As filed with the Securities and Exchange Commission on February 27, 1998
1933 Act File No. 33-57986
1940 Act File No. 811-7470
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. ----
[ ]
Post-Effective Amendment No. 17 [ X ]
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 18
----
(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, NW
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on March 2, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered ..... Shares of Beneficial Interest
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 Eagle Class shares of Eagle International
Equity Portfolio
Statement of Additional Information for Eagle Class shares of
Eagle International Equity Portfolio
Part C of Form N-1A
Signature Page
Exhibits
This filing does not affect the prospectus and statement of additional
information for Class A, Class B and Class C shares of Eagle International
Equity Portfolio, Growth Equity Fund, Mid Cap Growth Fund, Small Cap Stock Fund
and Value Equity Fund of Heritage Series Trust.
<PAGE>
HERITAGE SERIES TRUST
EAGLE INTERNATIONAL
EQUITY PORTFOLIO - EAGLE CLASS
FORM N-1A CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
PART A ITEM NO. PROSPECTUS CAPTION
--------------- ------------------
<S> <C> <C> <C>
1. Cover Page Cover Page
2. Synopsis Expense Summary
3. Condensed Financial Information Financial Highlights; How performance is shown
4. General Description of Registrant Cover Page; Objective; How the objective is
pursued; Other investment policies and risk
factors; Organization and history
5. Management of the Fund How the Portfolio is managed
5A. Management's Discussion of Fund Inapplicable
Performance
6. Capital Stock and Other Securities Cover Page; Organization and history; How the
Portfolio is managed; How to Buy Shares; How
distributions are made; tax information .
7. Purchases of Securities Being Offered How to buy shares; How the Portfolio values its
shares; Distribution Plan
8. Redemption or Repurchase 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 History General Information
13. Investment Objectives and Policies Investment Information; Investment Restrictions
14. Management of the Fund Portfolio Information-Trustees and Officers
15. Control Persons and Principal Holders Portfolio Information-Trustees and Officers, -Five
of Securities Percent Shareholders
16. Investment Advisory and Other Services Portfolio Information-Trustees and Officers,
-Investment Adviser; -Subadviser; Distribution of
Shares; -Administration of the Portfolio
17. Brokerage Allocation Portfolio Information-Brokerage Practices
18. Capital Stock and Other Securities General Information; Portfolio Information
-Trustees and Officers; -Potential Liability
19. Purchase, Redemption and Pricing of Net Asset Value; Investing in the Portfolio;
Securities Being Offered Redeeming Shares - Systematic Withdrawal Plan and
- Redemption in Kind
20. Tax Status Taxes
21. Underwriters Portfolio Information - Distribution of Shares
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
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
The Eagle
International
Equity Portfolio
Prospectus
March 2, 1998
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 8
........................................................................
Distribution Plan 9
........................................................................
Organization and history 9
ABOUT YOUR INVESTMENT
How to buy shares 9
........................................................................
How to sell shares 10
........................................................................
How the Portfolio values its shares 11
........................................................................
How distributions are made; tax information 11
........................................................................
Shareholder Information 12
<PAGE> 3
EAGLE INTERNATIONAL EQUITY PORTFOLIO
EAGLE CLASS OF SHARES
PROSPECTUS -- MARCH 2, 1998
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. Although the Portfolio offers other 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 2, 1998, 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
P R O S P E C T U S
1
<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 1997 fiscal year.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a % of
offering price) NONE
- ------------------------------------------------------------------
Deferred Sales Charge NONE
- ------------------------------------------------------------------
Wire Redemption Fee (per transaction) $5.00
==================================================================
ANNUAL EAGLE CLASS OPERATING EXPENSES
(as a percentage of average net assets)
- ------------------------------------------------------------------
Management Fees (after fee waiver) 0.74%
- ------------------------------------------------------------------
Rule 12b-1 Fees (including shareholder servicing fees) 1.00%
- ------------------------------------------------------------------
Other Expenses 0.86%
- ------------------------------------------------------------------
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 waiver,
"Management Fees" would have been 1.00%, and "Total Eagle Class Operating
Expenses" would have been 2.86%. 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.
P R O S P E C T U S
2
<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 two fiscal years ended October 31, 1997 have
been audited by Price Waterhouse LLP, independent accountants, whose report
thereon is included in the SAI. Additional performance information is contained
in the Portfolio's Annual Report to Shareholders, which may be obtained without
charge, 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>
FOR THE YEARS ENDED
OCTOBER 31,
--------------------
1997 1996 1995+
------- ------- ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $22.14 $20.79 $20.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (a)................................... (0.11) (.01) (.03)
Net realized and unrealized gain on investments........... 2.28 1.84 0.82
------ ------ ------
Total from investment operations.......................... 2.17 1.83 0.79
------ ------ ------
DISTRIBUTIONS:
Dividends from net investment income...................... (.31) (.01) .00
Distributions from net realized gain on investments....... (.17) (0.47) .00
------ ------ ------
Total Distributions....................................... (.48) (0.48) .00
------ ------ ------
Net asset value, end of the period........................ $23.83 $22.14 $20.79
====== ====== ======
Total Return (%).......................................... 9.98(d) 8.93 3.95(c)
RATIOS (%)/SUPPLEMENTAL DATA:
Ratio of operating expenses, net, to average daily net
assets (a)............................................. 2.60 2.60 2.60(b)
Ratio of net investments loss to average daily net
assets................................................. (.47) (0.02) (0.33)(b)
Portfolio turnover rate................................... 50 59 61(b)
Average commission rate on portfolio transactions......... $.0164 $.0289 --
Net assets, end of period (millions)...................... $ 32 $ 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.
