<PAGE>
HERITAGE INCOME TRUST
DIVERSIFIED PORTFOLIO
Supplement Dated November 29, 1995
to the Prospectus Dated April 3, 1995
The Board of Trustees of Heritage Income Trust has approved a
change in the investment objective of the Diversified Portfolio (the
"Fund") from "high current income consistent with the preservation of
capital" to "high current income." This change will not be implemented
unless approved by a vote of Fund shareholders at a meeting currently
scheduled to be held on January 24, 1996. Subject to that approval, the
Trustees also approved (1) an amendment of the Fund's investment policies
to permit up to 100% -- as opposed to the current 50% -- of the Fund's
assets to be invested in lower-rated corporate fixed income securities,
commonly referred to as "junk bonds" or high yield bonds and (2) a change
in the Fund's name to Heritage Income Trust - High Yield Bond Fund.
In addition, subject to shareholder approval, the Board approved
Salomon Brothers Asset Management, Inc. ("Salomon") as a new subadviser to
the Fund. Salomon is a wholly owned subsidiary of Salomon Inc. Salomon,
together with its affiliates, provides a full range of fixed income and
equity investment management services for individual and institutional
clients throughout the world and serves as investment manager to various
investment companies. As of October, 31, 1995, Salomon and its affiliates
had approximately $13.1 billion of assets under management. If approved
by shareholders, Salomon will make investment decisions on behalf of the
Fund's assets. As compensation for providing this service, Salomon will
receive an annual fee payable by Heritage Asset Management, Inc. -- and
not the Fund -- of .30% of the Fund's average daily net assets up to and
including $100 million and .25% of the Fund's average daily net assets in
excess of $100 million.
If Salomon is approved as a subadviser to the Fund, Peter J.
Wilby, assisted by a team of other investment professionals, will serve as
portfolio manager of the Fund. Mr. Wilby will be responsible for the day-
to-day management of the Fund's investment portfolio subject to the
general oversight of the Trust's Board of Trustees. Mr. Wilby is a
Director of and has been affiliated with Salomon in various capacities
since 1990. Mr. Wilby is a Chartered Financial Analyst, a Certified
Public Accountant, and a member of the New York Society of Securities
Analysts.
<PAGE>
(HERITAGE LOGO)
Diversified Portfolio
Heritage Income Trust is a mutual fund offering shares in
separate investment portfolios. This Prospectus relates to the Diversified
Portfolio (the "Portfolio"), which has the investment objective of high
current income consistent with the preservation of capital. The Portfolio
seeks to achieve this objective by investing at least 50% of its assets in
securities issued by the U.S. Government, its agencies and
instrumentalities and related repurchase agreements and forward
commitments. The Portfolio may invest its remaining assets (up to 50%) in
lower rated U.S. corporate fixed income securities, commonly referred to
as "junk bonds." Investments in lower rated securities entail a high
degree of risk and are predominantly speculative. Accordingly, these
securities are designed for investors willing to assume additional risk in
return for the potential for above-average income. See "Lower Rated
Securities-Risk Factors." The Portfolio offers two classes of shares,
Class A shares (sold subject to a front-end sales load) and Class C shares
(sold subject to a contingent deferred sales load).
This Prospectus contains information which should be read before
investing in the Portfolio and should be kept for future reference. A
Statement of Additional Information relating to the Portfolio, dated April
3, 1995, has been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus. A copy of the Statement of
Additional Information is available free of charge and shareholder
inquiries can be made by writing to Heritage Asset Management, Inc. or by
calling (800) 421-4184.
PORTFOLIO 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 LOGO)
Registered Investment Advisor--SEC
880 Carillon Parkway
St. Petersburg, Florida 33716
(800) 421-4184
Prospectus Dated April 3, 1995
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<PAGE>
Table of Contents
_________________________________________________________________________
_________________________________________________________________________
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 1
About the Trust and the Portfolio . . . . . . . . . . . 1
Total Portfolio Expenses . . . . . . . . . . . . . . . 1
Financial Highlights . . . . . . . . . . . . . . . . . 3
Investment Objective, Policies and Risk Factors . . . . 4
Investment Limitations . . . . . . . . . . . . . . . . 11
Net Asset Value . . . . . . . . . . . . . . . . . . . . 12
Performance Information . . . . . . . . . . . . . . . . 12
INVESTING IN THE PORTFOLIO . . . . . . . . . . . . . . . . . . . 13
How to Buy Shares . . . . . . . . . . . . . . . . . . . 13
Minimum Investment Required/Accounts with Low Balances 14
Investment Programs . . . . . . . . . . . . . . . . . . 14
Alternative Purchase Plans . . . . . . . . . . . . . . 15
What Class A Shares Will Cost . . . . . . . . . . . . . 16
What Class C Shares Will Cost . . . . . . . . . . . . . 18
How to Redeem Shares . . . . . . . . . . . . . . . . . 19
Receiving Payment . . . . . . . . . . . . . . . . . . . 20
Exchange Privilege . . . . . . . . . . . . . . . . . . 21
MANAGEMENT OF THE PORTFOLIO . . . . . . . . . . . . . . . . . . . 22
SHAREHOLDER AND ACCOUNT POLICIES . . . . . . . . . . . . . . . . 23
Dividends and Other Distributions . . . . . . . . . . . 23
Distribution Plans . . . . . . . . . . . . . . . . . . 24
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 24
Shareholder Information . . . . . . . . . . . . . . . . 25
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
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<PAGE>
GENERAL INFORMATION
About the Trust and the Portfolio
__________________________________________________________________________
__________________________________________________________________________
Heritage Income Trust (the "Trust") was established as a
Massachusetts business trust under a Declaration of Trust dated August 4,
1989. The Trust is an open-end diversified management investment company
that currently offers shares in three separate investment portfolios, the
Portfolio, the Limited Maturity Government Portfolio and the Institutional
Government Portfolio, each of which is designed for individuals and
fiduciaries whose investment objective is high current income consistent
with the preservation of capital. The Portfolio offers two classes of
shares, Class A shares and Class C shares. The Portfolio requires a
minimum initial investment of $1,000, except for certain retirement
accounts and investment plans for which lower limits may apply. See
"Investing in the Portfolio." This Prospectus relates exclusively to the
Portfolio. To obtain a Prospectus for the Limited Maturity Government or
Institutional Government Portfolios, call (800) 421-4184.
Total Portfolio Expenses
__________________________________________________________________________
__________________________________________________________________________
All outstanding Portfolio shares as of April 1, 1995 were
designated as Class A shares. Shown below are all Class A expenses
incurred by the Portfolio during its 1994 fiscal year. Class A annual
operating expenses are shown as an annualized percentage of fiscal 1994
average daily net assets. Because Class C shares were not offered for sale
in 1994, Class C annual operating expenses are based on estimated
expenses. Shareholder transaction expenses for both classes are expressed
as a percentage of maximum public offering price, cost per transaction or
as otherwise noted.
Class A Class C
------- -------
Shareholder Transaction Expenses
Sales load "charge" on purchases . . 3.75% None
Contingent deferred sales load (as a None 1.00% (declining to
percentage of original purchase 0% after the
price or redemption proceeds, as first year)
applicable) . . . . . . . . . . . . .
Wire redemption fee . . . . . . . . . $5.00 $5.00
Annual Portfolio Operating Expenses
Management Fee (after fee waiver) . . 0.43% 0.43%
12b-1 Distribution Fee . . . . . . . 0.35% 0.80%
Other Expenses . . . . . . . . . . . 0.47% 0.47%
----- -----
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<PAGE>
Total Portfolio Operating Expenses
(after fee waiver) . . . . . . . . . 1.25% 1.70%
===== =====
The Portfolio's manager, Heritage Asset Management, Inc. (the
"Manager"), will voluntarily waive its fees and, if necessary, reimburse
the Portfolio to the extent that Class A annual operating expenses exceed
1.25% and to the extent that Class C annual operating expenses exceed
1.70% of the average daily net assets attributable to that class for this
fiscal year. Absent fee waivers, the management fee for each class would
have been 0.60%, and total Portfolio operating expenses would have been
1.42% for Class A shares and 1.87% for Class C shares. To the extent that
the Manager waives or reimburses its fees with respect to one class, it
will do so with respect to the other class on a proportionate basis. Due
to the imposition of Rule 12b-1 Distribution fees, it is possible that
long-term shareholders of the Portfolio may pay more in total sales
charges than the economic equivalent of the maximum front-end sales charge
permitted by the rules of the National Association of Securities Dealers,
Inc.
The impact of Portfolio operating expenses on earnings is
illustrated in the example below assuming a hypothetical $1,000
investment, a 5% annual rate of return, and a redemption at the end of
each period shown.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Total Class A Operating
Expenses . . . . . . . . . . $50 $76 $104 $183
Total Class C Operating
Expenses . . . . . . . . . . $27 $52 $90 $198
The impact of Portfolio expenses on earnings is illustrated in
the example below assuming a hypothetical $1,000 investment, a 5% annual
rate of return, and no redemption at the end of each period shown.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Total Class A Operating
Expenses . . . . . . . . . $50 $76 $104 $183
Total Class C Operating
Expenses . . . . . . . . . $17 $52 $90 $198
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 table is
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to assist investors in understanding the various costs and expenses that
will be borne directly or indirectly by shareholders. For a further
discussion of these costs and expenses, see "Management of the Portfolio"
and "Distribution Plans."
Financial Highlights
__________________________________________________________________________
__________________________________________________________________________
The following table shows important financial information for a
Class A share of the Portfolio outstanding for the periods indicated,
including net investment income, net realized and unrealized gain on
investments, and certain other information. It has been derived from
financial statements that have been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report thereon is included in the Statement
of Additional Information ("SAI"), which may be obtained by calling the
Portfolio at the telephone number on the front page of this Prospectus.
