avoided the most cyclical sub-sectors in this
category.
The Fund holds modest weightings in such defensive sectors as pharmaceuticals,
beverages, packaged foods, oils and gas, and utilities. These have helped
buffer performance, as the market has become increasingly choppy.
We view the market's recent action as a healthy step toward correcting the
extreme imbalances that have accumulated over the past several years. As
speculative excesses are squeezed out of the market, investor focus has
broadened to include many stocks that had fallen out of favor in spite of
consistently positive profit growth. A broadening trend favors our investment
approach, as recent results have demonstrated.
Sincerely,
/s/ Lou Kirschbaum /s/ David Blount
-------------------- ----------------------
Lou Kirschbaum David Blount
Managing Director Senior Vice President
Eagle Asset Management, Inc. Eagle Asset Management, Inc.
Portfolio Manager, Income-Growth Trust Portfolio Manager, Income-Growth Trust
3
<PAGE>
Growth of a $10,000 Investment
since October 1, 1990 of Heritage Income-Growth Trust
Class A Shares
[chart data goes here]
Growth of a $10,000 Investment
since inception of Heritage Income-Growth Trust
Class B Shares on January 2, 1998
[chart data goes here]
* Average annual total returns for Heritage Income-Growth Trust Class A and B
Shares are calculated in conformance with item 21 of Form N-1A, which
assumes the maximum sales load of 4.75% for Class A Shares, a contingent
deferred sales load for Class B Shares (4% for the one year period and 3%
for the life) and reinvestment of dividends for Class A and B Shares.
Performance presented represents historical data. 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.
The Fund's past performance is not indicative of future performance and
should be considered in light of the Fund's investment policy and
objectives, the characteristics and quality of its portfolio securities,
and the periods selected.
** The Value Line Index does not include reinvestment of dividends.
4
<PAGE>
Growth of a $10,000 Investment
since inception of Heritage Income-Growth Trust
Class C Shares on April 3, 1995
[chart data goes here]
* Average annual returns for Heritage Income-Growth Trust Class C Shares are
calculated in conformance with item 21 of Form N-1A, which assumes
reinvestment of dividends for Class C Shares. Performance presented
represents historical data. 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. The Fund's past performance
is not indicative of future performance and should be considered in light
of the Fund's investment policy and objectives, the characteristics and
quality of its portfolio securities, and the periods selected.
** The Value Line Index does not include reinvestment of dividends.
5
<PAGE>
--------------------------------------------------------------------------------
Heritage Income-Growth Trust
Investment Portfolio
September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
------ -----
<S> <C>
Common Stocks--91.2% (a)
------------------------
Automotive--1.3%
----------------
33,215 Ford Motor Company ................ $ 840,754
----------
Banking--4.9%
-------------
12,666 Citigroup Inc. .................... 684,755
54,000 Mellon Financial Corporation ...... 2,504,250
----------
3,189,005
----------
Beverages--2.0%
---------------
28,000 PepsiCo, Inc. ..................... 1,288,000
----------
Communication Services--9.9%
----------------------------
39,000 ALLTEL Corporation ................ 2,035,313
25,000 AT&T Corporation .................. 734,375
30,000 SBC Communications, Inc. .......... 1,500,000
46,360 Verizon Communications ............ 2,245,563
----------
6,515,251
----------
Communications Equipment--2.7%
------------------------------
20,000 Cisco Systems, Inc. * ............. 1,105,000
10,400 Lucent Technologies, Inc. ......... 317,850
12,000 Motorola, Inc. .................... 339,000
----------
1,761,850
----------
Computer Equipment--2.7%
------------------------
24,000 Compaq Computer Corporation........ 661,920
12,500 Dell Computer Corporation * ....... 385,156
2,500 Hewlett-Packard Company ........... 242,500
4,000 International Business Machines
Corporation ....................... 450,000
----------
1,739,576
----------
Computer Peripheral Equipment--2.3%
-----------------------------------
12,000 EMC Corporation * ................. 1,189,500
7,000 Solectron Corporation * ........... 322,875
----------
1,512,375
----------
Cosmetics & Toiletries--2.2%
----------------------------
35,000 Avon Products, Inc. ............... 1,430,625
----------
Electronic Equipment--6.7%
--------------------------
56,000 General Electric Company .......... 3,230,500
32,000 Honeywell International Inc. ...... 1,140,000
----------
4,370,500
----------
Entertainment--2.8%
-------------------
23,635 Time Warner, Inc. ................. 1,849,439
