<PAGE> 1
May 23, 1995
Dear Fellow Shareholders:
It is my pleasure to provide you with the semiannual report for Heritage
Income Trust-Diversified Portfolio for the six-month period ended March 31,
1995. For this period, your Fund had a positive total return of 4.14%
(calculated without the imposition of a front-end sales charge) compared to the
Merrill Lynch Domestic Master Index, which appreciated by 5.47%. During this
period, your Fund maintained an allocation of slightly greater than 50% of its
assets in U.S. Government securities, with the remainder in high-yield corporate
bonds.
In the letter that follows, H. Peter Wallace and David Blount discuss your
Fund's recent investment performance and share their views on the bond market
going forward. Peter is a Senior Vice President of Heritage Asset Management and
has managed the U.S. Government bond sector of your Fund's portfolio since April
1994. David is a Vice President of Eagle Asset Management, the subadviser for
the high yield bond sector of your Fund's portfolio. David has managed this
sector since September 1993. I hope you find their comments helpful in
understanding how your investment portfolio is managed.
Thank you for your continuing investment in Heritage Income
Trust-Diversified Portfolio. We look forward to serving your investment needs
for years to come.
Sincerely,
Stephen G. Hill
President
<PAGE> 2
May 23, 1995
Dear Shareholders:
We are pleased to provide the following comments on your portfolio's
performance for the recent semiannual reporting period and to discuss our
current 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
believe 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 that we believe offer higher
liquidity and better potential for price appreciation.
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 continue extending our maturities
in the U.S. Government sector of the portfolio as opportunities present
themselves in the market place.
The high yield sector of the portfolio started to turn around in November
1994, as interest rates peaked for the current cycle. In the first quarter of
1995, high yield bonds continued to rally, due to a favorable interest rate
environment as well as high demand for high yield securities. High yield bonds
outperformed most fixed income classes during the period, primarily due to the
yield advantage of these bonds.
One of our best performers during the period was CompUSA. CompUSA is the
largest computer superstore retailer in the United States, with over 70
superstores around the country. Our best performing category was healthcare.
These bonds benefited from continued consolidation in the industry. Holdings in
home-builders performed poorly, due to slow home sales precipitated by increases
in interest rates.
With the economy slowing, we currently are avoiding concentrations in overly
cyclical/commodity type industries (steel, chemicals, papers). With this in mind
we recently lowered our exposure to the home-building industry. The high yield
portion of the Fund is presently positioned fairly neutral in regards to
interest rates.
Thank you for your continuing investment in Heritage Income
Trust-Diversified Portfolio. We appreciate the opportunity to help manage a
portion of your investment assets.
Sincerely,
/s/ H. Peter Wallace /s/ David Blout
-------------------- ---------------
H. Peter Wallace David Blount
Portfolio Manager Portfolio Manager
Government Sector High Yield Sector
<PAGE> 3
- - --------------------------------------------------------------------------------
HERITAGE INCOME TRUST -- DIVERSIFIED PORTFOLIO
INVESTMENT PORTFOLIO
MARCH 31, 1995
(UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
-----------
<S> <C>
GOVERNMENT SECTOR--55.4%(A)
REPURCHASE AGREEMENT--6.3%(A)
Repurchase Agreement with State Street Bank and Trust Company, dated March 31, 1995 at 5.9%, to
be repurchased at $1,980,974 on April 3, 1995, collateralized by $2,045,000 United States
Treasury Bonds, 7.25%, due May 15, 2016 (market value $2,077,797, including accrued interest)
(cost $1,980,000)................................................................................ $ 1,980,000
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MATURITY
AMOUNT DATE
- - ------------------ --------
<C> <S> <C> <C>
U.S. GOVERNMENT SECURITIES--49.1%(A)
U.S. TREASURIES--38.6%
$2,000,000 U.S. Treasury Notes, 6.50%..................................................... 08/15/97 1,984,380
750,000 U.S. Treasury Notes, 7.375%.................................................... 11/15/97 758,204
2,000,000 U.S. Treasury Notes, 7.0%...................................................... 04/15/99 1,999,060
2,500,000 U.S. Treasury Notes, 7.75%..................................................... 01/31/00 2,565,625
1,000,000 U.S. Treasury Notes, 7.125%.................................................... 02/29/00 1,001,720
3,750,000 U.S. Treasury Notes, 7.5%...................................................... 02/15/05 3,828,514
-----------
