HERITAGE
SERIES
TRUST
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FROM OUR FAMILY TO YOURS: THE INTELLIGENT CREATION OF WEALTH.
Aggressive Growth Fund
Eagle International Equity Portfolio
Growth Equity Fund
Mid Cap Growth Fund
Small Cap Stock Fund
Value Equity Fund
Annual Report
and Investment Performance
Review for the Year Ended
October 31, 1998
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HERITAGE SERIES TRUST
ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PRESIDENT'S LETTER ...................................................... 1
PORTFOLIO COMMENTARY AND INVESTMENT PORTFOLIO:
AGGRESSIVE GROWTH FUND
Portfolio Management Letter ....................................... 2
Performance Graphs ................................................ 3
EAGLE INTERNATIONAL EQUITY PORTFOLIO
Investment Commentary ............................................. 4
Performance Graphs ................................................ 6
GROWTH EQUITY FUND
Portfolio Management Letter ....................................... 8
Performance Graphs ................................................ 10
MID CAP GROWTH FUND
Portfolio Management Letter ....................................... 11
Performance Graphs ................................................ 13
SMALL CAP STOCK FUND
Portfolio Management Letters ...................................... 14
Performance Graphs ................................................ 17
VALUE EQUITY FUND
Portfolio Management Letter ....................................... 19
Performance Graphs ................................................ 20
INVESTMENT PORTFOLIOS ................................................... 22
STATEMENT OF ASSETS AND LIABILITIES ..................................... 35
STATEMENT OF OPERATIONS ................................................. 36
STATEMENT OF CHANGES IN NET ASSETS ...................................... 37
FINANCIAL HIGHLIGHTS .................................................... 39
NOTES TO FINANCIAL STATEMENTS ........................................... 45
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December 21, 1998
Dear Fellow Shareholders:
It is my pleasure to provide you with the annual report for Heritage
Series Trust for the fiscal year ended October 31, 1998. During the past year,
two new funds were introduced, bringing to six the total number of funds
available within Heritage Series Trust. On November 5, 1997, the Mid Cap Growth
Fund commenced operations followed on August 20, 1998, by the Aggressive Growth
Fund. The investment and financial information for each of these funds is
provided in this report. Because many of you have investments in more than one
of these funds, this combined annual report allows us to provide you the
investment information you need on each of your investments while reducing the
volume of mail you receive from us.
As we discussed in our semi-annual report, the U.S. stock market has been
dominated recently by two major trends. Large cap stocks have outperformed mid
and small cap stocks and "growth" stocks have been in favor at the expense of
"value" stocks. Not unexpectedly, the best performing fund in Heritage Series
Trust was our large cap growth fund, Heritage Growth Equity Fund. Similarly,
the poorest performer for the fiscal year was Heritage Small Cap Stock Fund,
which combines both growth and value investment styles in the management of its
portfolio. International stocks experienced significant volatility, rising in
the first half of the fiscal year, correcting sharply in August and September,
and recovering again in October. The table below gives the performance
information on each of the investment options in Heritage Series Trust for the
fiscal year ended October 31, 1998.
<TABLE>
<CAPTION>
FUND "A" SHARES(1) "C" SHARES(1)
---- --------------- --------------
<S> <C> <C>
Aggressive Growth Fund(2) ..................... + 7.42% + 7.28%
Eagle International Equity Portfolio .......... + 9.04% + 8.24%
Growth Equity Fund ............................ +22.84% +21.93%
Mid Cap Growth Fund(3) ........................ - 0.07% - 0.77%
Small Cap Stock Fund .......................... -20.96% -21.55%
Value Equity Fund ............................. - 3.52% - 4.27%
</TABLE>
In January 1998, we introduced class "B" shares of our equity funds. This
class of shares, like our class "C" shares, is available to investors at net
asset value. Class "B" shares are subject to a contingent deferred sales load
that declines from 5% in the first year after investment to zero after six
years. Due to their similar expense structures, the net asset value returns of
our class "B" shares were virtually the same as our class "C" shares during the
period since class "B" shares were introduced.
On the pages that follow, you will find portfolio commentaries and
performance graphs for each of these funds. Because the assets of the Small Cap
Stock Fund are allocated between two subadvisers, there are two letters related
to this fund. We hope that you will discuss with your financial advisors how
any of these funds you do not currently own may fit into your investment plans.
Thank you for your continuing investments with us. We hope that you will
call us at (800) 709-FUND (3863) with any comments or suggestions you wish to
share with us.
On behalf of all of us at Heritage, we hope you had a wonderful holiday
season and wish you a happy and healthy 1999.
Sincerely,
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Stephen G. Hill
President
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(1) Calculated without the imposition of front- or back-end sales charges.
(2) Performance numbers are from inception (August 20, 1998) through October
31, 1998.
(3) Performance numbers are from inception (November 6, 1997) through October
31, 1998.
1
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December 14, 1998
Dear Fellow Shareholders:
It is with a great sense of pride and enthusiasm that I have the privilege
of addressing you with my initial shareholders letter as portfolio manager of
Heritage's new Aggressive Growth Fund.
From inception (August 20, 1998) through October 31, 1998, the Class A
Shares of the fund advanced a healthy 7.4%(1), compared to a negative 6.0% for
the Russell 2000 Growth Index. Although we are very pleased with the
performance, we had the good fortune of still having a large cash position as
the market was bottoming in early October.
As it is our practice, we will pursue a fundamental research approach to
identifying stocks which we believe have strong growth prospects but are
somewhat misunderstood by Wall Street. We find that this is generally reflected
in a low price earnings ratio compared with favorable growth prospects and
creates opportunities for us to add value through astute stock selection.
As would be anticipated at October 31, 1998 the Aggressive Growth Fund is
about 19% invested in data processing, with another 11% in each
electronics/electric, leisure/amusement, and services. About 8% is in
telecommunications.
Going forward, we intend to increase our exposure to the health care
industry and will attempt to participate in the rapid growth of the Internet,
while attempting to guard the fund from the rampant speculation in that sector.
I'm certainly pleased the fund is off to a good start. I particularly want
to thank those investors who came into the fund at a time when it took some
contrarian thinking to invest in aggressive growth funds.
As always I will endeavor to do my best for you and wish you and your
family a happy and healthy holiday season and a prosperous New Year.
Sincerely,
[GRAPHIC OMITTED]
Bert Boksen
Senior Vice President
Eagle Asset Management, Inc.
Portfolio Manager, Aggressive
Growth Fund
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(1) Calculated without the imposition of front- or back-end sales charges.
2
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* Total returns for the Heritage Series Trust - Aggressive Growth Fund Class A,
Class B and Class C Shares are calculated in conformance with Item 21 of
Form N-1A, which assumes reinvestment of dividends and a sales load of 4.75%
for Class A Shares. Performance presented represents historical data. The
investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's past performance is not indicative of future
performance and should be considered in light of the Fund's investment
policy and objectives, the characteristics and quality of its portfolio
securities, and the periods selected. Since the period shown is less than
one year, the aggregate total return in lieu of the annualized total return
is used for Class A, Class B and Class C Shares.
3
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December 9, 1998
MARKET COMMENTARY from MARTIN CURRIE, INC.
Subadviser Eagle International Equity Portfolio
During your Fund's fiscal year, International investors generally were rewarded
by investing in large liquid stocks in developed markets. Smaller stocks
throughout the world and almost all stocks in some emerging markets suffered in
the "flight to quality" by investors.
The continuing consequences of the crisis in Asia have affected confidence in
equity valuations and forecasts for world economic growth. The early part of
your Fund's fiscal year saw the major markets of Europe and the UK move ahead,
driven by falling bond yields and corporate activity. All time highs were
reached in July for many world markets. Following the crisis in Russia and
concern over stability of banking loans, most major markets gave back their
earlier gains, with financial stocks being particularly hard hit. Some relief
for the depressed Pacific markets came in October as the dollar weakened
allowing a reduction in interest rates. Investor confidence was further
restored on the news of the Japanese banking support package -- and most
international markets have recovered from the losses seen over August and
September. The Morgan Stanley Capital International Europe, Australia, Far East
Index ("EAFE Index") rose by 9.6% while the Class A Shares and Class C Shares
of the Eagle International Equity Portfolio (the "Fund") rose 9.04% and 8.24%,
respectively(1), leaving it in the top quartile of the international fund
category for the one year period ended October 31, 1998, as measured by Lipper
Analytical Services, Inc.(2)
JAPAN (13.4% of net assets at fiscal year end) continued to suffer from further
downgrades for economic and profit growth in 1999. The move towards providing a
safety net for the banking sector and strengthening of the yen, fostered the
return of liquidity to the region towards the end of the period. While we have
retained a high weighting towards the blue chip exporters, recent purchases
have included stocks whose revenues are less export-dependent.
We added substantially to CONTINENTAL EUROPE (53.4% of net assets at fiscal
year end). Nothing has changed in our emphasis on (1) stocks creating
shareholder value and (2) the restructuring of a number of sectors. Having
successfully played the consolidation of the financial sectors we took profits
in early September, ahead of the weakness in the wake of the Russian crisis.
The general move towards lower interest rates by the periphery European markets
has added technical support for both bonds and equity markets over the last
month. After a strong run, we reduced our UK position (21% of net assets at
fiscal year end) in April. The stock market suffered a general setback over
September, particularly with the collapse of the financial stocks. A change in
the interest rate cycle and weaker currency has again encouraged recovery.
Pressure has reduced on earnings forecasts and corporate activity has
increased.
ASIA (3.3% of net assets at fiscal year end) continued to suffer from fragile
confidence in currencies and the impact of the economic and financial crisis.
We maintained a defensive portfolio through exposure to Australia, Taiwan,
India, and Singapore. October witnessed a strong recovery, particularly for
markets such as Hong Kong, as dollar weakness removed pressure on associated
economies. We have started to selectively add to the region.
- ----------
(1) Calculated without the imposition of front- or back-end sales charges.
(2) Lipper Analytical Services, Inc. performance rankings for the Eagle
International Equity Portfolio Class A and Class C Shares were 85 and 105
out of 483 International Funds, for the 1 year period ended October 31,
1998. The performance numbers used for the Fund did not take into account
any front- or back-end sales charges. Past performance is no guarantee of
future results.
4
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Our exposure to EMERGING MARKETS was dramatically reduced over the period, with
the total sale of the remaining position in Latin America. In hindsight our
performance would have been enhanced had we exited Latin America sooner. Tough
economic conditions next year outweigh short term enthusiasm for Brazilian
reform. Holdings in Greece, Poland, Hungary and Turkey have proved profitable.
OUTLOOK
The global market correction in August and September reflected the adjustment
to slowing activity in world economies and significantly weaker corporate
profits in the year ahead. The ensuing cuts in global interest rates has had
both the impact of encouraging liquidity back into maturer markets and adding
vital support to the Pacific region. While we continue to favor broader
European equities, we are more encouraged with the outlook for Japan and Asia.
Latin America will remain out of favor as the full impact of recession is
revealed. Uncertainty over the extent of slower growth in 1999 will leave
markets generally volatile although we continue to invest liquidity on any
weakness.
On behalf of all of us at Martin Currie, Inc., we appreciate the confidence you
have in us. We look forward to reporting to you again in the Spring of 1999.
5
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(SEE FOOTNOTES ON THE FOLLOWING PAGE)
6
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* Average annual returns for the Heritage Series Trust - Eagle International
Equity Portfolio Eagle Class, Class A, Class B and Class C Shares are
calculated in conformance with Item 21 of Form N-1A, which assumes
reinvestment of dividends and a sales load of 4.75% for Class A Shares.
Performance presented represents historical data. The investment return and
principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
The Fund's past performance is not indicative of future performance and
should be considered in light of the Fund's investment policy and
objectives, the characteristics and quality of its portfolio securities, and
the periods selected. Since the period shown is less than one year, the
aggregate total return in lieu of the annualized total return is used for
Class B Shares.
7
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December 17, 1998
Dear Fellow Shareholders:
The Heritage Series Trust - Growth Equity Fund has continued to perform well
for the year and the trailing 12 months. Year to date through October 31, 1998,
the Class A Shares of the fund ranks in the 15th percentile by Lipper
Analytical Services, Inc. relative to their respective growth equity index.(1)
Likewise, for the 52 week period ending October 29, 1998 the fund has
outperformed the S&P 500 and ranks in the 12th percentile by Lipper Analytical
Services, Inc.(2)
The Fund currently has 30 equity investments that we consider to be premier,
quality growth stocks. We believe each company is expected to grow its earnings
at a minimum of 12% per year for the next three years and maintain a 15% return
on equity. In addition, we focus on owning companies with consistent,
predictable earnings and businesses that have established a sustainable
competitive advantage in their industry.
Important sectors in the Fund in order of weighting include healthcare,
technology, retail, and financial services. Through our fundamental research,
we believe these sectors offer the best opportunities for growth, as they
possess the wealth creating characteristics that we demand from our
investments. Healthcare has been an area of outstanding performance over the
last year as improving fundamentals have driven the group. Technology continues
to be a sector of great opportunity as businesses strive to become more
efficient and require better information to achieve a competitive advantage.
Retail also represents an area of growth as the domestic economy continues to
do well. Although we have reduced our exposure to financial services in the
last six months due to global economic concerns and lack of earnings
visibility, it continues to be a sector which offers excellent growth driven by
improving efficiencies from consolidation and positive demographic trends.
During the one-year ending October 31, 1998, the stocks that have positively
impacted the Fund's return included Dell Computer Corporation, Lucent
Technologies, Inc., Warner-Lambert Company, Cisco Systems, Inc., and Home
Depot, Inc. All of these stocks returned over 50% during the last year. These
stocks have done well due to superior earnings growth and expanding price to
earnings multiples. In contrast, PeopleSoft, Chase Manhattan, Morgan Stanley,
and Gillette all hurt the performance of the Fund and where sold due to their
deteriorating earnings growth and future prospects.
Earnings growth within the portfolio continues to be robust. Looking to 1999,
we believe the average company in our portfolio is expected to grow 23% versus
4% for the S&P 500. Likewise, the long-term growth rate of the fund is 19%
versus 6% for the S&P 500. In addition, our focus on companies with consistent,
predictable earnings gives us a high degree of confidence in this growth for
1999. Given the economic uncertainty for 1999, we believe investors will be
willing to pay a premium for the relative earnings growth of our premium
quality companies. We continue to invest new cash flows to keep the Fund fully
invested with cash levels under 10%. Annual turnover remains in the 25%-55%
range.
Looking forward to 1999 we remain cautiously optimistic. There appears to be
seven reasons to be bullish for the investor who looks at the big picture:
1) The U.S. economy is doing quite well. There is evidence of a modest slow
down and we cannot remain immune forever to the global economic turmoil but
so far our corporate profits and general economy remains strong. Consumer
spending during the Christmas holiday season appears to enjoy excellent
momentum.
2) Inflation figures are sensational. The CPI is currently tracking between 1
to 2% and the stock market thrives in low inflation environments. Oil is
below $12 a barrel.
- ----------
(1) Lipper Analytical Services, Inc. performance rankings for the Heritage
Series Trust - Growth Equity Fund Class A Shares were 143 out of 982
Growth Funds, from December 31, 1997 to October 29, 1998. The performance
numbers used for the Fund did not take into account any front- or back-end
sales charges. Past performance is no guarantee of future results.
(2) Lipper Analytical Services, Inc. performance rankings for the Heritage
Series Trust - Growth Equity Fund Class A Shares were 105 out of 926
Growth Funds, for the 52 weeks ending October 29, 1998. The performance
numbers used for the Fund did not take into account any front- or back-end
sales charges. Past performance is no guarantee of future results.
8
<PAGE>
3) Interest rates are at a generational low. The 30-year Treasury bond is
currently priced to yield in the 4.75% - 5.25% range. The trend is toward
lower rates with the Federal Reserve providing liquidity. The stock market
is fueled by lower rates.
4) We are running a Federal budget surplus. At fiscal year end September 30,
1998 the budget recorded a surplus over $70 billion.
5) We have already suffered the pain of a bear market sell-off. Some observers
believe that the summer bear market was too short and the rebound to quick
to be meaningful. However we counter with the view that in today's world of
technology, communication and CNBC, investors process information faster
and time becomes compressed.
6) Capital gains taxes have been lowered to 20% and the holding period reduced
from 18 months to 12 months.
7) There is a reasonable scenario that marginal tax rates will be lowered in
the next few years. All other things being equal, the stock market would
prefer to have more money in the hands of individuals and the private
sector rather than the government.
With these seven factors in place we believe that the investment environment
continues to be hospitable for the ownership of common stocks.
Sincerely,
[GRAPHIC OMITTED]
Kenneth W. Corba
Executive Vice President
Chief Investment Officer
Eagle Asset Management, Inc.
Portfolio Manager, Growth Equity Fund
9
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[GRAPHIC OMITTED]
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* Average annual returns for the Heritage Series Trust - Growth Equity Fund
Class A, Class B and Class C Shares are calculated in conformance with Item
21 of Form N-1A, which assumes reinvestment of dividends and a sales load of
4.75% for Class A Shares. Performance presented represents historical data.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's past performance is not indicative of future
performance and should be considered in light of the Fund's investment
policy and objectives, the characteristics and quality of its portfolio
securities, and the periods selected. Since the period shown is less than
one year, the aggregate total return in lieu of the annualized total return
is used for Class B Shares.
10
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December 9, 1998
Dear Fellow Shareholders:
We are pleased to be presenting the first annual report for the Heritage
Series Trust - Mid Cap Growth Fund. The Fund commenced operations on November
6, 1997. As such the total return history for the period ended October 31, 1998
is one week shy of a full 52 week one-year return. During this time period,
your fund returned -.07%, for the Class A shares(1), which compares to a total
return of -.92% for the Russell Mid Cap Growth Index. From December 31, 1997 to
October 31, 1998, your Fund's -1.04%(1) return, while negative, compares
favorably to both the -6.88% return for the Russell Mid Cap Growth Index and
the -5.36% return for the average mid cap fund.
The market environment within the past six months has been extremely
challenging for small and mid cap investors as the market continues to move
higher for the largest capitalization stocks, while smaller capitalization
stocks have moved sharply lower. This divergence (+14.5% for the large cap S&P
500 index versus a 12.8% decline in the small stock Russell 2000 Index), is
gargantuan by historical perspectives. From our view, this market environment
has created some compelling investment opportunities. Smaller companies
currently have two or three times the expected earnings growth compared to
large cap companies yet trade at a considerable discount to both their growth
rate and compared to the price to earnings multiple on S&P 500. Even more
surprising is that these same small capitalization companies have mostly
domestic operations and are much less exposed to the turmoil of the global
economic events that affect larger multi-national companies.
Accordingly, our "growth-at-a-reasonable price" investment approach has
led us to many industry groups where we feel the smaller companies within that
industry are at much more attractive valuations relative to their larger
capitalization comparisons. Examples of smaller companies that are compelling
investments compared to the larger cap companies within the same industry are:
CMAC Investment Corporation within specialty finance, Executive Risk, Inc.
within insurance, Western Wireless Corporation within telecommunications, and
Catalina Marketing Corporation within the advertising industry. Approximately
30% of your Fund is currently invested in companies between $600 million and
$1.0 billion in stock market capitalization. While this range is at the lower
end of the range within the universe of mid cap funds, this is an area where we
currently find the most attractive investments. The median market cap of the
stocks in your Fund is currently $1.3 billion, which is considerably smaller
than the average mid cap fund.
