<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934.
Filed by the Registrant[x]
Filed by a Party other than the Registrant[ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
___________________________________
HERITAGE INCOME TRUST
___________________________________
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-
6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction
applies:
_______________________________________
2) Aggregate number of securities to which transaction applies:
_______________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
_______________________________________
4) Proposed maximum aggregate value of transaction:
_______________________________________
5) Total fee paid:
_______________________________________
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid:
________________________
2) Form, Schedule or Registration Statement No.:
________________________
3) Filing Party:
________________________
4) Date Filed:
________________________
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Preliminary copy for
the information of
the Securities and
Exchange Commission;
File No. 33-57986;
Rule 14a-6
HERITAGE INCOME TRUST - DIVERSIFIED PORTFOLIO
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
January 24, 1996
TO THE SHAREHOLDERS:
A Special Meeting of the holders of shares of beneficial interest
of the Heritage Income Trust-Diversified Portfolio (the "Fund") will be
held on January 24, 1996 at 8:30 a.m. eastern standard time, or any
adjournment(s) thereof, at 880 Carillon Parkway, Classroom A, St.
Petersburg, FL 33716, for the following purposes:
(1) To approve a modification of the investment objective of the
Fund;
(2) To approve an Investment Subadvisory Agreement between
Heritage Asset Management, Inc. and Salomon Brothers Asset
Management Inc; and
(3) To transact such other business as may properly come before
the Special Meeting or any adjournment(s) thereof.
You are entitled to vote at the meeting and any adjournment(s)
thereof if you owned shares of the Fund at the close of business on
December __, 1995. If you attend the meeting, you may vote your shares in
person. IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID
ENVELOPE.
By Order of the Board of Trustees,
CLIFFORD J. ALEXANDER
Secretary
December __, 1995
880 Carillon Parkway
St. Petersburg, Florida 33716
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YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the
enclosed proxy form, date and sign the form, and return
the form in the envelope provided. If you sign, date and
return the proxy form but give no voting instructions,
your shares will be voted "FOR" the proposals noticed
above. In order to avoid the additional expense of
further solicitation, we ask your cooperation in mailing
your proxy card promptly. Unless proxy cards submitted
by corporations and partnerships are signed by the
appropriate persons as indicated in the voting
instructions on the proxy card, they will not be voted.
<PAGE>
HERITAGE INCOME TRUST - DIVERSIFIED PORTFOLIO
880 Carillon Parkway
St. Petersburg, Florida 33716
______________________
PROXY STATEMENT
Special Meeting of Shareholders to be Held on January 24, 1996
INTRODUCTION
This is a proxy statement with respect to the Diversified Portfolio
(the "Fund") of Heritage Income Trust (the "Trust") in connection with the
solicitation of proxies made by, and on behalf of, the Trust's Board of
Trustees to be used at the Fund's special meeting of shareholders or any
adjournment(s) thereof ("Meeting"). This proxy statement first will be
mailed to shareholders on or about December __, 1995.
A majority of the shares of the Fund outstanding on December __,
1995 ("Record Date"), represented in person or by proxy, must be present
to constitute a quorum for the transaction of business at the Meeting.
Only holders of securities as of this date are entitled to notice of and
to vote at the Meeting. In the absence of a quorum or in the event that a
quorum is present at the Meeting but votes sufficient to approve any one
of the proposals are not received, the persons named as proxies may
propose one or more adjournments of the Meeting to permit the further
solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Meeting
in person or by proxy. If a quorum is present, the persons named as
proxies will vote those proxies that they are entitled to vote FOR such
proposal in favor of an adjournment and will vote those proxies required
to be voted AGAINST such proposal against such adjournment. A shareholder
vote may be taken on one or more of the proposals described in this Proxy
Statement prior to any such adjournment if sufficient votes have been
received and it is otherwise appropriate.
Broker non-votes are shares held in street name for which the
broker indicates that instructions have not been received from the
beneficial owners or persons entitled to vote and the broker does not have
discretionary voting authority. Abstentions and broker non-votes will be
counted for purposes of determining whether a quorum is present, but will
not be voted for or against any adjournment. Accordingly, abstentions and
broker non-votes effectively will be a vote against adjournment or against
the proposal when the required vote is a percentage of the shares present.
