<PAGE> 1
December 9, 1996
Dear Fellow Shareholders:
I am pleased to provide you with the annual report for the Heritage Series
Trust-Value Equity Fund ("the Fund") for the fiscal year ended October 31, 1996.
For this period, the A and C shares of your Fund delivered total returns of
+16.59% and +15.65%, respectively.(*) While these returns are higher than the
long-term historical returns of the stock market they did trail the returns of
the Standard and Poor's 500 Composite Stock Price Index and the S&P Barra Value
Index, which returned 24.11% and 24.59%, respectively. The S&P Barra Value Index
is a subset of the S&P 500 and is comprised of "value" stocks (as measured by
price-to-book and price-to-earnings ratios) as opposed to "growth" stocks.
The relative underperformance of your Fund as compared to the market
indices occurred primarily in the period from April 30 and October 31 when your
Fund's A shares gained 2.89%* versus gains of 9.09% and 7.19% for the S&P 500
Index and S&P Barra Value Index, respectively. In the letter that follows, Chris
Bertelsen, the portfolio manager for your Fund, discusses the factors that
significantly affected your Fund's performance over the most recent fiscal year
as well as his thoughts on the market going forward. Mr. Bertelsen is Chief
Investment Officer of Dreman Value Advisors, Inc., the investment subadvisor for
your Fund. I hope you find his comments instructive as to how your Fund's
investment portfolio is managed.
On behalf of all of us at Heritage, thank you for our continuing investment
in Heritage Series Trust-Value Equity Fund. If you have ever have any
suggestions on 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.
Heritage Series Trust -- Value Equity Fund is a member of the Heritage
Family of Mutual Funds. Other investment alternatives available to you from
Heritage include Heritage Cash Trust, which consists of the Money Market and
Municipal Money Market Funds, Heritage Capital Appreciation Trust, Heritage
Income-Growth Trust, Heritage Income Trust, which consists of the Intermediate
Government and High Yield Bond Funds and Heritage Series Trust, which consists
of the Small Cap Stock, Growth Equity and Eagle International Equity Funds. We
are pleased that many of you are also investors in these funds. For information
and a prospectus for any of these funds, please contact our account executive.
Please read the Prospectus carefully before you invest in any of the funds.
<PAGE> 2
December 9, 1996
Dear Fellow Shareholders:
The Heritage Series Trust-Value Equity Fund remains committed to the major
principles of value management as originally described by Ben Graham. It is our
philosophy to seek out and purchase those companies that are out of favor with,
or neglected by traditional managers. We firmly adhere to the "value" principles
of owning companies with low price-to-earnings ratios and reasonable dividend
yields, as well as requiring that our choices maintain a strong financial
condition.
In 1996, consumer decisions tended to reward those companies that were
either large "comfortable" stocks or issues that generated high excitement
levels. Many industries that possess, on average, above-market dividend yields
and heavily discounted price-to-earnings ratios combined with quality balance
sheets such as telephone, electric, utilities or automobile companies tended to
lag the market. Although our investment performance has been less than the
market returns, we feel that the excesses visible in areas such as initial
public offerings and an increasingly narrow group of widely-owned, high-growth
names may be addressed by the market and our portfolio which is loaded with
out-of-favor, low-expectation companies may well be rewarded.
For example, we feel that the oil and energy area, a sector in which we
have made a strong commitment, remains as a pocket of undervaluation. We find
that the above market yields and strong balance sheets are appealing in volatile
periods. Although the re-entry of Iraq's oil into the world petroleum market may
act as a temporary depressant to oil prices, the longer term dynamics of fast
growing demand, particularly from the Pacific Rim countries should bode well for
the dynamics of oil company profits.
As we look toward 1997 we remain positive regarding the long-term trend for
the U.S. economy. The substantial lead that the U.S. enjoys in the employment of
technology and the efficiency of a restructured U.S. industrial base should keep
the U.S. in a leadership position in this "information era."
We expect that investor perceptions will gradually turn to recognize the
smaller and medium-sized, lower volatility value stocks in the portfolio that
have, to date, lagged their larger capitalization brethren.
