<PAGE> 1
[HERITAGE
INCOME
TRUST
LOGO]
[pictures of people working and playing]
From Our Family to Yours: The Intelligent Creation of Wealth.
Semiannual Report
(unaudited) and Investment Preformance
Review For the Six Month Period Ended
March 31, 1998
[HERITAGE LOGO]
-----------------
INCOME TRUST(TM)
-----------------
<PAGE> 2
May 11, 1998
Dear Fellow Shareholders:
I am pleased to provide you with the semiannual report for the period ended
March 31, 1998 for the Intermediate Government Fund and the High Yield Bond Fund
(the "Funds"), each a portfolio of Heritage Income Trust. Continuing with the
approach we began last year, we are providing these reports under the same
cover, allowing us to reduce the volume of mail for investors who own both of
these Funds. Please call us at 800-709-3863 to let us know how you like this
approach or with any other 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
each followed by the investment portfolio for the respective Fund. The financial
information for both Funds then follows. For the six month period covered by
this report, the A shares and C shares of the Intermediate Government Fund
delivered total returns of +3.54% and +3.32%, respectively.* These returns are
fractionally lower than the average of +3.74% for comparable funds in the
Morningstar Intermediate Government Funds category. Also, for this semiannual
period, the A shares and C shares of the High Yield Bond Fund returned +4.27%
and +4.04%, respectively.* The average for the Morningstar High Current Yield
Fund category was 5.39%. In both cases, we took a slightly more conservative
approach than many of our peers, leading to slight underperformance in the
recent period. I hope you find Mr. Wallace's and Mr. Wilby's comments
instructive in better understanding how your portfolios have performed and
currently are positioned.
On February 2, 1998 both Funds introduced class B shares. From their
inception through March 31, 1998 the B shares of the Intermediate Government
Fund and the High Yield Bond Fund returned -0.01% and +1.34%, respectively.*
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.
<TABLE>
<S> <C>
Sincerely,
/s/ STEPHEN G. HILL
Stephen G. Hill
President
</TABLE>
- ---------------
* These returns are calculated without the imposition of either front- or
back-end sales charges.
<PAGE> 3
May 14, 1998
Dear Fellow Shareholders:
During the six-month period ended March 31, 1998, the Intermediate
Government Fund's "A" shares returned a respectable +3.54%* after expenses. By
comparison, the Lehman Intermediate Government/ Corporate Index returned +3.73%
for the same period.
Interest rates generally fell during the period, with long-term Treasury
bond yields falling from 6.40% to 5.93%, some 47 basis points. The intermediate
sector of the yield curve also fell in yield but by a lesser extent, with the
five year Treasury declining only by 37 basis points to 5.61% from 5.98% at the
end of September. Because of the relatively high level of Federal Funds, the
very short end of the Treasury yield curve was little changed over the period.
The following yield curve chart graphically depicts the changes in U.S.
Government Bond Yields over the period:
Chart
The decline in interest rates reflected an economy that remained relatively
strong but with significantly lower inflation or "disinflation", on the Consumer
Price Index, and falling prices or "deflation" on the Producer Price Index.
The strength in the economy and the low levels of inflation, provided much
unrest within the domestic fixed income markets and within the Federal Open
Market Committee. In the fall and winter, there was a general perception that
the economy would slow, eventually leading the Fed to ease. However, just after
the turn of the year, market perceptions changed to anticipate a steady to
tighter Fed policy rather than an easing. Consequently, yields bottomed out and
then rose slightly from that point.
During the period, your Fund's investments consisted primarily of
intermediate term U.S. Treasury securities, approximately 70.4% of total net
assets on March 31, 1998. The emphasis on Treasury securities was designed to
improve net asset value performance given falling interest rates. The Fund's
performance would have been even better had a greater percentage of assets been
committed to the longer sector of the intermediate Treasury market. Mortgage
securities investments, consisting of mortgage pass-through securities and a
sequential class collateralized mortgage obligation bond, represented
approximately 25.8% of total net assets on March 31. These positions helped to
increase the level of income production.
Continued uncertainty over the impact of the Asian crisis and the strength
of the domestic economy have again raised concerns about the possibility of the
Federal Reserve raising short term interest rates to slow a strong economy. We
currently believe market conditions warrant a conservative approach to the fixed
income
- ---------------
* These returns are calculated without the imposition of either front- or
back-end sales charges.
2
<PAGE> 4
markets. Longer term however, we remain quite bullish on the prospects for lower
inflation, a weaker economy and improving bond markets. At the present time, we
have structured the Fund to have a duration (sensitivity to changes in interest
rates) relatively close to that of the Lehman Intermediate Government/Corporate
Index. We would plan to extend the Fund's duration should we see evidence of
slower economic growth emerge.
Thank you for your continued confidence in the Intermediate Government
Fund.
Sincerely,
/s/ H. PETER WALLACE
H. Peter Wallace, CFA
Senior Vice President
Heritage Asset Management, Inc.
Portfolio Manager, Intermediate
Government Fund
3
<PAGE> 5
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
INTERMEDIATE GOVERNMENT FUND
INVESTMENT PORTFOLIO
MARCH 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
--------- ---------- -----------
<C> <S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES--96.2%(A)
- ---------------------------------------------------------------------------------
U.S. TREASURIES--70.4%(A)
$1,000,000 U.S. Treasury Notes, 5.75%.................................. 11/15/00 $ 1,002,500
1,000,000 U.S. Treasury Notes, 5.25%.................................. 01/31/01 989,688
1,000,000 U.S. Treasury Notes, 6.25%.................................. 04/30/01 1,016,563
1,000,000 U.S. Treasury Notes, 6.25%.................................. 01/31/02 1,019,063
1,000,000 U.S. Treasury Notes, 5.875%................................. 09/30/02 1,007,500
1,000,000 U.S. Treasury Notes, 5.75%.................................. 11/30/02 1,002,500
2,000,000 U.S. Treasury Notes, 5.5%................................... 02/28/03 1,986,876
2,000,000 U.S. Treasury Notes, 6.125%................................. 08/15/07 2,055,626
-----------
Total U.S. Treasuries (cost $10,044,609).................... 10,080,316
-----------
U.S. GOVERNMENT AGENCIES--25.8%(A)
- ---------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--7.1%
1,000,000 REMIC 1992-119E, Sequential Class, 8.0%..................... 07/25/20 1,015,804
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--18.7%
991,481 Pool #421756, 30 year Pass-Through, 7.0%.................... 08/01/26 1,001,089
1,639,075 Pool #351468, 30 year Pass-Through, 7.5%.................... 03/15/24 1,682,199
-----------
2,683,288
-----------
Total U.S. Government Agencies (cost $3,687,659)............ 3,699,092
-----------
Total U.S. Government and Agency Securities (cost
$13,732,268)................................................ 13,779,408
REPURCHASE AGREEMENT--2.8%(A)
- ---------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated March 31,
1998, @ 5.7% to be repurchased at $400,063 on April 1, 1998, collateralized by
$400,000 United States Treasury Notes, 6.25% due August 31, 2002 (market value
$410,361 including interest) (cost $400,000)..................................... 400,000
-----------
TOTAL INVESTMENT PORTFOLIO (cost $14,132,268)(b), 99.0%(a)....................... 14,179,408
OTHER ASSETS AND LIABILITIES, net, 1.0%(a)....................................... 141,606
-----------
NET ASSETS, 100.0%............................................................... $14,321,014
===========
</TABLE>
- -------------------
(a) Percentages indicated 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
$47,140 which consists of aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost of
$97,209 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value of $50,069.