Abstentions and broker non-votes will not be counted, however, as votes
cast for purposes of determining whether sufficient votes have been
received to approve a proposal.
The individuals named as proxies in the enclosed proxy card will
vote in accordance with your directions as indicated thereon if your proxy
card is received properly executed by you or by your duly appointed agent
or attorney-in-fact. If you sign, date and return the proxy card but give
no voting instructions, your shares will be voted in favor of the
proposals described in this proxy statement. The duly appointed proxies
<PAGE>
may, in their discretion, vote upon such other matters as may properly
come before the Meeting. Your proxy card may be revoked by giving another
proxy, by letter or telegram revoking your proxy if received by the Fund
prior to the Meeting, or by appearing and voting at the Meeting.
As of the Record Date, the Fund had _________ shares outstanding
and no person held of record or owned beneficially more than 5% of the
Fund's issued and outstanding shares. All costs associated with the
Meeting, including the solicitation of proxies, will be borne by the Fund.
Solicitations will be made primarily by mail, but also may include
telephone communications by regular employees of Heritage Asset
Management, Inc. ("Heritage"), the Fund's investment adviser and
administrator, who will not receive any compensation therefor from the
Fund. Each full share of the Fund is entitled to one vote, and each
fractional share is entitled to a proportionate share of one vote. YOU
MAY OBTAIN A COPY OF THE FUND'S MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS
TO SHAREHOLDERS, FREE OF CHARGE, BY WRITING TO HERITAGE AT 880 CARILLON
PARKWAY, ST. PETERSBURG, FLORIDA 33716 OR BY CALLING 1-800-421-4184.
PROPOSAL 1. APPROVAL OF A MODIFICATION OF THE INVESTMENT
OBJECTIVE OF THE FUND
The Fund's current investment objective is high current income
consistent with the preservation of capital. The Fund 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 "Government
Sector"). The Fund may invest its remaining assets (up to 50%) in lower-
rated U.S. corporate, fixed-income securities, commonly referred to as
"junk bonds" or "high yield securities." These securities are rated below
BBB by Standard & Poor's ("S&P") or Baa by Moody's Investors Services,
Inc. ("Moody's"), or are unrated securities deemed to be of comparable
quality by the Fund's investment subadviser ("lower-rated high yield
securities").
At the Trust's November 20, 1995 Board of Trustees (the "Board")
meeting, Heritage recommended that certain of the Fund's non-fundamental
investment policies be amended to allow a proposed new subadviser, Salomon
Brothers Asset Management Inc ("Salomon"), to invest up to 100% -- rather
than up to 50% -- of the Fund's assets in lower-rated high yield
securities and in securities rated BBB by S&P or Baa by Moody's or deemed
to be of comparable quality by the Fund's investment subadviser ("medium-
rated high yield securities"). Heritage also recommended that the Fund's
name be changed to "Heritage Income Trust - High Yield Bond Fund."
Heritage further proposed that the Board modify the Fund's fundamental
investment objective to be consistent with these new policies. The Board
concluded that it would be in the best interests of the Fund and its
shareholders to effect these proposed changes. Accordingly, if
shareholders approve the amendment to the Fund's fundamental investment
objective, the amendments to the Fund's non-fundamental investment
policies and its name also will be implemented.
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The Board's approvals were based upon its belief that the increased
emphasis on high current income through investment in a portfolio of
lower- and medium-rated high yield securities may serve to benefit the
Fund in several ways. First, a significantly greater number of investment
opportunities may be available to the Fund. Second, the ability to invest
a majority of the Fund's assets in lower- and medium-rated high yield
securities may afford the Fund's investment subadviser the ability to
increase the Fund's yield. If Proposal 1 is adopted, the Fund's assets
will be invested in securities of issuers who the investment subadviser
believes present opportunities for high current income.
