<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
Annual Report
and Investment Performance
Review for the Year Ended
September 30, 1999
(HERITAGE LOGO)
-----------------
INCOME TRUST(TM)
-----------------
<PAGE> 2
November 22, 1999
Dear Fellow Shareholders:
I am pleased to provide you with the annual report for the fiscal year
ended September 30, 1999, for the Intermediate Government Fund and the High
Yield Bond Fund (the "Funds"), each a portfolio of Heritage Income Trust. During
the past year, fixed income investments delivered lackluster returns as high
quality bonds reacted poorly in response to the general increase in interest
rates for U.S. Government bonds. High yield bonds suffered from reduced
liquidity at market makers for these bonds and increasing default rates in
several sectors of the market. During the Funds' fiscal year, the Intermediate
Government Fund suffered negative returns of -1.20%, -1.49% and -1.38% on its
Class A, Class B and Class C shares, respectively.* For the same period, the
High Yield Bond Fund had marginal positive returns of +0.66%, +0.14% and +0.14%,
on its Class A, Class B and Class C shares, respectively.*
In the pages that follow, you will find commentaries from Peter Wallace of
Heritage Asset Management, Inc. and Peter Wilby of Salomon Brothers Asset
Management Inc., the portfolio managers for your Funds. I hope you find their
comments helpful in understanding the factors that affected your Funds'
performance during this difficult year. Even though some sectors of the equity
markets have delivered much more exciting returns in recent years, we continue
to believe that fixed income investments can play an important part in a
well-diversified portfolio. We encourage you to meet with your financial advisor
to ensure that your total portfolio is structured to provide you with the
opportunity to meet your financial goals while offering a risk level with which
you are comfortable.
Thank you for your continuing investments with us. If there are ever any
ways in which you believe we can better serve you, please call us at (800)
709-3863. On behalf of all of us at Heritage, best wishes for a happy and
healthy holiday season.
Sincerely,
/s/STEPHEN G. HILL
Stephen G. Hill
President
- ---------------
* These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
<PAGE> 3
October 25, 1999
Dear Fellow Shareholders:
For the fiscal year ended September 30, 1999, the Intermediate Government
Fund Class A Shares produced a total return of -1.20%* after expenses while the
Lehman Intermediate Government/Corporate Index returned +0.63%. The Fund
performed well among its peer group, as the Lipper Intermediate Government
Category returned -1.26% over the same period.
The last twelve months have seen interest rates increase sharply and fairly
consistently across most fixed income market sectors. The fiscal year just ended
was nearly a mirror image of the previous year with interest rates rising nearly
as much as they had fallen in the previous year. The following table shows the
magnitude of interest rate changes and holding period returns across the US
Treasury yield curve:
US TREASURY YIELDS AND RETURNS
<TABLE>
<CAPTION>
9/30/98 9/30/99 CHANGE RETURNS
------- ------- ------ -------
<S> <C> <C> <C> <C>
3 month................................... 4.356% 4.846% 0.490% 4.74%
6 month................................... 4.467 4.958 0.491 4.74
1 year.................................... 4.393 5.178 0.785 4.44
2 year.................................... 4.269 5.600 1.331 2.44
5 year.................................... 4.221 5.756 1.535 -1.89
10 year................................... 4.408 5.877 1.469 -7.02
30 year................................... 4.965 6.053 1.088 -12.56
</TABLE>
Source: Yields and change: Bloomberg; Returns: Lehman Brothers
At the beginning of the year, the Federal Reserve lowered short-term
interest rates on September 29, 1998 and then again on October 15, 1998 and on
November 17, 1998. The reason for these actions was to add liquidity to the U.S.
financial system to alleviate a developing credit crisis caused by the Asian
financial crisis and the near failure of a large hedge fund.
Generally, such actions by the Federal Reserve would have led to
significantly lower market yields and interest rates. This time, however, the
added liquidity not only brought about the desired market stability but, at the
same time, stimulated domestic consumption and investment. The application of
monetary stimulus applied to an already healthy economy led to a surge in Gross
Domestic Product growth and a sharp and powerful recovery in the stock markets.
Strong economic growth fueled not only by additional liquidity provided by the
Fed, but also by the wealth effect generated by soaring asset values, led to
concerns that the labor market may become over extended and may soon lead to a
new round of wage inflation. Interest rates gradually rose as fears of faster
growth were realized.
Over the year, inflation remained at exceptionally low levels. Through
September of 1999, the Consumer Price Index (CPI) had gained only +2.6% on the
year while the "core" CPI (CPI less the volatile food and energy components)
rose by a mere +2.0% over the same period.
Early in 1999, the Fed became impatient waiting for the economy to slow and
began to vocalize concerns that the economy was growing at too fast a pace and
might soon exceed the rate of growth of productivity and the growth in the labor
force. Fearing such growth would inevitably lead to a re-kindling of inflation
and coupled with the recovery of Asian economies and renewed stability in the
credit markets, the Fed concluded the previous monetary ease was no longer
necessary. By June, the Federal Reserve raised short-term interest rates by 25
basis points and then again on August 24, 1999.
During the year, the Fund has become increasingly defensive, concentrating
primarily on shorter to intermediate term US Treasury issues. The Fund continued
to de-emphasize mortgage securities that might become more sensitive as
underlying prepayments slowed and yield spreads widened. Although the Fund is
defensive near term, we believe intermediate government bonds still offer
excellent value as yields have moved significantly higher without a comparable
rise in inflation. This has increased the "real yield" (nominal yield less
inflation) of ten year Treasuries to about 3.28%, better than the long term
average of 2.85%.
In the near term, we believe the bond market will continue to exhibit high
levels of volatility and nervousness until signs of economic softening appear.
We plan to maintain a conservative investment approach, concentrating on
shorter-term issues until we see evidence of a slowing economy.
Thanks 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
- ---------------
* Return is calculated without the imposition of front-end sales charge.
2
<PAGE> 4
GROWTH OF A $10,000 INVESTMENT
SINCE INCEPTION OF HERITAGE INCOME TRUST--INTERMEDIATE GOVERNMENT FUND
CLASS A SHARES ON MARCH 1, 1990
CHART
GROWTH OF A $10,000 INVESTMENT
SINCE INCEPTION OF HERITAGE INCOME TRUST--INTERMEDIATE GOVERNMENT FUND
CLASS B SHARES ON FEBRUARY 2, 1998
CHART
* Average annual returns for the Intermediate Government Fund Class A and B
Shares are calculated in conformance with item 21 of Form N-1A, which assumes
the maximum sales load of 3.75% for Class A Shares, a 4% contingent deferred
sales load for the complete redemption of Class B Shares, and reinvestment of
dividends for Class A and B Shares. If Class B Shares were still held at the
end of the period, the value would be $10,556. Performance presented
represents historical data. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The Fund's past performance is
not indicative of future performance and should be considered in light of the
Fund's investment policy and objectives, the characteristics and quality of
its portfolio securities, and the periods selected.
3
<PAGE> 5
GROWTH OF A $10,000 INVESTMENT
SINCE INCEPTION OF HERITAGE INCOME TRUST--INTERMEDIATE GOVERNMENT FUND
CLASS C SHARES ON APRIL 3, 1995
CHART
* Average annual returns for the Intermediate Government Fund Class C Shares are
calculated in conformance with item 21 of Form N-1A, which assumes
reinvestment of dividends for Class C Shares. Performance presented represents
historical data. The investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost. The Fund's past performance is not
indicative of future performance and should be considered in light of the
Fund's investment policy and objectives, the characteristics and quality of
its portfolio securities, and the periods selected.