We extend our warmest Holiday greetings to all our investors and very best
wishes for a prosperous New Year.
Sincerely,
/s/ CHRIS BERTELSEN
----------------------------------
Chris Bertelsen
Chief Investment Officer
Dreman Value Advisors, Inc.
2
<PAGE> 3
Growth of a $10,000 Investment since inception of Heritage Series Trust-Value
Equity Fund Class A Shares on December 30, 1994
<TABLE>
<CAPTION>
S & P
Barra
Value Equity S & P 500 Value
------------ --------- -----
<S> <C> <C> <C>
12/30/94 $ 9,525 $10,000 $10,000
1/31/95 $ 9,645 $10,259 $10,271
4/30/95 $10,591 $11,296 $11,325
7/31/95 $11,671 $12,419 $12,329
10/31/95 $11,998 $12,929 $12,667
1/31/96 $13,223 $14,225 $14,110
4/30/96 $13,595 $14,710 $14,724
7/31/96 $12,733 $14,478 $14,245
10/31/96 $13,989 $16,047 $15,782
</TABLE>
Growth of a $10,000 Investment since the initial offering of Heritage Series
Trust-Value Equity Fund Class C Shares on April 3, 1995
<TABLE>
<CAPTION>
S & P
C Shares Barra
Value Equity S & P 500 Value
------------ --------- -----
<S> <C> <C> <C>
4/3/95 $10,000 $10,000 $10,000
4/30/95 $10,413 $10,294 $10,329
7/31/95 $11,434 $11,317 $11,245
10/31/95 $11,735 $11,782 $11,553
1/31/96 $12,903 $12,963 $12,869
4/30/96 $13,241 $13,405 $13,429
7/31/96 $12,382 $13,193 $12,993
10/31/96 $13,572 $14,623 $14,394
</TABLE>
(*)Average annual total returns for Heritage Series Trust-Value Equity 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.
3
<PAGE> 4
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-VALUE EQUITY FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ----------------- -----------
<C> <S> <C>
COMMON STOCKS--93.5%(A)
AEROSPACE--3.2%
3,500 Boeing Company..................................................................... $ 333,812
7,000 General Motors Corporation, Class "H".............................................. 373,625
2,300 Raytheon Company................................................................... 113,275
-----------
820,712
-----------
ALUMINUM--1.6%
7,000 Aluminum Company of America........................................................ 410,375
-----------
AUTO/TRUCK MANUFACTURERS--1.9%
4,300 Chrysler Corporation............................................................... 144,587
11,000 Ford Motor Company................................................................. 343,750
-----------
488,337
-----------
BANKING--12.8%
9,500 Banc One Corporation............................................................... 402,562
3,000 Bank of Boston Corporation......................................................... 192,000
4,000 Bankers Trust New York Corporation................................................. 338,000
6,500 Chase Manhattan Corporation........................................................ 557,375
5,000 Citicorp........................................................................... 495,000
8,000 First Chicago NBD Corporation...................................................... 408,000
1,500 First Union Corporation............................................................ 109,125
8,000 Fleet Financial Group, Inc. ....................................................... 399,000
1,800 Great Western Financial Corporation................................................ 50,400
1,500 NationsBank Corporation............................................................ 141,375
3,000 State Street Boston Corporation.................................................... 190,125
-----------
3,282,962
-----------
BROADCASTING--1.9%
7,000 General Instrument Corporation*.................................................... 140,875
29,000 Tele-Commmunications, Inc., Class "A"*............................................. 360,687
-----------
501,562
-----------
BUILDING--2.0%
6,000 Illinois Tool Works, Inc. ......................................................... 421,500
5,000 Louisiana-Pacific Corporation...................................................... 104,375
-----------
525,875
-----------
CHEMICALS--3.6%
2,000 ARCO Chemical Company.............................................................. 95,500
5,000 E.I. du Pont de Nemours & Company.................................................. 463,750
7,000 Eastman Chemical Company........................................................... 369,250
-----------
928,500
-----------
CONGLOMERATES/DIVERSIFIED--1.0%
2,000 United Technologies Corporation.................................................... 257,500
-----------
DATA PROCESSING--1.1%
3,500 Automatic Data Processing, Inc. ................................................... 145,687
2,000 Seagate Technology, Inc.*.......................................................... 133,500
-----------
279,187
-----------
ELECTRONICS/ELECTRIC--5.8%
6,000 Honeywell, Inc. ................................................................... 372,750
4,000 Motorola, Inc. .................................................................... 184,000