Our "growth-at-a-reasonable price" investment discipline also has a
benefit in the form of less volatility during turbulent markets. Since our
approach is to be disciplined over the valuation we will pay for a growth
stock, frequently we find that our lower price to earnings multiple stocks hold
up better during down markets than the typical growth stock. Even though the
past six months have been a treacherous environment for smaller stocks, several
smaller stocks have added to returns as a result of our disciplined approach to
valuation. These stocks include Alliant Techsystems, Inc. (aerospace), PSS
World Medical (distributor of medical products), Comfort Systems (heating/air
conditioning systems), Patterson Dental (distributor dental products), and The
Men's Wearhouse (specialty retail).
Other larger, more traditional mid cap companies that have added to
returns include: Whitman Corporation (Pepsi bottler), Ingram Micro, Inc.
(computer distributor), Symbol Technologies, Inc. (manufacturer of bar code
scanners), Lincare Holdings, Inc. (bottled oxygen/respiratory services), Finova
Group, Inc. (consumer finance), Progressive Corporation (auto insurance),
Protective Life Corporation (diversified insurance).
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(1) Calculated without the imposition of front- or back-end sales charges.
11
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We have sold several positions that have disappointed, including many of
the small companies where weaknesses in the company's fundamentals were
exacerbated by the recent bear market for small cap stocks. These stocks
include: Aftermarket Technology (auto parts), Amerin Corporation (mortgage
insurance), Boise Cascade Office Products, CCC Information Services (insurance
services/processing), and NFO Research (marketing/advertising). Energy has also
been a disappointing sector. Energy holdings that were sold include Camco
Int'l, Horizon Offshore, and Precision Drilling. Positions that have yet to
work out but where we checked the company's fundamentals and continue to be
holders include: Artesyn Technologies, Safeguard Scientifics, and Mutual Risk
Insurance.
Tempering these losses has been the fortunate experience of having several
of the stocks in your Fund bought out by larger companies - usually at an
attractive premium. These stocks include American Bankers Insurance (life
insurance), Berg Electronics (electrical components), LCI International (long
distance communications), and Vanguard Cellular (cellular communications).
As we enter 1999 we feel confident that your Fund is well positioned for
slow, but continued growth in our domestic economy. The strong growth
characteristics of many of the holdings should be rewarded as small and mid cap
stocks rebound off these low levels. However, your Fund also contains a balance
of stable growth companies should the equity markets continue its recent
volatile course.
We thank you for your support during our first year together and we will
continue to do our best for all of us as shareholders.
Sincerely,
[GRAPHIC OMITTED]
Todd L. McCallister
Senior Vice President
Eagle Asset Management, Inc.
Portfolio Manager, Mid Cap Growth Fund
12
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[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
* Average annual returns for the Heritage Series Trust - Mid Cap Growth Fund
Class A, Class B and Class C Shares are calculated in conformance with Item
21 of Form N-1A, which assumes reinvestment of dividends and a sales load of
4.75% for Class A Shares. Performance presented represents historical data.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's past performance is not indicative of future
performance and should be considered in light of the Fund's investment
policy and objectives, the characteristics and quality of its portfolio
securities, and the periods selected. Since the period shown is less than
one year, the aggregate total return in lieu of the annualized total return
is used for Class A, Class B and Class C Shares.
13
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December 9, 1998
Dear Fellow Shareholders:
The past twelve months rank as among the most challenging I have endured
during my years in the investment industry. The breadth and depth of the small
cap correction is certainly reminiscent of 1973 and 1974. Through September 30,
1998, 22 of the 38 major North American equity indexes posted negative
year-to-date total returns. What worked? The largest blue chip stocks,
technology and utilities. During the first six months of 1998, extreme buoyancy
in the technology and large cap markets masked increasing weakness in the broad
market. The wheels came off in the third quarter, while the damage was most
severe in the small cap market, where it was widespread. It is often repeated
that the market is motivated by two emotions "Fear and Greed". We witnessed and
continue to witness "Greed" in the technology and top 100 large cap stocks
evidenced by the unworldly valuations assigned to companies with no earnings or
with growth rates that would pay back investors sometime late in the 21st
century.
During the later stages of this bear market, in late September and into
October we began adjusting our portfolio to take advantage of the anticipated
rally in small caps. We have attempted to focus our efforts on the companies in
the portfolio in which we have the greatest confidence. These companies are
typically the best operators in their industries. The companies at the top of
the portfolio are Eltron International, Inc.; Doral Financial Corporation; John
Wiley & Sons, Inc.; LTC Properties, Inc.; and National Data Corporation. Eltron
announced in late July its acquisition by Zebra Technologies, Inc. The combined
company will be the leader in bar code printing and we plan to hold the new
company's stock. John Wiley & Sons, Inc. is one of the few remaining
independent publishers and as such is a strong candidate for acquisition. Doral
is a leading financial institution in Puerto Rico. It is a solid operator in
its own right, but as one of the largest mortgage lenders in Puerto Rico it is
an excellent acquisition candidate for a large U.S. based financial
institution. National Data continues to turn in consistent performance quarter
after quarter and remains one of our favorite long-term holdings.
On the downside, performance was negatively impacted by the following
stocks: EA Industries, Inc.; Philip Services Corporation; Enamelon; and
Servico, Inc. EA Industries was a turnaround situation which ran into
difficulties executing its strategy which led to a capital crunch prolonging
the turnaround and weakening the stock. Philip Services suffered several
setbacks during the year beginning with unauthorized copper trading by an
employee that caused the company to restate past earnings. Enamelon, a
toothpaste manufacturer, was hurt by its size and by timing, just as the
company was to introduce its new product, Colgate Palmolive rolled out its new
"Total" toothpaste. Finally, Servico suffered as the market looked disprovingly
on a merger that has since been completed.
Today the slate has been wiped clean. Small cap investors have been given
a new lease on life. As we end the fourth quarter of 1998, we have a sense of
optimism. As the world economy continues to be battered by indecisiveness in
Japan (akin to a deer in the headlights), lack of leadership in Russia,
stagnancy in Asia and retrenchment in Latin America, the United States
continues to stand out as an economic haven. While economists continue to
trumpet an earnings recession among large cap companies, U.S. domestic economic
reports continue to be favorable which is positive for small cap companies
whose markets are primarily domestic. Consequently, we see a return to "Reason"
coming in the small cap market as investors, fretful of the daunting issues
facing large cap multi-national firms, begin to search for true fundamental
quality.
That quality resides in the small cap market. Relative valuations continue
to be at historic lows while fundamental operating performance continues to be
strong. Our small cap portfolio companies have posted average five year
earnings growth of 13% and we believe are projected to grow earnings at 22%
while the average S&P 500 company has grown earnings 13% over the past five
years and is projected to
14
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grow earnings just 7% at best. Our average company has increased revenues 27%
in the last twelve months and 16% on average over the last five, while the
average S&P 500 company has increased revenues just 4% in the last twelve
months and just 5% on average for the last five years. Yet, the S&P 500
commands a price/earnings multiple equal to the Russell 2000.
Good, well-run companies don't stay cheap for long. If financial buyers do
not recognize the value inherent in these stocks, strategic buyers will,
through mergers or acquisitions. More than 40% of our portfolio companies are
currently actively repurchasing their stock and fifteen of our companies have
been acquired or merged in the past 18 months. Interestingly, five of the top
ten performers on the NYSE for the third quarter were acquired and another was
the subject of takeover rumors. We anticipate that M&A activity and share
repurchase activity will only increase.
Patience is a virtue, doubly so in small cap investing, but that patience
is often rewarded in the small cap market. We anticipate 1999 being the reward
for enduring 1998. We will continue to work hard for you.
Sincerely,
[GRAPHIC OMITTED]
James D. Awad
Chairman
Awad Asset Management, Inc.
Portfolio Manager, Small Cap Stock Fund
15
<PAGE>
December 14, 1998
Dear Fellow Shareholders:
The six months ended October 31, 1998, was a difficult period for small
cap investors as the Russell 2000 Index declined some 17.6%. The decline was
even more frustrating during that period as the Standard & Poor's 500 Index
gained 4.3%.
The small cap damage was even more widespread than indicated by the
averages as a Salomon Smith Barney study indicated, at October 31, 1998, the
average stock under $2 billion market capitalization declined some 31% from
it's highs, most of which were achieved in April 1998. Interestingly, stock
performance seemed highly correlated to market capitalization(1):
<TABLE>
<CAPTION>
By Capitalization Unweighted Performance
<S> <C>
$250 Million -27.60%
$250 Million - $2 Billion -21.75%
$2 Billion - $5 Billion -11.39%
$5 Billion - $20 Billion -0.61%
$20 Billion 13.36%
</TABLE>
Despite the weakness in the small cap market, several stocks with positive
contributions to the portfolio included CDW Computer Centers, Inc., ABR
Information Services, Inc., Bindley Western Industries, Inc., Southwest
Securities Group and INSpire Insurance Solutions, Inc.
Largest decliners included Pharmerica, Inc., Genesco, Inc., Sunglass Hut
International, Inc. and Coherent, Inc., all of which reflected earnings
concerns, Servico, Inc. also declined significantly, due to financing issues.
During the period, new purchases included ABR Information Services, Inc.,
an outsourcer of benefits administration and payroll resources. Brightpoint
Inc., a leading distributor of cellular phones, Global Imaging Systems Inc., a
distributor and servicer of office equipment, and Micro Warehouse Inc., a
direct marketer of computer products.
Sales during the period included Allen Telecom, Inc., Alternative Living
Services, Burlington Coat Factory Warehouse, CDI Corporation, Envirosource,
Inc., Furniture Brands International, Inc. and Symmetricom, Inc.
Looking forward, despite continued fears of an economic slow down in 1999,
I believe small caps are poised for a strong recovery. Relative valuations
compared to larger capitalization stocks are at or near historic lows. In
addition, absolute valuations of small cap stocks appear attractive given their
strong anticipated growth, low price earnings ratios and a benign interest rate
environment.
Our strategy going forward will continue to focus on those companies we
believe are poised for strong growth, yet still trade at reasonable price
earnings multiples. Our focus will be on non-cyclical domestic companies.
As always I thank you for your support and confidence and wish you and
your family a happy holiday season and a prosperous New Year.
Sincerely,
[GRAPHIC OMITTED]
Bert Boksen
Senior Vice President
Eagle Asset Management, Inc.
Portfolio Manager, Small Cap Stock Fund
- ----------
(1) Courtesy of Salomon Smith Barney
16
<PAGE>
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
(SEE FOOTNOTES ON THE FOLLOWING PAGE)
17
<PAGE>
[GRAPHIC OMITTED]
* Average annual returns for the Heritage Series Trust - Small Cap Stock Fund
Class A, Class B and Class C Shares are calculated in conformance with Item
21 of Form N-1A, which assumes reinvestment of dividends and a sales load of
4.75% for Class A Shares. Performance presented represents historical data.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's past performance is not indicative of future
performance and should be considered in light of the Fund's investment
policy and objectives, the characteristics and quality of its portfolio
securities, and the periods selected. Since the period shown is less than
one year, the aggregate total return in lieu of the annualized total return
is used for Class B Shares.
18
<PAGE>
December 9, 1998
Dear Fellow Shareholders:
Simply put, value has not been a winning investment style this year and we
share in your frustration. Much like the fashion industry, investment "styles"
can move in and out of favor. Practicing value investing in a momentum-driven
growth market can seem, at times, quite masochistic; this year offers ample
evidence. However, our quest perseveres, more determined than ever. We continue
to build the portfolio one stock at a time, researching each as deeply as
possible before estimating its true, underlying intrinsic value. We are not
"chameleon" investors, constantly changing our strategy in a futile attempt to
time the market and chase performance results. We continue to decry those
"style drifters" and refuse to commit the cardinal sin of investing: abandoning
our discipline. It is imperative, especially at times like these, that we
maintain our approach . . . even when it's not working.
Consequently, we reiterate our dual roles as value investors: buy at a
significant discount and reduce overall risk. One of our investment strategies
has always been making sure we don't confuse attractive companies with
attractive investments. Many of today's high flyers will never live up to the
lofty expectations currently built into their stock prices . . . chasing
glamour isn't profitable in the long run. The hidden risk inherent in
overpaying is the forgotten variable in today's investment equation.
Conversely, prudent risk-taking (not an oxymoron) is a much more sound
investment approach. The favorable risk/reward scenarios indigenous to all
classic value opportunities frequently translate into significantly higher
rates of return for the patient investor in the long run.
Several of the individual investment themes we emphasized in the Fund at
the beginning of 1998 did not play out for us as we had anticipated. Our heavy
defensive posturing, particularly our over-weight positions in tobacco (Philip
Morris, RJR Nabisco, UST, Dimon) and healthcare (Columbia HCA, Humana,
Healthsouth) did not participate in this year's early bull run, especially in
the first half of the year. Traditional value sectors, such as chemicals
(Dupont, Crompton and Knowles, Morton International), basic materials
(Allegheny Teledyne, British Steel), and energy (Royal Dutch, British
Petroleum, Diamond Offshore, Sonat) also contributed to sluggish performance.
Other large individual positions with unique investment catalysts (Sunbeam,
Royal Philips Electronics, Toys R Us) also disappointed with unexpectedly
sluggish results. However, our heavy weighting in telecommunications
(BellSouth, SBC, AT&T) and several key takeovers (Stratus Computer, Essex
International, AMP, TIG Insurance) highlighted an extremely strong second half
of the year, and we feel the Fund is very well positioned to take advantage of
what should be a volatile and adventurous year ahead.
As we enter 1999, plenty gives us pause. The flight to quality that began
in October of 1997 has continued in earnest. Slowing domestic growth, declining
corporate profitability, excess worldwide capacity, and credit concerns have
been trumped by a dramatic rush of excess liquidity. Is this truly a "new era"
for investors? We doubt it. When the prices of overvalued stocks continue to
rise, many investors can imagine them going up forever. Most likely, that won't
happen. With prices of undervalued stocks going down, we might be tempted to
believe they might go down forever. That won't happen either. A famous value
investor once noted that in the short run, the market is a voting machine; in
the long run, it is a weighing machine. In other words, reversion to the mean
is an extremely powerful force. As such, we remain patient and continue our
search for true value in 1999.
Sincerely,
[GRAPHIC OMITTED]
Michael J. Chren
Senior Vice President
Eagle Asset Management, Inc.
Portfolio Manager, Value Equity Fund
19
<PAGE>
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
(SEE FOOTNOTES ON THE FOLLOWING PAGE)
20
<PAGE>
[GRAPHIC OMITTED]
* Average annual returns for the Heritage Series Trust - Value Equity Fund
Class A, Class B and Class C Shares are calculated in conformance with Item
21 of Form N-1A, which assumes reinvestment of dividends and a sales load of
4.75% for Class A Shares. Performance presented represents historical data.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's past performance is not indicative of future
performance and should be considered in light of the Fund's investment
policy and objectives, the characteristics and quality of its portfolio
securities, and the periods selected. Since the period shown is less than
one year, the aggregate total return in lieu of the annualized total return
is used for Class B Shares.
21
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - AGGRESSIVE GROWTH FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------------
<S> <C> <C>
COMMON STOCKS--85.4%(a)
- -----------------------
BROADCASTING--0.4%
------------------
3,000 Avid Technology, Inc.* ............ $ 77,625
----------
DATA PROCESSING--19.2%
-----------------------
11,000 CDW Computer Centers, Inc. ........ 824,312
43,000 Computer Management
Sciences, Inc.* ................. 795,500
39,400 Datastream Systems, Inc.* ......... 396,462
35,000 Firstwave Technologies, Inc.* ..... 73,281
22,000 Gartner Group, Inc.* .............. 437,250
13,000 HNC Software, Inc.* ............... 437,125
30,000 Sykes Enterprises, Inc.* .......... 588,750
----------
3,552,680
----------
EDUCATION--2.2%
---------------
12,000 Strayer Education, Inc. ........... 408,000
----------
ELECTRONICS/ELECTRIC--10.8%
---------------------------
25,000 Artesyn Technologies, Inc.* ....... 360,938
40,800 PSC, Inc.* ........................ 392,700
25,000 Proxim, Inc.* ..................... 373,437
17,000 World Access, Inc.* ............... 363,375
17,000 Xircom Inc.* ...................... 501,500
----------
1,991,950
----------
FINANCE--2.0%
-------------
30,000 Cash America International,
Inc.* ........................... 375,000
----------
FOOD--3.3%
----------
25,000 Dave & Buster's, Inc.* ............ 468,750
5,000 United Natural Foods, Inc.* ....... 139,375
----------
608,125
----------
HOTELS/MOTELS/INNS--2.4%
------------------------
30,000 Cavanaughs Hospitality
Corporation* .................... 350,625
10,000 Extended Stay America, Inc.* ...... 96,250
----------
446,875
----------
HOUSEHOLD PRODUCTS--2.9%
------------------------
70,000 Windmere-Durable Holdings,
Inc.* ........................... 538,125
----------
LEISURE/AMUSEMENT--11.0%
------------------------
25,000 Carnival Corporation .............. 809,375
30,000 Family Golf Centers, Inc.* ........ 631,875
24,000 Steiner Leisure, Ltd* ............. 585,000
----------
2,026,250
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
- -------------------------
MANUFACTURING/DISTRIBUTION--7.9%
--------------------------------
65,000 Brightpoint, Inc.* .................. 796,250
50,000 Mail-Well, Inc.* .................... 653,125
-----------
1,449,375
-----------
OIL & GAS--0.6%
---------------
10,000 Marine Drilling Company, Inc.* ...... 111,875
-----------
REAL ESTATE/LAND DEVELOPMENT--1.9%
----------------------------------
20,000 LNR Property Corporation ............ 355,000
-----------
RETAIL STORES--1.3%
-------------------
15,000 Chico's Fas, Inc.* .................. 236,250
-----------
SERVICES--11.2%
---------------
48,000 ABR Information Services, Inc.*...... 906,000
15,000 Healthcare Recoveries, Inc.* ........ 151,875
43,500 MPW Industrial Services
Group, Inc.* ...................... 435,000
25,000 Stewart Enterprises, Inc.,
Class "A" ......................... 576,563
-----------
2,069,438
-----------
TELECOMMUNICATIONS--8.3%
------------------------
40,000 Electromagnetic Sciences, Inc.*...... 582,500
15,000 Plantronics, Inc.* .................. 854,063
7,000 Powertel, Inc.* ..................... 104,125
-----------
1,540,688
-----------
Total Common Stocks
(cost $14,254,346)........................... 15,787,256
</TABLE>
<TABLE>
<CAPTION>
REPURCHASE AGREEMENT--15 9%(A)
- ------------------------------
<S> <C>
Repurchase Agreement with State Street
Bank and Trust Company, dated October 30,
1998 @ 5.3% to be repurchased at $2,940,298
on November 2, 1998, collateralize by
$2,665,000 United States Treasury Notes, 7.5%
due November 15, 2001, (market value
$2,996,097 including interest)
(cost $2,939,000) ............................. 2,939,000
-----------
TOTAL INVESTMENT PORTFOLIO
(cost $17,193,346)(b), 101.3%(a)............. 18,726,256
OTHER ASSETS AND LIABILITIES, net, (1.3%)(a)... (241,079)
-----------
NET ASSETS, 100.0%............................. $18,485,177
<FN>
- ----------
* Not an income-producing security.