(a) Excludes management fees waived and expenses reimbursed by the Manager in
the amount of $.06, $.16 and $.17 per Eagle share for each of the three
periods ended October 31, 1997, respectively. The operating expense ratios
including such items would have been 2.86%, 3.31% and 5.09% (annualized) for
Eagle shares for each of the three periods ended October 31, 1997,
respectively.
(b) Annualized.
(c) Not annualized.
(d) These returns are calculated based on the published net asset value.
P R O S P E C T U S
3
<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 are
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). The Portfolio can invest up to
5% of its assets in convertible securities rated below investment grade by
Standard & Poor's ("S&P") or Moody's Investors Service, Inc. ("Moody's"), or
unrated securities deemed to be below investment grade by the Portfolio's
subadviser. Its remaining assets may be invested in investment grade
non-convertible 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 invests 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 invests in emerging markets (which may include investments in countries
such as India, Mexico and Poland, 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.
In allocating the Portfolio's assets among the various securities markets of the
world, the Subadviser considers 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 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
P R O S P E C T U S
4
<PAGE> 7
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. The Portfolio may invest up
to 10% of its net assets in illiquid securities.
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. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issue within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or
dividends paid on preferred stock until the convertible stock matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally have higher yields than common stocks,
but lower yields than comparable nonconvertible securities, are less subject to
fluctuation in value than the underlying stock because they have fixed-income
characteristics and provide the potential for capital appreciation if the market
price of the underlying common stock increases. The Portfolio may invest in
convertible securities that are rated as investment grade (BBB or above by S&P
or Baa or above by 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 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 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,
P R O S P E C T U S
5
<PAGE> 8
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 foreign currency denominated securities.
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.
ILLIQUID SECURITIES. The Portfolio may invest 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.
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.
P R O S P E C T U S
6
<PAGE> 9
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 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.
REAL ESTATE INVESTMENT TRUSTS. The Portfolio can invest in REITs, including
equity REITs, which own real estate properties, and mortgage REITs, which make
construction, development and long-term mortgage loans. The value of an equity
REIT may be affected by changes in the value of the underlying property, while a
mortgage REIT may be affected by the quality of the credit extended. The
performance of both types of REITs depends upon conditions in the real estate
industry, management skills and the amount of cash flow. The risks associated
with REITs include defaults by borrowers, self-liquidation, failure to qualify
as a pass-through entity under the Federal tax law, failure to qualify as an
exempt entity under the 1940 Act, and the fact that REITs are not diversified.
REPURCHASE AGREEMENTS. 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
P R O S P E C T U S
7
<PAGE> 10
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
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 $4.0 billion for these clients as of September 30, 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-Mid Cap Growth Fund, Heritage Series Trust-Value Equity and
Heritage Capital Appreciation Trust (although no assets currently are allocated
to Eagle for the latter fund) 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 Scotland. Martin Currie Limited is one of
Scotland's largest professional money managers and, together with the
Subadviser, has $10.2 billion under management as of September 30, 1997. 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.
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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.
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 an Eagle Class
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 other classes of shares that have different sales charges
and other expenses. All Portfolio shares issued prior to December 26, 1995 are
designated Eagle Class shares. To obtain more information about the other
classes of shares offered by the Portfolio, you may contact Heritage at (800)
421-4184 or a registered representative of the Distributor, a participating
dealer, or participating bank.
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
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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 fifteen 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 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. The Portfolio 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
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either withdraw your request for redemption or receive payment based upon the
net asset value next determined after the suspension is lifted.
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 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.
Trading in foreign markets is usually completed each day prior to the close of
the Exchange. However, events may occur that affect the values of such
securities and the exchange rates between the time of valuation and the close of
the Exchange. Should events materially affect the value of such securities
during this period, the securities are priced at fair value, as determined in
good faith and pursuant to procedures approved by the Board.
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.
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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 information regarding capital gain
distributions designates the portions of those distributions that are subject to
(1) the 20% maximum rate of tax (10% for investors in the 15% marginal tax
bracket) enacted by the Taxpayer Relief Act of 1997 ("Tax Act"), which applies
to non-corporate taxpayers' net capital gain on securities and other capital
assets held for more than 18 months, and (2) the 28% maximum tax rate,
applicable to such gain on capital assets held for more than one year and up to
18 months (which, prior to enactment of the Tax Act, applied to all such gain on
capital assets held for more than one 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).
SHAREHOLDER INFORMATION
Heritage and Eagle have taken steps that they believe are reasonably designed to
address any adverse impact on the Funds due to the potential failure of computer
programs used by Heritage, Eagle and the Funds' service providers as a result of
the advent of the year 2000.
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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.
