As filed with the Securities and Exchange Commission on February 28, 1997
Registration No. 33-57986
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ______ [ ]
Post-Effective Amendment No.__13__ [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. __14__ [ X ]
(Check appropriate box or boxes.)
HERITAGE SERIES TRUST
(Exact name of Registrant as specified in charter)
880 Carillon Parkway
St. Petersburg, FL 33716
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (813) 573-3800
STEPHEN G. HILL, PRESIDENT
880 Carillon Parkway
St. Petersburg, FL 33716
(Name and Address of Agent for Service)
Copy to:
CLIFFORD J. ALEXANDER, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
It is proposed that this filing will become effective on March 1, 1997 pursuant
to paragraph (b) of Rule 485.
Registrant has filed a notice pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended, on or about December 16, 1996.
Page 1 of ____ Pages
Exhibit Index Appears on Page ____
<PAGE>
HERITAGE SERIES TRUST
CONTENTS OF REGISTRATION STATEMENT
This registration document is comprised of the following:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Prospectus for the Small Cap Stock Fund, Value Equity
Fund, Growth Equity Fund and Eagle International Equity
Portfolio
Statement of Additional Information for Small Cap Stock
Fund, Value Equity Fund, Growth Equity Fund and Eagle
International Equity Portfolio
Part C of Form N-1A
Signature Page
Exhibits
<PAGE>
HERITAGE SERIES TRUST:
SMALL CAP STOCK FUND
VALUE EQUITY FUND
GROWTH EQUITY FUND and
EAGLE INTERNATIONAL EQUITY PORTFOLIO-CLASS A & C SHARES
FORM N-1A CROSS-REFERENCE SHEET
PART A ITEM NO. PROSPECTUS CAPTION
- --------------- ------------------
1. Cover Page Cover Page
2. Synopsis Total Trust Expenses
3. Condensed Financial Financial Highlights;
Information Performance Information
4. General Description of Cover Page; About the Trust and the
Registrant Funds; Investment Objective, Policies
and Risk Factors
5. Management of the Fund Management of the Trust
5A. Management's Discussion Inapplicable
of Fund Performance
6. Capital Stock and Other Cover Page; About the Trust and the
Securities Funds; Management of the Trust;
Choosing a Class of Shares; Dividends
and Other Distributions; Taxes;
Shareholder Information
7. Purchase of Securities Net Asset Value; Purchase Procedures;
Being Offered Minimum InvestmentRequired/Accounts
with Low Balances; Systematic
Investment Programs; Retirement Plans;
Choosing a Class of Shares; What Class
A Shares Will Cost; What Class C Shares
Will Cost; Distribution Plans
8. Redemption or Repurchase Minimum Investment Required/Accounts
With Low Balances; How to Redeem
Shares; Receiving Payment; Exchange
Privilege
9. Pending Legal Proceedings Inapplicable
<PAGE>
HERITAGE SERIES TRUST:
EAGLE INTERNATIONAL EQUITY PORTFOLIO-EAGLE CLASS OF SHARES
FORM N-1A CROSS-REFERENCE SHEET
PART A ITEM NO. PROSPECTUS CAPTION
- --------------- ------------------
1. Cover Page Cover Page
2. Synopsis About the Portfolio--Expense Summary
3. Condensed Financial Financial Highlights; How Performance
Information is Shown
4. General Description of Cover Page; About the Portfolio-
Registrant Objective, How the Objective is
Pursued, Other Investment Policies and
Risk Factors, Organization and History
5. Management of the Fund About the Portfolio-How the Portfolio
is Managed
5A. Management's Discussion Inapplicable
of Fund Performance
6. Capital Stock and Other Cover Page; About the Portfolio-
Information Other Investment Policies and Risk
Factors; Distribution Plan; About Your
Investment-How Distributions are Made;
Tax Information
7. Purchase of Securities Being About the Portfolio-Distribution Plan;
Offered About Your Investment-How to Buy
Shares, How to Sell Shares; How the
Portfolio Values its Shares
8. Redemption or Repurchase About Your Investment-How to Sell
Shares
9. Pending Legal proceedings Inapplicable
<PAGE>
STATEMENT OF ADDITIONAL
PART B ITEM NO. INFORMATION CAPTION
- --------------- --------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and General Information
History
13. Investment Objectives and Investment Information - Investment
Policies Objectives, Investment Policies,
Industry Classifications and Hedging
Strategies; Investment Limitations
14. Management of the Fund Management of the Funds
15. Control Persons and Five Percent Shareholders
Principal Holders of
Securities
16. Investment Advisory and Management of the Funds; Investment
Other Services Adviser and Administrator; Subadvisers;
Distribution of Shares; Administration
of the Funds
17. Brokerage Allocation Brokerage Practices
and Other Practices
18. Capital Stock and Other General Information; Fund Information;
Securities Potential Liability
19. Purchase, Redemption and Net Asset Value; Investing the Funds;
Pricing of Securities Redeeming Shares; Exchange Privilege
Being Offered
20. Tax Status Taxes
21. Underwriters Fund Information-Distribution of Shares
22. Calculation of Performance Information
Performance Data
23. Financial Statements Reports of Independent Accountants and
Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
<PAGE> 1
HERITAGE
SERIES
TRUST
[Pictures of people working and playing]
From Our Family to Yours: The Intelligent Creation of Wealth.
Value Equity Fund
Growth Equity Fund
Small Cap Stock Fund
International Equity Portfolio
PROSPECTUS
begins on the following page.
[logo]
HERITAGE
--------------------
SERIES TRUST(TM)
--------------------
Prospectus Dated March 1, 1997
<PAGE> 2
[HERITAGE LOGO]
SMALL CAP STOCK FUND
VALUE EQUITY FUND
GROWTH EQUITY FUND
EAGLE INTERNATIONAL EQUITY PORTFOLIO
Heritage Series Trust is a mutual fund offering shares in four separate
investment portfolios: the Small Cap Stock Fund, the Value Equity Fund, the
Growth Equity Fund and the Eagle International Equity Portfolio (each a "Fund"
and collectively, the "Funds"). Each Fund's investment objective is as follows:
<TABLE>
<S> <C>
- - Small Cap Stock Fund Seeks long-term capital appreciation by investing
principally in the equity securities of companies with
small market capitalization.
- - Value Equity Fund Primarily seeks long-term capital appreciation and,
secondarily, seeks current income by investing in a
diversified portfolio of common stocks that meet certain
quantitative standards that indicate above average
financial soundness and high intrinsic value relative to
price.
- - Growth Equity Fund Seeks growth through long-term capital appreciation by
investing in common stocks that have sufficient growth
potential to offer above average long-term capital
appreciation.
- - Eagle International Seeks capital appreciation principally through investment
Equity Portfolio in an international portfolio of equity securities. Income
is an incidental consideration.
</TABLE>
Each Fund offers Class A shares (sold subject to a front-end sales load) and
Class C shares (sold subject to a contingent deferred sales load). The Eagle
International Equity Portfolio also offers an additional class of shares. This
Prospectus relates solely to the Class A and Class C shares of the Funds.
This Prospectus contains information that should be read before investing in
any Fund's Class A or Class C shares and should be kept for future reference. A
Statement of Additional Information dated March 1, 1997 relating to the Class A
and Class C shares of the Funds 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 LOGO]
Registered Investment Advisor--SEC
880 Carillon Parkway
St. Petersburg, Florida 33716
(800) 421-4184
Prospectus Dated March 1, 1997
<PAGE> 3
TABLE OF CONTENTS
================================================================================
<TABLE>
<S> <C>
GENERAL INFORMATION......................................... 1
About the Trust and the Funds............................. 1
Total Trust Expenses...................................... 1
Financial Highlights...................................... 4
Investment Objectives, Policies and Risk Factors.......... 6
Net Asset Value........................................... 15
Performance Information................................... 15
INVESTING IN THE FUNDS...................................... 16
Purchase Procedures....................................... 16
Minimum Investment Required/Accounts With Low Balances.... 17
Systematic Investment Programs............................ 17
Retirement Plans.......................................... 17
Choosing a Class of Shares................................ 18
What Class A Shares Will Cost............................. 19
What Class C Shares Will Cost............................. 20
How to Redeem Shares...................................... 21
Receiving Payment......................................... 22
Exchange Privilege........................................ 23
MANAGEMENT OF THE TRUST..................................... 24
SHAREHOLDER AND ACCOUNT POLICIES............................ 28
Dividends and Other Distributions......................... 28
Distribution Plans........................................ 28
Taxes..................................................... 29
Shareholder Information................................... 30
</TABLE>
Prospectus
<PAGE> 4
GENERAL INFORMATION
ABOUT THE TRUST AND THE FUNDS
================================================================================
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 four separate investment portfolios, the Small Cap Stock Fund, the
Value Equity Fund, the Growth Equity Fund and the Eagle International Equity
Portfolio. Each Fund offers two classes of shares, Class A shares ("A shares")
and Class C shares ("C shares"). The Eagle International Equity Portfolio also
offers Eagle Class shares. To obtain more information about the Eagle Class
shares, which are not offered in this Prospectus, call (800) 237-3101. Eagle
Class shares have different sales charges and other expenses, which may affect
performance. Each Fund requires a minimum initial investment of $1,000, except
for certain investment plans for which lower limits may apply. See "Investing in
the Trust."
TOTAL TRUST EXPENSES
================================================================================
Shown below are all Class A and Class C expenses incurred by each Fund
during its 1996 fiscal year.
<TABLE>
<CAPTION>
SMALL CAP VALUE EQUITY GROWTH EQUITY EAGLE INTERNATIONAL
STOCK FUND FUND FUND EQUITY PORTFOLIO
----------------- ----------------- ----------------- -------------------
CLASS A CLASS C CLASS A CLASS C CLASS A CLASS C CLASS A CLASS C
------- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION EXPENSES
Maximum sales load
"imposed" on
purchases (as a
percentage of
offering price)..... 4.75% None 4.75% None 4.75% None 4.75% None
Maximum contingent
deferred sales load
(as a percentage of
original purchase
price or redemption
proceeds, as
applicable)......... None 1.00%* None 1.00%* None 1.00%* None 1.00%*
Wire redemption fee
(per transaction)... $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00
ANNUAL FUND OPERATING
EXPENSES
Management fee (after
fee waiver)**....... 0.89% 0.89% 0.41% 0.41% 0.01% 0.01% 0.28% 0.28%
12b-1 distribution
fee................. 0.25% 1.00% 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other expenses........ 0.27% 0.24% 0.99% 0.99% 1.39% 1.39% 1.44% 1.44%
----- ----- ----- ----- ----- ----- ----- -----
Total Fund operating
expenses (after fee
waiver)**........... 1.41% 2.13% 1.65% 2.40% 1.65% 2.40% 1.97% 2.72%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
* Declining to 0% at the first year.
** No fees or expenses were waived or reimbursed for the Small Cap Stock Fund.
Effective March 1, 1997, Heritage Asset Management, Inc. ("Heritage"), the
investment adviser to the Small Cap Stock Fund, the Value Equity Fund and the
Growth Equity Fund, voluntarily will waive its fees and, if necessary, reimburse
Prospectus 1
<PAGE> 5
each Fund to the extent that the Fund's Class A annual operating expenses exceed
1.60% and to the extent that the Fund's Class C annual operating expenses exceed
2.35% of the Fund's average daily net assets attributable to that class. Prior
to March 1, Heritage limited the Value Equity Fund and the Growth Equity Fund
Class A and Class C annual operating expenses to 1.65% and 2.40%, respectively,
of the Fund's average daily net assets attributable to that class. Eagle Asset
Management, Inc. ("Eagle"), the investment adviser to the Eagle International
Equity Portfolio, voluntarily waives its fee or reimburses the Fund to the
extent that Class A annual operating expenses exceed 1.97%, and to the extent
that Class C annual operating expenses exceed 2.72%, of the Fund's average daily
net assets attributable to that class. Absent such fee waivers and/or expense
reimbursements, annual 1996 Fund operating expenses for the Funds listed below
would have been as follows:
<TABLE>
<CAPTION>
GROWTH EQUITY EAGLE INTERNATIONAL
VALUE EQUITY FUND FUND EQUITY PORTFOLIO
----------------- ----------------- -------------------
CLASS A CLASS C CLASS A CLASS C CLASS A CLASS C
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Management fee........... 0.75% 0.75% 0.75% 0.75% 1.00% 1.00%
12b-1 distribution fee... 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other expenses........... 0.99% 0.99% 1.39% 1.39% 1.44% 1.44%
---- ---- ---- ---- --- ---
Total Fund operating
expenses............... 1.99% 2.74% 2.39% 3.14% 2.69% 3.44%
==== ==== ==== ==== === ===
</TABLE>
To the extent that Heritage or Eagle waives or reimburses its fees with
respect to one class of a Fund, it will do so with respect to the Fund's other
class or classes on a proportionate basis.
Although each 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 the
"Board") has authorized annual payments of only .25% of each Fund's Class A
average daily net assets. Due to the imposition of Rule 12b-1 distribution fees,
it is possible that long-term shareholders of a Fund 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.
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 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Total Fund Operating
Expenses:
Small Cap Stock Fund A
shares................ $61 $ 90 $121 $209
Small Cap Stock Fund C
shares................ $32 $ 67 $114 $246
Value Equity Fund A
shares................ $63 $ 97 $133 $234
Value Equity Fund C
shares................ $34 $ 75 $128 $274
Growth Equity Fund A
shares................ $63 $ 97 $133 $234
Growth Equity Fund C
shares................ $34 $ 75 $128 $274
Eagle International
Equity Portfolio A
shares................ $67 $106 $149 $266
Eagle International
Equity Portfolio C
shares................ $38 $ 84 $144 $305
</TABLE>
Prospectus 2
<PAGE> 6
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 no redemption at the end of each period shown.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Total Fund Operating
Expenses:
Small Cap Stock Fund A
shares................ $61 $ 90 $121 $209
Small Cap Stock Fund C
shares................ $22 $ 67 $114 $246
Value Equity Fund A
shares................ $63 $ 97 $133 $234
Value Equity Fund C
shares................ $24 $ 75 $128 $274
Growth Equity Fund A
shares................ $63 $ 97 $133 $234
Growth Equity Fund C
shares................ $24 $ 75 $128 $274
Eagle International
Equity Portfolio A
shares................ $67 $106 $149 $266
Eagle International
Equity Portfolio C
shares................ $28 $ 84 $144 $305
</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 Trust" and "Distribution Plans."
Prospectus 3
<PAGE> 7
FINANCIAL HIGHLIGHTS
================================================================================
The following tables show important financial information for an A share and
a C share of each Fund outstanding for the periods indicated, including net
investment income, net realized and unrealized gain on investments, and certain
other information. It has been derived from financial statements appearing in
the Statement of Additional Information ("SAI"). The financial statements and
the information in these tables for the fiscal year ended October 31, 1996 have
been audited by Price Waterhouse LLP, independent accountants, whose report
thereon is included in the SAI, which may be obtained by calling your Fund at
(800) 421-4184. Information presented for the years ended October 31, 1995 and
prior thereto was audited by other auditors who served as the Trust's
independent accountants for those years.
<TABLE>
<CAPTION>
SMALL CAP STOCK FUND VALUE EQUITY FUND
----------------------------------------------------------- -------------------
CLASS C CLASS A SHARES*
CLASS A ------------------- -------------------
----------------------------------- FOR THE YEARS ENDED FOR THE YEARS ENDED
FOR THE YEARS ENDED OCTOBER 31, OCTOBER 31, OCTOBER 31,
----------------------------------- ------------------- -------------------
1996* 1995PPP 1994 1993+ 1996* 1995++ 1996 1995+++
------ ------- ------ ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $18.86 $16.20 $15.57 $14.29 $18.79 $15.67 $18.00 $14.29
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)..... (.05) .02 (.01)(a) (.01)(a) (.22) (.02) .17(b) .08(b)
Net realized and unrealized gain
on investments................. 6.12 3.62 .64 1.29 6.11 3.14 2.76 3.63
------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations..................... 6.07 3.64 .63 1.28 5.89 3.12 2.93 3.71
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income......................... (.01) (.01) -- -- -- -- (.11) --
Distributions from net realized
gains.......................... (.84) (.97) -- -- (.84) -- (.55) --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions.............. (.85) (.98) -- -- (.84) -- (.66) --
------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD........................... $24.08 $18.86 $16.20 $15.57 $23.84 $18.79 $20.27 $18.00
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(G)................ 33.18 23.97 4.05 8.96(f) 32.22 19.91(f) 16.59 25.96(f)
RATIOS (%) SUPPLEMENTAL DATA:
Operating expenses, net, to
average daily assets........... 1.41 1.88 1.91(a) 2.00(a)(e) 2.13 2.36(e) 1.65(b) 1.65(b)(e)
Net investment income (loss) to
average daily net assets....... (.21) .15 (.07) (.15)(e) (.94) (.46)(e) .89 1.05(e)
Portfolio turnover rate.......... 80 89 95 97(e) 80 89 129 82(e)
Average commission rate on
portfolio transactions......... $.0637 -- -- -- $.0637 -- $.0550 --
Net assets, end of period
($millions).................... 96 57 42 40 25 4 15 12
<CAPTION>
VALUE EQUITY FUND
--------------------
CLASS C SHARES*
--------------------
FOR THE YEARS ENDED
OCTOBER 31,
--------------------
1996 1995++
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $17.92 $15.27
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)..... .02(b) .01(b)
Net realized and unrealized gain
on investments................. 2.74 2.64
------ ------
Total from Investment
Operations..................... 2.76 2.65
------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income......................... (.07) --
Distributions from net realized
gains.......................... (.55) --
------ ------
Total distributions.............. (.62) --
------ ------
NET ASSET VALUE, END OF THE
PERIOD........................... $20.06 $17.92
====== ======
TOTAL RETURN (%)(G)................ 15.65 17.35(f)
RATIOS (%) SUPPLEMENTAL DATA:
Operating expenses, net, to
average daily assets........... 2.40(b) 2.40(b)(e)
Net investment income (loss) to
average daily net assets....... .13 .28(e)
Portfolio turnover rate.......... 129 82(e)
Average commission rate on
portfolio transactions......... $.0550 --
Net assets, end of period
($millions).................... 10 4
</TABLE>
Prospectus 4
<PAGE> 8
<TABLE>
<CAPTION>
GROWTH EQUITY FUND EAGLE INTERNATIONAL EQUITY FUND
--------------------------------- ---------------------------------
CLASS A SHARES CLASS C SHARES CLASS A SHARES CLASS C SHARES
-------------- -------------- -------------- --------------
FOR THE YEARS ENDED OCTOBER 31, FOR THE YEARS ENDED OCTOBER 31,
--------------------------------- ---------------------------------
1996X* 1995X* 1996XX* 1996XX*
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD................ $14.29 $14.29 $21.11 $21.11
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... (.03)(c) (.15)(c) 0.10(d) (0.07)(d)
Net realized and unrealized gain on investments....... 3.48 3.47 1.04 1.08
------ ------ ------ ------
Total from Investment operations...................... 3.45 3.32 1.14 1.01
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income.................. -- -- -- --
Distributions from net realized gains................. -- -- -- --
Total distributions................................... -- -- -- --
------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD...................... $17.74 $17.61 $22.25 $22.12
====== ====== ====== ======
TOTAL RETURN (%)(F)(G).................................. 24.14 23.23 5.40 4.78
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses, net to average daily assets (e)... 1.65(c) 2.40(c) 1.97(d) 2.72(d)
Net investment income (loss) to average daily net
assets (e).......................................... (.19) (.96) 0.44 (0.32)
Portfolio turnover rate (f)........................... 23 23 59 59
Average commission rate on portfolio transactions..... $.0599 $.0599 $.0289 $.0289
Net assets, end of period ($millions)................. 12 5 3 1
</TABLE>
- ---------------
<TABLE>
<C> <S>
+ For the period May 7, 1993 (commencement of operations) to
October 31, 1993.
++ For the period April 3, 1995 (first offering of C shares) to
October 31, 1995.
+++ For the period December 30, 1994 (commencement operations)
to October 31, 1995.
X For the period November 16, 1995 (commencement operations)
to October 31, 1996.
XX For the period December 27, 1995 (first offering of Class A
and Class C Shares) to October 31, 1996.
XXX Eagle Asset Management, Inc. became an additional subadvisor
to the Fund on August 7, 1995.
* Per share amounts have been calculated using the monthly
average share method, which more appropriately represents
per share data for the period since use of the undistributed
income method does not correspond with results of operation.
(a) Excludes management fees waived by Heritage in fiscal 1993
of less than $.01 per share. The operating expense ratio
including such items would be 2.09% (annualized). The year
1994 includes previously waived management fees paid to
Heritage of less than $.01 per share.
(b) Excludes management fees waived and expenses reimbursed in
the amount of $.07 and $.13 per Class A Shares,
respectively. The operating expense ratios including such
items would have been 1.99% and 3.49% (annualized) for Class
A Shares respectively. Excludes management fees waived and
expenses reimbursed by Heritage in the amount of $.07 and
$.13 per Class C Shares, respectively. The operating expense
ratio including such items would have been 2.74% and 4.24%
(annualized) for Class C Shares.
(c) Excludes management fees waived and expenses reimbursed by
Heritage of $.11 per share Class A and Class C Shares for
the period ended October 31, 1996. The operating expenses
ratios including such items would have been 2.39%
(annualized) and 3.14% (annualized) for the period ended
October 31, 1996, respectively.
(d) Excludes management fees waived by Eagle in the amount of
$.16 per Class A Share for the period ended October 31,
1996. The operating expenses ratio including such items
would have been 2.69% (annualized) for Class A Shares for
the period ended October 31, 1996. Excludes management fees
waived by Eagle in the amount of $.16 per Class C Share for
the period ended October 31, 1996. The operating expense
ratio including such items would have been 3.44%
(annualized) for Class C Shares for the period ended October
31, 1996.
(e) Annualized.
(f) Not annualized.
(g) Does not reflect the imposition of a sales load.
</TABLE>
Prospectus 5
<PAGE> 9
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
================================================================================
BECAUSE THE FUNDS
INVEST PRIMARILY IN
COMMON STOCKS, THE
VALUE OF YOUR
INVESTMENT WILL
FLUCTUATE. YOU CAN
LOSE MONEY BY
INVESTING IN THE FUNDS.
Each Fund has its own investment objective and seeks to achieve that
objective through separate and distinct investment policies. Each Fund's
investment objective is fundamental and may not be changed without the vote of a
majority of the outstanding voting securities of that Fund, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). Except as otherwise
stated, all policies of each Fund described in this Prospectus may be changed by
the Board of Trustees without shareholder approval. Each Fund's shares will
fluctuate in value as a result of value changes in portfolio investments. There
can be no assurance that a Fund's investment objective will be achieved.
The following is a discussion of each Fund's investment objectives,
securities and practices including the risks of investing in these securities or
engaging in these practices. For a further discussion of each Fund's investment
policies, practices and risks, see "Investment Information" in the SAI.
SMALL CAP STOCK FUND
- ------------------------
THE SMALL CAP STOCK
FUND SEEKS LONG-
TERM CAPITAL
APPRECIATION.
THE SMALL CAP STOCK
FUND'S SUBADVISERS
ARE EAGLE ASSET
MANAGEMENT, INC. AND
AWAD & ASSOCIATES.
The Small Cap Stock Fund's investment objective is long-term capital
appreciation. The Small Cap Stock Fund seeks to achieve this objective primarily
through the purchase of equity securities of companies, each of which has a
total market capitalization of less than $1 billion ("small capitalization
companies"). Market capitalization is the total value of a company's outstanding
common stock. The Small Cap Stock Fund will invest in securities of companies
that appear to be undervalued in relation to their long-term earning power or
the asset value of their issuers and that have, in the opinion of Eagle or Awad
& Associates ("Awad"), the Small Cap Stock Fund's investment subadvisers
(collectively, the "Subadvisers"), significant future growth potential.
Securities may be undervalued because of many factors, including market decline,
poor economic conditions, tax-loss selling or actual or anticipated unfavorable
developments affecting the issuer of the security. Any or all of these factors
may provide buying opportunities at attractive prices relative to the long-term
prospects for the companies in question. However, there can be no assurance that
the Small Cap Stock Fund's investment objective will be achieved. For a further
discussion of the Subadvisers investment practices, see "Management of the
Trust -- Subadvisers -- Small Cap Stock Fund."
The Small Cap Stock Fund invests primarily in common stocks, but also may
invest in preferred stocks, investment grade securities convertible into common
stock and warrants ("equity securities"). The Small Cap Stock Fund may purchase
securities traded on recognized securities exchanges and in the over-the-counter
market. The Small Cap Stock Fund normally invests at least 80% of its total
assets in the equity securities of companies each of which, at the time of
purchase, has a total market capitalization of less than $1 billion. 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 $11.3 billion as of December 31,
1996.
The Small Cap Stock Fund may invest its remaining assets in securities
convertible into common stock, American Depository Receipts ("ADRs"), U.S.
Government securities, repurchase agreements or other short-term money market
instruments. The Small Cap Stock Fund also may invest up to 15% of its net
assets in illiquid securities. The Small Cap Stock Fund may purchase and sell a
security without regard to the length of time the security will be or has been
held. Although
Prospectus 6
<PAGE> 10
the Small Cap Stock 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 SMALL CAP STOCK
FUND INVESTS PRIMARILY IN THE
COMMON STOCK OF
SMALL CAPITALIZATION
COMPANIES. THIS
GENERALLY INVOLVES
GREATER RISK THAN
INVESTING IN
LARGER, MORE ESTABLISHED
COMPANIES.
The Subadvisers currently believe that investments in small capitalization
companies may offer greater opportunities for growth of capital than investments
in larger, more established companies. Investing in smaller, newer issuers
generally involves greater risks than investing in larger, more established
issuers. Companies in which the Small Cap Stock Fund is likely to invest may
have limited product lines, markets or financial resources and may lack
management depth. The securities issued by such companies may have limited
marketability and may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. In addition, many small capitalization companies may be in the early
stages of development. Accordingly, an investment in the Small Cap Stock Fund
may not be appropriate for all investors.
The Small Cap Stock Fund also may invest in real estate investment trusts
("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.
Heritage believes that short-term volatility may be reduced by allocating
the Small Cap Stock Fund's assets among multiple subadvisers. While Eagle and
Awad will focus on investments in small capitalization companies, the different
investment disciplines employed by the Subadvisers may cause the portion of the
Small Cap Stock Fund's assets allocated to Eagle or Awad to have better or worse
relative performance than the other portion during certain market conditions. By
employing multiple disciplines, short-term volatility may be reduced while the
Small Cap Stock Fund participates in returns available from small capitalization
companies. The potential benefits of this multiple subadviser approach may be
partially reduced, however, because there currently are only two subadvisers and
because there may be overlap among the securities portfolios of Eagle and Awad.
See "Management of the Trust."
VALUE EQUITY FUND
- --------------------
THE VALUE EQUITY FUND
SEEKS LONG-TERM
CAPITAL APPRECIATION;
CURRENT INCOME IS A
SECONDARY OBJECTIVE.
The Value Equity Fund's primary investment objective is long-term capital
appreciation. Current income is a secondary objective. There can be no assurance
that the Value Equity Fund's investment objective will be achieved. In seeking
these objectives, the Value Equity Fund may invest without limit in common
stocks that, when purchased, meet certain quantitative standards that in the
judgment of Dreman Value Advisors, Inc. ("Dreman"), the Fund's investment
subadviser, indicate above average financial soundness and high intrinsic value
relative to price. In particular, each common stock must have at least one of
the following attributes
Prospectus 7
<PAGE> 11
THE VALUE EQUITY FUND
INVESTS IN COMPANIES THAT
MEET CERTAIN INVESTMENT
CRITERIA RELATING TO PRICE,
DIVIDEND YIELD, GOING
CONCERN VALUE AND
DEBT LEVELS.
THE VALUE EQUITY
FUND'S SUBADVISER IS
DREMAN VALUE
ADVISORS, INC.
in order to meet Dreman's investment criteria when purchased by the Value Equity
Fund:
- LOW PRICE IN RELATION TO THE ISSUER'S EARNINGS OR BOOK VALUE: The stock
must have a price-to-earnings ratio or price-to-book value ratio of less
than or approximately equal to 75% of that of the broader equity market
(as measured by the S&P 500);
- HIGH DIVIDEND YIELD: The stock's yield must approximate at least 50% of
the prevailing average yield to maturity of the long-term U.S. Government
bond, as measured by the Lehman Brothers Long Treasury Bond Index (or
other similar index if this index is not available);
- HIGH VALUE OF ISSUER AS A GOING CONCERN: The stock's per share going
concern value (as estimated by Dreman) must exceed book value and market
value; or
- LOW DEBT: The long-term debt of the issuer must be below, or
approximately equivalent to, the issuer's tangible net worth.
Under normal market conditions, at least 65% of the Value Equity Fund's
total assets will be invested in U.S. common stocks. With respect to the other
35% of its total assets, the Fund may invest in common stocks of foreign
issuers, ADRs, foreign currency transactions with respect to underlying common
stock, preferred stock, investment grade securities convertible into common
stocks, futures contracts, options on equity securities or equity security
indices, rights or warrants to subscribe for or purchase common stocks,
obligations of the U.S. Government, its agencies and instrumentalities
(including repurchase agreements thereon) and in securities that track the
performance of a broad-based securities index, such as Standard & Poor's
Depository Receipts ("SPDRs"). The Value Equity Fund may loan its portfolio
securities.
The portion of total assets invested in common stocks and debt securities
will vary based on the availability of common stocks meeting the foregoing
criteria and Dreman's evaluation of the investment merit of common stocks
relative to debt securities. No more than 10% of the Value Equity Fund's net
assets may be invested in securities that, at the time of investment, are
illiquid. See "Investment Information" in the SAI for a more detailed discussion
of these securities, including related risks.
STOCK SELECTION PROCESS. In selecting securities, Dreman screens a
universe of over 2500 companies. From this universe, Dreman anticipates that
only a few hundred companies will meet one or more of its investment criteria.
Each of these companies is analyzed individually in terms of its past and
present competitive position within its respective industry. Selections will be
made based on Dreman's projections of the companies' growth in earnings and
dividends, earnings momentum, and undervaluation based on a dividend discount
model. Target prices and value ranges are developed from this analysis and
portfolio selection will be made from among the top-rated securities.
Dreman periodically monitors the Value Equity Fund's equity securities to
assure that they continue to meet the selection criteria. A security normally
will be sold once it reaches its target price, when negative changes occur with
respect to the company or its industry, or when there is a significant change in
the security with respect to one or more of the four selection criteria listed
above. The Value Equity Fund may at times continue to hold equity securities
that no longer meet the criteria
Prospectus 8
<PAGE> 12
but Dreman deems suitable investments in view of the Value Equity Fund's
investment objectives.
GROWTH EQUITY FUND
- ----------------------
THE GROWTH EQUITY
FUND SEEKS GROWTH
THROUGH LONG-TERM
CAPITAL APPRECIATION.
The Growth Equity Fund's primary investment objective is growth through
long-term capital appreciation. In seeking this objective, the Growth Equity
Fund may invest without limitation in common stocks that, when purchased, meet
certain qualitative standards as determined by Eagle, the Growth Equity Fund's
investment subadviser. However, there can be no assurance that the Growth Equity
Fund's investment objective will be achieved. The Growth Equity Fund is designed
for long-term investors who desire to participate in the stock market while
exposing themselves to more investment risk and volatility than the stock market
in general, but less investment risk and volatility than many aggressive capital
appreciation funds.
THE GROWTH EQUITY
FUND'S SUBADVISER
IS EAGLE ASSET
MANAGEMENT, INC.
Eagle will invest in common stocks that it believes have sufficient growth
potential to offer above average long-term capital appreciation. Companies in
which Eagle will invest will have at least one of the following characteristics
at the time of purchase:
- expected earnings-per-share growth greater than the average of the S&P
500, or
- return on equity greater than the average for the S&P 500.
Under normal market conditions, at least 65% of the Growth Equity Fund's
total assets will be invested in U.S. common stocks. A majority of the Growth
Equity Fund's total assets will be invested in common stock with market
capitalization of greater than $1 billion at the time of purchase. With respect
to the other 35% of its total assets, the Growth Equity Fund may invest in
common stocks of foreign issuers, ADRs, foreign currency transactions with
respect to underlying common stocks, preferred stock, investment grade
securities convertible into common stocks, futures contracts, options on equity
securities or equity security indices, rights or warrants to subscribe for or
purchase common stocks, obligations of the U.S. Government, its agencies and
instrumentalities (including repurchase agreements thereon) and in securities
that track the performance of a broad-based securities index, such as SPDRs. The
Growth Equity Fund may loan its portfolio securities. No more than 10% of the
Growth Equity Fund's net assets may be invested in securities that, at the time
of investment, are illiquid.
THE GROWTH EQUITY
FUND INVESTS
IN COMPANIES
THAT HAVE EXPECTED
EARNINGS-PER-SHARE
GROWTH OR RETURN ON
EQUITY GREATER THAN
THE AVERAGE FOR THE
S&P 500.
STOCK SELECTION PROCESS. Stock selections will be made in part based on
Eagle's opinion regarding the sustainability of the company's competitive
advantage in the marketplace as well as Eagle's opinion of the company's
management team. Eagle will invest in companies that, in its opinion, will have
long-term returns greater than the average for the S&P 500. Eagle normally will
reevaluate a security if it underperforms the S&P 500 by 15% or more during a
three-month period. At that time a decision will be made to sell or hold the
security. If a particular stock appreciates to over 5% of the total assets of
the portfolio, Eagle generally will reduce the position to less than 5%. If the
stock price appreciates to a level that, in the opinion of Eagle, is not
sustainable, the position generally will be sold to realize the existing profits
and avoid a potential price correction. If Eagle identifies a holding that it
considers to be a better investment than a current holding, Eagle generally will
consider selling the current holding to add the new security.
Prospectus 9
<PAGE> 13
EAGLE INTERNATIONAL EQUITY PORTFOLIO
- ---------------------------------------
THE EAGLE INTERNATIONAL
EQUITY PORTFOLIO SEEKS
CAPITAL APPRECIATION
PRINCIPALLY THROUGH
INVESTING IN A
PORTFOLIO OF
INTERNATIONAL EQUITY
SECURITIES.
The Eagle International Equity Portfolio seeks capital appreciation
principally through investment in an international portfolio of equity
securities. Income is an incidental consideration. However, there can be no
assurance that the Eagle International Equity Portfolio's investment objective
will be achieved
Under normal market conditions, at least 65% of the Eagle International
Equity Portfolio's total assets will be invested in common stocks (which may or
may not pay dividends), convertible bonds, convertible preferred stocks,
warrants, rights or other equity securities of foreign issuers and sponsored and
unsponsored depository receipts representing the securities of foreign issuers
(including ADRs, European Depository Receipts, Global Depository Receipts and
International Depository Receipts, among others). Its remaining assets may be
invested in foreign debt securities, securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, repurchase agreements and
foreign and domestic short-term investments, as discussed in the SAI. In
addition, the Eagle International Equity Portfolio may invest up to 10% of its
assets in securities of other investment companies, such as closed-end
investment companies that invest in foreign markets. As a shareholder of an
investment company, the Eagle International Equity Portfolio may indirectly bear
service fees, which are in addition to the fees the Eagle International Equity
Portfolio pays to its own service providers. The Eagle International Equity
Portfolio may borrow up to 10% of its total assets from banks as a temporary
measure, such as to meet higher than anticipated redemption requests. For a
further discussion of these investment objectives and policies, see "Investment
Information" in the SAI.
A PORTFOLIO OF
INTERNATIONAL
EQUITY SECURITIES
SUBJECTS THE FUND
TO DIFFERENT RISKS THAN
INVESTING IN DOMESTIC
SECURITIES.
The Eagle International Equity Portfolio normally will invest at least 50%
of its investment portfolio in securities traded in developed foreign securities
markets, such as those included in the Morgan Stanley Capital International
Europe, Australia, Far East Index ("EAFE Index"). Countries in the EAFE Index
include Japan, France, the United Kingdom, Germany, Hong Kong and Malaysia,
among others. The Eagle International Equity Portfolio also will invest in
emerging markets (which may include investments in countries such as India,
Mexico and Poland for example). Emerging markets are those countries whose
markets may not yet fully reflect the potential of the developing economy. The
Eagle International Equity Portfolio may invest in foreign currency and purchase
and sell foreign currency forward contracts and futures contracts. See "Futures
Transactions; Foreign Currency Transactions" below.
THE EAGLE
INTERNATIONAL
EQUITY PORTFOLIO'S
SUBADVISER IS
MARTIN CURRIE INC.
The Eagle International Equity Portfolio will not limit its investments to
any particular type or size of company. It may invest in companies whose
earnings are believed by the Eagle International Equity Portfolio's investment
subadviser, Martin Currie Inc. ("Martin Currie"), to be in a relatively strong
growth trend, or in companies in which significant further growth is not
anticipated but whose market value per share is thought by Martin Currie to be
undervalued. It may invest in small and relatively less well known companies,
which may have more restricted product lines or more limited financial resources
than larger, more established companies and may be more severely affected by
economic downturns or other adverse developments. Trading volume of these
companies' securities may be low and their market values may be volatile. While
the Eagle International Equity Portfolio's investment strategy generally will
emphasize equity securities, the Eagle International Equity Portfolio may invest
a portion of its assets in investment grade fixed income securities when, in the
opinion of Martin Currie, equity securities
Prospectus 10
<PAGE> 14
appear to be overvalued or Martin Currie otherwise believes investing in fixed
income securities affords the Eagle International Equity Portfolio the
opportunity for capital growth, as in periods of declining interest rates.
THIS FUND WILL INVEST
IN MANY COUNTRIES
AROUND THE WORLD.
In allocating the Eagle International Equity Portfolio's assets among the
various securities markets of the world, Martin Currie will consider such
factors as the condition and growth potential of the various economies and
securities markets, currency and taxation considerations and other pertinent
financial, social, national and political factors. Under certain adverse
investment conditions, the Eagle International Equity Portfolio may restrict the
number of securities markets in which its assets will be invested, although
under normal market circumstances the Eagle International Equity Portfolio's
investments will involve securities principally traded in at least three
different countries. Otherwise, there are no prescribed limits on geographic
asset distribution and the Eagle International Equity Portfolio has the
authority to invest in securities traded in securities markets of any country in
the world. The Eagle International Equity Portfolio will invest only in markets
where, in the judgment of Martin Currie, there exists an acceptable framework of
market regulation and sufficient liquidity.
THIS FUND MAY INVEST
A PORTION OF ITS ASSETS
IN COUNTRIES WITH
EMERGING ECONOMIES OR
SECURITIES MARKETS.
The securities markets of many nations can be expected to move relatively
independently of one another because business cycles and other economic or
political events that influence one country's securities markets may have little
effect on the securities markets of other countries. By investing in an
international securities portfolio, the Eagle International Equity Portfolio
seeks to reduce the risks associated with investing in the economy of only one
country. See "Foreign Investments -- Risk Factors" below.
Although the Eagle International Equity Portfolio will not trade primarily
for short-term profits, Martin Currie may make investments with potential for
short-term appreciation when such action is deemed desirable and in the best
interests of shareholders. In addition, for temporary defensive purposes, the
Eagle International Equity Portfolio may invest all or a major portion of its
assets in (1) foreign debt securities, (2) debt and equity securities of U.S.
issuers, and (3) obligations issued or guaranteed by the United States or a
foreign government or their respective agencies, authorities or
instrumentalities. The Eagle International Equity Portfolio may invest up to 10%
of its net assets in illiquid securities.
FORWARD COMMITMENTS, WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The
Eagle International Equity Portfolio may purchase portfolio securities on a
when-issued basis, may purchase and sell such securities for delayed delivery
and may make contracts to purchase such securities for a fixed price at a future
date beyond normal settlement time ("forward commitments"). When-issued
transactions, delayed delivery purchases and forward commitments involve a risk
of loss if the value of the securities declines prior to the settlement date,
which risk is in addition to the risk of decline in the value of the Eagle
International Equity Portfolio's other assets. No income accrues to the
purchaser of such securities prior to delivery.
THE EAGLE INTERNATIONAL
EQUITY PORTFOLIO MAY
BUY AND SELL FUTURES
CONTRACTS AND
FORWARD CONTRACTS.
FUTURES TRANSACTIONS; FOREIGN CURRENCY TRANSACTIONS. The Eagle
International Equity Portfolio may engage in transactions in futures contracts
and forward contracts to adjust the risk/return characteristics of the Eagle
International Equity Portfolio's investment portfolio. The Eagle International
Equity Portfolio may buy and sell stock index and currency futures contracts. A
currency futures contract is an agreement between two parties to buy and sell
the underlying currency for a set price on a future date. A stock index future
is an obligation to make or take a cash
Prospectus 11
<PAGE> 15
settlement, in the future, based on price movements that occur in the specific
stock index underlying the contract.
If Martin Currie wants to hedge the Eagle International Equity Portfolio's
exposure to a broad decline in equity market prices, it might sell futures
contracts on stock indices. Then, if the value of the underlying securities
declines, the value of the futures contracts should increase. If, however, the
value of the underlying securities increases, the Eagle International Equity
Portfolio should suffer a loss on its futures contract position. Likewise, if
the Eagle International Portfolio expects stock prices to rise, the Eagle
International Equity Portfolio might purchase stock index futures contracts to
offset potential increases in the acquisition cost of securities that the Eagle
International Equity Portfolio intends to acquire. If, as expected, the market
value of the equity indices and futures contracts with respect thereto increase,
the Eagle International Equity Portfolio would benefit from a rise in the value
of long-term securities without actually buying them until the market had
stabilized. However, if the value of the equity indices decline, the value of
the futures contracts also will decline.
The Eagle International Equity Portfolio also may buy and sell foreign
currencies, foreign currency futures contracts and forward foreign currency
contracts. A forward foreign currency contract is an agreement between the Eagle
International Equity Portfolio and a contra party to buy or sell a specified
currency at a specified price and future date. If a decline in the value of a
particular currency relative to the U.S. dollar is anticipated, the Eagle
International Equity Portfolio may enter into a futures contract or forward
contract to sell that currency as a hedge. If it is anticipated that the value
of a foreign currency will rise, the Eagle International Equity Portfolio may
purchase a currency futures contract or forward contract to protect against an
increase in the price of securities denominated in a particular currency the
Eagle International Equity Portfolio intends to purchase. These practices,
however, may present risks different from or in addition to the risks associated
with investments in foreign currencies.
The Eagle International Equity Portfolio might not use any of the
strategies described above, and there can be no assurance that any strategy used
will succeed. If Martin Currie incorrectly forecasts stock market or currency
exchange rates in utilizing a strategy for the Eagle International Equity
Portfolio, the Fund would be in a better position if it had not hedged at all.
Although futures contracts and forward contracts are intended to replicate
movements in the cash markets for the securities and currencies in which the
Eagle International Equity Portfolio invests without the large cash investments
required for dealing in such markets, they may subject the Eagle International
Equity Portfolio to additional risks. The principal risks associated with the
use of futures and forward contracts are: (1) imperfect correlation between
movements in the market price of the portfolio investment or currency (held or
intended to be purchased) being hedged and in the price of the futures contract
or forward contract; (2) possible lack of a liquid secondary market for closing
out futures or forward contract positions; (3) the need for additional portfolio
management skills and techniques; (4) the fact that, while hedging strategies
can reduce the risk of loss, they also can reduce the opportunity for gain, or
even result in losses, by offsetting favorable price movements in hedged
investments; and (5) the possible inability of the Eagle International Equity
Portfolio to purchase or sell a portfolio security at a time when it would
otherwise be favorable for it to do so, or the possible need for the Fund to
sell a security at a disadvantageous time, due to the need for the Eagle
International Equity Portfolio to maintain "cover" or to segregate securities in
connection with hedging transac-
Prospectus 12
<PAGE> 16
tions and the possible inability of the Eagle International Equity Portfolio to
close out or liquidate a hedged position.
For a hedge to be completely effective, the price change of the hedging
instrument should equal the price change of the security or currency being
hedged. Such equal price changes are not always possible because the investment
underlying the hedging instrument may not be the same investment that is being
hedged. Martin Currie will attempt to create a closely correlated hedge, but
hedging activity may not be completely successful in eliminating market value
fluctuation. The ordinary spreads between prices in the cash and futures
markets, due to differences in the nature of those markets, are subject to
distortion. Due to the possibility of distortion, a correct forecast of currency
exchange rate or stock market trends by Martin Currie may still not result in a
successful transaction. Martin Currie may be incorrect in its expectations as to
the extent of various currency exchange rate or stock market movements or the
time span within which the movements take place.
Although hedging strategies are intended to reduce fluctuations in net
asset value, the Eagle International Equity Portfolio nonetheless anticipates
that its net asset value will fluctuate.
The Eagle International Equity Portfolio may invest in emerging markets.
This includes investments in countries whose economies or securities markets are
not yet highly developed. Special considerations associated with these
investments (in addition to the considerations regarding foreign investments
generally) may include, greater political uncertainties, an economy's dependence
on revenues from particular commodities or on international aid or development
assistance, currency transfer restrictions, a limited number of potential buyers
for such securities and delays and disruptions in securities settlement
procedures.
The Eagle International Equity Portfolio's investments in foreign currency
denominated debt obligations and hedging activities likely will produce a
difference between its book income and its taxable income. If the Eagle
International Equity Portfolio's book income exceeds its taxable income, a
portion of the Eagle International Equity Portfolio's income distributions would
constitute returns of capital for tax purposes because the Eagle International
Equity Portfolio distributes substantially all of its net investment income. See
"Dividends and Other Distributions" and "Taxes." In addition, if the Eagle
International Equity Portfolio's taxable income exceeds its book income, the
Eagle International Equity Portfolio might have to distribute all or part of
that excess to qualify as a "regulated investment company" for Federal income
tax purposes or to avoid the imposition of a 4% excise tax on certain
undistributed income and gains. See "Taxes" in the SAI.
POLICIES AND RISK FACTORS APPLICABLE TO MULTIPLE FUNDS
- ------------------------------------------------------------
FOREIGN SECURITIES. Each Fund other than the Small Cap Stock Fund may
invest in foreign securities and each fund may invest in ADR's. 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, and possible
difficulty in obtaining and enforcing judgments against foreign entities.
Furthermore, foreign issuers are subject to different, often less comprehensive,
accounting, reporting and disclosure requirements than domestic issuers. The
securities of some foreign companies and foreign securities markets are less
liquid and at times more volatile than securities of
Prospectus 13
<PAGE> 17
comparable U.S. companies and U.S. securities markets. Foreign brokerage
commissions and other fees generally are higher than in the United States.
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.
There also are special tax considerations that apply to securities of certain
foreign issuers and securities principally traded overseas.
INVESTMENT GRADE AND LOWER-RATED SECURITIES. Each Fund may invest in
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 applicable 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. Each Fund may retain a security that has been downgraded
below investment grade if in the applicable Fund's subadviser's opinion, it is
in the Fund's best interest.
In addition, the Small Cap Stock Fund and the Eagle International Equity
Portfolio also may invest up to 5% of their assets in convertible securities
rated below investment grade by S&P or Moody's, or unrated securities deemed to
be below investment grade by the applicable 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. Each Fund may invest in repurchase agreements.
Repurchase agreements are transactions in which a 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 the underlying
securities and delays and costs to the Fund if the other party becomes bankrupt,
the Funds intend to enter into repurchase agreements only with banks and dealers
in transactions believed by the applicable subadviser to present minimal credit
risks in accordance with guidelines established by the Board of Trustees.
TEMPORARY OR DEFENSIVE PURPOSES. For temporary or defensive purposes
during anticipated periods of general market decline, each Fund other than the
Eagle International Equity Portfolio may invest up to 100% of its net assets in
money market instruments, including securities issued by the U.S. Government,
its agencies or instrumentalities and repurchase agreements 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
Prospectus 14
<PAGE> 18
or higher by S&P or Moody's. For a description of S&P or Moody's commercial
paper and corporate debt ratings, see the Appendix to the SAI.
NET ASSET VALUE
================================================================================
THE NET ASSET VALUE OF
EACH CLASS OF THE FUNDS'
SHARES ARE CALCULATED
DAILY AS OF THE CLOSE
OF REGULAR TRADING ON
THE NEW YORK STOCK
EXCHANGE.
The net asset values of each Fund's A shares and C shares are calculated by
dividing the value of the total assets of each 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 and other
investments are stated at market value based on the last sales price as reported
by the principal securities exchange on which the securities are 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 Heritage or a 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. Securities
that are quoted in a foreign currency will be valued daily in U.S. dollars at
the foreign currency exchange rate prevailing at the time a Fund calculates its
net asset value per share. Although the Eagle International Equity Portfolio
values its assets in U.S. dollars on a daily basis, it does not intend to
convert holdings of foreign currencies into U.S. dollars on a daily basis. 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 each 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 yet 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, each Fund also may advertise its total return in
the same manner, but without taking into account the initial sales load or CDSL.
