As filed with the Securities and Exchange Commission on February 26, 1999
1933 Act File No. 33-57986
1940 Act File No. 811-7470
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. -- [ ]
Post-Effective Amendment No. 21 [ X ]
--
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ X ]
Amendment No. 22
--
(Check appropriate box or boxes.)
HERITAGE SERIES TRUST
(Exact name of Registrant as Specified in Charter)
880 Carillon Parkway
St. Petersburg, FL 33716
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (813) 573-3800
STEPHEN G. HILL, PRESIDENT
880 Carillon Parkway
St. Petersburg, FL 33716
(Name and Address of Agent for Service)
Copy to:
CLIFFORD J. ALEXANDER, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
Approximate Date of Proposed Public Offering MARCH 1, 1999
--------------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on March 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
HERITAGE SERIES TRUST
EAGLE INTERNATIONAL
EQUITY PORTFOLIO - EAGLE CLASS
CONTENTS OF REGISTRATION STATEMENT
This registration document is comprised of the following:
Cover Sheet
Contents of Registration Statement
Prospectus for Eagle Class shares of Eagle International Equity
Portfolio
Statement of Additional Information for Eagle Class shares of Eagle
International Equity Portfolio
Part C of Form N-1A
Signature Page
Exhibits
This filing does not affect the prospectus and statement of additional
information for Class A, Class B and Class C shares of Eagle International
Equity Portfolio, Aggressive Growth Fund, Growth Equity Fund, Mid Cap Growth
Fund, Small Cap Stock Fund and Value Equity Fund of Heritage Series Trust.
<PAGE>
The Eagle
International
Equity Portfolio
Prospectus
The Securities and Exchange Commission
has not approved or disapproved these
securities or passed upon the adequacy
of this prospectus. Any representation
to the contrary is a criminal offense.
March 1, 1999
EAGLE Asset Management Inc.
880 Carillon Parkway
P.O. Box 10520
St. Petersburg, FL
33733-0520
(727) 573-2453
(800) 237-3101
<PAGE>
ABOUT THE EAGLE CLASS OF THE PORTFOLIO
Objective 1
......................................................................
How the Portfolio Pursues its Objective 1
......................................................................
What are the Main Risks of Investing in the Portfolio 1
......................................................................
How the Portfolio has Performed 2
......................................................................
What are the Costs of Investing in the Portfolio 3
......................................................................
Expense Example 4
WHO MANAGES THE PORTFOLIO
Investment Adviser 4
......................................................................
Subadviser 4
......................................................................
Investment Committee 4
......................................................................
Fund Administrator and Transfer Agent 4
......................................................................
Year 2000 4
DISTRIBUTION OF PORTFOLIO SHARES
Who Distributes Portfolio Shares 5
......................................................................
Understanding Distribution and Service Fees 5
ABOUT YOUR INVESTMENT
How to Buy Shares 5
......................................................................
How to Sell Shares 5
......................................................................
Account and Transaction Policies 6
......................................................................
How Distributions are Made and Tax Information 7
FINANCIAL HIGHLIGHTS 9
<PAGE>
ABOUT THE EAGLE CLASS OF THE PORTFOLIO
OBJECTIVE
The Eagle International Equity Portfolio (Portfolio) seeks capital appreciation
principally through investment in a portfolio of international equity
securities.
HOW THE PORTFOLIO PURSUES ITS OBJECTIVE
The Portfolio seeks to achieve its objective by investing primarily in equity
securities of foreign issuers and depository receipts representing the
securities of foreign issuers. Under normal market conditions, at least 65% of
the Portfolio's total assets are invested in common stocks, convertible bonds,
convertible preferred stocks, warrants, rights or other equity securities of
foreign issuers and sponsored and unsponsored depository receipts representing
the securities of foreign issuers.
The Portfolio may invest in securities traded on any securities markets in the
world. In allocating the Portfolio's assets among various securities markets of
the world, the Portfolio's subadviser considers such factors as the condition
and growth potential of the economies and securities markets, currency and
taxation considerations and financial, social, national and political factors.
The Portfolio's subadviser also considers market regulations and liquidity of
the market.
The Portfolio normally invests at least 50% of its investment portfolio in
securities traded in developed foreign securities markets, such as those
included in the Morgan Stanley Capital International Europe, Australia, Far
East Index (EAFE Index). Countries represented in the EAFE Index include Japan,
France, the United Kingdom, Germany and Hong Kong, among others. The Portfolio
also invests in emerging markets (which may include investments in countries
such as India, Mexico and Poland). Emerging markets are those countries whose
markets are not yet highly developed. The Portfolio can invest in foreign
currency and purchase and sell foreign currency forward contracts and futures
contracts to improve its returns or protect its assets.
The Portfolio may invest in any type or size of company. It may invest in
companies whose earnings are believed to be in a relatively strong growth trend
or in companies in which significant further growth is not anticipated but
whose market value per share is thought to be undervalued. Because income is an
incidental consideration, the Portfolio also can invest a portion of its assets
in investment-grade, fixed-income securities. The Portfolio will invest in such
securities when in the Subadviser's opinion, it is in the Portfolio's best
interest and when equity securities appear to be overvalued or investing in
fixed-income securities affords the Portfolio the opportunity for capital
growth.
As a temporary defensive measure because of market, economic or other
conditions, the Portfolio may invest up to 100% of its assets in foreign debt
securities, debt and equity securities of U.S. issuers, and obligations issued
or guaranteed by the United States of a foreign government or their respective
agencies, authorities or instrumentatlities. To the extent that the Portfolio
invokes this strategy, its ability to achieve its investment objective may be
affected adversely.
WHAT ARE THE MAIN RISKS OF INVESTING
IN THE PORTFOLIO
Perhaps the biggest risk of investing in the Portfolio is that its returns
will fluctuate and you could lose money. The Portfolio invests primarily in
equity securities whose value might decrease in response to the activities of
the company that issued the security, general market conditions and/or economic
conditions. If this occurs, the Portfolio's net asset value also may decrease.
The Portfolio also may invest without limit in foreign securities either
indirectly (e.g., through depository receipts) or directly in foreign markets.
Investments in foreign securities involve greater risks that investing in
domestic securities. As a result, the Portfolio's returns and net asset value
may be affected to a large degree by
1 PROSPECTUS
<PAGE>
fluctuations in currency exchange rates or political or economic conditions and
regulatory requirements in a particular country. Foreign equity and currency
markets -- as well as foreign economies and political systems -- may be less
stable than U.S. markets, and changes in the exchange rates of foreign
currencies can affect the value of the Portfolio's foreign assets. Foreign laws
and accounting standards typically are not as strict as they are in the U.S.,
and there may be less public information available about foreign companies.
Because the Portfolio may invest in emerging markets, there are risks of
greater political uncertainties, an economy's dependence on revenues from
particular commodities or on international aid or development assistance,
currency transfer restrictions, a limited number of potential buyers for such
securities and delays and disruptions in securities settlement procedures.
The Portfolio may use derivatives such as futures contracts, foreign currency
and forward contracts to adjust the risk/return characteristics of its
investment portfolio. These practices, however, may present risks different
from or in addition to the risks associated with investments in foreign
currencies. There can be no assurance that any strategy used will succeed. If
the Portfolio's subadviser incorrectly forecasts stock market values or
currency exchange rates in utilizing a strategy for the Portfolio, the
Portfolio could lose money.
Because the Portfolio may invest in investment-grade, fixed-income securities,
it is subject to interest rate risk. If interest rates rise, the market value
of the Portfolio's fixed-income securities will fall and, thus, may reduce the
Portfolio's return.
HOW THE PORTFOLIO HAS PERFORMED
The bar chart and table below illustrate annual Eagle Class and market benchmark
returns for the periods ended December 31, 1998. This information is intended to
give you some indication of the risk of investing in the Portfolio by
demonstrating how its returns have varied over time. The bar chart shows the
Portfolio's Eagle Class share performance from one year to another. The table
shows what the return of the Eagle Class of shares would equal if you average
out actual performance over various lengths of time. Because this information is
based on past performance, it is not a guarantee of future results.
[GRAPHIC OMITTED]
2 PROSPECTUS
<PAGE>
From its inception on May 1, 1995 through December 31, 1998, the Eagle Class
shares' highest quarterly return was 18.8% for the quarter ended December 31,
1998 and the lowest quarterly return was -15.28% for the quarter ended
September 30, 1998.
================================================================================
AVERAGE ANNUAL RETURNS (FOR THE PERIODS ENDED DECEMBER 31, 1998):*
- --------------------------------------------------------------------------------
PERIOD EAGLE CLASS EAFE INDEX**
- --------------------------------------------------------------------------------
1 Year 14.99% 20.00%
- --------------------------------------------------------------------------------
Life of Class 11.34% 8.80%
================================================================================
* The Portfolio's returns are after deduction of expenses.
** The EAFE Index is an unmanaged index representative of the market structure
of developed foreign markets. Its returns do not include the effect of any
sales charges. That means the actual returns would be lower if they
included the effect of sales charges.
WHAT ARE THE COSTS OF INVESTING IN THE PORTFOLIO
The tables below describe the fees and expenses that you may pay if you buy
and hold Eagle Class shares. The Eagle Class' expenses are based on actual
expenses incurred for the fiscal year ended October 31, 1998.
================================================================================
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT):
- --------------------------------------------------------------------------------
EAGLE CLASS
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases
(as a % of offering price) None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of original purchase price
or redemption proceeds, whichever is lower) None
- --------------------------------------------------------------------------------
Wire Redemption Fee (per transaction) $5.00
================================================================================
================================================================================
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS):
- --------------------------------------------------------------------------------
EAGLE CLASS
- --------------------------------------------------------------------------------
Management Fees* 1.00%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees 1.00%
- --------------------------------------------------------------------------------
Other Expenses 0.71%
- --------------------------------------------------------------------------------
Total Annual Portfolio Operating Expenses 2.71%
- --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement* 0.11%
- --------------------------------------------------------------------------------
Net Expenses 2.60%
================================================================================
* Eagle Asset Management, Inc., the investment adviser to the Portfolio, has
agreed to waive its fees and, if necessary, reimburse the Portfolio to the
extent that Eagle Class annual operating expenses exceed 2.60% of the
Eagle Class' average daily net assets for the Portfolio's fiscal year
ending October 31, 1999. Any reduction in Eagle's management fees is
subject to reimbursement by the Portfolio within the following two years
if overall expenses fall below this percentage limitation.
3 PROSPECTUS
<PAGE>
EXPENSE EXAMPLE
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year and that the Portfolio's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
================================================================================
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Eagle Class shares $263 $841 $1,435 $3,041
================================================================================
WHO MANAGES THE PORTFOLIO
INVESTMENT ADVISER
Eagle Asset Management, Inc., 880 Carillon Parkway, St. Petersburg, Florida
33716, is the Portfolio's investment adviser and a wholly owned subsidiary of
Raymond James Financial, Inc. Eagle has been managing private accounts since
1976 for a diverse group of clients, including individuals, corporations,
municipalities and trusts. Eagle managed approximately $6 billion for these
clients as of December 31, 1998. Eagle's investment advisory fee charged to the
Portfolio for its 1998 fiscal year was .89% of average daily net assets while
the contractual fee is 1.0% on the first $100 million of assets and .80% of
average daily net assets thereafter.
SUBADVISER
Eagle may allocate assets of the Portfolio among one or more investment
subadvisers, subject to review by the Board of Trustees. Subject to relief from
the Securities and Exchange Commission, Eagle may propose the addition of one or
more additional subadvisers if approved by the Board of Trustees and, if
required by the Investment Company Act of 1940, fund shareholders.
Eagle has selected Martin Currie, Inc., Saltire Court, 20 Castle Terrace,
Edinburgh, Scotland EH1 2ES to serve as the subadviser to the Portfolio. Martin
Currie is a wholly owned subsidiary of Martin Currie Limited, a private limited
company incorporated in Scotland. Martin Currie Limited is one of Scotland's
largest professional money managers and, together with Martin Currie, has $9.9
billion under management as of December 31, 1998.
INVESTMENT COMMITTEE
Investment decisions for the Portfolio are made by a committee of Martin Currie
organized for that purpose and no single person is primarily responsible for
making recommendations to the committee. The committee is subject to the general
oversight of Martin Currie, Eagle and the Board of Trustees.
FUND ADMINISTRATOR AND TRANSFER AGENT
Heritage Asset Management, Inc. (Heritage), an affiliate of Eagle, is the
Portfolio's transfer agent. Heritage also is a wholly owned subsidiary of
Raymond James Financial, Inc. In addition to its duties as transfer agent,
Heritage also may provide certain administrative services for the Portfolio.
Heritage receives a fee from Eagle for performing these administrative services
for the Portfolio.
YEAR 2000
The Portfolio could be affected adversely if the computer systems used by Eagle,
the Portfolio's other service providers, or companies in which the Portfolio
invests do not properly process and calculate information that relates to dates
beginning on January 1, 2000 and beyond. Eagle has taken steps that it believes
are reasonably
4 PROSPECTUS
<PAGE>
designed to address the potential failure of computer systems used by it and
the Portfolio's service providers to address the Year 2000 issue. However, due
to the Portfolio's reliance on various service providers to perform essential
functions, the Portfolio could have difficulty calculating its net asset value,
processing orders for share sales and delivering account statements and other
information to shareholders. There can be no assurance that these steps will be
sufficient to avoid any adverse impact.
DISTRIBUTION OF PORTFOLIO SHARES
WHO DISTRIBUTES THE PORTFOLIO
Raymond James & Associates, Inc. (Distributor) currently serves as the
distributor of the Portfolio. Subject to regulatory approvals, the Portfolio's
Board of Trustees have approved a proposed distribution agreement with Heritage
Fund Distributors, Inc.
UNDERSTANDING DISTRIBUTION AND SERVICE FEES
The Eagle Class of the Portfolio has adopted a plan under Rule 12b-1 that allows
it to pay distribution and sales fees for the sale of Eagle Class shares and for
services provided to shareholders. Eagle Class shares are subject to ongoing
Rule 12b-1 fees of up to 1.00% of their average daily net assets. Because these
fees are paid out of the Portfolio's assets on an ongoing basis, over time these
fees will increase the cost of your investment and may cost you more than paying
other types of sales charges.
ABOUT YOUR INVESTMENT
HOW TO BUY SHARES
PORTFOLIO SHARES. The Portfolio offers other classes of shares that have
different sales charges and other expenses. To obtain more information about
these other classes of shares, you may contact the Transfer Agent at (800)
421-4184 or your financial advisor.
MINIMUM INVESTMENTS. The minimum initial investment in Eagle Class shares is
$50,000. For investors who have $100,000 invested with Eagle in individually
managed accounts, your minimum is $25,000. You may make additional investments
if you invest at least $1,000. Eagle may waive these minimums at its
discretion.
INITIAL PURCHASES. You may open a new account by sending a signed and completed
Eagle New Account Application to the following address:
Eagle International Equity Portfolio -- Eagle Class
P.O. Box 10520
St. Petersburg, FL 33733
When your Application is received and accepted, the Portfolio's Transfer Agent
will place your order to purchase Eagle Class shares. You must make payment for
initial purchases within three business days of the receipt of your order.
SUBSEQUENT PURCHASES. You may make additional investments by
/bullet/ placing an order through the Distributor or through your financial
advisor and making payment within three business days, or
/bullet/ sending a check to the above address.
HOW TO SELL SHARES
BY MAIL. You may sell shares from your account by sending a signed letter of
instruction or stock power. Specify your account number and the dollar value or
number of Eagle Class shares you wish to sell. You must include any share
certificates you wish to sell with your written instructions. Such certificates
must be endorsed for transfer exactly as the name or names appear on the
certificates. Mail the request to Eagle International Equity Portfolio -- Eagle
Class, P.O. Box 10520, St. Petersburg, FL 33733.