REMIC--Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 6
May 6, 1998
Dear Shareholders:
During the six-month period ended March 31, 1998, the Heritage Income
Trust-High Yield Bond Fund class A and class C shares returned 4.27%* and
4.04%*, respectively. This compares with the Salomon Smith Barney High Yield
Market Index, which rose 6.55% during the period, and the Lipper High Current
Yield Fund category, which increased 5.50%.
Continued interest from institutional and retail buyers over the last six
months, combined with strong corporate earnings and U.S. Treasury market
strength, have resulted in continued strength in the high yield market. In
addition to mutual fund buyers who have continued to invest significantly into
high yield funds, insurance companies, pension funds and collateralized bond
obligations (CBO's) continue to drive demand.
Despite market turmoil caused by the Asian currency crisis during the fourth
quarter of 1997, the high yield market maintained relatively strong performance.
Like the majority of world markets, the U.S. high yield market experienced a
period of uncertainty during which bonds were quoted lower, but few bonds traded
at these lower levels. However the market quickly regained its strong tone.
Factors influencing the rebound included high levels of cash in the market, a
strong rally in U.S. Treasuries, and expectations that the impact of the Asian
situation on the high yield market would be limited. Strong corporate earnings
and credit quality in the first quarter of 1998 added to the positive outlook,
reflected in the high yield and treasury market spread tightening during the
period.
According to the Salomon Smith Barney High Yield Market Index, the average
market yield at March 31, 1998 was 8.89%. This compares to 9.30% at year end,
and 8.84% at September 30, 1997. The high yield and treasury market spreads that
were a narrow 285 basis points at September 30th, widened to 360 basis points at
year end, and then tightened to 327 basis points at March 31, 1998. These
figures reflect the spread widening which occurred during the Asian crisis, and
the subsequent rebound of the high yield and treasury markets.
Meeting the demand for high yield debt, new issuance reached record levels
during the six month period ended March 31, 1998. This level of supply was
easily absorbed by the market.
During the six months ended March 31, 1998, sectors that outperformed
included airlines, cable and media, gaming, technology, telecommunications, and
utilities. In addition, B rated and pay in kind (PIK) bonds also outperformed
the market. Underperforming sectors included automobile manufacturing, consumer
products/tobacco, restaurants and retailing.
In response to implications from the Asian situation, and in the process of
upgrading portfolio quality entering into 1998, the Heritage Income Trust-High
Yield Bond Fund experienced several shifts in industry allocation. The Fund's
position in consumer cyclicals and non-cyclicals were reduced during the period
based on expectations for slower economic growth. The Fund's position in basic
industries was reduced based upon the same premise. In addition, several
positions that were viewed as fully valued were sold. Proceeds from these sales
were reallocated to the media, telecommunications, and publishing sectors, as
well as the energy sector. Despite the increased allocation to the
media/telecommunications sector, the Fund remains underweighted in this sector.
This underweighting is predicated on the view that returns in this sector are
not commensurate with the risks involved in financing emerging
telecommunications companies. Allocation to the energy sector was increased
modestly during the period as spread widening increased its attractiveness. The
Fund's position in zero coupon bonds was reduced to neutral during the period.
The Fund's performance during the period benefited from several positions
being tendered for and from opportunity created by the new issue calendar.
However, the Fund's underexposure to the telecommunications and utility sectors,
and energy weighting, resulted in underperformance for the period.
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 either front- or
back-end sales charges.
5
<PAGE> 7
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
MARCH 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
- ------------------ -------- ------
<C> <S> <C> <C>
DOMESTIC CORPORATE BONDS--89.8%(A)
- -------------------------------------------------------------------------------------------
AEROSPACE--2.7%
- -------------------------------------------------------------------------------------------
$500,000 Burke Industries, Inc., 10.0%*.............................. 08/15/07 $ 528,750
500,000 L-3 Communications Corporation, 10.375%..................... 05/01/07 553,750
500,000 Stellex Industries, Inc., 9.5%.............................. 11/01/07 510,000
-----------
1,592,500
-----------
ALUMINUM--0.4%
- -------------------------------------------------------------------------------------------
250,000 Commonwealth Aluminum Corporation, 10.75%................... 10/01/06 265,000
-----------
AUTO PARTS/EQUIPMENT--0.6%
- -------------------------------------------------------------------------------------------
350,000 Venture Holdings Trust, 9.75%............................... 04/01/04 357,000
-----------
AUTO RENTAL/SERVICE--0.4%
- -------------------------------------------------------------------------------------------
250,000 Apcoa Inc., 9.25%........................................... 03/15/08 250,625
-----------
AUTO/TRUCK MANUFACTURERS--0.8%
- -------------------------------------------------------------------------------------------
500,000 Navistar International, 8.0%................................ 02/01/08 498,125
-----------
BEVERAGES--1.0%
- -------------------------------------------------------------------------------------------
250,000 Delta Beverage Group, Inc., 9.75%........................... 12/15/03 261,562
500,000 Stroh Brewery Company, 11.1%................................ 07/01/06 360,000
-----------
621,562
-----------
BROADCASTING--7.4%
- -------------------------------------------------------------------------------------------
250,000 Adelphia Communications Corporation, 10.5%.................. 07/15/04 273,125
250,000 Adelphia Communications Corporation, 9.875%................. 03/01/07 270,625
1,000,000 Century Communications Corporation, Zero Coupon Bond........ 01/15/08 435,000
500,000 Chancellor Media Corporation, 9.375%........................ 10/01/04 528,750
500,000 CSC Holdings Inc., 10.5%.................................... 05/15/16 587,500
500,000 Jacor Communications, Inc., 9.75%........................... 12/15/06 545,000
500,000 LIN Television Corporation, 8.375%.......................... 03/01/08 502,500
Marcus Cable Company, 0% to 6/15/00, 14.25% to
250,000 maturity(d)................................................. 12/15/05 226,562
500,000 Rogers Communications, Inc., 8.875%......................... 07/15/07 505,000
500,000 SFX Broadcasting, Inc., 10.75%.............................. 05/15/06 552,500
-----------
4,426,562
-----------
BUILDING--0.9%
- -------------------------------------------------------------------------------------------
500,000 Nortek, Inc., 9.125%........................................ 09/01/07 516,250
-----------
CHEMICALS--0.9%
- -------------------------------------------------------------------------------------------
500,000 Texas Petrochemicals, 11.125%............................... 07/01/06 551,250
-----------
CONGLOMERATES/DIVERSIFIED--1.1%
- -------------------------------------------------------------------------------------------
Jordan Industries, Inc., 0% to 4/1/02, 11.75% to
1,000,000 maturity(d)................................................. 04/01/09 632,500
-----------
CONTAINERS--2.7%
- -------------------------------------------------------------------------------------------
500,000 Plastic Containers, Inc., 10.0%............................. 12/15/06 550,000
250,000 Radnor Holdings, Inc., 10.0%................................ 12/01/03 262,500
250,000 Radnor Holdings, Inc., Series "B", 10.0%.................... 12/01/03 262,500
500,000 Stone Container Corporation, 12.25%......................... 04/01/02 513,125
-----------
1,588,125
-----------
</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, 1998
