<PAGE> 1
May 23, 1995
Dear Fellow Shareholders:
It is my pleasure to provide you with the semiannual report for Heritage
Income Trust-Institutional Government Portfolio for the six-month period ended
March 31, 1995. For this period, your Fund had a positive total return of 2.55%
compared with the Lehman Brothers Intermediate Government Index, which
appreciated by 4.05%.
In the letter that follows, H. Peter Wallace discusses your Fund's recent
investment performance and shares his thoughts on the bond market going forward.
Peter is a Senior Vice President of Heritage Asset Management and has managed
your portfolio since its inception in December 1993. I hope you find his
comments helpful in understanding how your investment portfolio is managed.
Thank you for your continuing investment in Heritage Income
Trust-Institutional Government Portfolio. We look forward to serving your
investment needs for years to come.
Sincerely,
Stephen G. Hill
---------------
Stephen G. Hill
President
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<PAGE> 3
May 23, 1995
Dear Shareholders:
I am pleased to provide the following comments on your portfolio's
performance over the recent semiannual reporting period and to discuss our
outlook for the bond market going forward.
Needless to say, calendar 1994 was one of the worst years ever experienced
by the domestic fixed income markets. During the early part of the fourth
quarter, rates on the front end of the yield curve moved significantly higher as
the Federal Reserve continued to pursue a tight money policy aimed at achieving
a slowing of economic growth to 2.0% to 2.5%. As the yield curve flattened,
short-term rates moved up faster than long-term rates and shorter-term bonds
underperformed longer-term issues.
However, during the latter portion of the fourth quarter, investors began
to realize inflation was not about to become a significant problem and began to
believe the domestic economy was about to slow. Interest rates peaked for the
current cycle and began to fall. This trend continued during the first quarter
of 1995.
Your portfolio had been defensively structured at the beginning of the
fourth quarter with a relatively short average life and duration (a measure of
price sensitivity to changes in interest rates). During the period, the
portfolio's duration was extended somewhat to conservatively take advantage of
falling rates. To further take advantage of declining rates the portfolio sold a
position in floating rate securities that had performed well during rising rate
periods. We also reduced the portfolio's position in mortgage-related securities
in favor of non-callable U.S. Treasury notes and held a large cash position that
we believe offers higher liquidity in order to fund large redemptions of shares.
This exceptionally large cash position significantly reduced the portfolio's
performance during the last quarter.
We believe the growth of the domestic economy will continue to slow with
inflation remaining at moderate levels of 3.0% to 3.3%. We expect the bond
markets to remain quite volatile and experience historically wide swings in both
yields and prices. This should provide opportunities to further enhance
portfolio value. We continue to have a positive outlook for fixed income
securities over the balance of the year believing the cyclical and secular
trends of interest rates are lower.
We plan to extend maturities in the portfolio as opportunities present
themselves in the market place. Due to the present size of the portfolio, we
plan to invest primarily in U.S. Treasury and Agency fixed rate bonds rather
than mortgage-related securities. We also believe Treasury and Agency issues
should offer better performance in a period of declining rates than
mortgage-related securities.
Thank you for your investment in Heritage Income Trust-Institutional
Government Portfolio. We look forward to serving your investment needs for years
to come.
Sincerely,
H. Peter Wallace
----------------
H. Peter Wallace
Portfolio Manager
<PAGE> 4
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
INSTITUTIONAL GOVERNMENT PORTFOLIO
INVESTMENT PORTFOLIO
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
---------- ----------
<C> <S> <C> <C>
U.S. GOVERNMENT SECURITIES--96.5%(A)
---------------------------------
U.S. TREASURY NOTES--65.4%
-------------------------
$ 650,000 United States Treasury Note, 4.25%......................................
11/30/95 $ 640,660
1,000,000 United States Treasury Note, 5.875%.....................................
05/31/96 992,030
750,000 United States Treasury Note, 7.25%......................................
