<PAGE> 1
(HERITAGE
INCOME
TRUST
LOGO)
[pictures of people working and playing]
From Our Family to Yours: The Intelligent Creation of Wealth.
Intermediate Government Fund
High Yield Bond Fund
Semiannual Report
(Unaudited) and Investment Performance
Review for the Six Month Period Ended
March 31, 2000
(HERITAGE LOGO)
-----------------
INCOME TRUST(TM)
-----------------
<PAGE> 2
May 23, 2000
Dear Shareholders:
I am pleased to provide you with the semiannual report (for the six-month
period ended March 31, 2000) for the Intermediate Government Fund and the High
Yield Bond Fund (the "Funds"), each a portfolio of Heritage Income Trust. As
indicated in the following commentaries by our portfolio managers Peter Wallace,
Heritage Asset Management, and Peter Wilby, Salomon Brothers Asset Management
Inc., this last six-month period (ended March 31, 2000) has witnessed a strong
and growing U.S. economy with dramatic increases in interest rates.
Consequently, the bond markets have been faced with a more challenging economic
environment in which to operate. While the entire fixed-income market felt the
effects of rising interest rates, the high yield bond sector continued to
experience limited liquidity as well.
For the six-month period ended March 31, 2000, the Intermediate Government
Fund had positive returns of +1.65% on its Class A shares and +1.50% on its
Class B and Class C shares.* During this same semiannual period, the High Yield
Bond Fund experienced negative returns of -4.13% on its Class A shares and
-4.40% on its Class B and Class C shares.*
I hope that you will find the comments of our Funds' portfolio
managers -- Peter Wallace and Peter Wilby -- helpful in understanding the
factors that affected the performance of these funds during the last two
quarters. We continue to remain optimistic for fixed-income investments over the
longer term, while being somewhat defensive in the near term. Similarly,
continued volatility in the high yield bond sector is anticipated over the
course of the 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.
We thank you for your continued trust and confidence. Please contact your
Financial Advisor, or Heritage at 1-800-421-4184, if you have any questions.
Sincerely,
/s/ BRIAN C. LEE
Brian C. Lee
President
* These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
<PAGE> 3
May 10, 2000
Dear Fellow Shareholders:
The six-month period ended March 31, 2000 saw dramatic changes in interest
rates. Over that period, the Heritage Intermediate Government Fund Class A
shares produced a total return, after fees and expenses, of +1.65%*. This
compared favorably to the Lehman Brothers Intermediate Government/Corporate
Index, which returned +1.56% over the same period. In further comparison, the
two year treasury note provided a total return of +1.42% and the five year
treasury note provided a total return of +0.65% over the same period.
During the period, the domestic economy grew at a very rapid rate. Real
Gross Domestic Product grew at an annual rate of +7.3% during the last quarter
of 1999 and grew at +5.4% during the first quarter of 2000. This was
significantly higher than the Federal Reserves apparent growth targets of 3.75%
to 4.00%. Although inflation was quite well behaved in the face of rising energy
prices and above potential growth, the Federal Reserve pursued a tighter
monetary policy. The Fed raised the federal funds rate by a total of 75 basis
points in three increases of 25 basis points, each in an effort to slow the
rapid growth, ease labor conditions and to pre-empt an outbreak of inflation.
Had it not been for Y2K concerns, the Fed may well have increased rates a fourth
time. In response to the stronger economic data and the Fed's actions, interest
rates rose sharply (from about 5.75% to 6.77% on five-year treasuries) and then
started to decline in mid February. The decline was likely the result of a
"flight to quality" as the Dow Jones Industrial Index and other stock market
barometers declined and the Treasury repurchased longer-term treasury bonds.
The yield curve at the beginning of the period was positively sloped (longer
rates progressively higher than shorter-term rates) but became inverted
(shorter-term rates higher than long term rates) towards the end of the period.
This provided a challenging environment for fixed income investors as various
market sectors based on the Treasury market began to trade in disarray. The
following table shows the changes in Treasury yields over the last six months
and the returns that were generated by each maturity segment:
U.S. TREASURY YIELDS AND RETURNS
<TABLE>
<CAPTION>
ISSUE 9/30/1999 3/31/2000 CHANGE RETURNS
----- --------- --------- ------ -------
<S> <C> <C> <C> <C>
3 month......................... 4.846% 5.866% 1.020% 2.65%
6 month......................... 4.958 6.140 1.182 2.52
1 year.......................... 5.178 6.239 1.061 1.93
2 year.......................... 5.600 6.483 0.883 1.42
5 year.......................... 5.756 6.320 0.564 0.65
10 year......................... 5.877 6.015 0.138 1.35
30 year......................... 6.053 5.837 -0.216 4.64
</TABLE>
Source: Yields and change: Bloomberg L.P.; Returns: Lehman Bros.
The performance of the longer (10 to 30 year) sector of the curve reflects
the Treasury's announcement of $30 billion of buy-backs of longer-term bonds,
causing a unique twist in the yield curve.
During the period the Fund generally maintained a portfolio duration (a
measure of principal sensitivity to changing rates) slightly lower than or equal
to the duration of the Lehman Intermediate Government/Corporate Index. In our
view, the economic fundamentals did not warrant greater interest rate
sensitivity than that of the market, yet the possibility of a potential economic
disruption resulting from sharp declines in the stock markets dictated that the
portfolio not be overly defensive. At the beginning of the period, the Fund held
approximately 14% in mortgage-backed securities. As rates rose and the risk of
early prepayments declined, we gradually increased the Funds position to about
35% of total assets at the end of March. The Fund benefited from a high
allocation to the treasury sector as yield spreads of other securities widened
to their treasury benchmarks. The Fund's returns would have been higher had we
maintained a higher portfolio duration for the first several months of 2000, yet
we could not ignore the stronger fundamentals and remained conservatively
invested.
Although still defensive near-term our longer term outlook is very bullish
for fixed income investments. We strongly believe the Federal Reserve's actions
will lead to a slowing of economic activity and lower interest rates in the
months ahead. We feel the bond market still offers excellent value for
investors, especially relative to the still reasonably low levels of price
inflation and provides valuable diversification to portfolios.
Thanks for your continued confidence in Heritage Income Trust - Intermediate
Government Fund.
Sincerely,
/s/ H. PETER WALLACE
H. Peter Wallace, CFA
Portfolio Manager
Heritage Intermediate Government Fund
* Calculated without the imposition of front-end sales charges.
2
<PAGE> 4
May 10, 2000
Dear Shareholders:
The Heritage Income Trust - High Yield Bond Fund returned -4.1%* on its
Class A shares for the six-months ended March 31, 2000. By comparison, the
Salomon Smith Barney High Yield Market Index returned -0.94% and the Lipper High
Current Yield Fund category returned +1.11%.
