<PAGE> 1
December 9, 1996
Dear Fellow Shareholders:
It is my pleasure to provide you with the annual report for Heritage Series
Trust-Small Cap Stock Fund (the "Fund") for the fiscal year ended October 31,
1996. For this period, your Fund's A shares and C shares returned 33.18% and
32.22%, respectively.(*) For the same period the Russell 2000 index of smaller
companies returned only 16.5%.
As is often true of the stock market in general, and small cap stocks in
particular, investment returns last year were quite volatile. For the first half
of your Fund's fiscal year, the A and C shares each returned over 31%, while in
the second half only very slight incremental returns were realized. Actually, as
the table below shows, the second half of the fiscal year provided dramatic
evidence of the volatility of the small cap market.
<TABLE>
<CAPTION>
PERIOD A SHARE RETURNS(*)
-------------------------------------------------------------- ------------------
<S> <C>
May 1-May 23 + 7.82%
May 24-July 16 -15.80%
July 17-October 2 +16.30%
October 3-October 31 - 4.10%
</TABLE>
This dissection of the May 1 to October 31 period provides powerful
evidence for the argument that investors in the small cap market need patience
and a long-term investment horizon to realize the benefits from this market
segment.
Our strategy of allocating your Fund's assets between two separate
subadvisers has helped smooth returns for your Fund relative to the market in
general. In the two letters that follow, Bert Boksen of Eagle Asset Management,
Inc. and Jim Awad of Awad & Associates share their thoughts on the factors that
contributed to your Fund's recent performance as well as their outlook for the
small cap market going forward. I hope you find their comments instructive as to
how your investment portfolio is managed.
On behalf of all of us at Heritage, thank you for your continuing
investment in Heritage Small Cap Stock Fund. If you ever have suggestions for
how we could better serve you, please call us at 800-709-3863.
Sincerely,
/s/ Stephen G. Hill
--------------------------------------
Stephen G. Hill
President
(*) Calculated without the imposition of front-end or contingent deferred
sales charges.
<PAGE> 2
December 9, 1996
Dear Fellow Shareholders:
Your fund had another good year, providing a return of 33.18%(*) for Class
A shares versus an increase of 16.54% for the Russell 2000 Index (an index
comprised of smaller capitalization companies).
Going forward, we expect to make continued progress:
We believe that U.S. corporations are low-cost producers and technological
leaders in value added industries, the economy is growing at a sustainable rate,
corporate profits are increasing, inflation remains low, interest rates are
stable, valuations are reasonable and demand for financial assets continues to
increase.
Small capitalization issues are particularly attractive:
This universe of equities, which we call entrepreneurial sector, produces
higher returns than the market in general over time; that is the long-term case
for these stocks. The intermediate case is that although these stocks have
outperformed the market in general during the 1990's, they have made up less
than one-half of the underperformance of the 1980's, when this universe was
ignored by investors. The short-term case for small cap stocks is that they went
down dramatically during the summer and they have not yet recovered to their
early highs, in contrast to the Dow Jones Industrial Average and Standard &
Poor's 500 Composite Stock Price Index.
As a result, we expect solid absolute and relative returns for your Fund
over the coming year.
Your Fund is dominated by holdings in what we consider high quality,
growing companies with good balance sheets and high insider stock ownership.
These are characteristics that should positively withstand the test of time.
The Fund has a substantial position in the data processing area, as
technological innovation and efforts to improve productivity should, in our
opinion, help this sector in both the industrial and consumer segments of the
economy. We also have substantial positions in the medical equipment and supply
area. This industry could benefit from the aging of society and from the need to
deliver good health care at effective prices.
Our exposure to publishing is central to the information age and the fact
that publishing companies are benefiting substantially from the increasing
demand for information in our society. Increased exposure to the oil and gas
industry is a result of an improved supply/demand equation in that economic
sector.
A position was initiated in Alternative Living Services. We are optimistic
about the alternative living industry, which should benefit from the aging of
our society. Alternative Living Services is one of the companies in our arsenal
which should help the fund to participate in the growth in this area.
- ---------------
(*) Calculated without the imposition of front-end or contingent deferred sales
charges.
2
<PAGE> 3
We upgraded our energy exposure by initiating positions in Comstock
Resources, Midcoast Energy Resources and Vintage Petroleum. We also added
positions in the medical information area by purchasing Dynamic Healthcare and
LanVision.
Profits were taken in Kellstrom and Transport Holdings. Positions were
eliminated in Smithfield Foods, Regency Health Services, Sirena Apparel Group
and Circon Corp due to unexciting intermediate term prospects.
We look forward to serving you for years to come.
Sincerely,
/s/ James D. Awad
----------------------------------------
James D. Awad
Chairman
Awad & Associates
3
<PAGE> 4
December 9, 1996
Dear Fellow Shareholders:
Fiscal 1996 was a year of both strong absolute and relative performance for
our Fund. Results benefited from several investments in the oil service sector,
a number of takeovers as well as several special situations.