5 PROSPECTUS
<PAGE>
In some circumstances, the Portfolio requires the signatures of the account
owners guaranteed along with a written letter requesting sale of shares. These
include:
/bullet/ Sales of greater than $100,000
/bullet/ Sales from any account that has had an address change in the past 30
days
/bullet/ Sales in which a payment is to be sent to an address other than the
address of record
/bullet/ Sales in which payment is to be made to payees other than the exact
registration of the account or
/bullet/ Sales of any shares represented by share certificates
We will only accept official signature guarantees from participants in our
signature guarantee program, which includes most banks and security dealers. A
notary public cannot guarantee your signature. Contact the Transfer Agent at
800-237-3101 for details.
THROUGH YOUR FINANCIAL ADVISOR. You may sell shares by contacting your
financial advisor. Your order to sell must be received before the New York
Stock Exchange closes -- typically 4:00 pm Eastern time. Your financial advisor
will transmit your request to sell your Eagle Class shares and may charge a fee
for this service.
BY SYSTEMATIC WITHDRAWAL. You may periodically sell shares from your account
through the systematic withdrawal plan. To establish the plan, complete the
appropriate section of the account application or contact your financial
advisor for the applicable forms. Availability of this plan may be limited by
your financial advisor. You should consider the following factors when
establishing a plan:
/bullet/ Make sure you have a sufficient amount of shares in your account.
/bullet/ You must withdraw at least $250 for each transaction.
/bullet/ Determine the schedule: monthly, quarterly, semiannual or annual
basis.
/bullet/ Determine which day of the month you would like the withdrawal to
occur. Available dates are the 1st, 5th, 10th or 20th day of the
month. If such a date falls on the weekend, the withdrawal will take
place on the next business day.
/bullet/ Eagle and the Distributor reserve the right to cancel systematic
withdrawals at any time.
RECEIVING PAYMENT. When you sell shares, payment of the proceeds generally will
be made the next business day after your order is received. If you sell shares
that were recently purchased by personal check, payment may be delayed until
the Portfolio verifies your check has cleared, which may take up to fifteen
days. You may receive payment of your sales proceeds the following ways:
/bullet/ BY CHECK. We will mail a check to the address of record or bank
account specified on your account application. Checks made payable
to other than the registered owners or sent to an address other than
the address of record require written instructions accompanied by a
signature guarantee, as described above.
/bullet/ BY WIRE. You may request that we send your proceeds by Federal
Reserve wire to a bank account you specify. You must provide wiring
instructions to the Transfer Agent in writing. The proceeds normally
will be sent the next day. A $5.00 wire fee will be charged to your
account.
/bullet/ TO YOUR BROKERAGE ACCOUNT. If you sell shares through your financial
advisor, payment can be directed to your brokerage account. Payment
for these shares occurs three business days after you place your
sale request.
ACCOUNT AND TRANSACTION POLICIES
PRICING OF SHARES. The Portfolio's regular business days are the same as those
of the New York Stock Exchange (NYSE), normally Monday through Friday. The net
asset value per share (NAV) is determined each business day as of the close of
regular trading on the NYSE (typically 4:00 p.m. Eastern time). The share price
6 PROSPECTUS
<PAGE>
is calculated by dividing the Eagle Class' net assets by the number of
outstanding Eagle Class shares. Because the value of the Portfolio's
investments changes every business day, the NAV usually changes as well.
In calculating NAV, the Portfolio typically prices its securities by using
pricing services or market quotations. However, in cases where these are
unavailable or when the investment subadviser believes that subsequent events
have rendered them unreliable, the Portfolio may use fair-value estimates
instead. Additionally, the Portfolio invests in securities that are primarily
listed on foreign exchanges that trade on weekends and other days when the
Portfolio does not price its shares. As a result, the NAV may change on days
when shareholders will not be able to purchase or redeem shares.
TIMING OF ORDERS. All orders to buy or sell shares are executed at the next NAV
calculated after the order has been received in good order. Orders are accepted
until the close of regular trading on the NYSE every business day -- normally
4:00 p.m. Eastern time -- and are executed the same day at that day's NAV.
Orders received by your financial advisor prior to the close of regular trading
of the NYSE and transmitted to the Distributor prior to 5:00 p.m. the same day
will be executed at the NAV on that day. Otherwise, all orders will be executed
at the NAV determined as of the close of regular trading on the next trading
day.
RESTRICTIONS ON ORDERS. The Portfolio and the Distributor reserve the right to
refuse any purchase order and to suspend the offering of Eagle Class shares for
a period of time. There are certain times when you may not be able to sell
shares or when we may delay paying you the proceeds. This may happen during
unusual market conditions or emergencies or when the Portfolio cannot determine
the value of its assets or sell its holdings.
REDEMPTION IN KIND. We reserve the right to give you securities instead of cash
when you sell shares if the amount of the sale is at least either $250,000 or
1% of the Portfolio's assets.
ACCOUNT WITH BELOW-MINIMUM BALANCES. If your account value falls below $20,000
as a result of selling shares (and not because of performance), the Portfolio
reserves the right to request that you buy more shares or close your account.
If your account balance is still below the minimum 30 days after notification,
the Portfolio may sell your remaining shares and send you the proceeds.
SHARE CERTIFICATES. Certificates evidencing share ownership will be provided
only upon request.
HOW DISTRIBUTIONS ARE MADE AND TAX INFORMATION
DISTRIBUTIONS AND TAXES. The Portfolio distributes to its shareholders dividends
from its net investment income at least annually. Net investment income
generally consists of interest income and dividends declared and paid on
investments, less expenses. The dividends you receive from the Portfolio will be
taxed as ordinary income.
The Portfolio also distributes net capital gains to its shareholders normally
once a year. Capital gains are generated when the Portfolio sells its assets
for profit. Capital gains are taxed differently depending on how long the
Portfolio held the asset. Distributions of gains recognized on the sale of
assets held for one year or less are taxed as ordinary income; distributions of
gains recognized on the sale of assets held longer than one year are taxed at
lower capital gains rates.
Distributions of dividends and net capital gains are automatically reinvested
in Eagle Class shares unless you decide to take your distributions in cash, in
the form of a check. However, if you have a Systematic Withdrawal Plan, your
distributions will be automatically reinvested.
7 PROSPECTUS
<PAGE>
Selling shares and receiving distributions (whether reinvested or taken in
cash) usually are taxable events. These transactions typically create the
following tax liabilities for taxable accounts:
================================================================================
SUMMARY OF TAX LIABILITY FOR TAXABLE ACCOUNTS:
- --------------------------------------------------------------------------------
TYPE OF TRANSACTION TAX STATUS
- --------------------------------------------------------------------------------
Income dividends Ordinary income rate
- --------------------------------------------------------------------------------
Short-term capital gain distributions Ordinary income rate
- --------------------------------------------------------------------------------
Long-term capital gain distributions Capital gains rate
- --------------------------------------------------------------------------------
Sales of shares owned more than one year Capital gains or losses
- --------------------------------------------------------------------------------
Sales of shares owned for one year or less Gains are treated as ordinary
income; losses are subject to
special rules
================================================================================
TAX REPORTING. Each year, we will send you a Form 1099 that tells you the amount
of distributions you received for the prior calendar year, and the tax status of
those distributions, and a list of reportable sale transactions. Generally, the
Portfolio's distributions are taxable to you in the year you receive them.
However, any dividends that are declared in October, November or December but
paid in January are taxable as if received in December of the year they are
declared.
WITHHOLDING TAXES. If the Portfolio does not have your correct social security
or other taxpayer identification number, federal law requires us to withhold
31% of your distributions and sales proceeds. If you are subject to backup
withholding, we also will withhold and pay to the IRS 31% of your
distributions. Any tax withheld may be applied against the tax liability on
your tax return.
Because your tax situation is unique, you should consult your tax professional
about federal, state and local tax consequences.
8 PROSPECTUS
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
performance of the Eagle Class shares of the Eagle International Equity
Portfolio for the periods indicated. Certain information reflects financial
results for a single Eagle Class share. The total returns in the table represent
the rate that an investor would have earned or lost on an investment in the
Portfolio (assuming reinvestment of dividends and distributions). The
information in the table for the periods presented has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the Portfolio's financial statements, is included in the statement of additional
information, which is available upon request.
EAGLE INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
EAGLE CLASS SHARES*
--------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
--------------------------------------------------------
1998 1997 1996 1995/dagger/
------ ------ ------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE YEAR ........................... $23.83 $22.14 $20.79 $20.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss ............................................. (0.17) (0.11) (0.01) (0.03)
Net realized and unrealized gain on investments (a) ............. 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 gain on investments ............. (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 $20.79
====== ====== ====== ======
TOTAL RETURN (%) ................................................. 8.38 (d) 9.98 (d) 8.93 3.95 (c)
RATIOS (%)/SUPPLEMENTAL DATA:
Operating expenses net, to average daily net assets (a) ......... 2.60 2.60 2.60 2.60 (b)
Net investment income to average daily net assets ............... (0.67) (0.47) (0.02) (0.33)(b)
Portfolio turnover rate (c) ..................................... 71 50 59 61
Net assets, end of year ($ 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.
(a) Excludes management fees waived and expenses reimbursed by Eagle in
the amount of $.03, $.06, $.16 and $.17 per Eagle Class share,
respectively. The operating expense ratios including such items would
have been 2.71%, 2.86%, 3.31% and 5.09% (annualized) for Eagle Class
shares, respectively.
(b) Annualized.
(c) Not annualized.
(d) These returns are calculated based on the published net asset value
at October 31, 1997.
</FN>
</TABLE>
9 PROSPECTUS
<PAGE>
More information on the Portfolio is EAGLE INTERNATIONAL EQUITY
available free upon request: PORTFOLIO
By mail: P.O. Box 10520 EAGLE CLASS OF SHARES
St. Petersburg, FL 33733
By telephone: (800) 237-3101
ANNUAL/SEMIANNUAL REPORTS. Includes the
Portfolio's performance, portfolio
holdings and a letter from the
investment subadviser discussing recent
market conditions, economic trends, and
portfolio strategies that significantly
affects the Portfolio's performance
during that period.
STATEMENT OF ADDITIONAL INFORMATION
(SAI). Provides more details about the
Portfolio and its policies. A current
SAI is on file with the Securities and
Exchange Commission and is incorporated
herein by reference (is legally
considered part of this prospectus). Prospectus
Text-only versions of these documents
and this prospectus are available, upon
payment of a duplicating fee, by
writing, from the Public Reference Room
of the Securities and Exchange
Commission in Washington, D.C.
20549-6009 or by calling the Commission
at 800-SEC-0330. Reports and other
information about the Portfolio may be
viewed on-screen or downloaded from the
SEC's Internet web site at
http://www.sec.gov.
The Portfolio's Investment Company
registration number is 811-7470.
NO DEALER, SALESMAN OR OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION OTHER THAN
THAT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, March 1, 1999
SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE
PORTFOLIO OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT BE LAWFULLY MADE.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
EAGLE INTERNATIONAL EQUITY PORTFOLIO
EAGLE CLASS
This Statement of Additional Information ("SAI") dated March 1, 1999
should be read with the Prospectus of Eagle International Equity Portfolio Eagle
Class dated March 1, 1999. The Eagle International Equity Portfolio also offers
additional classes of shares, which are not discussed in this SAI. This SAI is
not a prospectus itself. To receive a copy of the Eagle Class Prospectus, write
to Eagle Asset Management, Inc. at the address below, or call (800) 237-3101.
Eagle Asset Management, Inc.
P.O. Box 10520
880 Carillon Parkway
St. Petersburg, Florida 33733
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION...........................................................1
INVESTMENT INFORMATION........................................................1
Investment Policies and Strategies....................................1
Industry Classifications.............................................14
INVESTMENT LIMITATIONS.......................................................14
NET ASSET VALUE..............................................................16
PERFORMANCE INFORMATION......................................................17
INVESTING IN THE EAGLE CLASS.................................................18
REDEEMING SHARES.............................................................18
Systematic Withdrawal Plan...........................................18
Redemptions in Kind..................................................19
Receiving Payment....................................................19
TAXES........................................................................20
SHAREHOLDER INFORMATION......................................................23
PORTFOLIO INFORMATION........................................................23
Management of the Portfolio..........................................23
Five Percent Shareholders............................................25
Investment Adviser; Subadviser.......................................25
Brokerage Practices..................................................27
Distribution of Shares...............................................28
Administration of the Portfolio......................................29
Potential Liability..................................................29
APPENDIX A..................................................................A-1
APPENDIX B..................................................................B-1
REPORT OF THE INDEPENDENT ACCOUNTANTS & FINANCIAL STATEMENTS................C-1
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GENERAL INFORMATION
Heritage Series Trust (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated October 28, 1992. Eagle
International Equity Portfolio (the "Portfolio") is one of the Trust's separate
investment portfolios. The Portfolio offers the Eagle Class of shares, sold
without a sales charge ("Eagle Class"). The Portfolio offers additional classes
of shares not covered in this SAI. To obtain more information about the other
classes of shares, call (800) 421-4184.
The Portfolio is structured to combine the regional and global presence
of larger, well-known companies in established markets with the potentially
rapid growth of companies in the expanding economies of many emerging countries.
Eagle Asset Management, Inc., the Portfolio's investment adviser
("Eagle"), has retained Martin Currie Inc. as the Portfolio's investment
subadviser (the "Subadviser"). The Subadviser's parent company, Martin Currie
Limited, is a privately owned international advisory firm that was established
in 1881. Martin Currie Limited, coupled with the Subadviser, employs more than
30 investment professionals who comprise six geographic investment teams that
service more than $9.9 billion in investors' assets as of December 31, 1998.
The Subadviser uses a top down country allocation and a bottom up stock
selection process. In choosing countries in which to invest assets, the
Subadviser considers the major economic trends in that country, any political
and economic changes in the country and the country's capital flows. In choosing
individual companies, the Subadviser, based on a growth style with a value
component, considers the company's business strategy, relative value and
earnings momentum.
INVESTMENT INFORMATION
INVESTMENT POLICIES AND STRATEGIES
The Portfolio may invest in various securities and instruments to
achieve its investment objective. The Portfolio Investment Table at Appendix A
provides information regarding the extent to which the Portfolio may invest in a
specific security or instrument. Below is a detailed description of such
securities and instruments. Unless otherwise indicated, the investment policies
of the Portfolio may be changed without shareholder approval.
EQUITY SECURITIES:
COMMON STOCKS. The Portfolio may invest in common stocks. Common stocks
represent the residual ownership interest in the issuer and are entitled to the
income and increase in the value of the assets and business of the entity after
all of its obligations and preferred stock are satisfied. Common stocks
generally have voting rights. Common stocks fluctuate in price in response to
many factors including historical and prospective earnings of the issuer, the
value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
PREFERRED STOCK. The Portfolio may invest in preferred stock. A
preferred stock blends the characteristics of a bond and common stock. It can
offer the higher yield of a bond and has priority over common stock in equity
ownership, but does not have the seniority of a bond and its participation in
the issuer's growth may be limited. Preferred stock has preference over common
stock in the receipt of dividends and in any residual assets after payment to
creditors should the issuer be dissolved. Although the dividend is set at a
fixed annual rate, in some circumstances it can be changed or omitted by the
issuer.
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REAL ESTATE INVESTMENT TRUSTS ("REITS"). The Portfolio may invest in
REITs. REITs include equity REITs, which own real estate properties, and
mortgage REITs, which make construction, development and long-term mortgage
loans. The value of an equity REIT may be affected by changes in the value of
the underlying property, while a mortgage REIT may be affected by the quality of
the credit extended. The performance of both types of REITs depends upon
conditions in the real estate industry, management skills and the amount of cash
flow. The risks associated with REITs include defaults by borrowers,
self-liquidation, failure to qualify as a pass-through entity under the Federal
tax law, failure to qualify as an exempt entity under the 1940 Act and the fact
that REITs are not diversified.
WARRANTS AND RIGHTS. The Portfolio may purchase warrants and rights,
which are instruments that permit the Portfolio to acquire, by subscription, the
capital stock of a corporation at a set price, regardless of the market price
for such stock. Warrants may be either perpetual or of limited duration. There
is a greater risk that warrants might drop in value at a faster rate than the
underlying stock. The Portfolio currently does not intend to invest more than 5%
of its net assets in warrants. However, the Portfolio may invest in warrants or
rights acquired by the Portfolio as part of a unit or attached to securities at
the time of purchase without limitation.
