<PAGE> 1
May 9, 1996
Dear Fellow Shareholders:
It is my pleasure to provide you with the semiannual report for Heritage
Income Trust - Intermediate Government Fund (the "Fund") for the six month
period ended March 31, 1996. For the four months ended January 31, 1996, the "A"
shares and "C" shares of your Fund had positive total returns of 3.47% and
3.41%, respectively.* For the same period, the Lehman Brothers 1 to 3 year U.S.
Government Index returned +3.33%. As we mentioned in our last letter, effective
February 1 of this year, your Fund's investment policies were broadened to allow
the target range of average maturities for your Fund's portfolio to move from
the short-intermediate to the intermediate sector of the fixed income market.
During the period from February 1 to March 31, the "A" and "C" shares of your
Fund returned -1.67% and -1.80%, respectively* as compared to the Lehman
Brothers Intermediate Government - Corporate Index which returned -1.67%. For
the entire semiannual period, the "A" and "C" shares had total returns of +1.74%
and +1.55%, respectively.*
The government bond market has been quite volatile this year as each new
piece of economic data seems to be outside the range expected by many economic
forecasters. In the letter that follows, Peter Wallace shares his views on the
market and discusses the recent repositioning of your Fund's investment
portfolio. Peter is a Senior Vice President of Heritage Asset Management and
portfolio manager for your Fund. I hope you find his comments helpful in
understanding how your portfolio is managed.
Thank you for continuing to make Heritage Income Trust - Intermediate
Government Fund a part of your investment portfolio. We look forward to helping
serve your investment needs for years to come.
Sincerely,
/s/ Stephen G. Hill
-------------------
Stephen G. Hill
President
* Calculated without the imposition of front-end or contingent deferred sales
charges.
<PAGE> 2
May 9, 1996
Dear Shareholders:
The past six months have indeed been an interesting period for both the
fixed income markets and the Heritage Income Trust - Intermediate Government
Fund.
On February 1, 1996 following approval by your Fund's trustees, your Fund
changed its investment policies from those of a short term government fund with
average maturities ranging from one to five years to those of an intermediate
government fund with a weighted average life ranging from three to ten years.
Historically, intermediate bonds have offered nearly the same return as those of
longer bonds but with significantly lower volatility of returns. This change in
objective should allow the Fund to generate higher yields than previously as
long as the yield curve maintains its traditional relationship of rates
increasing with maturity.
Until February 1, 1996 the Fund maintained a shorter portfolio of government
bonds and stable mortgage securities, pursuant to its then current policies. The
following table shows the change in portfolio structure between January 1996 and
the end of March 1996:
<TABLE>
<CAPTION>
JANUARY 1996 MARCH 1996
------------ ----------
<S> <C> <C>
Average Life:
Less than 1 yr.................................................... 20.5% 6.8%
1 to 2 yr......................................................... 19.4 4.8
2 to 3 yr......................................................... 29.7 14.5
3 to 4 yr......................................................... 16.5 17.2
4 to 5 yr......................................................... 13.9 35.6
5 to 7 yr......................................................... 0.0 0.0
7 to 10 yr........................................................ 0.0 21.1
Weighted Average Life............................................. 2.33yrs. 4.60yrs.
Sector Allocations:
U.S. Treasury..................................................... 93.2% 69.5%
Agency CMO........................................................ 2.8 7.6
Agency Pass-through............................................... 0.0 18.8
Cash Equivalents.................................................. 4.0 4.1
</TABLE>
The transition to an intermediate structure was accomplished by the addition
of agency mortgage-backed pass-through pools, which are collective pools of
single family mortgage loans, and the replacement of shorter term Treasury
issues with intermediate term issues.
The fixed income markets over the last six months appear to have changed
little in terms of yield, with longer bonds increasing in yield by 25 basis
points from 6.47% at the beginning of October of 1995 to 6.72% at the end of
March of 1996. Short term yields, as measured by the one year Treasury bill,
fell by about 20 basis points from 5.64% at the beginning of October to 5.44%,
at the end of March. The small relative changes in yields masked a particularly
volatile market, with bond yields declining sharply into the end of 1995
reaching a low of 5.94%. Yields remained fairly steady until mid February and
then moved sharply higher on fears of stronger economic growth and the potential
for higher inflation. Since that time, the Fund generally has attempted to
maintain a duration (price sensitivity to yield change) approximately equal to
the Fund's benchmark index, the Lehman Brothers Intermediate
Government - Corporate Index.