3,000 Nokia Corporation, Sponsored ADR, Class "A"........................................ 139,125
3,000 Philips Electronics N.V., NY Shares, ADR........................................... 105,750
40,000 Westinghouse Electric Corporation.................................................. 685,000
-----------
1,486,625
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-VALUE EQUITY FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1996
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ----------------- -----------
<C> <S> <C>
FINANCE--4.7%
500 Federal Home Loan Mortgage Corporation............................................. $ 50,500
12,000 Federal National Mortgage Association.............................................. 469,500
3,000 Student Loan Corporation........................................................... 102,000
7,000 Student Loan Marketing Association................................................. 579,250
-----------
1,201,250
-----------
FOOD--0.7%
2,900 Castle & Cooke, Inc.*.............................................................. 44,587
2,000 Chiquita Brands International, Inc. ............................................... 25,000
3,000 Quaker Oats Company................................................................ 106,500
-----------
176,087
-----------
HEALTH CARE CENTERS--1.0%
12,000 Tenet Healthcare Corporation*...................................................... 250,500
-----------
HOUSEHOLD PRODUCTS--0.4%
4,500 Sunbeam Corporation................................................................ 110,813
-----------
INSURANCE--4.3%
6,000 Allstate Corporation............................................................... 336,750
2,000 American International Group, Inc. ................................................ 217,250
10,000 Humana, Inc.*...................................................................... 182,500
12,000 Travelers/Aetna Property Casualty Corporation...................................... 360,000
-----------
1,096,500
-----------
LEATHER/SHOES--0.5%
12,000 R.G. Barry Corporation*............................................................ 133,500
-----------
LEISURE/AMUSEMENT--0.3%
1,000 Eastman Kodak Company ............................................................. 79,750
-----------
MACHINERY--2.2%
3,000 Caterpillar, Inc. ................................................................. 205,875
3,000 Deere & Company.................................................................... 125,250
2,500 Harnischfeger Industries, Inc. .................................................... 100,000
2,500 Tecumseh Products Company, Class "A"............................................... 140,625
-----------
571,750
-----------
MEDICAL EQUIPMENT/SUPPLY--1.3%
10,000 C.R. Bard, Inc. ................................................................... 282,500
2,000 West Company, Inc. ................................................................ 53,750
-----------
336,250
-----------
OFFICE EQUIPMENT--2.5%
5,000 Office Depot, Inc.*................................................................ 98,125
9,000 Pitney-Bowes, Inc. ................................................................ 502,875
1,500 Wallace Computer Services, Inc. ................................................... 44,063
-----------
645,063
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-VALUE EQUITY FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1996
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ----------------- -----------
<C> <S> <C>
OIL & GAS--16.1%
1,000 Amoco Corporation.................................................................. $ 75,750
2,000 Apache Corporation................................................................. 71,000
1,800 Atlantic Richfield Company......................................................... 238,500
4,600 British Petroleum Company, PLC, Sponsored ADR...................................... 591,675
6,000 Chevron Corporation................................................................ 394,500
5,800 Exxon Corporation.................................................................. 514,025
6,500 Halliburton Company................................................................ 368,063
5,100 Mobil Corporation.................................................................. 595,425
1,500 Royal Dutch Petroleum Company, NY Shares, ADR...................................... 248,063
3,900 Schlumberger, Ltd. ................................................................ 386,588
3,000 Shell Transport & Trading Company, ADR............................................. 294,000
2,500 Texaco, Inc. ...................................................................... 254,061
4,000 YPF Sociedad Anonima, Sponsored ADR................................................ 91,000
-----------
4,122,650
-----------