11/30/96 756,098
----------
Total U.S. Treasury Notes............................................... 2,388,788
----------
U.S. GOVERNMENT AGENCIES--31.1%
-----------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION:
797,161 REMIC, 1164 F-PAC, 7%...................................................
03/15/05 792,677
FEDERAL NATIONAL MORTGAGE ASSOCIATION:
348,493 REMIC, 1993-68 PA-PAC, 4.5%.............................................
04/25/98 345,878
----------
Total U.S. Government Agencies.......................................... 1,138,555
----------
Total U.S. Government Securities........................................ 3,527,343
----------
TOTAL INVESTMENT PORTFOLIO (COST $3,542,346)(B) 96.5%(A)...................................... 3,527,343
OTHER ASSETS AND LIABILITIES, NET 3.5%(A)..................................................... 128,037
----------
NET ASSETS, 100.0%............................................................................ $3,655,380
==========
</TABLE>
- ---------------------
(a) Percentages are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is the same.
Market value includes net unrealized depreciation of $15,003, which consists
of aggregate gross unrealized appreciation for all securities in which there
is an excess of market value over tax cost of $10,484 and aggregate gross
unrealized depreciation for all securities in which there is an excess of
tax cost over market value of $25,487.
PAC-Planned Amortization Class
REMIC-Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of the financial statements
4
<PAGE> 5
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
INSTITUTIONAL GOVERNMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at market value (identified cost $3,542,346) (Note 1)........................... $3,527,343
Cash......................................................................................... 80,178
Receivables:
Interest................................................................................... 53,131
Deferred organization expenses (Note 1)...................................................... 16,667
----------
Total assets......................................................................... 3,677,319
Liabilities
Payables (Note 4):
Other accrued expenses..................................................................... $21,939
-------
Total liabilities.................................................................... 21,939
----------
Net assets, at market value.................................................................. $3,655,380
=========
Net Assets
Net assets consist of:
Undistributed net investment income........................................................ $ 20,433
Net unrealized depreciation on investments................................................. (15,003)
Accumulated net realized loss (Note 1)..................................................... (160,883)
Paid-in capital............................................................................ 3,810,833
----------
Net assets, at market value.................................................................. $3,655,380
=========
Net asset value, offering and redemption price per share ($3,655,380 divided by 374,743
shares of beneficial interest outstanding, no par value) (Note 2).......................... $9.75
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
INSTITUTIONAL GOVERNMENT PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Interest.................................................................................. $ 165,127
Expenses (Notes 1 and 4):
Management fee............................................................................ $ 11,269
Professional fees......................................................................... 25,171
Custodian/Fund accounting fees............................................................ 18,321
Amortization of state registration expenses............................................... 13,147
Distribution fee.......................................................................... 7,043
Reports to shareholders................................................................... 5,000
Trustees' fees and expenses............................................................... 4,854
Amortization of organization expenses..................................................... 2,400
Insurance................................................................................. 1,231
Shareholder servicing fee................................................................. 263
Other..................................................................................... 39
--------
Total expenses before waiver and reimbursement...................................... 88,738
Fees waived by the Manager (Note 4)................................................. (11,269)
Reimbursement from Manager.......................................................... (56,340) 21,129
-------- ---------
Net investment income....................................................................... 143,998
---------
Realized and Unrealized Gain (Loss) on Investments
Net realized loss from investment transactions.............................................. (117,630)
Net decrease in unrealized depreciation of investments during the period.................... 115,493
---------
Net loss on investments............................................................. (2,137)
---------
Net increase in net assets resulting from operations........................................ $ 141,861
=========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTH FOR THE PERIOD