Total U.S. Treasuries.......................................................... 12,137,503
-----------
U.S. GOVERNMENT AGENCIES--10.5%
FEDERAL HOME LOAN MORTGAGE CORPORATION:
427,092 REMIC, 6.25%, 1259 J........................................................... 01/15/97 423,487
1,000,000 REMIC, 1171 G-B, PAC, 8%....................................................... 11/15/06 1,002,500
FEDERAL NATIONAL MORTGAGE ASSOCIATION:
700,000 REMIC, 6.75%, 1992-15 G PAC.................................................... 11/25/17 656,250
267,077 REMIC, 1989-16 C, Principal Only TAC........................................... 03/25/19 253,556
1,000,000 REMIC, 1991-99 H, PAC, 7.5%.................................................... 12/25/20 978,250
-----------
Total U.S. Government Agencies................................................. 3,314,043
-----------
Total U.S. Government Securities (cost $15,422,307)............................ 15,451,546
-----------
CORPORATE BONDS--44.2%(A)
BEVERAGES--4.1%
500,000 Coca Cola Bottling Group, 9.0%................................................. 11/15/03 465,000
500,000 Heileman Acquisition Corporation, 9.625%....................................... 01/31/04 350,000
500,000 Royal Crown Corporation, 9.75%................................................. 08/01/00 467,500
-----------
1,282,500
-----------
CASINOS--2.2%
750,000 Bally's Grand, Inc., 10.375%................................................... 12/15/03 705,000
-----------
CELLULAR COMMUNICATIONS--2.3%
1,000,000 Comcast Cellular Corporation, Series "A", Zero Coupon Bond..................... 03/05/00 715,000
-----------
COMPUTER/OFFICE EQUIPMENT--2.1%
740,000 CompUSA, Inc., 9.50%........................................................... 06/15/00 665,076
-----------
ELECTRIC/ELECTRONICS--4.2%
700,000 Harman International Industries, Inc., 12%..................................... 08/01/02 759,500
550,000 MagneTek, Inc., 10.75%......................................................... 11/15/98 572,000
-----------
1,331,500
-----------
FINANCE--1.7%
550,000 Scotsman Group Inc., 9.5%...................................................... 12/15/00 528,000
-----------
FOODS--1.5%
500,000 Specialty Foods Acquisition Corporation, 10.25%................................ 08/15/01 487,500
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
- - --------------------------------------------------------------------------------
HERITAGE INCOME TRUST -- DIVERSIFIED PORTFOLIO
INVESTMENT PORTFOLIO
MARCH 31, 1995
(CONTINUED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
- - ------------------ -------- -----------
<C> <S> <C> <C>
GLASS CONTAINERS--3.8%
$550,000 Owens-Illinois, Inc., 10.50%................................................... 06/15/02 $ 555,500
100,000 Riverwood International Corporation, 6.75%(c).................................. 09/15/03 116,000
500,000 Riverwood International Corporation, 11.25%.................................... 06/15/02 522,500
-----------
1,194,000
-----------
HEALTH CARE--4.7%
425,000 National Medical Enterprises, 10.125%.......................................... 03/01/05 436,156
250,000 OrNda Health Corporation, 11.375%.............................................. 08/15/04 265,000
250,000 OrNda Health Corporation, 12.25%............................................... 05/15/02 271,250
500,000 Paracelsus Healthcare, Inc., 9.875%............................................ 10/15/03 492,500
-----------
1,464,906
-----------
HOME BUILDING--1.4%
500,000 Oriole Homes Corporation, 12.50%............................................... 01/15/03 440,000
-----------
HOTELS/MOTELS/INNS--1.6%
500,000 La Quinta Inns, Inc., 9.25%.................................................... 05/15/03 490,000
-----------
MANUFACTURING--1.5%
500,000 Foamex Capital Corporation, 9.50%.............................................. 06/01/00 482,500
-----------
MEDICAL SUPPLIES--2.3%
750,000 Wright Medical Technology, Series "B", 10.75%.................................. 07/01/00 729,375
-----------
OIL & GAS--3.6%
475,000 Tuboscope Vetco International, Inc., 10.75%.................................... 04/15/03 475,000
600,000 Global Marine, Inc., 12.75%.................................................... 12/15/99 648,000
-----------
1,123,000
-----------
POLLUTION CONTROL--1.8%
765,000 Envirotest Systems Corporation, 9.125%......................................... 03/15/01 573,750
-----------
RETAIL--5.4%
750,000 Big 5 Holdings Corporation, 13.625%............................................ 09/15/02 765,000
1,500,000 Finlay Enterprises, Inc., 0% to 5/1/98, 12% to maturity........................ 05/01/05 930,000
-----------
1,695,000
-----------
Total corporate bonds (cost $14,281,664)....................................... 13,907,107
-----------
WARRANTS--0.1%
MEDICAL SUPPLIES
206 Wright Medical Technology...................................................... $ 33,970
-----------
33,970
Total warrants (cost $40)......................................................