Your Fund's performance over this volatile period has been good. Because the
investment policies changed during the recent semiannual period, we must measure
performance against the appropriate benchmarks for each maturity target while in
effect. We compare the total return of the Fund from the end of September to the
end of January, +3.47% for the "A" shares, against the Lehman 1 to 3 yr.
Government Index, +3.33%. The remaining two months of Fund performance, -1.67%
for the "A" shares, is compared to the Lehman Intermediate Government -
Corporate Index return of -1.67%. Over the entire six month period the total
return of your Fund was +1.74% while the market's return, that of the linked
indices, was +1.60%.
2
<PAGE> 3
Although yields have risen sharply, we believe the market has again
over-reacted to data showing a slightly stronger economy. Our outlook for a
weaker economy and lower rates by year-end is still intact. We believe inflation
should remain at 3% or lower for the year and as a result, we expect interest
rates to be lower at year end than they are today. With the recent move to the
7% yield level we have begun to lengthen the portfolio and will continue to do
so as we see further signs of economic weakness emerge.
Thank you for your continued confidence in Heritage Income Trust -
Intermediate Government Fund.
Sincerely,
/s/ H. Peter Wallace
-------------------------------
H. Peter Wallace, CFA
Senior Vice President
Heritage Asset Management, Inc.
3
<PAGE> 4
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
INTERMEDIATE GOVERNMENT FUND
INVESTMENT PORTFOLIO
MARCH 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
- ------------------ ---------- -----------
<C> <S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES--95.9%(A)
U.S. TREASURIES--69.5%
$1,000,000 U.S. Treasury Notes, 6.5%.............................................. 08/15/97 $ 1,011,562
3,000,000 U.S. Treasury Notes, 6.125%............................................ 05/15/98 3,018,750
1,000,000 U.S. Treasury Notes, 7.0%.............................................. 04/15/99 1,027,500
2,500,000 U.S. Treasury Notes, 6.875%............................................ 08/31/99 2,563,280
1,500,000 U.S. Treasury Notes, 6.25%............................................. 08/31/00 1,507,967
1,500,000 U.S. Treasury Notes, 6.125%............................................ 09/30/00 1,500,938
2,000,000 U.S. Treasury Notes, 5.25%............................................. 01/31/01 1,933,124
1,500,000 U.S. Treasury Notes, 5.625%............................................ 02/28/01 1,470,000
500,000 U.S. Treasury Notes, 5.625%............................................ 02/15/06 474,063
-----------
Total U.S. Treasuries.................................................. 14,507,184
-----------
U.S. GOVERNMENT AGENCIES--26.4%
FEDERAL NATIONAL MORTGAGE CORPORATION:--4.9%
1,000,000 REMIC 1992-119E, Sequential Class, 8.0%................................ 07/25/20 1,022,200
-----------
FEDERAL HOME LOAN MORTGAGE ASSOCIATION:--11.9%
487,060 REMIC 1164F, Planned Amortization Class, 7.0%.......................... 03/15/05 489,140
81,869 REMIC 16C, Targeted Amortization Class, 10.0%.......................... 02/15/13 83,693
1,957,847 Pool #C80379, Pass-Through, 7.0%....................................... 02/01/26 1,909,645
-----------
2,482,478
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION:--9.6%
2,021,249 Pool #351468, Pass-Through, 7.5%....................................... 03/15/24 2,018,217
-----------
Total U.S. Government Agencies......................................... 5,522,895
-----------
Total U.S. Government and Agency Securities (cost $20,189,936)......... 20,030,079
REPURCHASE AGREEMENT--3.2%(A)
- ---------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated March 29, 1996, at
5.10%, to be repurchased at $665,283 on April 1, 1996, collateralized by $670,000 United
States Treasury Notes, 5.625% due June 30, 1997 (market value $679,839 including interest)
(cost $665,000)............................................................................. 665,000
-----------
TOTAL INVESTMENT PORTFOLIO (COST $20,854,936)(B) 99.1%(A).................................... 20,695,079
OTHER ASSETS AND LIABILITIES, NET, 0.9%(A)................................................... 194,052
-----------
NET ASSETS, 100%............................................................................. $20,889,131
===========
</TABLE>
- -------------------
(a) Percentages indicated 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 $159,857, which
consists of aggregate gross unrealized appreciation for all securities in
which there is an excess of market value over tax cost of $90,000 and
aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over market value of $249,857.