(a) Percentages indicated are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is
substantially the same. Market value includes net unrealized appreciation
of $1,532,910 which consists of aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax
cost of $1,809,504 and aggregate gross unrealized depreciation for all
securities in which there is an excess tax cost over market value of
$276,594.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - EAGLE INTERNATIONAL EQUITY PORTFOLIO
INVESTMENT PORTFOLIO
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------------
<S> <C> <C>
COMMON STOCKS--90.2%(a)
- -----------------------
AUSTRALIA--1.2%
---------------
28,000 Westpac Banking Corporation* ..... $ 170,398
9,900 Lend Lease Corporation ........... 218,557
31,500 Mayne Nickless, Ltd .............. 145,398
----------
534,353
----------
DENMARK--0.6%
-------------
3,500 Unidamark A/S* ................... 266,751
----------
EGYPT--0.5%
-----------
15,000 Suez Cement Company* ............. 220,500
----------
FINLAND--1.9%
-------------
9,300 Nokia Corporation 846,378
----------
FRANCE--13.0%
-------------
3,318 L'Air Liquide SA ................. 555,399
9,500 AXA-UAP Groupe ................... 1,073,813
3,400 Groupe Danone* ................... 898,972
6,659 Compagnie Generale
des Eaux ....................... 1,520,955
1,100 Promodes ......................... 692,759
2,400 Societe Generale ................. 317,500
7,700 Elf Aquitaine SA ................. 891,143
----------
5,950,541
----------
GERMANY--12.1%
--------------
648 Bayerische Motoren
Werke AG ....................... 454,102
8,800 Bayerische Vereinsbank AG 698,581
5,200 Deutsche Bank AG ................. 323,332
1,700 Preussag AG* ..................... 627,045
1,100 SAP AG* .......................... 535,889
10,000 Siemens AG* ...................... 601,268
2,976 Allianz AG ....................... 1,020,446
13,100 Mannesmann AG .................... 1,289,043
----------
5,549,706
----------
GREECE--0.4%
------------
2,455 Alpha Credit Bank ................ 195,994
----------
HONG KONG--0.9%
---------------
95,000 China Telecom (Hong Kong),
Ltd.* .......................... 178,470
32,500 Hutchison Wampoa, Ltd. ........... 232,892
----------
411,362
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
-------------------------
INDIA--0.1%
-----------
8,032 Indian Opportunities Fund,
Ltd.*(c) ....................... 66,024
---------
ITALY--7.8%
-----------
95,000 Credito Italiano* ................. 509,896
103,472 ENI ............................... 615,323
48,200 IMI SPA ........................... 740,837
290,000 INA (1st Naz Association) ......... 798,603
150,700 Telecom Italia Mobil .............. 924,422
---------
3,589,081
---------
JAPAN--12.5%
------------
33,000,000 Sanwa International Finance ....... 215,839
13 NTT Mobile Communication* ......... 469,463
18,000 Canon, Incorporated ............... 340,453
3,000 FamilyMart Company ................ 152,084
8,000 Fuji Photo Film Company,
Ltd ............................ 293,018
13,000 Honda Motor Corporation ........... 390,290
7,000 Ito-Yokado Company, Ltd. .......... 408,303
17,000 Kao Corporation ................... 344,141
3,000 Mabuchi Motor Company, Ltd ........ 195,574
12,000 Marui Company, Ltd ................ 208,955
3,000 Promise Company, Ltd. ............. 135,615
2,000 Riso Kagaku Corporation ........... 112,369
5,000 Rohm Company, Ltd ................. 441,757
5,000 Secom Company, Ltd. ............... 370,990
17,000 Shin-Etsu Chemical Company,
Ltd. ........................... 338,309
7,800 Sony Corporation .................. 495,111
11,000 Taisho Pharmaceutical Company...... 294,390
18,000 Yamanouchi Pharmaceuticals ........ 515,697
---------
5,722,358
---------
NETHERLANDS--6.7%
-----------------
14,000 Ver Ned Utgebers .................. 484,038
5,600 Wolters Kluwer* ................... 1,084,963
23,500 Royal Ahold* ...................... 781,048
8,100 Aegon* ............................ 702,727
---------
3,052,776
---------
PHILIPPINES--0.1%
- ------------------
320,000 Belle Corporation* ................ 634
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - EAGLE INTERNATIONAL EQUITY PORTFOLIO
INVESTMENT PORTFOLIO
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
- -------------------------
SINGAPORE--0.6%
---------------
30,000 Overseas Union Bank (China) ...... $ 130,876
23,000 Singapore Airlines (SIA)* ........ 141,321
----------
272,197
----------
SPAIN--3.1%
-----------
5,500 Telefonica de Espana SA .......... 248,332
23,000 ENDESA* .......................... 579,653
57,000 Banco Central Hispanoamer
SA* ............................ 629,242
----------
1,457,227
----------
SWEDEN--1.6%
------------
16,000 LM Ericsson* ..................... 360,748
22,000 Astra AB ......................... 356,521
----------
717,269
----------
SWITZERLAND--5.7%
-----------------
3,970 Credit Suisse Group .............. 610,014
230 Nestle SA* ....................... 488,748
847 Novartis AG ...................... 1,524,888
----------
2,623,650
----------
TAIWAN--0.4%
------------
11,700 Taiwan American Fund* ............ 180,765
----------
UK--21.0%
---------
49,558 Safeway, PLC ..................... 248,835
64,000 Unilever, PLC .................... 642,700
14,000 British Sky Broadcasting* ........ 114,113
56,000 Cable & Wireless, PLC ............ 627,972
38,000 GKN, PLC ......................... 461,740
26,500 Allied Zurich* ................... 314,906
23,500 British American Tobacco
Industries* .................... 211,114
55,500 NFC, PLC ......................... 104,502
66,000 General Electric Company, PLC..... 527,466
21,500 Glaxo Wellcome, PLC .............. 667,873
121,000 Ladbroke Group, PLC .............. 443,007
22,000 Land Securities PLC .............. 310,220
74,000 LASMO, PLC ....................... 210,551
16,000 McKechnie, PLC ................... 89,175
56,000 Marks & Spencer, PLC ............. 414,743
22,000 National Westminster
Bank, PLC ...................... 371,528
29,000 Vodafone Group* .................. 388,298
36,950 Reckitt & Colman, PLC ............ 638,840
17,100 Royal Bank of Scotland
Group, PLC ..................... 226,672
69,000 Scottish Power, PLC .............. 679,053
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
- -------------------------
U.K. (CONTINUED)
----------------
87,000 Shell Transport & Trading
Company, PLC .................. 525,660
31,731 Smiths Industries, PLC .......... 424,865
45,000 Lloyds TSB Group, PLC ........... 555,459
25,999 Wassall, PLC .................... 82,460
8,000 Zeneca Group .................... 307,157
-----------
9,588,909
-----------
Total Common Stocks
(cost $35,935,938).................... 41,246,475
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MARKET
AMOUNT DATE VALUE
--------- ---------- ----------
<S> <C> <C> <C>
BONDS--1.4%(a)
- --------------
JAPAN--0.9%
- --------------
$ 420,000 MBL International
Finance (Bermuda),
3.0%(d) ............... 11/30/02 382,200
-----------
POLAND--0.5%
- ---------------
373,000 Electrim, 2% ............ 05/30/04 237,558
-----------
Total Bonds (cost $690,351)........................... 619,758
-----------
Total investment portfolio
excluding repurchase agreement
(cost $36,626,289).................................. 41,866,233
</TABLE>
<TABLE>
<CAPTION>
REPURCHASE AGREEMENT--0.8%(A)
- -----------------------------
<S> <C>
Repurchase Agreement with State Street
Bank and Trust, dated October 30, 1998 @
5.3% to be repurchased at $378,167 on
November 2, 1998, collateralized by $375,000
United States Treasury Notes, 5.375% due
June 30, 2000, (market value $388,596
including interest) (cost $378,000)................... 378,000
-----------
TOTAL INVESTMENT PORTFOLIO
(cost $37,004,289)(b), 92.4%(a)..................... 42,244,233
OTHER ASSETS AND LIABILITIES, net, 7.6%(a) ........... 3,494,344
-----------
NET ASSETS, 100.0% ................................... $45,738,577
===========
<FN>
- ----------
* Not an income producing security
(a) Percentages indicated are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is
substantially the same. Market value includes net unrealized appreciation
of $5,239,944 which consists of aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax
cost of $6,701,675 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value of
$1,461,731.
(c) Martin Currie Investment Management Limited is the manager of the Indian
Opportunities Fund, Ltd.
(d) Convertible Bond.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - EAGLE INTERNATIONAL EQUITY PORTFOLIO
INVESTMENT PORTFOLIO
OCTOBER 31, 1998
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET % OF NET
VALUE ASSETS
-------------- --------
INDUSTRY DIVERSIFICATION
- ------------------------
<S> <C> <C>
Common Stocks
Aerospace ..................................... $ 424,865 0.9%
Airlines ...................................... 141,321 0.3%
Auto Manufacturers ............................ 844,393 1.8%
Auto Parts and Equipment ...................... 461,740 1.0%
Banking ....................................... 4,396,229 9.6%
Broadcasting .................................. 114,113 0.2%
Building Materials ............................ 220,500 0.5%
Capital Goods ................................. 112,369 0.2%
Chemicals ..................................... 893,707 2.0%
Conglomerates ................................. 232,892 0.5%
Consumer Goods and Services ................... 2,008,925 4.4%
Cosmetics and Toiletries ...................... 344,141 0.8%
Data Processing ............................... 535,889 1.2%
Electronic and Electrical Equipment ........... 2,261,175 4.9%
Energy ........................................ 615,322 1.3%
Finance ....................................... 2,501,543 5.5%
Food .......................................... 3,656,312 8.0%
Household Goods ............................... 638,840 1.4%
Industrials, Diversified ...................... 1,460,678 3.2%
Insurance ..................................... 3,111,892 6.8%
Leisure and Hotels ............................ 443,007 1.0%
Office Equipment .............................. 340,453 0.7%
Oil and Gas ................................... 1,627,353 3.6%
Pharmaceuticals ............................... 2,141,638 4.7%
Publishing .................................... 1,084,963 2.4%
Real Estate ................................... 528,778 1.2%
Recreational Products ......................... 293,018 0.6%
Retail Stores ................................. 1,280,837 2.8%
Securities .................................... 246,789 0.5%
Services ...................................... 370,990 0.8%
Steel and Iron ................................ 627,045 1.4%
Telecommunications ............................ 4,044,082 8.8%
Tobacco ....................................... 211,114 0.5%
Transportation and Storage .................... 249,900 0.6%
Utilities, Diversified ........................ 1,520,954 3.3%
Utilities, Electric ........................... 1,258,708 2.8%
Bonds ........................................... 619,758 1.4%
Repurchase Agreement ............................ 378,000 0.8%
----------- ----
Total Investments ............................... $42,244,233 92.4%
=========== ====
</TABLE>
- --------------------------------------------------------------------------------
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS UNREALIZED
CONTRACT IN DELIVERY APPRECIATION
TO DELIVER EXCHANGE FOR DATE (DEPRECIATION)
- ------------------------------------------- ---------------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
JPY 175,032,000 USD 1,483,448 01/13/99 $34,934
USD 1,560,000 JPY 175,032,000 01/13/99 41,618
SEK 1,454,125 USD 186,352 11/03/98 46
-------
Net Unrealized Appreciation $76,598
=======
<FN>
- ----------
SEK - Swedish Krona
JPY - Japanese Yen
USD - United States Dollar
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - GROWTH EQUITY FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ -----
COMMON STOCKS--94.8%(aA)
- -----------------------
ADVERTISING/COMMUNICATIONS--4.4%
-------------------------------
75,000 Omnicom Group, Inc. .............. $3,707,813
----------
BANKING--1.7%
-------------
25,000 First Union
Corporation. .................. 1,450,000
----------
BEVERAGES--1.2%
---------------
15,000 The Coca-Cola Company ......... 1,014,375
----------
BUILDING--3.0%
--------------
40,000 Illinois Tool Works, Inc. ........ 2,565,000
----------
DATA PROCESSING--16.4%
----------------------
60,000 Cisco Systems, Inc.* ............. 3,780,000
40,000 Dell Computer Corporation* ....... 2,625,000
40,000 EMC Corporation* ................. 2,575,000
85,000 HBO & Company .................... 2,231,250
25,000 Microsoft Corporation*. .......... 2,646,875
----------
13,858,125
----------
ELECTRONICS/ELECTRIC--3.1%
--------------------------
30,000 General Electric Company ......... 2,625,000
----------
FINANCE--17.0%
--------------
20,000 American Express Company ......... 1,767,500
50,000 Citigroup, Inc. .................. 2,353,125
65,000 Freddie Mac ...................... 3,737,500
50,000 Fannie Mae ....................... 3,540,625
60,000 Paychex, Inc. .................... 2,985,000
----------
14,383,750
----------
HOUSEHOLD PRODUCTS--2.6%
------------------------
20,000 The Clorox Company ............... 2,185,000
----------
INSURANCE--3.0%
---------------
30,000 American International
Group, Inc. .................... 2,557,500
----------
MEDICAL EQUIPMENT/SUPPLY--3.2%
------------------------------
35,000 Guidant Corporation .............. 2,677,500
----------
PHARMACEUTICAL--16.5%
---------------------
25,000 Bristol-Myers Squibb Company...... 2,764,062
20,000 Cardinal Health, Inc. ............ 1,891,250
MARKET
SHARES VALUE
------ -----
COMMON STOCKS (CONTINUED)
- -------------------------
25,000 Pfizer, Inc. ......................... 2,682,813
30,000 Schering-Plough Corporation .......... 3,086,250
45,000 Warner-Lambert Company ............... 3,526,875
----------
13,951,250
----------
RETAIL STORES-15.8%
-------------------
40,000 The Gap, Inc. ........................ 2,405,000
65,000 Home Depot, Inc. ..................... 2,827,500
55,000 Kohl's Corporation* .................. 2,629,688
40,000 Wal-Mart Stores, Inc. ................ 2,760,000
55,000 Walgreen Company ..................... 2,677,812
------------
13,300,000
------------
TELECOMMUNICATIONS-6.9%
-----------------------
35,000 Lucent Technologies, Inc. ............ 2,806,562
55,000 MCI WorldCom, Inc.* .................. 3,038,750
-----------
5,845,312
-----------
Total Common Stocks
(cost $56,501,352)................................. 80,120,625
REPURCHASE AGREEMENT -- 5.4%(a)
- -------------------------------
Repurchase Agreement with State
Street Bank and Trust Company,
dated October 30, 1998 @ 5.3%
to be repurchased at $4,600,031 on
November 2, 1998, collateralized by
$4,170,000 United States Treasury
Notes, 7.5% due November 15, 2001,
(market value $4,688,077 including
interest) (cost $4,598,000) ......................... 4,598,000
-----------
TOTAL INVESTMENT PORTFOLIO
(cost $61,099,352)(b), 100.2%(a)................... 84,718,625
OTHER ASSETS AND LIABILITIES, net, (0.2%)(a) ........ 198,846)
-----------
NET ASSETS, 100.0% .................................. $84,519,779
===========
- ----------
* Not an income-producing security.
(a) Percentages indicated are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is
substantially the same. Market value includes net unrealized appreciation
of $23,619,273, which consists of aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax
cost of $23,619,273.
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - MID CAP GROWTH FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ -----
COMMON STOCKS--96.2%(a)
- -----------------------
ADVERTISING/COMMUNICATIONS--3.1%
---------------------------------
18,000 Catalina Marketing Corporation*.... $ 858,375
----------
AEROSPACE--3.0%
---------------
12,000 Alliant Techsystems, Inc.* .......... 840,000
----------
BEVERAGES--3.1%
---------------
40,000 Whitman Corporation .................. 857,500
----------
CHEMICALS--1.4%
---------------
8,500 Minerals Technologies, Inc. .......... 387,281
----------
DATA PROCESSING--14.7%
----------------------
36,000 Anixter International, Inc.* ......... 555,750
3,000 DocuCorp International, Inc.* ........ 11,625
19,000 Ingram Micro Inc., Class "A"* ........ 864,500
9,000 Network Associates, Inc.* ............ 382,500
20,000 Safeguard Scientifics, Inc.* ......... 536,250
5,000 Symbol Technologies, Inc. ............ 223,750
17,000 Synopsys, Inc.* ....................... 769,250
23,000 Zebra Technologies Corporation,
Class "A"* ........................ 753,250
----------
4,096,875
----------
EDUCATION--2.7%
---------------
21,800 Strayer Education, Inc. .............. 741,200
----------
ELECTRONICS/ELECTRIC--2.8%
--------------------------
21,000 Artesyn Technologies, Inc.* .......... 303,187
15,000 Cadence Design Systems, Inc.* ........ 320,625
5,000 Molex, Inc. .......................... 163,438
----------
787,250
----------
FINANCE--7.6%
-------------
22,000 CMAC Investment Corporation........... 921,250
31,000 Enhance Financial Services
Group, Inc. ........................ 761,437
9,000 The FINOVA Group, Inc. ............... 438,750
----------
2,121,437
----------
FOOD--3.2%
----------
20,000 Corn Products, International, Inc. 570,000
18,000 Ralcorp Holdings, Inc.* .............. 317,250
----------
887,250
----------
HEALTH CARE CENTERS--7.2%
-------------------------
26,000 HCR Manor Care, Inc.* ................ 845,000
7,500 Lincare Holdings, Inc.* .............. 299,531
17,000 Universal Health Services, Inc.*...... 872,313
----------
2,016,844
----------
INSURANCE--14.0%
----------------
8,000 American Bankers Insurance
Group, Inc. ........................ 357,500
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
- -------------------------
INSURANCE (CONTINUED)
---------------------
14,000 Executive Risk, Inc. .................... 665,000
23,000 Mutual Risk Management, Ltd.............. 777,688
4,600 Progressive Corporation ................. 677,350
22,700 Protective Life Corporation ............. 841,318
20,000 Provident Companies, Inc. ............... 581,250
----------
3,900,106
----------
LEISURE/AMUSEMENT--3.3%
-----------------------
41,000 International Game
Technology ........................... 925,063
----------
MACHINERY--2.5%
---------------
28,000 Sybron International
Corporation* ......................... 693,000
----------
MANUFACTURING/DISTRIBUTIONS--1.9%
---------------------------------
15,000 Kaydon Corporation ..................... 526,875
----------
MEDICAL EQUIPMENT/SUPPLY--2.2%
------------------------------
15,000 Patterson Dental Company* .............. 618,750
----------
PHARMACEUTICAL--2.5%
--------------------
20,000 Omnicare, Inc. ......................... 691,250
----------
PUBLISHING--11.1%
-----------------
40,000 Hollinger International, Inc. .......... 520,000
20,000 Valassis Communications, Inc.* ......... 797,500
16,000 John Wiley & Sons, Inc.,
Class "A" ............................ 585,000
20,200 World Color Press, Inc.* ............... 613,575
23,000 Harte-Hanks Communications,
Inc.* ................................ 559,188
----------
3,075,263
----------
RETAIL STORES--1.7%
-------------------
19,400 The Men's Wearhouse, Inc.* ............. 470,450
----------
SERVICES--4.5%
--------------
18,750 Iron Mountain, Inc.* ................... 573,047
24,000 Unifirst Corporation ................... 667,500
----------
1,240,547
----------
TELECOMMUNICATIONS--3.7%
------------------------
10,000 Black Box Corporation* ................. 333,750
34,10 Western Wireless Corporation,
Class "A"* ............................ 690,525
----------
1,024,275
----------
Total Common Stocks
(cost $25,821,511).............................. 26,759,591
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - MID CAP GROWTH FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1998
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
VALUE
------
REPURCHASE AGREEMENT--5.8%(a)
- -----------------------------
Repurchase Agreement with State
Street Bank and Trust Company,
dated October 30, 1998 @ 5.3% to be
repurchased at $1,627,719 on
November 2, 1998, collaterized by
$1,480,000 United States Treasury
Notes, 7.5% due November 15, 2001,
(market value $1,663,874 including
interest) (cost $1,627,000).............................. 1,627,000
-----------
TOTAL INVESTMENT PORTFOLIO
(cost $27,448,511)(b), 102.0%(a)...................... 28,386,591
OTHER ASSETS AND LIABILITIES, net, (2.0%)(a) ............ (557,585)
-----------
NET ASSETS, 100.0% ...................................... $27,829,006
===========
- ----------
* Not an income-producing security.