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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 2, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
EAGLE INTERNATIONAL EQUITY PORTFOLIO
EAGLE CLASS
This Statement of Additional Information ("SAI") dated March 2, 1998,
should be read with the Prospectus of Eagle International Equity Portfolio Eagle
Class dated March 2, 1998. The Portfolio also offers additional classes of
shares, which are not discussed in this SAI. This SAI is not a prospectus
itself. To receive a copy of the Eagle Class 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
Industry Classifications..............................................12
INVESTMENT RESTRICTIONS.....................................................12
NET ASSET VALUE.............................................................14
PERFORMANCE INFORMATION.....................................................15
INVESTING IN THE EAGLE CLASS................................................16
REDEEMING SHARES............................................................17
Systematic Withdrawal Plan............................................17
Redemptions in Kind...................................................18
TAXES.......................................................................18
PORTFOLIO INFORMATION.......................................................21
Trustees and Officers.................................................21
Five Percent Shareholders.............................................24
Investment Adviser; Subadviser........................................24
Brokerage Practices...................................................26
Distribution of Shares................................................27
Administration of the Portfolio.......................................29
Potential Liability...................................................29
APPENDIX...................................................................A-1
REPORT OF THE INDEPENDENT ACCOUNTANTS......................................A-5
FINANCIAL STATEMENTS.......................................................A-5
<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 offers the Eagle Class of shares, sold
without a sales load, ("Eagle Class"). The Portfolio offers additional classes
of shares not covered in this SAI. To obtain more information about the other
classes of shares, call (800) 421-4184.
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 $10.2 billion in investors' assets.
The Subadviser uses a top down country allocation and a bottom up stock
selection process. In choosing countries in which to invest assets, the
Subadviser considers the major economic trends in that country, any political
and economic changes in the country and the country's 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.
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, EDRs, GDRs and IDRs
are receipts that represent interests in or are convertible into, securities of
foreign issuers. These receipts are not necessarily denominated in the same
currency as the underlying securities into which they may be converted
ADRs may be purchased through "sponsored" or "unsponsored" facilities. A
sponsored facility is established jointly by the issuer of the underlying
security and a depository, whereas a depository may establish an unsponsored
facility without participation by the issuer of the depository security. Holders
of unsponsored depository receipts generally bear all the costs of such
facilities and the depository of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through voting rights to the holders of such
receipts of the deposited securities. Generally, ADRs in registered form are
designed for use in the U.S. securities market and ADRs in bearer form are
designed for use outside the United States.
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. 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.
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.
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
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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. When such purchases are made through dealers, the
Portfolio relies on the dealer to consummate the sale. The dealer's failure to
do so may result in a loss to the Portfolio of an advantageous yield or price.
Although the Portfolio generally will enter into forward commitments with the
intention of acquiring securities for its investment portfolios, 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 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
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.
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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.
The cost to the Portfolio 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 the Portfolio 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.
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
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by negotiating directly with the counterparty. Thus, there can be no assurance
that the Portfolio 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, the Portfolio might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the Portfolio
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 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
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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
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.
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.
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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%.
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.
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FUTURES AND FORWARD TRANSACTIONS - RISK FACTORS
FUTURES AND FORWARD CONTRACTS. Investment by the Portfolio in futures and
forward contracts (collectively "Hedging Instruments") 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.
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.
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The Portfolio 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, the Portfolio 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 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.
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 loan its securities to broker-dealers or other financial
institutions. The collateral for the Portfolio's loans will be "marked to
market" daily so that the collateral at all times exceeds 100% of the value of
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the loan. The Portfolio may terminate such loans at any time and the market risk
applicable to any security loaned remains its risk. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the Portfolio retains the right to call the loans at any time on reasonable
notice, and it will do so in order that the securities may be voted by it if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The Portfolio also may call such loans in
order to sell the securities involved. The borrower must add to the collateral
whenever the market value of the securities rises above the level of such
collateral. The Portfolio could incur a loss if the borrower should fail
financially at a time when the value of the loaned securities is greater than
the collateral. The primary objective of securities lending is to supplement the
Portfolio's income through investment of the cash collateral in short-term
interest bearing obligations.
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
that 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.
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.
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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. 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 at any time.
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements. The period of these
repurchase agreements usually will be short, from overnight to one week, and at
no time will the Portfolio invest in repurchase agreements of more than one
year. The securities that are subject to repurchase agreements, however, may
have maturity dates in excess of one year from the effective date of the
repurchase agreement. The Portfolio always will receive as collateral securities
whose market value, including accrued interest, will be at least equal to 100%
of the dollar amount invested by the Portfolio in each agreement, and the
Portfolio will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the Portfolio's custodian
bank.
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 discussed in the Prospectus.
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 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. The Portfolio
currently does not intend to invest more than 5% of its net assets in warrants.
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However, the Portfolio 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. 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.
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).
NOTE ON SHAREHOLDER APPROVAL
Unless otherwise indicated, the investment policies of the Portfolio may
be changed without shareholder approval.
INDUSTRY CLASSIFICATIONS
For purposes of determining industry classifications, the Portfolio may
rely upon classifications established by the Portfolio's adviser 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
& Poors Industry Classifications. The Portfolio also may rely upon
classifications established by the Subadviser.
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
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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.
(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.
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(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.
NET ASSET VALUE
Net asset value per Portfolio share is determined daily Monday through
Friday, except for New Year's Day, Martin Luther King 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
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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.
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 Portfolio'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 Portfolio'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 assets 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 the Portfolio conducted on a spot
basis are valued at the spot rate for purchasing or selling currency prevailing
on the foreign exchange market.
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.
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:
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<PAGE>
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, 1997 and for the year ended October
31, 1997 was 9.16% and 9.98%, 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 that 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
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, 1997 and for the year ended October
31, 1997 was 24.54% and 9.98%, 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
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<PAGE>
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
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.
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<PAGE>
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.
REDEMPTIONS 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.
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) 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 (3) 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.
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<PAGE>
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.
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 would 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. Pursuant to the Tax Act,
individuals who have no more than $300 ($600 for married persons filing jointly)
of creditable foreign taxes included on Forms 1099 and have no foreign source
non-passive income will be able to claim a foreign tax credit without having to
file the detailed Form 1116 that otherwise is required.