4
<PAGE> 6
October 26, 1999
Dear Shareholders:
The Heritage Income Trust -- High Yield Bond Fund returned 0.66%* on its
Class A Shares for the fiscal year-ended September 30, 1999. By comparison, the
Salomon Smith Barney High Yield Market Index gained 3.51% and the Lipper High
Current Yield Fund category returned 4.84%.
During the first quarter of fiscal 1999, the market rebounded from the
volatility experienced during the Asian and Russian financial crises, which
engulfed the market in August and September of 1998. The market posted strong
returns as mutual fund flows reversed themselves from the prior quarter. The
positive momentum carried over into the second fiscal quarter, buoyed by
continued strong U.S. economic growth, continued strength in mutual fund inflows
and a rebound in energy prices. However, market returns slowed from the first
fiscal quarter as concerns over Brazil's currency devaluation weighed on the
market. In the second half of the fiscal year, the high yield market retraced a
significant portion of its gains in the first half due to inflation and interest
rate concerns, combined with (i) reduced broker-dealer liquidity, (ii) a heavy
new issuance calendar, (iii) a rise in default rates and (iv) mutual fund
outflows. As a result, a "flight to quality" occurred in the second half of
fiscal 1999 as investors, seeking greater liquidity and wary of credit issues,
shifted funds into the larger, higher quality bonds of more established issuers.
According to the Salomon Smith Barney High Yield Market Index, the average
market yield at September 30, 1999 was 11.34%. This compares to 10.70% at June
30, 1999 and 10.67% at September 30, 1998. Spreads, which were a wide 630 basis
points at September 30, 1998, narrowed to 497 basis points at June 30, 1999 and
subsequently widened to 551 basis points at September 30, 1999. These figures
reflect the spread tightening which occurred as the global credit markets
recovered from the Russian financial crisis, followed by the volatility which
affected the U.S. credit markets as inflation and interest rate concerns
increasingly preoccupied investors.
Leading the market over the last twelve months have been higher rated
securities and Paper & Forest Products, Gaming, Metals/Mining, Cable & Media,
Telecommunications and Utilities issues. Sectors that have lagged include
lower-rated securities, Textiles, Healthcare, Leisure, Consumer Products and
Transportation.
In response to the increased market volatility which has resulted from
heightened inflation, interest rate and credit concerns and decreased market
liquidity, the Heritage Income Trust -- High Yield Bond Fund has been focused on
continuing to upgrade credit quality over the past year. The Fund reduced its
exposure to the more cyclical sectors which are more sensitive to global
economic conditions such as Metals/Mining, Paper & Forest Products and
Transportation early in the fiscal year and rotated its cyclical exposure into
sectors which were more domestic in focus and have benefited from continued U.S.
economic strength, such as Automotive Suppliers, Housing Related and Consumer
Cyclicals. Late in the fiscal year, the Fund began to rotate back into Mining/
Metals and Paper & Forest Products to capitalize on resurgent prices in those
sectors. With regard to non-cyclicals, the Fund has reduced its exposure to
Healthcare, due to that sector's struggles with Medicare reimbursement issues,
and increased its exposure to Consumer Products, Gaming and Cable & Media.
The Fund's performance was helped by shifts to overweightings in Gaming and
Cable & Media, and by its underweightings in Textiles and Leisure and a shift to
an underweighting in Healthcare. The Fund was adversely affected by
overweightings in Transportation and Consumer Products and underweightings in
Metals/Mining, Paper & Forest Products, Telecommunications and Utilities. The
Fund also suffered from several credit problems in the Energy sector.
Going forward, we expect the high yield market to suffer continued
volatility through the end of the calendar year as the financial markets focus
on inflation, interest rate, credit and Y2K concerns, and broker-dealers and
investors withhold cash from the market. Early in the new calendar year, we
expect that most of these issues will be settled and that liquidity in the
market will increase, which is expected to result in a recovery in prices of
high yield bonds.
Best regards,
/s/ PETER J. WILBY
Peter J. Wilby
Managing Director
Salomon Brothers Asset Management Inc.
Portfolio Manager, High Yield Bond
Fund
- ---------------
* Return is calculated without the imposition of front-end sales charges.
5
<PAGE> 7
GROWTH OF A $10,000 INVESTMENT SINCE THE APPROVAL OF
SALOMON AS SUBADVISER OF HERITAGE INCOME TRUST--HIGH YIELD BOND FUND
ON FEBRUARY 1, 1996
CHART
The graph represents performance from February 1, 1996 through September 30,
1999. On February 1st, Salomon Brothers Asset Management Inc. assumed portfolio
management responsibilities as the new subadviser to the Fund. At that time the
investment objective was changed to high current income and the investment
policies were modified to allow the Fund to primarily invest in lower and
medium-rated high yield fixed income securities. Prior to February 1, 1996, the
Fund invested a minimum of 50% of the Fund's assets in U.S. Government
securities.
GROWTH OF A $10,000 INVESTMENT SINCE
INCEPTION OF HERITAGE INCOME TRUST--HIGH YIELD BOND FUND
CLASS A SHARES ON MARCH 1, 1990
CHART
* See footnotes on next page.
6
<PAGE> 8
GROWTH OF A $10,000 INVESTMENT SINCE
INCEPTION OF HERITAGE INCOME TRUST--HIGH YIELD BOND FUND
CLASS B SHARES ON FEBRUARY 2, 1998
CHART
GROWTH OF A $10,000 INVESTMENT SINCE
INCEPTION OF HERITAGE INCOME TRUST--HIGH YIELD BOND FUND
CLASS C SHARES ON APRIL 3, 1995
CHART
* Average annual returns for High Yield Bond Fund Class A, B and C Shares are
calculated in conformance with item 21 of Form N-1A, which assumes the maximum
sales load of 3.75% for Class A Shares, a 4% contingent deferred sales load
for the complete redemption of Class B Shares, and reinvestment of dividends
for Class A, B and C Shares. If Class B Shares were still held at the end of
the period, the value would be $9,655. Performance presented represents
historical data. The investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost. The Fund's past performance is not
indicative of future performance and should be considered in light of the
Fund's investment policy and objectives, the characteristics and quality of
its portfolio securities, and the periods selected.