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
- ------------------ -------- ------
<C> <S> <C> <C>
COSMETICS/TOILETRIES--1.7%
- -------------------------------------------------------------------------------------------
$400,000 Anchor Advanced Products, Inc., 11.75%...................... 04/01/04 $ 442,000
750,000 Revlon Worldwide Corporation, Zero Coupon Bond.............. 03/15/01 570,938
-----------
1,012,938
-----------
DATA PROCESSING--1.4%
- -------------------------------------------------------------------------------------------
250,000 Alvey Systems, Inc., 11.375%................................ 01/31/03 265,625
500,000 Unisys Corporation, 11.75%.................................. 10/15/04 576,250
-----------
841,875
-----------
ELECTRONICS/ELECTRIC--2.7%
- -------------------------------------------------------------------------------------------
200,000 Amphenol Corporation, 9.875%................................ 05/15/07 215,500
500,000 Axiohm Transaction Solutions, Inc., 9.75%................... 10/01/07 508,750
250,000 DecisionOne Corporation, 9.75%.............................. 08/01/07 241,875
DecisionOne Holdings Corporation, 0% to 8/1/02, 11.5% to
500,000 maturity(d)................................................. 08/01/08 298,750
325,000 Rayovac Corporation, 10.25%................................. 11/01/06 358,312
-----------
1,623,187
-----------
FILMED ENTERTAINMENT--1.7%
- -------------------------------------------------------------------------------------------
500,000 Cinemark USA, Inc., 9.625%.................................. 08/01/08 524,375
500,000 Production Resource Group, 11.5%............................ 01/15/08 492,500
-----------
1,016,875
-----------
FINANCE--2.7%
- -------------------------------------------------------------------------------------------
500,000 Airplane Pass Through Trust, Class "D", 10.875%............. 03/15/19 557,770
500,000 DVI, Inc., 9.875%........................................... 02/01/04 533,750
500,000 Morgan Stanley Aircraft Finance, 8.7%....................... 08/15/23 497,860
-----------
1,589,380
-----------
FOOD--5.4%
- -------------------------------------------------------------------------------------------
250,000 B&G Foods, Inc., 9.625%..................................... 08/01/07 254,688
500,000 CFP Holdings, Inc., 11.625%................................. 01/15/04 496,250
250,000 Fleming Companies, Inc., 10.5%.............................. 12/01/04 265,000
400,000 Imperial Holly Corporation, 9.75%........................... 12/15/07 411,500
500,000 Nebco Evans Holding Company, 11.25%, PIK Bond............... 03/01/08 520,000
250,000 North Atlantic Trading Company, 11.0%....................... 06/15/04 260,000
500,000 SC International Services, Inc., 9.25%...................... 09/01/07 524,375
500,000 Specialty Foods Acquisition Corporation, 10.25%............. 08/15/01 495,000
-----------
3,226,813
-----------
HEALTH CARE CENTERS--1.4%
- -------------------------------------------------------------------------------------------
400,000 Graham-Field Health Products, Inc., 9.75%................... 08/15/07 408,000
400,000 Integrated Health Services, Inc., 9.25%..................... 01/15/08 421,000
-----------
829,000
-----------
HOTELS/MOTELS/INNS--0.8%
- -------------------------------------------------------------------------------------------
150,000 HMH Properties, Inc., 8.875%................................ 07/15/07 157,500
300,000 HMH Properties, Inc., 9.50%................................. 05/15/05 318,375
-----------
475,875
-----------
</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, 1998
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
- ------------------ -------- ------
<C> <S> <C> <C>
HOUSEHOLD PRODUCTS--0.9%
- -------------------------------------------------------------------------------------------
$500,000 Shop Vac Corporation, 10.625%............................... 09/01/03 $ 546,250
-----------
LEISURE/AMUSEMENT--1.3%
- -------------------------------------------------------------------------------------------
500,000 Grand Casinos, Inc., 9.0%................................... 10/15/04 513,750
250,000 Selmer Company, Inc., 11.0%................................. 05/15/05 275,000
-----------
788,750
-----------
MANUFACTURING/DISTRIBUTIONS--7.3%
- -------------------------------------------------------------------------------------------
500,000 Clark-Schwebel, Inc., 10.5%................................. 04/15/06 555,000
250,000 Columbus McKinnon Corporation, 8.5%......................... 04/01/08 250,625
500,000 Foamex, L.P., 9.875%........................................ 06/15/07 510,000
500,000 Furon Company, 8.125%....................................... 08/01/08 502,500
250,000 High Voltage Engineering Group, 10.5%....................... 08/15/04 257,813
500,000 Hines Horticulture, Inc., 11.75%............................ 10/15/05 550,000
500,000 Insilco Corporation, 10.25%................................. 08/15/07 525,000
500,000 International Knife & Saw, 11.375%.......................... 11/15/06 547,500
250,000 Polymer Group, Inc., 9.0%................................... 07/01/07 258,125
400,000 Werner Holdings Company, Inc., 10.0%........................ 11/15/07 422,000
-----------
4,378,563
-----------
MEDICAL EQUIPMENT/SUPPLY--4.0%
- -------------------------------------------------------------------------------------------
500,000 Fresenius Medical Care, 9.0%................................ 12/01/06 525,000
350,000 Kinetic Concepts, Inc., Series "B", 9.625%.................. 11/01/07 360,500
500,000 Maxxim Medical, Inc., 10.5%................................. 08/01/06 551,250
500,000 Packard Bioscience Company, 9.375%.......................... 03/01/07 481,250
500,000 Prime Medical Services, Inc., 8.75%......................... 04/01/08 498,750
-----------
2,416,750
-----------
METAL--2.6%
- -------------------------------------------------------------------------------------------
500,000 Envirosource, Inc., 9.75%................................... 06/15/03 510,000
500,000 Murrin Murrin Holdings Property, 9.375%..................... 08/31/07 496,250
500,000 Renco Metals Inc., 11.5%.................................... 07/01/03 536,250
-----------
1,542,500
-----------
OIL & GAS--10.7%
- -------------------------------------------------------------------------------------------
500,000 Abraxas Petroleum Corporation, 11.5%........................ 11/01/04 513,750
500,000 Benton Oil & Gas Company, 11.625%........................... 05/01/03 540,625
500,000 Clark R&M, Inc., 8.875%..................................... 11/15/07 506,250
500,000 Cliffs Drilling Company, 10.25%............................. 05/15/03 541,250
500,000 Costilla Energy, Inc., 10.25%............................... 10/01/06 510,000
500,000 Dailey International, Inc., 9.5%............................ 02/15/08 503,750
500,000 Dawson Production Services, Inc., 9.375%.................... 02/01/07 513,750
500,000 Hvide Marine, Inc., 8.375%.................................. 02/15/08 487,500
500,000 National Energy Group, Inc., 10.75%......................... 11/01/06 477,500
250,000 Parker Drilling Company, 9.75%.............................. 11/15/06 265,625
250,000 Parker Drilling Company, Series "B", 9.75%.................. 11/15/06 266,875
500,000 Snyder Oil Corporation, 8.75%............................... 06/15/07 515,000
Transamerican Energy Corporation, 0% to 6/15/99, 13.0% to
375,000 maturity(d)................................................. 06/15/02 316,875
450,000 Trico Marine Services, Inc., 8.5%........................... 08/01/05 452,250
-----------
6,411,000
-----------
</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, 1998
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
- ------------------ -------- ------
<C> <S> <C> <C>
PAPER/PRODUCTS--0.9%
- -------------------------------------------------------------------------------------------
$250,000 Crown Paper Company, 11.0%.................................. 09/01/05 $ 266,875
250,000 Florida Coast Paper LLC, Series "B", 12.75%................. 06/01/03 268,125
-----------
535,000
-----------
PET & SUPPLIES--1.8%
- -------------------------------------------------------------------------------------------
500,000 Doane Products Company, 10.625%............................. 03/01/06 541,250
