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HERITAGE
SERIES
TRUST
[Picture of people working and playing]
FROM OUR FAMILY TO YOURS: THE INTELLIGENT CREATION OF WEALTH
MID CAP GROWTH FUND
PROSPECTUS
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[LOGO]
HERITAGE
------------
SERIES TRUST(TM)
---------------
PROSPECTUS DATED SEPTEMBER 29, 1997
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[HERITAGE SERIES TRUST(TM) LOGO]
MID CAP GROWTH FUND
Heritage Series Trust-Mid Cap Growth Fund (the "Fund") is a mutual fund
seeking long-term capital appreciation. The Fund seeks to achieve its investment
objective by investing primarily in the equity securities of companies with
medium sized market capitalization that the Fund's portfolio manager believes
have above average growth potential. The Fund offers two classes of shares,
Class A shares (sold subject to a front-end sales load) and Class C shares (sold
subject to a contingent deferred sales load).
This Prospectus contains information that should be read before investing
in the Fund and should be kept for future reference. A Statement of Additional
Information dated September 29, 1997 relating to the Fund has been filed with
the Securities and Exchange Commission and is incorporated by reference in this
Prospectus. A copy of the Statement of Additional Information is available free
of charge and shareholder inquiries can be made by writing to Heritage Asset
Management, Inc. or by calling (800) 421-4184.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[HERITAGE ASSET MANAGEMENT, INC. LOGO]
Registered Investment Advisor--SEC
880 Carillon Parkway
St. Petersburg, Florida 33716
(800) 421-4184
Prospectus Dated September 29, 1997
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TABLE OF CONTENTS
================================================================================
<TABLE>
<S> <C>
GENERAL INFORMATION......................................... 1
About the Trust and the Fund.............................. 1
Total Fund Expenses....................................... 1
Investment Objective, Policies and Risk Factors........... 2
Net Asset Value........................................... 4
Performance Information................................... 4
INVESTING IN THE FUND....................................... 5
Purchase Procedures....................................... 5
Minimum Investment Required/Accounts With Low Balances.... 6
Systematic Investment Programs............................ 7
Retirement Plans.......................................... 7
Choosing a Class of Shares................................ 7
What Class A Shares Will Cost............................. 8
What Class C Shares Will Cost............................. 9
How to Redeem Shares...................................... 10
Receiving Payment......................................... 11
Exchange Privilege........................................ 12
MANAGEMENT OF THE FUND...................................... 13
SHAREHOLDER AND ACCOUNT POLICIES............................ 15
Dividends and Other Distributions......................... 15
Distribution Plans........................................ 15
Taxes..................................................... 16
Shareholder Information................................... 17
</TABLE>
Prospectus
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GENERAL INFORMATION
ABOUT THE TRUST AND THE FUND
================================================================================
Heritage Series Trust (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated October 28, 1992. The Trust is
an open-end diversified management investment company that currently offers its
shares in five separate investment portfolios. The Fund is designed for
individuals, institutions and fiduciaries whose investment objective is
long-term capital appreciation. The Fund offers two classes of shares, Class A
shares ("A Shares") and Class C shares ("C Shares"). The Fund requires a minimum
initial investment of $1,000, except for certain investment plans for which
lower limits apply. See "Investing in the Fund". To obtain information about any
of the Trust's other portfolios, call (800) 421-4184.
TOTAL FUND EXPENSES
================================================================================
Shown below are all Class A and Class C expenses expected to be incurred by
the Fund during its initial fiscal year. Because the Fund's shares were not
offered for sale prior to the date of this Prospectus, annual operating expenses
are based on estimated expenses.
<TABLE>
<CAPTION>
CLASS A CLASS C
------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases (as
a percentage of offering price)........... 4.75% None
Maximum contingent deferred sales load (as a
percentage of original purchase price or (declining to 0% at
redemption proceeds, as applicable)....... None 1.00% one year)
Wire redemption fee (per transaction)....... $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES
Management fee (after fee waiver)........... 0.35% 0.35%
12b-1 distribution fee...................... 0.25% 1.00%
Other expenses.............................. 1.00% 1.00%
---- ----
Total operating expenses (after fee
waiver)................................... 1.60% 2.35%
==== ====
</TABLE>
The Fund's manager, Heritage Asset Management, Inc. (the "Manager"),
voluntarily will waive its fees and, if necessary, reimburse the Fund to the
extent that Class A annual operating expenses exceed 1.60% of the average daily
net assets and to the extent that Class C annual operating expenses exceed 2.35%
of the average daily net assets attributable to that class for the fiscal year
ending October 31, 1998. Otherwise, "Management fees" and "Total operating
expenses" are estimated to be .75% and 2.00% and .75% and 2.75% for Class A and
Class C shares, respectively. Although the Fund is authorized to pay annual Rule
12b-1 distribution fees on behalf of A shares of up to .35% of the average daily
net assets attributable to that class, the Trust's Board of Trustees (the "Board
of Trustees" or "Trustees") has authorized annual payments of only .25% of Class
A daily net assets. Due to the imposition of Rule 12b-1 distribution fees, it is
possible that long-term shareholders of the Trust may pay more in total sales
charges than the economic equivalent of the maximum front-end sales load
permitted by the rules of the National Association of Securities Dealers, Inc.
Prospectus 1
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The impact of Fund operating expenses on earnings is illustrated in the
example below assuming a hypothetical $1,000 investment, a 5% annual rate of
return, and a redemption at the end of each period shown.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Total Operating Expenses -- A shares.................... $63 $96
Total Operating Expenses -- C shares.................... $24 $73
</TABLE>
This is an illustration only and should not be considered a representation
of future expenses. Actual expenses and performance may be greater or less than
that shown above. The purpose of the above tables is to assist investors in
understanding the various costs and expenses that will be borne directly or
indirectly by shareholders. For a further discussion of these costs and
expenses, see "Management of the Fund" and "Distribution Plans."
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
================================================================================
The Fund's investment objective is long-term capital appreciation. The Fund
seeks to achieve this investment objective, under normal market conditions, by
investing at least 80% of its total assets in the equity securities of companies
each of which has a total market capitalization of between $500 million and $5
billion ("mid cap companies") at the time of purchase. By comparison, the mean
market capitalization for the companies in the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500"), an unmanaged index of 500 widely held common
stocks, is approximately $13.6 billion as of June 30, 1997. The mean market
capitalization for the companies in the Standard and Poor's Midcap 400 Index
("S&P 400") is $1.9 billion as of June 30, 1997. The weighted average market
capitalization for the S&P 500 is $51.1 billion compared to $2.9 billion for the
S&P 400. Market capitalization is the total value of a company's outstanding
common stock. There can be no assurance that the Fund's investment objective
will be achieved.
BECAUSE THE FUND
INVESTS PRIMARILY IN
COMMON STOCKS, THE
VALUE OF YOUR
INVESTMENT WILL
FLUCTUATE. YOU CAN
LOSE MONEY BY
INVESTING IN THE FUND.
The Fund invests primarily in common stocks, but also may invest in
preferred stocks, securities convertible into common stock, American Depository
Receipts ("ADRs") and warrants ("equity securities"). The Fund may purchase
securities traded on recognized securities exchanges and in the over-the-counter
market.
The Fund may invest its remaining assets in corporate debt securities, U.S.
Government securities, repurchase agreements or other short-term money market
instruments. The Fund also may invest up to 15% of its assets in illiquid
securities. The Fund may purchase and sell a security without regard to the
length of time the security will be or has been held. Although the Fund will not
trade primarily for short-term profits, it may make investments with potential
for short-term appreciation when such action is deemed desirable and in the best
interest of shareholders. See "Brokerage Practices" in the SAI.
The Fund's subadviser, Eagle Asset Management, Inc. ("Eagle" or
"Subadviser"), currently believes that investments in mid cap companies
generally are considered to be less volatile than less capitalized emerging
companies and slightly more volatile than large capitalization companies. In
addition, such companies may not generate the dividend income of larger, more
capitalized companies. Dividend income, if any, is not a primary consideration
in the selection of investments.
AMERICAN DEPOSITORY RECEIPTS. The Fund may invest in sponsored and
unsponsored ADRs, which are receipts typically issued by a U.S. bank or trust
Prospectus 2
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company evidencing ownership of the underlying securities of foreign issuers.
Generally, ADRs, in registered form, are denominated in U.S. dollars and are
designed for use in the U.S. securities markets. Thus, these securities are not
denominated in the same currency as the securities into which they may be
converted. ADRs are subject to many of the risks inherent in investing in
foreign securities, including confiscatory taxation or nationalization, and less
comprehensive disclosure requirements for the underlying security. In addition,
the issuers of the securities underlying unsponsored ADRs are not obligated to
disclose material information in the United States and, therefore, there may be
less information available regarding such issuers and there may not be a
correlation between such information and the market value of the ADRs. ADRs are
not considered to be foreign securities by the Fund for purposes of certain
investment limitation calculations.
INVESTMENT GRADE AND LOWER-RATED SECURITIES. The Fund may invest in
corporate debt securities rated investment grade. Investment grade securities
include securities rated BBB or above by Standard & Poor's Rating Services
("S&P") or Baa by Moody's Investors Services, Inc. ("Moody's") or, if unrated,
are deemed to be of comparable quality by the Subadviser. Securities rated in
the lowest category of investment grade are considered to have speculative
characteristics and changes in economic conditions are more likely to lead to a
weakened capacity to pay interest and repay principal than is the case with
higher grade bonds. The Fund may retain a security that has been downgraded
below investment grade if, in the opinion of the Subadviser, it is in the Fund's
best interest.
In addition, the Fund may invest up to 5% of its assets in convertible
securities rated below investment grade by S&P and Moody's, or unrated
securities deemed to be below investment grade by the Fund's Subadviser. The
price of lower-rated securities tends to be less sensitive to interest rate
changes than the price of higher-rated securities, but more sensitive to adverse
economic changes or individual corporate developments. Securities rated below
investment grade are deemed to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal and may involve major risk
exposure to adverse conditions. See the SAI for a discussion of the risks
associated with investment grade and lower-rated securities and the Appendix to
the SAI for a description of S&P's and Moody's corporate bond ratings.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements.
Repurchase agreements are transactions in which the Fund purchases securities
and commits to resell the securities to the original seller (a member bank of
the Federal Reserve System or securities dealers who are members of a national
securities exchange or are market makers in U.S. Government securities) at an
agreed upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. Although repurchase
agreements carry certain risks not associated with direct investment in
securities, including possible declines in the market value of underlying
securities and delays and costs to the Fund if the other party becomes bankrupt,
the Fund intends to enter into repurchase agreements only with banks and dealers
in transactions believed by the subadviser to present minimal credit risks in
accordance with guidelines established by the Board of Trustees.
TEMPORARY DEFENSIVE PURPOSES. For temporary defensive purposes during
anticipated periods of general market decline, the Fund may invest up to 100% of
its assets in money market instruments, including securities issued by the U.S.
Government, its agencies or instrumentalities and repurchase agreements
Prospectus 3
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secured thereby, as well as bank certificates of deposit and banker's
acceptances issued by banks having net assets of at least $1 billion as of the
end of their most recent fiscal year, high-grade commercial paper, and other
long- and short-term debt instruments that are rated A or higher by S&P or
Moody's. For a description of S&P or Moody's commercial paper and corporate
ratings, see the Appendix to the SAI.
The Fund's investment objective is fundamental and may not be changed
without the vote of a majority of the outstanding voting securities of the Fund,
as defined in the Investment Company Act of 1940, as amended (the "1940 Act").
Except as otherwise noted, all policies of the Fund described in this Prospectus
may be changed by the Board of Trustees without shareholder approval. The SAI
contains more detailed information about the Fund's investment policies and
risks.
NET ASSET VALUE
================================================================================
THE NET ASSET VALUE OF
EACH CLASS OF FUND
SHARES IS CALCULATED
DAILY AS OF THE CLOSE
OF REGULAR TRADING ON
THE NEW YORK STOCK
EXCHANGE.
The net asset values of A shares and C shares are calculated by dividing
the value of the total assets of the Fund attributable to that class, less
liabilities attributable to that class, by the number of shares outstanding of
that class. Shares are valued as of the close of regular trading on the New York
Stock Exchange ("Exchange") each day it is open. Fund securities are stated at
market value based on the last sales price as reported by the principal
securities exchange on which the security is traded. If no sale is reported,
market value is based on the most recent quoted bid price. In the absence of a
readily available market quote, or if the Manager or the Subadviser has reason
to question the validity of market quotations it receives, securities and other
assets are valued using such methods as the Board of Trustees believes would
reflect fair value. Short-term investments that will mature in 60 days or less
are valued at amortized cost, which approximates market value. The per share net
asset value of A shares and C shares may differ as a result of the different
daily expense accruals applicable to each class. For more information on the
calculation of net asset value, see "Net Asset Value" in the SAI.
PERFORMANCE INFORMATION
================================================================================
Total return data of the A shares and C shares from time to time may be
included in advertisements about the Fund. Performance information is computed
separately for A shares and C shares in accordance with the methods described
below. Because C shares bear the expense of a higher distribution fee
attributable to the deferred sales load alternative, the performance of C shares
likely will be lower than that of A shares.
Total return with respect to a class for the one-, five- and ten-year
periods or, if such periods have not elapsed, the period since the establishment
of that class through the most recent calendar quarter represents the average
annual compounded rate of return on an investment of $1,000 in that class at the
public offering price (in the case of A shares, giving effect to the maximum
initial sales load of 4.75% and, in the case of C shares, giving effect to the
deduction of any contingent deferred sales load ("CDSL") that would be payable).
In addition, the Fund also may advertise the total return in the same manner,
but without taking into account the initial sales load or CDSL. The Fund also
may advertise total return calculated without annualizing the return and total
return may be presented for other periods. By not annualizing the returns, the
total return calculated in this manner simply will
Prospectus 4
<PAGE> 8
reflect the increase in net asset value per A share and C share over a period of
time, adjusted for dividends and other distributions. A share and C share
performance may be compared with various indices.
All data will be based on the Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Fund's
investment portfolio and the Fund's operating expenses. Investment performance
also often reflects the risks associated with the Fund's investment objective
and policies. These factors should be considered when comparing the Fund's
investment results to those of other mutual funds and other investment vehicles.
For more information on investment performance, see the SAI.
INVESTING IN THE FUND
PURCHASE PROCEDURES
================================================================================
HOW TO BUY SHARES:
Raymond James & Associates, Inc. (the "Distributor") is the principal
underwriter of the Fund's shares and receives commissions consisting of that
portion of the sales load remaining after the dealer concession is paid to
participating dealers or banks. Such dealers may be deemed to be underwriters
pursuant to the Securities Act of 1933, as amended. For a discussion of the
classes of shares offered by the Fund, see "Choosing a Class of Shares."
INITIAL OFFERING OF SHARES
The Fund initially will offer its shares for sale during a period scheduled
to end at the close of business on November 6, 1997 (the "Initial Offering
Period"). During this period, shares will be offered through the Distributor,
participating dealers or participating banks at a price of $14.29 per A share,
plus the applicable sales load with a maximum offering price of $15.00 per
share, and $14.29 per C share. The Fund will not engage in a continuous offering
of its shares until after the end of the Initial Offering Period.
- SUBSCRIPTION FOR
SHARES WILL BE
ACCEPTED DURING AN
INITIAL OFFERING
PERIOD.
