<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, 2000
(HERITAGE LOGO)
----------------
INCOME TRUST(TM)
----------------
<PAGE> 2
October 30, 2000
Dear Valued Shareholders:
I am pleased to provide you with the annual report for the fiscal year
ended September 30, 2000, for the Intermediate Government Fund and the High
Yield Bond Fund ("Funds"), the portfolios that comprise the Heritage Income
Trust (the "Trust"). For this 12-month period, Heritage Intermediate Government
Fund had positive returns of +5.92%*, +5.47%* and +5.58%* on its Class A, Class
B and Class C shares, respectively.
The Heritage High Yield Bond Fund suffered negative returns of -2.97%*,
-3.50%* and -3.50%* on its Class A, Class B and Class C shares, respectively,
for the 12-month period ended September 30, 2000. Relatively high default rates
in the high yield market have caused spreads to widen by more than 130 basis
points during the Fund's fiscal year which has hurt performance.
Commentaries from Peter Wallace, the portfolio manager of the Intermediate
Government Fund, and Peter Wilby, the portfolio manager of the High Yield Bond
Fund, are included with this report. These commentaries include details about
the performance of each Fund, as well as the economic and market events which
most impacted performance during this annual reporting period (ended September
30, 2000).
In May 1999, the Board of Trustees for the U.S. Government Income Fund
("HGA") approved the reorganization of that Fund, into the Intermediate
Government Fund. In exchange for shares held in HGA, shareholders received Class
A shares of the Intermediate Government Fund in an amount equal to the net asset
value of their HGA shares on the date of reorganization. For those investors
joining Heritage Income Trust as former HGA shareholders, we thank you for your
continued confidence in our fund family.
For your information, effective October 5, 2000, I assumed the position of
President of the Heritage Income Trust, succeeding Brian Lee. I have served as a
member of the Board of Trustees since the inception of the Trust on March 1,
1990 and look forward to communicating with you in the future.
Thank you for your continued support of Heritage Family of Funds and for
your investment in Heritage Income Trust. Please call your financial advisor or
Heritage at (800) 421-4184 if you have any questions.
Sincerely,
/s/ RICHARD RIESS
-----------------
Richard Riess
President
---------------
* These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
<PAGE> 3
October 23, 2000
Dear Fellow Shareholders:
For the fiscal year ended September 30, 2000, the Intermediate Government
Fund (the "Fund") Class A Shares produced a total return of +5.92%* while the
Lehman Brothers Intermediate Government/Corporate Index returned +6.25%. The
Fund performed well among its peer group as the Lipper Intermediate Government
Category returned +5.74% over the same period.
During the fiscal year, bond yields changed quite erratically, with shorter
and intermediate yields rising sharply and longer-term issues of 10 to 30 years
declining slightly in yield. The following table shows the magnitude of interest
rate changes and holding period returns across the U.S. Treasury yield curve:
<TABLE>
<CAPTION>
9/30/1999 9/29/2000 CHANGE RETURNS
--------- --------- ------ -------
<S> <C> <C> <C> <C>
3 month..................... 4.846% 6.204% 1.358% 5.82%
6 month..................... 4.958 6.280 1.322 5.93
1 year...................... 5.178 6.084 0.906 4.51
2 year...................... 5.600 5.966 0.366 5.19
5 year...................... 5.756 5.841 0.085 5.54
10 year..................... 5.877 5.795 -0.082 4.84
30 year..................... 6.053 5.883 -0.170 7.17
</TABLE>
Source: Yields and change: Bloomberg; Returns: Lehman Brothers
During the fiscal year, the domestic economy grew at a very rapid pace.
Consumer spending and investment were the primary sources of economic growth.
Adding to the above growth trend was the wealth effect of several years of
phenomenal gains in equity and real estate investment.
The Federal Reserve followed a restrictive monetary policy raising the
federal funds rate four times for a total of 125 basis points. The rate hikes
were intended to slow a surging economy growing at rates well above the Fed's
perceived 3.5% to 4% potential. To compound matters, the Treasury instituted the
repurchase, or buy-back, of longer-term bonds and reduced the amount of treasury
debt issuance. The confluence of these events caused an unusual event, the
inversion of the yield curve. Longer-term rates fell reflecting the lack of
supply and repurchases while shorter-term rates were higher reflecting the Fed's
tighter monetary policy.
Inflation rose modestly over the last year. The Consumer Price Index (CPI)
gained only +3.5% over the last year while the "core" CPI (CPI excluding the
volatile food and energy components) rose by only +2.6%. Although higher than a
year ago, inflation has remained contained even in spite of sharply higher
energy prices. The recent increase in energy prices, if sustained, might raise
the risk of higher inflation and the possibility of much slower economic growth
than is currently expected.
Presently, the Fed's actions appear to be having the desired effect as real
Gross Domestic Product growth has slowed from an 8.3% growth rate at the end of
1999 to 5.6% at the end of the second quarter of 2000. Although I believe growth
has not yet declined to potential, the economy appears to be slowing towards
that goal.
During the year, the Fund attempted to take advantage of the inversion by
remaining predominantly invested in conservative shorter and intermediate term
Treasury issues. To enhance income and performance, the Fund also maintained a
position in mortgage-backed securities and two very short-term average life
collateralized mortgage obligation issues.
In the near term, we believe the bond market will continue to exhibit high
levels of volatility as the economy gradually slows to its potential. The
Federal Reserve's monetary policy appears to be on hold with the Fed cautiously
assessing the slowdown. We plan to maintain a conservative investment approach
concentrating the Fund's investments in intermediate Treasury issues, moving
maturities slightly longer as the economy slows.
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
---------------
* These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
2
<PAGE> 4
GROWTH OF A $10,000 INVESTMENT SINCE OCTOBER 1, 1990
OF HERITAGE INCOME TRUST--INTERMEDIATE GOVERNMENT FUND
CLASS A SHARES
[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 contingent deferred
sales load for Class B Shares (4% for the one year period and 3% for the life
of Class B Shares) and reinvestment of dividends for Class A and B 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.
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 return 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, at the periods selected.
4
<PAGE> 6
October 20, 2000
Dear Shareholders:
The Heritage Income Trust-High Yield Bond Fund (the "Fund") returned
-2.97%* on its Class A shares for the fiscal year-ended September 30, 2000. By
comparison, the Salomon Smith Barney High Yield Market Index gained 1.02% and
its peer group the Lipper High Yield Fund category returned -0.02%.