500,000 Purina Mills, Inc., 9.0%.................................... 03/15/10 516,250
-----------
1,057,500
-----------
PLASTIC/PRODUCTS--0.9%
- -------------------------------------------------------------------------------------------
500,000 Berry Plastics Corporation, 12.25%.......................... 04/15/04 548,750
-----------
PUBLISHING--1.4%
- -------------------------------------------------------------------------------------------
500,000 American Media Operation, Inc., 11.625%..................... 11/15/04 543,750
250,000 Big Flower Press Holdings, Inc., 8.875%..................... 07/01/07 256,875
-----------
800,625
-----------
REAL ESTATE/LAND DEVELOPMENT--0.8%
- -------------------------------------------------------------------------------------------
500,000 Forest City Enterprises, Inc., 8.5%......................... 03/15/08 501,250
-----------
RETAIL STORES--4.0%
- -------------------------------------------------------------------------------------------
500,000 Carr-Gottstein Foods Company, 12.0%......................... 11/15/05 562,500
500,000 Cole National Group, 9.875%................................. 12/31/06 541,250
250,000 Hills Stores Company, 12.5%................................. 07/01/03 230,000
250,000 Jitney Jungle Stores, 12.0%................................. 03/01/06 282,500
500,000 Leslie's Poolmart, 10.375%.................................. 07/15/04 520,000
250,000 Pueblo Xtra International, 9.5%............................. 08/01/03 243,750
-----------
2,380,000
-----------
SERVICES--6.4%
- -------------------------------------------------------------------------------------------
500,000 Allied Waste Industries, Inc., 0% to 6/1/02, 11.3% to
maturity(d)................................................. 06/01/07 367,500
500,000 Borg-Warner Security Corporation, 9.125%.................... 05/01/03 505,000
500,000 Comforce Operating, Inc., 12.0%............................. 12/01/07 532,500
250,000 Federal Data Corporation, 10.125%........................... 08/01/05 258,750
250,000 Iron Mountain, Inc., 10.125%................................ 10/01/06 275,000
500,000 Kindercare Learning Centers, Inc., 9.5%..................... 02/15/09 511,250
250,000 Loomis Fargo & Company, 10.0%............................... 01/15/04 255,000
500,000 Norcal Waste Systems, Inc., 13.5%........................... 11/15/05 580,000
500,000 Sitel Corporation, 9.25%.................................... 03/15/06 511,250
-----------
3,796,250
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 11
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
MARCH 31, 1998
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
- ------------------ -------- ------
<C> <S> <C> <C>
TELECOMMUNICATIONS--8.4%
- -------------------------------------------------------------------------------------------
$500,000 Comcast Cellular Holdings, 9.5%............................. 05/01/07 $ 525,000
500,000 DTI Holdings, Inc., 0% to 3/1/03, 12.5% to maturity(d)...... 03/01/08 291,250
500,000 Facilicom International, 10.5%.............................. 01/15/08 520,000
500,000 Global Telesystems Group, 9.875%............................ 02/15/05 515,000
1,000,000 Intermedia Communications of Florida, 0% to 05/15/01, 12.5%
to maturity(d).............................................. 05/15/06 820,000
1,000,000 International CableTel, Inc., 0% to 02/01/01, 11.5% to
maturity(d)................................................. 02/01/06 800,000
500,000 KMC Telecom Holdings, Inc., 0% to 2/15/03, 12.5% to
maturity(d)................................................. 02/15/08 293,750
250,000 Mediacom LLC Capital, 8.5%.................................. 04/15/08 250,625
Nextel Communications, Inc., 0% to 10/31/02, 9.75% to
650,000 maturity(d)................................................. 10/31/07 420,062
500,000 Nextlink Communications, 12.5%.............................. 04/15/06 575,000
-----------
5,010,687
-----------
TRANSPORTATION--0.8%
- -------------------------------------------------------------------------------------------
425,000 Ryder TRS, Inc., 10.0%...................................... 12/01/06 456,875
-----------
UTILITIES-ELECTRIC--0.9%
- -------------------------------------------------------------------------------------------
500,000 AES Corporation, 8.5%....................................... 11/01/07 516,250
-----------
Total Domestic Corporate Bonds (cost $52,087,795)........... 53,602,442
-----------
FOREIGN CONVERTIBLE CORPORATE BONDS--1.0%(A)(C)
- -------------------------------------------------------------------------------------------
PUBLISHING--1.0%
- -------------------------------------------------------------------------------------------
1,500,000 Hollinger, Inc., Zero Coupon Bond........................... 10/05/13 601,875
-----------
Total Foreign Convertible Corporate Bonds (cost $549,088)... 601,875
-----------
FOREIGN CORPORATE BONDS--2.9%(A)(C)
- -------------------------------------------------------------------------------------------
BROADCASTING--0.3%
- -------------------------------------------------------------------------------------------
250,000 Diamond Cable Communications, PLC, 0% to 12/15/00, 11.75% to
maturity(d)................................................. 12/15/05 199,375
-----------
HOTELS/MOTELS/INNS--0.9%
- -------------------------------------------------------------------------------------------
500,000 Sun International Hotels, Ltd., 8.625%...................... 12/15/07 515,625
-----------
MANUFACTURING/DISTRIBUTIONS--0.1%
- -------------------------------------------------------------------------------------------
250,000 Semi-Tech Corporation, 0% to 08/15/00, 11.5% to
maturity(d)................................................. 08/15/03 85,000
-----------
TEXTILES--0.2%
- -------------------------------------------------------------------------------------------
250,000 Polysindo International Finance Company, 9.375%............. 07/30/07 152,500
-----------
TRANSPORTATION--0.5%
- -------------------------------------------------------------------------------------------
250,000 Stena Line AB, 10.5%........................................ 12/15/05 273,438
-----------
UTILITIES - DIVERSIFIED--0.9%
- -------------------------------------------------------------------------------------------
500,000 International Utility Structures, Inc., 10.75%.............. 02/01/08 518,750
-----------
Total Foreign Corporate Bonds (cost $1,924,949)............. 1,744,688
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 12
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
MARCH 31, 1998
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----------
<C> <S> <C> <C>
WARRANTS--0.1%(A)
- ---------------------------------------------------------------------------------
MANUFACTURING/DISTRIBUTIONS--0.1%
- ---------------------------------------------------------------------------------
2,000 Terex Corporation*.......................................... $ 32,000
-----------
MEDICAL EQUIPMENT/SUPPLY--0.0%
- ---------------------------------------------------------------------------------
206 Wright Medical Technology, Inc.*............................ 20,588
-----------
Total Warrants (cost $4,040)................................ 52,588
-----------
Total investment portfolio excluding repurchase agreement (cost $54,565,872)(b),
93.8%(a)....................................................................... 56,001,593
REPURCHASE AGREEMENT--3.4%(A)
- ---------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated September
30, 1998, @ 5.7%, to be repurchased at $2,045,324 on April 1, 1998,
collateralized by $2,040,000 United States Treasury Notes, 6.25%, due August 31,
2002 (market value $2,092,843 including interest)
(cost $2,045,000)................................................................ 2,045,000
-----------
TOTAL INVESTMENT PORTFOLIO (cost $56,610,872)(b), 97.2%(a)....................... 58,046,593
OTHER ASSETS AND LIABILITIES, net, 2.8%(a)....................................... 1,667,512
-----------
NET ASSETS, 100.0%............................................................... $59,714,105
===========
</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
$1,435,721, which consists of aggregate gross unrealized appreciation for
all securities in which there is an excess of market value over tax cost of
$2,066,583 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value of $630,862.