CONVERTIBLE SECURITIES. The Portfolio may invest in convertible
securities. Convertible securities include corporate bonds, notes and preferred
stock that can be converted into or exchanged for a prescribed amount of common
stock of the same or a different issue within a particular period of time at a
specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or dividends paid on preferred stock
until the convertible stock matures or is redeemed, converted or exchanged.
Convertible securities combine the fixed-income characteristics of bonds and
capital appreciation potential of preferred stock. While no securities
investment is without some risk, investments in convertible securities generally
entail less risk than the issuer's common stock, although the extent to which
such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security. The
market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. While
convertible securities generally offer lower interest or dividend yields than
nonconvertible debt securities of similar quality, they do enable the investor
to benefit from increases in the market price of the underlying common stock.
Please see the discussion of "Investment Grade Securities" and "Lower Rated /
High Yield Securities" for additional information.
The Subadviser, on behalf of the Portfolio, will decide to invest based
upon a fundamental analysis of the long-term attractiveness of the issuer and
the underlying common stock, an evaluation of the relative attractiveness of the
current price of the underlying common stock, and a judgment of the value of the
convertible security relative to the common stock at current prices.
AMERICAN DEPOSITORY RECEIPTS ("ADRS"):
The Portfolio may invest in sponsored and unsponsored ADRs. ADRs are
receipts that represent interests in or are convertible into, securities of
foreign issuers. These receipts are not necessarily denominated in the same
currency as the underlying securities into which they may be converted.
ADRs may be purchased through "sponsored" or "unsponsored" facilities. A
sponsored facility is established jointly by the issuer of the underlying
security and a depository, whereas a depository may establish an unsponsored
facility without participation by the issuer of the depository security. Holders
of unsponsored depository receipts generally bear all the costs of such
facilities and the depository of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through voting rights to the holders of such
receipts of the deposited securities. Generally, ADRs in registered form are
designed for use in the U.S. securities market and ADRs in bearer form are
designed for use outside the U.S.
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DEBT SECURITIES:
DEBT SECURITIES. The Portfolio may invest in debt securities. The market
value of debt securities is influenced primarily by changes in the level of
interest rates. Generally, as interest rates rise, the market value of debt
securities decreases. Conversely, as interest rates fall, the market value of
debt securities increases. Factors that could result in a rise in interest
rates, and a decrease in the market value of debt securities, include an
increase in inflation or inflation expectations, an increase in the rate of U.S.
economic growth, an increase in the Federal budget deficit or an increase in the
price of commodities such as oil.
CORPORATE DEBT OBLIGATIONS. The Portfolio may invest in corporate debt
securities, including corporate bonds, debentures, notes and other similar
corporate debt instruments. The Portfolio invests primarily in investment grade
non-convertible corporate debt. Please see the discussion of "Investment Grade
Securities" and "Lower Rated / High Yield Securities" for additional
information.
INVESTMENT GRADE/LOWER RATED SECURITIES:
INVESTMENT GRADE SECURITIES. The Portfolio may invest in securities
rated investment grade. Investment grade securities include securities rated BBB
or above by Standard & Poor's ("S&P") or Baa by Moody's Investors Service, Inc.
("Moody's") or, if unrated, are deemed to be of comparable quality by the
Subadviser. Securities rated in the lowest category of investment grade are
considered to have speculative characteristics and changes in economic
conditions are more likely to lead to a weakened capacity to pay interest and
repay principal than is the case with higher grade bonds. The Portfolio may
retain a security that has been downgraded below investment grade if, in the
opinion of the Subadviser, it is in the Portfolio's best interest.
LOWER RATED / HIGH-YIELD SECURITIES. The Portfolio may invest in
securities rated below investment grade, i.e., rated below BBB or Baa by S&P and
Moody's, respectively, or unrated securities determined to be below investment
grade by the Subadviser. These securities are commonly referred to as "junk
bonds" and are deemed to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal and may involve major risk
exposure to adverse conditions. These securities are subject to specific risks
that may not be present with investments of higher grade securities.
RISK FACTORS OF LOWER RATED / HIGH-YIELD SECURITIES:
The prices of lower rated securities tend to be less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic changes or individual corporate developments. During economic
downturns or periods of rising interest rates, highly leveraged issuers may
experience financial stress that adversely affects their ability to service
principal and interest payment obligations, to meet projected business goals, or
to obtain additional financing, and the markets for their securities may be more
volatile. If an issuer defaults, the Portfolio may incur additional expenses to
seek recovery. In addition, lower rated securities may contain redemption or
call provisions. If an issuer exercises these provisions in a declining interest
rate market, the Portfolio would have to replace the security with a lower
yielding security.
To the extent that there is no established retail secondary market,
there may be thin trading of lower rated securities. This may lessen the
Portfolio's ability to accurately value these securities and its ability to
dispose of these securities. Additionally, adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yielding securities, especially in a thinly-traded
market. Certain lower rated securities may involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties; thus, the responsibilities of the Board of Trustees ("Board") to
value lower rated securities in the Portfolio becomes more difficult with
judgment playing a greater role.
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Frequently, the higher yields of lower rated securities may not reflect
the value of the income stream that holders of such securities may expect, but
rather the risk that such securities may lose a substantial portion of their
value as a result of their issuer's financial restructuring or default.
Additionally, an economic downturn or an increase in interest rates could have a
negative effect on the lower rated securities market and on the market value of
the lower rated securities held by the Portfolio, as well as on the ability of
the issuers of such securities to repay principal and interest on their
borrowings. Proposed new laws may impact the market for lower rated fixed income
securities.
SHORT-TERM MONEY MARKET INSTRUMENTS:
BANKERS' ACCEPTANCES. The Portfolio may invest in bankers' acceptances.
Bankers' acceptances are short-term credit instruments used to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or an importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
asset, or it may be sold in the secondary market at the going rate of interest
for a specified maturity. Although maturities for acceptances can be as long as
270 days, most acceptances have maturities of six months or less.
CERTIFICATES OF DEPOSIT ("CDS"). The Portfolio may invest in CDs issued
by domestic institutions with assets in excess of $1 billion. The Federal
Deposit Insurance Corporation is an agency of the U.S. Government that insures
the deposits of certain banks and savings and loan associations up to $100,000
per deposit. The interest on such deposits may not be insured if this limit is
exceeded. Current federal regulations also permit such institutions to issue
insured negotiable CDs in amounts of $100,000 or more, without regard to the
interest rate ceilings on other deposits. To remain fully insured, these
investments must be limited to $100,000 per insured bank or savings and loan
association.
COMMERCIAL PAPER. The Portfolio may invest in commercial paper that is
rated Prime-1 by Moody's or A-1 by S&P. Commercial paper includes notes, drafts
or similar instruments payable on demand or having a maturity at the time of
issuance not exceeding nine months, exclusive of days of grace or any renewal
thereof. See the Appendix for a description of commercial paper ratings.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS:
REPURCHASE AGREEMENTS. The Portfolio may invest in repurchase
agreements. Repurchase agreements are transactions in which the Portfolio
purchases securities and commits to resell the securities to the original seller
(a member bank of the Federal Reserve System or securities dealers who are
members of a national securities exchange or are market makers in U.S.
Government securities) at an agreed upon date and price reflecting a market rate
of interest unrelated to the coupon rate or maturity of the purchased
securities. Although repurchase agreements carry certain risks not associated
with direct investment in securities, including possible declines in the market
value of the underlying securities and delays and costs to the Portfolio if the
other party becomes bankrupt, the Portfolio intends to enter into repurchase
agreements only with banks and dealers in transactions believed by the
Subadviser to present minimal credit risks in accordance with guidelines
established by the Board.
The period of these repurchase agreements usually will be short, from
overnight to one week, and at no time will the funds invest in repurchase
agreements of more than one year. The securities that are subject to repurchase
agreements, however, may have maturity dates in excess of one year from the
effective date of the repurchase agreement. The Portfolio always will receive as
collateral securities whose market value, including accrued interest, will be at
least equal to 100% of the dollar amount invested by the funds in each
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agreement, and the funds will make payment for such securities only upon
physical delivery or evidence of book entry transfer to the account of the
Portfolio's custodian, State Street Bank and Trust Company ("Custodian") bank.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow by entering into
reverse repurchase agreements with the same parties with whom it may enter into
repurchase agreements. Under a reverse repurchase agreement, the Portfolio sells
securities and agrees to repurchase them at a mutually agreed to price. At the
time the Portfolio enters into a reverse repurchase agreement, it will establish
and maintain a segregated account with an approved custodian containing liquid
high-grade securities, marked-to-market daily, having a value not less than the
repurchase price (including accrued interest). Reverse repurchase agreements
involve the risk that the market value of securities retained in lieu of sale by
the Portfolio may decline below the price of the securities the fund has sold
but is obliged to repurchase. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, such
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Portfolio's obligation to repurchase the securities and
the Portfolio's use of the proceeds of the reverse repurchase agreement
effectively may be restricted pending such decisions. Reverse repurchase
agreements create leverage, a speculative factor, and are considered borrowings
for the purpose of the Portfolio's limitation on borrowing.
U.S. GOVERNMENT SECURITIES:
U.S. GOVERNMENT SECURITIES. The Portfolio may invest in U.S. Government
securities. U.S. Government securities include a variety of securities that are
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements secured thereby. These securities include securities
issued and guaranteed by the full faith and credit of the U.S. Government, such
as Treasury bills, Treasury notes and Treasury bonds; obligations supported by
the right of the issuer to borrow from the U.S. Treasury, such as those of the
Federal Home Loan Banks; and obligations supported only by the credit of the
issuer, such as those of the Federal Intermediate Credit Banks.
FOREIGN SECURITIES EXPOSURE:
DEPOSITORY RECEIPTS. European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs") and International Depository Receipts ("IDRs") are
receipts that represent interests in or are convertible into, securities of
foreign issuers. These receipts are not necessarily denominated in the same
currency as the underlying securities into which they may be converted.
The Portfolio may invest in sponsored or unsponsored EDRs, GDRs, IDRs or
other similar securities representing interests in or convertible into
securities of foreign issuers (collectively "Depository Receipts"). EDRs and
IDRs are receipts typically issued by a European bank or trust company
evidencing ownership of the underlying foreign securities. GDRs are issued
globally for trading in non-U.S. securities markets and evidence a similar
ownership arrangement. Depository Receipts may not necessarily be denominated in
the same currency as the underlying securities into which they may be converted.
As with ADRs, the issuers of the securities underlying unsponsored Depository
Receipts are not obligated to disclose material information in the United States
and, therefore, there may be less information available regarding such issuers
and there may not be a correlation between such information and the market value
of the Depository Receipts. Depository Receipts also involve the risks of other
investments in foreign securities, as discussed below.
EURO/YANKEE BONDS. The Portfolio may invest in dollar-denominated bonds
issued by foreign branches of domestic banks ("Eurobonds") and
dollar-denominated bonds issued by a U.S. branch of a foreign bank and sold in
the United States ("Yankee bonds"). Investment in Eurobonds and Yankee bonds
entails certain risks similar to investment in foreign securities in general.
These risks are discussed below.
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FOREIGN SECURITIES. The Portfolio may invest in foreign securities. In
most cases, the best available market for foreign securities will be on
exchanges or in over-the-counter markets located outside the United States.
Foreign stock markets, while growing in volume and sophistication, generally are
not as developed as those in the United States, and securities of some foreign
issuers (particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable U.S. companies. In addition,
foreign brokerage commissions generally are higher than commissions on
securities traded in the United States. In general, there is less overall
governmental supervision and regulation of securities exchanges, brokers and
listed companies than in the United States. Investments in foreign securities
also involve the risk of possible adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation, limitation on or
delays in the removal of funds or other assets of a fund, political or financial
instability or diplomatic and other developments that could affect such
investments. Further, the economies of some countries may differ favorably or
unfavorably from the economy of the United States.
In addition, the Portfolio may invest in emerging markets. Special
considerations (in addition to the considerations regarding foreign investments
generally) may include greater political uncertainties, an economy's dependence
on revenues from particular commodities or on international aid or development
assistance, currency transfer restrictions, a limited number of potential buyers
for such securities and delays and disruptions in securities settlement
procedures.
The Portfolio will not invest in foreign securities when there are
currency or trading restrictions in force or when, in the judgment of the
Subadviser, such restrictions are likely to be imposed. However, certain
currencies may become blocked (i.e., not freely available for transfer from a
foreign country), resulting in the possible inability of the Portfolio to
convert proceeds realized upon sale of portfolio securities of the affected
foreign companies into U.S. currency.
Because investments in foreign companies usually will involve currencies
of foreign countries, the value of any of the Portfolio's assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and the Portfolio may
incur costs in connection with conversions between various currencies. The
Portfolio will conduct its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market. Additionally, to protect against uncertainty in the level of future
exchange rates, the Portfolio, as discussed below in the section on futures,
forwards, and hedging transactions, may enter into contracts to purchase or sell
foreign currencies at a future date (a "forward currency contract" or "forward
contract").
HEDGING INSTRUMENTS - FUTURES, FORWARDS AND HEDGING TRANSACTIONS:
GENERAL DESCRIPTION. The Portfolio may use a variety of financial
instruments ("Hedging Instruments"), including futures contracts (sometimes
referred to as "futures") to attempt to hedge its investment portfolio and
forward currency contracts to shift exposure from one foreign currency to
another.
Hedging strategies can be broadly categorized as "short hedges" and
"long hedges." A short hedge is the purchase or sale of a Hedging Instrument
intended partially or fully to offset potential declines in the value of one or
more investments held by the Portfolio. Thus, in a short hedge, the Portfolio
takes a position in a Hedging Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged. A long hedge is
the purchase or sale of a Hedging Instrument intended partially or fully to
offset potential increases in the acquisition cost of one or more investments
that the Portfolio intends to acquire. Thus, in a long hedge, the Portfolio
takes a position in a Hedging Instrument whose price is expected to move in the
same direction as the price of the prospective investment being hedged.
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Hedging Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that the
Portfolio owns or intends to acquire. Hedging Instruments on indices may be used
to hedge broad market sectors.
The use of Hedging Instruments is subject to applicable regulations of
the SEC, the exchanges upon which they are traded, and the Commodity Futures
Trading Commission ("CFTC"). In addition, the Portfolio's ability to use Hedging
Instruments may be limited by tax considerations. See "Taxes."
In addition to the products and strategies described below, the
Portfolio expects to discover additional opportunities in connection with
futures contracts, forward currency contracts and other hedging techniques.
These new opportunities may become available as the Subadviser develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new futures contracts, forward currency contracts or other
techniques are developed. The Subadviser may utilize these opportunities to the
extent that it is consistent with the Portfolio's investment objective and
permitted by the Portfolio's investment limitations and applicable regulatory
authorities.
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Hedging Instruments
involves special considerations and risks, as described below. Risks pertaining
to particular Hedging Instruments are described in the sections that follow.
(1) Successful use of most Hedging Instruments depends upon the
Subadviser's ability to predict movements of the overall securities, currency
and interest rate markets, which requires different skills than predicting
changes in the prices of individual securities. While the Subadviser is
experienced in the use of Hedging Instruments, there can be no assurance that
any particular hedging strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Hedging Instrument and price movements of the
investments being hedged. For example, if the value of a Hedging Instrument used
in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Hedging
Instruments are traded. The effectiveness of hedges, using Hedging Instruments
on indices, will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
To compensate for imperfect correlation, the Portfolio may
purchase or sell Hedging Instruments in a greater dollar amount than the hedged
securities or currency if the volatility of the hedged securities or currency is
historically greater than the volatility of the Hedging Instruments. Conversely,
the Portfolio may purchase or sell fewer contracts if the volatility of the
price of the hedged securities or currency is historically less than that of the
Hedging Instruments.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies also can
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the Portfolio entered into
a short hedge because the Subadviser projected a decline in the price of a
security in the investment portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Hedging Instrument. Moreover, if the price of the
Hedging Instrument declined by more than the increase in the price of the
security, the Portfolio could suffer a loss. In either such case, the Portfolio
would have been in a better position had it not hedged at all.