During the Initial Offering Period, a registered representative of the
Distributor, a participating dealer or a participating bank ("Representative")
may obtain non-binding indications of interest prior to actually confirming any
orders. Subscriptions for shares will be accepted through the last day of the
Initial Offering Period. On the third business day after the close of the
Initial Offering Period (the "Closing Date"), subscriptions will be due and
payable, shares will be issued, and the Fund will commence investment
operations. To the extent that payment is made to the Distributor, participating
dealer or participating bank prior to the Closing Date, such persons may benefit
from the temporary use of funds. The Fund reserves the right to withdraw, cancel
or modify the offering of shares during the Initial Offering Period without
notice and the Fund reserves the right to refuse any order in whole or in part,
if the Fund determines that it is in its best interests to do so.
Prospectus 5
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YOU MAY BUY SHARES
OF THE FUND ONCE
SHARES ARE OFFERED
CONTINUOUSLY BY:
- CALLING YOUR
REPRESENTATIVE
CONTINUOUS OFFERING OF SHARES
When the Fund commences continuous offering of its shares, shares of the
Fund may be purchased through a registered representative of the Distributor, a
participating dealer or a participating bank ("Representative") by placing an
order for Fund shares with your Representative and remitting payment to the
Distributor, participating dealer or bank within three business days.
All purchase orders received by the Distributor prior to the close of
regular trading on the Exchange - generally 4:00 p.m., Eastern time - will be
executed at that day's offering price. Purchase orders received by your
Representative prior to the close of regular trading on the Exchange and
transmitted to the Distributor before 5:00 p.m., Eastern time, on that day also
will receive that day's offering price. Otherwise, all purchase orders accepted
after the offering price is determined will be executed at the offering price
determined as of the close of regular trading on the Exchange on the next
trading day. See "What Class A Shares Will Cost" and "What Class C Shares Will
Cost."
- COMPLETING THE
ACCOUNT
APPLICATION
CONTAINED IN THIS
PROSPECTUS AND
SENDING YOUR
CHECK; OR
- SENDING A
FEDERAL FUNDS
WIRE.
You also may purchase shares of the Fund directly by completing and signing
the Account Application found in this Prospectus and mailing it, along with your
payment, to Heritage Series Trust-Mid Cap Growth Fund, Heritage Asset
Management, Inc., P.O. Box 33022, St. Petersburg, FL 33733.
Shares may be purchased with Federal funds (a commercial bank's deposit with the
Federal Reserve Bank that can be transferred to another member bank on the same
day) sent by Federal Reserve or bank wire to:
State Street Bank and Trust Company
Boston, Massachusetts
ABA #011-000-028
Account #3196-769-8
Heritage Series Trust-Mid Cap Growth Fund
The class of shares to be purchased
(Your Account Number Assigned by the Trust)
(Your Name)
To open a new account with Federal funds or by wire, you must contact the
Manager or your Representative to obtain a Heritage Mutual Fund account number.
Commercial banks may elect to charge a fee for wiring funds to State Street Bank
and Trust Company. For more information on how to buy shares, see "Investing in
the Fund" in the SAI.
MINIMUM INVESTMENT REQUIRED/ACCOUNTS WITH LOW BALANCES
================================================================================
AN INITIAL INVESTMENT
MUST BE AT LEAST
$1,000. A MINIMUM
BALANCE OF $500 MUST
BE MAINTAINED.
Except as provided under "Systematic Investment Programs", the minimum
initial investment in the Fund is $1,000, and a minimum account balance of $500
must be maintained. These minimum requirements may be waived at the discretion
of the Manager. In addition, initial investments in Individual Retirement
Accounts ("IRAs") may be reduced or waived under certain circumstances. Contact
the Manager or your Representative for further information.
Due to the high cost of maintaining accounts with low balances, it is
currently the Trust's policy to redeem Fund shares in any account if the account
balance falls below the required minimum value of $500, except for retirement
accounts. The shareholder will be given 30 days' notice to bring the account
balance to the minimum required or the Trust may redeem shares in the account
and pay the proceeds to the shareholder.
Prospectus 6
<PAGE> 10
The Trust does not apply this minimum account balance requirement to accounts
that fall below the minimum due to market fluctuation.
SYSTEMATIC INVESTMENT PROGRAMS
================================================================================
DOLLAR COST AVERAGING PLANS:
- -------------------------------
THE FUND OFFERS
INVESTORS A VARIETY OF
CONVENIENT FEATURES
AND BENEFITS,
INCLUDING DOLLAR COST
AVERAGING.
A variety of systematic investment options are available for the purchase
of Fund shares. These options provide for systematic monthly investments of $50
or more through systematic investing, payroll or government direct deposit, or
exchange from another mutual fund advised or administered by the Manager
("Heritage Mutual Fund"). You may change the amount to be automatically invested
or may discontinue this service at any time without penalty. If you discontinue
this service before reaching the required account minimum, the account must be
brought up to the minimum in order to remain open. You will receive a periodic
confirmation of all activity for your account. For additional information on
these options, see the Account Application or contact the Manager at (800)
421-4184 or your Representative.
RETIREMENT PLANS
================================================================================
Shares of the Fund may be purchased as an investment for Heritage IRA
plans. In addition, shares may be purchased as an investment for self-directed
IRAs, defined contribution plans, Simplified Employee Pension Plans ("SEPs"),
Savings Incentive Match Plans for Employees ("SIMPLEs") and other retirement
plans. For more detailed information on retirement plans contact the Manager at
(800) 421-4184 or your Representative and see "Investing in the Fund" in the
SAI.
CHOOSING A CLASS OF SHARES
================================================================================
A SHARES HAVE A
FRONT-END SALES LOAD
AND LOWER ANNUAL
EXPENSES THAN
C SHARES. C SHARES
HAVE A CDSL ON
REDEMPTIONS WITHIN ONE
YEAR OF PURCHASE.
The Fund offers and sells two classes of shares, A shares and C shares. The
primary difference between the A shares and the C shares lies in their initial
sales load and CDSL structures and in their ongoing expenses, including
asset-based sales charges in the form of distribution fees. A shares may be
purchased at a price equal to their net asset value per share next determined
after receipt of an order, plus a sales load imposed at the time of purchase. C
shares may be purchased at a price equal to their net asset value per share next
determined after receipt of an order. A CDSL of 1% is imposed on C shares if you
hold those shares for less than one year. C shares are subject to higher ongoing
distribution fees than A shares. When you place an order for Fund shares, you
must specify which class of shares you wish to purchase.
YOU MAY
CHOOSE A
SHARE CLASS
THAT MEETS
YOUR INVESTMENT
OBJECTIVES. CONSULT
WITH YOUR
REPRESENTATIVE.
The purchase plans offered by the Fund enable you to choose the class of
shares that you believe will be most beneficial given the amount of your
intended purchase, the length of time you expect to hold the shares and other
circumstances. You should consider whether, during the anticipated length of
your intended investment in the Fund, the accumulated continuing distribution
and service fees plus the CDSL on C shares would exceed the initial sales load
plus accumulated Rule 12b-1 distribution fees on A shares purchased at the same
time. Another factor to consider is whether the potentially higher yield of A
shares due to lower ongoing charges will offset the initial sales load paid on
such shares. Representatives may receive different compensation for sales of A
shares than sales of C shares.
If you purchase sufficient shares to qualify for a reduced sales load, you
may prefer to purchase A shares because similar reductions are not available on
Prospectus 7
<PAGE> 11
C shares. For example, if you intend to invest more than $1,000,000 in shares of
the Fund, you should purchase A shares. Moreover, all A shares are subject to a
lower Rule 12b-1 fee and, accordingly, are expected to pay correspondingly
higher dividends on a per share basis. If your purchase will not qualify for a
reduced sales load, you still may wish to purchase A shares if you expect to
hold your shares for an extended period of time because, depending on the number
of years you hold the investment, the continuing distribution and service fees
on C shares eventually would exceed the initial sales load plus the continuing
service fee on A shares during the life of your investment. However, because
initial sales loads are deducted at the time of purchase, not all of the
purchase payment for A shares is invested initially.
You might determine that it would be more advantageous to purchase C shares
in order to have all of your purchase payment invested initially. However, your
investment would remain subject to higher continuing distribution and service
fees and, if you hold your shares for less than one year, be subject to a CDSL.
For example, based on anticipated fees and expenses expected to be incurred by
the Fund and the maximum sales load on A shares, you would have to hold A shares
approximately eight years before the accumulated distribution and service fees
on the C shares would exceed the initial sales load plus the accumulated service
fees on the A shares.
WHAT CLASS A SHARES WILL COST
================================================================================
THE SALES LOAD ON
A SHARES WILL VARY
DEPENDING ON THE
AMOUNT YOU INVEST.
A shares are sold on each day on which the Exchange is open. A shares are
sold at their next determined net asset value plus a sales load as described
below.
<TABLE>
<CAPTION>
SALES LOAD AS A
PERCENTAGE OF
----------------------------
NET AMOUNT DEALER CONCESSION
AMOUNT OF OFFERING INVESTED AS PERCENTAGE OF
PURCHASE PRICE (NET ASSET VALUE) OFFERING PRICE(1)
--------- -------- ----------------- -----------------
<S> <C> <C> <C>
Less than $25,000................ 4.75% 4.99% 4.25%
$25,000-$49,999.................. 4.25% 4.44% 3.75%
$50,000-$99,999.................. 3.75% 3.90% 3.25%
$100,000-$249,999................ 3.25% 3.36% 2.75%
$250,000-$499,999................ 2.50% 2.56% 2.00%
$500,000-$999,999................ 1.50% 1.52% 1.25%
$1,000,000 and over.............. 0.00% 0.00% 1.00%(2)
</TABLE>
- ---------------
(1) During certain periods, the Distributor may pay 100% of the sales load to
participating dealers. Otherwise, it will pay the dealer concession shown
above.
(2) The Manager may pay from its own resources up to 1.00% of the purchase
amount to the Distributor for purchases of $1,000,000 or more.
A shares may be sold at net asset value without any sales load to: the
Manager and the Subadviser, current and retired officers and Trustees of the
Trust; directors, officers and full-time employees of the Manager, Subadviser of
any Heritage Mutual Fund, the Distributor and their affiliates; registered
representatives and employees of broker-dealers that are parties to dealer
agreements with the Distributor (or financial institutions that have
arrangements with such broker-dealers); directors, officers and full-time
employees of banks that are parties to agency agreements with the Distributor;
and all such persons' immediate relatives and their beneficial accounts. In
addition, the American Psychiatric Association has entered into an agreement
with the Distributor that allows its members to purchase A shares at a sales
load equal to two-thirds of the percentages in the above table. The dealer
concession also will be adjusted in a like manner. A shares also may be
purchased without sales loads by investors who participate in certain
broker-dealer wrap fee investment programs.
Prospectus 8
<PAGE> 12
HERITAGE NET ASSET VALUE ("NAV") TRANSFER PROGRAM
- -----------------------------------------------------------
YOU MAY QUALIFY FOR A
PURCHASE WITH NO
SALES LOAD UNDER THE
HERITAGE NAV
TRANSFER PROGRAM.
A shares of the Fund may be sold at net asset value without any sales load
under the Manager's NAV Transfer Program. To qualify for the NAV Transfer
Program, you must provide adequate proof that within 90 days prior to the
purchase of a Heritage Mutual Fund you redeemed shares from a load or no-load
mutual fund other than a Heritage Mutual Fund or any money market fund. To
provide adequate proof you must complete a qualification form and provide a
statement showing the value liquidated from the other mutual fund.
COMBINED PURCHASE PRIVILEGE (RIGHT OF ACCUMULATION)
- -----------------------------------------------------------
YOU MAY QUALIFY FOR A
REDUCED SALES CHARGE
BY COMBINING
PURCHASES.
You may qualify for the sales load reductions indicated in the above sales
load schedule by combining purchases of A shares into a single "purchase" if the
resulting "purchase" totals at least $25,000. For additional information
regarding the Combined Purchase Privilege, see the Account Application or
"Investing in the Fund" in the SAI.
STATEMENT OF INTENTION
- ------------------------
A STATEMENT OF
INTENTION ALLOWS YOU
TO REDUCE THE SALES
LOAD ON COMBINED
PURCHASES OF $25,000
OR MORE OVER ANY
13-MONTH PERIOD.
You also may obtain the reduced sales loads shown in the above sales load
schedule by means of a written Statement of Intention, which expresses your
intention to invest not less than $25,000 within a period of 13 months in A
shares of the Fund or A shares of any other Heritage Mutual Fund subject to a
sales load ("Statement of Intention"). If you qualify for the Combined Purchase
Privilege, you may purchase A shares of the Heritage Mutual Funds under a single
Statement of Intention. In addition, if you own Class A shares of any other
Heritage Mutual Fund subject to a sales load, you may include those shares in
computing the amount necessary to qualify for a sales load reduction. The
Statement of Intention is not a binding obligation upon the investor to purchase
the full amount indicated. The minimum initial investment under a Statement of
Intention is 5% of such amount. If you would like to enter into a Statement of
Intention in conjunction with your initial investment in A shares of the Fund,
please complete the appropriate portion of the Account Application found in this
Prospectus. Current Fund shareholders desiring to do so can obtain a Statement
of Intention by contacting the Manager or the Distributor at the address or
telephone number listed on the cover of this Prospectus, or from their
Representative.
For more information on "What Class A Shares Will Cost" and a further
explanation of instances in which the sales load will be waived or reduced, see
"Investing in the Fund" in the SAI.
WHAT CLASS C SHARES WILL COST
================================================================================
THE CDSL, IF
APPLICABLE, IS BASED
ON THE LOWER OF
PURCHASE PRICE OR
REDEMPTION PRICE.
A CDSL of 1% is imposed on C shares if, less than one year from the date of
purchase, you redeem an amount that causes the current value of your account to
fall below the total dollar amount of C shares purchased subject to the CDSL.
The CDSL will not be imposed on the redemption of C shares acquired as dividends
or other distributions, or on any increase in the net asset value of the
redeemed C shares above the original purchase price. Thus, the CDSL will be
imposed on the lower of net asset value or purchase price.
Prospectus 9
<PAGE> 13
Redemptions will be processed in a manner intended to minimize the amount
of redemption that will be subject to the CDSL. When calculating the CDSL, it
will be assumed that the redemption is made first of C shares acquired as
dividends, second of C shares that have been held for one year or longer, and
finally of C shares held for less than one year on a first-in first-out basis.
WAIVER OF THE CONTINGENT DEFERRED SALES LOAD. The CDSL currently is waived
for: (1) any partial or complete redemption in connection with a distribution
without penalty under Section 72(t) of the Internal Revenue Code of 1986, as
amended (the "Code"), from a qualified retirement plan, including a Keogh Plan
or IRA, upon attaining age 70 1/2; (2) any redemption resulting from a tax-free
return of an excess contribution to a qualified employer retirement plan or an
IRA; (3) any partial or complete redemption following death or disability (as
defined in Section 72(m)(7) of the Code) of a shareholder (including one who
owns the shares as joint tenant with his or her spouse) from an account in which
the deceased or disabled is named, provided the redemption is requested within
one year of the death or initial determination of disability; (4) certain
periodic redemptions under the Systematic Withdrawal Plan from an account
meeting certain minimum balance requirements, in amounts representing certain
maximums established from time to time by the Distributor (currently a maximum
of 12% annually of the account balance at the beginning of the Systematic
Withdrawal Plan); or (5) involuntary redemptions by the Trust of C shares in
shareholder accounts that do not comply with the minimum balance requirements.
The Distributor may require proof of documentation prior to waiver of the CDSL
described in sections (1) through (4) above, including distribution letters,
certification by plan administrators, applicable tax forms or death or
physicians certificates.
For more information about A and C shares, see "Reinstatement Privilege"
and "Exchange Privilege."
HOW TO REDEEM SHARES
================================================================================
THERE ARE SEVERAL
WAYS FOR YOU TO SELL
YOUR SHARES.
Redemptions of Fund shares can be made by:
CONTACTING YOUR REPRESENTATIVE. Your Representative will transmit an order
to the Fund for redemption and may charge you a fee for this service.