As referenced in last year's letter, in the fall of 1996 we purchased
several energy stocks including, Marine Drilling, Camco International, Veritas
DGC and Seacor Holdings. Largely reflecting strength in the energy sector, all
of these positions were big winners.
Takeovers also contributed strongly as CCH Inc. was acquired early in the
fiscal year, with Red Lion Hotels acquired later in fiscal 1996. Subsequent to
the Fund's year end, Eckerd Corp. and PHH Corp. both received takeover offers,
which led to substantial appreciation.
Special situations also contributed strongly to performance, as Ampex
Corp., Genesco Inc. and Strayer Education all rose sharply.
Situations that did not work out as hoped and detracted from performance
included Boca Research, Wackenhut Corp., Imco Recycling, and RMH Teleservices.
Currently Eagle's portion of the Fund is well diversified with the heaviest
industry concentration being energy, which is less than 15% of Eagle's
positions. Although I feel that the business outlook for energy companies is
excellent, given the rapid appreciation of the stocks, coupled with their
historic cyclicality, it is my current intention to begin modestly trimming such
holdings.
The ten largest holdings in our portion of the Fund at the end of November
were Veritas DGC, Ampex Corp, Strayer Education, Computer Products, Eckerd,
Genesco, Houghton Mifflin, Legg Mason, Lennar Corp. and Camco International.
Although your Fund has experienced both good relative and absolute
performance in 1996, Fund performance peaked in May, consistent with the
performance of the Russell 2000. As the widely followed Dow Jones and S&P 500
Indices make new highs, the Russell 2000 is still about 3% below its May 1996
peak. As of the date of this letter, for 1996, the Russell 2000 is up about 13%,
compared with 25% for the S&P 500. While over the short term this can prove
frustrating, relative valuations for many small capitalization companies appear
attractive, and if the strength in the market broadens, as we hope, small
capitalization stocks could outperform their larger brethren in 1997.
Although there will be inevitable bumps along the road, as 1996 draws to a
close, I feel good about how the portfolio is positioned. Our companies appear
to have strong prospects for growth, while selling at attractive valuations.
Sincerely,
/s/ Bert Boksen
--------------------------------------
Bert Boksen
Senior Vice President
Eagle Asset Management, Inc.
4
<PAGE> 5
GROWTH OF A $10,000 INVESTMENT
SINCE INCEPTION OF HERITAGE SERIES TRUST -- SMALL CAP STOCK FUND CLASS A SHARES
ON MAY 7, 1993
<TABLE>
<CAPTION>
Small Cap Russell
--------- -------
<S> <C> <C>
5/7/93** $ 9,525 $10,000
a $ 9,512 $10,390
1993 $10,378 $11,431
b $10,938 $11,794
c $10,631 $11,199
d $10,145 $10,875
1994 $10,798 $11,396
e $10,817 $11,086
f $11,427 $12,006
g $13,116 $13,586
1995 $13,386 $13,485
h $14,917 $14,406
i $17,605 $15,969
j $16,339 $14,527
1996 $17,827 $15,725
</TABLE>
GROWTH OF A $10,000 INVESTMENT
SINCE THE INITIAL OFFERING INCEPTION OF HERITAGE SERIES TRUST -- SMALL CAP
STOCK FUND CLASS C SHARES
ON APRIL 3, 1995
<TABLE>
<CAPTION>
Small Cap Russell
--------- -------
<S> <C> <C>
4/3/1995*** $10,000 $10,000
04/30/95 $10,268 $10,222
07/31/95 $11,729 $11,567
10/31/95 $11,991 $11,481
01/31/96 $13,340 $12,265
04/30/96 $15,721 $13,596
07/31/96 $14,551 $12,368
10/31/96 $15,854 $13,388
</TABLE>
(*) Average annual total returns for Heritage Series Trust-Small Stock Fund
Class A Shares and Class C Shares are calculated in conformance with item 22 of
Form N-1A, which assumes the reinvestment of dividends, a sales load of 4.75%
for Class A Shares and a contingent deferred sales load (CDSL) of 1% for Class
C Shares on redemptions made within one year of purchase.