(c) Denominated in U.S. dollars.
(d) Bonds reset to applicable coupon rate at a future date.
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 13
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE HIGH YIELD
GOVERNMENT FUND BOND FUND
--------------- -----------
<S> <C> <C>
Assets
- ------------------------------------------------------------
Investments, at market value (identified cost $13,732,268
and $54,565,872, respectively) (Note 1)................... $13,779,408 $56,001,593
Repurchase agreement (identified cost $400,000 and
$2,045,000, respectively) (Note 1)........................ 400,000 2,045,000
Cash........................................................ 4,964 1,930
Receivables:
Investments sold.......................................... -- 1,771,859
Dividends and interest.................................... 134,048 1,255,583
Fund shares sold.......................................... 32,712 56,425
From Manager.............................................. 48,691 782
Deferred state qualification expenses (Note 1).............. 11,340 14,717
----------- -----------
Total Assets........................................ $14,411,163 $61,147,889
----------- -----------
Liabilities
- ------------------------------------------------------------
Payables (Note 4):
Investments purchased..................................... $ -- $ 1,238,875
Fund shares redeemed...................................... 34,794 118,324
Accrued distribution fee.................................. 4,257 21,411
Other accrued expenses.................................... 51,098 55,174
----------- -----------
Total Liabilities................................... 90,149 1,433,784
----------- -----------
Net assets, at market value................................. $14,321,014 $59,714,105
=========== ===========
Net Assets
- ------------------------------------------------------------
Net assets consist of:
Paid-in capital........................................... $20,841,053 $58,081,394
Undistributed net investment income (Note 1).............. 681,379 414,319
Accumulated net realized loss (Notes 1 and 5)............. (7,248,558) (217,329)
Net unrealized appreciation on investments................ 47,140 1,435,721
----------- -----------
Net assets, at market value................................. $14,321,014 $59,714,105
=========== ===========
Net assets, at market value
Class A Shares............................................ $12,989,160 $44,180,663
Class B Shares............................................ 8,546 643,730
Class C Shares............................................ 1,323,308 14,889,712
----------- -----------
Total............................................... $14,321,014 $59,714,105
=========== ===========
Shares of beneficial interest outstanding
Class A Shares............................................ 1,402,399 4,134,921
Class B Shares............................................ 925 60,513
Class C Shares............................................ 143,299 1,399,744
----------- -----------
Total............................................... 1,546,623 5,595,178
=========== ===========
Net Asset Value -- offering and redemption price per share
(Notes 1 and 2)
Class A Shares............................................ $9.26 $10.68
====== =====
Maximum offering price per share (100/96.25 of $9.26 and
$10.68, respectively).................................. $9.62 $11.10
====== =====
Class B Shares............................................ $9.24 $10.64
====== =====
Class C Shares............................................ $9.23 $10.64
====== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE> 14
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED MARCH 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE HIGH YIELD
GOVERNMENT FUND BOND FUND
--------------- ----------
<S> <C> <C>
Investment Income
- ------------------------------------------------------------
Income:
Interest.................................................. $462,441 $2,761,778
Expenses (Notes 1 and 4):
Management fee............................................ 36,671 170,769
Distribution fee (Class A Shares)......................... 22,093 62,625
Distribution fee (Class B Shares)......................... 3 435
Distribution fee (Class C Shares)......................... 3,405 56,733
Professional fees......................................... 33,122 30,287
Custodian/Fund accounting fees............................ 23,958 36,556
State qualification expenses.............................. 14,649 13,759
Federal registration fees................................. -- 1,309
Reports to shareholders................................... 9,936 10,832
Shareholder servicing fees................................ 6,012 17,509
Trustees' fees and expenses............................... 2,917 3,701
Insurance expense......................................... 1,560 2,427
Other..................................................... 777 350
-------- ----------
Total expenses before waiver and reimbursement.......... 155,103 407,292
Fees waived by Manager (Note 4)......................... (36,671) (31,103)
Reimbursement from Manager.............................. (48,691) --
-------- ----------
Total expenses after waiver and reimbursement........... 69,741 376,189
-------- ----------
Net investment income....................................... $392,700 $2,385,589
-------- ----------
Realized and Unrealized Gain (Loss) on Investments
- ------------------------------------------------------------
Net realized gain from investment transactions.............. 127,670 498,972
Net decrease in unrealized appreciation of investments
during the period......................................... (7,662) (504,267)
-------- ----------
Net gain (loss) on investments...................... 120,008 (5,295)
-------- ----------
Net increase in net assets resulting from operations........ $512,708 $2,380,294
======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE> 15
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED FOR THE
MARCH 31, 1998 YEAR ENDED
INTERMEDIATE GOVERNMENT FUND (UNAUDITED) SEPTEMBER 30, 1997
- ---------------------------- ------------------ ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 392,700 $ 922,102
Net realized gain (loss) on investment transactions....... 127,670 (136,028)
Net increase (decrease) in unrealized appreciation of
investments during the period........................... (7,662) 354,485
----------- -----------
Net increase in net assets resulting from operations...... 512,708 1,140,559
Distributions to shareholders from:
Net investment income Class A Shares, ($0.26 and $0.52 per
share, respectively).................................... (385,355) (897,448)
Net investment income Class B Shares, ($0.04 per share)... (14) --
Net investment income Class C Shares, ($0.25 and $0.50 per
share, respectively).................................... (29,601) (41,089)
Decrease in net assets from Fund share transactions (Note
2)........................................................ (646,719) (3,448,028)
----------- -----------
Decrease in net assets...................................... (548,981) (3,246,006)
Net assets, beginning of period............................. 14,869,995 18,116,001
----------- -----------
Net assets, end of period (including undistributed net
investment income of $681,379 and $703,649,
respectively)............................................. $14,321,014 $14,869,995
=========== ===========
FOR THE SIX MONTH
PERIOD ENDED FOR THE
MARCH 31, 1998 YEAR ENDED
High Yield Bond Fund (UNAUDITED) SEPTEMBER 30, 1997
- ------------------------------------------------------------ ----------- -----------
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 2,385,589 $ 4,135,801
Net realized gain on investment transactions.............. 498,972 778,438
Net increase (decrease) in unrealized appreciation of
investments during the period........................... (504,267) 1,375,780
----------- -----------
Net increase in net assets resulting from operations...... 2,380,294 6,290,019
Distributions to shareholders from:
Net investment income Class A Shares, ($0.45 and $0.89 per
share, respectively).................................... (1,815,847) (3,120,267)
Net investment income Class B Shares, ($0.07 per share)... (2,053) --