7
<PAGE> 9
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
INTERMEDIATE GOVERNMENT FUND
INVESTMENT PORTFOLIO
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
--------- ---------- -----------
<C> <S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES--90.9%(A)
- ---------------------------------------------------------------------------------
U.S. TREASURIES--76.9%(A)
$1,300,000 U.S. Treasury Notes, 4.5%................................... 09/30/00 $ 1,287,813
500,000 U.S. Treasury Notes, 5.25%.................................. 05/31/01 497,032
1,000,000 U.S. Treasury Notes, 6.25%.................................. 01/31/02 1,011,563
1,000,000 U.S. Treasury Notes, 5.875%................................. 09/30/02 1,003,750
1,000,000 U.S. Treasury Notes, 5.75%.................................. 11/30/02 999,375
1,000,000 U.S. Treasury Notes, 5.5%................................... 02/28/03 990,938
2,300,000 U.S. Treasury Notes, 5.25%.................................. 08/15/03 2,254,720
2,300,000 U.S. Treasury Notes, 4.75%.................................. 02/15/04 2,205,845
-----------
Total U.S. Treasuries (cost $10,461,742).................... 10,251,036
-----------
U.S. GOVERNMENT AGENCIES--14.0%(A)
- ---------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--14.0%
982,188 Pool #459881, 30 year Pass-Through, 6.5%.................... 01/01/29 942,460
953,196 Pool #481349, 30 year Pass-Through, 6.5%.................... 01/01/29 914,641
-----------
Total U.S. Government Agencies (cost $1,940,931)............ 1,857,101
-----------
Total U.S. Government and Agency Securities (cost
$12,402,673)................................................ 12,108,137
-----------
REPURCHASE AGREEMENT--7.9%(A)
- ---------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated September
30, 1999, @ 5.16% to be repurchased at $1,055,151 on October 1, 1999,
collateralized by $1,060,000 United States Treasury Notes, 6.63% due March 31,
2002, (market value $1,081,697 including interest) (cost $1,055,000)............. 1,055,000
-----------
TOTAL INVESTMENT PORTFOLIO (cost $13,457,673)(b) 98.8%(a)........................ 13,163,137
OTHER ASSETS AND LIABILITIES, net, 1.2%(a)....................................... 156,967
-----------
NET ASSETS, 100%................................................................. $13,320,104
===========
</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 depreciation of
$294,536 which consists of aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost of
$14,766 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value of $309,302.
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 10
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
DOMESTIC CORPORATE BONDS--86.4%(A)
AEROSPACE--1.7%
------------------------------------------
$ 500,000 Sequa Corporation, 9.0%,
08/01/09..................... $ 490,000
500,000 Stellex Industries, Inc.,
9.5%, 11/01/07............... 360,000
-----------
850,000
-----------
AIR TRANSPORT--0.9%
------------------------------------------
500,000 Continental Airlines Inc.,
8.0%, 12/15/05............... 457,500
-----------
AUTO PARTS/EQUIPMENT--5.2%
------------------------------------------
500,000 Advance Stores Company, Inc.,
Series "B", 10.25%,
04/15/08..................... 465,000
500,000 American Axle & Manufacturing
Holdings, Inc., 9.75%,
03/01/09..................... 493,750
500,000 Federal-Mogul Corporation,
7.5%, 01/15/09............... 450,395
250,000 Hayes Lemmerz International,
Inc., 8.25%, 12/15/08........ 220,000
500,000 JH Heafner Company, 10.0%,
05/15/08..................... 470,000
500,000 Lear Corporation, 8.11%,
05/15/09..................... 483,836
-----------
2,582,981
-----------
BEVERAGES--0.5%
------------------------------------------
250,000 Delta Beverage Group, Inc.,
9.75%, 12/15/03.............. 251,250
-----------
BROADCASTING--12.0%
------------------------------------------
250,000 Adelphia Communications
Corporation, 10.5%,
07/15/04..................... 260,625
250,000 Adelphia Communications
Corporation, 9.875%,
03/01/07..................... 254,375
500,000 Chancellor Media Corporation,
9.375%, 10/01/04............. 510,000
1,000,000 Charter Communications
Holdings, LLC, 0.0% to
04/01/04, 9.92% to
maturity(b), 04/01/11........ 596,250
250,000 Charter Communications
Holdings, LLC, 8.625%,
04/01/09..................... 236,250
250,000 Classic Cable Inc., 9.375%,
08/01/09..................... 241,250
500,000 CSC Holdings Inc., 10.5%,
05/15/16..................... 541,250
500,000 Falcon Holdings Group, L.P.,
8.375%, 04/15/10............. 493,750
500,000 Granite Broadcasting, 8.875%,
05/15/08..................... 475,000
500,000 Insight Midwest LP, 9.75%,
10/01/09..................... 505,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
500,000 LIN Television Corporation,
8.375%, 03/01/08............. 466,250
500,000 Mediacom LLC Capital, 8.5%,
04/15/08..................... 460,000
329,000 SFX Broadcasting, Inc.,
10.75%, 05/15/06............. 365,190
1,100,000 United International
Holdings, 0% to 02/15/03,
10.75% to maturity(b),
02/15/08..................... 664,125
-----------
6,069,315
-----------
BUILDING--2.0%
------------------------------------------
500,000 Intergrated Electronic
Services, Inc., 9.375%,
02/01/09..................... 490,000
500,000 Panolam Industries
International, 11.5%,
02/15/09..................... 500,000
-----------
990,000
-----------
CHEMICALS--3.3%
------------------------------------------
500,000 Equistar Chemicals, L.P.,
8.75%, 02/15/09.............. 496,264
500,000 Lyondell Chemical Company,
9.875%, 05/01/07............. 495,625
250,000 Philipp Brothers Chemicals,
9.875%, 06/01/08............. 227,500
500,000 United Industries
Corporation, 9.875%,
04/01/09..................... 430,000
-----------
1,649,389
-----------
CONGLOMERATES/DIVERSIFIED--1.3%
------------------------------------------
1,000,000 Jordan Industries, 0.0% to
04/01/02, 11.75% to
maturity(b), 04/01/09........ 650,000
-----------
CONTAINERS--0.5%
------------------------------------------
250,000 Radnor Holdings, Inc., 10.0%,
12/01/03..................... 253,125
-----------
COSMETICS/TOILETRIES--2.8%
------------------------------------------
500,000 French Fragrances, Inc.,
10.375%, 05/15/07............ 475,000
500,000 Jafra Cosmetics
International, Inc., 11.75%,
05/01/08..................... 430,000
250,000 Revlon Consumer Products,
8.625%, 02/01/08............. 204,375
600,000 Revlon Worldwide Corporation,
Zero Coupon Bond, 03/15/01... 324,000
-----------
1,433,375
-----------
ELECTRONICS/ELECTRIC--0.3%
------------------------------------------
500,000 Axiohm Transaction Solutions,
Inc., 9.75%, 10/01/07(c)..... 145,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 11
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HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
SEPTEMBER 30, 1999
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
FINANCE--3.2%
------------------------------------------
$ 500,000 Airplane Pass Through Trust,
Class "D", 10.875%,
03/15/19..................... $ 479,015
250,000 ContiFinancial Corporation,
7.50%, 03/15/02.............. 78,158
250,000 ContiFinancial Corporation,
8.125%, 04/01/08............. 78,083
125,000 ContiFinancial Corporation,
8.375%, 08/15/03............. 38,750
500,000 DVI, Inc., 9.875%,
02/01/04..................... 490,000
500,000 Morgan Stanley Aircraft
Finance 8.7%, 03/15/23....... 437,220
-----------
1,601,226
-----------
FOOD--2.4%
------------------------------------------
250,000 B&G Foods, Inc., 9.625%,
08/01/07..................... 225,000
250,000 CFP Holdings, Inc., 11.625%,
01/15/04..................... 220,000
500,000 Imperial Holly Corporation,
9.75%, 12/15/07.............. 463,125
700,000 Nebco Evans Holding
Corporation, 0.0% to
07/15/02, 12.375% to
maturity(b), 07/15/07........ 280,000