Throughout the six-month period ended March 31, 2000, the high yield market
has continued to suffer from liquidity issues, primarily as a result of mutual
fund outflows which totaled $6.1 billion for the six-month period versus $2.5
billion of outflows for all of 1999, and limited broker-dealer liquidity.
Although we are seeing a strong U.S. economy, some buying from newly formed
collateralized bond obligation funds and a slowing new issue calendar served to
offset some of the negative liquidity effects, the high yield market still only
managed to generate positive returns for three of the six months in the period.
The liquidity issues were driven by inflation and interest rate worries and
increased credit concerns, which caused the high yield market to experience
consistent mutual fund outflows throughout the period as the marginal retail
investor diverted funds away from the high yield market. Generally, investors'
funds were directed to the U.S. equity markets, which had been generating
relatively attractive returns versus the high yield market early in the period,
or to safer markets, such as cash instruments and U.S. Treasury bonds, later in
the period. In sympathy with these trends, safer, higher-rated bonds as well as
Telecommunications and Technology issues, which had been wildly popular in the
equity markets, outperformed the high yield market. However, despite its
liquidity issues, the high yield market was still much less volatile than the
equity markets over the course of the period.
According to the Salomon Smith Barney High Yield Market Index, the average
market yield at March 31, 2000 was 12.35%. This compares to 11.41% at December
31, 1999 and 11.34% at September 30, 1999. Spreads, which were 551 basis points
at September 30, 1999, narrowed to 500 basis points at December 31, 1999 and
subsequently widened to 618 basis points at March 31, 2000. These figures
reflect the rising interest rate environment and the intensifying mutual fund
outflows, which were concentrated in the first quarter of calendar year 2000.
Leading the market over the last six months have been higher rated
securities and Telecommunications, Technology, Chemicals, Energy and Cable &
Other Media issues. Investors' preference for larger, more liquid, higher
quality issuers in the face of market volatility has helped the performance of
higher rated securities. Telecommunications issuers have benefited from that
sector's explosive growth as well as equity investments and mergers and
acquisitions activities. Additionally, the popularity of Telecommunications and
Technology issuers in the equity markets during the six-month period has had a
positive impact on those sectors in the high yield market. Energy has benefited
from continued strength in oil and gas prices, while the ability to pass through
feedstock cost increases to customers has supported the performance of the
Chemicals sector.
Sectors that have lagged include lower-rated securities and Leisure/Lodging,
Automotive, Capital Goods, Supermarkets/Drugstores, Consumer Products and
Services/Other. Leisure/Lodging has been adversely impacted by concerns about
overcapacity in the theatre operator sector. Automotive and Capital Goods were
negatively impacted by cyclical worries while Automotive was also affected by
concerns that certain issuers could potentially re-leverage to support sagging
equity valuations. The performance of the Supermarkets/Drugstores sector was
hurt by credit problems at Rite-Aid Corporation and Pathmark Stores, Inc.
In response to the continued market volatility, the Heritage Income
Trust - High Yield Bond Fund has continued to focus on upgrading credit quality.
The Fund has increased its exposure to higher quality credits (BB-rated issues)
and increased industry allocations to Utilities, Energy and more mature
Telecommunications companies. In addition, the Fund has increased its exposure
to Chemicals, Automotive and Capital Goods, which appear to be undervalued. At
the same time, the Fund has reduced its exposure to Consumer-Related and
Housing-Related sectors.
For the six months ended March 31, 2000, the Fund was adversely affected by
overweightings in Consumer Products, Automotive, Capital Goods and
Services/Other and underweightings in Telecommunications and Technology. The
Fund's performance was helped by an overweighting in Chemicals and an
underweighting in Leisure/Lodging. Additionally, the Fund was impacted by
certain negative credit events in several investments. The financial
difficulties of Ameriserve Food Distribution, Inc., the former PepsiCo, Inc.
food distribution assets, resulted from the cost of a consolidation plan which
exceeded the company's available liquidity. Safety-Kleen Corp., an industrial
waste management provider, announced accounting irregularities at the company,
which caused significant deterioration in the prices of its bonds. Republic
Technologies International, LLC, a producer of special bar quality steel bar,
experienced production management issues in the face of its integration of three
steel companies into one, which adversely affected its performance and
liquidity.
Although high yield valuations are attractive relative to historical levels,
we expect to experience continued volatility over the course of the year
primarily as a result of several factors, including (i) inflation and interest
rate concerns, (ii) reduced secondary market liquidity, (iii) continued credit
problems and (iv) growing cyclical concerns later in the year. In light of these
conditions, we are continuing to pursue a conservative investment strategy
geared to purchasing BB credits and aggressively pursuing selective
opportunities in undervalued B and CCC credits.
Best regards,
/s/ PETER J. WILBY
Peter J. Wilby
Managing Director
Salomon Brothers Asset Management Inc.
Portfolio Manager, High Yield Bond
Fund
* Calculated without the imposition of front-end sales charges.
3
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HERITAGE INCOME TRUST
INTERMEDIATE GOVERNMENT FUND
INVESTMENT PORTFOLIO
MARCH 31, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
--------- ---------- -----------
<C> <S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES--96.0%(A)
---------------------------------------------------------------------------------
U.S. TREASURIES--60.9%(A)
$1,300,000 U.S. Treasury Notes, 4.5%................................... 09/30/00 $ 1,288,219
1,000,000 U.S. Treasury Notes, 6.25%.................................. 01/31/02 994,688
1,000,000 U.S. Treasury Notes, 5.75%.................................. 11/30/02 981,563
1,000,000 U.S. Treasury Notes, 5.5%................................... 02/28/03 975,000
2,000,000 U.S. Treasury Notes, 5.375%................................. 06/30/03 1,941,876
2,000,000 U.S. Treasury Notes, 5.25%.................................. 08/15/03 1,931,250
2,000,000 U.S. Treasury Notes, 4.25%.................................. 11/15/03 1,865,000
2,000,000 U.S. Treasury Notes, 6.0%................................... 08/15/04 1,973,750
2,000,000 U.S. Treasury Notes, 5.875%................................. 11/15/04 1,963,750
1,000,000 U.S. Treasury Notes, 5.5%................................... 05/15/09 950,938
1,000,000 U.S. Treasury Notes, 6.0%................................... 08/15/09 987,188
2,000,000 U.S. Treasury Notes, 6.5%................................... 02/15/10 2,070,000
-----------
Total U.S. Treasuries (cost $18,204,453).................... 17,923,222
-----------
U.S. GOVERNMENT AGENCIES--35.1%(A)
---------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--15.5%
1,193,111 REMIC 1992-65 K, PAC, 8.5%.................................. 05/25/21 1,202,189
851,284 Pool #394212, 30 year Pass-Through, 7.5%.................... 07/01/27 838,586
2,498,390 Pool #529933, 30 year Pass-Through, 8.0%.................... 02/01/30 2,504,528
-----------
4,545,303
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--19.6%
1,940,095 REMIC 1996-16 G, Sequential Class, 7.0%..................... 04/16/22 1,922,867
2,936,795 Pool #415688, 30 year Pass-Through, 7.5%.................... 11/15/25 2,919,813
922,887 Pool #442741, 30 year Pass-Through, 7.5%.................... 03/15/27 916,096
-----------
5,758,776
Total U.S. Government Agencies (cost $10,433,195)........... 10,304,079
-----------
Total U.S. Government and Agency Securities (cost
$28,637,648)................................................ 28,227,301
-----------
REPURCHASE AGREEMENT--3.4%(A)
---------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated March 31,
2000 @ 6.05% to be repurchased at $1,014,511 on April 3, 2000, collateralized by
$990,000 United States Treasury Notes, 8.0% due May 15, 2001, (market value
$1,035,896 including interest) (cost $1,014,000)................................. 1,014,000
-----------
TOTAL INVESTMENT PORTFOLIO (cost $29,651,648)(b), 99.4%(a)....................... 29,241,301
OTHER ASSETS AND LIABILITIES, net, 0.6%(a)....................................... 174,863
-----------
NET ASSETS, 100%................................................................. $29,416,164
===========
</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
$410,347 which consists of aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost of
$92,073 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value of $502,420.