The Portfolio may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation -- other than a
"controlled foreign corporation" (I.E., a foreign corporation in which, on any
day during its taxable year, more than 50% of the total voting power of all
voting stock therein or the total value of all stock therein is owned, directly,
indirectly, or constructively, by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly, or constructively, at least 10% of
that voting power) as to which the Portfolio is a U.S. shareholder -- 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
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<PAGE>
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.
The Portfolio may elect to "mark-to-market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of a PFIC's stock over the Portfolio's adjusted
basis therein as of the end of that year. Pursuant to the election, the
Portfolio also would be allowed to deduct (as an ordinary, not capital, loss)
the excess, if any, of its adjusted basis in PFIC stock over the fair market
value thereof as of the taxable year-end, but only to the extent of any net
mark-to-market gains with respect to that stock included by the Portfolio for
prior taxable years. The Portfolio's adjusted basis in each PFIC's stock with
respect to which it makes this election will be adjusted to reflect the amounts
of income included and deductions taken under the election. Regulations proposed
in 1992 would provide a similar election with respect to the stock of certain
PFICs.
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 amount, 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.
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
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<PAGE>
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. The 60% portion of that capital gain that is
treated as long-term capital gain will qualify for the reduced maximum tax rates
on net capital gain of 20% (10% for taxpayers in the 15% marginal tax bracket)
on capital assets held for more than 18 months. 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 futures contracts in which the
Portfolio 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 offsetting position is
acquired within a prescribed period, and "short sale" rules applicable to
straddles. If the Portfolio 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 the Portfolio of straddle transactions
are not entirely clear.
If the Portfolio has an "appreciated financial position" - generally, an
interest (including an interest through an option, futures or forward contract,
or short sale) with respect to any stock, debt instrument (other than "straight
debt"), or partnership interest the fair market value of which exceeds its
adjusted basis - and enters into a "constructive sale" of the same or
substantially similar property, the Portfolio will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by the Portfolio
or a related person with respect to the same or substantially similar property.
In addition, if the appreciated financial position is itself a short sale or
such a contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
PORTFOLIO INFORMATION
TRUSTEES AND OFFICERS. Trustees and officers are listed with their
addresses, principal occupations, ages 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 (55)* Trustee Chairman of the Board since
880 Carillon Parkway 1986 and Chief Executive
St. Petersburg, FL Officer since 1969 of RJF;
33716 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.
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<PAGE>
Position with Principal Occupation
Name the Trust During Past Five Years
---- --------- ----------------------
Richard K. Riess (48)* Trustee Chief Executive Officer of
880 Carillon Parkway Eagle since 1996, President,
St. Petersburg, FL 1995 to present, Chief
33716 Operating Officer, 1988 to
1996, Executive Vice President,
1988 to 1993.
Donald W. Burton (53) Trustee President of South Atlantic
614 W. Bay Street Capital Corporation (venture
Suite 200 capital) since 1981.
Tampa, FL 33606
C. Andrew Graham (57) Trustee Vice President of Financial
Financial Designs, Ltd. Designs Ltd. since 1992;
1775 Sherman Street Executive Vice President of the
Suite 1900 Madison Group, Inc., 1991 to
Denver, CO 80203 1992; Principal of First Denver
Financial Corporation
(investment banking) since
1987.
David M. Phillips (58) 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
and consumer households) since
1982.
Eric Stattin (64) Trustee Litigation Consultant/Expert
2587 Fairway Village Witness and private investor
Drive since 1988.
Park City, UT 84060
James L. Pappas (54) Trustee Lykes Professor of Banking and
University of South 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 (38) President Chief Executive Officer and
880 Carillon Parkway President of Heritage since
St. Petersburg, FL 1989 and Director since 1994;
33716 Director of Eagle since 1995.
Donald H. Glassman (40) Treasurer Treasurer of Heritage since
880 Carillon Parkway 1989; Treasurer of Heritage
St. Petersburg, FL Mutual Funds since 1989.
33716
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<PAGE>
Position with Principal Occupation
Name the Trust During Past Five Years
---- --------- ----------------------
Clifford J. Alexander (53) Secretary Partner, Kirkpatrick & Lockhart
1800 Massachusetts Ave., NW LLP (law firm).
Washington, DC 20036
Patricia Schneider (56) Assistant Compliance Administrator of
880 Carillon Parkway Secretary Heritage.
St. Petersburg, FL 33716
Robert J. Zutz (44) Assistant Partner, Kirkpatrick & Lockhart
1800 Massachusetts Ave., NW Secretary LLP (law firm).
Washington, DC 20036
* These Trustees are "interested persons" as such term is
defined under the 1940 Act.
The Trustees and officers of the Trust, as a group, own less than 1% of
Eagle Class 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 $3,333 annually and $1,250 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,
1997.
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<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Total
Compensation
Pension or From the Trust and
Aggregate Retirement the Heritage
Compensation Benefits Accrued Estimated Annual Family of Funds
Name of Person, From the as Part of the Benefits Paid
Position Trust Trust's Expenses Upon Retirement to Trustees
-------- ----- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Donald W. Burton, $5,820 $0 $0 $16,000
Trustee
C. Andrew Graham, $5,820 $0 $0 $16,000
Trustee
David M. Phillips, $4,364 $0 $0 $12,000
Trustee
Eric Stattin, $5,820 $0 $0 $16,000
Trustee
James L. Pappas, $5,092 $0 $0 $14,000
Trustee
Richard K. Riess, $0 $0 $0 $0
Trustee
Thomas A. James, $0 $0 $0 $0
Trustee
</TABLE>
FIVE PERCENT SHAREHOLDERS
As of January 31, 1997, the following persons owned of record or
beneficially 5% or more of the Portfolio's Eagle Class of 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.