Financial highlights are not presented for Class C shares because no
shares of that class were outstanding for the periods indicated.
<TABLE>
<CAPTION>
Class A
-------
For the Years Ended September 30,
---------------------------------
1994 1993 1992 1991 1990*
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of the period . . . . . . . . . $10.65 $10.82 $10.29 $9.29 $9.60
------ ------ ------ ----- -----
Income from Investment Operations:
Net investment income(a) . . . . . . . . . . . . . . . . 0.69 0.81 0.83 0.87 0.43
Net realized and unrealized gain (loss) on investments . (0.84) 0.07 0.59 1.00 (0.34)
------ ----- ----- ----- ------
Total from Investment Operations . . . . . . . . . . . . (0.15) 0.88 1.42 1.87 0.09
------ ----- ----- ----- ----
Less Distributions:
Dividends from net investment income . . . . . . . . . . (0.71) (0.83) (0.85) (0.87) (0.36)
Distributions from net realized gains . . . . . . . . . . (0.07) (0.22) (0.04) -- (0.04)
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<PAGE>
Distributions in excess of net realized gains . . . . . . (0.07) -- -- -- --
------ ----- ----- ----- -----
Total Distributions . . . . . . . . . . . . . . . . . . . (0.85) (1.05) (0.89) (0.87) (0.40)
------ ------ ------ ------ ------
Net asset value, end of the period . . . . . . . . . . . . $9.65 $10.65 $10.82 $10.29 $9.29
====== ====== ====== ====== ======
Total Return (%)(d) . . . . . . . . . . . . . . . . . . . . (1.59) 8.57 14.35 21.19 0.91 (c)
Ratios (%)/Supplemental Data:
Operating expenses, net, to average daily net assets(a) . 1.25 1.19 0.96 1.31 1.35 (b)
Net investment income to average daily net assets . . . . 6.76 7.57 8.11 9.10 8.97 (b)
Portfolio turnover rate . . . . . . . . . . . . . . . . . 135.05 150.36 70.73 118.83 38.76 (b)
Net assets, end of the period (millions) . . . . . . . . $36 $42 $32 $15 $10
</TABLE>
__________
* For the period March 1, 1990 (commencement of operations) to
September 30, 1990.
(a) Excludes management fees waived and expenses reimbursed by the
Manager in the amount of $.02, $.02, $.05, $.07 and $.08 per
share, respectively. The operating expense ratios including such
items would be 1.42%, 1.43%, 1.60%, 2.17% and 3.0% (annualized),
respectively.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales load.
Investment Objective, Policies and Risk Factors
__________________________________________________________________________
__________________________________________________________________________
The investment objective of the Portfolio is high current income
consistent with the preservation of capital. The Portfolio seeks to
achieve this objective by varying its allocation of investments between
U.S. Government securities and certain lower rated securities, while at
all times investing at least 50% of its assets in U.S. Government
securities. As discussed in greater detail below, the Portfolio also will
utilize certain investment techniques in attempting to preserve capital.
Portfolio shares will fluctuate in value as a result of value changes in
Portfolio investments. There can be no assurance that the Portfolio's
investment objective will be achieved.
A-6
<PAGE>
In seeking its objective the Portfolio will invest at least 50%
of its assets in debt obligations (including mortgage-backed securities)
issued or guaranteed by the U.S. Government and its agencies and
instrumentalities, and repurchase agreements and when-issued and forward
commitment securities involving such debt obligations (the "Government
Sector"). Its remaining assets may be invested in lower rated U.S.
corporate fixed income securities, commonly referred to as "junk bonds,"
including debt securities such as zero coupon and pay-in-kind securities,
convertible securities and preferred stocks (the "High Yield Sector").
Eagle Asset Management, Inc. (the "Subadviser") seeks to minimize the risk
of investing in junk bonds through its careful analysis of the credit
status of these issuers. At the time of purchase, these securities must be
rated at least Caa by Moody's Investors Service, Inc. ("Moody's") or CCC
by Standard & Poor's Ratings Group ("S&P") or, if unrated, deemed by the
Subadviser to be of comparable quality. However, the Portfolio will not
necessarily invest in higher yielding securities if the Subadviser
believes that the difference in yield is not sufficient to justify the
higher risk. The Portfolio may also invest in inverse floaters relating to
U.S. Government securities (including mortgage-backed securities of
private issuers), engage in securities lending activities, invest in money
market instruments to maintain sufficient liquidity, seek to hedge against
interest rate changes by a variety of strategies involving the use of
options, futures contracts and options on futures contracts as described
below, and invest up to 10% of its net assets in illiquid securities. For
a further discussion of these techniques, see the SAI.
The Manager believes that allocating the Portfolio's investments
between U.S. Government securities and investments in the High Yield
Sector may enable the Portfolio to reduce its volatility. The markets for
U.S. Government securities and junk bonds tend to behave independently and
at times move in opposite directions. For example, inflationary concerns
resulting from increased economic activity often cause U.S. Government
securities to decline in value. Lower rated U.S. corporate fixed income
securities, however, often increase in value during such periods due to
improvement in the credit quality of corporate issuers. The reverse has
generally been true during periods of economic decline. Because financial
markets exhibit such a lack of correlation, a pooling of investments
between these markets may produce greater preservation of capital over the
long term than would result from investing exclusively in only one market.
The Manager will determine the amount of assets to be allocated
to each of the market sectors in which the Portfolio will invest based on
its assessment of the maximum level of current income that can be achieved
from a portfolio which is invested in both sectors without incurring undue
risks to principal value. This determination will be based on an
evaluation of the relative risks and opportunities of each market sector
given current and historical market data for each sector, as well as on an
assessment of economic and market conditions. The Manager will
continuously review this allocation of assets and make such adjustments as
it deems appropriate.
A-7
<PAGE>
The following is a discussion of the types of investments in
which the Portfolio may invest including the risks of investing in these
securities. For more detailed information about each of these investments,
see the SAI.
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 issuer 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 security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally have higher yields than common stocks, but lower yields than
comparable non-convertible securities, are less subject to fluctuation in
value than the underlying stock because they have fixed income
characteristics, and provide the potential for capital appreciation if the
market price of the underlying common stock increases.
Debt Obligations. The market value of the debt securities held
by the Portfolio will be affected by changes in interest rates. There is
normally an inverse relationship between the market value of such
securities and actual changes in interest rates; i.e., a decline in
interest rates generally produces an increase in market value, while an
increase in rates generally produces a decrease in market value. Moreover,
the longer the remaining maturity of a security, the greater will be the
effect of interest rate changes on the market value of such a security. In
addition, changes in the ability of an issuer to make payments of interest
and principal and in the market's perception of an issuer's
creditworthiness will also affect the market value of the debt securities
of that issuer. Differing yields on fixed income securities of the same
maturity are a function of several factors, including the relative
financial strength of the issuers. Higher yields are generally available
from lower rated securities.
Futures and Options The Portfolio may engage in transactions in
options and futures contracts in an effort to adjust the risk/return
characteristics of its investment portfolio. The Portfolio may purchase
put and call options written by others and write put and call options on
debt securities and indices of debt securities. If the Manager or the
Subadviser, as the case may be, anticipates that interest rates will rise,
the Portfolio also may sell a debt futures contract or a call option
thereon or purchase a put option on a futures contract as a hedge against
a decrease in the value of the Portfolio's securities. If the Manager or
the Subadviser, as the case may be, anticipates that interest rates will
decline, the Portfolio may purchase a debt futures contract or a call
option thereon or sell a put option on such a futures contract to protect
against an increase in the price of securities the Portfolio intends to
purchase.
To the extent that the Portfolio enters into futures contracts
and options on futures contracts other than for bona fide hedging purposes
A-8
<PAGE>
(as defined by the Commodity Futures Trading Commission), the aggregate
initial margin and premiums required to establish those positions
(excluding the amount by which options are "in-the-money") will not exceed
5% of the liquidation value of the Portfolio's portfolio, after taking
into account unrealized profits and unrealized losses on any contracts the
Portfolio has entered into. The Portfolio may hedge up to 100% of its net
assets by such transactions. The Portfolio will not purchase any option,
if immediately thereafter, the aggregate cost of all outstanding options
(including options on futures described above) purchased by the Portfolio
would exceed 5% of the value of its total assets. The Portfolio may write
covered call options and secured put options on up to 15% of its total
assets.
Risks of Futures and Options. The Portfolio might not use any of
the strategies described above, and there can be no assurance that any
strategy used will succeed. If the Manager or the Subadviser incorrectly
forecast interest rates in utilizing a strategy for the Portfolio, the
Portfolio would be in a better position if it had not hedged at all.
Investments in futures and options involve certain risks that are
different in some respects from investment risks associated with
investment in securities. The principal risks associated with the use of
futures and options are (1) imperfect correlation in the price movements
of securities underlying the options and futures and the price movements
of the portfolio securities subject to the hedge; (2) possible lack of a
liquid market for closing out futures or options 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 can also
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 Portfolio 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 Portfolio to sell a security at a disadvantageous time, due
to the need for the Portfolio to maintain "cover" or to segregate
securities in connection with hedging transactions and the possible
inability of the Portfolio 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 being hedged.
Such equal price changes are not always possible because the security
underlying the hedging instrument may not be the same security that is
being hedged. The Subadviser will attempt to create a closely correlated
hedge, but hedging activities may not be completely successful in
eliminating market fluctuation. The ordinary spreads between prices in the
futures markets, due to the nature of the futures market, are subject to
distortion. Due to the possibility of distortion, a correct forecast of
interest rate trends by the Subadviser may still not result in a
successful transaction. The Subadviser may be incorrect in its
expectations as to the extent of market movements or the time span within
which the movements take place.