-----------
TOTAL INVESTMENT PORTFOLIO (cost $31,683,971)(b), 99.7%(a)........................................... 31,372,623
OTHER ASSETS AND LIABILITIES, NET, .3%(a)............................................................ 101,011
-----------
NET ASSETS, 100.0%................................................................................... $31,473,634
===========
</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 $311,348, which
consists of aggregate gross unrealized appreciation for all securities in
which there is an excess of market value over tax cost of $428,716 and
aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over market value of $740,064.
(c) Convertible security.
PAC-Planned Amortization Class
REMIC-Real Estate Mortgage Investment Conduit
TAC-Targeted Amortization Class
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
- - --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
DIVERSIFIED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
(UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at market value (identified cost $29,703,971) (Note 1)........................ $29,392,623
Repurchase agreement (identified cost $1,980,000) (Note 1)................................. 1,980,000
Cash....................................................................................... 2,883
Receivables:
Investments sold......................................................................... 559,125
Interest................................................................................. 519,237
Fund shares sold......................................................................... 142,882
Deferred state registration expenses (Note 1).............................................. 10,855
-----------
Total assets....................................................................... 32,607,605
Liabilities
Payables (Note 4):
Investments purchased.................................................................... $984,375
Fund shares redeemed..................................................................... 16,448
Accrued management fees.................................................................. 50,625
Accrued distribution fee................................................................. 9,373
Other accrued expenses................................................................... 73,150
--------
Total liabilities.................................................................. 1,133,971
-----------
Net assets, at market value................................................................ $31,473,634
==========
Net Assets
Net assets consist of:
Undistributed net investment income...................................................... $ 112,340
Net unrealized depreciation on investments............................................... (311,348)
Accumulated net realized loss............................................................ (2,376,695)
Paid-in capital.......................................................................... 34,049,337
-----------
Net assets, at market value................................................................ $31,473,634
==========
Net asset value and redemption price per share ($31,473,634 divided by 3,256,919 shares of
beneficial interest outstanding, no par value) (Note 2).................................. $ 9.66
=====
Maximum offering price per share (100/96 of $9.66)......................................... $10.06
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
- - --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
DIVERSIFIED PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED MARCH 31, 1995
(UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income
- - ----------------
Income:
Interest................................................................................. $ 1,445,039
-----------
Expenses (Notes 1 and 4):
Management fee........................................................................... $ 99,723
Distribution fee......................................................................... 58,172
Professional fees........................................................................ 24,827
Custodian/Fund accounting fees........................................................... 22,677
Shareholder servicing fee................................................................ 15,339
Reports to shareholders.................................................................. 12,193
Amortization of state registration expenses.............................................. 11,400
Trustees' fees and expenses.............................................................. 5,236
Amortization of organization expenses.................................................... 4,167
Insurance................................................................................ 2,709
Other.................................................................................... 412
--------
Expenses before waiver from Manager................................................ 256,855
Fees waived by Manager (Note 4).................................................... (49,098) 207,757
-------- -----------
Net investment income...................................................................... 1,237,282