-----------
1,188,125
-----------
GRAPHIC ARTS--0.9%
------------------------------------------
250,000 Mail-Well Corporation, 8.75%,
12/15/08..................... 237,500
250,000 World Color Press, Inc.,
8.375%, 11/15/08............. 240,000
-----------
477,500
-----------
HEALTH CARE CENTERS--0.4%
------------------------------------------
400,000 Graham-Field Health Products,
Inc., 9.75%, 08/15/07........ 220,000
-----------
HOME FURNISHINGS--0.3%
------------------------------------------
250,000 Pillowtex Corporation, Series
"B", 9.0%, 12/15/07.......... 161,250
-----------
HOTELS/MOTELS/INNS--1.9%
------------------------------------------
500,000 HMH Properties, Inc., Series
"B", 7.875%, 08/01/08........ 446,250
500,000 Prime Hospitality
Corporation, 9.75%,
04/01/07..................... 487,500
-----------
933,750
-----------
JEWELERY, SILVERWARE, TIME PIECES, CHINA -- 0.9%
-------------------------------------------------------
500,000 Finlay Enterprises, Inc.,
9.0%, 05/01/08............... 455,000
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
LEISURE/AMUSEMENT--3.8%
------------------------------------------
500,000 Empress Entertainment,
8.125%, 07/01/06............. 497,500
500,000 Hollywood Park Inc., 9.25%,
02/15/07..................... 482,500
500,000 Park Place Entertainment
Corporation, 7.875%,
12/15/05..................... 472,500
489,000 Waterford Gaming, LLC, 9.5%,
03/15/10..................... 474,330
-----------
1,926,830
-----------
MANUFACTURING/DISTRIBUTIONS--5.7%
------------------------------------------
350,000 Alvey Systems, Inc., 11.375%,
01/31/03..................... 357,000
500,000 Breed Technologies Inc.,
9.25%, 04/15/08(c)........... 20,000
500,000 Foamex, L.P., 9.875%,
06/15/07..................... 420,000
500,000 Furon Company, 8.125%,
03/01/08..................... 505,000
250,000 Hexcel Corporation, 9.75%,
01/15/09..................... 220,000
250,000 High Voltage Engineering
Group, 10.5%, 08/15/04....... 227,500
325,000 Hines Horticulture, Inc.,
11.75%, 10/15/05............. 344,500
500,000 Indesco International, Inc.,
9.75%, 04/15/08.............. 285,000
500,000 Simmons Company 10.25%,
03/15/09..................... 492,500
-----------
2,871,500
-----------
MEDICAL EQUIPMENT/SUPPLY--2.9%
------------------------------------------
500,000 Fresenius Medical Care, 9.0%,
12/01/06..................... 482,500
500,000 Maxxim Medical, Inc., 10.5%,
08/01/06..................... 525,000
500,000 Packard Bioscience Company,
9.375%, 03/01/07............. 452,500
-----------
1,460,000
-----------
METAL--0.9%
------------------------------------------
500,000 Neenah Corporation, Series
"D", 11.125%, 05/01/07....... 462,500
-----------
MINING/DIVERSIFIED--1.0%
------------------------------------------
500,000 P&L Coal Holdings
Corporation, 8.875%,
05/15/08..................... 488,750
-----------
OFFICE EQUIPMENT--1.0%
------------------------------------------
500,000 Winslow Furniture Inc.,
12.75%, 08/15/07............. 485,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 12
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
SEPTEMBER 30, 1999
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
OIL & GAS--4.0%
------------------------------------------
$ 500,000 Belco Oil & Gas Corporation,
8.875%, 09/15/07............. $ 476,250
500,000 Benton Oil & Gas Company,
11.625%, 05/01/03............ 275,000
500,000 Clark R&M, Inc., 8.875%,
11/15/07..................... 410,000
250,000 Costilla Energy, Inc.,
10.25%, 10/01/06(c).......... 70,000
250,000 Devon Energy Corporation,
10.25%, 11/01/05............. 279,340
500,000 Ocean Energy Inc., 8.375%,
07/01/08..................... 482,500
-----------
1,993,090
-----------
PLASTIC/PRODUCTS--1.0%
------------------------------------------
500,000 Berry Plastics Corporation,
12.25%, 04/15/04............. 508,125
-----------
POLLUTION CONTROL--1.9%
------------------------------------------
500,000 Allied Waste North America,
Inc., 7.875%, 01/01/09....... 437,500
500,000 Safety-Kleen Services, 9.25%,
06/01/08..................... 500,000
-----------
937,500
-----------
PUBLISHING--2.9%
------------------------------------------
500,000 Advanstar Communications,
9.25%, 05/01/08.............. 468,750
500,000 Big Flower Press Holdings,
Inc., 8.875%, 07/01/07....... 490,000
500,000 Hollinger International
Publishing, 9.25% 03/15/07... 494,375
-----------
1,453,125
-----------
REAL ESTATE/LAND DEVELOPMENT--0.9%
------------------------------------------
500,000 Forest City Enterprises,
Inc., 8.5%, 03/15/08......... 470,000
-----------
RETAIL STORES--4.5%
------------------------------------------
500,000 Cole National Group, 9.875%,
12/31/06..................... 427,500
500,000 Duane Reade Inc., 9.25%,
02/15/08..................... 495,000
500,000 Leslie's Poolmart, 10.375%,
07/15/04..................... 490,000
175,000 Mattress Discount
Corporation, 12.625%,
07/15/07..................... 165,375
500,000 Musicland Group, 9.0%,
06/15/03..................... 485,000
250,000 Pueblo Xtra International
9.5%, 08/01/03............... 207,500
-----------
2,270,375
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
SERVICES--6.0%
------------------------------------------
500,000 Comforce Operating, Inc.,
12.0%, 12/01/07.............. 341,250
250,000 Federal Data Corporation,
10.125%, 08/01/05............ 205,000
500,000 Iron Mountain, Inc., 10.125%,
10/01/06..................... 505,000
500,000 Kindercare Learning Centers,
Inc., 9.5%, 02/15/09......... 471,250
500,000 Loomis Fargo & Company,
10.0%, 01/15/04.............. 495,000
250,000 Pierce Leahy Corporation,
11.125%, 07/15/06............ 265,000
500,000 Protection One Alarm
Monitoring, Inc, 8.125%,
01/15/09..................... 335,000
500,000 Sitel Corporation, 9.25%,
03/15/06..................... 420,000
-----------
3,037,500
-----------
STEEL/IRON--0.9%
------------------------------------------
500,000 Republic Technologies
International, 13.75%,
07/15/09..................... 475,000
-----------
TELECOMMUNICATIONS--6.1%
------------------------------------------
500,000 Facilicom International,
10.5%, 01/15/08.............. 415,000
250,000 GST Telecommunications, 0.0%
to 05/01/03, 10.5% to
maturity(b), 05/01/08........ 120,000
250,000 Intermedia Communications,
Inc., 8.6%, 06/01/08......... 214,375
1,000,000 International CableTel, Inc.,
0.0% to 02/01/01, 11.5% to
maturity(b), 02/01/06........ 870,000
500,000 Jordan Telecom Products, 0.0%
to 08/01/00, 11.75% to
maturity(b), 08/01/07........ 422,500
750,000 Nextel Communications, Inc.,
0.0% to 10/31/02, 9.75% to
maturity(b) 10/31/07......... 530,625
500,000 Price Communications
Wireless, 9.125%, 12/15/06... 508,750
-----------
3,081,250
-----------
TOBACCO--0.9%
------------------------------------------
500,000 North Atlantic Trading
Company, 11.0%, 06/15/04..... 472,500
-----------
TRANSPORTATION--1.5%
------------------------------------------
375,000 Coach USA Inc., Series "B",
9.375%, 07/01/07............. 397,500
500,000 Holt Group, 9.75%,
01/15/06..................... 345,625
-----------
743,125
-----------
Total Domestic Corporate Bonds (cost
$48,709,336)............................ 43,504,956
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 13
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
SEPTEMBER 30, 1999
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
FOREIGN CORPORATE BONDS--9.9%(A)(D)
BROADCASTING--1.0%
------------------------------------------
$ 500,000 Rogers Communications, Inc.,
8.875%, 07/15/07............. $ 520,000
-----------
CHEMICALS--1.0%
------------------------------------------
500,000 Octel Developments, PLC,
10.0%, 05/01/06.............. 506,250
-----------
FOOD--1.0%
------------------------------------------
500,000 Premier International Foods,
12.0%, 09/01/09.............. 500,000
-----------
HOTELS/MOTELS/INNS--0.9%