Inverse Floaters. The Portfolio may invest in U.S. Government
securities, including mortgage-backed securities, on which the rate of
interest varies inversely with interest rates on similar securities or the
A-9
<PAGE>
value of an index. These derivative securities are commonly known as
inverse floaters. As market interest rates rise, the interest rate on the
inverse floater goes down, and vice versa. Inverse floaters include
components of securities on which interest is paid in two separate parts -
- an auction component, which pays interest at a rate that is set
periodically through an auction process or other method, and a residual
component, the interest on which varies inversely with that on a similar
security or the value of an index. The residual component may be
established by multiplying the rate of interest paid on such security or
the applicable index by a factor (a "multiplier feature") or by adding or
subtracting the factor to or from such interest rate or index. The
secondary market for inverse floaters may be limited. The market value of
inverse floaters is often significantly more volatile than that of a
fixed-rate obligation and, like most debt obligations, will vary inversely
with changes in interest rates. The interest rates on inverse floaters may
be significantly reduced, even to zero, if interest rates rise.
Lower Rated Securities -Risk Factors. Lower rated securities are
subject to certain risks that may not be present with investments in
higher-grade securities. Investors should carefully consider their ability
to assume the risks associated with lower rated securities before
investing in the Portfolio.
Effect of Interest Rate and Economic Changes. The lower rating
of certain high yielding corporate income securities in the High Yield
Sector reflects a greater possibility that the financial condition of the
issuer or adverse changes in general economic conditions may impair the
ability of the issuer to pay income and principal. Changes by rating
agencies in their ratings of a fixed income security may also affect the
value of these investments. However, allocating investments in the High
Yield Sector among securities of different issuers should reduce the risks
of owning any such securities separately.
The prices of these high yielding securities tend to be less
sensitive to interest rate changes than higher-rated investments, but more
sensitive to adverse economic changes or individual corporate
developments. During economic downturns or periods of rising interest
rates, highly leveraged issuers may experience financial stress that
adversely affects their ability to service principal and interest payment
obligations, to meet projected business goals, or to obtain additional
financing, and the markets for their securities may be more volatile. If
an issuer defaults, the Portfolio may incur additional expenses to seek
recovery. Furthermore, the market value of zero coupon and pay-in-kind
securities is more greatly affected by interest rate changes and is more
volatile than that of similar securities that pay interest periodically in
cash. Accrued discount and "interest" on zero coupon and pay-in-kind
securities are reported as income by the Portfolio even though no cash is
actually received by the Portfolio until the securities' maturity or
payment date.
Frequently, the higher yields of high-yielding securities may not
reflect the value of the income stream that holders of such securities may
A-10
<PAGE>
expect, but rather the risk that such securities may lose a substantial
portion of their value as a result of their issuer's financial
restructuring or default. Additionally, an economic downturn or an
increase in interest rates could have a negative effect on the high yield
securities market and on the market value of the high yield securities
held by the Portfolio, as well as on the ability of the issuers of such
securities to repay principal and interest on their borrowings. Proposed
new laws may impact the market for high yielding fixed income securities.
Securities Ratings. Securities ratings are based largely on the
issuer's historical financial information and the rating agencies'
investment analysis at the time of rating. Credit ratings evaluate the
safety of principal and interest payments, not market value risk of high
yield bonds. Also, credit rating agencies may fail to timely change the
credit ratings to reflect subsequent events. Consequently, the rating
assigned to any particular security is not necessarily a reflection of the
issuer's current financial condition, which may be better or worse than
the rating would indicate. Although the Subadviser considers security
ratings when making investment decisions for the High Yield Sector, it
primarily relies upon its own investment analysis. This analysis may
include consideration of the issuer's experience and managerial strength,
changing financial condition, borrowing requirements or debt maturity
schedules, and its responsiveness to changes in business conditions and
interest rates. It also considers relative values based on anticipated
cash flow, interest or dividend coverage, asset coverage and earnings
prospects. Because of the greater number of investment considerations
involved in investing in lower rated securities, the achievement of the
Portfolio's objective depends more on the Subadviser's analytical
abilities than would be the case if it were investing only in securities
in the higher rating categories. The Portfolio, at the discretion of the
Manager, may retain a security that has been downgraded below the initial
investment criteria. The descriptions of S&P and Moody's corporate bond
rating categories are included in the Appendix.
Liquidity and Valuation. High yielding securities may contain
redemption or call provisions. If an issuer exercises these provisions in
a declining interest rate market, the Portfolio would have to replace the
security with a lower yielding security. To the extent that there is no
established retail secondary market, there may be thin trading of high
yielding securities. This may lessen the Portfolio's ability to accurately
value these securities and its ability to dispose of these securities.
Additionally, adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of
high yielding securities, especially in a thinly traded market. Certain
high yielding securities may involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties; thus, the responsibilities of the board of trustees to value
high yield securities in the Portfolio becomes more difficult with
judgment playing a greater role.
The table below shows the percentages of the Portfolio's assets
invested during fiscal 1994 in securities assigned to the various rating
A-11
<PAGE>
categories by Moody's and S&P and in unrated securities determined by the
Subadviser to be of comparable quality. These figures are dollar-weighted
averages of month-end portfolio holdings for the fiscal year ended
September 30, 1994, presented as a percentage of total net assets. These
percentages are historical and are not necessarily indicative of the
quality of current or future portfolio holdings, which will vary.
<TABLE>
<CAPTION>
Comparable Quality of
Rated securities unrated securities
as a percentage of the as a percentage of the
S&P/Moody's Ratings Portfolio's assets Portfolio's assets
------------------- ------------------ ------------------
<S> <C> <C>
U.S. Government Securities . . . . . . . . . . . . . . . 52.54% --
Repurchase Agreements involving
U.S. Government Securities . . . . . . . . . . . . . . 2.50 --
"BB"/"Ba" . . . . . . . . . . . . . . . . . . . . . . . . 10.11 --
"B"/"B" . . . . . . . . . . . . . . . . . . . . . . . . . 28.98 --
"CCC"/"Caa" . . . . . . . . . . . . . . . . . . . . . . . 2.82 3.04
Cash/Cash equivalents . . . . . . . . . . . . . . . . . . .01 --
----- -----
96.96% 3.04
====== ======
</TABLE>
Mortgage-Backed Securities. Mortgage-backed securities represent
an interest in a pool of mortgages made by lenders such as commercial
banks, savings and loan institutions, mortgage bankers and others. These
securities generally provide monthly interest and, in most cases,
principal payments which are a "pass-through" of the monthly payments made
by the individual borrowers on their residential mortgage loans, net of
any fees paid to the issuer or guarantor of such securities. Mortgage-
backed securities may be issued by the U.S. Government or U.S. Government-
related entities or by non-governmental entities such as banks, savings
and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers. Although mortgage-backed
securities are issued with stated maturities of up to forty years,
unscheduled or early payments of principal and interest on the underlying
A-12
<PAGE>
mortgages may shorten considerably their effective maturities. This
contrasts with U.S. Treasury securities for instance, which generally pay
all principal at maturity and typically have an effective maturity equal
to the final stated maturity. Thus, for purposes of calculating the
Portfolio's weighted average maturity, the Portfolio will apply the
standard market consensus with respect to the effective maturity of
mortgage-backed securities rather than their stated final maturities.
U.S. Government and U.S. Government-Related Mortgage-Backed
Securities. The Government National Mortgage Association ("GNMA") is a
wholly owned U.S. Government corporation within the Department of Housing
and Urban Development, and is a primary issuer of U.S. Government-related
mortgagebacked securities. GNMA pass-through securities are considered to
be riskless with respect to default because the underlying mortgage loan
portfolio is comprised entirely of U.S. Government-backed loans and timely
principal and interest payments are guaranteed by the full faith and
credit of the U.S. Government. Residential mortgage loans also are pooled
by the Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate
instrumentality of the U.S. Government and the Federal National Mortgage
Association ("FNMA"), a U.S. Government-sponsored corporation owned
entirely by private stockholders which guarantee the timely payment of
interest and the ultimate collection of principal on their respective
securities.
Private Issuer Mortgage-Backed Securities. Mortgage-backed
securities offered by private issuers include pass-through securities
comprised of pools of conventional residential mortgage loans; mortgage-
backed bonds which are considered to be debt obligations of the
institution issuing the bonds and are collateralized by mortgage loans;
and bonds and collateralized mortgage obligations ("CMOs") which are
collateralized by mortgage-backed securities issued by FHLMC, FNMA, GNMA
or by pools of conventional mortgages. These securities generally offer a
higher interest rate than securities with direct or indirect U.S.
Government guarantees of payments. However, many issuers or servicers of
these securities guarantee timely payment of interest and principal, which
may also be supported by various forms of insurance, including individual
loan, title, pool and hazard policies. There can be no assurance that the
private issuers or insurers will be able to meet their obligations under
the relevant guarantee or insurance policies. Mortgage-backed securities
of private issuers, including CMOs, have also achieved broad market
acceptance, and consequently an active secondary market has emerged.
However, the market for these securities is smaller and less liquid than
the market for U.S. Government and U.S. Government-related mortgage pools.
The maximum permitted investment in mortgage-backed securities of private
issuers is 50% of the assets of the Portfolio.
REMICs. The Portfolio may invest in U.S. Government and
privately issued real estate mortgage investment conduits ("REMICS"), a
common form of CMO. REMICs are entities that issue multiple-class real
estate mortgage-backed securities which qualify and elect treatment as
such under the Internal Revenue Code of 1986, as amended (the "Code").