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<PAGE>
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 provides that it will be in force
for an initial two-year period and it must be approved each year 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 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
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.
All of the officers of the Portfolio except for Messrs. Alexander and
Zutz are officers or directors of Heritage, Eagle or their affiliates. These
relationships are described under "Trustees and Officers."
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.
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<PAGE>
For the period May 1, 1995 (commencement of operations) to October 31,
1995 and for the two fiscal years ended October 31, 1997, management fees
amounted to $32,303, $189,777 and $351,913, respectively, and Eagle waived its
fees in the amount of $32,303, $134,735 and $91,433, respectively, and was
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 two fiscal years ended
October 31, 1997, Eagle paid the subadvisory fees of $16,152, $94,888 and
$175,957, respectively.
BROKERAGE PRACTICES
While the Portfolio generally purchases securities for long-term capital
gains, the Portfolio may engage in short-term transactions under various market
conditions to a greater extent than certain other mutual funds with similar
investment objectives. Thus, the turnover rate may vary greatly from year to
year or during periods within a year. The Portfolio turnover rate is computed by
dividing the lesser of purchases or sales of securities for the period by the
average value of portfolio securities for that period. The Portfolio's turnover
rates for the two years ended October 31, 1997 were 59% and 50%.
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.
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, 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
- 26 -
<PAGE>
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.
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
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<PAGE>
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.
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 Eagle Class 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 to October 31, 1995 and the two fiscal
years ended October 31, 1997 the Distributor received Eagle Class 12b-1 fees of
$32,303, $168,639, and 275,084, 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.
- 28 -
<PAGE>
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
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 May 1, 1995
(commencement of operations) to October 31, 1995 and the two fiscal years ended
October 31, 1997, Heritage earned approximately $1,016 and $7,745, and $8,242
respectively, 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. For the period May 1, 1995 (commencement of
operations) to October 31, 1995 and for the two fiscal years ended October 31,
1997, Heritage received from Eagle $10,417, $25,000, and $28,145, respectively,
for these services.
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
Trusts. The Financial Statements and Financial Highlights of the Trusts for the
fiscal year ended October 31, 1997 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 and the Statement of Changes
in Net Assets for the fiscal year ended October 31, 1995, and prior thereto 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
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<PAGE>
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
A-1
<PAGE>
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
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 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.
A-2
<PAGE>
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.
A-3
<PAGE>
COMMERCIAL PAPER RATINGS
The rating services' descriptions of commercial paper ratings in which the
Portfolios may invest are:
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.
A-4
<PAGE>
The Report of the Independent Accounts and Financial Statements are
incorporated herein by reference from the Eagle International Equity Portfolio's
Annual Report to Shareholders for the fiscal year ended October 31, 1997, filed
with the Securities and Exchange Commission on December 29, 1997, Accession No.
0000950144-97-013672.
A-5
<PAGE>
HERITAGE SERIES TRUST
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits
---------------------------------
<S> <C> <C>
(a) Financial Statements:
Included in Part A of the Registration Statement:
Financial Highlights for the Eagle International Equity Portfolio Eagle
Class shares, the period May 1, 1995 (commencement of operations) to
October 31, 1995, and the two fiscal years ended October 31, 1997.
Included in Part B of the Registration Statement:
Investment Portfolio - October 31, 1997
Statement of Assets and Liabilities - October 31, 1997
Statement of Operations - October 31, 1997
Statements of Changes in Net Assets for the years ended
October 31, 1997 and 1996
Notes to Financial Statements
Report of Price Waterhouse LLP, Independent Accountants dated
December 17, 1997
(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**
<PAGE>
(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**
(d)(ii) Specimen security Growth Equity Fund Class C**
(e)(i) Specimen security Mid Cap Growth Fund Class A**
(e)(ii) Specimen security Mid Cap Growth Fund Class C**
(5) (a)(i) Investment Advisory and Administration Agreement*
(a)(ii) Amended Schedule A relating to the addition of the Value Equity Fund*
(a)(iii)Amended Schedule A relating to the addition of the Growth Equity Fund*
(a)(iv) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund****
(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) Amended Schedule A relating to the addition of the Small Cap Stock
Fund*
(d)(iii)Amended Schedule A relating to the addition of the Growth Equity Fund*
(d)(iv) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund****
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<PAGE>
(e) Subadvisory Agreement between Eagle Asset Management, Inc. and Martin
Currie Inc. relating to Eagle International Equity Portfolio*
(f) Form of Subadvisory Agreement between Heritage Asset Management, Inc.