5
<PAGE> 6
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-SMALL CAP STOCK FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------------ -----------
<C> <S> <C>
COMMON STOCKS--94.5%(A)
BANKING--4.6%
62,500 Bank Plus Corporation*............................................................. 703,125
45,000 BankUnited Financial Corporation, Class "A"*....................................... 410,625
10,000 Dime Bancorp, Inc.*................................................................ 148,750
78,400 First Financial Caribbean Corporation.............................................. 2,018,800
37,000 FNB Rochester Corporation*......................................................... 430,125
24,500 IBS Financial Corporation.......................................................... 392,000
25,000 ITLA Capital Corporation*.......................................................... 362,500
5,000 SIS Bancorp, Inc.*................................................................. 117,500
23,000 Summit Bancorp..................................................................... 940,125
-----------
5,523,550
-----------
BUILDING--1.4%
75,000 Lennar Corporation................................................................. 1,668,750
-----------
CHEMICALS--0.7%
30,000 Mississippi Chemical Corporation................................................... 753,750
10,000 Planet Polymer Technology, Inc.*................................................... 75,000
-----------
828,750
-----------
DATA PROCESSING--10.2%
26,376 BancTec, Inc.*..................................................................... 537,412
35,000 Byron Preiss Multimedia Company, Inc.*............................................. 120,313
67,500 Comdisco, Inc...................................................................... 2,016,563
150,000 Dynamic Healthcare Technologies, Inc.*............................................. 750,000
141,705 Greentree Software, Inc.*.......................................................... 106,279
85,000 LanVision Systems, Inc.*........................................................... 733,125
79,500 National Data Corporation.......................................................... 3,269,438
101,000 Norand Corporation*................................................................ 1,919,000
41,800 Ovid Technologies, Inc.*........................................................... 391,875
154,875 Printronix, Inc.*.................................................................. 1,916,578
10,000 Shared Medical Systems Corporation................................................. 482,500
-----------
12,243,079
-----------
EDUCATION--5.4%
68,475 Handex Corporation*................................................................ 718,988
225,000 National Education Corporation*.................................................... 3,656,250
110,000 Strayer Education, Inc.*........................................................... 2,117,500
-----------
6,492,738
-----------
ELECTRONICS/ELECTRIC--6.1%
270,000 Ampex Corporation, Class "A"*...................................................... 1,822,500
120,000 Computer Products, Inc.*........................................................... 2,370,000
65,000 Eltron International, Inc.*........................................................ 2,299,375
7,000 ThermoQuest Corporation*........................................................... 91,875
50,000 Trident International, Inc.*....................................................... 837,500
-----------
7,421,250
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-SMALL CAP STOCK FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1996
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------------ -----------
<C> <S> <C>
FINANCE--1.4%
225,000 Cash America International, Inc.................................................... 1,631,250
-----------
FOOD SERVING--0.5%
50,000 Apple South, Inc................................................................... 587,500
-----------
HEALTH CARE CENTERS--4.3%
73,000 Alternative Living Services, Inc.*................................................. 1,049,375
27,500 Assisted Living Concepts, Inc.*.................................................... 446,875
14,300 Bergen Brunswig Corporation, Class "A"............................................. 448,663
25,200 Horizon Mental Health Management, Inc.*............................................ 674,100
78,000 Kapson Senior Quarters Corporation*................................................ 614,250
40,000 Sterling House Corporation*........................................................ 505,000
50,000 Vencor, Inc.*...................................................................... 1,481,250
-----------
5,219,513
-----------
HOME FURNISHINGS--2.5%
50,000 Ethan Allen Interiors, Inc......................................................... 1,787,500
40,000 Falcon Products, Inc............................................................... 565,000
50,000 Furniture Brands International, Inc.*.............................................. 668,750
-----------
3,021,250
-----------
HOTELS/MOTELS/INNS--1.7%
70,000 Red Lion Hotels, Inc.*............................................................. 2,100,000
-----------
INSURANCE--1.0%
81,600 Gryphon Holdings, Inc.*............................................................ 1,152,600
-----------
LEATHER/SHOES--1.8%
240,000 Genesco Inc.*...................................................................... 2,160,000
-----------
LEISURE/AMUSEMENT--2.3%
43,000 K2, Inc............................................................................ 989,000
65,000 Rio Hotel & Casino Inc.*........................................................... 942,500
50,000 Sodak Gaming, Inc.*................................................................ 906,250
-----------
2,837,750
-----------
MACHINERY--1.1%
40,000 Computational Systems, Inc.*....................................................... 640,000
42,000 Gradall Industries, Inc.*.......................................................... 456,750
10,000 Middleby Corporation*.............................................................. 52,500
12,000 Thermo Fibertek, Inc.*............................................................. 126,000
-----------
1,275,250
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-SMALL CAP STOCK FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1996
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------------ -----------
<C> <S> <C>
MANUFACTURING/DISTRIBUTIONS--1.3%
69,800 Peak Technologies Group, Inc.*..................................................... 820,150
27,000 Thermo Optek Corporation*.......................................................... 324,000
13,800 Thermo TerraTech, Inc.*............................................................ 143,175
25,000 ThermoSpectra Corporation*......................................................... 328,125
-----------
1,615,450
-----------
MEDICAL EQUIPMENT/SUPPLY--6.0%
285,000 Angeion Corporation*............................................................... 1,211,250
123,456 Angiosonics, Inc., Series "K"(c)(d)(e)............................................. 100,000
140,000 ATS Medical, Inc.*................................................................. 980,000
113,333 Cooper Companies, Inc.............................................................. 1,629,162
50,000 Cypress Bioscience, Inc.*(d)....................................................... 90,000