REMICs may take several forms, such as trusts, partnerships, corporations,
A-13
<PAGE>
associations, or segregated pools of mortgages. Once REMIC status is
elected and obtained, the entity is not subject to Federal income
taxation. Instead, income is passed through the entity and is taxed to the
persons who hold interests in the REMIC. A REMIC interest must consist of
one or more classes of "regular interests" and "residual interests." To
qualify as a REMIC, substantially all the assets of the entity must be
directly or indirectly secured principally by real property. The risks
inherent in investing in REMICs are similar to those of CMOs in general,
as well as those of other mortgage-backed securities as described below.
Risks of Mortgage-Backed Securities. Investments in mortgage-
backed securities entail both market and prepayment risk. Fixed-rate
mortgage-backed securities are priced to reflect, among other things,
current and perceived interest rate conditions. As conditions change,
market values will fluctuate. In addition, the mortgages underlying
mortgage-backed securities generally may be prepaid in whole or in part at
the option of the individual buyer. Prepayments of the underlying
mortgages can affect the yield to maturity on mortgage-backed securities
and, if interest rates declined, the prepayment may only be invested by
the Portfolio at the then prevailing lower rate.
Changes in market conditions, particularly during periods of
rapid or unanticipated changes in market interest rates, may result in
volatility of the market value of certain mortgage-backed securities. The
Manager will attempt to manage the Portfolio so that this volatility,
together with the volatility of other investments in the Portfolio, is
consistent with its investment objective.
Portfolio Turnover. The Portfolio may purchase and sell
securities without regard to the length of time the securities have been
held. A high rate of portfolio turnover generally leads to higher
transaction costs and may result in a greater number of taxable
transactions. The Portfolio's portfolio turnover rate for the fiscal year
ended September 30, 1994 was 135%. See "Portfolio Transactions" in the
SAI.
Repurchase Agreements and Securities Loans. Repurchase
agreements are transactions in which the Portfolio purchases securities
and simultaneously commits to resell the securities to the original seller
(a member bank of the Federal Reserve System or securities dealers who are
members of a national securities exchange or are market makers in U.S.
Government securities) at an agreed upon date and price reflecting a
market rate of interest unrelated to the coupon rate or maturity of the
purchased securities. Although repurchase agreements carry certain risks
not associated with direct investment in securities, including possible
decline in the market value of the underlying securities and delays and
costs to the Portfolio if the other party to the repurchase agreement
becomes bankrupt, the Portfolio intends to enter into repurchase
agreements only with banks and dealers in transactions believed by the
Subadviser to present minimal credit risks in accordance with guidelines
established by the Board of Trustees. The Portfolio may invest up to 25%
of its total assets in repurchase agreements. The Portfolio also may lend
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<PAGE>
portfolio securities (not exceeding 25% of the its total assets) to
broker-dealers. Securities loans will be fully collateralized at all
times, but involve some risk to the Portfolio. If the other party to the
securities loan defaults or becomes involved in bankruptcy proceedings,
the Portfolio may incur delays and costs in selling or recovering the
underlying security or may suffer a loss of principal and interest.
Stripped Securities. The Portfolio may invest in separately
traded interest and principal components of securities ("Stripped
Securities"), including U.S. Government securities, as discussed below.
Stripped Securities are obligations representing an interest in all or a
portion of the income or principal components of an underlying or related
security, a pool of securities or other assets. In the most extreme case,
one class will receive all of the interest (the interest-only or "IO"
class), while the other class will receive all of the principal (the
principal-only or "PO" class). The market values of Stripped Securities
tend to be more volatile in response to changes in interest rates than are
conventional debt securities.
The Portfolio also may invest in stripped mortgage-backed
securities, which are derivative multi-class mortgage securities. Stripped
mortgage-backed securities in which it may invest will be issued by
agencies or instrumentalities of the U.S. Government. Stripped mortgage-
backed securities are structured with two classes that receive different
proportions of the interest and principal distributions on a pool of
assets represented by mortgages ("Mortgage Assets"). A common type of
stripped mortgage-backed security will have one class receiving a small
portion of the interest and a larger portion of the principal from the
Mortgage Assets, while the other classes will receive primarily interest
and only a small portion of the principal. The yields to maturity on these
stripped, mortgage-backed securities, IOs and POs are sensitive to the
rate of principal payments (including prepayments) on the related
underlying Mortgage Assets, and principal payments may have a material
effect on yield to maturity. In addition, the market value of stripped
mortgage-backed securities is subject to greater risk of fluctuation in
response to changes in market interest rates than other mortgage-backed
securities. In the case of mortgage-backed IOs, if the underlying assets
experience greater than anticipated prepayments of principal, there is a
greater possibility that the Portfolio may not fully recoup its initial
investment. Conversely, if the underlying assets experience slower than
anticipated principal payments, the yield on the PO class will be affected
more severely than would be the case with traditional mortgage-backed
securities.
The Securities and Exchange Commission ("SEC") staff takes the
position that IOs and POs generally are illiquid securities. The staff
also takes the position, however, that the Board of Trustees (or the
Manager or Subadviser pursuant to delegation by the Board) may determine
that U.S. Government-issued IOs or POs backed by fixed-rate mortgages are
liquid, where the Board determines that such securities can be disposed of
promptly in the ordinary course of business at a value reasonably close to
that used in the calculation of net asset value per share. Accordingly,
A-15
<PAGE>
certain of the IO and PO securities in which the Portfolio invests may be
deemed illiquid and investment in these illiquid IOs and POs will be
limited by the Portfolio's restriction regarding illiquid securities.
U.S. Government Securities. U.S. Government securities in which
the Portfolio may invest include (1) direct U. S. Treasury obligations,
(2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit of the
U.S. Government or the right of the issuer to borrow specified amounts
from the U.S. Government, and (3) obligations of U.S. Government agencies
and instrumentalities that are not backed by the full faith and credit of
the United States.
When-Issued and Forward Commitment Securities. The Portfolio may
purchase U.S. Government securities that are permissible investments of
the Portfolio on a "when-issued" basis and may purchase or sell such
securities on a "forward commitment" basis in order to hedge against
anticipated changes in interest rates and prices. When such transactions
are negotiated, the price, which is generally expressed in terms of yield,
is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. At the time the Portfolio makes
the commitment to purchase securities on a when-issued or forward
commitment basis, it will record the transaction and thereafter reflect
the value of such securities in determining its net asset value. In
addition, a segregated account consisting of cash or liquid securities
such as U.S. Government securities or other appropriate high grade debt
obligations equal to the value of the when-issued or forward commitment
securities will be established and maintained with the Portfolio's
custodian and will be marked to market daily. On the delivery date, the
Portfolio will meet its obligations from securities that are then maturing
or sales of securities held in the segregated asset account and/or from
available cash flow. When-issued and forward commitment securities may be
sold prior to the settlement date. The Portfolio will engage in when-
issued and forward commitment transactions only with the intention of
actually receiving or delivering the securities, as the case may be.
However, if the Portfolio chooses to dispose of the right to acquire a
when-issued security prior to its acquisition or dispose of its right to
deliver or receive against a forward commitment, it can incur a gain or
loss. In addition, there is always the risk that the securities may not be
delivered and that the Portfolio may incur a loss or will have lost the
opportunity to invest the amount set aside for such transaction in the
segregated account. No when-issued or forward commitment transactions will
be entered into by the Portfolio if, as a result, more than 20% of the
Portfolio's total assets would be committed to such transactions.
Investment Limitations
__________________________________________________________________________
__________________________________________________________________________
The Portfolio will not:
A-16
<PAGE>
. Invest more than 5% of its total assets in securities of any one issuer
other than the U.S. Government or its agencies and instrumentalities or
buy more than 10% of the voting securities or any other class of
securities of any issuer.
. Purchase securities if, as a result, more than 25% of its total assets
would be invested in any one industry with the exception of U.S.
Government securities.
. Borrow money, except from banks as a temporary measure for
extraordinary or emergency purposes including the meeting of redemption
requests which might require the untimely disposition of securities.
The payment of interest on such borrowings will reduce the Portfolio's
net investment income during the period of such borrowing. Borrowing in
the aggregate may not exceed 15% and borrowing for purposes other than
meeting redemptions may not exceed 5% of the Portfolio's total assets
at the time the borrowing is made. The Portfolio will not make
additional investments when borrowings exceed 5% of its total assets.
The Portfolio's investment objective and these investment
limitations are fundamental policies and may not be changed without the
vote of a majority of outstanding voting securities of the Portfolio, as
defined in the Investment Company Act of 1940, as amended ("1940 Act").
See "Investment Information -- Investment Limitations" in the SAI for a
listing of other investment limitations, some of which are fundamental.
Net Asset Value
__________________________________________________________________________
__________________________________________________________________________
The net asset values of Class A and Class C shares of the
Portfolio will be determined daily, Monday through Friday (excluding New
York Stock Exchange ("Exchange") holidays), as of the close of regular
trading on the Exchange - generally 4:00 p.m. New York City time - by
dividing the value of the total assets of the Portfolio less liabilities,
by the number of shares outstanding. The Portfolio values investment
securities at market value based on the last sales price as reported by
the principal securities exchange on which the security is traded. If no
sale is reported, market value is based on the most recent quoted bid
price. In the absence of a readily available market quote, or if the
Manager or Subadviser have reason to question the validity of market
quotations they receive, securities 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. The per share net asset value of
Class A and Class C shares may differ as a result of the different daily
expense accruals applicable to each class. For more information on the
calculation of net asset value, see "Net Asset Value" in the SAI.