------------------------------------------
500,000 Sun International Hotels,
Ltd., 8.625%, 12/15/07....... 457,500
-----------
MANUFACTURING/DISTRIBUTIONS--0.5%
------------------------------------------
250,000 International Utility
Structures, Inc., 10.75%,
02/01/08..................... 232,500
-----------
MINING/DIVERSIFIED--0.9%
------------------------------------------
500,000 Murrin Murrin Holdings
Property, 9.375%, 08/31/07... 435,000
-----------
PAPER/PRODUCTS--0.5%
------------------------------------------
250,000 Millar Western Forest,
9.875%, 05/15/08............. 240,625
-----------
SHIPPING/SHIPBUILDING--0.5%
------------------------------------------
500,000 Enterprises Shipholding,
8.875%, 05/01/08............. 300,000
-----------
TELECOMMUNICATIONS--3.6%
------------------------------------------
500,000 Energis PLC, 9.75%,
06/15/09..................... 510,000
500,000 Orange, PLC, 8.75%,
06/01/06..................... 506,250
500,000 Rogers Cantel Inc., 8.8%,
10/01/07..................... 510,000
350,000 Telewest Communications PLC,
0.0% to 10/01/00, 11.0% to
maturity(b), 10/01/07........ 312,375
-----------
1,838,625
-----------
Total Foreign Corporate Bonds (cost
$5,368,526)............................. 5,030,500
-----------
Total Investment Portfolio excluding
repurchase agreement (cost
$54,077,862)............................ 48,535,456
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
------
<C> <S> <C>
REPURCHASE AGREEMENT--2.8%(A)
-------------------------------------------------------
Repurchase Agreement with State Street
Bank and Trust Company, dated September
30, 1999 @ 5.16% to be repurchased at
$1,412,202 on October 1, 1999,
collateralized by $1,415,000 United States
Treasury Notes, 6.63% due March 31, 2002,
(market value $1,443,963 including
interest) (cost $1,412,000)............... 1,412,000
-----------
TOTAL INVESTMENT PORTFOLIO
(cost $55,489,862)(e), 99.1%(a)......... 49,947,456
OTHER ASSETS AND LIABILITIES, net,
0.9%(a)................................. 470,716
-----------
NET ASSETS, 100.0%........................ $50,418,172
===========
</TABLE>
- ---------------
(a) Percentages indicated are based on net assets.
(b) Bonds reset to applicable coupon rate at a future date.
(c) Bond not current on interest payment.
(d) Denominated in U.S. dollars.
(e) The aggregate identified cost for federal income tax purposes is
substantially the same. Market value includes net unrealized depreciation of
$5,542,406 which consists of aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost of
$200,386 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value of $5,742,792.
The accompanying notes are an integral part of the financial statements.
12
<PAGE> 14
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE HIGH YIELD
GOVERNMENT FUND BOND FUND
--------------- -----------
<S> <C> <C>
Assets
- ------------------------------------------------------------
Investments, at market value (identified cost $12,402,673
and $54,077,862, respectively)
(Note 1).................................................. $12,108,137 $48,535,456
Repurchase agreement (identified cost $1,055,000 and
$1,412,000, respectively) (Note 1)........................ 1,055,000 1,412,000
Cash........................................................ 878 529
Receivables:
Fund shares............................................... 48,189 76,341
From Manager.............................................. 63,436 --
Dividends and interest.................................... 83,689 1,176,337
Deferred state qualification expenses (Note 1).............. 10,373 10,169
Prepaid insurance (Note 1).................................. 932 1,550
----------- -----------
Total Assets........................................ $13,370,634 $51,212,382
----------- -----------
Liabilities
- ------------------------------------------------------------
Payables (Note 4):
Investments purchased..................................... $ -- $ 500,000
Fund shares redeemed...................................... 5,499 167,444
Accrued management fee.................................... -- 56,020
Accrued distribution fee.................................. 4,059 18,664
Other accrued expenses.................................... 40,972 52,082
----------- -----------
Total Liabilities................................... 50,530 794,210
----------- -----------
Net assets, at market value................................. $13,320,104 $50,418,172
=========== ===========
Net Assets
- ------------------------------------------------------------
Net assets consist of:
Paid-in capital........................................... $20,316,404 $58,462,404
Undistributed net investment income (Note 1).............. 329,690 371,787
Accumulated net realized loss (Notes 1 and 5)............. (7,031,454) (2,873,613)
Net unrealized depreciation on investments................ (294,536) (5,542,406)
----------- -----------
Net assets, at market value................................. $13,320,104 $50,418,172
=========== ===========
Net assets, at market value
Class A Shares............................................ $10,654,447 $34,344,403
Class B Shares............................................ 422,700 3,532,803
Class C Shares............................................ 2,242,957 12,540,966
----------- -----------
Total............................................... $13,320,104 $50,418,172
=========== ===========
Shares of beneficial interest outstanding
Class A Shares............................................ 1,162,658 3,824,291
Class B Shares............................................ 46,293 395,311
Class C Shares............................................ 245,437 1,403,329
----------- -----------
Total............................................... 1,454,388 5,622,931
=========== ===========
Net Asset Value -- offering and redemption price per share
(Notes 1 and 2)
Class A Shares............................................ $ 9.16 $ 8.98
=========== ===========
Maximum offering price per share (100/96.25 of $9.16 and
$8.98, respectively)................................... $ 9.52 $ 9.33
=========== ===========
Class B Shares............................................ $ 9.13 $ 8.94
=========== ===========
Class C Shares............................................ $ 9.14 $ 8.94
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE> 15
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE HIGH YIELD
GOVERNMENT FUND BOND FUND
--------------- -----------
<S> <C> <C>
Investment Income
- ------------------------------------------------------------
Income:
Interest.................................................. $ 789,681 $ 5,451,151
Expenses (Notes 1 and 4):
Management fee............................................ 74,359 323,209
Distribution fee (Class A Shares)......................... 38,142 107,286
Distribution fee (Class B Shares)......................... 1,897 22,215
Distribution fee (Class C Shares)......................... 14,279 106,170
Shareholder servicing fees................................ 11,444 34,293
Custodian/Fund accounting fees............................ 50,585 75,560
Professional fees......................................... 35,771 34,653
State/Federal qualification expenses...................... 31,583 31,952
Reports to shareholders................................... 11,791 21,718
Trustees' fees and expenses............................... 9,399 8,617
Insurance................................................. 2,036 3,388
Other..................................................... 177 710
--------- -----------
Total Expenses before waiver and reimbursement...... 281,463 769,771
Fees waived by Manager (Note 4)..................... (74,359) (49,125)
Reimbursement from Manager.......................... (63,436) --
--------- -----------
Total expenses after waiver and reimbursement....... 143,668 720,646
--------- -----------