Net investment income Class C Shares, ($0.43 and $0.84 per
share, respectively).................................... (568,101) (890,714)
Increase in net assets from Fund share transactions (Note
2)........................................................ 5,102,106 12,731,865
----------- -----------
Increase in net assets...................................... 5,096,399 15,010,903
Net assets, beginning of period............................. 54,617,706 39,606,803
----------- -----------
Net assets, end of period (including undistributed net
investment income of $414,319 and $414,731
respectively)............................................. $59,714,105 $54,617,706
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 16
- --------------------------------------------------------------------------------
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 B SHARES CLASS C SHARES
------------------------------------------------------------ --------------- ---------------
FOR THE SIX FOR THE SIX
MONTH PERIOD FOR THE PERIOD MONTH PERIOD
ENDED FOR THE YEARS ENDED SEPTEMBER 30, ENDED ENDED
MARCH 31, 1998* ------------------------------------------ MARCH 31, 1998* MARCH 31, 1998*
(UNAUDITED) 1997* 1996* 1995 1994* 1993 (UNAUDITED)++ (UNAUDITED)
--------------- ------ ------ ------ ------ ------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD.............. $ 9.20 $ 9.08 $ 9.29 $ 9.10 $ 9.44 $ 9.84 $ 9.28 $ 9.18
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income(a)......... 0.25 0.51 0.50 0.62 0.43 0.59 0.05 0.23
Net realized and
unrealized gain
(loss) on
investments....... 0.07 0.13 (0.21) 0.12 (0.40) (0.44) (0.05) 0.07
------ ------ ------ ------ ------ ------ ------ ------
Total from
Investment
Operations........ 0.32 0.64 0.29 0.74 0.03 0.15 -- 0.30
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ (0.26) (0.52) (0.50) (0.55) (0.37) (0.52) (0.04) (0.25)
Distributions from
net realized
gains............. -- -- -- -- -- (0.03) -- --
------ ------ ------ ------ ------ ------ ------ ------
Total
Distributions..... (0.26) (0.52) (0.50) (0.55) (0.37) (0.55) (0.04) (0.25)
------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END
OF PERIOD........... $ 9.26 $ 9.20 $ 9.08 $ 9.29 $ 9.10 $ 9.44 $ 9.24 $ 9.23
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(D).. 3.54(c) 7.28 3.24 8.47 0.36 1.58 (0.01)(c) 3.32(c)
RATIOS
(%)/SUPPLEMENTAL
DATA:
Operating expenses,
net, to average
daily net
assets(a)......... 0.93(b) 0.93 0.94 0.95 0.95 0.91 1.20(b) 1.20(b)
Net investment
income to average
daily net
assets............ 5.38(b) 5.65 5.42 5.50 4.60 5.99 4.99(b) 5.08(b)
Portfolio turnover
rate.............. 94(c) 69 135 162 214 150 94(c) 94(c)
Net assets, end of
period ($
millions)......... 13 14 18 24 41 102 .008 1
<CAPTION>
CLASS C SHARES
------------------------
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------
1997* 1996* 1995+
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD.............. $ 9.06 $ 9.27 $ 9.05
------ ------ ------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income(a)......... 0.49 0.49 0.21
Net realized and
unrealized gain
(loss) on
investments....... 0.13 (0.21) 0.23
------ ------ ------
Total from
Investment
Operations........ 0.62 0.28 0.44
------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment
income............ (0.50) (0.49) (0.22)
Distributions from
net realized
gains............. -- --
------ ------ ------
Total
Distributions..... (0.50) (0.49) (0.22)
------ ------ ------
NET ASSET VALUE, END
OF PERIOD........... $ 9.18 $ 9.06 $ 9.27
====== ====== ======
TOTAL RETURN (%)(D).. 7.02 3.04 4.90(c)
RATIOS
(%)/SUPPLEMENTAL
DATA:
Operating expenses,
net, to average
daily net
assets(a)......... 1.20 1.20 1.20(b)
Net investment
income to average
daily net
assets............ 5.38 5.22 5.19(b)
Portfolio turnover
rate.............. 69 135 162
Net assets, end of
period ($
millions)......... 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 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.
++ For the period February 2, 1998 (commencement of Class B Shares) to March
31, 1998.
(a) Excludes management fees waived and expenses reimbursed by the Manager in
the amount of $.05, $.07, $.06, $.06, $.03 and $.01 per Class A Share,
respectively. The operating expense ratios including such items would have
been 2.09% (annualized), 1.67%, 1.61%, 1.47%, 1.18% and 1.03% for Class A
Share, respectively. Excludes management fees waived and expenses
reimbursed by the Manager in the amount of $.05 per Class B Share. The
operating expense ratio including such items would have been 2.36%
(annualized). Excludes management fees waived and expenses reimbursed by
the Manager in the amount of $.05, $.07, $.06 and $.06 per Class C Share,
respectively. The operating expense ratio including such items would have
been 2.36% (annualized), 1.94%, 1.87% and 1.72% (annualized) for Class C
Share, 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.
15
<PAGE> 17
- --------------------------------------------------------------------------------
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 B SHARES CLASS C SHARES
----------------------------------------------------------- -------------- --------------
FOR THE SIX FOR THE SIX
MONTH PERIOD FOR THE PERIOD MONTH PERIOD
ENDED FOR THE YEARS ENDED SEPTEMBER 30, ENDED ENDED
MARCH 31, 1998 ------------------------------------------ MARCH 31, 1998 MARCH 31, 1998
(UNAUDITED) 1997 1996 1995 1994 1993 (UNAUDITED)++ (UNAUDITED)
-------------- ------ ------ ------ ------ ------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $10.69 $10.22 $ 9.94 $ 9.65 $10.65 $10.82 $10.57 $10.65
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income(a).............. 0.45 0.90 0.84(e) 0.72 0.69 0.81 0.11 0.42
Net realized and
unrealized gain (loss)
on investments......... (0.01) 0.46 0.24 0.31 (0.84) 0.07 0.03 --
------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations............. 0.44 1.36 1.08 1.03 (0.15) 0.88 0.14 0.42
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.45) (0.89) (0.80) (0.74) (0.71) (0.83) (0.07) (0.43)
Distributions from net
realized gains......... -- -- -- -- (0.07) (0.22) -- --
Distribution in excess of
net realized gains..... -- -- -- -- (0.07) -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions...... (0.45) (0.89) (0.80) (0.74) (0.85) (1.05) (0.07) (0.43)
------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD................... $10.68 $10.69 $10.22 $ 9.94 $ 9.65 $10.65 $10.64 $10.64
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(D)....... 4.27(c) 14.00 11.44 11.23 (1.59) 8.57 1.34(c) 4.04(c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net,
to average daily net
assets(a).............. 1.20(b) 1.21 1.23 1.25 1.25 1.19 1.70(b) 1.70(b)
Net investment income to
average daily net
assets................. 8.51(b) 8.76 8.41 7.35 6.76 7.57 7.95(b) 8.01(b)
Portfolio turnover
rate................... 57(c) 101 143 109 135 150 57(c) 57(c)
Net assets, end of period
($ millions)........... 44 42 33 30 36 42 1 15
<CAPTION>
CLASS C SHARES
------------------------
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------
1997 1996 1995+
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $10.18 $ 9.91 $ 9.62
------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income(a).............. 0.85 0.79(e) 0.31
Net realized and
unrealized gain (loss)
on investments......... 0.46 0.24 0.28
------ ------ ------
Total from Investment
Operations............. 1.31 1.03 0.59
------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.84) (0.76) (0.30)
Distributions from net
realized gains......... -- -- --
Distribution in excess of
net realized gains..... -- -- --
------ ------ ------
Total Distributions...... (0.84) (0.76) (0.30)
------ ------ ------
NET ASSET VALUE, END OF
PERIOD................... $10.65 $10.18 $ 9.91
====== ====== ======
TOTAL RETURN (%)(D)....... 13.53 10.93 6.18(c)
RATIOS (%)/SUPPLEMENTAL DA
Operating expenses, net,
to average daily net
assets(a).............. 1.70 1.70 1.70(b)
Net investment income to
average daily net
assets................. 8.26 8.39 6.67(b)
Portfolio turnover
rate................... 101 143 109
Net assets, end of period
($ millions)........... 13 6 0.6
</TABLE>
- ---------------
+ For the period April 3, 1995 (commencement of Class C Shares) to September
30, 1995.