A-17
<PAGE>
Performance Information
__________________________________________________________________________
__________________________________________________________________________
From time to time the Portfolio may advertise its average annual
total return and compare its performance to that of other mutual funds
with similar investment objectives and to relevant indices. Performance
information is computed separately for Class A and Class C shares in
accordance with the methods described below. Because Class C shares bear
the expense of a higher distribution fee attributable to the deferred
sales charge alternative, the performance of Class C shares likely will be
lower than that of Class A shares.
The Portfolio may include the total return of its Class A and
Class C shares in advertisements or other written material. When the
Portfolio advertises its total return with respect to Class A and Class C
shares, it will be calculated for the one-, five- and ten-year periods or,
if such periods have not elapsed, the period since the establishment of
that class. Total return is measured by comparing the value of an
investment in the class at the beginning of the relevant period (in the
case of Class A shares, giving effect to the maximum initial sales load of
3.75%) to the redemption value of the investment in the class at the end
of the period (assuming reinvestment of any dividends or capital gains
distribution at net asset value and, in the case of Class C shares, giving
effect to the deduction of any contingent deferred sales load ("CDSL")
which would be payable). The Portfolio also may advertise total return in
the same manner, but without annualizing the performance and/or taking
into account the front-end sales load or CDSL.
The Portfolio may also from time to time advertise the yield of
Class A and Class C shares and compare these yields to those of other
mutual funds with similar investment objectives. The yield of the
Portfolio will be computed by dividing the net investment income per share
earned during a 30-day (or one month) period by the maximum offering price
per share on the last day of the period. Yield accounting methods differ
from the methods used for other accounting purposes; accordingly, the
yield for a class may not equal the dividend income actually paid to
shareholders or the net investment income per share reported in the
Portfolio's financial statements. For more information on Portfolio
performance, see "Performance Information" in the SAI.
A-18
<PAGE>
INVESTING IN THE PORTFOLIO
How to Buy Shares
__________________________________________________________________________
__________________________________________________________________________
Shares of the Portfolio are continuously offered through the
Portfolio's principal underwriter, Raymond James & Associates, Inc. (the
"Distributor"), and through other participating dealers or banks that have
dealer agreements with the Distributor. The distributor receives
commissions consisting of that portion of the sales load remaining after
the dealer concession is paid to participating dealers or banks. Such
dealers may be deemed to be underwriters pursuant to the Securities Act of
1933, as amended.
Shares of the Portfolio may be purchased through a registered
representative of the Distributor, a participating dealer or a
participating bank ("Representative") by placing an order for Portfolio
shares with your Representative, completing and signing the Account
Application found in this Prospectus, and mailing it, along with your
payment, within five business days. After May 31, 1995, payments will be
required within three business days.
The Portfolio offers and sells two classes of shares, Class A and
Class C shares. Class A shares may be purchased at a price equal to their
net asset value per share next determined after receipt of an order, plus
a sales load imposed at the time of purchase. Class C shares may be
purchased at a price equal to their net asset value per share next
determined after receipt of an order. A CDSL of 1% is imposed on Class C
shares if you redeem those shares within one year of purchase. When you
place an order for Portfolio shares, you must specify which class of
shares you wish to purchase. See "Alternative Purchase Plans."
All purchase orders received by the Distributor prior to the
close of regular trading on the Exchange - generally 4:00 p.m., Eastern
time - will be executed at that day's offering price. Purchase orders
received by your Representative prior to the close of regular trading on
the Exchange and transmitted to the Distributor before 5:00 p.m. Eastern
time on that day also will receive that day's offering price. Otherwise,
all purchase orders accepted after the offering price is determined will
be executed at the offering price determined as of the close of regular
trading on the Exchange on the next trading day. See "What Class A Shares
Will Cost" and "What Class C Shares Will Cost."
You also may purchase shares of the Portfolio directly by
completing and signing the Account Application found in this Prospectus,
and mailing it, along with your payment, to Heritage Income Trust, c/o
Shareholder Services, Heritage Asset Management, Inc., P.O. Box 33022, St.
Petersburg, FL 33733.
A-19
<PAGE>
Shares may be purchased with Federal Funds (a commercial bank's
deposit with the Federal Reserve Bank that can be transferred to another
member bank on the same day) sent by Federal Reserve or bank wire to:
State Street Bank and Trust Company
Boston, Massachusetts
ABA #011-000-028
Account #3196-769-8
Wire instructions should include (1) the name of the Portfolio,
(2) the class of shares to be purchased, (3) the investor's account number
assigned by the Portfolio, and (4) the investor's name.
To open a new account with Federal Funds or by wire, you must
contact the Manager or your Representative to obtain a Heritage Mutual
Fund account number. Commercial banks may elect to charge a fee for wiring
funds to the Custodian. For more information on "How to Buy Shares," see
"Investing in the Fund" in the SAI.
Minimum Investment Required/Accounts With Low Balances
__________________________________________________________________________
__________________________________________________________________________
Except as provided under "Investment Programs", the minimum
initial investment in the Portfolio is $1,000, and a minimum account
balance of $500 must be maintained. These minimum requirements may be
waived at the discretion of the Manager. In addition, initial investments
in Individual Retirement Accounts ("IRAs") may be reduced or waived under
certain circumstances. Contact the Manager or your Representative for
further information.
Due to the high cost of maintaining accounts with low balances,
it is currently the Portfolio's policy to redeem Portfolio shares in any
account if the account balance falls below the required minimum value of
$500, except for retirement accounts. The shareholder will be given 30
days' notice to bring the account balance to the minimum required or the
Portfolio may redeem shares in the account and pay the proceeds to the
shareholder. The Portfolio does not apply this minimum account balance
requirement to accounts that fall below this minimum due to market
fluctuation.
Investment Programs
__________________________________________________________________________
__________________________________________________________________________
A variety of automated investment options are available for the
purchase of Portfolio shares. These plans provide for automatic monthly
investments of $50 or more through various methods described below. You
may change the amount to be automatically invested or may discontinue this
service at any time without penalty. If you discontinue this service
before reaching the required account minimum, the account must be brought
up to the minimum in order to remain open. Shareholders desiring this
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<PAGE>
service should complete the appropriate application available from the
Manager. You will receive a periodic confirmation of all activity for your
account.
Automatic Investment Options:
1. Bank Draft Investing -- You may authorize the Manager to process a
monthly draft from your personal checking account for investment into
the Portfolio. The draft is returned by your bank the same way a
canceled check is returned.
2. Payroll Direct Deposit -- If your employer participates in a direct
deposit program (also known as ACH Deposits) you may have all or a
portion of your payroll directed to the Portfolio. This will generate a
purchase transaction each time you are paid by your employer. The
employer will report to you the amount sent from each paycheck.
3. Government Direct Deposit -- If you receive a qualifying periodic
payment from the U.S. Government or other agency that participates in
Direct Deposit, you may have all or a part of each check directed to
purchase shares of the Portfolio. The U.S. Government or agency will
report to you all payments made.
4. Automatic Exchange -- If you own shares in another Heritage open end
Mutual Fund advised by the Manager ("Heritage Mutual Fund"), you may
elect to have a preset amount redeemed from that fund and exchanged
into the corresponding class of shares of the Portfolio. You will
receive a statement from the other Heritage Mutual Fund confirming the
redemption.
Retirement Plans:
Shares of the Portfolio may be purchased as an investment for
Heritage IRA plans. In addition, shares may be purchased as an investment
for self-directed IRAs, defined contribution plans, Simplified Employee
Pension Plans ("SEPs") and other qualified retirement plan accounts.
Heritage IRA. Individuals who earn compensation and who have not
reached age 70 1/2 before the close of the year generally may establish a
Heritage IRA. An individual may make limited contributions to a Heritage
IRA through the purchase of shares of the Portfolio and/or other Heritage
Mutual Funds. The Code limits the deductibility of IRA contributions to
taxpayers who are not active participants (and whose spouses are not
active participants) in employer-provided retirement plans or who have
adjusted gross income below certain levels. Nevertheless, the Code permits
other individuals to make nondeductible IRA contributions up to $2,000 per
year (or $2,250, if such contributions also are made for a nonworking
spouse and a joint return is filed). A Heritage IRA may also be used for
certain "rollovers" from qualified benefit plans and from Section 403(b)
annuity plans. For more detailed information on the Heritage IRA, please
contact the Manager.
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<PAGE>
Portfolio shares may be used as the investment medium for
qualified plans (defined benefit or defined contribution plans established
by corporations, partnerships or sole proprietorships). Contributions to
qualified plans may be made (within certain limits) on behalf of the
employees, including owner-employees, of the sponsoring entity.
Other Retirement Plans. Multiple participant payroll deduction
retirement plans also may purchase Class 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 Class A shares of the Portfolio will be that normally
applicable under the schedule of sales loads set forth in this Prospectus
to an investment 13 times larger than such initial purchase. The sales
load applicable to each succeeding monthly purchase of Class A shares will
be that normally applicable, under such schedule, to an investment equal
to the sum of (1) the total purchase previously made during the 13-month
period, and (2) the current month's purchase multiplied by the number of
months (including the current month) remaining in the 13-month period.
Sales loads previously paid during such period will not be retroactively
adjusted on the basis of later purchases. Multiple participant payroll
deduction retirement plans may purchase Class C shares at any time.
Alternative Purchase Plans
__________________________________________________________________________
__________________________________________________________________________
The alternative purchase plans offered by the Portfolio enable
you to choose the class of shares that you believe will be most beneficial
given the amount of your intended purchase, the length of time you expect
to hold the shares and other circumstances. You should consider whether,
during the anticipated length of your intended investment in the
Portfolio, the accumulated continuing distribution and service fees plus
the CDSL on Class C shares would exceed the initial sales load plus
accumulated service fees on Class A shares purchased at the same time.