----------
Financial Institutions--3.5%
----------------------------
30,000 American Express Company .......... 1,822,500
12,000 Associates First Capital
Corporation ....................... 456,000
----------
2,278,500
----------
<CAPTION>
Market
Shares Value
------ -----
<S> <C>
Common Stocks (continued)
-------------------------
Food--4.2%
----------
25,000 H.J. Heinz Company ................ 926,563
40,000 Sysco Corporation ................. 1,852,500
----------
2,779,063
----------
Insurance--5.8%
---------------
12,000 Marsh & McLennan Companies,
Inc. (b) .......................... 1,593,000
83,000 MetLife, Inc. * ................... 2,173,563
----------
3,766,563
----------
Logic Semiconductors--0.9%
--------------------------
14,800 Intel Corporation ................. 615,125
----------
Machinery--0.9%
---------------
18,000 Deere & Company ................... 598,500
----------
Manufacturing Industries--1.7%
------------------------------
12,100 Minnesota Mining &
Manufacturing Company ............. 1,102,613
----------
Medical Equipment--0.9%
-----------------------
30,000 Pall Corporation .................. 598,125
----------
Metal Products--1.3%
--------------------
39,600 Harsco Corporation ................ 873,675
----------
Oil & Gas--6.1%
--------------
30,000 British Petroleum Company,
PLC, Sponsored ADR ................ 1,590,000
27,000 Exxon Mobil Corporation ........... 2,406,375
----------
3,996,375
----------
Other Investment Companies--1.8%
--------------------------------
52,446 Security Capital Preferred
Growth (c) ........................ 1,145,429
----------
Pharmaceutical--6.1%
--------------------
19,000 American Home Products
Corporation ....................... 1,074,688
10,000 Merck & Company, Inc. ............. 744,375
22,500 Pfizer, Inc. ...................... 1,011,092
13,000 Pharmacia Corporation ............. 782,438
8,000 Schering-Plough Corporation ....... 372,000
----------
3,984,593
----------
Printing & Publishing--2.7%
---------------------------
28,000 McGraw-Hill Companies, Inc. ....... 1,779,750
----------
Professional Services--3.3%
---------------------------
3,800 Electronic Data Systems
Corporation ....................... 157,700
27,000 Omnicom Group, Inc. ............... 1,969,312
----------
2,127,012
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
--------------------------------------------------------------------------------
Heritage Income-Growth Trust
Investment Portfolio
September 30, 2000
(continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
------ -----
<S> <C>
Common Stocks (continued)
-------------------------
Restaurants--2.2%
-----------------
72,000 Wendy's International, Inc. .......... $ 1,444,500
-----------
Retail Stores--3.5%
-------------------
90,000 Intimate Brands, Inc. ............. 1,681,875
12,900 Wal-Mart Stores, Inc. ............. 620,812
-----------
2,302,687
-----------
Software--2.2%
--------------
17,300 Microsoft Corporation * ........... 1,042,325
5,000 Oracle Corporation * .............. 393,750
-----------
1,436,075
-----------
Utilities--6.6%
---------------
40,000 American Water Works
Company, Inc. ..................... 1,102,500
16,000 MCN Energy Group, Inc. ............ 410,000
27,400 NiSource Inc. ..................... 667,875
50,000 Williams Companies, Inc. .......... 2,112,500
-----------
4,292,875
-----------
Total Common Stocks
(cost $47,269,381).............................. 59,618,835
-----------
Convertible Preferred Stocks--0.9% (a)
--------------------------------------
Communication Services--0.9%
----------------------------
2,500 Global Crossing Ltd., 6.75% ....... 620,625
-----------
Total Convertible Preferred Stocks
(cost $625,000)................................. 620,625
-----------
<CAPTION>
Principal Market
Amount Value
------ -----
<S> <C>
Convertible Bonds--6.9% (a)
---------------------------
Automotive--1.5%
----------------
$1,000,000 Magna International Inc., 5.0%,
10/15/02 ........................ $ 976,250
-----------
Communication Services--0.6%
----------------------------
400,000 Nextel Communications Inc.,
5.25%, 01/15/10 ................. 375,000
-----------
Other Investment Companies--0.4%
--------------------------------
250,000 Safeguard Scientifics Inc., 5.0%,
06/15/06 ........................ 249,375
-----------
Pharmaceutical--1.3%
--------------------
450,000 Alpharma Inc., 3.0%, 06/01/06 .... 879,750
-----------
Professional Services--0.7%
---------------------------
500,000 Young & Rubicam Inc., 3.0%,
01/15/05 ........................ 490,625
-----------
<CAPTION>
Principal Market
Amount Value
------ -----
<S> <C>
Convertible Bonds (continued)
---------------------------
Retail Stores--2.4%
-------------------
1,750,000 Charming Shoppes Inc., 7.5%,
07/15/06 ........................ 1,559,688
-----------
Total Convertible Bonds