-----------
Realized and Unrealized Gain (Loss) on Investments
- - --------------------------------------------------
Net realized loss from investment transactions............................................. (1,085,205)
Net decrease in unrealized depreciation of investments during the period................... 1,165,846
-----------
Net gain on investments............................................................ 80,641
-----------
Net increase in net assets resulting from operations....................................... $ 1,317,923
==========
</TABLE>
- - --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
----------------- ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.................................................... $ 1,237,282 $ 2,692,274
Net realized loss from investment transactions........................... (1,085,205) (1,014,329)
Net (increase) decrease in unrealized depreciation of investments during
the period............................................................. 1,165,846 (2,338,323)
---------- ------------
Net increase (decrease) in net assets resulting from operations.......... 1,317,923 (660,378)
Distributions to shareholders from:
Net investment income ($.38 and $.71 per share, respectively)............ (1,324,882) (2,770,014)
Net realized gains ($.07 per share)...................................... -- (270,959)
Distribution in excess of net realized gains ($.07 per share)............ -- (277,151)
Decrease in net assets from Fund share transactions (Note 2)............... (4,342,539) (2,402,711)
---------- ------------
Decrease in net assets..................................................... (4,349,498) (6,381,213)
Net assets, beginning of the period........................................ 35,823,132 42,204,345
---------- ------------
Net assets, end of the period (including undistributed net investment
income of $112,340 and $199,940, respectively)........................... $31,473,634 $ 35,823,132
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
- - --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
DIVERSIFIED 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 SIX MONTH
PERIOD ENDED FOR THE YEARS ENDED SEPTEMBER 30,
MARCH 31, 1995 ----------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990 +
----------------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD.............. $ 9.65 $ 10.65 $ 10.82 $10.29 $ 9.29 $ 9.60
------- ------- ------- ------ ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)............................ 0.36 0.69 0.81 0.83 0.87 0.43
Net realized and unrealized gain (loss) on
investments....................................... 0.03 (0.84) 0.07 0.59 1.00 (0.34)
------- ------- ------- ------ ------- -------
Total from Investment Operations.................... 0.39 (0.15) 0.88 1.42 1.87 0.09
------- ------- ------- ------ ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income................ (0.38) (0.71) (0.83) (0.85) (0.87) (0.36)
Distributions from net realized gains............... -- (0.07) (0.22) (0.04) -- (0.04)
Distribution in excess of net realized gains........ -- (0.07) -- -- -- --
------- ------- ------- ------ ------- -------
Total Distributions................................. (0.38) (0.85) (1.05) (0.89) (0.87) (0.40)
------- ------- ------- ------ ------- -------
NET ASSET VALUE, END OF THE PERIOD.................... $ 9.66 $ 9.65 $ 10.65 $10.82 $ 10.29 $ 9.29
======= ======= ======= ====== ======= =======
TOTAL RETURN (%)(D)................................... 4.14(c) (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(b) 1.25 1.19 0.96 1.31 1.35 (b)
Net investment income to average daily net assets... 7.44(b) 6.76 7.57 8.11 9.10 8.97 (b)
Portfolio turnover rate............................. 120.01(b) 135.05 150.36 70.73 118.83 38.76 (b)
Net assets, end of the period (millions)............ $31 $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, $.02, $.05, $.07 and $.08 per share, respectively.
The operating expense ratios including such items would be 1.55%
(annualized), 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 charge.
7
<PAGE> 8
- - --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
DIVERSIFIED 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 Diversified Portfolio (the "Portfolio"), the Limited
Maturity Government Portfolio and the Institutional 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 Limited Maturity Government Portfolio and the
Institutional Government Portfolio 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 the 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 in 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. The
Portfolio's policy is to comply with the requirements of the Internal
Revenue Code of 1986, as amended which are applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Accordingly, no provision has been made for
federal income and excise taxes. From November 1, 1993 to September 30,
1994, the Portfolio incurred $1,291,490 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 fee, 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 Fund have been deferred equally between the Portfolios
and are being amortized on a straight-line basis over 60 months from the
date of commencement of operations.