(a) Percentages indicated are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is
substantially the same. Market value includes net unrealized appreciation of
$938,080, which consists of aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost of
$2,280,284 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value of $1,342,204.
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - SMALL CAP STOCK FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS--89.3%aA)
- -----------------------
AEROSPACE--1.0%
---------------
117,000 Kellstrom Industries, Inc.* ......... $2,632,500
----------
BANKING--4.6%
-------------
100,000 BankUnited Financial
Corporation, Class "A"* ............. 906,250
125,000 Commercial Federal
Corporation ......................... 2,835,938
231,000 Doral Financial Corporation ........... 4,042,500
52,500 Independence Community Bank
Corporation ......................... 718,594
100,000 ITLA Capital Corporation* ............. 1,525,000
50,000 Pacific Crest Capital, Inc. ........... 756,250
28,000 PBOC Holdings, Inc.* .................. 269,500
20,750 Progress Financial Corporation ........ 294,391
55,000 Staten Island Bancorp, Inc. ........... 1,000,312
----------
12,348,735
----------
BROADCASTING--0.7%
------------------
70,000 Avid Technology, Inc.* .............. 1,811,250
----------
BUILDING--1.4%
--------------
190,000 Lennar Corporation .................. 3,847,500
----------
CHEMICALS--0.4%
---------------
80,000 Mississippi Chemical
Corporation ......................... 1,155,000
----------
CONGLOMERATES/DIVERSIFIED--0.3%
-------------------------------
25,900 Harsco Corporation .................. 848,225
----------
COSMETICS/TOILETRIES/DRUGS--0.3%
--------------------------------
100,000 NBTY, Inc.* ......................... 800,000
----------
DATA PROCESSING--13.6%
----------------------
50,000 CACI International, Inc.,
Class "A"* .......................... 837,500
35,000 CDW Computer Centers, Inc.* ......... 2,622,812
124,000 Cerner Corporation* ................. 2,774,500
201,500 Comdisco, Inc. ...................... 3,110,656
82,000 Computer Management Sciences,
Inc.* ............................. 1,517,000
121,550 Eclipsys Corporation* ............... 2,742,471
187,500 Health Management
Systems, Inc.* .................... 1,289,063
245,300 LanVision Systems, Inc.* ............ 306,625
90,000 National Data Corporation ........... 3,048,750
93,000 New Horizons Worldwide, Inc.*........ 1,720,500
154,875 Printronix, Inc.* ................... 1,955,296
55,000 Shared Medical Systems
Corporation ....................... 2,743,125
50,000 Simione Central Holdings, Inc.*...... 150,000
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
- -------------------------
DATA PROCESSING (CONTINUED)
---------------------------
200,000 Sykes Enterprises, Inc.* ............ 3,925,000
100,000 The Pathways Group, Inc.* ........... 1,587,500
97,500 TransAct Technologies, Inc.* ........ 438,750
166,500 Transition Systems, Inc.* ........... 1,737,844
112,500 Zebra Technologies Corporation,
Class "B"* .......................... 3,684,375
----------
36,191,767
----------
EDUCATION--2.1%
---------------
165,000 Strayer Education, Inc. ............. 5,610,000
----------
ELECTRONICS/ELECTRIC--3.0%
--------------------------
57,450 AMETEK, Inc. ........................ 1,217,222
253,000 Artesyn Technologies, Inc.* ......... 3,652,688
100,000 OYO Geospace Corporation* ........... 1,537,500
50,000 Photronics, Inc.* ................... 1,090,625
65,000 Trident International, Inc.* ........ 520,000
----------
8,018,035
----------
FILMED ENTERTAINMENT--0.1%
--------------------------
23,000 Todd-AO Corporation ................. 163,875
----------
FINANCE--2.5%
-------------
260,000 Cash America International, Inc...... 3,250,000
50,000 Investors Financial Services
Corporation ......................... 2,693,750
45,000 Richmond County Financial
Corporation ......................... 658,125
----------
6,601,875
----------
FOOD--0.8%
----------
104,000 J.M. Smucker Company,
Class "B" ........................... 2,177,500
----------
HEALTH CARE CENTERS--1.4%
-------------------------
70,000 American Retirement
Corporation* ........................ 1,067,500
75,000 Assisted Living Concepts, Inc.*...... 1,012,500
113,400 Horizon Health Corporation* ......... 956,813
17,388 LTC Healthcare, Inc.* ............... 41,297
125,000 ThermoLase Corporation* ............. 687,500
----------
3,765,610
----------
HOTELS/MOTELS/INNS--2.1%
------------------------
141,900 Cavanaughs Hospitality
Corporation* ........................ 1,658,455
110,000 MeriStar Hospitality
Corporation ......................... 2,035,000
382,200 Servico, Inc.* ...................... 1,863,225
----------
5,556,680
----------
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - SMALL CAP STOCK FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1998
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
- -------------------------
INSURANCE--3.7%
---------------
100,000 Annuity and Life Re
(Holdings), Ltd. ................. $2,337,500
142,600 Gryphon Holdings, Inc.* ............ 2,406,375
210,000 INSpire Insurance
Solutions, Inc.* ................. 5,250,000
----------
9,993,875
----------
LEATHER/SHOES--1.1%
-------------------
310,000 Genesco, Inc.* ....................... 1,860,000
115,000 Shoe Carnival, Inc.* ................. 1,063,750
----------
2,923,750
----------
LEISURE/AMUSEMENT--2.0%
-----------------------
35,800 Florida Panthers Holdings, Inc.*..... 349,050
70,300 Gaylord Entertainment
Company ........................... 1,862,950
85,000 International Speedway
Corporation, Class "A" ............ 2,624,375
19,200 Steiner Leisure, Ltd.* .............. 468,000
----------
5,304,375
----------
MACHINERY--3.7%
---------------
110,000 Applied Power, Inc. ................ 3,031,875
96,000 Blount International, Inc.,
Class "A" ........................ 2,106,000
85,478 Danaher Corporation ................ 3,413,778
45,000 Gradall Industries, Inc.* .......... 658,125
80,000 Tokheim Corporation* ............... 700,000
----------
9,909,778
----------
MANUFACTURING/DISTRIBUTIONS--5.2%
---------------------------------
184,800 Armor Holdings, Inc.* .............. 1,928,850
120,000 Brightpoint, Inc.* ................. 1,470,000
246,500 Gentex Corporation* ................ 3,620,469
50,000 Hawk Corporation, Class "A"* ....... 500,000
130,000 Hughes Supply, Inc. ................ 3,453,125
160,000 Mail-Well, Inc.* ................... 2,090,000
88,000 Metrika Systems Corporation* ....... 803,000
----------
13,865,444
----------
MEDICAL EQUIPMENT/SUPPLY--3.9%
------------------------------
585,000 Angeion Corporation* ............... 950,625
123,456 Angiosonics, Inc.*(c) .............. 370,368
247,500 ATS Medical, Inc.* ................. 1,361,250
100,000 Aviron* ............................ 1,900,000
210,000 Coherent, Inc* ..................... 2,467,500
95,333 Cooper Companies, Inc.* ............ 2,264,159
196,000 Somanetics Corporation* ............ 343,000
44,444 SurVivaLink Corporation*(c) ........ 26,666
54,800 Thermo Cardiosystems, Inc.* ........ 637,050
----------
10,320,618
----------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
- -------------------------
OFFICE EQUIPMENT--0.9%
----------------------
180,000 Global Imaging Systems, Inc.* ....... 2,272,500
---------
OIL & GAS--1.0%
---------------
400,000 Chaparral Resources, Inc.* .......... 350,000
88,700 Chieftain International, Inc.* ...... 1,740,738
60,000 Marine Drilling Company, Inc.*....... 671,250
---------
2,761,988
---------
PHARMACEUTICAL--2.5%
--------------------
76,200 Bindley Western Industries, Inc........ 2,762,250
50,000 Collateral Therapeutics, Inc.* ........ 262,500
15,500 Elan Corporation, PLC,
Sponsored ADR* ...................... 1,085,968
425,000 PharMerica, Inc.* .................... 1,434,375
50,000 Protein Design Labs, Inc.* ........... 1,200,000
---------
6,745,093
---------
POLLUTION CONTROL--1.7%
-----------------------
170,000 IMCO Recycling, Inc. ................ 2,348,125
100,000 Superior Services, Inc.* ............ 2,100,000
---------
4,448,125
---------
PUBLISHING--4.2%
----------------
40,000 Houghton Mifflin Company ............ 1,560,000
109,600 John Wiley & Sons, Inc.
Class "A" ........................... 4,007,250
185,000 World Color Press, Inc.* ............ 5,619,375
----------
11,186,625
----------
RAILROADS--0.7%
---------------
135,000 Genesee & Wyoming, Inc.* ............ 1,890,000
----------
REAL ESTATE INVESTMENT TRUST--4.3%
----------------------------------
60,500 Correctional Properties Trust ....... 1,175,969
39,700 Excel Legacy Corporation* ........... 109,175
145,000 Innkeepers USA Trust ................ 1,667,500
164,900 LTC Properties, Inc. ................ 2,823,913
152,700 Mid-Atlantic Realty Trust ........... 1,946,925
100,000 Nationwide Health Properties,
Inc. ................................ 2,306,250
63,960 New Plan Excel Realty Trust ......... 1,455,090
----------
11,484,822
----------
REAL ESTATE/LAND DEVELOPMENT--1.8%
----------------------------------
55,000 Cadiz, Inc.* ........................ 446,875
240,000 LNR Property Corporation ............ 4,260,000
----------
4,706,875
----------
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - SMALL CAP STOCK FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1998
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
- -------------------------
RETAIL STORES--3.9%
-------------------
180,000 Claire's Stores Inc. ............... $3,048,750
50,000 Cole National Corporation,
Class "A"* ....................... 1,037,500
120,000 Micro Warehouse, Inc.* ............. 2,617,500
230,000 Sunglass Hut
International, Inc.* ............. 1,063,750
125,000 Syms Corporation* .................. 1,257,813
125,000 The Sirena Apparel
Group, Inc.* ..................... 546,875
100,000 U.S. Vision, Inc.* ................. 775,000
----------
10,347,188
----------
SECURITIES--4.6%
----------------
85,000 Advest Group, Inc. ................. 1,763,750
70,000 Dain Rauscher Corporation .......... 2,380,000
188,332 Legg Mason, Inc. ................... 5,002,568
162,500 Southwest Securities
Group, Inc. ...................... 3,006,250
----------
12,152,568
----------
SERVICES--7.6%
--------------
163,500 ABR Information Services,
Inc.* ............................ 3,086,063
45,000 Boron, LePore & Associates,
Inc.* ............................ 1,215,000
82,500 Cunningham Graphics
International, Inc.* ............. 1,072,500
155,000 Dynamex, Inc.* ..................... 1,075,313
60,000 Healthcare Recoveries, Inc.* ....... 607,500
170,000 Interim Services, Inc.* ............ 3,612,500
50,000 Medical Manager Corporation*........ 1,243,750
230,000 MPW Industrial Services
Group, Inc.* ..................... 2,300,000
200,500 RCM Technologies, Inc.* ............ 3,020,031
160,000 StarTek, Inc.* ..................... 1,460,000
80,000 Stewart Enterprises, Inc.,
Class "A" ........................ 1,845,000
----------
20,537,657
----------
TELECOMMUNICATIONS--1.5%
- ---------------------------
40,000 American Tower Corporation* ......... 875,000
30,219 IXC Communications, Inc.* ............ 1,170,986
183,750 Periphonics Corporation* ............. 1,619,297
100,000 Trex Communications, Inc.*(c) ........ 400,000
----------
4,065,283
----------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
- -------------------------
TEXTILES--0.7%
--------------
73,000 Kellwood Company ................ 1,989,250
-----------
Total Common Stocks
(cost $242,582,126) ........................... 238,434,366
-----------
CONVERTIBLE PREFERRED STOCKS--0.3%(A)
- -------------------------------------
HEALTH CARE CENTERS--0.3%
-------------------------
60,000 Sun Financing Inc., 7% .......... 660,000
-----------
Total Convertible Preferred Stocks
(cost $1,500,000).............................. 660,000
-----------
RINCIPAL MARKET
AMOUNT VALUE
-------- ------
CONVERTIBLE BONDS--1.6%(A)
- --------------------------
DATA PROCESSING--0.0%
---------------------
$100,000 Proscape Technologies, Inc.
6.5%, Series "B" Subordinated
Convertible Debentures,
due 11/18/01(c) .............. 100,000
---------
HEALTH CARE CENTERS--0.3%
-------------------------
1,000,000 Assisted Living Concepts, Inc.
6.0%, due 11/01/02 ........... 810,000
---------
MEDICAL EQUIPMENT/SUPPLY--0.6%
------------------------------
1,000,000 Angeion Corporation
7.5%, due 04/15/03 ........... 817,500
1,000,000 Aviron Corporation
5.75%, due 04/01/05 .......... 797,500
---------
1,615,000
---------
REAL ESTATE INVESTMENT TRUST--0.7%
----------------------------------
2,000,000 American Retirement
Corporation
5.75%, due 10/01/02 .......... 1,640,000
155,000 LTC Properties, Inc.
8.25%, due 07/01/01 .......... 153,256
---------
1,793,256
---------
Total Convertible Bonds (cost $5,232,500) ..... 4,318,256
---------
Total investment portfolio
excluding repurchase agreement
(cost $249,314,626)(b), 91.2%(a)............. 243,412,622
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - SMALL CAP STOCK FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1998
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
VALUE
------
REPURCHASE AGREEMENT--11.4%(a)
- ------------------------------
Repurchase Agreement with State Street
Bank and Trust Company, dated October
30, 1998 @ 5.3% to be repurchased at
$30,516,472 on November 2, 1998,
collateralized by $26,650,000 United States
Treasury Notes, 6.38% due August 15, 2007,
(market value $31,098,305 including
interest) (cost $30,503,000) ............ 30,503,000
-----------
TOTAL INVESTMENT PORTFOLIO
(cost $279,817,626)(b), 102.6%(a) .... 273,915,622
OTHER ASSETS AND LIABILITIES, net, (6,834,152)
-----------
(2.6%)(a)
NET ASSETS, 100.0% ...................... $267,081,470
============
- ----------
* Non-income producing security.
(a) Percentages indicated are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is
substantially the same. Market value includes net unrealized depreciation
of $5,902,004, which consists of aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax
cost of $36,820,178 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value of
$42,722,182.
(c) Private placement securities are fair valued by the Board of Trustees.
ADR--American Depository Receipt.
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - VALUE EQUITY FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS--93.6%(a)
- -----------------------
AEROSPACE--2.3%
---------------
13,000 Raytheon Company, Class "B" ...... $ 754,813
BANKING--2.6%
-------------
15,000 Chase Manhattan Corporation ...... 852,188
---------
CHEMICALS--1.2%
---------------
16,000 Morton International, Inc. ....... 398,000
---------
CONGLOMERATES/DIVERSIFIED--4.3%
-------------------------------
35,000 Allegheny Teledyne, Inc. ......... 719,688
20,000 Fortune Brands, Inc. ............. 661,250
---------
1,380,938
---------
DATA PROCESSING--4.8%
---------------------
20,000 Electronic Data Systems
Corporation ...................... 813,750
5,000 International Business Machines
Corporation ...................... 742,188
---------
1,555,938
---------
ELECTRONICS/ELECTRIC--6.1%
--------------------------
23,551 AMP, Inc. ........................ 967,062
18,000 Philips Electronics N.V.,
NY Shares, ADR ................... 987,750
---------
1,954,812
---------
FINANCE--6.7%
-------------
17,000 Freddie Mac ...................... 977,500
30,000 SLM Holding Corporation .......... 1,201,875
---------
2,179,375
---------
GLASS/PRODUCTS--1.0%
--------------------
10,000 Libbey, Inc. ..................... 310,000
---------
HEALTH CARE CENTERS--5.5%
-------------------------
52,000 Columbia/HCA Healthcare
Corporation .................... 1,092,000
56,000 HEALTHSOUTH Corporation*.......... 679,000
---------
1,771,000
---------
INSURANCE--7.1%
---------------
16,000 Aetna, Inc. ...................... 1,194,000
34,000 Humana, Inc. ..................... 643,875
33,000 TIG Holdings, Inc. ............... 459,937
---------
2,297,812
---------
MANUFACTURING/DISTRIBUTIONS--1.8%
- ------------------------------------
20,000 Essex International, Inc.* ....... 580,000
---------
MEDICAL EQUIPMENT/SUPPLY--1.7%
------------------------------
13,000 Bausch & Lomb, Inc. .............. 541,938
---------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS (CONTINUED)
- -------------------------
OIL & GAS--11.6%
----------------
15,000 Ashland, Inc. ......................... 721,875
10,000 British Petroleum Company,
PLC, Sponsored ADR .................. 884,375
10,000 Exxon Corporation ..................... 712,500
18,000 MCN Energy Group, Inc. ................ 347,625
14,000 Royal Dutch Petroleum
Company, NY Shares, ADR ............. 689,500
12,500 Sonat, Inc. ........................... 378,905
----------
3,734,780
----------
PAPER/PRODUCTS--2.0%
- -------------------------
16,500 Schweitzer-Mauduit
International, Inc.* ................ 300,094
36,000 Unisource Worldwide, Inc. ............. 330,750
----------
630,844
----------
PHARMACEUTICAL--2.6%
- -------------------------
7,000 Abbott Laboratories ................... 328,563
9,500 Pharmacia & Upjohn, Inc. .............. 502,905
----------
831,468
----------
POLLUTION CONTROL--3.7%
-----------------------
26,200 Waste Management Holdings,
Inc. ................................ 1,182,275
----------
REAL ESTATE/LAND DEVELOPMENT--0.7%
----------------------------------
15,000 Security Capital Group, Inc.,
Class "B"* .......................... 239,063
----------
RETAIL STORES--4.3%
-------------------
8,000 Federated Department
Stores, Inc.* ....................... 307,500
55,000 Toys "R" Us, Inc.* .................... 1,075,938
----------
1,383,438
----------
STEEL/IRON--0.8%
----------------
15,000 British Steel PLC,
Sponsored ADR ....................... 262,500
----------
TELECOMMUNICATIONS--7.3%
------------------------
15,000 Ascend Communications, Inc.* .......... 723,750
11,000 BellSouth Corporation ................. 877,938
16,000 SBC Communications, Inc. .............. 741,000
----------
2,342,688
----------
TOBACCO--12.8%
--------------
79,000 DIMON, Inc. ........................... 1,022,062
23,000 Philip Morris Companies, Inc. ......... 1,175,875
30,000 RJR Nabisco Holdings
Corporation ......................... 856,875
32,000 UST, Inc. ............................. 1,088,000
----------
4,142,812
----------
UTILITIES-ELECTRIC--2.7%
------------------------
46,000 Pacific Corp. ......................... 876,875
----------
Total Common Stocks
(cost $29,663,286)............................ 30,203,557
----------
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - VALUE EQUITY FUND
INVESTMENT PORTFOLIO
OCTOBER 31, 1998
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
VALUE
------
REPCHASE AGREEMENT--6.6%(a)
- --------------------------
Repurchase Agreement with State Street Bank
and Trust, dated October 30, 1998
@ 5.3% to be repurchased at $2,129,940 on
November 2, 1998 collateralized by $1,935,000
United States Treasury Notes, 7.5% due
Noveber 15, 2001 (markey value $2,175,403
including interest) (cost $2,129,000)................ 2,129,000
----------
TOTAL INVESTMENT PORTFOLIO EXCLUDING
COVERED CALL OPTIONS WRITTEN
(cost $31 792,286)(b), 100 %(a) 32,332,557
----------
SHARES
------
COVERED CALL OPTIONS WRITTEN--(0.6%)(a)*
- ----------------------------------------
15,000 Ascend Communications, Inc. ...... (135,000)
5,000 BellSouth corporation ............ (11,875)
4,000 Chase Manhattan Corporation ...... (14,000)
5,000 HEALTHSOUTH Corporation........... (3,750)
4,000 Raytheon Company, Class "B" ...... (17,000)
-----------
TOTAL COVERED CALL OPTIONS WRITTEN
(premiums received $144,269)(b) (0.6%)(a). (181,625)
OTHER ASSETS AND LIABILITIES, net 0.4%(a) .. -----------
NET ASSETS, 100.0% ......................... $32,265,416
===========
- ----------
* Not an income-producing security.