(cost $4,199,845)............................... 4,530,688
-----------
Total Investment Portfolio excluding
repurchase agreement and excluding
covered call options written
(cost $52,094,226)............................... 64,770,148
-----------
Repurchase Agreement--1.5% (a)
------------------------------
Repurchase Agreement with State Street
Bank and Trust Company, dated
September 29, 2000 @ 6.35% to be
repurchased at $993,525 on
October 2, 2000, collateralized by
$815,000 United States Treasury Bonds,
8.125% due August 15, 2021, (market value
$1,014,622 including interest)
(cost $993,000).................................. 993,000
-----------
Covered Call Options Written--(0.1%) (a)*
-----------------------------------------
4,000 Marsh & McLennan Companies,
Inc. October 2000 @ $115......... (77,000)
-----------
Total Covered Call Options Written
(premium received $47,338), (0.1%) (a)........... (77,000)
Total Investment Portfolio including
covered call options written
(cost $53,039,888)(d), 100.4% (a)................ 65,686,148
Other Assets and Liabilities, net, (0.4%) (a) ... (250,772)
-----------
Net Assets, 100.0% ................................ $65,435,376
===========
</TABLE>
----------
* Non-income producing security.
(a) Percentages indicated are based on net assets.
(b) A portion of these shares were held by the custodian in
connection with covered call options written.
(c) Private placement securities are fair valued according
to procedures adopted by the Board of Trustees.
(d) The aggregate identified cost for federal income tax
purposes is substantially the same. Market value
includes net unrealized appreciation of $12,646,260
which consists of aggregate gross unrealized
appreciation for all securities in which there is an
excess of market value over tax cost of $16,930,505 and
aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over
market value of $4,284,245.
ADR American Depository Receipt.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
--------------------------------------------------------------------------------
Heritage Income-Growth Trust
Statement of Assets and Liabilities
September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
------
Investments, at market value (identified cost $52,094,226) (Note 1) ...................... $ 64,770,148
Repurchase agreement (identified cost $993,000) (Note 1) ................................. 993,000
Cash ..................................................................................... 819
Receivables:
Fund shares sold ........................................................................ 43,862
Dividends and interest .................................................................. 134,249
Deferred state qualification expenses (Note 1) ........................................... 14,471
Prepaid insurance (Note 1) ............................................................... 5,403
------------
Total Assets .......................................................................... 65,961,952
Liabilities
-----------
Payables (Note 4)
Fund shares redeemed .................................................................... $298,125
Accrued management fee .................................................................. 47,290
Accrued distribution fee ................................................................ 26,274
Other accrued expenses .................................................................. 77,887
Covered call options written, at market value (premiums received $47,338) (Notes 1 and 3) 77,000
--------
Total Liabilities ..................................................................... 526,576
------------
Net assets, at market value .............................................................. $ 65,435,376
============
Net Assets
----------
Net assets consist of:
Paid-in capital ......................................................................... $ 50,895,396
Accumulated net realized gain (Notes 1 and 5) ........................................... 1,893,720
Net unrealized appreciation on investments and covered call options written ............. 12,646,260
------------
Net assets, at market value .............................................................. $ 65,435,376
============
Class A Shares
--------------
Net asset value and redemption price per share ($45,608,018 divided by
2,962,228 shares of beneficial interest outstanding, no par value) (Notes 1 and 2) ...... $ 15.40
============
Maximum offering price per share (100/95.25 of $15.40 ) .................................. $ 16.17
============
Class B Shares
--------------
Net asset value, offering price and redemption price per share ($4,169,753 divided by
274,094 shares of beneficial interest outstanding, no par value) (Notes 1 and 2) ........ $ 15.21
============
Class C Shares
--------------
