<PAGE> 1
November 11, 1996
Dear Fellow Shareholders:
I am pleased to provide you with the annual report for Heritage Income
Trust-Intermediate Government Fund (the "Fund") for the fiscal year ended
September 30, 1996. For this period the "A" shares and "C" shares of your Fund
returned +3.24% and +3.04%, respectively.*
On February 1, 1996 your Fund's investment policies were broadened and its name
changed from the Limited Maturity Government Portfolio to the Intermediate
Government Fund. In the letter that follows, H. Peter Wallace, a senior vice
president of Heritage Asset Management Inc. ("Heritage") and the portfolio
manager for your Fund, discusses how your Fund was managed over the past fiscal
year and his outlook for your Fund going forward. I hope you find his comments
useful in better understanding how your Fund is managed.
We continue to believe that income-oriented assets such as your Fund may play a
significant role in a properly structured investment portfolio. Because every
individual has unique goals, we encourage you to work with your financial
advisors in order to ensure that your investment plan is consistent with your
goals.
If there are ever any ways in which you believe we could serve you better,
please call us at 800-709-3863. On behalf of all of us at Heritage, thank you
for your continuing investment in Heritage Income Trust-Intermediate Government
Fund.
Sincerely,
/s/ STEPHEN G. HILL
Stephen G. Hill
President
- ---------------
* Calculated without the imposition of front-end or contingent deferred sales
charges.
Heritage Income Trust-Intermediate Government Fund is a member of the Heritage
Family of Mutual Funds. Other investment alternatives available to you from
Heritage include Heritage Cash Trust which consists of the Money Market and
Municipal Money Market Funds, Heritage Capital Appreciation Trust, Heritage
Income-Growth Trust, Heritage Income Trust-High Yield Bond Fund and Heritage
Series Trust, which consists of the Small Cap Stock, Value Equity, Growth Equity
and Eagle International Equity Funds. 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. Please read the Prospectus
carefully before you invest in any of the funds.
<PAGE> 2
November 11, 1996
Dear Shareholders:
The past year has been an interesting period for both the fixed income markets
and the Heritage Income Trust-Intermediate Government Fund.
The bond market has been exceptionally volatile over the past fiscal year. The
domestic economy slowed to a near standstill in the fourth quarter of 1995, only
to rebound in the first and second quarters of 1996. Along with the resurgence
of growth, fears of renewed inflation were rekindled. As a result, bond yields
rose sharply through the third quarter of 1996. The economy then slowed in the
third quarter to a rate within the Federal Reserve's tolerance level and yields
declined sharply.
The following table shows the progression of bond yields over the last four
quarters as well as current levels:
<TABLE>
<CAPTION>
MATURITY 9/29/95 12/29/95 3/29/96 6/28/96 9/30/96 11/06/96
-------------------------------------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
3 month............................... 5.41% 5.07% 5.14% 5.15% 5.03% 5.16%
2 year................................ 5.85% 5.15% 5.75% 6.11% 6.09% 5.73%
5 year................................ 6.02% 5.37% 6.08% 6.46% 6.45% 6.04%
10 year............................... 6.18% 5.57% 6.32% 6.71% 6.70% 6.28%
30 year............................... 6.50% 5.95% 6.67% 6.89% 6.92% 6.60%
</TABLE>
On February 1, 1996 the Fund changed policies from those of a limited maturity
government fund with a weighted average life ranging from one to five years to
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 policy should allow the Fund to generate higher
dividends 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. In
early February the Fund was restructured to emphasize the intermediate sector of
the government markets. Agency mortgage backed pass-throughs and intermediate
term U.S. Treasury issues were added to the Fund. These purchases were effected
by the sale of shorter term U.S. Treasury issues. As a result, the average life
of the Fund was increased from 2.3 years to 4.6 years.
Over the fiscal year, the Fund provided a total return of +3.24%. The Lehman
Intermediate Government Corporate Index returned +5.13% for the same period.