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(4) As described below, the Portfolio might be required to
maintain assets as "cover," maintain segregated accounts or make margin payments
when it takes positions in Hedging Instruments involving obligations to third
parties. If the Portfolio were unable to close out its positions in such Hedging
Instruments, it might be required to continue to maintain such assets or
accounts or make such payments until the position expired or matured. These
requirements might impair the Portfolio's ability to sell a security or make an
investment at a time when it would otherwise be favorable to do so, or require
that the Portfolio sell a security at a disadvantageous time. The Portfolio's
ability to close out a position in a Hedging Instrument prior to expiration or
maturity depends on the existence of a liquid secondary market or, in the
absence of such a market, the ability and willingness of the other party to the
transaction ("counterparty") to enter into a transaction closing out the
position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to the Portfolio.
COVER FOR HEDGING STRATEGIES. Some Hedging Instruments expose the
Portfolio to an obligation to another party. The Portfolio will not enter into
any such transactions unless it owns either (1) an offsetting ("covered")
position in securities, currencies, forward currency contracts, or futures
contracts or (2) cash and other liquid assets with a value sufficient at all
times to cover its potential obligations to the extent not covered as provided
in (1) above. The Portfolio will comply with SEC guidelines regarding cover for
instruments and will, if the guidelines so require, set aside cash or other
liquid assets in a segregated account with the Portfolio's Custodian, in the
prescribed amount.
Assets used as cover or otherwise set aside cannot be sold while
the position in the corresponding Hedging Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Portfolio's assets to cover in segregated accounts could impede
its ability to meet redemption requests or other current obligations.
FUTURES TRADING:
The Portfolio may only purchase and sell stock index and currency
futures contracts. A futures contract sale creates an obligation by the seller
to deliver the type of commodity, currency or financial instrument called for in
the contract in a specified delivery month for a stated price. A futures
contract purchase creates an obligation by the purchaser to take delivery of the
underlying security or currency in a specified delivery month at a stated price.
A stock index futures contract is similar except that the parties agree to take
or make delivery of an amount of cash equal to a specified dollar amount times
the difference between the stock index value at the close of the last trading
day of the contract and the price at which the futures contract is originally
struck. Futures contracts are traded only on commodity exchanges -- known as
"contract markets" -- approved for such trading by the CFTC, and must be
executed through a futures commission merchant or brokerage firm that is a
member of a contract market.
The Portfolio may engage in transactions in futures contracts for the
purpose of hedging against changes in the values of securities it owns or
intends to acquire. The Portfolio may sell stock index futures contracts in
anticipation of a decline in the value of its investments. The risk of such a
decline can be reduced without employing futures as a hedge by selling
securities. This strategy, however, entails increased transaction costs in the
form of brokerage commissions and dealer spreads. The sale of futures contracts
provides an alternative means of hedging the Portfolio against a decline in the
value of its investments. As such values decline, the value of the Portfolio's
position in the futures contracts will tend to increase, thus offsetting all or
a portion of the depreciation in the market value of the Portfolio's securities
that are being hedged. While the Portfolio will incur commission expenses in
establishing and closing out futures positions, commissions on futures
transactions may be significantly lower than transaction costs incurred in the
sale of securities. Employing futures as a hedge may also permit the Portfolio
to assume a defensive posture without selling securities.
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Certain special characteristics of and risks with these strategies are
discussed below.
GUIDELINES, CHARACTERISTICS AND RISKS OF FUTURES TRADING. Although
futures contracts by their terms call for actual delivery or acceptance of
currencies or financial instruments, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery. Closing out
a futures contract sale is effected by purchasing a futures contract for the
same aggregate amount of the specific type of financial instrument or currency
and the same delivery date. If the price of the initial sale of the futures
contract exceeds the price of the offsetting purchase, the seller is paid the
difference and realizes a gain. Conversely, if the price of the offsetting
purchase exceeds the price of the initial sale, the seller realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by the
purchaser entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the purchaser realizes a gain, and if the purchase
price exceeds the offsetting sale price, he realizes a loss.
The purchase (that is, a long position) or sale (that is, a short
position) of a futures contract differs from the purchase or sale of a security
in that no price or premium is paid or received. Instead, an amount of cash or
U.S. Treasury bills generally not exceeding 5% of the contract amount must be
deposited with the broker. This amount is known as initial margin and vary from
contract to contract and are subject to change. The Portfolio also is required
to maintain margin deposits with brokerage firms through which it buys and sells
futures contracts. Margin balances will be adjusted daily to reflect unrealized
gains and losses on open contracts ("marking to market"). If the price of an
open futures position declines so that the Portfolio has market exposure on such
contract, the broker will require the Portfolio to deposit variation margin. If
the value of an open futures position increases so that the Portfolio no longer
has market exposure on such contract, the broker will pay any excess variation
margin to the Portfolio. A final determination of variation margin is then made,
additional cash is required to be paid to or released by the broker, and the
purchaser or seller realizes a loss or gain. In addition, a commission is paid
on each completed purchase and sale transaction.
Most of the exchanges on which futures contracts are traded limit the
amount of fluctuation permitted in futures prices during a single trading day.
The daily price limit establishes the maximum amount that the price of a futures
contract may vary either up or down from the previous day's settlement price at
the end of a trading session. Once the daily price limit has been reached in a
particular type of contract, no trades may be made on that day at a price beyond
that limit. The daily price limit governs only price movement during a
particular trading day and therefore does not limit potential losses because the
limit may prevent the liquidation of unfavorable positions. Futures contract
prices occasionally have moved to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some traders to substantial losses.
Another risk in employing futures contracts as a hedge is the prospect
that prices will correlate imperfectly with the behavior of cash prices for the
following reasons. First, rather than meeting additional margin deposit
requirements, investors may close contracts through offsetting transactions.
Second, the liquidity of the futures markets depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent that participants decide to make or take delivery, liquidity in the
futures markets could be reduced, thus producing distortion. Third, from the
point of view of speculators, the deposit requirements in the futures markets
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures markets may cause
temporary price distortions. Due to the possibility of distortion, a correct
forecast of general interest rate, currency exchange rate or security price
trends by the Subadviser may still not result in a successful transaction.
STOCK INDEX FUTURES. The Portfolio may engage in transactions in stock
index futures contracts as a hedge against changes resulting from market
conditions in the values of securities held by the Portfolio or that the
Portfolio intends to purchase. A stock index assigns relative values to the
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common stocks comprising the index. A stock index futures contract is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the stock index value at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. No
physical delivery of the underlying stocks in the index is made.
The risk of imperfect correlation between movements in the price of a
stock index futures contract and movements in the price of the securities that
are the subject of the hedge increases as the composition of the investment
portfolio diverges from the securities included in the applicable index. The
price of the stock index futures may move more than or less than the price of
the securities being hedged. If the price of the futures contract moves less
than the price of the securities that are the subject of the hedge, the hedge
will not be fully effective but, if the price of the securities being hedged has
moved in an unfavorable direction, the Portfolio would be in a better position
than if it had not hedged at all. If the price of the securities being hedged
has moved in a favorable direction, this advantage will be partially offset by
the futures contract. If the price of the futures contract moves more than the
price of the securities, the Portfolio will experience either a loss or a gain
on the futures contract that will not be completely offset by movements in the
price of the securities that are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of the securities being hedged
and movements in the price of the stock index futures contracts, the Portfolio
may buy or sell stock index futures contracts in a greater dollar amount than
the dollar amount of securities being hedged if the historical volatility of the
prices of such securities is more than the historical volatility of the stock
index. It is also possible that, where the Portfolio has sold futures contracts
to hedge its securities against decline in the market, the market may advance
and the value of securities held by the Portfolio may decline. If this occurred,
the Portfolio would lose money on the futures contract and also experience a
decline in value in its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices upon which the futures contracts are based.
Where stock index futures contracts are purchased to hedge against a
possible increase in the price of securities before a fund is able to invest in
securities in an orderly fashion, it is possible that the market may decline
instead. If the Portfolio then concludes not to invest in securities at that
time because of concern as to possible further market decline for other reasons,
it will realize a loss on the futures contract that is not offset by a reduction
in the price of the securities it had anticipated purchasing.
LIMITATION ON THE USE OF FUTURES PORTFOLIO STRATEGIES. To the extent
that the Portfolio enters into futures contracts other than for bona fide
hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish those positions (excluding the amount by which
options are "in-the-money" at the time of purchase) will not exceed 5% of the
liquidation value of the Portfolio's investment portfolio, after taking into
account unrealized profits and unrealized losses on any contracts the Portfolio
has entered into. This limitation does not limit the percentage of the
Portfolio's assets at risk to 5%.
The Portfolio's ability to engage in the futures strategies described
above will depend on the availability of liquid markets in such instruments.
Markets in certain futures are relatively new and still developing. It is
impossible to predict the amount of trading interest that may exist in various
types of futures. Therefore, no assurance can be given that the Portfolio will
be able to utilize these instruments effectively for the purpose set forth
above. Furthermore, the Portfolio's ability to engage in futures transactions
may be limited by tax considerations.
FOREIGN CURRENCY HEDGING STRATEGIES -- RISK FACTORS. The Portfolio may
only use futures on foreign currencies, as described above, and foreign currency
forward contracts as described below.
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Currency hedges can protect against price movements in a security that
the Portfolio owns or intends to acquire that are attributable to changes in the
value of the currency in which it is denominated. Such hedges do not, however,
protect against price movements in the securities that are attributable to other
causes.
The Portfolio might seek to hedge against changes in the value of a
particular currency when no Hedging Instruments on that currency are available
or such Hedging Instruments are more expensive than certain other Hedging
Instruments. In such cases, the Portfolio may hedge against price movements in
that currency by entering into transactions using Hedging Instruments on another
currency or basket of currencies, the values of which the Subadviser believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Hedging Instrument
will not correlate perfectly with movements in the price of the currency being
hedged is magnified when this strategy is used.
The value of Hedging Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Hedging
Instruments, the Portfolio could be disadvantaged by having to deal in the
odd-lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. futures markets are closed while
the markets for the underlying currencies remain open, significant price and
rate movements might take place in the underlying markets that cannot be
reflected in the markets for the Hedging Instruments until they reopen.
Settlement of transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Portfolio might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
FORWARD CURRENCY CONTRACTS. A forward currency contract (or forward
contract) involves an obligation of the Portfolio to purchase or sell specified
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties at a price set at the time of the
contract. Forward contracts are traded directly between the Portfolio and a
contra party (usually a large commercial bank). These contracts are traded in
the interbank market conducted directly between currency traders (usually large
commercial banks) and their customers.
The Portfolio is not required to enter into a forward contract and will
not do so unless deemed appropriate by the Subadviser. The Portfolio's ability
to engage in forward contracts may be limited by tax considerations and it
generally will not enter into a forward contract with a term of greater than one
year
The Portfolio may enter into forward contracts in order to protect
against uncertainty in the level of future foreign exchange rates. Since
investment in foreign companies will usually involve foreign currencies, and
since the Portfolio may temporarily hold funds in bank deposits in foreign
currencies during the course of investment programs, the value of the assets of
the Portfolio as measured in U.S. dollars may be affected by changes in foreign
currency exchange rates and exchange control regulations, and the Portfolio may
incur costs in connection with conversion between various currencies. Further,
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forward currency transactions may serve as long hedges - for example, the
Portfolio may purchase a forward currency contract to lock in the U.S. dollar
price of a security denominated in a foreign currency that it intends to
acquire. Forward currency contract transactions also may serve as short hedges -
for example, the Portfolio may sell a forward currency contract to lock in the
U.S. dollar equivalent of the proceeds from the anticipated sale of a security
or from a dividend or interest payment on a security denominated in a foreign
currency.
The Portfolio may enter into a forward contract to sell the foreign
currency for a fixed U.S. dollar amount approximating the value of some or all
of its portfolio securities denominated in such foreign currency. The Portfolio
may enter into such a forward contract when the Subadviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar.
In addition, the Portfolio may use forward currency contracts when the
Subadviser wishes to "lock in" the U.S. dollar price of a security when the
Portfolio is purchasing or selling a security denominated in a foreign currency
or anticipates receiving a dividend or interest payment denominated in a foreign
currency. By entering into forward contracts in U.S. dollars for the purchase or
sale of a foreign currency involved in an underlying securities transaction, the
Portfolio will be able to protect itself against a possible loss between trade
and settlement dates resulting from the adverse change in the relationship
between the U.S. dollar and the subject foreign currency.
The cost to the Portfolio of engaging in forward currency contracts
varies with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because forward currency
contracts usually are entered into on a principal basis, no fees or commissions
are involved. When the Portfolio enters into a forward currency contract, it
relies on the counterparty to make or take delivery of the underlying currency
at the maturity of the contract. Failure by the counterparty to do so would
result in the loss of any expected benefit of the transaction.
As is the case with futures contracts, sellers or purchasers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by purchasing or selling, respectively, an
instrument identical to the instrument sold or bought. Secondary markets
generally do not exist for forward currency contracts, however, with the result
that closing transactions generally can be made for forward currency contracts
only by negotiating directly with the counterparty. Thus, there can be no
assurance that the Portfolio will in fact be able to close out a forward
currency contract at a favorable price prior to maturity. In addition, in the
event of insolvency of the counterparty, the Portfolio might be unable to close
out a forward currency contract at any time prior to maturity. In either event,
the Portfolio would continue to be subject to market risk with respect to the
position, and would continue to be required to maintain a position in the
securities or currencies that are the subject of the hedge or to maintain cash
or securities.
The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the forward
currency contract has been established. Thus, the Portfolio might need to
purchase or sell foreign currencies in the spot (cash) market to the extent such
foreign currencies are not covered by forward contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
COMBINED TRANSACTIONS. The Portfolio may enter into multiple futures
transactions, instead of a single transaction, as part of a single or combined
strategy when, in the opinion of the Subadviser, it is in the best interests of
the Portfolio to do so. A combined transaction usually will contain elements of
risk that are present in each of its component transactions. Although combined
transactions normally are entered into based on the Subadviser's judgment that
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the combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
instead will increase such risks or hinder achievement of the portfolio
management objective.
FORWARD COMMITMENTS:
The Portfolio may make contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward commitments").
The Portfolio may engage in forward commitments if it either (1) holds and
maintains until the settlement date in a segregated account, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price or (2)
enters into an offsetting contract for the forward sale of securities of equal
value that it owns. Forward commitments may be considered securities in
themselves. They involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Portfolio's other assets. When such
purchases are made through dealers, a fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the Portfolio
of an advantageous yield or price. Although the Portfolio generally will enter
into forward commitments with the intention of acquiring securities for its
investment portfolios, the Portfolio may dispose of a commitment prior to
settlement and may realize short-term profits or losses upon such disposition.
ILLIQUID AND RESTRICTED SECURITIES:
The Portfolio will not purchase or otherwise acquire any illiquid
security, including repurchase agreements maturing in more than seven days, if,
as a result, more than 10% of its net assets (taken at current value) would be
invested in securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale.
INVESTMENT COMPANIES:
The Portfolio may invest in the securities of other investment companies
to the extent that such an investment would be consistent with the requirements
of the 1940 Act. Investments in the securities of other investment companies may
involve duplication of advisory fees and certain other expenses. By investing in
another investment company, the Portfolio becomes a shareholder of that
investment company. As a result, the Portfolio's shareholders indirectly bear
its proportionate share of the fees and expenses paid by the shareholders of the
other investment company, in addition to the fees and expenses fund shareholders
directly bear in connection with the Portfolio's own operations. The Portfolio
may invest up to 10% of its assets in securities of closed-end investment
companies that invest in foreign markets. See "Foreign Securities Exposure" for
a discussion of the risks of investing in foreign securities.
OTHER INVESTMENT PRACTICES:
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Portfolio may enter
into agreements with banks or broker-dealers for the purchase or sale of
securities at an agreed-upon price on a specified future date. Such agreements
might be entered into, for example, when the Portfolio anticipates a decline in
interest rates and is able to obtain a more advantageous yield by committing
currently to purchase securities to be issued later. When the Portfolio
purchases securities on a when-issued or delayed delivery basis, it is required
either (1) to create a segregated account with the Portfolio's Custodian and to
maintain in that account cash, U.S. Government securities or other high grade
debt obligations in an amount equal on a daily basis to the amount of the
Portfolio's when-issued or delayed delivery commitments or (2) to enter into an
offsetting forward sale of securities it owns equal in value to those purchased.