PAC --Planned Amortization Class
REMIC--Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 6
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HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
MARCH 31, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
DOMESTIC CORPORATE BONDS--87.4%(A)
--------------------------------------------
AGRICULTURAL PRODUCTS & SERVICES--0.9%
--------------------------------------------
$375,000 Hines Horticulture, Inc.,
11.75%, 10/15/05............... $ 371,250
-----------
AUTOMOTIVE -- 6.1%
--------------------------------------------
500,000 Advance Stores Company, Inc.,
Series "B", 10.25%, 04/15/08... 395,000
500,000 American Axle & Manufacturing
Holdings, Inc., 9.75%,
03/01/09....................... 480,000
375,000 Avis Rent A Car Inc., 11.0%,
05/01/09....................... 372,188
500,000 Breed Technologies Inc., 9.25%,
04/15/08(b).................... 3,125
500,000 Federal-Mogul Corporation,
7.5%, 01/15/09................. 386,898
500,000 JH Heafner Company, Series "D",
10.0%, 05/15/08................ 425,000
500,000 Lear Corporation, 8.11%,
05/15/09....................... 450,394
-----------
2,512,605
-----------
BANKS--0.9%
--------------------------------------------
375,000 Sovereign Bancorp, Inc.,
10.50%, 11/15/06............... 370,781
-----------
BEVERAGES -- 0.6%
--------------------------------------------
250,000 Delta Beverage Group, Inc.,
9.75%, 12/15/03................ 237,500
-----------
BROADCASTING--10.0%
--------------------------------------------
250,000 Adelphia Communications
Corporation, 10.5%, 07/15/04... 253,125
250,000 Adelphia Communications
Corporation, 9.875%,
03/01/07....................... 243,750
250,000 Century Communications
Corporation, Zero Coupon Bond,
01/15/08....................... 101,875
1,000,000 Charter Communications
Holdings, LLC, 0.0% to
04/01/04, 9.92% to maturity(c),
04/01/11....................... 555,000
250,000 Charter Communications
Holdings, LLC, 8.625%,
04/01/09....................... 220,625
500,000 CSC Holdings Inc., 10.5%,
05/15/16....................... 535,000
375,000 Granite Broadcasting
Corporation, 8.875%,
05/15/08....................... 318,750
250,000 ICG Holdings Inc., 0.0% to
05/01/01, 12.5% to maturity(c),
05/01/06....................... 203,125
500,000 Insight Midwest LP, 9.75%,
10/01/09....................... 498,750
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
--------------------------------------------
BROADCASTING (CONTINUED)
--------------------------------------------
500,000 LIN Television Corporation,
8.375%, 03/01/08............... 432,500
1,100,000 United International Holdings,
0.0% to 02/15/03, 10.75% to
maturity(c), 02/15/08.......... 759,000
-----------
4,121,500
-----------
CHEMICALS--4.9%
--------------------------------------------
500,000 Equistar Chemicals, L.P.,
8.75%, 02/15/09................ 487,564
500,000 Georgia Gulf Corporation,
10.375%, 11/01/07.............. 501,875
500,000 Lyondell Chemical Company,
9.875%, 05/01/07............... 476,250
250,000 Philipp Brothers Chemicals,
9.875%, 06/01/08............... 207,500
500,000 United Industries Corporation,
Series "B", 9.875%, 04/02/09... 322,500
-----------
1,995,689
-----------
COMMUNICATION SERVICES--7.1%
--------------------------------------------
250,000 Covad Communications Group,
12.0%, 02/15/10................ 227,500
250,000 GST Telecommunications, Inc.,
0.0% to 10/31/02, 10.5% to
maturity(c), 05/01/08.......... 105,000
400,000 Intermedia Communications of
Florida, 0.0% to 03/01/04,
12.5% to maturity(c),
03/01/09....................... 240,000
250,000 Intermedia Communications,
Inc., 8.6%, 06/01/08........... 220,000
1,000,000 International CableTel, Inc.,
0.0% to 02/01/01, 11.5% to
maturity (c), 02/01/06......... 920,000
200,000 Leap Wireless International,
Inc., 12.5%, 04/15/10.......... 200,000
750,000 Nextel Communications, Inc.,
0.0% to 10/31/02, 9.75% to
maturity(c) 10/31/07........... 517,500
500,000 Price Communications Services,
9.125%, 12/15/06............... 485,000
-----------
2,915,000
-----------
COMMUNICATIONS EQUIPMENT--1.1%
--------------------------------------------
500,000 World Access Inc., 13.25%,
01/15/08....................... 435,000
-----------
COMPUTER EQUIPMENT--1.0%
--------------------------------------------
500,000 Quantum Corporation, 7.0%,
08/01/04....................... 398,750
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
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HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
MARCH 31, 2000
(UNAUDITED)
(CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
--------------------------------------------
COMPUTER PERIPHERAL EQUIPMENT--0.6%
--------------------------------------------
$500,000 Axiohm Transaction Solutions,
Inc., 9.75%, 10/01/07(b)....... $ 100,000
250,000 Federal Data Corporation,
10.125%, 08/01/05.............. 161,875
-----------
261,875
-----------
CONSTRUCTION & CONSTRUCTION PRODUCTS--0.8%
---------------------------------------------------------
375,000 Integrated Electronic Services,
Inc., 9.375%, 02/01/09......... 322,500
-----------
COSMETICS & TOILETRIES--1.3%
--------------------------------------------
500,000 French Fragrances, Inc.,
10.375%, 05/15/07.............. 480,000
150,000 Revlon Consumer Products,
8.625%, 02/01/08............... 66,000
-----------
546,000
-----------
ELECTRONIC EQUIPMENT--1.3%
--------------------------------------------
250,000 High Voltage Engineering Group,
10.5%, 08/15/04................ 202,500
500,000 Stellex Industries, Inc., 9.5%,
11/01/07....................... 320,000
-----------
522,500
-----------
ENTERTAINMENT--2.2%
--------------------------------------------
500,000 Park Place Entertainment
Corporation, 7.875%,
12/15/05....................... 460,000
480,000 Waterford Gaming, LLC, 9.5%,
03/15/10....................... 456,000
-----------
916,000
-----------
FINANCIAL INSTITUTIONS--3.6%