Each 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 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 is based on each 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 a Fund's
investment
Prospectus 15
<PAGE> 19
portfolio and a Fund's operating expenses. Investment performance also often
reflects the risks associated with a Fund's investment objective and policies.
These factors should be considered when comparing a Fund's investment results to
those of other mutual funds and other investment vehicles. Additional
performance information is contained in each Fund's annual report to
shareholders, which may be obtained, without charge, by contacting your Fund at
(800) 421-4184. For more information on investment performance, see the SAI.
INVESTING IN THE FUNDS
PURCHASE PROCEDURES
================================================================================
YOU MAY BUY SHARES
OF EACH FUND BY:
Shares of each Fund are offered continuously through the Trust's principal
underwriter, Raymond James & Associates, Inc. (the "Distributor"), and through
other participating dealers or banks that have dealer agreements with the
Distributor. The Distributor 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 each Fund, see "Choosing a Class of Shares."
- - CALLING YOUR
REPRESENTATIVE;
Shares of each 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 APPLICA-
TION CONTAINED IN
THIS PROSPECTUS
AND SENDING
YOUR CHECK; OR
You also may purchase shares of a Fund directly by completing and signing
the Account Application found in this Prospectus and mailing it, along with your
payment, to Heritage Series Trust -- Small Cap Stock Fund, Value Equity Fund,
Growth Equity Fund or Eagle International Equity Portfolio, as applicable,
Heritage Asset Management, Inc., P.O. Box 33022, St. Petersburg, FL 33733.
- - SENDING A
FEDERAL FUNDS
WIRE.
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
Name of the Fund
The class of Shares to be purchased
(Your Account Number Assigned by the Fund)
(Your Name)
Prospectus 16
<PAGE> 20
To open a new account with Federal funds or by wire, you must contact
Heritage 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 Funds" 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 a Fund is $1,000, and a minimum account balance of $500
must be maintained. These minimum requirements may be waived at the discretion
of Heritage. In addition, initial investments in Individual Retirement Accounts
("IRAs") may be reduced or waived under certain circumstances. Contact Heritage
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. 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:
EACH 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 Heritage ("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 Heritage at (800) 421-4184
or your Representative.
RETIREMENT PLANS
================================================================================
Shares of the Funds 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 ("SIMPLE") and other retirement
plans. For more detailed information on retirement plans contact Heritage at
(800) 421-4184 or your Representative and see "Investing in the Funds" in the
SAI.
Prospectus 17
<PAGE> 21
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.
Each Fund offers and sells two classes of shares, A shares and C shares.
(The Eagle International Equity Portfolio offers an additional class offered
through a separate prospectus.) 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. PLEASE
CONSULT WITH YOUR
REPRESENTATIVE.
The purchase plans offered by each 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 a 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
the C shares. For example, if you intend to invest more than $1,000,000 in
shares of a 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 would eventually 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 current fees and expenses for a Fund and the maximum sales
load on A Shares, you would have to hold A shares approximately six 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.
Prospectus 18
<PAGE> 22
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
INVESTED AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING 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% 0.00%(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) Heritage 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:
Heritage, Eagle, and the subadvisers; current and retired officers and Trustees
of the Trust; directors, officers and full-time employees of Heritage, Eagle,
the 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 party 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. Members of the APA Group also
are eligible to purchase A shares at net asset value in amounts equal to the
value of shares redeemed from other mutual funds that were purchased under
reduced sales load programs available to their organization. A shares also may
be purchased without sales loads by investors who participate in certain
broker-dealer wrap fee investment programs.
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 each Fund may be sold at net asset value without any sales load
under Heritage'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 LOAD
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
Prospectus 19
<PAGE> 23
the Combined Purchase Privilege, see the Account Application or "Investing in
the Funds" 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 any 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 a 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 Heritage 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 Funds" 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.
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 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
Prospectus 20
<PAGE> 24
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
a Fund 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 C shares, see "Reinstatement Privilege" and
"Exchange Privilege."
HOW TO REDEEM SHARES
================================================================================
THERE ARE SEVERAL
WAYS FOR YOU TO
SELL YOUR SHARES.
Redemption of Fund shares can be made by:
CONTACTING YOUR REPRESENTATIVE. Your Representative will transmit an order
to a Fund for redemption by that Fund and may charge you a fee for this service.
TELEPHONE REQUEST. You may redeem shares by placing a telephone request to
your 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, Heritage, 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. These parties will employ reasonable
procedures to confirm that telephone instructions are authentic. To the extent
that the Trust, Heritage, the 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
Heritage (currently $5.00). For redemptions of less than $50,000, you may
request that the 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
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-Small Cap Stock Fund, Value Equity
Fund, Growth Stock Fund or Eagle International Equity Portfolio, as applicable,
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. Heritage will transmit the 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
applicable Fund are redeemed to provide the amount of the periodic withdrawal
payment. The purchase
Prospectus 21
<PAGE> 25
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, each Fund will not
knowingly permit the purchase of A shares through the Systematic Investment Plan
if you are at the same time making systematic withdrawals of A shares. Heritage
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 REDEEMED
AND REINVESTED WITHIN
90 DAYS OF REDEMPTION.
YOU MUST NOTIFY
YOUR FUND WHEN YOU
EXERCISE THIS PRIVILEGE.
REINSTATEMENT PRIVILEGE. A shareholder who has redeemed any or all of his
A shares of a 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 a 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 the proceeds are reinvested in shares of a
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 purchase
is to transfer a shareholder's interest in a Fund to his defined contribution
plan, IRA, SEP or SIMPLE. You must notify a Fund if you intend to exercise the
reinstatement privilege.
Contact Heritage 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 a 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 redemption received by a 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 a Fund normally will be made on the business
day after 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;
Prospectus 22
<PAGE> 26
- any written request is signed by a 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
Heritage, as transfer agent, under its current signature guarantee
program.
Each 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, Heritage 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 ANOTHER 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 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. See "Taxes."
For purposes of calculating the commencement of the CDSL holding period for
shares exchanged from a 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
Prospectus 23
<PAGE> 27
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 a Fund may be exchanged for A shares of the Heritage Cash
Trust-Municipal Money 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 Heritage at (800) 421-4184
or by calling your Representative. In the event that you or your Representative
are unable to reach Heritage by telephone, an exchange can be effected by
sending a telegram to Heritage. 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 Heritage or your Representative and see "Exchange Privilege" in the SAI.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
HERITAGE ASSET
MANAGEMENT, INC.
SERVES AS INVESTMENT
ADVISER FOR EACH
FUND, EXCEPT FOR
THE EAGLE
INTERNATIONAL
EQUITY PORTFOLIO.
The business and affairs of each Fund are managed by or under the direction
of the Board of Trustees. The Trustees are responsible for managing the Funds'
business affairs and for exercising all the Funds' 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 Trust shares.
INVESTMENT ADVISERS
Heritage Asset Management, Inc. is the investment adviser and administrator
of each Fund except the Eagle International Equity Portfolio. Heritage is
responsible for reviewing and establishing investment policies for the Funds as
well as administering the Funds' noninvestment affairs. Heritage 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. Heritage manages, supervises and conducts the business
and administrative affairs of the Funds and the other Heritage Mutual Funds with
net assets totaling approximately $2.7 billion as of January 31, 1997.
Heritage's annual investment advisory and administration fee is 1% of the
Small Cap Stock Fund's average daily net assets on the first $50 million and
0.75% on average daily net assets over $50 million. For Value Equity Fund and
Growth
Prospectus 24
<PAGE> 28
Equity Fund, Heritage's annual investment advisory and administration fee is
0.75% of each Fund's average daily net assets. This fee is computed daily and
paid monthly. Heritage voluntarily waives fees or reimburses expenses as
explained under "Total Trust Expenses" and reserves the right to discontinue any
voluntary waiver of its fees or reimbursements to the Funds in the future.
Heritage may recover fees waived in the previous two years.
Eagle Asset Management, Inc. is the Eagle International Equity Portfolio's
investment adviser. The annual advisory fee paid monthly by the Eagle
International Equity Portfolio to Eagle is based on the Fund's average daily net
assets and is 1.00% on the first $100 million of assets and .80% thereafter.
Eagle voluntarily waives fees or reimburses expenses as explained under "Total
Trust Expenses" and reserves the right to discontinue any voluntary waiver of
its fees or reimbursements to the Fund in the future. Eagle may recover fees
waived in the previous two years.
Eagle has been managing private accounts since 1976 for a diverse group of
clients, including individuals, corporations, municipalities and trusts. Eagle
managed approximately $2.8 billion for these clients as of January 31, 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 for 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.
SUBADVISERS
THE INVESTMENT ADVISERS
EMPLOY SUBADVISERS
FOR PROVIDING INVESTMENT
ADVICE AND PORTFOLIO
MANAGEMENT SERVICE
TO THE FUNDS.
Small Cap Stock Fund. The assets of the Small Cap Stock Fund are allocated
among one or more investment subadvisers, subject to review by Heritage and the
Board of Trustees. Heritage periodically will review the allocation of such
assets and, subject to the oversight of the Board of Trustees, may, at its own
discretion, reallocate the assets between investment subadvisers when it deems
such reallocation in the best interest of the Small Cap Stock Fund's
shareholders. The assets of the Small Cap Stock Fund currently are allocated
between two investment subadvisers, Eagle and Awad. Heritage has entered into a
separate agreement with each of the Subadvisers to provide investment advice and
portfolio management services, including placement of brokerage orders, to the
Small Cap Stock Fund for a fee payable by Heritage. Heritage may, in the future,
propose the addition of one or more additional subadvisers, subject to approval
by the Board of Trustees and Fund shareholders.
Eagle makes investment decisions on behalf of its allocated portion of the
Small Cap Stock Fund's assets. In making its investment decisions, Eagle
generally focuses on investing in the securities of companies that Eagle
believes have accelerating earnings growth rates, reasonable valuations
(typically with a price-to-earnings ratio of no more than 75% of the earnings
growth rate), strong management that participates in the ownership of the
company, reasonable debt levels and a high or expanding return on equity. Of
course, not all companies in the portfolio will meet all of these criteria to
the same degree. Eagle utilizes a bottom-up approach to identifying the
companies in which it invests. This approach will include some reliance on the
research of regional and national securities firms, including Raymond James &
Associates, Inc. Eagle also will perform fundamental financial
Prospectus 25
<PAGE> 29
research and frequently will rely on contact with company management to help
identify investment opportunities. For its services to the Small Cap Stock Fund,
Eagle is paid by Heritage an annual fee equal to .50% on the first $50 million
of the Small Cap Stock Fund's average daily net assets under Eagle's investment
discretion and .375% of the Small Cap Stock Fund's average daily net assets over
$50 million under its investment discretion.
Awad & Associates, 477 Madison Ave., New York, New York 10022, is a
division of Raymond James & Associates, Inc. and makes investment decisions on
its allocated portion of the Small Cap Stock Fund's assets. Awad employs an
investment management approach that seeks to provide investment returns in
excess of inflation while attempting to minimize volatility relative to the
overall small cap market. Awad seeks to achieve these goals through fundamental
research consisting of internal research, the use of Raymond James & Associates,
Inc.'s research and the research of high quality regional and Wall Street firms.
There may be some overlap among the portions of the Small Cap Stock Fund managed
by Awad and Eagle. The companies in which Awad invests generally will have, in
the opinion of Awad, steady earnings and cash flow growth, good and/or improving
balance sheets, strong positions in their market niches and the ability to
perform well in a stagnant economy. The companies purchased generally will have
low price/earnings ratios relative to the stock market in general. Awad had $575
million of assets under its discretionary management at December 31, 1996. For
its services to the Small Cap Stock Fund, Awad is paid by Heritage an annual fee
equal to .50% on the first $50 million of the Small Cap Fund's average daily net
assets under Awad's investment discretion and .375% on the Small Cap Stock
Fund's average daily net assets over $50 million under its investment
discretion.
Value Equity Fund. Heritage has entered into an agreement with Dreman
Value Advisors, Inc., 10 Exchange Place, 20th Floor, Jersey City, NJ 07301, to
provide investment advice and portfolio management services, including placement
of brokerage orders, to the Value Equity Fund for a fee payable by Heritage at
an annual rate equal to 0.35% of the Value Equity Fund's average daily net
assets allocated to Dreman by Heritage, without regard to any reduction in fees
actually paid to Heritage as a result of expense limitations. Dreman was
established as a wholly owned subsidiary of Zurich Kemper Investments, Inc.
("ZKI") in August 1995. Dreman previously conducted business as Dreman Value
Management, L.P. Dreman serves as investment adviser to six mutual fund series
and to private accounts with aggregate assets in excess of $3.9 billion as of
January 31, 1997.
Heritage also has entered into a subadvisory agreement with Eagle for a fee
payable by Heritage equal to 50% of the fees payable to Heritage by the Value
Equity Fund without regard to any reduction in fees actually paid to Heritage as
a result of expense limitations. However, Heritage has chosen not to allocate
assets to Eagle at this time.
Growth Equity Fund. Heritage has entered into an agreement with Eagle to
provide investment advice and portfolio management services, including placement
of brokerage orders, on behalf of the Growth Equity Fund. For these services,
Heritage pays Eagle a fee equal to 50% of the fees payable to Heritage by the
Growth Equity Fund, without regard to any reduction in fees actually paid to
Heritage as a result of voluntary fee waivers by Heritage.
Eagle International Equity Portfolio. Eagle has entered into a subadvisory
agreement with Martin Currie, Inc., a New York corporation, to furnish a
continuous investment program for the Eagle International Equity Portfolio.
Martin Currie
Prospectus 26
<PAGE> 30
is a wholly owned subsidiary of Martin Currie Limited, a private limited company
incorporated in the United Kingdom. Martin Currie Limited is one of Scotland's
largest professional money managers and, together with Martin Currie, has $8.5
billion under management as of December 31, 1996. Since 1881, Martin Currie
Limited and its predecessors have focused on providing their clients with
investment management services. Martin Currie makes investment decisions on
behalf of the Eagle International Equity Portfolio and places all orders for
purchases and sales of securities of the Eagle International Equity Portfolio.
Under the agreement, Martin Currie receives an annual fee from Eagle based on
the Eagle International Equity Portfolio's average daily net assets of .50% on
the first $100 million of assets and .40% thereafter.
PORTFOLIO MANAGEMENT
Small Cap Stock Fund. Bert L. Boksen serves as portfolio manager of the
portion of the Fund's assets allocated to Eagle and James D. Awad serves as
portfolio manager of the portion of the Fund's assets allocated to Awad. Messrs.
Boksen and Awad have been the portfolio managers since August 7, 1995 and the
Fund's inception, respectively, and are responsible for the day-to-day
management of their respective portions of the Fund's assets. Mr. Boksen is a
Senior Vice President of Eagle. Mr. Boksen was employed for 16 years by Raymond
James & Associates, Inc. in its institutional research and sales department.
While employed by Raymond James & Associates, Inc., Mr. Boksen served as co-head
of Research, Chief Investment Officer and Chairman of the Raymond James &
Associates, Inc. Focus List Committee. Mr. Awad has been Chairman of Awad since
1992. Mr. Awad is assisted by Dennison T. Veru, who joined Awad & Associates in
1992 and became President in January 1995. From 1990 to 1992, he was employed by
Smith Barney.
Value Equity Fund. Christian C. Bertelsen has served as portfolio manager
for the Value Equity Fund since its inception on December 30, 1994. He is
responsible for the day-to-day management of the Value Equity Fund's investment
portfolio. Mr. Bertelsen became Chief Investment Officer of Dreman on March 1,
1996. From 1993 to May 31, 1996, Mr. Bertelsen was employed by Eagle. From 1986
to 1993, Mr. Bertelsen held portfolio management positions with Colonial
Management Associates, Inc.
Growth Equity Fund. The portfolio manager for the Growth Equity Fund is
Kenneth W. Corba. He is responsible for the day-to-day management of the Growth
Equity Fund's investment portfolio. Mr. Corba is an Executive Vice President and
Chief Investment Officer of Eagle. Mr. Corba joined Eagle in 1995. From 1984 to
1995, Mr. Corba held various portfolio management positions with Stein Roe &
Farnham, Inc.
Eagle International Equity Portfolio. Investment decisions for the Eagle
International Equity Portfolio are made by a Committee of Martin Currie
organized for that purpose, and no single person is primarily responsible for
making recommendations to the Committee. The Committee is subject to the general
oversight of Martin Currie, Eagle, and the Trustees.
Brokerage Practices. Each Fund 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.
Prospectus 27
<PAGE> 31
In selecting broker-dealers, each subadviser may consider research and
brokerage services furnished to it and its affiliates. Subject to seeking the
most favorable price and execution available, each subadviser may consider sales
of shares of a Fund as a factor in the selection of broker-dealers. See
"Brokerage Practices" in the SAI.
FUND ACCOUNTANT, ADMINISTRATOR AND TRANSFER AGENT
Heritage is the transfer agent for each Fund and fund accountant and
administrator for each Fund except Eagle International Equity Portfolio. Each
Fund pays directly for Fund accounting and transfer agent services. In addition
to its duties as transfer agent, Heritage also may receive a fee from Eagle for
providing certain administrative services for the Eagle International Equity
Portfolio. State Street Bank & Trust is the fund accountant for the Eagle
International Equity Portfolio.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS AND OTHER DISTRIBUTIONS
================================================================================
SEVERAL OPTIONS EXIST
FOR RECEIVING DIVIDENDS
AND OTHER DISTRIBUTIONS.
Dividends from net investment income and net realized gains from foreign
currency transactions are declared and paid annually. Each Fund also distributes
to its shareholders substantially all of its net realized capital gains on
portfolio securities 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
into 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 their net asset
value 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 Heritage in writing.
Dividends paid by each 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
================================================================================
EACH FUND PAYS SERVICE
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
Prospectus 28
<PAGE> 32
services rendered to Class A shareholders and the maintenance of Class A
shareholder accounts, each Fund may pay the Distributor distribution and service
fees of up to 0.35% of such Fund's average daily net assets attributable to A
shares of that Fund. Currently, each Fund pays the Distributor a fee of up to
.25% of that Fund's average daily net assets attributable to A shares. These
fees are 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, each Fund pays the Distributor a service fee of 0.25% and
a distribution fee of 0.75% of that Fund's average daily net assets attributable
to C shares. These fees are computed daily and paid monthly.
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 Fund's 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 each Fund.
If a Plan is terminated, the obligation of a 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
================================================================================
EACH FUND IS NOT
EXPECTED TO HAVE ANY
FEDERAL TAX LIABILITY.
HOWEVER, YOUR TAX
OBLIGATIONS ARE
DETERMINED BY YOUR
PARTICULAR TAX
CIRCUMSTANCES.
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Code. By doing so, each 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 gains 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 each Fund's investment company taxable income are taxable to its
shareholders as ordinary income, to the extent of that Fund's earnings and
profits, whether received in cash or in additional Fund shares. Distributions of
each Fund's net capital gain, when designated as such, are taxable to its
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. No substantial portion of the dividends paid by the Eagle International
Equity Portfolio will be eligible for the dividends-received deduction allowed
to corporations.
WHEN YOU SELL OR
EXCHANGE SHARES, IT
GENERALLY IS CONSIDERED
A TAXABLE EVENT
TO YOU.
Dividends and other distributions declared by each Fund in November or
December of any year and payable to shareholders of record on a date in one of
those months will be deemed to have been paid by the Fund and received by its
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. Each Fund is
required
Prospectus 29
<PAGE> 33
to withhold 31% of all dividends, capital gain distributions and redemption
proceeds payable to individuals and certain other noncorporate 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 of a Fund, 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 each 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 are therefore urged to
consult your tax adviser.
SHAREHOLDER INFORMATION
================================================================================
YOU MAY VOTE ON
MATTERS SUBMITTED FOR
YOUR APPROVAL. EACH
SHARE YOU OWN
ENTITLES YOU TO
ONE VOTE.
Each share of a Fund gives the shareholder one vote in matters submitted to
shareholders for a vote. A shares and C shares of each Fund have equal voting
rights, except that in matters affecting only a particular class or series, only
shares of that class or series are entitled to vote. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust's or a
Fund's operation and for the election of Trustees under certain circumstances.
Trustees may be removed by the other 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 Trust's
outstanding shares.
No dealer, salesman or other person has been authorized to give any
information or to make any representation other than that 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 Trust or the Distributor. This Prospectus does
not constitute an offering in any state in which such offering may not lawfully
be made.
Prospectus 30
<PAGE> 34
[Pictures 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/SIPC
P.O. Box 33022, St. Petersburg, FL 33733
813-573-8143 800-421-4184
<PAGE>
<PAGE> 1
The Eagle
International
Equity Portfolio
Prospectus
March 1, 1997
EAGLE
Asset Management Inc.
880 Carillon Parkway P.O. Box 10520
St. Petersburg, FL 33733-0520
(813) 573-2453 (800) 237-3101
<PAGE> 2
ABOUT THE EAGLE CLASS OF THE PORTFOLIO
Expense summary 2
........................................................................
Financial Highlights 3
........................................................................
Objective 4
........................................................................
How the objective is pursued 4
........................................................................
Other investment policies and risk factors 5
........................................................................
How performance is shown 8
........................................................................
How the Portfolio is managed 9
........................................................................
Distribution Plan 10
........................................................................
Organization and history 10
ABOUT YOUR INVESTMENT
How to buy shares 11
........................................................................
How to sell shares 11
........................................................................
How the Portfolio values its shares 12
........................................................................
How distributions are made; tax information 13
<PAGE> 3
EAGLE INTERNATIONAL EQUITY PORTFOLIO
EAGLE CLASS OF SHARES
PROSPECTUS -- MARCH 1, 1997
Eagle International Equity Portfolio (the "Portfolio") seeks capital
appreciation principally through investment in an international portfolio of
equity securities. Income is an incidental consideration. The Portfolio invests
primarily in equity securities of companies whose principal activities are
outside of the United States. The Portfolio offers three classes of shares. This
Prospectus relates only to the Eagle Class. The Portfolio is a series of
Heritage Series Trust.
This Prospectus explains concisely what you should know before investing in the
Portfolio. Please read it carefully and keep it for future reference. You can
find more detailed information in the Statement of Additional Information dated
March 1, 1997, which is incorporated by reference herein. A copy of the
Statement of Additional Information, which has been filed with the Securities
and Exchange Commission, is available free of charge and shareholder inquiries
can be made by writing to Eagle Asset Management, Inc. or by calling (800)
237-3101.
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.
880 Carillon Parkway
P.O. Box 10520
St. Petersburg, Florida 33733-0520
(800) 237-3101
(1) P R O S P E C T U S
<PAGE> 4
ABOUT THE EAGLE CLASS OF THE PORTFOLIO
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in the Eagle
Class of the Portfolio. The following table summarizes your maximum transaction
costs from investing in the Eagle Class and expenses that the Eagle Class
incurred during its 1996 fiscal year.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases NONE
- ------------------------------------------------------------------
Deferred Sales Charge NONE
- ------------------------------------------------------------------
Wire Redemption Fee $5.00
==================================================================
ANNUAL EAGLE CLASS OPERATING EXPENSES
(as a percentage of average net assets)
- ------------------------------------------------------------------
Management Fees (after fee waiver) 0.29%
- ------------------------------------------------------------------
Rule 12b-1 Fees (including shareholder servicing fees) 1.00%
- ------------------------------------------------------------------
Other Expenses 1.31%
- ------------------------------------------------------------------
Total Eagle Class Operating Expenses (after fee waiver) 2.60%
- ------------------------------------------------------------------
</TABLE>
The table is provided to help you understand the expense of investing in the
Eagle Class. The Portfolio's investment adviser, Eagle Asset Management, Inc.
("Eagle"), voluntarily waives its fee or, if necessary reimburses the Eagle
Class, to the extent that "Total Eagle Class Operating Expenses," exclusive of
foreign taxes paid, exceed 2.60% of the Portfolio's average daily net assets
attributable to the Eagle Class during the fiscal year. Absent such
reimbursement, "Management fees" would have been 1.00%, and "Total Eagle Class
Operating Expenses" would have been 3.31%. Due to the imposition of Rule 12b-1
Fees, it is possible that long-term shareholders of the Eagle Class may pay more
in total sales charges than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities Dealers, Inc.
The following Example shows the estimated cumulative expenses attributable to a
hypothetical $1,000 investment in shares of the Eagle Class over specified
periods.
EXAMPLE
Your investment of $1,000 would incur the following expenses, assuming 5% annual
return and redemption at the end of each period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Eagle Class Operating Expenses $26 $81 $138 $293
- ---------------------------------------------------------------------------------------------------
</TABLE>
This Example does not represent past or future expense levels. Actual Portfolio
expenses may be more or less than those shown above. Federal regulations require
the Example to assume a 5% annual return, but actual annual return will vary.
(2) P R O S P E C T U S
<PAGE> 5
FINANCIAL HIGHLIGHTS
The following table shows important financial information for an Eagle Class
share of the Portfolio outstanding for the periods indicated, including net
investment income, net realized and unrealized gain on investments, and certain
other information. It has been derived from financial statements appearing in
the Statement of Additional Information ("SAI"). The financial statements and
information in this table for the fiscal year ended October 31, 1996 have been
audited by Price Waterhouse LLP, independent accountants, whose report thereon
is included in the SAI, which may be obtained by calling the Portfolio at the
telephone number on the front page of this Prospectus. Information presented for
the fiscal period ended October 31, 1995 was audited by other auditors who
served as the Trust's independent accountant.
EAGLE CLASS
<TABLE>
<CAPTION>
1996++* 1995+*
------- ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $20.79 $20.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (a)................................... (.01) (.03)
Net realized and unrealized gain on investments........... 1.84 0.82
------ ------
Total from investment operations.......................... 1.83 0.79
------ ------
DISTRIBUTIONS:
Dividends from net investment income...................... (.01) .00
Distributions from net realized gain on investments....... (0.47) .00
------ ------
Total Distributions....................................... (0.48) .00
------ ------
Net asset value, end of the period........................ $22.14 $20.79
====== ======
Total Return (%).......................................... 8.93 3.95(c)
RATIOS (%)/SUPPLEMENTAL DATA:
Ratio of operating expenses, net, to average daily net
assets (a)............................................. 2.60 2.60(b)
Ratio of net investments loss to average daily net
assets................................................. (0.02) (0.33)(b)
Portfolio turnover rate................................... 59 61(b)
Average commission rate on portfolio transactions......... $.0289 --
Net assets, end of period (millions)...................... $ 22 $ 10
</TABLE>
- ---------------
* Per share amounts have been calculated using the monthly average share
method.
+ For the period May 1, 1995 (commencement of operations) to October 31, 1995.
++ For the period November 1, 1995 to October 31, 1996.
(a) Excludes management fees waived and expenses reimbursed by the Manager in
the amount of $.16 and $.17 per Eagle share for each of the two periods
ended October 31, 1996. The operating expense ratios including such items
would have been 3.31% and 5.09% (annualized) for Eagle shares for the
period ended October 31, 1996 and 1995, respectively.
(b) Annualized.
(c) Not annualized.
(3) P R O S P E C T U S
<PAGE> 6
OBJECTIVE
The Portfolio seeks capital appreciation principally through investment in an
international portfolio of equity securities. Income is an incidental
consideration. There can be no assurance that the Portfolio's investment
objective will be achieved.
HOW THE OBJECTIVE IS PURSUED
Under normal market conditions, at least 65% of the Portfolio's total assets
will be invested in common stocks (which may or may not pay dividends),
convertible bonds, convertible preferred stocks, warrants, rights or other
equity securities of foreign issuers and sponsored and unsponsored depository
receipts representing the securities of foreign issuers (including American
Depository Receipts, European Depository Receipts, Global Depository Receipts
and International Depository Receipts, among others). Its remaining assets may
be invested in foreign debt securities, securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities, repurchase agreements and
foreign and domestic short-term investments as discussed in the SAI. In
addition, the Portfolio may invest up to 10% of its assets in securities of
other investment companies, such as closed-end investment companies that invest
in foreign markets. As a shareholder of an investment company, the Portfolio may
indirectly bear service fees, which are in addition to the fees the Portfolio
pays to its own service providers. The Portfolio may borrow up to 10% of its
total assets from banks as a temporary measure, such as to meet higher than
anticipated redemption requests. For a further discussion of these investment
objectives and policies, see "Investment Information" in the SAI.
The Portfolio normally will invest at least 50% of its investment portfolio in
securities traded in developed foreign securities markets, such as those
included in the Morgan Stanley Capital International Europe, Australia, Far East
Index ("EAFE Index"). Countries in the EAFE Index include Japan, France, the
United Kingdom, Germany, Hong Kong and Malaysia, among others. The Portfolio
also will invest in emerging markets (which may include investments in countries
such as India, Mexico, Poland and Singapore, for example). Emerging markets are
those of countries whose markets may not yet fully reflect the potential of the
developing economy. The Portfolio may invest in foreign currency and purchase
and sell foreign currency forward contracts and futures contracts. See "Other
Investment Policies and Risk Factors -- Futures Transactions; Foreign Currency
Transactions" below.
The Portfolio will not limit its investments to any particular type or size of
company. It may invest in companies whose earnings are believed by the
Portfolio's investment subadviser, Martin Currie Inc. (the "Subadviser"), to be
in a relatively strong growth trend, or in companies in which significant
further growth is not anticipated but whose market value per share is thought by
the Subadviser to be undervalued. It may invest in small and relatively less
well known companies, which may have more restricted product lines or more
limited financial resources than larger, more established companies and may be
more severely affected by economic downturns or other adverse developments.
Trading volume of these companies' securities may be low and their market values
may be volatile. While the Portfolio's investment strategy generally will
emphasize equity securities, the Portfolio may invest a portion of its assets in
investment grade fixed income securities when, in the opinion of the Subadviser,
equity securities appear to be overvalued or the Subadviser otherwise believes
investing in fixed income securities affords the Portfolio the opportunity for
capital growth, as in periods of declining interest rates.
(4) P R O S P E C T U S
<PAGE> 7
In allocating the Portfolio's assets among the various securities markets of the
world, the Subadviser will consider such factors as the condition and growth
potential of the various economies and securities markets, currency and taxation
considerations and other pertinent financial, social, national and political
factors. Under certain adverse investment conditions, the Portfolio may restrict
the number of securities markets in which its assets will be invested, although
under normal market circumstances the Portfolio's investments will involve
securities principally traded in at least three different countries. Otherwise,
there are no prescribed limits on geographic asset distribution and the
Portfolio has the authority to invest in securities traded in securities markets
of any country in the world. The Portfolio will invest only in markets where, in
the judgment of the Subadviser, there exists an acceptable framework of market
regulation and sufficient liquidity.
The securities markets of many nations can be expected to move relatively
independently of one another because business cycles and other economic or
political events that influence one country's securities markets may have little
effect on the securities markets of other countries. By investing in an
international securities portfolio, the Portfolio seeks to reduce the risks
associated with investing in the economy of only one country. See "Other
Investment Policies and Risk Factors -- Foreign Investments -- Risk Factors"
below.
Although the Portfolio will not trade primarily for short-term profits, the
Subadviser may make investments with potential for short-term appreciation when
such action is deemed desirable and in the best interests of shareholders. In
addition, for temporary defensive purposes, the Portfolio may invest all or a
major portion of its assets in (1) foreign debt securities, (2) debt and equity
securities of U.S. issuers, and (3) obligations issued or guaranteed by the
United States or a foreign government or their respective agencies, authorities
or instrumentalities. Portfolio shares will fluctuate in value as a result of
changes in the value of its portfolio investments.
OTHER INVESTMENT POLICIES AND RISK FACTORS
The Portfolio may engage in the following investment practices, among others,
each of which involves special risks. The SAI contains more detailed information
about these practices, including limitations designed to reduce these risks. The
Portfolio's investment objective is fundamental and may not be changed without
shareholder approval. All policies of the Portfolio described in this Prospectus
may be changed by the Board of Trustees without shareholder approval. For a
further discussion of the Portfolio's investment policies and risks, see
"Investment Information" in the SAI.
CONVERTIBLE SECURITIES. The Portfolio may invest in convertible securities that
are rated as investment grade (BBB or above by Standard & Poor's Ratings Group
("S&P") or Baa or above by Moody's Investors Service, Inc. ("Moody's")) at the
time of purchase, or unrated convertible securities 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 or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds. The Portfolio may retain a security that subsequently has been
downgraded below investment grade if, in the Subadviser's opinion, it is in the
Portfolio's best interest. The Portfolio also may invest up to 5% of its assets
in convertible securities rated below investment grade by S&P or Moody's or
unrated securities deemed to be below investment grade by the 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
(5) P R O S P E C T U S
<PAGE> 8
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
these lower-rated securities and the Appendix to the SAI for a description of
S&P's and Moody's corporate bond ratings.
FOREIGN INVESTMENTS -- RISK FACTORS. The Portfolio's investments in securities
of foreign issuers, or securities principally traded overseas, may involve
certain special risks due to foreign economic, political and legal developments,
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, and possible difficulty in
obtaining and enforcing judgments against foreign entities. Furthermore, foreign
issuers are subject to different, often less comprehensive, accounting,
reporting and disclosure requirements than domestic issuers. The securities of
some foreign companies and foreign securities markets are less liquid and at
times more volatile than securities of comparable U.S. companies and U.S.
securities markets. Foreign brokerage commissions and other fees are generally
higher than in the United States. 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. There also are special tax
considerations that apply to securities of foreign issuers and securities
principally traded overseas.
The Portfolio's investments in emerging markets include investments in countries
whose economies or securities markets are not yet highly developed. Special
considerations associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, a limited number of potential buyers for such
securities and delays and disruptions in securities settlement procedures.
The Portfolio's investments in foreign currency denominated debt obligations and
hedging activities likely will produce a difference between its book income and
its taxable income. If the Portfolio's book income exceeds its taxable income, a
portion of the Portfolio's income distributions would constitute returns of
capital for tax purposes because the Portfolio distributes substantially all of
its net investment income. See "How Distributions Are Made; Tax Information." In
addition, if the Portfolio's taxable income exceeds its book income, the
Portfolio might have to distribute all or part of that excess to qualify as a
"regulated investment company" for Federal tax purposes or to avoid the
imposition of a 4% excise tax on certain undistributed income and gains. See
"Taxes" in the SAI.
FORWARD COMMITMENTS, WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The
Portfolio may purchase portfolio securities on a when-issued basis, may purchase
and sell such securities for delayed delivery and may make contracts to purchase
such securities for a fixed price at a future date beyond normal settlement time
("forward commitments"). When-issued transactions, delayed delivery purchases
and forward commitments involve a risk of loss if the value of the securities
declines prior to the settlement date, which risk is in addition to the risk of
decline in the value of the Portfolio's other assets. No income accrues to the
purchaser of such securities prior to delivery.
(6) P R O S P E C T U S
<PAGE> 9
ILLIQUID SECURITIES. The Portfolio may invest up to 10% of its net assets in
"illiquid securities," which are defined as securities that may not be disposed
of in the ordinary course of business at approximately the value at which the
Portfolio has valued such securities, and which includes certain securities
whose disposition is restricted by the securities laws. Restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended, which are determined to be liquid under Board-approved guidelines, are
not subject to the 10% limit.
FUTURES TRANSACTIONS; FOREIGN CURRENCY TRANSACTIONS. The Portfolio may engage
in transactions in futures contracts and forward contracts to adjust the
risk/return characteristics of the Portfolio's investment portfolio. The
Portfolio may buy and sell stock index and currency futures contracts. A
currency futures contract is an agreement between two parties to buy and sell
the underlying currency for a set price on a future date. A stock index future
is an obligation to make or take a cash settlement, in the future, based on
price movements that occur in the specific stock index underlying the contract.
If the Subadviser wants to hedge the Portfolio's exposure to a broad decline in
equity market prices, it might sell futures contracts on stock indices. Then, if
the value of the underlying securities declines, the value of the futures
contracts should increase. If, however, the value of the underlying securities
increases, the Portfolio should suffer a loss on its futures contract position.
Likewise, if the Portfolio expects stock prices to rise, the Portfolio might
purchase stock index futures contracts to offset potential increases in the
acquisition cost of securities that the Portfolio intends to acquire. If, as
expected, the market value of the equity indices and futures contracts with
respect thereto increase, the Portfolio would benefit from a rise in the value
of long-term securities without actually buying them until the market had
stabilized. However, if the value of the equity indices decline, the value of
the futures contracts also will decline.
The Portfolio also may buy and sell foreign currencies, foreign currency futures
contracts and forward foreign currency contracts. A forward foreign currency
contract is an agreement between the Portfolio and a contra party to buy or sell
a specified currency at a specified price and future date. If a decline in the
value of a particular currency relative to the U.S. dollar is anticipated, the
Portfolio may enter into a futures contract or forward contract to sell that
currency as a hedge. If it is anticipated that the value of a foreign currency
will rise, the Portfolio may purchase a currency futures contract or forward
contract to protect against an increase in the price of securities denominated
in a particular currency the Portfolio intends to purchase. These practices,
however, may present risks different from or in addition to the risks associated
with investments in foreign currencies.
The Portfolio might not use any of the strategies described above, and there can
be no assurance that any strategy used will succeed. If the Subadviser
incorrectly forecasts stock market or currency exchange rates in utilizing a
strategy for the Portfolio, the Portfolio would be in a better position if it
had not hedged at all. Although futures contracts and forward contracts are
intended to replicate movements in the cash markets for the securities and
currencies in which the Portfolio invests without the large cash investments
required for dealing in such markets, they may subject the Portfolio to
additional risks. The principal risks associated with the use of futures and
forward contracts are: (1) imperfect correlation between movements in the market
price of the portfolio investment or currency (held or intended to be purchased)
being hedged and in the price of the futures contract or forward contract; (2)
possible lack of a liquid secondary market for closing out futures or forward
contract positions; (3) the need for additional portfolio management skills and
techniques; (4) the fact
(7) P R O S P E C T U S
<PAGE> 10
that, while hedging strategies can reduce the risk of loss, they can also reduce
the opportunity for gain, or even result in losses, by offsetting favorable
price movements in hedged investments; and (5) the possible inability of the
Portfolio to purchase or sell a portfolio security at a time when it would
otherwise be favorable for it to do so, or the possible need for the Portfolio
to sell a security at a disadvantageous time, due to the need for the Portfolio
to maintain "cover" or to segregate securities in connection with hedging
transactions and the possible inability of the Portfolio to close out or
liquidate a hedged position.
For a hedge to be completely effective, the price change of the hedging
instrument should equal the price change of the security or currency being
hedged. Such equal price changes are not always possible because the investment
underlying the hedging instrument may not be the same investment that is being
hedged. The Subadviser will attempt to create a closely correlated hedge, but
hedging activity may not be completely successful in eliminating market value
fluctuation. The ordinary spreads between prices in the cash and futures
markets, due to differences in the nature of those markets, are subject to
distortion. Due to the possibility of distortion, a correct forecast of currency
exchange rate or stock market trends by the Subadviser may still not result in a
successful transaction. The Subadviser may be incorrect in its expectations as
to the extent of various currency exchange rate or stock market movements or the
time span within which the movements take place.
Although hedging strategies are intended to reduce fluctuations in Portfolio net
asset value, the Portfolio nonetheless anticipates that its net asset value will
fluctuate.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
Portfolio 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 investments in securities, including possible decline in
the market value of the underlying securities and delays and costs to the
Portfolio if the other party to the repurchase agreement becomes bankrupt, the
Portfolio intends to enter into repurchase agreements only with banks and
dealers in transactions believed by Eagle to present minimal credit risks in
accordance with guidelines established by the Board of Trustees.
HOW PERFORMANCE IS SHOWN
TOTAL RETURN DATA MAY FROM TIME TO TIME BE INCLUDED IN ADVERTISEMENTS ABOUT THE
PORTFOLIO. "Total Return" for the one-, five- and ten-year periods or, if such
periods have not yet elapsed, at the end of a shorter period corresponding to
the life of the Portfolio through the most recent calendar quarter represents
the average annual compounded rate of return on an investment of $1,000 in the
Portfolio at the public offering price. The Portfolio 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 will simply reflect the increase in net asset value
per share over a period of time, adjusted for dividends and other distributions.
The Portfolio's performance may be compared to various indices.
ALL DATA IS BASED ON THE PORTFOLIO'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 Portfolio's
investment portfolio and the Portfolio's operating expenses. Investment
(8) P R O S P E C T U S
<PAGE> 11
performance also often reflects the risks associated with the Portfolio's
investment objective and policies. These factors should be considered when
comparing the Portfolio's investment results to those of other mutual funds and
other investment vehicles. For more information on investment performance, see
the SAI.
HOW THE PORTFOLIO IS MANAGED
The Trustees are responsible for generally overseeing the conduct of the
Portfolio's business and affairs. Subject to this oversight, Eagle acts as the
Portfolio's investment adviser. The annual advisory fee paid monthly by the
Portfolio to Eagle is based on the Portfolio's average daily net assets and is
1.00% on the first $100 million of assets and .80% thereafter. Eagle voluntarily
waives fees and reimburses expenses as explained under "Expense Summary" and
reserves the right to discontinue any voluntary waiver of its fees or
reimbursements to the Portfolio in the future. Eagle may recover fees waived in
the previous two years.
Eagle has been managing private accounts since 1976 for a diverse group of
clients, including individuals, corporations, municipalities and trusts. Eagle
managed approximately $2.8 billion for these clients as of January 1997. In
addition to advising private accounts, Eagle acts as investment 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 and Heritage Capital Appreciation Trust (although no
assets currently are allocated to Eagle for 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.
Eagle has entered into a subadvisory agreement with Martin Currie Inc., a New
York corporation, to furnish a continuous investment program for the Portfolio.
The Subadviser is a wholly-owned subsidiary of Martin Currie Limited, a private
limited company incorporated in the United Kingdom. Martin Currie Limited is one
of Scotland's largest professional money managers and, together with the
Subadviser, has $8.5 billion under management as of December 31, 1996. Since
1881, Martin Currie Limited and its predecessors have focused on providing their
clients with investment management services. The Subadviser makes investment
decisions on behalf of the Portfolio and places all orders for purchases and
sales of securities of the Portfolio. Under the agreement, the Subadviser
receives an annual fee from Eagle based on the Portfolio's average daily net
assets of .50% on the first $100 million of assets and .40% thereafter.
Investment decisions for the Portfolio are made by a Committee of the Subadviser
organized for that purpose, and no single person is primarily responsible for
making recommendations to the Committee. The Committee is subject to the general
oversight of the Subadviser, Eagle and the Trustees.
In selecting broker-dealers, the Subadviser may consider research and brokerage
services furnished to it and its affiliates. Subject to seeking the most
favorable price and execution available, the Subadviser may consider sales of
shares of the Portfolio as a factor in the selection of broker-dealers. See
"Brokerage Practices" in the SAI. The Portfolio pays all Portfolio expenses that
are not assumed by Eagle, including Trustees' fees and auditing, legal,
custodian and transfer agency expenses. Payments under the Portfolio's
Distribution Plan are borne by the Portfolio.
(9) P R O S P E C T U S
<PAGE> 12
Heritage Asset Management, Inc. ("Heritage"), an affiliate of Eagle, is the
Portfolio's transfer agent (the "Transfer Agent"). Heritage also is a
wholly-owned subsidiary of Raymond James Financial, Inc. In addition to its
duties as Transfer Agent, Heritage also may provide certain administrative
services for the Portfolio. Heritage receives a fee from Eagle for performing
these administrative services for the Portfolio.
DISTRIBUTION PLAN
The Portfolio, on behalf of the Eagle Class, has adopted a Distribution Plan
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended, that permits the Portfolio to compensate Raymond James & Associates,
Inc. ("Distributor") for services provided and expenses incurred by it in
promoting the sale of Eagle Class shares, reducing redemptions, or maintaining
or improving services provided to shareholders by the Distributor or
participating dealers. The Plan provides for payments by the Portfolio to the
Distributor at the annual rate of up to .75% of the Eagle Class's average daily
net assets, subject to the authority of the Trustees to reduce the amount of
payment or to suspend the Plan for such periods as they may determine. Subject
to these limitations, the amount of such payments and the specific purposes for
which they are made shall be determined by the Trustees. If the Plan is
terminated, the obligation of the Portfolio to make payments to the Distributor
pursuant to the Plan will cease.
In order to compensate dealers, including for this purpose certain financial
institutions, for services provided in connection with the maintenance of
shareholder accounts, the Plan also authorizes the payment by the Portfolio to
the Distributor at an annual rate of up to .25% of the Eagle Class's average net
asset value.
ORGANIZATION AND HISTORY
The Portfolio is one of the separate series of shares ("Series") of Heritage
Series Trust (the "Trust"), a business trust organized under the laws of the
Commonwealth of Massachusetts on October 28, 1992. The Trust is an open-end,
diversified management investment company with an unlimited number of authorized
shares of beneficial interest. Each share has one vote, with fractional shares
voting proportionally. In matters affecting only a particular Series or class of
Series shares, only shares of that Series or class of Series shares are entitled
to vote. Any Series may suspend the sale of its shares at any time and may
refuse any order to purchase shares. Although the Trust is not required to hold
annual meetings of its shareholders, shareholders of at least 10% of the
outstanding shares can call a meeting to elect or remove Trustees or to take
other actions as provided in the Declaration of Trust.
The Portfolio offers three classes of shares: Eagle Class shares, Class A shares
and Class C shares. All shares issued prior to December 26, 1995 are designated
Eagle Class shares. Eagle Class shares are issued without imposition of an
initial sales charge or a contingent deferred sales load ("CDSL"). Class A
shares are subject to a front-end sales load, and Class C shares are subject to
a CDSL. These expense differences may affect performances. This Prospectus
relates solely to Eagle Class shares. You may contact Heritage at (800) 421-4184
or a registered representative of the Distributor, a participating dealer, or
participating bank for more information concerning Class A and Class C shares or
for assistance in determining which class is appropriate for your investment
objectives.
(10) P R O S P E C T U S
<PAGE> 13
ABOUT YOUR INVESTMENT
HOW TO BUY SHARES
Initial purchases for any account may be made by sending a signed and completed
Eagle New Account Document to Eagle International Equity Portfolio -- Eagle
Class, P.O. Box 10520, St. Petersburg, FL 33733. Upon receipt and acceptance by
Eagle of the Eagle New Account Document, the Transfer Agent will place your
order for Eagle Class shares. Payment for initial purchases must be made within
three business days of the receipt of your order.
Subsequent purchases may be made (1) through the Distributor, or through a
participating dealer or participating bank by placing an order for Eagle Class
shares with the Distributor, a participating dealer or participating bank and
making payment within three business days of purchase to the Distributor,
participating dealer or participating bank, or (2) by making a check payable to
the Portfolio and sending it to Eagle International Equity Portfolio, P.O. Box
10520, St. Petersburg, FL 33733. Certificates evidencing share ownership will be
provided only upon request.
Orders accepted by the Distributor, participating dealer or participating bank
before the close of regular trading on the New York Stock Exchange
("Exchange") -- generally 4:00 p.m. New York City time -- and orders received by
a participating dealer or participating bank prior to the close of regular
trading on the Exchange and transmitted to the Distributor prior to 5:00 p.m. on
that day will be executed at the net asset value as determined as of the close
of regular trading on the Exchange on that day. Orders accepted after the close
of regular trading on the Exchange will be executed at the net asset value
determined as of the close of regular trading on the Exchange on the next
trading day. Normally, orders will be accepted upon receipt of funds and will be
executed at the net asset value next determined after such order is received.
The Portfolio reserves the right to refuse any order in whole or in part, if the
Portfolio determines that it is in its best interests.
MINIMUM INVESTMENT REQUIRED. The minimum initial investment in the Eagle Class
is $50,000 ($25,000 for investors who have $100,000 or more with Eagle in
individually managed accounts when aggregated with the investor's investment in
the Portfolio). Additional investments into an existing Eagle Class account must
meet a $1,000 minimum. If your account value falls below $20,000 as a result of
one or more redemptions, the Portfolio may redeem your shares and send you the
proceeds after giving you 30 days' notice during which period you may increase
your investment to the required $20,000 account minimum. Eagle reserves the
right, at its discretion, to waive the minimum investment required.
HOW TO SELL SHARES
You can sell your shares to the Eagle Class any day the Exchange is open, either
directly to the Portfolio or through the Distributor, a participating dealer or
participating bank. If you are selling shares that have recently been purchased
by personal check, the Portfolio may delay mailing you the proceeds of the sale
until the purchase check has cleared, which may take up to seven days.
SELLING SHARES DIRECTLY TO THE PORTFOLIO. Send a signed letter of instruction
or stock power form to Eagle International Equity Portfolio, P.O. Box 10520, St.
Petersburg, FL 33733, stating the amount or number of
(11) P R O S P E C T U S
<PAGE> 14
Eagle Class shares you want redeemed and your account number. Any certificates
representing shares that you want to sell must be included with your written
instructions, and either the certificates must be endorsed for transfer exactly
as the name or names appear on the certificates or an accompanying stock power
must be attached. The price you will receive is the next net asset value
calculated after the Portfolio receives your request in proper form. To receive
that day's net asset value, the Transfer Agent must receive your request before
the close of regular trading on the Exchange. If you sell shares having a net
asset value of $100,000 or more, or if you want your redemption proceeds sent to
an address other than your account's address of record, signatures of the
account's registered owners or their legal representative must be guaranteed by
a bank, broker-dealer or certain other financial institutions that are deemed
acceptable by the Transfer Agent under its current signature guarantee program.