Net investment income....................................... 646,013 4,730,505
--------- -----------
Realized and Unrealized Gain (Loss) on Investment
- ------------------------------------------------------------
Net realized gain (loss) from investment transactions....... 73,483 (2,864,540)
Net unrealized depreciation of investments during the
year...................................................... (935,036) (1,538,293)
--------- -----------
Net loss on investments............................. (861,553) (4,402,833)
--------- -----------
Net increase (decrease) in net assets resulting from
operations................................................ $(215,540) $ 327,672
========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 16
- --------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------------
INTERMEDIATE GOVERNMENT FUND SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
- ---------------------------- ------------------ ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 646,013 $ 748,165
Net realized gain from investment transactions............ 73,483 280,582
Net unrealized appreciation (depreciation) of investments
during the year......................................... (935,036) 585,698
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. (215,540) 1,614,445
Distributions to shareholders from:
Net investment income Class A Shares, ($0.42 and $0.49 per
share, respectively).................................... (553,804) (694,550)
Net investment income Class B Shares, ($0.40 and $0.26*
per share, respectively)................................ (12,843) (1,541)
Net investment income Class C Shares, ($0.40 and $0.47 per
share, respectively).................................... (109,274) (72,672)
Increase (decrease) in net assets from Fund share
transactions (Note 2)..................................... (3,566,013) 2,061,901
----------- -----------
Increase (decrease) in net assets........................... (4,457,474) 2,907,583
Net assets, beginning of year............................... 17,777,578 14,869,995
----------- -----------
Net assets, end of year (including undistributed net
investment income of $329,690 and $683,051,
respectively)............................................. $13,320,104 $17,777,578
=========== ===========
<CAPTION>
FOR THE YEARS ENDED
---------------------------------------
HIGH YIELD BOND FUND SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
- -------------------- ------------------ ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 4,730,505 $ 4,818,000
Net realized gain (loss) from investment transactions..... (2,864,540) 761,512
Net unrealized depreciation of investments during the
year.................................................... (1,538,293) (5,944,103)
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. 327,672 (364,591)
Distributions to shareholders from:
Net investment income Class A Shares, ($0.87 and $0.89 per
share, respectively).................................... (3,446,438) (3,625,981)
Net investment income Class B Shares, ($0.82 and $0.48*
per share, respectively)................................ (232,004) (55,927)
Net investment income Class C Shares, ($0.82 and $0.84 per
share, respectively).................................... (1,141,155) (1,143,752)
Increase in net assets from Fund share transactions (Note
2)........................................................ 148,976 5,333,666
----------- -----------
Increase (decrease) in net assets........................... (4,342,949) 143,415
Net assets, beginning of year............................... 54,761,121 54,617,706
----------- -----------
Net assets, end of year (including undistributed net
investment income of $371,787 and $451,806,
respectively)............................................. $50,418,172 $54,761,121
=========== ===========
</TABLE>
- ---------------
* For the period February 2, 1998 (commencement of Class B Shares) to September
30, 1998.
The accompanying notes are an integral part of the financial statements.
15
<PAGE> 17
- --------------------------------------------------------------------------------
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
------------------------------------------- ---------------
FOR THE YEARS
FOR THE YEARS ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------- ---------------
1999* 1998* 1997* 1996* 1995 1999* 1998+*
------ ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR..................... $ 9.70 $ 9.20 $ 9.08 $ 9.29 $ 9.10 $ 9.67 $ 9.28
------ ------- ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)............................. 0.41 0.48 0.51 0.50 0.62 0.39 0.33
Net realized and unrealized gain (loss) on
investments........................................ (0.53) 0.51 0.13 (0.21) 0.12 (0.53) 0.32
------ ------- ------ ------ ------ ------ ------
Total from Investment Operations..................... (0.12) 0.99 0.64 0.29 0.74 (0.14) 0.65
------ ------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income................. (0.42) (0.49) (0.52) (0.50) (0.55) (0.40) (0.26)
------ ------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR........................... $ 9.16 $ 9.70 $ 9.20 $ 9.08 $ 9.29 $ 9.13 $ 9.67
====== ======= ====== ====== ====== ====== ======
TOTAL RETURN (%)(B).................................... (1.20) 11.18 7.28 3.24 8.47 (1.49) 7.16(c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily net
assets(a).......................................... 0.91 0.92 0.93 0.94 0.95 1.20 1.20(d)
Net investment income to average daily net assets.... 4.40 5.18 5.65 5.42 5.50 4.15 4.59(d)
Portfolio turnover rate.............................. 124 188 69 135 162 124 188(c)
Net assets, end of year ($ millions)................. 11 13 14 18 24 0 0
<CAPTION>
CLASS C SHARES
------------------------------------------
FOR THE YEARS
ENDED SEPTEMBER 30,
------------------------------------------
1999* 1998* 1997* 1996* 1995++
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR..................... $ 9.67 $ 9.18 $ 9.06 $ 9.27 $ 9.05
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)............................. 0.40 0.41 0.49 0.49 0.21
Net realized and unrealized gain (loss) on
investments........................................ (0.53) 0.55 0.13 (0.21) 0.23
------ ------ ------ ------ ------
Total from Investment Operations..................... (0.13) 0.96 0.62 0.28 0.44
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income................. (0.40) (0.47) (0.50) (0.49) (0.22)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR........................... $ 9.14 $ 9.67 $ 9.18 $ 9.06 $ 9.27
====== ====== ====== ====== ======
TOTAL RETURN (%)(B).................................... (1.38) 10.85 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 1.20 1.20(d)
Net investment income to average daily net assets.... 4.11 4.74 5.38 5.22 5.19(d)
Portfolio turnover rate.............................. 124 188 69 135 162(c)
Net assets, end of year ($ millions)................. 2 5 1 1 0
</TABLE>
- ---------------
* Per share amounts have been calculated using the monthly average share
method.
+ For the period February 2, 1998 (commencement of Class B Shares) to
September 30, 1998.
++ 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 $.09, $.10, $.07, $.06, and $.06 per Class A Shares for the
five years ended September 30, 1999, respectively. The operating expense
ratios including such items would have been 1.84%, 2.00%, 1.67%, 1.61%, and
1.47% for Class A Shares for the five years ended September 30, 1999,
respectively. Excludes management fees waived and expenses reimbursed by
the Manager in the amount of $.09, and $.06 per Class B Shares for the two
years ended September 30, 1999, respectively. The operating expense ratios
including such items would have been 2.13%, and 2.28% (annualized) for
Class B Shares for the two years ended September 30, 1999, respectively.