For most of the fiscal year, concerns over continued strong growth in the
U.S. economy and rising energy prices heightened inflation worries, which
resulted in a string of interest rate hikes by the U.S. Federal Reserve. From
June 1999 until May 2000, the Federal Reserve lifted its target rate for
overnight bank lending six times, or 1.75%, to 6.50%. The Federal Reserve's rate
increases caused significant concern and uncertainty in the fixed income and
equity markets as to the ultimate end of the rate increases and the
sustainability of robust economic growth. The resulting rise in long-term
interest rates and volatility in the U.S. equity markets put pressure on the
high yield market, both in terms of asset pricing and liquidity. These pressures
were compounded by relatively high default rates in the high yield market,
primarily due to weak underwriting standards in 1997 and 1998 and a tightening
of banks' and the market's credit standards, which limited companies' access to
new funds. As a result, liquidity in the market was limited on the investor
side, as mutual fund outflows totaled $8.97 billion during the period, and by
broker-dealers, who held back from committing significant funds to support the
market. Late in the fiscal year, however, the high yield market received some
relief as the Federal Reserve held interest rates steady at its meetings in June
and August 2000 in response to data hinting at a slowdown in the U.S. economy.
However, the high yield market reversed course in September as a series of
earnings revisions renewed cyclical and corporate profitability concerns. As the
fiscal year ended, the high yield market remained focused on high default rates,
potential inflation threats and the magnitude of an economic slowdown.
According to the Salomon Smith Barney High Yield Market Index, the average
market yield at September 30, 2000 was 12.69%. This compares to 12.52% at June
30, 2000 and 11.34% at September 30, 1999. Spreads, which were 551 basis points
at September 30, 1999, widened to 640 basis points at June 30, 2000 and further
widened to 684 basis points at September 30, 2000. These figures reflect the
volatility which has affected the U.S. credit markets as investors initially
focused on inflation and interest rates early in the year and, subsequently,
became more concerned with credit issues.
Leading the market over the last twelve months have been higher rated
securities in Energy, Cable & Other Media, Technology, Gaming, Utilities, and
Housing Related issues. Sectors that have lagged include lower rated securities
in Supermarkets/Drugstores, Automotive, Retail, Leisure, Metals/Mining, and
Services/Other.
In response to the increased market volatility, the Fund has been focused
on continuing to upgrade credit quality over the past year. The Fund also
increased its exposure to less cyclical sectors, such as Gaming and Utilities,
while reducing its holdings in more cyclical sectors, including Automotive,
Metals/Mining, Retail and Chemicals. Additionally, while maintaining its
underweighting in Telecommunications, the Fund increased its exposure early in
the fiscal year to participate in the rally in Telecommunications, and decreased
its exposure during the second half of the fiscal year due to profitability and
liquidity concerns in that sector.
The Fund's performance for the fiscal year was adversely affected by
overweightings in Retail, Automotive and Supermarkets/Drugstores and
underweightings in Housing Related and Utilities. The Fund's performance was
helped, however, by a shift to an overweighting in Energy, an overweighting in
Gaming and by underweightings in Telecommunications and Leisure.
Going forward, we expect the high yield market to continue to experience
volatility in the near-term primarily as a result of several technical factors,
including (i) negative mutual fund flows, (ii) continued concerns over defaults,
(iii) reduced secondary market liquidity, (iv) equity market volatility and (v)
continuing cyclical concerns. In light of these conditions, we are pursuing a
conservative investment strategy geared to accumulating BB-rated credits and
aggressively pursuing selective opportunities in undervalued B- and CCC-rated
credits.
Best regards,
/s/ PETER J. WILBY
--------------------------------------
Peter J. Wilby
Managing Director
Salomon Brothers Asset Management Inc.
Portfolio Manager, High Yield Bond
Fund
* These returns are calculated without the imposition of front-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,
2000. 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 OCTOBER 1, 1990
OF HERITAGE INCOME TRUST--HIGH YIELD BOND FUND
CLASS A SHARES
[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 contingent deferred sales load for
Class B Shares (4% for the one year period and 3% for the life of Class B
Shares) and reinvestment of dividends for Class A, B and 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.
7
<PAGE> 9
--------------------------------------------------------------------------------
HERITAGE INCOME TRUST
INTERMEDIATE GOVERNMENT FUND
INVESTMENT PORTFOLIO
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
--------- ---------- -----------
<C> <S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES--96.7%(A)
---------------------------------------------------------------------------------
U.S. TREASURIES--60.5%(A)
$ 500,000 U.S. Treasury Notes, 6.25%.................................. 01/31/02 $ 500,313
1,000,000 U.S. Treasury Notes, 5.5%................................... 02/28/03 989,063
2,000,000 U.S. Treasury Notes, 5.375%................................. 06/30/03 1,971,250
2,000,000 U.S. Treasury Notes, 5.25%.................................. 08/15/03 1,962,500
1,000,000 U.S. Treasury Notes, 4.25%.................................. 11/15/03 951,875
1,300,000 U.S. Treasury Notes, 5.875%................................. 02/15/04 1,297,969
2,000,000 U.S. Treasury Notes, 6.0%................................... 08/15/04 2,006,250
2,000,000 U.S. Treasury Notes, 5.875%................................. 11/15/04 1,998,126
1,000,000 U.S. Treasury Notes, 6.75%.................................. 05/15/05 1,035,938
2,500,000 U.S. Treasury Notes, 6.0%................................... 08/15/09 2,510,157
-----------
Total U.S. Treasuries (cost $15,311,758).................... 15,223,441
U.S. GOVERNMENT AGENCIES--36.2%(A)
---------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--15.5%
856,989 REMIC 1992-65 K, PAC, 8.5%.................................. 05/25/21 860,708
788,053 Pool #394212, 30 year Pass-Through, 7.5%.................... 07/01/27 788,318
2,218,309 Pool #529933, 30 year Pass-Through, 8.0%.................... 02/01/30 2,248,949
-----------
3,897,975
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--20.7%
1,595,052 REMIC 1996-16 G, Sequential Class, 7.0%..................... 04/16/22 1,591,224
2,779,219 Pool #415688, 30 year Pass-Through, 7.5%.................... 11/15/25 2,792,462
839,059 Pool #442741, 30 year Pass-Through, 7.5%.................... 03/15/27 842,657
-----------
5,226,343
Total U.S. Government Agencies (cost $9,153,427)............ 9,124,318
-----------
Total U.S. Government and Agency Securities (cost
$24,465,185)................................................ 24,347,759
REPURCHASE AGREEMENT--2.6%(A)
---------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated September
29, 2000 @ 6.35% to be repurchased at $654,346 on October 2, 2000, collateralized
by $740,000 United States Treasury Bonds, 5.25% due February 15, 2029, (market
value $691,097 including interest) (cost $654,000)............................... 654,000
-----------
TOTAL INVESTMENT PORTFOLIO (cost $25,119,185)(b), (99.3%)(a)..................... 25,001,759
OTHER ASSETS AND LIABILITIES, net, 0.7%(a)....................................... 178,012
-----------
NET ASSETS, 100%................................................................. $25,179,771
===========
</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
$117,426, which consists of aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost of
$130,472 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value of $247,898.