See the SAI for more information about where to obtain a signature guarantee.
The Transfer Agent usually requires additional documentation for the sale of
shares by a corporation, agent or fiduciary, or a surviving joint owner. Contact
the Transfer Agent for details.
THE PORTFOLIO USUALLY SENDS YOU PAYMENT FOR YOUR SHARES THE BUSINESS DAY AFTER
YOUR REQUEST IS RECEIVED. Under unusual circumstances, the Portfolio may
suspend repurchases, or postpone payment for more than three days, as permitted
by Federal securities law.
SELLING SHARES THROUGH YOUR INVESTMENT DEALER. You also may redeem shares
through the Distributor, a participating dealer or participating bank. Your
dealer must receive your request before the close of regular trading on the
Exchange and transmit it to the Portfolio before 5:00 p.m. New York City time to
receive that day's net asset value. Your dealer will be responsible for
furnishing all necessary documentation, and may charge for its service.
SYSTEMATIC WITHDRAWAL PLAN. Withdrawal plans are available which provide for
monthly, quarterly, semi-annual or annual withdrawals of $250 or more. Under
these plans, shares of the Eagle Class are redeemed to provide the amount of the
periodic withdrawal payment. The amounts of withdrawals are not necessarily
related to dividends paid by the Eagle Class. Thus, these withdrawals may exceed
dividends and may result in a depletion of the shareholder's original investment
in the Eagle Class. The withdrawal plan may be amended or terminated at any time
by the shareholder or the Eagle Class on notice, and will terminate if the
Portfolio is notified of the shareholder's death. For the shareholder's
protection, any change of payee must be in writing. Accounts using this
withdrawal plan are subject to the minimum balance requirements. See "How to Buy
Shares -- Minimum Investment Required." Please contact a registered
representative of the Distributor or a participating dealer or participating
bank for further information. For more information on the Systematic Withdrawal
Plan, see "Redeeming Shares -- Systematic Withdrawal Plan" in the SAI.
HOW THE PORTFOLIO VALUES ITS SHARES
The Portfolio calculates the net asset value of its shares by dividing the total
value of its assets, less liabilities, by the number of its shares outstanding.
Shares are valued as of the close of regular trading on the Exchange each day it
is open. Securities and other assets for which market quotations are readily
available are stated at market value. Short-term investments that will mature in
60 days or less are stated at amortized cost, which approximates market value.
All other securities and assets are valued at their fair value following
procedures approved by the Trustees. Securities that are quoted in a foreign
currency will be valued daily in U.S. dollars at the foreign currency exchange
rates prevailing at the time the Portfolio calculates its daily net asset value
per
(12) P R O S P E C T U S
<PAGE> 15
share. Although the Portfolio values its assets in U.S. dollars on a daily
basis, it does not intend to convert holdings of foreign currencies into U.S.
dollars on a daily basis.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The Portfolio distributes any net investment income at least annually. The
Portfolio distributes all net realized capital gains, and any net realized gains
from foreign currency transactions, after the end of the year in which the gains
are realized. Distributions from net capital gains are made after applying any
available capital loss carryovers.
YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS. You can: (1) receive all
distributions in additional Eagle Class shares; (2) receive distributions from
net investment income in cash and receive other distributions (that is,
distributions from net capital gains and net realized foreign currency gains) in
additional Eagle Class shares; or (3) receive all distributions in cash. You can
change your distribution option by notifying the Transfer Agent in writing. If
you do not select an option, all distributions will be paid in additional Eagle
Class shares. You will receive a statement confirming distributions in
additional Eagle Class shares promptly following the period in which the
distribution occurs.
If a check representing a distribution remains outstanding for more than six
months, the Transfer Agent reserves the right to redeposit those funds into the
shareholder's account. Similarly, if your distribution check is returned as
"undeliverable," distributions automatically will be made to you in additional
Eagle Class shares.
The Portfolio intends to continue to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended, and to meet
all other requirements that are necessary for it to be relieved of Federal taxes
on income and gains it distributes to shareholders.
The Portfolio's distributions will be taxable to you as ordinary income, except
for distributions of net capital gain (the excess of net long-term capital gain
over net short-term capital loss), which will be taxed to you as long-term
capital gain, regardless of how long you have held your shares. Distributions
will be so taxable whether received in cash or in additional Portfolio shares.
Early each year, the Portfolio will notify you of the amount and tax status of
distributions paid to you by the Portfolio for the preceding year (and the
extent, if any, to which you may claim a deduction or credit for foreign taxes
paid by the Portfolio for that year).
The foregoing is a summary of some of the important Federal income tax
considerations generally affecting the Eagle Class and its shareholders. See the
SAI for a further discussion. You should consult your tax adviser to determine
the precise effect of an investment in the Eagle Class on your particular tax
situation (including possible liability for state and local taxes).
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No dealer, salesman or other person has been authorized to give any information
or to make any representation other than that 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 Trust, Eagle Asset Management, Inc. or Raymond James &
Associates, Inc. This Prospectus does not constitute an offering in any state in
which such offering may not lawfully be made.
(13) P R O S P E C T U S
<PAGE> 16
EAGLE INTERNATIONAL EQUITY PORTFOLIO
P.O. Box 10520
St. Petersburg, FL 33733
INVESTMENT ADVISER
Eagle Asset Management, Inc.
P.O. Box 10520
St. Petersburg, FL 33733
(800) 237-3101
INVESTMENT SUBADVISER
Martin Currie Inc.
Saltire Court
20 Castle Terrace
Edinburgh, Scotland EH1 2ES
DISTRIBUTOR
Raymond James & Associates, Inc.
P.O. Box 12749
St. Petersburg, FL 33733
(813) 573-3800
TRANSFER AGENT/
DIVIDEND DISBURSING AGENT
Heritage Asset Management, Inc.
P.O. Box 33022
St. Petersburg, FL 33733
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1912
Boston, MA 02105
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
EAGLE INTERNATIONAL EQUITY
PORTFOLIO
EAGLE CLASS OF SHARES
PROSPECTUS
March 1, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HERITAGE SERIES TRUST:
SMALL CAP STOCK FUND, VALUE EQUITY FUND,
GROWTH STOCK FUND AND
EAGLE INTERNATIONAL EQUITY PORTFOLIO-CLASS A & C SHARES
This Statement of Additional Information ("SAI") dated March 1, 1997,
should be read with the Prospectus of the Heritage Series Trust - Small Cap
Stock Fund, Value Equity Fund, Growth Stock Fund and Eagle International Equity
Portfolio - Class A and Class C Shares (each a "Fund" and collectively, the
"Funds") dated March 1, 1997. Each Fund consists of two classes of shares,
except for the Eagle International Equity Portfolio, which consists of three
classes of shares. With respect to the Eagle International Equity Portfolio,
this SAI relates only to the Class A and Class C shares.
This SAI is not a prospectus itself. To receive a copy of the Funds'
Prospectus, write to Heritage Asset Management, Inc. ("Heritage") 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
INVESTMENT INFORMATION
Investment Objectives............................................ 1
Investment Policies.............................................. 1
Industry Classifications......................................... 10
Futures, Forwards, and Hedging Transactions...................... 10
INVESTMENT LIMITATIONS.................................................... 22
NET ASSET VALUE........................................................... 26
PERFORMANCE INFORMATION................................................... 28
INVESTING IN THE FUNDS.................................................... 32
Systematic Investment Options.................................... 32
Retirement Plans................................................. 33
Alternative Purchase Plans....................................... 33
Class A Combined Purchase Privilege
(Right of Accumulation)................................. 34
Class A Statement of Intention................................... 35
REDEEMING SHARES.......................................................... 36
Systematic Withdrawal Plan....................................... 36
Telephone Transactions........................................... 37
Redemptions in Kind.............................................. 37
Receiving Payment................................................ 37
EXCHANGE PRIVILEGE........................................................ 38
TAXES..................................................................... 39
FUND INFORMATION.......................................................... 43
Management of the Funds.......................................... 43
Five Percent Shareholders........................................ 47
Investment Adviser and Administrator; Subadvisers................ 47
Brokerage Practices.............................................. 52
Distribution of Shares........................................... 54
Administration of the Funds...................................... 57
Potential Liability.............................................. 58
APPENDIX.................................................................. A-1
REPORTS OF THE INDEPENDENT ACCOUNTANTS
Small Cap Stock Fund.............................................
Value Equity Fund................................................
Growth Equity Fund...............................................
Eagle International Equity Fund..................................
FINANCIAL STATEMENTS
Small Cap Stock Fund.............................................
Value Equity Fund................................................
Growth Equity Fund...............................................
Eagle International Equity Fund..................................
<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 four portfolios: the Small Cap Stock Fund ("Small Cap"), the Value Equity
Fund ("Value Equity"), the Growth Equity Fund ("Growth Equity") and the Eagle
International Equity Portfolio ("Eagle International"). Each Fund, except Eagle
International, 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"). Eagle International offers
an additional class of shares not covered in this SAI.
INVESTMENT INFORMATION
- ----------------------
Investment Objectives
---------------------
The investment objective of each Fund is stated in the Prospectus.
Investment Policies
-------------------
The following information is in addition to and supplements each Fund's
investment policies set forth in the Prospectus.
AMERICAN DEPOSITORY RECEIPTS ("ADRS"), EUROPEAN DEPOSITORY RECEIPTS
("EDRS"), GLOBAL DEPOSITORY RECEIPTS ("GDRS") AND INTERNATIONAL DEPOSITORY
RECEIPTS ("IDRS"). Each Fund may invest in sponsored and unsponsored American
Depository Receipts ("ADRs"). ADRs are receipts typically issued by a U.S. bank
or trust 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
considered to be foreign securities by Growth Equity for purposes of certain
investment limitation calculations.
Each Fund also may invest in sponsored or unsponsored EDRs, GDRs, IDRs
or other similar securities representing interests in or convertible into
securities of foreign issuers ("Depository Receipts"). EDRs and IDRs are
<PAGE>
receipts typically issued by a European bank or trust company evidencing
ownership of the underlying foreign securities. GDRs are issued globally for
trading in non-U.S. securities markets and evidence a similar ownership
arrangement. Depository Receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted. As with
ADRs, the issuers of the securities underlying unsponsored Depository Receipts
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 Depository Receipts. Depository Receipts also involve the risks of other
investments in foreign securities, as discussed below.
BANKERS' ACCEPTANCES. Each Fund, except Eagle International, 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. Each 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. Each Fund, except Eagle International, 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"). Eagle International may invest in commercial paper
that is limited to obligations rated Prime-1 by Moody's or A-1 by 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.
2
<PAGE>
CONVERTIBLE SECURITIES. Each 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. 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. The subadvisers will decide to invest in convertible securities based
upon a 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 each 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. Each 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.
EURO/YANKEE BONDS. Eagle International may invest in dollar denominated
bonds issued by foreign branches of domestic banks ("Eurobonds") and dollar
denominated bonds issued by a U.S. branch of a foreign bank and sold in the
United States ("Yankee bonds"). Investment in Eurobonds and Yankee bonds entail
certain risks similar to investment in foreign securities in general, as
previously below.
3
<PAGE>
FOREIGN SECURITIES. Value Equity and Growth Equity each may invest up
to 15% and 25%, respectively, and Eagle International may invest up to 100%, of
its net assets in foreign securities. 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. 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. In addition, foreign
brokerage commissions generally are higher than commissions on securities traded
in the United States. In general, there is less overall governmental supervision
and regulation of securities exchanges, brokers and listed companies than in the
United States.
It is each Fund's policy not to invest in foreign securities when there
are currency or trading restrictions in force or when, in the judgment of its
subadviser, 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.
Because investments in foreign companies usually will involve
currencies of foreign countries, and because Value Equity or Growth Equity may
temporarily hold funds in bank deposits in foreign currencies during the
completion of investment programs, the value of either Fund's assets as measured
in U.S. dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and the Fund may incur
costs in connection with conversions between various currencies. Each Fund will
conduct its foreign currency exchange transactions on a spot (I.E., cash) basis
at the spot rate prevailing in the foreign currency exchange market. In
addition, in order to protect against uncertainty in the level of future
exchange rates, Value Equity or Growth Equity may enter into contracts to
purchase or sell foreign currencies at a future date (I.E., a "forward currency
contract" or "forward contract"). See the "Special Risks of Hedging Strategies"
section below under "Hedging Strategies."
FORWARD COMMITMENTS. As described in the Prospectus, Eagle
International may make contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments"), if Eagle
International either (1) holds, and maintains until the settlement date in a
segregated account, cash or high grade debt obligations in an amount sufficient
to meet the purchase price or (2) enters into an offsetting contract for the
forward sale of securities of equal value that it owns. Forward commitments may
be considered securities in themselves. They involve a risk of loss if the value
of the security to be purchased declines prior to the settlement date, which
risk is in addition to the risk of decline in value of Eagle International's
other assets. Eagle International may dispose of a commitment prior to
settlement and may realize short-term profits or losses upon such disposition.
4
<PAGE>
LOANS OF PORTFOLIO SECURITIES. Value Equity and Growth Equity may loan
portfolio securities to qualified broker-dealers. The collateral for Growth
Equity's loans will be "marked to market" daily so that the collateral at all
times exceeds 100% of the value of the loan. Value Equity or Growth Equity 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, each 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. Each 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. Each 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 each Fund's income through investment of the
cash collateral in short-term interest bearing obligations.
Eagle International also may lend its securities. Securities loans are
made to broker-dealers or other financial institutions pursuant to agreements
requiring that loans be continuously secured by collateral in cash or short-term
debt obligations at least equal at all times to the value of the securities
lent. The borrower pays Eagle International an amount equal to any dividends or
interest received on the securities lent. Eagle International retains all or a
portion of the interest received on investments of the cash collateral or
receives a fee from the borrower. Eagle International may call such loans in
order to sell the securities involved. In the event that Eagle International
reinvests cash collateral, it is subject to the risk that both the reinvested
collateral and the loaned securities will decline in value. In addition, in such
event, it is possible that the securities loan may not be fully collateralized.
PREFERRED STOCK. Each 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 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.
5
<PAGE>
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements. A
repurchase agreement is a transaction in which a 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. Although repurchase
agreements carry certain risks not associated with direct investments in
securities, including possible decline in the market value of the underlying
securities and delays and costs to a Fund if the other party to the repurchase
agreement becomes bankrupt, Small Cap and Value Equity intend to enter into
repurchase agreements only with banks and dealers in transactions believed by
Small Cap and Value Equity's investment adviser, Heritage, to present minimal
credit risks in accordance with guidelines established by the Board of Trustees.
With respect to Eagle International, 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. Eagle
International bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and Eagle International is
delayed or prevented from exercising its rights to dispose of the collateral
securities.
REVERSE REPURCHASE AGREEMENTS. Each Fund, except Eagle International,
may borrow by entering into reverse repurchase agreements with the same parties
with whom it may enter into repurchase agreements. Under a reverse repurchase
agreement, a Fund sells securities and agrees to repurchase them at a mutually
agreed to price. At the time a Fund enters into a reverse repurchase agreement,
it will establish and maintain a segregated account with an approved custodian
containing liquid high-grade securities, marked-to-market daily, having a value
not less than the repurchase price (including accrued interest). Reverse
repurchase agreements involve the risk that the market value of securities
retained in lieu of sale by a Fund may decline below the price of the securities
the Fund has sold but is obliged to repurchase. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, such buyer or its trustee or receiver may receive an extension of
time to determine whether to enforce a Fund's obligation to repurchase the
securities and a Fund's use of the proceeds of the reverse repurchase agreement
effectively may be restricted pending such decisions. Reverse repurchase
agreements create leverage, a speculative factor, and are considered borrowings
for the purpose of a Fund's limitation on borrowing.
RISK FACTORS OF HIGH-YIELD SECURITIES. Small Cap may invest up to 5% of
its assets, measured at the time of purchase, in securities rated below
investment grade, I.E., rated below BBB or Baa by S&P and Moody's, respectively,
6
<PAGE>
or unrated securities determined to be below investment grade by its subadviser,
commonly referred to as "junk bonds." Eagle International may invest in
convertible securities that are similarly rated below BBB or Baa by S&P and
Moody's, respectively, or unrated securities determined to be below investment
grade by its subadviser. 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 a 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, a 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.
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, a Fund would
have to replace the security, which could result in a decreased return for
shareholders. Conversely, if a 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 a Fund's investment portfolio and its subadviser'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
7
<PAGE>
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 a 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 a Fund's subadviser
considers ratings of recognized rating services such as Moody's and S&P, the
subadviser 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. A Fund's subadviser continually monitors the
investments in its respective 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 a 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 a
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 a fundamental analysis. See "Net Asset Value."
8
<PAGE>
STANDARD AND POOR'S DEPOSITORY RECEIPTS ("SPDRS"). Value Equity and
Growth Equity may invest 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. Each 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. Each Fund may purchase rights and warrants, which are
instruments that permit a 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.
Each Fund currently does not intend to invest more than 5% of its net assets in
warrants. Eagle International also may invest in warrants or rights acquired by
Eagle International as part of a unit or attached to securities at the time of
purchase without limitation.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. As described in the
Prospectus, Eagle International may enter into agreements with banks or
broker-dealers for the purchase or sale of securities at an agreed-upon price on
a specified future date. Such agreements might be entered into, for example,
when Eagle International anticipates a decline in interest rates and is able to
obtain a more advantageous yield by committing currently to purchase securities
to be issued later. When Eagle International purchases securities on a
when-issued or delayed delivery basis, it is required either (1) to create a
9
<PAGE>
segregated account with Eagle International's custodian and to maintain in that
account cash, U.S. Government securities or other high grade debt obligations in
an amount equal on a daily basis to the amount of Eagle International's
when-issued or delayed delivery commitments or (2) to enter into an offsetting
forward sale of securities it owns equal in value to those purchased. Eagle
International will only make commitments to purchase securities on a when-issued
or delayed-delivery basis with the intention of actually acquiring the
securities. However, Eagle International may sell these securities before the
settlement date if it is deemed advisable as a matter of investment strategy.
When the time comes to pay for when-issued or delayed-delivery securities, Eagle
International will meet its obligations from then available cash flow or the
sale of securities, or, although it would not normally expect to do so, from the
sale of the when-issued or delayed delivery securities themselves (which may
have a value greater or less than Eagle International's payment obligation).
Industry Classifications
------------------------
For purposes of determining industry classifications, each Fund relies
upon classifications established by Heritage or Eagle Asset Management, Inc.,
Eagle International's investment adviser, as applicable, that are based upon
classifications contained in the Directory of Companies Filing Annual Reports
with the Securities and Exchange Commission ("SEC") and in the Standard & Poor's
Corporation Industry Classifications.
Futures, Forwards, and Hedging Transactions
-------------------------------------------
GENERAL DESCRIPTION. A Fund may use a variety of financial instruments
("Hedging Instruments"), including futures contracts (sometimes referred to as
"futures"), options, options on futures and forward currency contracts, to
attempt to hedge the Fund's portfolio. Forward currency contracts also may be
used to shift Value Equity's and Growth Equity's exposure from one foreign
currency to another.
Hedging strategies can be broadly categorized as "short hedges" and
"long hedges." A short hedge is the purchase or sale of a Hedging Instrument
intended partially or fully to offset potential declines in the value of one or
more investments held in a Fund's investment portfolio. Thus, in a short hedge,
a Fund takes a position in a Hedging Instrument whose price is expected to move
in the opposite direction of the price of the investment being hedged. A long
hedge is the purchase or sale of a Hedging Instrument intended partially or
fully to offset potential increases in the acquisition cost of one or more
investments that the Fund intends to acquire. Thus, in a long hedge, a Fund
takes a position in a Hedging Instrument whose price is expected to move in the
same direction as the price of the prospective investment being hedged.
10
<PAGE>
Hedging Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that a Fund owns
or intends to acquire. Hedging Instruments on indices may be used to hedge broad
market sectors.
The use of Hedging Instruments is subject to applicable regulations of
the SEC, the exchanges upon which they are traded, the Commodity Futures Trading
Commission ("CFTC"). In addition, a Fund's ability to use Hedging Instruments
will be limited by tax considerations. See "Taxes."
In addition to the products and strategies described below, the Fund's
expect to discover additional opportunities in connection with options, futures
contracts, forward currency contracts and other hedging techniques. These new
opportunities may become available as each Fund's subadviser develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures contracts, forward currency contracts
or other techniques are developed. A subadviser may utilize these opportunities
to the extent that it is consistent with a Fund's investment objectives and
permitted by the Fund's investment limitations and applicable regulatory
authorities.
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Hedging Instruments
involves special considerations and risks, as described below. Risks pertaining
to particular Hedging Instruments are described in the sections that follow.
(1) Successful use of most Hedging Instruments depends upon a
Fund's subadviser's ability to predict movements of the overall
securities, currency and interest rate markets, which requires
different skills than predicting changes in the prices of individual
securities. While each Fund's subadvisers are experienced in the use of
Hedging Instruments, there can be no assurance that any particular
hedging strategy adopted will succeed.
(2) There might be imperfect correlation, or even no
correlation, between price movements of a Hedging Instrument and price
movements of the investments being hedged. For example, if the value of
a Hedging Instrument used in a short hedge increased by less than the
decline in value of the hedged investment, the hedge would not be fully
successful. Such a lack of correlation might occur due to factors
unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Hedging
Instruments are traded. The effectiveness of hedges using Hedging
Instruments on indices will depend on the degree of correlation between
price movements in the index and price movements in the securities
being hedged.
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To compensate for imperfect correlation, a Fund may purchase
or sell hedging instruments in a greater dollar amount than the hedged
securities or currency if the volatility of the hedged securities or
currency is historically greater than the volatility of the hedging
instruments. Conversely, Eagle International may purchase or sell fewer
contracts if the volatility of the price of the hedged securities or
currency is historically less than that of the hedging instruments.
(3) Hedging strategies, if successful, can reduce risk of loss
by wholly or partially offsetting the negative effect of unfavorable
price movements in the investments being hedged. However, hedging
strategies also can reduce opportunity for gain by offsetting the
positive effect of favorable price movements in the hedged investments.
For example, if a Fund entered into a short hedge because its
subadviser projected a decline in the price of a security in the Fund's
investment portfolio, and the price of that security increased instead,
the gain from that increase might be wholly or partially offset by a
decline in the price of the Hedging Instrument. Moreover, if the price
of the Hedging Instrument declined by more than the increase in the
price of the security, the Fund could suffer a loss. In either such
case, the Fund would have been in a better position had it not hedged
at all.
(4) As described below, each Fund might be required to
maintain assets as "cover," maintain segregated accounts or make margin
payments when it takes positions in Hedging Instruments involving
obligations to third parties. If a Fund were unable to close out its
positions in such Hedging Instruments, it might be required to continue
to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair a Fund's
ability to sell a portfolio security or make an investment at a time
when it would otherwise be favorable to do so, or require that the Fund
sell a portfolio security at a disadvantageous time. A Fund's ability
to close out a position in a Hedging Instrument prior to expiration or
maturity depends on the existence of a liquid secondary market or, in
the absence of such a market, the ability and willingness of the other
party to the transaction ("counterparty") to enter into a transaction
closing out the position. Therefore, there is no assurance that any
hedging position can be closed out at a time and price that is
favorable to the Fund.
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COVER FOR HEDGING STRATEGIES. Some Hedging Instruments expose a Fund to
an obligation to another party. A Fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies, forward currency contracts, options or futures contracts or (2) cash
and other liquid assets with a value sufficient at all times to cover its
potential obligations to the extent not covered as provided in (1) above. Each
Fund will comply with SEC guidelines regarding cover for instruments and will,
if the guidelines so require, set aside cash or other liquid assets in a
segregated account with the Funds' custodian ("Custodian"), in the prescribed
amount.
Assets used as cover or otherwise set aside cannot be sold while the
position in the corresponding Hedging Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of a Fund's assets to cover in segregated accounts could impede its
ability to meet redemption requests or other current obligations.
OPTIONS, FUTURES AND OPTIONS ON FUTURES TRADING. Value Equity and
Growth Equity may engage in certain options (including options on securities,
equity and debt indices and currencies, futures and options on futures
strategies) in order to hedge its investments. Eagle International may only
purchase and sell stock index and currency futures contracts. Certain special
characteristics of and risks with these strategies are discussed below.
CHARACTERISTICS AND RISKS OF OPTIONS TRADING. A Fund effectively may
terminate its right or obligation under an option by entering into a closing
transaction. If the Fund wished to terminate its obligation to purchase or sell
securities under a put or call option it has written, it may purchase a put or
call option of the same series (I.E., an option identical in its terms to the
option previously written); this is known as a closing purchase transaction.
Conversely, in order to terminate its right to purchase or sell under a call or
put option it has purchased, a Fund may write a call or put option of the same
series. This is known as a closing sale transaction. Closing transactions
essentially permit the Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option. Whether a profit or
loss is realized from a closing transaction depends on the price movement of the
underlying security, index, currency or futures contract and the market value of
the option.
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In considering the use of options to hedge, particular note should be
taken of the following:
(1) The value of an option position will reflect, among other
things, the current market price of the underlying security, index,
currency or futures contract, the time remaining until expiration, the
relationship of the exercise price to the market price, the historical
price volatility of the underlying instrument and general market
conditions. For this reason, the successful use of options as a hedging
strategy depends upon a Fund's subadviser's ability to forecast the
direction of price fluctuations in the underlying instrument.
(2) At any given time, the exercise price of an option may be
below, equal to or above the current market value of the underlying
instrument. Purchased options that expire unexercised have no value.
Unless an option purchased by a Fund is exercised or unless a closing
transaction is effected with respect to that position, a loss will be
realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out
only on an exchange that provides a secondary market for identical
options. Most exchange-listed options relate to futures contracts,
stocks and currencies. The ability to establish and close out positions
on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options
traded in the OTC markets (currently the primary markets of options on
debt securities) only by negotiating directly with the other party to
the option contract, or in a secondary market for the option if such
market exists. Although a Fund intends to purchase or write only those
options for which there appears to be an active secondary market, there
is no assurance that a liquid secondary market will exist for any
particular option at any specific time. In such event, it may not be
possible to effect closing transactions with respect to certain
options, with the result that the Fund would have to exercise those
options that it has purchased in order to realize any profit. With
respect to options written by a Fund, the inability to enter into a
closing transaction may result in material losses to it. For example,
because a Fund may maintain a covered position with respect to any call
option it writes on a security, it may not sell the underlying security
during the period it is obligated under such option. This requirement
may impair the Fund's ability to sell a portfolio security or make an
investment at a time when such a sale or investment might be
advantageous.
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(4) Activities in the options market may result in a higher
portfolio turnover rate and additional brokerage costs; however, a Fund
also may save on commissions by using options as a hedge rather than
buying or selling individual securities in anticipation of market
movements.
(5) The risks of investment in options on indices may be
greater than options on securities or currencies. Because index options
are settled in cash, when a Fund writes a call on an index it cannot
provide in advance for its potential settlement obligations by
acquiring and holding the underlying securities. A Fund can offset some
of the risk of writing a call index option by holding a diversified
portfolio of securities similar to those on which the underlying index
is based. However, the Fund cannot, as a practical matter, acquire and
hold an investment portfolio containing exactly the same securities as
underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.
Even if a Fund could assemble an investment portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, a Fund as the call writer will not
learn that it has been assigned until the next business day at the earliest. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as common stock,
because there the writer's obligation is to deliver the underlying security, not
to pay its value as of a fixed time in the past. So long as the writer already
owns the underlying security, it can satisfy its settlement obligations by
simply delivering it, and the risk that its value may have declined since the
exercise date is borne by the exercising holder. In contrast, even if the writer
of an index call holds securities that exactly match the composition of the
underlying index, it will not be able to satisfy its assignment obligations by
delivering those securities against payment of the exercise price. Instead, it
will be required to pay cash in an amount based on the closing index value on
the exercise date. By the time it learns that it has been assigned, the index
may have declined, with a corresponding decline in the value of its investment
portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding securities positions.
If a Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index subsequently may change. If such a change causes the
exercised option to fall out- of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
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GUIDELINES, CHARACTERISTICS AND RISKS OF FUTURES AND OPTIONS ON FUTURES
TRADING. Although futures contracts by their terms call for actual delivery, in
most cases the contracts are closed out before the settlement date without the
making or taking of delivery. Closing out a futures contract sale is effected by
purchasing a futures contract for the same aggregate amount of the specific type
of financial instrument or currency and the same delivery date. If the price at
which the initial futures contract was sold exceeds the price of the offsetting
purchase, the seller is paid the difference and realizes a gain. Conversely, if
the price of the offsetting purchase exceeds initial sale price, the seller
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the purchaser seeking futures contract. If the offsetting sale price
exceeds the purchase price, the purchaser realizes a gain, and if the purchase
price exceeds the offsetting sale price, the purchaser realizes a loss. A Fund
is required to maintain margin deposits with brokerage firms through which it
buys and sells futures contracts or writes options on future contracts. Initial
margin deposits vary from contract to contract and are subject to change. Margin
balances will be adjusted daily to reflect unrealized gains and losses on open
contracts. If the price of an open futures or written option position declines
so that either Fund has market exposure on such contract, the broker will
require the Fund to deposit variation margin. If the value of an open futures or
written option position increases so that a Fund no longer has market exposure
on such contract, the broker will pay any excess variation margin to the Fund.
Most of the exchanges on which futures contracts and options on futures
are traded limit the amount of fluctuation permitted in futures and options
prices during a single trading day. The daily price limit establishes the
maximum amount that the price of a futures contract or option may vary either up
or down from the previous day's settlement price at the end of a trading
session. Once the daily price limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily price limit governs only price movement during a particular trading day
and therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract and options prices
occasionally have moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures or
options positions and subjecting some traders to substantial losses.
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Another risk in employing futures contracts and options as a hedge is
the prospect that prices will correlate imperfectly with the behavior of cash
prices for the following reasons. First, rather than meeting additional margin
deposit requirements, investors may close contracts through offsetting
transactions. Second, the liquidity of the futures and options markets depends
on participants entering into offsetting transactions rather than making or
taking delivery. To the extent that participants decide to make or take
delivery, liquidity in the futures and options markets could be reduced, thus
producing distortion. Third, from the point of view of speculators, the deposit
requirements in the futures and options markets are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures and options markets may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of general
interest rate, currency exchange rate or security price trends by a subadviser
may still not result in a successful transaction.
In addition to the risks that apply to all options transactions, there
are several special risks relating to options on futures contracts. The ability
to establish and close out positions in such options is subject to the existence
of a liquid secondary market. Compared to the purchase or sale of futures
contracts, the purchase of call options on futures contracts involves less
potential risk to a Fund because the maximum amount at risk is the premium paid
for the options (plus transaction costs). However, there may be circumstances
when the purchase of a call or put option on a futures contract would result in
a loss to Fund when the purchase or sale of a futures contract would not, such
as when there is no movement in the price of the underlying investment.
STOCK INDEX FUTURES. A stock index assigns relative values to the
common stocks comprising the index. A stock index futures contract is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the stock index value at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. No
physical delivery of the underlying stocks in the index is made.
The risk of imperfect correlation between movements in the price of a
stock index futures contract and movements in the price of the securities that
are the subject of the hedge increases as the composition of a Fund's portfolio
diverges from the securities included in the applicable index. The price of the
stock index futures may move more than or less than the price of the securities
being hedged. If the price of the futures contract moves less than the price of
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the securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, a Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the stock index futures contracts, the Fund may buy or
sell stock index futures contracts in a greater dollar amount than the dollar
amount of securities being hedged if the historical volatility of the prices of
such securities is more than the historical volatility of the stock index. It is
also possible that, where the Fund has sold futures contacts to hedge its
securities against decline in the market, the market may advance and the value
of securities held by the Fund may decline. If this occurred, Eagle
International would lose money on the futures contract and also experience a
decline in value in its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices upon which the futures contracts are based.
Where stock index futures contracts are purchased to hedge against a
possible increase in the price of securities before a Fund is able to invest in
securities in an orderly fashion, it is possible that the market may decline
instead. If a Fund then concludes not to invest in securities at that time
because of concern as to possible further market decline for other reasons, it
will realize a loss on the futures contract that is not offset by a reduction in
the price of the securities it had anticipated purchasing.
LIMITATION ON THE USE OF OPTIONS AND FUTURES. To the extent that a Fund
enters into futures contracts and commodity options (including options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange) other than for BONA FIDE hedging purposes (as defined by the CFTC),
the aggregate initial margin and premiums required to establish those positions
(excluding the amount by which options are "in-the-money" at the time of
purchase) will not exceed 5% of the liquidation value of the Fund's investment
portfolio, after taking into account unrealized profits and unrealized losses on
any contracts the Fund has entered into.
This limitation does not limit the percentage of Eagle International's
assets at risk to 5%.
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FOREIGN CURRENCY HEDGING STRATEGIES -- RISK FACTORS. Value Equity may
use options and futures on foreign currencies and Growth Equity and Eagle
International may only use futures on foreign currencies, as described above.
Both Value Equity and Growth Equity may use foreign currency forward contracts,
as described below. Such use is limited to hedging against movements in the
values of the foreign currencies in which a Fund's securities are denominated.
Such Fund's currency hedges can protect against price movements in a security
that a Fund owns or intends to acquire that are attributable to changes in the
value of the currency in which it is denominated. Such hedges do not, however,
protect against price movements in the securities that are attributable to other
causes.
Value Equity and Growth Equity might seek to hedge against changes in
the value of a particular currency when no Hedging Instruments on that currency
are available or such Hedging Instruments are more expensive than certain other
Hedging Instruments. In such cases, a Fund may hedge against price movements in
that currency by entering into transactions using Hedging Instruments on another
currency or basket of currencies, the values of which its subadviser believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Hedging Instrument
will not correlate perfectly with movements in the price of the currency being
hedged is magnified when this strategy is used.
The value of Hedging Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Hedging
Instruments, a Fund could be disadvantaged by having to deal in the odd-lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. futures markets are closed while
the markets for the underlying currencies remain open, significant price and
rate movements might take place in the underlying markets that cannot be
reflected in the markets for the Hedging Instruments until they reopen.
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Settlement of hedging transactions involving foreign currencies might
be required to take place within the country issuing the underlying currency.
Thus, a Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
COMBINED TRANSACTIONS. A Fund may enter into multiple futures
transactions, instead of a single transaction, as part of a single or combined
strategy when, in the opinion of its subadviser, it is in the best interests of
a the Fund to do so. A combined transaction usually will contain elements of
risk that are present in each of its component transactions. Although combined
transactions normally are entered into based on its subadviser's judgment that
the combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
instead will increase such risks or hinder achievement of the portfolio
management objective.
FORWARD CURRENCY CONTRACTS. Value Equity and Growth Equity may enter
into forward currency contracts to purchase or sell foreign currencies for a
fixed amount of U.S. dollars or another foreign currency, in an amount not to
exceed 5% of its assets.
Eagle International may use currency forward contracts:
1. When its subadviser wishes to "lock in" the U.S. dollar
price of a security when Eagle International is
purchasing or selling a security denominated in a
foreign currency or anticipates receiving a dividend or
interest payment denominated in a foreign currency; or
2. When its subadviser believes that the currency of a
particular foreign country may suffer a substantial
decline against the U.S. dollar, Eagle International may
enter into a forward contract to sell the foreign
currency for a fixed U.S. dollar amount approximating
the value of some or all of Eagle International's
portfolio securities denominated in such foreign
currency.
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Eagle International generally will not enter into a forward contract
with a term of greater than one years.
Forward currency transactions may serve as long hedges -- for example,
a Fund may purchase a forward currency contract to lock in the U.S. dollar price
of a security denominated in a foreign currency that it intends to acquire.
Forward currency contract transactions also may serve as short hedges -- for
example, a Fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security or from a
dividend or interest payment on a security denominated in a foreign currency.
Value Equity and Growth Equity Fund may purchase forward currency
contracts to enhance income when Eagle anticipates that the foreign currency
will appreciate in value, but securities denominated in that currency do not
present attractive investment opportunities.
As noted above, Value Equity and Growth Equity may seek to hedge
against changes in the value of a particular currency by using forward contracts
on another foreign currency or a basket of currencies, the value of which its
subadviser believes will have a positive correlation to the values of the
currency being hedged. Use of a different foreign currency magnifies the risk
that movements in the price of forward currency contracts will not correlate or
will correlate unfavorably with the foreign currency being hedged.
In addition, Value Equity and Growth Equity may use forward currency
contracts to shift exposure to foreign currency fluctuations from one country to
another. For example, if a Fund owned securities denominated in a foreign
currency and its subadviser believed that currency would decline relative to
another currency, it might enter into a forward contract to sell an appropriate
amount of the first foreign currency, with payment to be made in the second
foreign currency.
The cost to a Fund of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
usually are entered into on a principal basis, no fees or commissions are
involved. When a Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract. Failure by the counterparty to do so would result in the loss
of any expected benefit of the transaction.
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As is the case with futures contracts, sellers or purchasers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by purchasing or selling, respectively, an
instrument identical to the instrument sold or bought. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the counterparty. Thus, there can be no assurance
that a Fund will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the counterparty, a Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would continue
to be subject to market risk with respect to the position, and would continue to
be required to maintain a position in the securities or currencies that are the
subject of the hedge or to maintain cash or securities.
The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, a Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
INVESTMENT LIMITATIONS
- ----------------------
Fundamental Investment Policies
-------------------------------
In addition to the limits disclosed in "Investment Policies" above and
the investment limitations described in the Prospectus, the Funds are 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
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of the applicable Fund. Under the 1940 Act, a "vote of a majority of the
outstanding voting securities" of a 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.
DIVERSIFICATION. The Funds may not invest, with respect to 75% of each
Fund's total assets, more than 5% of that 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 each Fund's total assets
would be invested in any one industry; however, for Growth Equity this
restriction does not apply to U.S. Government securities.
BORROWING MONEY. The Funds may not borrow money except as a temporary
measure for extraordinary or emergency purposes. The Funds may enter into
reverse repurchase agreements in an amount up to 33 1/3% of the value of their
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
Funds to meet redemption requests when the liquidation of portfolio instruments
would be inconvenient or disadvantageous. However, a 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 Funds' 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, a 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 Funds 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).
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Eagle International will not borrow money in excess of 10% of the value
(taken at the lower of cost or current value) of Eagle International's total
assets (not including the amount borrowed) at
the time of borrowing is made, and then only from banks as a temporary measure,
such as to facilitate the meeting of higher redemption requests than anticipated
(not for leverage) which might otherwise require the untimely disposition of
portfolio investments or for extraordinary or emergency purposes. As a matter of
nonfundamental investment policy, Eagle International may not make any
additional investments if, immediately after such investments, outstanding
borrowings of money would exceed 5% of the currency value of Eagle
International's total assets.
ISSUING SENIOR SECURITIES. The Funds may not issue senior securities,
except as permitted by the investment objective and policies and investment
limitations of that Fund or for each Fund except Small Cap with respect to
transactions involving options, futures, forward currency contracts or other
financial instruments.
UNDERWRITING. The Funds may not underwrite the securities of other
issuers, except that each Fund except Value Equity may underwrite to the extent
that in connection with the disposition of portfolio securities, that Fund may
be deemed to be an underwriter under federal securities laws, and that Small Cap
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 Small Cap's net assets (taken at cost) would be so
invested.
INVESTING IN COMMODITIES, MINERALS OR REAL ESTATE. The Funds may not
invest in commodities, commodity contracts or real estate (including real estate
limited partnerships), except that they may purchase securities issued by
companies that invest in or sponsor such interests and except that Value Equity
may purchase and sell options, futures contracts, forward currency contracts and
other financial instruments Eagle International may purchase and sell forward
contracts, futures contracts, options and foreign currency. Eagle International
also may purchase securities which are secured by interests in real estate.
LOANS. The Funds may not make loans, except each Fund except Eagle
International may make loans: (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) that a Fund may enter into repurchase agreements as
permitted under that Fund's investment policies; and (3) that Value Equity and
Growth Equity may make loans of portfolio securities as described in this SAI.
Eagle International may make loans by purchase of debt obligations or by
entering into repurchase agreements or through lending of Eagle International's
portfolio securities.
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Fundamental Policies Unique To Eagle International
--------------------------------------------------
Eagle International has adopted the following fundamental policies that
can be changed only by shareholder vote:
MARGINS. Eagle International will not purchase securities on margin,
except such short-term credits as may be necessary for the clearance of
purchases and sales of securities. (For this purpose, the deposit or payment by
Eagle International of initial or variation margin in connection with futures
contracts, forward contracts or options is not considered the purchase of a
security on margin.)
SHORT SALES. Eagle International will not make short sales of
securities or maintain a short position, except that Eagle International may
maintain short positions in connection with its use of options, futures
contracts, forward contracts and options on futures contracts, and Eagle
International may sell short "against the box." As a matter of nonfundamental
investment policy, Eagle will not sell securities short "against the box."
Non-Fundamental Investment Policies
-----------------------------------
Each 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 approv al in compliance with applicable
law, regulation or regulatory policy.
INVESTING IN ILLIQUID SECURITIES. Small Cap may not invest more than
15% and Value Equity may not invest more than 10% of their total assets in
repurchase agreements maturing in more than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions as to resale.
Growth Equity may not invest more than 10% 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. Small Cap, Value Equity and Growth
Equity 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, in addition, Value Equity and Growth
Equity may make short sales "against the box" and make margin deposits in
connection with its use of options, futures contracts, forward currency
contracts and other financial instruments.
25
<PAGE>
INVESTING IN INVESTMENT COMPANIES. Small Cap and Value Equity may not
invest in securities issued by other investment companies, except as permitted
under the 1940 Act and except in connection with the merger, consolidation or
acquisition of all the securities or assets of such an issuer.
Growth Equity may not invest in the securities of other investment
companies, except by purchase in the open market where no commission or profit
to a sponsor or dealer results from the purchase other than the customary
broker's commission, or except when the purchase is part of a plan of merger,
consolidation, reorganization or acquisition.
Eagle International may not invest more than 10% of its total assets in
securities of other investment companies. For purposes of this restriction,
foreign banks and foreign insurance companies or their respective agents or
subsidiaries are not considered investment companies. In addition, Eagle
International may invest in the securities of other investment companies in
connection with a merger, consolidation or acquisition of assets or other
reorganization approved by Eagle International's shareholders. Eagle
International may incur duplicate advisory or management fees when investing in
another mutual fund.
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,
Monday through Friday, except for New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day,
as of the close of regular trading on the New York Stock Exchange (the
"Exchange"). Net asset value for each class is calculated by dividing the value
of the total assets of each 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
26
<PAGE>
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 Value Equity, Growth Equity and International Equity 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. Securities
and other assets in foreign currency and foreign currency contracts will be
valued daily in U.S. dollars at the foreign currency exchange rates prevailing
at the time a 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.
All securities and other assets quoted in foreign currency and forward
currency contracts are valued daily in U.S. dollars on the basis of the foreign
currency exchange rate prevailing at the time such valuation is determined by
the Fund's custodian. Foreign currency exchange rates generally are determined
prior to the close of the Exchange. Occasionally, events affecting the value of
foreign securities and such exchange rates occur between the time at which they
are determined and the close of the Exchange, which events will not be reflected
in a computation of the Fund's net asset value. If events materially affecting
the value of such securities or assets or currency exchange rates occurred
during such time period, the securities or asses would be valued at their fair
value as determined in good faith under procedures established by and under the
general supervision and responsibility of the Board of Trustees. The foreign
currency exchange transactions of a Fund conducted on a spot basis are valued at
the spot rate for purchasing or selling currency prevailing on the foreign
exchange market.
The Funds are 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
Funds' close of 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 Funds' net asset value is not calculated.
Calculation of net asset value of A shares and C shares does not take place
27
<PAGE>
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. The Funds calculate 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 Funds' 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 Funds of
securities owned by them is not reasonably practicable or it is not reasonably
practical for the Funds fairly to determine the value of their 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
- -----------------------
A shares and C shares of Eagle International commenced operations on or
about December 27, 1995 and at that time had no past performance. For purposes
of advertising performance, and in accordance with the SEC staff
interpretations, Eagle International has adopted the performance of the Eagle
Class shares ("Eagle shares"). The performance figures for Eagle International's
A shares and C shares will differ, however, because the performance figures for
the Eagle shares reflect differing Rule 12b-1 fees, Distribution Plan fees or
other class expenses that will be borne by A shares and C shares.
The performance data for A shares and C shares of each 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 each 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 hypotheti
cal $1,000 payment made at the beginning
of the period at the end of that period
28
<PAGE>
In calculating the ending redeemable value for A shares, each Fund's
current maximum sales load of 4.75% is deducted from the initial $1,000 payment
and all dividends and other distributions by a 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. The average
annualized total return is as follows for each period of each Fund below:
AVERAGE
ANNUALIZED
TOTAL
FUND SHARES PERIOD RETURN
---- ------ ---------- -----------
Small Cap A shares . May 7, 1993 (commencement 18.03%
of operations) to
October 31, 1996
. one-year period ended 26.85%
October 31, 1996
C shares . April 3, 1995 (initial 33.85%
offering of C shares) to
October 31, 1996
. one-year period ended 31.22%
October 31, 1996
Value Equity A shares . December 30, 1994 20.03%
(commencement of
operations) to
October 31, 1996
. one-year period ended 11.02%
October 31, 1996
C shares . April 3, 1995 (initial 21.33%
offering of C shares) to
October 31, 1996
. one-year period ended 14.65%
October 31, 1996
29
<PAGE>
AVERAGE
ANNUALIZED
TOTAL
FUND SHARES PERIOD RETURN
---- ------ ---------- -----------
Growth Equity A shares . November 16, 1995 18.25%
commencement of operations)
to October 31, 1996
C shares . November 16, 1995 22.23%
commencement of operations)
to October 31, 1996
Eagle A shares . December 27, 1995 (initial 0.39%
International offering of A shares) to
October 31, 1996
C shares . December 27 1995 (initial 3.78%
offering of C shares) to
October 31, 1996
In connection with communicating its total return to current or
prospective shareholders, each Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indexes that may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs. In addition,
each 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 a 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, and the Standard & Poor's 500 Composite Stock Price Index,
each 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 Funds do 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.
30
<PAGE>
The cumulative returns using this formula is as follows for each period
of each Fund below:
AVERAGE
ANNUALIZED
TOTAL
FUND SHARES PERIOD RETURN
---- ------ ---------- -----------
Small Cap A shares . May 7, 1993 (commencement 87.16%
of operations) to
October 31, 1996
. one-year period ended 33.18%
October 31, 1996
C shares . April 3, 1995 (initial 58.54%
offering of C shares) to
October 31, 1996
. one-year period ended 32.22%
October 31, 1996
Value Equity A shares . December 30, 1994 46.86%
(commencement of
operations) to
October 31, 1996
. one-year period ended 16.59%
October 31, 1996
C shares . April 3, 1995 (initial 35.73%
offering of C shares) to
October 31, 1996
. one-year period ended 15.65%
October 31, 1996
Growth Equity A shares . November 16, 1995 24.14%
commencement of operations)
to October 31, 1996
C shares . November 16, 1995 23.23%
commencement of operations)
to October 31, 1996
31
<PAGE>
AVERAGE
ANNUALIZED
TOTAL
FUND SHARES PERIOD RETURN
---- ------ ---------- -----------
Eagle A shares . December 27, 1995 (initial 5.40%
International offering of A shares) to
October 31, 1996
C shares . December 27 1995 (initial 4.78%
offering of C shares) to
October 31, 1996
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 FUNDS
- ----------------------
A shares and C shares are sold at their next determined net asset value
on Business Days. The procedures for purchasing shares of a Fund are explained
in the 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 a Fund.
The draft is returned by your bank the same way a canceled check is returned.
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 a 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
a 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 a 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.
32
<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 a 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 less than one
33
<PAGE>
year of purchase. Heritage, as the Funds' transfer agent, will establish an
account with each 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 "Alternative Purchase Plans" in the
Prospectus. The Funds reserve the right to reject any order for Fund shares. The
Funds' distributor, Raymond James & Associates, Inc. ("RJA" or the
"Distributor") has agreed that it will hold a 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.
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 a 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
34
<PAGE>
(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 each 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
months in A shares of a 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 a 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.
35
<PAGE>
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 a 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 redemp tion. If a shareholder elects to participate in the
Systematic Withdrawal Plan, dividends and other distributions on all shares in
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 Funds, 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 a
Fund if maintaining a Systematic Withdrawal Plan of A shares because the
shareholder may incur tax liabilities in connection with such purchases and
withdrawals. A 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
each Fund's Automatic Investment Plan.