TELEPHONE REQUEST. You may redeem shares by placing a telephone request to
the Fund (800-421-4184) prior to the close of regular trading on the Exchange.
If you do not wish to have telephone exchange/redemption privileges, you should
so elect by completing the appropriate section of the Account Application. The
Trust, Manager, Distributor and their Trustees, directors, officers and
employees are not liable for any loss arising out of telephone instructions they
reasonably believe are authentic. These parties will employ reasonable
procedures to confirm that telephone instructions are authentic. To the extent
that the Trust, Manager, Distributor and their Trustees, directors, officers and
employees do not follow reasonable procedures, some or all of them may be liable
for losses due to unauthorized or fraudulent transactions. For more information
on these procedures, see "Redeeming Shares - Telephone Transactions" in the SAI.
You may elect to have redemption proceeds wired to the bank account specified on
the Account Application. Redemption proceeds normally will be sent the next
business day, and you will be charged a wire fee by the Manager (currently
$5.00). For redemptions of less than $50,000, you may request that a check be
mailed to your address of record, providing that such address has not been
changed in the past 30 days. For your protection, the
Prospectus 10
<PAGE> 14
proceeds of all other redemptions will be transferred to the bank account
specified on the Account Application.
WRITTEN REQUEST. Fund shares may be redeemed by sending a written request
for redemption to "Heritage Series Trust-Mid Cap Growth Fund, Heritage Asset
Management, Inc., P.O. Box 33022, St. Petersburg, FL 33733". Signature
guarantees will be required on the following types of requests: redemptions from
any account that has had an address change in the past 30 days, redemptions
greater than $50,000, redemptions that are sent to an address other than the
address of record and exchanges or transfers into other Heritage accounts that
have different titles. The Manager will transmit an order to the Fund for
redemption.
SYSTEMATIC WITHDRAWAL PLAN. Withdrawal plans are available that provide
for regular periodic withdrawals of $50 or more on a monthly, quarterly,
semiannual or annual basis. Under these plans, sufficient shares of the Fund are
redeemed to provide the amount of the periodic withdrawal payment. The purchase
of A shares while participating in the Systematic Withdrawal Plan ordinarily
will be disadvantageous to you because you will be paying a sales load on the
purchase of those shares at the same time that you are redeeming A shares upon
which you may already have paid a sales load. Therefore, the Fund will not
knowingly permit the purchase of A shares through a Systematic Investment Plan
if you are at the same time making systematic withdrawals of A shares. The
Manager reserves the right to cancel systematic withdrawals if insufficient
shares are available for two or more consecutive months.
YOU WILL NOT BE
CHARGED A SALES LOAD
ON A SHARES OR BE SUBJECT
TO A CDSL ON C SHARES
REDEEMED AND REINVESTED
WITHIN 90 DAYS
OF REDEMPTION. YOU
MUST NOTIFY THE
FUND WHEN YOU
EXERCISE THIS
PRIVILEGE.
REINSTATEMENT PRIVILEGE. A shareholder who has redeemed any or all of his A
shares of the Fund may reinvest all or any portion of the redemption proceeds in
A shares at net asset value without any sales load, provided that such
reinvestment is made within 90 calendar days after the redemption date. A
shareholder who has redeemed any or all of his C shares of the Fund and has paid
a CDSL on those shares or has held those shares long enough so that the CDSL no
longer applies, may reinvest all or any portion of the redemption proceeds in C
shares at net asset value without paying a CDSL on future redemptions of those
shares, provided that such reinvestment is made within 90 calendar days after
the redemption date. A reinstatement pursuant to this privilege will not cancel
the redemption transaction; therefore, (1) any gain realized on the transaction
will be recognized for Federal income tax purposes, while (2) any loss realized
will not be recognized to the extent that the redemption proceeds are reinvested
in shares of the Fund. The reinstatement privilege may be utilized by a
shareholder only once, irrespective of the number of shares redeemed, except
that the privilege may be utilized without limitation in connection with
transactions whose sole purpose is to transfer a shareholder's interest in the
Fund to his defined contribution plan, IRA or SEP or SIMPLE. You must notify the
Fund if you intend to exercise the reinstatement privilege.
Contact the Manager or your Representative for further information or see
"Redeeming Shares" in the SAI.
RECEIVING PAYMENT
================================================================================
THE SALES PRICE
GENERALLY IS THE NEXT
NAV COMPUTED AFTER
THE RECEIPT OF YOUR
REDEMPTION REQUEST.
If a request for redemption is received by the Fund in good order (as
described below) before the close of regular trading on the Exchange, the shares
will be redeemed at the net asset value per share determined at the close of
regular trading on the Exchange on that day, less any applicable CDSL for C
shares. Requests for
Prospectus 11
<PAGE> 15
redemption received by the Fund after the close of regular trading on the
Exchange will be executed at the net asset value determined at the close of
regular trading on the Exchange on the next trading day, less any applicable
CDSL for C shares.
Payment for shares redeemed by the Fund normally will be made on the
business day after the redemption was made. If the shares to be redeemed
recently have been purchased by personal check, the Fund may delay mailing a
redemption check until the purchase check has cleared, which may take up to five
business days. This delay can be avoided by wiring funds for purchases. The
proceeds of a redemption may be more or less than the original cost of Fund
shares.
A redemption request will be considered to be received in "good order" if:
- the number or amount of shares and the class of shares to be redeemed
and shareholder account number have been indicated;
- any written request is signed by the shareholder and by all co-owners
of the account with exactly the same name or names used in establishing
the account;
- any written request is accompanied by certificates representing the
shares that have been issued, if any, and the certificates have been
endorsed for transfer exactly as the name or names appear on the
certificates or an accompanying stock power has been attached; and
- the signatures on any written redemption request of $50,000 or more and
on any certificates for shares (or an accompanying stock power) have
been guaranteed by a national bank, a state bank that is insured by the
Federal Deposit Insurance Corporation, a trust company, or by any
member firm of the New York, American, Boston, Chicago, Pacific or
Philadelphia Stock Exchanges. Signature guarantees also will be
accepted from savings banks and certain other financial institutions
that are deemed acceptable by the Manager, as transfer agent, under its
current signature guarantee program.
The Fund has the right to suspend redemption or postpone payment at times
when the Exchange is closed (other than customary weekend or holiday closings)
or during periods of emergency or other periods as permitted by the Securities
and Exchange Commission. In the case of any such suspension you may either
withdraw your request for redemption or receive payment based upon the net asset
value next determined less any applicable CDSL, after the suspension is lifted.
If a redemption check remains outstanding after six months, the Manager reserves
the right to redeposit those funds into your account. For more information on
receiving payment, see "Redeeming Shares" in the SAI.
EXCHANGE PRIVILEGE
================================================================================
YOU MAY EXCHANGE
SHARES OF ONE
HERITAGE MUTUAL
FUND FOR SHARES OF
THE SAME CLASS OF
ANY OTHER HERITAGE
MUTUAL FUND.
If you have held A shares or C shares for at least 30 days, you may
exchange some or all of your shares for shares of the same class of any other
Heritage Mutual Fund. All exchanges will be based on the respective net asset
values of the Heritage Mutual Funds involved. All exchanges are subject to the
minimum investment requirements and any other applicable terms set forth in the
prospectus for the Heritage Mutual Fund whose shares are being acquired.
Exchanges involving the redemption of shares recently purchased by check will be
permitted only after the Heritage Mutual Fund whose shares have been tendered
for exchange is reasonably assured that the check has cleared, normally five
business days following the
Prospectus 12
<PAGE> 16
purchase date. Exchanges of shares of Heritage Mutual Funds generally will
result in the realization of a taxable gain or loss for Federal income tax
purposes.
For purposes of calculating the commencement of the CDSL holding period for
shares exchanged from the Fund to the C shares of any other Heritage Mutual
Fund, except Heritage Cash Trust-Money Market Fund ("Money Market Fund"), the
original purchase date of those shares exchanged will be used. Any time period
that the exchanged shares were held in the Money Market Fund will not be
included in this calculation. As a result, if you redeem C shares of the Money
Market Fund before the expiration of the CDSL holding period, you will be
subject to the applicable CDSL.
If you exchange A shares or C shares for corresponding shares of the Money
Market Fund, you may, at any time thereafter, exchange such shares for the
corresponding class of shares of any other Heritage Mutual Fund. If you exchange
shares of the Money Market Fund acquired by purchase (rather than exchange) for
shares of another Heritage Mutual Fund, you will be subject to the sales load,
if any, that would be applicable to a purchase of that Heritage Mutual Fund.
A shares of the Fund may be exchanged for A shares of the Heritage Cash
Trust-Municipal Money Market Fund, which is the only class of shares offered by
that fund. If you exchange shares of the Heritage Cash Trust-Municipal Money
Market Fund acquired by purchase (rather than exchange) for shares of another
Heritage Mutual Fund, you also will be subject to the sales load, if any, that
would be applicable to a purchase of that Heritage Mutual Fund. C shares are not
eligible for exchange into the Heritage Cash Trust-Municipal Money Market Fund.
Shares acquired pursuant to a telephone request for exchange will be held
under the same account registration as the shares redeemed through such an
exchange. For a discussion of limitation of liability of certain entities, see
"How to Redeem Shares-Telephone Request."
Telephone exchanges can be effected by calling the Manager at (800)
421-4184 or by calling your Representative. In the event that you or your
Representative are unable to reach the Manager by telephone, an exchange can be
effected by sending a telegram to Heritage Asset Management, Inc. Due to the
volume of calls or other unusual circumstances, telephone exchanges may be
difficult to implement during certain time periods.
Each Heritage Mutual Fund reserves the right to reject any order to acquire
its shares through exchange or otherwise to restrict or terminate the exchange
privilege at any time. In addition, each Heritage Mutual Fund may terminate this
exchange privilege upon 60 days' notice. For further information on this
exchange privilege and for a copy of any Heritage Mutual Fund prospectus,
contact the Manager or your Representative and see "Exchange Privilege" in the
SAI.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
HERITAGE ASSET
MANAGEMENT, INC.
SERVES AS MANAGER FOR
THE FUND, SUBJECT TO
THE DIRECTION OF THE
BOARD OF TRUSTEES.
The business and affairs of the Fund are managed by or under the direction
of its Board of Trustees. The Trustees are responsible for managing the Fund's
business affairs and for exercising all the Fund's powers except those reserved
to the shareholders. A Trustee may be removed by the other Trustees or by a
two-thirds vote of the outstanding Fund shares.
Prospectus 13
<PAGE> 17
INVESTMENT ADVISER, FUND ACCOUNTANT, ADMINISTRATOR AND TRANSFER AGENT
Heritage Asset Management, Inc. is the Fund's investment adviser, fund
accountant, administrator and transfer agent. The Manager is responsible for
reviewing and establishing investment policies for the Fund as well as
administering the Fund's noninvestment affairs. The Manager is a wholly owned
subsidiary of Raymond James Financial, Inc., which, together with its
subsidiaries, provides a wide range of financial services to retail and
institutional clients. The Manager manages, supervises and conducts the business
and administrative affairs of the Fund and the other Heritage Mutual Funds with
net assets totaling approximately $2.9 billion as of June 30, 1997. The
Manager's annual investment advisory and administration fee payable monthly by
the Fund is equal to 0.75% of the Fund's average daily net assets. In addition,
the Manager provides the Fund with fund accounting and transfer agent services
for which the Manager receives an additional fee from the Fund.
The Manager will voluntarily waive fees or reimburse expenses as explained
under "Total Fund Expenses" and reserves the right to discontinue any voluntary
waiver of its fees or reimbursements to the Fund in the future. The Manager also
may recover advisory fees waived in the two previous years.
SUBADVISER
THE MANAGER EMPLOYS
A SUBADVISER FOR
PROVIDING INVESTMENT
ADVICE AND PORTFOLIO
MANAGEMENT SERVICES
TO THE FUND.
The Manager has entered into an agreement with Eagle Asset Management,
Inc., 880 Carillon Parkway, St. Petersburg, FL 33706, to provide investment
advice and portfolio management services, including placement of brokerage
orders, to the Fund for a fee payable by the Manager at an annual rate equal to
50% of the fees payable to the Manager by the Fund, without regard to any
reduction in fees actually paid to the Manager as a result of voluntary fee
waivers by the Manager.
Eagle has been managing private accounts since 1976 for a diverse group of
clients, including individuals, corporations, municipalities and trusts. Eagle
managed approximately $3.5 billion for these clients as of June 30, 1997. In
addition to advising private accounts, Eagle acts as investment adviser or
subadviser to mutual funds, including Heritage Income-Growth Trust, Heritage
Series Trust-Small Cap Stock Fund, Heritage Series Trust-Growth Equity Fund,
Heritage Series Trust-Value Equity Fund and Heritage Capital Appreciation Trust
(although no assets currently are allocated to Eagle in the latter two funds)
and three variable annuity portfolios (Eagle Core Equity Series and Eagle Small
Cap Equity Series for Jackson National Life and Eagle Value Equity Portfolio for
Golden Select). Eagle is a wholly owned subsidiary of Raymond James Financial,
Inc., which, together with its subsidiaries, provides a wide range of financial
services to retail and institutional clients.
BROKERAGE PRACTICES
The Subadviser may use the Distributor or other affiliated broker-dealers
as broker for agency transactions in listed and over-the-counter securities at
commission rates and under circumstances consistent with the policy of best
price and execution. See "Brokerage Practices" in the SAI.
PORTFOLIO MANAGEMENT
Todd McCallister, Ph.D., CFA, will serve as portfolio manager of the Fund.
He will be responsible for the day-to-day management of the Fund's investment
portfolio, subject to the general oversight of the Manager and the Board.
Prospectus 14
<PAGE> 18
Mr. McCallister is a Senior Vice President of Eagle. Prior to joining Eagle in
1997, Mr. McCallister served as a portfolio manager for IAI Mutual Funds from
1992 to 1997. Prior to 1992 he was a portfolio manager at ANB Investment
Management.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS AND OTHER DISTRIBUTIONS
================================================================================
SEVERAL OPTIONS EXIST
FOR RECEIVING DIVIDENDS
AND OTHER
DISTRIBUTIONS.
Dividends from net investment income are declared and paid annually. The
Fund distributes to shareholders along with its annual dividend substantially
all net realized capital gains on portfolio securities and net realized gains
from foreign currency transactions, if any, after the end of the year in which
the gains are realized. Dividends and other distributions on shares held in
retirement plans and by shareholders maintaining a Systematic Withdrawal Plan
generally are declared and paid in additional Fund shares. Other shareholders
may elect to:
- receive both dividends and other distributions in additional Fund
shares;
- receive dividends in cash and other distributions in additional Fund
shares;
- receive both dividends and other distributions in cash; or
- receive both dividends and other distributions in cash for investment
in another Heritage Mutual Fund.
If you select none of these options, the first option will apply. In any
case when you receive a dividend or other distribution in additional Fund
shares, your account will be credited with shares valued at the net asset value
of the shares determined at the close of regular trading on the Exchange on the
day following the record date for the dividend or other distribution.
Distribution options can be changed at any time by notifying the Manager in
writing.
Dividends paid by the Fund with respect to its A shares and C shares are
calculated in the same manner and at the same time and will be in the same
amount relative to the aggregate net asset value of the shares in each class,
except that dividends on C shares may be lower than dividends on A shares
primarily as a result of the higher distribution fee and class-specific expenses
applicable to C shares.
DISTRIBUTION PLANS
================================================================================
THE FUND PAYS
SERVICE FEES AND
DISTRIBUTION FEES TO
THE DISTRIBUTOR.