90,000 Sano Corporation*.................................................................. 1,552,500
44,444 SurVivaLink Corporation*(d)........................................................ 200,000
33,600 Thermedics, Inc.*.................................................................. 697,200
24,000 Thermo Cardiosystems, Inc.......................................................... 762,000
-----------
7,222,112
-----------
METAL--1.3%
100,000 Material Sciences Corporation*..................................................... 1,525,000
-----------
OIL & GAS--8.6%
50,000 Camco International, Inc........................................................... 1,937,500
400,000 Chaparral Resources, Inc.*......................................................... 450,000
15,000 Comstock Resources, Inc.*.......................................................... 193,125
100,000 Gulf Canada Resources, Ltd.*....................................................... 687,500
130,000 Marine Drilling Company, Inc.*..................................................... 1,803,750
40,000 Midcoast Energy Resources, Inc..................................................... 400,000
100,000 Santa Fe Energy Resources, Inc.*................................................... 1,425,000
15,000 Seacor Holdings, Inc.*............................................................. 810,000
130,000 Veritas DGC, Inc.*................................................................. 2,665,000
-----------
10,371,875
-----------
PHARMACEUTICAL--2.5%
35,000 EntreMed, Inc.*.................................................................... 533,750
120,000 NABI, Inc.*........................................................................ 1,110,000
60,000 Protein Design Labs, Inc.*......................................................... 1,425,000
-----------
3,068,750
-----------
POLLUTION CONTROL--6.9%
240,000 Envirosource Inc.*................................................................. 735,000
120,000 IMCO Recycling, Inc................................................................ 1,920,000
250,000 Philip Environmental, Inc.*........................................................ 2,593,750
85,000 Superior Services, Inc.*........................................................... 1,466,250
70,000 Tetra Technologies, Inc.*.......................................................... 1,461,250
19,500 Thermo Remediation, Inc............................................................ 204,750
-----------
8,381,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 9
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-SMALL CAP STOCK FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1996
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------------ -----------
<C> <S> <C>
PUBLISHING--5.5%
45,000 Houghton Mifflin Company........................................................... 2,233,125
34,200 John Wiley & Sons, Inc. Class "A".................................................. 1,047,375
72,000 Waverly, Inc....................................................................... 2,016,000
60,000 World Color Press, Inc.*........................................................... 1,342,500
-----------
6,639,000
-----------
REAL ESTATE INVESTMENT TRUST--6.0%
123,000 Alexander Haagen Properties, Inc................................................... 1,814,250
25,000 Innkeepers USA Trust............................................................... 293,750
100,000 LTC Properties, Inc................................................................ 1,700,000
80,000 Meridian Industrial Trust, Inc..................................................... 1,400,000
20,000 Mid-America Apartment Communities, Inc............................................. 507,500
40,000 Nationwide Health Properties, Inc.................................................. 900,000
25,000 Public Storage, Inc................................................................ 575,000
-----------
7,190,500
-----------
RETAIL STORES--3.8%
70,000 Claire's Stores Inc................................................................ 1,190,000
45,000 Cole National Corporation, Class "A"*.............................................. 1,063,125
80,000 Eckerd Corporation*................................................................ 2,220,000
25,000 Specialty Catalog Corporation*..................................................... 162,500
-----------
4,635,625
-----------
SECURITIES--2.1%
55,000 Legg Mason, Inc.................................................................... 1,773,750
55,000 Southwest Securities Group, Inc.*.................................................. 687,500
-----------
2,461,250
-----------
SERVICES--3.9%
100,000 Forensic Technologies International Corporation*................................... 1,000,000
25,000 Holmes Protection Group, Inc.*..................................................... 303,125
50,000 Interim Services, Inc.*............................................................ 2,000,000
20,000 PHH Corporation.................................................................... 595,000
25,000 Stewart Enterprises, Inc., Class "A"............................................... 856,250
-----------
4,754,375
-----------
TELECOMMUNICATIONS--1.2%
23,000 C-Tec Corporation*................................................................. 560,625
50,200 RMH Teleservices, Inc.*............................................................ 370,225
127,000 Syntellect, Inc.*.................................................................. 571,500
-----------
1,502,350
-----------
TEXTILES--0.4%
30,000 Kellwood Company................................................................... 540,000
-----------
Total common stocks (cost $92,081,723)................................................................. 114,070,517
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 10
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-SMALL CAP STOCK FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1996
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
- ------------------ -------- ------------
<C> <S> <C> <C>
CONVERTIBLE BONDS--1.1%(A)
HEALTH CARE CENTERS--1.0%
$750,000 Assisted Living Concepts, 7.0%........................................... 07/31/05 $ 854,115
500,000 Sterling House Corporation, 6.75%........................................ 06/30/06 412,500
------------
1,266,615
------------
REAL ESTATE INVESTMENT TRUST--0.1%
155,000 LTC Properties, 8.25%.................................................... 07/01/01 154,912
------------
Total convertible bonds (cost $1,350,000).............................................................. 1,421,527
------------
REPURCHASE AGREEMENT--3.5%(A)
- ----------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated October 31, 1996, @ 5.45%, to be
repurchased at $4,205,637 on November 1, 1996, (collateralized by $4,244,273 United States Treasury
Notes, 8.5%, due February 15, 2020 with a market value $4,307,871, including interest) (cost
$4,205,000).......................................................................................... 4,205,000
------------
TOTAL INVESTMENT PORTFOLIO (cost $97,636,723)(b) 99.1%(a).............................................. 119,697,044
OTHER ASSETS AND LIABILITIES 0.9%(a)................................................................... 1,081,824
------------
NET ASSETS, 100.0%..................................................................................... $120,778,868
============
</TABLE>
- ------------------
* Non-income producing security.