PAPER/PRODUCTS--1.9%
6,000 Champion International Corporation................................................. 261,000
3,000 Georgia-Pacific Corporation*....................................................... 225,000
-----------
486,000
-----------
PHARMACEUTICAL--1.7%
14,000 Glaxo Wellcome, PLC, Sponsored ADR................................................. 441,000
-----------
PUBLISHING--2.1%
6,000 Dun & Bradstreet Corporation....................................................... 347,250
2,500 Tribune Company.................................................................... 204,375
-----------
551,625
-----------
RAILROADS--0.5%
4,000 Illinois Central Corporation....................................................... 129,500
-----------
RETAIL STORES--2.4%
6,000 J.C. Penney Company, Inc. ......................................................... 315,000
20,000 Kmart Corporation.................................................................. 195,000
3,000 Nordstrom, Inc. ................................................................... 108,188
-----------
618,188
-----------
SECURITIES--1.4%
6,000 Legg Mason, Inc. .................................................................. 193,500
3,400 Salomon, Inc. ..................................................................... 153,425
-----------
346,925
-----------
SERVICES--0.4%
5,000 Olsten Corporation................................................................. 100,000
-----------
TELECOMMUNICATIONS--3.1%
3,000 AT&T Corporation................................................................... 104,625
7,000 BellSouth Corporation.............................................................. 285,250
2,000 GTE Corporation.................................................................... 84,250
972 Lucent Technologies, Inc. ......................................................... 45,684
7,000 QUALCOMM, Inc.* ................................................................... 278,250
-----------
798,059
-----------
TOBACCO--4.2%
3,000 American Brands, Inc. ............................................................. 143,250
4,500 Philip Morris Companies, Inc. ..................................................... 416,813
60,000 RJR Nabisco Holdings Corporation................................................... 337,500
6,000 UST, Inc. ......................................................................... 173,250
-----------
1,070,813
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-VALUE EQUITY FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1996
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ----------------- -----------
<C> <S> <C>
TRANSPORTATION--1.9%
8,000 Comair Holdings, Inc. ............................................................. $ 161,000
4,000 Federal Express Corporation*....................................................... 322,000
-----------
483,000
-----------
UTILITIES-ELECTRIC--2.4%
1,600 Duke Power Company................................................................. 78,200
17,500 Southern Company................................................................... 387,188
6,000 Teco Energy, Inc. ................................................................. 147,750
-----------
613,138
-----------
UTILITIES-GAS--2.6%
7,500 Burlington Resources, Inc. ........................................................ 377,813
6,000 Enron Corporation.................................................................. 279,000
-----------
656,813
-----------
Total common stocks (cost $21,938,452)................................................................. 24,000,809
-----------
REPURCHASE AGREEMENT--4.8%(A)
Repurchase agreement with State Street Bank and Trust Company, dated October 31, 1996, @ 5.45%, to be
repurchased at $1,235,187 on November 1, 1996, (collateralized by $1,250,438 United States Treasury
Notes, 8.5%, due February 15, 2020 with a market value of $1,269,174, including interest) (cost
$1,235,000)........................................................................................... 1,235,000
-----------
TOTAL INVESTMENT PORTFOLIO (cost $23,173,452)(b), 98.3%(a)............................................ 25,235,809
OTHER ASSETS AND LIABILITIES, 1.7%(a)................................................................. 437,938
-----------
NET ASSETS, 100.0%.................................................................................... $25,673,747
==========
</TABLE>
- ------------------
* Not an income-producing security.
(a) Percentages indicated are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is
substantially the same. Market value includes net unrealized appreciation
of $2,062,357, which consists of aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax
cost of $2,378,196 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value of
$315,839.
ADR -- American Depository Receipt.
