<PAGE> 1
[HERITAGE
INCOME
TRUST
LOGO]
[pictures of people working and playing]
From Our Family to Yours: The Intelligent Creation of Wealth.
INTERMEDIATE GOVERNMENT FUND
HIGH YIELD BOND FUND
Semiannual Report
(Unaudited) and Investment Performance
Review for the Six-month Period Ended
March 31, 1997
[HERITAGE LOGO]
-----------------
INCOME TRUST (TM)
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<PAGE> 2
May 1, 1997
Dear Fellow Shareholders:
I am pleased to provide you with the semiannual report for the period ended
March 31, 1997 for the Intermediate Government Fund and the High Yield Bond
Fund, each a portfolio of Heritage Income Trust. While historically we have
provided these reports under separate cover, we are now combining these reports,
a process initiated with our recently combined prospectus updates. Because many
of our shareholders own both funds, we are able to reduce the volume of mail for
these investors while providing necessary investment information in a more
useful format. We hope you will let us know how you like these changes. Please
call us at 800-709-3863 with any comments you would like to share.
In the pages that follow, you will find portfolio commentaries from Peter
Wallace, portfolio manager for the Intermediate Government Fund, and Peter
Wilby, portfolio manager for the High Yield Bond Fund. These commentaries are
then followed by investment portfolios and financial information for these
funds. For the six-month period covered by this report, the A shares and C
shares of the Intermediate Government Fund delivered total returns of +1.51% and
+1.39%, respectively.* These returns are fractionally lower than the average of
+1.99% for comparable funds in the Lipper Intermediate Government Funds
category. Also, for this semiannual period, the A shares and C shares of the
High Yield Bond Fund returned +4.60% and +4.40%, respectively.* The average for
the Lipper High Current Yield Fund category was +4.39%. I hope you find Mr.
Wallace's and Mr. Wilby's comments instructive in understanding how your
portfolios have performed and currently are positioned.
On behalf of all of us at Heritage, thank you for your investments with us.
We look forward to serving your investment needs for years to come.
Sincerely,
/s/ STEPHEN G. HILL
Stephen G. Hill
President
- ---------------
* These returns are calculated without the imposition of front- or back-end
sales charges.
<PAGE> 3
May 1, 1997
Dear Shareholders:
The first six months of the Intermediate Government Fund's current fiscal
year, September 1996 to March 1997, have been characterized by a very volatile
bond market with yields generally rising throughout the period. During this
period, the A shares of your Fund produced a total return of 1.51%*, compared to
the Lehman Intermediate Government/Corporate Index return of 2.30%.
Inflation, the nemesis of bond investors, has been remarkably well-behaved,
rising from a 3.0% year-over-year rate to a 3.3% year-over-year rate in
December, only to fall to a 2.8% rate by the end of March. The downward movement
in inflation normally would have allowed bonds to fall in yield and increase in
price during the period. This was not to be the case as the Federal Reserve and
investors became increasingly concerned that slightly faster economic growth,
higher levels of employment and wages, and lower levels of unemployment may
combine to re-ignite the fires of inflation. In response to these fears, in
February the Federal Reserve Open Market Committee increased short-term interest
rates by 0.25% as a preemptive move against inflation.
It is clear from the Fed's actions that economic growth in excess of the
Fed's growth targets (2% to 2.5%) will not be tolerated. In effect, the central
bank is attempting to assure a slow down in growth and even lower levels of
price inflation in the future. We feel the Fed may, absent a sharp contraction
in growth, raise rates again to achieve their desired objective. Strategically,
we plan to maintain a portfolio duration similar to that of the Lehman
Intermediate Government/Corporate Index until we see indications of a slowing
economy and a better environment for bond prices.
The following graph shows the U.S. Treasury yield curve at September 30,
1996, December 31, 1996 and March 31, 1997. As you can see from the chart, rates
generally rose over the entire period, yet the longer end of the curve had
dropped sharply during the final quarter of 1996 and then rose sharply during
the first quarter of 1997. This exemplifies the market volatility experienced
during the semi-annual period.
CHART
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.
Portfolio Manager, Intermediate
Government Fund
- ---------------
* These returns are calculated without the imposition of front- or back-end
sales charges.
2
<PAGE> 4
May 1, 1997
Dear Shareholders:
The Heritage Income Trust-High Yield Bond Fund returned 4.60% on its A
shares for the six months ended March 31, 1997.* By comparison, the Salomon
Brothers High Yield Market Index rose 5.37% and the Lipper High Current Yield
Fund category gained 4.39%.
The high yield market performed very well over the last six months. While
the average market yield has remained nearly flat over that time period, spreads
to Treasuries have narrowed by nearly 30 basis points. This strong relative
performance continues to be fueled by large cash flows into mutual funds and a
robust economy, which has resulted in improving credit quality among issuers.
The high yield market did, however, experience a correction in mid-March
after the Federal Reserve Board raised interest rates. March experienced the
first monthly decline in the market during the last twelve months. This
correction appears to be short-lived as April's strong performance has almost
fully offset the prior month's loss.
The Heritage Income Trust-High Yield Bond Fund benefited from its
overweighting in single-B rated issues and its underweighting in CCC-rated bonds
during the last six months. Single-B rated issues outperformed the market by 44
basis points, while CCC-rated bonds underperformed the market by roughly 450
basis points.
The Fund increased its weighting in cyclical industries and currently
maintains a cyclical weighting in line with the Salomon Brothers High Yield
Market Index. While we slightly reduced our exposure to basic industries with
limited pricing flexibility, we substantially raised our exposure to the
manufacturing sector. The telecommunications allocation in the Fund was
significantly reduced over the past six months as we believe competition among
various new technologies may lead to credit problems across the industry. As
spreads in energy bonds widened, we moved from an underweighting to a neutral
weighting, since we believe the fundamentals of exploration and production
companies and drillers will remain strong.