Net asset value, offering price and redemption price per share ($15,657,605 divided by
1,029,196 shares of beneficial interest outstanding, no par value) (Notes 1 and 2) ...... $ 15.21
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
--------------------------------------------------------------------------------
Heritage Income-Growth Trust
Statement of Operations
For the Year Ended September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income
------------------
Income:
Dividends ................................................................... $1,673,193
Interest .................................................................... 377,115
----------
Total income .............................................................. 2,050,308
Expenses (Notes 1 and 4):
Management fee .............................................................. $588,810
Distribution fee (Class A Shares) ........................................... 131,347
Distribution fee (Class B Shares) ........................................... 56,574
Distribution fee (Class C Shares) ........................................... 203,119
Custodian/Fund accounting fees .............................................. 71,101
Shareholder servicing fees .................................................. 64,451
Professional fees ........................................................... 47,225
State qualification expenses ................................................ 43,434
Reports to shareholders ..................................................... 18,471
Trustees' fees and expenses ................................................. 8,703
Insurance ................................................................... 4,403
Other ....................................................................... 2,180
--------
Total expenses ............................................................ 1,239,818
----------
Net investment income ........................................................ 810,490
----------
Realized and Unrealized Gain (Loss) on Investments
---------------------------------------------------
Net realized gain from investment transactions ............................... 2,939,594
Net realized gain from covered call options written (Note 1) ................. 232,937
Net unrealized depreciation of investments during the year ................... (504,380)
Net unrealized depreciation of covered call options written during the year .. (29,662)
----------
Net gain on investments ................................................... 2,638,489
----------
Net increase in net assets resulting from operations ......................... $3,448,979
==========
</TABLE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
----------------------------------------
September 30, 2000 September 30, 1999
-------------------- -------------------
<S> <C> <C>
Decrease in net assets:
Operations:
Net investment income .............................................................. $ 810,490 $ 2,033,169
Net realized gain (loss) from investment transactions .............................. 2,939,594 (1,229,509)
Net realized gain (loss) from covered call options written ......................... 232,937 (165,980)
Net unrealized appreciation (depreciation) of investments and covered call
options written during the year ................................................... (534,042) 5,946,965
------------- -------------
Net increase in net assets resulting from operations ............................... 3,448,979 6,584,645
Distributions to shareholders from:
Net investment income Class A Shares, ($0.25 and $0.33 per share, respectively)..... (909,204) (1,463,165)
Net investment income Class B Shares, ($0.13 and $0.22 per share, respectively)..... (55,853) (108,120)
Net investment income Class C Shares, ($0.13 and $0.22 per share, respectively)..... (201,425) (444,443)
Net realized gains Class A Shares, ($0.62 per share)................................ -- (2,792,348)
Net realized gains Class B Shares, ($0.62 per share)................................ -- (294,751)
Net realized gains Class C Shares, ($0.62 per share)................................ -- (1,257,716)
Decrease in net assets from Fund share transactions (Note 2) ........................ (30,672,027) (11,432,965)
------------- -------------
Decrease in net assets .............................................................. (28,389,530) (11,208,863)
Net assets, beginning of year ....................................................... 93,824,906 105,033,769
------------- -------------
Net assets, end of year (including undistributed net investment income of
$0 and $568,622, respectively) ..................................................... $ 65,435,376 $ 93,824,906
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
--------------------------------------------------------------------------------
Heritage Income-Growth Trust