and Dreman Value Advisors, Inc. relating to Value 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*
(b)(i) Form of Fund Accounting and Pricing Service Agreement*
(b)(ii) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund****
(10) Opinion and consent of counsel (filed herewith)
(11) Accountants' consent(filed herewith)
(12) Financial statements omitted from Item 23 none
(13) Letter of investment intent*
(14) Prototype retirement plan***
(15) (a)(i) Class A Plan pursuant to Rule 12b-1*
(a)(ii) Amended Schedule A relating to the addition of the Value Equity Fund*
(a)(iii)Amended Schedule A relating to the addition of the Growth Equity Fund*
(a)(iv) Amended Schedule A relating to the addition of the Eagle
International Equity Portfolio*
(a)(v) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund**
(b)(i) Class C Plan pursuant to Rule 12b-1*
(b)(ii) Amended Schedule A relating to the addition of the Growth Equity Fund*
(b)(iii)Amended Schedule A relating to the addition of the Eagle
International Equity Portfolio*
(b)(iv) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund**
(c) Eagle Class Plan pursuant to Rule 12b-1*
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<PAGE>
(d) Class B 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 Schedules for Electronic Filers:
(a) Financial Data Schedule Relating to Eagle International Equity Portfolio Eagle
Class (filed herewith)
(18) (a) Plan pursuant to Rule 18f-3*
(b) Amended Plan pursuant to Rule 18f-3***
(c) Amended Plan pursuant to Rule 18f-3*****
- ---------------------------
* Incorporated by reference from the Post-Effective Amendment No. 10 to the Registration
Statement of the Trust, SEC File No. 33-57986, filed previously via EDGAR on December 1, 1995.
** To be filed by subsequent amendment.
*** Incorporated by reference from the Trust's Post-Effective Amendment No. 13 to the Trust's
Registration Statement on Form N-1A, File No. 33-57986, filed previously via EDGAR on February
28, 1997.
**** Incorporated by reference from the Trust's Post-Effective Amendment No. 15 to the Trust's
Registration Statement on Form N-1A, File No. 33-57986, filed previously via EDGAR on October
31, 1997.
***** Incorporated by reference from the Trust's Post-Effective Amendment No. 16 to the Trust's
Registration Statement on Form N-1A, File No. 33-57986, filed previously via EDGAR on December
29, 1997.
</TABLE>
Item 25. Persons Controlled by or under
Common Control with Registrant
------------------------------
None.
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<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class November 30, 1997
- -------------- ------------------------
Small Cap Stock Fund
Class A Shares 14,450
Class B Shares 0
Class C Shares 7,715
Mid Cap Growth Fund
Class A Shares 825
Class B Shares 0
Class C Shares 388
Value Equity Fund
Class A Shares 1,691
Class B Shares 0
Class C Shares 1,377
Growth Equity Fund
Class A Shares 1,878
Class B Shares 0
Class C Shares 1,589
Eagle International
Equity Portfolio
Class A Shares 707
Class B Shares 0
Class C Shares 511
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;
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<PAGE>
(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) 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
C-6
<PAGE>
(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.
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 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 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 Information or arising out of or based upon any
alleged omission to state a material fact required to be stated in either
C-7
<PAGE>
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 Securities and Exchange Commission ("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, Growth Equity and Mid Cap Growth 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.
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 SEC and is incorporated by reference herein.
C-8
<PAGE>
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.
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, and Heritage Income.
(b) The directors and officers of the Registrant's principal
underwriter are:
<TABLE>
<CAPTION>
Positions & Offices Position
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Thomas A. James Chief Executive Officer, Director Trustee
Robert F. Shuck Executive VP, Director None
Thomas S. Franke President, Chief Operating None
Officer, Director
Lynn Pippenger Secretary/Treasurer, Chief None
Financial Officer, Director
Dennis Zank Executive VP of Operations None
and Administration, Director
</TABLE>
Item 30. Location of Accounts and Records
--------------------------------
For the Small Cap Stock Fund, the Mid Cap Growth 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
C-9
<PAGE>
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-10
<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. 17 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, 1998. No other material event requiring 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. 17 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, 1998
- --------------------
Stephen G. Hill
Thomas A. James* Trustee February 27, 1998
- --------------------
Thomas A. James
Richard K. Riess* Trustee February 27, 1998
- --------------------
Richard K. Riess
C. Andrew Graham* Trustee February 27, 1998
- --------------------
C. Andrew Graham
David M. Phillips* Trustee February 27, 1998
- --------------------
David M. Phillips
James L. Pappas* Trustee February 27, 1998
- --------------------
James L. Pappas
<PAGE>
Donald W. Burton* Trustee February 27, 1998
- --------------------
Donald W. Burton
Eric Stattin* Trustee February 27, 1998
- --------------------
Eric Stattin
/s/ Donald H. Glassman Treasurer February 27, 1998
- ----------------------
Donald H. Glassman
*By: /s/ Donald H. Glassman
----------------------
Donald H. Glassman,
Attorney-In-Fact
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C> <C>
(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**
(d)(ii) Specimen security Growth Equity Fund Class C**
(e)(i) Specimen security Mid Cap Growth Fund Class A**
(e)(ii) Specimen security Mid Cap Growth Fund Class C**
(5) (a)(i) Investment Advisory and Administration Agreement*
(a)(ii) Amended Schedule A relating to the addition of the Value Equity Fund*
(a)(iii)Amended Schedule A relating to the addition of the Growth Equity Fund*
(a)(iv) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund****
(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*
<PAGE>
(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) Amended Schedule A relating to the addition of the Small Cap Stock
Fund*
(d)(iii)Amended Schedule A relating to the addition of the Growth Equity Fund*
(d)(iv) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund****
(e) Subadvisory Agreement between Eagle Asset Management, Inc. and Martin
Currie Inc. relating to Eagle International Equity Portfolio*
(f) Form of Subadvisory Agreement between Heritage Asset Management, Inc.