36
<PAGE>
Telephone Transactions
----------------------
Shareholders may redeem shares by placing a telephone request to a
Fund. A 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 a 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
-------------------
A Fund is obligated to redeem shares for any shareholder for cash
during any 90-day period up to $250,000 or 1% of that Fund's 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, a Fund will pay all or
a portion of the remainder of the redemption in portfolio instruments, valued in
the same way as each 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.
Receiving Payment
-----------------
If a request for redemption is received by a 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 a 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 a 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
37
<PAGE>
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 a 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 a 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 a 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.
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
38
<PAGE>
Management, Inc. Telephone or telegram requests for an exchange received by a
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. Each Fund is treated as a separate corporation for Federal
income tax purposes. In order to continue to qualify for the favorable tax
treatment as a regulated investment company ("RIC") under the Code, each 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. With respect to each Fund, 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.
Each 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.
39
<PAGE>
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 shares of any
Fund for shares of another Heritage Mutual Fund (including the other Fund)
generally will have similar tax consequences. However, special rules apply when
a shareholder disposes of A share of a Fund through a redemption or exchange
within 90 days after purchase thereof and subsequently reacquires A shares of
that 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 shares of a Fund are purchased (whether
pursuant to the reinstatement privilege or otherwise) within 30 days before or
after redeeming other shares of that 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 a 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 each
Fund (other than Small Cap) 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 cer tain 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 invest ors. If more than 50% of the value of a Fund's
total assets at the close of any taxable year consists of securities of foreign
corporations, it will be eligible to, and may, file an election with the
Internal Revenue Service that will enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign taxes
paid by it. Pursuant to any such election, each Fund would treat those taxes as
dividends paid to its shareholders and each shareholder would be required to (1)
include in gross income, and treat as paid by the shareholder, the shareholder's
40
<PAGE>
proportionate share of those taxes, (2) treat the shareholder's share of those
taxes and of any dividend paid by each Fund that represents income from foreign
or U.S. possessions sources as the shareholder's own income from those sources,
and (3) either deduct the taxes deemed paid by the shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing information in
calcu lating the foreign tax credit against the shareholder's Federal income
tax. Each Fund will report to its shareholders shortly after each taxable year
their respective shares of each Fund's income from sources within foreign
countries and U.S. possessions and foreign taxes paid by it if it makes this
election.
Each Fund, except Small Cap, 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, a
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 a 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 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 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).
41
<PAGE>
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 a
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 a
Fund's investment company taxable income to be distributed to its shareholders.
HEDGING STRATEGIES. The use of hedging strategies, such as selling
(writing) and purchasing options and futures contracts and entering into forward
currency contracts, involves complex rules that will determine for income tax
purposes the character and timing of recognition of the gains and losses a Fund
realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures and forward currency contracts derived by a Fund
with respect to its business of investing in securities or foreign currencies,
will qualify as permissible income under the Income Requirement. However, income
from the disposition of options and futures contracts (other than those on
foreign currencies) will be subject to the Short-Short Limitation if they are
held for less than three months. Income from the disposition of foreign
currencies, and options, futures and forward contracts thereon, that are not
directly related to a Fund's principal business of investing in securities (or
options and futures with respect to securities) also will be subject to the
Short-Short Limitation if they are held for less than three months.
If a Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
Fund will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent a Fund does not so qualify, it may be forced
to defer the closing out of certain options, futures, forward currency contracts
and/or foreign currency positions beyond the time when it otherwise would be
advantageous to do so, in order for the Fund to continue to qualify as a RIC.
42
<PAGE>
Certain options and futures in which a Fund may invest will be "section
1256 contracts." Section 1256 contracts held by a Fund at the end of each
taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which it has made an election not to have the
following rules apply, must be "marked-to-market" (that is, treated as sold for
their fair market value) for Federal income tax purposes, with the result that
unre alized gains or losses will be treated as though they were realized. Sixty
percent of any net gain or loss recognized on these deemed sales, and 60% of any
net realized gain or loss from any actual sales of section 1256 contracts, will
be treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss. Section 1256 contracts also may be
marked-to-market for purposes of the Excise Tax.
Code section 1092 (dealing with straddles) also may affect the taxation
of options and futures contracts in which a Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property. Section
1092 generally provides that any loss from the disposition of a position in a
straddle may be deducted only to the extent the loss exceeds the unrealized gain
on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new off setting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If a Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions would be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences to a
Fund of straddle transactions are not entirely clear.
Investors are advised to consult their own tax advisers regarding the
status of an investment in the Funds under state and local tax laws.
FUND INFORMATION
- ----------------
Management Of The Funds
-----------------------
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.
43
<PAGE>
Position with Principal Occupation
Name the Trust During Past Five Years
---- ------------- ----------------------
Thomas A. James* Trustee Chairman of the Board since
880 Carillon Parkway 1986 and Chief Executive
St. Petersburg, FL 33716 Officer since 1969 of RJF;
Chairman of 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
880 Carillon Parkway Eagle since 1996, President,
St. Petersburg, FL 33716 1995 to present, Chief
Operating Officer, 1988 to
1996, Executive Vice
President, 1988 to 1993.
Donald W. Burton Trustee President of South Atlantic
614 W. Bay Street Capital Corporation (venture
Suite 200 capital) since 1981.
Tampa, FL 33606
C. Andrew Graham Trustee Vice President of Financial
Financial Designs, Ltd. Designs Ltd. since 1992;
1775 Sherman Street Executive Vice President of
Suite 1900 the Madison Group, Inc., 1991
Denver, CO 80203 to 1992; Principal of First
Denver Financial Corporation
(investment banking) since
1987.
David M. Phillips Trustee Chairman and Chief Executive
World Trade Center Officer of CCC Information
Chicago Services, Inc. since 1994 and
444 Merchandise Mart of InfoVest Corporation
Chicago, IL 60654 (information services to the
insurance and auto industries
industries and consumer
households) since 1982.
Eric Stattin Trustee Litigation Consultant/Expert
2587 Fairway Village Drive Witness and private investor
Park City, UT 84060 since 1988.
James L. Pappas Trustee Lykes Professor of Banking and
University of South Florida Finance since 1986 at
College of Business University of South Florida;
Administration Dean of College of Business
Tampa, FL 33620 Administration 1987 to 1996.
44
<PAGE>
Position with Principal Occupation
Name the Trust During Past Five Years
---- ------------- ----------------------
Stephen G. Hill President Chief Executive Officer and
880 Carillon Parkway President of Heritage since
St. Petersburg, FL 33716 1989 and Director since 1994;
Director of Eagle since 1995.
Donald H. Glassman Treasurer Treasurer of Heritage since
880 Carillon Parkway 1989; Treasurer of Heritage
St. Petersburg, FL 33716 Mutual Funds since 1989.
Clifford J. Alexander Secretary Partner, Kirkpatrick &
1800 Massachusetts Ave., NW Lockhart LLP (law firm).
Washington, DC 20036
Patricia Schneider Assistant Compliance Administrator of
880 Carillon Parkway Secretary Heritage.
St. Petersburg, FL 33716
Robert J. Zutz Assistant Partner, Kirkpatrick &
1800 Massachusetts Ave., NW Secretary Lockhart LLP (law firm).
Washington, DC 20036
* 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
each 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.
45
<PAGE>
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 or Eagle, as applicable, performs substantially all of the
services necessary for the operation of each Fund, each Fund requires no
employees. No officer, director or employee of Heritage or Eagle receives any
compensation from either 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
Total
Pension or Compensation From
Aggregate Retirement Estimated the Trust and the
Compensation Benefits Accrued Annual Heritage Family
Name of Person, From the as Part of the Benefits Upon of Funds Paid
Position Trust Trust's Expenses Retirement to Trustees
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald W. Burton $5,820 $0 $0 $17,000
Trustee
C. Andrew Graham, $5,820 $0 $0 $17,000
Trustee
David M. Phillips, $5,092 $0 $0 $15,000
Trustee
Eric Stattin, $5,820 $0 $0 $17,000
Trustee
James L. Pappas, $5,820 $0 $0 $17,000
Trustee
Richard K. Riess, $0 $0 $0 $0
Trustee
Thomas A. James $0 $0 $0 $0
Trustee
</TABLE>
46
<PAGE>
Five Percent Shareholders
-------------------------
As of January 31, 1997, the following shareholder owned of record five
percent or more of the outstanding A shares of the Growth Equity Fund:
Raymond James & Associates, Inc. ........................... 5.72%
Cust. John C. Long IRA
180 Buckskin Lane
Ormond Beach, FL 32174
As of January 31, 1997, the following shareholders owned of record five
percent or more of the outstanding A shares of the Eagle International Equity
Portfolio:
Raymond James & Associates, Inc. ............................ 5.26%
FAO Thomas A. James Trustee
For Thomas A. James Family Trust
7977 9th Avenue South
St. Petersburg, FL 33707
Sound Trust Co. Trustee ..................................... 6.07%
FAO Robert A. James Irrev. Trust
P.O. Box 14407
St. Petersburg, FL 33733
As of January 31, 1997, the following shareholders owned of record five
percent or more of the oustanding C shares of The Eagle International Equity
Portfolio:
Raymond James Trust Company .................................. 5.39%
and Mary Ann P. Timmins Trustee
Mary Ann P. Timmins Rev. Trust
P.O. Box 14407
St. Petersburg, FL 33733
Investment Adviser And Administrator; Subadvisers
-------------------------------------------------
The investment adviser and administrator for Small Cap, Value Equity
and Growth Equity is Heritage Asset Management, Inc. Heritage was organized as a
Florida corporation in 1985. The investment adviser for Eagle International is
Eagle Asset Management, Inc. Eagle was organized as a Florida corporation in
1976. All the capital stock of both Heritage and Eagle is owned by Raymond James
Financial, Inc. ("RJF"). RJF 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 partner ships,
options, investment banking and related fields.
47
<PAGE>
Heritage is responsible for overseeing Small Cap, Value Equity and
Growth Equity's investment and noninvestment affairs, subject to the control and
direction of the Board. The Trust, on behalf of Small Cap, Value Equity and
Growth Equity entered into an Investment Advisory and Administration Agreement
with Heritage dated March 29, 1993 and supplemented and amended on March 31,
1993 and August 7, 1995, to include Value Equity and Growth Equity,
respectively. The Investment Advisory and Administration Agreement requires that
Heritage review and establish investment policies for each Fund and administer
the Funds' noninvestment affairs.
On behalf of Eagle International, the Trust also entered into an
Investment Advisory and Administration Agreement (collectively with the Advisory
Agreements for Small Cap, Value Equity and Growth Equity, "Advisory Agreements")
dated February 14, 1995 with Eagle to provide oversight of Eagle International's
investment and noninvestment affairs, subject to the control and direction of
the Board.
Under separate Subadvisory Agreements, Eagle and Awad each provide
investment advice and portfolio management services, subject to direction by
Heritage and the Board of Trustees, to Small Cap for a fee payable by Heritage.
Under a Subadvisory Agreement, Eagle provides investment advice and portfolio
management services, subject to the direction of Heritage and the Board of
Trustees, to Value Equity and Growth Equity for a fee payable by Heritage. Under
a separate Subadvisory Agreement, Dreman Value Advisors, Inc. ("Dreman") also
provides investment advice and portfolio management services to Value Equity,
subject to direction by Heritage and the Board of Trustees, for a fee payable by
Heritage. Under a Subadvisory Agreement, Martin Currie Inc. provides investment
advice and portfolio management services, subject to the direction of Eagle and
the Board of Trustees, to Eagle International for a fee payable by Eagle
(collectively, the "Subadvisory Agreements").
Heritage and Eagle, as applicable, also are obligated to furnish each
Fund with office space, administrative, and certain other services as well as
executive and other personnel necessary for the operation of a Fund. Heritage
and Eagle, as applicable, and their affiliates also pay all the compensation of
48
<PAGE>
Trustees of the Trust who are employees of Heritage or Eagle and their
affiliates. Each Fund pays all its other expenses that are not assumed by
Heritage or Eagle, as applicable. Each Fund also is liable for such nonrecurring
expenses as may arise, including litigation to which a Fund may be a party. Each
Fund also may have an obligation to indemnify its Trustees and officers with
respect to any such litigation.
The Advisory Agreements and the Subadvisory Agreements each were
approved by the Board of Trustees (including all of the Trustees who are not
"interested persons" of Heritage and Eagle or the subadvisers, 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, the subadvisers 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 a 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 Agreements may be terminated on not less than 60 days'
written notice by Heritage or Eagle, as applicable, to a Fund and the
Subadvisory Agreements may be terminated on not less than 60 days' written
notice by Heritage or Eagle, as applicable, or 90 days' written notice by the
Subadvisers. Under the terms of the Advisory Agreement, Heritage and Eagle
automatically become responsible for the obligations of the subadvisers upon
termination of the Subadvisory Agreements. In the event Heritage or Eagle, as
applicable, ceases to be the investment adviser a Fund or the Distributor ceases
to be principal distributor of shares of a Fund, the right of a Fund to use the
identifying name of "Heritage" may be withdrawn.
Heritage, Eagle and the subadvisers shall not be liable to either 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 a Fund or for
any losses that may be sustained in the purchase, holding or sale of any
security.
All of the officers of each Fund except for Messrs. Alexander and Zutz
are officers or directors of Heritage, Eagle or their affiliates. These
relationships are described under "Management of the Funds."
ADVISORY AND ADMINISTRATION FEE. The annual investment advisory fee
paid monthly by each Fund to Heritage or Eagle, as applicable, is based on the
applicable Fund's average daily net assets as listed in the Prospectus.
49
<PAGE>
For Small Cap, 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. For the three years
ended October 31, 1996, management fees amounted to $416,788, $465,132 and
$827,233, respectively.
Heritage has entered into an agreement with Eagle and Awad to provide
investment advice and portfolio management services to Small Cap for a fee paid
by Heritage to each subadviser equal to 50% of the fees payable to Heritage by
Small Cap, , without regard to any reduction in fees actually paid to Heritage
as a result of expense limitations. The Research Department of Raymond James &
Associates, Inc. ("Research"), a former subadviser of Small Cap who resigned as
its subadviser on November 20, 1995, received from Heritage for the fiscal year
ended October 31, 1994, and November 1, 1995 to November 20, 1995 (when Research
resigned as subadviser), subadvisory fees of $99,764 and $74,583, respectively.
Eagle began as subadviser to Small Cap on August 7, 1995 and received
subadvisory fees from Heritage for the period August 7, 1995 to October 31, 1995
and the fiscal year ended October 31, 1996 in the amount of $30,725 and
$203,492, respectively. For the three fiscal years ended October 31, 1996,
Heritage paid Awad subadvisory fees of $101,249, $127,866 and $210,124,
respectively.
For Value Equity, the annual investment advisory fee paid monthly by
Value Equity to Heritage is set forth in its Prospectus. Effective March 1,
1997, Heritage voluntarily has agreed to waive management fees to the extent
that annual operating expenses attributable to A shares exceed 1.60% of 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. Prior to March 1, Heritage waived management fees to
the extent that annual operating expenses attributable to A shares exceed 1.60%
of 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 the fiscal year. For the period December 30, 1994
(commencement of operations) to October 31, 1995 and the fiscal year ended
October 31, 1996, management fees amounted to $47,250 and $168,020. For the same
periods, Heritage waived its fees in the amount of $47,250 and $76,062,
respectively, and reimbursed expenses in the amount of $68,724 for the period
ended October 31, 1995.
50
<PAGE>
Heritage has entered into agreements with Eagle and Dreman to provide
investment advice and portfolio management services to Value Equity for a fee
paid by Heritage to Eagle and Dreman as applicable, equal to 50% of the fees
paid to Heritage, without regard to any reduction in fees actually paid to
Heritage as a result of expense limitations. For the period December 30, 1994
(commencement of operations) to October 31, 1995 and the fiscal year ended
October 31, 1996, Heritage paid Eagle subadvisory fees of $23,625 and $45,947.
For the period June 1, 1996, when Dreman began managing Value Equity assets to
October 31, 1996 Heritage paid Dreman $38,063.
For Growth Equity, Heritage has voluntarily agreed to waive management
fees to the extent that Class A annual operating expenses exceed 1.60% or to the
extent that Class C annual operating expenses exceed 2.35% of average daily net
assets attributable to that class during this fiscal year. Prior to March 1,
Heritage waived management fees to the extent that annual operating expenses
attributable to A shares exceed 1.60% of 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 the fiscal year. For
the period November 16, 1995 (commencement of operations) to October 31, 1996,
management fees amounted to $77,137 of which Heritage waived $76,210.
Heritage has entered into an agreement with Eagle to provide investment
advisory advice and portfolio management services to Growth Equity for a fee
paid by Heritage to Eagle equal to 50% of the fees paid to Heritage, without
regard to any reduction in fees actually paid to Heritage as a result of expense
limitations. For the period November 16, 1995 (commencement of operations) to
October 31, 1996, Heritage paid Eagle subadvisory fees of $38,568.
For Eagle International, Eagle has voluntarily agreed to waive
management fees to the extent that Class A annual operating expenses, exclusive
of foreign taxes paid, exceed 1.97% or to the extent that Class C annual
operating expenses exceed 2.72% of average daily net assets attributable to that
class during this fiscal year. For the period May 1, 1995 (commencement of
operations) to October 31, 1995 and for the fiscal year ended October 31, 1996,
management fees amounted to $32,303 and $189,777, respectively, and Eagle waived
its fees in the amount of $32,303 and $134,735, respectively and reimbursed
expenses in the amount of $48,001 for the period ended October 31, 1995.
Eagle has entered into an agreement with Martin Currie to provide
investment advisory advice and portfolio management services to Eagle
International for a fee based on Eagle International's average daily net assets
paid by Eagle to Martin Currie equal to .50% on the first $100 million of assets
and .40% thereafter, without regard to any reduction in fees actually paid to
Eagle as a result of expense limitations. For the period May 1, 1995
(commencement of operations) to October 31, 1995 and the year ended October 31,
1996, Eagle paid Martin Currie subadvisory fees of $16,152 and $99,888,
respectively
51
<PAGE>
CLASS-SPECIFIC EXPENSES. Each Fund may determine to allocate certain of
its expenses (in addition to distribution fees) to the specific classes of a
Fund's shares to which those expenses are attributable.
Brokerage Practices
-------------------
While each Fund generally purchases securities for long-term capital
gains, each Fund 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. A 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. Small Cap's
portfolio turnover rates for the two years ended October 31, 1996 were 89% and
80%, respectively. Value Equity's annualized portfolio turnover rate for the
period December 30, 1994 (commencement of operations) to October 31, 1995, and
the fiscal year ended October 31, 1996, were 82% (annualized) and 129%. Growth
Equity's portfolio turnover rate for the period November 16, 1995 (commencement
of operations) to October 31, 1996 was 23% (not annualized). Eagle
International's portfolio turnover rates for the period May 1, 1995
(commencement of operations) to October 31, 1995 and the year ended October 31,
1996 were 61% (annualized) and 59%, respectively.
The Subadvisers are responsible for the execution of each Fund's
portfolio transactions and must seek the most favorable price and execution for
such transactions. Best execution, however, does not mean that a Fund
necessarily will be paying the lowest commission or spread available. Rather,
each 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, 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, the Subadvisers may give
consideration to research, statistical and other services furnished by brokers
or dealers. In addition, the Subadvisers 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 the Subadvisers determine in
52
<PAGE>
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 the Subadvisers in connection with services to clients other than the
Funds. Eagle International also may purchase and sell portfolio securities to
and from dealers who provide it with research services. However, portfolio
transactions will not be directed by Eagle International to dealers on the basis
of such research services.
Value Equity, Growth Equity and Eagle International generally use the
Distributor, its affiliates or certain affiliates of Heritage and Eagle 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 and Eagle 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."
Although it currently does not intend to do so, Small Cap may use the
Distributor as broker for agency transactions in listed and OTC securities at
commission rates and under circumstances consistent with the policy of best
execution. Provided, however, that if Small Cap does use the Distributor as a
broker, commissions paid to the Distributor will not exceed "usual and customary
brokerage commissions" as defined above.
The Subadvisers also may select other brokers to execute portfolio
transactions. In the OTC market, each Fund generally deals with primary market
makers unless a more favorable execution can otherwise be obtained.
RJA may act as broker on behalf of each Fund in the purchase and sale
of portfolio securities. (Prior to fiscal 1995, Small Cap did not use RJA as
broker in effecting trading.) Aggregate brokerage commissions paid by Small Cap
for the three years ended October 31, 1996 amounted to $145,750, $196,353 and
$297,557, respectively. For the same periods, RJA was paid $0, $13,416 and
$59,551. Transactions in which Small Cap used RJA as broker involved
approximately 0%, 7% and 25%, respectively, of the aggregate dollar amount of
transactions involving the payment of commissions, and 0% and 7% and 20%,
respectively, of the aggregate commission paid by Small Cap during the period.
Aggregate brokerage commissions paid by Value Equity for the period
December 30, 1994 (commencement of operations) to October 31, 1995 and the
fiscal year ended October 31, 1996 amounted to $43,552 and $71,566. For the same
periods, RJA was paid $8,596 and $60 respectively. Transactions in which Value
Equity used RJA as broker involved approximately 20% and less than 1%,
respectively, of the aggregate dollar amount of transactions involving the
payment of commissions, and 19.74% and less than 1%, respectively, of the
aggregate commission paid by Value Equity during the period.
53
<PAGE>
Aggregate brokerage commissions paid by Growth Equity for the period
November 26, 1995 (commencement of operations) to October 31, 1996 amounted to
$18,075, of which none was paid to RJA.
Each 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 each 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 each 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, each Fund expressly consented to the Distributor executing transactions
on an exchange on its behalf.
Distribution Of Shares
----------------------
The Distributor and Representatives with whom the Distributor has
entered into dealer agreements offer shares of each 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 a Fund. Pursuant
to the Distribution Agreements with the Trust on behalf of each Fund with
respect to A shares and C shares, the Distributor bears the cost of making
information about each 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
Class A and C shareholders and for maintaining shareholder accounts. Each 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.
54
<PAGE>
Each 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 Heritage or Eagle, as the sole shareholder of each Fund, as
applicable, and the Board of Trustees, including a majority of the Trustees who
are not interested persons of a 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 each Fund and its Class A shareholders will
benefit from the Class A Plan.
Each 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 a 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,
each 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 each 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 each 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.
For Small Cap, for the fiscal years ended October 31, 1994, 1995 and
1996, the Distributor received Class A 12b-1 fees in the amount of $100,506,
$115,551 and $197,076, respectively. For Value Equity, for the period
55
<PAGE>
December 30, 1994 (commencement of operations) to October 31, 1995 and the
fiscal year ended October 31. 1996, the Distributor received Class A 12b-1 fees
for Value Equity in the amount of $13,040 and $36,710, respectively. For Growth
Equity, for the period November 16, 1995 (commencement of operations) to
October 31, 1996, the Distributor received Class A 12b-1 fees in the amount of
$19,287. For Eagle International, for the period ended December 27, 1995 (first
offering of A shares) to October 31, 1996, the Distributor received Class A and
12b-1 fees in the amount of $3,934.
As compensation for the services provided and expenses borne by the
Distributor pursuant to the Distribution Agreement with respect to C shares,
each 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. For the period April 3, 1995
(first offering of C shares) to October 31, 1995 and the fiscal year ended
October 31, 1996, the Distributor received $9,098 and $146,179 in fees for Small
Cap and $10,848 and $77,187 in fees for Value Equity, respectively. For Growth
Equity, for the period November 16, 1995 (commencement of operations) to
October 31, 1996, the Distributor received Class C 12b-1 fees in the amount of
$25,704. For Eagle International, for the period ended December 27, 1995 (first
offering of C shares) to October 31, 1996, the Distributor received Class C
12b-1 fees in the amount of $5,404.
The Distribution Agreements may be terminated at any time on 60 days'
written notice without payment of any penalty by either party. Each Fund may
effect such termination by vote of a majority of the outstanding voting
securities of a 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 Agreements 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.
56
<PAGE>
Administration Of The Funds
- ---------------------------
ADMINISTRATIVE, FUND ACCOUNTING AND TRANSFER AGENT SERVICES. Heritage
or Eagle, as applicable, , subject to the control of the Board of Trustees, will
manage, supervise and conduct the administrative and business affairs of each
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 each Fund who are affiliated with Heritage or Eagle, as
applicable. In addition, Heritage provides certain shareholder servicing
activities for customers of the Funds.
Under a separate Administration Agreement between Eagle and Heritage,
Heritage provides certain noninvestment services to Eagle International for a
fee payable by Eagle equal to 10% on the first $100 million of average daily net
assets, and .05% thereafter.
Heritage also is the transfer and dividend disbursing agent for each
Fund and serves as Fund accountant for Small Cap, Value Equity and Growth
Equity. Each Fund pays Heritage its cost plus 10% for its services as fund
accountant and transfer and dividend disbursing agent. For the three years ended
October 31, 1994, 1995 and 1996, Heritage earned approximately, $44,240, $62,042
and $65,883, respectively, from Small Cap for its services as transfer agent.
For the period of December 30, 1994 (commencement of operations) to October 31,
1995 and the fiscal year ended October 31, 1996, Heritage earned approximately
$10,346 and $20,585, respectively, from Value Equity for its services as
transfer agent. For the period November 16, 1995 to October 31, 1996, Heritage
earned approximately $7,084 from Growth Equity for its services as transfer
agent. For the period December 27, 1995 to October 31, 1996, Heritage earned
$7,745 from Eagle International for its services as transfer agent.
For the period November 1, 1994 (commencement of engagement as fund
accountant) to October 31, 1995 and the fiscal year ended October 31, 1996,
Heritage earned approximately $29,311 and $38,378, respectively, from Small Cap
for its services as fund accountant. For the period December 30, 1994
(commencement of operations) to October 31, 1995 and the fiscal year ended
October 31, 1996, Heritage earned approximately $20,509 and $30,208,
respectively, from Value Equity for its services as fund accountant. For the
period November 16, 1995 to October 31, 1996, Heritage earned approximately
$24,797 from Growth Equity for its services as fund accountant.
57
<PAGE>
CUSTODIAN. State Street Bank and Trust Company, P.0. Box 1912, Boston,
Massachusetts 02105, serves as custodian of each Fund's assets. The Custodian
also provides portfolio accounting and certain other services for the Funds.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
NW, 2nd Floor, Washington, D.C. 20036, serves as counsel to the Funds.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 400 North Ashley Street,
Suite 2800, Tampa, Florida 33602, are the independent public accountants for the
Funds. The Financial Statements and Financial Highlights of the Funds for the
fiscal year ended October 31, 1996 that appear in this SAI have been audited by
Price Waterhouse LLP, and are included herein in reliance upon the report of
said firm of accountants, which is given upon their authority as experts in
accounting and auditing. The Financial Highlights for the fiscal years ended
prior thereto and the Statement of Changes in Net Assets for the year ended
October 31, 1995 were audited by other independent public accountants.
Potential Liability
- -------------------
Under certain circumstances, shareholders may be held personally liable
as partners under Massachusetts law for obligations of a Fund. To protect its
shareholders, each Fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
a Fund. These documents require notice of this disclaimer to be given in each
agreement, obligation or instrument each Fund or its Trustees enter into or
sign. In the unlikely event a shareholder is held personally liable for a Fund's
obligations, that Fund is required to use its property to protect or compensate
the share holder. On request, a Fund will defend any claim made and pay any
judgment against a shareholder for any act or obligation of a Fund. Therefore,
financial loss resulting from liability as a share holder will occur only if a
Fund itself cannot meet its obligations to indemnify shareholders and pay
judgments against them.
58
<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. Commerical Paper Debt Ratings
- ----------------------------------------------------------------------------
PRIME-L. 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:
A-1
<PAGE>
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
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 obliga tions. 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.
A-2
<PAGE>
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 - 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.
A-3
<PAGE>
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.
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
<PAGE>
The Reports of Independent Accountants and Financial Statements are
incorporated herein by reference from each Fund's Annual Report to Shareholders
for the fiscal year ended October 31, 1996, filed with the Securities and
Exchange Commission on December 27, 1996, Accession No. 950144-96-009353 (Growth
Equity Fund), Accession No. 950144-96-009354 (Small Cap Stock Fund) Accession
No. 950144-96-009355 (Value Equity Fund) and Accession No. 950144-96-009359
(Eagle International Equity Portfolio - Class A & C Shares).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
EAGLE INTERNATIONAL EQUITY PORTFOLIO
This Statement of Additional Information dated March 1, 1997, should be
read with the Prospectus of Eagle International Equity Portfolio dated March 1,
1997. This Statement is not a prospectus itself. To receive a copy of the
Prospectus, write to Eagle Asset Management, Inc. at the address below, or call
(800) 237-3101.
Eagle Asset Management, Inc.
P.O. Box 10520
880 Carillon Parkway
St. Petersburg, Florida 33733
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION........................................................ 1
INVESTMENT INFORMATION..................................................... 1
Investment Objective.................................................. 1
Investment Policies................................................... 1
INVESTMENT RESTRICTIONS.................................................... 13
NET ASSET VALUE............................................................ 16
PERFORMANCE INFORMATION.................................................... 17
INVESTING IN THE EAGLE CLASS............................................... 18
REDEEMING SHARES........................................................... 18
Systematic Withdrawal Plan............................................ 19
Redemption in Kind.................................................... 20
TAXES...................................................................... 20
PORTFOLIO INFORMATION...................................................... 23
Trustees and Officers................................................. 23
Five Percent Shareholders............................................. 26
Investment Adviser; Subadviser........................................ 26
Brokerage Practices................................................... 28
Distribution of Shares................................................ 29
Administration of the Portfolio....................................... 31
Potential Liability................................................... 32
APPENDIX................................................................... A-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................... A-5
FINANCIAL STATEMENTS....................................................... A-6
<PAGE>
GENERAL INFORMATION
- -------------------
Heritage Series Trust (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated October 28, 1992. Eagle
International Equity Portfolio ("the Portfolio") is one of the Trust's separate
investment portfolios.
The Portfolio is structured to combine the regional and global presence of
larger, well-known companies in established markets with the potentially rapid
growth of companies in the expanding economies of many emerging countries.
Eagle Asset Management, Inc., the Portfolio's investment adviser ("Eagle"),
has retained Martin Currie Inc. as the Portfolio's investment subadviser (the
"Subadviser"). The Subadviser's parent company, Martin Currie Limited, is a
privately owned international advisory firm that was established in 1881. Martin
Currie Limited, coupled with the Subadviser, employs more than 30 investment
professionals who comprise six geographic investment teams that service more
than $5 billion in investor's assets.
The Subadviser uses a top down country allocation and a bottom up stock
selection process. In choosing which countries to invest assets in the
Subadviser considers the major economic trends in that country, any political
and economic changes in the country and the countries capital flows. In choosing
individual companies the Subadviser, based on a growth style with a value
component considers the company's business strategy, relative value and earnings
momentum.
INVESTMENT INFORMATION
- ----------------------
Investment Objective
--------------------
The Portfolio's investment objective, as described in the Prospectus, is
capital appreciation. Income is an incidental consideration. The Portfolio seeks
to achieve this objective principally through investment in an international
portfolio of equity securities.
<PAGE>
Investment Policies
-------------------
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"),
Global Depository Receipts ("GDRs") And International Depository Receipts
("IDRs")
- --------------------------------------------------------------------------------
The Portfolio may invest in sponsored or unsponsored ADRs, EDRs, GDRs, IDRs
or other similar securities representing interests in or convertible into
securities of foreign issuers ("Depository Receipts"). ADRs are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying foreign securities. EDRs and IDRs are receipts typically issued by a
European bank or trust company evidencing ownership of the underlying foreign
securities. GDRs are issued globally for trading in non-U.S. securities markets
and evidence a similar ownership arrangement. Depositary Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. In addition, the issuers of the securities
underlying unsponsored Depositary Receipts 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 Depositary Receipts.
Depositary Receipts also involve the risks of other investments in foreign
securities, as discussed below.
Convertible Securities
- ----------------------
The Portfolio may invest in convertible securities, as described in the
Prospectus. 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. The Subadviser, on behalf of the Portfolio, will
decide to invest based upon a 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 Portfolio may
invest include corporate bonds, notes and preferred stock that can be converted
into (exchanged for) common stock. Convertible securities combine the
fixed-income characteristics of bonds and preferred stock with the potential for
capital appreciation. 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.
- 2 -
<PAGE>
Forward Commitments
- -------------------
As described in the Prospectus under the caption "Other Investment Policies
and Risk Factors - Forward Commitments, When- Issued and Delayed Delivery
Transactions," the Portfolio may make contracts to purchase securities for a
fixed price at a future date beyond customary settlement time ("forward
commitments"), if the Portfolio either (1) holds, and maintains until the
settlement date in a segregated account, cash or high grade debt obligations in
an amount sufficient to meet the purchase price or (2) enters into an offsetting
contract for the forward sale of securities of equal value that it owns. Forward
commitments may be considered securities in themselves. They involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in value of
the Portfolio's other assets. The Portfolio may dispose of a commitment prior to
settlement and may realize short-term profits or losses upon such disposition.
Futures And Forward Transactions
- --------------------------------
The Prospectus describes the Portfolio's use of forward contracts and
futures contracts. See "Other Investment Policies and Risk Factors - Futures
Transactions; Foreign Currency Transactions," in the Prospectus. The following
discussion relates to the use of such strategies by the Portfolio.
COVER. Transactions using forward contracts and futures contracts expose
the Portfolio to an obligation to another party. The Portfolio will not enter
into any such transactions unless it owns either (1) an offsetting ("covered")
position in securities, currencies, or other forward contracts or futures
contracts or (2) cash, receivables and short-term debt securities with a value
sufficient at all times to cover its potential obligations not covered as
provided in (1) above. The Portfolio will comply with Securities Exchange
Commission ("SEC") guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash, U.S. government securities or other
liquid, high-grade debt securities in a segregated account with its custodian in
the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding forward contract or futures contract is open,
unless they are replaced with similar assets. As a result, the commitment of a
large portion of the Portfolio's assets to cover or segregated accounts could
impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
FORWARD CONTRACTS. A forward foreign currency exchange contract ("forward
contract") involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days (term) from the date the
forward contract is agreed upon by the parties, at a price set at the time of
the forward contract is entered into. Forward contracts are traded directly
- 3 -
<PAGE>
between the Portfolio and a contra party (usually a large commercial bank).
Because forward contracts are usually entered into on a principal basis, no fees
or commissions are involved. When the Portfolio enters into a forward contract,
it relies on its contra party to make or take delivery of the underlying
currency at the maturity of the contract. Failure by the contra party to do so
would result in the loss of any expected benefit of the transaction.
The Portfolio may enter into forward contracts in order to protect against
uncertainty in the level of future foreign exchange rates. Since investment in
foreign companies will usually involve foreign currencies, and since the
Portfolio may temporarily hold funds in bank deposits in foreign currencies
during the course of investment programs, the value of the assets of the
Portfolio as measured in U.S. dollars may be affected by changes in foreign
currency exchange rates and exchange control regulations, and the Portfolio may
incur costs in connection with conversion between various currencies.
Accordingly, the Portfolio may use currency forward contracts:
1. When the Subadviser wishes to "lock in" the U.S. dollar price of a
security when the Portfolio is purchasing or selling a security
denominated in a foreign currency or anticipates receiving a dividend
or interest payment denominated in a foreign currency; or
2. When the Subadviser believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, the
Portfolio may enter into a forward contract to sell the foreign
currency for a fixed U.S. dollar amount approximating the value of
some or all of the Portfolio's portfolio securities denominated in
such foreign currency.
As to the first circumstance, when the Portfolio enters into a trade for
the purchase or sale of a security denominated in a foreign currency or
anticipates receiving a dividend or interest payment in a foreign currency, it
may be desirable to establish (lock in) the U.S. dollar cost or proceeds. By
entering into forward contracts in U.S. dollars for the purchase or sale of a
foreign currency involved in an underlying securities transaction, the Portfolio
will be able to protect itself against a possible loss between trade and
settlement dates resulting from the adverse change in the relationship between
the U.S. dollar and the subject foreign currency.
Under the second circumstance, when the Subadviser believes that the
currency of a particular country may suffer a substantial decline, the Portfolio
could enter into a forward contract to sell for a fixed U.S. dollar amount the
amount of the foreign currency approximating the value of some or all of its
portfolio securities denominated in such foreign currency.
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<PAGE>
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those investments between the date the forward
contract is entered into and the date it matures.
Of course, the Portfolio is not required to enter into forward contracts
and will not do so unless deemed appropriate by the Subadviser. The Portfolio
generally will not enter into a forward contract with a term of greater than one
year. The Portfolio's ability to engage in forward contracts may be limited by
tax considerations.
FUTURES CONTRACTS. The Portfolio may only purchase or sell stock index or
currency futures contracts. A futures contract sale creates an obligation by the
seller to deliver the type of commodity, currency or financial instrument called
for in the contract in a specified delivery month for a stated price. A futures
contract purchase creates an obligation by the purchaser to take delivery of the
underlying security or currency in a specified delivery month at a stated price.
A stock index futures contract is similar except that the parties agree to take
or make delivery of an amount of cash equal to a specified dollar amount times
the difference between the stock index value at the close of the last trading
day of the contract and the price at which the futures contract is originally
struck. Futures contracts are traded only on commodity exchanges -- known as
"contract markets" -- approved for such trading by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures commission merchant
or brokerage firm that is a member of a contract market.
Although futures contracts by their terms call for actual delivery or
acceptance of currencies or financial instruments, in most cases the contracts
are closed out before the settlement date without the making or taking of
delivery. Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific type of financial
instrument or currency and the same delivery date. If the price of the initial
sale of the futures contract exceeds the price of the offsetting purchase, the
seller is paid the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale, the seller
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the purchaser entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes a gain,
and if the purchase price exceeds the offsetting sale price, he realizes a loss.
The purchase (that is, a long position) or sale (that is, a short position)
of a futures contract differs from the purchase or sale of a security in that no
price or premium is paid or received. Instead, an amount of cash or U.S.
Treasury bills generally not exceeding 5% of the contract amount must be
deposited with the broker. This amount is known as initial margin. Subsequent
payments to and from the broker, known as variation margin, are made on a daily
- 5 -
<PAGE>
basis as the price of the underlying futures contract fluctuates making the long
and short positions in the futures contract more or less valuable, a process
known as "marking to market." At any time prior to the settlement date of the
futures contract, the position may be closed out by taking an opposite position
that will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker, and the purchaser or seller realizes a
loss or gain. In addition, a commission is paid on each completed purchase and
sale transaction.
The Portfolio may engage in transactions in futures contracts for the
purpose of hedging against changes in the values of securities it owns or
intends to acquire. The Portfolio may sell stock index futures contracts in
anticipation of a decline in the value of its investments. The risk of such a
decline can be reduced without employing futures as a hedge by selling
securities. This strategy, however, entails increased transaction costs in the
form of brokerage commissions and dealer spreads. The sale of futures contracts
provides an alternative means of hedging the Portfolio against a decline in the
value of its investments. As such values decline, the value of the Portfolio's
position in the futures contracts will tend to increase, thus offsetting all or
a portion of the depreciation in the market value of the Portfolio's securities
that are being hedged. While the Portfolio will incur commission expenses in
establishing and closing out futures positions, commissions on futures
transactions may be significantly lower than transaction costs incurred in the
sale of securities. Employing futures as a hedge may also permit the Portfolio
to assume a defensive posture without selling securities.
CURRENCY FUTURES. A currency futures contract sale creates an obligation by
the Portfolio, as seller, to deliver the amount of currency called for in the
contract at a specified future time for a stated price. A currency futures
contract purchase creates an obligation by the Portfolio, as purchaser, to take
delivery of an amount of currency at a specified future time at a stated price.
Although the terms of currency futures contracts specify actual delivery or
receipt, in most instances the contracts are closed out before the settlement
date without the making or taking of delivery of the currency. Closing out of
the currency futures contract is effected by entering into an offsetting
purchase or sale transaction.
STOCK INDEX FUTURES. A stock index assigns relative values to the common
stocks comprising the index. A stock index futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of the last trading day of the contract and
the price at which the futures contract is originally struck. No physical
delivery of the underlying stocks in the index is made.
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<PAGE>
The Portfolio may engage in transactions in stock index futures contracts
as a hedge against changes resulting from market conditions in the values of
securities held in the Portfolio's portfolio or that the Portfolio intends to
purchase.
The risk of imperfect correlation between movements in the price of a stock
index futures contract and movements in the price of the securities that are the
subject of the hedge increases as the composition of the Portfolio's portfolio
diverges from the securities included in the applicable index. The price of the
stock index futures may move more than or less than the price of the securities
being hedged. If the price of the futures contract moves less than the price of
the securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being hedged has moved in
a favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, the Portfolio will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the stock index futures contracts, the Portfolio may
buy or sell stock index futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the historical volatility of the
prices of such securities is more than the historical volatility of the stock
index. It is also possible that, where the Portfolio has sold futures contacts
to hedge its securities against decline in the market, the market may advance
and the value of securities held in the portfolio may decline. If this occurred,
the Portfolio would lose money on the futures contract and also experience a
decline in value in its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices upon which the futures contracts are based.
Where stock index futures contracts are purchased to hedge against a
possible increase in the price of securities before the Portfolio is able to
invest in securities in an orderly fashion, it is possible that the market may
decline instead. If the Portfolio then concludes not to invest in securities at
that time because of concern as to possible further market decline for other
reasons, it will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities it had anticipated purchasing.
LIMITATIONS ON THE USE OF FUTURES PORTFOLIO STRATEGIES. If the Portfolio
enters into futures contracts for other than BONA FIDE hedging purposes (as
defined by the CFTC), the aggregate initial margin required to establish these
positions may not exceed 5% of the liquidation value of the Portfolio's
portfolio, after taking into account any unrealized profits and unrealized
losses on any such contracts it has entered into. This limitation does not limit
the percentage of the Portfolio's assets at risk to 5%.
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<PAGE>
In addition, for as long as required by applicable state securities
regulation, (1) the Portfolio will only buy or sell futures contracts that are
listed on a national commodities exchange, and (2) the aggregate margin deposits
on all futures held at any time by the Portfolio will not exceed 5% of the
Portfolio's total assets.
The Portfolio's ability to engage in the futures strategies described above
will depend on the availability of liquid markets in such instruments. Markets
in certain futures are relatively new and still developing. It is impossible to
predict the amount of trading interest that may exist in various types of
futures. Therefore, no assurance can be given that the Portfolio will be able to
utilize these instruments effectively for the purpose set forth above.
Furthermore, the Portfolio's ability to engage in futures transactions may be
limited by tax considerations.
Futures And Forward Transactions - Risk Factors
- -----------------------------------------------
FUTURES AND FORWARD CONTRACTS. Investment by the Portfolio in futures and
forward contracts involves risk. Some of that risk may be caused by an imperfect
correlation between movements in the price of the futures or forward contract
and the price of the security or currency being hedged. The hedge will not be
fully effective where there is such imperfect correlation. For example, if the
price of the futures or forward contract moves more than the price of the hedged
security or currency, the Portfolio would experience either a loss or gain on
the future or forward that is not completely offset by movements in the price of
the hedged securities or currency. To compensate for imperfect correlation, the
Portfolio may purchase or sell futures or forward contracts in a greater dollar
amount than the hedged securities or currency if the volatility of the hedged
securities or currency is historically greater than the volatility of the
futures or forward contracts. Conversely, the Portfolio may purchase or sell
fewer contracts if the volatility of the price of the hedged securities or
currency is historically less than that of the futures or forward contracts.
Futures or forward contracts may be used to hedge against a possible
increase in the price of securities or currencies that the Portfolio anticipates
purchasing. In such instances, it is possible that the market may instead
decline. If the Portfolio does not then invest in such securities or currencies
because of concern as to possible further market decline or for other reasons,
the Portfolio may realize a loss on the futures or forward contract that is not
offset by a reduction in the price of the securities or currencies purchased.
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<PAGE>
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by commodity exchanges,
which limit the amount of fluctuation in a futures contract price during a
single trading day. Once the daily limit has been reached in the contract, no
trades may be entered into at a price beyond the limit, thus preventing the
liquidation of open positions. Prices have in the past exceeded the daily limit
on a number of consecutive trading days.
The successful use of transactions in futures and forward contracts also
depends on the ability of the Subadviser to forecast correctly the direction and
extent of stock market and currency exchange rate movements within a given time
frame. To the extent prices or rates remain stable during the period in which a
futures or forward contract is held by the Portfolio or such prices or rates
move in a direction opposite to that anticipated, the Portfolio may realize a
loss on the hedging transaction that is not fully or partially offset by an
increase in the value of portfolio securities or currency position. As a result,
the Portfolio's total return for such period may be less than if it had not
engaged in the hedging transaction.
FOREIGN CURRENCY STRATEGIES. The Portfolio may use futures on foreign
currencies and forward contracts to hedge against movements in the values of the
foreign currencies in which the Portfolio's securities are denominated. Such
currency hedges can protect against price movements in a security that the
Portfolio owns or intends to acquire that are attributable to changes in the
value of the currency in which it is denominated. Such hedges do not, however,
protect against price movements in the securities that are attributable to other
causes.
The value of futures contracts and forward contracts depends on the value
of the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of futures contracts or forward
contracts, the Portfolio could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. futures markets are closed while
the markets for the underlying currencies remain open, significant price and
rate movements might take place in the underlying markets that cannot be
reflected in the markets for the futures contracts until they reopen.
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<PAGE>
Settlement of futures contracts and forward contracts involving foreign
currencies might be required to take place within the country issuing the
underlying currency. Thus, the Portfolio might be required to accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
Illiquid Securities
- -------------------
As stated in the Prospectus, the Portfolio will not purchase or otherwise
acquire any security if, as a result, more than 10% 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.
Loans Of Portfolio Securities
- -----------------------------
The Portfolio may lend its securities. Securities loans are made to
broker-dealers or other financial institutions pursuant to agreements requiring
that loans be continuously secured by collateral in cash or short-term debt
obligations at least equal at all times to the value of the securities lent. The
borrower pays the Portfolio an amount equal to any dividends or interest
received on the securities lent. The Portfolio retains all or a portion of the
interest received on investments of the cash collateral or receives a fee from
the borrower. The Portfolio may call such loans in order to sell the securities
involved. In the event that the Portfolio reinvests cash collateral, it is
subject to the risk that both the reinvested collateral and the loaned
securities will decline in value. In addition, in such event, it is possible
that the securities loan may not be fully collateralized.
Lower Rated Securities-Risk Factors
- -----------------------------------
The Portfolio may invest in convertible securities that are rated below BBB
by Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Service,
Inc. ("Moody's"), or if unrated, are considered by the Subadviser to be below
investment grade (sometimes referred to as "junk bonds"). The prices of these
lower rated securities tend to be less sensitive to interest rate changes than
higher rated investments, but more sensitive to adverse economic changes or
individual corporate developments. During economic downturns or periods of
rising interest rates, highly leveraged issuers may experience financial stress
which adversely affects their ability to service principal and interest payment
obligations, to meet projected business goals, or to obtain additional
financing, and the markets for their securities may be more volatile. If an
issuer defaults, the Portfolio may incur additional expenses to seek recovery.
In addition, lower rated securities may contain redemption or call provisions.
If an issuer exercises these provisions in a declining interest rate market, the
Portfolio would have to replace the security with a lower yielding security.
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<PAGE>
To the extent that there is no established retail secondary market, there
may be thin trading of lower rated securities. This may lessen the Portfolio's
ability to accurately value these securities and its ability to dispose of these
securities. Additionally, adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of high
yielding securities, especially in a thinly traded market. Certain lower rated
securities may involve special registration responsibilities, liabilities and
costs, and liquidity and valuation difficulties; thus, the responsibilities of
the Board of Trustees to value lower rated securities in the Portfolio becomes
more difficult with judgment playing a greater role.
Frequently, the higher yields of lower rated securities may not reflect the
value of the income stream that holders of such securities may expect, but
rather the risk that such securities may lose a substantial portion of their
value as a result of their issuer's financial restructuring or default.
Additionally, an economic downturn or an increase in interest rates could have a
negative effect on the lower rated securities market and on the market value of
the lower rated securities held by the Portfolio, as well as on the ability of
the issuers of such securities to repay principal and interest on their
borrowings. Proposed new laws may impact the market for lower rated fixed income
securities.
Preferred Stock
- ---------------
Preferred stock has preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer be dissolved. 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 is limited. Although the dividend
is set at a fixed annual rate, it can be changed or omitted by the issuer at any
time.
Repurchase Agreements
- ---------------------
The Portfolio may enter into repurchase agreements with domestic commercial
banks or registered broker/dealers. A repurchase agreement is a contract under
which the Portfolio would acquire a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the Portfolio to resell such security at a fixed time and price
(representing the Portfolio's costs plus interest). 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. The
Portfolio bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Portfolio is delayed or prevented
from exercising its rights to dispose of the collateral securities. Eagle and
the Subadviser, as appropriate, will monitor the creditworthiness of the
counterparties.