Financial Highlights
--------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Class A Shares
-----------------------------------------------------------
For the Years Ended
September 30
-----------------------------------------------------------
2000* 1999* 1998* 1997* 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ............ $ 14.95 $ 14.99 $ 16.65 $ 14.67 $ 12.56
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income ........................ 0.19 0.34 0.36 0.40 0.36
Net realized and unrealized gain (loss) on
investments .................................. 0.51 0.57 ( 0.37) 3.45 2.35
-------- -------- -------- -------- --------
Total from Investment Operations ............. 0.70 0.91 ( 0.01) 3.85 2.71
-------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment income ......... ( 0.25) ( 0.33) ( 0.32) ( 0.38) ( 0.35)
Distributions from net realized gains ........ -- ( 0.62) ( 1.33) ( 1.49) ( 0.25)
-------- -------- -------- -------- --------
Total Distributions .......................... ( 0.25) ( 0.95) ( 1.65) ( 1.87) ( 0.60)
-------- -------- -------- -------- --------
Net asset value, end of year .................. $ 15.40 $ 14.95 $ 14.99 $ 16.65 $ 14.67
======== ======== ======== ======== ========
Total Return (%) (a) .......................... 4.74 6.14 ( 0.34) 29.45 22.26
Ratios (%)/ Supplemental Data:
Operating expenses, net, to average
daily net assets ............................ 1.33 1.27 1.29 1.34 1.51
Net investment income to
average daily net assets .................... 1.27 2.19 2.24 2.65 2.66
Portfolio turnover rate ...................... 58 46 66 75 75
Net assets, end of year ($ millions) ......... 46 60 68 65 43
<CAPTION>
Class B Shares*
-------------------------------------
For the Years Ended
September 30
-------------------------------------
2000 1999 1998+
----------- ----------- -------------
<S> <C> <C> <C>
Net asset value, beginning of year ............ $ 14.76 $ 14.82 $ 15.62
-------- -------- ----------
Income from Investment Operations:
Net investment income ........................ 0.08 0.22 0.19
Net realized and unrealized gain (loss) on
investments .................................. 0.50 0.56 (0.88)
-------- -------- ----------
Total from Investment Operations ............. 0.58 0.78 (0.69)
-------- -------- ----------
Less Distributions:
Dividends from net investment income ......... ( 0.13) ( 0.22) (0.11)
Distributions from net realized gains ........ -- ( 0.62) --
-------- -------- ----------
Total Distributions .......................... ( 0.13) ( 0.84) (0.11)
-------- -------- ----------
Net asset value, end of year .................. $ 15.21 $ 14.76 $ 14.82
======== ======== ==========
Total Return (%) (a) .......................... 3.95 5.32 (4.50) (b)
Ratios (%)/ Supplemental Data:
Operating expenses, net, to average
daily net assets ............................ 2.08 2.02 2.04 (c)
Net investment income to
average daily net assets .................... .55 1.44 1.75 (c)
Portfolio turnover rate ...................... 58 46 66
Net assets, end of year ($ millions) ......... 4 7 6
<CAPTION>
Class C Shares
-----------------------------------------------------------
For the Years Ended
September 30
-----------------------------------------------------------
2000* 1999* 1998* 1997* 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ............ $ 14.76 $ 14.82 $ 16.49 $ 14.57 $ 12.51
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income ........................ 0.08 0.22 0.25 0.28 0.26
Net realized and unrealized gain (loss) on
investments .................................. 0.50 0.56 ( 0.38) 3.43 2.34
-------- -------- -------- -------- --------
Total from Investment Operations ............. 0.58 0.78 ( 0.13) 3.71 2.60
-------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment income ......... ( 0.13) ( 0.22) ( 0.21) ( 0.30) ( 0.29)
Distributions from net realized gains ........ -- ( 0.62) ( 1.33) ( 1.49) ( 0.25)
-------- -------- -------- -------- --------
Total Distributions .......................... ( 0.13) ( 0.84) ( 1.54) ( 1.79) ( 0.54)
-------- -------- -------- -------- --------
Net asset value, end of year .................. $ 15.21 $ 14.76 $ 14.82 $ 16.49 $ 14.57
======== ======== ======== ======== ========
Total Return (%) (a) .......................... 3.95 5.32 ( 1.08) 28.49 21.37
Ratios (%)/ Supplemental Data:
Operating expenses, net, to average
daily net assets ............................ 2.08 2.02 2.04 2.07 2.13
Net investment income to
average daily net assets .................... .55 1.44 1.51 1.87 2.05
Portfolio turnover rate ...................... 58 46 66 75 75
Net assets, end of year ($ millions) ......... 16 26 31 21 6
</TABLE>
-------
* Per share amounts have been calculated using the average share method.
+ For the period January 2, 1998 (commencement of Class B Shares) to
September 30, 1998.