The Portfolio will only make commitments to purchase securities on a when-issued
or delayed-delivery basis with the intention of actually acquiring the
securities. However, the Portfolio may sell these securities before the
settlement date if it is deemed advisable as a matter of investment strategy.
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When the time comes to pay for when-issued or delayed-delivery securities, the
Portfolio will meet its obligations from then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale of
the when-issued or delayed delivery securities themselves (which may have a
value greater or less than the Portfolio's payment obligation).
LOANS OF PORTFOLIO SECURITIES. The Portfolio may loan portfolio
securities to broker-dealers or other financial institutions. The collateral for
the Portfolio's loans will be "marked to market" daily so that the collateral at
all times exceeds 100% of the value of the loan. The Portfolio may terminate
such loans at any time and the market risk applicable to any security loaned
remains its risk. Although voting rights, or rights to consent, with respect to
the loaned securities pass to the borrower, the Portfolio retains the right to
call the loans at any time on reasonable notice, and it will do so in order that
the securities may be voted by it if the holders of such securities are asked to
vote upon or consent to matters materially affecting the investment. The
Portfolio also may call such loans in order to sell the securities involved. The
borrower must add to the collateral whenever the market value of the securities
rises above the level of such collateral. The Portfolio could incur a loss if
the borrower should fail financially at a time when the value of the loaned
securities is greater than the collateral. The primary objective of securities
lending is to supplement the Portfolio's income through investment of the cash
collateral in short-term interest bearing obligations.
TEMPORARY DEFENSIVE PURPOSES. For temporary defensive purposes, the
Portfolio may invest all or a major portion of its assets in (1) foreign debt
securities, (2) debt and equity securities or U.S. issuers and (3) obligations
issued or guaranteed by the United States or a foreign government or their
respective agencies, authorities or instrumentalities, and borrow up to 10% of
its total assets from banks to meet higher than anticipated redemption
requests..
INDUSTRY CLASSIFICATIONS
For purposes of determining industry classifications, the Portfolio may
rely upon classifications established by Eagle that are based upon
classifications contained in the Directory of Companies Filing Annual Reports
with the Securities and Exchange Commission ("SEC") and in the Standard & Poors
Industry Classifications. The Portfolio also may rely upon classifications
established by the Subadviser.
INVESTMENT LIMITATIONS
FUNDAMENTAL INVESTMENT POLICIES
In addition to the limits disclosed above and the investment limitations
described in the Prospectus, the Portfolio is subject to the following
investment limitations. The limitations below are fundamental policies and may
not be changed without the vote of a majority of the outstanding voting
securities of the applicable fund. Under the 1940 Act, a "vote of a majority of
the outstanding voting securities" of the Portfolio means the affirmative vote
of the lesser of (1) more than 50% of the outstanding shares of the Portfolio or
(2) 67% or more of the shares present at a shareholders meeting if more than 50%
of the outstanding shares are represented at the meeting in person or by proxy.
Diversification. With respect to 75% of the its total assets, the
Portfolio may not invest more than 5% of the Portfolio's assets (valued at
market value) in securities of any one issuer other than the U.S. Government or
its agencies and instrumentalities, or purchase more than 10% of the voting
securities of the voting securities of any one issuer.
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INDUSTRY CONCENTRATION. The Portfolio may not purchase securities if, as
a result of such purchase, more than 25% of the value of the Portfolio's total
assets would be invested in any one industry; however, this restriction does not
apply to U.S. Government securities.
BORROWING MONEY. The Portfolio may not borrow money except as a
temporary measure for extraordinary or emergency purposes except that the
Portfolio will not borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks as a
temporary measure, such as to facilitate the meeting of higher redemption
requests than anticipated (not for leverage) which might otherwise require the
untimely disposition of portfolio investments or for extraordinary or emergency
purposes. As a matter of nonfundamental investment policy, the Portfolio may not
make any additional investments if, immediately after such investments,
outstanding borrowings of money would exceed 5% of the currency value of its
total assets.
ISSUING SENIOR SECURITIES. The Portfolio may not issue senior
securities, except as permitted by its investment objective, policies, and
investment limitations of the Portfolio or with respect to transactions
involving options, futures, forward currency contracts, or other financial
instruments.
UNDERWRITING. The Portfolio may not underwrite securities except to the
extent that, in connection with the disposition of portfolio securities, that
Portfolio may be deemed to be an underwriter under federal securities laws.
INVESTING IN COMMODITIES, MINERALS OR REAL ESTATE. The Portfolio may not
invest in commodities, commodity contracts or real estate (including real estate
limited partnerships) except that (1) the Portfolio may purchase securities
issued by companies that invest in or sponsor such interests, (2) the Portfolio
may purchase and sell forward contracts, futures contracts, options and foreign
currency and (3) the Portfolio may purchase securities that are secured by
interests in real estate.
LOANS. The Portfolio may not make loans, except where loans are made by
purchase of debt obligations or by entering into repurchase agreements or
through lending of the Portfolio's securities.
MARGIN PURCHASES. The Portfolio will not purchase securities on margin,
except such short-term credits as may be necessary for the clearance of
purchases and sales of securities. (For this purpose, the deposit or payment by
the Portfolio of initial or variation margin in connection with futures
contracts, forward contracts or options is not considered the purchase of a
security on margin.)
SHORT SALES. The Portfolio will not make short sales of securities or
maintain a short position, except that the Portfolio may maintain short
positions in connection with its use of options, futures contracts, forward
contracts and options on futures contracts, and the Portfolio may sell short
"against the box."
NON-FUNDAMENTAL INVESTMENT POLICIES
The Portfolio has adopted the following additional restrictions which,
together with certain limits described above, may be changed by the Board
without shareholder approval in compliance with applicable law, regulation or
regulatory policy.
INVESTING IN ILLIQUID SECURITIES. The Portfolio may not invest more than
10% of its net assets in securities that are subject to restrictions on resale
or are not readily marketable without registration under the 1933 Act and in
repurchase agreements maturing in more than seven days.
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SELLING SHORT. The Portfolio will not sell securities "short against the
box."
INVESTING IN INVESTMENT COMPANIES. The Portfolio may not invest more
than 10% of its total assets in securities of other investment companies. For
purposes of this restriction, foreign banks and foreign insurance companies or
their respective agents or subsidiaries are not considered investment companies.
In addition, the Portfolio may invest in the securities of other investment
companies in connection with a merger, consolidation or acquisition of assets or
other reorganization approved by the Portfolio's shareholders.
All percentage limitations on investments set forth herein and in the
Prospectus will apply at the time of the making of an investment and shall not
be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
NET ASSET VALUE
The net asset value per share of Eagle Class shares is determined daily
as of the close of regular trading on the New York Stock Exchange (the
"Exchange") each day the Exchange is open for business. The Exchange normally is
open for business Monday through Friday except the following holidays: New
Year's Day, Martin Luther King's Birthday, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day.
The Portfolio values its securities and other assets based on their
market value determined as follows. A security listed or traded on the Exchange,
The Nasdaq Stock Market or foreign exchanges, is valued at its last sales price
on the principal market on which it is traded prior to the time when assets are
valued. If no sale is reported at that time or the security is traded in the OTC
market, market value is based on the most recent quoted bid price. When market
quotations for options and futures positions held by the Portfolio are readily
available, those positions will be valued based upon such quotations. Market
quotations generally will not be available for options traded in the OTC market.
Securities and other assets for which market quotations are not readily
available, or for which market quotes are not deemed to be reliable, are valued
at fair value using such methods as the Board believes would reflect fair value.
Short-term investments having a maturity of 60 days or less are valued at cost
with accrued interest or discount earned included in interest receivable.
All securities and other assets quoted in foreign currency and forward
currency contracts are valued daily in U.S. dollars on the basis of the foreign
currency exchange rate prevailing at the time such valuation is determined by
the fund's Custodian. Foreign currency exchange rates generally are determined
prior to the close of regular trading on the Exchange. Occasionally, events
affecting the value of foreign securities and such exchange rates occur between
the time at which they are determined and the close of regular trading on the
Exchange, which events will not be reflected in a computation of the Portfolio's
net asset value. The foreign currency exchange transactions of the Portfolio
conducted on a spot basis are valued at the spot rate for purchasing or selling
currency prevailing on the foreign exchange market.
The Portfolio is open for business on days on which the Exchange is open
(each a "Business Day"). Trading in securities on European and Far Eastern
securities exchanges and OTC markets normally is completed well before the
Portfolio's close of business on each Business Day. In addition, European or Far
Eastern securities trading may not take place on all Business Days. Furthermore,
trading takes place in various foreign capital markets on days that are not
Business Days and on which the funds' net asset value is not calculated.
Calculation of net asset value of Eagle Class shares does not take place
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. The Portfolio calculates net
asset value per share and, therefore, effects sales and redemptions, as of the
close of regular trading on the Exchange each Business Day. If events materially
affecting the value of such securities or other assets occur between the time
when their prices are determined (including their value in U.S. dollars by
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reference to foreign currency exchange rates) and the time when the Portfolio's
net asset value is calculated, such securities and other assets may be valued at
fair value by methods as determined in good faith by or under procedures
established by the Board.
The Board may suspend the right of redemption or postpone payment for
more than seven days at times (1) during which the Exchange is closed other than
for the customary weekend and holiday closings, (2) during which trading on the
Exchange is restricted as determined by the SEC, (3) during which an emergency
exists as a result of which disposal by the Portfolio of securities owned by it
is not reasonably practicable or it is not reasonably practicable for the
Portfolio fairly to determine the value of their net assets or (4) for such
other periods as the SEC may by order permit for the protection of the holders
of Eagle Class shares.
PERFORMANCE INFORMATION
Total return data of the Eagle Class shares from time to time may be
included in advertisements about that class. The Eagle Class' performance data
quoted in advertising and other promotional materials represents past
performance and is not intended to indicate future performance. The investment
return and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Average annual total return quotes for each class used in each fund's
advertising and promotional materials are calculated for the one-year, five-year
and ten-year periods (or life of the fund), according to the following formula:
P(1+T)(n)(SUPERSCRIPT) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period at the end of that period
All dividends and other distributions by the Eagle Class are assumed to
have been reinvested at net asset value on the reinvestment dates during the
period. Based on this formula, the total return, or "T" in the formula above, is
computed by finding the average annual compounded rates of return over the
period that would equate the initial amount invested to the ending redeemable
value.
In connection with communicating its average annual total return or
cumulative return to current or prospective shareholders, the Eagle Class may
compare these figures to the performance of other mutual funds tracked by mutual
fund rating services or to other unmanaged indexes that may assume reinvestment
of dividends but generally do not reflect deductions for administrative and
management costs. Investment performance also often reflects the risks
associated with the Portfolio's investment objective and policies. These factors
should be considered when comparing the Eagle Class' investment results to those
of other mutual funds and investment vehicles.
In addition, the Portfolio may from time to time include in advertising
and promotional materials Eagle Class' total return or cumulative figures that
are not calculated according to the formula set forth above or for other periods
for each class of shares. For example, in comparing the Eagle Class' aggregate
total return with data published by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc., Morningstar Mutual Funds or with such market
indices as the Dow Jones Industrial Average and the S&P 500 Index, the Eagle
Class calculates its cumulative total return for the specified periods of time
by assuming an investment of $10,000 and assuming the reinvestment of each
dividend or other distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial value of the
17
<PAGE>
investment from the ending value and by dividing the remainder by the beginning
value. By not annualizing the performance, the total return calculated in this
manner simply will reflect the increase in net asset value per share over a
period of time, adjusted for dividends and other distributions. The Eagle Class
also may compare its total or cumulative returns to relevant global and
international indicies, including but not limited to, the Morgan Stanley Capital
International World Index (containing more than 1,400 securities listed on the
exchanges of the United States, Europe, Canada, Australia, New Zealand and the
Far East) and the Morgan Stanley Capital International Europe, Australia, Far
East Index (containing over 1,000 companies representing the stock markets of
Europe, Australia, and the Far East).
The Eagle Class average annualized total return for the period May 1,
1995 (commencement of operations) to October 31, 1998 and for the year ended
October 31, 1998 was 8.93% and 8.38%, respectively. The Eagle Class cumulative
total return for the same periods was 34.97% and 8.38%, respectively.
INVESTING IN THE EAGLE CLASS
Eagle Class shares are sold at their next determined net asset value on
Business days. The procedures for purchasing shares of the Eagle Class is
explained in the Prospectus under "How to Buy Shares." The Portfolio's
distributor, Raymond James & Associates, Inc. ("RJA" or the "Distributor") has
agreed that it will hold the Portfolio harmless in the event of loss as a result
of cancellation of trades in Portfolio shares by the Distributor, its affiliates
or its customers.
REDEEMING SHARES
The methods of redemption are described in the section of the Prospectus
entitled "How to Sell Shares."
SYSTEMATIC WITHDRAWAL PLAN
Shareholders may also elect to make systematic withdrawals from their
Eagle Class account of a minimum of $250 on a periodic basis. The amounts paid
each period are obtained by redeeming sufficient shares from the shareholder's
account to provide the withdrawal amount specified. The Systematic Withdrawal
Plan is not currently available for shares held in an IRA, simplified employee
pension plan or other retirement plan. Shareholders may change the amount to be
paid without charge not more than once a year by written notice to the
Distributor or the Portfolio's Transfer Agent, Heritage Asset Management, Inc.
("Transfer Agent" or "Heritage").
Redemptions will be made at net asset value determined as of the close
of regular trading on the Exchange on the 1st, 5th, 10th or 20th day of each
month, whichever is applicable based upon the date the Shareholder elects to
receive payments. If the Exchange is not open for business on that day, the
shares will be redeemed at net asset value determined as of the close of regular
trading on the Exchange on the preceding business day. The check for the
withdrawal payment will usually be mailed on the next business day following
redemption. If shareholders elect to participate in the Systematic Withdrawal
Plan, dividends and other distributions on all shares in the account must be
automatically reinvested in Eagle Class shares. Shareholders may terminate the
Systematic Withdrawal Plan at any time without charge or penalty by giving
written notice to the Distributor or the Transfer Agent. The Eagle Class, the
Transfer Agent, and the Distributor also reserve the right to modify or
terminate the Systematic Withdrawal Plan at any time.
Withdrawal payments are treated as a sale of shares rather than as a
dividend or a capital gain distribution. These payments are taxable to the
extent that the total amount of the payments exceeds the tax basis of the shares
sold. If the periodic withdrawals exceed reinvested dividends and distributions,
the amount of the original investment may be correspondingly reduced.
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<PAGE>
Ordinarily, shareholders should not purchase additional shares of the
Eagle Class if maintaining a Systematic Withdrawal Plan because they may incur
tax liabilities in connection with such purchases and withdrawals. The Eagle
Class will not knowingly accept purchase orders from shareholders for additional
shares if they maintain a Systematic Withdrawal Plan unless the purchase is
equal to at least one year's scheduled withdrawals.
REDEMPTIONS IN KIND
The Portfolio is obligated to redeem shares of the Eagle Class for any
shareholder for cash during any 90-day period up to $250,000 or 1% of the Eagle
Class's net asset value, whichever is less. Any redemption beyond this amount
will also be in cash unless the Trustees determine that further cash payments
will have a material adverse effect on remaining shareholders. In such a case,
the Portfolio will pay all or a portion of the remainder of the redemption in
portfolio instruments, valued in the same way as a Portfolio determines net
asset value. The portfolio instruments will be selected in a manner that the
Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash
redemption. If redemption is made in kind, shareholders receiving portfolio
instruments could receive less than the redemption value of their securities and
could incur certain transaction costs.