During the last six months the Fund's performance was enhanced by
overweightings in manufacturing, food/beverages and retailing. In addition,
underweightings in telecommunications, gaming and paper benefited the portfolio
as these sectors lagged the market.
While we are positive on the high yield market because of good fundamentals
and reasonable technicals, we do not expect yield spreads for high yield bonds
to tighten relative to treasuries. The portfolio is positioned slightly more
cautiously versus six months ago. However, the Fund's overweighting in
single-B's reflects our view that this sector represents the best value in the
market.
Sincerely,
/s/ PETER J. WILBY
Peter J. Wilby
Managing Director
Salomon Brothers Asset Management Inc
Portfolio Manager, High Yield Bond
Fund
- ---------------
* These returns are calculated without the imposition of front- or back-end
sales charges.
3
<PAGE> 5
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
INTERMEDIATE GOVERNMENT FUND
INVESTMENT PORTFOLIO
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
--------- ---------- -----------
<C> <S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES--88.9%(A)
- ---------------------------------------------------------------------------------
U.S. TREASURIES--42.4%
- ---------------------------------------------------------------------------------
$1,500,000 U.S. Treasury Notes, 6.125%................................. 09/30/00 $ 1,474,220
1,000,000 U.S. Treasury Notes, 5.25%.................................. 01/31/01 952,813
1,000,000 U.S. Treasury Notes, 6.25%.................................. 04/30/01 983,125
1,000,000 U.S. Treasury Notes, 6.5%................................... 08/31/01 990,313
1,000,000 U.S. Treasury Notes, 6.25%.................................. 01/31/02 978,438
1,500,000 U.S. Treasury Notes, 6.5%................................... 10/15/06 1,452,187
-----------
Total U.S. Treasuries....................................... 6,831,096
-----------
U.S. GOVERNMENT AGENCIES--46.5%
- ---------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--17.5%
- ---------------------------------------------------------------------------------
1,887,040 Pool #351468, 30 year Pass-Through, 7.5%.................... 03/15/24 1,858,697
1,003,553 Pool #421756, 30 year Pass-Through, 7.0%.................... 08/15/26 956,520
-----------
2,815,217
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--15.2%
- ---------------------------------------------------------------------------------
1,461,674 Pool #362688, 15 year Pass-Through, 7.0%.................... 10/01/11 1,436,270
1,000,000 REMIC 1992-119 E, Sequential Class, 8.0%.................... 07/25/20 1,010,310
-----------
2,446,580
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION--13.8%
- ---------------------------------------------------------------------------------
155,109 REMIC, 1164 F PAC, 7.0%..................................... 03/15/05 155,258
242,191 REMIC, 1240 G PAC, 5.0%..................................... 01/15/16 241,399
28,985 REMIC, 16 C TAC, 10.0%...................................... 04/15/18 28,977
1,870,876 Pool #C80379, 30 year Pass-Through, 7.0%.................... 02/01/26 1,795,123
-----------
2,220,757
-----------
Total U.S. Government Agencies.............................. 7,482,554
-----------
Total U.S. Government and Agency Securities (cost
$14,725,772)................................................ 14,313,650
REPURCHASE AGREEMENT--10.3%(A)
- ---------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated March 31,
1997, @ 6.10%, to be repurchased at $1,655,280 on April 1, 1997, collateralized
by $1,648,713 United States Treasury Bonds, 7.25%, due May 15, 2016, (market
value $1,693,711 including interest) (cost $1,655,000)........................... 1,655,000
-----------
TOTAL INVESTMENT PORTFOLIO (COST $16,380,772)(B) 99.2%(A)........................ 15,968,650
OTHER ASSETS AND LIABILITIES, NET, 0.8%(A)....................................... 139,252
-----------
NET ASSETS, 100.0%(A)............................................................ $16,107,902
===========
</TABLE>
- -------------------
(a) Percentages are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is
substantially the same. Market value includes net unrealized depreciation of
$412,122 which consists of aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost of
$2,235 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value of $414,357.
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> 6
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HERITAGE INCOME TRUST-HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
--------- -------- ------
<C> <S> <C> <C>
DOMESTIC CORPORATE BONDS--88.9%(A)
- -------------------------------------------------------------------------------------------
AEROSPACE--1.2%
- -------------------------------------------------------------------------------------------
$500,000 UNC, Inc., 11.0%............................................ 06/01/06 $ 586,250
-----------
AUTO PARTS/EQUIPMENT--1.0%
- -------------------------------------------------------------------------------------------
500,000 Venture Holdings Trust, 9.75%............................... 04/01/04 470,000
-----------
BEVERAGES--1.1%
- -------------------------------------------------------------------------------------------
500,000 Stroh Brewery Company, 11.1%................................ 07/01/06 520,000
-----------
BROADCASTING--7.3%
- -------------------------------------------------------------------------------------------
375,000 Adelphia Communications Corporation, 12.5%.................. 05/15/02 394,687
500,000 Cablevision Systems Corporation, 10.50%..................... 05/15/16 503,750
500,000 Chancellor Radio Broadcasting, 9.375%....................... 10/01/04 497,500
500,000 Jacor Communications, Inc., 9.75%........................... 12/15/06 512,500
750,000 Marcus Cable Company, 0% to 6/15/00, 14.25% to maturity..... 12/15/05 521,250
500,000 SFX Broadcasting, Inc., 10.75%.............................. 05/15/06 522,500
500,000 Storer Communications, 10%.................................. 05/15/03 492,500
-----------
3,444,687
-----------
BUILDING--1.5%
- -------------------------------------------------------------------------------------------
850,000 Waxman Industries, Inc., 0% to 6/1/99, 12.75% to maturity... 06/01/04 709,750
-----------
CHEMICALS--2.5%
- -------------------------------------------------------------------------------------------
750,000 NL Industries, Inc., 0% to 10/15/98, 13.0% to maturity...... 10/15/05 675,000
500,000 Texas Petrochemicals, 11.125%............................... 07/01/06 525,000
-----------
1,200,000
-----------
CONGLOMERATES/DIVERSIFIED--2.1%
- -------------------------------------------------------------------------------------------
500,000 Jordan Industries, Inc., 10.375%............................ 08/01/03 497,500