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<PAGE>
Short-term Investments
- ----------------------
EURO/YANKEE BONDS. The Portfolio may invest in dollar denominated bonds issued
by foreign branches of domestic banks ("Eurobonds") and dollar denominated bonds
issued by a U.S. branch of a foreign bank and sold in the United States ("Yankee
bonds"). Investment in Eurobonds and Yankee bonds entail certain risks similar
to investment in foreign securities in general, as previously discussed.
MONEY MARKET INSTRUMENTS. Investments in commercial paper are limited to
obligations rated Prime-1 by Moody's or A-1 by 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. Investments in certificates of deposit are made only with
domestic institutions with assets in excess of $1.0 billion. See the Appendix
for a description of commercial paper ratings.
Warrants And Rights
- -------------------
The Portfolio may invest up to 5% of its net assets in warrants or rights
(valued at the lower of cost or market) which entitle the holder to buy equity
securities at a specific price for a specified period of time, provided that no
more than 2% of its net assets are invested in warrants not listed on the New
York or American Stock Exchanges. The Portfolio may invest in warrants or rights
acquired by the Portfolio as part of a unit or attached to securities at the
time of purchase without limitation.
When-issued And Delayed Delivery Transactions
- ---------------------------------------------
As described in the Prospectus under "Other Investment Policies and Risk
Factors--Forward Commitments, When-Issued and Delayed Delivery Transactions,"
the Portfolio may enter into agreements with banks or broker-dealers for the
purchase or sale of securities at an agreed-upon price on a specified future
date. Such agreements might be entered into, for example, when the Portfolio
anticipates a decline in interest rates and is able to obtain a more
advantageous yield by committing currently to purchase securities to be issued
later. When the Portfolio purchases securities on a when-issued or delayed
delivery basis, it is required either (1) to create a segregated account with
the Portfolio's custodian and to maintain in that account cash, U.S. Government
securities or other high grade debt obligations in an amount equal on a daily
basis to the amount of the Portfolio's when-issued or delayed delivery
commitments or (2) to enter into an offsetting forward sale of securities it
owns equal in value to those purchased. The Portfolio will only make commitments
to purchase securities on a when-issued or delayed-delivery basis with the
intention of actually acquiring the securities. However, the Portfolio may sell
these securities before the settlement date if it is deemed advisable as a
matter of investment strategy. When the time comes to pay for when-issued or
delayed-delivery securities, the Portfolio will meet its obligations from then
available cash flow or the sale of securities, or, although it would not
normally expect to do so, from the sale of the when-issued or delayed delivery
securities themselves (which may have a value greater or less than the
Portfolio's payment obligation).
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<PAGE>
Note On Shareholder Approval
- ----------------------------
Unless otherwise indicated, the investment policies of the Portfolio may be
changed without shareholder approval.
INVESTMENT RESTRICTIONS
- -----------------------
In addition to the limits disclosed in "Investment Policies" above and the
investment limitations described in the Prospectus, the Portfolio is subject to
the following investment limitations, which are fundamental policies of the
Portfolio and may not be changed without the vote of a majority of the
outstanding voting securities of the Portfolio. Under the Investment Company Act
of 1940, as amended (the "1940 Act"), a "vote of a majority of the outstanding
voting securities" of the Portfolio means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Portfolio 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. The
Portfolio will not:
(1) Borrow money in excess of 10% of the value (taken at the lower of cost
or current value) of the Portfolio's total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks as a
temporary measure, such as to facilitate the meeting of higher redemption
requests than anticipated (not for leverage) which might otherwise require the
untimely disposition of portfolio investments or for extraordinary or emergency
purposes. As a matter of nonfundamental investment policy, the Portfolio may not
make any additional investments if, immediately after such investments,
outstanding borrowings of money would exceed 5% of the current value of the
Portfolio's total assets.
(2) Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities. (For this
purpose, the deposit or payment by the Portfolio of initial or variation margin
in connection with futures contracts, forward contracts or options is not
considered the purchase of a security on margin.)
(3) Make short sales of securities or maintain a short position, except
that the Portfolio may maintain short positions in connection with its use of
options, futures contracts, forward contracts and options on futures contracts,
and the Portfolio may sell short "against the box."
(4) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws.
(5) Purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, including securities of real estate
investment trusts, and may purchase securities which are secured by interests in
real estate.
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<PAGE>
(6) Purchase or sell commodities or commodity contracts, except the
Portfolio may purchase and sell forward contracts, futures contracts, options
and foreign currency.
(7) Make loans, except by purchase of debt obligations or by entering into
repurchase agreements or through the lending of the Portfolio's portfolio
securities.
(8) With respect to 75% of its total assets, invest in securities of any
issuer if, immediately after such investment, more than 5% of the total assets
of the Portfolio (taken at current value) would be invested in the securities of
such issuer; provided that this limitation does not apply to obligations issued
or guaranteed as to interest and principal by the U.S. Government or its
agencies or instrumentalities.
(9) With respect to 75% of its total assets, acquire more than 10% of the
voting securities of any issuer.
(10) Concentrate more than 25% of the value of its total
assets in any one industry.
(11) The Portfolio may not issue senior securities, except as permitted by
the investment objective and policies and investment limitations of the
Portfolio or with respect to transactions involving options, futures, forward
currency contracts or other financial instruments.
It is contrary to the Trust's present policy with respect to the Portfolio,
which may be changed by the Trustees without shareholder approval, to:
(1) Invest more than 10% of its total assets in securities of other
investment companies. For purposes of this restriction, foreign banks and
foreign insurance companies or their respective agents or subsidiaries are not
considered investment companies. (Under the 1940 Act, no registered investment
company may (a) invest more than 10% of its total assets (taken at current
value) in securities of other investment companies, (b) own securities of any
one investment company having a value in excess of 5% of its total assets (taken
at current value), or (c) own more than 3% of the outstanding voting stock of
any one investment company.) In addition, the Portfolio may invest in the
securities of other investment companies in connection with a merger,
consolidation or acquisition of assets or other reorganization approved by the
Portfolio's shareholders. The Portfolio may incur duplicate advisory or
management fees when investing in another mutual fund.
All percentage limitations on investments set forth herein and in the
Prospectus will apply at the time of the making of an investment and shall not
be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
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<PAGE>
NET ASSET VALUE
- ---------------
Net asset value per Portfolio share is determined daily Monday through
Friday, except for New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day as of the close
of regular trading on the New York Stock Exchange (the "Exchange") by dividing
the value of the Portfolio's securities plus any cash or other assets (including
accrued dividends and interest) less all liabilities (including accrued
expenses) by the number of shares outstanding, the result being adjusted to the
nearest whole cent. A security listed or traded on an exchange 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, the last
reported bid price is used. All other securities for which over-the-counter
market quotations are readily available are valued at the last reported bid
price. When market quotations for futures positions held by the Portfolio are
readily available, those positions will be valued based upon such quotations.
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. 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. Securities that are
quoted in a foreign currency will be valued daily in U.S. dollars at the foreign
currency exchange rates prevailing at the time the Portfolio calculates its
daily net asset value per share.
The Portfolio is open for business on days on which the Exchange is open
for business ("Business Day"). Trading in securities on European and Far Eastern
securities exchanges and over-the-counter markets is normally completed well
before the Portfolio's close of business on each Business Day. In addition,
European or Far Eastern securities trading generally or in a particular country
or countries may not take place on all Business Days. Furthermore, trading takes
place in Japanese markets on certain Saturdays and in various foreign capital
markets on days that are not Business Days and on which the Portfolio's net
asset value is not calculated. Calculation of the Portfolio's net asset value
does not take place contemporaneously with the determination of the prices of
the majority of the portfolio securities used in such calculation. If events
materially affecting the value of such securities occur between the time when
their price is determined and the time when the Portfolio's net asset value is
calculated, such securities are valued at fair value 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 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 Portfolio of securities
owned by it is not reasonably practicable or it is not reasonably practical for
the Portfolio 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 the shares.
- 15 -
<PAGE>
PERFORMANCE INFORMATION
- -----------------------
The Eagle Class's performance data 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 used in the
Portfolio'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.
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. The average annualized
total return for the Eagle Class of the Portfolio for the period May 1, 1995
(commencement of operation) to October 31, 1996 and for the year ended
October 31, 1996 was 8.62% and 8.93%, respectively.
In connection with communicating its total return to current or prospective
shareholders, the Eagle Class also may compare these figures to the performance
of other mutual funds tracked by mutual fund rating services or to other
unmanaged indexes which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs. The Eagle Class
may compare its return to relevant global, international and domestic indexes.
Examples include, but are not limited to, the Morgan Stanley Capital
International World Index (containing 1,468 securities listed on the exchanges
of the United States, Europe, Canada, Australia, New Zealand and the Far East),
the Morgan Stanley Capital International Europe, Australia, Far East Index
(containing over 1,000 companies representing the stock markets of Europe,
Australia, and the Far East), and the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500") (containing 500 of the largest U.S. companies). These
indexes are widely followed, capitalization weighted indexes of publicly traded
stocks. All index returns are translated into U.S. dollars.
The Eagle Class may also 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 example, in comparing the Eagle Class's 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 and the S&P 500, the Eagle Class calculates its aggregate total return
for the specified periods of time by assuming an investment of $10,000 in Eagle
- 16 -
<PAGE>
Class 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 Eagle
Class cumulative return using this formula for the period May 1, 1995
(commencement of operations) to October 31, 1996 and for the year ended
October 31, 1996 was 13.23% and 8.93%, respectively.
INVESTING IN THE EAGLE CLASS
- ----------------------------
Shares are sold at their next determined net asset value on days the
Exchange is open for business. The procedure for purchasing shares of the Eagle
Class is explained in the prospectus under "How to Buy Shares." The Portfolio's
distributor, Raymond James & Associates, Inc. ("RJA" or the "Distributor") has
agreed that it will hold the Portfolio harmless in the event of loss as a result
of cancellation of trades in Portfolio shares by the Distributor, its affiliates
or its customers.
REDEEMING SHARES
- ----------------
The methods of redemption are described in the section of
the prospectus entitled "How to Sell Shares."
A redemption request will be considered to be received in "good order" only
if: the number of shares to be redeemed and the shareholder account number are
indicated in writing; the written request is signed by a shareholder and by any
co-owner of the account with exactly the same name or names used in establishing
the account; the written request is accompanied by any certificates representing
the shares that have been issued 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 the written
redemption request exceeding $100,000 and on any certificates for shares (or an
accompanying stock power) have been guaranteed by a national bank, a state bank
which 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 which are deemed
acceptable by Heritage Asset Management, Inc., the Portfolio's transfer agent
("Transfer Agent" or "Heritage"), under its current signature guarantee program.
Systematic Withdrawal Plan
--------------------------
Shareholders may also elect to make systematic withdrawals from their Eagle
Class account of a minimum of $250 on a periodic basis. The amounts paid each
period are obtained by redeeming sufficient shares from the shareholder's
- 17 -
<PAGE>
account to provide the withdrawal amount specified. The Systematic Withdrawal
Plan is not currently available for shares held in an IRA, simplified employee
pension plan or other retirement plan. Shareholders may change the amount to be
paid without charge not more than once a year by written notice to the
Distributor or Transfer Agent. Redemptions will be made at net asset value
determined as of the close of regular trading on the Exchange on the 5th or 20th
day of each month, whichever is applicable based upon the date the Shareholder
elects to receive payments. 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. The check for
the withdrawal payment will usually be mailed on the next business day following
redemption. If shareholders elect to participate in the Systematic Withdrawal
Plan, dividends and other distributions on all shares in the account must be
automatically reinvested in Eagle Class shares. Shareholders may terminate the
Systematic Withdrawal Plan at any time without charge or penalty by giving
written notice to the Distributor or the Transfer Agent. The Eagle Class, the
Transfer Agent, and the 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 distributions,
the amount of the original investment may be correspondingly reduced.
Ordinarily, shareholders should not purchase additional shares of the Eagle
Class if maintaining a Systematic Withdrawal Plan because they may incur tax
liabilities in connection with such purchases and withdrawals. The Eagle Class
will not knowingly accept purchase orders from shareholders for additional
shares if they maintain a Systematic Withdrawal Plan unless the purchase is
equal to at least one year's scheduled withdrawals.
Redemption In Kind
------------------
The Portfolio is obligated to redeem shares of the Eagle Class for any
shareholder for cash during any 90-day period up to $250,000 or 1% of the Eagle
Class's net asset value, whichever is less. Any redemption beyond this amount
will also be in cash unless the Trustees determine that further cash payments
will have a material adverse effect on remaining shareholders. In such a case,
the Portfolio will pay all or a portion of the remainder of the redemption in
portfolio instruments, valued in the same way as a Portfolio determines net
asset value. The portfolio instruments will be selected in a manner that the
Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash
redemption. If redemption is made in kind, shareholders receiving portfolio
instruments could receive less than the redemption value of their securities and
could incur certain transaction costs.
- 18 -
<PAGE>
TAXES
- -----
GENERAL. In order to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
("Code"), the Portfolio -- which is treated as a separate corporation for these
purposes -- must distribute to its shareholders for each taxable year at least
90% of its investment company taxable income (consisting generally 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 Portfolio 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 futures or forward contracts) derived with respect
to its business of investing in securities or those currencies ("Income
Requirement"); (2) the Portfolio 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 -- futures (other than
those on foreign currencies), or foreign currencies (or futures or forward
contracts thereon) that are not directly related to the Portfolio's principal
business of investing in securities (or futures with respect to securities)
("Short-Short Limitation"); (3) at the close of each quarter of the Portfolio'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 Portfolio'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
Portfolio'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.
If Portfolio shares 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 any distribution, the shareholder will pay full price for the
shares and receive some portion of the purchase price back as a taxable dividend
or capital gain distribution.
The Portfolio 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 capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
- 19 -
<PAGE>
INCOME FROM FOREIGN SECURITIES. Dividends and interest received by the
Portfolio may be subject to income, withholding or other taxes imposed by
foreign countries and U.S. possessions 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. If more than 50% in the value of the Portfolio's total assets at the
close of any taxable year consists of securities of foreign corporations, the
Portfolio will be eligible to, and may, file an election with the Internal
Revenue Service that will enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to any foreign and U.S.
possessions income taxes paid by it. Pursuant to any such election, the
Portfolio would treat those taxes as dividends paid to its shareholders and each
shareholder would be required to (1) include in gross income, and treat as paid
by the shareholder, the shareholder's proportionate share of those taxes, (2)
treat the shareholder's share of those taxes and of any dividend paid by the
Portfolio that represents income from foreign or U.S. possessions sources as the
shareholder's own income from those sources, and (3) either deduct the taxes
deemed paid by the shareholder in computing the shareholder's taxable income or,
alternatively, use the foregoing information in calculating the foreign tax
credit against the shareholder's federal income tax. The Portfolio will report
to its shareholders shortly after each taxable year their respective shares of
the Portfolio's income from sources within, and taxes paid to, foreign countries
and U.S. possessions if it makes this election.
The Portfolio 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 Portfolio 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 Portfolio
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Portfolio'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 Portfolio invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Portfolio would be required to include in income each year its
pro rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) -- which would have to be distributed to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not received by the Portfolio. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.
- 20 -
<PAGE>
Pursuant to proposed regulations, open-end RICs, such as the Portfolio,
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
year the excess, as of the end of that year, of the fair market value of such a
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
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Portfolio accrues interest, dividends or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Portfolio 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 Portfolio's investment company taxable income to be distributed to
its shareholders.
HEDGING STRATEGIES. The use of hedging strategies, such as purchasing and
selling futures contracts and entering into forward contracts, involves complex
rules that will determine for income tax purposes the character and timing of
recognition of the gains and losses the Portfolio realizes in connection
therewith. Income from foreign currencies (except certain gains therefrom that
may be excluded by future regulations), and income from transactions in futures
and forward contracts derived by the Portfolio with respect to its business of
investing in securities or foreign currencies, will qualify as permissible
income under the Income Requirement. However, income from the disposition of
futures contracts (other than those on foreign currencies) will be subject to
the Short-Short Limitation if they are held for less than three months. Income
from the disposition of foreign currencies, and futures and forward contracts
thereon, that are not directly related to the Portfolio's principal business of
investing in securities (or futures with respect thereto) also will be subject
to the Short-Short Limitation if they are held for less than three months.
If the Portfolio satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Portfolio satisfies
the Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The
Portfolio will consider whether it should seek to qualify for this treatment for
its hedging transactions. To the extent it does not so qualify, it may be forced
to defer the closing out of certain futures and forward contracts beyond the
time when it otherwise would be advantageous to do so, in order for the
Portfolio to qualify as a RIC.
- 21 -
<PAGE>
Certain futures in which the Portfolio may invest will be "section 1256
contracts." Section 1256 contracts held by the Portfolio at the end of each
taxable year must be "marked-to-market" (that is, treated as sold for their fair
market value) for Federal income tax purposes, with the result that unrealized
gains or losses will be treated as though they were realized. Sixty percent of
any net gain or loss recognized on these deemed sales, and 60% of any net
realized gain or loss from any actual sales of section 1256 contracts, will be
treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss. Section 1256 contracts also may be
marked-to-market for purposes of the Excise Tax.
PORTFOLIO INFORMATION
- ----------------------
TRUSTEES AND OFFICERS. Trustees and officers are listed with their
addresses, principal occupations and present positions, including any
affiliation with Raymond James Financial, Inc. ("RJF"), RJA, Eagle and Heritage.
Position with Principal Occupation
Name The Trust During Past Five Years
---- ------------- ----------------------
Thomas A. James* Trustee Chairman of the Board since
880 Carillon Parkway 1986 and Chief Executive
St. Petersburg, FL 33716 Officer since 1969 of RJF;
Chairman of 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
880 Carillon Parkway Eagle since 1996, President,
St. Petersburg, FL 33716 1995 to present, Chief
Operating Officer, 1988 to
1996, Executive Vice
President, 1988 to 1993.
Donald W. Burton Trustee President of South Atlantic
614 W. Bay Street Capital Corporation (venture
Suite 200 capital) since 1981.
Tampa, FL 33606
C. Andrew Graham Trustee Vice President of Financial
Financial Designs, Ltd. Designs Ltd. since 1992;
1775 Sherman Street Executive Vice President of
Suite 1900 the Madison Group, Inc.,
Denver, CO 80203 1991 to 1992; Principal of
First Denver Financial Cor-
poration (investment bank-
ing) since 1987.
- 22 -
<PAGE>
Position with Principal Occupation
Name The Trust During Past Five Years
---- ------------- ----------------------
David M. Phillips Trustee Chairman and Chief Executive
World Trade Center Officer of CCC Information
Chicago Services, Inc. since 1994
444 Merchandise Mart and of InfoVest Corporation
Chicago, IL 60654 (information services to the
insurance and auto indus-
tries and consumer house-
holds) since 1982.
Eric Stattin Trustee Litigation Consultant/Expert
2587 Fairway Village Witness and private investor
Drive since 1988.
Park City, UT 84060
James L. Pappas Trustee Lykes Professor of Banking
University of South and Finance since 1986 at
Florida 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
880 Carillon Parkway President of Heritage since
St. Petersburg, FL 33716 1989 and Director since
33716 1994; Director of Eagle
since 1995.
Donald H. Glassman Treasurer Treasurer of Heritage since
880 Carillon Parkway 1989; Treasurer of Heritage
St. Petersburg, FL 33716 Mutual Funds since 1989.
Clifford J. Alexander Secretary Partner, Kirkpatrick &
1800 Massachusetts Ave., NW Lockhart LLP (law firm).
Washington, DC 20036
Patricia Schneider Assistant Compliance Administrator of
880 Carillon Parkway Secretary Heritage.
St. Petersburg, FL 33716
Robert J. Zutz Assistant Partner, Kirkpatrick &
1800 Massachusetts Ave., NW Secretary Lockhart LLP (law firm).
Washington, DC 20036
* These Trustees are "interested persons" as such term is defined
under the 1940 Act.
- 23 -
<PAGE>
The Trustees and officers of the Trust, as a group, own less than 1% of the
Portfolio's shares. 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 or Eagle, as applicable, performs substantially all of the services
necessary for the operation of each Fund, each Fund requires no employees. No
officer, director or employee of Heritage or Eagle receives any compensation
from either 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
Total
Pension or Compensation From
Aggregate Retirement Estimated the Trust and the
Compensation Benefits Accrued Annual Heritage Family
Name of Person, From the as Part of the Benefits Upon of Funds Paid
Position Trust Trust's Expenses Retirement to Trustees
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald W. Burton $5,820 $0 $0 $17,000
Trustee
C. Andrew Graham, $5,820 $0 $0 $17,000
Trustee
David M. Phillips, $5,092 $0 $0 $15,000
Trustee
Eric Stattin, $5,820 $0 $0 $17,000
Trustee
James L. Pappas, $5,820 $0 $0 $17,000
Trustee
Richard K. Riess, $0 $0 $0 $0
Trustee
Thomas A. James $0 $0 $0 $0
Trustee
</TABLE>
- 24 -
<PAGE>
Five Percent Shareholders
-------------------------
As of January 31, 1997, there were no shareholders who owned of Record or
beneficially five percent or more of the Portfolio's Eagle Shares.
Investment Adviser; Subadviser
------------------------------
The Portfolio's investment adviser, Eagle Asset Management, Inc., was
organized as a Florida corporation in 1976. All the capital stock of Eagle is
owned by RJF. RJF 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.
Under an Investment Advisory and Administration Agreement ("Advisory
Agreement") dated February 14, 1995, between the Trust, on behalf of the
Portfolio, and Eagle, and subject to the control and direction of the Trustees,
Eagle is responsible for overseeing the Portfolio's investment and noninvestment
affairs. Under a Subadvisory Agreement, the Subadviser, subject to direction by
Eagle and the Board of Trustees, will provide investment advice and portfolio
management services to the Portfolio for a fee payable by Eagle.
Eagle also is obligated to furnish the Portfolio with office space,
administrative, and certain other services as well as executive and other
personnel necessary for the operation of the Portfolios. Eagle and its
affiliates also pay all the compensation of Trustees of the Trust who are
employees of Eagle and its affiliates. The Portfolio pays all its other expenses
that are not assumed by Eagle as described in the Prospectus. The Portfolio also
is liable for such nonrecurring expenses as may arise, including litigation to
which the Portfolio may be a party. The Portfolio 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 Trustees (including all of the Trustees who are not "interested persons" of
Eagle or the Subadviser) and Eagle, as sole shareholder of the Portfolio, in
compliance with the 1940 Act. Each Agreement will continue in force for a period
of two years only so long as its continuance is approved at least annually 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 Eagle, the Subadviser 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 Portfolio. The Advisory
and Subadvisory Agreement each automatically terminates on assignment, and each
is terminable on not more than 60 days' written notice by the Trust to either
- 25 -
<PAGE>
party. In addition, the Advisory Agreement may be terminated on not less than 60
days' written notice by Eagle to the Portfolio and the Subadvisory Agreement may
be terminated on not less than 60 days' written notice by Eagle or 90 days'
written notice by the Subadviser. Under the terms of the Advisory Agreement,
Eagle automatically becomes responsible for the obligations of the Subadviser
upon termination of the Subadvisory Agreement. In the event Eagle ceases to be
the adviser of the Portfolio or the Distributor ceases to be principal
distributor of the Portfolio's shares, the right of the Portfolio to use the
identifying name of "Eagle" may be withdrawn.
Eagle and the Subadviser shall not be liable to the Portfolio 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 Portfolio or for
any losses that may be sustained in the purchase, holding or sale of any
security.
ADVISORY FEE. The annual investment advisory fee paid monthly by the
Portfolio to Eagle is set forth in the Prospectus. Eagle has voluntarily agreed
to waive management fees to the extent that the Portfolio's total operating
expenses, exclusive of foreign taxes paid, exceed 2.60% of average daily net
assets during its initial fiscal year. Eagle has entered into an agreement with
the Subadviser to provide investment advice and portfolio management services to
the Portfolio for a fee based on the Portfolio's average daily net assets paid
by Eagle to the Subadviser equal to .50% on the first $100 million of assets and
.40% thereafter, without regard to any reduction in fees actually paid to Eagle
as a result of expense limitations.
For the period May 1, 1995 (commencement of operations) to October 31, 1995
and for the fiscal year ended October 31, 1996, management fees amounted to
$32,303 and $189,777, respectively, and Eagle waived its fees in the amount of
$32,303 and $134,735, respectively.
Eagle has entered into an agreement with Martin Currie to provide
investment advisory advice and portfolio management services to Eagle
International for a fee based on Eagle International's average daily net assets
paid by Eagle to Martin Currie equal to .50% on the first $100 million of assets
and .40% thereafter, without regard to any reduction in fees actually paid to
Eagle as a result of expense limitations. For the period May 1, 1995
(commencement of operations) to October 31, 1995 and the year ended October 31,
1996, Eagle paid Martin Currie subadvisory fees of $16,152 and $94,888,
respectively.
- 26 -
<PAGE>
BROKERAGE PRACTICES
-------------------
Eagle and the Subadviser are responsible for the execution of the
Portfolio's portfolio transactions and must seek the most favorable price and
execution for such transactions. Best execution, however, does not mean that the
Portfolio necessarily will be paying the lowest commission or spread available.
Rather, the Portfolio 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.
Consistent with the policy of most favorable price and execution, Eagle or
the Subadviser may give consideration to research, statistical and other
services furnished by brokers to them for their use. In addition, Eagle or the
Subadviser 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 they determine 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 or the Subadviser in
connection with services to clients other than the Portfolio. The Portfolio also
may purchase and sell portfolio securities to and from dealers who provide it
with research services. However, portfolio transactions will not be directed by
the Portfolio to dealers on the basis of such research services.
The Portfolio may use the Distributor or its affiliates or affiliates of
the Subadviser as a broker for agency transactions in listed and
over-the-counter securities at commission rates and under circumstances
consistent with the policy of best execution. Commissions paid to the
Distributor or its affiliates 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 and the Subadviser also may select other brokers to execute portfolio
transactions. In the over-the-counter market, the Portfolio generally deals with
primary market-makers unless a more favorable execution can otherwise be
obtained.
- 27 -
<PAGE>
The Portfolio may not buy securities from, or sell securities to the
Distributor or its affiliates as principal. However, the Board of Trustees has
adopted procedures in conformity with Rule 10f-3 under the 1940 Act whereby the
Portfolio may purchase securities that are offered in underwritings in which the
Distributor or its affiliates are participants. The Board of Trustees will
consider the possibilities of seeking to recapture for the benefit of the
Portfolio expenses of certain portfolio transactions, such as underwriting
commissions and tender offer solicitation fees, by conducting such portfolio
transactions through affiliated entities, including the Distributor, its
affiliates or certain affiliates of the Subadviser, 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.
Section 11(a) of the Securities Exchange Act of 1934, as amended, prohibits
the Distributor from executing transactions on an exchange for the Portfolio
except pursuant to written consent by the Portfolio.
Distribution Of Shares
----------------------
The Distributor and participating dealers or participating banks with whom
it has entered into dealer agreements offer shares of the Portfolio as agents on
a best efforts basis and are not obligated to sell any specific amount of
shares. Pursuant to its Distribution Agreement with the Trust on behalf of the
Portfolio, the Distributor bears the cost of making information about the
Portfolio 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 or servicing efforts. The
Portfolio 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.
As compensation for the services provided and expenses borne by the
Distributor pursuant to the Distribution Agreement, the Portfolio pays the
Distributor a distribution fee in an amount up to 1.00% of the Portfolio's
average daily net assets in accordance with the Distribution Plan described
below. The distribution fee is accrued daily and paid monthly. The Distributor
intends to use .25 of 1% of this fee as a service fee to compensate
participating dealers or participating banks including, for this purpose,
certain financial institutions for services provided in connection with the
maintenance of shareholder accounts.
- 28 -
<PAGE>
The Portfolio has adopted a Distribution Plan (the "Plan") that, among
other things, permits it to pay the Distributor the monthly distribution fee out
of its net assets to finance activity that is intended to result in the sale and
retention of Portfolio shares. As required by Rule l2b-1 under the 1940 Act, the
Plan was approved by Eagle, as the sole shareholder of the Portfolio, and the
Board of Trustees, including a majority of the Trustees who are not interested
persons of the Portfolio (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 Portfolio and its shareholders will benefit from
the Plan.
The Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of the
Portfolio. The Trustees review quarterly a written report of Plan costs and the
purposes for which such costs have been incurred. The Plan may be amended by
vote of the Trustees, including a majority of the Independent Trustees, cast in
person at a meeting called for such purpose. Any change in the Plan that would
materially increase the distribution cost to the Portfolio requires shareholder
approval. For the period May 1, 1995 (commencement of operations) to October 31,
1995 and the fiscal year ended October 31, 1996 the Distributor received Eagle
Class 12b-1 fees of $_______ and $168,639, respectively.
The Distribution Agreement may be terminated at any time on 60 days'
written notice without payment of any penalty by either party. The Portfolio may
effect such termination by vote of a majority of the outstanding voting
securities of the Portfolio or by vote of a majority of the Independent
Trustees. For so long as the Plan is in effect, selection and nomination of
those Trustees who are not interested persons of the Portfolio shall be
committed to the discretion of such disinterested persons.
The Distribution Agreement and the Plan 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 Portfolio
------------------------------------
ADMINISTRATIVE AND TRANSFER AGENT SERVICES. Eagle, subject to the control
of the Trustees, will manage, supervise and conduct the administrative and
business affairs of the Portfolio; furnish office space and equipment; oversee
the activities of the Subadviser and the Portfolio's custodian and fund
accountant; and pay all salaries, fees and expenses of officers and Trustees of
the Trust who are affiliated with Eagle and its affiliates. Eagle will also
- 29 -
<PAGE>
provide certain shareholder servicing activities for customers of the Portfolio.
Heritage is the transfer and dividend disbursing agent for the Portfolio. The
Portfolio pays Heritage a fee equal to its cost plus ten percent for its
services as transfer and dividend disbursing agent. For the period December 27,
1995 to October 31, 1996 Heritage earned $7,745 for providing these services.
Under a separate Administration Agreement between Eagle and Heritage,
Heritage will provide certain noninvestment services to the Portfolio for a fee
payable by Eagle equal to .10% on the first $100 million of average daily net
assets, and .05% thereafter.
CUSTODIAN. State Street Bank and Trust Company, P.0. Box 1912, Boston,
Massachusetts 02105, serves as custodian of the Portfolio's assets and provides
portfolio accounting and certain other services.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Washington, D.C. 20036 serves as counsel to the Portfolio.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 400 North Ashley Street,
Suite 2800, Tampa, Florida 33602, are the independent public accountants for the
Trust. The Financial Statements and Financial Highlights of the Trust for the
fiscal year ended October 31, 1996 that appear in this SAI have been audited by
Price Waterhouse LLP, and are included herein in reliance upon the report of
said firm of accountants, which is given upon their authority as experts in
accounting and auditing. The Financial Highlights for the fiscal years ended
prior thereto and the Statement of Changes in Net Assets for the year ended
October 31, 1995 were audited by other independent public accountants.
Potential Liability
-------------------
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Portfolio. To protect
its shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Portfolio. These documents require notice of this disclaimer to be given in
each agreement, obligation or instrument the Portfolio or its Trustees enter
into or sign. In the unlikely event a shareholder is held personally liable for
the Portfolio's obligations, the Portfolio is required to use its property to
protect or compensate the shareholder. On request, the Portfolio will defend any
claim made and pay any judgment against a shareholder for any act or obligation
of the Portfolio. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Portfolio itself cannot meet its obligations
to indemnify shareholders and pay judgments against them.
- 30 -
<PAGE>
APPENDIX
CORPORATE BOND RATINGS
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS
- ------------------------------------------------------
AAA Debt rated "AAA" has the highest rating assigned by S&P. 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 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 in higher rated categories.
BB, B, CCC Debt rated "BB," "B" and "CCC" 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. 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 which 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.
A-1
<PAGE>
CC The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or impled "CCC" rating.
C The rating "C" is typically applied to debt subordinated to senior debt
which 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.
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.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
- ------------------------------------------------------
Aaa Bonds which 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
edged." Interest payments are protected by a large or 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 which 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, fluctuation of protective elements may
be of greater amplitude or there may be other elements present which make the
long-term risk appear somewhat greater than in Aaa securities.
A-2
<PAGE>
A Bonds which 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
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as 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 characteristically unreliable over any great length
of time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which 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 which 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 which 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 which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which 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.
COMMERCIAL PAPER RATINGS
The rating services' descriptions of commercial paper ratings in which the
Portfolios may invest are:
-A-3
<PAGE>
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'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.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS
- -------------------------------------------------------------------------
Prime-l. 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.
<PAGE>
The Report of Independent Accountants and Financial Statements are
incorporated herein by reference from the Trust's Annual Report to Shareholders
for the fiscal year ended October 31, 1996, filed with the Securities and
Exchange Commission on December 27, 1996, Accession No. 950144-96-009358.
<PAGE>
HERITAGE SERIES TRUST:
SMALL CAP STOCK FUND
VALUE EQUITY FUND
GROWTH EQUITY FUND
EAGLE INTERNATIONAL EQUITY PORTFOLIO
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included as a part of this Registration
Statement:
Included in Part A of the Registration Statement:
Financial Highlights -- Small Cap Stock Fund: Class A Shares
for the period May 7, 1993 (commencement of operations) to
October 31, 1993, and for each of the three years ended October
31, 1996; Class C Shares for the period April 3, 1995 (first
offering of Class C Shares) to October 31, 1995, and the one
year period ended October 31, 1996.
Financial Highlights -- Value Equity Fund: Class A Shares for
the period December 30, 1994 (commencement of operations) to
October 31, 1995, and the one year ended October 31, 1996;
Class C Shares for the period April 3, 1995 (first offering of
Class C Shares) to October 31, 1995, and the one year period
ended October 31, 1996.
Financial Highlights -- Growth Equity Fund: Class A Shares and
Class C Shares for the period November 16, 1995 (commencement
of operations) to October 31, 1996.
Financial Highlights -- Eagle International Equity Fund: Class
A Shares and Class C Shares for the period December 27, 1995
(first offering of Class A and Class C Shares) to October 31,
1996.
Included in Part B of the Registration Statement:
On behalf of Small Cap Stock Fund, Value Equity Fund, Growth
Equity Fund and Eagle International Equity Fund:
Investment Portfolio -- October 31, 1996 Statement of Assets
and Liabilities -- Ocotber 31, 1996
C-1
<PAGE>
Statement of Operations -- October 31, 1996 Notes to Financial
Statements Report of Price Waterhouse LLP, Independent
Accountants dated , 1996.
On behalf of Small Cap Stock Fund and Value Equity Fund:
Statements of Changes in Net Assets for the year ended October
31, 1996 and 1995.
On behalf of Growth Equity Fund and Eagle International Equity
Portfolio:
Statements of Changes in Net Assets for the year ended October
31, 1996.
(b) Exhibits:
(1) Declaration of Trust*
(2) Bylaws*
(3) Voting trust agreement -- none
(4) (a)(i) Specimen security Small Cap Stock Fund
Class A**
(a)(ii) Specimen security Small Cap Stock Fund Class
C**
(b)(i) Specimen security Value Equity Fund Class A**
(b)(ii) Specimen security Value Equity Fund Class C**
(c)(i) Specimen security Eagle International Equity
Portfolio Eagle Class**
(c)(ii) Specimen security Eagle International Equity
Portfolio Class A**
(c)(iii) Specimen security Eagle International Equity
Portfolio Class C**
(d)(i) Specimen security Growth Equity Fund Class A**
C-2
<PAGE>
(d)(ii) Specimen security Growth Equity Fund Class C**
(5) (a) Investment Advisory and Administration
Agreement*
(b) Investment Advisory and Administration
Agreement between Eagle Asset Management, Inc.
and Eagle International Equity Portfolio*
(c)(i) Subadvisory Agreement between Heritage Asset
Management, Inc. and Eagle Asset Management,
Inc. relating to Small Cap Stock Fund*
(c)(ii) Subadvisory Agreement between Heritage Asset
Management, Inc. and Awad & Associates, a
division of Raymond James and Associates, Inc.
relating to Small Cap Stock Fund*
(d)(i) Subadvisory Agreement between Heritage Asset
Management, Inc. and Eagle Asset Management,
Inc. relating to Value Equity Fund*
(d)(ii) Subadvisory Agreement between Heritage Asset
Management, Inc. and Dreman Value Advisors,
Inc. relating to Value Equity Fund (filed
herewith)
(e) Subadvisory Agreement between Eagle Asset
Management, Inc. and Martin Currie Inc.
relating to Eagle International Equity
Portfolio*
(f) Subadvisory Agreement between Heritage Asset
Management, Inc. and Eagle Asset Management,
Inc. relating to Growth Equity Fund*
(6) Distribution Agreement*
(7) Bonus, profit sharing or pension plans -- none
(8) Form of Custodian Agreement*
(9) (a) Form of Transfer Agency and Service Agreement*
C-3
<PAGE>
(b) Form of Fund Accounting and Pricing Service
Agreement*
(10) Opinion and consent of counsel***
(11) Accountants' consent (filed herewith)
(12) Financial statements omitted from prospectus -- none
(13) Letter of investment intent*
(14) Prototype retirement plan (filed herewith)
(15) (a) Class A Plan pursuant to Rule 12b-1*
(b) Class C Plan pursuant to Rule 12b-1*
(c) Eagle Class Plan pursuant to Rule 12b-1*
(16) Performance Computation Schedule:
(a) Small Cap Stock Fund*
(b) Value Equity Fund**
(c) Eagle International Equity Portfolio**
(d) Growth Equity Fund**
(17) Financial Data Schedule for Electronic Filers
(a)(i) Financial Data Schedule Relating to Small Cap
Stock Fund Class A (filed herewith)
(a)(ii) Financial Data Schedule Relating to Small Cap
Stock Fund Class C (filed herewith)
(b)(i) Financial Data Schedule Relating to Value
Equity Fund Class A (filed herewith)
(b)(ii) Financial Data Schedule Relating to Value
Equity Fund Class C (filed herewith)
(c)(i) Financial Data Schedule Relating to Growth
Equity Fund Class A (filed herewith)
C-4
<PAGE>
(c)(ii) Financial Data Schedule Relating to Growth
Equity Fund Class C (filed herewith)
(d)(i) Financial Data Schedule Relating to Eagle
International Equity Portfolio Class A (filed
herewith)
(d)(ii) Financial Data Schedule Relating to Eagle
International Equity Portfolio Class C (filed
herewith)
(d)(iii) Financial Data Schedule Relating to Eagle
International Equity Portfolio Eagle Shares
(filed herewith)
(18) Plan pursuant to Rule 18f-3 (filed herewith)
* Incorporated by reference from the Post- Effective
Amendment No. 10 to the Registration Statement of the Trust,
SEC File No. 33-57986, filed previously on December 1, 1995.
** To be filed by subsequent amendment.
*** Incorporated by reference from the Trust's Rule 24f-2
Notice, filed previously on December 16, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None.
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class December 31, 1996
- -------------- ------------------------
Shares of beneficial interest
Small Cap Stock Fund
Class A Shares 9,102
Class C Shares 3,014
Value Equity Fund
Class A Shares 1,469
Class C Shares 945
Growth Equity Fund
Class A Shares 1,259
Class C Shares 627
C-5
<PAGE>
Eagle International
Equity Portfolio
Class A Shares 409
Class C Shares 147
Eagle Class Shares 347
Item 27. Indemnification
---------------
Article XI, Section 2 of Heritage Series Trust's Declaration of Trust
provides that:
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as "Covered Person") shall be indemnified by
the appropriate portfolios to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or thereafter,
and the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office or (B)
not to have acted in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
interested persons of the Trust nor are parties to the matter based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
C-6
<PAGE>
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry); provided,
however, that any Shareholder may, by appropriate legal proceedings, challenge
any such determination by the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be such
Trustee or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Trustees and
officers, and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit, or proceeding of the character described in
paragraph (a) of this Section 2 may be paid by the applicable Portfolio from
time to time prior to final disposition thereof upon receipt of an undertaking
by or on behalf of such Covered Person that such amount will be paid over by him
to the Trust if it is ultimately determined that he is not entitled to
indemnification under this Section 2; provided, however, that:
(i) such Covered Person shall have provided appropriate
security for such undertaking;
(ii) the Trust is insured against losses arising out of
any such advance payments; or
(iii) either a majority of the Trustees who are neither
interested persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Section 2.
According to Article XII, Section 1 of the Declaration of Trust, the
Trust is a trust, not a partnership. Trustees are not liable personally to any
person extending credit to, contracting with or having any claim against the
Trust, a particular Portfolio or the Trustees. A Trustee, however, is not
protected from liability due to willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office.
C-7
<PAGE>
Article XII, Section 2 provides that, subject to the provisions of
Section 1 of Article XII and to Article XI, the Trustees are not liable for
errors of judgment or mistakes of fact or law, or for any act or omission in
accordance with advice of counsel or other experts or for failing to follow such
advice.
Paragraph 8 of the Investment Advisory and Administration Agreement
("Advisory Agreement") between the Trust, on behalf of Eagle International
Equity Portfolio, and Eagle Asset Management, Inc. ("Eagle"), provides that
Eagle shall not be liable for any error of judgment or mistake of law for any
loss suffered by the Trust or any Portfolio in connection with the matters to
which the Advisory Agreement relate except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
Advisory Agreement. Any person, even though also an officer, partner, employee,
or agent of Eagle, who may be or become an officer, trustee, employee or agent
of the Trust shall be deemed, when rendering services to the Trust or acting in
any business of the Trust, to be rendering such services to or acting solely for
the Trust and not as an officer, partner, employee, or agent or one under the
control or direction of Eagle even though paid by it.
Paragraph 9 of the Subadvisory Agreement ("Subadvisory Agreement")
between Eagle and Martin Currie Inc. ("Subadviser") provides that, in the
absence of willful misfeasance, bad faith or gross negligence on the part of the
Subadviser, or reckless disregard of its obligations and duties under the
Subadvisory Agreement, the Subadviser shall not be subject to any liability to
Eagle, the Trust, or their directors, trustees, officers or shareholders, for
any act or omission in the course of, or connected with, rendering services
under the Subadvisory Agreement.
Paragraph 7 of the Distribution Agreement between the Trust, on behalf
of the Eagle International Equity Portfolio and Raymond James & Associates, Inc.
("Raymond James") provides that, the Trust agrees to indemnify, defend and hold
harmless Raymond James, its several officers and directors, and any person who
controls Raymond James within the meaning of Section 15 of the Securities Act of
1933, as amended (the "1933 Act") from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in connection
therewith) which Raymond James, its officers or Trustees, or any such
controlling person may incur under the 1933 Act or under common law or otherwise
arising out of or based upon any alleged untrue statement of a material fact
contained in the Registration Statement, Prospectus or Statement of Additional
C-8
<PAGE>
Information or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary to make the
statements in either thereof not misleading, provided that in no event shall
anything contained in the Distribution Agreement be construed so as to protect
Raymond James against any liability to the Trust or its shareholders to which
Raymond James would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under the Distribution
Agreement.
Paragraph 13 of the Heritage Funds Accounting and Pricing Services
Agreement ("Accounting Agreement") between the Trust and Heritage Asset
Management, Inc. ("Heritage") provides that the Trust agrees to indemnify and
hold harmless Heritage and its nominees from all losses, damages, costs,
charges, payments, expenses (including reasonable counsel fees), and liabilities
arising directly or indirectly from any action that Heritage takes or does or
omits to take to do (i) at the request or on the direction of or in reasonable
reliance on the written advice of the Trust or (ii) upon Proper Instructions (as
defined in the Accounting Agreement), provided, that neither Heritage nor any of
its nominees shall be indemnified against any liability to the Trust or to its
shareholders (or any expenses incident to such liability) arising out of
Heritage's own willful misfeasance, willful misconduct, gross negligence or
reckless disregard of its duties and obligations specifically described in the
Accounting Agreement or its failure to meet the standard of care set forth in
the Accounting Agreement.
Item 28. I. Business and Other Connections of Investment Adviser
----------------------------------------------------
Eagle Asset Management, Inc., a Florida corporation, is a registered
investment adviser. All of its stock is owned by Raymond James Financial, Inc.
Eagle is primarily engaged in the investment advisory business. Eagle provides
investment advisory services to the Eagle International Equity Portfolio.
Information as to the officers and directors of Eagle is included in its current
Form ADV filed with the SEC and is incorporated by reference herein.
Heritage Asset Management, Inc. is a Florida corporation that offers
investment management services. Heritage provides investment advisory services
to the Small Cap Stock, Value Equity, and Growth Equity Funds of the Trust.
Information as to the directors and officers of Heritage is included in its
current Form ADV filed with the SEC (registration number 801-25067) and is
incorporated by reference herein.
C-9
<PAGE>
II. Business and Other Connections of Subadviser
--------------------------------------------
Martin Currie Inc., a New York corporation, is a wholly-owned
subsidiary of Martin Currie Limited. Martin Currie Inc. is primarily engaged in
the investment advisory business. Martin Currie Inc. provides subadvisory
services to the Eagle International Equity Portfolio of the Trust. Information
as to the officers and directors of Martin Currie Inc. is included in its
current Form ADV filed with the Securities and Exchange Commission and is
incorporated by reference herein.
Raymond James is a registered investment adviser. All of its stock is
owned by Raymond James Financial, Inc. It is primarily in the financial services
business. Awad & Associates is a division of RJA. Information as to the officers
and directors of RJA and Awad is included in RJA's current Form ADV filed with
the SEC (registration number 801-10418) and is incorporated by reference herein.
Eagle Asset Management, Inc., a Florida corporation, is a registered
investment adviser. All of its stock is owned by Raymond James Financial, Inc.
Eagle is primarily engaged in the investment advisory business. Information as
to the officers and directors of Eagle is included in the current Form ADV filed
with the SEC and is incorporated by reference herein.
Dreman Value Advisors, Inc., a New Jersey corporation, is a
wholly-owned subsidiary of Zurich Kemper Investments, Inc. Dreman Value
Advisors, Inc. is primarily engaged in the investment advisory business. Dreman
Value Advisors, Inc. provides subadvisory services to the Value Equity Fund.
Information as to the officers and directors of Dreman Value Advisors, Inc. is
included in its current Form ADV filed with the Securities and Exchange
Commission and is incorporated by reference herein.
Item 29. Principal Underwriter
---------------------
(a) Raymond James & Associates, Inc. is the principal underwriter for
each of the following investment companies: Heritage Cash Trust, Heritage
Capital Appreciation Trust, Heritage Income-Growth Trust, Heritage Income Trust
and Heritage Series Trust.
(b) The directors and officers of the Registrant's principal
underwriter are:
Positions & Offices Position
Name with Underwriter with Registrant
Thomas A. James Chief Executive Officer, Trustee
Director
Robert F. Shuck Executive V.P., Director None
Thomas S. Franke President, Chief Operating None
Officer, Director
C-10
<PAGE>
Positions & Offices Position
Name with Underwriter with Registrant
Lynn Pippenger Secretary/Treasurer, None
Chief Financial Officer,
Director
Dennis Zank Executive VP of Operations None
and Administration, Director
Item 30. Location of Accounts and Records
--------------------------------
For the Small Cap Stock Fund, the Value Equity Fund and the Growth
Equity Fund, the books and other documents required by Rule 31a-1 under the
Investment Company Act of 1940, as amended ("1940 Act"), are maintained by
Heritage Asset Management, Inc. For the Eagle International Equity Portfolio,
the books and other documents required by Rule 31a-1 under the 1940 Act are
maintained by the Portfolio's custodian, State Street Bank & Trust Company.
Prior to March 1, 1994 the Trust's Custodian maintained the required records for
the Small Cap Stock Fund, except that Heritage maintained some or all of the
records required by Rule 31a-1(b)(l), (2) and (8); and the Subadviser will
maintain some or all of the records required by Rule 31a-1(b) (2), (5), (6),
(9), (10) and (11).
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of its latest annual report to Shareholders,
upon request and without charge.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 13 to its Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of St. Petersburg and the State of Florida, on
February 27, 1997. No material event regarding prospectus disclosure has
occurred since the latest of the three dates specified in Rule 485(b)(2).