--------------------------------------------
494,500 Airplane Pass Through Trust,
Class "D", 10.875%, 03/15/19... 418,214
750,000 ContiFinancial Corporation,
7.50%, 03/15/02................ 67,500
125,000 ContiFinancial Corporation,
8.375%, 08/15/03............... 11,250
750,000 ContiFinancial Corporation,
8.125%, 04/01/08............... 67,500
500,000 DVI, Inc., 9.875%, 02/01/04.... 458,750
500,000 Morgan Stanley Aircraft Finance
8.7%, 03/15/23................. 435,480
-----------
1,458,694
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
--------------------------------------------
FOOD--1.2%
--------------------------------------------
250,000 B&G Foods, Inc., 9.625%,
08/01/07....................... 202,500
500,000 Imperial Holly Corporation,
9.75%, 12/15/07................ 127,500
700,000 Nebco Evans Holding
Corporation, 0.0% to 07/15/02,
12.375% to maturity(c),
07/15/07....................... 875
250,000 Vlasic Foods International,
Inc., 10.25%, 07/01/09......... 150,000
-----------
480,875
-----------
FURNITURE & FIXTURES--1.1%
--------------------------------------------
500,000 Winsloew Furniture Inc., Series
"B", 12.75%, 08/15/07.......... 450,000
-----------
MANUFACTURING INDUSTRIES--1.1%
--------------------------------------------
250,000 Hexcel Corporation, 9.75%,
01/15/09....................... 212,500
385,000 Syratech Corporation, 11.0%,
04/15/07....................... 227,150
-----------
439,650
-----------
MEDICAL EQUIPMENT--2.9%
--------------------------------------------
500,000 Cole National Group, 9.875%,
12/31/06....................... 390,000
500,000 Fresenius Medical Care, 9.0%,
12/01/06....................... 473,750
375,000 Packard Bioscience Company,
9.375%, 03/01/07............... 333,750
-----------
1,197,500
-----------
METAL PRODUCTS--2.4%
--------------------------------------------
375,000 Aqua Chemicals Inc., 11.25%,
07/01/08....................... 206,250
250,000 LTV Corporation, 11.75%,
11/15/09....................... 243,125
500,000 Neenah Corporation, Series "D",
11.125%, 05/01/07.............. 430,000
500,000 Republic Technologies
International LLC, 13.75%,
07/15/09....................... 110,000
-----------
989,375
-----------
MINING--1.1%
--------------------------------------------
500,000 P&L Coal Holdings Corporation,
8.875%, 05/15/08............... 451,250
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 8
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HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
MARCH 31, 2000
(UNAUDITED)
(CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
--------------------------------------------
MISCELLANEOUS SERVICES--5.9%
--------------------------------------------
$500,000 Advanstar Communications,
9.25%, 05/01/08................ $ 460,000
500,000 Comforce Operating, Inc.,
12.0%, 12/01/07................ 291,250
500,000 Iron Mountain, Inc., 10.125%,
10/01/06....................... 483,750
500,000 Loomis Fargo & Company, 10.0%,
01/15/04....................... 492,500
250,000 Pierce Leahy Corporation,
11.125%, 07/15/06.............. 254,375
500,000 Sitel Corporation, 9.25%,
03/15/06....................... 460,000
-----------
2,441,875
-----------
OIL & GAS--5.4%
--------------------------------------------
500,000 Belco Oil & Gas Corporation,
8.875%, 09/15/07............... 465,000
500,000 Benton Oil & Gas Company,
11.625%, 05/01/03.............. 336,250
500,000 Clark R&M, Inc., 8.875%,
11/15/07....................... 300,000
250,000 Costilla Energy, Inc., 10.25%,
10/01/06(b).................... 43,750
250,000 Devon Energy Corporation,
10.25%, 11/01/05............... 274,040
400,000 Lomak Petroleum, Inc., 8.75%,
01/15/07....................... 336,000
500,000 Ocean Energy Inc., 8.375%,
07/01/08....................... 465,000
-----------
2,220,040
-----------
PHOTOGRAPHIC EQUIPMENT--0.6%
--------------------------------------------
250,000 Polaroid Corporation, 11.5%,
02/15/06....................... 255,000
-----------
PLASTIC PRODUCTS--4.0%
--------------------------------------------
370,000 Anchor Advanced Products, Inc.,
11.75%......................... 259,463
500,000 Berry Plastics Corporation,
12.25%, 04/15/04............... 492,500
500,000 Foamex, L.P., 9.875%,
06/15/07....................... 400,000
500,000 Indesco International, Inc.,
9.75%, 04/15/08................ 170,000
250,000 Radnor Holdings, Inc., 10.0%,
12/01/03....................... 210,000
125,000 Radnor Holdings, Inc., Series
"B", 10.0%, 12/01/03........... 105,000
-----------
1,636,963
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
--------------------------------------------
POLLUTION CONTROL--1.1%
--------------------------------------------
500,000 Allied Waste North America,
Inc., 7.875%, 01/01/09......... 397,500
500,000 Safety-Kleen Corporation,
9.25%, 06/01/08................ 65,000
-----------
462,500
-----------
PRINTING & PUBLISHING--3.9%
--------------------------------------------
500,000 Hollinger International
Publishing, Inc., 9.25%
03/15/07....................... 471,250
1,000,000 Jordan Industries, 0.0% to
04/01/02, 11.75% to
maturity(c), 04/01/09.......... 670,000
250,000 Mail-Well Corporation, 8.75%,
12/15/08....................... 217,500
250,000 World Color Press, Inc.,
8.375%, 11/15/08............... 249,802
-----------
1,608,552
-----------
REAL ESTATE--2.1%
--------------------------------------------
500,000 Forest City Enterprises, Inc.,
8.5%, 03/15/08................. 445,000
500,000 HMH Properties, Inc., Series
"B", 7.875%, 08/01/08.......... 421,250
-----------
866,250
-----------
RETAIL STORES--3.9%
--------------------------------------------
500,000 Duane Reade Inc., 9.25%,
02/15/08....................... 460,000
500,000 Finlay Enterprises, Inc., 9.0%,
05/01/08....................... 442,500
500,000 Leslie's Poolmart, Inc.,
10.375%, 07/15/04.............. 340,000
250,000 Mattress Discount Corporation,
12.625%, 07/15/07.............. 223,750
250,000 Pueblo Xtra International, Inc.