500,000 Valcor, Inc., 9.625%........................................ 11/01/03 502,500
-----------
1,000,000
-----------
COSMETICS/TOILETRIES/DRUGS--3.8%
- -------------------------------------------------------------------------------------------
400,000 Anchor Advanced Products, Inc., 11.75%...................... 04/01/04 398,000
500,000 Remington Products, 11.0%................................... 05/15/06 415,000
750,000 Revlon Worldwide Corporation, Zero Coupon Bond.............. 03/15/01 470,625
500,000 Twin Laboratories, Inc., 10.25%............................. 05/15/06 512,500
-----------
1,796,125
-----------
DATA PROCESSING--1.1%
- -------------------------------------------------------------------------------------------
500,000 Alvey Systems, Inc., 11.375%................................ 01/31/03 512,500
-----------
ELECTRONICS/ELECTRIC--2.2%
- -------------------------------------------------------------------------------------------
500,000 Exide Electronics Group, Inc., 11.5%........................ 03/15/06 533,750
500,000 Rayovac Corporation, 10.25%................................. 11/01/06 520,000
-----------
1,053,750
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST-HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
MARCH 31, 1997
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
--------- -------- ------
<C> <S> <C> <C>
FINANCE--2.7%
- -------------------------------------------------------------------------------------------
$500,000 Airplane Pass Through Trust, Class "D", 10.875%............. 03/15/19 $ 554,298
250,000 Dollar Financial Group, Inc., 10.875%....................... 11/15/06 251,250
500,000 DVI, Inc., 9.875%........................................... 02/01/04 490,000
-----------
1,295,548
-----------
FOOD--2.7%
- -------------------------------------------------------------------------------------------
250,000 Americold Corporation, 12.875%.............................. 05/01/08 261,875
500,000 CFP Holdings, Inc., 11.625%................................. 01/15/04 510,000
500,000 Specialty Foods Acquisition Corporation, 10.25%............. 08/15/01 493,750
-----------
1,265,625
-----------
HOTELS/MOTELS/INNS--2.2%
- -------------------------------------------------------------------------------------------
500,000 HMH Properties, Inc., 9.50%................................. 05/15/05 514,375
500,000 Wyndham Hotel Corporation, 10.5%............................ 05/15/06 530,000
-----------
1,044,375
-----------
HOUSEHOLD PRODUCTS--1.1%
- -------------------------------------------------------------------------------------------
500,000 Shop Vac Corporation, 10.625%............................... 09/01/03 517,500
-----------
JEWELRY/SILVERWARE/TIME PIECES/CHINA--1.3%
- -------------------------------------------------------------------------------------------
550,000 Herff Jones, Inc., 11.0%.................................... 08/15/05 594,000
-----------
LEISURE/AMUSEMENT--3.7%
- -------------------------------------------------------------------------------------------
500,000 Majestic Star Casino, LLP, 12.75%........................... 05/15/03 532,500
500,000 Selmer Company, Inc., 11.0%................................. 05/15/05 545,000
250,000 Sun International Hotels, Ltd., 9.0%........................ 03/15/07 236,250
500,000 Trump Atlantic City, 11.25%................................. 05/01/06 462,500
-----------
1,776,250
-----------
MANUFACTURING/DISTRIBUTIONS--7.5%
- -------------------------------------------------------------------------------------------
500,000 Clark-Schwebel, Inc., 10.5%................................. 04/15/06 525,000
500,000 Foamex, L.P., 11.875%....................................... 10/01/04 538,750
500,000 Hines Horticulture, Inc., 11.75%............................ 10/15/05 537,500
333,000 Samsonite Corporation, 11.125%.............................. 07/15/05 372,960
500,000 Specialty Equipment Companies, Inc., 11.375%................ 12/01/03 543,750
500,000 Talley Manufacturing & Technology, Inc., 10.75%............. 10/15/03 515,000
500,000 Terex Corporation, 13.75%................................... 05/15/02 545,000
-----------
3,577,960
-----------
MEDICAL EQUIPMENT/SUPPLY--3.2%
- -------------------------------------------------------------------------------------------
500,000 Fresenius Medical Care, 9.0%................................ 12/01/06 500,000
500,000 Maxxim Medical, Inc., 10.5%................................. 08/01/06 507,500
500,000 Packard Bioscience, 9.375%.................................. 03/01/07 489,375
-----------
1,496,875
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 8
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST-HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
MARCH 31, 1997
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
--------- -------- ------
<C> <S> <C> <C>
METAL--2.1%
- -------------------------------------------------------------------------------------------
$500,000 Envirosource, Inc., 9.75%................................... 06/15/03 $ 480,000
500,000 Renco Metals Inc., 11.5%.................................... 07/01/03 520,000
-----------
1,000,000
-----------
OFFICE EQUIPMENT--0.5%
- -------------------------------------------------------------------------------------------
250,000 Pen-Tab Industries, Inc., 10.875%........................... 02/01/07 254,375
-----------
OIL & GAS--6.7%
- -------------------------------------------------------------------------------------------
130,000 Benton Oil & Gas Company, 11.625%........................... 05/01/03 141,050
500,000 Cliffs Drilling Company, 10.25%............................. 05/15/03 515,000
500,000 Costilla Energy, Inc., 10.25%............................... 10/01/06 507,500
250,000 Cross Timbers Oil Company, 9.25%............................ 04/01/07 244,375
500,000 Dawson Production Services, Inc., 9.375%.................... 02/01/07 492,500
500,000 Forest Oil Corporation, 11.25%.............................. 09/01/03 526,250
500,000 National Energy Group, Inc., 10.75%......................... 11/01/06 500,000
250,000 Parker Drilling Company, 9.75%.............................. 11/15/06 256,250
-----------
3,182,925
-----------
PAPER/PRODUCTS--2.0%
- -------------------------------------------------------------------------------------------
250,000 Crown Paper Company, 11.0%.................................. 09/01/05 230,625
250,000 Fonda Group, Inc., 9.5%..................................... 03/01/07 233,750
500,000 Four M Corporation, 12.0%................................... 06/01/06 498,750
-----------
963,125
-----------
PET & SUPPLIES--1.1%
- -------------------------------------------------------------------------------------------
500,000 Doane Products Company, 10.625%............................. 03/01/06 520,000
-----------
PLASTIC/PRODUCTS--2.3%
- -------------------------------------------------------------------------------------------