As compensation for services rendered and expenses borne by the Distributor
in connection with the distribution of A shares and in connection with personal
services rendered to Class A shareholders and the maintenance of Class A
accounts, the Fund may pay the Distributor distribution and service fees of up
to 0.35% of the Fund's average daily net assets attributable to A shares. The
Fund will pay the Distributor a fee of up to 0.25% of the Fund's average daily
net assets attributable to A shares. This fee is computed daily and paid
monthly.
As compensation for services rendered and expenses borne by the Distributor
in connection with the distribution of C shares and in connection with personal
services rendered to Class C shareholders and the maintenance of Class C
shareholder accounts, the Fund pays the Distributor a service fee of up to 0.25%
and a distribution fee of up to 0.75% of the Fund's average daily net assets
attributable to C shares. This fee is computed daily and paid monthly. In
addition, the Manager may pay the distributor an up front payment of 1% on
initial Class C share purchases.
Prospectus 15
<PAGE> 19
The above-referenced fees paid to the Distributor are made under
Distribution Plans adopted pursuant to Rule 12b-1 under the 1940 Act. These
Plans authorize the Distributor to spend such fees on any activities or expenses
intended to result in the sale of A shares and C shares, including compensation
(in addition to the sales load) paid to Representatives; advertising, salaries
and other expenses of the Distributor relating to selling or servicing efforts;
expenses of organizing and conducting sales seminars; printing of prospectuses,
statements of additional information and reports for other than existing
shareholders; and preparation and distribution of advertising material and sales
literature and other sales promotion expenses. The Distributor has entered into
dealer agreements with participating dealers and/or banks who also will
distribute shares of the Fund.
If either Plan is terminated, the obligation of the Fund to make payments
to the Distributor pursuant to the Plan will cease and the Fund will not be
required to make any payment past the date the Plan terminates.
TAXES
================================================================================
THE FUND IS NOT
EXPECTED TO HAVE ANY
FEDERAL TAX LIABILITY.
HOWEVER, YOUR TAX
OBLIGATIONS ARE
DETERMINED BY YOUR
PARTICULAR TAX
CIRCUMSTANCES.
The Fund intends to qualify for treatment as a regulated investment company
under the Code. By doing so, the Fund (but not its shareholders) will be
relieved of Federal income tax on that part of its investment company taxable
income (generally consisting of net investment income, net short-term capital
gain and net gains from certain foreign currency transactions) and net capital
gain (the excess of net long-term capital gain over net short-term capital loss)
that is distributed to its shareholders. Dividends from the Fund's investment
company taxable income are taxable to shareholders as ordinary income, to the
extent of the Fund's earnings and profits, whether received in cash or in
additional Fund shares. Distributions of the Fund's net capital gain, when
designated as such, are taxable to shareholders as long-term capital gains,
whether received in cash or in additional Fund shares and regardless of the
length of time the shares have been held. A portion of the dividends paid by the
Fund, whether received in cash or in additional Fund shares, may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by the Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
WHEN YOU SELL OR
EXCHANGE SHARES IT
GENERALLY IS
CONSIDERED A TAXABLE
EVENT TO YOU.
Dividends and other distributions declared by the Fund in November or
December of any year and payable to shareholders of record on a date in one of
these months will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Shareholders receive Federal income tax information regarding
dividends and other distributions after the end of each year. The Fund is
required to withhold 31% of all dividends, capital gain distributions, and
redemption proceeds payable to individuals and certain other non-corporate
shareholders who do not provide the Fund with a correct taxpayer identification
number. Withholding at that rate also is required from dividends and capital
gain distributions payable to such shareholders who otherwise are subject to
backup withholding. When you sell or exchange shares it generally is considered
a taxable event to you.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting the Fund and its shareholders. See the SAI
for a further discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor. You therefore are urged to
consult your tax adviser.
Prospectus 16
<PAGE> 20
SHAREHOLDER INFORMATION
================================================================================
YOU MAY VOTE ON
MATTERS SUBMITTED FOR
YOUR APPROVAL. EACH
SHARE YOU OWN ENTITLES
YOU TO ONE VOTE.
Each share of the Fund gives the shareholder one vote in matters submitted
to shareholders for a vote. A shares and C shares of the Fund have equal voting
rights, except that, in matters affecting only a particular class, only shares
of that class are entitled to vote. As a Massachusetts business trust, the Fund
is not required to hold annual shareholder meetings. Shareholder approval will
be sought only for certain changes in the Fund's operation and for the election
of Trustees under certain circumstances. Trustees may be removed by the Trustees
or shareholders at a special meeting. A special meeting of shareholders shall be
called by the Trustees upon the written request of shareholders owning at least
10% of the Fund's outstanding shares.
No dealer, salesman, or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer contained in this Prospectus, and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund or the Distributor. This Prospectus does
not constitute an offering in any state in which such offering may not lawfully
be made.
Prospectus 17
<PAGE> 21
[Picture of people working and playing]
[LOGO]
HERITAGE
--------------
SERIES TRUST(TM)
----------------
From our Family to Yours:
The Intelligent Creation of Wealth
Raymond James & Associates, Inc., Distributor
Member New York Stock Exchange/81PC
P.O. Box 33022, St. Petersburg, FL 33733
813-573-8143 800-421-4184
<PAGE> 22
<TABLE>
<C> <S>
[HERITAGE FAMILY OF FUNDS LOGO] HERITAGE FAMILY OF FUNDS
Account Application
P.O. Box 33022, St. Petersburg, FL 33733
[ ] New Account [ ] Update to Existing Account # ------------------
(Indicate fund in Fund Selection section below)
</TABLE>
- --------------------------------------------------------------------------------
ACCOUNT REGISTRATION
<TABLE>
<S> <C> <C>
[ ] Corporation [ ] Gift to Minor
[ ] Individual [ ] Joint Tenant with Right of Survivorship [ ] Association, Partnership or other
[ ] Trust [ ] Foundation or Exempt Organization organization
- ----------------------------------------------------------- ---------------------------------------------
Name of account owner Social Security or Taxpayer ID #
- ----------------------------------------------------------- ---------------------------------------------
Joint owner/Trustee/Custodian Social Security or Taxpayer ID #
- ----------------------------------------------------------- ---------------------------------------------
Joint owner/Trustee Date of birth of first named owner
- ----------------------------------------------------------- ---------------------------------------------
Street address Daytime phone number
- ----------------------------------------------------------- ---------------------------------------------
Street address Are you a U.S. citizen? [ ] Yes [ ] No
If no, country of residence ----------------
- -----------------------------------------------------------
City, State and ZIP
</TABLE>
FUND SELECTION ($1,000 minimum initial investment unless participating in an
automatic investment plan)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pay
dividends Pay capital
Fund name Share class Investment amount in: gains in:
A C Shares Cash Shares Cash
Heritage Series Trust:
[ ] Small Cap Stock Fund [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Growth Equity Fund [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Value Equity Fund [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Mid Cap Growth Fund [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
Eagle International Equity
[ ] Portfolio [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
Heritage Capital Appreciation
[ ] Trust [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Heritage Income-Growth Trust [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
Heritage Income Trust:
[ ] High Yield Bond Fund [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Intermediate Government Fund [ ] [ ] $ ---------------- [ ] [ ] [ ] [ ]
Heritage Cash Trust:
[ ] Money Market Fund [ ] $ ---------------- [ ] [ ] [ ] [ ]
[ ] Municipal Money Market Fund [ ] $ ---------------- [ ] [ ] [ ] [ ]
If none checked, all
reinvested in shares.
TOTAL INVESTMENT $ ----------------
</TABLE>
<PAGE> 23
SIGNATURES AND TAXPAYER IDENTIFICATION CERTIFICATION
Each person signing on behalf of an entity represents that his/her actions are
authorized. I have received and read a current prospectus for each fund in which
I am investing and understand that its terms are incorporated by reference into
this application. I understand that certain redemptions may be subject to a
contingent deferred sales load. I agree that the Fund, Manager, Distributor and
their Trustees, directors, officers and employees will not be held liable for
any loss, liability, damage, or expense for relying upon this application or any
instructions including telephone instructions they reasonably believe are
authentic. If a taxpayer identification number is not provided and certified,
all dividends paid will be subject to 31% Federal backup withholding.
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me).
2. I am not subject to backup withholding because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
You must cross out item 2 above if you have been notified by the IRS that you
are currently subject to backup withholding because of under reporting interest
or dividends on your tax return.
<TABLE>
<S> <C>
X X
------------------------------------------------ ------------------------------------------------
Signature Date Signature Date
</TABLE>
REDUCED SALES CHARGES
STATEMENT OF INTENT
If you agree in advance to invest at least $25,000 in Heritage Mutual Funds
other than Heritage Cash Trust within 13 months, you will pay a reduced sales
charge on those investments. Investments made up to 90 days before adopting this
agreement are eligible for this discount. All prior investments can be applied
toward meeting the investment requirement.
[] I agree to invest at least the amount selected below over a 13-month period
beginning / / . I understand that an additional sales charge must
be paid if I do not complete this Statement of Intent.
[] $25,000 [] $50,000 [] $100,000 [] $250,000 [] $500,000 [] $1,000,000
RIGHT OF ACCUMULATION
If you, your spouse, or your minor children own shares in other Heritage Mutual
Funds, you may qualify for a reduced sales charge. Class A shares of Heritage
Cash Trust are not eligible unless purchased by exchange from another Heritage
Mutual Fund. These shares can be credited to a Statement of Intent.
[] I qualify for the Right of Accumulation. Please link the following Heritage
accounts.
- ----------------------------- --------------------------------
Fund/Account Number Fund/Account Number
- ----------------------------- --------------------------------
Fund/Account Number Fund/Account Number
TELEPHONE TRANSACTIONS
You may redeem shares by calling Heritage and requesting that funds be sent to
your address of record or the bank account listed in the Bank Account
Information section below. We will withdraw up to $50,000 from your account and
mail it to your address of record provided that address has not been changed in
the last 30 days.
You may also exchange between the same class shares of like-registered accounts
in any of the Heritage Mutual Funds by calling Heritage and requesting this
service. Please see the prospectus for certain requirements for exchanging
shares between funds.
If you DO NOT want to be able to process redemptions and exchanges via telephone
order, please check here: []
<PAGE> 24
DOLLAR COST AVERAGING PLANS
AUTOMATIC INVESTING
You can instruct us to transfer funds from a specified bank checking account to
your Heritage Fund account. This transfer will be effected by either an
electronic transfer or by a paper draft. Complete the Bank Account Information
section below and attach a voided check to this application.
<TABLE>
<CAPTION>
Transfer Date Frequency (check one)
Semi-
Fund Amount 5th 15th Monthly Quarterly Annually Annually
<S> <C> <C> <C> <C> <C> <C> <C>
$
- ------------------------------------- ------------------ [] [] [] [] [] []
$
- ------------------------------------- ------------------ [] [] [] [] [] []
$
- ------------------------------------- ------------------ [] [] [] [] [] []
Choose one or both
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
I authorize Heritage to draw on my bank account, by check or electronic transfer, for
ATTACH investment in a Heritage Fund. Heritage and my bank are not liable for any loss resulting
VOIDED from delays or dishonored draws. This program can be revoked by Heritage without prior
CHECK notice if any draw is dishonored. I can discontinue this program at any time.
HERE
X X
------------------------------------------- -------------------------------------------
Signature on checking account Signature on checking account
TO THE BANK NAMED BELOW:
</TABLE>
In consideration of your compliance with the request and authorization of the
depositor named above, Heritage Asset Management, Inc. agrees (1) To indemnify
and hold you harmless from any loss you may suffer as a consequence of your
actions resulting from or in connection with the execution and issuance of any
check, draft, or order, whether or not genuine, purporting to be executed and
received by you in the regular course of business under pre-authorized draft
arrangement of the Heritage Funds, including any costs or expenses reasonably
incurred in connection therewith; (2) That in the event any such check, draft,
or order shall be dishonored, whether with or without cause, and whether
intentionally or inadvertently, to indemnify you and hold you harmless from any
loss resulting from such dishonor including your costs and reasonable expenses,
except any losses due to your payment of any draw against insufficient funds;
(3) To defend at our cost and expense any action which might be brought by any
depositor or any other persons because of your actions taken pursuant to the
foregoing requests, or in any manner arising by reason of your participation in
the foregoing plan; and (4) That your participation in the plan or that of the
depositor may be terminated by notice from either party to the other.
AUTOMATIC EXCHANGE
You can instruct us to periodically exchange funds from one Heritage Mutual Fund
to a like-registered account in the same class of another Heritage Mutual Fund.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Frequency (choose one): [] Monthly [] Quarterly [] Semiannually [] Annually
Day of month (choose one): [] 1st [] 5th [] 10th [] 20th
Fund to exchange from Fund to exchange to Amount
$
- --------------------------------------- --------------------------------------- ---------------
$
- --------------------------------------- --------------------------------------- ---------------
$
- --------------------------------------- --------------------------------------- ---------------
</TABLE>
DIRECTED DIVIDENDS
You can direct the dividend payments from one Heritage Mutual Fund into a
like-registered account in the same class of another Heritage Mutual Fund. In
the Fund Selection section above, check the box for cash dividends.
<TABLE>
<S> <C> <C> <C>
From Fund To Fund
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
</TABLE>
<PAGE> 25
SYSTEMATIC WITHDRAWAL PLAN (SWP)
You can receive monthly, quarterly, semiannually, or annually checks from your
account. The checks can be sent to you at your address of record, to an account
at a bank or other financial institution, or to another person you designate.
You may send checks to more than one place. If you begin a SWP in Class C shares
of a fund, you may redeem up to 12% annually of your current account value
without incurring a contingent deferred sales load.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------- Frequency (choose one): [] Monthly
Fund for Withdrawal [] Quarterly
[] Semiannually
[] Annually
</TABLE>
Day of month (choose one): [] 1st [] 5th [] 10th [] 20th
<TABLE>
<S> <C> <C>
Send payment to: Amount
[] My address of record. $
-------------------- ------------------------------------
Payee name
[] The bank account listed in the
Bank Account Information section $
below. -------------------- ------------------------------------
Payee address
[] The payee listed at the right.
(If you have more than one
payee, please attach a separate $
sheet indicating the amount to -------------------- ------------------------------------
be sent to each.) City, State and Zip
------------------------------------
Payee account number (if applicable)
</TABLE>
BANK ACCOUNT INFORMATION
Provide bank checking account information if you are participating in an
Automatic Investment or Systematic Withdrawal Plan or if you wish for redemption
proceeds to be sent directly to your bank.
<TABLE>
<S> <C>
- ------------------------------------------------------- -----------------------------------------------
Bank name Bank account number
- ------------------------------------------------------- -----------------------------------------------
Address Bank routing (ABA) number (from your bank)
- -------------------------------------------------------
City, State and ZIP
</TABLE>
DEALER INFORMATION
We hereby authorize the Distributor to act as our agent in connection with
transactions under this authorization form and agree to notify the Distributor
of any purchases made under a Letter of Intent or Right of Accumulation. We
guarantee the signatures on this application and the legal capacity of the
signers.
If a Systematic Withdrawal Plan is being established, we believe that the amount
to be withdrawn is reasonable in light of the investor's circumstances and we
recommend establishment of the account.
<TABLE>
<S> <C> <C>
- ------------------------------------ ---------------------- -------------------------
Representative's name Branch number Representative's number
- ------------------------------------ -------------------------------------------------------
Dealer name Branch office location
- ------------------------------------ -------------------------------------------------------
Main office address Branch phone number
X
- ------------------------------------ -------------------------------------------------------
City, State and ZIP Authorized representative's signature
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HERITAGE SERIES TRUST:
MID CAP GROWTH FUND
This Statement of Additional Information ("SAI") dated September 29, 1997,
should be read with the Prospectus of the Heritage Series Trust - Mid Cap Growth
Fund (the "Fund") dated September 29, 1997. The Fund consists of two classes of
shares. This SAI is not a prospectus itself. To receive a copy of the Fund's
Prospectus, write to Heritage Asset Management, Inc. ("Heritage" or the
"Manager") at the address below or call (800) 421-4184.