and Dreman Value Advisors, Inc. relating to Value 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*
(b)(i) Form of Fund Accounting and Pricing Service Agreement*
(b)(ii) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund****
(10) Opinion and consent of counsel (filed herewith)
(11) Accountants' consent(filed herewith)
(12) Financial statements omitted from Item 23 none
(13) Letter of investment intent*
(14) Prototype retirement plan***
(15) (a)(i) Class A Plan pursuant to Rule 12b-1*
(a)(ii) Amended Schedule A relating to the addition of the Value Equity Fund*
(a)(iii)Amended Schedule A relating to the addition of the Growth Equity Fund*
-2-
<PAGE>
(a)(iv) Amended Schedule A relating to the addition of the Eagle
International Equity Portfolio*
(a)(v) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund**
(b)(i) Class C Plan pursuant to Rule 12b-1*
(b)(ii) Amended Schedule A relating to the addition of the Growth Equity Fund*
(b)(iii)Amended Schedule A relating to the addition of the Eagle
International Equity Portfolio*
(b)(iv) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund**
(c) Eagle Class Plan pursuant to Rule 12b-1*
(d) Class B 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 Schedules for Electronic Filers:
(a) Financial Data Schedule Relating to Eagle International Equity Portfolio Eagle
Class (filed herewith)
(18) (a) Plan pursuant to Rule 18f-3*
(b) Amended Plan pursuant to Rule 18f-3***
(c) Amended Plan pursuant to Rule 18f-3*****
</TABLE>
- ---------------------------
* Incorporated by reference from the Post-Effective Amendment No. 10
to the Registration Statement of the Trust, SEC File No. 33-57986,
filed previously via EDGAR on December 1, 1995.
** To be filed by subsequent amendment.
*** Incorporated by reference from the Trust's Post-Effective
Amendment No. 13 to the Trust's Registration Statement on Form
N-1A, File No. 33-57986, filed previously via EDGAR on February
28, 1997.
**** Incorporated by reference from the Trust's Post-Effective
Amendment No. 15 to the Trust's Registration Statement on Form
N-1A, File No. 33-57986, filed previously via EDGAR on October 31,
1997.
-3-
<PAGE>
***** Incorporated by reference from the Trust's Post-Effective
Amendment No. 16 to the Trust's Registration Statement on Form
N-1A, File No. 33-57986, filed previously via EDGAR on December
29, 1997.
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D. C. 20036-1800
TELEPHONE 202-778-9000
February 27, 1998
Heritage Series Trust
880 Carrillon Parkway
St. Petersburg, FL 33716
Ladies and Gentlemen:
You have requested our opinion, as counsel to Heritage Series Trust
("Trust"), as to certain matters regarding the issuance of Shares of the Trust.
As used in this letter, the term "Shares" means the Eagle Class shares of
beneficial interest of Eagle International Equity Portfolio, a series of the
Trust, during the time that Post-Effective Amendment No. 17 to the Trust's
Registration Statement on Form N-1A ("PEA") is effective and has not been
superseded by another post-effective amendment.
As such counsel, we have examined certified or other copies, believed by
us to be genuine, of the Trust's Declaration of Trust and by-laws and such
resolutions and minutes of meetings of the Trust's Board of Trustees as we have
deemed relevant to our opinion, as set forth herein. Our opinion is limited to
the laws and facts in existence on the date hereof, and it is further limited to
the laws (other than the conflict of law rules) in the Commonwealth of
Massachusetts that in our experience are normally applicable to the issuance of
shares by unincorporated voluntary associations and to the Securities Act of
1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and the
regulations of the Securities and Exchange Commission ("SEC") thereunder.
Based on the foregoing, we are of the opinion that the issuance of the
Shares has been duly authorized by the Trust and that, when sold in accordance
with the terms contemplated by the PEA, including receipt by the Trust of full
payment for the Shares and compliance with the 1933 Act and the 1940 Act, the
Shares will have been validly issued, fully paid and non-assessable.
We note, however, that the Trust is an entity of the type commonly known
as a "Massachusetts business trust." Under Massachusetts law, shareholders
could, under certain circumstances, be held personally liable for the
obligations of the Trust. The Declaration of Trust states that creditors of,
contractors with and claimants against the Trust or any series shall look only
to the assets of the Trust for the appropriate series for payment. It also
requires that notice of such disclaimer be given in each note, bond, contract,
certificate undertaking or instrument made or issued by the officers or the
trustees of the Trust on behalf of the Trust. The Declaration of Trust further
provides: (1) for indemnification from the assets of the Trust or the
appropriate series for all loss and expense of any shareholder held personally
liable for the obligations of the Trust or any series by virtue of ownership of
shares of the Trust or such series; and (2) for the Trust or appropriate series
to assume the defense of any claim against the shareholder for any act or
<PAGE>
Heritage Series Trust
February 27, 1998
Page 2
obligation of the Trust or series. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust or series would be unable to meet its obligations.
We hereby consent to this opinion accompanying the PEA when it is filed
with the SEC and to the reference to our firm in the statement of additional
information that is being filed as part of the PEA.