500,000 Berry Plastics Corporation, 12.25%.......................... 04/15/04 550,000
500,000 Plastic Specialties and Technologies, Inc., 11.25%.......... 12/01/03 542,500
-----------
1,092,500
-----------
PUBLISHING--1.1%
- -------------------------------------------------------------------------------------------
500,000 American Media Operation, Inc., 11.625%..................... 11/15/04 540,000
-----------
RETAIL STORES--10.7%
- -------------------------------------------------------------------------------------------
250,000 Big V Supermarkets, Inc., 11.0%............................. 02/15/04 241,875
500,000 Carr-Gottstein Foods Company, 12.0%......................... 11/15/05 537,500
500,000 Cole National Group, 9.875%................................. 12/31/06 507,500
250,000 CSK Auto Inc., 11.0%........................................ 11/01/06 260,000
500,000 Eye Care Centers, 12.0%..................................... 10/01/03 537,500
1,000,000 Finlay Enterprises, Inc., 0% to 5/1/98, 12% to maturity..... 05/01/05 920,000
500,000 Hills Stores Company, 12.5%................................. 07/01/03 423,750
500,000 Jitney Jungle Stores, 12.0%................................. 03/01/06 530,000
500,000 Smiths Food & Drug, Inc., 11.25%............................ 05/15/07 548,750
500,000 Specialty Retail, 11.00%.................................... 08/15/03 530,000
-----------
5,036,875
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 9
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST-HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
MARCH 31, 1997
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
--------- -------- ------
<C> <S> <C> <C>
SERVICES--5.3%
- -------------------------------------------------------------------------------------------
$500,000 Borg-Warner Security Corporation, 9.125%.................... 05/01/03 $ 490,000
500,000 Iron Mountain, Inc., 10.125%................................ 10/01/06 515,000
400,000 Loomis Fargo & Company, 10.0%............................... 01/15/04 396,000
500,000 Norcal Waste Systems, Inc., 13.0%........................... 11/15/05 550,000
500,000 Pierce Leahy Corporation, 11.125%........................... 07/15/06 547,500
-----------
2,498,500
-----------
TELECOMMUNICATIONS--6.3%
- -------------------------------------------------------------------------------------------
1,000,000 Comcast Cellular Corporation, Series "A", Zero Coupon
Bond........................................................ 03/05/00 735,000
1,000,000 Intermedia Communications of Florida, 0% to 5/15/01, 12.5%
to maturity................................................. 05/15/06 635,000
1,000,000 International CableTel, Inc., 0% to 2/1/01, 11.5% to
maturity.................................................... 02/01/06 621,250
500,000 Nextlink Communications, 12.5%.............................. 04/15/06 505,000
500,000 Western Wireless Corporation, 10.5%......................... 06/01/06 488,750
-----------
2,985,000
-----------
TRANSPORTATION--1.5%
- -------------------------------------------------------------------------------------------
500,000 Central Transport, 9.5%..................................... 04/30/03 472,500
250,000 Ryder TRS, Inc., 10.0%...................................... 12/01/06 250,000
-----------
722,500
-----------
UTILITIES-ELECTRIC--1.1%
- -------------------------------------------------------------------------------------------
500,000 El Paso Electric Company, 9.4%.............................. 05/01/11 535,795
-----------
Total domestic corporate bonds (cost $41,520,893)........... 42,192,790
-----------
FOREIGN BONDS--5.3%(A)(C)
- -------------------------------------------------------------------------------------------
AUTO PARTS/EQUIPMENT--1.1%
- -------------------------------------------------------------------------------------------
500,000 Speedy Muffler King, Inc., 10.875%.......................... 10/01/06 516,250
-----------
BROADCASTING--1.2%
- -------------------------------------------------------------------------------------------
1,000,000 Diamond Cable, 0% to 12/15/00, 11.75% to maturity........... 12/15/05 647,500
-----------
MANUFACTURING/DISTRIBUTIONS--0.9%
- -------------------------------------------------------------------------------------------
750,000 Semi-Tech Corporation, 0% to 8/15/00, 11.5% to maturity..... 08/15/03 408,750
-----------
PAPER/PRODUCTS--1.0%
- -------------------------------------------------------------------------------------------
500,000 Doman Industries, Ltd., 8.75%............................... 03/15/04 470,000
-----------
STEEL/IRON--1.1%
- -------------------------------------------------------------------------------------------
500,000 Algoma Steel, Inc., 12.375%................................. 07/15/05 533,750
-----------
Total foreign bonds (cost $2,658,538)....................... 2,576,250
-----------
FOREIGN CONVERTIBLE BONDS--1.1%(A)(C)
- -------------------------------------------------------------------------------------------
PUBLISHING--1.1%
- -------------------------------------------------------------------------------------------
1,500,000 Hollinger, Inc., Zero Coupon Bond........................... 10/05/13 536,250
-----------
Total foreign convertible bonds (cost $514,675)............. 536,250
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 10
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST-HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
MARCH 31, 1997
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----------
<C> <S> <C> <C>
WARRANTS--0.2%(A)
- -------------------------------------------------------------------------------------------
MANUFACTURING/DISTRIBUTIONS--0.1%
- -------------------------------------------------------------------------------------------
2,000 Terex Corporation*.......................................... $ 10,000
-----------
MEDICAL EQUIPMENT/SUPPLY--0.1%
- -------------------------------------------------------------------------------------------
206 Wright Medical Technology, Inc.*............................ 24,706
-----------
Total warrants (cost $4,040)................................ 34,706
-----------
Total investment portfolio excluding repurchase agreement (cost $44,698,146)..... 45,339,996
REPURCHASE AGREEMENT--3.0%(A)
- ---------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated March 31,
1997, @ 6.10%, to be repurchased at $1,425,241 on April 1, 1997, collateralized
by $1,417,491 United States Treasury Bonds, 7.25%, due May 15, 2016, (market
value $1,456,178 including interest) (cost $1,425,000)........................... 1,425,000
-----------
TOTAL INVESTMENT PORTFOLIO (COST $46,123,146)(B) 98.5%(A)........................ 46,764,996
OTHER ASSETS AND LIABILITIES, NET, 1.5%(A)....................................... 725,820
-----------
NET ASSETS, 100.0%............................................................... $47,490,816
===========
</TABLE>
- -------------------
* Non-income producing.