Excludes management fees waived and expenses reimbursed by the Manager in
the amount of $.08, $.10, $.07, $.06, and $.06 per Class C Shares for the
five years ended September 30 , 1999, respectively. The operating expense
ratios including such items would have been 2.13%, 2.28%, 1.94%, 1.87%, and
1.72% (annualized) for Class C Shares for the five years ended September
30, 1999, respectively.
(b) Does not reflect the imposition of a sales charge.
(c) Not annualized.
(d) Annualized.
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 18
- --------------------------------------------------------------------------------
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
-------------------------------------------- ---------------
FOR THE YEARS
FOR THE YEARS ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------------------------- ---------------
1999 1998 1997 1996 1995 1999 1998+
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.............. $ 9.77 $10.69 $10.22 $ 9.94 $ 9.65 $ 9.73 $10.57
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)...................... 0.86 0.88 0.90 0.84(b) 0.72 0.81 0.51
Net realized and unrealized gain (loss) on
investments................................. (0.78) (0.91) 0.46 0.24 0.31 (0.78) (0.87)
------ ------ ------ ------ ------ ------ ------
Total from Investment Operations.............. 0.08 (0.03) 1.36 1.08 1.03 0.03 (0.36)
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income.......... (0.87) (0.89) (0.89) (0.80) (0.74) (0.82) (0.48)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR.................... $ 8.98 $ 9.77 $10.69 $10.22 $ 9.94 $ 8.94 $ 9.73
====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(C)............................. 0.66 (0.52) 14.00 11.44 11.23 0.14 (3.58)(d)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily net
assets(a)................................... 1.18 1.19 1.21 1.23 1.25 1.70 1.70(e)
Net investment income (loss) to average daily
net assets.................................. 8.94 8.44 8.76 8.41 7.35 8.40 7.90(e)
Portfolio turnover rate....................... 52 87 101 143 109 52 87(d)
Net assets, end of year ($ millions).......... 34 40 42 33 30 4 2
<CAPTION>
CLASS C SHARES
---------------------------------------------
FOR THE YEARS ENDED
SEPTEMBER 30
---------------------------------------------
1999 1998 1997 1996 1995++
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.............. $ 9.73 $10.65 $10.18 $ 9.91 $ 9.62
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)...................... 0.81 0.83 0.85 0.79(b) 0.31
Net realized and unrealized gain (loss) on
investments................................. (0.78) (0.91) 0.46 0.24 0.28
------ ------ ------ ------ ------
Total from Investment Operations.............. 0.03 (0.08) 1.31 1.03 0.59
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income.......... (0.82) (0.84) (0.84) (0.76) (0.30)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR.................... $ 8.94 $ 9.73 $10.65 $10.18 $ 9.91
====== ====== ====== ====== ======
TOTAL RETURN (%)(C)............................. 0.14 (1.02) 13.53 10.93 6.18(d)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily net
assets(a)................................... 1.70 1.70 1.70 1.70 1.70(e)
Net investment income (loss) to average daily
net assets.................................. 8.42 7.93 8.26 8.39 6.67(e)
Portfolio turnover rate....................... 52 87 101 143 109(d)
Net assets, end of year ($ millions).......... 13 13 13 6 1
</TABLE>
- ---------------
+ For the period February 2, 1998 (commencement of Class B Shares) to
September 30, 1998.
++ For the period April 3, 1995 (commencement of Class C Shares) to September
30, 1995.
(a) Excludes management fees waived by the Manager in the amount of $.01, $.01,
$.01, $.03, and $.03 per Class A Shares for the five years ended September
30, 1999, respectively. The operating expense ratios including such items
would have been 1.27%, 1.30%, 1.30%, 1.51%, and 1.51% for Class A Shares for
the five years ended September 30, 1999, respectively. Excludes management
fees waived by the Manager in the amount of $.01, and $.01 per Class B
Shares for the two years ended September 30, 1999, respectively. The
operating expense ratios including such items would have been 1.79%, and
1.80% (annualized) for Class B Shares for the two years ended September 30,
1999, respectively. Excludes management fees waived by the Manager in the
amount of $.01, $.01, $.01, $.03, and $.03 per Class C Shares for the five
years ended September 30, 1999, respectively. The operating expense ratios
including such items would have been 1.79%, 1.80%, 1.79%, 1.98%, and 1.96%
(annualized) for Class C Shares for the five years ended September 30, 1999,
respectively.
(b) Amounts calculated prior to reclassifcation 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.
(c) Does not reflect the imposition of a sales charge.
(d) Not annualized.
(e) Annualized.
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 19
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HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1:
SIGNIFICANT ACCOUNTING POLICIES. Heritage Income Trust (the "Trust") is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company consisting of two separate investment
portfolios, the Intermediate Government Fund (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 Intermediate Government Fund has an
investment objective of high current income consistent with the
preservation of capital. The High Yield Bond Fund has an investment
objective of high current income. 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 insurance
expense, is allocated proportionately among all Heritage mutual funds.
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. 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.
18
<PAGE> 20
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HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Note 2:
FUND SHARES: At September 30, 1999, there was an unlimited number of
shares of beneficial interest of no par value authorized.