RECEIVING PAYMENT
If shares of the Portfolio are redeemed by a shareholder through the
Distributor or a participating dealer, the redemption is settled with the
shareholder as an ordinary transaction. If a request for redemption is received
in good order (as described below) before the close of regular trading on the
Exchange, shares will be redeemed at the net asset value per share determined on
that day. Requests for redemption received after the close of regular trading on
the Exchange will be executed on the next trading day. Payment for shares
redeemed normally will be made by the Portfolio to the Distributor or a
participating dealer by the third business day after the day the redemption
request was made, provided that certificates for shares have been delivered in
proper form for transfer to the Portfolio, or if no certificates have been
issued, a written request signed by the shareholder has been provided to the
Distributor or a participating dealer prior to settlement date.
Other supporting legal documents may be required from corporations or
other organizations, fiduciaries or persons other than the shareholder of record
making the request for redemption. Questions concerning the redemption of the
Portfolio's Eagle Class shares can be directed to registered representatives of
the Distributor, a participating dealer or to the Transfer Agent.
A redemption request will be considered to be received in "good order"
if:
o the number or amount of shares and the class of shares to be redeemed and
shareholder account number have been indicated;
o any written request is signed by a shareholder and by all co-owners of the
account with exactly the same name or names used in establishing the
account;
o any written request is accompanied by certificates representing the shares
that have been issued, if any, and the certificates have been endorsed for
transfer exactly as the name or names appear on the certificates or an
accompanying stock power has been attached; and
o the signatures on any written redemption request of $100,000 or more and on
any certificates for shares (or an accompanying stock power) have been
guaranteed by a national bank, a state bank that is insured by the Federal
Deposit Insurance Corporation, a trust company or by any member firm of the
New York, American, Boston, Chicago, Pacific or Philadelphia Stock
Exchanges. Signature guarantees also will be accepted from savings banks and
19
<PAGE>
certain other financial institutions that are deemed acceptable by the
Transfer Agent, under its current signature guarantee program.
The Portfolio has the right to suspend redemption or postpone payment at
times when the Exchange is closed (other than customary weekend or holiday
closings) or during periods of emergency or other periods as permitted by the
Securities and Exchange Commission. In the case of any such suspension, you may
either withdraw your request for redemption or receive payment based upon the
net asset value next determined after the suspension is lifted. If a redemption
check remains outstanding after six months, the Transfer Agent reserves the
right to redeposit those funds into your account.
TAXES
GENERAL. The Portfolio is treated as a separate corporation for Federal
income tax purposes and intends to continue to qualify for favorable tax
treatment as a regulated investment company ("RIC") under the Code. To do so,
the Portfolio must distribute annually to its shareholders at least 90% of its
investment company taxable income (generally consisting of net investment
income, net short-term capital gain and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. With respect to the Portfolio, these requirements include the
following: (1) the Portfolio must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from futures or forward currency
contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) at the close of each quarter of the
Portfolio's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with those other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Portfolio's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (3) at the close of each quarter of
the Portfolio's taxable year, not more than 25% of the value of its total assets
may be invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer.
By qualifying for treatment as a RIC, the Portfolio (but not its
shareholders) will be relieved of Federal income tax on the part of its
investment company taxable income and net capital gain (the excess of net
long-term capital gain over net short-term capital loss) that it distributes to
its shareholders. If the Portfolio failed to qualify as a RIC for any taxable
year, it would be taxed on the full amount of its taxable income for that year
without being able to deduct the distributions it makes to its shareholders and
the shareholders would treat all those distributions, including distributions of
net capital gain, as dividends (that is, ordinary income) to the extent of the
Portfolio's earnings and profits.
The Portfolio will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and its capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
A redemption of the Portfolio's Eagle Class shares will result in a
taxable gain or loss to the redeeming shareholder, depending on whether the
redemption proceeds are more or less than the shareholder's adjusted basis for
the redeemed shares. If shares of the Portfolio are sold at a loss after being
held for six months or less, the loss will be treated as long-term, instead of
short-term, capital loss to the extent of any capital gain distributions
received on those shares. Investors also should be aware that if shares are
purchased shortly before the record date for a dividend or other distribution,
the shareholder will pay full price for the shares and receive some portion of
the price back as a taxable distribution.
20
<PAGE>
Dividends from the Portfolio's investment company taxable income are
taxable to its shareholders as ordinary income, to the extent of that the
Portfolio's earnings and profits, whether received in cash or in additional
shares. Distributions of the Portfolio's net capital gain, when designated as
such, are taxable to its shareholders as long-term capital gains, whether
received in cash or in additional shares and regardless of the length of time
the shares have been held. The portion of the dividends (but not the capital
gain distributions) paid by the Portfolio, which is insubstantial in its case,
that does not exceed the aggregate dividends received by the Portfolio from U.S.
corporations will be eligible for the dividends-received deduction allowed to
corporations; however, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the Federal alternative minimum tax.
INCOME FROM FOREIGN SECURITIES. Dividends and interest received by the
Portfolio, and gains realized thereby, may be subject to income, withholding or
other taxes imposed by foreign countries and U.S. possessions ("foreign taxes")
that would reduce the yield and/or total return on its securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these foreign taxes, however, and many foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors. If more
than 50% of the value of the Portfolio's total assets at the close of any
taxable year consists of securities of foreign corporations, it will be eligible
to, and may, file an election with the Internal Revenue Service that would
enable its shareholders, in effect, to receive the benefit of the foreign tax
credit with respect to any foreign taxes paid by it. Pursuant to any such
election, the Portfolio would treat those taxes as dividends paid to its
shareholders and each shareholder would be required to (1) include in gross
income, and treat as paid by the shareholder, the shareholder's proportionate
share of those taxes, (2) treat the shareholder's share of those taxes and of
any dividend paid by the Portfolio that represents income from foreign or U.S.
possessions sources as the shareholder's own income from those sources, and (3)
either deduct the taxes deemed paid by the shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against the shareholder's Federal income tax.
The Portfolio that makes this election will report to its shareholders shortly
after each taxable year their respective shares of the Portfolio's income from
sources within foreign countries and U.S. possessions and foreign taxes paid by
it. Pursuant to the Tax Act, individuals who have no more than $300 ($600 for
married persons filing jointly) of creditable foreign taxes included on Forms
1099 and have no foreign source non-passive income will be able to claim a
foreign tax credit without having to file the detailed Form 1116 that otherwise
is required.
The Portfolio may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation -- other than a
"controlled foreign corporation" (i.e., a foreign corporation in which, on any
day during its taxable year, more than 50% of the total voting power of all
voting stock therein or the total value of all stock therein is owned, directly,
indirectly, or constructively, by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly, or constructively, at least 10% of
that voting power) as to which the Portfolio is a U.S. shareholder -- that, in
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, the
Portfolio will be subject to Federal income tax on a portion of any "excess
distribution" received on the stock of a PFIC or of any gain on disposition of
the stock (collectively "PFIC income"), plus interest thereon, even if the
Portfolio distributes the PFIC income as a taxable dividend to its shareholders.
The balance of the PFIC income will be included in the Portfolio's investment
company taxable income and, accordingly, will not be taxable to it to the extent
that income is distributed to its shareholders.
If the Portfolio invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Portfolio will be required to include in income each
year its pro rata share of the QEF's annual ordinary earnings and net capital
gain -- which most likely would have to be distributed by the Portfolio to
satisfy the Distribution Requirement and avoid imposition of the Excise Tax --
even if those earnings and gain were not distributed to the Portfolio by the
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<PAGE>
QEF. In most instances it will be very difficult, if not impossible, to make
this election because of certain requirements thereof.
The Portfolio may elect to "mark-to-market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of a PFIC's stock over
the Portfolio's adjusted basis therein as of the end of that year. Pursuant to
the election, the Portfolio also would be allowed to deduct (as an ordinary, not
capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the
fair market value thereof as of the taxable year-end, but only to the extent of
any net mark-to-market gains with respect to that stock included by the
Portfolio for prior taxable years. The Portfolio's adjusted basis in each PFIC's
stock with respect to which it makes this election will be adjusted to reflect
the amounts of income included and deductions taken under the election (and
under regulations proposed in 1992 that provided a similar election with respect
to the stock of certain PFICs).
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
dates of acquisition and disposition of the securities and (3) that are
attributable to fluctuations in exchange rates that occur between the time the
Portfolio accrues dividends, interest or other receivables or accrues expenses
or other liabilities denominated in a foreign currency and the time the fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses, referred to under the
Code as "section 988" gains or losses, may increase or decrease the amount of a
fund's investment company taxable income to be distributed to its shareholders.
HEDGING STRATEGIES. The use of hedging strategies, such as purchasing
and selling futures contracts and entering into forward contracts, involves
complex rules that will determine for income tax purposes the amount, character
and timing of recognition of the gains and losses the Portfolio realizes in
connection therewith. Income from foreign currencies (except certain gains
therefrom that may be excluded by future regulations), and income from
transactions in futures and forward contracts derived by the Portfolio with
respect to its business of investing in securities or foreign currencies, will
qualify as permissible income under the Income Requirement.
Certain futures in which the Portfolio may invest will be "section 1256
contracts." Section 1256 contracts held by the Portfolio at the end of each
taxable year must be "marked-to-market" (that is, treated as sold for their fair
market value) for Federal income tax purposes, with the result that unrealized
gains or losses will be treated as though they were realized. Sixty percent of
any net gain or loss recognized on these deemed sales, and 60% of any net
realized gain or loss from any actual sales of section 1256 contracts, will be
treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss. The 60% portion of that capital gain that is
treated as long-term capital gain will qualify for the reduced maximum tax rates
on net capital gain of 20% (10% for taxpayers in the 15% marginal tax bracket)
on capital assets held for more than 18 months. Section 1256 contracts also may
be marked-to-market for purposes of the Excise Tax. Code section 1092 (dealing
with straddles) also may affect the taxation of futures contracts in which the
Portfolio may invest. Section 1092 defines a "straddle" as offsetting positions
with respect to personal property; for these purposes, options and futures
contracts are personal property. Section 1092 generally provides that any loss
from the disposition of a position in a straddle may be deducted only to the
extent the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle. Section 1092 also provides certain "wash sale" rules, which apply to
transactions where a position is sold at a loss and a new offsetting position is
acquired within a prescribed period, and "short sale" rules applicable to
straddles. If the Portfolio makes certain elections, the amount, character and
timing of the recognition of gains and losses from the affected straddle
positions would be determined under rules that vary according to the elections
made. Because only a few of the regulations implementing the straddle rules have
been promulgated, the tax consequences to the Portfolio of straddle transactions
are not entirely clear.
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<PAGE>
If the Portfolio has an "appreciated financial position" - generally, an
interest (including an interest through an option, futures or forward contract,
or short sale) with respect to any stock, debt instrument (other than "straight
debt"), or partnership interest the fair market value of which exceeds its
adjusted basis - and enters into a "constructive sale" of the same or
substantially similar property, the Portfolio will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by the Portfolio
or a related person with respect to the same or substantially similar property.
In addition, if the appreciated financial position is itself a short sale or
such a contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
Investors are advised to consult their own tax advisers regarding the
status of an investment in the Portfolio under state and local tax laws.
SHAREHOLDER INFORMATION
Each Eagle Class share of the Portfolio gives the shareholder one vote
in matters submitted to shareholders for a vote. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in a Trust's or the
Portfolio's operation and for the election of Trustees under certain
circumstances. Trustees may be removed by the Trustees or by shareholders at a
special meeting. A special meeting of shareholders shall be called by the
Trustees upon the written request of shareholders owning at least 10% of a
Trust's outstanding shares.
PORTFOLIO INFORMATION
MANAGEMENT OF THE PORTFOLIO
BOARD OF TRUSTEES. The business affairs of the Portfolio are managed by
or under the direction of the Board. The Trustees are responsible for managing
the Portfolio's business affairs and for exercising all the Portfolio's powers
except those reserved to the shareholders. A Trustee may be removed by the other
Trustees or by a two-thirds vote of the outstanding Trust shares.
BACKGROUND OF THE TRUSTEES AND OFFICERS. The Trust's Trustees and
Officers are listed below with their addresses, principal occupations and
present positions, including any affiliation with Raymond James Financial, Inc.
("RJF"), RJA and Eagle.
<TABLE>
<CAPTION>
Position with Principal Occupation
Name the Trust During Past Five Years
---- ---------- ----------------------
<S> <C> <C>
Thomas A. James* (56) Trustee Chairman of the Board since 1986 and Chief
880 Carillon Parkway Executive Officer since 1969 of RJF; Chairman of
St. Petersburg, FL 33716 the Board of RJA since 1986; Chairman of the Board
of Eagle since 1984 and Chief Executive Officer of
Eagle, 1994 to 1996.
Richard K. Riess* (49) Trustee Executive Vice President and Managing Director for
880 Carillon Parkway Asset Management of RJF since 1998, Chief
St. Petersburg, FL 33716 Executive Officer of Eagle since 1996, President
of Eagle, 1995 to present, Chief Operating Officer
of Eagle, 1988 to 1995, Executive Vice President of
Eagle, 1988 to 1993.
Donald W. Burton* (54) Trustee President of South Atlantic Capital Corporation
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<PAGE>
614 W. Bay Street, Suite 200 (venture capital) since 1981.
Tampa, FL 33606
C. Andrew Graham (58) Trustee Vice President of Financial Designs Ltd. since
Financial Designs, Ltd. 1992; Executive Vice President of the Madison
1775 Sherman Street Group, Inc., 1991 to 1992; Principal of First
Suite 1900 Denver Financial Corporation (investment banking)
Denver, CO 80203 since 1987.
David M. Phillips (59) Trustee Chairman and Chief Executive Officer of CCC
World Trade Center Chicago Information Services, Inc. since 1994 and of
444 Merchandise Mart InfoVest Corporation (information services to the
Chicago, IL 60654 insurance and auto industries and consumer
households) since 1982.
Eric Stattin (65) Trustee Litigation Consultant/Expert Witness and private
1975 Evening Star Drive investor since 1988.
Park City, UT 84060
James L. Pappas (55) Trustee Lykes Professor of Banking and Finance since 1986
University of South Florida at University of South Florida; Dean of College of
College of Business Business Administration, 1987 to 1996.
Administration
Tampa, FL 33620
Stephen G. Hill (39) President Chief Executive Officer and President of Heritage
880 Carillon Parkway since 1989 and Director since 1994; Director of
St. Petersburg, FL 33716 Eagle since 1995.
Donald H. Glassman (41) Treasurer Treasurer of Heritage since 1989; Treasurer of
880 Carillon Parkway Heritage Mutual Funds since 1989.
St. Petersburg, FL 33716
Clifford J. Alexander (55) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm). 1
800 Massachusetts Ave., N.W.
Washington, DC 20036
Patricia Schneider (57) Assistant Compliance Administrator of the Heritage.
880 Carillon Parkway Secretary
St. Petersburg, FL 33716
Robert J. Zutz (46) Assistant Partner, Kirkpatrick & Lockhart LLP (law firm).
1800 Massachusetts Ave., N.W Secretary
Washington, DC
- -----------
* These Trustees are "interested persons" as such term is defined in section 2(a)(19) of the 1940
Act.
</TABLE>
The Trustees and officers of the Trust, as a group, own less than 1% of
Eagle Class shares. The Trust's Declaration of Trust provides that the Trustees
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<PAGE>
will not be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of their office.
The Trust currently pays Trustees who are not employees of Heritage or
its affiliates $3,999 annually and $1,500 per meeting of the Board. Each Trustee
also is reimbursed for any expenses incurred in attending meetings. Because
service providers perform substantially all of the services necessary for the
operation of the Portfolio, the Portfolio requires no employees. No officer,
director or employee of Heritage or Eagle receives any compensation from the
Portfolio either for acting as a director or officer. The following table shows
the compensation earned by each Trustee for the calendar year ended December 31,
1998.