PAC--Planned Amortization Class
REMIC--Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 10
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HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
INVESTMENT PORTFOLIO
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
DOMESTIC CORPORATE BONDS--88.9%(A)
--------------------------------------------
AGRICULTURAL PRODUCTS & SERVICES--1.0%
--------------------------------------------
$ 375,000 Hines Horticulture, Inc.,
Series "B", 11.75%, 10/15/05... $ 375,000
-----------
AUTOMOTIVE--2.0%
--------------------------------------------
500,000 Breed Technologies Inc., 9.25%,
04/15/08(b).................... 50
500,000 Federal-Mogul Corporation,
7.5%, 01/15/09................. 190,000
500,000 JH Heafner Company, Series "D",
10.0%, 05/15/08................ 185,000
375,000 Lear Corporation, Series "B",
8.11%, 05/15/09................ 349,143
-----------
724,193
-----------
BANKS--1.0%
--------------------------------------------
375,000 Sovereign Bancorp Inc., 10.50%,
11/15/06....................... 381,563
-----------
BEVERAGES--0.7%
--------------------------------------------
250,000 Delta Beverage Group, Inc.,
9.75%, 12/15/03................ 256,250
-----------
BROADCASTING--8.4%
--------------------------------------------
250,000 Adelphia Communications
Corporation, Series "B", 10.5%,
07/15/04....................... 250,313
250,000 Adelphia Communications
Corporation, Series "B",
9.875%, 03/01/07............... 235,000
250,000 Century Communications
Corporation, Series "B", Zero
Coupon Bond, 01/15/08.......... 101,250
625,000 Charter Communications
Holdings, LLC, 0.0% to
04/01/04, 9.92% to maturity(c),
04/01/11....................... 365,625
250,000 Charter Communications
Holdings, LLC, 8.625%,
04/01/09....................... 224,375
500,000 CSC Holdings Inc., 10.5%,
05/15/16....................... 536,250
250,000 Insight Midwest L.P., 9.75%,
10/01/09....................... 251,875
375,000 LIN Television Corporation,
8.375%, 03/01/08............... 356,250
1,100,000 United International Holdings,
0.0% to 02/15/03, 10.75% to
maturity(c), 02/15/08.......... 753,500
-----------
3,074,438
-----------
CHEMICALS--2.3%
--------------------------------------------
375,000 Equistar Chemicals, L.P.,
8.75%, 02/15/09................ 367,715
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
--------------------------------------------
250,000 Lyondell Chemical Company,
Series "B", 9.875%, 05/01/07... 244,063
500,000 United Industries Corporation,
Series "B", 9.875%, 04/01/09... 210,000
-----------
821,778
-----------
COMMUNICATION SERVICES--8.1%
--------------------------------------------
225,000 Covad Communications Group,
Inc., Series "B", 12.0%,
02/15/10....................... 168,750
250,000 ICG Holdings Inc., 0.0% to
05/01/01, 12.5% to maturity(c),
05/01/06....................... 50,000
400,000 Intermedia Communications Inc.,
Series "B", 0.0% to 03/01/04,
12.5% to maturity (c),
03/01/09....................... 268,000
1,000,000 International CableTel, Inc.,
Series "B", 0.0% to 02/01/01,
11.5% to maturity (c),
02/01/06....................... 945,000
200,000 Leap Wireless International,
Inc. 12.5%, 04/15/10........... 156,000
750,000 Nextel Communications, Inc.,
0.0% to 10/31/02, 9.75% to
maturity(c) 10/31/07........... 588,750
500,000 Price Communications Wireless
Inc., Series "B", 9.125%,
12/15/06....................... 505,000
250,000 PSINet Inc., 11.0%, 08/01/09... 162,500
250,000 Ubiquitel Operating Company,
0.0% to 04/15/05, 14.0% to
maturity(c), 04/15/10.......... 120,000
-----------
2,964,000
-----------
COMMUNICATIONS EQUIPMENT--1.0%
--------------------------------------------
500,000 World Access Inc., 13.25%,
01/15/08....................... 360,000
-----------
COMPUTER EQUIPMENT--1.1%
--------------------------------------------
500,000 Quantum Corporation, 7.0%,
08/01/04....................... 399,375
-----------
COMPUTER PERIPHERAL EQUIPMENT--0.9%
--------------------------------------------
500,000 Axiohm Transaction Solutions,
Inc., 9.75%, 10/01/07 (b)...... 50,000
250,000 Federal Data Corporation,
10.125%, 08/01/05.............. 261,875
-----------
311,875
-----------
CONSTRUCTION & CONSTRUCTION PRODUCTS--1.0%
--------------------------------------------
375,000 Integrated Electronic Services,
Inc., 9.375%, 02/01/09......... 338,438
-----------
</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, 2000
(CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
--------------------------------------------
COSMETICS & TOILETRIES--1.8%
--------------------------------------------
$ 500,000 French Fragrances, Inc., Series
"B", 10.375%, 05/15/07......... $ 490,000
250,000 Revlon Consumer Products
Corporation, 8.125%,
02/01/06....................... 179,375
-----------
669,375
-----------
ELECTRONIC EQUIPMENT--0.6%
--------------------------------------------
250,000 High Voltage Engineering
Corporation, 10.75%,
08/15/04....................... 161,250
500,000 Stellex Industries, Inc.,
Series "B", 9.5%, 11/01/07
(b)............................ 55,000
-----------
216,250
-----------
ENTERTAINMENT--5.5%
--------------------------------------------
350,000 Harrah's Operating Company,
Inc. 7.88%, 12/15/05........... 336,875
250,000 Horseshoe Gaming Holding
Corporation, Series "B",
8.625%, 05/15/09............... 245,000
250,000 MGM Mirage Inc., 9.75%,
06/01/07....................... 258,750
225,000 Mohegan Tribal Gaming, 8.75%,
01/01/09....................... 222,750
500,000 Park Place Entertainment
Corporation, 7.875%,
12/15/05....................... 481,875
479,000 Waterford Gaming, LLC, 9.5%,
03/15/10....................... 469,420
-----------
2,014,670
-----------
FINANCIAL INSTITUTIONS--4.1%
--------------------------------------------
493,850 Airplane Pass Through Trust,
Class "D", 10.875%, 03/15/19... 401,683
750,000 ContiFinancial Corporation,
7.50%, 03/15/02 (b)............ 106,875
750,000 ContiFinancial Corporation,
8.125%, 04/01/08 (b)........... 106,875
125,000 ContiFinancial Corporation,
8.375%, 08/15/03 (b)........... 17,813
500,000 DVI, Inc., 9.875%, 02/01/04.... 440,625
500,000 Morgan Stanley Aircraft
Finance, 8.7%, 03/15/23........ 441,010
-----------
1,514,881
-----------
FOOD--1.1%
--------------------------------------------
250,000 B&G Foods, Inc., 9.625%,
08/01/07....................... 180,000