HERITAGE SERIES TRUST
By: /s/ Stephen G. Hill
------------------------------
Stephen G. Hill
President
Attest:
/s/ Donald H. Glassman
- ------------------------------------
Donald H. Glassman, Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 13 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ Stephen G. Hill President February 27,1997
- ------------------------------
Stephen G. Hill
Thomas A. James* Trustee February 27, 1997
- ------------------------------
Thomas A. James
Richard K. Riess* Trustee February 27, 1997
- ------------------------------
Richard K. Riess
C. Andrew Graham* Trustee February 27, 1997
- ------------------------------
C. Andrew Graham
David M. Phillips* Trustee February 27, 1997
- ------------------------------
David M. Phillips
James L. Pappas* Trustee February 27, 1997
- ------------------------------
James L. Pappas
Donald W. Burton* Trustee February 27, 1997
- ------------------------------
Donald W. Burton
Eric Stattin Trustee February 27, 1997
- -----------------------------
Eric Stattin*
/s/ Donald H. Glassman Treasurer February 27, 1997
- -----------------------------
Donald H. Glassman
*By /s/ Donald H. Glassman
------------------------------------------
Donald H. Glassman, Attorney-In-Fact
C-12
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------- ----------- ----
1 Declaration of Trust*
2 Bylaws*
3 Voting trust agreement -- none
4(a)(i) Specimen security Small Cap Stock Fund Class
A**
4(a)(ii) Specimen security Small Cap Stock Fund Class
C**
4(b)(i) Specimen security Value Equity Fund Class A**
4(b)(ii) Specimen security Value Equity Fund Class C**
4(c)(i) Specimen security Eagle International Equity
Portfolio Eagle Class**
4(c)(ii) Specimen security Eagle International Equity
Portfolio Class A**
4(c)(iii) Specimen security Eagle International Equity
Portfolio Class C**
4(d)(i) Specimen security Growth Equity Fund Class A**
4(d)(ii) Specimen security Growth Equity Fund Class C**
5(a) Investment Advisory and Administration Agreement*
5(b) Investment Advisory and Administration Agreement
between Eagle Asset Management, Inc. and Eagle
International Equity Portfolio*
5(c)(i) Subadvisory Agreement between Heritage Asset
Management, Inc. and Eagle Asset Management,
Inc. relating to Small Cap Stock Fund*
<PAGE>
5(c)(ii) Subadvisory Agreement between Heritage Asset
Management, Inc. and Awad & Associates, a
division of Raymond James and Associates, Inc.
relating to Small Cap Stock Fund*
5(d)(i) Subadvisory Agreement between Heritage Asset
Management, Inc. and Eagle Asset Management,Inc.
relating to Value Equity Fund*
5(d)(ii) Subadvisory Agreement between Heritage Asset
Management, Inc. and Dreman Value Advisors, Inc.
relating to Value Equity Fund (filed herewith)
5(e) Subadvisory Agreement between Eagle Asset
Management, Inc.and Martin Currie Inc. relating
to Eagle International Equity Portfolio*
5(f) Subadvisory Agreement between Heritage Asset
Management, Inc. and Eagle Asset Management,
Inc. relating to Growth Equity Fund*
6 Distribution Agreement*
7 Bonus, profit sharing or pension plans -- none
8 Form of Custodian Agreement*
9(a) Form of Transfer Agency and Service Agreement*
9(b) Form of Fund Accounting and Pricing Service
Agreement*
10 Opinion and consent of counsel***
11 Accountants' consent (filed herewith)
12 Financial statements omitted from
prospectus -- none
13 Letter of investment intent*
-2-
<PAGE>
14 Prototype retirement plan (filed herewith)
15(a) Class A Plan pursuant to Rule 12b-1*
15(b) Class C Plan pursuant to Rule 12b-1*
15(c) Eagle Class Plan pursuant to Rule 12b-1*
16(a) Performance Computation Schedule Relating to
Small Cap Stock Fund*
16(b) Performance Computation Schedule Relating to
Value Equity Fund**
16(c) Performance Computation Schedule Relating to
Eagle International Equity Portfolio**
16(d) Performance Computation Schedule Relating to
Growth Equity Fund**
17(a)(i) Financial Data Schedule Relating to Small Cap
Stock Fund Class A (filed herewith)
17(a)(ii) Financial Data Schedule Relating to Small Cap
Stock Fund Class C (filed herewith)
17(b)(i) Financial Data Schedule Relating to Value
Equity Fund Class A (filed herewith)
17(b)(ii) Financial Data Schedule Relating to Value
Equity Fund Class C (filed herewith)
17(c)(i) Financial Data Schedule Relating to Growth
Equity Fund Class A (filed herewith)
17(c)(ii) Financial Data Schedule Relating to Growth
Equity Fund Class C (filed herewith)
17(d)(i) Financial Data Schedule Relating to Eagle
International Equity Portfolio Class A (filed
herewith)
-3-
<PAGE>
17(d)(ii) Financial Data Schedule Relating to Eagle
International Equity Portfolio Class C (filed
herewith)
17(d)(iii) Financial Data Schedule Relating to Eagle
International Equity Portfolio Eagle Shares
(filed herewith)
18 Plan pursuant to Rule 18f-3 (filed herewith)
* Incorporated by reference from the Post-Effective Amendement No. 10 to
the Registration Statement of the Trust, SEC File No. 33-57986, filed
previously on December 1, 1995.
** To be filed by subsequent amendment.
*** Incorporated by reference from the Trust's Rule 24f-2 Notice, filed
previously on December 16, 1996.
-4-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> SMALL CAP STOCK FUND - CLASS A SHARES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> OCT-31-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> $97,636,723
<INVESTMENTS-AT-VALUE> $119,697,044
<RECEIVABLES> $2,391,060
<ASSETS-OTHER> $27,089
<OTHER-ITEMS-ASSETS> $0
<TOTAL-ASSETS> $122,115,193
<PAYABLE-FOR-SECURITIES> $951,795
<SENIOR-LONG-TERM-DEBT> $0
<OTHER-ITEMS-LIABILITIES> $384,530
<TOTAL-LIABILITIES> $1,336,325
<SENIOR-EQUITY> $0
<PAID-IN-CAPITAL-COMMON> $89,120,060
<SHARES-COMMON-STOCK> 5,026,541
<SHARES-COMMON-PRIOR> 3,278,424
<ACCUMULATED-NII-CURRENT> $0
<OVERDISTRIBUTION-NII> $0
<ACCUMULATED-NET-GAINS> $9,598,487
<OVERDISTRIBUTION-GAINS> $0
<ACCUM-APPREC-OR-DEPREC> $22,060,321
<NET-ASSETS> $120,778,868
<DIVIDEND-INCOME> $721,777
<INTEREST-INCOME> $401,205
<OTHER-INCOME> $0
<EXPENSES-NET> $1,422,602
<NET-INVESTMENT-INCOME> ($299,620)
<REALIZED-GAINS-CURRENT> $10,012,029
<APPREC-INCREASE-CURRENT> $13,069,090
<NET-CHANGE-FROM-OPS> $22,781,499
<EQUALIZATION> $0
<DISTRIBUTIONS-OF-INCOME> $35,074
<DISTRIBUTIONS-OF-GAINS> $2,897,313
<DISTRIBUTIONS-OTHER> $0
<NUMBER-OF-SHARES-SOLD> 2,652,073
<NUMBER-OF-SHARES-REDEEMED> (1,039,739)
<SHARES-REINVESTED> 135,783
<NET-CHANGE-IN-ASSETS> $58,952,815
<ACCUMULATED-NII-PRIOR> $30,996
<ACCUMULATED-GAINS-PRIOR> $2,768,507
<OVERDISTRIB-NII-PRIOR> $0
<OVERDIST-NET-GAINS-PRIOR> $0
<GROSS-ADVISORY-FEES> $827,233
<INTEREST-EXPENSE> $0
<GROSS-EXPENSE> $1,111,001
<AVERAGE-NET-ASSETS> $78,830,531
<PER-SHARE-NAV-BEGIN> $18.86
<PER-SHARE-NII> ($0.05)
<PER-SHARE-GAIN-APPREC> $6.12
<PER-SHARE-DIVIDEND> $0.01
<PER-SHARE-DISTRIBUTIONS> $0.84
<RETURNS-OF-CAPITAL> $0.00
<PER-SHARE-NAV-END> $24.08
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> $0
<AVG-DEBT-PER-SHARE> $0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> SMALL CAP STOCK FUND - CLASS C SHARES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> OCT-31-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> $97,636,723
<INVESTMENTS-AT-VALUE> $119,697,044
<RECEIVABLES> $2,391,060
<ASSETS-OTHER> $27,089
<OTHER-ITEMS-ASSETS> $0
<TOTAL-ASSETS> $122,115,193
<PAYABLE-FOR-SECURITIES> $951,795
<SENIOR-LONG-TERM-DEBT> $0
<OTHER-ITEMS-LIABILITIES> $384,530
<TOTAL-LIABILITIES> $1,336,325
<SENIOR-EQUITY> $0
<PAID-IN-CAPITAL-COMMON> $89,120,060
<SHARES-COMMON-STOCK> 5,026,541
<SHARES-COMMON-PRIOR> 3,278,424
<ACCUMULATED-NII-CURRENT> $0
<OVERDISTRIBUTION-NII> $0
<ACCUMULATED-NET-GAINS> $9,598,487
<OVERDISTRIBUTION-GAINS> $0
<ACCUM-APPREC-OR-DEPREC> $22,060,321
<NET-ASSETS> $120,778,868
<DIVIDEND-INCOME> $721,777
<INTEREST-INCOME> $401,205
<OTHER-INCOME> $0
<EXPENSES-NET> $1,422,602
<NET-INVESTMENT-INCOME> ($299,620)
<REALIZED-GAINS-CURRENT> $10,012,029
<APPREC-INCREASE-CURRENT> $13,069,090
<NET-CHANGE-FROM-OPS> $22,781,499
<EQUALIZATION> $0
<DISTRIBUTIONS-OF-INCOME> $35,074
<DISTRIBUTIONS-OF-GAINS> $2,897,313
<DISTRIBUTIONS-OTHER> $0
<NUMBER-OF-SHARES-SOLD> 2,652,073
<NUMBER-OF-SHARES-REDEEMED> (1,039,739)
<SHARES-REINVESTED> 135,783
<NET-CHANGE-IN-ASSETS> $58,952,815
<ACCUMULATED-NII-PRIOR> $30,996
<ACCUMULATED-GAINS-PRIOR> $2,768,507
<OVERDISTRIB-NII-PRIOR> $0
<OVERDIST-NET-GAINS-PRIOR> $0
<GROSS-ADVISORY-FEES> $827,233
<INTEREST-EXPENSE> $0
<GROSS-EXPENSE> $311,601
<AVERAGE-NET-ASSETS> $14,617,901
<PER-SHARE-NAV-BEGIN> $18.79
<PER-SHARE-NII> ($0.22)
<PER-SHARE-GAIN-APPREC> $6.10
<PER-SHARE-DIVIDEND> $0.00
<PER-SHARE-DISTRIBUTIONS> $0.83
<RETURNS-OF-CAPITAL> $0.00
<PER-SHARE-NAV-END> $23.84
<EXPENSE-RATIO> 2.13
<AVG-DEBT-OUTSTANDING> $0
<AVG-DEBT-PER-SHARE> $0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> VALUE EQUITY FUND - CLASS A SHARES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> OCT-31-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> $23,173,452
<INVESTMENTS-AT-VALUE> $25,235,809
<RECEIVABLES> $940,825
<ASSETS-OTHER> $46,480
<OTHER-ITEMS-ASSETS> $0
<TOTAL-ASSETS> $26,223,114
<PAYABLE-FOR-SECURITIES> $410,256
<SENIOR-LONG-TERM-DEBT> $0
<OTHER-ITEMS-LIABILITIES> $139,111
<TOTAL-LIABILITIES> $549,367
<SENIOR-EQUITY> $0
<PAID-IN-CAPITAL-COMMON> $21,858,178
<SHARES-COMMON-STOCK> 1,271,984
<SHARES-COMMON-PRIOR> 899,285
<ACCUMULATED-NII-CURRENT> $102,173
<OVERDISTRIBUTION-NII> $0
<ACCUMULATED-NET-GAINS> $1,651,039
<OVERDISTRIBUTION-GAINS> $0
<ACCUM-APPREC-OR-DEPREC> $2,062,357
<NET-ASSETS> $25,673,747
<DIVIDEND-INCOME> $505,575
<INTEREST-INCOME> $63,210
<OTHER-INCOME> $0
<EXPENSES-NET> $427,596
<NET-INVESTMENT-INCOME> $141,189
<REALIZED-GAINS-CURRENT> $1,660,050
<APPREC-INCREASE-CURRENT> $1,267,164
<NET-CHANGE-FROM-OPS> $3,068,403
<EQUALIZATION> $0
<DISTRIBUTIONS-OF-INCOME> $95,491
<DISTRIBUTIONS-OF-GAINS> $545,122
<DISTRIBUTIONS-OTHER> $0
<NUMBER-OF-SHARES-SOLD> 575,253
<NUMBER-OF-SHARES-REDEEMED> (235,062)
<SHARES-REINVESTED> 32,508
<NET-CHANGE-IN-ASSETS> $9,502,941
<ACCUMULATED-NII-PRIOR> $56,475
<ACCUMULATED-GAINS-PRIOR> $536,111
<OVERDISTRIB-NII-PRIOR> $0
<OVERDIST-NET-GAINS-PRIOR> $0
<GROSS-ADVISORY-FEES> $91,958
<INTEREST-EXPENSE> $0
<GROSS-EXPENSE> $242,333
<AVERAGE-NET-ASSETS> $14,683,944
<PER-SHARE-NAV-BEGIN> $18.00
<PER-SHARE-NII> $0.17
<PER-SHARE-GAIN-APPREC> $2.76
<PER-SHARE-DIVIDEND> $0.11
<PER-SHARE-DISTRIBUTIONS> $0.55
<RETURNS-OF-CAPITAL> $0.00
<PER-SHARE-NAV-END> $20.27
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> $0
<AVG-DEBT-PER-SHARE> $0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> VALUE EQUITY FUND - CLASS C SHARES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> OCT-31-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> $23,173,452
<INVESTMENTS-AT-VALUE> $25,235,809
<RECEIVABLES> $940,825
<ASSETS-OTHER> $46,480
<OTHER-ITEMS-ASSETS> $0
<TOTAL-ASSETS> $26,223,114
<PAYABLE-FOR-SECURITIES> $410,256
<SENIOR-LONG-TERM-DEBT> $0
<OTHER-ITEMS-LIABILITIES> $139,111
<TOTAL-LIABILITIES> $549,367
<SENIOR-EQUITY> $0
<PAID-IN-CAPITAL-COMMON> $21,858,178
<SHARES-COMMON-STOCK> 1,271,984
<SHARES-COMMON-PRIOR> 899,285
<ACCUMULATED-NII-CURRENT> $102,173
<OVERDISTRIBUTION-NII> $0
<ACCUMULATED-NET-GAINS> $1,651,039
<OVERDISTRIBUTION-GAINS> $0
<ACCUM-APPREC-OR-DEPREC> $2,062,357
<NET-ASSETS> $25,673,747
<DIVIDEND-INCOME> $505,575
<INTEREST-INCOME> $63,210
<OTHER-INCOME> $0
<EXPENSES-NET> $427,596
<NET-INVESTMENT-INCOME> $141,189
<REALIZED-GAINS-CURRENT> $1,660,050
<APPREC-INCREASE-CURRENT> $1,267,164
<NET-CHANGE-FROM-OPS> $3,068,403
<EQUALIZATION> $0
<DISTRIBUTIONS-OF-INCOME> $95,491
<DISTRIBUTIONS-OF-GAINS> $545,122
<DISTRIBUTIONS-OTHER> $0
<NUMBER-OF-SHARES-SOLD> 575,253
<NUMBER-OF-SHARES-REDEEMED> (235,062)
<SHARES-REINVESTED> 32,508
<NET-CHANGE-IN-ASSETS> $9,502,941
<ACCUMULATED-NII-PRIOR> $56,475
<ACCUMULATED-GAINS-PRIOR> $536,111
<OVERDISTRIB-NII-PRIOR> $0
<OVERDIST-NET-GAINS-PRIOR> $0
<GROSS-ADVISORY-FEES> $91,958
<INTEREST-EXPENSE> $0
<GROSS-EXPENSE> $185,264
<AVERAGE-NET-ASSETS> $7,718,748
<PER-SHARE-NAV-BEGIN> $17.92
<PER-SHARE-NII> $0.02
<PER-SHARE-GAIN-APPREC> $2.74
<PER-SHARE-DIVIDEND> $0.07
<PER-SHARE-DISTRIBUTIONS> $0.55
<RETURNS-OF-CAPITAL> $0.00
<PER-SHARE-NAV-END> $20.06
<EXPENSE-RATIO> 2.40
<AVG-DEBT-OUTSTANDING> $0
<AVG-DEBT-PER-SHARE> $0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> GROWTH EQUITY FUND - CLASS A SHARES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-16-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> $14,825,586
<INVESTMENTS-AT-VALUE> $17,274,188
<RECEIVABLES> $381,589
<ASSETS-OTHER> $35,331
<OTHER-ITEMS-ASSETS> $0
<TOTAL-ASSETS> $17,691,108
<PAYABLE-FOR-SECURITIES> $329,330
<SENIOR-LONG-TERM-DEBT> $0
<OTHER-ITEMS-LIABILITIES> $115,313
<TOTAL-LIABILITIES> $444,643
<SENIOR-EQUITY> $0
<PAID-IN-CAPITAL-COMMON> $14,852,184
<SHARES-COMMON-STOCK> 974,243
<SHARES-COMMON-PRIOR> 140
<ACCUMULATED-NII-CURRENT> $0
<OVERDISTRIBUTION-NII> $0
<ACCUMULATED-NET-GAINS> ($54,321)
<OVERDISTRIBUTION-GAINS> $0
<ACCUM-APPREC-OR-DEPREC> $2,448,602
<NET-ASSETS> $17,246,465
<DIVIDEND-INCOME> $116,274
<INTEREST-INCOME> $33,225
<OTHER-INCOME> $0
<EXPENSES-NET> $188,983
<NET-INVESTMENT-INCOME> ($39,484)
<REALIZED-GAINS-CURRENT> ($54,321)
<APPREC-INCREASE-CURRENT> $2,448,602
<NET-CHANGE-FROM-OPS> $2,354,797
<EQUALIZATION> $0
<DISTRIBUTIONS-OF-INCOME> $0
<DISTRIBUTIONS-OF-GAINS> $0
<DISTRIBUTIONS-OTHER> $0
<NUMBER-OF-SHARES-SOLD> 1,083,178
<NUMBER-OF-SHARES-REDEEMED> (109,075)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> $17,244,465
<ACCUMULATED-NII-PRIOR> $0
<ACCUMULATED-GAINS-PRIOR> $0
<OVERDISTRIB-NII-PRIOR> $0
<OVERDIST-NET-GAINS-PRIOR> $0
<GROSS-ADVISORY-FEES> $0
<INTEREST-EXPENSE> $0
<GROSS-EXPENSE> $127,292
<AVERAGE-NET-ASSETS> $7,714,535
<PER-SHARE-NAV-BEGIN> $14.29
<PER-SHARE-NII> ($0.03)
<PER-SHARE-GAIN-APPREC> $3.48
<PER-SHARE-DIVIDEND> $0.00
<PER-SHARE-DISTRIBUTIONS> $0.00
<RETURNS-OF-CAPITAL> $0.00
<PER-SHARE-NAV-END> $17.74
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> $0
<AVG-DEBT-PER-SHARE> $0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> GROWTH EQUITY FUND - CLASS C SHARES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-16-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> $14,825,586
<INVESTMENTS-AT-VALUE> $17,274,188
<RECEIVABLES> $381,589
<ASSETS-OTHER> $35,331
<OTHER-ITEMS-ASSETS> $0
<TOTAL-ASSETS> $17,691,108
<PAYABLE-FOR-SECURITIES> $329,330
<SENIOR-LONG-TERM-DEBT> $0
<OTHER-ITEMS-LIABILITIES> $115,313
<TOTAL-LIABILITIES> $444,643
<SENIOR-EQUITY> $0
<PAID-IN-CAPITAL-COMMON> $14,852,184
<SHARES-COMMON-STOCK> 974,243
<SHARES-COMMON-PRIOR> 140
<ACCUMULATED-NII-CURRENT> $0
<OVERDISTRIBUTION-NII> $0
<ACCUMULATED-NET-GAINS> ($54,321)
<OVERDISTRIBUTION-GAINS> $0
<ACCUM-APPREC-OR-DEPREC> $2,448,602
<NET-ASSETS> $17,246,465
<DIVIDEND-INCOME> $116,274
<INTEREST-INCOME> $33,225
<OTHER-INCOME> $0
<EXPENSES-NET> $188,983
<NET-INVESTMENT-INCOME> ($39,484)
<REALIZED-GAINS-CURRENT> ($54,321)
<APPREC-INCREASE-CURRENT> $2,448,602
<NET-CHANGE-FROM-OPS> $2,354,797
<EQUALIZATION> $0
<DISTRIBUTIONS-OF-INCOME> $0
<DISTRIBUTIONS-OF-GAINS> $0
<DISTRIBUTIONS-OTHER> $0
<NUMBER-OF-SHARES-SOLD> 1,083,178
<NUMBER-OF-SHARES-REDEEMED> (109,075)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> $17,244,465
<ACCUMULATED-NII-PRIOR> $0
<ACCUMULATED-GAINS-PRIOR> $0
<OVERDISTRIB-NII-PRIOR> $0
<OVERDIST-NET-GAINS-PRIOR> $0
<GROSS-ADVISORY-FEES> $0
<INTEREST-EXPENSE> $0
<GROSS-EXPENSE> $61,691
<AVERAGE-NET-ASSETS> $2,570,427
<PER-SHARE-NAV-BEGIN> $14.29
<PER-SHARE-NII> ($0.15)
<PER-SHARE-GAIN-APPREC> $3.47
<PER-SHARE-DIVIDEND> $0.00
<PER-SHARE-DISTRIBUTIONS> $0.00
<RETURNS-OF-CAPITAL> $0.00
<PER-SHARE-NAV-END> $17.61
<EXPENSE-RATIO> 2.40
<AVG-DEBT-OUTSTANDING> $0
<AVG-DEBT-PER-SHARE> $0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EAGLE INTERNATIONAL EQUITY PORTFOLIO - CLASS A SHARES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> OCT-31-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> $25,783,498
<INVESTMENTS-AT-VALUE> $26,335,207
<RECEIVABLES> $278,093
<ASSETS-OTHER> $68,909
<OTHER-ITEMS-ASSETS> $0
<TOTAL-ASSETS> $26,682,209
<PAYABLE-FOR-SECURITIES> $626,669
<SENIOR-LONG-TERM-DEBT> $0
<OTHER-ITEMS-LIABILITIES> $141,254
<TOTAL-LIABILITIES> $767,923
<SENIOR-EQUITY> $0
<PAID-IN-CAPITAL-COMMON> $24,823,156
<SHARES-COMMON-STOCK> 1,170,011
<SHARES-COMMON-PRIOR> 479,563
<ACCUMULATED-NII-CURRENT> $230,207
<OVERDISTRIBUTION-NII> $0
<ACCUMULATED-NET-GAINS> $166,663
<OVERDISTRIBUTION-GAINS> $0
<ACCUM-APPREC-OR-DEPREC> $694,260
<NET-ASSETS> $25,914,286
<DIVIDEND-INCOME> $404,020
<INTEREST-INCOME> $81,403
<OTHER-INCOME> $0
<EXPENSES-NET> $484,023
<NET-INVESTMENT-INCOME> $1,400
<REALIZED-GAINS-CURRENT> $413,185
<APPREC-INCREASE-CURRENT> $731,979
<NET-CHANGE-FROM-OPS> $1,146,564
<EQUALIZATION> $0
<DISTRIBUTIONS-OF-INCOME> $7,915
<DISTRIBUTIONS-OF-GAINS> $254,085
<DISTRIBUTIONS-OTHER> $0
<NUMBER-OF-SHARES-SOLD> 750,590
<NUMBER-OF-SHARES-REDEEMED> (72,059)
<SHARES-REINVESTED> 11,917
<NET-CHANGE-IN-ASSETS> $15,943,727
<ACCUMULATED-NII-PRIOR> $0
<ACCUMULATED-GAINS-PRIOR> $244,285
<OVERDISTRIB-NII-PRIOR> $0
<OVERDIST-NET-GAINS-PRIOR> $0
<GROSS-ADVISORY-FEES> $0
<INTEREST-EXPENSE> $0
<GROSS-EXPENSE> $31,008
<AVERAGE-NET-ASSETS> $1,573,393
<PER-SHARE-NAV-BEGIN> $21.11
<PER-SHARE-NII> $0.10
<PER-SHARE-GAIN-APPREC> $1.04
<PER-SHARE-DIVIDEND> $0.00
<PER-SHARE-DISTRIBUTIONS> $0.00
<RETURNS-OF-CAPITAL> $0.00
<PER-SHARE-NAV-END> $22.25
<EXPENSE-RATIO> 1.97
<AVG-DEBT-OUTSTANDING> $0
<AVG-DEBT-PER-SHARE> $0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EAGLE INTERNATIONAL EQUITY PORTFOLIO - CLASS C SHARES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> OCT-31-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> $25,783,498
<INVESTMENTS-AT-VALUE> $26,335,207
<RECEIVABLES> $278,093
<ASSETS-OTHER> $68,909
<OTHER-ITEMS-ASSETS> $0
<TOTAL-ASSETS> $26,682,209
<PAYABLE-FOR-SECURITIES> $626,669
<SENIOR-LONG-TERM-DEBT> $0
<OTHER-ITEMS-LIABILITIES> $141,254
<TOTAL-LIABILITIES> $767,923
<SENIOR-EQUITY> $0
<PAID-IN-CAPITAL-COMMON> $24,823,156
<SHARES-COMMON-STOCK> 1,170,011
<SHARES-COMMON-PRIOR> 479,563
<ACCUMULATED-NII-CURRENT> $230,207
<OVERDISTRIBUTION-NII> $0
<ACCUMULATED-NET-GAINS> $166,663
<OVERDISTRIBUTION-GAINS> $0
<ACCUM-APPREC-OR-DEPREC> $694,260
<NET-ASSETS> $25,914,286
<DIVIDEND-INCOME> $404,020
<INTEREST-INCOME> $81,403
<OTHER-INCOME> $0
<EXPENSES-NET> $484,023
<NET-INVESTMENT-INCOME> $1,400
<REALIZED-GAINS-CURRENT> $413,185
<APPREC-INCREASE-CURRENT> $731,979
<NET-CHANGE-FROM-OPS> $1,146,564
<EQUALIZATION> $0
<DISTRIBUTIONS-OF-INCOME> $7,915
<DISTRIBUTIONS-OF-GAINS> $254,085
<DISTRIBUTIONS-OTHER> $0
<NUMBER-OF-SHARES-SOLD> 750,590
<NUMBER-OF-SHARES-REDEEMED> (72,059)
<SHARES-REINVESTED> 11,917
<NET-CHANGE-IN-ASSETS> $15,943,727
<ACCUMULATED-NII-PRIOR> $0
<ACCUMULATED-GAINS-PRIOR> $244,285
<OVERDISTRIB-NII-PRIOR> $0
<OVERDIST-NET-GAINS-PRIOR> $0
<GROSS-ADVISORY-FEES> $0
<INTEREST-EXPENSE> $0
<GROSS-EXPENSE> $14,692
<AVERAGE-NET-ASSETS> $540,417
<PER-SHARE-NAV-BEGIN> $21.11
<PER-SHARE-NII> ($0.07)
<PER-SHARE-GAIN-APPREC> $1.08
<PER-SHARE-DIVIDEND> $0.00
<PER-SHARE-DISTRIBUTIONS> $0.00
<RETURNS-OF-CAPITAL> $0.00
<PER-SHARE-NAV-END> $22.12
<EXPENSE-RATIO> 2.72
<AVG-DEBT-OUTSTANDING> $0
<AVG-DEBT-PER-SHARE> $0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EAGLE INTERNATIONAL EQUITY PORTFOLIO - EAGLE CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> OCT-31-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> $25,783,498
<INVESTMENTS-AT-VALUE> $26,335,207
<RECEIVABLES> $278,093
<ASSETS-OTHER> $68,909
<OTHER-ITEMS-ASSETS> $0
<TOTAL-ASSETS> $26,682,209
<PAYABLE-FOR-SECURITIES> $626,669
<SENIOR-LONG-TERM-DEBT> $0
<OTHER-ITEMS-LIABILITIES> $141,254
<TOTAL-LIABILITIES> $767,923
<SENIOR-EQUITY> $0
<PAID-IN-CAPITAL-COMMON> $24,823,156
<SHARES-COMMON-STOCK> 1,170,011
<SHARES-COMMON-PRIOR> 479,563
<ACCUMULATED-NII-CURRENT> $230,207
<OVERDISTRIBUTION-NII> $0
<ACCUMULATED-NET-GAINS> $166,663
<OVERDISTRIBUTION-GAINS> $0
<ACCUM-APPREC-OR-DEPREC> $694,260
<NET-ASSETS> $25,914,286
<DIVIDEND-INCOME> $404,020
<INTEREST-INCOME> $81,403
<OTHER-INCOME> $0
<EXPENSES-NET> $484,023
<NET-INVESTMENT-INCOME> $1,400
<REALIZED-GAINS-CURRENT> $413,185
<APPREC-INCREASE-CURRENT> $731,979
<NET-CHANGE-FROM-OPS> $1,146,564
<EQUALIZATION> $0
<DISTRIBUTIONS-OF-INCOME> $7,915
<DISTRIBUTIONS-OF-GAINS> $254,085
<DISTRIBUTIONS-OTHER> $0
<NUMBER-OF-SHARES-SOLD> 750,590
<NUMBER-OF-SHARES-REDEEMED> (72,059)
<SHARES-REINVESTED> 11,917
<NET-CHANGE-IN-ASSETS> $15,943,727
<ACCUMULATED-NII-PRIOR> $0
<ACCUMULATED-GAINS-PRIOR> $244,285
<OVERDISTRIB-NII-PRIOR> $0
<OVERDIST-NET-GAINS-PRIOR> $0
<GROSS-ADVISORY-FEES> $0
<INTEREST-EXPENSE> $0
<GROSS-EXPENSE> $438,324
<AVERAGE-NET-ASSETS> $16,863,929
<PER-SHARE-NAV-BEGIN> $20.79
<PER-SHARE-NII> ($0.01)
<PER-SHARE-GAIN-APPREC> $1.84
<PER-SHARE-DIVIDEND> $0.01
<PER-SHARE-DISTRIBUTIONS> $0.47
<RETURNS-OF-CAPITAL> $0.00
<PER-SHARE-NAV-END> $22.14
<EXPENSE-RATIO> 2.60
<AVG-DEBT-OUTSTANDING> $0
<AVG-DEBT-PER-SHARE> $0
</TABLE>
SUBADVISORY AGREEMENT
This Subadvisory Agreement is made as of ________________ between
Heritage Asset Management, Inc. a Florida corporation (the "Manager"), and
Dreman Value Advisors, Inc. a Delaware corporation (the "Subadviser").
WHEREAS, the Manager has by separate contract agreed to serve as the
investment adviser to the Value Equity Fund ("Fund"), an investment portfolio of
Heritage Series Trust ("Trust"), a Massachusetts business trust registered under
the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
diversified management investment company consisting of one or more investment
series of shares, each having its own assets and investment policies;
WHEREAS, the Manager's contract with the Trust allows it to delegate
certain investment advisory services on behalf of the Fund to other parties; and
WHEREAS, the Manager desires to retain the Subadviser to perform
certain sub-investment advisory services for the Trust with respect to the Fund,
and the Subadviser is willing to perform such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST
(a) INVESTMENT PROGRAM. Subject to the control and supervision of
the Board of Trustees of the Trust and the Manager, the Subadviser
shall, at its expense, continuously furnish to the Fund an investment
program for such portion, if any, of Fund assets that is allocated to
it by the Manager from time to time. With respect to such assets, the
Subadviser will make investment decisions and will place all orders for
the purchase and sale of portfolio securities. In the performance of
its duties, the Subadviser will act in the best interests of the Fund
and will comply with (i) applicable laws and regulations, including,
but not limited to, the 1940 Act, (ii) the terms of this Agreement,
(iii) the stated investment objectives, policies and restrictions of
the Fund, as stated in the then-current Registration Statement of the
Trust, and (iv) such other guidelines as the Trustees or Manager may
establish. The Manager shall be responsible for providing the
Subadviser with current copies of the materials specified in
Subsections (a) (iii) and (iv) of this Section 1.
(b) AVAILABILITY OF PERSONNEL. The Subadviser, at its expense,
will make available to the Trustees and the Manager at reasonable times
its portfolio managers and other appropriate personnel in order to
<PAGE>
review investment policies of the Fund and to consult with the Trustees
and the Manager regarding the investment affairs of the Fund, including
economic, statistical and investment matters relevant to the
Subadviser's duties hereunder, and will provide periodic reports to the
Manager relating to the portfolio strategies it employs.
(c) SALARIES AND FACILITIES. The Subadviser, at its expense, will
pay for all salaries of personnel and facilities required for it to
execute its duties under this Agreement.
(d) COMPLIANCE REPORTS. The Subadviser, at its expense, will
provide the Manager with such compliance reports relating to its duties
under this Agreement as may reasonably be necessary for the Manager to
fulfill its compliance obligations.
(e) VALUATION. The Subadviser, at its expense, will provide the
Trust with market price information which may be reasonably requested
by the Manager relating to the assets of the Fund.
(f) EXECUTING PORTFOLIO TRANSACTIONS. The Subadviser will place
all orders pursuant to its investment determinations for the Fund
either directly with the issuer or through broker-dealers selected by
Subadviser; and, in connection therewith, the Subadviser is authorized
as the agent of the Fund to give instructions to the Custodian of the
Fund as to the deliveries of securities and payments of cash for the
account of the Fund. In the selection of broker-dealers and the
placement of orders for the purchase and sale of portfolio investments
for the Fund, the Subadviser shall use its best efforts to obtain for
the Fund the most favorable price and execution available, except to
the extent it may be permitted to pay higher brokerage commissions for
brokerage and research services as described below. In using its best
efforts to obtain the most favorable price and execution available, the
Subadviser, bearing in mind the Fund's best interests at all times,
shall consider all factors it deems relevant, including by way of
illustration, price, the size of the transaction, the nature of the
market for the security, the amount of the commission and dealer's
spread or mark-up, the timing of the transaction taking into account
market prices and trends, the reputation, experience and financial
stability of the broker-dealer involved, the general execution and
operational facilities of the broker-dealer and the quality of service
rendered by the broker-dealer in other transactions. Subject to such
policies as the Board of Trustees may determine, the Subadviser shall
not be deemed to have acted unlawfully or to have breached any duty
created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker-dealer that provides brokerage and
research services to the Subadviser an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
2
<PAGE>
commission another broker-dealer would have charged for effecting that
transaction if the Subadviser determines in good faith that such amount
of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker-dealer, viewed in terms
of either that particular transaction or the Subadviser's overall
responsibilities with respect to the Trust and to other clients of the
Subadviser as to which the Subadviser exercises investment discretion.
The Manager recognizes that all research services and research that the
Subadviser receives or generates are available for all clients of the
Subadviser and its affiliates, and that the Fund and other clients of
the Subadviser and its affiliates may benefit thereby. In no instance
will portfolio securities of the Fund be purchased from or sold to the
Subadviser or any affiliated person of the Subadviser. The Trust agrees
that any entity or person associated with the Manager or the Subadviser
that is a member of a national securities exchange is authorized to
effect any transaction on such exchange for the account of the Trust
that is permitted by Section 11(a) of the Securities Exchange Act of
1934, as amended, and the Trust consents to the retention of
compensation for such transactions.
(g) EXPENSES. The Subadviser shall not be obligated to pay any
expenses of or for the Trust or the Fund not expressly assumed by the
Subadviser pursuant to this Agreement.
(h) LIMITATION OF SERVICES. Except as otherwise agreed between the
parties and as provided in this Agreement, the Subadviser shall not be
responsible for compliance monitoring, reporting or testing or for
preparing or maintaining books and records for the Fund or the Trust or
otherwise providing accounting services to the Fund or the Trust
(including portfolio pricing services) and such services shall be
provided by others retained by the Trust. However, nothing herein shall
be construed to limit the Subadviser's duty to ensure that it complies
with (i) applicable laws and regulations, including the 1940 Act. (ii)
the terms of this Agreement, (iii) the stated investment objectives,
policies and restrictions of the Fund, as stated in the then current
registration statement of the Trust, and (iv) such other reasonable
guidelines the Trustees or Manager may establish with respect to the
Subadviser's service hereunder. The Subadviser shall have access to
such reports and records to assist it in performing its services
hereunder.
3
<PAGE>
2. BOOKS AND RECORDS. Pursuant to Rule 31a-3 under the 1940 Act, the
Subadviser agrees that: (a) all records it maintains for the Trust are the
property of the Trust; (b) it will surrender promptly to the Trust or the
Manager any such records upon the Trust's or Manager's request; (c) it will
maintain for the Trust the records that the Trust is required to maintain
pursuant to Rule 31a-1 insofar as such records relate to the investment affairs
of the Fund; and (d) it will preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records it maintains for the Trust.
3. OTHER AGREEMENTS. The Manager understands that Subadviser now acts,
or may in the future act, as an investment adviser to fiduciary and other
managed accounts, and as investment adviser or subadviser to other investment
companies. Manager has no objection to Subadviser acting in such capacities,
provided that whenever the Fund and one or more other investment advisory
clients of Subadviser have available funds for investment, investments suitable
and appropriate for each will be allocated in a manner believed by Subadviser to
be equitable to each, but Subadviser cannot assure, and assumes no
responsibility for equality among all accounts and customers. Subadviser shall
be permitted to bunch or aggregate orders for the Fund with orders for other
funds and accounts in a manner deemed equitable to all. Manager recognizes that
in some cases this procedure may adversely affect the size of the position or
price that the participating Fund may obtain in a particular security. In
addition, Manager understands that the persons employed by Subadviser to assist
in Subadviser's duties under this Agreement will not devote their full time to
such service and nothing contained in this Agreement will be deemed to limit or
restrict the right of Subadviser or any of its affiliates to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
4. COMPENSATION. The Manager will pay to the Subadviser as compensation
for the Subadviser's services rendered pursuant to this Agreement a subadvisory
fee equal to an annual rate of 0.35% of the average daily net assets of the Fund
allocated to the Subadvisor by the Manager. However, if the Manager's fee is
reduced due to the imposition of asset level breakpoints, the Subadviser's Fee
shall be reduced proportionately, provided that in no event shall such
subadvisory fee be reduced below 0.35% for the first $50 million of the Fund's
average daily net assets of the Fund. Such fees shall be payable for each month
within 15 business days after the end of such month. If the Subadviser shall
serve for less than the whole of a month, the compensation as specified shall be
prorated.
4
<PAGE>
5. AMENDMENT OF AGREEMENT. This Agreement shall not be materially
amended unless such amendment is approved by the affirmative vote of a majority
of the outstanding shares of the Fund, and by the vote, cast in person at a
meeting called for the purpose of voting on such approval, of a majority of the
members of the Board of Trustees who are not interested persons of the Trust,
the Manager or the Subadviser (the "Independent Trustees"). The Subadviser
agrees to notify the Manager of any anticipated change in control of the
Subadviser as soon as such change is anticipated and, in any event, prior to
such change.
6. DURATION AND TERMINATION OF THE AGREEMENT. This Agreement shall
become effective upon its execution; provided, however, that this Agreement
shall not become effective unless it has first been approved (a) by a vote of
the Independent Trustees, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by an affirmative vote of a majority of the
outstanding voting shares of the Fund. This Agreement shall remain in full force
and effect continuously thereafter, except as follows:
(a) By vote of a majority of the (i) Independent Trustees, or (ii)
outstanding voting shares of the Fund, the Trust may at any time
terminate this Agreement, without the payment of any penalty, by
providing not more than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and the Subadviser.
(b) This Agreement will terminate automatically, without the
payment of any penalty, unless within two years after its initial
effectiveness and at least annually thereafter, the continuance of the
Agreement is specifically approved by (i) the Board of Trustees or the
shareholders of the Fund by the affirmative vote of a majority of the
outstanding shares of the Fund, and (ii) a majority of the Independent
Trustees, by vote cast in person at a meeting called for the purpose of
voting on such approval. If the continuance of this Agreement is
submitted to the shareholders of the Fund for their approval and such
shareholders fail to approve such continuance as provided herein, the
Subadviser may continue to serve hereunder in a manner consistent with
the 1940 Act and the rules and regulations thereunder.
(c) The Manager may at any time terminate this Agreement, without
the payment of any penalty, by not less than 60 days' written notice
delivered or mailed by registered mail, postage prepaid, to the
Subadviser, and the Subadviser may at any time, without the payment of
any penalty, terminate this Agreement by not less than 90 days' written
notice delivered or mailed by registered mail, postage prepaid, to the
Manager.
5
<PAGE>
(d) This Agreement automatically and immediately shall terminate,
without the payment of any penalty, in the event of its assignment or
if the Investment Advisory Agreement between the Manager and the Trust
shall terminate for any reason.
(e) Any notice of termination served on the Subadviser by the
Manager shall be without prejudice to the obligation of the Subadviser
to complete transactions already initiated or acted upon with respect
to the Fund. Upon termination without reasonable notice by the Manager,
the Subadviser will be paid certain previously agreed upon expenses the
Subadviser necessarily incurs in terminating the Agreement.
Upon termination of this Agreement, the duties of the Manager delegated
to the Subadviser under this Agreement automatically shall revert to the
Manager.
7. NOTIFICATION OF THE MANAGER. The Subadviser promptly shall notify
the Manager in writing of the occurrence of any of the following events:
(a) the Subadviser shall fail to be registered as an investment
adviser under the Investment Advisers Act of 1940, as amended, and
under the laws of any jurisdiction in which the Subadviser is required
to be registered as an investment adviser in order to perform its
obligations under this Agreement;
(b) the Subadviser shall have been served or otherwise have notice
of any action, suit, proceeding, inquiry or investigation, at law or in
equity, before or by any court, public board or body, involving the
affairs of the Trust or the Fund; or
(c) any other occurrence that might affect the ability of the
Subadviser to provide the services provided for under this Agreement.
8. DEFINITIONS. For the purposes of this Agreement, the terms "vote of
a majority of the outstanding shares," "affiliated person, "control,"
"interested person" and "assignment" shall have their respective meanings as
defined in the 1940 Act and the rules and regulations thereunder subject,
however, to such exemptions as may be granted by the Securities and Exchange
Commission under said Act; and references to annual approvals by the Board of
Trustees shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder.
6
<PAGE>
9. LIABILITY OF THE SUBADVISER. In the absence of its willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties hereunder, the Subadviser shall not be subject to any
liability to the Manager, the Trust or their directors, trustees, officers or
shareholders, for any act or omission in the course of, or connected with,
rendering services hereunder. However, the Subadviser shall indemnify and hold
harmless such parties from any and all claims, losses, expenses, obligations and
liabilities (including reasonable attorneys fees) which arise or result from the
Subadviser's willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties hereunder.
10. INDEMNIFICATION BY SUBADVISER. The Subadviser agrees to indemnify
and hold harmless the Manager against any losses, expenses, claims, damages or
liabilities (or actions or proceedings in respect thereof), to which the Manager
may become subject arising out of or based on the breach or alleged breach by
the Subadviser of any provisions of this Agreement; provided, however, that the
Subadviser shall not be liable under this paragraph in respect of any loss,
expense, claim, damage or liability to the extent that a court having
jurisdiction shall have determined by a final judgment, or independent counsel
agreed upon by the Manager and the Subadviser shall have concluded in a written
opinion, that such loss, expense, claim, damage or liability resulted primarily
from the Manager's willful misfeasance, bad faith or gross negligence or by
reason of the reckless disregard by the Manager of its duties. The foregoing
indemnification shall be in addition to any rights that the Manager may have at
common law or otherwise. The Subadviser's agreements in this paragraph shall,
upon the same terms and conditions, extend to and inure to the benefit of each
person who may be deemed to control the Manager, be controlled by the Manager or
be under common control with the Manager and its affiliates, directors,
officers, employees and agents. The Subadviser's agreements in this paragraph
shall also extend to any of the Manager's successors or the successors of the
aforementioned affiliates, directors, officers, employees or agents.
11. INDEMNIFICATION BY THE MANAGER. The Manager agrees to indemnify and
hold harmless the Subadviser against any losses, expenses, claims, damages or
liabilities (or actions or proceedings in respect thereof), to which the
Subadviser may become subject arising out of or based on the breach or alleged
breach by the Manager of any provisions of this Agreement or the Manager's
Contract with the Trust, or any wrongful action or alleged wrongful action by
the Manager or its affiliates in the distribution of the Fund's shares, or any
wrongful action or alleged wrongful action by the Fund or the Trust other than
wrongful action or alleged wrongful action that was caused by the breach by the
Subadviser of the provisions of this Agreement; provided, however, that the
Manager shall not be liable under this paragraph in respect of any loss,
expense, claim, damage or liability to the extent that a court having
7
<PAGE>
jurisdiction shall have determined by a final judgment, or independent counsel
agreed upon by the Manager and the Subadviser shall have concluded in a written
opinion, that such loss, expense, claim, damage or liability resulted primarily
from the Subadviser's willful misfeasance, bad faith or gross negligence or by
reason of the reckless disregard by the Subadviser of its duties. The foregoing
indemnification shall be in addition to any rights that the Subadviser may have
at common law or otherwise. The Manager's agreements in this paragraph shall,
upon the same terms and conditions, extend to and inure to the benefit of each
person who may be deemed to control the Subadviser, be controlled by the
Subadviser or be under common control with the Subadviser and to each of the
Subadviser's and each such person's respective affiliates, directors, officers,
employees and agents. The Manager's agreements in this paragraph shall also
extend to any of the Subadviser's successors or the successors of the
aforementioned affiliates, directors, officers, employees or agents.
12. LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any obligations of the
Trust under this Agreement are not binding upon the Trustees or the Shareholders
individually but are binding only upon the assets and property of the Fund.
13. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Florida, without giving effect to the conflicts of laws
principles thereof, and in accordance with the 1940 Act To the extent that the
applicable laws of the State of Florida conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
15. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. Where the
effect of a requirement of the 1940 Act reflected in any provision of this
Agreement is made less restrictive by a rule, regulation or order of the
Securities and Exchange Commission, whether of special or general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
8
<PAGE>
IN WITNESS WHEREOF, Heritage Asset Management, Inc. and Dreman Value
Advisors, Inc. have each caused this instrument to be signed in duplicate on its
behalf by its duly authorized representative, all as of the day and year first
above written.
DREMAN VALUE ADVISORS, INC. HERITAGE ASSET MANAGEMENT, INC.
By: ____________________________ By: ___________________________
Attest: Attest:
By: ____________________________ By: ___________________________
9
EX-99.11
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Statements of Additional Information
constituting part of this Post-Effective Amendment No. 13 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
December 16, 1996, relating to the financial statements and financial highlights
of The Heritage Series Trust - Small Cap Stock Fund, Growth Equity Fund, Value
Equity Fund and Eagle International Equity Portfolio, which appear in such
Statements of Additional Information, and to the incorporation by reference of
our reports into the Prospectuses which constitute part of this Registration
Statement. We also consent to the reference to us under the heading "Independent
Accountants" in such Statements of Additional Information and to the reference
to us under the heading "Financial Highlights" in such Prospectuses.
Price Waterhouse LLP
400 North Ashley Street, Suite 2800
Tampa, Florida 33602
February 26, 1997
<PAGE> 1
INDIVIDUAL
RETIREMENT
ACCOUNT
[Assorted black and white photos of people working and playing.]
From Our Family to Yours: The Intelligent Creation of Wealth.
TAX DEFERRING TODAY'S INCOME
FOR TOMORROW'S NEEDS
[LOGO]
Authorized for distribution only if accompanied or preceded by a current
prospectus of the Heritage Asset Management, Inc. sponsored mutual funds, which
contains information concerning the applicable sales charge or fees and other
important facts. Please read it before investing.
<PAGE> 2
HERITAGE IRA
DISCLOSURE STATEMENT
- ------------------------------------------------------------
This Disclosure Statement describes the general requirements of an Individual
Retirement Account ("IRA"), as well as the specific features of the Heritage
Individual Retirement Custodial Account Agreement (the "Heritage IRA"). It is
provided in accordance with Internal Revenue Service regulations.
I. REVOCATION
If you receive this Disclosure Statement and the accompanying IRA Custodial
Account Agreement less than seven days before you establish your IRA, you are
entitled to revoke your Heritage IRA at any time within seven days after it is
established. You may do so by mailing or delivering a written notice of
revocation to Heritage Asset Management, Inc., P.O. Box 33022, St. Petersburg,
FL 33733. Any notice of revocation will be deemed mailed on the date of postmark
(or if sent by certified or registered mail, the date of certification or
registration) if it is deposited in the United States mail in a properly
addressed envelope, or other appropriate wrapper, first class postage prepaid.
Upon revocation, you will be entitled to a full refund of your entire IRA
contribution without adjustment for administrative expenses, sales commissions
(if any) or fluctuations in market value. If you have any questions about your
right of revocation, please call 800-421-4184 during normal business hours.
II. ESTABLISHING YOUR HERITAGE IRA ACCOUNT
A. STATUTORY REQUIREMENTS
An IRA is a trust or custodial account established for the exclusive benefit of
you or your beneficiaries. An IRA must be created by a written document which
meets all of the following requirements:
BANK TRUSTEE OR CUSTODIAN. An IRA must be established with a qualified trustee
or custodian which is a bank or other person approved by the Internal Revenue
Service. You cannot be your own trustee or custodian. The custodian of your
Heritage IRA is State Street Bank and Trust Company.