(a) Percentages indicated are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is
$97,948,476. Market value includes net unrealized appreciation of
$21,748,568, which consists of aggregate gross unrealized appreciation for
all securities in which there is an excess of market value over tax cost of
$25,667,826 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value of $3,919,258.
(c) Convertible Preferred.
(d) Private placement securities are fair valued by the Board of Trustees.
(e) Cypress Bioscience, Inc., consists of 25,000 units. Each unit consists of
two shares of common stock and one warrant.
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 11
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-SMALL CAP STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at market value (identified cost $97,636,723) (Note 1)..................... $119,697,044
Cash.................................................................................... 408
Receivables:
Investments sold...................................................................... 1,658,401
Fund shares sold...................................................................... 687,744
Dividends and interest................................................................ 44,915
Deferred organization expenses (Note 1)................................................. 15,000
Deferred state registration expenses (Note 1)........................................... 9,246
Prepaid insurance....................................................................... 2,435
------------
Total assets.................................................................... 122,115,193
Liabilities
Payables (Note 4):
Investments purchased................................................................. $ 951,795
Fund shares redeemed.................................................................. 160,435
Accrued management fee................................................................ 87,985
Accrued distribution fee.............................................................. 41,611
Other accrued expenses................................................................ 94,499
----------
Total liabilities............................................................... 1,336,325
------------
Net assets, at market value............................................................. $120,778,868
===========
Net Assets
Net assets consist of:
Paid-in capital....................................................................... $ 89,120,060
Accumulated net realized gain (Note 1)................................................ 9,598,487
Net unrealized appreciation on investments............................................ 22,060,321
------------
Net assets, at market value............................................................. $120,778,868
===========
Class A Shares
Net asset value and redemption price per share ($95,809,845 divided by 3,978,995 shares
of beneficial interest outstanding, no par value) (Notes 1 and 2)..................... $24.08
===========
Maximum offering price per share (100/95.25 of $24.08).................................. $25.28
===========
Class C Shares
Net asset value and offering price per share ($24,969,023 divided by 1,047,546 shares of
beneficial interest outstanding, no par value) (Notes 1 and 2)........................ $23.84
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 12
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-SMALL CAP STOCK FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income
Income:
Dividends................................................................................ $ 721,777
Interest................................................................................. 401,205
-----------
Total income....................................................................... 1,122,982
Expenses (Notes 1 and 4):
Management fee........................................................................... $827,233
Distribution fee (Class A Shares)........................................................ 197,076
Distribution fee (Class C Shares)........................................................ 146,179
Custodian/Fund accounting fees........................................................... 66,633
Shareholder servicing fees............................................................... 65,883
Professional fees........................................................................ 38,550
Amortization of state registration expenses.............................................. 26,827
Reports to shareholders.................................................................. 21,234
Federal registration fees................................................................ 11,850
Amortization of organization expenses.................................................... 10,000
Insurance................................................................................ 6,014
Trustees' fees and expenses.............................................................. 4,869
Other.................................................................................... 254
--------
Total expenses..................................................................... 1,422,602
-----------
Net investment loss........................................................................ (299,620)
-----------
Realized and Unrealized Gain on Investments
Net realized gain from investment transactions............................................. 10,012,029
Net increase in unrealized appreciation of investments during the year..................... 13,069,090
-----------
Net gain on investments............................................................ 23,081,119
-----------
Net increase in net assets resulting from operations....................................... $22,781,499
==========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------------------------
OCTOBER 31, 1996 OCTOBER 31, 1995
---------------- ----------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income (loss)............................................... $ (299,620) $ 64,614
Net realized gain from investment transactions............................. 10,012,029 2,899,946
Net increase in unrealized appreciation of investments during the year..... 13,069,090 6,857,583
---------------- ----------------
Net increase in net assets resulting from operations....................... 22,781,499 9,822,143
Distributions to shareholders from:
Net investment income Class A Shares ($.01 and $.01 per share,
respectively)............................................................ (35,074) (33,618)