500,000 Imperial Sugar Company, 9.75%,
12/15/07....................... 90,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
--------------------------------------------
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., Series "B", 10.25%,
07/01/09....................... 130,000
-----------
400,875
-----------
FURNITURE & FIXTURES--0.6%
--------------------------------------------
250,000 Winsloew Furniture Inc., Series
"B", 12.75%, 08/15/07.......... 230,000
-----------
HEALTH CARE--1.7%
--------------------------------------------
375,000 Tenet Healthcare Corporation,
9.25%, 09/01/10................ 391,875
250,000 The Healthcare Company, 6.91%,
06/15/05....................... 235,660
-----------
627,535
-----------
MANUFACTURING INDUSTRIES--3.6%
--------------------------------------------
250,000 Hexcel Corporation, 9.75%,
01/15/09....................... 232,500
200,000 DI Industries, Inc., 8.875%.... 193,500
1,000,000 Jordan Industries Inc., Series
"B", 0.0% to 04/01/02, 11.75%
to maturity(c), 04/01/09....... 650,000
385,000 Syratech Corporation, 11.0%,
04/15/07....................... 225,225
-----------
1,301,225
-----------
MEDICAL EQUIPMENT--1.4%
--------------------------------------------
500,000 Fresenius Medical Care Capital
Trust I, 9.0%, 12/01/06........ 497,500
-----------
METAL PRODUCTS--1.0%
--------------------------------------------
375,000 Aqua Chemicals Inc., 11.25%,
07/01/08....................... 270,000
500,000 Republic Technologies
International LLC, 13.75%,
07/15/09....................... 90,000
-----------
360,000
-----------
MINING--1.3%
--------------------------------------------
500,000 P&L Coal Holdings Corporation,
Series "B", 8.875%, 05/15/08... 493,750
-----------
MISCELLANEOUS SERVICES--6.0%
--------------------------------------------
500,000 Advanstar Communications Inc.,
9.25%, 05/01/08................ 503,125
500,000 Comforce Operating, Inc.,
Series "B", 12.0%, 12/01/07.... 232,500
250,000 Iron Mountain, Inc., 10.125%,
10/01/06....................... 255,000
</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, 2000
(CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
--------------------------------------------
$ 500,000 Loomis Fargo & Company, 10.0%,
01/15/04....................... $ 478,750
250,000 Pierce Leahy Corporation,
11.125%, 07/15/06.............. 261,250
500,000 Sitel Corporation, 9.25%,
03/15/06....................... 465,000
-----------
2,195,625
-----------
OIL & GAS--6.8%
--------------------------------------------
500,000 Belco Oil & Gas Corporation,
8.875%, 09/15/07............... 482,500
500,000 Benton Oil & Gas Company,
11.625%, 05/01/03.............. 350,000
190,000 Clark R&M, Inc., 8.875%,
11/15/07....................... 133,000
250,000 Costilla Energy, Inc., 10.25%,
10/01/06 (b)................... 111,875
400,000 Lomak Petroleum Corporation,
8.75%, 01/15/07................ 380,000
500,000 Ocean Energy Inc., Series "B",
8.375%, 07/01/08............... 500,000
250,000 Pioneer Natural Resources
Company, 9.625%, 04/01/10...... 266,027
275,000 Plains Resources, Inc., Series
"B", 10.25%, 03/15/06.......... 279,125
-----------
2,502,527
-----------
PAPER PRODUCTS--0.7%
--------------------------------------------
250,000 Abitibi Consolidated Inc.,
8.55%, 08/01/10................ 254,362
-----------
PHOTOGRAPHIC EQUIPMENT--0.7%
--------------------------------------------
250,000 Polaroid Corporation, 11.5%,
02/15/06....................... 242,500
-----------
PLASTIC PRODUCTS--5.0%
--------------------------------------------
370,000 Anchor Advanced Products, Inc.,
11.75%, 04/01/04............... 277,500
500,000 Berry Plastics Corporation,
12.25%, 04/15/04............... 470,000
500,000 Foamex, L.P., 9.875%,
06/15/07....................... 370,000
500,000 Indesco International, Inc.,
9.75%, 04/15/08................ 185,000
250,000 Owens-Illinois Inc., 7.5%,
05/15/10....................... 206,568
250,000 Radnor Holdings, Inc., 10.0%,
12/01/03....................... 221,250
125,000 Radnor Holdings, Inc., Series
"B", 10.0%, 12/01/03........... 110,625
-----------
1,840,943
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
--------------------------------------------
POLLUTION CONTROL--1.2%
--------------------------------------------
500,000 Allied Waste North America,
Inc., 7.875%, 01/01/09......... 436,250
500,000 Safety-Kleen Services, 9.25%,
06/01/08(b).................... 15,625
-----------
451,875
-----------
PRINTING & PUBLISHING--2.6%
--------------------------------------------
500,000 Hollinger International
Publishing, 9.25%, 03/15/07.... 502,500
250,000 Mail-Well Corporation, Series
"B", 8.75%, 12/15/08........... 217,500
250,000 Quebecor World, Inc., 8.375%,
11/15/08....................... 243,004
-----------
963,004
-----------
REAL ESTATE--1.3%
--------------------------------------------
500,000 HMH Properties, Inc., Series
"B", 7.875%, 08/01/08.......... 460,000
-----------
RETAIL STORES--5.5%
--------------------------------------------
250,000 Advance Stores Company, Inc.,
Series "B", 10.25%, 04/15/08... 195,000
300,000 Cole National Group, 9.875%,
12/31/06....................... 207,000
500,000 Duane Reade Inc., 9.25%,
02/15/08....................... 435,000
500,000 Finlay Enterprises, Inc., 9.0%,
05/01/08....................... 455,000
500,000 Leslie's Poolmart Inc.,
10.375%, 07/15/04.............. 400,000
250,000 Mattress Discounters
Corporation, Series "B",
12.625%, 07/15/07.............. 231,250
175,000 Pueblo Xtra International Inc.,
9.5%, 08/01/03................. 82,250
-----------
2,005,500
-----------
TEXTILES--1.0%
--------------------------------------------
300,000 Pillowtex Corporation, Series
"B", 9.0%, 12/15/07............ 51,000
250,000 Simmons Company, Series "B",
10.25%, 03/15/09............... 238,750
250,000 Worldtex Inc., Series "B",
9.625%, 12/15/07............... 61,250
-----------
351,000
-----------
TOBACCO--1.1%
--------------------------------------------
500,000 North Atlantic Trading Company,
Series "B", 11.0%, 06/15/04.... 420,625
-----------
</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, 2000
(CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
DOMESTIC CORPORATE BONDS (CONTINUED)
--------------------------------------------
TRANSPORTATION--1.1%
--------------------------------------------
$ 500,000 Holt Group, 9.75%, 01/15/06.... $ 65,000
375,000 Northwest Airlines, Inc.