HERITAGE ASSET MANAGEMENT, INC.
880 Carillon Parkway, St. Petersburg, Florida 33716
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION...........................................................1
INVESTMENT INFORMATION........................................................1
Investment Objective....................................................1
Investment Policies and Risk Factors....................................1
Industry Classifications................................................6
INVESTMENT LIMITATIONS........................................................6
Fundamental Investment Policies.........................................6
Non-Fundamental Investment Policies.....................................7
NET ASSET VALUE...............................................................8
PERFORMANCE INFORMATION.......................................................9
INVESTING IN THE FUND........................................................10
Systematic Investment Options..........................................10
Retirement Plans.......................................................10
Alternative Purchase Plans.............................................11
Class A Combined Purchase Privilege
(Right of Accumulation).............................................11
Class A Statement of Intention.........................................12
REDEEMING SHARES.............................................................13
Systematic Withdrawal Plan.............................................13
Telephone Transactions.................................................13
Redemptions in Kind....................................................14
Receiving Payment......................................................14
EXCHANGE PRIVILEGE...........................................................15
TAXES........................................................................15
FUND INFORMATION.............................................................17
Management of the Fund.................................................17
Five Percent Shareholders..............................................21
Investment Adviser and Administrator; Subadviser.......................21
Brokerage Practices....................................................22
Distribution Plans.....................................................23
Administration of the Fund.............................................25
Potential Liability....................................................25
APPENDIX....................................................................A-1
<PAGE>
GENERAL INFORMATION
- -------------------
Heritage Series Trust (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated October 28, 1992. It is
registered as an open-end diversified management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Trust consists
of five portfolios, including the Mid Cap Growth Fund, (the "Fund"). The Fund
offers two classes of shares, Class A shares sold subject to a front-end sales
load ("A shares") and Class C shares sold subject to a contingent deferred sales
load ("CDSL") ("C shares").
INVESTMENT INFORMATION
- ----------------------
Investment Objectives
---------------------
The investment objective of the Fund is stated in its Prospectus.
Investment Policies And Risk Factors
------------------------------------
The following information is in addition to and supplements the Fund's
investment policies set forth in its Prospectus.
BANKERS' ACCEPTANCES. The Fund may invest in bankers' acceptances, which
are short-term credit instruments used to finance commercial transactions.
Generally, an acceptance is a time draft drawn on a bank by an exporter or an
importer to obtain a stated amount of funds to pay for specific merchandise. The
draft is then "accepted" by a bank that, in effect, unconditionally guarantees
to pay the face value of the instrument on its maturity date. The acceptance may
then be held by the accepting bank as an asset, or it may be sold in the
secondary market at the going rate of interest for a specified maturity.
Although maturities for acceptances can be as long as 270 days, most acceptances
have maturities of six months or less.
CERTIFICATES OF DEPOSIT. The Fund may invest in bank certificates of
deposit ("CDs"). The Federal Deposit Insurance Corporation is an agency of the
U.S. Government that insures the deposits of certain banks and savings and loan
associations up to $100,000 per deposit. The interest on such deposits may not
be insured if this limit is exceeded. Current federal regulations also permit
such institutions to issue insured negotiable CDs in amounts of $100,000 or
more, without regard to the interest rate ceilings on other deposits. To remain
fully insured, these investments currently must be limited to $100,000 per
insured bank or savings and loan association. Investments in CDs are made only
with domestic institutions with assets in excess of $1 billion.
COMMERCIAL PAPER. The Fund may invest in commercial paper that is limited
to obligations rated Prime-1 or Prime-2 by Moody's Investors Service, Inc.
("Moody's") or A-1 or A-2 by Standard & Poor's Ratings Services ("S&P").
Commercial paper includes notes, drafts or similar instruments payable on demand
or having a maturity at the time of issuance not exceeding nine months,
exclusive of days of grace or any renewal thereof. See the Appendix for a
description of commercial paper ratings.
<PAGE>
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities that
are rated as investment grade (rated "BBB" or above by S&P or "Baa" or above by
Moody's) or, if unrated, are deemed to be of comparable quality by the Fund's
investment subadviser, Eagle Asset Management, Inc. ("Eagle"). The Fund also may
invest up to 5% of its assets in convertible securities that are rated below
investment (rated below "BBB" by S&P or "Baa" by Moody's) or, if unrated
securities determined to be below investment grade by Eagle, commonly referred
to as "junk bonds." See "Risk Factors of High Yield Securities" below.
Investment grade securities rated "BBB" or "Baa" are considered to have some
speculative characteristics, and changes in economic conditions are more likely
to lead to a weakened capacity to pay interest and repay principal than is the
case with higher grade securities. While no securities investment is without
some risk, investments in convertible securities generally entail less risk than
the issuer's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security. Eagle will decide to invest in
convertible securities based upon the fundamental analysis of the long-term
attractiveness of the issuer and the underlying common stock, the evaluation of
the relative attractiveness of the current price of the underlying common stock,
and the judgment of the value of the convertible security relative to the common
stock at current prices. Convertible securities in which the Fund may invest
include corporate bonds, notes and preferred stock that can be converted into
common stock. Convertible securities combine the fixed-income characteristics of
bonds and preferred stock with the potential for capital appreciation. As with
all debt securities, the market value of convertible securities tends to decline
as interest rates increase and, conversely, to increase as interest rates
decline. While convertible securities generally offer lower interest or dividend
yields than nonconvertible debt securities of similar quality, they do enable
the investor to benefit from increases in the market price of the underlying
common stock.
DEBT SECURITIES. The Fund may invest in debt securities. The market value
of debt securities is influenced primarily by changes in the level of interest
rates. Generally, as interest rates rise, the market value of debt securities
decreases. Conversely, as interest rates fall, the market value of debt
securities increases. Factors that could result in a rise in interest rates, and
a decrease in the market value of debt securities, include an increase in
inflation or inflation expectations, an increase in the rate of U.S. economic
growth, an increase in the federal budget deficit or an increase in the price of
commodities such as oil.
FOREIGN SECURITIES. The Fund may invest up to 5% of its assets in foreign
securities. Investments in securities of foreign issuers, or securities
principally traded overseas, may involve certain special risks due to foreign
economic, political and legal development, including favorable or unfavorable
changes in currency exchange rates, exchange control regulations, expropriation
of assets or nationalization, imposition of withholding taxes on dividend or
interest payments, possible difficulty in obtaining and enforcing judgments
against foreign entities. Foreign stock markets, while growing in volume and
sophistication, generally are not as developed as those in the United States,
and securities of some foreign issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of comparable
U.S. companies. Foreign settlement procedures and trade regulation may involve
certain risks (such as delay in payment or delivery of securities or in the
recovery of assets held abroad) and expenses not present in the settlement of
domestic investments. In addition, foreign brokerage commissions generally are
higher than commissions on securities traded in the United States. In general,
2
<PAGE>
there is less overall governmental supervision and regulation of securities
exchanges, brokers and listed companies than in the United States. It is
anticipated that in most cases the best available market for foreign securities
will be on exchanges or in over-the-counter markets located outside the United
States.
It is the Fund's policy not to invest in foreign securities when there are
currency or trading restrictions in force or when, in the judgment of Eagle,
such restrictions are likely to be imposed. However, certain currencies may
become blocked (I.E., not freely available for transfer from a foreign country),
resulting in the possible inability of the Fund to convert proceeds realized
upon sale of portfolio securities of the affected foreign companies into U.S.
currency.
ILLIQUID SECURITIES. The Fund will not purchase or otherwise acquire any
illiquid security if, as a result, more than 15% of its net assets (taken at
current value) would be invested in securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale. This policy includes repurchase agreements maturing in more than
seven days.
Over-the-counter ("OTC") options and their underlying collateral are
currently considered by the Securities and Exchange Commission ("SEC") staff to
be illiquid investments. The Fund may sell OTC options and, in connection
therewith, segregate assets or cover its obligations with respect to OTC options
it has written. The assets used as cover for OTC options written by the Fund
will be considered illiquid unless OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
LOANS OF PORTFOLIO SECURITIES. The Fund may loan portfolio securities to
qualified broker-dealers. The collateral for the Fund's loans will be "marked to
market" daily so that the collateral at all times exceeds 100% of the value of
the loan. The Fund may terminate such loans at any time and the market risk
applicable to any security loaned remains its risk. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the Fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by it if the holders
of such securities are asked to vote upon or consent to matters materially
affecting the investment. The Fund also may call such loans in order to sell the
securities involved. The borrower must add to the collateral whenever the market
value of the securities rises above the level of such collateral. The Fund could
incur a loss if the borrower should fail financially at a time when the value of
the loaned securities is greater than the collateral. The primary objective of
securities lending is to supplement the Fund's income through investment of the
cash collateral in short-term interest bearing obligations.
PREFERRED STOCK. The Fund may invest in preferred stock. A preferred stock
is a blend of the characteristics of a bond and common stock. It can offer the
higher yield of a bond and has priority over common stock in equity ownership,
but does not have the seniority of a bond and its participation in the issuer's
growth may be limited. Preferred stock has preference over common stock in the
receipt of dividends and in any residual assets after payment to creditors
3
<PAGE>
should the issuer be dissolved. Although the dividend is set at a fixed annual
rate, in some circumstances it can be changed or omitted by the issuer.
REAL ESTATE INVESTMENT TRUSTS ("REITS"). The Fund may invest up to 5% of
its total assets in REITs, including equity REITS, which own real estate
properties, and mortgage REITs, which make construction, development and
long-term mortgage loans. The value of an equity REIT may be affected by changes
in the value of the underlying property, while a mortgage REIT may be affected
by the quality of the credit extended. The performance of both types of REITs
depends upon conditions in the real estate industry, management skills and the
amount of cash flow. The risks associated with REITs include defaults by
borrowers, self-liquidation, failure to qualify as a pass-through entity under
the Federal tax law, failure to qualify as an exempt entity under the 1940 Act,
and the fact that REITs are not diversified.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. A
repurchase agreement is a transaction in which the Fund purchases securities and
simultaneously commits to resell the securities to the original seller (a member
bank of the Federal Reserve System or a securities dealer who is a member of a
national securities exchange or is a market maker in U.S. Government securities)
at an agreed upon date and price reflecting a market rate of interest unrelated
to the coupon rate or maturity of the purchased securities. Repurchase
agreements carry certain risks not associated with direct investments in
securities, including possible decline in the market value of the underlying
securities and costs to the Fund if the other party to the repurchase agreement
becomes bankrupt, so that the Fund is delayed or prevented from exercising its
rights to dispose of the collateral securities. With respect to the Fund, the
value of the underlying securities (or collateral) will be at least equal at all
times to the total amount of the repurchase obligation, including the interest
factor.
RISK FACTORS OF HIGH-YIELD SECURITIES. The Fund may invest up to 5% of its
assets, measured at the time of purchase, in convertible securities rated below
investment grade, I.E., rated below BBB or Baa by S&P and Moody's, respectively,
or unrated securities determined to be below investment grade by Eagle, commonly
referred to as "junk bonds." These high-yield securities are subject to certain
risks that may not be present with investments of higher grade securities. The
following supplements the disclosure in the Prospectus.
EFFECT OF INTEREST RATE AND ECONOMIC CHANGES. The prices of high-yield
securities tend to be less sensitive to interest rate changes than higher rated
investments, but may be more sensitive to adverse economic changes or individual
corporate developments. Periods of economic uncertainty and changes generally
result in increased volatility in market prices and yields of high-yield
securities and, thus, in the Fund's net asset value. A strong economic downturn
or a substantial period of rising interest rates could affect severely the
market for high-yield securities. In these circumstances, highly leveraged
companies might have difficulty in making principal and interest payments,
meeting projected business goals, and obtaining additional financing. Thus,
there could be a higher incidence of default. This would affect the value of
such securities and, thus, the Fund's net asset value. Further, if the issuer of
a security owned by the Fund defaults, it might incur additional expenses to
seek recovery.
4
<PAGE>
Generally, when interest rates rise, the value of fixed-rate debt
obligations, including high-yield securities, tends to decrease; when interest
rates fall, the value of fixed-rate debt obligations tends to increase. If an
issuer of a high-yield security containing a redemption or call provision
exercises either provision in a declining interest rate market, the Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if the Fund experiences unexpected net redemptions in
a rising interest rate market, it might be forced to sell certain securities,
regardless of investment merit. This could result in decreasing the assets to
which the Fund's expenses could be allocated and in a reduced rate of return for
it. While it is impossible to protect entirely against this risk,
diversification of the Fund's investment portfolio and Eagle's careful analysis
of prospective investment portfolio securities should minimize the impact of a
decrease in value of a particular security or group of securities in the Fund's
investment portfolio.
THE HIGH-YIELD SECURITIES MARKET. The market for below investment grade
bonds expanded rapidly in the 1980s, and its growth paralleled a long economic
expansion. During that period, the yields on below investment grade bonds rose
dramatically. Such higher yields did not reflect the value of the income stream
that holders of such bonds expected, but rather the risk that holders of such
bonds could lose a substantial portion of their value as a result of the
issuers' financial restructuring or default. In fact, from 1989 to 1991 during a
period of economic recession, the percentage of lower quality bonds that
defaulted rose significantly, although the default rate decreased in subsequent
years. There can be no assurance that such declines in the below investment
grade market will not reoccur. The market for below investment grade bonds
generally is thinner and less active than that for higher quality bonds, which
may limit the Fund's ability to sell such securities at fair value in response
to changes in the economy or financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, also may decrease the
values and liquidity of lower rated securities, especially in a thinly traded
market.
CREDIT RATINGS. The credit ratings issued by credit rating services may
not reflect fully the true risks of an investment. For example, credit ratings
typically evaluate the safety of principal and interest payments, not market
value risk, of high-yield securities. Also, credit rating agencies may fail to
change timely a credit rating to reflect changes in economic or company
conditions that affect a security's market value. Although Eagle considers
ratings of recognized rating services such as Moody's and S&P, it primarily
relies on its own credit analyses, which include a study of existing debt,
capital structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history and the current trend
of earnings. Eagle continually monitors the investments in its investment
portfolios and carefully evaluates whether to dispose of or retain high-yield
securities whose credit ratings have changed. See the Appendix for a description
of Moody's and S&P's corporate debt ratings.
LIQUIDITY AND VALUATION. Lower rated bonds typically are traded among a
smaller number of broker-dealers than in a broad secondary market. Purchasers of
high-yield securities tend to be institutions, rather than individuals, which is
a factor that further limits the secondary market. To the extent that no
established retail secondary market exists, many high-yield securities may not
be as liquid as higher grade bonds. A less active and thinner market for
high-yield securities than that available for higher quality securities may
limit the Fund's ability to sell such securities at that fair market value in
response to changes in the economy or the financial markets. The ability of the
5
<PAGE>
Fund to value or sell high-yield securities also will be affected adversely to
the extent that such securities are thinly traded or illiquid. During such
periods, there may be less reliable objective information available and thus the
responsibility of the Board to value high-yield securities becomes more
difficult, with judgment playing a greater role. Further, adverse publicity
about the economy or a particular issuer may affect adversely the public's
perception of the value, and thus liquidity of a high-yield security, whether or
not such perceptions are based on the Fundamental analysis. See "Net Asset
Value."