9.5%, 08/01/03................. 125,000
-----------
1,591,250
-----------
TEXTILES--1.2%
--------------------------------------------
300,000 Pillowtex Corporation, Series
"B", 9.0%, 12/15/07............ 110,250
250,000 Simmons Company, Series "B",
10.25%, 03/15/09............... 208,750
250,000 Worldtex Inc., Series "B",
9.625%, 12/15/07............... 190,000
-----------
509,000
-----------
TOBACCO--1.2%
--------------------------------------------
500,000 North Atlantic Trading Company,
11.0%, 06/15/04................ 475,000
-----------
</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, 2000
(UNAUDITED)
(CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
--------------------------------------------
TRANSPORTATION--1.8%
--------------------------------------------
$500,000 Continental Airlines Inc.,
8.0%, 12/15/05................. $ 442,500
500,000 Holt Group, 9.75%, 01/15/06.... 310,000
-----------
752,500
-----------
TRANSPORTATION EQUIPMENT--1.9%
--------------------------------------------
500,000 Derby Cycle Corporation, 10.0%,
05/15/08....................... 315,000
500,000 Sequa Corporation, 9.0%,
08/01/09....................... 463,750
-----------
778,750
-----------
UTILITIES--2.2%
--------------------------------------------
500,000 Azurix Corporation, 10.375%,
02/15/07....................... 497,500
400,000 Calpine Corporation, 8.75%,
07/15/07....................... 394,000
-----------
891,500
-----------
Total Domestic Corporate Bonds
(cost $44,056,972)........................ 35,883,474
-----------
FOREIGN CORPORATE BONDS--9.3%(A)(D)
--------------------------------------------
BROADCASTING-- 0.2%
--------------------------------------------
150,000 Telewest Communications PLC,
0.0% to 4/15/04, 9.25% to
maturity(c), 04/15/09.......... 87,000
-----------
COMMUNICATION SERVICES--4.5%
--------------------------------------------
500,000 Energis PLC, 9.75%, 06/15/09... 495,000
500,000 Orange, PLC, 8.75%, 06/01/06... 510,000
500,000 Rogers Cantel Inc., 8.8%,
10/01/07....................... 485,000
375,000 RSL Communications, Ltd., Plc.,
12.25%, 11/15/06............... 373,125
-----------
1,863,125
-----------
CONSTRUCTION & CONSTRUCTION PRODUCTS--0.5%
---------------------------------------------------------
250,000 International Utility
Structures, Inc., 10.75%,
02/01/08....................... 212,500
-----------
FOOD--1.2%
--------------------------------------------
500,000 Premier International Foods,
12.0%, 09/01/09................ 470,000
-----------
HOTELS, MOTELS & INNS--1.1%
--------------------------------------------
500,000 Sun International Hotels, Ltd.,
8.625%, 12/15/07............... 455,000
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<C> <S> <C>
FOREIGN CORPORATE BONDS (CONTINUED)
--------------------------------------------
MINING--1.0%
--------------------------------------------
500,000 Murrin Murrin Holdings
Property, 9.375%, 08/31/07..... 420,000
-----------
TRANSPORTATION--0.8%
--------------------------------------------
500,000 Enterprises Shipholding,
8.875%, 05/01/08............... 320,000
-----------
Total Foreign Corporate Bonds
(cost $4,242,028)......................... 3,827,625
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
COMMON STOCKS/WARRANTS--0.2%(A)
--------------------------------------------
COMMUNICATIONS EQUIPMENT--0.1%
--------------------------------------------
1,571 World Access Inc.*............. 30,045
-----------
FURNITURE & FIXTURES--0.1%
--------------------------------------------
5,000 Winsloew Furniture Inc.
(Warrants)*.................... 25,000
-----------
Total Common Stocks/Warrants
(cost $33,582)............................ 55,045
-----------
39,766,144
Total Investment Portfolio excluding
repurchase agreement (cost $48,332,582)...
REPURCHASE AGREEMENT--0.6%(A)
--------------------------------------------
Repurchase Agreement with State Street Bank
and Trust Company, dated March 31, 2000 @
6.05% to be repurchased at $266,134 on April
03, 2000, collateralized by $260,000
United States Treasury Notes, 8.00% due
May 15, 2001, (market value $272,054
including interest)(cost $266,000).......... 266,000
-----------
TOTAL INVESTMENT PORTFOLIO
(cost $48,598,582)(e), 97.5%(a)........... 40,032,144
OTHER ASSETS AND LIABILITIES, net,
2.5%(a)................................... 1,021,031
-----------
NET ASSETS, 100.0%.......................... $41,053,175
===========
</TABLE>
---------------
* Non-income producing security.
(a) Percentages indicated are based on net assets.
(b) Bond not current on interest payment.
(c) Bonds reset to applicable coupon rate at a future date.
(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
$8,566,438 which consists of aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost of
$140,382 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value of $8,706,820.