Net realized gains Class A Shares ($.84 and $.97 per share,
respectively)............................................................ (2,610,402) (2,501,284)
Net realized gains Class C Shares ($.84 per share)......................... (286,911) --
Increase in net assets from Fund share transactions (Note 2)................. 39,103,703 13,014,458
---------------- ----------------
Increase in net assets....................................................... 58,952,815 20,301,699
Net assets, beginning of year................................................ 61,826,053 41,524,354
---------------- ----------------
Net assets, end of year...................................................... $120,778,868 $ 61,826,053
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE> 13
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-SMALL CAP STOCK 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 C SHARES
CLASS A SHARES FOR THE PERIODS
FOR THE PERIODS ENDED ENDED
OCTOBER 31 OCTOBER 31,
--------------------------------- -----------------
1996* 1995 1994 1993+ 1996* 1995++
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD......................... $18.86 $16.20 $15.57 $14.29 $18.79 $15.67
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(a)................................ (.05) .02 (.01) (.01) (.22) (.02)
Net realized and unrealized gain on investments................ 6.11 3.62 .64 1.29 6.11 3.14
------ ------ ------ ------ ------ ------
Total from investment operations................................. 6.07 3.64 .63 1.28 5.89 3.12
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income........................... (.01) (.01) -- -- -- --
Distributions from net realized gains.......................... (.85) (.97) -- -- (.84) --
------ ------ ------ ------ ------ ------
Total Distributions............................................ (.85) (.98) -- -- (.84) --
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD............................... $24.08 $18.86 $16.20 $15.57 $23.84 $18.79
====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(C).............................................. 33.18 23.97 4.05 8.96 32.22 19.91
RATIOS (%)/SUPPLEMENTAL DATA:
Ratio of operating expenses, net, to average daily net
assets(a).................................................... 1.41 1.88 1.91 2.00(b) 2.13 2.36 (b)
Ratio of net investment income (loss) to average daily net
assets....................................................... (.21) .15 (.07) (.15)(b) (.94) (.46) (b)
Portfolio turnover rate........................................ 80 89 95 97(b) 80 89
Average commission rate on portfolio transactions.............. $.0637 -- -- -- $.0637 --
Net assets, end of period ($ millions)......................... 96 57 42 40 25 4
</TABLE>
- ---------------
* Per share amounts have been calculated using the monthly average share
method, which more appropriately presents per share data for the year since
use of the undistributed income method does not correspond with results of
operations.
+ For the period May 7, 1993 (commencement of operations) to October 31, 1993.
++ For the period April 3, 1995 (commencement of Class C Shares) to October 31,
1995.
(a) Excludes management fees waived by the Manager in fiscal 1993 of less than
$.01 per share. The operating expense ratio including such items would have
been 2.09% (annualized). The year 1994 includes previously waived management
fees paid to the Manager of less than $.01 per share.
(b) Annualized.
(c) Does not reflect the imposition of a sales charge. Not annualized for fiscal
1993 for Class A Shares and fiscal 1995 for Class C Shares.
The accompanying notes are an integral part of the financial statements.
13
<PAGE> 14
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-SMALL CAP STOCK FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1: SIGNIFICANT ACCOUNTING POLICIES. Heritage Series 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 and presently offers shares in four
series, the Small Cap Stock Fund (the "Fund"), the Value Equity Fund,
the Growth Equity Fund and the Eagle International Equity Portfolio. The
Fund seeks long-term capital appreciation by investing principally in
the equity securities of companies with small market capitalization that
the Fund's investment subadvisers believe are undervalued and therefore
offer above-average potential for long-term capital appreciation. The
Fund currently offers Class A and Class C Shares. Class A Shares are
sold subject to a maximum sales charge of 4.75% of the amount invested
payable at the time of purchase. Class C Shares, which were offered to
shareholders beginning April 3, 1995, are sold subject to a contingent
sales charge of 1% of the lower of net asset value or purchase price
payable upon any redemptions within one year after purchase. The
financial statements for the Value Equity Fund, Growth Equity Fund and
Eagle International Equity Portfolio are presented separately. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies:
Security Valuation: The Fund values investment securities at market
value based on the last quoted sales price as reported by the principal
securities exchange on which the security is traded. If no sale is
reported, the last bid price is used 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. Short term investments having
a maturity of 60 days or less are valued at cost which, when combined
with accrued interest included in interest receivable or discount
earned, approximates market.
Repurchase Agreements: The Fund enters into repurchase agreements
whereby the 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: The 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 Net Realized Gains. Net realized gains from investment
transactions during any particular year in excess of available capital
loss carryforwards, which, if not distributed, would be taxable to the
Fund, will be distributed to shareholders in the following fiscal year.
The Fund uses the identified cost method for determining realized gain
or loss on investments for both financial and federal income tax
purposes.
Expenses: The Fund is charged for those expenses which are directly
attributable to it, such as management fee, custodian/fund accounting
fees, distribution fee, etc., while other expenses such as professional
fees, insurance expense, etc., are allocated proportionately among the
funds. Expenses of the Fund are allocated to each class of shares based
upon their relative percentage of current net assets. All expenses that
are directly attributable to a specific class of shares, such as
distribution fees, are allocated to that class.