The purpose of Proposal 1 is to modify the Fund's fundamental
investment objective so that the Fund would seek high current income as
opposed to high current income. However, if Proposal 1 is approved by
shareholders, preservation of capital will continue to be a consideration
in the Fund's investment strategy. In addition, if Proposal 1 is
approved, the Board expects to implement changes to the Fund's non-
fundamental investment policies as described above to allow the Fund's
investment subadviser to invest up to 100% of the Fund's assets in lower-
and medium-rated high yield securities. These modifications are expected
to enable the Fund to seek that objective more effectively. The Board also
expects to change the Fund's name as discussed previously.
As required by the Investment Company Act of 1940, as amended
("1940 Act"), shareholders need only approve the change in the Fund's
fundamental investment objective as approved by the Board. Changes in the
Fund's non-fundamental investment policies and any change in the Fund's
name do not require shareholder approval.
RISKS RELATED TO INVESTMENT IN LOWER- AND MEDIUM-RATED HIGH YIELD
SECURITIES
If the changes discussed above are implemented, shareholders should
reevaluate whether the Fund continues to be an appropriate investment in
light of their current financial position and long-term needs. The Fund
is appropriate for investors who can accept the various risks associated
with investing in lower- and medium-rated high yield securities. Medium-
rated securities have speculative characteristics and generally are
subject to greater risks than higher yield securities. The market values
of lower-rated high yield securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. These securities also tend to be more sensitive to
economic conditions and generally have more volatile prices than do higher
securities. Issuers of lower-rated high yield securities often are highly
leveraged and may not have traditional methods of financing available to
them. These risks are discussed in greater detail in the Appendix to this
proxy statement.
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REQUIRED VOTE
The 1940 Act requires that the proposed changes to the Fund's
investment objectives be approved by a majority of the Fund's outstanding
voting securities. Under the 1940 Act, approval by a "majority of the
Fund's outstanding voting securities" means approval by the lesser of (1)
more than 50% of the Fund's outstanding shares, or (2) 67% of the shares
of the Fund present at the meeting in person or represented by proxy, if
at least 50% of the outstanding shares of the Fund are present or
represented by proxy. If shareholders approve this Proposal, the Board
expects to implement the Proposal on February 1, 1996, or as soon
thereafter as is reasonably practicable. If this Proposal is not approved
by shareholders, the Fund's investment objective, non-fundamental policies
and name will remain unchanged. In addition, Heritage, who as the Fund's
investment manager currently makes investment decisions on behalf of the
Government Sector of the Fund, will continue to make those investment
decisions, and the Board will consider what other actions, if any, should
be taken.
THE BOARD OF TRUSTEES
RECOMMENDS THAT YOU VOTE FOR PROPOSAL 1.
PROPOSAL 2. APPROVAL OF THE INVESTMENT SUBADVISORY AGREEMENT
The Board and Heritage propose that Salomon Brothers Asset
Management Inc be appointed as the investment subadviser of the Fund. If
this appointment is approved by shareholders, Salomon would replace Eagle
Asset Management, Inc. ("Eagle") as the Fund's investment subadviser.
Eagle is an affiliate of both Raymond James & Associates, Inc. ("RJA") and
Heritage. Each of RJA, Eagle and Heritage are wholly-owned subsidiaries
of Raymond James Financial, Inc. ("RJF"). Eagle has been the investment
subadviser of the Fund since the Fund's inception in 1990.
At the November 20, 1995 meeting, the Board determined that it
would be in the best interests of the Fund and its shareholders to obtain
these services by retaining Salomon as the Fund's investment subadviser.
In making this decision, the Board considered, among other factors, the
expertise that Salomon offers in providing portfolio management services
for other high yield bond funds. The Board also considered the experience
of the proposed portfolio manager for the Fund, Peter J. Wilby (who is a
Chartered Financial Analyst, a Certified Public Accountant, and a member
of the New York Society of Securities Analysts). The Board also
considered Salomon's success to date as an investment manager, the other
key personnel employed by Salomon who would assist in portfolio management
activities, other portfolio management alternatives available to the Fund,
and facilities, financial strength, quality of services and client
communication capabilities offered by Salomon.
Accordingly, the Board unanimously voted that, (1) subject to
shareholder approval, Salomon be appointed as the Fund's investment
subadviser, and (2) the proposed subadvisory agreement between Heritage
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and Salomon ("Salomon Agreement") be submitted for shareholder approval.