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-VALUE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
- -----
Investments, at market value (identified cost $23,173,452) (Note 1)...................... $25,235,809
Cash..................................................................................... 1,883
Receivables:
Investments sold....................................................................... 851,959
Fund shares sold....................................................................... 34,367
Dividends and interest................................................................. 54,499
Deferred organization expenses (Note 1).................................................. 33,573
Deferred state registration expenses (Note 1)............................................ 9,671
Prepaid insurance........................................................................ 1,353
-----------
Total assets..................................................................... 26,223,114
Liabilities
- --------
Payables (Note 4):
Investments purchased.................................................................. $ 410,256
Fund shares redeemed................................................................... 31,244
Accrued management fee................................................................. 46,967
Accrued distribution fee............................................................... 11,352
Other accrued expenses................................................................. 49,548
----------
Total liabilities................................................................ 549,367
-----------
Net assets, at market value.............................................................. $25,673,747
==========
Net Assets
- ---------
Net assets consist of:
Paid-in capital (Note 1)............................................................... $21,858,178
Undistributed net investment income (Note 1)........................................... 102,173
Accumulated net realized gain (Note 1)................................................. 1,651,039
Net unrealized appreciation on investments............................................. 2,062,357
-----------
Net assets, at market value.............................................................. $25,673,747
==========
Class A Shares
- -------------
Net asset value and redemption price per share ($15,407,908 divided by 760,289 shares of
beneficial interest outstanding, no par value) (Notes 1 and 2)......................... $20.27
-----
-----
Maximum offering price per share (100/95.25 of $20.27)................................... $21.28
-----
-----
Class C Shares
- ------------
Net asset value and offering price per share ($10,265,839 divided by 511,695 shares of
beneficial interest outstanding, no par value) (Notes 1 and 2)......................... $20.06
-----
-----
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 9
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-VALUE EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income
- ----------------
Income:
Dividends................................................................................. $ 505,575
Interest.................................................................................. 63,210
----------
Total income........................................................................ 568,785
Expenses (Notes 1 and 4):
Management fee............................................................................ $168,020
Distribution fee (Class A Shares)......................................................... 36,710
Distribution fee (Class C Shares)......................................................... 77,187
Custodian/Fund accounting fees............................................................ 59,115
Professional fees......................................................................... 58,485
Amortization of state registration expenses............................................... 31,629
Shareholder servicing fee................................................................. 20,585
Reports to shareholders................................................................... 19,902
Trustees' fees and expenses............................................................... 14,620
Amortization of organization expenses..................................................... 10,602
Insurance................................................................................. 3,588
Federal registration fee.................................................................. 2,144
Other..................................................................................... 1,071
--------
Total expenses before waiver........................................................ 503,658
Fees waived by the Manager (Note 4)................................................. (76,062)
--------
427,596
----------
Net investment income....................................................................... 141,189
----------
Realized and Unrealized Gain on Investments
- ---------------------------------------
Net realized gain from investment transactions.............................................. 1,660,050
Net increase in unrealized appreciation of investments during the year...................... 1,267,164
----------
Net gain on investments............................................................. 2,927,214
----------
Net increase in net assets resulting from operations........................................ $3,068,403
=========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR DECEMBER 30, 1994
ENDED (COMMENCEMENT OF OPERATIONS)
OCTOBER 31, 1996 TO OCTOBER 31, 1995
------------------ -----------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income.......................................... $ 141,189 $ 56,475
Net realized gain from investment transactions................. 1,660,050 536,111
Net increase in unrealized appreciation of investments during
the period................................................... 1,267,164 795,193
------------------ ------------
Net increase in net assets resulting from operations........... 3,068,403 1,387,779
Distribution to shareholders from:
Net investment income Class A Shares, ($.11 per share)......... (76,650) --
Net investment income Class C Shares, ($.07 per share)......... (18,841) --
Net realized gains Class A Shares, ($.55 per share)............ (387,181) --