7.625%, 03/15/05............... 347,343
-----------
412,343
-----------
TRANSPORTATION EQUIPMENT--1.8%
--------------------------------------------
500,000 Sequa Corporation, 9.0%,
08/01/09....................... 491,250
500,000 The Derby Cycle Corporation,
10.0%, 05/15/08................ 150,000
-----------
641,250
-----------
TRANSPORTATION SERVICES--1.1%
--------------------------------------------
375,000 Avis Group Holdings Inc.,
11.0%, 05/01/09................ 406,875
-----------
UTILITIES--2.6%
--------------------------------------------
500,000 Azurix Corporation, 10.375%,
02/15/07....................... 470,000
500,000 Calpine Corporation, 8.75%,
07/15/07....................... 495,109
-----------
965,109
-----------
WHOLESALE PRODUCTS--0.2%
--------------------------------------------
250,000 Home Interiors & Gifts, Inc.,
10.125%, 06/01/08.............. 75,000
-----------
Total Domestic Corporate Bonds
(cost $41,163,269).......................... 32,521,509
-----------
FOREIGN CORPORATE BONDS--5.5%(A)(D)
--------------------------------------------
BROADCASTING--0.2%
--------------------------------------------
150,000 Telewest Communications, PLC,
0.0% to 04/15/04, 9.25% to
maturity(c), 04/15/09.......... 80,250
-----------
CONSTRUCTION & CONSTRUCTION PRODUCTS--0.5%
--------------------------------------------
250,000 International Utility
Structures, Inc., 10.75%,
02/01/08....................... 180,000
-----------
ENTERTAINMENT--1.2%
--------------------------------------------
500,000 Sun International Hotels, Ltd.,
8.625%, 12/15/07............... 458,750
-----------
FOOD--0.6%
--------------------------------------------
250,000 Premier International Foods,
PLC, 12.0%, 09/01/09........... 208,750
-----------
MINING--0.9%
--------------------------------------------
375,000 Murrin Murrin Holdings
Property, Ltd., 9.375%,
08/31/07....................... 337,500
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
<S> <C> <C>
FOREIGN CORPORATE BONDS (CONTINUED)
--------------------------------------------
TELECOMMUNICATIONS--1.4%
--------------------------------------------
500,000 Rogers Cantel Inc., 8.8%,
10/01/07....................... 501,250
-----------
TRANSPORTATION--0.7%
--------------------------------------------
500,000 Enterprises Shipholding
Corporation, 8.875%,
05/01/08....................... 245,000
-----------
Total Foreign Corporate Bonds
(cost $2,507,362)........................... 2,011,500
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<S> <C> <C>
WARRANTS & COMMON STOCK--0.1%(A)*
--------------------------------------------
200 Leap Wireless International,
Inc............................ 500
250 Mattress Discounters........... 2,500
375 Ubiquitel Inc.................. 15,000
1,571 World Access Inc. (Common
Stock)......................... 8,493
250 Winsloew Furniture Inc......... 2,500
-----------
Total Warrants & Common Stock
(cost $54,065)............................ 28,993
-----------
Total Investment Portfolio excluding
repurchase agreement (cost $43,724,696)... 34,562,002
-----------
REPURCHASE AGREEMENT--3.4%(A)
--------------------------------------------
Repurchase Agreement with State Street Bank
and Trust Company, dated September 29, 2000
@ 6.35% to be repurchased at $1,250,661 on
October 2, 2000, collateralized by
$1,025,000 United States Treasury Notes,
8.13% due August 15, 2021, (market value
$1,276,059 including interest)
(cost $1,250,000)........................... 1,250,000
-----------
TOTAL INVESTMENT PORTFOLIO
(cost $44,974,696)(e), 97.9%(a)........... 35,812,002
OTHER ASSETS AND LIABILITIES, net,
2.1%(a)................................... 782,152
-----------
NET ASSETS, 100%............................ $36,594,154
===========
</TABLE>
---------------
* Non-income producing securities.
(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
$9,162,694 which consists of aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost of
$300,156 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value of $9,462,850.
The accompanying notes are an integral part of the financial statements.