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 10
--------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE HIGH YIELD
GOVERNMENT FUND BOND FUND
--------------- -----------
<S> <C> <C>
Assets
------------------------------------------------------------
Investments, at market value (identified cost $28,637,648
and $48,332,582, respectively)............................ $28,227,301 $39,766,144
Repurchase agreement (identified cost $1,014,000 and
$266,000, respectively)(Note 1)........................... 1,014,000 266,000
Cash........................................................ 1,000 390
Receivables:
Investments sold.......................................... -- 107,018
Fund shares sold.......................................... 1,781 8,491
Dividends and interest.................................... 278,017 1,147,309
Deferred state qualification expenses (Note 1).............. 20,313 18,109
Prepaid insurance (Note 1).................................. 4,010 6,847
----------- -----------
Total Assets........................................ $29,546,422 $41,320,308
----------- -----------
Liabilities
------------------------------------------------------------
Payables (Note 4):
Fund shares redeemed...................................... $ 73,176 $ 192,414
Accrued management fee.................................... 1,000 2,051
Accrued distribution fee.................................. 7,233 15,825
Other accrued expenses.................................... 48,849 56,843
----------- -----------
Total Liabilities................................... 130,258 267,133
----------- -----------
Net assets, at market value................................. $29,416,164 $41,053,175
=========== ===========
Net Assets
------------------------------------------------------------
Net assets consist of:
Paid-in capital........................................... $36,613,060 $53,299,044
Undistributed net investment income (Note 1).............. 349,918 358,348
Accumulated net realized loss (Notes 1 and 5)............. (7,136,467) (4,037,779)
Net unrealized depreciation on investments................ (410,347) (8,566,438)
----------- -----------
Net assets, at market value................................. $29,416,164 $41,053,175
=========== ===========
Net assets, at market value
Class A Shares............................................ $26,853,447 $28,047,501
Class B Shares............................................ 541,634 3,126,632
Class C Shares............................................ 2,021,083 9,879,042
----------- -----------
Total............................................... $29,416,164 $41,053,175
=========== ===========
Shares of beneficial interest outstanding
Class A Shares............................................ 2,959,233 3,424,842
Class B Shares............................................ 59,898 383,738
Class C Shares............................................ 223,276 1,212,242
----------- -----------
Total............................................... 3,242,407 5,020,822
=========== ===========
Net Asset Value -- offering and redemption price per share
(Notes 1 and 2)
Class A Shares............................................ $9.07 $8.19
=========== ===========
Maximum offering price per share (100/96.25 of $9.07 and
$8.19, respectively)................................... $9.42 $8.51
=========== ===========
Class B Shares............................................ $9.04 $8.15
=========== ===========
Class C Shares............................................ $9.05 $8.15
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 11
--------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE HIGH YIELD
GOVERNMENT FUND BOND FUND
--------------- -----------
<S> <C> <C>
Investment Income
------------------------------------------------------------
Income:
Interest.................................................. $ 966,537 $ 2,595,375
Expenses (Notes 1 and 4):
Management fee............................................ 79,812 138,874
Distribution fee (Class A Shares)......................... 40,175 44,153
Distribution fee (Class B Shares)......................... 1,093 13,955
Distribution fee (Class C Shares)......................... 6,157 45,019
Shareholder servicing fees................................ 12,501 15,490
Custodian/Fund accounting fees............................ 29,568 39,715
Professional fees......................................... 28,627 25,600
Federal qualification expenses............................ 16,105 19,000
Reports to shareholders................................... 7,759 10,480
Trustees' fees and expenses............................... 4,516 4,516
Insurance................................................. 1,022 1,703
Other..................................................... 186 526
--------- -----------
Total expenses before waiver and reimbursement...... 227,521 359,031
Fees waived by Manager (Note 4)..................... (79,812) (47,412)
Reimbursement from Manager.......................... (3,100) --
--------- -----------
Total expenses after waiver and reimbursement....... 144,609 311,619
--------- -----------
Net investment income....................................... 821,928 2,283,756
--------- -----------
Realized and Unrealized Loss on Investment
------------------------------------------------------------
Net realized loss from investment transactions.............. (896,670) (1,164,166)
Net unrealized appreciation (depreciation) of investments
during the period......................................... 675,846 (3,024,032)
--------- -----------
Net loss on investments............................. (220,824) (4,188,198)
--------- -----------
Net increase (decrease) in net assets resulting from
operations................................................ $ 601,104 $(1,904,442)
========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 12
--------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX-
MONTH PERIOD
ENDED FOR THE
MARCH 31, 2000 YEAR ENDED
INTERMEDIATE GOVERNMENT FUND (UNAUDITED) SEPTEMBER 30, 1999
---------------------------- -------------- ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 821,928 $ 646,013
Net realized gain (loss) from investment transactions..... (896,670) 73,483
Net unrealized appreciation (depreciation) of investments
during the period....................................... 675,846 (935,036)
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. 601,104 (215,540)
Distributions to shareholders from:
Net investment income Class A Shares, ($0.28 and $0.42 per
share, respectively).................................... (739,280) (553,804)
Net investment income Class B Shares, ($0.26 and $0.40 per
share, respectively).................................... (9,426) (12,843)
Net investment income Class C Shares, ($0.26 and $0.40 per
share, respectively).................................... (52,994) (109,274)
Increase (decrease) in net assets from Fund share
transactions (Note 2) (Note 6)............................ 16,296,656 (3,566,013)
----------- -----------
Increase (decrease) in net assets........................... 16,096,060 (4,457,474)
Net assets, beginning of period............................. 13,320,104 17,777,578
----------- -----------
Net assets, end of period (including undistributed net
investment income of $349,918 and $329,690,
respectively)............................................. $29,416,164 $13,320,104
=========== ===========
<CAPTION>
FOR THE SIX-
MONTH PERIOD
ENDED FOR THE
MARCH 31, 2000 YEAR ENDED
HIGH YIELD BOND FUND (UNAUDITED) SEPTEMBER 30, 1999
-------------------- -------------- ------------------
<S> <C> <C>
Decrease in net assets:
Operations:
Net investment income..................................... $ 2,283,756 $ 4,730,505
Net realized loss from investment transactions............ (1,164,166) (2,864,540)
Net unrealized depreciation of investments during the
period.................................................. (3,024,032) (1,538,293)
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. (1,904,442) 327,672
Distributions to shareholders from:
Net investment income Class A Shares, ($0.51 and $0.87 per
share, respectively).................................... (1,590,417) (3,446,438)
Net investment income Class B Shares, ($0.48 and $0.82 per
share, respectively).................................... (166,403) (232,004)
Net investment income Class C Shares, ($0.48 and $0.82 per
share, respectively).................................... (540,375) (1,141,155)
Increase (decrease) in net assets from Fund share
transactions (Note 2)..................................... (5,163,360) 148,976