REMIC -- Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST-INTERMEDIATE GOVERNMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at market value (identified cost $20,854,936) (Note 1)....................... $ 20,695,079
Cash...................................................................................... 2,634
Receivables:
Interest................................................................................ 242,362
From Manager............................................................................ 45,775
Fund shares sold........................................................................ 16,280
Deferred state registration expenses (Note 1)............................................. 10,229
------------
Total assets...................................................................... 21,012,359
Liabilities
Payables (Note 4):
Fund shares redeemed.................................................................... $ 49,854
Accrued distribution fee................................................................ 6,183
Other accrued expenses.................................................................. 67,191
--------
Total liabilities................................................................. 123,228
------------
Net assets, at market value............................................................... $ 20,889,131
============
Net Assets
Net assets consist of:
Paid-in capital......................................................................... $ 27,441,001
Undistributed net investment income (Note 1)............................................ 707,221
Accumulated net realized loss (Notes 1 and 5)........................................... (7,099,234)
Net unrealized depreciation on investments.............................................. (159,857)
------------
Net assets, at market value............................................................... $ 20,889,131
============
Class A Shares
Net asset value and redemption price per share ($20,447,566 divided by 2,223,521 shares of
beneficial interest outstanding, no par value) (Note 2)................................. $9.20
====
Maximum offering price per share (100/96.25 of $9.20)..................................... $9.56
====
Class C Shares
Net asset value, offering price and redemption price per share ($441,565 divided by 48,140
shares of beneficial interest outstanding, no par value) (Notes 1 and 2)................ $9.17
====
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST-INTERMEDIATE GOVERNMENT FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED MARCH 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income
Income:
Interest.................................................................................... $ 721,707
Expenses (Notes 1 and 4):
Management fee.............................................................................. $ 57,392
Professional fees........................................................................... 40,562
Distribution fee (Class A Shares)........................................................... 38,947
Distribution fee (Class C Shares)........................................................... 512
Custodian/Fund accounting fees.............................................................. 19,909
Amortization of state registration expenses................................................. 15,968
Shareholder servicing fees.................................................................. 7,656
Reports to shareholders..................................................................... 6,964
Trustees' fees and expenses................................................................. 4,276
Insurance................................................................................... 2,500
Other....................................................................................... 877
--------
Total expenses before waiver and reimbursement............................................ 195,563
Fees waived by Manager (Note 4)........................................................... (57,392)
Reimbursement from Manager................................................................ (29,851) 108,320
-------- ---------
Net investment income......................................................................... 613,387
---------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain from investment transactions................................................ 228,251
Net decrease in unrealized appreciation of investments during the period...................... (409,727)
---------
Net loss on investments............................................................... (181,476)
---------
Net increase in net assets resulting from operations.......................................... $ 431,911
=========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTH PERIOD
ENDED FOR THE
MARCH 31, 1996 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1995
-------------- ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income........................................................... $ 613,387 $ 1,614,516
Net realized gain (loss) from investment transactions........................... 228,251 (712,069)
Net increase (decrease) in unrealized appreciation of investments during the