PERIOD ENDED DECEMBER 27, 1993
MARCH 31, 1995 (COMMENCEMENT OF OPERATIONS)
(UNAUDITED) TO SEPTEMBER 30, 1994
-------------- ----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income............................................ $ 143,998 $ 201,803
Net realized loss from investment transactions................... (117,630) (43,253)
Net (increase) decrease in unrealized depreciation of investments
during the period.............................................. 115,493 (130,497)
-------------- -----------
Net increase in net assets resulting from operations............. 141,861 28,053
Distributions to shareholders from net investment income
($.28 and $.25 per share)........................................ (172,449) (152,918)
Increase (decrease) in net assets from Fund share transactions
(Note 2)......................................................... (4,263,940) 7,974,773
-------------- -----------
Increase (decrease) in net assets.................................. (4,294,528) 7,849,908
Net assets, beginning of period.................................... 7,949,908 100,000
-------------- -----------
Net assets, end of period (including undistributed net investment
income
of $20,433 and $48,885, respectively)............................ $ 3,655,380 $7,949,908
============== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
INSTITUTIONAL GOVERNMENT PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
SIX MONTH DECEMBER 27, 1993
PERIOD ENDED (COMMENCEMENT OF
MARCH 31, 1995 OPERATIONS) TO
(UNAUDITED) SEPTEMBER 30, 1994
-------------- ------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD.................................... $ 9.79 $ 10.00
------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a).................................................. 0.28 0.31
Net realized and unrealized loss on investments........................... (0.04) (0.27)
------ -------
Total from Investment Operations.......................................... 0.24 0.04
LESS DISTRIBUTIONS:
Dividends from net investment income...................................... (0.28) (0.25)
------ -------
Total Distributions....................................................... (0.28) (0.25)
------ -------
NET ASSET VALUE, END OF THE PERIOD.......................................... $ 9.75 $ 9.79
====== =======
TOTAL RETURN (%)(C)......................................................... 2.55 0.38
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net to average daily net assets(a)(b)................. 0.75 0.75
Net investment income to average daily net assets(b)...................... 5.11 4.46
Portfolio turnover rate(b)................................................ 57.32 119.78
Net assets, end of the period (millions).................................. $ 4 $ 8
</TABLE>
- ---------------
(a) Excludes management fees waived and expenses reimbursed by the Manager in
the amount of $.18 and $.10 per share, respectively. The operating expense
ratio including such item would be 3.15% (annualized) and 2.63%,
respectively.
(b) Annualized.
(c) Not annualized.
7
<PAGE> 8
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
INSTITUTIONAL GOVERNMENT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Note 1: SIGNIFICANT ACCOUNTING POLICIES. Heritage Income Trust (the "Fund") is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company consisting of three separate investment
portfolios, the Institutional Government Portfolio (the "Portfolio"),
the Diversified Portfolio and the Limited Maturity Government Portfolio.
The policies described below are followed consistently by the Fund in
the preparation of financial statements for the Portfolio in conformity
with generally accepted accounting principles. Financial statements for
the other Portfolios are presented separately.
Security Valuation: 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 and
in the absence of a market quote, securities are valued using such
methods as the Board of Trustees believes would reflect fair market
value. Investments in certain debt instruments not traded in an
organized market, are valued on the basis of valuations furnished by
independent pricing services or broker/dealers which utilize information
with respect to market transactions in such securities or comparable
securities, quotations from dealers, yields, maturities, ratings and
various relationships between securities. Short term investments having
a maturity of 60 days or less are valued at cost, which when combined
with accrued interest included in interest receivable or discount
earned, approximates market.
Repurchase Agreements: The Portfolio enters into repurchase agreements
whereby the Portfolio, through its custodian, receives delivery of the
underlying securities, the market value of which at the time of purchase
is required to be an amount equal to at least 100% of the resale price.
Federal Income Taxes: The Portfolio is treated as a single corporate
taxpayer as provided for in The Tax Reform Act of 1986, as amended. It
is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code of 1986, as amended, which are applicable to
regulated investment companies and to distribute substantially all of
its taxable income to its shareholders. Accordingly, no provision has
been made for federal income and excise taxes. From December 27, 1993
(commencement of operations) to September 30, 1994, the Portfolio
incurred $43,253 of net realized capital losses, which have been
deferred and treated as arising on October 1, 1994 in accordance with
regulations under the Internal Revenue Code.