<TABLE>
<CAPTION>
Compensation Table
- -----------------------------------------------------------------------------------------------------------------
Total Compensation
Aggregate Pension or From the Trust and the
Compensation Retirement Benefits Estimated Annual Heritage Family of
Name of Person, From the Accrued as Part of the Benefits Upon Funds Paid
Position Trust the Trust's Expenses Retirement to Trustees(1)
-------- ----- -------------------- ---------- --------------
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald W. Burton, $9,166.60 $0 $0 $20,833
Trustee
C. Andrew Graham, $9,166.60 $0 $0 $20,833
Trustee
Thomas A. James, $0 $0 $0 $0
Trustee
James L. Pappas, $9,166.60 $0 $0 $20,833
Trustee
David M. Phillips, $7,916.56 $0 $0 $17,833
Trustee
Richard K. Riess, $0 $0 $0 $0
Trustee
Eric Stattin, $9,166.60 $0 $0 $20,833
Trustee
- ----------------------------------------------------------------------------------------------------------------
- ----------------------
(1) The Heritage Mutual Funds consist of six separate regist ered investment companies, including
the Trust.
FIVE PERCENT SHAREHOLDERS
As of January 31, 1999, no persons owned of record or beneficially 5% or more of the Portfolio's Eagle
Class of shares.
</TABLE>
INVESTMENT ADVISER; SUBADVISER
The investment adviser for the Portfolio is Eagle Asset Management, Inc.
Eagle was organized as a Florida corporation in 1976. All the capital stock of
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<PAGE>
Eagle is owned by RJF. RJF is a holding company that, through its subsidiaries,
is engaged primarily in providing customers with a wide variety of financial
services in connection with securities, limited partnerships, options,
investment banking and related fields.
Under an Investment Advisory and Administration Agreement ("Advisory
Agreement") dated February 14, 1995, between the Trust, on behalf of the
Portfolio, and Eagle, and subject to the control and direction of the Board,
Eagle is responsible for overseeing the Portfolio's investment and noninvestment
affairs. Under a Subadvisory Agreement, the Subadviser, subject to direction by
Eagle and the Board, will provide investment advice and portfolio management
services to the Portfolio for a fee payable by Eagle.
Eagle also is obligated to furnish the Portfolio with office space,
administrative, and certain other services as well as executive and other
personnel necessary for the operation of the Portfolio. Eagle and its affiliates
also pay all the compensation of Trustees of the Trust who are employees of
Eagle and its affiliates. The Portfolio pays all its other expenses that are not
assumed by Eagle as described in the Prospectus. The Portfolio also is liable
for such nonrecurring expenses as may arise, including litigation to which the
Portfolio may be a party. The Portfolio also may have an obligation to indemnify
its Trustees and officers with respect to any such litigation.
The Advisory Agreement and the Subadvisory Agreement each were approved
by the Board (including all of the Trustees who are not "interested persons" of
Eagle or the Subadviser) and Eagle, as sole shareholder of the Portfolio, in
compliance with the 1940 Act. Each Agreement provides that it will be in force
for an initial two-year period and it must be approved each year thereafter by
(1) a vote, cast in person at a meeting called for that purpose, of a majority
of those Trustees who are not "interested persons" of Eagle, the Subadviser or
the Trust, and by (2) the majority vote of either the full Board of Trustees or
the vote of a majority of the outstanding shares of the Portfolio. The Advisory
and Subadvisory Agreement each automatically terminates on assignment, and each
is terminable on not more than 60 days' written notice by the Trust to either
party. In addition, the Advisory Agreement may be terminated on not less than 60
days' written notice by Eagle to the Portfolio and the Subadvisory Agreement may
be terminated on not less than 60 days' written notice by Eagle or 90 days'
written notice by the Subadviser. Under the terms of the Advisory Agreement,
Eagle automatically becomes responsible for the obligations of the Subadviser
upon termination of the Subadvisory Agreement. In the event Eagle ceases to be
the adviser of the Portfolio or the Distributor ceases to be principal
distributor of the Portfolio's shares, the right of the Portfolio to use the
identifying name of "Eagle" may be withdrawn.
Eagle and the Subadviser shall not be liable to the Portfolio or any
shareholder for anything done or omitted by them, except acts or omissions
involving willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties imposed upon them by their agreements with the Portfolio or for
any losses that may be sustained in the purchase, holding or sale of any
security.
All of the officers of the Portfolio except for Messrs. Alexander and
Zutz are officers or directors of Eagle or its affiliates. These relationships
are described under "Trustees and Officers."
ADVISORY FEE. The annual investment advisory fee paid monthly by the
Portfolio to Eagle is 1.0% on the first $100 million of assets and .80% of
average daily net assets thereafter.
Eagle has contractually agreed to waive through the Portfolio's 1999
fiscal year management fees to the extent that the Eagle Class' annual operating
expenses, exclusive of foreign taxes paid, exceed 2.60% of average daily net
assets. For the three fiscal years ended October 31, 1998, management fees
amounted to $189,777, $351,913 and $453,725, respectively. For the same periods,
Eagle waived its fees in the amounts of $134,735, $91,433 and $52,276,
respectively.
26
<PAGE>
Eagle has entered into an agreement with the Subadviser to provide
investment advisory advice and portfolio management services to the Portfolio
for a fee based on the Portfolio's average daily net assets paid by Eagle to
Martin Currie equal to .50% on the first $100 million of assets and .40%
thereafter, without regard to any reduction in fees actually paid to Eagle as a
result of expense limitations. For the three fiscal years ended October 31,
1998, Eagle paid the Subadviser, fees of $94,888, $175,957 and $226,862,
respectively.
BROKERAGE PRACTICES
While the Portfolio generally purchases securities for long-term capital
gains, the Portfolio may engage in short-term transactions under various market
conditions to a greater extent than certain other mutual funds with similar
investment objectives. Thus, the turnover rate may vary greatly from year to
year or during periods within a year. The turnover rate is computed by dividing
the lesser of purchases or sales of securities for the period by the average
value of portfolio securities for that period. A 100% turnover rate would occur
if all the securities in the portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to transaction costs and may result in a
greater number of taxable transactions. The Portfolio's turnover rates for the
two years ended October 31, 1998 were 50% and 71%.
Eagle and the Subadviser are responsible for the execution of the
Portfolio's portfolio transactions and must seek the most favorable price and
execution for such transactions. Best execution, however, does not mean that the
Portfolio necessarily will be paying the lowest commission or spread available.
Rather, the Portfolio also will take into account such factors as size of the
order, difficulty of execution, efficiency of the executing broker's facilities,
and any risk assumed by the executing broker.
It is a common practice in the investment advisory business for advisers
of investment companies and other institutional investors to receive research,
statistical and quotation services from broker-dealers who execute portfolio
transactions for the clients of such advisers. Consistent with the policy of
most favorable price and execution, Eagle or the Subadviser may give
consideration to research, statistical and other services furnished by brokers
to them for their use. In addition, Eagle or the Subadviser may place orders
with brokers who provide supplemental investment and market research and
securities and economic analysis and may pay to these brokers a higher brokerage
commission or spread than may be charged by other brokers, provided that they
determine in good faith that such commission is reasonable in relation to the
value of brokerage and research services provided. Such research and analysis
may be useful to Eagle or the Subadviser in connection with services to clients
other than the Portfolio. The Portfolio also may purchase and sell portfolio
securities to and from dealers who provide it with research services. However,
portfolio transactions will not be directed by the Portfolio to dealers on the
basis of such research services.
The Portfolio may use the Distributor or its affiliates or affiliates of
the Subadviser as a broker for agency transactions in listed and
over-the-counter securities at commission rates and under circumstances
consistent with the policy of best execution. Commissions paid to the
Distributor or its affiliates will not exceed "usual and customary brokerage
commissions." Rule l7e-1 under the 1940 Act defines "usual and customary"
commissions to include amounts that are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time."
Eagle and the Subadviser also may select other brokers to execute
portfolio transactions. In the over-the-counter market, the Portfolio generally
deals with primary market-makers unless a more favorable execution can otherwise
be obtained.
27
<PAGE>
Aggregate brokerage commissions paid by the Portfolio for the three
fiscal years ended October 31, 1998 amounted to $96,619, $111,523 and $134,334,
respectively. Aggregate commissions paid by the Portfolio to the Distributor as
of October 31, 1998 were $0.
The Portfolio may not buy securities from, or sell securities to the
Distributor or its affiliates as principal. However, the Board has adopted
procedures in conformity with Rule 10f-3 under the 1940 Act whereby the
Portfolio may purchase securities that are offered in underwritings in which the
Distributor or its affiliates are participants. The Board will consider the
possibilities of seeking to recapture for the benefit of the Portfolio expenses
of certain portfolio transactions, such as underwriting commissions and tender
offer solicitation fees, by conducting such portfolio transactions through
affiliated entities, including the Distributor, its affiliates or certain
affiliates of the Subadviser, but only to the extent such recapture would be
permissible under applicable regulations, including the rules of the National
Association of Securities Dealers, Inc. and other self-regulatory organizations.
Section 11(a) of the Securities Exchange Act of 1934, as amended,
prohibits the Distributor from executing transactions on an exchange for the
Portfolio except pursuant to written consent by the Portfolio. The Portfolio has
provided the Distributor with its written consent to execute transactions on an
exchange on behalf of the Portfolio.
DISTRIBUTION OF SHARES
Shares of the Portfolio are offered continuously through the Portfolio's
principal underwriter, Raymond James & Associates, Inc. (the "Distributor"), and
through other participating dealers or banks that have dealer agreements with
the Distributor. The Distributor and participating dealers or participating
banks with whom it has entered into dealer agreements offer Eagle Class shares
of the Portfolio as agents on a best efforts basis and are not obligated to sell
any specific amount of shares. Pursuant to its Distribution Agreement with the
Trust on behalf of the Eagle Class, the Distributor bears the cost of making
information about the Eagle Class available through advertising, sales
literature and other means, the cost of printing and mailing prospectuses to
persons other than shareholders, and salaries and other expenses relating to
selling or servicing efforts. The Portfolio pays the cost of registering and
qualifying Eagle Class shares under state and federal securities laws and
typesetting of its prospectuses and printing and distributing prospectuses to
existing shareholders.
The Portfolio has adopted a Distribution Plan for the Eagle Class shares
(the "Plan"). This Plan permits the Portfolio to pay the Distributor the monthly
distribution and service fee out of the Portfolio's net assets to finance
activity that is intended to result in the sale and retention of Eagle Class
shares. The Portfolio used all Eagle Class 12b-1 fees to pay the Distributor.
The Plan was approved by the Board, including a majority of the Trustees who are
not interested persons of a fund (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Plan or the
Distribution Agreement (the "Independent Trustees"). In approving the Plan, the
Board determined that there is a reasonable likelihood that each fund and its
shareholders will benefit from each Plan.
As compensation for the services provided and expenses borne by the
Distributor pursuant to the Distribution Agreement, the Portfolio pays the
Distributor a distribution fee in an amount up to 1.00% of the Portfolio's
average daily net assets in accordance with the Distribution Plan described
above. The distribution fee is accrued daily and paid monthly. The Distributor
intends to use .25 of 1% of this fee as a service fee to compensate
participating dealers or participating banks including, for this purpose,
certain financial institutions for services provided in connection with the
maintenance of shareholder accounts.
The Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of the
28
<PAGE>
Eagle Class of the Portfolio. The Trustees review quarterly a written report of
Plan costs and the purposes for which such costs have been incurred. The Plan
may be amended by vote of the Trustees, including a majority of the Independent
Trustees, cast in person at a meeting called for such purpose. Any change in the
Plan that would materially increase the distribution cost to the Portfolio
requires shareholder approval. For the 1998 fiscal year, the Distributor
received Eagle Class 12b-1 fees of $334,486.40. All Rule 12b-1 fees are paid to
the Distributor.
The Distribution Agreement may be terminated at any time on 60 days'
written notice without payment of any penalty by either party. The Portfolio may
effect such termination by vote of a majority of the outstanding voting
securities of the Portfolio or by vote of a majority of the Independent
Trustees. For so long as the Plan is in effect, selection and nomination of
those Trustees who are not interested persons of the Portfolio shall be
committed to the discretion of such disinterested persons.
The Distribution Agreement and the Plan will continue in effect for
successive one-year periods, provided that each such continuance is specifically
approved (1) by the vote of a majority of the Independent Trustees and (2) by
the vote of a majority of the entire Board of Trustees cast in person at a
meeting called for that purpose.
ADMINISTRATION OF THE PORTFOLIO
ADMINISTRATIVE, FUND ACCOUNTING AND TRANSFER AGENT SERVICES. Eagle,
subject to the control of the Board, will manage, supervise and conduct the
administrative and business affairs of the Portfolio; furnish office space and
equipment; oversee the activities of the Subadviser, the Custodian and fund
accountant, and pay all salaries, fees and expenses of officers and Trustees of
the Trust who are affiliated with Eagle and its affiliates. Heritage is the
transfer and dividend disbursing agent for the Portfolio and provides certain
shareholder servicing activities for customers of the Portfolio. State Street
Bank & Trust is the fund accountant for the Portfolio. The Portfolio pays
directly for fund accounting and transfer agent services. The Portfolio pays
Heritage its cost plus 10% for its services as transfer and dividend disbursing
agent.
Under a separate Administration Agreement between Eagle and Heritage,
Heritage provides certain noninvestment services to the Portfolio for a fee
payable by Eagle equal to .10% on the first $100 million of average daily net
assets, and .05% thereafter.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 1912, Boston,
Massachusetts 02105, serves as custodian of the Portfolio's assets and provides
portfolio accounting and certain other services.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
N.W., Washington, D.C. 20036
serves as counsel to the Portfolio.
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, 400 North Ashley
Street, Suite 2800, Tampa, Florida 33602, are the independent public accountants
for the Trust. The Financial Statements and Financial Highlights of the Trust
that appear in this SAI have been audited by PricewaterhouseCoopers LLP, and are
included herein in reliance upon their authority as experts in accounting and
auditing.
POTENTIAL LIABILITY.
Under certain circumstances, shareholders may be held personally liable
as partners under Massachusetts law for obligations of the Portfolio. To protect
its shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Portfolio. These documents require notice of this disclaimer to be given in
each agreement, obligation or instrument the Portfolio or its Trustees enter
into or sign. In the unlikely event a shareholder is held personally liable for
29
<PAGE>
the Portfolio's obligations, the Portfolio is required to use its property to
protect or compensate the shareholder. On request, the Portfolio will defend any
claim made and pay any judgment against a shareholder for any act or obligation
of the Portfolio. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Portfolio itself cannot meet its obligations
to indemnify shareholders and pay judgments against them.
30
<PAGE>
APPENDIX A
PORTFOLIO INVESTMENT TABLE
All percentage limitations are based on the Portfolio's total assets, unless
otherwise specified.
N Net Assets
10 minimum percent of assets (italic type)*
10 no more than specified percent of assets (Roman type)
X no policy limitation on usage
/ / permitted, but typically has not been used
<TABLE>
<CAPTION>
<S> <C><C> <C> <C><C> <C>
----------------------------------------------------------------------------------------------
0 Equity Securities 65* 0 Foreign Securities Exposure 65*
0 Convertible Securities 0 ADRS X
v Investment Grade X 0 Hedging Instruments X
v Below Investment 5 v Futures Contracts X
Grade
0 Corporate Debt 35(1) v Forward Contracts X
0 Short-term Money Market 35(2) 0 Forward Commitments 10
Instruments
0 Illiquid Securities 10 0 Index Securities and Other 10
Investment Companies
0 Repurchase Agreements 35 0 When-issued and Delayed X
Delivery Transactions
0 Reverse Repurchase Agreements X 0 Loans of Portfolio / /
Securities
0 U.S. Government Securities 35 0 Temporary Defensive Measures 100
---------------------------------------------------------------------------------------------
</TABLE>
(1) Investment grade non-convertible debt.
(2) Excluding those short-term money market instruments not separately listed.
A-1
<PAGE>
APPENDIX B
COMMERCIAL PAPER RATINGS
The rating services' descriptions of commercial paper ratings in which the
Portfolio may invest are:
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER DEBT RATINGS
PRIME-1. Issuers (or supporting institutions) rated PRIME-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation;
well-established access to a range of financial markets and assured sources of
alternate liquidity.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A-1. This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess extremely strong
characteristics are denoted with a plus sign (+) designation.