State Registration Expenses: State registration fees are amortized based
either on the time period covered by the registration or as related
shares are sold, whichever is appropriate for each state.
Organization Expenses: Expenses incurred in connection with the
formation of the Fund were deferred and are being amortized on a
straight-line basis over 60 months from the date of commencement of
operations.
Capital Accounts: The Fund reports 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 Fund may periodically make
reclassifications among certain capital accounts without impacting the
net asset value of the Fund.
Other: Investment security transactions are accounted for on a trade
date plus one basis. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Interest income is recorded on the
accrual basis.
14
<PAGE> 15
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-SMALL CAP STOCK FUND
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Note 2: FUND SHARES. At October 31, 1996, there was an unlimited number of
shares of beneficial interest of no par value authorized.
Transactions in Class A Shares of the Fund during the years ended
October 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------------------------
OCTOBER 31, 1996 OCTOBER 31, 1995
-------------------------- ---------------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold......................................... 1,691,124 $ 38,648,805 984,286 $ 17,529,467
Shares issued on reinvestment of distributions...... 121,498 2,404,449 160,682 2,431,113
Shares redeemed..................................... (878,130) (20,167,883) (664,339) (11,260,584)
--------- ------------ ---------- ------------
Net increase........................................ 934,492 $ 20,885,371 480,629 $ 8,699,996
=========== ===========
Shares outstanding:
Beginning of year................................. 3,044,503 2,563,874
--------- ----------
End of year....................................... 3,978,995 3,044,503
======== =========
</TABLE>
Transactions in Class C Shares of the Fund during the year ended October
31, 1996 and from April 3, 1995 (commencement of Class C Shares) to
October 31, 1995 were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 3, 1995
(COMMENCEMENT OF
FOR THE YEAR ENDED CLASS C SHARES) TO
OCTOBER 31, 1996 OCTOBER 31, 1995
-------------------------- ---------------------------
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold......................................... 960,949 $ 21,587,317 234,197 $ 4,319,728
Shares issued on reinvestment of distributions...... 14,285 281,141 -- --
Shares redeemed..................................... (161,609) (3,650,126) (276) (5,266)
--------- ------------ ---------- ------------
Net increase........................................ 813,625 $ 18,218,332 233,921 $ 4,314,462
=========== ===========
Shares outstanding:
Beginning of period............................... 233,921 --
--------- ----------
End of period..................................... 1,047,546 233,921
======== =========
</TABLE>
Note 3: PURCHASES AND SALES OF SECURITIES. For the year ended October 31, 1996,
purchases and sales of investment securities (excluding repurchase
agreements and short term obligations) aggregated $105,169,242 and
$69,813,957, respectively. Agency brokerage commissions for the same
period aggregated $297,557, of which $59,591 was paid to Raymond James &
Associates, Inc.
Note 4: MANAGEMENT, SUBADVISORY, DISTRIBUTION, SHAREHOLDER SERVICING AGENT AND
TRUSTEES' FEES. Under the Fund's Investment Advisory and Administration
Agreement with Heritage Asset Management, Inc. ( the "Manager"), the
Fund agrees to pay to the Manager a fee equal to an annualized rate of
1.00% of the first $50,000,000 of the Fund's average daily net assets
and .75% of any excess over $50,000,000 of such assets, computed daily
and payable monthly. The agreement also provides for a reduction in such
fees in any year to the extent that operating expenses of the Fund
exceed applicable state expense limitations. The Manager has voluntarily
agreed to waive its fee and if necessary, reimburse the Fund to the
extent that Fund operating expenses exceed 2.00% for Class A Shares
(2.75% for Class C Shares effective April 3, 1995) on an annual basis of
the Fund's average daily net assets. Effective March 1, 1996, the
Manager has voluntarily agreed to waive its fee and if necessary
reimburse the Fund to the extent that Fund operating expenses exceed
1.80% for Class A Shares and 2.55% for Class C Shares on an annual basis
of the Fund's average daily net assets. No fees were waived and no
expenses were reimbursed for the year ended October 31, 1996.
The Manager has entered into agreements with Awad & Associates, Inc., a
division of Raymond James & Associates, Inc., and Eagle Asset
Management, Inc. (the "Subadvisers") for the Subadvisers to provide to
the Fund investment advice, portfolio management services including the
placement of brokerage orders, and certain compliance and other services
for a fee payable by the Manager equal to 50% of the fees payable by the
Fund to the Manager without regard to any reduction due to the
imposition of expense limitations.
15
<PAGE> 16
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-SMALL CAP STOCK FUND
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
The Manager is also the Dividend Paying and Shareholder Servicing Agent
for the Fund. The amount payable to the Manager for such expenses as of
October 31, 1996 was $26,000. In addition, the Manager performs Fund
Accounting services and charged $38,378 during the current year of which
$13,037 was payable as of October 31, 1996.