period........................................................................ (409,727) 1,324,202
-------------- ------------
Net increase in net assets resulting from operations............................ 431,911 2,226,649
Distributions to shareholders from:
Net investment income, Class A Shares ($0.25 and $0.55 per share,
respectively)................................................................. (623,983) (1,803,106)
Net investment income, Class C Shares ($0.24 and $0.22 per share,
respectively)................................................................. (3,749) (702)
Decrease in net assets from Fund share transactions (Note 2)...................... (3,481,050) (16,931,280)
-------------- ------------
Decrease in net assets............................................................ (3,676,871) (16,508,439)
Net assets, beginning of period................................................... 24,566,002 41,074,441
-------------- ------------
Net assets, end of period (including undistributed net investment income of
$707,221 and $721,566, respectively)............................................ $ 20,889,131 $ 24,566,002
============== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST-INTERMEDIATE GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS C SHARES
---------------------------------------------------------- ------------------------
FOR THE FOR THE
SIX MONTH SIX MONTH
PERIOD PERIOD
ENDED ENDED
MARCH 31, FOR THE YEARS ENDED SEPTEMBER 30, MARCH 31,
1996 ------------------------------------------ 1996
(UNAUDITED) 1995 1994* 1993 1992 1991 (UNAUDITED) 1995+
----------- ------ ------ ------ ------ ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD.............................. $ 9.29 $ 9.10 $ 9.44 $ 9.84 $10.00 $ 9.49 $ 9.27 $ 9.05
----------- ------ ------ ------ ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)............ 0.30 0.62 0.43 0.59 0.52 0.67 0.27 0.21
Net realized and unrealized gain
(loss) on investments............. (0.14) 0.12 (0.40) (0.44) 0.10 0.49 (0.13) 0.23
----------- ------ ------ ------ ------ ------ ------ -------
Total from Investment
Operations........................ 0.16 0.74 0.03 0.15 0.62 1.16 0.14 0.44
----------- ------ ------ ------ ------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................ (0.25) (0.55) (0.37) (0.52) (0.55) (0.65) (0.24) (0.22 )
Distributions from net
realized gains.................... -- -- -- (0.03) (0.23_) -- -- --
----------- ------ ------ ------ ------ ------ ------ -------
Total Distributions................. (0.25) (0.55) (0.37) (0.55) (0.78) (0.65) (0.24) (0.22 )
----------- ------ ------ ------ ------ ------ ------ -------
NET ASSET VALUE, END OF THE PERIOD.... $ 9.20 $ 9.29 $ 9.10 $ 9.44 $ 9.84 $10.00 $ 9.17 $ 9.27
=========== ====== ====== ====== ====== ====== ====== =======
TOTAL RETURN (%)(D)................... 1.74(c) 8.47 .36 1.58 6.47 12.64 1.55(c) 4.90 (c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average
daily net assets(a)............... 0.94(b) 0.95 0.95 0.91 0.78 1.07 1.20(b) 1.20 (b)
Net investment income to average
daily net assets.................. 5.35(b) 5.50 4.60 5.99 5.66 6.87 5.10(b) 5.19 (b)
Portfolio turnover rate............. 69(c) 162 214 150 123 202 69(c) 162
Net assets, end of the period ($
millions)......................... 21 24 41 102 111 5 0.4 0.07
</TABLE>
- ---------------
* Per share amounts have been calculated using the monthly average share
method, which more appropriately presents per share data for the year since
use of the undistributed income method does not correspond with results of
operations.
+ For the period April 3, 1995 (commencement of Class C Shares) to September
30, 1995.
(a) Excludes management fees waived and expenses reimbursed by the Manager in
the amount of $.04, $.03, $.01, $.02, $.24 and $.22 per Class A Share,
respectively. The operating expense ratios including such items would be
1.70%, (annualized), 1.18%, 1.03%, 1.23%, 3.58% and 5.88% (annualized) for
Class A Shares, respectively. Excludes management fees waived and expenses
reimbursed by the Manager in the amount of $.04 and $.06 per Class C Share.
The operating expense ratio including such items would be 1.96%
(annualized) and 1.72% (annualized) for Class C Shares.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
7
<PAGE> 8
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST-INTERMEDIATE GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Note 1: SIGNIFICANT ACCOUNTING POLICIES. Heritage Income Trust (the "Trust") 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 two separate investment
portfolios, the Intermediate Government Fund (the "Fund") (formerly
known as the Limited Maturity Government Portfolio) and the High Yield
Bond Fund (formerly known as the Diversified Portfolio). The Fund
currently issues Class A and Class C Shares. Class A Shares are sold
subject to a maximum sales charge of 3.75% of the amount invested
payable at the time of purchase. Class C Shares, which were offered to
shareholders beginning April 3, 1995, are sold subject to a contingent
deferred sales charge of 1% of the lower of net asset value or purchase
price payable upon any redemptions within one year after purchase. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies. Financial statements for the High Yield
Bond Fund are presented separately.