Net realized gains Class C Shares, ($.55 per share)............ (157,941) --
Increase in net assets from Fund share transactions (Note 2)..... 7,075,151 14,482,027
------------------ ------------
Increase in net assets........................................... 9,502,941 15,869,806
Net assets, beginning of period.................................. 16,170,806 301,000
------------------ ------------
Net assets, end of period (including undistributed net investment
income of $102,173 and $56,475, respectively).................. $ 25,673,747 $16,170,806
================== =============================
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 10
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-VALUE EQUITY 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 C SHARES*
FOR THE PERIODS FOR THE PERIODS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
----------------- -----------------
1996 1995+ 1996 1995++
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD...................................... $18.00 $14.29 $17.92 $15.27
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a).................................................... .17 .08 .02 .01
Net realized and unrealized gain on investments............................. 2.76 3.63 2.74 2.64
------ ------ ------ ------
Total from investment operations.............................................. 2.93 3.71 2.76 2.65
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income........................................ (.11) -- (.07) --
Distributions from net realized gains....................................... (.55) -- (.55) --
------ ------ ------ ------
Total Distributions........................................................... (.66) -- (.62) --
------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD............................................ $20.27 $18.00 $20.06 $17.92
====== ====== ====== ======
TOTAL RETURN (%)(D)........................................................... 16.59 25.96(c) 15.65 17.35 (c)
RATIOS (%)/AND SUPPLEMENTAL DATA:
Ratio of operating expenses, net to average daily net assets(a)............. 1.65 1.65(b) 2.40 2.40 (b)
Ratio of net investment income to average daily net assets.................. .89 1.05(b) .13 .28 (b)
Portfolio turnover rate..................................................... 129 82(b) 129 82 (b)
Average commission rate on portfolio transactions........................... $.0550 -- $.0550 --
Net assets, end of period ($ millions)...................................... 15 12 10 4
</TABLE>
- ---------------
* Per share amounts have been calculated using the monthly average share
method, which more appropriately presents per share data for the period
since the use of the undistributed income method does not correspond with
results of operations.
+ For the period December 30, 1994 (commencement of operations) to October 31,
1995.
++ For the period April 3, 1995 (commencement of Class C Shares) to October 31,
1995.
(a) Excludes management fees waived and expenses reimbursed by the Manager in
the amount of $.07 and $.13 per Class A Share, respectively. The operating
expense ratios including such items would have been 1.99% and 3.49%
(annualized) for Class A Shares, respectively. Excludes management fees
waived and expenses reimbursed by the Manager in the amount of $.07 and $.13
per Class C Share, respectively. The operating expense ratio including such
items would have been 2.74% and 4.24% (annualized) for Class C Shares.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 11
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-VALUE EQUITY 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 Value Equity Fund (the "Fund"), the Small Cap Stock Fund,
the Growth Equity Fund and the Eagle International Equity Portfolio. The
Fund primarily seeks long-term capital appreciation and, secondarily,
seeks current income. 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 deferred 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 Small Cap
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
reporting purposes.
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.
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 all 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.
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.
11
<PAGE> 12
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-VALUE EQUITY 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 year ended October
31, 1996 and from December 30, 1994 (commencement of operations) to
October 31, 1995 were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 30, 1994
FOR THE YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO
OCTOBER 31, 1996 OCTOBER 31, 1995
------------------------ -----------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------- -------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold.............................................. 267,317 $ 5,100,504 692,734 $11,278,811
Shares issued on reinvestment of distributions........... 23,052 430,843 -- --
Shares redeemed.......................................... (192,041) (3,697,351) (51,837) (885,977)
-------- ----------- ------- -----------
Net increase............................................. 98,328 $ 1,833,996 640,897 $10,392,834
========== ==========
Shares outstanding:
Beginning of period.................................... 661,961 21,064
-------- -------
End of period.......................................... 760,289 661,961
======== =======
</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
FOR THE YEAR (COMMENCEMENT OF
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............................................... 307,936 $ 5,887,055 238,487 $ 4,109,350
Shares issued on reinvestment of distributions............ 9,456 176,072 -- --
Shares redeemed........................................... (43,021) (821,972) (1,163) (20,157)
------- ----------- ------- -----------
Net increase.............................................. 274,371 $ 5,241,155 237,324 $ 4,089,193
========== ==========
Shares outstanding:
Beginning of period..................................... 237,324 --
------- -------
End of period........................................... 511,695 237,324
======= =======
</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 $33,102,787 and
$27,089,889, respectively. Agency brokerage commissions for the same
period aggregated $71,566, of which $60 was paid to Raymond James &
Associates, Inc.