CASH CONTRIBUTIONS UP TO $2,000. All contributions to your IRA must be made in
cash. The total amount of contributions for any taxable year, excluding any
rollover contributions or SEP contributions as described in Article VI, may not
exceed the lesser of $2,000 or 100% of your compensation for that year.
NONFORFEITABILITY. The balance of your IRA account is fully vested and
nonforfeitable at all times.
PROHIBITIONS AGAINST LIFE INSURANCE AND COMMINGLING. No part of your IRA assets
may be invested in life insurance contracts, nor may your IRA assets be
commingled with other property except in a common trust fund or common
investment fund.
DISTRIBUTION RULES. Your IRA must comply with certain minimum distribution
requirements, which are described in detail in Article VII, both during your
lifetime and after your death.
B. TAX CONSEQUENCES
The primary Federal income tax consequences of establishing an IRA are the
following:
TAX-DEFERRED EARNINGS. Earnings on the contributions to your IRA will not be
subject to tax until you actually start receiving distributions (or are deemed
to receive distributions) from your IRA. However, your IRA may be subject to tax
if you engage in transactions that generate unrelated business taxable income
for your IRA.
CONTRIBUTIONS; TOTAL OR PARTIAL
DEDUCTIBILITY. You are permitted to make contributions each year to your IRA in
an amount up to the lesser of $2,000 ($4,000 if you also establish a spousal
IRA), or 100% of your current year's compensation. Generally, your contribution
is fully tax-deductible if you file as a single taxpayer and your adjusted gross
income does not exceed $25,000 or if you file a joint income tax return and you
and your spouse's combined adjusted gross income does not exceed $40,000. (There
are special rules for married individuals who file separate tax returns.) Above
those levels, the deduction phases out, that is, your contribution is partially
deductible; the deduction is eliminated altogether if your adjusted gross income
exceeds a second, higher level. These rules are explained in detail in Article
III(B).
NONDEDUCTIBLE CONTRIBUTIONS. You are permitted to make "designated nondeductible
contributions" to your IRA. See Article III(C) for more details.
TAXABLE DISTRIBUTIONS. Distributions from your IRA (other than certain returns
of excess IRA contributions) that are not rolled over to another retirement plan
are generally taxable as ordinary income in the year of receipt. However,
distributions from an IRA that contains designated nondeductible contributions
may be treated partly as a nontaxable return of the nondeductible IRA
contributions and partly as a taxable distribution of IRA earnings and any
deductible IRA contributions. See Article VII(A) for more details.
TAX-FREE ROLLOVERS. You may be eligible to make a rollover contribution to your
IRA of cash you receive or are eligible to receive from another individual
retirement plan or employer-maintained retirement plan. In addition, you may be
eligible to roll over the taxable amount you withdraw from your IRA to another
individual retirement plan or, in certain cases, to an employer-maintained
retirement plan. See Article V for further details.
III. IRA CONTRIBUTIONS
A. AMOUNT AND TIMING OF CONTRIBUTIONS
MAXIMUM ANNUAL CONTRIBUTIONS. The total amount of contributions to your IRA for
any taxable year (excluding any rollover contributions as described in Article V
or SEP contributions as described in Article VI) may not exceed the lesser of
$2,000 or 100% of your compensation for the taxable year. You cannot make any
contributions (other than rollover contributions described in Article V or SEP
contributions described in Article VI) to your IRA for the taxable year in which
you attain age 70 1/2 or thereafter. Remember that all permissible contributions
to your IRA are not necessarily tax-deductible. The rules for deductibility are
described in Paragraph B below.
SPOUSAL IRA. You can also open an IRA for your spouse for any year, if you and
your spouse file a joint income tax return for the year, your spouse is less
than 70 1/2 years of age at the end of the year, and your spouse has (or elects
to be treated as having) no compensation for the year. Your total contribution
could then be increased to the lesser of $4,000 or 100% of your compensation for
the year. The total permissible contribution may be allocated among your IRA and
the IRA you open for your spouse so long as no more than $2,000 is allocated to
a single IRA. (If you are 70 1/2 years of age or older at the end of a year but
your spouse is less than 70 1/2, you may open an IRA for your spouse if the
above conditions are satisfied; the maximum
1
<PAGE> 3
permissible contribution to that IRA would then be the lesser of $2,000 or 100%
of your compensation.) Distributions from a spousal IRA do not have to begin
until the spouse for whom the account is maintained reaches age 70 1/2. With the
exception of the contribution limitations, all rules that apply to an IRA
generally apply to a spousal IRA.
DEFINITION OF COMPENSATION. For purposes of the IRA contribution limits, your
compensation includes all taxable wages, salaries, fees, bonuses and other
amounts you receive for providing personal services, and any earned income from
self-employment (even if that earned income is not subject to self-employment
tax because of your religious beliefs). It does not include earnings and profits
from property such as dividends, interest or capital gains, or amounts received
as a pension or annuity, or as deferred compensation. Your compensation includes
any taxable alimony or separate maintenance payments you may receive under a
decree of divorce or separate maintenance.
CONTRIBUTIONS IN CASH. All contributions to your IRA must be made in cash or by
check or money order. Thus, you cannot make contributions of property to your
IRA. If you wish to use shares of a previously established Heritage Fund account
for your annual IRA contribution, you must first redeem the amount of shares you
wish to invest, and then use the cash proceeds as your IRA contribution.
CONTRIBUTIONS UP TO THE DATE YOUR RETURN IS DUE (April 15). You may make
contributions to your IRA for a taxable year at any time during the year, either
periodically or in a lump sum, up to the due date for filing your Federal income
tax return for the taxable year, but not including extensions. For taxpayers who
file on a calendar-year basis, the latest date for any year is April 15 of the
following year. If you do not inform the Custodian of the year for which an IRA
contribution is made, the Custodian will assume the contribution is being made
for the year in which it is received.
MAXIMUM CONTRIBUTIONS NOT REQUIRED. You do not have to contribute to your IRA
every year, nor are you required to make the maximum contribution for any year.
However, if you decide in any year not to make the maximum IRA contribution, you
may not make up the missed contribution amount in later years. Under the
Heritage IRA, there is a minimum initial contribution required when you
establish your account, as described in Article X.
CUSTODIAL OR TRUSTEE FEES. The Internal Revenue Service has ruled that a
custodian's or trustee's administrative fees, which are billed separately and
paid by you in connection with your IRA, may be separately deductible as
expenses. (The deduction for all such expenses is generally limited to the
amount of such expenses that, when combined with certain other miscellaneous
deductions, exceeds 2% of an individual's adjusted gross income; this deduction
is also subject to reduction in the case of a high-income individual whose
adjusted gross income exceeds $100,000, or $50,000 in the case of a separate
return by a married individual). Thus, the separate payment of your IRA
custodial or trustee's fees should not serve to limit the maximum amount of
contributions you are otherwise eligible to make to your IRA. Under the Heritage
IRA, you are provided the opportunity to pay your annual custodial fee
separately, as explained in Article X.
B. DEDUCTIBLE IRA CONTRIBUTIONS
The deductibility of your IRA contributions is determined by the rules explained
below.
a. INDIVIDUALS WHO ARE NOT "ACTIVE PARTICIPANTS" IN OTHER RETIREMENT
ARRANGEMENTS. If neither you nor your spouse are an active participant in an
employer-maintained retirement arrangement, the full amount of your permissible
contribution to an IRA will be tax deductible. Your marital status for this
purpose is determined as of the end of the year, except that in the taxable year
of the death of a spouse, active participation is determined as if the spouse
were alive at year-end.
b. ACTIVE PARTICIPANT DEFINED. Generally, an individual is an active participant
in an employer-maintained retirement arrangement if he or she is not excluded
from eligibility under a defined benefit arrangement, such as a pension plan, or
if contributions -- whether made by the employer or the employee -- or
forfeitures are allocated to the individual's account under a defined
contribution plan such as a profit sharing or 401(k) plan. You are not
considered an active participant if you have not satisfied the plan's minimum
age or service conditions required for participation. The determination whether
you are an active participant is made without regard to whether your rights
under the plan are nonforfeitable (that is, vested). Employer-maintained
retirement arrangements include, for this purpose, tax qualified pension or
profit sharing plans, annuity plans of various kinds, certain deferred
compensation arrangements maintained by state and local governments or tax
exempt organizations, simplified employee pension plans, and certain
arrangements to which only employees contribute. Coverage under the social
security or railroad retirement systems does not itself count as coverage by an
employer-maintained arrangement, and you are not considered an active
participant in a previous employer's plan merely because you are receiving
retirement benefits from that plan. The Form W-2 that you receive should have a
check in the "Pension Plan" check box if you are an active participant in a
retirement arrangement of the employer involved. You should be certain to
contact your employer if you are not sure whether you are covered by a
retirement plan at work, or you are otherwise unsure of your status as an active
participant, because the rules as to "active participation" can be complicated
in particular situations.
c. INDIVIDUALS WHO ARE "ACTIVE PARTICIPANTS" IN OTHER RETIREMENT ARRANGEMENTS.
If you are an active participant in a retirement arrangement, or your spouse is
an active participant and you file a joint income tax return, or even if you
file a separate return but lived with your spouse at any time during the taxable
year, the degree to which your contribution to an IRA will be tax deductible
depends on your income tax filing status and the level of your adjusted gross
income (your "AGI") or the AGI of you and your spouse in the case of a joint
return.
i. Adjusted Gross Income ("AGI") Thresholds. Your contribution remains fully
deductible if your AGI falls below the dollar threshold for your filing
status. Above that threshold, your deduction phases out, that is, your
contribution is partially deductible; the deduction is eliminated
altogether if your AGI exceeds a second, higher level. The following
chart illustrates the effect of the AGI thresholds on an IRA deduction,
for each income tax filing status.
ii. Computation of AGI. In computing your AGI to determine the limit of your
IRA deduction, you can consult your tax return. Adjusted gross income for
this purpose is generally the amount shown on Form 1040 as Total Income
reduced by the sum of the amounts listed as adjustments to income (other
than you or your spouse's IRA deduction) on Form 1040. You will note that
your adjusted gross income is not reduced, for this purpose, by any
deductible IRA contributions you make for the taxable year.
2
<PAGE> 4
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
STATUS FULL DEDUCTION PHASEOUT LEVELS NO DEDUCTION
<S> <C> <C> <C>
If you (or your spouse if Your contribution Your deduction Your contribution
you file a joint return or if is fully deductible is reduced if is not deductible
you file a separate return and if your AGI is your AGI is if your AGI is:
you and your spouse lived within the full within the
together at any time during deduction range phaseout range
the year) are an active partici- of: of:
pant and you file as:
Single, or $25,000 $25,001 - $35,000 or
Head of $34,999 more
household
Married -- joint $40,000 $40,001 - $50,000 or
return, or $49,999 more
Qualifying
widow(er)
Married -- None $0 - $10,000 or
separate $9,999 more
return
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
iii. Phaseout of Deduction. If you are an active participant whose AGI is no
more than $10,000 above the dollar threshold for your filing status, you
are entitled to a partial tax deduction for the amount of your contribution
to an IRA. The deduction phases out (that is, becomes smaller) as your AGI
approaches the $10,000 limit. The following worksheet can be used to figure
the maximum permissible deduction for an individual who is an active
participant and whose AGI is in the $10,000 phaseout range.
MAXIMUM PARTIAL DEDUCTION
(Use this worksheet only if you are within the AGI phaseout range)
<TABLE>
<S> <C>
IF YOU FILE AS: ENTER ON LINE 1:
Single, or Head of
household $35,000
Married -- joint return
or Qualifying widow(er) $50,000
Married -- separate
return $10,000
1) Amount from above $
----------
2) Adjusted gross income
----------
3) Subtract line 2 from line 1 $
----------
4) Maximum partial deduction. Multiply
Line 3 by 20% (.20). If the result
is not a multiple of $10, round it
to the next highest multiple of $10
(for example, $611.40 rounded to
$620). However, if the result is
less than $200, but more than zero,
enter $200. $
----------
</TABLE>
This is the maximum partial deduction you can claim. You will note that you are
permitted a minimum deduction of $200, so long as your AGI is within the
phaseout range.
Please Note: More detailed worksheets for computing your IRA deduction appear in
your Form 1040 instruction book.
If you file a joint income tax return, the maximum partial deduction applies
independently to you and to your spouse. Remember, however, that your deduction
cannot exceed 100% of your taxable compensation for the year, your spouse cannot
make use of any part of your maximum permissible deduction that you cannot or do
not use, and you cannot make use of any part of your spouse's maximum
permissible deduction that your spouse cannot or does not use.
SPOUSAL IRA. If you are an active participant and open a spousal IRA, the
maximum deduction that you may claim is also reduced pursuant to the rules
outlined above if your AGI is in the phaseout range and is eliminated if your
AGI exceeds the phaseout range. In order to compute the maximum permissible
deduction for a spousal IRA, you should first compute your maximum permissible
deduction, using the worksheet that appears above; you should then compute your
maximum permissible deduction for the combination of your IRA and the spousal
IRA, by using the same worksheet, but multiplying the number on line 3 by 40%
rather than 20%. The result of the second computation is the maximum amount that
may be deducted for contributions to the two IRAs; the result of the first
computation is the maximum deduction that may be claimed for contribution to a
single one of the two IRAs.
The following chart summarizes the various rules as to the deductibility of an
IRA contribution.
3
<PAGE> 5
CAN YOU TAKE AN IRA DEDUCTION?
THIS CHART SUMS UP WHETHER YOU CAN TAKE A FULL DEDUCTION, A PARTIAL DEDUCTION OR
NO DEDUCTION AS DISCUSSED EARLIER.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF YOU ARE NOT
IF COVERED BY A
YOUR IF YOU ARE COVERED BY A RETIREMENT PLAN AT WORK RETIREMENT PLAN
AGI IS AND YOUR FILING STATUS IS: AT WORK AND YOUR
FILING STATUS IS:
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
* Single, or * Married Filing * Married Filing * Married Filing
Jointly (even Separately (even Jointly (and
* Head of if your spouse if your spouse is your spouse is
Household is covered by covered by a covered by a
a plan at work) plan at work) plan at work)
BUT * Qualifying
AT LESS Widow(er)
LEAST THAN
YOU CAN TAKE YOU CAN TAKE YOU CAN TAKE YOU CAN TAKE
- ---------------------------------------------------------------------------------------------------------
$-0- $10,000 Full deduction Full deduction Partial deduction Full deduction
$10,001 $25,000 Full deduction Full deduction No deduction Full deduction
$25,001 $35,000 Partial deduction Full deduction No deduction Full deduction
$35,001 $40,000 No deduction Full deduction No deduction Full deduction
$40,001 $50,000 No deduction Partial deduction No deduction Partial deduction
$50,001 or over No deduction No deduction No deduction No deduction
<CAPTION>
IF
YOUR
AGI IS IF YOU ARE NOT COVERED BY A RETIREMENT PLAN
AT WORK AND YOUR FILING STATUS IS:
---------------------------------------------------------------
<S> <C> <C> <C> <C>
* Married Filing * Single, or * Married Filing
Separately Jointly or
(even if your * Head of Separately (and
spouse is Household, or your spouse is
covered by a not covered by a
plan at work) * Married Filing plan at work)
Separately (and
you have lived * Qualifying
BUT apart from your Widow(er)
AT LESS spouse the
LEAST THAN entire year)
YOU CAN TAKE YOU CAN TAKE YOU CAN TAKE
- ----------------------------------------------------------------------------------------------------------------------------------
$-0- $10,000 Partial deduction
$10,001 $25,000 No deduction
Full Full
$25,001 $35,000 No deduction Deduction Deduction
$35,001 $40,000 No deduction
$40,001 $50,000 No deduction
$50,001 or over No deduction
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Maximum Deduction: You can deduct IRA contributions up to the amount of the
deduction (full or partial) you can take, or 100% of your taxable compensation,
whichever is less.
$200 floor: The partial deduction has a $200 floor. For example, if your
deduction would have been reduced to less than $200, (but not zero), you can
deduct IRA contributions up to $200 or 100% of your taxable compensation,
whichever is less. If the deduction is completely phased out (reduced to zero),
no deduction is allowed.
4
<PAGE> 6
C. NONDEDUCTIBLE IRA CONTRIBUTIONS.
As indicated above, the maximum contribution that you are permitted to make to
an Accumulation IRA each year may well exceed the amount of the contribution
that is tax-deductible. You may make a nondeductible contribution in the amount
of the difference between the maximum permissible contribution amount and the
amount, if any, of the contribution that is tax-deductible. Thus, your maximum
permissible nondeductible contribution is the lesser of $2,000 ($4,000 in the
case of a spousal IRA) or 100% of your taxable compensation, minus the amount of
your IRA contribution that you can claim as a tax deduction. You may make
nondeductible contributions in lieu of deductible contributions (up to the
maximum permissible amount); you might wish to do so, for example, if you had no
taxable income for the year after taking into account your other deductions.
TAX ADVANTAGE OF NONDEDUCTIBLE IRA CONTRIBUTIONS. The primary tax advantage of
nondeductible IRA contributions is that all earnings attributable to those
contributions will be free of income tax until distribution. Unlike deductible
contributions, your nondeductible contributions themselves are not taxed when
they are distributed to you. (Nondeductible contributions create a "cost basis"
in your IRA). If you have made both deductible and nondeductible contributions
to an IRA, part of each distribution is treated as a nontaxable return of
capital to the extent it represents your actual nondeductible IRA contributions;
the remainder of each distribution (attributable to deductible contributions and
earnings on deductible and nondeductible contributions) is included in taxable
income. You should retain careful and complete records of the amount of your
nondeductible contributions, since you will be responsible for calculating the
extent to which any distributions from your IRA are nontaxable because they
represent a return of nondeductible contributions; neither the custodian of your
IRA nor the Heritage Family of Funds will possess the information to tell you
what portion of your contributions was nondeductible.
You must designate on your income tax return the amount of your IRA contribution
that constitutes a nondeductible contribution for the year. You should exercise
care in doing so, because an overstatement of the amount of your nondeductible
IRA contributions may subject you to a $100 penalty unless you can show that the
overstatement was due to reasonable cause. (You need not inform the Heritage
Family of Funds or State Street Bank and Trust Company whether your
contributions are deductible or nondeductible.) In addition, you will be
required each year to include with your tax return a completed Internal Revenue
Service Form 8606 to indicate the amount of designated nondeductible
contributions you have made for all preceding taxable years, the aggregate
distributions you have received from your IRA(s) and the value of all your IRAs.
A penalty of $50 is imposed if you do not do so.
D. EXCESS CONTRIBUTIONS
Generally, an excess contribution is the amount of any contributions to your IRA
(other than a proper rollover contribution as described in Article V) for a
taxable year which exceeds your IRA contribution limit for the taxable year. An
excise tax equal to 6% of the amount of any excess contribution will be assessed
for the year for which the excess contribution is made and for each subsequent
year until the excess amount is eliminated.
RETURN OF EXCESS CONTRIBUTION BY DATE YOUR RETURN IS DUE. If you make a
contribution to your IRA for a taxable year which exceeds your IRA contribution
limit, whether deductible or nondeductible, you may be permitted to designate
the contribution as a nondeductible IRA contribution by the due date for filing
your Federal income tax return, not including extensions. As an alternative, you
may withdraw the contribution from your IRA and the earnings thereon at any time
prior to the due date for filing your Federal income tax return, including
extensions, for the taxable year for which the contribution was made. If this is
done, the return of the contribution will not be includible in your gross income
as an IRA distribution, and the contribution will not be subject to the 6%
excise tax on excess contributions (assuming the contribution is not deducted on
your return). However, the earnings on the contribution will be taxable income
in the year for which the contribution was made, and may possibly be subject to
the 10% tax on early distributions if you are under age 59 1/2 (see Article
VII(A) below).
RETURN OF EXCESS CONTRIBUTION AFTER DATE YOUR RETURN IS DUE. If you make an
excess contribution to your IRA which exceeds your IRA contribution limit, and
you withdraw the excess contribution after the due date for filing your Federal
income tax return (including extensions), the returned excess contribution will
not be includible in your gross income as an IRA distribution (subject to
possible premature distribution penalties) if: (1) your total IRA contributions
for the year were not more than $4,000 and (2) you did not deduct the excess
contribution on your return (or if the deduction you claimed was disallowed by
the Internal Revenue Service). However, you must pay the 6% excise tax on the
excess contribution for each taxable year that it is still in your IRA at the
end of the following year. Under this procedure, you are not required to
withdraw any earnings attributable to the excess contribution.
APPLYING EXCESS CONTRIBUTION TO SUBSEQUENT YEAR. You may also eliminate an
excess contribution from your IRA in a subsequent year by not contributing the
maximum amount for that year and applying the excess contribution to the
subsequent year's contribution. You may be entitled to a deduction for the
amount of the excess contribution that is applied in the subsequent year,
provided you did not previously deduct the excess contribution (or if the
deduction you claimed was disallowed by the Internal Revenue Service). However,
if you incorrectly deducted an excess contribution in a closed taxable year
(i.e., one for which the period to assess a deficiency has expired), the amount
of the excess contribution cannot be deducted again in the subsequent year in
which it is applied.
IV. TRANSFERS
A. TRANSFER FROM EXISTING IRA TO HERITAGE IRA.
To give you greater investment flexibility, you are permitted to transfer IRA
assets directly from one trustee or custodian to another on a tax-free basis.
Thus, if you already have an IRA with another trustee or custodian, you may
authorize a direct transfer of your IRA assets to a Heritage IRA without paying
taxes, subject to the rules and restrictions of your existing account. Of
course, such a transfer of assets to the Heritage IRA is not tax-deductible. If
you wish to authorize the Custodian to arrange a direct transfer of assets from
the trustee or custodian of your existing IRA to a Heritage IRA, please complete
Heritage's IRA Asset Transfer Authorization Form in addition to the IRA
Agreement.
B. TRANSFER FROM HERITAGE IRA.
If you so direct in writing, the Custodian will transfer all or any portion of
the assets held in your Heritage IRA directly to the trustee or custodian of
another IRA established on your behalf, provided the trustee or custodian
certifies in writing that it will accept the direct transfer of assets and will
deposit the transferred assets in an IRA established on your behalf.
C. TRANSFER INCIDENT TO DIVORCE.
All or any portion of your IRA assets may be transferred tax-free to your spouse
or former spouse pursuant to a divorce or separation instrument, in which case
the transferred assets will be held as a separate IRA for the benefit of your
spouse or former spouse.
5
<PAGE> 7
V. ROLLOVER CONTRIBUTIONS
A. TAX-FREE ROLLOVERS IN GENERAL.
A rollover contribution is a contribution to your IRA of cash or other assets
you receive or are eligible to receive as a distribution from another individual
retirement arrangement or employer retirement plan. A rollover transaction is
tax-free, in that the amounts properly rolled over to your IRA will not be
currently taxable in the year of receipt. Of course, a rollover contribution to
your IRA is not tax-deductible.
NOTE: The rules applicable to eligible rollover distributions from an employer
retirement plan are different from those applicable to distributions from
another IRA. As described in Section C below, an eligible rollover distribution
that is paid to you, rather than paid directly to your IRA, will be subject to
20% income tax withholding.
B. ROLLOVER FROM EXISTING IRA TO HERITAGE IRA.
If you receive a distribution of assets from an existing IRA, you may make a
tax-free rollover contribution, in cash, of all or part of the assets you
receive, to a Heritage IRA. The rollover must be completed within 60 days after
you receive the distribution from your existing IRA. You may only make such a
tax-free rollover once every 12 months (beginning on the date you receive the
IRA distribution that is rolled over, not on the date you make the rollover
contribution). You may not roll over any minimum distribution amounts you are
required to receive from your IRA upon attaining age 70 1/2 (see Article VII
below).
NOTE: A tax-free transfer of funds from one trustee or custodian to another, as
described in Article IV, Section A or B above, is not a rollover and is not
affected by the 12-month waiting period applicable to IRA rollovers.
C. ROLLOVER FROM EMPLOYER RETIREMENT PLAN TO HERITAGE IRA.
Most any distribution from your employer's qualified retirement plan (such as a
pension, profit-sharing or stock bonus plan) or section 403(b) annuity or
custodial account program may be rolled over to an IRA without regard to whether
it is a total or a partial distribution, except for certain distributions which
are not eligible rollover distributions. The distributions which are not
eligible for rollover treatment include, in general, the following: one of a
series of substantially equal periodic payments made at least annually for your
life or joint lives (or life expectancy/expectancies) of you and your
beneficiary, or for a specified period of ten years or more; minimum required
distributions; distributions which are not includible in your gross income;
returns of elective deferrals or other corrective distributions; certain loans;
and certain payments to non-spouse beneficiaries and alternate payees.
DIRECT ROLLOVER OF ELIGIBLE DISTRIBUTION. If you are entitled to receive a
distribution from your employer's qualified retirement plan or section 403(b)
program, you may wish to have your eligible rollover distribution paid directly
to a Heritage IRA in order to avoid mandatory 20% income tax withholding on the
distribution. If you have a direct rollover of your eligible distribution, no
income tax will be withheld and your distribution will not be taxed until it is
distributed or withdrawn from your IRA.
RECEIPT OF ELIGIBLE ROLLOVER DISTRIBUTION. If your eligible rollover
distribution is paid to you, rather than directly to your IRA, the distribution
will be subject to mandatory 20% income tax withholding (which will be sent to
the Internal Revenue Service and credited against your Federal income tax
liability). Accordingly, you will receive only 80% of the payment, all or a
portion of which may be rolled over into a Heritage IRA within 60 days after you
receive the payment. The amount which is properly rolled over will not be taxed
until it is distributed or withdrawn from your IRA. In order to avoid being
taxed on the amount that is withheld, you will need to find other money to
replace the 20% that was withheld and contribute it to your IRA within the
60-day period. If you receive a payment before you reach age 59 1/2 and you do
not roll it over, then, in addition to the regular income tax, you may have to
pay an additional tax equal to 10% of the taxable portion of the payment, as
described further in Article VII, Section A below.
An eligible rollover distribution that is not rolled over may be eligible for
special tax treatment. If your eligible rollover distribution is not rolled over
and it qualifies as a "lump sum distribution," it may be eligible for special
tax treatment. A lump sum distribution generally is a payment, within one year,
of your entire balance under your employer's qualified retirement plan or
section 403(b) program that is payable to you because you have reached age
59 1/2 or have separated from service with your employer (or, in the case of a
self-employed individual, because you have reached age 59 1/2 or have become
disabled). For a payment to qualify as a lump sum distribution, you must have
been a participant in the plan for at least 5 years. If you receive a lump sum
distribution after you are age 59 1/2, you may be able to make a one-time
election to figure the tax on the payment by using 5-year averaging. If you
receive a lump sum distribution and you were born before January 1, 1936, you
may make a one-time election to figure the tax on the payment by using 10-year
averaging (using 1986 tax rates) instead of 5-year averaging (using current tax
rates). In addition, if you receive a lump sum distribution and you were born
before January 1, 1936, you may elect to have the part of your payment that is
attributable to your pre-1974 participation in your employer's qualified
retirement plan or section 403(b) program (if any) taxed as long-term capital
gain at a rate of 20%.
You can generally elect this special tax treatment for lump sum distributions
only once in your lifetime, and the election applies to all lump sum
distributions that you receive in that same year. If you have previously rolled
over a payment from your employer's qualified retirement plan or section 403(b)
program (or certain other similar plans of the employer), you cannot use this
special tax treatment for later payments from your employer's qualified
retirement plan or section 403(b) program. If you roll over your payment to an
IRA, you will not be able to use this special tax treatment for later payments
from the IRA. Also, if you roll over only a portion of your payment to an IRA,
this special tax treatment is not available for the rest of the payment.
DISTRIBUTIONS OF PROPERTY. If you receive an eligible rollover distribution from
an employer retirement plan that consists of property other than cash, you may
sell the property received and roll over the cash proceeds to your IRA within 60
days of the date of your receipt of the distribution, in which case no gain or
loss will be recognized on the sale if the entire proceeds are rolled over.
ROLLOVER BY SURVIVING SPOUSE. A surviving spouse of a deceased employee may
choose to have an eligible rollover distribution paid directly to an IRA or paid
to the surviving spouse, in which latter case the distribution may then be
rolled over into an IRA within 60 days after received.
ROLLOVER PURSUANT TO DIVORCE OR SIMILAR PROCEEDINGS. If you are entitled to
receive an eligible rollover distribution from an employer's qualified
retirement plan pursuant to a "qualified domestic relations order" (within the
meaning of section 414(p) of the Internal Revenue Code) resulting from divorce
or similar proceedings, you may choose to have the distribution paid directly to
your IRA or paid to you, in which latter case the distribution may then be
rolled over into an IRA within 60 days after received.
IMPORTANT: Because of the strict limitations and complex rules that apply to IRA
rollovers to or from employer retirement plans, you should seek competent tax
advice in this area.
6
<PAGE> 8
D. ROLLOVERS FROM A HERITAGE IRA.
The rules for rollover of assets withdrawn from your Heritage IRA to a different
IRA are the same as the rules for rollover of assets from an existing IRA to a
Heritage IRA, described above. Also, a withdrawal of the full amount of a
Heritage IRA that was maintained solely to hold and invest the proceeds of a
prior rollover of a total distribution from an employer maintained retirement
plan may be eligible for rollover to a second employer retirement plan by which
you subsequently become covered.
VI. SIMPLIFIED EMPLOYEE PENSION
A Simplified Employee Pension or "SEP" is a special IRA plan which permits
employers to make deductible contributions to the separate IRAs established for
their employees. If your employer has adopted a SEP, your employer may make
deductible SEP contributions directly to your Heritage IRA each year in an
amount up to the lesser of $30,000 or 15% of your current-year compensation.
(The $30,000 figure may be reduced for certain highly compensated employees in
certain circumstances.)
EXCLUSION FROM GROSS INCOME. The amount of SEP contributions made by your
employer to your IRA will be excludible from your gross income provided they do
not exceed the $30,000/15% of compensation limit. (Previously, SEP contributions
were includible in gross income but employees were permitted to deduct these
contributions on their Federal income tax return.) In addition, you may make
your own annual contributions to your IRA each year up to the lesser of $2,000
or 100% of current-year compensation. Thus, if you are covered by a SEP, it is
possible to have total contributions of up to $32,000 made to your IRA for any
taxable year (or $34,000 if a Spousal IRA is also established). Of course, your
own contributions may not be tax deductible, or may be only partially
deductible.
DETERMINATION OF COMPENSATION. The 15% of compensation limit that applies to SEP
contributions includes only the amount of your current-year compensation from
the employer making the SEP contribution, (but not the amount of the SEP
contribution). In the case of a self-employed individual, the term
"compensation" includes the individual's earned income from self-employment,
reduced by the amount of deductible retirement plan contributions.
CONTRIBUTIONS AFTER AGE 70 1/2.
SEP contributions may be made to your IRA by your employer even after you have
attained age 70 1/2.
VII. DISTRIBUTIONS
A. TAX TREATMENT
In general, distributions from your IRA are includible in your gross income in
the year of receipt and are taxed as ordinary income. However, as indicated
above, no tax is imposed on a distribution that is properly rolled over to
another IRA (or in some cases to an employer retirement plan), no tax is imposed
on the part of any distribution that represents nondeductible IRA contributions
made by you, and no tax is imposed on certain returns of excess IRA
contributions.
NONTAXABLE AMOUNT OF DISTRIBUTION FROM IRA THAT CONTAINS NONDEDUCTIBLE IRA
CONTRIBUTIONS. The nontaxable portion of a distribution from an IRA that
contains nondeductible contributions is the percentage of the distribution that
is the same as the percentage of the total value of your IRAs (including
rollover IRAs and SEPs) represented by your aggregate nondeductible
contributions. For this purpose all distributions in a given year are treated as
one distribution.
<TABLE>
<S> <C> <C> <C>
1) Amount distributed from
IRAs during the year. $
------
2) Total nondeductible
contributions for all years to
IRAs minus any tax-free
withdrawals in prior years. $
------
3) Fair market value of all IRAs
at end of year plus amount on
line 1. $
------
4) Divide line 2 by line 3. (Enter
decimal figure.)
------
5) Multiply line 1 by line 4. This
is the amount that may be
excluded from gross income. $
------
6) Subtract line 5 from line 1.
This is the amount that must be
included in gross income. $
------
</TABLE>
EXAMPLE: An individual withdraws a total of $3,000 from several IRAs during a
year. At the end of the year, the aggregate balance of his IRA is $21,000 and
the aggregate amount of his designated nondeductible contributions not
previously withdrawn is $4,000. $500 of the withdrawal is non-taxable.
<TABLE>
<S> <C> <C> <C>
1) Amounts distributed from IRAs during
the year. $ 3,000
2) Total nondeductible contributions for
all years to IRAs minus any tax-free
withdrawals in prior year. $ 4,000
3) Fair market value of all IRAs at end
of year plus amount on line 1 ($21,000
+ $3,000). $ 24,000
4) Divide line 2 by line 3. (Enter
decimal figure.) .167
5) Multiply line 1 by line 4. This is the
amount that may be excluded from gross
income. $ 500
6) Subtract line 5 from line 1. This is
the amount that must be included in
gross income. $ 2,500
</TABLE>
10% ADDITIONAL TAX ON EARLY DISTRIBUTIONS. Your IRA is intended to provide you
with retirement income. For this reason, the law imposes a special additional
tax on a distribution from your IRA before you reach age 59 1/2 for any reason
other than those indicated below. This special tax is equal to 10% of the amount
of the distribution that is includible in your gross income, and must be paid in
addition to the ordinary income tax on the distribution. The additional tax is
not imposed on distributions paid because you separate from service with your
employer during or after the year you reach age 55, paid because you retire due
to disability or when used to pay certain medical expenses. The additional tax
will also not apply to any distribution that is part of a series of
substantially equal periodic payments made (not less frequently than annually)
for your life or life expectancy, or for the joint lives or life expectancies of
you and your beneficiary (see Section B below). The additional tax may apply if
you are deemed to receive a distribution from your IRA before age 59 1/2 as a
result of borrowing from your IRA or pledging your IRA as security for a loan,
as described in Article IX.
15% EXCISE TAX ON EXCESS DISTRIBUTIONS FROM ALL RETIREMENT PLANS. If you receive
aggregate distributions from your IRA and from any qualified retirement plans
and tax-sheltered annuities in excess of the current maximum for the calendar
year, you may be subject to a 15% excise tax on the excess distributions
(although certain exceptions and transitional rules may apply). You should
consult with your tax advisor if it is likely you will be receiving aggregate
distributions from your IRA and your other retirement plans in excess of the
allowable amount, the base amount upon which the indexed figure is determined,
for any calendar year.
7
<PAGE> 9
B. METHOD OF DISTRIBUTION
Under the Heritage IRA, you may elect to have all or a portion of your account
distributed in one or a combination of the following ways:
(1) a lump-sum payment, or
(2) monthly, quarterly or annual installment payments over a period not
extending beyond your life expectancy or the joint and last survivor life
expectancy of you and your designated beneficiary.
The method of distribution you select must comply with the minimum distribution
requirements described in Section C below. You may change your selected method
of distribution at any time by notifying the Custodian in writing.
DISTRIBUTIONS IN CASH OR IN KIND. Distributions from the Heritage IRA will be
made in cash.
C. MINIMUM DISTRIBUTION REQUIREMENTS
COMMENCEMENT OF DISTRIBUTION. You must start receiving distributions from your
IRA no later than April 1 following the calendar year in which you attain age
70 1/2. You may receive your distribution either in a lump sum or in a series of
equal or substantially equal payments for a specified period that may not be
longer than your life expectancy or the life expectancy of you and your
designated beneficiary. Even if distributions begin to be made on a periodic
basis, you may at any time elect to receive the balance in your account as a
lump sum. If you do not elect a method of distribution by April 1 of the year
following the year you reach age 70 1/2, distribution will be made to you in a
single lump sum payment. In subsequent years, the annual distribution must be
made from your account by December 31 of that year.
MINIMUM AMOUNT REQUIRED TO BE DISTRIBUTED. The minimum amount required to be
distributed to you each year, beginning no later than the date your distribution
is required to commence, is determined by dividing the entire value of your
account as of the beginning of the year by your life expectancy, or the joint
and last survivor life expectancy of you and your designated beneficiary.
However, if there is a significant difference between your life expectancy and
the life expectancy of your beneficiary the minimum amount required to be
distributed to you each year may have to be increased, under Internal Revenue
Service regulations, to ensure that you, rather than your beneficiary, receive a
significant portion of your total benefit.
RECALCULATION OF LIFE EXPECTANCY. Your life expectancy, or the joint and last
survivor expectancy of you and your designated beneficiary, will be determined
according to Internal Revenue Service regulations. Your life expectancy and the
life expectancy of your spouse (if your spouse is your designated beneficiary)
will be recalculated annually unless you elect not to have those life
expectancies recalculated. You may not recalculate the life expectancy of any
beneficiary other than your spouse.
PENALTY TAX ON INSUFFICIENT DISTRIBUTIONS. An excise tax will be imposed if the
amount actually distributed to you each year beginning after you attain age
70 1/2 is less than the minimum amount required to be distributed. The tax is
50% of the difference between the amount actually distributed and the minimum
amount required to be distributed. This penalty tax may be waived in certain
cases provided you can establish to the satisfaction of the Internal Revenue
Service that the deficit in the amount distributed was due to reasonable error
and you are taking steps to remedy the problem.
D. DISTRIBUTION UPON DEATH
If you die prior to the complete distribution of your account, the remaining
balance in your Heritage IRA will be distributed to your designated beneficiary
in a lump-sum payment or a series of payments, subject to the requirements
stated below. In general, distributions your beneficiary receives from your IRA
that are includible in gross income will be taxed as ordinary income (with the
exception that, if your designated beneficiary is your surviving spouse, your
spouse may make a tax-free rollover, within 60 days of receipt, to another
individual retirement arrangement).
IF DISTRIBUTION HAD ALREADY COMMENCED. If distribution of your account had
already commenced prior to your death, the balance of your Heritage IRA must be
distributed to your designated beneficiary at least as rapidly as under the
method of distribution in effect prior to your death.
IF DISTRIBUTION HAD NOT COMMENCED. If distribution of your account had not
commenced prior to your death, the general rule is that the balance of your
Heritage IRA must be distributed to your designated beneficiary within five
years after your death. However, the balance of your account may be distributed
in substantially equal monthly, quarterly, or annual installment payments over
your beneficiary's life expectancy if distribution commences (i) within one year
after the date of your death or (ii) if your beneficiary is your surviving
spouse, within the later of one year after the date of your death and the date
you would have attained age 70 1/2. Your beneficiary must elect the form in
which he or she will receive the distribution from your IRA by December 31 of
the year following the year of your death. If no election is made, distribution
will be made within five years of your death to any beneficiary other than your
spouse, and distribution will be made over the life or life expectancy of your
beneficiary if your beneficiary is your spouse.
DESIGNATION OF BENEFICIARY. Under the Heritage IRA, you may designate one or
more persons (who may be designated contingently or successively) as your
beneficiary. You will initially designate your beneficiary by completing the
Application and Agreement for the Heritage IRA. You may subsequently change or
revoke your beneficiary designation at any time by notifying the Custodian or
Heritage Asset Management, Inc. in writing. If you fail to designate a
beneficiary or if your designated beneficiary (or each of your designated
beneficiaries) predeceases you, your beneficiary will be your estate.
E. FEDERAL ESTATE AND GIFT TAXATION
GIFT TAX CONSEQUENCES. Your designation of a beneficiary (or beneficiaries) to
receive distributions from your IRA upon your death will not be considered a
transfer of property for Federal gift tax purposes.
ESTATE TAX CONSEQUENCES. Generally amounts remaining in your IRA after your
death will be includible in your gross estate for Federal estate tax purposes.
In many cases, the impact of the inclusion of your IRA will be offset by the
unlimited Federal estate tax marital deduction that applies where your spouse is
your designated beneficiary. In other cases, the impact may be offset by the
increased unified credit against Federal estate and gift taxes.
F. FEDERAL INCOME TAX WITHHOLDING
The Internal Revenue Code requires the withholding of Federal income tax on
payments from an IRA unless the recipient affirmatively elects not to have
withholding apply. The amount of Federal income tax required to be withheld on
any payment under the Heritage IRA will generally equal 10% of the amount
redeemed from the account. Upon a request for a distribution under the Heritage
IRA, the Custodian will notify the recipient of his or her right to elect not to
have withholding apply (or to revoke any prior election), and will supply the
recipient with an appropriate election form.
VIII. INCOME TAX RETURNS; ETC.
If you are eligible to make deductible contributions to your IRA, you may claim
your deduction for IRA contributions on your Federal income tax return (Form
1040 or Form 1040A) even if you do not itemize deductions. In May of each year,
the Custodian will send you a Form 5498 (Individual Retirement Arrangement
Information) showing your preceding-year IRA contributions. If you make
designated
8
<PAGE> 10
nondeductible contributions to your IRA for the taxable year, or if you receive
any distributions from your IRA during the year and you have at any time made
nondeductible contributions to any of your IRAs, you will be required to
complete Form 8606 as part of your Federal income tax return for that year.
PENALTY TAXES. If one or more of the following situations occur, you will be
required to file Form 5329 (Return for Individual Retirement Account Taxes) with
the Internal Revenue Service:
(1) payment of a 6% excise tax because of an excess contribution;
(2) payment of a 10% additional tax because of an early distribution before
age 59 1/2; or
(3) payment of a 50% excise tax because of an insufficient distribution from
your IRA after age 70 1/2.
If Form 5329 must be filed, it should be attached to your Federal income tax
return, or should be filed separately if you are not required to file a Federal
income tax return.
DISTRIBUTIONS. When you receive taxable distributions from your Heritage IRA,
the Custodian will send you form 1099-R showing your total distributions.
Distributions from your IRA to you or your beneficiary are subject to Federal
income tax withholding unless the distributee elects otherwise. Further
information about your IRA can be obtained from any district office of the
Internal Revenue Service.
IX. PROHIBITED TRANSACTIONS
Generally, a prohibited transaction is any improper use of your IRA. Examples of
prohibited transactions include borrowing money from your account or selling
property to the account.
EFFECT ON IRA. Generally, if you engage in a prohibited transaction, your IRA
will lose its tax-exempt status and you will be required to include the entire
value of the account in your gross income. If your account is disqualified
before you reach 59 1/2, you may also be required to pay the 10% additional tax
on early distributions referred to in Article VII.
PLEDGING YOUR IRA AS SECURITY. Pledging your IRA as security for a loan will
cause the portion pledged to be treated as a distribution to you, includible in
gross income and subject to the 10% additional tax on early distributions if you
are under age 59 1/2.
INVESTMENT IN COLLECTIBLES. If your IRA is invested in collectibles, the amount
invested will be considered a distribution to you in the year of investment. For
this reason, the Heritage IRA specifically precludes investments in collectibles
which include art works, rugs, antiques, metals, gems, stamps, coins (but not
gold or silver coins issued by the United States or by an individual state
thereof), alcoholic beverages and certain other tangible personal property.
X. OTHER INFORMATION
A. THE CUSTODIAN
The custodian of your Heritage IRA is State Street Bank and Trust Company, a
trust company incorporated under Massachusetts banking laws.
B. AMENDMENTS
The Custodian is specifically authorized to make any amendments to the Heritage
IRA necessary to comply with the applicable provisions of the Internal Revenue
Code. The Custodian will inform you of any such amendments.
C. HERITAGE IRA INVESTMENTS
Your Heritage IRA may be invested in shares of the mutual funds advised by
Heritage Asset Management, Inc. (the "Heritage Funds").
REINVESTMENT OF EARNINGS. All dividends and capital gains received on shares of
a Heritage Fund held in your Heritage IRA which are permitted to be paid in
additional shares of the Heritage Fund shall be automatically paid in additional
shares of the Heritage Fund. Otherwise, any distribution of earnings received
with respect to assets held in your account shall be reinvested solely at your
direction in shares of another Heritage Fund.
GROWTH IN VALUE. The growth in value of your Heritage IRA will depend on the
investment decisions made by you and is neither guaranteed nor projected.
D. HERITAGE IRA MINIMUMS
MINIMUM CONTRIBUTIONS. Under the Heritage IRA, the minimum initial contribution
is generally $1,000 for each Heritage Fund account established for your IRA.
E. CUSTODIAL FEE AND OTHER EXPENSES
There is an annual custodial fee of $10 for each Heritage IRA that is open at
any time during the calendar year. You may pay this fee annually by separate
check, provided that payment for any calendar year must be received by the
Custodian no later than December 31 of that year (if received later, the payment
will be applied to the next year's custodial fee). If you do not choose to pay
your annual custodial fee by separate check, the Custodian will redeem
sufficient shares from your account of each year to pay the fee for the
preceding calendar year.
HERITAGE FUND INFORMATION. For complete information about the advisory fees and
other expenses, and the method of calculating the price per share for each
Heritage Fund you may select for your Heritage IRA, you should read the Fund's
prospectus.
F. CUSTODIAL ACCOUNT AGREEMENT--FORM 5305-A
This IRA makes use of Form 5305-A, which has been prepared by the Internal
Revenue Service as a model custodial account agreement that satisfies the
requirements of section 408(a) of the Internal Revenue Code. The provisions of
Article VIII of the Custodial Agreement were prepared by Heritage and the
Custodian, State Street Bank and Trust Company, as an addition to the Form, as
contemplated by the Form. However, neither the provisions of Article VIII nor
other aspects of this IRA, except the model custodial account agreement, have
been approved by the Internal Revenue Service.
9
<PAGE> 11
HERITAGE INDIVIDUAL
RETIREMENT CUSTODIAL
ACCOUNT AGREEMENT
(UNDER SECTION 408(A) OF THE INTERNAL REVENUE CODE)
FORM 5305-A* (Revised October 1992)
- ------------------------------------------------------------
Department of the Treasury
Internal Revenue Service
The Depositor and the Custodian make the following agreement:
ARTICLE I
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c) (but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in section 408(k). Rollover contributions
before January 1, 1993, include rollovers described in section 402(a)(5),
402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3), or an employer
contribution to a simplified employee pension plan as described in section
408(k).
ARTICLE II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning of
section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section 408(m)(3)
which provides an exception for certain gold and silver coins and coins issued
under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be made
in accordance with the following requirements and shall otherwise comply with
section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Depositor under paragraph 3, or to the surviving spouse under paragraph 4,
other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the Depositor
and the surviving spouse and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or begin to
be, distributed by the Depositor's required beginning date. (April 1 following
the calendar year end in which the Depositor reaches age 70 1/2). By that date,
the Depositor may elect, in a manner acceptable to the Custodian, to have the
balance in the custodial account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period that
may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period that
may not be longer than the joint life and last survivor expectancy of the
Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to him
or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her interest has
begun, distribution must continue to be made in accordance with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest has begun,
the entire remaining interest will, at the election of the Depositor or, if the
Depositor has not so elected, at the election of the beneficiary or
beneficiaries, either:
(i) Be distributed by the December 31 of the year containing the fifth
anniversary of the Depositor's death; or
(ii) Be distributed in equal or substantially equal payments over the life or
life expectancy of the designated beneficiary or beneficiaries starting by
December 31 of the year following the year of the Depositor's death. If,
however, the beneficiary is the Depositor's surviving spouse, then this
distribution is not required to begin before December 31 of the year in
which the Depositor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the requirements
of section 408(b)(3) and its related regulations has irrevocably commenced,
distributions are treated as having begun on the Depositor's required beginning
date, even though payments may actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been distributed
and if the beneficiary is other than the surviving spouse, no additional cash
contributions or rollover contributions may be accepted in the account.
5. In the case of a distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Depositor's entire interest in the Custodial account as of the close
of business on December 31 of the preceding year by the life expectancy of the
Depositor (or the joint life and last survivor expectancy of the Depositor and
the Depositor's designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under paragraph 3,
determine the initial life expectancy (or joint life and last survivor
expectancy) using the attained ages of the Depositor and designated beneficiary
as of their birthdays in the year the Depositor reaches age 70 1/2. In the case
of a distribution in accordance with
* Introductory information and signature lines are omitted herein because they
are included in the Application and Agreement governing the Account.
A complete copy of Form 5305-A is available upon request of the Internal
Revenue Service.
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<PAGE> 12
paragraph 4(b)(ii), determine life expectancy using the attained age of the
designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
ARTICLE V
1. The Depositor agrees to provide the Custodian with information necessary for
the Custodian to prepare any reports required under section 408(i) and
Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and the related
regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear below.
ARTICLE VIII
The following provisions constitute Article VIII of the Individual Retirement
Custodial Account Agreement for use with the Heritage Individual Retirement
Account program. Article VIII deals with the Depositor's individual retirement
custodial account and the appointment, obligations, and rights of State Street
Bank and Trust Company as custodian of that account. Although Article VIII is a
part of the agreement contained in Internal Revenue Service Form 5305-A, Article
VIII was written by representatives of Heritage Asset Management, Inc. and State
Street Bank and Trust Company.