Distribution of Income and Gains: Distributions of net investment income
are made monthly. Net realized gains from investment transactions for
the Portfolio during any particular year in excess of available capital
loss carryforwards, which, if not distributed, would be taxable to the
Portfolio, will be distributed to shareholders in the following fiscal
year. The Portfolio uses the identified cost method for determining
realized gain or loss on investments for both financial and federal
income tax reporting purposes.
Expenses: The Portfolio is charged for those expenses which are directly
attributable to it, such as management fee, custodian/fund accounting
fees, distribution fees, etc., while other expenses such as professional
fees, insurance expense, etc., are allocated proportionately among the
Portfolios.
State Registration Expenses: State registration fees are amortized based
either on the time period covered by the registration or as related
shares are sold, whichever is appropriate for each state.
Organization Expenses: Expenses incurred in connection with the
formation of the Portfolio have been deferred and are being amortized on
a straight-line basis over 60 months from the date of commencement of
operations.
Other: Investment security transactions are accounted for on a trade
date plus one basis. Distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All
premiums/original issue discounts are amortized/accreted for both
federal income tax and financial reporting purposes.
Capital Accounts: The Fund reports the undistributed net investment
income (accumulated net investment loss) and accumulated net realized
gain (loss) accounts on a basis approximating amounts available for
future tax distributions (or to offset future taxable realized gains
when a capital loss carryforward is available). Accordingly, the Fund
may periodically make releases among certain capital accounts without
impacting the net asset value of the Fund.
8
<PAGE> 9
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
INSTITUTIONAL GOVERNMENT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Note 2: FUND SHARES. At March 31, 1995, there was an unlimited number of shares
of beneficial interest of no par value authorized. Transactions in
shares of the Portfolio during the six month period ended March 31, 1995
and the fiscal period ended September 30, 1994 were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MONTH DECEMBER 27, 1993
PERIOD ENDED (COMMENCEMENT OF
MARCH 31, 1995 OPERATIONS) TO
(UNAUDITED) SEPTEMBER 30, 1994
----------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Shares sold................................................... 0 $ 0 881,665 $8,757,000
Shares issued on reinvestment of distributions................ 17,694 171,060 14,468 142,537
Shares redeemed............................................... (455,204) (4,435,000) (93,880) (924,764)
-------- ----------- ------- ----------
Net increase.................................................. (437,510) $(4,263,940) 802,253 $7,974,773
========== =========
Shares outstanding:
Beginning of the period..................................... 812,253 10,000
-------- -------
End of the period........................................... 374,743 812,253
======== =======
</TABLE>
Note 3: PURCHASES AND SALES OF SECURITIES. For the six month period ended March
31, 1995, purchases, sales and paydowns of investment securities
(excluding repurchase agreements and short-term obligations) aggregated
$1,315,864, $3,660,488 and $738,299, respectively.
Note 4: MANAGEMENT, DISTRIBUTION, SHAREHOLDER SERVICING AGENT AND TRUSTEES'
FEES. Under the Fund's Investment Advisory and Administration Agreement
with Heritage Asset Management, Inc. (the "Manager"), the Fund agrees to
pay to the Manager a fee equal to an annual rate of 0.40% of the
Portfolio's average daily net assets, computed daily and payable
monthly. The agreement also provides for a reduction in such fees in any
year to the extent that operating expenses of the Fund exceed applicable
state expense limitations. During the current period, the Manager has
voluntarily waived its investment advisory fees of $11,269 and
reimbursed the Portfolio to the extent that operating expenses have
exceeded 0.75% of average daily net assets in the amount of $56,340.
This voluntary waiver is more restrictive than any state expense
limitation. Under the agreement, management fees waived and expenses
reimbursed totaled $67,609 ($.18 per share) during the period ended
March 31, 1995. During the period ended March 31, 1995, the Manager paid
$78,002 of operating expenses on behalf of the Fund, and such amount has
been offset by $56,063 of reimbursement due from the Manager.