STANDARD AND POOR'S DEPOSITORY RECEIPTS ("SPDRS"). The Fund may invest up
to 5% of its total assets in SPDRs and other similar index securities ("Index
Securities"). Index Securities represent interests in a fixed portfolio of
common stocks designed to track the price and dividend yield performance of a
broad-based securities index, such as the Standard & Poor's 500 Composite Stock
Price Index.
U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. Government
securities, including a variety of securities that are issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agreements
secured thereby. These securities include securities issued and guaranteed by
the U.S. Government, such as Treasury bills, Treasury notes, and Treasury bonds;
obligations supported by the right of the issuer to borrow from the U.S.
Treasury, such as those of the Federal Home Loan Banks; and obligations
supported only by the credit of the issuer, such as those of the Federal
Intermediate Credit Banks.
WARRANTS. The Fund may purchase rights and warrants, which are instruments
that permit the Fund to acquire, by subscription, the capital stock of a
corporation at a set price, regardless of the market price for such stock.
Warrants may be either perpetual or of limited duration. There is a greater risk
that warrants might drop in value at a faster rate than the underlying stock.
The Fund currently does not intend to invest more than 5% of its net assets in
warrants.
Industry Classifications
------------------------
For purposes of determining industry classifications, the Fund relies upon
classifications established by Heritage or Eagle that are based upon
classifications contained in the Directory of Companies Filing Annual Reports
with the SEC and in the Standard & Poor's Corporation Industry Classifications.
INVESTMENT LIMITATIONS
- ----------------------
Fundamental Investment Policies
-------------------------------
In addition to the limits disclosed in "Investment Policies" above and the
investment limitations described in the Prospectus, the Fund is subject to the
following investment limitations that are fundamental policies and may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund. Under the 1940 Act, a "vote of a majority of the outstanding voting
securities" of the Fund means the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of the Fund or (2) 67% or more of the shares
present at a shareholders meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy.
6
<PAGE>
DIVERSIFICATION. The Fund may not invest, with respect to 75% of its total
assets, more than 5% of the Fund's assets (valued at market value) in securities
of any one issuer other than the U.S. Government or its agencies and
instrumentalities, or purchase more than 10% of the voting securities of any one
issuer.
INDUSTRY CONCENTRATION. The Funds may not purchase securities if, as a
result of such purchase, more than 25% of the value of its total assets would be
invested in any one industry.
BORROWING MONEY. The Fund may not borrow money except as a temporary
measure for extraordinary or emergency purposes. The Fund may enter into reverse
repurchase agreements in an amount up to 33 1/3% of the value of its total
assets in order to meet redemption requests without immediately selling
portfolio securities. This latter practice is not for investment leverage but
solely to facilitate management of the investment portfolio by enabling the Fund
to meet redemption requests when the liquidation of portfolio instruments would
be inconvenient or disadvantageous. However, the Fund may not purchase
additional portfolio investments once borrowed funds exceed 5% of total assets.
When effecting reverse repurchase agreements, Fund assets in an amount
sufficient to make payment for the obligations to be purchased will be
segregated by the Custodian and on the Fund's records upon execution of the
trade and maintained until the transaction has been settled. During the period
any reverse repurchase agreements are outstanding, to the extent necessary to
assure completion of the reverse repurchase agreements, the Fund will restrict
the purchase of portfolio instruments to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements. Interest paid
on borrowed funds will not be available for investment. The Fund will liquidate
any such borrowings as soon as possible and may not purchase any portfolio
instruments while any borrowings are outstanding (except as described above).
ISSUING SENIOR SECURITIES. The Fund may not issue senior securities,
except as permitted by its investment objective and policies and investment
limitations and except with respect to transactions involving options, futures
or other financial instruments.
UNDERWRITING. The Fund may not underwrite the securities of other issuers,
except that it may invest in securities that are not readily marketable without
registration under the 1933 Act, if immediately after the making of such
investment not more than 15% of the value of its net assets (taken at cost)
would be so invested.
INVESTING IN COMMODITIES, MINERALS OR REAL ESTATE. The Fund may not invest
in commodities, commodity contracts or real estate (including real estate
limited partnerships), except that it may purchase securities issued by
companies that invest in or sponsor such interests.
LOANS. The Fund may generally not make loans, except that it may make
loans under the following circumstances: (1) to the extent that the purchase of
a portion of an issue of publicly distributed notes, bonds or other evidences of
indebtedness or deposits with banks and other financial institutions may be
considered loans; (2) where the Fund may enter into repurchase agreements as
permitted under its investment policies; and (3) the Fund may make loans of
portfolio securities as described in this SAI.
7
<PAGE>
Non-Fundamental Investment Policies
-----------------------------------
The Fund has adopted the following additional restrictions which, together
with certain limits described in its Prospectus, may be changed by the Board of
Trustees without shareholder approval in compliance with applicable law,
regulation or regulatory policy.
INVESTING IN ILLIQUID SECURITIES. The Fund may not invest more than 15% of
the value of its net assets in securities that are subject to restrictions on
resale or are not readily marketable without registration under the 1933 Act and
in repurchase agreements maturing in more than seven days.
SELLING SHORT AND BUYING ON MARGIN. The Fund may not sell any securities
short or purchase any securities on margin but may obtain such short-term
credits as may be necessary for clearance of purchases and sales of securities,
and, may make short sales "against the box" and make margin deposits in
connection with its use of options, futures contracts and other financial
instruments.
INVESTING IN INVESTMENT COMPANIES. The Fund may not invest in securities
issued by other investment companies, except as permitted under the 1940 Act.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the investment, a later increase or decrease in the
percentage resulting from any change in value of net assets will not result in a
violation of such restriction.
NET ASSET VALUE
- ---------------
The net asset values of A shares and C shares are determined daily, as of
the close of regular trading every day the New York Stock Exchange (the
"Exchange") is open for trading. Net asset value for each class is calculated by
dividing the value of the total assets of the Fund attributable to that class,
less all liabilities (including accrued expenses) attributable to that class, by
the number of class shares outstanding, the result being adjusted to the nearest
whole cent. A security listed or traded on the Exchange, or other domestic or
foreign stock exchanges, is valued at its last sales price on the principal
exchange on which it is traded prior to the time when assets are valued. If no
sale is reported at that time or the security is traded in the OTC market the
most recent bid price is used. When market quotations for options and futures
positions held by the Fund are readily available, those positions will be valued
based upon such quotations. Market quotations generally will not be available
for options traded in the OTC market. Securities and other assets for which
market quotations are not readily available, or for which market quotes are not
deemed to be reliable, are valued at fair value as determined in good faith by
the Board of Trustees. Foreign securities and other assets in foreign currency
will be valued daily in U.S. dollars at the foreign currency exchange rates
prevailing at the time the Fund calculates the daily net asset value of each
class. Short-term investments having a maturity of 60 days or less are valued at
cost with accrued interest or discount earned included in interest receivable.
The Fund is open for business on days on which the Exchange is open (each
a "Business Day"). Trading in securities on European and Far Eastern securities
exchanges and OTC markets normally is completed well before the Fund's close of
8
<PAGE>
business on each Business Day. In addition, European or Far Eastern securities
trading may not take place on all Business Days. Furthermore, trading takes
place in various foreign capital markets on days that are not Business Days and
on which the Fund's net asset value is not calculated. Calculation of net asset
value of A shares and C shares does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. The Fund calculates net asset value per share and, therefore,
effect sales and redemptions, as of the close of regular trading on the Exchange
each Business Day. If events materially affecting the value of such securities
or other assets occur between the time when their prices are determined
(including their value in U.S. dollars by reference to foreign currency exchange
rates) and the time when the Fund's net asset value is calculated, such
securities and other assets will be valued at fair value by methods as
determined in good faith by or under the direction of the Board of Trustees.
The Board of Trustees may suspend the right of redemption or postpone
payment for more than seven days at times (1) during which the Exchange is
closed other than for the customary weekend and holiday closings, (2) during
which trading on the Exchange is restricted as determined by the SEC, (3) during
which an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practical for the Fund fairly to determine the value of its net assets, or (4)
for such other periods as the SEC may by order permit for the protection of the
holders of A shares and C shares.
PERFORMANCE INFORMATION
- -----------------------
The performance data for A shares and C shares of the Fund quoted in
advertising and other promotional materials represents past performance and is
not intended to indicate future performance. The investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Average annual total return quotes for
each class used in the Fund's advertising and promotional materials are
calculated according to the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period at the end of that period
In calculating the ending redeemable value for A shares, the Fund's
current maximum sales load of 4.75% is deducted from the initial $1,000 payment
and all dividends and other distributions by the Fund are assumed to have been
reinvested at net asset value on the reinvestment dates during the period. Based
on this formula, the total return, or "T" in the formula above, is computed by
finding the average annual compounded rates of return over the period that would
equate the initial amount invested to the ending redeemable value.
In connection with communicating its total return to current or
prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
9
<PAGE>
other unmanaged indexes that may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs. In addition,
the Fund may from time to time include in advertising and promotional materials
total return figures that are not calculated according to the formula set forth
above for each class of shares. For example, in comparing the Fund's aggregate
total return with data published by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc., or with such market indices as the Dow Jones
Industrial Average, the Standard & Poor's 500 Composite Stock Price Index and
the Standard & Poor's Midcap 400 Index, the Fund calculates its cumulative total
return for each class for the specified periods of time by assuming an
investment of $10,000 in that class of shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the beginning
value. The Fund does not, for these purposes, deduct from the initial value
invested any amount representing front-end sales loads charged on A shares or
CDSLs charged on C shares.
By not annualizing the performance and excluding the effect of the
front-end sales load on A shares and the CDSL on C shares, the total return
calculated in this manner simply will reflect the increase in net asset value
per share over a period of time, adjusted for dividends and other distributions.
Calculating total return without taking into account the sales load or CDSL
results in a higher rate of return than calculating total return net of the
front-end sales load.
INVESTING IN THE FUND
- ---------------------
A shares and C shares are sold at their next determined net asset value on
each Business Day. The procedures for purchasing shares of the Fund are
explained in its Prospectus under "Purchase Procedures."
Systematic Investment Options
-----------------------------
1. Systematic Investing -- You may authorize Heritage to process a monthly
draft from your personal checking account for investment into the Fund.
2. Payroll Direct Deposit -- If your employer participates in a direct
deposit program (also known as ACH Deposits) you may have all or a portion of
your payroll directed to the Fund. This will generate a purchase transaction
each time you are paid by your employer. Your employer will report to you the
amount sent from each paycheck.
3. Government Direct Deposit -- If you receive a qualifying periodic
payment from the U.S. Government or other agency that participates in Direct
Deposit, you may have all or a part of each check directed to purchase shares of
the Fund. The U.S. Government or agency will report to you all payments made.
4. Automatic Exchange -- If you own shares of another Heritage mutual fund
advised or administered by Heritage ("Heritage Mutual Fund"), you may elect to
have a preset amount redeemed from that fund and exchanged into the
corresponding class of shares of the Fund. You will receive a statement from the
other Heritage Mutual Fund confirming the redemption.
You may change or terminate any of the above options at any time.
10
<PAGE>
Retirement Plans
----------------
HERITAGE IRA. Individuals who earn compensation and who have not reached
age 70 1/2 before the close of the year generally may establish a Heritage IRA.
An individual may make limited contributions to a Heritage IRA through the
purchase of shares of the Fund and/or other Heritage Mutual Funds. The Internal
Revenue Code of 1986, as amended (the "Code"), limits the deductibility of IRA
contributions to taxpayers who are not active participants (and whose spouses
are not active participants) in employer-provided retirement plans or who have
adjusted gross income below certain levels. Nevertheless, the Code permits other
individuals to make nondeductible IRA contributions up to $2,000 per year (or
$4,000, if such contributions also are made for a nonworking spouse and a joint
return is filed). A Heritage IRA also may be used for certain "rollovers" from
qualified benefit plans and from Section 403(b) annuity plans. For more detailed
information on the Heritage IRA, please contact Heritage.
Fund shares may be used as the investment medium for qualified plans
(defined benefit or defined contribution plans established by corporations,
partnerships or sole proprietorships). Contributions to qualified plans may be
made (within certain limits) on behalf of the employees, including
owner-employees, of the sponsoring entity.
OTHER RETIREMENT PLANS. Multiple participant payroll deduction retirement
plans also may purchase A shares of any Heritage Mutual Fund at a reduced sales
load on a monthly basis during the 13-month period following such a plan's
initial purchase. The sales load applicable to an initial purchase of A shares
will be that normally applicable under the schedule of sales loads set forth in
the prospectus to an investment 13 times larger than such initial purchase. The
sales load applicable to each succeeding monthly purchase of A shares will be
that normally applicable, under such schedule, to an investment equal to the sum
of (1) the total purchase previously made during the 13-month period and (2) the
current month's purchase multiplied by the number of months (including the
current month) remaining in the 13-month period. Sales loads previously paid
during such period will not be adjusted retroactively on the basis of later
purchases. Multiple participant payroll deduction retirement plans may purchase
C shares at any time.
Alternative Purchase Plans
--------------------------
A shares are sold at their next determined net asset value plus a
front-end sales load on days the Exchange is open for business. C shares are
sold at their next determined net asset value on days the Exchange is open for
business, subject to a 1% CDSL if the investor redeems such shares in less than
one year of purchase. Heritage, as the Fund's transfer agent, will establish an
account with the Fund and will transfer funds to the Custodian. Normally, orders
will be accepted upon receipt of funds and will be executed at the net asset
value determined as of the close of regular trading on the Exchange on that day
plus any applicable sales load. See "Choosing a Class of Shares" in the
Prospectus. The Funds reserves the right to reject any order for Fund shares.
The Fund's distributor, Raymond James & Associates, Inc. ("RJA" or the
"Distributor"), has agreed that it will hold the Fund harmless in the event of
loss as a result of cancellation of trades in Fund shares by the Distributor,
its affiliates or its customers.
11
<PAGE>
Class A Combined Purchase Privilege (Right Of Accumulation)
-----------------------------------------------------------
Certain investors may qualify for the Class A sales load reductions
indicated in the sales load schedule in the Prospectus by combining purchases of
A shares into a single "purchase," if the resulting purchase totals at least
$25,000. The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases that, in the aggregate, are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing A shares for his or their own account; a single
purchase by a trustee or other fiduciary purchasing A shares for a single trust,
estate or single fiduciary account although more than one beneficiary is
involved; or a single purchase for the employee benefit plans of a single
employer. The term "purchase" also includes purchases by a "company," as the
term is defined in the 1940 Act, but does not include purchases by any such
company that has not been in existence for at least six months or that has no
purpose other than the purchase of A shares or shares of other registered
investment companies at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit card holders of a company, policy holders of
an insurance company, customers of either a bank or broker-dealer, or clients of
an investment adviser. A "purchase" also may include A shares purchased at the
same time through a single selected dealer of any other Heritage Mutual Fund
that distributes its shares subject to a sales load.
The applicable A shares initial sales load will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the previous
day) of (a) all A shares of the Fund held by the investor and (b) all A shares
of any other Heritage Mutual Fund held by the investor and purchased at a time
when A shares of such other fund were distributed subject to a sales load
(including Heritage Cash Trust shares acquired by exchange); and
(iii) the net asset value of all A shares described in paragraph
(ii) owned by another shareholder eligible to combine his purchase with that of
the investor into a single "purchase."
A shares of Heritage Income Trust-Intermediate Government Fund
("Intermediate Government") purchased from February 1, 1992 through July 31,
1992, without payment of a sales load will be deemed to fall under the
provisions of paragraph (ii) as if they had been distributed without being
subject to a sales load, unless those shares were acquired through an exchange
of other shares that were subject to a sales load.
To qualify for the Combined Purchase Privilege on a purchase through a
selected dealer, the investor or selected dealer must provide the Distributor
with sufficient information to verify that each purchase qualifies for the
privilege or discount.