Because the Fund changed its structure in February, the comparison to an
intermediate index for the whole year is not entirely valid. For the period of
September 30, 1995 to January 31, 1996, the Fund returned +3.47% while the
Lehman 1-3 Government Index returned +3.32%. For the period from January 31,
1996 to September 30, 1996, the Fund returned -0.22% while the Lehman
Intermediate Government-Corporate Index returned +0.69%. The return of the
combined indices, Lehman 1-3 Government from September 1995 to January 1996 and
the Lehman Intermediate Government-Corporate Index from January 1996 to
September 1996, was +4.03%. The timing of the structural change was in part the
cause of the Fund's under performance, as well as a concentration on mortgage
issues that did not perform as well as the corporate issues held in the index.
We continue to believe the economy is in the process of slowing and that bond
yields should continue to decline into 1997. Although yields remain highly
volatile, our outlook for a weaker economy and lower rates 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 next year than they are today. With the recent
move to the 7% yield level on the long bond, we extended the duration of the
Fund and expect to maintain a duration greater than the Lehman Intermediate
Government-Corporate Index to take advantage of falling rates.
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.
2
<PAGE> 3
GRAPH
<TABLE>
<CAPTION>
_______ _ _ _ _ . . . .
HERITAGE LEHMAN LEHMAN
INCOME BROTHERS BROTHERS
TRUST 1-3 YEAR INTERMEDIATE
<S> <C> <C>
9625 10000 10000
9575 10030 10013
9875 10316 10334
9828 10560 10515
10358 10908 10947
10537 11157 11223
10654 11373 11422
11070 11750 11973
11431 12182 12548
11307 12199 12433
11656 12550 12926
11786 12917 13496
11818 12944 13448
11936 13225 13981
11995 13373 14282
11972 13557 14604
12026 13644 14628
12022 13575 14331
11952 13577 14245
12014 13712 14362
12012 13712 14346
12372 14166 14974
12864 14615 15722
13032 14834 15981
13384 15198 16542
13258 15256 16405
13284 15417 16504
13454 15674 16800
</TABLE>
GRAPH
<TABLE>
<CAPTION>
_ _ _ _ . . . .
_______ 1-3 YEAR INTERMEDIATE
"HIT-G" "LEHMAN" "LEHMAN"
<S> <C> <C> <C>
"04/03/96" 10000 10000 10000
"06/30/95" 10363 10317 10500
"09/30/95" 10490 10417 10673
"12/31/95" 10767 10728 11047
"03/31/96" 10652 10769 10956
"06/30/96" 10678 10883 11024
"09/30/96" 10809 11064 11220
</TABLE>
*AVERAGE ANNUAL TOTAL RETURNS FOR HERITAGE INCOME TRUST -- INTERMEDIATE
GOVERNMENT FUND ARE CALCULATED IN CONFORMANCE WITH ITEM 22 OF FORM
N-1A, WHICH ASSUMES THE REINVESTMENT OF DIVIDENDS, A SALES LOAD OF
3.75% FOR CLASS "A" SHARES AND A CONTINGENT DEFERRED SALES LOAD (CDSL)
OF 1% FOR CLASS "C" SHARES ON REDEMPTIONS MADE WITHIN 12 MONTHS OF
PURCHASE.
3
<PAGE> 4
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
INTERMEDIATE GOVERNMENT FUND
INVESTMENT PORTFOLIO
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
[CAPTION]
<TABLE>
<CAPTION>
<C> <S> <C> <C>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
---------- -----------
<C> <S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES -- 94.3%(A)
U.S. TREASURIES -- 49.5%
$1,000,000 U.S. Treasury Notes, 6.0%.............................................. 09/30/98 $ 998,203
1,500,000 U.S. Treasury Notes, 6.875%............................................ 08/31/99 1,522,968
1,000,000 U.S. Treasury Notes, 6.25%............................................. 08/31/00 994,062
1,500,000 U.S. Treasury Notes, 6.125%............................................ 09/30/00 1,484,063
1,000,000 U.S. Treasury Notes, 5.25%............................................. 01/31/01 958,125
1,000,000 U.S. Treasury Notes, 6.25%............................................. 04/30/01 991,875
1,000,000 U.S. Treasury Notes, 6.5%.............................................. 08/31/01 1,001,250
1,000,000 U.S. Treasury Notes, 7.0%.............................................. 07/15/06 1,020,312
-----------
Total U.S. Treasuries.................................................. 8,970,858
-----------
U.S. GOVERNMENT AGENCIES -- 44.8%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 16.0%
1,951,134 Pool #351468, Pass-Through, 7.5%....................................... 03/15/24 1,934,842
1,009,103 Pool #421756, 7.0%..................................................... 08/01/26 971,577
-----------
2,906,419
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 13.8%
1,500,000 Pool #TBA, Pass-Through, 7.0%.......................................... 10/01/11 1,481,250
1,000,000 REMIC 1992-119E, Sequential Class, 8.0%................................ 07/25/20 1,016,530
-----------
2,497,780
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION -- 15.0%
285,189 REMIC, 1164F PAC, 7.0%................................................. 03/15/05 285,751
81,869 REMIC, 16C TAC, 10.0%.................................................. 02/15/13 82,640
500,000 REMIC, 1240-G PAC, 5.0%................................................ 01/15/16 495,915
1,918,667 Pool #C80379, Pass-Through, 7.0%....................................... 02/01/26 1,855,025
-----------
2,719,331
-----------
Total U.S. Government Agencies......................................... 8,123,530
-----------
Total U.S. Government and Agency Securities (cost $17,394,071)......... 17,094,388
-----------
REPURCHASE AGREEMENT -- 12.9%(A)
Repurchase Agreement with State Street Bank and Trust Company, dated September 30, 1996, @