Raymond James & Associates, Inc. (the "Distributor") has advised the
Fund that it received $732,479 in front end sales charges and $17,554 in
contingent deferred sales charges for the twelve months ended October
31, 1996. From these fees, the Distributor paid commissions to
salespersons and incurred other distribution costs.
Pursuant to the Class A Share Distribution plan adopted in accordance
with Rule 12b-1 of the Investment Company Act of 1940, as amended, the
Fund is authorized to pay the Distributor a fee of up to 0.35% of
average daily net assets for services it provides in connection with the
promotion and distribution of Fund shares. However, at the present time
the Board of Trustees has authorized payments of only .25% of average
daily net assets for Class A Shares. Under the Class C Distribution Plan
the Fund may pay the Distributer a fee equal to 1.00% of the average
daily net assets. The Distributor, on Class C Shares, may retain the
first 12 months distribution fee for reimbursement of amounts paid to
the broker/dealer at the time of purchase. Such fees are accrued daily
and payable monthly. During the year $197,076 and $146,179 were paid for
distribution fees for Class A Shares and Class C Shares, respectively.
The Manager, the Subadvisers, and the Distributor are all wholly-owned
subsidiaries of Raymond James Financial, Inc.
Trustees of the Trust also serve as Trustees for Heritage Cash Trust,
Heritage Capital Appreciation Trust, Heritage Income-Growth Trust,
Heritage Income Trust and Heritage U.S. Government Income Fund,
investment companies that are also advised by the Manager (collectively
referred to as the Heritage funds). Each Trustee of the Heritage funds
that is not an interested person of the Manager receives an annual fee
of $8,000, an additional fee of $2,000 for each combined quarterly
meeting of the Heritage funds attended and $1,000 for each special
Trustees meeting attended. Trustees' fees and expenses are paid equally
by each of the Heritage funds.
Note 5: FEDERAL INCOME TAXES. For the year ended October 31, 1996, to reflect
reclassifications arising from permanent book/tax differences primarily
attributable to a net operating loss, the Fund credited accumulated net
realized loss on investments $303,698 and debited paid-in capital
$18,962 and accumulated net realized gain $284,736.
16
<PAGE> 17
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Heritage Series Trust-Small Cap Stock Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, 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 Series Trust-Small Cap
Stock Fund (the "Fund") at October 31, 1996, and the results of its operations,
the changes in its net assets and the financial highlights for the year then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at October
31, 1996 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provides a reasonable basis for the opinion expressed above. The
financial statements of the Fund for the year ended October 31, 1995, including
the financial highlights for each of the periods indicated, were audited by
other independent accountants whose report dated December 22, 1995 expressed an
unqualified opinion on those statements.
/s/ Price Waterhouse LLP
- ---------------------------------------------------------
PRICE WATERHOUSE LLP
Tampa, Florida
December 16, 1996
17
<PAGE> 18
- --------------------------------------------------------------------------------
1996 FEDERAL INCOME TAX NOTICE
(UNAUDITED)
- --------------------------------------------------------------------------------
Of the $2,897,313 in capital gain distributions for the year ended October
31, 1996, the Fund has designated $1,325,312 as net long-term capital gains on a
tax basis. During the year ended October 31, 1996, 14% of the income dividends
qualified for the dividend received deduction available to corporations.
18
<PAGE> 19
HERITAGE SERIES TRUST-SMALL CAP STOCK FUND is a member of the Heritage family of
mutual funds. Other investment alternatives available to you from Heritage
include:
[ ] HERITAGE CASH TRUST
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
[ ] HERITAGE CAPITAL APPRECIATION TRUST
[ ] HERITAGE INCOME-GROWTH TRUST
[ ] HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
INTERMEDIATE GOVERNMENT FUND
[ ] HERITAGE SERIES TRUST
EAGLE INTERNATIONAL EQUITY PORTFOLIO
GROWTH EQUITY FUND
VALUE EQUITY FUND
[ ] HERITAGE U.S. GOVERNMENT INCOME FUND
(A CLOSED-END FUND THAT TRADES ON THE
NEW YORK STOCK EXCHANGE)
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
account executive. Please read the Prospectus carefully before you invest in any
of the funds.
<PAGE> 20
Heritage Series Trust-Small Cap Stock Fund
P.O. Box 33022
St. Petersburg, FL 33733
- ------------------------------------------
Address Change Requested
[LOGO]
HERITAGE
- ------------------------------------------
SERIES TRUST(TM)
- ------------------------------------------
Small Cap Stock Fund
- ------------------------------------------
A mutual fund
- ------------------------------------------
seeking long-term
- ------------------------------------------
capital appreciation
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
ANNUAL REPORT
and Investment Performance
Review for the Year Ended
OCTOBER 31, 1996
A member of the Heritage Family of Mutual Funds(TM)
This report is for the information of shareholders of
Heritage Series Trust-Small Cap Stock Fund. It may also
be used as sales literature when preceded or accompanied
by a prospectus.
15M 12/96 (RECYCLE LOGO) Printed on recycled paper.