(a) These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
(b) Not annualized.
(c) Annualized.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
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Heritage Income-Growth Trust
Notes to Financial Statements
--------------------------------------------------------------------------------
Note 1: Significant Accounting Policies. Heritage Income-Growth Trust (the
"Fund") is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund's
investment objective is long-term total return by seeking, with
approximately equal emphasis, current income and capital appreciation.
The Fund currently issues Class A, Class B and Class C Shares. Class A
Shares are sold subject to a maximum sales charge of 4.75% of the
amount invested payable at the time of purchase. Class B Shares, which
were offered to shareholders beginning January 2, 1998, are sold
subject to a 5% maximum contingent deferred sales load (based on the
lower of purchase price or redemption price), declining over a
six-year period. Class C Shares, which were offered to shareholders
beginning April 3, 1995, are sold subject to a contingent deferred
sales charge of 1% of the lower of net asset value or purchase price
payable upon any redemption made in less than one year of purchase.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts and disclosures. Actual results could differ from those
estimates. The following is a summary of significant accounting
policies:
Security Valuation: The Fund values investment securities at market
value based on the last quoted sales price as reported by the
principal securities exchange on which the security is traded or the
Nasdaq stock market. If no sale is reported, market value is based on
the last bid and in the absence of a market quote, securities are
valued using such methods as the Board of Trustees believe would
reflect fair market value. Short-term investments having a maturity of
60 days or less are valued at amortized cost, which approximates
market.
Repurchase Agreements: The Fund enters into repurchase agreements
whereby the Fund, through its custodian, receives delivery of the
underlying securities, the market value of which at the time of
purchase is required to be an amount equal to at least 100% of the
resale price. Repurchase agreements involve the risk that the seller
will fail to repurchase the security, as agreed. In that case, the
Fund will bear the risk of market value fluctuations until the
security can be sold and may encounter delays and incur costs in
liquidating the security. In the event of bankruptcy or insolvency of
the seller, delays and costs are incurred.
Federal Income Taxes: The Fund's policy is to comply with the
requirements of the Internal Revenue Code of 1986, as amended, which
are applicable to regulated investment companies and to distribute
substantially all of its taxable income to its shareholders.
Accordingly, no provision has been made for federal income and excise
taxes.
Distribution of Income and Gains: Distributions of net investment
income are made quarterly. Net realized gains from investment
transactions during any particular year in excess of available capital
loss carryforwards, which, if not distributed, would be taxable to the
Fund, will be distributed to shareholders in the following fiscal
year. The Fund uses the identified cost method for determining
realized gain or loss on investments for both financial and federal
income tax reporting purposes.
Expenses: The Fund is charged for those expenses that are directly
attributable to it, such as management fee, custodian fees,
distribution fee, etc., while other expenses such as insurance
expense, are allocated proportionately among the other Heritage Mutual
funds. Expenses of the Fund are allocated to each class of shares
based upon their relative percentage of net assets. All expenses that
are directly attributable to a specific class of shares, such as
distribution fees, are charged directly to that class.
State Qualification Expenses: State qualification fees are amortized
based either on the time period covered by the qualification or as
related shares are sold, whichever is appropriate for each state.
Options: When the Fund writes a covered call option, the Fund receives
a premium on the sale of an option, but gives up the opportunity to
profit from any increase in stock value above the exercise price of
the option. If an option that the Fund has written either expires on
its stipulated expiration date or the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost of
a closing purchase transaction exceeds the premium received when the
option was sold) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a call option that the Fund has written is exercised,
the Fund realizes a capital gain or loss from the sale of the
underlying security, and the proceeds from such sale are increased by
the premium originally received. The amount equal to the premium
received by the Fund is included in the Fund's Statement of Assets and
Liabilities as an asset and as an equivalent liability. The amount of
the liability is subsequently marked-to-market to reflect the current
market value of the option written. The current market value of a
written option is the last offering price on the principal exchange on
which such option is traded.
11
<PAGE>
--------------------------------------------------------------------------------
Heritage Income-Growth Trust
Notes to Financial Statements
(continued)
--------------------------------------------------------------------------------
Capital Accounts: The Fund reports the undistributed net investment
income and accumulated net realized gain (loss) accounts on a basis
approximating amounts available for future tax distributions (or to
offset future taxable realized gains when a capital loss carryforward
is available). Accordingly, the Fund may periodically make
reclassifications among certain capital accounts without impacting the
net asset value of the Fund.