5.35%, to be repurchased at $2,330,346 on October 1, 1996, collateralized by $2,336,047
United States Treasury Notes, 5.375%, due November 30, 1997, (market value $2,378,496
including interest) (cost $2,330,000)........................................................ 2,330,000
-----------
TOTAL INVESTMENT PORTFOLIO (COST $19,724,071)(B) 107.2%(A)................................... 19,424,388
OTHER ASSETS AND LIABILITIES, NET, (7.2%)(A)................................................. (1,308,387)
-----------
NET ASSETS, 100.0%(A)........................................................................ $18,116,001
=============
</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 $299,683, which
consists of aggregate gross unrealized appreciation for all securities in
which there is an excess of market value over tax cost of $3,258 and
aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over market value of $302,941.
PAC-Planned Amortization Class
REMIC-Real Estate Mortgage Investment Conduit
TAC-Targeted Amortization Class
TBA-To Be Announced
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
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at market value (identified cost $17,394,071) (Note 1)...................... $17,094,388
Repurchase agreement (identified cost $2,330,000) (Note 1)............................... 2,330,000
Cash..................................................................................... 2,882
Receivables:
Investments sold....................................................................... 1,036,906
Interest............................................................................... 114,919
From Manager........................................................................... 55,562
Fund shares sold....................................................................... 294
Deferred state registration expenses (Note 1)............................................ 10,630
Prepaid Insurance........................................................................ 1,830
-----------
Total assets..................................................................... 20,647,411
Liabilities
Payables (Note 4):
Investments purchased.................................................................. $2,485,165
Fund shares redeemed................................................................... 11,470
Accrued distribution fee............................................................... 5,117
Other accrued expenses................................................................. 29,658
----------
Total liabilities................................................................ 2,531,410
-----------
Net assets, at market value.............................................................. $18,116,001
==========
Net Assets
Net assets consist of:
Paid-in capital........................................................................ $24,935,800
Undistributed net investment income (Note 1)........................................... 726,228
Accumulated net realized loss (Notes 1 and 5).......................................... (7,246,344)
Net unrealized depreciation on investments............................................. (299,683)
-----------
Net assets, at market value.............................................................. $18,116,001
==========
Class A Shares
Net asset value and redemption price per share ($17,531,167 divided by 1,930,426 shares
of beneficial interest outstanding, no par value) (Notes 1 and 2)...................... $9.08
====
Maximum offering price per share (100/96.25 of $9.08).................................... $9.43
====
Class C Shares
Net asset value, offering price and redemption price per share ($584,834 divided by
64,575 shares of beneficial interest outstanding, no par value) (Notes 1 and 2)........ $9.06
====
</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 YEAR ENDED SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Interest................................................................................... $1,342,595
Expenses (Notes 1 and 4):
Management fee............................................................................. $ 105,455
Distribution fee (Class A Shares).......................................................... 70,332
Distribution fee (Class C Shares).......................................................... 2,265
Professional fees.......................................................................... 54,024
Custodian/Fund accounting fees............................................................. 38,313
Amortization of state registration expenses................................................ 29,447
Shareholder servicing fees................................................................. 13,244
Reports to shareholders.................................................................... 12,185
Trustees' fees and expenses................................................................ 7,547
Insurance.................................................................................. 4,262
Other...................................................................................... 2,867
---------
Total expenses before waiver and reimbursement........................................... 339,941
Fees waived by Manager (Note 4).......................................................... (105,455)
Reimbursement from Manager............................................................... (35,322) 199,164
--------- ----------