Security Valuation: The Fund 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 that 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 Fund enters into repurchase agreements
whereby the Fund, through its custodian, receives delivery of the
underlying securities, the market value of which at the time of purchase
is required to be in an amount equal to at least 100% of the resale
price.
Federal Income Taxes: The Fund is treated as a single corporate taxpayer
as provided for in The Tax Reform Act of 1986, as amended. It is the
Fund'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.
Distribution of Income and Gains: Distributions of net investment income
are made monthly. Net realized gains from investment transactions for
the Fund during any particular year in excess of available capital loss
carryforwards, which, if not distributed, would be taxable to the Fund,
will be distributed to shareholders in the following fiscal year. The
Fund uses the identified cost method for determining realized gain or
loss on investments for both financial and federal income tax reporting
purposes.
Expenses: The Fund is charged for those expenses 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. Expenses of the Fund are allocated to each class of shares
based upon their relative percentage of current net assets. All expenses
that are directly attributable to a specific class of shares, such as
distribution fees, are allocated to that class.
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.
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 Class A or Class C Shares of the Fund.
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
original issue discounts are accreted for both federal income tax and
financial reporting purposes.
8
<PAGE> 9
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST-INTERMEDIATE GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Note 2: FUND SHARES. At March 31, 1996, there was an unlimited number of shares
of beneficial interest of no par value authorized.
Transactions in Class A Shares of the Fund during the six month period
ended March 31, 1996 and the fiscal year ended September 30, 1995, were
as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIOD
ENDED MARCH 31, 1996 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1995
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold........................................... 83,509 $ 777,274 261,509 $ 2,378,159
Shares issued on reinvestment of distributions........ 57,508 536,648 174,641 1,583,746
Shares redeemed....................................... (554,444) (5,178,273) (2,312,072) (20,959,770)
---------- ----------- ---------- ------------
Net decrease.......................................... (413,427) $(3,864,351) (1,875,922) $(16,997,865)
========== ===========
Shares outstanding:
Beginning of the period............................. 2,636,948 4,512,870
---------- ----------
End of the period................................... 2,223,521 2,636,948
========= =========
</TABLE>
Transactions in Class C Shares of the Fund for the six month period ended
March 31, 1996 and from April 3, 1995 (commencement of Class C Shares) to
September 30, 1995 were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 3, 1995
FOR THE SIX MONTH PERIOD (COMMENCEMENT OF
ENDED MARCH 31, 1996 CLASS C SHARES) TO
(UNAUDITED) SEPTEMBER 30, 1995
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Class C Shares
Shares sold........................................... 41,650 $ 389,700 7,432 $ 68,909
Shares issued on reinvestment of distributions........ 397 3,700 76 702
Shares redeemed....................................... (1,088) (10,099) (327) (3,026)
---------- ----------- ---------- ------------
Net increase.......................................... 40,959 $ 383,301 7,181 $ 66,585
========== ===========
Shares outstanding:
Beginning of period................................. 7,181 --
---------- ----------
End of period....................................... 48,140 7,181
========= =========
</TABLE>
Note 3: PURCHASES AND SALES OF SECURITIES. For the six month period ended March
31, 1996, purchases, sales and paydowns of investment securities
(excluding repurchase agreements and short-term obligations) aggregated
$15,087,437, $17,983,950 and $555,915, 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 0.50% of the Fund'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. From inception of the Fund, the Manager has reduced
its investment advisory fees and reimbursed the Fund to the extent that
operating expenses have exceeded amounts ranging from .60% to 1.15% of
average daily net assets. Effective March 1, 1993, the Manager
voluntarily agreed to waive its fee and, if necessary, reimburse the
Fund to the extent that the Fund operating expenses exceed .95% for
Class A Shares (1.20% for Class C Shares effective April 3, 1995), on an
annual basis, of the Fund's average daily net assets attributable to
each class of shares. This agreement is more restrictive than any state
expense limitation. Under this agreement, management fees of $57,392
were waived and $29,851 of expenses were reimbursed for the period ended
March 31, 1996. If total Fund expenses fall below the expense limitation
agreed to by the Manager before the end of the year ending September 30,
1998, the Fund may be required to pay the Manager a portion or all of
the waived management fee. In addition, the Fund may be required to pay
the Manager a portion or all of the management fees waived of $146,407
and $151,883 for the years ended September 30, 1994 and September 30,
1995, respectively, if total Fund expenses fall below the annual expense
limitations before the end of the years ending September 30, 1996 and
September 30, 1997, respectively.