(a) Percentages indicated are based on net assets.
(b) The aggregate identified cost for federal income tax purposes is
substantially the same. Market value includes net unrealized appreciation
of $502,915, which consists of aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax
cost of $3,025,771 and aggregate gross unrealized depreciation for all
securities in which there is an excess tax cost over market value of
$2,522,856.
ADR--American Depository Receipt.
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EAGLE
AGGRESSIVE INTERNATIONAL
GROWTH EQUITY
FUND PORTFOLIO
-------------- ---------------
<S> <C> <C>
ASSETS
- ------
Investments, at market value (identified cost
$14,254,346, $36,626,289, $56,501,352, $25,821,511,
$249,314,626 and $29,663,286, respectively) (Note 1)...... $15,787,256 $41,866,233
Repurchase agreement, at market value (identified cost
$2,939,000, $378,000, $4,598,000, $1,627,000,
$30,503,000 and $2,129,000, respectively) (Note 1) ....... 2,939,000 378,000
Cash ...................................................... 39,417 760
Foreign currency (cost $1,510,797)......................... -- 1,518,071
Receivables:
Investments sold ......................................... 438,498 6,731,088
Fund shares sold ......................................... 335,259 138,670
Dividends and interest ................................... 1,241 79,112
Due from manager ......................................... 25,530 --
Foreign taxes recoverable ................................ -- 62,384
Unrealized appreciation of forward currency contracts ..... -- 76,598
Deferred organization expenses (Note 1) ................... -- 15,600
Deferred state qualification expenses (Note 1) ............ 22,844 8,832
Prepaid insurance ......................................... -- 4,891
----------- -----------
Total assets ......................................... $19,589,045 $50,880,239
----------- -----------
LIABILITIES
- -----------
Payables (Note 4):
Investments purchased .................................... $ 874,951 $ 4,594,369
Fund shares redeemed ..................................... 140,006 25,634
Accrued management fee ................................... -- 403,068
Accrued distribution fee ................................. 6,967 32,376
Other accrued expenses ................................... 81,944 86,215
Covered call options written, at market value
(premiums received $144,269).............................. -- --
----------- -----------
Total Liabilities .................................... $ 1,103,868 $ 5,141,662
----------- -----------
Net assets, at market value ............................... $18,485,177 $45,738,577
=========== ===========
NET ASSETS
- ----------
Net assets consist of:
Paid-in capital (Note 5) ................................. $17,154,622 $40,320,043
Undistributed net investment income (loss)
(Notes 1 and 5) ......................................... -- (113,865)
Accumulated net realized gain (loss) (Notes 1 and 5) ..... (202,355) 196,692
Net unrealized appreciation (depreciation) on
investments, covered call options written and
other assets and liabilities denominated in
foreign currencies ...................................... 1,532,910 5,335,707
----------- -----------
Net assets, at market value ............................... $18,485,177 $45,738,577
=========== ===========
Net assets, at market value
Class A Shares ........................................... 11,211,446 6,817,746
Class B Shares ........................................... 3,873,001 233,985
Class C Shares ........................................... 3,400,730 5,860,961
Eagle Shares ............................................. -- 32,825,885
----------- -----------
Total ................................................ $18,485,177 $45,738,577
=========== ===========
Shares of beneficial interest outstanding
Class A Shares ........................................... 730,201 268,138
Class B Shares ........................................... 252,637 9,348
Class C Shares ........................................... 221,820 234,123
Eagle Shares ............................................. -- 1,304,178
----------- -----------
Total ................................................ 1,204,658 1,815,787
=========== ===========
Net Asset Value -- offering and redemption price per
share (Notes 1 and 2)
Class A Shares ........................................... $ 15.35 $ 25.43
=========== ===========
Maximum offering price per share (100/95.25 of
$15.35, $25.43, $28.82, $14.28, $22.62 and $18.56 ...... $ 16.12 $ 26.70
=========== ===========
Class B Shares ........................................... $ 15.33 $ 25.03
=========== ===========
Class C Shares ........................................... $ 15.33 $ 25.03
=========== ===========
Eagle Shares ............................................. $ 25.17
===========
<CAPTION>
GROWTH MID CAP SMALL CAP VALUE
EQUITY GROWTH STOCK EQUITY
FUND FUND FUND FUND
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
ASSETS
- ------
Investments, at market value (identified cost
$14,254,346, $36,626,289, $56,501,352, $25,821,511,
$249,314,626 and $29,663,286, respectively) (Note 1)...... $ 80,120,625 $ 26,759,591 $243,412,622 $30,203,557
Repurchase agreement, at market value (identified cost
$2,939,000, $378,000, $4,598,000, $1,627,000,
$30,503,000 and $2,129,000, respectively) (Note 1) ....... 4,598,000 1,627,000 30,503,000 2,129,000
Cash ...................................................... 288,222 988 778 440
Foreign currency (cost $1,510,797)......................... -- -- -- --
Receivables:
Investments sold ......................................... -- -- 1,271,215 502,451
Fund shares sold ......................................... 398,423 72,689 1,089,973 8,026
Dividends and interest ................................... 50,604 1,709 112,894 41,880
Due from manager ......................................... -- -- -- --
Foreign taxes recoverable ................................ -- -- -- --
Unrealized appreciation of forward currency contracts ..... -- -- -- --
Deferred organization expenses (Note 1) ................... 11,332 20,679 -- 12,369
Deferred state qualification expenses (Note 1) ............ 17,225 33,412 15,138 13,495
Prepaid insurance ......................................... 5,591 3,494 10,482 4,892
------------ ------------ ------------ -----------
Total assets ......................................... $ 85,490,022 $ 28,519,562 $276,416,102 $32,916,110
------------ ------------ ------------ -----------
LIABILITIES
- -----------
Payables (Note 4):
Investments purchased .................................... $ 752,486 $ 540,954 $ 8,359,029 $ 325,458
Fund shares redeemed ..................................... 39,991 44,503 524,910 55,217
Accrued management fee ................................... 50,731 25,631 169,034 12,046
Accrued distribution fee ................................. 41,937 12,025 105,114 15,162
Other accrued expenses ................................... 85,098 67,443 176,545 61,186
Covered call options written, at market value
(premiums received $144,269).............................. -- -- -- 181,625
------------ ------------ ------------ -----------
Total Liabilities .................................... $ 970,243 $ 690,556 $ 9,334,632 $ 650,694
------------ ------------ ------------ -----------
Net assets, at market value ............................... $ 84,519,779 $ 27,829,006 $267,081,470 $32,265,416
============ ============ ============ ===========
NET ASSETS
- ----------
Net assets consist of:
Paid-in capital (Note 5) ................................. $ 64,034,527 $ 28,431,408 $276,699,267 $31,761,673
Undistributed net investment income (loss)
(Notes 1 and 5) ......................................... -- -- -- 129,446
Accumulated net realized gain (loss) (Notes 1 and 5) ..... (3,134,021) (1,540,482) (3,715,793) (128,618)
Net unrealized appreciation (depreciation) on
investments, covered call options written and
other assets and liabilities denominated in
foreign currencies ...................................... 23,619,273 938,080 (5,902,004) 502,915
------------ ------------ ------------ -----------
Net assets, at market value ............................... $ 84,519,779 $ 27,829,006 $267,081,470 $36,265,416
============ ============ ============ ===========
Net assets, at market value
Class A Shares ........................................... 39,889,610 16,127,008 173,922,979 17,729,899
Class B Shares ........................................... 5,173,715 2,210,703 8,885,643 905,944
Class C Shares ........................................... 39,456,454 9,491,295 84,272,848 13,629,573
Eagle Shares ............................................. -- -- -- --
------------ ------------ ------------ -----------
Total ................................................ $ 84,519,779 $ 27,829,006 $267,081,470 $32,265,416
============ ============ ============ ===========
Shares of beneficial interest outstanding
Class A Shares ........................................... 1,384,052 1,129,323 7,689,095 955,082
Class B Shares ........................................... 183,567 155,989 403,835 49,544
Class C Shares ........................................... 1,400,076 669,446 3,828,853 745,451
Eagle Shares ............................................. -- -- -- --
------------ ------------ ------------ -----------
Total ................................................ 2,967,695 1,954,758 11,921,783 1,750,077
============ ============ ============ ===========
Net Asset Value -- offering and redemption price per
share (Notes 1 and 2)
Class A Shares ........................................... $ 28.82 $ 14.28 $ 22.62 $ 18.56
============ ============ ============ ===========
Maximum offering price per share (100/95.25 of
$15.35, $25.43, $28.82, $14.28, $22.62 and $18.56 ...... $ 30.26 $ 14.99 $ 23.75 $ 19.49
============ ============ ============ ===========
Class B Shares ........................................... $ 28.18 $ 14.17 $ 22.00 $ 18.29
============ ============ ============ ===========
Class C Shares ........................................... $ 28.18 $ 14.18 $ 22.01 $ 18.28
============ ============ ============ ===========
Eagle Shares .............................................
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EAGLE
AGGRESSIVE INTERNATIONAL GROWTH
GROWTH EQUITY EQUITY
FUND* PORTFOLIO FUND
-------------- ----------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME
- -----------------
Income:
Dividends .................................................... $ 1,775 $ 789,656(a) $ 435,950
Interest ..................................................... 42,386 86,630(b) 181,237
---------- ---------- -------------
Total income ............................................. 44,161 876,286 617,187
Expenses (Notes 1 and 4):
Management fee ............................................... 25,861 453,725 471,447
Distribution fee (Class A Shares) ............................ 4,160 17,058 80,763
Distribution fee (Class B Shares)*** ......................... 4,769 1,059 18,045
Distribution fee (Class C Shares) ............................ 4,453 49,947 287,499
Distribution fee (Eagle Shares) .............................. -- 334,486 --
Shareholder servicing fees ................................... 4,750 -- 57,682
Shareholder servicing fees (Class A Shares) .................. -- 9,178 --
Shareholder servicing fees (Class B Shares)*** ............... -- 138 --
Shareholder servicing fees (Class C Shares) .................. -- 6,692 --
Shareholder servicing fees (Eagle Shares) .................... -- 4,929 --
Professional fees ............................................ 17,121 54,510 42,085
Custodian/Fund accounting fees ............................... 12,836 154,539 55,949
Federal registration fees .................................... 4,770 421 8,844
Amortization of state registration expenses .................. 16,951 45,975 39,274
Organization expenses ........................................ -- 10,400 5,666
Reports to shareholders ...................................... 3,000 36,662 17,694
Trustees' fees and expenses .................................. 2,307 9,071 8,373
Other ........................................................ -- 4,643 4,121
---------- ---------- -------------
Total expenses before waiver ............................. 100,978 1,193,433 1,097,442
Fees waived by Eagle/Manager (Note 4) .................... (25,861) (52,276) --
Reimbursement from Manager ............................... (25,530) -- --
---------- ---------- -------------
Total expenses after waiver .............................. 49,587 1,141,157 1,097,442
---------- ---------- -------------
Net investment income gain (loss) ............................. (5,426) (264,871) (480,255)
---------- ---------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------
Net realized gain (loss) from investment transactions ......... (202,355) 234,230 (3,134,021)
Net realized loss from foreign currency transactions .......... -- (68,794) --
Net increase (decrease) in unrealized appreciation of
investments during the year .................................. 1,532,910 3,293,526 13,613,823
Net increase in unrealized depreciation of covered call
options written during the year .............................. -- -- --
Net increase in unrealized appreciation from foreign
currency during the year ..................................... -- 95,909 --
---------- ---------- -------------
Net gain (loss) on investments ........................... 1,330,555 3,554,871 10,479,802
---------- ---------- -------------
Net increase (decrease) in net assets resulting from
operations ................................................... $1,325,129 $3,290,000 $ 9,999,547
========== ========== =============
<CAPTION>
MID CAP SMALL CAP VALUE
GROWTH STOCK EQUITY
FUND** FUND FUND
--------------- ----------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME
- -----------------
Income:
Dividends .................................................... $ 76,492 $ 2,110,028 $ 708,190
Interest ..................................................... 67,164 1,212,122 88,845
------------- ------------- ------------
Total income ............................................. 143,656 3,322,150 797,035
Expenses (Notes 1 and 4):
Management fee ............................................... 178,741 2,609,951 272,954
Distribution fee (Class A Shares) ............................ 38,027 563,984 50,739
Distribution fee (Class B Shares)*** ......................... 12,608 51,845 3,766
Distribution fee (Class C Shares) ............................ 73,608 1,005,488 157,217
Distribution fee (Eagle Shares) .............................. -- -- --
Shareholder servicing fees ................................... 30,929 315,618 40,692
Shareholder servicing fees (Class A Shares) .................. -- -- --
Shareholder servicing fees (Class B Shares)*** ............... -- -- --
Shareholder servicing fees (Class C Shares) .................. -- -- --
Shareholder servicing fees (Eagle Shares) .................... -- -- --
Professional fees ............................................ 43,305 44,291 38,516
Custodian/Fund accounting fees ............................... 48,707 100,139 61,910
Federal registration fees .................................... 7,988 12,237 1,268
Amortization of state registration expenses .................. 47,300 56,174 30,936
Organization expenses ........................................ 5,170 5,000 10,602
Reports to shareholders ...................................... 10,312 43,826 14,199
Trustees' fees and expenses .................................. 8,383 8,757 8,794
Other ........................................................ 1,846 10,207 4,070
------------- ------------- ------------
Total expenses before waiver ............................. 506,924 4,827,517 695,663
Fees waived by Eagle/Manager (Note 4) .................... (60,948) -- (48,072)
Reimbursement from Manager ............................... -- -- --
------------- ------------- ------------
Total expenses after waiver .............................. 445,976 4,827,517 647,591
------------- ------------- ------------
Net investment income gain (loss) ............................. (302,320) (1,505,367) 149,444
------------- ------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------
Net realized gain (loss) from investment transactions ......... (1,540,482) (2,922,849) (46,890)
Net realized loss from foreign currency transactions .......... -- -- --
Net increase (decrease) in unrealized appreciation of
investments during the year .................................. 938,080 (70,263,882) (1,482,101)
Net increase in unrealized depreciation of covered call
options written during the year .............................. -- -- (37,356)
Net increase in unrealized appreciation from foreign
currency during the year ..................................... -- -- --
------------- ------------- ------------
Net gain (loss) on investments ........................... (602,402) (73,186,731) (1,566,347)
------------- ------------- ------------
Net increase (decrease) in net assets resulting from
operations ................................................... $ (904,722) $ (74,692,098) $ (1,416,903)
============= ============= ============
<FN>
- ----------
* For the period August 20, 1998 (commencement of operations) to October 31,
1998.
** For the period November 6, 1997 (commencement of operations) to October 31,
1998.
*** For the period January 2, 1998 (commencement of B Shares) to October 31,
1998.
(a) Net of $109,332 foreign withholding taxes.