Net investment income........................................................................ 1,143,431
----------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain from investment transactions............................................... 109,860
Net decrease in unrealized appreciation of investments during the year....................... (549,553)
----------
Net loss on investments.............................................................. (439,693)
----------
Net increase in net assets resulting from operations......................................... $ 703,738
=========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income........................................................ $ 1,143,431 $ 1,614,516
Net realized gain (loss) from investment transactions........................ 109,860 (712,069)
Net increase (decrease) in unrealized appreciation of investments during the
year....................................................................... (549,553) 1,324,202
------------------ ------------------
Net increase in net assets resulting from operations......................... 703,738 2,226,649
Distributions to shareholders from:
Net investment income, Class A Shares ($0.50 and $0.55 per share,
respectively).............................................................. (1,148,575) (1,803,106)
Net investment income, Class C Shares ($0.49 and $0.22 per share,
respectively).............................................................. (18,913) (702)
Decrease in net assets from Fund share transactions (Note 2)................... (5,986,251) (16,931,280)
------------------ ------------------
Decrease in net assets......................................................... (6,450,001) (16,508,439)
Net assets, beginning of year.................................................. 24,566,002 41,074,441
------------------ ------------------
Net assets, end of year (including undistributed net investment income of
$726,228 and $721,566, respectively)......................................... $ 18,116,001 $ 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 YEARS FOR THE PERIODS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------ ----------------
1996* 1995 1994* 1993 1992 1996* 1995+
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD..................... $ 9.29 $ 9.10 $ 9.44 $ 9.84 $10.00 $ 9.27 $ 9.05
------ ------ ------ ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)................................... 0.50 0.62 0.43 0.59 0.52 0.49 0.21
Net realized and unrealized gain (loss) on investments..... (0.21) 0.12 (0.40) (0.44) 0.10 (0.21) 0.23
------ ------ ------ ------ ------ ------ -------
Total from Investment
Operations............................................... 0.29 0.74 0.03 0.15 0.62 0.28 0.44
------ ------ ------ ------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment income....................... (0.50) (0.55) (0.37) (0.52) (0.55) (0.49) (0.22)
Distributions from net
realized gains........................................... -- -- -- (0.03) (0.23) -- --
------ ------ ------ ------ ------ ------ -------
Total Distributions........................................ (0.50) (0.55) (0.37) (0.55) (0.78) (0.49) (0.22)
------ ------ ------ ------ ------ ------ -------
NET ASSET VALUE, END OF THE PERIOD........................... $ 9.08 $ 9.29 $ 9.10 $ 9.44 $ 9.84 $ 9.06 $ 9.27
====== ====== ====== ====== ====== ====== =======
TOTAL RETURN (%)(D).......................................... 3.24 8.47 .36 1.58 6.47 3.04 4.90 (c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily net assets(a).... 0.94 0.95 0.95 0.91 0.78 1.20 1.20 (b)
Net investment income to average daily net assets.......... 5.42 5.50 4.60 5.99 5.66 5.22 5.19 (b)
Portfolio turnover rate.................................... 135 162 214 150 123 135 162
Net assets, end of the period ($ millions)................. 18 24 41 102 111 0.6 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 $.06, $.06, $.03, $.01 and $.02 per Class A Share for the
five years ended September 30, 1996, respectively. The operating expense
ratios including such items would have been 1.61%, 1.47%, 1.18%, 1.03% and
1.23% for Class A Shares for the five years ended September 30, 1996,
respectively. Excludes management fees waived and expenses reimbursed by
the Manager in the amount of $.06 and $.06 per Class C Share for the two
periods ended September 30, 1996, respectively. The operating expense ratio
including such items would have been 1.87% and 1.72% (annualized) for Class
C Shares for the two periods ended September 30, 1996, respectively.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST-INTERMEDIATE GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 has an
investment objective of high current income consistent with the
preservation of capital. 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. Financial statements for the High Yield Bond Fund are
presented separately. The following is a summary of significant
accounting policies:
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
Funds. 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: Distributions from net investment income and net
realized gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting
principles. To the extent these "book/tax" differences are permanent in
nature (i.e., that they result from other than timing of
recognition -- "temporary"), such accounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification.