Class A Statement Of Intention
------------------------------
Investors also may obtain the reduced sales loads shown in the Fund's
Prospectus by means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $25,000 within a period of 13
12
<PAGE>
months in A shares of the Fund or any other Heritage Mutual Fund. Each purchase
of A shares under a Statement of Intention will be made at the public offering
price or prices applicable at the time of such purchase to a single transaction
of the dollar amount indicated in the Statement. In addition, if you own Class A
shares of any other Heritage Mutual Fund subject to a sales load, you may
include those shares in computing the amount necessary to qualify for a sales
load reduction.
The Statement of Intention is not a binding obligation upon the investor
to purchase the full amount indicated. The minimum initial investment under a
Statement of Intention is 5% of such amount. A shares purchased with the first
5% of such amount will be held in escrow (while remaining registered in the name
of the investor) to secure payment of the higher sales load applicable to the
shares actually purchased if the full amount indicated is not purchased, and
such escrowed A shares will be redeemed involuntarily to pay the additional
sales load, if necessary. When the full amount indicated has been purchased, the
escrow will be released. To the extent an investor purchases more than the
dollar amount indicated on the Statement of Intention and qualifies for a
further reduced sales load, the sales load will be adjusted for the entire
amount purchased at the end of the 13-month period. The difference in sales load
will be used to purchase additional A shares of the Fund subject to the rate of
sales load applicable to the actual amount of the aggregate purchases. An
investor may amend his/her Statement of Intention to increase the indicated
dollar amount and begin a new 13-month period. In that case, all investments
subsequent to the amendment will be made at the sales load in effect for the
higher amount. The escrow procedures discussed above will apply.
REDEEMING SHARES
- ----------------
The methods of redemption are described in the section of the
Prospectus entitled "How to Redeem Shares."
Systematic Withdrawal Plan
--------------------------
Shareholders may elect to make systematic withdrawals from the Fund
account of a minimum of $50 on a periodic basis. The amounts paid each period
are obtained by redeeming sufficient shares from an account to provide the
withdrawal amount specified. The Systematic Withdrawal Plan currently is not
available for shares held in an individual retirement account, Section 403(b)
annuity plan, defined contribution plan, simplified employee pension plan, or
other retirement plans, unless the shareholder establishes to Heritage's
satisfaction that withdrawals from such an account may be made without
imposition of a penalty. Shareholders may change the amount to be paid without
charge not more than once a year by written notice to the Distributor or
Heritage.
Redemptions will be made at net asset value determined as of the close of
regular trading on the Exchange on a day of each month chosen by the
shareholders or a day of the last month of each period chosen by the
shareholders, whichever is applicable. Systematic withdrawals of C shares, if
made in less than one year of the date of purchase, will be charged a CDSL of
1%. If the Exchange is not open for business on that day, the shares will be
redeemed at net asset value determined as of the close of regular trading on the
Exchange on the preceding Business Day, minus any applicable CDSL for C shares.
The check for the withdrawal payment usually will be mailed on the next Business
Day following redemption. If a shareholder elects to participate in the
Systematic Withdrawal Plan, dividends and other distributions on all shares in
13
<PAGE>
the account must be reinvested automatically in Fund shares. A shareholder may
terminate the Systematic Withdrawal Plan at any time without charge or penalty
by giving written notice to Heritage or the Distributor. The Fund, and the
transfer agent and Distributor also reserve the right to modify or terminate the
Systematic Withdrawal Plan at any time.
Withdrawal payments are treated as a sale of shares rather than as a
dividend or a capital gain distribution. These payments are taxable to the
extent that the total amount of the payments exceeds the tax basis of the shares
sold. If the periodic withdrawals exceed reinvested dividends and other
distributions, the amount of the original investment may be correspondingly
reduced.
Ordinarily, a shareholder should not purchase additional A shares of the
Fund if maintaining a Systematic Withdrawal Plan of A shares because the
shareholder may incur tax liabilities in connection with such purchases and
withdrawals. The Fund will not knowingly accept purchase orders from
shareholders for additional A shares if they maintain a Systematic Withdrawal
Plan unless the purchase is equal to at least one year's scheduled withdrawals.
In addition, a shareholder who maintains such a Plan may not make periodic
investments under the Fund's Automatic Investment Plan.
Telephone Transactions
----------------------
Shareholders may redeem shares by placing a telephone request to the Fund.
The Fund, Heritage, Eagle, the Distributor and their Trustees, directors,
officers and employees are not liable for any loss arising out of telephone
instructions they reasonably believe are authentic. In acting upon telephone
instructions, these parties use procedures that are reasonably designed to
ensure that such instructions are genuine, such as (1) obtaining some or all of
the following information: account number, name(s) and social security number
registered to the account, and personal identification; (2) recording all
telephone transactions; and (3) sending written confirmation of each transaction
to the registered owner. If the Fund, Heritage, Eagle, the Distributor and their
Trustees, directors, officers and employees do not follow reasonable procedures,
some or all of them may be liable for any such losses.
Redemptions In Kind
-------------------
The Fund is obligated to redeem shares for any shareholder for cash during
any 90-day period up to $250,000 or 1% of its net asset value, whichever is
less. Any redemption beyond this amount also will be in cash unless the Board of
Trustees determine that further cash payments will have a material adverse
effect on remaining shareholders. In such a case, the Fund will pay all or a
portion of the remainder of the redemption in portfolio instruments, valued in
the same way as the Fund determines net asset value. The portfolio instruments
will be selected in a manner that the Board of Trustees deem fair and equitable.
A redemption in kind is not as liquid as a cash redemption. If a redemption is
made in kind, a shareholder receiving portfolio instruments could receive less
than the redemption value thereof and could incur certain transaction costs.
14
<PAGE>
Receiving Payment
-----------------
If a request for redemption is received by the Fund in good order (as
described in the Prospectus) before the close of regular trading on the
Exchange, the shares will be redeemed at the net asset value per share
determined at such close, minus any applicable CDSL for C shares. Requests for
redemption received by the Fund after the close of regular trading on the
Exchange will be executed at the net asset value determined as of the close of
such trading on the next trading day, minus any applicable CDSL for C shares.
If shares of the Fund are redeemed by a shareholder through the
Distributor or a participating dealer, the redemption is settled with the
shareholder as an ordinary transaction. If a request for redemption is received
before the close of regular trading on the Exchange, shares will be redeemed at
the net asset value per share determined on that day, minus any applicable CDSL
for C shares. Requests for redemption received after the close of regular
trading on the Exchange will be executed on the next trading day. Payment for
shares redeemed normally will be made by the Fund to the Distributor or a
participating dealer by the third business day after the day the redemption
request was made, provided that certificates for shares have been delivered in
proper form for transfer to the Fund, or if no certificates have been issued, a
written request signed by the shareholder has been provided to the Distributor
or a participating dealer prior to settlement date.
Other supporting legal documents may be required from corporations or
other organizations, fiduciaries or persons other than the shareholder of record
making the request for redemption. Questions concerning the redemption of Fund
shares can be directed to registered representatives of the Distributor or a
participating dealer, or to Heritage.
EXCHANGE PRIVILEGE
- ------------------
Shareholders who have held Fund shares for at least 30 days may exchange
some or all of their A shares or C shares for corresponding classes of shares of
any other Heritage Mutual Fund. All exchanges will be based on the respective
net asset values of the Heritage Mutual Funds involved. An exchange is effected
through the redemption of the shares tendered for exchange and the purchase of
shares being acquired at their respective net asset values as next determined
following receipt by the Heritage Mutual Fund whose shares are being exchanged
of (1) proper instructions and all necessary supporting documents as described
in such fund's prospectus, or (2) a telephone request for such exchange in
accordance with the procedures set forth in the Prospectus and below.
A shares of Intermediate Government purchased from February 1, 1992
through July 31, 1992, without payment of an initial sales load may be exchanged
into A shares of the Fund without payment of any sales load. A shares of
Intermediate Government purchased after July 31, 1992 without an initial sales
load will be subject to a sales load when exchanged into A shares of the Fund,
unless those shares were acquired through an exchange of other A shares that
were subject to an initial sales load.
Shares acquired pursuant to a telephone request for exchange will be held
under the same account registration as the shares redeemed through such
exchange. For a discussion of limitation of liability of certain entities, see
"Telephone Transactions" above.
15
<PAGE>
Telephone exchanges can be effected by calling Heritage at (800) 421-4184
or by calling a registered representative of the Distributor, a participating
dealer or participating bank ("Representative"). In the event that a shareholder
or his Representative is unable to reach Heritage by telephone, a telephone
exchange can be effected by sending a telegram to Heritage Asset Management,
Inc. Telephone or telegram requests for an exchange received by the Fund before
the close of regular trading on the Exchange will be effected at the close of
regular trading on that day. Requests for an exchange received after the close
of regular trading will be effected on the Exchange's next trading day. Due to
the volume of calls or other unusual circumstances, telephone exchanges may be
difficult to implement during certain time periods.
TAXES
- -----
GENERAL. The Fund is treated as a separate corporation for Federal income
tax purposes. In order to qualify for the favorable tax treatment as a regulated
investment company ("RIC") under the Code, the Fund must distribute annually to
its shareholders at least 90% of its investment company taxable income
(generally consisting of net investment income, net short-term capital gain and
net gains from certain foreign currency transactions) ("Distribution
Requirement") and must meet several additional requirements. These requirements
include the following: (1) the Fund must derive at least 90% of its gross income
each taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures or forward
currency contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) the Fund must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of securities, or any of the following, that were held for less than
three months -- options or futures (other than those on foreign currencies), or
foreign currencies (or options, futures or forward contracts thereon) that are
not directly related to the Fund's principal business of investing in securities
(or options and futures with respect thereto) ("Short-Short Limitation"); (3) at
the close of each quarter of the Fund's taxable year, at least 50% of the value
of its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with those other
securities limited, in respect of any one issuer, to an amount that does not
exceed 5% of the value of the Fund's total assets and that does not represent
more than 10% of the issuer's outstanding voting securities; and (4) at the
close of each quarter of the Fund's taxable year, not more than 25% of the value
of its total assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and its capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
A redemption of Fund shares will result in a taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds are more or
less than the shareholder's adjusted basis for the redeemed shares (which
normally includes any sales load paid on A shares). An exchange of Fund shares
for shares of another Heritage Mutual Fund (including the other Fund) generally
16
<PAGE>
will have similar tax consequences. However, special rules apply when a
shareholder disposes of A shares of the Fund through a redemption or exchange
within 90 days after purchase thereof and subsequently reacquires A shares of
the Fund or acquires A shares of another Heritage Mutual Fund without paying a
sales load due to the 90-day reinstatement or exchange privilege. In these
cases, any gain on the disposition of the original A shares will be increased,
or loss decreased, by the amount of the sales load paid when those shares were
acquired, and that amount will increase the adjusted basis of the shares
subsequently acquired. In addition, if Fund shares are purchased (whether
pursuant to the reinstatement privilege or otherwise) within 30 days before or
after redeeming other shares of the Fund (regardless of class) at a loss, all or
a portion of that loss will not be deductible and will increase the basis of the
newly purchased shares.
If shares of the Fund are sold at a loss after being held for six months
or less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for a dividend or other distribution, the shareholder will pay full
price for the shares and receive some portion of the price back as a taxable
distribution.
INCOME FROM FOREIGN SECURITIES. Dividends and interest received by the
Fund may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions ("foreign taxes") that would reduce the yield on
its securities. Tax conventions between certain countries and the United States
may reduce or eliminate these foreign taxes, however, and many foreign countries
do not impose taxes on capital gains in respect of investments by foreign
investors.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, the Fund will be subject to
Federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain on disposition of the stock (collectively "PFIC
income"), plus interest thereon, even if the Fund distributes the PFIC income as
a taxable dividend to its shareholders. The balance of the PFIC income will be
included in the Fund's investment company taxable income and, accordingly, will
not be taxable to it to the extent that income is distributed to its
shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF") then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) -- which
most likely would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not distributed to the Fund by the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Pursuant to proposed regulations, open-end RICs, such as the Funds would
be entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each taxable
17
<PAGE>
year the excess, as of the end of that year, of the fair market value of each
such PFIC's stock over the adjusted basis in that stock (including
mark-to-market gain for each prior year for which an election was in effect).
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
dates of acquisition and disposition of the securities, and (3) that are
attributable to fluctuations in exchange rates that occur between the time the
Fund accrues dividends, interest or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses, referred to under the
Code as "section 988" gains or losses, may increase or decrease the amount of
the Fund's investment company taxable income to be distributed to its
shareholders.
Investors are advised to consult their own tax advisers regarding the
status of an investment in the Fund under state and local tax laws.
FUND INFORMATION
- ----------------
Management Of The Fund
----------------------
TRUSTEES AND OFFICERS. Trustees and officers are listed below with their
addresses, principal occupations and present positions, including any
affiliation with Raymond James Financial, Inc. ("RJF"), RJA, Heritage and Eagle.
<TABLE>
<CAPTION>
Position with Principal Occupation
Name the Trust During Past Five Years
- ---- ------------- ----------------------
<S> <C> <C>
Thomas A. James* Trustee Chairman of the Board since 1986 and Chief
880 Carillon Parkway Executive since 1969 of RJF; Chairman of
St. Petersburg, FL 33716 the Board of RJA since 1986; Chairman of
the Board of Eagle since 1984 and Chief
Executive Officer of Eagle, 1994 to 1996.
Richard K. Riess* Trustee Chief Executive Officer of Eagle since
880 Carillon Parkway 1996, President, 1995 to present, Chief
St. Petersburg, FL 33716 Operating Officer, 1988 to 1996, Executive
Vice President, 1988 to 1993.
Donald W. Burton Trustee President of South Atlantic Capital
614 W. Bay Street Corporation (venture capital) since 1981.
Suite 200
Tampa, FL 33606
18
<PAGE>
Position with Principal Occupation
Name the Trust During Past Five Years
- ---- ------------- ----------------------
C. Andrew Graham Trustee Vice President of Financial Designs Ltd.
Financial Designs, Ltd. since 1992; Executive Vice President of
1775 Sherman Street the Madison Group, Inc., 1991 to 1992;
Suite 1900 Principal of First Denver Financial
Denver, CO 80203 Corporation (investment banking) since
1987.
David M. Phillips Trustee Chairman and Chief Executive Officer of
World Trade Center Chicago CCC Information Services, Inc. since 1994
444 Merchandise Mart and of InfoVest Corporation (information
Chicago, IL 60654 services to the insurance and auto
industries and consumer households) since
1982.
Eric Stattin Trustee Litigation Consultant/Expert Witness and
1975 Evening Star Drive private investor since 1988.
Park City, UT 84060
James L. Pappas Trustee Lykes Professor of Banking and Finance
University of South Florida since 1986 at University of South Florida;
College of Business Dean of College of Business Administration
Administration 1987 to 1996.
Tampa, FL 33620
Stephen G. Hill President Chief Executive Officer and President of
880 Carillon Parkway Heritage since 1989 and Director since
St. Petersburg, FL 33716 1994; Director of Eagle since 1995.
Donald H. Glassman Treasurer Treasurer of Heritage since 1989; Treasurer
880 Carillon Parkway of Heritage Mutual Funds since 1989.
St. Petersburg, FL 33716
Clifford J. Alexander Secretary Partner, Kirkpatrick & Lockhart LLP (law
1800 Massachusetts Ave., NW firm).
Washington, DC 20036
Patricia Schneider Assistant Compliance Administrator of Heritage.
880 Carillon Parkway Secretary
St. Petersburg, FL 33716
Robert J. Zutz Assistant Partner, Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave. NW Secretary (law firm).