----------- -----------
Decrease in net assets...................................... (9,364,997) (4,342,949)
Net assets, beginning of period............................. 50,418,172 54,761,121
----------- -----------
Net assets, end of period (including undistributed net
investment income of $358,348 and $371,787,
respectively)............................................. $41,053,175 $50,418,172
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 13
--------------------------------------------------------------------------------
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 SIX- FOR THE SIX- FOR THE YEARS
MONTH PERIOD MONTH PERIOD ENDED
ENDED FOR THE YEARS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
MARCH 31, 2000 ------------------------------------------ MARCH 31, 2000 ---------------
(UNAUDITED)* 1999* 1998* 1997* 1996* 1995 (UNAUDITED) 1999 1998+
--------------- ------ ------ ------ ------ ------ --------------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $ 9.16 $ 9.70 $ 9.20 $ 9.08 $ 9.29 $ 9.10 $ 9.13 $ 9.67 $ 9.28
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(a).... 0.25 0.41 0.48 0.51 0.50 0.62 0.20 0.39 0.33
Net realized and unrealized
gain (loss) on
investments............... (0.06) (0.53) 0.51 0.13 (0.21) 0.12 (0.03) (0.53) 0.32
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations................ 0.19 (0.12) 0.99 0.64 0.29 0.74 0.17 (0.14) 0.65
------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income......... (0.28) (0.42) (0.49) (0.52) (0.50) (0.55) (0.26) (0.40) (0.26)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD...................... $ 9.07 $ 9.16 $ 9.70 $ 9.20 $ 9.08 $ 9.29 $ 9.04 $ 9.13 $ 9.67
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN(%)(B)............ 1.65(c) (1.20) 11.18 7.28 3.24 8.47 1.50(c) (1.49) 7.16(c)
RATIOS(%)/SUPPLEMENTAL DATA
Operating expenses, net, to
average daily net
assets(a)................. 0.88(d) 0.91 0.92 0.93 0.94 0.95 1.20(d) 1.20 1.20(d)
Net investment income to
average daily net
assets.................... 5.18(d) 4.40 5.18 5.65 5.42 5.50 4.80(d) 4.15 4.59(d)
Portfolio turnover rate..... 60(c) 124 188 69 135 162 60(c) 124 188(c)
Net assets, end of period ($
millions)................. 27 11 13 14 18 24 1 .4 .1
<CAPTION>
CLASS C SHARES
-----------------------------------------------------------
FOR THE SIX-
MONTH PERIOD
ENDED FOR THE YEARS ENDED SEPTEMBER 30,
MARCH 31, 2000 ------------------------------------------
(UNAUDITED)* 1999* 1998* 1997* 1996* 1995++
-------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $ 9.14 $ 9.67 $ 9.18 $ 9.06 $ 9.27 $ 9.05
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(a).... 0.21 0.40 0.41 0.49 0.49 0.21
Net realized and unrealized
gain (loss) on
investments............... (0.04) (0.53) 0.55 0.13 (0.21) 0.23
------ ------ ------ ------ ------ ------
Total from Investment
Operations................ 0.17 (0.13) 0.96 0.62 0.28 0.44
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income......... (0.26) (0.40) (0.47) (0.50) (0.49) (0.22)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD...................... $ 9.05 $ 9.14 $ 9.67 $ 9.18 $ 9.06 $ 9.27
====== ====== ====== ====== ====== ======
TOTAL RETURN(%)(B)............ 1.50(c) (1.38) 10.85 7.02 3.04(c) 4.90(c)
RATIOS(%)/SUPPLEMENTAL DATA
Operating expenses, net, to
average daily net
assets(a)................. 1.20(d) 1.20 1.20 1.20 1.20(d) 1.20(d)
Net investment income to
average daily net
assets.................... 4.82(d) 4.11 4.74 5.38 5.22(d) 5.19(d)
Portfolio turnover rate..... 60(c) 124 188 69 135(c) 162(c)
Net assets, end of period ($
millions)................. 2 2 5 1 1 .1
</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 $.02, $.09, $.10, $.07, $.06, and $.06 per Class A Shares,
respectively. The operating expense ratios including such items would have
been 1.40% (annualized), 1.84%, 2.00%, 1.67%, 1.61%, and 1.47% for Class A
Shares, respectively. Excludes management fees waived and expenses
reimbursed by the Manager in the amount of $.02, $.09, and $.06 per Class B
Shares, respectively. The operating expense ratios including such items
would have been 1.72% (annualized), 2.13%, and 2.28% (annualized) for Class
B Shares, respectively. Excludes management fees waived and expenses
reimbursed by the Manager in the amount of $.02, $.08, $.10, $.07, $.06,
and $.06 per Class C Shares, respectively. The operating expense ratios
including such items would have been 1.72% (annualized), 2.13%, 2.28%,
1.94%, 1.87%, and 1.72% (annualized) for Class C Shares, 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.
12
<PAGE> 14
--------------------------------------------------------------------------------
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 SIX- FOR THE SIX- FOR THE YEARS
MONTH PERIOD MONTH PERIOD ENDED
ENDED FOR THE YEARS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
MARCH 31, 2000 ------------------------------------------ MARCH 31, 2000 ---------------
(UNAUDITED) 1999 1998 1997 1996 1995 (UNAUDITED) 1999 1998+
-------------- ------ ------ ------ ------ ------ -------------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 8.98 $ 9.77 $10.69 $10.22 $ 9.94 $ 9.65 $ 8.94 $ 9.73 $10.57
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(a).................... 0.52 0.86 0.88 0.90 0.84(b) 0.72 0.48 0.81 0.51
Net realized and
unrealized gain (loss)
on investments......... (0.80) (0.78) (0.91) 0.46 0.24 0.31 (0.79) (0.78) (0.87)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations............. (0.28) 0.08 (0.03) 1.36 1.08 1.03 (0.31) 0.03 (0.36)
------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.51) (0.87) (0.89) (0.89) (0.80) (0.74) (0.48) (0.82) (0.48)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD................... $ 8.19 $ 8.98 $ 9.77 $10.69 $10.22 $ 9.94 $ 8.15 $ 8.94 $ 9.73
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN(%)(C)........ (4.13)(d) 0.66 (0.52) 14.00 11.44 11.23 (4.40)(d) 0.14 (3.58)(d)
RATIOS(%)/SUPPLEMENTAL
DATA:
Operating expenses, net,
to average daily net
assets(a).............. 1.18(e) 1.18 1.19 1.21 1.23 1.25 1.70(e) 1.70 1.70(e)
Net investment income to
average daily net
assets................. 10.03(e) 8.94 8.44 8.76 8.41 7.35 9.51(e) 8.40 7.90(e)
Portfolio turnover
rate................... 59(d) 52 87 101 143 109 59(d) 52 87
Net assets, end of period
($ millions)........... 28 34 40 42 33 30 3 4 2
<CAPTION>
CLASS C SHARES
-----------------------------------------------------------
FOR THE SIX-
MONTH PERIOD
ENDED FOR THE YEARS ENDED SEPTEMBER 30,
MARCH 31, 2000 ------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995++
-------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 8.94 $ 9.73 $10.65 $10.18 $ 9.91 $ 9.62
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(a).................... 0.48 0.81 0.83 0.85 0.79(b) 0.31
Net realized and
unrealized gain (loss)
on investments......... (0.79) (0.78) (0.91) 0.46 0.24 0.28
------ ------ ------ ------ ------ ------
Total from Investment
Operations............. (0.31) 0.03 (0.08) 1.31 1.03 0.59
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.48) (0.82) (0.84) (0.84) (0.76) (0.30)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD................... $ 8.15 $ 8.94 $ 9.73 $10.65 $10.18 $ 9.91
====== ====== ====== ====== ====== ======
TOTAL RETURN(%)(C)........ (4.40)(d) 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(e) 1.70 1.70 1.70 1.70 1.70(e)
Net investment income to
average daily net
assets................. 9.51(e) 8.42 7.93 8.26 8.39 6.67(e)
Portfolio turnover
rate................... 59(d) 52 87 101 143 109(d)
Net assets, end of period
($ millions)........... 10 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 and expenses reimbursed by the Manager in
the amount of $.01, $.01, $.01, $.01, $.03, and $.03 per Class A Shares,
respectively. The operating expense ratios including such items would have
been 1.39% (annualized), 1.27%, 1.30%, 1.30%, 1.51%, and 1.51% for Class A
Shares, respectively. Excludes management fees waived and expenses
reimbursed by the Manager in the amount of $.01, $.01, and $.01 per Class B
Shares, respectively. The operating expense ratios including such items
would have been 1.90% (annualized), 1.79%, and 1.80% (annualized) for Class
B Shares, respectively. Excludes management fees waived and expenses
reimbursed by the Manager in the amount of $.01, $.01, $.01, $.01, $.03, and
$.03 per Class C Shares, respectively. The operating expense ratios
including such items would have been 1.90% (annualized), 1.79%, 1.80%,
1.79%, 1.98%, and 1.96% (annualized) for Class C Shares, respectively.