Another factor to consider is whether the potentially higher yield of
Class A shares due to lower ongoing charges will offset the initial sales
load paid on such shares. Representatives may receive different
compensation for sales of Class A shares than sales of Class C shares.
If you purchase sufficient shares to qualify for a reduced sales
load, you may prefer to purchase Class A shares because similar reductions
are not available on the Class C shares. For example, if you intend to
invest more than $1,000,000 in shares of the Portfolio, you should
purchase Class A shares. Moreover, all Class A shares are subject to a
lower 12b-1 fee and, accordingly, are expected to pay correspondingly
higher dividends on a per share basis. If your purchase will not qualify
for a reduced sales load, you may still wish to purchase Class A shares if
you expect to hold your shares for an extended period of time because,
depending on the number of years you hold the investment, the continuing
distribution and service fees on Class C shares would eventually exceed
the initial sales load plus the continuing servicing fee on Class A shares
during the life of your investment. However, because initial sales loads
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<PAGE>
are deducted at the time of purchase, not all of the purchase payment for
Class A shares is invested initially.
You might determine that it would be more advantageous to
purchase Class C shares in order to have all of your purchase payment
invested initially. However, your investment would remain subject to
continuing distribution and service fees and, for a one year period, be
subject to a CDSL. For example, based on current fees and expenses for the
Portfolio and the maximum Class A sales load, you would have to hold Class
A shares approximately seven years before the accumulated distribution and
service fees on the Class C shares would exceed the initial sales load
plus the accumulated service fees on the Class A shares.
What Class A Shares Will Cost
__________________________________________________________________________
__________________________________________________________________________
Class A shares of the Portfolio are sold at their next determined
net asset value plus a sales load as described below.
<TABLE>
<CAPTION>
Sales Load as a Percentage of
-----------------------------
Net Amount Dealer Concession
Invested as a Percentage of
Amount of Purchase Offering Price (Net Asset Value) Offering Price(1)
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
Less than $25,000 3.75% 3.90% 3.25%
$25,000 to $49,999 3.25% 3.36% 2.75%
$50,000 to $99,999 2.75% 2.83% 2.25%
$100,000 to $249,999 2.25% 2.30% 1.75%
$250,000 to $499,999 1.50% 1.52% 1.00%
$500,000 to $999,999 0.75% 0.76% 0.25%
$1,000,000 and over(2) 0.00% 0.00% 0.00%
</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) The Manager may pay up to 0.50% of the purchase amount to the
Distributor for purchases exceeding $1,000,000. The Manager
reserves the right to reclaim this payment subject to certain
holding period requirements.
Class A shares of the Portfolio may be sold at net asset value
without any sales load to the Manager and Subadviser; current and retired
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<PAGE>
officers and Trustees of the Trust; directors, officers, and full-time
employees of the Manager, Subadviser of any Heritage Fund, Distributor,
and their affiliates; registered representatives of broker-dealers that
are parties to dealer agreements with the Distributor; directors, officers
and fulltime 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
(the "APA Group") has entered into an agreement with the Distributor which
allows its members to purchase Class A shares at a sales load equal to
two-thirds of the percentages in the above table. The Dealer Concession
will also be adjusted in a like manner. Members of the APA Group are also
eligible to purchase Class A shares at net asset value in amounts equal to
the value of shares redeemed from other mutual funds which were purchased
under reduced sales load programs available to their organization. Class A
shares may also be purchased without sales loads by investors who
participate in certain broker-dealer wrap fee investment programs.
Class A shares also may be purchased without a sales load if (1)
within 90 days of the purchase of Class A shares the purchaser redeemed
Class A shares of one or more mutual funds for which a retail broker-
dealer (other than the Distributor) or its affiliate was principal
underwriter (proprietary funds), provided that the purchaser either paid a
front end sales load (or CDSL), or held shares of those funds for the
period required not to pay the otherwise applicable CDSL, and (2) the
total value of Class A shares of all Heritage Mutual Funds purchased under
this sales load waiver does not exceed the amount of the purchaser's
redemption proceeds from the proprietary funds. To take advantage of this
waiver, an investor must provide satisfactory evidence that all the above-
noted conditions are met. Qualifying investors should contact their
investment executives for more information.
Class A shares also may be purchased at net asset value by trust
companies and bank trust departments for funds over which they exercise
exclusive discretionary authority and which are held in a fiduciary,
agency, advisory, custodial or similar capacity. Such purchases are
subject to minimum requirements with respect to amount of purchase.
Currently, the minimum purchase required is $1,000,000 which may be
invested over a period of 13 months. The minimum may be changed from time
to time by the Distributor. The minimum may be aggregated between the
Portfolio and Class A shares of any other Heritage Mutual Funds that would
be subject to a sales load. Cities, counties, states or instrumentalities,
and their departments, authorities or agencies are able to purchase Class
A shares of the Portfolio at net asset value as long as certain conditions
are met.
Combined Purchase Privilege (Right of Accumulation)
You may qualify for the sales load reductions indicated in the
above sales load schedule by combining purchases of Class A shares of the
Portfolio 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 which, in the aggregate, are at
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least equal to the prescribed amounts, by an individual, his spouse, and
their children under the age of 21 years, purchasing Class A shares of the
Portfolio for his or their own account; a single purchase by a trustee or
other fiduciary purchasing Class A shares for a single trust, estate, or
single fiduciary account although more than one beneficiary is involved;
or a single purchase for the employee benefit plans of a single employer.
A "purchase" may also include Class A shares purchased at the same time
through a single selected dealer of any other Heritage Mutual Fund that
distributes its shares subject to a sales load. To qualify for the
Combined Purchase Privilege on a purchase through a selected dealer, the
investor or selected dealer must provide the Distributor with sufficient
information to verify that each purchase qualifies for the privilege or
discount.
Statement of Intention
You also may obtain the reduced sales loads shown under "What
Class A Shares Will Cost" by means of a written Statement of Intention,
which expresses your intention to invest not less than $25,000 within a
period of 13 months in Class A shares of the Portfolio or any other
Heritage Mutual Fund subject to a sales load.
Investors qualifying for the Combined Purchase Privilege
described above may purchase Class A shares of the Heritage Mutual Funds
under a single Statement of Intention. For example, if, at the time an
investor signs a Statement of Intention to invest at least $25,000 in
Class A shares of the Portfolio, the investor and the investor's spouse
each purchase Class A shares of the Portfolio worth $5,000 (for a total of
$10,000), then it will only be necessary to invest a total of $15,000
during the following 13 months in Class A shares of the Portfolio or any
other Heritage Mutual Fund subject to a sales load to qualify for the
reduced sales loads on the total amount being invested.
The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum initial
investment under a Statement of Intention is 5% of such amount. Investors
wishing to enter into a Statement of Intention in conjunction with their
initial investment in Class A shares of the Portfolio should complete the
appropriate portion of the Account Application, while current Portfolio
shareholders desiring to do so can obtain a Statement of Intention form by
contacting the Manager or the Distributor at the address or telephone
number listed on the cover of this Prospectus, or from their
Representative.
Reinstatement Privilege
A shareholder who has redeemed any or all of his Class A shares
of the Portfolio may reinvest all or any portion of the redemption
proceeds in Class A shares of the Portfolio at net asset value without any
sales load, provided that such reinvestment is made within 90 calendar
days after the redemption date. A shareholder who has redeemed any of all
of his Class C shares of the Portfolio and has paid a CDSL on those shares
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or has held those shares long enough so that the CDSL no longer applies,
may reinvest all or any portion of the redemption proceeds in Class C
shares of the Portfolio 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 tax purposes, while (2) any loss so realized will not be
recognized to the extent that the proceeds are reinvested in shares of the
Portfolio. See "Taxes." The reinstatement privilege may be utilized by a
shareholder only once, irrespective of the number of shares redeemed,
except that the privilege may be utilized without limitation in connection
with transactions whose sole purpose is to transfer a shareholder's
interest in the Portfolio to his defined contribution plan, IRA or SEP.
Investors must notify the Portfolio when they intend to exercise the
reinstatment privilege.
For more information on "What Class A Shares Will Cost" and a
further explanation of instances in which the sales load will be waived or
reduced, see "Investing in the Portfolio" in the SAI.
What Class C Shares Will Cost
__________________________________________________________________________
__________________________________________________________________________
A CDSL of 1% is imposed on Class C shares if, within one year of
purchase, you redeem an amount that causes the current value of your
account to fall below the total dollar amount of Class C shares purchased
subject to the CDSL. The CDSL will not be imposed on the redemption of
Class C shares acquired as dividends or other distributions, or on any
increase in the net asset value of the redeemed Class C shares above the
original purchase price. Thus, the CDSL will be imposed on the lower of
net asset value or purchase price.
Redemptions will be processed in a manner intended to minimize
the amount of redemption that will be subject to the CDSL. When
calculating the CDSL, it will be assumed that the redemption is made first
of Class C shares acquired as dividends, second of Class C shares that
have been held for over one year, and finally of Class C shares held for
less than one year on a first-in first-out basis.
For example, assume you purchase 100 Class C shares at $10 per
share (for a total cost of $1,000) and, during the year you purchase such
shares, the net asset value increases to $12 per share and you acquire 10
additional shares as dividends. If you redeem 50 shares (or $600) within
the first year of purchase, 10 shares would not be subject to the CDSL
because redemptions are made first of shares acquired as dividends. With
respect to the remaining shares, the CDSL is applied only to the original
cost of $10 per share and not to the higher net asset value of $12 per
share. Therefore, only 40 of the 50 shares (or $400) being redeemed would
be subject to a CDSL at a rate of 1%.