(b) Net of $604 foreign withholding taxes.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 20, 1998
TO
OCTOBER 31, 1998
==================
<S> <C>
AGGRESSIVE GROWTH FUND
- ----------------------
Increase in net assets:
Operations:
Net investment loss ...................................................... $ (5,426)
Net realized gain (loss) on investment transactions ...................... (202,355)
Net increase in unrealized appreciation of investments during the period . 1,532,910
-----------
Net increase in net assets resulting from operations ..................... 1,325,129
Increase in net assets from Fund share transactions (Note 2) .............. 17,160,048
-----------
Increase in net assets .................................................... 18,485,177
Net assets, beginning of period ........................................... --
-----------
Net assets, end of period ................................................. $18,485,177
===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
====================================
OCTOBER 31, 1998 OCTOBER 31, 1997
================== =================
<S> <C> <C>
EAGLE INTERNATIONAL EQUITY PORTFOLIO
- ------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment loss ............................................................. $ (264,871) $ (131,673)
Net realized gain on investment transactions .................................... 234,230 1,149,279
Net realized gain (loss) from foreign currency transactions ..................... (68,794) 200,478
Net increase in unrealized appreciation of investments during the year .......... 3,293,526 1,394,725
Net increase (decrease) in unrealized appreciation from foreign currency
during the year ................................................................ 95,909 (142,713)
----------- -----------
Net increase in net assets resulting from operations ............................ 3,290,000 2,470,096
----------- -----------
Distributions to shareholders from:
Net investment income Class A Shares, ($0.05 and $0.44 per share, respectively).. (13,340) (62,318)
Net investment income Class C Shares, ($0.34 per share).......................... -- (18,908)
Net investment income Eagle Shares, ($0.31 per share)............................ -- (318,525)
Net realized gains Class A Shares, ($0.62 and $0.17 per share, respectively)..... (155,218) (23,850)
Net realized gains Class C Shares, ($0.62 and $0.17 per share, respectively)..... (102,719) (9,263)
Net realized gains Eagle Shares, ($0.62 and $0.17 per share, respectively)....... (808,740) (172,431)
Increase in net assets from Fund share transactions (Note 2) ..................... 1,913,671 13,835,836
----------- -----------
Increase in net assets ........................................................... 4,123,654 15,700,637
Net assets, beginning of year .................................................... 41,614,923 25,914,286
----------- -----------
Net assets, end of year (including accumulated net investment loss of $113,865
and distribution in excess of net investment income of $40,256, respectively).... $45,738,577 $41,614,923
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
====================================
OCTOBER 31, 1998 OCTOBER 31, 1997
================== =================
<S> <C> <C>
GROWTH EQUITY FUND
- ------------------
Increase in net assets:
Operations:
Net investment loss .................................................... $ (480,255) $ (185,188)
Net realized gain (loss) on investment transactions .................... (3,134,021) 818,812
Net increase in unrealized appreciation of investments during the year . 13,613,823 7,556,848
------------ -----------
Net increase in net assets resulting from operations ................... 9,999,547 8,190,472
------------ -----------
Distribution to shareholders from:
Net realized gains Class A Shares ($0.32 per share)..................... (324,394) --
Net realized gains Class C Shares ($0.32 per share)..................... (263,908) --
Increase in net assets from Fund share transactions (Note 2) ............ 32,315,932 17,355,665
------------ -----------
Increase in net assets .................................................. 41,727,177 25,546,137
Net assets, beginning of year ........................................... 42,792,602 17,246,465
------------ -----------
Net assets, end of year ................................................. $ 84,519,779 $42,792,602
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 6, 1997
TO
OCTOBER 31, 1998
==================
<S> <C>
MID CAP GROWTH FUND
- -------------------
Increase in net assets:
Operations:
Net investment loss ...................................................... $ (302,320)
Net realized loss on investment transactions ............................. (1,540,482)
Net increase in unrealized appreciation of investments during the period . 938,080
------------
Net decrease in net assets resulting from operations ..................... (904,722)
Increase in net assets from Fund share transactions (Note 2) .............. 28,733,728
------------
Increase in net assets .................................................... 27,829,006
Net assets, beginning of period ........................................... --
------------
Net assets, end of period ................................................. $ 27,829,006
============
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
====================================
OCTOBER 31, 1998 OCTOBER 31, 1997
================== =================
<S> <C> <C>
SMALL CAP STOCK FUND
- --------------------
Increase in net assets:
Operations:
Net investment loss ................................................................... $ (1,505,367) $ (560,143)
Net realized gain (loss) on investment transactions ................................... (2,922,849) 18,888,445
Net increase (decrease) in unrealized appreciation of investments during the year ..... (70,263,882) 42,301,556
------------- ------------
Net increase (decrease) in net assets resulting from operations ....................... (74,692,098) 60,629,858
Distributions to shareholders from:
Net realized gains Class A Shares, ($1.73 and $1.88 per share, respectively)........... (13,224,158) (7,806,517)
Net realized gains Class C Shares, ($1.73 and $1.88 per share, respectively)........... (5,438,602) (2,105,065)
Increase in net assets from Fund share transactions (Note 2) ........................... 48,086,681 140,852,503
------------- ------------
Increase (decrease) in net assets ...................................................... (45,268,177) 191,570,779
Net assets, beginning of year .......................................................... 312,349,647 120,778,868
------------- ------------
Net assets, end of year ................................................................ $ 267,081,470 $312,349,647
============= ============
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
====================================
OCTOBER 31, 1998 OCTOBER 31, 1997
================== =================
<S> <C> <C>
VALUE EQUITY FUND
- -----------------
Decrease in net assets:
Operations:
Net investment income ................................................................... $ 149,444 $ 205,245
Net realized gain (loss) on investment transactions ..................................... (46,890) 7,282,605
Net decrease in unrealized appreciation of investments
during the year ........................................................................ (1,519,457) (39,985)
------------ -----------
Net increase (decrease) in net assets resulting from operations ......................... (1,416,903) 7,447,865
------------ -----------
Distributions to shareholders from:
Net investment income Class A Shares, ($0.20 and $0.15 per share, respectively).......... (171,438) (117,148)
Net investment income Class C Shares, ($0.05 and $0.03 per share, respectively).......... (31,101) (17,648)
Net realized gains Class A Shares, ($4.90 and $1.30 per share, respectively)............. (4,141,640) (990,566)
Net realized gains Class C Shares, ($4.90 and $1.30 per share, respectively)............. (3,207,816) (665,431)
Increase in net assets from Fund share transactions (Note 2) ............................. 4,709,907 5,193,588
------------ -----------
Increase (decrease) in net assets ........................................................ (4,258,991) 10,850,660
Net assets, beginning of year ............................................................ 36,524,407 25,673,747
------------ -----------
Net assets, end of year (including undistributed net investment income of $129,446 and
$182,541, respectively).................................................................. $ 32,265,416 $36,524,407
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - AGGRESSIVE GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding
throughout the period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
CLASS A SHARES* CLASS B SHARES* CLASS C SHARES*
================= ================= ================
1998/dagger/ 1998/dagger/ 1998/dagger/
================= ================= ================
<S> <C> <C> <C>
Net asset value, beginning of period ........................... $ 14.29 $ 14.29 $ 14.29
-------- -------- --------
Income from Investment Operations:
Net investment gain (loss) (a) ................................ 0.00 ( 0.03) ( 0.03)
Net realized and unrealized gain on investments ............... 1.06 1.07 1.07
-------- -------- --------
Total from Investment Operations ............................... 1.06 1.04 1.04
-------- -------- --------
Net asset value, end of period ................................. $ 15.35 $ 15.33 $ 15.33
======== ======== ========
Total Return (%)(c)(d) ......................................... 7.42 7.28 7.28
Ratios (%)/ Supplemental Data:
Operating expenses, net, to average
daily net assets (a)(b) ...................................... 1.65 2.40 2.40
Net investment gain (loss) to average daily net assets (b)..... 0.08 ( 0.77) ( 0.71)
Portfolio turnover rate (c) ................................... 34 34 34
Net assets, end of period ($ millions)......................... 11 4 3
<FN>
- ----------
* Per share amounts have been calculated using the monthly average share
method, which more appropriately presents per share data for the period
since use of the undistributed income method does not correspond with
results of operations.
/dagger/ For the period August 20, 1998 (commencement of operations) to
October 31, 1998.
(a) Excludes management fees waived and expenses reimbursed by the Manager in
the amount of $.07 per share for each Class A, Class B and Class C Shares.
The operating expense ratios including such items would have been 3.64%
(annualized), 4.39% (annualized), and 4.39% (annualized) for Class A,
Class B and Class C Shares, respectively.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - EAGLE INTERNATIONAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding
throughout each year and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
CLASS A SHARES*
--------------------------------------------------------
FOR THE YEARS ENDED
OCTOBER 31,
--------------------------------------------------------
1998 1997 1996/dagger//dagger/
---------------- ---------------- ----------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ........ $ 23.97 $ 22.25 $ 21.11
--------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income (loss) (a) ....... ( 0.01) 0.05 0.10
Net realized and
unrealized gain on
investments ............. 2.14 2.28 1.04
--------- --------- ---------
Total from Investment
Operations .............. 2.13 2.33 1.14
--------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net
investment income ....... ( 0.05) ( 0.44) --
Distributions from net
realized gains .......... ( 0.62) ( 0.17) --
--------- --------- ---------
Total Distributions ...... ( 0.67) ( 0.61) --
--------- --------- ---------
NET ASSET VALUE, END
OF YEAR .................. $ 25.43 $ 23.97 $ 22.25
========= ========= =========
TOTAL RETURN(%)(d) ........ 9.04 (e) 10.71 (e) 5.40 (c)
RATIOS (%)/
SUPPLEMENTAL DATA:
Operating expenses,
net, to average daily
net assets (a) .......... 1.97 1.97 1.97 (b)
Net investment
income (loss) to
average daily net
assets .................. ( 0.02) 0.22 0.44 (b)
Portfolio turnover
rate (c) ................ 71 50 59
Net assets, end of
year ($ millions)........ 7 6 3
<CAPTION>
CLASS B SHARES* CLASS C SHARES*
--------------------------------------------------------------------------------------
FOR THE YEARS ENDED
OCTOBER 31,
--------------------------------------------------------
1998/dagger//dagger//dagger/ 1998 1997 1996/dagger//dagger/
----------------------------- ---------------- ---------------- ---------------------=
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ........ $ 23.95 $ 23.73 $ 22.12 $ 21.11
---------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income (loss) (a) ....... ( 0.16) ( 0.20) ( 0.13) ( 0.07)
Net realized and
unrealized gain on
investments ............. 1.24 2.12 2.25 1.08
---------- --------- --------- ---------
Total from Investment
Operations .............. 1.08 1.92 2.12 1.01
---------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net
investment income ....... -- -- ( 0.34) --
Distributions from net
realized gains .......... -- ( 0.62) ( 0.17) --
---------- --------- --------- ---------
Total Distributions ...... -- ( 0.62) ( 0.51) --
---------- --------- --------- ---------
NET ASSET VALUE, END
OF YEAR .................. $ 25.03 $ 25.03 $ 23.73 $ 22.12
========== ========= ========= =========
TOTAL RETURN(%)(d ........ 4.51 (c) 8.24 (e) 9.79 (e) 4.78 (c)
RATIOS (%)/
SUPPLEMENTAL DATA:
Operating expenses,
net, to average daily
net assets (a) .......... 2.72 (b) 2.72 2.72 2.72 (b)
Net investment
income (loss) to
average daily net
assets .................. ( 0.71) (b) ( 0.79) ( 0.52) ( 0.32)(b)
Portfolio turnover
rate (c) ................ 71 71 50 59
Net assets, end of
year ($ millions)........ 0.2 6 4 1
<CAPTION>
EAGLE SHARES*
--------------------------------------------------------------
FOR THE YEARS ENDED
OCTOBER 31,
--------------------------------------------------------------
1998 1997 1996 1995/dagger/
---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR ........ $ 23.83 $ 22.14 $ 20.79 $ 20.00
--------- --------- -------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income (loss) (a) ....... ( 0.17) ( 0.11) ( 0.01) ( 0.03)
Net realized and
unrealized gain on
investments ............. 2.13 2.28 1.84 0.82
--------- --------- -------- ---------
Total from Investment
Operations .............. 1.96 2.17 1.83 0.79
--------- --------- -------- ---------
LESS DISTRIBUTIONS:
Dividends from net
investment income ....... -- ( 0.31) ( 0.01) --
Distributions from net
realized gains .......... ( 0.62) ( 0.17) ( 0.47) --
--------- --------- -------- ---------
Total Distributions ...... ( 0.62) ( 0.48) ( 0.48) --
--------- --------- -------- ---------
NET ASSET VALUE, END
OF YEAR .................. $ 25.17 $ 23.83 $ 22.14 $ 20.79
========= ========= ======== =========
TOTAL RETURN(%)(d)........ 8.38 (e) 9.98 (e) 8.93 3.95 (c)
RATIOS (%)/
SUPPLEMENTAL DATA:
Operating expenses,
net, to average daily
net assets (a) .......... 2.60 2.60 2.60 2.60 (b)
Net investment
income (loss) to
average daily net
assets .................. ( 0.67) ( 0.47) ( 0.02) ( 0.33)(b)
Portfolio turnover
rate (c) ................ 71 50 59 61
Net assets, end of
year ($ millions)........ 33 32 22 10
<FN>
- ----------
* Per share amounts have been calculated using the monthly average share
method, which more appropriately presents per share data for the year
since use of the undistributed income method does not correspond with
results of operations.
/dagger/ For the period May 1, 1995 (commencement of operations) to October
31, 1995.
/dagger//dagger/ For the period December 27, 1995 (commencement of Class A and
Class C Shares) to October 31, 1996.
/dagger//dagger//dagger/ For the period January 2, 1998 (commencement of Class
B Shares) to October 31, 1998.
(a) Excludes management fees waived by Eagle in the amount of $.03 $.06 and
$.16 per Class A Share, respectively. The operating expense ratio
including such items would have been 2.08% 2.23% and 2.69% (annualized)
for Class A Shares, respectively. Excludes management fees waived by the
Eagle in the amount of $.03 per Class B Share. The operating expense ratio
including such items would have been 2.83% for Class B Shares. Excludes
management fees waived by the Eagle in the amount of $.03, $.06, and $.16
per Class C Share, respectively. The operating expense ratio including
such items would have been 2.83%, 2.98% and 3.44% (annualized) for Class C
Shares, respectively. Excludes management fees waived and expenses
reimbursed by the Eagle in the amount of $.03, $.06, $.16 and $.17 per
Eagle Share, respectively. The operating expense ratios including such
items would have been 2.71%, 2.86%, 3.31% and 5.09% (annualized) for Eagle
Shares, respectively.
(b) Annualized.
(c) Not annualized.
(d) Calculated without the imposition of a sales charge.
(e) These returns are calculated based on the published net asset value at
October 31, 1997.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - GROWTH EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding
throughout each year and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
CLASS A SHARES*
----------------------------------------
FOR THE YEARS ENDED
OCTOBER 31,
----------------------------------------
1998 1997 1996/dagger/
----------- ----------- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ............. $ 23.77 $ 17.74 $ 14.29
-------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (a) ....................... ( 0.11) ( 0.07) ( 0.03)
Net realized and unrealized gain
on investments ............................... 5.48 6.10 3.48
-------- -------- ---------
Total from Investment Operations ............... 5.37 6.03 3.45
-------- -------- ---------
LESS DISTRIBUTIONS:
Distributions from net realized gains ......... ( 0.32) -- --
-------- -------- ---------
NET ASSET VALUE, END OF YEAR ................... $ 28.82 $ 23.77 $ 17.74
======== ======== =========
TOTAL RETURN (%)(d) ............................ 22.84 33.99 24.14 (c)
RATIOS (%)/ SUPPLEMENTAL DATA:
Operating expenses, net, to average
daily net assets (a) ......................... 1.38 1.61 1.65 (b)
Net investment loss to average daily
net assets ................................... ( 0.40) ( 0.35) ( 0.19)(b)
Portfolio turnover rate (c) ................... 54 50 23
Net assets, end of year ($ millions)........... 40 24 12
<CAPTION>
CLASS B SHARES* CLASS C SHARES*
--------------------- ----------------------------------------
FOR THE YEARS ENDED
OCTOBER 31,
----------------------------------------
1998/dagger//dagger/ 1998 1997 1996/dagger/
--------------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ............. $ 24.33 $ 23.42 $ 17.61 $ 14.29
--------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (a) ....................... ( 0.23) ( 0.31) ( 0.24) ( 0.15)
Net realized and unrealized gain
on investments ............................... 4.08 5.39 6.05 3.47
--------- -------- -------- ---------
Total from Investment Operations ............... 3.85 5.08 5.81 3.32
--------- -------- -------- ---------
LESS DISTRIBUTIONS:
Distributions from net realized gains ......... -- ( 0.32) -- --
--------- -------- -------- ---------
NET ASSET VALUE, END OF YEAR ................... $ 28.18 $ 28.18 $ 23.42 $ 17.61
========= ======== ======== =========
TOTAL RETURN (%)(d) ............................ 15.82 (c) 21.93 32.99 23.23 (c)
RATIOS (%)/ SUPPLEMENTAL DATA:
Operating expenses, net, to average
daily net assets (a) ......................... 2.11 (b) 2.13 2.36 2.40 (b)
Net investment loss to average daily
net assets ................................... ( 1.10)(b) ( 1.15) ( 1.14) ( 0.96)(b)
Portfolio turnover rate (c) ................... 54 54 50 23
Net assets, end of year ($ millions)........... 5 39 18 5
<FN>
- ----------
* Per share amounts have been calculated using the monthly average share
method, which more appropriately presents per share data for the period
since use of the undistributed income method does not correspond with
results of operations.
/dagger/ For the period November 16, 1995 (commencement of operations) to
October 31, 1996.
/dagger//dagger/ For the period January 2, 1998 (commencement of Class B
Shares) to October 31, 1998.
(a) Excludes management fees waived and expensed reimbursed by the Manager in
the amount of $.11 per share for the period ended October 31, 1996. The
operating expense ratios including such items would have been 2.39%
(annualized) for Class A Shares and 3.14% (annualized) for Class C Shares,
respectively. The year ended October 31, 1997 includes recovery of
previously waived management fees paid to the manager of $.01 per share.
The operating expense ratios excluding such items would have been 1.54%
for Class A Shares and 2.29% for Class C Shares.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - MID CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding
throughout the year and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
CLASS A SHARES* CLASS B SHARES* CLASS C SHARES*
----------------- ---------------------- ----------------
1998/dagger/ 1998/dagger//dagger/ 1998/dagger/
----------------- ---------------------- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............................ $ 14.29 $ 14.42 $ 14.29
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (a) ........................................ ( 0.15) ( 0.23) ( 0.25)
Net realized and unrealized gain (loss) on investments ......... 0.14 ( 0.02) 0.14
-------- -------- --------
Total from Investment Operations ................................ ( 0.01) ( 0.25) ( 0.11)
-------- -------- --------
Net asset value, end of period .................................. $ 14.28 $ 14.17 $ 14.18
======== ======== ========
Total Return (%)(c)(d) .......................................... ( .07) ( 1.73) ( .77)
Ratios (%)/ Supplemental Data:
Operating expenses, net, to average
daily net assets (a)(b) ....................................... 1.60 2.35 2.35
Net investment loss to average daily net assets (b) ............ ( 0.99) ( 1.85) ( 1.75)
Portfolio turnover rate (c) .................................... 129 129 129
Net assets, end of period ($ millions).......................... 16 2 9
<FN>
- ----------
* Per share amounts have been calculated using the monthly average share
method, which more appropriately presents per share data for the period
since use of the undistributed income method does not correspond with
results of operations.
/dagger/ For the period November 6, 1997 (commencement of operations) to
October 31, 1998.
/dagger//dagger/ For the period January 2, 1998 (commencement of Class B
Shares) to October 31, 1998.
(a) Excludes management fees waived by the Manager in the amount of $.03 per
share for Class A, Class B and Class C Shares. The operating expense
ratios including such items would have been 1.86% (annualized), 2.61%
(annualized), and 2.61% (annualized) for Class A, Class B and Class C
Shares, respectively.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - SMALL CAP STOCK FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding
throughout each year and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
CLASS A SHARES
---------------------------------------------------------
FOR THE YEARS ENDED
OCTOBER 31,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998* 1997* 1996* 1995 1994
----- ----- ----- ---- ----
NET ASSET VALUE,
BEGINNING OF YEAR ....... $ 30.39 $ 24.08 $ 18.86 $ 16.20 $ 15.57
--------- ------- ------- -------- --------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income (loss) (a) ..... ( 0.06) ( 0.02) ( 0.05) 0.02 ( 0.01)
Net realized and
unrealized gain
(loss) on
investments ........... ( 5.98) 8.21 6.12 3.62 0.64
--------- ------- ------- -------- --------
Total from
Investment
Operations ............ ( 6.04) 8.19 6.07 3.64 0.63
--------- ------- ------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment
income ................ -- -- ( 0.01) ( 0.01) --
Distributions from
net realized gains .... ( 1.73) ( 1.88) ( 0.84) ( 0.97) --
--------- ------- ------- -------- --------
Total Distributions ..... ( 1.73) ( 1.88) ( 0.85) ( 0.98) --
--------- ------- ------- -------- --------
NET ASSET VALUE, END
OF YEAR ................. $ 22.62 $ 30.39 $ 24.08 $ 18.86 $ 16.20
========= ======= ======= ======== ========
TOTAL RETURN(%)(d) ....... (20.96) 36.68 33.18 23.97 4.05
RATIOS (%)/
SUPPLEMENTAL DATA:
Operating expenses,
net, to average
daily net
assets (a) ............ 1.22 1.25 1.41 1.88 1.91
Net investment
income (loss) to
average daily net
assets ................ ( 0.22) ( 0.09) ( 0.21) 0.15 ( 0.07)
Portfolio turnover
rate (c) .............. 52 54 80 89 95
Net assets, end of
year ($ millions)...... 174 222 96 57 42
<CAPTION>
CLASS B SHARES* CLASS C SHARES
---------------------------- ----------------------------------------------------
FOR THE YEARS ENDED
OCTOBER 31,
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998/dagger//dagger/ 1998* 1997* 1996* 1995/dagger/
-------------------- ---- ---- ---- --------------
Net asset value,
beginning of year ....... $ 27.98 $ 29.83 $ 23.84 $ 18.79 $ 15.67
--------- --------- ------- ------- -------------
Income from
Investment
Operations:
Net investment
income (loss) (a) ..... ( 0.20) ( 0.26) ( 0.23) ( 0.22) ( 0.02)
Net realized and
unrealized gain
(loss) on
investments ........... ( 5.78) ( 5.83) 8.10 6.11 3.14
--------- --------- ------- ------- -------------
Total from
Investment
Operations ............ ( 5.98) ( 6.09) 7.87 5.89 3.12
--------- --------- ------- ------- -------------
Less Distributions:
Dividends from net
investment
income ................ -- -- -- -- --
Distributions from
net realized gains .... -- ( 1.73) ( 1.88) ( 0.84) --
--------- --------- ------- ------- -------------
Total Distributions ..... -- ( 1.73) ( 1.88) ( 0.84) --
--------- --------- ------- ------- -------------
Net asset value, end
of year ................. $ 22.00 $ 22.01 $ 29.83 $ 23.84 $ 18.79
========= ========= ======= ======= =============
Total Return(%)(d) ....... (21.37)(c) (21.55) 35.63 32.22 19.91 (c)
Ratios (%)/
Supplemental Data:
Operating expenses,
net, to average
daily net
assets (a) ............ 1.98 (b) 1.97 2.00 2.13 2.36 (b)
Net investment
income (loss) to
average daily net
assets ................ ( 0.93)(b) ( 0.96) ( 0.85) ( 0.94) ( 0.46)(b)
Portfolio turnover
rate (c) .............. 52 52 54 80 89
Net assets, end of
year ($ millions)...... 9 84 90 25 4
</TABLE>
- ----------
* Per share amounts have been calculated using the monthly average share
method, which more appropriately presents per share data for the year since
use of the undistributed income method does not correspond with results of
operations.