(a) Percentages are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is
substantially the same. Market value includes net unrealized appreciation of
$641,850, which consists of aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost of
$1,300,731 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value of $658,881.
(c) Denominated in US dollars.
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 11
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE HIGH YIELD
GOVERNMENT FUND BOND FUND
--------------- -----------
<S> <C> <C>
Assets
- ------------------------------------------------------------
Investments, at market value (identified cost $14,725,772
and $44,698,146, respectively) (Note 1)................... $14,313,650 $45,339,996
Repurchase agreement (identified cost $1,655,000 and
$1,425,000, respectively) (Note 1)........................ 1,655,000 1,425,000
Cash........................................................ 3,821 3,251
Receivables:
Investments sold.......................................... 7,801 523,800
Fund shares sold.......................................... 10,000 126,132
From Manager.............................................. 22,924 --
Dividends and interest.................................... 142,591 1,204,865
Deferred state registration expenses (Note 1)............... 13,084 13,399
----------- -----------
Total Assets........................................ $16,168,871 $48,636,443
----------- -----------
Liabilities
- ------------------------------------------------------------
Payables (Note 4):
Investments purchased..................................... $ -- $ 903,445
Fund shares redeemed...................................... 10,941 130,976
Accrued management fee.................................... -- 38,569
Accrued distribution fee.................................. 4,791 17,758
Other accrued expenses.................................... 45,237 54,879
----------- -----------
Total Liabilities................................... 60,969 1,145,627
----------- -----------
Net assets, at market value................................. $16,107,902 $47,490,816
=========== ===========
Net Assets
- ------------------------------------------------------------
Net assets consist of:
Paid-in capital........................................... $23,137,667 $48,018,974
Undistributed net investment income (Note 1).............. 717,235 315,811
Accumulated net realized loss (Notes 1 and 5)............. (7,334,878) (1,485,819)
Net unrealized appreciation (depreciation) on
investments............................................. (412,122) 641,850
----------- -----------
Net assets, at market value................................. $16,107,902 $47,490,816
=========== ===========
Net assets, at market value
Class A Shares............................................ $15,369,670 $35,711,535
Class C Shares............................................ 738,232 11,779,281
----------- -----------
Total............................................... $16,107,902 $47,490,816
=========== ===========
Shares of beneficial interest outstanding
Class A Shares............................................ 1,715,401 3,485,972
Class C Shares............................................ 82,608 1,154,432
----------- -----------
Total............................................... 1,798,009 4,640,404
=========== ===========
Net Asset Value -- offering and redemption price per share
(Notes 1 and 2)
Class A Shares............................................ $8.96 $10.24
====== =====
Maximum offering price per share (100/96.25 of $8.96 and
$10.24, respectively).................................. $9.31 $10.64
====== =====
Class C Shares............................................ $8.94 $10.20
====== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 12
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE HIGH YIELD
GOVERNMENT FUND BOND FUND
--------------- ----------
<S> <C> <C>
Investment Income
- ------------------------------------------------------------
Income:
Interest.................................................. $ 568,348 $2,270,189
Expenses (Notes 1 and 4):
Management fee............................................ 43,318 135,374
Distribution fee (Class A Shares)......................... 27,593 53,932
Distribution fee (Class C Shares)......................... 2,277 41,545
Professional fees......................................... 22,944 24,944
Custodian/Fund accounting fees............................ 18,130 24,607
Amortization of state registration expenses............... 13,321 13,223
Reports to shareholders................................... 6,878 11,014
Shareholder servicing fees................................ 6,144 10,927
Trustees' fees and expenses............................... 4,131 4,131
Insurance................................................. 2,006 2,006
Other..................................................... 1,351 8,996
--------- ----------
Total expenses before waiver and reimbursement.......... 148,093 330,699
Fees waived by Manager (Note 4)......................... (43,318) (31,984)
Reimbursement from Manager.............................. (22,924) --
--------- ----------
Total expenses after waiver and reimbursement........... 81,851 298,715
Net investment income....................................... $ 486,497 $1,971,474
--------- ----------
Realized and Unrealized Gain (Loss) on Investments
- ------------------------------------------------------------
Net realized loss from investment transactions.............. (88,534) (35,424)
Net increase (decrease) in unrealized appreciation of
investments during the period............................. (112,439) 77,642
--------- ----------
Net gain (loss) on investments...................... (200,973) 42,218