12
<PAGE> 13
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-VALUE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
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 .75%
of the Fund's average daily net 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. Currently, the Manager has voluntarily agreed
to waive its fee and, if necessary reimburse the Fund to the extent that
Fund operating expenses exceed 1.65% for Class A Shares (2.40% for Class
C Shares effective April 3, 1995) on an annual basis of the Fund's
average daily net assets attributable to each class of shares.
Management fees of $76,062 were waived for the year ended October 31,
1996. If total Fund expenses fall below the expense limitation agreed to
by the Manager before the end of the year ending October 31, 1998, the
Fund may be required to pay the Manager a portion or all of the waived
management fee. In addition, the Fund may be required to pay the Manager
a portion or all of the management fees waived of $115,974 for the year
ended October 31, 1995, if total Fund expenses fall below the annual
expense limitations before the end of the year ending October 31, 1997.
The Manager is also the Dividend Paying and Shareholder Servicing Agent
for the Portfolio. The amount payable to the Manager for such expenses
as of October 31, 1996 was $5,600. In addition, the Manager performs
Fund Accounting services and charged $30,208 during the current year of
which $9,507 was payable as of October 31, 1996.
The Manager has entered into an agreement with Eagle Asset Management,
Inc. ("Eagle") 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 with respect
to the assets allocated to Eagle, without regard to any reduction due to
the imposition of expense limitations.
As of May 24, 1996, pursuant to a shareholders vote, the Manager entered
into an agreement with Dreman Value Advisors, Inc., ("Dreman") as an
additional subadviser, 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 .35% of the Fund's average daily net assets with
respect to the assets allocated to Dreman. If, however, Heritage's fee
is reduced due to the imposition of asset level breakpoints, Dreman's
fee will be reduced proportionately, provided that in no event will such
fee be reduced below .35% on the first $50 million of the Fund's average
daily net assets. Since June 1, 1996, all the assets of the Fund were
allocated to Dreman.
Raymond James & Associates, Inc. (the "Distributor") has advised the
Fund that it received $105,773 in front end sales charges and $3,263 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 a 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 pursuant to the Class A Distribution Plan of
up to 0.35% of average daily net assets for the 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. Under the Class C Distribution
Plan the Fund may pay the Distributor a fee equal to 1.00% of the
average daily net assets. The Distributor 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 ended October 31, 1996, $36,710 and $77,187
were paid for distribution fees for Class A Shares and Class C Shares,
respectively. The Manager, Eagle, 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 which 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.
13
<PAGE> 14
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST-VALUE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Note 5: SHAREHOLDERS MEETING (UNAUDITED): On May 24, 1996, a Special Meeting of
Shareholders was held. The results of that meeting on the following item
was as follows:
<TABLE>
<CAPTION>
SHARES
-------------------------------------
WITHHELD
FOR AGAINST AUTHORITY
----------- ---------- ----------
<S> <C> <C> <C>
Approval of the Subadvisory Agreement between Heritage Asset Management,
Inc. and Dreman Value Advisors, Inc...................................... 588,124.098 19,989.757 40,043.613
</TABLE>
14
<PAGE> 15
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Heritage Series Trust-Value Equity 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-Value Equity
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
- --------------------------------------------------------------------------------
1996 FEDERAL INCOME TAX NOTICE
(UNAUDITED)
- --------------------------------------------------------------------------------
During the year ended October 31, 1996, 38% of the income dividends
qualified for the dividend received deduction available to corporations.
15
<PAGE> 16
(LOGO) Heritage SERIES TRUST(TM)
VALUE EQUITY 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)
Heritage Series Trust-Value Equity Fund
P.O. Box 33022
St. Petersburg, FL 33733
--------------------------------------------
Address Change Requested
This report is for the information of shareholders of
Heritage Series Trust-Value Equity Fund. It may also be used as sales
literature when preceded or accompanied by a prospectus.
5M 12/96 (Recycle LOGO) Printed on recycled paper