The Manager is also the Dividend Paying and Shareholder Servicing Agent
for the Portfolio. The amount payable to the Manager for such expenses
as of March 31, 1995 was $90. In addition, the Manager performs Fund
Accounting services and charged $10,692 during the current period of
which $6,000 was payable as of March 31, 1995.
Pursuant to a plan adopted in accordance with Rule 12b-1 of the
Investment Company Act of 1940, as amended, the Portfolio pays Raymond
James & Associates, Inc. (the "Distributor") a fee equal to 0.25% of
average daily net assets for the services it provides in connection with
the promotion and distribution of Portfolio shares. Such fee is accrued
daily and payable monthly. The Manager, the Distributor and the Dividend
Paying and Shareholder Servicing Agent are all wholly-owned subsidiaries
of Raymond James Financial, Inc.
Trustees of the Fund also serve as Trustees for Heritage Cash Trust,
Heritage Income-Growth Trust, Heritage Capital Appreciation Trust,
Heritage Series Trust and Heritage U.S. Government Income Fund, mutual
funds which are also advised by the Manager of the Fund (collectively
referred to as the Heritage mutual funds). Each Trustee of the Heritage
mutual funds who is not an interested person of the Manager receives an
annual fee of $8,000 and an additional fee of $2,000 for each combined
quarterly meeting of the Heritage mutual funds attended. Trustees' fees
and expenses are shared equally by each of the Heritage mutual funds.
9
<PAGE> 10
(This Page Intentionally Left Blank)
<PAGE> 11
HERITAGE INCOME TRUST-INSTITUTIONAL GOVERNMENT PORTFOLIO is a member of the
Heritage family of mutual funds. Other investment alternatives managed by
Heritage include:
-- HERITAGE CASH TRUST
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
-- HERITAGE CAPITAL APPRECIATION TRUST
-- HERITAGE INCOME-GROWTH TRUST
-- HERITAGE INCOME TRUST
DIVERSIFIED PORTFOLIO
LIMITED MATURITY GOVERNMENT PORTFOLIO
-- HERITAGE SERIES TRUST
SMALL CAP STOCK FUND
VALUE EQUITY FUND
-- HERITAGE U.S. GOVERNMENT INCOME FUND
(A CLOSED-END FUND THAT TRADES ON THE
NEW YORK STOCK EXCHANGE)
We are pleased that many of you are also investors in these funds. For
information and a prospectus for any of these funds, please contact your account
executive. Read the prospectus carefully before you invest in any of the funds.
<PAGE> 12
<TABLE>
<S> <C>
(LOGO)
HERITAGE
----------------------
INCOME TRUST (TM)
-----------------------
INSTITUTIONAL
GOVERNMENT PORTFOLIO
A MUTUAL FUND SEEKING
HIGH CURRENT INCOME CONSISTENT
WITH THE PRESERVATION OF CAPITAL
SEMIANNUAL REPORT
(Unaudited) and Investment
Performance Review for the
Six Month Period Ended
MARCH 31, 1995
A member of the
Heritage Family of Mutual Funds(TM)
</TABLE>
<TABLE>
<S> <C>
Heritage Income Trust -----------------
Institutional Government Portfolio
P.O. Box 33022
St. Petersburg, FL 33733 BULK RATE
- --------------------------------------- U.S. POSTAGE
PAID
Address Change Requested PERMIT NO. 39
ATLANTA, GA
Semiannual Report -----------------
INVESTMENT ADVISOR/
SHAREHOLDER SERVICES AGENT
Heritage Asset Management, Inc.
P.O. Box 33022
St. Petersburg, FL 33733
(800) 421-4184
DISTRIBUTOR
Raymond James & Associates, Inc.
P.O. Box 12749
St. Petersburg, FL 33733
(813) 573-3800
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
This report is for the information of shareholders of Heritage
Income Trust -- Institutional Government Portfolio.
It may also be used as sales literature when preceded or
accompanied by a prospectus.
1M 5/95 HAM054
</TABLE>