12
<PAGE> 14
--------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE HIGH YIELD
GOVERNMENT FUND BOND FUND
--------------- -----------
<S> <C> <C>
Assets
------------------------------------------------------------
Investments, at market value (identified cost $24,465,185
and $43,724,696, respectively) (Note 1)................... $ 24,347,759 $34,562,002
Repurchase agreement (identified cost $654,000 and
$1,250,000, respectively) (Note 1)........................ 654,000 1,250,000
Cash........................................................ 373 9
Receivables:
Investments sold.......................................... -- 260,879
Fund shares sold.......................................... 143 5,002
From Manager.............................................. 28,330 --
Interest.................................................. 238,655 959,995
Deferred state qualification expenses (Note 1).............. 11,109 10,346
Prepaid insurance (Note 1).................................. 3,553 4,145
------------ -----------
Total Assets........................................ $ 25,283,922 $37,052,378
------------ -----------
Liabilities
------------------------------------------------------------
Payables (Note 4):
Investments purchased..................................... $ -- $ 200,487
Fund shares redeemed...................................... 45,103 163,763
Accrued management fee.................................... -- 24,929
Accrued distribution fee.................................. 6,105 13,451
Other accrued expenses.................................... 52,943 55,594
------------ -----------
Total Liabilities................................... 104,151 458,224
------------ -----------
Net assets, at market value................................. $ 25,179,771 $36,594,154
============ ===========
Net Assets
------------------------------------------------------------
Net assets consist of:
Paid-in capital........................................... $ 35,804,175 $50,409,238
Undistributed net investment income (Note 1).............. 335,312 303,514
Accumulated net realized loss (Notes 1 and 5)............. (10,842,290) (4,955,904)
Net unrealized depreciation on investments................ (117,426) (9,162,694)
------------ -----------
Net assets, at market value................................. $ 25,179,771 $36,594,154
============ ===========
Net assets, at market value
Class A Shares............................................ $ 23,356,541 $24,922,621
Class B Shares............................................ 319,817 3,180,411
Class C Shares............................................ 1,503,413 8,491,122
------------ -----------
Total............................................... $ 25,179,771 $36,594,154
============ ===========
Shares of beneficial interest outstanding
Class A Shares............................................ 2,542,184 3,167,602
Class B Shares............................................ 34,936 406,353
Class C Shares............................................ 164,022 1,084,688
------------ -----------
Total............................................... 2,741,142 4,658,643
============ ===========
Net Asset Value -- offering and redemption price per share
(Notes 1 and 2)
Class A Shares............................................ $ 9.19 $ 7.87
============ ===========
Maximum offering price per share (100/96.25 of $9.19 and
$7.87, respectively)................................... $ 9.55 $ 8.18
============ ===========
Class B Shares............................................ $ 9.15 $ 7.83
============ ===========
Class C Shares............................................ $ 9.17 $ 7.83
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE> 15
--------------------------------------------------------------------------------
HERITAGE INCOME TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE HIGH YIELD
GOVERNMENT FUND BOND FUND
--------------- -----------
<S> <C> <C>
Investment Income
------------------------------------------------------------
Income:
Interest.................................................. $1,828,789 $ 4,793,284
Expenses (Notes 1 and 4):
Management fee............................................ 147,610 255,529
Distribution fee (Class A Shares)......................... 74,028 81,098
Distribution fee (Class B Shares)......................... 2,417 26,391
Distribution fee (Class C Shares)......................... 11,541 81,793
Shareholder servicing fees................................ 24,733 28,660
Custodian/Fund accounting fees............................ 59,388 78,888
Professional fees......................................... 50,553 43,041
State qualification expenses.............................. 41,307 38,381
Reports to shareholders................................... 17,072 17,429
Trustees' fees and expenses............................... 8,899 8,899
Insurance................................................. 2,263 3,103
Other..................................................... 1,153 1,541
---------- -----------
Total expenses before waiver and reimbursement...... 440,964 664,753
Fees waived by Manager (Note 4)..................... (147,610) (91,727)
Reimbursement from Manager.......................... (28,330) --
---------- -----------
Total expenses after waiver and reimbursement....... 265,024 573,026
---------- -----------
Net investment income....................................... 1,563,765 4,220,258
---------- -----------
Realized and Unrealized Gain (Loss) on Investments
------------------------------------------------------------
Net realized loss from investment transactions.............. (863,245) (2,074,309)
Net unrealized appreciation (depreciation) of investments
during the year........................................... 968,766 (3,620,288)
---------- -----------
Net gain (loss) on investments...................... 105,521 (5,694,597)
---------- -----------
Net increase (decrease) in net assets resulting from
operations................................................ $1,669,286 $(1,474,339)
========== ===========
</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, 2000 SEPTEMBER 30, 1999
---------------------------- ------------------ ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 1,563,765 $ 646,013
Net realized gain (loss) from investment transactions..... (863,245) 73,483
Net unrealized appreciation (depreciation) of investments
during the year......................................... 968,766 (935,036)
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. 1,669,286 (215,540)
Distributions to shareholders from:
Net investment income Class A Shares, ($0.53 and $0.42 per
share, respectively).................................... (1,443,852) (553,804)
Net investment income Class B Shares, ($0.50 and $0.40 per
share, respectively).................................... (20,243) (12,843)
Net investment income Class C Shares, ($0.50 and $0.40 per
share, respectively).................................... (98,911) (109,274)
Increase (decrease) in net assets from Fund share
transactions (Note 2)(Note 6)............................. 11,753,387 (3,566,013)
----------- -----------
Increase (decrease) in net assets........................... 11,859,667 (4,457,474)
Net assets, beginning of year............................... 13,320,104 17,777,578
----------- -----------
Net assets, end of year (including undistributed net
investment income of $303,514 and $329,690,
respectively)............................................. $25,179,771 $13,320,104
=========== ===========
<CAPTION>
FOR THE YEARS ENDED
---------------------------------------
HIGH YIELD BOND FUND SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
-------------------- ------------------ ------------------
<S> <C> <C>
Decrease in net assets:
Operations:
Net investment income..................................... $ 4,220,258 $ 4,730,505
Net realized loss from investment transactions............ (2,074,309) (2,864,540)
Net unrealized depreciation of investments during the
year.................................................... (3,620,288) (1,538,293)
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. (1,474,339) 327,672
Distributions to shareholders from:
Net investment income Class A Shares, ($0.92 and $0.87 per
share, respectively).................................... (2,978,474) (3,446,438)
Net investment income Class B Shares, ($0.87 and $0.82 per
share, respectively).................................... (319,717) (232,004)
Net investment income Class C Shares, ($0.87 and $0.82 per
share, respectively).................................... (998,322) (1,141,155)
Increase (decrease) in net assets from Fund share
transactions (Note 2)..................................... (8,053,166) 148,976
----------- -----------
Decrease in net assets...................................... (13,824,018) (4,342,949)
Net assets, beginning of year............................... 50,418,172 54,761,121
----------- -----------
Net assets, end of year (including undistributed net
investment income of $335,312 and $371,787,
respectively)............................................. $36,594,154 $50,418,172
=========== ===========
</TABLE>
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 ENDED FOR THE YEARS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------ ------------------------
2000 1999 1998 1997 1996 2000 1999 1998+
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............... $ 9.16 $ 9.70 $ 9.20 $ 9.08 $ 9.29 $ 9.13 $ 9.67 $ 9.28
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)....................... 0.50 0.41 0.48 0.51 0.50 0.47 0.39 0.33
Net realized and unrealized gain (loss) on
investments.................................. 0.06 (0.53) 0.51 0.13 (0.21) 0.05 (0.53) 0.32
------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations............... 0.56 (0.12) 0.99 0.64 0.29 0.52 (0.14) 0.65
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income........... (0.53) (0.42) (0.49) (0.52) (0.50) (0.50) (0.40) (0.26)
------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR..................... $ 9.19 $ 9.16 $ 9.70 $ 9.20 $ 9.08 $ 9.15 $ 9.13 $ 9.67
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(B).............................. 5.92 (1.20) 11.18 7.28 3.24 5.47 (1.49) 7.16(c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily net
assets(a).................................... 0.87 0.91 0.92 0.93 0.94 1.20 1.20 1.20(d)
Net investment income to average daily net
assets....................................... 5.32 4.40 5.18 5.65 5.42 5.00 4.15 4.59(d)
Portfolio turnover rate........................ 107 124 188 69 135 107 124 188(c)
Net assets, end of year ($ millions)........... 23 11 13 14 18 .3 .4 .1
<CAPTION>
CLASS C SHARES*
------------------------------------------
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............... $ 9.14 $ 9.67 $ 9.18 $ 9.06 $ 9.27
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)....................... 0.45 0.40 0.41 0.49 0.49
Net realized and unrealized gain (loss) on
investments.................................. 0.08 (0.53) 0.55 0.13 (0.21)
------ ------ ------ ------ ------
Total from Investment Operations............... 0.53 (0.13) 0.96 0.62 0.28
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income........... (0.50) (0.40) (0.47) (0.50) (0.49)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR..................... $ 9.17 $ 9.14 $ 9.67 $ 9.18 $ 9.06
====== ====== ====== ====== ======
TOTAL RETURN (%)(B).............................. 5.58 (1.38) 10.85 7.02 3.04
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to average daily net
assets(a).................................... 1.20 1.20 1.20 1.20 1.20
Net investment income to average daily net
assets....................................... 4.98 4.11 4.74 5.38 5.22
Portfolio turnover rate........................ 107 124 188 69 135
Net assets, end of year ($ millions)........... 2 2 5 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.