(b) 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.
(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.
13
<PAGE> 15
--------------------------------------------------------------------------------
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 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 accounting
principles generally accepted in the United States 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 fees, distribution
fee, etc., while other expenses such as insurance expense are 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.
14
<PAGE> 16
--------------------------------------------------------------------------------
HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
--------------------------------------------------------------------------------
Note 2:
FUND SHARES: At March 31, 2000, 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 six-month
period ended March 31, 2000, were as follows:
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------- --------------------- ------------------------
FOR THE PERIOD ENDED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
MARCH 31, 2000 (UNAUDITED) ---------- ------------ ------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold (Note 6)............ 3,949,077 $ 35,900,889 39,992 $ 361,451 110,430 $ 1,000,716
Shares issued on reinvestment of
distributions................. 62,473 564,299 868 7,827 5,175 46,678
Shares redeemed................. (2,214,975) (20,096,711) (27,255) (245,147) (137,766) (1,243,346)
---------- ------------ ------- ---------- --------- -----------
Net increase (decrease)......... 1,796,575 $ 16,368,477 13,605 $ 124,131 (22,161) $ (195,952)
============ ========== ===========
Shares outstanding:
Beginning of period........... 1,162,658 46,293 245,437
---------- ------- ---------
End of period................. 2,959,233 59,898 223,276
========== ======= =========
</TABLE>
Transactions in Class A, B and C Shares of the Fund during the year ended
September 30, 1999, were as follows:
<TABLE>
<CAPTION>
A SHARES B SHARES 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>
HIGH YIELD BOND FUND
Transactions in Class A, B and C Shares of the Fund during the six-month
period ended March 31, 2000, were as follows:
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------- --------------------- ------------------------
FOR THE PERIOD ENDED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
MARCH 31, 2000 (UNAUDITED) ---------- ------------ ------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold..................... 128,661 $ 1,117,523 59,401 $ 515,881 111,684 $ 964,926
Shares issued on reinvestment of
distributions................. 113,129 976,121 7,642 65,597 46,521 399,590
Shares redeemed................. (641,239) (5,519,675) (78,616) (670,752) (349,292) (3,012,571)
---------- ------------ ------- ---------- --------- -----------
Net decrease.................... (399,449) $ (3,426,031) (11,573) $ (89,274) (191,087) $(1,648,055)
============ ========== ===========
Shares outstanding:
Beginning of period........... 3,824,291 395,311 1,403,329
---------- ------- ---------
End of period................. 3,424,842 383,738 1,212,242
========== ======= =========
</TABLE>
Transactions in Class A, B and C Shares of the Fund during the year ended
September 30, 1999, were as follows:
<TABLE>
<CAPTION>
A SHARES B SHARES 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>
15
<PAGE> 17
--------------------------------------------------------------------------------
HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
--------------------------------------------------------------------------------
Note 3:
PURCHASES AND SALES OF SECURITIES. For the six-month period ended March
31, 2000, 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 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 2000 fiscal year as
follows:
<TABLE>
<CAPTION>
CLASS A CLASS B AND 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 $79,812 were waived and $3,100 of
expenses were reimbursed for the Intermediate Government Fund and
management fees of $47,412 were waived in the High Yield Bond Fund for the
six-month period ended March 31, 2000. If total Fund expenses fall below
the expense limitation agreed to by the Manager before the end of the year
ended September 30, 2002, the Funds may be required to pay the Manager a
portion or all of the waived management fees. In addition, the
Intermediate Government Fund may be required to pay the Manager a portion
or all of the management fees waived of $74,359 and reimbursed expenses of
$63,436 in fiscal 1999 if total Fund expenses fall below the annual
expense limitations before the end of the year ending September 30, 2001.
The High Yield Bond Fund may be required to pay the Manager a portion or
all of the management fees waived of $49,125 in fiscal 1999 if total Fund
expenses fall below the annual expense limitations before the end of the
year ending September 30, 2001.
The Manager entered into an agreement with Salomon Brothers Asset
Management, 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 six-month period ended March 31, 2000, the Manager paid $69,437 for
subadviser fees.
The Manager also is the Dividend Paying, Shareholder Servicing Agent and
Fund Accountant for the Intermediate Government Fund and High Yield Bond
Fund. For the Intermediate Government Fund the Manager charged $12,501 for
Dividend Paying and Shareholder Servicing and $23,025 for Fund Accounting
services of which $6,000 and $11,700 was payable as of March 31, 2000,
respectively. For the High Yield Bond Fund, the Manager charged $15,490
for Dividend Paying and Shareholder Servicing and $29,073 for Fund
Accounting services of which $8,400 and $14,400 was payable as of March
31, 2000, respectively.
Raymond James & Associates, Inc. (the "Distributor") has advised the Trust
that the Intermediate Government Fund received $2,318 in front-end sales
charges for Class A Shares, $156 in contingent deferred sales charges for
Class B Shares and $213 in contingent deferred sales charges for Class C
Shares for the six-month period ended March 31, 2000. The High Yield Bond
Fund received $18,766 in front-end sales charges for Class A Shares,
$11,629 in contingent deferred sales charges for Class B Shares and $1,279
in contingent deferred sales charges for Class C Shares for the six-month
period ended March 31, 2000. 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. Class B Shares will convert to
Class 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 and
Heritage Series Trust, investment companies that also are advised by the
Manager of the Trust
16
<PAGE> 18
--------------------------------------------------------------------------------
HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
--------------------------------------------------------------------------------
(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.
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
dates of September 30, 2007.
Note 6:
FUND MERGER. 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 shares of the
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.
17
<PAGE> 19
HERITAGE FAMILY OF FUNDS (TM)
From Our Family to Yours: The Intelligent Creation of Wealth.
HERITAGE GROWTH 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)2000 Heritage Asset Management, Inc.
5M AR5321 SINL 3/00 [RECYCLE LOGO]
[HERITAGE LOGO] Heritage Income Trust
P.O. Box 33022
St. Petersburg, FL 33733
----------------------------------------------------------------
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