Other: For purposes of these financial statements, investment security
transactions are accounted for on a trade date basis. Dividend income
and distributions to shareholders are recorded on the ex-dividend
date. Interest income is recorded on the accrual basis. All original
issue discounts are accreted for both tax and financial reporting
purposes.
Note 2: Fund Shares. At September 30, 2000, there was an unlimited number
of shares of beneficial interest of no par value authorized.
Transactions in Class A, B and C Shares of the Fund during the year
ended September 30, 2000, were as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
--------------------------- ------------------------ ----------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended September 30, 2000
Shares sold ...................... 134,584 $ 2,041,577 26,885 $ 404,338 144,620 $ 2,159,489
Shares issued on reinvestment
of distributions ............... 56,443 838,616 3,536 51,635 12,519 182,757
Shares redeemed .................. (1,253,607) (18,919,539) (252,419) (3,774,051) (913,038) (13,656,849)
---------- ------------- -------- ------------ -------- -------------
Net decrease ..................... (1,062,580) $ (16,039,346) (221,998) $ (3,318,078) (755,899) $ (11,314,603)
============= ============ =============
Shares outstanding:
Beginning of year ............... 4,024,808 496,092 1,785,095
---------- -------- ---------
End of year ..................... 2,962,228 274,094 1,029,196
========== ======== =========
</TABLE>
Transactions in Class A, B and C Shares of the Fund during the year
ended September 30, 1999, were as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
--------------------------- ------------------------ ----------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended September 30, 1999
Shares sold ...................... 352,146 $ 5,409,671 187,430 $ 2,858,535 299,442 $ 4,572,257
Shares issued on reinvestment
of distributions ............... 262,944 3,959,739 25,683 381,864 110,089 1,634,529
Shares redeemed .................. (1,124,477) (17,366,124) (154,048) (2,357,700) (688,824) (10,525,736)
---------- ------------- -------- ------------ -------- ------------
Net increase (decrease) . ........ (509,387) $ (7,996,714) 59,065 $ 882,699 (279,293) $ (4,318,950)
============= ============ ============
Shares outstanding:
Beginning of year ............... 4,534,195 437,027 2,064,388
---------- -------- ---------
End of year ..................... 4,024,808 496,092 1,785,095
========== ======== =========
</TABLE>
Note 3: Purchases and Sales of Securities. For the year ended September 30,
2000, purchases and sales of investment securities (excluding
repurchase agreements) aggregated $44,733,012 and $74,508,855,
respectively.
Transactions in covered call options written on equity securities were
as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
----------- -------------
<S> <C> <C>
Outstanding September 30, 1999 ......... -- $ 0
Written ............................... 87,000 580,000
Closed ................................ (45,000) (228,892)
Exercised ............................. (23,500) (145,175)
Expired ............................... (22,500) (158,595)
Stock splits .......................... 8,000 --
------- ----------
Outstanding September 30, 2000 ......... 4,000 $ 47,338
======= ==========
</TABLE>
12
<PAGE>
--------------------------------------------------------------------------------
Heritage Income-Growth Trust
Notes to Financial Statements
(continued)
--------------------------------------------------------------------------------
Note 4: Management, Subadvisory, Distribution, Shareholder Servicing Agent,
Fund Accounting and Trustees Fees. Under the Fund's Investment
Advisory and Administration Agreement with Heritage Asset Management,
Inc. (the "Manager"), the Fund agrees to pay to the Manager a fee
equal to an annualized rate of 0.75% of the first $100,000,000 of the
Fund's average daily net assets, and 0.60% of any excess over
$100,000,000 of such net assets, computed daily and payable monthly.
Pursuant to a contract agreement dated January 3, 2000, the Manager
has agreed to waive its fees and, if necessary, reimburse the Fund to
the extent that Class A annual operating expenses exceed 1.35% of the
Class A Shares average daily net assets and to the extent that the
Class B and Class C annual operating expenses each exceed 2.10% of
that classes' average daily net assets for the fiscal year ended
September 30, 2000. Under these agreements, no fees were waived and no
expenses were reimbursed for the year ended September 30, 2000.