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Waiver of the Contingent Deferred Sales Load. The CDSL is
currently waived for (1) any partial or complete redemption in connection
with a distribution without penalty under Section 72(t) of the Code from a
qualified retirement plan, including a Keogh 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 the Portfolio of Class 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 Class C shares, see "Reinstatement
Privilege" and "Exchange Privilege."
How to Redeem Shares
__________________________________________________________________________
__________________________________________________________________________
Redemption of Portfolio shares can be made by:
Contacting Your Representative. Your Representative will
transmit an order to the Portfolio for redemption and may charge you a fee
for this service.
Telephone Request. You may redeem shares by placing a telephone
request to the Portfolio (800-421-4184) prior to the close of regular
trading on the Exchange. Shareholders who do not wish to have telephone
exchange/redemption privileges should so elect by completing the
appropriate section of the Account Application. The Trust, Manager,
Distributor and their Trustees, directors, officers and employees are not
liable for any loss arising out of telephone instructions that they
reasonably believe are authentic. These parties will employ reasonable
procedures to confirm that telephone instructions are authentic. To the
extent that the Trust, Manager, Distributor and their Trustees, directors,
officers and employees do not follow reasonable procedures, some or all of
them may be liable for losses due to unauthorized or fraudulent
transactions. For more information on those procedures, see "Redeeming
Shares -- Telephone Transactions" in the SAI. You may elect to have the
funds wired to the bank account specified on the Account Application.
Funds will normally be sent the next business day, and the shareholder
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will be charged a wire fee by the Manager (currently $5.00). For
redemptions of less than $25,000, you may request that the check be mailed
to your address of record, providing that such address has not been
changed in the past 60 days. For your protection, all other redemption
checks will be transferred to the bank account specified on the Account
Application.
Written Request. Portfolio shares may be redeemed by sending a
written request for redemption to "Heritage Income Trust-Diversified
Portfolio, c/o Shareholder Services, Heritage Asset Management, Inc., P.O.
Box 33022, St. Petersburg, Florida 33733." Signature guarantees will be
required on the following types of requests: redemptions from any account
which has had an address change in the past 60 days, redemptions greater
than $25,000, redemptions that are sent to an address other than the
address of record and exchanges or transfers to other Heritage accounts
with different titles. The Manager will transmit an order to the Portfolio
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 Portfolio are redeemed to provide the amount of the periodic
withdrawal payment.
The purchase of Class 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 Class A shares upon which you may
already have paid a sales load. Therefore, the Portfolio will not
knowingly permit the purchase of Class A shares through an Automatic
Investment Plan if you are at the same time making systematic withdrawals
of Class A shares. The Manager reserves the right to cancel systematic
withdrawals if insufficient shares are available for two or more
consecutive months.
Please contact the Manager or your Representative for further
information or see "Redeeming Shares" in the SAI.
Receiving Payment
__________________________________________________________________________
__________________________________________________________________________
If a request for redemption is received by the Portfolio 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 Class C shares. Requests for redemption
received by the Portfolio 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 Class C shares.
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Payment for shares redeemed by the Portfolio normally will be
made on the business day after the redemption was made. If the shares to
be redeemed recently have been purchased by personal check, the Portfolio
may delay mailing a redemption check until the purchase check has cleared,
which may take up to seven days. This delay can be avoided by wiring funds
for purchases. The proceeds of a redemption may be more or less than the
original cost of Portfolio shares.
A redemption request will be considered to be received in "good
order" if:
. the number or amount of shares and the class of shares to be redeemed
and shareholder account number have been indicated;
. any written request is signed by the shareholder and by all co-owners
of the account with exactly the same name or names used in establishing
the account;
. any written request is accompanied by certificates representing the
shares that have been issued, if any, and the certificates have been
endorsed for transfer exactly as the name or names appear on the
certificates or an accompanying stock power has been attached; and
. the signatures on any written redemption request of $25,000 or more and
on any certificates for shares (or an accompanying stock power) have
been guaranteed by a national bank, a state bank which is insured by
the Federal Deposit Insurance Corporation, a trust company, or by any
member firm of the New York, American, Boston, Chicago, Pacific or
Philadelphia Stock Exchanges. Signature guarantees also will be
accepted from savings banks and certain other financial institutions
which are deemed acceptable by the Manager, as transfer agent, under
its current signature guarantee program.
The Portfolio has the right to suspend redemption or postpone
payment at times when the Exchange is closed (other than customary weekend
or holiday closings) or during periods of emergency or other periods as
permitted by the SEC. In the case of any such suspension a shareholder may
either withdraw his request for redemption or receive payment based upon
the net asset value next determined after the suspension is lifted. If a
redemption check remains outstanding after six months, the Manager
reserves the right to redeposit those funds into the shareholder's
account. For more information on "Receiving Payment," see "Redeeming
Shares -- Receiving Payment" in the SAI.
Exchange Privilege
__________________________________________________________________________
__________________________________________________________________________
If you have held Class A or Class C shares for at least 30 days,
you may exchange those shares for shares of the same class of any other
open-end Heritage Mutual Fund. All exchanges will be based on the
respective net asset values of the Heritage Mutual Funds involved. All
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exchanges are subject to the minimum investment requirements and any other
applicable terms set forth in the prospectus for the Heritage Mutual Fund
whose shares are being acquired. Exchanges involving the redemption of
shares recently purchased by check will be permitted only after the
Heritage Mutual Fund whose shares have been tendered for exchange is
reasonably assured that the check has cleared, normally seven calendar
days following the purchase date. Exchanges of shares of Heritage Mutual
Funds will generally result in the realization of a taxable gain or loss
for Federal income tax purposes.
For purposes of calculating the commencement of the one-year CDSL
holding period for shares exchanged from the Fund to the Class C shares of
any other Fund, except Heritage Cash Trust 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 Heritage Cash Trust Money Market
Fund will not be included in this calculation.
If you exchange Class A or Class C shares for corresponding
shares of Heritage Cash Trust -- Money Market Fund, you may, at any time
thereafter, exchange such shares for the corresponding class of shares of
any other Heritage Mutual Fund. Because the Money Market Fund is a no-load
mutual fund, if you exchange shares of that fund acquired by purchase
(rather than exchange) for shares of another Heritage Mutual Fund, you
will be subject to the sales load, if any, that would be applicable to a
purchase of that Heritage Mutual Fund. In addition, if you exchange Class
C shares of the Portfolio for corresponding shares of the Money Market
Fund, the period during which an investment is held in shares of the Money
Market Fund will not count for purposes of calculating the one-year CDSL
holding period for such shares. As a result, if you redeem Class C shares
of the Money Market Fund before the expiration of the one-year CDSL
holding period, you will be subject to the applicable CDSL. Class A shares
of the Portfolio may be exchanged for Class A shares of the Heritage Cash
Trust -- Municipal Money Market Fund, which is the only class of shares
offered by that fund. Because the Municipal Money Market Fund is a no-load
fund, if you exchange shares of that fund acquired by purchase (rather
than exchange) for shares of another Heritage Mutual Fund, you will also
be subject to the sales load, if any, that would be applicable to a
purchase of that Heritage Mutual Fund. Class C shares are not eligible for
exchange into the Municipal Money Market Fund.
Shares acquired pursuant to a telephone request for exchange will
be held under the same account registration as the shares redeemed through
such exchange. For a discussion of limitation of liability of certain
entities, see "Telephone Redemption Requests to the Portfolio."
Telephone exchanges can be effected by calling the Manager at
(800) 421-4184, or by calling your Representative. In the event that you
or your Representative are unable to reach the Manager by telephone, an
exchange can be effected by sending a telegram to Heritage Asset
Management, Inc., attention: Shareholder Services. Due to the volume of
calls or other unusual circumstances, telephone exchanges may be difficult
to implement during certain time periods.
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The exchange privilege is available only in states where shares
of the Heritage Mutual Fund being acquired may be legally sold. Each
Heritage Mutual Fund reserves the right to reject any order to acquire its
shares through exchange or otherwise to restrict or terminate the exchange
privilege at any time. In addition, each Heritage Mutual Fund may
terminate this exchange privilege upon 60 days' notice. For further
information on this exchange privilege, contact the Manager or your
Representative and see "Exchange Privilege" in the SAI.
MANAGEMENT OF THE PORTFOLIO
Board of Trustees
The business and affairs of the Portfolio are managed by or under
the direction of the Trust's Boards of Trustees. The Trustees are
responsible for managing the Portfolio's business affairs and for
exercising all the Portfolio's powers except those reserved to the
shareholders. A Trustee may be removed by a two-thirds vote of the
outstanding Portfolio shares.
Investment Adviser, Fund Accountant, Administrator and Transfer Agent
Heritage Asset Management, Inc. is the Portfolio's investment
adviser, fund accountant, administrator and transfer agent. The Manager is
responsible for reviewing and establishing investment policies for the
Portfolio as well as administering the Portfolio's noninvestment affairs.
The Manager is a wholly owned subsidiary of Raymond James Financial, Inc.,
which, together with its subsidiaries, provides a wide range of financial
services to retail and institutional clients. The Manager manages,
supervises and conducts the business and administrative affairs of the
Portfolio and the other Heritage mutual funds. Investment decisions for
the Portfolio (except with respect to assets invested in the High Yield
Sector) are also made by the Manager. The annual investment advisory and
administration fee paid monthly by the Portfolio to the Manager is based
on the Portfolio's average daily net assets as shown on the chart below.
The Portfolio pays the Manager directly for Fund Accounting and Transfer
Agent Services.