(a) Excludes management fees waived and expenses reimbursed by the Manager in
the amount of $.06, $.09, $.10, $.07 and $.06 per Class A Shares,
respectively, for the five years ended September 30, 2000. The operating
expense ratios including such items would have been 1.47%, 1.84%, 2.00%,
1.67% and 1.61% for Class A Shares, respectively, for the five years ended
September 30, 2000. Excludes management fees waived and expenses reimbursed
by the Manager in the amount of $.06, $.09, and $.06 per Class B Shares,
respectively, for the three years ended September 30, 2000. The operating
expense ratios including such items would have been 1.80%, 2.13% and 2.28%
(annualized) for Class B Shares, respectively, for the three years ended
September 30, 2000. Excludes management fees waived and expenses reimbursed
by the Manager in the amount of $.06, $.08, $.10, $.07 and $.06 per Class C
Shares, respectively, for the five years ended September 30, 2000. The
operating expense ratios including such items would have been 1.80%, 2.13%,
2.28%, 1.94% and 1.87% for Class C Shares, respectively, for the five years
ended September 30, 2000.
(b) These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
(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 ENDED FOR THE YEARS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------ ------------------------
2000 1999 1998 1997 1996 2000 1999 1998+
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR............................. $ 8.98 $ 9.77 $10.69 $10.22 $ 9.94 $ 8.94 $ 9.73 $10.57
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)......... 0.92 0.86 0.88 0.90 0.84(b) 0.86 0.81 0.51
Net realized and unrealized gain
(loss) on investments.......... (1.11) (0.78) (0.91) 0.46 0.24 (1.10) (0.78) (0.87)
------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations..................... (0.19) 0.08 (0.03) 1.36 1.08 (0.24) 0.03 (0.36)
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income......................... (0.92) (0.87) (0.89) (0.89) (0.80) (0.87) (0.82) (0.48)
------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR....... $ 7.87 $ 8.98 $ 9.77 $10.69 $10.22 $ 7.83 $ 8.94 $ 9.73
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(C)................ (2.97) 0.66 (0.52) 14.00 11.44 (3.50) 0.14 (3.58)(d)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average daily net assets(a).... 1.18 1.18 1.19 1.21 1.23 1.70 1.70 1.70(e)
Net investment income to average
daily net assets............... 10.07 8.94 8.44 8.76 8.41 9.56 8.40 7.90(e)
Portfolio turnover rate.......... 32 52 87 101 143 32 52 87
Net assets, end of year ($
millions)...................... 25 34 40 42 33 3 4 2
<CAPTION>
CLASS C SHARES
------------------------------------------
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR............................. $ 8.94 $ 9.73 $10.65 $10.18 $ 9.91
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)......... 0.86 0.81 0.83 0.85 0.79(b)
Net realized and unrealized gain
(loss) on investments.......... (1.10) (0.78) (0.91) 0.46 0.24
------ ------ ------ ------ ------
Total from Investment
Operations..................... (0.24) 0.03 (0.08) 1.31 1.03
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income......................... (0.87) (0.82) (0.84) (0.84) (0.76)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR....... $ 7.83 $ 8.94 $ 9.73 $10.65 $10.18
====== ====== ====== ====== ======
TOTAL RETURN (%)(C)................ (3.50) 0.14 (1.02) 13.53 10.93
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net, to
average daily net assets(a).... 1.70 1.70 1.70 1.70 1.70
Net investment income to average
daily net assets............... 9.56 8.42 7.93 8.26 8.39
Portfolio turnover rate.......... 32 52 87 101 143
Net assets, end of year ($
millions)...................... 8 13 13 13 6
</TABLE>
---------------
+ For the period February 2, 1998 (commencement of Class B Shares) to
September 30, 1998.
(a) Excludes management fees waived and expenses reimbursed by the Manager in
the amount of $.02, $.01, $.01, $.01 and $.03 per Class A Shares,
respectively, for the five years ended September 30, 2000. The operating
expense ratios including such items would have been 1.40%, 1.27%, 1.30%,
1.30% and 1.51% for Class A Shares, respectively, for the five years ended
September 30, 2000. Excludes management fees waived and expenses reimbursed
by the Manager in the amount of $.02, $.01, and $.01 per Class B Shares,
respectively, for the three years ended September 30, 2000. The operating
expense ratios including such items would have been 1.92%, 1.79% and 1.81%
(annualized) per Class B Shares, respectively, for the three years ended
September 30, 2000. Excludes management fees waived and expenses reimbursed
by the Manager in the amount of $.02, $.01, $.01, $.01 and $.03 per Class C
Shares, respectively, for the five years ended September 30, 2000. The
operating expense ratios including such items would have been 1.92%, 1.79%,
1.81%, 1.79% and 1.98% for Class C Shares, respectively, for the five years
ended September 30, 2000.
(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) These returns are calculated without the imposition of either front-end or
contingent deferred sales charges.
(d) Not annualized.
(e) Annualized.
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 19
--------------------------------------------------------------------------------
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 accounting
principles generally accepted in the United States of America 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. Repurchase
agreements involve the risk that the seller will fail to repurchase the
security, as agreed. In that case, the Fund will bear the risk of market
value fluctuations until the security can be sold and may encounter delays
and incur costs in liquidating the security. In the event of bankruptcy or
insolvency of the seller, delays and costs are incurred.