These decisions included the unanimous approval of all Trustees who are
not "interested persons" of the Trust, Heritage or Salomon as that term is
defined in the 1940 Act ("Independent Trustees").
DESCRIPTION OF THE SUBADVISORY AGREEMENT
The Salomon Agreement will be substantially similar to the current
subadvisory agreement between Heritage and Eagle except for the fees to be
paid by Heritage thereunder. If shareholders approve Proposal 1, Salomon
will furnish continuously an investment program for the Fund, will make
investment decisions on behalf of the Fund, will place all orders for the
purchase and sale of portfolio securities and will receive a fee of 50% of
the investment advisory fee paid to Heritage, without regard to any
reduction in the fees paid to Heritage as a result of any statutory,
regulatory or voluntary limitation on the Fund's expenses. This fee will
be paid by Heritage -- and not by the Fund -- and is equivalent to .30% of
the Fund's 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
shareholders do not approve Proposal 1, Salomon will furnish its services
only with respect to assets of the Fund invested in lower- and medium-
rated high yield securities and will receive a fee of 25% of the advisory
fee paid by the Fund to Heritage. Pursuant to its agreement with
Heritage, Eagle currently receives a fee of 25% of the advisory fee paid
by the Fund to Heritage. The Salomon Agreement provides that Salomon will
not be liable for any act or omission in the course of, or connected with,
rendering services under the Agreement, except when such services are
rendered in bad faith, negligence or disregard of its obligations and
duties under the Agreement.
If approved by shareholders, the Salomon Agreement would be
executed promptly by Heritage and Salomon. Unless sooner terminated, it
would remain in effect continuously for two years following its effective
date. Thereafter, it would continue automatically for successive years,
provided that it is specifically approved at least annually (1) by a vote
of a majority of the Independent Trustees and (2) by all Trustees or by a
vote of a majority of the outstanding shares of the Fund. Heritage may at
any time terminate the proposed Salomon Agreement upon 60 days' written
notice to Salomon. Salomon may at any time terminate that agreement upon
90 days' written notice to Heritage. The agreement automatically will
terminate without penalty in the event of assignment or termination of the
Salomon Agreement.
INFORMATION ABOUT SALOMON
Salomon is a registered investment adviser that was organized in
1989. Salomon is a wholly-owned subsidiary of Salomon Inc. Salomon in
New York, and its affiliates in London, Frankfurt and Hong Kong, together
provide a full range of fixed income and equity investment management
services for individual and institutional clients throughout the world,
and serves as investment managers to various investment companies. As of
October 31, 1995, Salomon and its affiliates had approximately $13.1
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billion of assets under management. Salomon provides advisory services to
a variety of types of investment accounts including both proprietary and
nonproprietary mutual funds, offshore funds, institutional accounts, wrap
fee products and private clients.
The principal address of Salomon and each of its directors and
principal executive officer is 7 World Trade Center, 38th Floor, New York,
New York 10048. The directors and principal executive officer of Salomon
are: Thomas Wise Brock, Chairman of the Board and Chief Executive Officer;
Rodney B. Berens, Director; Michael Stephen Hyland, President and
Director; Martin Lewis Leibowitz, Director; James Joseph Lee, Director;
and Vilas Gadkari, Director.
RECOMMENDATION OF THE BOARD OF TRUSTEES
The Board recommends that Salomon be retained as investment
subadviser to the Fund. If Proposal 2 is not approved by shareholders,
Eagle will continue as the Fund's investment subadviser with respect to
assets invested in lower- and medium-rated high yield securities. The
Trustees would then consider whether any other arrangements for the
provision of investment subadvisory services are appropriate and in the
best interests of the Fund's shareholders.
VOTE REQUIRED
Approval of Proposal 2 requires the affirmative vote of the holders
of the lesser of (1) more than 50% of the Fund's outstanding shares, or
(2) 67% of the shares of the Fund present at the meeting in person or
represented by proxy, if at least 50% of the outstanding shares of the
Fund are present or represented by proxy.