Advisory Fee as a % of
Average Daily Net
Average Daily Net Assets Assets
------------------------ ------
First $100 million 0.60%
Over $100 million 0.50%
The advisory fee may be reduced pursuant to regulations in
various states where Portfolio shares are qualified for sale which impose
limitations on the annual expense ratio of the Portfolio. The Manager
reserves the right to discontinue any voluntary waiver of its fees or
reimbursement to the Portfolio in the future. The Manager may recover
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advisory fees waived in the two previous years if the recovery does not
cause the Portfolio to exceed applicable expense limitations. It currently
is not anticipated that the Manager will recover these fees.
Subadviser
The Manager has entered into an agreement with Eagle Asset
Management, Inc. to provide investment advice and portfolio management
services, including placement of brokerage orders, on behalf of the High
Yield Sector for a fee payable by the Manager equal to 25% of the fees
payable to the Manager by the Portfolio without regard to any reduction in
fees actually paid to the Manager as a result of state expense
limitations. The Subadviser is a wholly owned subsidiary of Raymond James
Financial, Inc. The Subadviser acts as adviser to Heritage Series Trust --
Eagle International Equity Portfolio. The Subadviser also acts as
subadviser to Heritage Series Trust-Value Equity Fund, Heritage Capital
Appreciation Trust (although no assets currently are allocated to the
Subadviser) and Heritage Income-Growth Trust and advises private
investment accounts with net assets totalling approximately $1.5 billion
as of January 1, 1995. The Subadviser may use the Distributor as broker
for agency transactions in listed and over-the-counter securities at
commission rates and under circumstances consistent with the policy of
best price and execution. See "Brokerage Practices" in the SAI.
Portfolio Management
H. Peter Wallace serves as portfolio manager of the Government
Sector and David M. Blount serves as portfolio manager of the High Yield
Sector of the Portfolio. Messrs. Wallace and Blount are responsible for
the day-to-day management of their respective sectors of the Portfolio's
investment portfolio subject to the general oversight of the Manager and
the Trust's Board of Trustees. Mr. Wallace has been a Senior Vice
President and Director of Fixed Income Investments of the Manager since
January 1993 and the portfolio manager of the Portfolio since April 1994.
Prior to 1993, Mr. Wallace was a Vice President of Mortgage Products at
Donaldson, Lufkin and Jenrette from 1990 to 1992 and from 1986 to 1990 he
was a Senior Vice President and Director of Mortgage Research at Shearson
Lehman Brothers. Mr. Wallace is a Chartered Financial Analyst. Mr. Blount
has been a Vice President of the Subadviser and portfolio manager of the
High Yield Sector since September 1993. 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, and
prior thereto was a Vice President of American Savings and Loan.
SHAREHOLDER AND ACCOUNT POLICIES
Dividends and Other Distributions
__________________________________________________________________________
__________________________________________________________________________
Dividends from net investment income are declared and paid
monthly. The Portfolio distributes to shareholders substantially all net
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realized capital gains on portfolio securities after the end of the year
in which the gains are realized. Dividends and other distributions on
shares held in retirement plans and by shareholders maintaining a
Systematic Withdrawal Plan generally are declared and paid in additional
Portfolio shares. Other shareholders may elect to:
. receive both dividends and capital gain distributions in additional
Portfolio shares;
. receive dividends in cash and capital gain distributions in additional
Portfolio shares;
. receive both dividends and capital gain distributions in cash; or
. receive both dividends and capital gains distributions for investment
into another Heritage mutual fund.
If you select none of the options, the first option will apply.
In any case where you receive a dividend or a capital gain distribution in
shares, your account will be credited with additional shares valued at the
net asset value of the shares determined at the close of the day following
the record date for the dividend or capital gain distribution.
Distribution options can be changed at any time by notifying the Manager
in writing.
Dividends paid by the Portfolio with respect to its Class A and
Class 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 Class C shares may be
lower than dividends on Class A shares primarily as a result of the higher
distribution fee applicable to Class C shares.
Distribution Plans
__________________________________________________________________________
__________________________________________________________________________
As compensation for services rendered and expenses borne by the
Distributor in connection with the distribution of Class A shares and in
connection with personal services rendered to Class A shareholders and the
maintenance of Class A accounts, the Portfolio may pay the Distributor a
service fee of up to 0.25% and a distribution fee of up to 0.10% of the
Portfolio's average daily net assets attributable to Class A shares. The
Portfolio may pay the Distributor a fee of 0.25% on Class A shares
purchased after March 31, 1995. This fee represents compensation for
maintenance of Class A accounts. This fee is computed daily and paid
monthly.
As compensation for services rendered and expenses borne by the
Distributor in connection with the distribution of Class C shares and in
connection with personal services rendered to Class C shareholders and the
maintenance of Class C accounts, the Portfolio pays the Distributor a
service fee of 0.25% and a distribution fee of 0.55% of the Portfolio's
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average daily net assets attributable to Class C shares. This fee is
computed daily and paid monthly.
The above-referenced fees paid to the Distributor are made under
Distribution Plans adopted pursuant to Rule 12b-1 under the 1940 Act.
These Plans authorize the Distributor to spend such fees on any activities
or expenses intended to result in the sale of Class A and Class C shares,
including, but not limited to, compensation (in addition to the sales
load) paid to registered representatives of the Distributor and to
participating dealers which have entered into sales agreements with the
Distributor; advertising, salaries and other expenses of the Distributor
relating to selling or servicing efforts; expenses of organizing and
conducting sales seminars; printing of prospectuses, statements of
additional information and reports for other than existing shareholders;
and preparation and distribution of advertising material, sales literature
and other sales promotion expenses. The Distributor has entered into
dealer agreements with participating dealers who will also distribute
shares of the Portfolio.
If the Plan is terminated, the obligation of the Portfolio to
make payments to the Distributor pursuant to the Plan will cease and the
Portfolio will not be required to make any payments past the date the Plan
terminates.
Taxes
__________________________________________________________________________
__________________________________________________________________________
The Portfolio is treated as a separate corporation for Federal
income tax purposes and intends to continue to qualify for treatment as a
regulated investment company under Subchapter M of the Code. In each
taxable year that the Portfolio does so, it (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 and
net short-term capital gains) and net capital gain (the excess of net
long-term capital gain over net short-term capital loss) that is
distributed to its shareholders. Dividends from the Portfolio's investment
company taxable income are taxable to its shareholders as ordinary income,
to the extent of the Portfolio's earnings and profits, whether received in
cash or in additional Portfolio shares. Distributions of the Portfolio's
realized net capital gain, when designated as such, are taxable to its
shareholders as long-term capital gains, whether received in cash or in
additional Portfolio shares and regardless of the length of time the
shares have been held. No substantial portion of the dividends paid by the
Portfolio is expected to be eligible for the dividends-received deduction
allowed to corporations.
Dividends and other distributions declared by the Portfolio in
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 Portfolio and received
by the shareholders on December 31 if they are paid by the Portfolio
during the following January. Shareholders receive Federal tax information
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regarding dividends and other distributions after the end of each year.
The Portfolio 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 Portfolio with a
correct taxpayer identification number. Withholding at that rate from
dividends and capital gain distributions also is required for such
shareholders who otherwise are subject to backup withholding.
The foregoing is only a summary of some of the important Federal
income tax considerations generally affecting the Portfolio 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; for example, a portion of the dividends paid by the Portfolio
represents income received on direct obligations of the U.S. Government
and accordingly is not subject to income taxation in most states and
localities. You are therefore urged to consult your tax adviser.
Shareholder Information
__________________________________________________________________________
__________________________________________________________________________
Each share of the Portfolio gives the shareholder one vote in
matters submitted to shareholders for a vote. Class A and Class C shares
of the Portfolio have equal voting rights, except that, in matters
affecting only a particular class, only shares of that class are entitled
to vote. As a Massachusetts business trust, the Trust is not required to
hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Portfolio's operation and for the election of
trustees under certain circumstances. Trustees may be removed by the
Trustees or shareholders at a special meeting. A special meeting of
shareholders shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the Portfolio's outstanding shares.
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APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
The ratings are based on current information furnished by the
issuer or obtained by S&P from other sources it considers reliable. S&P
does not perform any audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the
obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting
creditor's rights.
AAA -- Debt rated "AAA" has the highest rating assigned by S&P.
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 in higher
rated categories.
BB, B, CCC -- Debt rated "BB," "B" and "CCC" 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" indicates the lowest degree of speculation. While such
debt will likely have some quality and protective characteristics, these
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are outweighed by larger 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 which 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.
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.
MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds which 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 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 which 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, fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long term risk
appear somewhat greater than in Aaa securities.
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A -- Bonds which 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 which suggest a susceptibility to impairment
some time in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which 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 amy 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 which 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 which are rated Caa are of poor standing. Such
issues maybe in default or there may be present elements of danger with
respect to principal or interest.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bonding 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.
No dealer, salesman or other person has been authorized to give
any information or to make any representation other than that contained in
this Prospectus in connection with the offer contained in this Prospectus,
and, if given or made, such other information or representations must not
be relied upon as having been authorized by the Trust or the Distributor.
This Prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
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Heritage Income Trust
Diversified Portfolio -----------------
P.O. Box 33022
St. Petersburg, FL 33733
--------------------------------------- Bulk Rate
U.S. Postage
Address Change Requested PAID
Modern Mailing
Prospectus -----------------
Investment Advisor/
Shareholder Servicing Agent
Heritage Asset Management, Inc.
P.O. Box 33022
St. Petersburg, FL 33733
(800) 421-4184
Distributor
Raymond James & Associates, Inc.
P.O. Box 12749
St. Petersburg, FL 33733
(813) 573-3800
Legal Counsel
Kirkpatrick & Lockhart
Independent Accountants
Coopers & Lybrand L.L.P.
10M 2/95 HAM036
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<PAGE>
(HERITAGE LOGO)
Diversified Portfolio
Prospectus
April 3, 1995
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