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
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
--------------------------------------------------------------------------------
HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
--------------------------------------------------------------------------------
Note 2:
FUND SHARES. At September 30, 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 year ended
September 30, 2000, 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, 2000 ---------- ------------ ------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................... 86,549 $ 789,883 80,413 $ 727,775 186,409 $ 1,689,266
Shares issued on acquisition
(Note 6)....................... 3,908,806 35,531,046 -- -- -- --
Shares issued on reinvestment of
distributions.................. 119,744 1,083,489 1,532 13,835 9,037 81,611
Shares redeemed.................. (2,735,573) (24,818,822) (93,302) (842,554) (276,861) (2,502,142)
---------- ------------ ------- --------- -------- -----------
Net increase (decrease).......... 1,379,526 $ 12,585,596 (11,357) $(100,944) (81,415) $ (731,265)
============ ========= ===========
Shares outstanding:
Beginning of year.............. 1,162,658 46,293 245,437
---------- ------- --------
End of year.................... 2,542,184 34,936 164,022
========== ======= ========
</TABLE>
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>
HIGH YIELD BOND FUND
Transactions in Class A, B and C Shares of the Fund during the year ended
September 30, 2000, 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, 2000 ---------- ----------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................... 262,522 $ 2,184,794 146,530 $ 1,209,253 184,150 $ 1,542,303
Shares issued on reinvestment
of distributions............ 217,209 1,807,050 15,398 127,204 89,811 743,545
Shares redeemed............... (1,136,420) (9,472,499) (150,886) (1,245,835) (592,602) (4,948,981)
---------- ----------- -------- ----------- ---------- -----------
Net increase (decrease)....... (656,689) $(5,480,655) 11,042 $ 90,622 (318,641) $(2,663,133)
=========== =========== ===========
Shares outstanding:
Beginning of year........... 3,824,291 395,311 1,403,329
---------- -------- ----------
End of year................. 3,167,602 406,353 1,084,688
========== ======== ==========
</TABLE>
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>
19
<PAGE> 21
--------------------------------------------------------------------------------
HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
--------------------------------------------------------------------------------
Note 3:
PURCHASES AND SALES OF SECURITIES. For the year ended September 30, 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.................... $29,222,578 $44,139,245 $1,893,596 -- --
High Yield Bond Fund............................ -- -- -- $12,851,223 $21,645,026
</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 a contract dated
January 3, 2000, 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 $147,610 were waived and $28,330
of expenses were reimbursed for the Intermediate Government Fund and
management fees of $91,727 were waived in the High Yield Bond Fund for the
year ended September 30, 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 Funds may
be required to pay the Manager a portion or all of the management fees
waived of $74,359 and $49,125 for the Intermediate Government Fund and the
High Yield Bond Fund, respectively, 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 year ended September 30, 2000, the Manager paid $127,765 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 $24,733 for
Dividend Paying and Shareholder Servicing fees and $46,202 for Fund
Accounting services of which $6,000 and $11,400, respectively, were
payable as of September 30, 2000. For the High Yield Bond Fund, the
Manager charged $28,660 for Dividend Paying and Shareholder Servicing and
$57,883 for Fund Accounting services of which $6,600 and $14,100,
respectively, were payable as of September 30, 2000.
Raymond James & Associates, Inc. (the "Distributor") has advised the
Intermediate Government Fund that it received $691 in front-end sales
charges for Class A Shares, $3,287 in contingent deferred sales charges
for Class B Shares and $1,717 in contingent deferred sales charges for
Class C Shares for the year ended September 30, 2000. The Distributor has
advised the High Yield Bond Fund that it received $5,726 in front-end
sales charges for Class A Shares, $14,535 in contingent deferred sales
charges for Class B Shares and $2,445 in contingent deferred sales charges
for Class C Shares for the year ended September 30, 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 (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 received an
annual fee of $8,666 and an additional fee of $3,250 for each
20
<PAGE> 22
--------------------------------------------------------------------------------
HERITAGE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
--------------------------------------------------------------------------------
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, 2000, 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, 2000, the Fund charged paid in capital $4,186,791
and credited accumulated net realized loss $4,172,936 and undistributed
net investment income $13,855. Due to the Fund merger (Note 6), the
Fund forfeited $4,174,674 in capital loss carryovers from prior years.
The Fund has net tax basis capital loss carryforwards of $10,159,353
which may be applied against any realized net taxable gains until their
expiration dates of September 30, 2002 ($1,429,684), September 30, 2003
($4,315,312), September 30, 2004 ($1,737,841), September 30, 2005
($446,153), September 30, 2006 ($374,992), September 30, 2007
($1,413,752) and September 30, 2008 ($441,619). The Fund did not
utilize any net tax basis capital losses during the current year to
offset any net realized gains from investment transactions. In addition
from November 1, 1999 to September 30, 2000, the Fund incurred $676,394
of net realized capital losses which will be deferred and treated as
arising on October 1, 2000 in accordance with regulations under the
Internal Revenue Code.
HIGH YIELD BOND FUND
----------------------------
As of September 30, 2000, the Fund credited undistributed net
investment income $7,982 and charged accumulated net realized gain
$7,982 in the current year. The Fund has net tax basis capital loss
carryforwards of $3,213,002, which may be applied against any realized
net taxable gains until their expiration dates of September 30, 2007
($409,285) and September 30, 2008 ($2,803,717). In addition from
November 1, 1999 to September 30, 2000 the Fund incurred $1,731,748 of
net realized capital losses which will be deferred and treated as
arising on October 1, 2000 in accordance with regulations under the
Internal Revenue Code.
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 Fund") pursuant to an
agreement and plan of reorganization and termination approved by the
shareholders of Government Income Fund on September 27, 1999. The
acquisition was accomplished by a tax-free exchange of 3,908,806 Class A
shares of the Intermediate Government Fund at a net asset value of $9.09
per share for shares of the Government Income Fund. The net assets of the
Intermediate Government Fund and Government Income Fund immediately before
the acquisition were $13,116,358 and $35,531,046, respectively, including
unrealized depreciation of $791,656 for the Government Income Fund.
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 Heritage Income
Trust -- Intermediate Government Fund and Heritage Income Trust -- High Yield
Bond Fund (constituting Heritage Income Trust, hereafter referred to as the
"Trust") at September 30, 2000, 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 accounting principles generally accepted
in the United States of America. 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 auditing standards
generally accepted in the United States of America 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, 2000 by correspondence with the custodian, provide a reasonable
basis for our opinion.
/s/ PricewaterhoueCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP
Tampa, Florida
November 10, 2000
<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 more
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. It
may also be used as sales literature when preceded or accompanied by a
prospectus.
(C)2000 Heritage Asset Management, Inc.
5M AR5320INL 9/00 [RECYCLE LOGO]
[HERITAGE LOGO] Heritage Income Trust
P.O. Box 33022
St. Petersburg, FL 33733
------------------------------------------------------------------------------
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