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 September 30, 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 years ended
September 30, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold........................................... 116,103 $ 1,074,406 261,509 $ 2,378,159
Shares issued on reinvestment of distributions........ 107,141 986,398 174,641 1,583,746
Shares redeemed....................................... (929,766) (8,580,559) (2,312,072) (20,959,770)
---------- ----------- ---------- ------------
Net decrease.......................................... (706,522) $(6,519,755) (1,875,922) $(16,997,865)
========== ===========
Shares outstanding:
Beginning of the year............................... 2,636,948 4,512,870
---------- ----------
End of the year..................................... 1,930,426 2,636,948
========= =========
</TABLE>
Transactions in Class C Shares of the Fund for the year ended September
30, 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
(COMMENCEMENT OF
FOR THE YEAR ENDED CLASS C SHARES) TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Class C Shares
Shares sold........................................... 60,267 $ 559,648 7,432 $ 68,909
Shares issued on reinvestment of distributions........ 2,016 18,326 76 702
Shares redeemed....................................... (4,889) (44,470) (327) (3,026)
---------- ----------- ---------- ------------
Net increase.......................................... 57,394 $ 533,504 7,181 $ 66,585
========== ===========
Shares outstanding:
Beginning of period................................. 7,181 --
---------- ----------
End of period....................................... 64,575 7,181
========= =========
</TABLE>
Note 3: PURCHASES AND SALES OF SECURITIES. For the year ended September 30,
1996, purchases, sales and paydowns of investment securities (excluding
repurchase agreements and short-term obligations) aggregated
$27,131,406, $32,283,208 and $978,101, 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 $105,455
were waived and $35,322 of expenses were reimbursed for the year ended
September 30, 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 $151,883 for the year ended September 30, 1995 if total Fund
expenses fall below the annual expense limitations before the end of the
year ending September 30, 1997.
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
September 30, 1996 was $3,000. In addition, the Manager performs Fund
accounting services and charged $29,201 during the current period of
which $6,900 was payable as of September 30, 1996.
Raymond James & Associates, Inc. (the "Distributor") has advised the
Fund that it received $17,353 in front end sales charges and $150 in
contingent deferred sales charges for the twelve months ended September
30, 1996. From these fees, the Distributor paid commissions to
salespersons and incurred other distribution costs.
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 year ended September 30, 1996 $70,332 and
$2,265 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,
investment companies 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. For the year ended September 30, 1996, to reflect
reclassifications arising from permanent book/tax differences primarily
attributable to market discount, the Fund credited accumulated net
realized loss and debited undistributed net investment income $28,719.
As of September 30, 1996, the Fund has net tax basis capital loss carry
forwards of $7,246,344, 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), September 30, 2003
($2,492,779) and September 30, 2004 ($526,773).
10
<PAGE> 11
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Heritage Income Trust-Intermediate Government Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Heritage Income Trust-Intermediate
Government Fund (the "Fund") at September 30, 1996, and the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at
September 30, 1996 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
The financial statements of the Fund for the year ended September 30, 1995,
including the financial highlights for each of the periods indicated, were
audited by other independent accountants whose report dated November 27, 1995
expressed an unqualified opinion on those statements.
/s/ Price Waterhouse
PRICE WATERHOUSE LLP
Tampa, Florida
November 12, 1996
11
<PAGE> 12
Heritage Income Trust
Intermediate Government Fund
P.O. Box 33022
St. Petersburg, FL 33733
--------------------------------------------
Address Change Requested
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 11/96 (LOGO) Printed on recycled paper
[HERITAGE LOGO]
INTERMEDIATE
GOVERNMENT FUND
A MUTUAL FUND SEEKING
HIGH CURRENT INCOME CONSISTENT
WITH THE PRESERVATION OF CAPITAL
ANNUAL REPORT
and Investment Performance
Review for the Year Ended
SEPTEMBER 30, 1996
A member of the
Heritage Family of Mutual Funds(TM)