9
<PAGE> 10
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST-INTERMEDIATE GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
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, 1996 was $4,500. In addition, the Manager performs Fund
accounting services and charged $15,215 during the current period of
which $6,900 was payable as of March 31, 1996.
Pursuant to the Class A Distribution Plan adopted in accordance with
Rule 12b-1 of the Investment Company Act of 1940, as amended, the Fund
is authorized to pay Raymond James & Associates, Inc. (the
"Distributor") a fee of up to .35% of the average daily net assets for
Class A Shares. Under the Class C Distribution Plan the Fund may pay the
Distributor a fee equal to .60% of the average daily net assets for
Class C Shares. The Distributor, on Class C Shares, may retain the first
12 months distribution fee for reimbursement of amounts paid to the
broker/dealer at the time of purchase. Such fees are accrued daily and
payable monthly. During the six month period ended March 31, 1996
$38,947 and $512 were paid for distribution fees for Class A Shares and
Class C Shares, respectively. The Manager, Distributor, Fund Accountant
and Shareholder Servicing Agent are all wholly-owned subsidiaries of
Raymond James Financial, Inc.
Trustees of the Trust 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 that 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.
Note 5: FEDERAL INCOME TAXES. As of September 30, 1995, the Fund has net tax
basis capital loss carry forwards of $6,719,571, which may be applied
against any realized net taxable gains until their expiration dates of
September 30, 2001 ($388,071), September 30, 2002 ($3,838,721) and
September 30, 2003 ($2,492,779). In addition, from November 1, 1994 to
September 30, 1995, the Fund incurred $607,914 of net realized capital
losses, which will be deferred and treated as arising on October 1, 1995
in accordance with regulations under the Internal Revenue Code.
Note 6: BOARD ACTIONS. Effective February 1, 1996, the Trustees voted to change
the name of the fund from Heritage Income Trust -- Limited Maturity
Government Portfolio to Heritage Income Trust -- Intermediate Government
Income Fund and that a corresponding change to the non-fundamental
investment policy of maintaining a weighted average maturity of less
than five years be extended to a weighted average maturity of between
three and ten years.
10
<PAGE> 11
HERITAGE INCOME TRUST -- INTERMEDIATE GOVERNMENT FUND is a member of the
Heritage family of mutual funds. Other investment alternatives available from
Heritage include:
HERITAGE CASH TRUST
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
HERITAGE CAPITAL APPRECIATION TRUST
HERITAGE INCOME-GROWTH TRUST
HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
HERITAGE SERIES TRUST
EAGLE INTERNATIONAL EQUITY PORTFOLIO
GROWTH EQUITY FUND
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 mutual funds, please contact your
account executive. Read the prospectus carefully before you invest in any of the
funds.
<PAGE> 12
[Heritage
Income
Trust
Logo]
INTERMEDIATE
GOVERNMENT FUND
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, 1996
A member of the
Heritage Family of Mutual Funds(TM)
Heritage Income Trust
Intermediate Government Fund
P.O. Box 33022
St. Petersburg, FL 33733
--------------------------------------------
Address Change Requested
Semiannual Report
INVESTMENT ADVISOR/
SHAREHOLDER SERVICING AGENT/
FUND ACCOUNTANT
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-Intermediate Government Fund. It
may also be used as sales literature when preceded or
accompanied by a prospectus.
4M 5/96