/dagger/ For the period April 3, 1995 (commencement of Class C Shares) to
October 31, 1995.
/dagger//dagger/ For the period January 2, 1998 (commencement of Class B
Shares) to October 31, 1998.
(a) The year ended October 31, 1994 includes recovery of previously waived
management fees paid to the manager of less than $.01 per share.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of sales charge.
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST - VALUE EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding
throughout each year and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
CLASS A SHARES*
----------------------------------------------------
FOR THE YEARS ENDED
OCTOBER 31,
----------------------------------------------------
1998 1997 1996 1995/dagger/
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR ............................. $ 24.27 $ 20.27 $ 18.00 $ 14.29
-------- -------- -------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (a) ........ 0.15 0.22 0.17 0.08
Net realized and unrealized
gain (loss) on investments ...... ( 0.76) 5.23 2.76 3.63
-------- -------- -------- ---------
Total from Investment
Operations ...................... ( 0.61) 5.45 2.93 3.71
-------- -------- -------- ---------
LESS DISTRIBUTIONS:
Dividends from net
investment income ............... ( 0.20) ( 0.15) ( 0.11) --
Distributions from net
realized gains .................. ( 4.90) ( 1.30) ( 0.55) --
-------- -------- -------- ---------
Total Distributions .............. ( 5.10) ( 1.45) ( 0.66) --
-------- -------- -------- ---------
NET ASSET VALUE, END
OF YEAR .......................... $ 18.56 $ 24.27 $ 20.27 $ 18.00
======== ======== ======== =========
TOTAL RETURN(%)(d) ................ ( 3.52) 28.69 16.59 25.96 (c)
RATIOS (%)/ SUPPLEMENTAL DATA:
Operating expenses, net, to
average daily net assets (a)..... 1.45 1.61 1.65 1.65 (b)
Net investment income to
average daily net assets ........ 0.74 0.96 0.89 1.05 (b)
Portfolio turnover rate (c) ...... 132 155 129 82
Net assets, end of year
($ millions)..................... 18 19 15 12
<CAPTION>
CLASS B SHARES* CLASS C SHARES*
----------------------------- ---------------------------------------------------------
FOR THE YEARS ENDED
OCTOBER 31,
----------------------------------------------------------
1998/dagger//dagger//dagger/ 1998 1997 1996 1995/dagger//dagger/
----------------------------- ----------- ----------- ----------- ---------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR ............................. $ 19.60 $ 23.98 $ 20.06 $ 17.92 $ 15.27
---------- -------- -------- -------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (a) ........ 0.02 0.00 0.05 0.02 0.01
Net realized and unrealized
gain (loss) on investments ...... ( 1.33) ( 0.75) 5.20 2.74 2.64
---------- -------- -------- -------- ---------
Total from Investment
Operations ...................... ( 1.31) ( 0.75) 5.25 2.76 2.65
---------- -------- -------- -------- ---------
LESS DISTRIBUTIONS:
Dividends from net
investment income ............... -- ( 0.05) ( 0.03) ( 0.07) --
Distributions from net
realized gains .................. -- ( 4.90) ( 1.30) ( 0.55) --
---------- -------- -------- -------- ---------
Total Distributions .............. -- ( 4.95) ( 1.33) ( 0.62) --
---------- -------- -------- -------- ---------
NET ASSET VALUE, END
OF YEAR .......................... $ 18.29 $ 18.28 $ 23.98 $ 20.06 $ 17.92
========== ======== ======== ======== =========
TOTAL RETURN(%)(d) ................ ( 6.68)(c) ( 4.27) 27.79 15.65 17.35 (c)
RATIOS (%)/ SUPPLEMENTAL DATA:
Operating expenses, net, to
average daily net assets (a)..... 2.20 (b) 2.20 2.36 2.40 2.40 (b)
Net investment income to
average daily net assets ........ 0.15 (b) ( 0.01) 0.21 0.13 0.28 (b)
Portfolio turnover rate (c) ...... 132 132 155 129 82
Net assets, end of year
($ millions)..................... 1 14 13 10 4
<FN>
- ----------
* Per share amounts have been calculated using the monthly average share
method, which more appropriately presents per share data for the period
since the use of the undistributed income method does not correspond with
results of operations.
/dagger/ For the period December 30, 1994 (commencement of operations) to
October 31, 1995.
/dagger//dagger/ For the period April 3, 1995 (commencement of Class C Shares)
to October 31, 1995.
/dagger//dagger//dagger/ For the period January 2, 1998 (commencement of Class
B Shares) to October 31, 1998.
(a) Excludes management fees waived by the Manger in the amount of $.03 per
Class A Shares, $.02 per Class B Shares and $1.03 per Class C Shares for
the year ended October 31, 1998. The operating expense ratios including
such items would have been 1.58%, 2.33% (annualized) and 2.33% for Class A,
Class B and Class C, respectively. The year ended October 31, 1997 includes
recovery of previously waived management fees paid to the manager of $.02
per Class A and Class C Shares. The operating expense ratio excluding such
items would have been 1.53% and 2.28% for Class A and Class C Shares,
respectively. Excludes management fees waived and expenses reimbursed by
the Manager in the amount of $.07 and $.13 per Class A Shares, for the two
years ended October 31, 1996. The operating expense ratios including such
items would have been 1.99% and 3.49% (annualized) for Class A Shares for
the two years ended October 31, 1996. Excludes management fees waived and
expenses reimbursed by the Manager in the amount of $.07 and $.13 per Class
C Shares, for the two years ended October 31, 1996. The operating expense
ratio including such items would have been 2.74% and 4.24% (annualized) for
Class C Shares for the two years ended October 31, 1996.
(b) Annualized.
(c) Not annualized.
(d) Does not reflect the imposition of a sales charge.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1: SIGNIFICANT ACCOUNTING POLICIES. Heritage Series Trust (the "Trust")
is organized as a Massachusetts business trust and is registered under
the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company and presently offers shares in
six series, the Aggressive Growth Fund, Eagle International Equity
Portfolio, the Growth Equity Fund, the Mid Cap Growth Fund, the Small
Cap Stock Fund, and the Value Equity Fund (each, a "Fund" and
collectively, the "Funds"). The Aggressive Growth Fund primarily seeks
long-term capital appreciation by investing in equity securities of
companies that may have significant growth potential. The Eagle
International Equity Portfolio primarily seeks capital appreciation
through investments in a portfolio of international equity securities.
The Growth Equity Fund primarily seeks growth through long-term capital
appreciation. The Mid Cap Growth Fund primarily seeks long-term
appreciation by investing primarily in equity securities of companies
with medium capitalization that are believed to have above average
growth potential. The Small Cap Stock Fund seeks long-term capital
appreciation by investing principally in the equity securities of
companies with small market capitalization. The Value Equity Fund
primarily seeks long-term capital appreciation and, secondarily, seeks
current income. The Funds currently offer Class A, Class B and Class C
Shares. Class A Shares are sold subject to a maximum sales charge of
4.75% of the amount invested payable at the time of purchase. Class B
Shares, which were offered to shareholders beginning January 2, 1998,
are sold subject to a 5% maximum contingent deferred sales load (based
on the lower of purchase price or redemption price), declining over a
six-year period. Class C Shares, which were offered to shareholders
beginning April 3, 1995, are sold subject to a contingent deferred sales
charge of 1% of the lower of net asset value or purchase price payable
upon any redemptions made in less than one year of purchase. The Eagle
International Equity Portfolio also issues Eagle Class Shares, which are
subject to certain minimum investment requirements and are sold without
any sales charge. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates. The
following is a summary of significant accounting policies:
SECURITY VALUATION: Each Fund values investment securities at market
value based on the last quoted sales price as reported by the principal
securities exchange on which the security is traded. If no sale is
reported, the last bid price is used and in the absence of a market
quote, securities are valued using such methods as the Board of Trustees
believes would reflect fair market value. 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 Eagle International
Equity Portfolio calculates its daily net asset value per share.
Although the Eagle International Equity Portfolio values its assets in
U.S. dollars on a daily basis, it does not intend to convert holdings of
foreign currencies into U.S. dollars on a daily basis. Short term
investments having a maturity of 60 days or less are valued at amortized
cost, which approximates market.
FOREIGN CURRENCY TRANSACTIONS: The books and records of the Eagle
International Equity Portfolio are maintained in U.S. dollars. Foreign
currency transactions are translated into U.S. dollars on the following
basis: (i) market value of investment securities, other assets and other
liabilities at the daily rates of exchange, and (ii) purchases and sales
of investment securities, dividend and interest income and certain
expenses at the rates of exchange prevailing on the respective dates of
such transactions. The Eagle International Equity Portfolio does not
isolate that portion of gains and losses on investments which is due to
changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments. Net
realized gain (loss) and unrealized appreciation (depreciation) from
foreign currency transactions include gains and losses between trade and
settlement date on securities transactions, gains and losses arising
from the sales of foreign currency and gains and losses between the ex
and payment dates on dividends, interest, and foreign withholding taxes.
FORWARD FOREIGN CURRENCY CONTRACTS: The Eagle International Equity
Portfolio may enter into forward foreign currency contracts which are
valued daily at the appropriate exchange rates. The resultant unrealized
exchange gains and losses are included in the Statement of Operations as
unrealized foreign currencies gain or loss. The Eagle International
Equity Portfolio records realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished
(compensated) by entering into a closing transaction prior to delivery.
REPURCHASE AGREEMENTS: Each Fund enters into repurchase agreements
whereby a Fund, through its custodian, receives delivery of the
underlying securities, the market value of which at the time of purchase
is required to be in an amount to at least 100% of the resale price.
FEDERAL INCOME TAXES: Each Fund is treated as a single corporate
taxpayer as provided for in the Tax Reform Act of 1986, as amended. A
Fund's policy is to comply with the requirements of the Internal Revenue
Code of 1986, as amended, which are applicable to regulated investment
companies and to distribute substantially all of its taxable income to
its shareholders. Accordingly, no provision has been made for federal
income and excise taxes.
DISTRIBUTION OF NET REALIZED GAINS: Net realized gains from investment
transactions during any particular year in excess of available capital
loss carryforwards, which, if not distributed, would be taxable to each
Fund, will be distributed to shareholders in the following fiscal year.
Each Fund uses the identified cost method for determining realized gain
or loss on investments for both financial and federal income tax
reporting purposes.
45
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
STATE QUALIFICATION EXPENSES: State qualification fees are amortized
based either on the time period covered by the qualification or as
related shares are sold, whichever is appropriate for each state.
OPTION ACCOUNTING PRINCIPLES: When a Fund writes a covered call option,
an amount equal to the premium received by the Fund is included in the
Fund's Statement of Assets and Liabilities as an asset and as an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option
written. The current market value of a written option is based on the
last offering price on the principal exchange on which such option is
traded. The Fund receives a premium on the sale of an option, but gives
up the opportunity to profit from any increase in stock value above the
exercise price of the option. If an option that a Fund has written
either expires on its stipulated expiration date, or the Fund enters
into a closing purchase transaction, the Fund realizes a gain (or loss
if the cost of a closing purchase transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain
or loss on the underlying security, and the liability related to such
option is extinguished. If a call option that a Fund has written is
exercised, the Fund realizes a capital gain or loss from the sale of the
underlying security, and the proceeds from such sale are increased by
the premium originally received.
EXPENSES: Each Fund is charged for those expenses that are directly
attributable to it, such as management fee, custodian/fund accounting
fees, distribution fee, etc., while other expenses such as professional
fees, insurance expense, etc., are all allocated proportionately among
the Trust. Expenses of each Fund are allocated to each class of shares
based upon their relative percentage of current net assets. All expenses
that are directly attributable to a specific class of shares, such as
distribution fees and shareholders service fees with respect to Eagle
International Equity Portfolio, are charged directly to that class.
ORGANIZATION EXPENSES: Expenses incurred in connection with the
formation of each Fund, except the Aggressive Growth Fund, were deferred
and are being amortized on a straight-line basis over 60 months from the
date of commencement of operations for the respective Funds. Subsequent
to June 30, 1998, organization costs of approximately $49,000 in the
Aggressive Growth Fund were absorbed by Heritage Asset Management, Inc.
CAPITAL ACCOUNTS: Each Fund reports the undistributed net investment
income and accumulated net realized gain (loss) accounts on a basis
approximating amounts available for future tax distributions (or to
offset future taxable realized gains when a capital loss carryforward is
available). Accordingly, each Fund may periodically make
reclassifications among certain capital accounts without impacting the
net asset value of the Fund.
OTHER: For purposes of these financial statements, investment security
transactions are accounted for on a trade date basis. Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
Interest income is recorded on the accrual basis.
Note 2: FUND SHARES. At October 31, 1998, there was an unlimited number of
shares of beneficial interest of no par value authorized.
AGGRESSIVE GROWTH FUND
----------------------
Transactions in the Class A, Class B and Class C Shares of the Fund
during the period August 20, 1998 (commencement of operations) to
October 31, 1998, were as follows:
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
FOR THE PERIOD ENDED OCTOBER 31, 1998 --------------------------- ------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ...................... 758,002 $10,793,788 254,153 $3,604,086 224,375 $3,201,056
Shares redeemed .................. (27,801) (380,444) (1,516) (22,060) (2,555) (36,378)
------- ----------- ------- ---------- ------- ----------
Net increase ..................... 730,201 $10,413,344 252,637 $3,582,026 221,820 $3,164,678
=========== ========== ==========
Shares outstanding: ..............