1. DEFINITIONS.
For purposes of this Article VIII, the following terms, when capitalized, shall
have the following meanings:
(a) "Account" shall mean the individual retirement custodial account established
by the Depositor by execution of this Agreement.
(b) "Agreement" means the Individual Retirement Custodial Account agreement (on
Internal Revenue Service Form 5305-A) of which this Article VIII forms a part,
for use in establishing an individual retirement account in the Heritage
Individual Retirement Account program.
(c) "Beneficiary" shall mean the person or persons designated in accordance with
section 7 of this Article VIII to receive any amount remaining in the Account
upon the death of the Depositor.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Custodian" shall mean State Street Bank and Trust Company, a trust company
incorporated under the laws of Massachusetts.
(f) "Excess Contribution" shall mean (i) the excess (if any) of the Regular
Contributions made to the Account for a taxable year over the amount allowable
as a deduction for such contribution under section 219 of the Code for such
year, plus (ii) any other amount permitted to be distributed from the Account
without inclusion in gross income by virtue of the provisions of sections
408(d)(4) or 408(d)(5) of the Code.
(g) "Regular Contribution" shall mean a contribution by the Depositor to the
Account, under the provisions of Article I of the Agreement, other than a
Rollover Contribution or a SEP Contribution.
(h) "Rollover Contribution" shall mean a contribution to the Account of the
Depositor (i) of a distribution of all or any portion of the balance to the
credit of the Depositor in a qualified plan, as described in sections 402(c) or
403(a)(4) of the Code, or (ii) that is qualified as a rollover contribution from
an annuity contract, another individual retirement account, an individual
retirement annuity, a qualified bond purchase plan, or a U.S. retirement bond,
as described, respectively, in sections 403(b)(8) and 408(d)(3) of the Code, or
former sections 405(d)(3) or 409(b)(3)(C) of the Internal Revenue Code of 1954,
as amended.
(i) "SEP Contribution" shall mean a contribution to the Account on behalf of the
Depositor by his or her employer under a simplified employee pension arrangement
described in section 408(k) of the Code.
(j) "Heritage" shall mean Heritage Asset Management, Inc., a Florida
corporation, or any successor thereto.
(k) "Heritage Funds" shall mean one or more mutual funds for which Heritage
serves as an investment advisor and for which Raymond James and Associates,
Inc., an affiliate of Heritage, serves as principal underwriter, that are
available for investment by individual retirement accounts in the Heritage
Individual Retirement Account program.
2. APPOINTMENT OF CUSTODIAN.
The Depositor, by execution of this Agreement, has appointed State Street Bank
and Trust Company to serve, under the terms of the Agreement, as custodian of
the Account.
3. CONTRIBUTIONS.
(a) General. All contributions to the Account by or on behalf of the Depositor
shall be made in cash.
(b) Regular Contributions. The Depositor shall designate, in such manner as the
Custodian may prescribe, the year for which any Regular Contribution is made.
The Depositor shall have, and by execution of this Agreement accepts, full and
sole responsibility for assuring that each Regular Contribution made to the
Account complies with the rules for, and does not exceed the limitations on,
permissible contributions to individual retirement accounts under applicable
provisions of the Code.
(c) Rollover Contributions. A Rollover Contribution may be made by the Depositor
to the Account at any time and must be designated as such. Prior to the making
of a contribution that is designated as a Rollover Contribution, the Depositor
shall complete such forms as the Custodian may require describing the source of
such contribution and containing such other information as the Custodian shall
reasonably request. By making a contribution that is designated as a Rollover
Contribution, the Depositor more specifically warrants that:
(i) the entire amount of such contribution was received by the Depositor within
sixty days prior to its transfer to the Custodian (if such contribution was
not paid directly to the Custodian by the administrator of the employer plan
or the payor of a section 403(b) program);
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(ii) the entire amount of such contribution satisfies the definition of
Rollover Contribution in section 1(h) of this Agreement and all of the
requirements for rollover contributions contained in applicable
provisions of the Code;
(iii) any such contribution of a distribution from an employee's trust or
employee annuity contains only the amount of such distribution in excess
of amounts contributed to the distribution trust or annuity by the
Depositor (other than accumulated deductible employee contributions,
within the meaning of section 72(o)(5) of the Code, that may be the
subject of a rollover contribution); and
(iv) if the contribution involves a distribution from an individual retirement
account or annuity, the Depositor did not receive, within 12 months prior
to the date of receipt of such distribution, another distribution of the
same funds from such an account or annuity, or of other funds from the
distributor account or annuity, that the Depositor transferred to an
individual retirement account as a "rollover contribution."
The Depositor shall have, and by execution of this Agreement accepts, full and
sole responsibility for determining whether a contribution to the Account
designated as a Rollover Contribution qualifies as such under this Agreement and
applicable provisions of the Code.
(d) SEP Contributions. Any SEP Contribution must be designated as such, and must
be accompanied by a designation of the year for which such SEP Contribution is
made. Prior to the making of a contribution that is designated as a SEP
Contribution, the Depositor shall complete such forms as the Custodian may
require to certify that the Depositor is covered under a simplified employee
pension, as described in section 408(k) of the Code, established by his or her
employer and containing such other information as the Custodian shall reasonably
request. The Depositor shall have, and by execution of this Agreement accepts,
full and sole responsibility for determining whether a contribution to the
Account designated as a SEP Contribution qualifies as such under this Agreement
and applicable provisions of the Code.
(e) Excess Contributions. If the Depositor notifies the Custodian in writing
that all or any portion of the amount contributed to the account constitutes an
Excess Contribution, the Custodian shall, if so directed by the Depositor,
distribute an amount equal to all or part of such Excess Contribution to the
Depositor in accordance with the provisions of section 5(a) of this Article
VIII. If the Depositor's notice states that the distribution is intended to
comply with section 408(d)(4) of the Code (concerning a return of Excess
Contributions and net income attributable thereto prior to the due date for the
Depositor's Federal income tax return for the taxable year for which the
contribution is made), the Custodian shall include in the amount of such
distribution an amount equal to the net income attributable to the Excess
Contribution (or portion hereof) so distributed. The Depositor shall have the
sole responsibility for determining whether any return of an Excess Contribution
under this section 3(e) satisfies the requirements of sections 408(d)(4) or
408(d)(5) of the Code.
(f) Responsibility of Custodian and Heritage. Neither the Custodian nor Heritage
shall have any responsibility for determining (i) whether or the extent to which
any contribution by or on behalf of the Depositor to the Account is deductible
for Federal income tax purposes, (ii) whether any Regular Contribution complies
with the rules for, and does not exceed the limitations on, permissible
contributions to Individual Retirement Accounts, (iii) whether any contribution
to the Account qualifies as a Rollover Contribution or SEP Contribution, or (iv)
whether any return of an Excess Contribution satisfies the requirements of
Sections 408(d)(4) or 408(d)(5) of the Code.
4. INVESTMENT OF CONTRIBUTIONS.
(a) Heritage Funds. The Depositor directs the Custodian to invest all
contributions to the Account in shares of one or more Heritage Funds in
accordance with such specific designation as may be made by the Depositor on
such forms as Heritage or the Custodian may provide for that purpose. By
directing that assets of the Account be invested in a particular Heritage Fund,
the Depositor will be deemed to have acknowledged receipt of the current
prospectus for such Fund.
(b) Reinvestment. All dividend and capital gain distributions received with
respect to shares of a Heritage Fund by the Account shall, unless payable to the
Account in additional shares of such Fund, be reinvested in such shares. If no
such shares are available for reinvestment, the Custodian shall so inform the
Depositor and such distributions shall be invested in shares of a money market
fund pending receipt of instructions from the Depositor. If any distribution
from a Heritage Fund is payable in additional shares of such Fund at the
election of a shareholder, the Custodian shall elect to receive such
distribution in the form of additional shares of such Fund.
(c) Change in Designation of Fund. The Depositor may change his or her
designation of the Heritage Fund or Heritage Funds in which the Account is to be
invested by following such procedures as the Custodian shall specify from time
to time.
(d) Registration and Voting of Fund Shares. All Heritage Fund shares held in the
Account shall be registered in the name of the Custodian or of its nominee. The
Custodian shall deliver, or cause to be delivered, to the Depositor all notices,
prospectuses, financial statements, proxies, and proxy soliciting materials
relating to Heritage Fund shares held in the Account. The Custodian shall not
vote any such Heritage Fund shares except in accordance with the written
instructions of the Depositor.
(e) Responsibility of Custodian and Heritage. In making any investment or
reinvestment of assets in the Account, the Custodian shall be fully entitled to
rely on the directions furnished to it by the Depositor under the terms of this
Agreement and shall have no obligation to make any inquiry or investigation with
respect thereto. The Depositor hereby acknowledges that neither the Custodian
nor Heritage undertakes to render any investment advice whatsoever to the
Depositor in connection with this Agreement.
5. DISTRIBUTIONS.
(a) Order for Distributions. Distribution of the assets of the Account shall be
made only on the written order of the Depositor (or of the Depositor's
Beneficiary or authorized representative, if the Depositor is deceased), or as
otherwise required by the terms of this Agreement. Such order shall (i) be made
by completion of such form or forms as the Custodian shall specify, (ii) shall
specify the occasion for the distribution and (unless the distribution is a
distribution of Excess Contributions pursuant to section 3(e) of this Article
VIII) the elected manner of distribution (as described in sections 3(a), 3(d),
or 3(e) or, in the case of a Beneficiary, section 4(b)(i-ii), of Article IV of
this Agreement), and (iii) shall contain any declaration required by Article V
of this Agreement. Any such order once made may be altered, once distributions
begin, only to the extent permitted by Article IV of this Agreement.
(b) Rules for Installment Distributions.
(i) Installments Must be Permitted Under Fund Rules. A distribution may be made
in installments if and to the extent that the rules of the Heritage Fund or
Heritage Funds whose shares are held in the Account permit periodic
liquidation to yield the cash to pay each installment.
(ii) Form. An installment distribution must be one that is permitted to be made
from an individual retirement account by Article IV of this Agreement and
by applicable provisions of section 408(a)(6) of the Code and the
regulations promulgated thereunder or with respect thereto.
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(iii) Life Expectancies. The life expectancies referred to in this Agreement
shall be determined pursuant to, and by using such actuarial tables as may
be adopted to comply with, section 408(a)(6) of the Code and the
regulations promulgated thereunder or with respect thereto. Under proposed
Treasury Regulation section 1.401(a)(9)-1, Q & A E3 and E4, those tables
are Tables V and VI found in Treasury Regulation section 1.72-9.
(iv) Incidental Benefit Requirement. An installment distribution under this
Agreement must satisfy any applicable incidental benefit requirement
imposed by section 408(a)(6) of the Code and the regulations promulgated
thereunder or with respect thereto. The tables necessary for measuring
compliance with the incidental benefit requirement, are found in Q & A 4
through 6 of proposed Treasury Regulation section 1.401(a)(9)-2.
(c) Treatment of Payments to Children. For purposes of Article IV of this
Agreement, any amounts paid from the Account to the child of the Depositor shall
be treated as if such amounts had been paid to the surviving spouse of the
Depositor if such amounts shall become payable to such surviving spouse when
such child reaches the age of majority.
(d) Responsibility of Depositor and Custodian. The Custodian shall have no
responsibility to make any distribution until an order that meets the
requirements of this section is received. It is the sole responsibility of the
Depositor or, in the case of distributions following the death of the Depositor,
of any Beneficiary entitled to receive such distributions, (i) to notify the
Custodian of such individual's age and the timing and manner of such
distributions in sufficient time to permit the commencement of distributions
from the Account, (A) in the case of the Depositor, prior to the April 1 next
following the year in which the Depositor attains age 70 1/2, or (B) in the case
of such Beneficiary, at the time required by section 4 of Article IV of this
Agreement, and (ii) to order a distribution in a sufficient amount to satisfy
the applicable provisions of Article IV of this Agreement and the minimum
distribution rules contained in such Article IV and in section 408(a)(6) of the
Code and any regulations promulgated thereunder or with respect thereto. The
Custodian shall have no liability for failing to commence distributions in any
year in the absence of receipt of such notice of the Depositor's age and a fully
completed order for such distributions that is in full compliance with the
requirements of Articles IV, V, and VIII of this Agreement, provided that (i) if
notice of the age of the Depositor and an order for commencement of
distributions is received without any indication of the manner of such
distribution, such distribution shall be made in a single lump sum, and (ii) if
the Custodian has received notice of the death of the Depositor, prior to the
commencement of distributions from the Account, and no election of a manner of
distribution is made by the applicable Beneficiary, the Custodian shall make
distributions in accordance with the provisions of section 4(b)(ii) of Article
IV of this Agreement.
(e) Taxes on Distributions and Excess Contributions. The Custodian shall have no
responsibility for the income or other tax consequences, to the Depositor or any
Beneficiary, of any contribution to or distribution from the Account, provided
that the Custodian shall withhold and pay over to the Internal Revenue Service
or any state tax authority any amount required to be so withheld from any
distribution by the Code or other applicable law. In the absence of
instructions, the Custodian shall have no obligation to withhold any taxes from
distributions made from the Account, except to the extent the Custodian is
required to withhold such taxes by applicable law.
6. TRANSFERS.
(a) Transfers to Account. Assets held on behalf of the Depositor in another
individual retirement account may be transferred by the trustee or custodian
thereof directly to the Custodian, in a form or manner acceptable to the
Custodian, to be held in the Account on behalf of the Depositor under this
Agreement. In accepting any such direct transfer of assets, the Custodian
assumes no responsibility for the tax consequences of the transfer, and
responsibility for any such tax consequences rests solely with the Depositor.
(b) Transfers from Account. If so directed by the Depositor in a manner
acceptable to the Custodian, the Custodian shall, subject to the provisions of
section 8 of this Article VIII, transfer assets held in the Account directly to
the trustee or custodian of another individual retirement account established on
behalf of the Depositor. In making any such direct transfer of assets, the
Custodian assumes no responsibility for the tax consequences of the transfer,
and responsibility for any such tax consequences rests solely with the
Depositor.
(c) Transfers Incident to Divorce. All or any portion of the Depositor's
interest in the Account may be transferred to a spouse or former spouse under a
divorce or separation instrument as provided in section 408(d)(6) of the Code,
in which event the transferred portion of the Account shall be held as a
separate individual retirement account for the benefit of such spouse in
accordance with the terms and conditions of this Agreement.
7. BENEFICIARIES.
(a) Designation. The Depositor may designate a person or persons to receive any
amount remaining in the Account at the time of the Depositor's death. The person
or persons so designated shall be the Depositor's Beneficiaries while such
designation is effective. If no designation is made or is in effect at the time
of the Depositor's death, the Depositor's Beneficiary shall be his or her
estate.
(b) Change in Designation. Any change in the designation of a Beneficiary or
designation of an additional Beneficiary subsequent to the date of this
Agreement shall be made on such form as the Custodian or Heritage shall provide.
To be effective, the designation of Beneficiary form must be signed by the
Depositor and filed with the Custodian or Heritage during the Depositor's
lifetime. The effective designation form last received from a person by the
Custodian or Heritage before a distribution is to commence shall be controlling
and, whether or not fully dispositive of the Account, shall revoke all forms
previously filed by that person. The Custodian shall accept all forms relating
to the designation of Beneficiaries only in the Commonwealth of Massachusetts,
and Heritage shall accept all forms relating to the designation of beneficiaries
only in the State of Florida, and such forms, once effective, shall be
considered a part of this Agreement.
(c) Status of Beneficiaries, Designations by Beneficiaries. When, but only when,
distribution of an Account or an interest therein to a Beneficiary commences,
all rights and obligations assigned to the Depositor under the Agreement shall
inure to and be enjoyed or exercised, as the case may be, by such Beneficiary to
the extent of such Beneficiary's interest in the Account. The term "Depositor"
shall include, for purposes of the rules of this Agreement relating to the
designation of Beneficiaries, and the investment and maintenance of the Account,
the person or persons who begin to receive a portion of the Account pursuant to
a prior designation (by the Depositor or a prior Beneficiary), but designations
by such a person or persons shall relate solely to the balance of such person's
interest remaining in the Account as of the date a distribution pursuant to a
designation by such person is to commence.
8. TERMINATION OF ACCOUNT.
(a) Final Distribution. This Agreement shall terminate upon the complete
distribution of the Account to the Depositor or his Beneficiaries or the
complete transfer of the Account to such successor individual retirement
accounts or annuities as the Depositor shall designate.
(b) Effect of Termination. Upon termination of the Account, the Custodian shall
be relieved from all further liability with respect to this
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Agreement, the Account, and all assets thereof so distributed. Neither Heritage
nor the Custodian shall be liable for, or in any way responsible with respect
to, any penalty or any other loss incurred by any person with respect to a
distribution or transfer made hereunder.
9. MAINTENANCE OF RECORDS; REPORTS BY CUSTODIAN; PROVISION OF INFORMATION TO
CUSTODIAN.
(a) Records, Annual Reports. The Custodian shall keep adequate records of the
transaction and status of the Account and the performance of the Custodian's
obligations under this Agreement. The Custodian shall render an annual report to
the Depositor (or, following the Depositor's death, each Beneficiary) on or
before January 31 of each calendar year, showing the fair market value of the
Account as determined as of December 31 of the immediately preceding calendar
year. The Custodian shall also render another report to the Depositor (or,
following the Depositor's death, each Beneficiary) on or before May 31 of each
calendar year, containing such information with respect to the immediately
preceding calendar year as is required to be furnished on Internal Revenue
Service Form 5498 (Individual Retirement Arrangement Information) or its
equivalent (if the Form 5498 contains any information other than the fair market
value of the Account on December 31 of the immediately preceding calendar year).
(b) Information Required by, and Reports to, the Internal Revenue Service. The
Depositor shall provide information to the Custodian at such times and in such
manner and detail as will enable the Custodian to prepare reports required by
the Internal Revenue Service pursuant to section 408(i) of the Code and the
regulations promulgated thereunder or to any other section of the Code relating
to reporting of contributions to, operation of, or distributions from individual
retirement accounts. The Custodian shall submit such reports to the Internal
Revenue Service and to the Depositor, the Depositor's Beneficiary, or both, in
such manner and at such times as may be required by the Code and any applicable
regulations.
10. PAYMENT OF CUSTODIAN'S FEES AND TAXES AND EXPENSES OF THE ACCOUNT.
The Custodian shall be entitled to receive such reasonable fees with respect to
the administration of the Account as are established by it from time to time,
and to receive reimbursement for all reasonable expenses incurred by it in the
performance of this Agreement. The Custodian may change its fee schedule upon
thirty (30) days prior written notice to the Depositor. The custodian's fees,
any taxes of any kind imposed on the assets of the Account, and all other
administrative expenses incurred by the Custodian in the performance of this
Agreement, including fees for legal services rendered to the Custodian, may be
charged to the Account, and the Custodian shall have the right to liquidate
Heritage Fund shares held in the Account to secure cash for payment of such
fees, taxes, and expenses.
11. DUTIES OF CUSTODIAN; INDEMNIFICATION.
(a) Limitation of Liability of Custodian. The Custodian shall have no investment
responsibility or discretion with respect to the assets of the Account. The
Custodian's service hereunder shall not be construed as an endorsement of the
Heritage Funds.
(b) Delegation by Custodian. The Custodian may perform any of its administrative
duties through other persons designated by the Custodian from time to time,
except that Heritage Fund shares must be registered as stated in sections 4(d)
of this Article VIII.
(c) Indemnification. The Depositor shall always fully indemnify the Custodian
and hold it harmless from any and all liability whatsoever which may arise in
connection with this Agreement and the matters which it contemplates, except
that which arises due to the Custodian's bad faith, gross negligence or willful
misconduct.
(d) Reliance on Authenticity of Documents. The Custodian may conclusively rely
upon and shall be protected in acting in good faith upon any written order from
or authorized by the Depositor or any Beneficiary or upon any other document
believed by it to be genuine and to have been issued in proper form and with
proper authority.
12. AMENDMENT.
The Custodian and Heritage are authorized to amend the Agreement in any respect
and at any time (including retroactively) to comply with the applicable
provisions of the Code and the regulations thereunder. Any other amendment to
the Agreement may be made by the Custodian but shall require the consent of the
Depositor. For these purposes, the Depositor shall be deemed to have consented
to any amendment to the Agreement unless, within thirty (30) days after having
received written notice of the amendment from the Custodian, the Depositor
either (i) gives the Custodian a proper written order for a lump-sum
distribution of the Account, or (ii) removes the Custodian and simultaneously
appoints a successor custodian as provided in section 13 of this Article VIII.
The Custodian's freedom to change its fee schedules or delegate responsibilities
hereunder shall not be deemed to be an amendment of this Agreement.
13. RESIGNATION OR REMOVAL OF CUSTODIAN.
(a) Resignation; Removal; Successor. The Custodian may resign at any time upon
at least thirty (30) days prior notice in writing to the Depositor and may be
removed by the Depositor any time upon at least thirty (30) days prior notice in
writing to the Custodian. Upon such resignation or removal, the Depositor shall
appoint a successor to serve as custodian under the Agreement. If within forty
(40) days after the Custodian's resignation or removal, the Depositor has not
appointed a successor, the Custodian may itself appoint such a successor. Every
successor custodian appointed to serve under this Agreement must be a bank, as
defined in section 408(n)(1) of the Code, or such other person as qualifies to
serve as Custodian under section 408(a)(2) of the Code, and must satisfy the
Depositor, the Custodian, or both, upon request as to such qualification.
(b) Effect of Appointment of Successor. Upon receipt by the Custodian of written
acceptance of appointment by its successor the Custodian shall transfer to such
successor the assets of the Account and all necessary records (or copies
thereof) pertaining thereto, after reserving such reasonable amount as it deems
necessary for payment of its fees and expenses. The Custodian shall then be
relieved of all further responsibility with respect to this Agreement, the
Account, and the assets thereof.
14. ACCEPTANCE OF AGREEMENT.
This Agreement shall be deemed accepted by the Custodian upon the earlier of (i)
the date this Agreement is executed by an authorized representative of the
Custodian, and (ii) the date the Custodian accepts for investment the
Depositor's initial contribution made in accordance with the terms of this
Agreement and the Depositor's individual retirement account application.
15. MISCELLANEOUS.
(a) Exclusive Benefit; Nonforfeitability. The Account is established for the
exclusive benefit of the Depositor and his or her Beneficiary or Beneficiaries.
The interest of the Depositor in the balance of the Account shall at all times
be nonforfeitable.
(b) Non-alienation. Neither the Depositor nor any Beneficiary shall have any
right or power to anticipate any part of his or her interest in the
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Account or to sell, assign, transfer, pledge or hypothecate any part thereof.
The Account shall not be liable for the debts of the Depositor or any
Beneficiary or subject to any seizure, attachment, execution or other legal
process in respect thereto.
(c) Prohibited Transactions. The Depositor shall not engage in any transaction
with respect to the Account which is prohibited under section 4975 of the Code
and which, under section 408(e) of the Code, would cause the Account no longer
to qualify as an individual retirement account.
(d) Entire Agreement. This document constitutes the entire contract between
Depositor and Custodian. No representative of Heritage, nor of any
broker-dealer, shall be deemed to be a representative of or acting on behalf of
the Custodian nor shall any representative have any authority to make
representations or to bind the Custodian beyond the terms of this document.
(e) Notices. Except where otherwise specifically required in this Agreement, any
notice from the Custodian to any person provided for in this Agreement shall be
effective if sent by first-class mail to such person at that person's last
address on the Custodian's records.
(f) Governing Law. This Agreement is accepted by the Custodian in the
Commonwealth of Massachusetts and shall be construed and administered in
accordance with the law of such commonwealth, except to the extent such law is
superseded by applicable Federal law. This Agreement is intended to qualify
under section 408 of the Code as an individual retirement custodian account
agreement and for the retirement savings deduction, if any, permitted under
section 219 of the Code. If any provision hereof is subject to more than one
interpretation or any term used herein is subject to more than one construction,
such ambiguity shall be resolved in favor of that interpretation or construction
which is consistent with such intent.
GENERAL INSTRUCTIONS
(Section references are to the Internal Revenue Code unless otherwise noted.)
PURPOSE OF FORM
Form 5305-A is a model custodial account agreement that meets the requirements
of section 408(a) and has been automatically approved by the IRS. An individual
retirement account (IRA) is established after the form is fully executed by both
the individual (Depositor) and the Custodian and must be completed not later
than the due date of the individual's income tax return for the tax year
(without regard to extensions). This account must be created in the United
States for the exclusive benefit of the Depositor or his/her beneficiaries.
Individuals may rely on regulations for the Tax Reform Act of 1986 to the extent
specified in those regulations.
Do not file Form 5305-A with the IRS. Instead, keep it for your records.
For more information on IRAs, including the required disclosure statement you
can get from your custodian, get Publication 590, Individual Retirement
Arrangements (IRAs).
DEFINITIONS
"Custodian" - The custodian must be a bank or savings and loan association, as
defined in section 408(n), or other person who has the approval of the IRS to
act as custodian.
"Depositor" - The Depositor is the person who establishes the custodial account.
IDENTIFYING NUMBER
The depositor's social security number will serve as the identification number
of his or her IRA. An employer identification number is only required for an IRA
for which a return is filed to report unrelated business taxable income. An
employer identification number is required for a common fund created for IRAs.
IRA FOR NON-WORKING SPOUSE
Form 5305-A may be used to establish the IRA custodial account for a non-working
spouse.
Contributions to an IRA custodial account for a non-working spouse must be made
to a separate IRA custodial account established by the non-working spouse.
SPECIFIC INSTRUCTIONS
Article IV - Distributions made under this Article may be made in a single sum,
periodic payment, or a combination of both. The distribution option should be
reviewed in the year the Depositor reaches age 70 1/2 to make sure the
requirements of section 408(a)(6) have been met.
Article VIII - This Article and any that follow it may incorporate additional
provisions that are agreed upon by the depositor and custodian to complete the
agreement. They may include, for example: definitions, investment powers, voting
rights, exculpatory provisions, amendment and termination, removal of custodian,
custodian's fees, state law requirements, beginning date of distributions,
accepting only cash, treatment of excess contributions, prohibited transactions
with the depositor, etc.
15
<PAGE> 17
This page is intentionally left blank.
<PAGE> 18
LOGO HERITAGE IRA APPLICATION AND AGREEMENT
The individual named below ("Depositor") hereby adopts a Heritage IRA,
appointing State Street Bank and Trust Co. of Boston, MA to serve as
"Custodian," to perform the administrative services required by the Individual
Retirement Custodial Account Agreement, effective upon acceptance by the
Custodian.
TYPE OF ACCOUNT
- --------------------------------------------------------------------------------
[ ] Individual [ ] Spousal* [ ] SEP** [ ] SIMPLE**
[ ] Rollover (letter attached) [ ] Transfer of Assets (letter attached)
* A spousal IRA may be opened by a spouse without earned income. You may invest
a total of $4,000 in both IRAs each year ($2,000 annual maximum for either
spouse). If you and your spouse are establishing a Heritage IRA, each of you
must complete a separate IRA Application and Agreement.
** Depositor should verify that his or her employer has established a Plan.
ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Name
---------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City State Zip
------------------ -------------------- ------------------------
Social Security Number Birthdate
--------------------------- -------------------
Investment (List amount to be invested in each Fund separately)
<TABLE>
<S> <C>
$
- ------------------------------------------------------------ ----------------
$
- ------------------------------------------------------------ ----------------
$
- ------------------------------------------------------------ ----------------
Establishment Fee $ 5.00
----------------
Total $
----------------
</TABLE>
[ ] I qualify for a reduced sales charge under the Rights of Accumulation
privilege as described in the Fund's Prospectus. Below are listed all the
accounts which should be considered in determining the Rights of
Accumulation.
- --------------------------- --------------------------- ----------------------
APPLICANT MUST SIGN AND DATE THIS AGREEMENT ON REVERSE.
DEALER INFORMATION (COMPLETED BY INVESTMENT DEALER)
- --------------------------------------------------------------------------------
We hereby authorize the Distributor, Raymond James and Associates, Inc. to act
as our agent in connection with transactions under this agreement and agree to
notify the Distributor of any purchases made under the Rights of Accumulation
privilege. We guarantee the shareholder's signature.
<TABLE>
<S> <C>
- ---------------------------------------- --------------------------------------------
Name of Investment Dealer Name and No. of Registered Representative
- ---------------------------------------- --------------------------------------------
Name and No. of Branch Office Signature of Registered Representative
</TABLE>
<PAGE> 19
IRA ROLLOVER
- --------------------------------------------------------------------------------
[ ] This is a rollover from a qualified corporate pension or profit-sharing
plan, Keogh plan or 403(b) tax-sheltered annuity,* or a distribution from
another IRA. (*Distributions in which you actually receive proceeds from these
plans may be invested in an IRA within 60 days after they are received.)
TELEPHONE EXCHANGE*
- --------------------------------------------------------------------------------
[ ] If you do not want to have Telephone Exchange privilege, please check here.
* I understand the Trust, Manager, Distributor and their Trustees, directors,
officers and employees are not responsible for any loss arising out of
telephone instructions that they reasonably believe are authentic, provided
they follow reasonable procedures as described in the Prospectus and SAI.
BENEFICIARY INSTRUCTIONS
- --------------------------------------------------------------------------------
I name the beneficiary(ies) below according to the provisions of my Individual
Retirement Custodial Account Agreement. I direct that all benefits to which I
may be entitled shall be paid as follows upon my death:
Primary Beneficiary(ies)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Name Address Relationship SSN Birthdate Allocation %
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Contingent Beneficiary(ies)
- ------------------------------------------------------------------------------------------------------------------------
Name Address Relationship SSN Birthdate Allocation %
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(If more than one person is listed, all persons in the group living at the time
of Depositor's death will share equally, unless otherwise provided.)
CONSENT OF SPOUSE (APPLICABLE IN COMMUNITY PROPERTY STATES WHEN SPOUSE IS NOT
SOLE PRIMARY BENEFICIARY): I consent to the above beneficiary designation. By
signing this consent, I intend to change the portion (if any) of this Individual
Retirement Account which is community property into the separate property of my
spouse.
Signature Date
----------------------------- ------------------------------------
PLACE SIGNATURE GUARANTEE HERE.
IRA AGREEMENT AND CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
- --------------------------------------------------------------------------------
By execution of this Application and Agreement, I adopt and accept the
Individual Retirement Custodial Account Agreement (IRS Form 5305-A) for use in
connection with the Heritage IRA Program. The executed Custodial Account
Agreement establishes an Individual Retirement Custodial Account, of which State
Street Bank and Trust Company is appointed Custodian. I have received and read
the text of Form 5305-A, in which I am directing an investment and the
accompanying IRA disclosure statement. I have also read and received a current
prospectus for each Fund in which I am directing an investment and a description
of any option selected, and I agree that an annual maintenance fee of $10.00
will be deducted from each IRA plan in February of each year for the prior
calendar year unless I have paid such fee by December 31 of the prior year.
Heritage may be required to withhold Federal income tax of 31% from all
dividends, capital gains and liquidations if I have not certified my Taxpayer ID
Number, and unless I certify that I am not subject to backup withholding. I will
strike out clause (2) below if the IRS has notified me that I am subject to
backup withholding and the IRS has not since notified me that backup withholding
has ended. Under penalties of perjury, I certify (1) that my Taxpayer ID Number
under Account Information is correct, and (2) that I am not subject to backup
withholding because (a) I have not been notified that I am subject to backup
withholding as a result of failure to report all interest or dividends, or (b)
the IRS has notified me that I am no longer subject to backup withholding.
Signature of Depositor Date
------------------------------ ---------------------
Signature of Custodian Date
----------------------------- ---------------------
(Custodian's signature is not intended to certify Depositor's Taxpayer ID
Number)
MAILING INSTRUCTIONS
- --------------------------------------------------------------------------------
Mail Agreement and check(s) made payable to State Street Bank and Trust Co.
to: Heritage Asset Management,Inc.
PO Box 33022
St. Petersburg, FL 33733
<PAGE> 20
LOGO HERITAGE IRA APPLICATION AND AGREEMENT
The individual named below ("Depositor") hereby adopts a Heritage IRA,
appointing State Street Bank and Trust Co. of Boston, MA to serve as
"Custodian," to perform the administrative services required by the Individual
Retirement Custodial Account Agreement, effective upon acceptance by the
Custodian.
TYPE OF ACCOUNT
- --------------------------------------------------------------------------------
[ ] Individual [ ] Spousal* [ ] SEP** [ ] SIMPLE**
[ ] Rollover (letter attached) [ ] Transfer of Assets (letter attached)
* A spousal IRA may be opened by a spouse without earned income. You may invest
a total of $4,000 in both IRAs each year ($2,000 annual maximum for either
spouse). If you and your spouse are establishing a Heritage IRA, each of you
must complete a separate IRA Application and Agreement.
** Depositor should verify that his or her employer has established a Plan.
ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Name
---------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City State Zip
------------------ -------------------- ------------------------
Social Security Number Birthdate
--------------------------- -------------------
Investment (List amount to be invested in each Fund separately)
<TABLE>
<S> <C>
$
- ------------------------------------------------------------ ----------------
$
- ------------------------------------------------------------ ----------------
$
- ------------------------------------------------------------ ----------------
Establishment Fee $ 5.00
----------------
Total $
----------------
</TABLE>
[ ] I qualify for a reduced sales charge under the Rights of Accumulation
privilege as described in the Fund's Prospectus. Below are listed all the
accounts which should be considered in determining the Rights of
Accumulation.
- --------------------------- --------------------------- ----------------------
APPLICANT MUST SIGN AND DATE THIS AGREEMENT ON REVERSE.
DEALER INFORMATION (COMPLETED BY INVESTMENT DEALER)
- --------------------------------------------------------------------------------
We hereby authorize the Distributor, Raymond James and Associates, Inc. to act
as our agent in connection with transactions under this agreement and agree to
notify the Distributor of any purchases made under the Rights of Accumulation
privilege. We guarantee the shareholder's signature.
<TABLE>
<S> <C>
- ---------------------------------------- --------------------------------------------
Name of Investment Dealer Name and No. of Registered Representative
- ---------------------------------------- --------------------------------------------
Name and No. of Branch Office Signature of Registered Representative
</TABLE>
<PAGE> 21
IRA ROLLOVER
- --------------------------------------------------------------------------------
[ ] This is a rollover from a qualified corporate pension or profit-sharing
plan, Keogh plan or 403(b) tax-sheltered annuity,* or a distribution from
another IRA. (*Distributions in which you actually receive proceeds from these
plans may be invested in an IRA within 60 days after they are received.)
TELEPHONE EXCHANGE*
- --------------------------------------------------------------------------------
[ ] If you do not want to have Telephone Exchange privilege, please check here.
* I understand the Trust, Manager, Distributor and their Trustees, directors,
officers and employees are not responsible for any loss arising out of
telephone instructions that they reasonably believe are authentic, provided
they follow reasonable procedures as described in the Prospectus and SAI.
BENEFICIARY INSTRUCTIONS
- --------------------------------------------------------------------------------
I name the beneficiary(ies) below according to the provisions of my Individual
Retirement Custodial Account Agreement. I direct that all benefits to which I
may be entitled shall be paid as follows upon my death:
Primary Beneficiary(ies)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Name Address Relationship SSN Birthdate Allocation %
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Contingent Beneficiary(ies)
- ------------------------------------------------------------------------------------------------------------------------
Name Address Relationship SSN Birthdate Allocation %
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(If more than one person is listed, all persons in the group living at the time
of Depositor's death will share equally, unless otherwise provided.)
CONSENT OF SPOUSE (APPLICABLE IN COMMUNITY PROPERTY STATES WHEN SPOUSE IS NOT
SOLE PRIMARY BENEFICIARY): I consent to the above beneficiary designation. By
signing this consent, I intend to change the portion (if any) of this Individual
Retirement Account which is community property into the separate property of my
spouse.
Signature Date
----------------------------- ------------------------------------
PLACE SIGNATURE GUARANTEE HERE.
IRA AGREEMENT AND CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
- --------------------------------------------------------------------------------
By execution of this Application and Agreement, I adopt and accept the
Individual Retirement Custodial Account Agreement (IRS Form 5305-A) for use in
connection with the Heritage IRA Program. The executed Custodial Account
Agreement establishes an Individual Retirement Custodial Account, of which State
Street Bank and Trust Company is appointed Custodian. I have received and read
the text of Form 5305-A, in which I am directing an investment and the
accompanying IRA disclosure statement. I have also read and received a current
prospectus for each Fund in which I am directing an investment and a description
of any option selected, and I agree that an annual maintenance fee of $10.00
will be deducted from each IRA plan in February of each year for the prior
calendar year unless I have paid such fee by December 31 of the prior year.
Heritage may be required to withhold Federal income tax of 31% from all
dividends, capital gains and liquidations if I have not certified my Taxpayer ID
Number, and unless I certify that I am not subject to backup withholding. I will
strike out clause (2) below if the IRS has notified me that I am subject to
backup withholding and the IRS has not since notified me that backup withholding
has ended. Under penalties of perjury, I certify (1) that my Taxpayer ID Number
under Account Information is correct, and (2) that I am not subject to backup
withholding because (a) I have not been notified that I am subject to backup
withholding as a result of failure to report all interest or dividends, or (b)
the IRS has notified me that I am no longer subject to backup withholding.
Signature of Depositor Date
------------------------------ ---------------------
Signature of Custodian Date
----------------------------- ---------------------
(Custodian's signature is not intended to certify Depositor's Taxpayer ID
Number)
MAILING INSTRUCTIONS
- --------------------------------------------------------------------------------
Mail Agreement and check(s) made payable to State Street Bank and Trust Co.
to: Heritage Asset Management,Inc.
PO Box 33022
St. Petersburg, FL 33733
<PAGE> 22
HERITAGE FAMILY OF FUNDS(TM)
REQUEST FOR TRANSFER OR DIRECT ROLLOVER
1. GENERAL INFORMATION:
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------------
Name of Current Custodian Name of Account Holder
- ------------------------------------------------------------ ---------------------------------------------
Address of Current Custodian Social Security Number
- ------------------------------------------------------------ ---------------------------------------------
City State Zip Daytime Phone Number
- ------------------------------------------------------------
Current Fund and Account Number
</TABLE>
[ ] TRANSFER REQUEST: (CHECK HERE IF TRANSFERRING FROM AN IRA)
I authorize and direct you, the above current Custodian/Trustee of my IRA,
to send as a transfer to State Street Bank and Trust Company as successor
fiduciary the assets indicated in section 2 below.
[ ] DIRECT ROLLOVER REQUEST: (CHECK HERE FOR DIRECT ROLLOVERS FROM A QUALIFIED
PLAN)
I authorize and direct you, the above Plan Administrator of my qualified
plan or tax sheltered annuity, to directly rollover to State Street Bank and
Trust Company as successor fiduciary the assets indicated in section 2
below.
2. PAYMENT INFORMATION:
A. I authorize and direct you to send my assets as follows:
_________ 1. Immediately liquidate all assets and send the cash proceeds.
_________ 2. Immediately liquidate and send cash proceeds in the amount of
__________________.
_________ 3. Send cash proceeds of all investments at maturity.
B. I authorize you to send the proceeds indicated above to State Street Bank
and Trust Company as successor fiduciary payable as follows:
HERITAGE ASSET MANAGEMENT, INC.
ATTN: RETIREMENT PLAN COORDINATOR
FBO ___________________
P.O. BOX 33022
ST. PETERSBURG, FL 33733
C. Conduit IRA. I would like to keep these funds in a separate IRA
_________ Yes
_________ No
3. INSTRUCTIONS FOR TRANSFEREE CUSTODIAN:
_________ A. I am opening a new account and have attached a Heritage
Individual Retirement Account Agreement.
_________ B. Deposit the proceeds to my existing Heritage Account _______
Fund: ___________________________________ Percentage ____________________
Fund: ___________________________________ Percentage ____________________
Fund: ___________________________________ Percentage ____________________
4. SIGNATURES:
I certify that I have/will establish an IRA with the State Street Bank and Trust
Company Custodian/Trustee. I agree to the terms of this form. I understand that
I am responsible for determining my eligibility for all transfers or direct
rollovers and I agree to indemnify and to hold the Custodian/Trustee harmless
against any and all situations arising from an ineligible transfer or direct
rollover. I acknowledge that the Custodian/Trustee cannot provide legal advice
and I agree to consult with my own tax professional for advice. I certify that I
am aware of any fees or penalties that may be imposed by the present
Custodian/Trustee. I have received and read the prospectus for the fund(s) in
which I am making my investment. I understand that if I am 70 1/2, I must meet
my Required Minimum Distribution obligation from my current account before I can
transfer any assets into my State Street Bank & Trust Custodial Account.
State Street Bank and Trust Company has established an IRA plan qualified under
IRC Section 408 for this individual and will accept the transfer or direct
rollover of assets.
Executed this __________ day of _________________, 19________.
<TABLE>
<S> <C>
__________________________________________________________ __________________________________________________________
Signature of Individual Place Signature Guarantee Here
Accepted by Transferee Custodian, State Street Bank and Trust Company
By: ______________________________________________________ __________________________
Signature of Custodian/Trustee Date
</TABLE>
QUESTIONS CONCERNING THIS FORM?
PLEASE CALL OUR CLIENT SERVICE REPRESENTATIVES AT 1-800-421-4184.
<PAGE> 23
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<PAGE> 24
LOGO
HERITAGE FAMILY OF
MUTUAL FUNDS
HERITAGE SERIES TRUST-
EAGLE INTERNATIONAL EQUITY PORTFOLIO
Capital appreciation
principally through investment in an
international portfolio of equity securities.
HERITAGE SERIES TRUST-
SMALL CAP STOCK FUND
Long-term capital appreciation
through the purchase of equity securities
of companies with small market capitalization.
HERITAGE SERIES TRUST-
GROWTH EQUITY FUND
Growth through long-term capital appreciation.
HERITAGE CAPITAL APPRECIATION TRUST
Long-term capital appreciation.
HERITAGE SERIES TRUST-
VALUE EQUITY FUND
Long-term capital appreciation
with a secondary objective of current income.
HERITAGE INCOME-GROWTH TRUST
Long-term total return
by seeking, with approximately equal emphasis,
current income and capital appreciation.
HERITAGE INCOME TRUST-
HIGH YIELD BOND FUND
High current income
by investing in a portfolio of lower-
and medium-rated high yield,
fixed income securities.
HERITAGE INCOME TRUST-
INTERMEDIATE GOVERNMENT FUND
High current income consistent with the
preservation of capital.
HERITAGE CASH TRUST-
MUNICIPAL MONEY MARKET FUND
Maximum current income
exempt from
Federal income tax consistent
with stability of principal.
HERITAGE CASH TRUST-
MONEY MARKET FUND
Maximum current income
consistent with the stability of principal.
For complete information, including charges and expenses,
please ask your financial advisor for a prospectus.
Read it carefully before you invest or send money.
<PAGE> 25
This page is intentionally left blank.
<PAGE> 26
[Assorted black and white photos of people working and playing.]
The Heritage Individual Retirement Custodial Account Agreement and related
documents are intended to comply with current provisions of the Internal
Revenue Code. However Heritage Asset Management, Inc. assumes no responsibility
as to the efficiency or legal sufficiency under federal, state or local law of
this Agreement in a particular case.
[LOGO]
HERITAGE ASSET MANAGEMENT, INC.
880 CARILLON PARKWAY, P.O. BOX 33022
ST. PETERSBURG, FL. 33733
(813) 573-8143, (800) 421-4184
RAYMOND JAMES & ASSOCIATES, INC. DISTRIBUTOR
MEMBER NEW YORK STOCK EXCHANGE/SIPC
<PAGE>
HERITAGE CASH TRUST
HERITAGE CAPITAL APPRECIATION TRUST
HERITAGE INCOME-GROWTH TRUST
HERITAGE INCOME TRUST
HERITAGE SERIES TRUST
Multiple Class Plan Pursuant to Rule 18f-3
The investment companies listed on Appendix A attached hereto (each a
"Fund" and collectively, the "Funds") hereby adopt this Multiple Class Plan
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"). This Plan describes the classes of shares of interest of the Funds
on or after August 9, 1996.
A. CLASSES OFFERED.
----------------
1. CLASS A. Class A shares are offered to investors of each of
the Funds subject to an initial sales charge. The maximum sales charge
varies between 0.00% and 4.75% of the amount invested and may decline
based on discounts for volume purchases. The initial sales charge may
be waived for certain eligible purchasers or under certain
circumstances. If no initial sales charge is imposed on a purchase of
shares, a contingent deferred sales load ("CDSL") of up to 1% may be
imposed on any redemption of those shares within two years of the
purchase (consistent with the disclosure in the Fund's prospectus).
Class A shares also are subject to an annual service fee ranging from
0.15% to 0.25% and a distribution fee ranging from 0.00% to 0.25% of
the average daily net assets of the Class A shares paid pursuant to a
plan of distribution adopted pursuant to Rule 12b-1. Class A shares
require an initial investment of $1,000, except for certain retirement
accounts and investment plans for which lower limits may apply.
2. CLASS C. Class C shares are offered to investors of each of
the Funds subject to a CDSL on redemptions of shares held less than one
year. The Class C CDSL is equal to 1% of the lower of: (1) the net
asset value of the shares at the time of purchase or (2) the net asset
value of the shares at the time of redemption. Class C shares held
longer than one year and Class C shares acquired through reinvestment
of dividends or capital gains distributions on shares otherwise subject
to a Class C CDSL are not subject to the CDSL. The CDSL for Class C
shares of the Funds may be waived under certain circumstances.
Class C shares are subject to an annual service fee ranging from 0.15%
to 0.25% of average daily net assets and a distribution fee ranging
from 0.00% to 0.75% of average daily net assets of the Class C shares
of the Fund, each paid pursuant to a plan of distribution adopted
pursuant to Rule 12b-1. Class C shares require an initial investment of
$1,000, except for certain retirement accounts and investment plans for
which lower limits may apply.
<PAGE>
3. EAGLE CLASS. The Eagle International Equity Portfolio of
Heritage Series Trust offers the Eagle Class of Shares. Eagle Class
shares are offered to all investors without the imposition of an
initial sales charge or a contingent deferred sales load. Eagle Class
shares require an initial investment of $50,000, except for investors
who already maintain an account with Eagle Asset Management, Inc. for
which a $25,000 minimum initial investment applies. Eagle Class
shareholders incur an annual service fee of .25% of average daily net
assets and a distribution fee of .75% of average daily net assets of
the Eagle Class shares of the Portfolio, each paid pursuant to a plan
of distribution adopted pursuant to Rule 12b-1 under the 1940 Act
("Rule 12b-1"). All of the shares of the Portfolio issued pursuant to a
Portfolio prospectus effective prior to the Implementation Date and
that are outstanding on the Implementation Date will be designated as
Eagle Class shares.
B. EXPENSE ALLOCATIONS OF EACH CLASS. Certain expenses may be attributable
to a particular class of shares of the Portfolio ("Class Expenses"). Class
Expenses are charged directly to the net assets of the particular class and,
thus are borne on a pro rata basis by the outstanding shares of that class.
In addition to the distribution and service fees described above, each
class also may pay a different amount of the following other expenses: (1) 12b-1
fees, (2) transfer agent fees identified as being attributable to a specific
class, (3) stationery, printing, postage, and delivery expenses related to
preparing and distributing materials such as shareholder reports, prospectuses,
and proxy statements to current shareholders of a class, (4) Blue Sky
registration fees incurred by a specific class of shares, (5) Securities and
Exchange Commission registration fees incurred by a specific class of shares,
(6) expenses of administrative personnel and services required to support the
shareholders of a specific class, (7) trustees' fees or expenses incurred as a
result of issues relating to a specific class of shares, (8) accounting expenses
relating solely to a specific class of shares, (9) auditors' fees, litigation
expenses, and legal fees and expenses relating to a specific class of shares,
and (10) expenses incurred in connection with shareholders meetings as a result
of issues relating to a specific class of shares.
C. EXCHANGE FEATURES. If an investor has held Class A or Class C shares for at
least 30 days, the investor may exchange those shares for shares of the
corresponding class of any other mutual fund for which Heritage Asset
Management, Inc. serves as investment adviser ("Heritage mutual funds"). All
exchanges are subject to the minimum investment requirements and any other
applicable terms set forth in the prospectus for the Heritage mutual funds whose
shares are being acquired. Class C shares, however, are not eligible for
exchange into the Heritage Municipal Money Market Fund.
These exchange privileges may be modified or terminated by the
Portfolio, and exchanges may be made only into funds that are registered legally
for sale in the investor's state of residence.
D. ADDITIONAL INFORMATION. This Multiple Class Plan is qualified by and subject
to the terms of the then current prospectus for the applicable classes;
provided, however, that none of the terms set forth in any such prospectus shall
be inconsistent with the terms of the classes contained in this Plan. The
prospectuses for the Eagle Class and for the Class A and Class C contain
additional information about those classes and the Portfolio's multiple class
structure.
Dated: August 9, 1996, as amended on November 18, 1996