--------- ----------
Net increase in net assets resulting from operations........ $ 285,524 $2,013,692
========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 13
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED FOR THE YEAR
MARCH 31, 1997 ENDED
(UNAUDITED) SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
INTERMEDIATE GOVERNMENT FUND
- ------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 486,497 $ 1,143,431
Net realized gain (loss) investment transactions.......... (88,534) 109,860
Net decrease in unrealized appreciation of investments
during the period....................................... (112,439) (549,553)
----------- -----------
Net increase in net assets resulting from operations...... 285,524 703,738
Distributions to shareholders from:
Net investment income Class A Shares, ($0.26 and $0.50 per
share, respectively).................................... (475,388) (1,148,575)
Net investment income Class C Shares, ($0.25 and $0.49 per
share, respectively).................................... (20,102) (18,913)
Decrease in net assets from Fund share transactions (Note
2)........................................................ (1,798,133) (5,986,251)
----------- -----------
Decrease in net assets...................................... (2,008,099) (6,450,001)
Net assets, beginning of period............................. 18,116,001 24,566,002
----------- -----------
Net assets, end of period (including undistributed net
investment income of $717,235 and $726,228,
respectively)............................................. $16,107,902 $18,116,001
=========== ===========
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED
MARCH 31, 1997 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
HIGH YIELD BOND FUND
- ------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 1,971,474 $ 2,803,774
Net realized gain (loss) on investment transactions....... (35,424) 970,631
Net increase (decrease) in unrealized appreciation of
investments during the period........................... 77,642 (58,735)
----------- -----------
Net increase in net assets resulting from operations...... 2,013,692 3,715,670
Distributions to shareholders from:
Net investment income Class A Shares, ($0.44 and $0.80 per
share, respectively).................................... (1,485,299) (2,445,168)
Net investment income Class C Shares, ($0.42 and $0.76 per
share, respectively).................................... (415,931) (222,208)
Increase in net assets from Fund share transactions (Note
2)........................................................ 7,771,551 7,911,842
----------- -----------
Increase in net assets...................................... 7,884,013 8,960,136
Net assets, beginning of period............................. 39,606,803 30,646,667
----------- -----------
Net assets, end of period (including undistributed net
investment income of $315,811 and $245,567
respectively)............................................. $47,490,816 $39,606,803
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE> 14
- --------------------------------------------------------------------------------
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 SIX FOR THE SIX FOR THE YEARS
MONTH PERIOD MONTH PERIOD ENDED
ENDED FOR THE YEARS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
MARCH 31, 1997* ------------------------------------------ MARCH 31, 1997* ---------------
(UNAUDITED) 1996* 1995 1994* 1993 1992 (UNAUDITED) 1996* 1995+
--------------- ------ ------ ------ ------ ------ --------------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD..................... $ 9.08 $ 9.29 $ 9.10 $ 9.44 $ 9.84 $10.00 $ 9.06 $ 9.27 $ 9.05
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(a)... 0.26 0.50 0.62 0.43 0.59 0.52 0.25 0.49 0.21
Net realized and unrealized
gain (loss) on
investments.............. (0.12) (0.21) 0.12 (0.40) (0.44) 0.10 (0.12) (0.21) 0.23
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations............... 0.14 0.29 0.74 0.03 0.15 0.62 0.13 0.28 0.44
------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income........ (0.26) (0.50) (0.55) (0.37) (0.52) (0.55) (0.25) (0.49) (0.22)
Distributions from net
realized gains........... -- -- -- -- (0.03) (0.23) -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions........ (0.26) (0.50) (0.55) (0.37) (0.55) (0.78) (0.25) (0.49) (0.22)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD..................... $ 8.96 $ 9.08 $ 9.29 $ 9.10 $ 9.44 $ 9.84 $ 8.94 $ 9.06 $ 9.27
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(D).......... 1.51(c) 3.24 8.47 0.36 1.58 6.47 1.39(c) 3.04 4.90(c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average daily net
assets(a)................ 0.93(b) 0.94 0.95 0.95 0.91 0.78 1.20(b) 1.20 1.20(b)
Net investment income to
average daily net
assets................... 5.63(b) 5.42 5.50 4.60 5.99 5.66 5.37(b) 5.22 5.19(b)
Portfolio turnover rate.... 35(c) 135 162 214 150 123 35(c) 135 162
Net assets, end of period
($ millions)............. 15 18 24 41 102 111 1 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 periods
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 $.03, $.06, $.06, $.03, $.01 and $.02 per Class A Share,
respectively. The operating expense ratios including such items would have
been 1.70% (annualized), 1.61%, 1.47%, 1.18%, 1.03% and 1.23% for Class A
Shares, respectively. Excludes management fees waived and expenses
reimbursed by the Manager in the amount of $.03, $.06 and $.06 per Class C
Share, respectively. The operating expense ratio including such items would
have been 1.97% (annualized), 1.87% and 1.72% (annualized) for Class C
Shares, 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.