THE BOARD OF TRUSTEES
RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2.
INFORMATION ABOUT THE FUND
CURRENT ADVISORY ARRANGEMENTS
Heritage is a Florida corporation organized in 1985 and registered
as an investment adviser under the Investment Advisers Act of 1940, as
amended. Heritage serves as investment adviser and administrator to the
Fund pursuant to an Investment Advisory and Administration Agreement
between Heritage and the Trust on behalf of the Fund, dated January 19,
1990. All of the capital stock of Heritage is owned by RJF. Thomas A.
James, a Trustee of the Trust, by virtue of his direct or indirect
ownership of RJF, owns beneficially more than 10% of Heritage. RJF,
through its subsidiaries, is engaged primarily in providing customers with
a wide variety of financial services in connection with securities,
limited partnerships, options, investment banking and related fields.
Heritage also serves as investment adviser and manager to five other
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<PAGE>
investment companies with aggregate assets of approximately $2.0 billion
as of October 31, 1995.
The principal address of Heritage, RJF, Thomas A. James and each of
Heritage's directors and principal executive officer is at 880 Carillon
Parkway, St. Petersburg, Florida 33716. The directors and principal
executive officer of Heritage are: Jeffrey P. Julien, Director; Richard K.
Riess, Director; and Stephen G. Hill, Director, President and Chief
Executive Officer. The officers of the Fund who also are employed by
Heritage are: Stephen G. Hill; Donald H. Glassman; and Patricia Schneider.
The Trustees and the officers of the Fund do not own in the aggregate more
that 1% of the shares of beneficial interest in the Fund.
Under the Advisory Agreement, and subject to the supervision of the
Trustees, Heritage has agreed, among other duties, to provide a continuous
investment program for the Fund's portfolio, supervise all aspects of the
Fund's operation and hold itself available to respond to shareholder
inquiries. The Advisory Agreement expressly permits advisory services to
be delegated to and performed by a subadviser. Under the Advisory
Agreement, the Fund bears all of its expenses not specifically assumed by
Heritage incurred in its operation and the offering of shares. As
required by state regulations, Heritage will reimburse the Fund if and to
the extent that the aggregate operating expenses of the Fund in any fiscal
year exceed applicable limits. To date, no such reimbursements have been
required. Heritage voluntarily has agreed to limit the expenses of each
of the Fund's classes of shares. During any period that Class A expenses
exceed 1.25% of average daily net assets or Class C expenses exceed 1.70%,
Heritage will waive its advisory fee or reimburse each class of the Fund
as necessary to limit expenses to these levels. During the fiscal year
ended September 30, 1995, the Fund paid (or accrued) to Heritage fees of
approximately $194,363 and Heritage waived fees of $83,663.
For services provided under the Advisory Agreement, the Fund pays
Heritage an annualized advisory fee, computed daily and paid monthly, of
.60% of the Fund's average daily net assets up to $100 million and .50% of
daily net assets over $100 million. Heritage also is the fund accountant
and transfer and dividend disbursing agent for the Fund. For the fiscal
year ended September 30, 1995, the Fund paid Heritage approximately
$28,181 for its services as transfer and dividend disbursing agent. For
the fiscal year ended September 30, 1995, the Fund paid Heritage
approximately $28,242 for its services as fund accountant. Heritage will
continue to provide these services to the Fund after the subadvisory
contract is approved.
In addition, an affiliate of Heritage, RJA, serves as the Trust's
principal underwriter. As compensation for certain distribution and
shareholder servicing activities, RJA was paid $113,666 pursuant to the
Trust's Rule 12b-1 distribution plan. RJA will continue to serve as
principal underwriter to the Trust after the advisory contract is
approved. The Fund does not currently execute any securities transactions
through RJA or any other affiliated broker-dealer.
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<PAGE>
The Advisory Agreement provides that Heritage will not be liable
for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matter to which the Agreement relates,
except a loss resulting from willful misfeasance, bad faith, or gross
negligence on their part in the performance of their duties or from
reckless disregard by them of their obligations and duties thereunder.