Beginning of period ............. -- -- --
------- ------- -------
End of period ................... 730,201 252,637 221,820
======= ======= =======
</TABLE>
46
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
EAGLE INTERNATIONAL EQUITY PORTFOLIO
------------------------------------
Transactions in Class A Shares, Class C Shares and Eagle Shares of the
Fund during the year ended October 31, 1998 and Class B Shares from
January 2, 1998 (commencement of Class B Shares) to October 31, 1998,
were as follows:
<TABLE>
<CAPTION>
A SHARES B SHARES
FOR THE YEAR ENDED OCTOBER 31, 1998 ---------------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- -------- -----------
<S> <C> <C> <C> <C>
Shares sold ..................... 57,108 $ 1,498,668 9,521 $247,499
Shares issued on reinvestment
of distributions .............. 6,686 158,113 -- --
Shares redeemed ................. (51,418) (1,323,329) (173) (4,682)
------- ------------- ----- --------
Net increase (decrease) ......... 12,376 $ 333,452 9,348 $242,817
============= ========
Shares outstanding:
Beginning of year .............. 255,762 --
------- -----
End of year .................... 268,138 9,348
======= =====
<CAPTION>
C SHARES EAGLE SHARES
FOR THE YEAR ENDED OCTOBER 31, 1998 ---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold ..................... 138,692 $ 3,626,639 161,915 $ 4,255,168
Shares issued on reinvestment
of distributions .............. 4,371 102,414 34,247 805,842
Shares redeemed ................. (67,332) (1,769,569) (223,287) (5,683,092)
------- ------------- -------- -------------
Net increase (decrease) ......... 75,731 $ 1,959,484 (27,125) $ (622,082)
============= =============
Shares outstanding:
Beginning of year .............. 158,392 1,331,303
------- ---------
End of year .................... 234,123 1,304,178
======= =========
</TABLE>
Transactions in Class A Shares, Class C Shares and Eagle shares of the
Fund during the year ended October 31, 1997, were as follows:
<TABLE>
<CAPTION>
A SHARES C SHARES EAGLE SHARES
FOR THE YEAR ENDED OCTOBER 31, 1997 -------------------------- -------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ....................... 145,840 $3,468,293 121,689 $2,915,342 459,654 $ 11,104,451
Shares issued on reinvestment
of distributions ................ 3,346 75,081 1,158 25,899 21,188 475,249
Shares redeemed ................... (33,267) (815,865) (18,479) (439,911) (125,683) (2,972,703)
------- ---------- ------- ---------- -------- ------------
Net increase ...................... 115,919 $2,727,509 104,368 $2,501,330 355,159 $ 8,606,997
========== ========== ============
Shares outstanding:
Beginning of year ................ 139,843 54,024 976,144
------- ------- --------
End of year ...................... 255,762 158,392 1,331,303
======= ======= =========
</TABLE>
GROWTH EQUITY FUND
------------------
Transactions in Class A and Class C Shares of the Fund during the year
ended October 31, 1998 and Class B Shares from January 2, 1998
(commencement of Class B Shares) to October 31, 1998, were as follows:
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
FOR THE YEAR ENDED OCTOBER 31, 1998 ---------------------------- ------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- -------------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ....................... 586,531 $ 16,436,873 185,913 $5,192,150 854,527 $ 23,502,787
Shares issued on reinvestment
of distributions ................ 12,951 312,499 -- -- 10,879 258,383
Shares redeemed ................... (244,224) (6,562,209) (2,346) (65,655) (248,450) (6,758,896)
-------- ------------ ------- ---------- -------- ------------
Net increase ...................... 355,258 $ 10,187,163 183,567 $5,126,495 616,956 $ 17,002,274
============ ========== ============
Shares outstanding:
Beginning of year ................ 1,028,794 -- 783,120
--------- ------- --------
End of year ...................... 1,384,052 183,567 1,400,076
========= ======= =========
</TABLE>
47
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Transactions in Class A and Class C Shares of the Fund during the year
ended October 31, 1997, were as follows:
<TABLE>
<CAPTION>
A SHARES C SHARES
FOR THE YEAR ENDED OCTOBER 31, 1997 ---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold ....................... 553,303 $ 11,132,958 534,451 $11,343,816
Shares redeemed ................... (208,950) (4,286,048) (41,133) (835,061)
-------- ------------ ------- -----------
Net increase ...................... 344,353 $ 6,846,910 493,318 $10,508,755
============ ===========
Shares outstanding:
Beginning of year ................ 684,441 289,802
-------- -------
End of year ...................... 1,028,794 783,120
========= =======
</TABLE>
MID CAP GROWTH FUND
-------------------
Transactions in Class A and Class C Shares of the Fund during the period
November 6, 1997 (commencement of operations) to October 31, 1998 and
Class B Shares from January 2, 1998 (commencement of Class B Shares) to
October 31, 1998, were as follows:
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
FOR THE PERIOD ENDED OCTOBER 31, 1998 ---------------------------- ------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- -------------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ......................... 1,498,547 $ 21,897,656 164,784 $2,531,799 804,758 $ 11,737,195
Shares redeemed ..................... (369,224) (5,364,630) (8,795) (114,655) (135,312) (1,953,637)
--------- ------------ ------- ---------- -------- ------------
Net increase ........................ 1,129,323 $ 16,533,026 155,989 $2,417,144 669,446 $ 9,783,558
============ ========== ============
Shares outstanding:
Beginning of period ................ -- -- --
--------- ------- --------
End of period ...................... 1,129,323 155,989 669,446
========= ======= ========
</TABLE>
SMALL CAP STOCK FUND
--------------------
Transactions in Class A and Class C Shares of the Fund during the year
ended October 31, 1998 and Class B Shares from January 2, 1998
(commencement of Class B Shares) to October 31, 1998, were as follows:
<TABLE>
<CAPTION>
A SHARES B SHARES
FOR THE YEAR ENDED OCTOBER 31, 1998 -------------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold .................... 2,324,448 $ 65,942,936 430,520 $12,003,417
Shares issued on reinvestment
of distributions ............. 450,837 12,564,851 -- --
Shares redeemed ................ (2,402,109) (65,619,657) (26,685) (623,843)
---------- -------------- ------- -----------
Net increase ................... 373,176 $ 12,888,130 403,835 $11,379,574
============== ===========
Shares outstanding:
Beginning of year ............. 7,315,919 --
---------- -------
End of year ................... 7,689,095 403,835
========== =======
<CAPTION>
C SHARES
FOR THE YEAR ENDED OCTOBER 31, 1998 --------------------------------
SHARES AMOUNT
--------------- ----------------
<S> <C> <C>
Shares sold .................... 1,681,715 $ 46,062,174
Shares issued on reinvestment
of distributions ............. 196,455 5,363,217
Shares redeemed ................ (1,067,827) (27,606,414)
---------- --------------
Net increase ................... 810,343 $ 23,818,977
==============
Shares outstanding:
Beginning of year ............. 3,018,510
----------
End of year ................... 3,828,853
==========
</TABLE>
48
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Transactions in Class A and Class C Shares of the Fund during the year
ended October 31, 1997, were as follows:
<TABLE>
<CAPTION>
A SHARES C SHARES
FOR THE YEAR ENDED OCTOBER 31, 1997 ------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold .................... 3,806,977 $ 102,346,776 2,145,616 $ 56,993,115
Shares issued on reinvestment
of distributions ............. 335,280 7,590,750 93,252 2,086,050
Shares redeemed ................ (805,333) (21,288,297) (267,904) (6,875,891)
--------- ------------- --------- ------------
Net increase ................... 3,336,924 $ 88,649,229 1,970,964 $ 52,203,274
============= ============
Shares outstanding:
Beginning of year ............. 3,978,995 1,047,546
--------- ---------
End of year ................... 7,315,919 3,018,510
========= =========
</TABLE>
VALUE EQUITY FUND
-----------------
Transactions in Class A and Class C Shares of the Fund during the year
ended October 31, 1998 and Class B Shares from January 2, 1998
(commencement of Class B Shares) to October 31, 1998, were as follows:
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
FOR THE YEAR ENDED OCTOBER 31, 1998 ----------------------------- ----------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- --------------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold .................... 173,321 $ 3,500,708 51,939 $ 998,767 194,603 $ 3,691,922
Shares issued on reinvestment
of distributions ............. 216,712 4,225,878 -- -- 165,685 3,204,346
Shares redeemed ................ (291,484) (5,797,438) (2,395) (43,713) (270,892) (5,070,563)
-------- ------------ ------ --------- -------- ------------
Net increase ................... 98,549 $ 1,929,148 49,544 $ 955,054 89,396 $ 1,825,705
============ ========= ============
Shares outstanding:
Beginning of year ............. 856,533 -- 656,055
-------- ------ --------
End of year ................... 955,082 49,544 745,451
======== ====== ========
</TABLE>
Transactions in Class A and Class C Shares of the Fund during the year
ended October 31, 1997, were as follows:
<TABLE>
<CAPTION>
A SHARES C SHARES
FOR THE YEAR ENDED OCTOBER 31, 1997 ------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Shares sold .................... 189,849 $ 4,264,982 196,401 $ 4,418,250
Shares issued on reinvestment
of distributions ............. 54,761 1,062,355 34,665 668,696
Shares redeemed ................ (148,365) (3,309,390) (86,706) (1,911,305)
-------- ------------ ------- ------------
Net increase ................... 96,245 $ 2,017,947 144,360 $ 3,175,641
============ ============
Shares outstanding:
Beginning of year ............. 760,289 511,695
-------- -------
End of year ................... 856,534 656,055
======== =======
</TABLE>
49
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Note 3: PURCHASES AND SALES OF SECURITIES. For the year ended October 31,
1998, purchases and sales on investment securities (excluding repurchase
agreements and short term obligations) were as follows:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
-------------------------------
PURCHASES SALES
-------------- --------------
<S> <C> <C>
Aggressive Growth Fund ....................... $ 17,596,334 $ 3,139,617
Eagle International Equity Portfolio ......... 32,460,363 30,858,067
Growth Equity Fund ........................... 60,590,710 31,924,762
Mid Cap Growth Fund .......................... 57,340,373 29,978,380
Small Cap Stock Fund ......................... 183,483,976 162,045,064
Value Equity Fund ............................ 45,599,236 46,943,523
</TABLE>
Agency brokerage commissions for the Aggressive Growth Fund, the Eagle
International Equity Portfolio, the Growth Equity Fund, the Mid Cap
Growth Fund, the Small Cap Stock Fund and the Value Equity Fund for the
year ended October 31, 1998 aggregated $26,396, $134,334, $81,410,
$102,708, $560,894 and $153,869, of which $6,696, $0, $0, $0, $102,192
and $4,212, were paid to Raymond James & Associates, Inc., respectively.
Transactions in covered call options written on equity securities were
as follows:
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
VALUE EQUITY FUND CONTRACTS RECEIVED
- ----------------- ---------- -----------
<S> <C> <C>
Outstanding, October 31, 1997 ......... 80 $ 20,429
Written .............................. 1,240 385,634
Closed ............................... (303) (89,307)
Exercised ............................ (376) (82,837)
Expired .............................. (311) (89,650)
----- ---------
Outstanding, October 31, 1998 ......... 330 $ 144,269
===== =========
</TABLE>
Note 4: MANAGEMENT, SUBADIVISORY, DISTRIBUTION, SHAREHOLDER SERVICING AGENT,
FUND ACCOUNTING AND TRUSTEES' FEES. Under the Fund's Investment Advisory
and Administrative Agreements with Heritage Asset Management, Inc. (the
"Manager"), the Growth Equity, Mid Cap Growth and Value Equity Funds
agree to pay to the Manager a fee equal to an annual rate of 0.75% of
the Fund's average daily net assets, computed daily and payable monthly.
For the Aggressive Growth Fund and Small Cap Stock Fund, the management
fee for each fund is 1.0% on the first $50 million and 0.75% of any
excess over $50 million of average daily net assets. Under the Fund's
Investment Advisory and Administrative Agreement with Eagle Asset
Management, Inc. ("Eagle"), the Eagle International Equity Portfolio
annual management fee is 1.0% on the first $100 million of average daily
net assets and 0.80% of any excess over $100 million of average daily
net assets. The Manager voluntarily waived its investment advisory fees
and, if necessary, reimbursed each Fund to the extent that Class A,
Class B and Class C annual operating expenses exceeded that Funds
average daily net assets attributable to that class for the 1998 fiscal
year as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B AND CLASS C
--------- --------------------
<S> <C> <C>
Aggressive Growth Fund ....................... 1.65% 2.40%
Eagle International Equity Portfolio ......... 1.97% 2.72%
Growth Equity Fund ........................... 1.45% 2.20%
Mid Cap Growth Fund .......................... 1.60% 2.35%
Small Cap Stock Fund ......................... 1.30% 2.05%
Value Equity Fund ............................ 1.45% 2.20%
</TABLE>
50
<PAGE>
- --------------------------------------------------------------------------------
HERITAGE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Management fees of $25,861 were waived and $25,530 of expenses were
reimbursed for the Aggressive Growth Fund for the year ended October 31,
1998. If total Fund expenses fall below the expense limitation agreed to
by the Manager before the end of the year ended October 31, 2000, the
Aggressive Growth Fund may be required to pay the Manager a portion or
all of the waived management fees. Management fees of $52,276 were
waived for the Eagle International Equity Portfolio for the year ended
October 31, 1998. If total Fund expenses fall below the expense
limitation agreed to by Eagle before the end of the year ended October
31, 2000, Eagle International Equity Portfolio may be required to pay
Eagle a portion or all of the waived management fees. In addition the
Eagle International Equity Portfolio may be required to pay Eagle, a
portion or all of the management fees waived of $91,433 in fiscal 1997
if total Fund expenses fall below the annual expense limitations before
the end of the year ending October 31, 1999, respectively. Management
fees of $60,948 were waived by the Mid Cap Growth Fund for the year
ended October 31, 1998. If total Fund expenses fall below the expense
limitation agreed to by the Manager before the end of the year ended
October 31, 2000, the Mid Cap Growth Fund may be required to pay the
Manager a portion or all of the waived management fees. Management fees
of $48,072 were waived by the Value Equity Fund for the year ended
October 31, 1998. If total Fund expenses fall below the expense
limitation agreed to by the Manager before the end of the year ended
October 31, 2000, the Value Equity Fund may be required to pay the
Manager a portion or all of the waived management fees.
Eagle has entered into an agreement with Martin Currie, Inc., a New York
Corporation, to provide to the Eagle International Equity Portfolio with
investment advice, portfolio management services including the placement
of brokerage orders, and certain compliance and other services for an
annualized fee payable by Eagle equal to .50% of the average daily net
assets on the first $100 million of net assets and .40% thereafter
without regard to any reduction due to the imposition of expense
limitations. For the year ended October 31, 1998 the Subadviser earned
$226,862 for Subadviser fees, which was paid by Eagle.
The Manager has entered into agreements with Eagle (with respect to the
Aggressive Growth Fund, Growth Equity Fund, Mid Cap Growth Fund and the
Value Equity Fund) and with Eagle and Awad Asset Management, Inc., (with
respect to the Small Cap Stock Fund) to provide investment advice,
portfolio management services including the placement of brokerage
orders and certain compliance and other services for a fee payable by
the Manager equal to 50% of the fees payable by the Fund to the Manager
without regard to any reduction due to the imposition of expense
limitations. For the year ended October 31, 1998, the total fees the
Subadvisers earned were $12,931, $235,724, $89,371, $1,304,975 and
$136,477 for the Aggressive Growth Fund, Growth Equity Fund, Mid Cap
Growth Fund, Small Cap Stock Fund and Value Equity Fund, respectively.
Effective October 1, 1997, the management of the assets of the Value
Equity Fund were allocated to Eagle. Prior to October 1, 1997, the
assets of the Fund were managed by Dreman Value Advisors, Inc.
("Dreman"), an additional subadviser to the Fund. Dreman provided to the
Fund investment advice, portfolio management services including the
placement of brokerage orders, and certain compliance and other services
for a fee payable by the Manager equal to .35% of the Fund's average
daily net assets.
Raymond James & Associates, Inc. (the "Distributor") has advised the
Trust that it received $228,267, $29,628, $313,701, $519,785,
$1,091,518, $67,987 in front end sales charges for Class A Shares, $699,
$25, $1,972, $3,451, $14,266, $1,186 in contingent deferred sales
charges for Class B Shares and $77, $1,250, $10,903, $12,621, $48,611,
$1,837 in contingent deferred sales charges for Class C Shares for the
Aggressive Growth Fund, Eagle International Equity Portfolio, Growth
Equity Fund, Mid Cap Growth Fund, Small Cap Stock Fund and the Value
Equity Fund, respectively, for the year ended October 31, 1998. The
Distributor paid sales commission to salespersons from these fees and
incurred other distribution costs.
Pursuant to a plan in accordance with Rule 12b-1 of the Investment
Company Act of 1940, as amended, the Trust is authorized to pay the
Distributor a fee pursuant to the Class A Distribution Plan of up to
.35% of the average daily net assets for the services it provides in
connection with the promotion and distribution of Fund shares. However,
at the present time the Board of Trustees has authorized payments of
only .25% of average daily net assets. Under the Class B and Class C
Distribution Plans, the Trust may pay the Distributor a fee equal to
1.00% of the average daily net assets. Such fees are accrued daily and
payable monthly. Class B Shares will convert to Class A Shares eight
years after the end of the calendar month in which the shareholder's
order to purchase the Class B Shares was accepted. The Manager, Eagle,
Awad Asset Management, Inc. and the Distributor are all wholly owned
subsidiaries of Raymond James Financial, Inc.
The Manager also is the Dividend Paying and Shareholder Servicing Agent
for the Aggressive Growth Fund, Eagle International Equity Portfolio,
the Growth Equity Fund, the Mid Cap Growth Fund, the Small Cap Stock
Fund and the Value Equity Fund. The amount payable to the Manager for
such expenses as of October 31, 1998 was $4,750, $17,625, $21,600,
$12,800, $104,000 and $13,200, respectively. In addition, the Manager
performs Fund Accounting services for the
51
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HERITAGE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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Aggressive Growth Fund, Growth Equity Fund, the Mid Cap Growth Fund, the
Small Cap Stock Fund and the Value Equity Fund and charged $8,200,
$39,661, $32,403, $47,885 and $35,631 during the current period, of
which $8,200, $14,800, $11,800, $16,000 and $12,800, was payable as of
October 31, 1998, respectively.
Trustees of the Trust also serve as Trustees for Heritage Cash Trust,
Heritage Capital Appreciation Trust, Heritage Income-Growth Trust,
Heritage Income Trust and Heritage U.S. Government Income Fund,
investment companies that also are advised by the Manager (collectively
referred to as the Heritage funds). Each Trustee of the Heritage funds
that is not an employee of the Manager or employee of an affiliate of
the Manager received an annual fee of $8,666, an additional fee of
$3,250 for each combined quarterly meeting of the Heritage funds
attended and $1,000 for each special Trustees meeting attended.
Trustees' fees and expenses are paid equally by each of the Heritage
funds.
Note 5: FEDERAL INCOME TAXES.
AGGRESSIVE GROWTH FUND:
-----------------------
For the year ended October 31, 1998, to reflect reclassifications
arising from permanent book/tax differences primarily attributable to a
net operating loss, the Fund credited undistributed net investment
income and debited paid in capital $5,426. The Fund has a net tax basis
capital loss carryforward of $50,287, which may be applied against any
realized net taxable gains until its expiration date of October 31,
2006.
EAGLE INTERNATIONAL EQUITY PORTFOLIO:
-------------------------------------
For the year ended October 31, 1998, to reflect reclassifications
arising from permanent book/tax differences primarily attributable to
foreign currency gains, a net operating loss and basis difference in
passive foreign investment companies (PFICs), the Fund credited
undistributed net investment income $204,602 and accumulated net
realized gain $48,016 and debited paid in capital $252,618.
GROWTH EQUITY FUND:
-------------------
For the year ended October 31, 1998, to reflect reclassifications
arising from permanent book/tax differences primarily attributable to a
net operating loss, the Fund credited undistributed net investment
income $480,255, accumulated net realized loss $434 and debited paid in
capital $480,689. The Fund has a net tax basis capital loss carryforward
of $2,741,694, which may be applied against any realized net taxable
gains until its expiration date of October 31, 2006.
MID CAP GROWTH FUND:
--------------------
For the year ended October 31, 1998, to reflect reclassification arising
from permanent book/tax differences attributable to a net operating
loss, the Fund credited undistributed net investment income and debited
paid in capital $302,320. The Fund has a net tax basis capital loss
carryforward of $1,409,298, which may be applied against any realized
net taxable gains until its expiration date of October 31, 2006.
SMALL CAP STOCK FUND:
---------------------
For the year ended October 31, 1998, to reflect reclassifications
arising from permanent book/tax differences primarily attributable to a
net operating loss and REIT distributions, the Fund credited
undistributed net investment income $1,505,367 and debited accumulated
net realized loss $1,698 and paid in capital $1,503,669. The Fund has a
net tax basis capital loss carryforward of $2,351,305, which may be
applied against any realized net taxable gains until its expiration date
of October 31, 2006.
Note 6: FINANCIAL INVESTMENT WITH OFF-BALANCE SHEET RISK.
EAGLE INTERNATIONAL EQUITY PORTFOLIO:
-------------------------------------
The Fund may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated
portfolio transactions, to manage its foreign currency exposure or to
sell for a fixed amount of U.S. dollars or other currency, the amount of
foreign currency approximating the value of some or all of its holdings
denominated in such foreign currency or an amount of foreign currency
other than the currency in which the securities to be hedged are
denominated approximating the value of some or all of its holding to be
hedged. Additionally, when the Subadviser anticipates purchasing
securities at some time in the future, the Fund may enter into a forward
contract to purchase an amount of currency equal to some or all of the
value of the anticipated purchase for a fixed amount of U.S. dollars or
other currency.
The Fund may enter into forward contracts to hedge against changes to
future foreign exchange rates and enhance return. Forward contracts
involve elements of market risk in excess of the amount reflected in the
Statement of Assets and Liabilities. The Fund bears the risk of an
unfavorable change in the foreign exchange rate underlying the forward
contract. Risks may also arise upon entering into these contracts from
the potential inability of these parties to meet the terms of their
contracts.
52
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
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To the Board of Trustees and Shareholders of
Heritage Series Trust
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolios, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Heritage Series Trust-Aggressive
Growth Fund, Heritage Series Trust-Eagle International Equity Portfolio,
Heritage Series Trust-Growth Equity Fund, Heritage Series Trust-Mid Cap Growth
Fund, Heritage Series Trust-Small Cap Stock Fund and Heritage Series
Trust-Value Equity Fund (constituting The Heritage Series Trust, hereafter
referred to as the "Trust") at October 31, 1998, the results of each of their
operations for the year then ended, the changes in each of their net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
[GRAPHIC OMITTED]
PricewaterhouseCoopers LLP
Tampa, Florida
December 17, 1998
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1998 FEDERAL INCOME TAX NOTICE
(UNAUDITED)
- --------------------------------------------------------------------------------
During the year ended October 31, 1998, the Small Cap Stock Fund and the
Value Equity Fund paid to shareholders $10,282,048 and $3,348,023 or $0.95 and
$2.23 per share, from long-term capital gains, respectively.
53
<PAGE>
Heritage Family of Funds(TM)
FROM OUR FAMILY TO YOURS: THE INTELLIGENT CREATION OF WEALTH.
Heritage Money Market Funds
Cash Trust Money Market
Cash Trust Municipal Money Market
Heritage Bond Funds
Intermediate Government
High Yield
Heritage Stock Funds
Aggressive Growth
Capital Appreciation
Growth Equity
Income-Growth
Eagle International
Mid Cap
Small Cap
Value Equity
We are pleased that many of you are also investors in these funds. For more
information and a prospectus for any of these mutual funds, please contact
your financial advisor. Please read the prospectus carefully before you invest
in any of the funds.
This report is for the information of shareholders of Heritage Series Trust -
Aggressive Growth Fund, Eagle International Equity Portfolio, Growth Equity
Fund, Mid Cap Growth Fund, Small Cap Stock Fund and Value Equity Fund. It may
also be used as sales literature when preceded or accompanied by a prospectus.
Copyright 1998 Heritage Asset Management, Inc.
35M 10/98
AR5314-EQ
[LOGO] Heritage Series Trust
P.O. Box 33022
St. Petersburg, FL 33733
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ADDRESS SERVICE REQUESTED