++ For the period February 2, 1998 (commencement of Class B Shares) to March
31, 1998.
(a) Excludes management fees waived and expenses reimbursed by the Manager in
the amount of $.01, $.01, $.03, $.03, $.02 and $.02 per Class A Share,
respectively. The operating expense ratios including such items would have
been 1.31% (annualized) 1.30%, 1.51%, 1.51%, 1.42% and 1.43% for Class A
Share, respectively. Excludes management fees waived and expenses reimbursed
by the manager in the amount of $.01 per Class B Share. The operating
expense ratio including such items would have been 1.81% (annualized).
Excludes management fees waived by the Manager in the amount of $.01, $.01,
$0.03 and $0.03 per Class C Share, respectively. The operating expense ratio
including such items would have been 1.81% (annualized) 1.79%, 1.98% and
1.96% (annualized) for Class C Share, 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. 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.
16
<PAGE> 18
- --------------------------------------------------------------------------------
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" and
collectively, the "Funds"). The High Yield Bond Fund has an investment
objective of high current income. The Intermediate Government Fund has an
investment objective of high current income consistent with the
preservation of capital. The Funds currently issue Class A, Class B 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 B
Shares, which were offered to shareholders beginning February 2, 1998, are
sold subject to a 5% maximum contingent deferred sales load (based on the
lower of purchase price or redemption price) declining over a six-year
period. 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 made in less than one year of 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 amortized cost, which 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. Each Fund's
policy is to comply with the requirements of the Internal Revenue Code of
1986, as amended which are applicable to regulated investment companies
and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no provision has been made for federal income
and excise taxes.
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 charged directly to that class.
State Qualification Expenses: State qualification fees are amortized based
either on the time period covered by the qualification or as related
shares are sold, whichever is appropriate for each state.
Capital Accounts: The Funds report the undistributed net investment income
and accumulated net realized gain (loss) accounts on a basis approximating
amounts available for future tax distributions (or to offset future
taxable realized gains when a capital loss carryforward is available).
Accordingly, the Funds may periodically make reclassifications among
certain capital accounts without impacting the net asset value of the
Fund.
Other: For purposes of these financial statements, investment security
transactions are accounted for on a trade date basis (date the order to
buy or sell is executed). 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.
17
<PAGE> 19
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
Note 2:
FUND SHARES: At March 31, 1998, there was an unlimited number of shares
of beneficial interest of no par value authorized.
Transactions in Class A and C Shares of the Fund during the six month
period ended March 31, 1998 and Class B Shares from February 2, 1998
(commencement of Class B Shares) to March 31, 1998 were as follows:
INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
------------------------ ------------------------ ------------------------
FOR THE PERIOD ENDED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
MARCH 31, 1998 (UNAUDITED) --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................... 106,504 $ 989,750 923 $ 8,554 79,156 $ 730,644
Shares issued on reinvestment of
distributions.................. 37,373 344,899 2 14 3,102 28,553
Shares redeemed.................. (269,154) (2,498,050) -- -- (27,157) (251,083)
--------- ----------- --------- ----------- --------- -----------
Net increase (decrease).......... (125,277) $(1,163,401) 925 $ 8,568 55,101 $ 508,114
=========== =========== ===========
Shares outstanding:
Beginning of period............ 1,527,676 -- 88,198
--------- --------- ---------
End of period.................. 1,402,399 925 143,299
========= ========= =========
</TABLE>
Transactions in Class A and C Shares of the Fund during the year ended
September 30, 1997 were as follows:
<TABLE>
<CAPTION>
A SHARES C SHARES
------------------------ ------------------------
FOR THE YEAR ENDED SHARES AMOUNT SHARES AMOUNT
SEPTEMBER 30, 1997 --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................... 29,039 $ 263,983 45,681 $ 417,167
Shares issued on reinvestment of
distributions.................. 86,848 790,115 4,462 40,481
Shares redeemed.................. (518,637) (4,719,949) (26,520) (239,825)
--------- ----------- --------- -----------
Net increase (decrease).......... (402,750) $(3,665,851) 23,623 $ 217,823
=========== ===========
Shares outstanding:
Beginning of year.............. 1,930,426 64,575
--------- ---------
End of year.................... 1,527,676 88,198
========= =========
</TABLE>
Transactions in Class A and C Shares of the Fund during the six month
period ended March 31, 1998 and Class B Shares from February 2, 1998
(commencement of Class B Shares) to March 31, 1998 were as follows:
HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
------------------------ ------------------------ ------------------------
FOR THE PERIOD ENDED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
MARCH 31, 1998 (UNAUDITED) --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................... 439,728 $ 4,669,287 61,003 $ 645,619 369,307 $ 3,905,558
Shares issued on reinvestment of
distributions.................. 118,066 1,248,329 80 846 43,331 455,900
Shares redeemed.................. (335,625) (3,564,871) (570) (6,059) (213,181) (2,252,503)
--------- ----------- --------- ----------- --------- -----------
Net increase..................... 222,169 $ 2,352,745 60,513 $ 640,406 199,457 $ 2,108,955
=========== =========== ===========
Shares outstanding:
Beginning of period............ 3,912,752 -- 1,200,287
--------- --------- ---------
End of period.................. 4,134,921 60,513 1,399,744
========= ========= =========
</TABLE>
Transactions in Class A and C Shares of the Fund during the year ended
September 30, 1997 were as follows:
<TABLE>
<CAPTION>
A SHARES C SHARES
------------------------ ------------------------
FOR THE YEAR ENDED SHARES AMOUNT SHARES AMOUNT
SEPTEMBER 30, 1997 --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................... 1,150,318 $11,941,684 947,310 $ 9,722,280
Shares issued on reinvestment of
distributions.................. 217,347 2,240,553 73,430 753,853
Shares redeemed.................. (698,065) (7,227,798) (456,608) (4,698,707)
--------- ----------- --------- -----------
Net increase..................... 669,600 $ 6,954,439 564,132 $ 5,777,426
=========== ===========
Shares outstanding:
Beginning of year.............. 3,243,152 636,155
--------- ---------
End of year.................... 3,912,752 1,200,287
========= =========
</TABLE>
18
<PAGE> 20
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
Note 3:
PURCHASES AND SALES OF SECURITIES. For the six month period ended March
31, 1998, 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............. $13,166,328 $13,712,576 $ 314,109 -- --
High Yield Bond Fund..................... -- -- -- $34,620,083 $29,999,684
</TABLE>
Note 4:
MANAGEMENT, SUBADVISORY, DISTRIBUTION, SHAREHOLDER SERVICING AGENT AND
TRUSTEES' FEES. Under the Fund's Investment Advisory and Administrative
Agreement with Heritage Asset Management, Inc. (the "Manager"), the
Intermediate Government 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. For the High Yield Bond Fund the management fee
is 0.60% on the first $100,000,000 and 0.50% of any excess over
$100,000,000 of net assets. The Manager voluntarily will waive its
investment advisory fees and, if necessary, reimburse each Fund to the
extent that Class A, Class B and Class C annual operating expenses exceed
that Fund's average daily net assets attributable to that class for the
1998 fiscal year as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B AND CLASS C
------- -------------------
<S> <C> <C>
Intermediate Government Fund................................ 0.95% 1.20%
High Yield Bond Fund........................................ 1.25% 1.70%
</TABLE>
Under this agreement, management fees of $36,671 were waived and $48,691
of expenses were reimbursed for the Intermediate Government Fund and
management fees of $31,103 were waived in the High Yield Bond Fund for the
six month period ended March 31, 1998. If total Fund expenses fall below
the expense limitation agreed to by the Manager before the end of the year
ended September 30, 2000, the Funds may be required to pay the Manager a
portion or all of the waived management fees. In addition, the Funds may
be required to pay the Manager a portion or all of the management fees
waived in fiscal 1996 and 1997 if total Fund expenses fall below the
annual expense limitations before the end of the years ending September
30, 1998 and 1999, respectively.