The Manager has entered into an agreement with Eagle Asset Management,
Inc. (the "Subadviser") for the Subadviser to provide to the Fund
investment advice, portfolio management services (including the
placement of brokerage orders) and certain compliance and other
services for a fee payable by the Manager equal to 50% of the fees
payable by the Fund to the Manager without regard to any reduction due
to the imposition of expense limitations. For the year ended September
30, 2000, the Subadviser earned $294,405 for subadviser fees, which
was paid by the Manager.
The Manager also is the Dividend Paying, Shareholder Servicing Agent
and Fund Accountant for the Fund. The Manager charged $64,451 for
Dividend Paying and Shareholder Servicing fees and $51,128 for Fund
Accounting services of which $16,300 and $13,800 was payable as of
September 30, 2000, respectively.
Raymond James & Associates, Inc. (the "Distributor") has advised the
Fund that it received $4,817 in front-end sales charges for Class A
Shares, $37,783 in contingent deferred sales charges for Class B
Shares and $3,454 in contingent deferred sales charges for Class C
Shares for the year ended September 30, 2000. From these fees, the
Distributor paid commissions to salespersons and incurred other
distribution costs. Agency brokerage commissions for the same period
aggregated $130,561 of which $6,807 was paid to Raymond James &
Associates, Inc.
Pursuant to the Class A Distribution Plan adopted in accordance with
Rule 12b-1 of the Investment Company Act of 1940, as amended, the Fund
is authorized to pay the Distributor a fee equal to .25% of the
average daily net assets for Class A Shares. The Class B and Class C
Share Distribution Plans provide for payments at an annual rate of up
to 1.00% of average daily net assets. Such fees are accrued daily and
payable monthly. Class B Shares will convert to Class A Shares eight
years after the end of the calendar month in which the shareholder's
order to purchase was accepted. The Manager, Distributor, Fund
Accountant and Shareholder Servicing Agent are all wholly owned
subsidiaries of Raymond James Financial, Inc.
Trustees of the Fund also serve as Trustees for Heritage Cash Trust,
Heritage Capital Appreciation Trust, Heritage Income Trust, and
Heritage Series Trust, investment companies that are also advised by
the Manager of the Trust (collectively called the Heritage mutual
funds). Each Trustee of the Heritage mutual funds who is not an
employee of the Manager or employee of an affiliate of the Manager
received an annual fee of $8,666 and an additional fee of $3,250 for
each combined quarterly meeting of the Heritage mutual funds attended.
Trustees' fees and expenses are shared equally by each portfolio in
the Heritage mutual funds.
Note 5: Federal Income Taxes. For the year ended September 30, 2000, to
reflect reclassifications arising from permanent book/tax differences
primarily attributable to distributions from Real Estate Investment
Trusts, the Fund charged undistributed net investment income $212,630,
and credited accumulated net realized gain $212,630. The Fund utilized
net tax basis capital loss carryforwards of $1,084,451 in the current
year which was applied against realized net taxable gains.
13
<PAGE>
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
Heritage Income-Growth Trust
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Heritage Income-Growth Trust (the
"Fund") at September 30, 2000, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 2000 by
correspondence with the custodian, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
-------------------------------
PricewaterhouseCoopers LLP
Tampa, Florida
November 10, 2000
14
<PAGE>
Heritage Family of Funds(trademark)
From Our Family to Yours: The Intelligent Creation of Wealth.
Heritage Stock Funds
Aggressive Growth
Capital Appreciation
Growth Equity
Income-Growth
International
Mid Cap
Small Cap
Technology
Value Equity
Heritage Bond Funds
High Yield
Intermediate Government
Heritage Money Market Funds
Money Market
Municipal Money Market
We are pleased that many of you are also investors in these funds. For more
information and a prospectus for any of these mutual funds, please contact your
financial advisor. Please read the prospectus carefully before you invest in any
of the funds.
This report is for the information of shareholders of Heritage Income-Growth
Trust. It may also be used as sales litature when preceded or accompanied by a
prospectus.
(copyright) 2000 Heritage Asset Management, Inc.
5M 10/00 (recycle logo) Printed on recycled paper
AR5314 IG
[logo] Heritage Income-Growth Trust
Heritage P.O. Box 33022
St. Petersburg, FL 33733
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