INTERMEDIATE GOVERNMENT FUND
Transactions in Class A, B and C Shares of the Fund during the year ended
September 30, 1999, were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------ ------------------------ ------------------------
FOR THE YEAR ENDED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
SEPTEMBER 30, 1999 --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................... 230,877 $ 2,202,322 62,931 $ 590,122 123,043 $ 1,149,855
Shares issued on reinvestment of
distributions.................. 52,120 487,932 1,088 10,049 11,378 106,764
Shares redeemed.................. (423,528) (3,956,260) (30,814) (286,863) (407,568) (3,869,934)
--------- ----------- --------- ----------- --------- -----------
Net increase (decrease).......... (140,531) $(1,266,006) 33,205 $ 313,308 (273,147) $(2,613,315)
=========== =========== ===========
Shares outstanding:
Beginning of year.............. 1,303,189 13,088 518,584
--------- --------- ---------
End of year.................... 1,162,658 46,293 245,437
========= ========= =========
</TABLE>
Transactions in Class A and C Shares of the Fund during the year ended
September 30, 1998 and Class B Shares from February 2, 1998 (commencement
of Class B Shares) to September 30, 1998, were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------ ------------------------ ------------------------
FOR THE PERIOD ENDED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
SEPTEMBER 30, 1998 --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................... 185,461 $ 1,724,681 13,028 $ 121,126 474,673 $ 4,433,013
Shares issued on reinvestment of
distributions.................. 67,011 619,953 60 561 7,594 70,281
Shares redeemed.................. (476,959) (4,427,313) -- -- (51,881) (480,401)
--------- ----------- --------- ----------- --------- -----------
Net increase (decrease).......... (224,487) $(2,082,679) 13,088 $ 121,687 430,386 $ 4,022,893
=========== =========== ===========
Shares outstanding:
Beginning of year.............. 1,527,676 -- 88,198
--------- --------- ---------
End of year.................... 1,303,189 13,088 518,584
========= ========= =========
</TABLE>
HIGH YIELD BOND FUND
Transactions in Class A, B and C Shares of the Fund during the year ended
September 30, 1999, were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------ ----------------------- ------------------------
FOR THE YEAR ENDED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
SEPTEMBER 30, 1999 --------- ----------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold....................... 469,703 $ 4,493,908 272,191 $2,593,347 326,866 $ 3,124,172
Shares issued on reinvestment of
distributions................... 230,557 2,198,212 9,928 93,725 89,977 853,766
Shares redeemed................... (956,493) (9,124,816) (70,314) (659,944) (359,938) (3,423,394)
--------- ----------- --------- ---------- --------- -----------
Net increase (decrease)........... (256,233) $(2,432,696) 211,805 $2,027,128 56,905 $ 554,544
=========== ========== ===========
Shares outstanding:
Beginning of year............... 4,080,524 183,506 1,346,424
--------- --------- ---------
End of year..................... 3,824,291 395,311 1,403,329
========= ========= =========
</TABLE>
Transactions in Class A and C Shares of the Fund during the year ended
September 30, 1998 and Class B Shares from February 2, 1998 (commencement
of Class B Shares) to September 30, 1998, were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------ ------------------------ ------------------------
FOR THE PERIOD ENDED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
SEPTEMBER 30, 1998 --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................... 787,959 $ 8,314,882 196,020 $ 2,056,707 607,408 $ 6,390,589
Shares issued on reinvestment of
distributions.................. 234,628 2,462,134 2,626 27,135 86,303 901,721
Shares redeemed.................. (854,815) (8,945,724) (15,140) (157,348) (547,574) (5,716,430)
--------- ----------- --------- ----------- --------- -----------
Net increase..................... 167,772 $ 1,831,292 183,506 $ 1,926,494 146,137 $ 1,575,880
=========== =========== ===========
Shares outstanding:
Beginning of year.............. 3,912,752 -- 1,200,287
--------- --------- ---------
End of year.................... 4,080,524 183,506 1,346,424
========= ========= =========
</TABLE>
19
<PAGE> 21
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HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Note 3:
PURCHASES AND SALES OF SECURITIES. For the year ended September 30, 1999,
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.............. $17,290,775 $20,263,109 $1,054,622 -- --
High Yield Bond Fund...................... -- -- -- $26,869,995 $26,287,427
</TABLE>
Note 4:
MANAGEMENT, SUBADVISORY, DISTRIBUTION, SHAREHOLDER SERVICING AGENT, FUND
ACCOUNTING 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. Pursuant to the current
registration statement, the Manager has agreed to 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 1999 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 $74,359 were waived and $63,436
of expenses were reimbursed for the Intermediate Government Fund and
management fees of $49,125 were waived in the High Yield Bond Fund for the
year ended September 30, 1999. If total Fund expenses fall below the
expense limitation agreed to by the Manager before the end of the year
ending September 30, 2001, 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 1998 if total Fund expenses fall below the annual expense
limitations before the end of the year ending September 30, 2000.
The Manager entered into an agreement with Salomon Brothers Asset
Management Inc. (SBAM), a wholly owned subsidiary of Travelers Group,
Inc., 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 year ended
September 30, 1999, the Manager paid $161,605 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 September 30, 1999 was
$2,850 and $9,000, respectively. In addition, the Manager performs Fund
accounting services and charged $39,650 and $53,866 during the current
period of which $10,200 and $13,800 was payable as of September 30, 1999,
respectively.
Raymond James & Associates, Inc. (the "Distributor") has advised the Trust
that the Intermediate Government Fund received $13,693 in front-end sales
charges for Class A Shares, $5,994 in contingent deferred sales charges
for Class B Shares and $900 in contingent deferred sales charges for Class
C Shares for the year ended September 30, 1999. The High Yield Bond Fund
received $61,160 in front-end sales charges for Class A Shares, $9,028 in
contingent deferred sales charges for Class B Shares and $1,677 in
contingent deferred sales charges for Class C Shares for the year ended
September 30, 1999. From these fees, the Distributor paid sales
commissions to salespersons and incurred other distribution costs.
Pursuant to the Class A Distribution Plan adopted in accordance with Rule
12b-1 of the Investment Company Act of 1940, as amended, the 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 up to .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 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 employee of the Manager or employee of an
affiliate of the Manager receives an annual fee of $8,666 and an
additional fee of $3,250 for each combined quarterly meeting of the
Heritage mutual funds attended. Trustees' fees and expenses are shared
equally by each portfolio in the Heritage mutual funds.
20
<PAGE> 22
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HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Note 5:
FEDERAL INCOME TAXES. For the year ended September 30, 1999, 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
-----------------------------------
As of September 30, 1999, the Fund credited paid in capital $332,744
and charged accumulated net realized loss $9,291 and undistributed net
investment income $323,453. The Fund has net tax basis capital loss
carryforwards of $6,845,972, which may be applied against any realized
net taxable gains until their expiration dates of September 30, 2002
($3,826,421), September 30, 2003 ($2,492,779) and September 30, 2004
($526,772). The Fund utilized $249,674 of net tax basis capital losses
during the current year against net realized gains from investment
transactions.
HIGH YIELD BOND FUND
----------------------------
As of September 30, 1999, the Fund credited undistributed net
investment income $9,073 and paid in capital $476, and charged
accumulated net realized gain $9,549 in the current year. The Fund has
a net tax basis capital loss carryforward of $409,285, which may be
applied against any realized net taxable gains until its expiration
date of September 30, 2007.
Note 6:
SUBSEQUENT EVENT. As of the close of business on October 15, 1999, the
Intermediate Government Fund acquired all the net assets of the Heritage
U.S. Government Income Fund ("Government Income") pursuant to an agreement
and plan of reorganization and termination approved by the shareholders of
Government Income on September 27, 1999. The acquisition was accomplished
by a tax-free exchange of Class A shares of the Intermediate Government
Income Fund at a net asset value of $9.09 per share for Class A shares of
Government Income. The net assets of the Intermediate Government Fund and
Government Income immediately before the acquisition were $13,116,358 and
$35,531,046, respectively, including unrealized depreciation of $791,656
for Government Income. Immediately after the acquisition, the combined net
assets of the Intermediate Government Fund amounted to $48,647,404.
21
<PAGE> 23
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
Heritage Income Trust
In our opinion, the accompanying statements of assets and liabilities,
including the investment portfolios, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Heritage Income
Trust -- Intermediate Government Fund and the Heritage Income Trust -- High
Yield Bond Fund (constituting the Heritage Income Trust, hereafter referred to
as the "Trust") at September 30, 1999, the results of each of their operations
for the year then ended, the changes in each of their net assets for each of the
two years in the period then ended and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tampa, Florida
November 12, 1999
22
<PAGE> 24
HERITAGE FAMILY OF FUNDS (TM)
From Our Family to Yours: The Intelligent Creation of Wealth.
HERITAGE STOCK FUNDS
Aggressive Growth
Capital Appreciation
Growth Equity
Income-Growth
International
Mid Cap
Small Cap
Technology
Value Equity
HERITAGE BOND FUNDS
High Yield
Intermediate Government
HERITAGE MONEY MARKET FUNDS
Money Market
Municipal Money Market
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)1999 Heritage Asset Management, Inc.
7M 9/99 [RECYCLE LOGO] Printed on recycled paper
AR5320INL
[HERITAGE LOGO] Heritage Income Trust
P.O. Box 33022
St. Petersburg, FL 33733
- ----------------------------------------------------------------
Address Service Requested