SHAREHOLDER PROPOSALS
As a general matter, the Fund does not hold regular annual or other
meetings of shareholders. Any shareholder who wishes to submit proposals
to be considered at a special meeting of the Fund's shareholders should
send such proposals to the Fund at 880 Carillon Parkway, St. Petersburg,
Florida 33716, so as to be received a reasonable time before the proxy
solicitation for that meeting is made.
Shareholder proposals that are submitted in a timely manner will
not necessarily be included in the Fund's proxy materials. Inclusion of
such proposals is subject to limitations under the federal securities
laws.
OTHER BUSINESS
Management knows of no other business to be presented at the
Meeting other than the matter set forth in this Proxy Statement, but
should any other matter requiring a vote of shareholders arise, the
proxies will vote thereon according to their best judgment in the
interests of the Fund.
By Order of the Board of Trustees,
CLIFFORD J. ALEXANDER,
Secretary
December __, 1995
IT IS IMPORTANT THAT YOU VOTE AND RETURN YOUR PROXY PROMPTLY.
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APPENDIX
RISKS RELATED TO INVESTMENT IN LOWER-RATED HIGH YIELD SECURITIES
Lower-rated securities are subject to certain risks that may not be
present with investments in higher-grade securities.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. The lower rating of
certain high yielding corporate income securities 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 also may affect the value of these investments.
However, allocating investments in the Fund 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 Fund may incur additional expenses to seek
recovery. Furthermore, the market value of zero coupon and pay-in-kind
securities in which the Fund may invest 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 Fund
even though no cash actually is received by the Fund 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
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 Fund, as well as on the ability of the issuers of such
securities to repay principal and interest on their borrowings.
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 Fund 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 Fund'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.
<PAGE>
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 Fund's investment subadviser will
consider security ratings when making investment decisions, 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 Fund's
objective depends more on the Fund's investment subadviser's analytical
abilities than would be the case if it were investing only in securities
in the higher rating categories. The Fund, at the discretion of the Fund's
investment subadviser, may retain a security that has been downgraded
below the initial investment criteria. The descriptions of S&P and Moody's
lower- and medium-grade corporate bond rating categories are as follows:
STANDARD & POOR'S
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.
BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
BB, B, CCC -- Debt rated "BB," "B" and "CCC" is regarded, on
balance, as predominantly speculative with respect to capacity to pay
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<PAGE>
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
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.
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 may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact has speculative
characteristics as well.
Ba -- Bonds 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.
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<PAGE>
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.
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<PAGE>
PROXY
_____
HERITAGE INCOME TRUST - DIVERSIFIED PORTFOLIO
SPECIAL MEETING OF SHAREHOLDERS - JANUARY 24, 1996
The undersigned hereby appoints as proxies Stephen G. Hill, K.C. Clark and
Donald H. Glassman, each with the power of substitution, to vote for the
undersigned all shares of beneficial interest of the undersigned at the
aforementioned meeting and any adjournment thereof with all the power the
undersigned would have if personally present. The shares represented by
this proxy will be voted as instructed. Unless indicated to the contrary,
this proxy shall be deemed to indicate authority to vote "FOR" all
proposals. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES.
Please date and sign this proxy and return it in the enclosed postage paid
envelope to: 880 Carillon Parkway, St. Petersburg, Florida 33716.
PLEASE INDICATE YOUR VOTE BY PLACING AN "X" IN THE APPROPRIATE BOX BELOW.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR"
1. Approval of the modification of the investment objective of the
Fund.
FOR _______ AGAINST _______ ABSTAIN ______
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR"
2. Approval of the Investment Subadvisory Agreement between Heritage
Asset Management, Inc. and Salomon Brothers Asset Management, Inc.
FOR _______ AGAINST _______ ABSTAIN ______
This proxy will not be voted unless it is dated and signed exactly as
instructed below.
__________________________
Signature
Date: __________________________
Signature
If shares are held jointly, each
shareholder named should sign; if only
one signs, his signature will be
binding. If the shareholder is a
corporation, the President or Vice
President should sign in her own name,
indicating title. If the shareholder
is a partnership, a partner should
sign in his own name, indicating that
he is a "Partner."
- 5 -
<PAGE>