Very truly yours,
/s/ Kirkpatrick & Lockhart LLP
KIRKPATRICK & LOCKHART LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 17 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
December 17, 1997, relating to the financial statements and financial highlights
of the Heritage Series Trust - Eagle International Equity Portfolio, which
appear in such Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectus which constitutes part of this
Registration Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statement of Additional Information and to the
reference to us under the heading "Financial Highlights" in such Prospectus.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
400 North Ashley Street, Suite 2800
Tampa, Florida 33602
December 22, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EAGLE INTERNATIONAL EQUITY PORTFOLIO - A SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> OCT-31-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 38,139,346
<INVESTMENTS-AT-VALUE> 40,084,014
<RECEIVABLES> 2,420,420
<ASSETS-OTHER> 228,690
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,733,124
<PAYABLE-FOR-SECURITIES> 853,462
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 264,739
<TOTAL-LIABILITIES> 1,118,201
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,658,990
<SHARES-COMMON-STOCK> 1,745,457
<SHARES-COMMON-PRIOR> 1,170,011
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,049,917
<OVERDISTRIBUTION-GAINS> (40,256)
<ACCUM-APPREC-OR-DEPREC> 1,946,272
<NET-ASSETS> 41,614,923
<DIVIDEND-INCOME> 621,961
<INTEREST-INCOME> 132,268
<OTHER-INCOME> 0
<EXPENSES-NET> 885,902
<NET-INVESTMENT-INCOME> (131,673)
<REALIZED-GAINS-CURRENT> 1,349,757
<APPREC-INCREASE-CURRENT> 1,252,012
<NET-CHANGE-FROM-OPS> 2,470,096
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 399,751
<DISTRIBUTIONS-OF-GAINS> 205,544
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 727,183
<NUMBER-OF-SHARES-REDEEMED> 177,429
<SHARES-REINVESTED> 25,692
<NET-CHANGE-IN-ASSETS> 15,700,637
<ACCUMULATED-NII-PRIOR> 230,207
<ACCUMULATED-GAINS-PRIOR> 166,664
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 260,480
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 100,642
<AVERAGE-NET-ASSETS> 5,108,702
<PER-SHARE-NAV-BEGIN> 22.25
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 2.28
<PER-SHARE-DIVIDEND> 0.44
<PER-SHARE-DISTRIBUTIONS> 0.17
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 23.97
<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 - C SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> OCT-31-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 38,139,346
<INVESTMENTS-AT-VALUE> 40,084,014
<RECEIVABLES> 2,420,420
<ASSETS-OTHER> 228,690
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,733,124
<PAYABLE-FOR-SECURITIES> 853,462
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 264,739
<TOTAL-LIABILITIES> 1,118,201
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,658,990
<SHARES-COMMON-STOCK> 1,745,457
<SHARES-COMMON-PRIOR> 1,170,011
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,049,917
<OVERDISTRIBUTION-GAINS> (40,256)
<ACCUM-APPREC-OR-DEPREC> 1,946,272
<NET-ASSETS> 41,614,923
<DIVIDEND-INCOME> 621,961
<INTEREST-INCOME> 132,268
<OTHER-INCOME> 0
<EXPENSES-NET> 885,902
<NET-INVESTMENT-INCOME> (131,673)
<REALIZED-GAINS-CURRENT> 1,349,757
<APPREC-INCREASE-CURRENT> 1,252,012
<NET-CHANGE-FROM-OPS> 2,470,096
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 399,751
<DISTRIBUTIONS-OF-GAINS> 205,544
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 727,183
<NUMBER-OF-SHARES-REDEEMED> 177,429
<SHARES-REINVESTED> 25,692
<NET-CHANGE-IN-ASSETS> 15,700,637
<ACCUMULATED-NII-PRIOR> 230,207
<ACCUMULATED-GAINS-PRIOR> 166,664
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 260,480
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 70,126
<AVERAGE-NET-ASSETS> 2,578,263
<PER-SHARE-NAV-BEGIN> 22.12
<PER-SHARE-NII> (0.13)
<PER-SHARE-GAIN-APPREC> 2.25
<PER-SHARE-DIVIDEND> 0.34
<PER-SHARE-DISTRIBUTIONS> 0.17
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 23.73
<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 SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> OCT-31-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 38,139,346
<INVESTMENTS-AT-VALUE> 40,084,014
<RECEIVABLES> 2,420,420
<ASSETS-OTHER> 228,690
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,733,124
<PAYABLE-FOR-SECURITIES> 853,462
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 264,739
<TOTAL-LIABILITIES> 1,118,201
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,658,990
<SHARES-COMMON-STOCK> 1,745,457
<SHARES-COMMON-PRIOR> 1,170,011
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,049,917
<OVERDISTRIBUTION-GAINS> (40,256)
<ACCUM-APPREC-OR-DEPREC> 1,946,272
<NET-ASSETS> 41,614,923
<DIVIDEND-INCOME> 621,961
<INTEREST-INCOME> 132,268
<OTHER-INCOME> 0
<EXPENSES-NET> 885,902
<NET-INVESTMENT-INCOME> (131,673)
<REALIZED-GAINS-CURRENT> 1,349,757
<APPREC-INCREASE-CURRENT> 1,252,012
<NET-CHANGE-FROM-OPS> 2,470,096
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 399,751
<DISTRIBUTIONS-OF-GAINS> 205,544
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 727,183
<NUMBER-OF-SHARES-REDEEMED> 177,429
<SHARES-REINVESTED> 25,692
<NET-CHANGE-IN-ASSETS> 15,700,637
<ACCUMULATED-NII-PRIOR> 230,207
<ACCUMULATED-GAINS-PRIOR> 166,664
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 260,480
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 715,134
<AVERAGE-NET-ASSETS> 27,504,295
<PER-SHARE-NAV-BEGIN> 22.14
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> 2.28
<PER-SHARE-DIVIDEND> 0.31
<PER-SHARE-DISTRIBUTIONS> 0.17
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 23.83
<EXPENSE-RATIO> 2.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