Capital Accounts: The Fund reports the undistributed net investment
income and accumulated net realized gain (loss) accounts on a basis
approximating amounts available for future tax distributions (or to
offset future taxable realized gains when a capital loss carryforward is
available). Accordingly, the Fund may periodically make
reclassifications among certain capital accounts without impacting the
net asset value of the Fund.
Other: Investment security transactions are accounted for on a trade
date plus one basis. Dividend income and 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.
8
<PAGE> 9
- - --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
DIVERSIFIED 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 year ended September 30, 1994 were as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIOD
ENDED MARCH 31, 1995 FOR THE YEAR ENDED SEPTEMBER
(UNAUDITED) 30, 1994
--------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold......................................... 117,663 $ 1,124,895 601,368 $ 6,198,262
Shares issued on reinvestment of distributions...... 106,596 1,011,612 250,301 2,562,687
Shares redeemed..................................... (681,214) (6,479,046) (1,099,200) (11,163,660)
--------- ----------- ---------- ------------
Net decrease........................................ (456,955) $(4,342,539) (247,531) $ (2,402,711)
=========== ============
Shares outstanding:
Beginning of the period........................... 3,713,874 3,961,405
--------- ----------
End of the period................................. 3,256,919 3,713,874
========= ==========
</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) were as
follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES OTHER
- - -------------------------------------------------- ------------------------------
PURCHASES SALES PAYDOWNS PURCHASES SALES
- - ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
$15,535,703 $18,546,624 $ 414,625 $ 3,011,768 $4,226,882
</TABLE>
Note 4: MANAGEMENT, SUBADVISORY, 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 annualized rate of 0.60%
of the first $100,000,000 of the Portfolio's average daily net assets,
and 0.50% of any excess over $100,000,000 of such 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. From inception of the
Portfolio, the Manager has reduced its investment advisory fees and
reimbursed the Portfolio to the extent that operating expenses have
exceeded amounts ranging from .85% to 1.35% of average daily net assets.
Effective April 1, 1993, the Manager has voluntarily agreed to waive its
fee and, if necessary, reimburse the Portfolio to the extent that the
Portfolio operating expenses exceed 1.25%, on an annual basis, of the
Portfolio's average daily net assets. This agreement is more restrictive
than any state expense limitation. Under the agreement, management fees
of $49,098 ($.02 per share) were waived in the six month period ended
March 31, 1995. If total Portfolio expenses fall below the expense
limitation agreed to by the Manager before the end of the year ending
September 30, 1997, the Portfolio may be required to pay the Manager a
portion or all of the waived management fee. In addition, the Portfolio
may be required to pay the Manager a portion or all of the management
fees waived ($66,556) in the prior year ended September 30, 1994, if
total Portfolio expenses fall below the annual expense limitation before
the end of the year ending September 30, 1996.
The Manager has entered into an agreement with Eagle Asset Management,
Inc. (the "Subadviser") for the Subadviser to provide investment advice,
portfolio management services (including the placement of brokerage
orders) and certain compliance and other services for a fee payable by
the Manager equal to 25% of the fees payable by the Portfolio to the
Manager without regard to any reduction due to the imposition of expense
limitations.
The Manager is also the Dividend Paying and Shareholder Servicing Agent
for the Fund. The amount payable to the Manager for such expenses as of
March 31, 1995 was $8,100. In addition, the Manager performs Fund
Accounting services and charged $14,432 during the current period of
which $7,200 was payable as of March 31, 1995.
9
<PAGE> 10
- - --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- - --------------------------------------------------------------------------------
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 0.35% 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 Subadviser, 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.
10
<PAGE> 11
HERITAGE INCOME TRUST DIVERSIFIED 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
INSTITUTIONAL GOVERNMENT 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>
<CAPTION>
[LOGO]
HERITAGE
-----------------
INCOME TRUST (TM)
-----------------
DIVERSIFIED PORTFOLIO
<S> <C>
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 -----------------
Diversified Portfolio BULK RATE
P.O. Box 33022 U.S. POSTAGE
St. Petersburg, FL 33733 PAID
- - --------------------------------------- PERMIT NO. 39
ATLANTA, GA
Address Change Requested -----------------
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-Diversified Portfolio. It may also
be used as sales literature when preceded or accompanied
by a prospectus.
8M 5/95 HAM038
</TABLE>