Washington, DC 20036
</TABLE>
19
<PAGE>
* These Trustees are "interested persons" as defined in section
2(a)(19) of the 1940 Act.
The Trustees and officers of the Trust, as a group, own less than 1% of
the Fund's shares outstanding. The Trust's Declaration of Trust provides that
the Trustees will not be liable for errors of judgment or mistakes of fact or
law. However, they are not protected against any liability to which they would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
office.
The Trust currently pays Trustees who are not "interested persons" of the
Trust $2,908 annually and $728 per meeting of the Board of Trustees. Trustees
also are reimbursed for any expenses incurred in attending meetings. Because
Heritage performs substantially all of the services necessary for the operation
of the Fund, the Fund requires no employees. No officer, director or employee of
Heritage receives any compensation from the Fund for acting as a director or
officer. The following table shows the compensation earned by each Trustee for
the fiscal year ended October 31, 1996.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or Total Compensation
Aggregate Retirement Benefits From the Trust and
Compensation Accrued as Part Estimated Annual the Heritage Family
Name of Person, From the of the Benefits Upon of Funds Paid
Position Trust Trust's Expenses Retirement to Trustees
- -------------- ------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Donald W. $5,820 $0 $0 $17,000
Burton, Trustee
C. Andrew $5,820 $0 $0 $17,000
Graham, Trustee
David M. $5,092 $0 $0 $15,000
Phillips,
Trustee
Eric Stattin, $5,820 $0 $0 $17,000
Trustee
James L. $5,820 $0 $0 $17,000
Pappas,
Trustee
Richard K. $0 $0 $0 $0
Riess,
Trustee
Thomas A. James, $0 $0 $0 $0
Trustee
</TABLE>
20
<PAGE>
Five Percent Shareholders
-------------------------
As of September 29, 1997, Heritage is the sole shareholder of record of
the Fund.
Investment Adviser And Administrator; Subadviser
------------------------------------------------
The investment adviser and administrator for the Fund is Heritage Asset
Management, Inc. Heritage was organized as a Florida corporation in 1985. All
the capital stock of Heritage is owned by RJF, which is a holding company that,
through its subsidiaries, is engaged primarily in providing customers with a
wide variety of financial services in connection with securities, limited
partnerships, options, investment banking and related fields.
Heritage is responsible for overseeing the Fund's investment and
noninvestment affairs, subject to the control and direction of the Board. The
Trust, on behalf of the Fund, entered into an Investment Advisory and
Administration Agreement with Heritage dated March 29, 1993 and supplemented on
September 29, 1997, to include the Fund ("Advisory Agreement"). The Advisory
Agreement requires that Heritage review and establish investment policies for
the Fund and administer the Fund's noninvestment affairs.
Under a Subadvisory Agreement, Eagle provides investment advice and
portfolio management services, subject to direction by Heritage and the Board of
Trustees, to the Fund for a fee payable by Heritage ("Subadvisory Agreement").
Eagle was organized as a Florida corporation in 1976 and also is a wholly owned
subsidiary of RJF.
Heritage also is obligated to furnish the Fund with office space,
administrative, and certain other services as well as executive and other
personnel necessary for the operation of the Fund. Heritage and its affiliates
also pay all the compensation of Trustees of the Trust who are employees of
Heritage and its affiliates. The Fund pays all its other expenses that are not
assumed by Heritage. The Fund also is liable for such nonrecurring expenses as
may arise, including litigation to which the Fund may be a party. The Fund also
may have an obligation to indemnify its Trustees and officers with respect to
any such litigation.
The Advisory Agreement and the Subadvisory Agreement each were approved by
the Board of Trustees (including all of the Trustees who are not "interested
persons" of Heritage or Eagle, as defined under the 1940 Act) and by the
shareholders of the Trust in compliance with the 1940 Act. Each Agreement will
continue in force for a period of two years unless its continuance is approved
at least annually thereafter by (1) a vote, cast in person at a meeting called
for that purpose, of a majority of those Trustees who are not "interested
persons" of Heritage, Eagle or the Trust, and by (2) the majority vote of either
the full Board of Trustees or the vote of a majority of the outstanding shares
of the Fund. The Advisory and Subadvisory Agreements each automatically
terminates on assignment, and each is terminable on not more than 60 days'
written notice by the Trust to either party. In addition, the Advisory Agreement
may be terminated on not less than 60 days' written notice by Heritage to the
Fund and the Subadvisory Agreement may be terminated on not less than 60 days'
written notice by Heritage or 90 days' written notice by Eagle. Under the terms
of the Advisory Agreement, Heritage automatically become responsible for the
obligations of Eagle upon termination of the Subadvisory Agreement. In the event
Heritage ceases to be the investment adviser the Fund or the Distributor ceases
to be principal distributor of shares of the Fund, the right of the Fund to use
the identifying name of "Heritage" may be withdrawn.
21
<PAGE>
Heritage and Eagle shall not be liable to the Fund or any shareholder for
anything done or omitted by them, except acts or omissions involving willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
imposed upon them by their agreements with the Fund or for any losses that may
be sustained in the purchase, holding or sale of any security.
All of the officers of the Fund except for Messrs. Alexander and Zutz
are officers or directors of Heritage or its affiliates. These relationships
are described under "Management of the Fund."
ADVISORY AND ADMINISTRATION FEE. The annual investment advisory fee paid
monthly by the Fund to Heritage is based on the Fund's average daily net assets
as listed in its Prospectus.
For the Fund, Heritage has voluntarily agreed to waive its management fees
to the extent that annual operating expenses attributable to A shares exceed
1.60% of the average daily net assets or to the extent that annual operating
expenses attributable to C shares exceed 2.35% of average daily net assets
attributable to that class during this fiscal year.
Heritage has entered into an agreement with Eagle to provide investment
advice and portfolio management services to the Fund for a fee paid by Heritage
to Eagle equal to 50% of the fees payable to Heritage by the Fund, without
regard to any reduction in fees actually paid to Heritage as a result of
voluntary fee waivers by Heritage.
CLASS-SPECIFIC EXPENSES. The Fund may determine to allocate certain of its
expenses (in addition to distribution fees) to the specific classes of the
Fund's shares to which those expenses are attributable.
Brokerage Practices
-------------------
While the Fund generally purchases securities for long-term capital gains,
it may engage in short-term transactions under various market conditions to a
greater extent than certain other mutual funds with similar investment
objectives. Thus, the turnover rate may vary greatly from year to year or during
periods within a year. The Fund's portfolio turnover rate is computed by
dividing the lesser of purchases or sales of securities for the period by the
average value of portfolio securities for that period. The Fund's portfolio
turnover rate is expected to be 100%.
Eagle is responsible for the execution of the Fund's portfolio
transactions and must seek the most favorable price and execution for such
transactions. Best execution, however, does not mean that the Fund necessarily
will be paying the lowest commission or spread available. Rather, the Fund also
will take into account such factors as size of the order, difficulty of
execution, efficiency of the executing broker's facilities, and any risk assumed
by the executing broker.
It is a common practice in the investment advisory business for advisers
of investment companies and other institutional investors to receive research,
22
<PAGE>
statistical and quotation services from broker-dealers who execute portfolio
transactions for the clients of such advisers. Consistent with the policy of
most favorable price and execution, Eagle may give consideration to research,
statistical and other services furnished by brokers or dealers. In addition,
Eagle may place orders with brokers who provide supplemental investment and
market research and securities and economic analysis and may pay to these
brokers a higher brokerage commission or spread than may be charged by other
brokers, provided that Eagle determines in good faith that such commission is
reasonable in relation to the value of brokerage and research services provided.
Such research and analysis may be useful to Eagle in connection with services to
clients other than the Fund.
The Fund generally uses the Distributor, its affiliates or certain
affiliates of Heritage as a broker for agency transactions in listed and OTC
securities at commission rates and under circumstances consistent with the
policy of best execution. Commissions paid to the Distributor, its affiliates or
certain affiliates of Heritage will not exceed "usual and customary brokerage
commissions." Rule l7e-1 under the 1940 Act defines "usual and customary"
commissions to include amounts that are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time."
Eagle also may select other brokers to execute portfolio transactions. In
the OTC market, the Fund generally deals with primary market makers unless a
more favorable execution can otherwise be obtained.
The Fund may not buy securities from, or sell securities to, the
Distributor as principal. However, the Board of Trustees has adopted procedures
in conformity with Rule 10f-3 under the 1940 Act whereby the Fund may purchase
securities that are offered in underwritings in which the Distributor is a
participant. The Board of Trustees will consider the possibilities of seeking to
recapture for the benefit of expenses to the Fund of certain portfolio
transactions, such as underwriting commissions and tender offer solicitation
fees, by conducting such portfolio transactions through affiliated entities,
including the Distributor, but only to the extent such recapture would be
permissible under applicable regulations, including the rules of the National
Association of Securities Dealers, Inc.
and other self-regulatory organizations.
Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as
amended, the Fund consented to the Distributor executing transactions on an
exchange on its behalf.
Distribution Plans
------------------
The Distributor and Representatives with whom the Distributor has entered
into dealer agreements offer shares of the Fund as agents on a best efforts
basis and are not obligated to sell any specific amount of shares. In this
connection, the Distributor makes distribution and servicing payments to
participating dealers in connection with the sale of shares of the Fund.
Pursuant to the Distribution Agreement with the Trust on behalf of the Fund with
respect to A shares and C shares, the Distributor bears the cost of making
information about the Fund available through advertising, sales literature and
other means, the cost of printing and mailing prospectuses to persons other than
shareholders, and salaries and other expenses relating to selling efforts. The
Distributor also pays service fees to dealers for providing personal services to
23
<PAGE>
Class A and C shareholders and for maintaining shareholder accounts. The Fund
pays the cost of registering and qualifying its shares under state and federal
securities laws and typesetting of its prospectuses and printing and
distributing prospectuses to existing shareholders.
The Fund has adopted a Class A Distribution Plan (the "Class A Plan")
which, among other things, permits it to pay the Distributor the monthly
distribution and service fee out of its net assets to finance activity that is
intended to result in the sale and retention of A shares. The Class A Plan was
approved by the Board of Trustees, including a majority of the Trustees who are
not interested persons of the Fund (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Plan or the
Distribution Agreement (the "Independent Trustees"), after determining that
there is a reasonable likelihood that the Fund and its Class A shareholders will
benefit from the Class A Plan.
The Fund also has adopted a Class C Distribution Plan (the "Class C Plan")
which, among other things, permits it to pay the Distributor the monthly
distribution and service fee out of its net assets to finance activity that is
intended to result in the sale and retention of C shares. The Distributor, on C
shares, may retain the first 12 months distribution fee for reimbursement of
amounts paid to the broker-dealer at the time of purchase. The Class C Plan was
approved by the Board of Trustees, including a majority of the Independent
Trustees, after determining that there is a reasonable likelihood that the Fund
and its Class C shareholders will benefit from the Class C Plan.
The Class A Plan and the Class C Plan each may be terminated by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities of a class of the Fund. The Board of Trustees
reviews quarterly a written report of Plan costs and the purposes for which such
costs have been incurred. A Plan may be amended by vote of the Board, including
a majority of the Independent Trustees, cast in person at a meeting called for
such purpose. Any change in a Plan that would increase materially the
distribution cost to a class requires shareholder approval of that class.
As compensation for the services provided and expenses borne by the
Distributor pursuant to the Distribution Agreement with respect to A shares, the
Fund pays the Distributor the sales load described in its Prospectus and may pay
a 12b-1 fee in an amount up to .35% of the Fund's average daily net assets in
accordance with the Class A Plan described below. The distribution fee is
accrued daily and paid monthly, and currently is equal on an annual basis to
.25% of average daily net assets for the Fund. The Distributor may use this fee
as a service fee to compensate participating dealers for services performed
incidental to the maintenance of shareholder accounts.
As compensation for the services provided and expenses borne by the
Distributor pursuant to the Distribution Agreement with respect to C shares, the
Fund pays the Distributor a distribution fee in accordance with the Class C Plan
described below. The distribution fee is accrued daily and paid monthly, and
currently is equal on an annual basis to .75% of average daily net assets. The
service fee is accrued daily and paid monthly, and currently is equal on an
annual basis to .25% of average daily net assets.
24
<PAGE>
The Distribution Agreement may be terminated at any time on 60 days'
written notice without payment of any penalty by either party. The Fund may
effect such termination by vote of a majority of the outstanding voting
securities of the Fund or by vote of a majority of the Independent Trustees. For
so long as either the Class A Plan or the Class C Plan is in effect, selection
and nomination of the Independent Trustees shall be committed to the discretion
of such disinterested persons.
The Distribution Agreement and each of the above-referenced Plans will
continue in effect for successive one-year periods, provided that each such
continuance is specifically approved (1) by the vote of a majority of the
Independent Trustees and (2) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.
Administration Of The Fund
- --------------------------
ADMINISTRATIVE, FUND ACCOUNTING AND TRANSFER AGENT SERVICES. Heritage,
subject to the control of the Board of Trustees, will manage, supervise and
conduct the administrative and business affairs of the Fund; furnish office
space and equipment; oversee the activities of the subadvisers and the
Custodian; and pay all salaries, fees and expenses of officers and Trustees of
the Fund who are affiliated with Heritage. In addition, Heritage provides
certain shareholder servicing activities for customers of the Fund.
Heritage also is the transfer and dividend disbursing agent and fund
accountant for the Fund. The Fund pays Heritage its cost plus 10% for its
services as fund accountant and transfer and dividend disbursing agent.
CUSTODIAN. State Street Bank and Trust Company, P.0. Box 1912, Boston,
Massachusetts 02105, serves as custodian of the Fund's assets. The Custodian
also provides portfolio accounting and certain other services for the Fund.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
NW, 2nd Floor, Washington, D.C. 20036, serves as counsel to the Fund.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 400 North Ashley Street,
Suite 2800, Tampa, Florida 33602, are the independent public accountants for the
Fund.
Potential Liability
- -------------------
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Fund. To protect its
shareholders, the Fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Fund. These documents require notice of this disclaimer to be given in each
agreement, obligation or instrument the Fund or its Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the Fund's
obligations, that Fund is required to use its property to protect or compensate
the shareholder. On request, the Fund will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Fund. Therefore,
financial loss resulting from liability as a shareholder will occur only if the
Fund itself cannot meet its obligations to indemnify shareholders and pay
judgments against them.
25
<PAGE>
APPENDIX
COMMERCIAL PAPER RATINGS
- ------------------------
The rating services' descriptions of commercial paper ratings in which the Fund
may invest are:
Description Of Moody's Investors Service, Inc. Commercial Paper Debt Ratings
- ----------------------------------------------------------------------------
PRIME-1. Issuers (or supporting institutions) rated PRIME-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation;
well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2. Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Description Of Standard & Poor's Commercial Paper Ratings
- ---------------------------------------------------------
A-1. This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess extremely strong
characteristics are denoted with a plus sign (+) designation.
A-2. Capacity for timely payment of issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
CORPORATE DEBT RATINGS
- ----------------------
The rating services' descriptions of corporate debt ratings in which the Fund
may invest are:
Description Of Moody's Investors Service, Inc. Corporate Debt Ratings
- ---------------------------------------------------------------------
AAA - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
<PAGE>
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds that are rated Baa are considered medium grade obligations, I.E.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the company ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking and the modifier 3
indicates that the company ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS
- -------------------------------------------------------
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-2
<PAGE>
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C - Debt rated "BB," "B," "CCC," "CC," and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions that could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B - Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC - Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC - The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C - The rating "C" is typically applied to debt subordinated to senior debt that
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI - The rating "CI" is reserved for income bonds on which no interest is being
paid.
D - Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
A-3
<PAGE>
PLUS (+) OR MINUS (-) - The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR - Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
A-4