13
<PAGE> 15
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST-HIGH YIELD BOND 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 SIX FOR THE SIX FOR THE YEARS
MONTH PERIOD MONTH PERIOD ENDED
ENDED FOR THE YEARS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
MARCH 31, 1997* ------------------------------------------ MARCH 31, 1997* ---------------
(UNAUDITED) 1996 1995 1994 1993 1992 (UNAUDITED) 1996 1995+
--------------- ------ ------ ------ ------ ------ --------------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF THE
PERIOD................. $10.22 $ 9.94 $ 9.65 $10.65 $10.82 $10.29 $10.18 $ 9.91 $ 9.62
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income(a)............ 0.46 0.84(e) 0.72 0.69 0.81 0.83 0.44 0.79(e) 0.31
Net realized and
unrealized gain
(loss) on
investments.......... -- 0.24 0.31 (0.84) 0.07 0.59 -- 0.24 0.28
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations........... 0.46 1.08 1.03 (0.15) 0.88 1.42 0.44 1.03 0.59
------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income.... (0.44) (0.80) (0.74) (0.71) (0.83) (0.85) (0.42) (0.76) (0.30)
Distributions from net
realized gains....... -- -- -- (0.07) (0.22) (0.04) -- -- --
Distribution in excess
of net realized
gains................ -- -- -- (0.07) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions.... (0.44) (0.80) (0.74) (0.85) (1.05) (0.89) (0.42) (0.76) (0.30)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
THE PERIOD............. $10.24 $10.22 $ 9.94 $ 9.65 $10.65 $10.82 $10.20 $10.18 $ 9.91
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(D)...... 4.60(c) 11.44 11.23 (1.59) 8.57 14.35 4.40(c) 10.93 6.18(c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses,
net, to average daily
net assets(a)........ 1.21(b) 1.23 1.25 1.25 1.19 0.96 1.70(b) 1.70 1.70(b)
Net investment income
to average daily net
assets............... 8.85(b) 8.41 7.35 6.76 7.57 8.11 8.36(b) 8.39 6.67(b)
Portfolio turnover
rate................. 45(c) 143 109 135 150 71 45(c) 143 109
Net assets, end of the
period
($ millions)......... 36 33 30 36 42 32 12 6 0.6
</TABLE>
- ---------------
* Per share amounts have been calculated using the monthly average share
method, which more appropriately presents per share data for the period
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 $.01, $.03, $.03, $.02, $.02 and $.05 per Class A Share,
respectively. The operating expense ratios including such items would have
been 1.36% (annualized), 1.51%, 1.51%, 1.42%, 1.43% and 1.60% for Class A
Shares, respectively. Excludes management fees waived by the Manager in the
amount of $.01, $0.03 and $0.03 per Class C Share, respectively. The
operating expense ratio including such items would have been 1.85%
(annualized), 1.98% and 1.96% (annualized) for Class C Shares, respectively.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
(e) Amounts calculated prior to reclassification of $16,079 as described in Note
5. The effect of such reclassification would have resulted in an increase in
net investment income of $.01 for Class A Shares and $0.01 for Class C
shares.
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 16
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
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 (formerly known as the
Limited Maturity Government Portfolio) and the High Yield Bond Fund
(formerly known as the Diversified Portfolio) (each, a "Fund"). The
Trust has an investment objective of high current income. The Trust
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.
Security Valuation: Each 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 the interest receivable or discount
earned, approximates market.
Repurchase Agreements: Each Fund enters into repurchase agreements
whereby a 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: Each Fund is treated as a single corporate
taxpayer as provided for in The Tax Reform Act of 1986, as amended. A
Fund 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.
Distribution of Income and Gains: Distributions of net investment
income are made monthly. Net realized gains from investment
transactions for each Fund during any particular year in excess of
available capital loss carryforwards, which, if not distributed, would
be taxable to each Fund, will be distributed to shareholders in the
following fiscal year. Each Fund uses the identified cost method for
determining realized gain or loss on investments for both financial and
federal income tax reporting purposes.
Expenses: Each Fund is charged for those expenses that 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
Trust. Expenses of each 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. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Interest income is recorded on
the accrual basis except when income is not expected. All original
issue discounts are accreted for both federal income tax and financial
reporting purposes.
15
<PAGE> 17
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
Note 2: FUND SHARES: At March 31, 1997, there was an unlimited number of shares
of beneficial interest of no par value authorized.
Transactions in Class A Shares of the Intermediate Government Fund
during the six month period ended March 31, 1997 and for the year
ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT FUND
----------------------------------------------------
FOR THE SIX MONTH
PERIOD ENDED
MARCH 31, 1997 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
CLASS A SHARES
---------------------------------------------------------
Shares sold.............................................. 11,231 $ 102,415 116,103 $ 1,074,406
Shares issued on reinvestment of distributions........... 45,486 415,462 107,141 986,398
Shares redeemed.......................................... (271,742) (2,482,972) (929,766) (8,580,559)
--------- ----------- --------- -----------
Net decrease............................................. (215,025) $(1,965,095) (706,522) $(6,519,755)
=========== ===========
Shares outstanding:
Beginning of period.................................... 1,930,426 2,636,948
--------- ---------
End of period.......................................... 1,715,401 1,930,426
========= =========
</TABLE>
Transactions in Class C Shares of the Intermediate Government Fund
during the six month period ended March 31, 1997 and for the year
ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT FUND
------------------------------------------
FOR THE SIX MONTH
PERIOD ENDED
MARCH 31, 1997 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996
-------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------ --------
<S> <C> <C> <C> <C>
CLASS C SHARES
------------------------------------------------------------
Shares sold................................................. 32,943 $ 301,212 60,267 $559,648
Shares issued on reinvestment of distributions.............. 2,173 19,794 2,016 18,326
Shares redeemed............................................. (17,083) (154,044) (4,889) (44,470)
------- --------- ------ --------
Net increase................................................ 18,033 $ 166,962 57,394 $533,504
========= ========
Shares outstanding:
Beginning of period....................................... 64,575 7,181
------- ------
End of period............................................. 82,608 64,575
======= ======
</TABLE>
Transactions in Class A Shares of the High Yield Bond Fund during the
six month period ended March 31, 1997 and for the year ended
September 30, 1996 were as follows:
<TABLE>
<CAPTION>
HIGH YIELD BOND FUND
---------------------------------------------------
FOR THE SIX MONTH
PERIOD ENDED
MARCH 31, 1997 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
CLASS A SHARES
-----------------------------------------------------------
Shares sold................................................ 555,082 $ 5,707,222 941,230 $ 9,377,232
Shares issued on reinvestment of distributions............. 106,379 1,090,071 182,955 1,816,780
Shares redeemed............................................ (418,641) (4,304,665) (899,859) (8,961,434)
--------- ----------- --------- -----------
Net increase............................................... 242,280 $ 2,492,628 224,326 $ 2,232,578
=========== ===========
Shares outstanding:
Beginning of period...................................... 3,243,152 3,018,826
--------- ---------
End of period............................................ 3,485,972 3,243,152
========= =========
</TABLE>
16
<PAGE> 18
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
Transactions in Class C Shares of the High Yield Bond Fund during the
six month period ended March 31, 1997 and for the year ended
September 30, 1996 were as follows:
<TABLE>
<CAPTION>
HIGH YIELD BOND FUND
------------------------------------------------
FOR THE SIX MONTH
PERIOD ENDED
MARCH 31, 1997 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996
------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
CLASS C SHARES
------------------------------------------------------------
Shares sold................................................. 697,281 $ 7,120,808 583,520 $5,800,648
Shares issued on reinvestment of distributions.............. 35,638 363,818 18,399 182,291
Shares redeemed............................................. (214,642) (2,205,703) (30,547) (303,675)
--------- ----------- ------- ----------
Net increase................................................ 518,277 $ 5,278,923 571,372 $5,679,264
=========== ==========
Shares outstanding:
Beginning of period....................................... 636,155 64,783
--------- -------
End of period............................................. 1,154,432 636,155
========= =======
</TABLE>
Note 3: PURCHASES AND SALES OF SECURITIES. For the period ended March 31, 1997,
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> <C>
Intermediate Government Fund................. $5,583,094 $7,581,328 $581,534 -- --
High Yield Bond Fund......................... -- -- $67,142 $26,496,353 $19,088,078
</TABLE>
Note 4: MANAGEMENT, SUBADVISORY, DISTRIBUTION, SHAREHOLDER SERVICING AGENT AND
TRUSTEES' FEES.