At a special meeting of shareholders held on February 23, 1998,
shareholders approved the re-appointment of Salomon Brothers Asset
Management Inc (SBAM) a wholly owned subsidiary of Travelers Group, Inc.,
as subadviser to the High Yield Bond Fund. The re-appointment was
necessary because of a merger between a wholly owned subsidiary of
Travelers Group Inc. and Salomon Inc., resulting in a change of control of
SBAM and in an automatic termination of the subadvisory agreement. The
Manager entered into an agreement with SBAM to provide investment advice,
portfolio management services (including the placement of brokerage
orders) and certain compliance and other services for a fee payable by the
Manager equal to 50% of the fees payable by the High Yield Bond Fund to
the Manager without regard to any reduction due to the imposition of
expense limitations. For the six month period ended March 31, 1998 the
Manager paid $85,385 for subadviser fees.
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, 1998 was $3,600
and $9,000, respectively. In addition, the Manager performs Fund
accounting services and charged $18,833 and $24,735 during the current
period of which $10,500 and $10,500 was payable as of March 31, 1998,
respectively.
Raymond James & Associates, Inc. (the "Distributor") has advised the Trust
that the Intermediate Government Fund received $4,034 in front-end sales
charges for Class A Shares and $2 in contingent deferred sales charges for
Class C Shares for the six month period ended March 31, 1998. The High
Yield Bond Fund received $81,917 in front-end sales charges for Class A
Shares, $280 in contingent deferred sales charges for Class B Shares and
$1,683 in contingent deferred sales charges for Class C Shares for the six
month period ended March 31, 1998. The Distributor paid sales 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 Trust is
authorized to pay the Distributor a fee up to .35% of the average daily
net assets for Class A Shares. Under the Class B and Class C Distribution
Plan, the Trust may pay the Distributor a fee of up to .60% for the
Intermediate Government Fund and .80% for the High Yield Bond Fund of the
average daily net assets for Class B and Class C Shares. Such fees are
accrued daily and payable monthly. B Shares will convert to A Shares eight
years after the end of the calendar month in which the shareholder's order
to purchase was accepted. 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 also are
19
<PAGE> 21
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
advised by the Manager of the Trust (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 $3,000 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, 1997, to reflect
reclassifications arising from permanent book/tax differences primarily
due to paydown losses and market discount, respectively, the Funds made
the following adjustments:
INTERMEDIATE GOVERNMENT FUND
-----------------------------------
The Fund charged accumulated net realized loss and credited
undistributed net investment income $6,144. As of September 30, 1997,
the Fund has a net tax basis capital loss carryforwards 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). In addition, from November 1, 1996 to September 30, 1997,
the Fund incurred $129,884 of net realized capital losses which will be
deferred and treated as arising on October 1, 1997 in accordance with
regulations under the Internal Revenue Code.
HIGH YIELD BOND FUND
----------------------------
The Fund credited undistributed net investment income and charged
accumulated net realized loss $44,344. As of September 30, 1997, the
Fund had a net tax basis capital loss carryforward of $716,301, which
may be applied against any realized net taxable gains until their
expiration dates of September 30, 2003 ($706,795) and September 30,
2004 ($48,256). The Fund utilized $695,344 of net tax basis capital
losses during the current year against net realized gains from
investment transactions.
Note 6:
SHAREHOLDERS MEETING. On February 23, 1998 a special shareholders' meeting
was held for the following purposes:
(1) To approve a Subadvisory Agreement between Heritage Asset
Management, Inc. ("Heritage") and Salomon Brothers Asset Management
Inc ("SBAM"), with respect to the Fund;
(2) To approve a proposal to permit Heritage to hire subadvisers or
modify subadvisory agreements without shareholder approval;
(3) To ratify the selection of Price Waterhouse LLP as the Fund's
independent accountants for the fiscal year ending September 30,
1998.
The voting results were as follows:
<TABLE>
<CAPTION>
SHARES
-------------------------------------
FOR AGAINST ABSTAINING
--------- ----------- ----------
<S> <C> <C> <C>
To approve a Subadvisory Agreement between Heritage Asset
Management, Inc. ("Heritage") and Salomon Brothers Asset
Management Inc ("SBAM"), with respect to the Fund......... 2,575,303 25,921 123,725
To approve a proposal to permit Heritage to hire subadvisers
or modify subadvisory agreements without shareholder
approval.................................................. 2,286,882 304,647 133,421
To ratify the selection of Price Waterhouse LLP as the
Fund's independent accountants for the fiscal year ending
September 30, 1998........................................ 2,616,746 7,668 100,535
</TABLE>
20
<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 INCOME FUNDS
Intermediate Government
High Yield
HERITAGE GROWTH FUNDS
Income-Growth
Value Equity
Growth Equity
Capital Appreciation
Mid Cap
Small Cap
International
We are pleased that many of you are also investors in these funds. For
information and a prospectus for any of these mutual funds, please contact your
financial advisor. Please read the prospectus carefully before you invest in
any of the funds.
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.
5M 3/98 [RECYCLE LOGO] Printed on recycled paper
5314S IT
[HERITAGE LOGO] Heritage Income Trust
P.O. Box 33022
St. Petersburg, FL 33733
- ----------------------------------------------------------------
Address Change Requested