INTERMEDIATE GOVERNMENT FUND
-----------------------------------
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. From
inception of the Fund, the Manager has reduced its investment advisory
fees and reimbursed the Fund to the extent that total 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. Under this agreement, management fees of $43,318 were waived
and $22,924 of expenses were reimbursed for the period ended March 31,
1997. If total Fund expenses fall below the expense limitation agreed
to by the Manager before the end of the year ending September 30, 1999,
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 $146,658 and
$105,455 for the years ended September 30, 1995 and September 30, 1996,
respectively, if total Fund expenses fall below the annual expense
limitations before the end of the years ending September 30, 1997 and
September 30, 1998, respectively.
HIGH YIELD BOND FUND
----------------------------
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 Fund's average daily net assets, and 0.50% of any
excess over $100,000,000 of such net assets, computed daily and payable
monthly. 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 .85% to 1.35% of
average daily net assets. Effective April 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 1.25% for
Class A Shares (1.70% 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. Under this agreement, management fees of $31,984
were waived for the period ended March 31, 1997. If total Fund expenses
fall below the expense limitation agreed to by the Manager before the
end of the year ending September 30, 1999, 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
17
<PAGE> 19
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HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
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the Manager a portion or all of the management fees waived of $83,663
and $94,308 for the years ended September 30, 1995 and September 30,
1996, respectively, if total Fund expenses fall below the annual
expense limitations before the end of the years ending September 30,
1997 and September 30, 1998, respectively.
Effective February 1, 1996, the Manager entered into an agreement with
Salomon Brothers Asset Management Inc. (the "Subadviser") for the
Subadviser to provide to the Fund 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 50% of the fees payable by the Fund to the Manager without
regard to any reduction due to the imposition of expense limitations.
From March 1, 1990 (commencement of operations) through January 31,
1996, Eagle Asset Management, Inc., a wholly owned subsidiary of
Raymond James Financial, Inc., was subadviser to the Fund.
The Manager also is the Dividend Paying and Shareholder Servicing Agent
for the Intermediate Government Fund and High Yield Bond Fund. The
amount payable to the Manager for such expenses as of March 31, 1997
was $3,600 and $4,800, respectively. In addition, the Manager
performs Fund accounting services and charged $13,754 and $15,744
during the current period of which $6,900 and $5,300 was payable as of
March 31, 1997, respectively.
INTERMEDIATE GOVERNMENT FUND
-----------------------------------
Raymond James & Associates, Inc. (the "Distributor") has advised the
Trust that it received $3,544 in front-end sales charges and $983 in
contingent deferred sales charges for the six months ended March 31,
1997. The Distributor paid commissions to salespersons and from these
fees 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 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. Such fees are accrued
daily and payable monthly. During the period ended March 31, 1997,
$27,593 and $2,277 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.
HIGH YIELD BOND FUND
----------------------------
The Distributor has advised the Trust that it received $104,439 in
front end sales charges and $915 in contingent deferred sales charges
for the six months ended March 31, 1997. The Distributor paid
commissions to salespersons and from these fees 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 .80% of the average daily net assets for
Class C Shares. Such fees accrued daily and payable monthly. During the
period ended March 31, 1997, $53,932 and $41,545 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.
INTERMEDIATE GOVERNMENT FUND
-----------------------------------
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).
18
<PAGE> 20
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HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND
----------------------------
For the year ended September 30, 1996, to reflect reclassifications
arising from permanent book/tax differences primarily attributable to
market discount, the Fund credited undistributed net investment income
$16,079, and debited paid in capital $2,267 and accumulated net
realized loss $13,812. As of September 30, 1996, the Fund had a net tax
basis capital loss carryforward of $1,450,395, which may be applied
against any realized net taxable gains until its expiration dates of
September 30, 2003, ($1,402,139) and September 30, 2004, ($48,256).
19
<PAGE> 21
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<PAGE> 22
HERITAGE FAMILY OF FUNDS (TM)
From Our Family to Yours: The Intelligent Creation of Wealth.
HERITAGE MONEY MARKET FUNDS
Cash Trust Money Market
Cash Trust Municipal Money Market
HERITAGE BOND FUNDS
Intermediate Government
High Yield
HERITAGE STOCK FUNDS
Income-Growth
Value Equity
Growth Equity
Capital Appreciation
Small Cap
International
This report is for the information of shareholders of Heritage Income Trust-
Intermediate Government Fund and Heritage Income Trust-High Yield Bond Fund.
It may also be used as sales literature when preceded or accompanied by a
prospectus.
(C)1997 Heritage Asset Management, Inc.
4.5M 3/97 [RECYCLE LOGO] Printed on recycled paper
[HERITAGE LOGO] Heritage Income Trust
P.O. Box 33022
St. Petersburg, FL 33733
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Address Change Requested