CORPORATE DEBT RATINGS
The rating services' descriptions of corporate debt ratings in which the
Portfolio may invest are:
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. CORPORATE DEBT RATINGS
AAA - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
BAA - Bonds that are rated Baa are considered medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA - Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
B-1
<PAGE>
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the company ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking and the modifier 3
indicates that the company ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, C - Debt rated "BB," "B," "CCC," "CC," and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions that could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B-2
<PAGE>
B - Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC - Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC - The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C - The rating "C" is typically applied to debt subordinated to senior debt that
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI - The rating "CI" is reserved for income bonds on which no interest is being
paid.
D - Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) - The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR - Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
B-3
<PAGE>
REPORT OF THE INDEPENDENT ACCOUNTANTS & FINANCIAL STATEMENTS
The Report of the Independent Accounts and Financial Statements are
incorporated herein by reference from the Eagle International Equity Portfolio's
Annual Report to Shareholders for the fiscal year ended October 31, 1998, filed
with the Securities and Exchange Commission on December 30, 1998, Accession No.
0001016843-98-000672.
C-1
<PAGE>
PART C. OTHER INFORMATION
-------------------------
Item 23. Exhibits
--------
(a) Declaration of Trust*
(b) Bylaws*
(c) Voting trust agreement - none
(d)(i)(A) Investment Advisory and Administration Agreement*
(i)(B) Amended Schedule A relating to the addition of the Value
Equity Fund*
(i)(C) Amended Schedule A relating to the addition of the
Growth Equity Fund*
(i)(D) Amended Schedule A relating to the addition of the
Mid Cap Growth Fund***
(i)(E) Amended Schedule A relating to the addition of the
Aggressive Growth Fund^
(ii) Investment Advisory and Administration Agreement between
Eagle Asset Management, Inc. and Eagle International
Equity Portfolio*
(iii)(A) Subadvisory Agreement between Heritage Asset Management,
Inc. and Eagle Asset Management, Inc. relating to Small
Cap Stock Fund*
(iii)(B) Subadvisory Agreement between Heritage Asset Management,
Inc. and Awad & Associates, a division of Raymond James
and Associates, Inc. relating to Small Cap Stock Fund*
(iv)(A) Subadvisory Agreement between Heritage Asset Management,
Inc. and Eagle Asset Management, Inc. relating to Value
Equity Fund*
(iv)(B) Amended Schedule A relating to the addition of the Small
Cap Stock Fund*
(iv)(C) Amended Schedule A relating to the addition of the
Growth Equity Fund*
(iv)(D) Amended Schedule A relating to the addition of the Mid
Cap Growth Fund***
(iv)(E) Amended Schedule A relating to the addition of the
Aggressive Growth Fund^
(v) Subadvisory Agreement between Eagle Asset Management,
Inc. and Martin Currie Inc. relating to Eagle
International Equity Portfolio*
<PAGE>
Item 23. Exhibits
--------
(e) Distribution Agreement*
(f) Bonus, profit sharing or pension plans - none
(g) Form of Custodian Agreement*
(h)(i) Form of Transfer Agency and Service Agreement*
(ii)(A) Form of Fund Accounting and Pricing Service Agreement*
(ii)(B) Amended Schedule A relating to the addition of the Mid
Cap Growth Fund***
(ii)(C) Amended Schedule A relating to the addition of the
Aggressive Growth Fund^
(i) Opinion and consent of counsel (filed herewith)
(j) Consent of Independent Auditors (filed herewith)
(k) Financial statements omitted from prospectus - none
(l) Letter of investment intent*
(m)(i)(A) Class A Plan pursuant to Rule 12b-1*
(i)(B) Amended Schedule A relating to the addition of the
Value Equity Fund*
(i)(C) Amended Schedule A relating to the addition of the
Growth Equity Fund*
(i)(D) Amended Schedule A relating to the addition of the
Eagle International Equity Portfolio*
(i)(E) Amended Schedule A relating to the addition of the Mid
Cap Growth Fund and Aggressive Growth Fund^
(ii)(A) Class C Plan pursuant to Rule 12b-1*
(ii)(B) Amended Schedule A relating to the addition of the
Growth Equity Fund*
(ii)(C) Amended Schedule A relating to the addition of the
Eagle International Equity Portfolio*
(ii)(D) Amended Schedule A relating to the addition of the Mid
Cap Growth Fund and Aggressive Growth Fund^
(iii) Eagle Class Plan pursuant to Rule 12b-1*
(iv)(A) Class B Plan pursuant to Rule 12b-1***
(iv)(B) Amended Schedule A relating to the addition of the
Aggressive Growth Fund^
C-2
<PAGE>
Item 23. Exhibits
--------
(n) Financial Data Schedules for Electronic Filers (filed
herewith)
(o)(i) Plan pursuant to Rule 18f-3*
(ii) Amended Plan pursuant to Rule 18f-3**
(iii) Amended Plan pursuant to Rule 18f-3^
- ----------------
* Incorporated by reference from the Post-Effective Amendment No. 10
to the Registration Statement of the Trust, SEC File No. 33-57986,
filed previously via EDGAR on December 1, 1995.
** Incorporated by reference from the Trust's Post-Effective Amendment
No. 13 to the Trust's Registration Statement on Form N-1A, File No.
33-57986, filed previously via EDGAR on February 28, 1997.
*** Incorporated by reference from the Trust's Post-Effective Amendment
No. 15 to the Trust's Registration Statement on Form N-1A, File No.
33-57986, filed previously via EDGAR on October 31, 1997.
^ Incorporated by reference from the Trust's Post-Effective Amendment
No. 16 to the Trust's Registration Statement on Form N-1A, File No.
33-57986 filed previously via EDGAR on October 30, 1998.
Item 24. Persons Controlled by or under
Common Control With Registrant
------------------------------
None.
Item 25. Indemnification
---------------
Article XI, Section 2 of Heritage Series Trust's Declaration of Trust
provides that:
(a) Subject to the exceptions and limitations contained in paragraph (b)
below:
(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as "Covered Person") shall be indemnified by the
appropriate portfolios to the fullest extent permitted by law against liability
and against all expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter, and the
words "liability" and "expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
C-3
<PAGE>
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or (B) not to have acted in
good faith in the reasonable belief that his action was in the best interest of
the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
interested persons of the Trust nor are parties to the matter based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry); provided,
however, that any Shareholder may, by appropriate legal proceedings, challenge
any such determination by the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be exclusive
of or affect any other rights to which any Covered Person may now or hereafter
be entitled, shall continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Trustees and
officers, and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit, or proceeding of the character described in
paragraph (a) of this Section 2 may be paid by the applicable Portfolio from
time to time prior to final disposition thereof upon receipt of an undertaking
by or on behalf of such Covered Person that such amount will be paid over by him
to the Trust if it is ultimately determined that he is not entitled to
indemnification under this Section 2; provided, however, that:
(i) such Covered Person shall have provided appropriate security for
such undertaking;
(ii) the Trust is insured against losses arising out of any such
advance payments; or
(iii) either a majority of the Trustees who are neither interested
persons of the Trust nor parties to the matter, or independent legal counsel in
a written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a trial-type inquiry or full investigation), that
there is reason to believe that such Covered Person will be found entitled to
indemnification under this Section 2.
C-4
<PAGE>
According to Article XII, Section 1 of the Declaration of Trust, the Trust
is a trust, not a partnership. Trustees are not liable personally to any person
extending credit to, contracting with or having any claim against the Trust, a
particular Portfolio or the Trustees. A Trustee, however, is not protected from
liability due to willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Article XII, Section 2 provides that, subject to the provisions of Section
1 of Article XII and to Article XI, the Trustees are not liable for errors of
judgment or mistakes of fact or law, or for any act or omission in accordance
with advice of counsel or other experts or for failing to follow such advice.
Paragraph 8 of the Investment Advisory and Administration Agreement
("Advisory Agreement") between the Trust and Eagle Asset Management, Inc.
("Eagle"), provides that Eagle shall not be liable for any error of judgment or
mistake of law for any loss suffered by the Trust or any Portfolio in connection
with the matters to which the Advisory Agreement relate except a loss resulting
from willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under the Advisory Agreement. Any person, even though also an
officer, partner, employee, or agent of Eagle, who may be or become an officer,
trustee, employee or agent of the Trust shall be deemed, when rendering services
to the Trust or acting in any business of the Trust, to be rendering such
services to or acting solely for the Trust and not as an officer, partner,
employee, or agent or one under the control or direction of Eagle even though
paid by it.
Paragraph 9 of the Subadvisory Agreement ("Subadvisory Agreement") between
Eagle and Martin Currie Inc. ("Subadviser") provides that, in the absence of
willful misfeasance, bad faith or gross negligence on the part of the
Subadviser, or reckless disregard of its obligations and duties under the
Subadvisory Agreement, the Subadviser shall not be subject to any liability to
Eagle, the Trust, or their directors, trustees, officers or shareholders, for
any act or omission in the course of, or connected with, rendering services
under the Subadvisory Agreement.
Paragraph 7 of the Distribution Agreement between the Trust and Raymond
James & Associates, Inc. ("Raymond James") provides that, the Trust agrees to
indemnify, defend and hold harmless Raymond James, its several officers and
directors, and any person who controls Raymond James within the meaning of
Section 15 of the Securities Act of 1933, as amended (the "1933 Act") from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Raymond James, its officers
or Trustees, or any such controlling person may incur under the 1933 Act or
under common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement, Prospectus
or Statement of Additional Information or arising out of or based upon any
alleged omission to state a material fact required to be stated in either
thereof or necessary to make the statements in either thereof not misleading,
provided that in no event shall anything contained in the Distribution Agreement
be construed so as to protect Raymond James against any liability to the Trust
or its shareholders to which Raymond James would otherwise be subject by reason
of willful misfeasance, bad faith, or gross negligence in the performance of its
C-5
<PAGE>
duties, or by reason of its reckless disregard of its obligations and duties
under the Distribution Agreement.
Paragraph 13 of the Heritage Funds Accounting and Pricing Services
Agreement ("Accounting Agreement") between the Trust and Heritage Asset
Management, Inc. ("Heritage") provides that the Trust agrees to indemnify and
hold harmless Heritage and its nominees from all losses, damages, costs,
charges, payments, expenses (including reasonable counsel fees), and liabilities
arising directly or indirectly from any action that Heritage takes or does or
omits to take to do (i) at the request or on the direction of or in reasonable
reliance on the written advice of the Trust or (ii) upon Proper Instructions (as
defined in the Accounting Agreement), provided, that neither Heritage nor any of
its nominees shall be indemnified against any liability to the Trust or to its
shareholders (or any expenses incident to such liability) arising out of
Heritage's own willful misfeasance, willful misconduct, gross negligence or
reckless disregard of its duties and obligations specifically described in the
Accounting Agreement or its failure to meet the standard of care set forth in
the Accounting Agreement.
Item 26. I. Business and Other Connections of Investment Adviser
----------------------------------------------------
Eagle Asset Management, Inc., a Florida corporation, is a registered
investment adviser. All of its stock is owned by Raymond James Financial, Inc.
Eagle is primarily engaged in the investment advisory business. Eagle provides
investment advisory services to the Eagle International Equity Portfolio.
Eagle's offices are located at 880 Carillon Parkway, St. Petersburg, Florida
33733. Information as to the officers and directors of Eagle is included in its
current Form ADV filed with the Securities and Exchange Commission ("SEC") and
is incorporated by reference herein.
Heritage Asset Management, Inc. is a Florida corporation that offers
investment management services. Heritage provides investment advisory services
to the Small Cap Stock, Value Equity, Growth Equity, Mid Cap Growth and
Aggressive Growth Funds of the Trust. Heritage's offices are located at 880
Carillon Parkway, St. Petersburg, Florida 33733. Information as to the directors
and officers of Heritage is included in its current Form ADV filed with the SEC
(registration number 801-25067) and is incorporated by reference herein.
II. Business and Other Connections of Subadviser
--------------------------------------------
Martin Currie Inc., a New York corporation, is a wholly owned subsidiary
of Martin Currie Limited. Martin Currie Inc. is primarily engaged in the
investment advisory business. Martin Currie Inc. provides subadvisory services
to the Eagle International Equity Portfolio of the Trust. Martin Currie's
offices are located at Edinburgh, Scotland. Information as to the officers and
directors of Martin Currie Inc. is included in its current Form ADV filed with
the SEC and is incorporated by reference herein.
Awad Asset Management, Inc. is a registered investment adviser. All of its
stock is owned by Raymond James Financial, Inc. Awad is primarily engaged in the
C-6
<PAGE>
investment advisory business. Awad's offices are located at 477 Madison Ave.,
New York, NY. 10022. Information as to the officers and directors of Awad is
included in the current Form ADV filed with the SEC and is incorporated by
reference herein.
Eagle Asset Management, Inc., a Florida corporation, is a registered
investment adviser. All of its stock is owned by Raymond James Financial, Inc.
Eagle is primarily engaged in the investment advisory business. Information as
to the officers and directors of Eagle is included in the current Form ADV filed
with the SEC and is incorporated by reference herein.
Item 27. Principal Underwriter
---------------------
(a) Raymond James & Associates, Inc., 880 Carillon Parkway, St.
Petersburg, Florida 33716 is the principal underwriter for each of the following
investment companies: Heritage Cash Trust, Heritage Capital Appreciation Trust,
Heritage Income-Growth Trust, Heritage Income Trust and Heritage Series Trust.
(b) The directors and officers of the Registrant's principal
underwriter are:
Positions & Offices Position
Name With Underwriter With Registrant
- ---- ---------------- ---------------
Thomas A. James Chief Executive Officer, Director Trustee
Robert F. Shuck Executive VP, Director None
Thomas S. Franke President, Chief Operating None
Officer, Director
Lynn Pippenger Secretary/Treasurer, Chief None
Financial Officer, Director
Dennis Zank Executive VP of Operations None
and Administration, Director
The business address for each of the above directors and officers is 880
Carillon Parkway, St. Petersburg, Florida 33716.
Item 28. Location of Accounts and Records
--------------------------------
For the Small Cap Stock Fund, the Mid Cap Growth Fund, the Value Equity
Fund, the Growth Equity Fund, and the Aggressive Growth Fund, the books and
other documents required by Rule 31a-1 under the Investment Company Act of 1940,
as amended ("1940 Act"), are maintained by Heritage. For the Eagle International
Equity Portfolio, the books and other documents required by Rule 31a-1 under the
1940 Act are maintained by the Portfolio's custodian, State Street Bank & Trust
Company. Prior to March 1, 1994 the Trust's Custodian maintained the required
records for the Small Cap Stock Fund, except that Heritage maintained some or
all of the records required by Rule 31a-1(b)(l), (2) and (8); and the Subadviser
C-7
<PAGE>
will maintain some or all of the records required by Rule 31a-1(b) (2), (5),
(6), (9), (10) and (11).
Item 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered a copy of its latest annual report to shareholders, upon request
and without charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 21 to its Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of St. Petersburg and the State of Florida, on
February 26, 1999. No other material event requiring prospectus disclosure has
occurred since the latest of the three dates specified in Rule 485(b)(2).
HERITAGE SERIES TRUST
By: /s/ Stephen G. Hill
--------------------------
Stephen G. Hill
President
Attest:
/s/ Donald H. Glassman
- -----------------------------
Donald H. Glassman, Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 21 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Stephen G. Hill
- ------------------- President February 26, 1999
Stephen G. Hill
Thomas A. James* Trustee February 26, 1999
- ---------------
Thomas A. James
Richard K. Riess* Trustee February 26, 1999
- ----------------
Richard K. Riess
C. Andrew Graham* Trustee February 26, 1999
- ----------------
C. Andrew Graham
David M. Phillips* Trustee February 26, 1999
- -----------------
David M. Phillips
<PAGE>
James L. Pappas* Trustee February 26, 1999
- ---------------
James L. Pappas
Donald W. Burton* Trustee February 26, 1999
- ----------------
Donald W. Burton
Eric Stattin* Trustee February 26, 1999
- ---------------
Eric Stattin
/s/ Donald H. Glassman Treasurer February 26, 1999
- ----------------------
Donald H. Glassman
*By: /s/ Donald H. Glassman
----------------------
Donald H. Glassman,
Attorney-In-Fact
2
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------ ----------- ----
(a) Declaration of Trust*
(b) Bylaws*
(c) Voting trust agreement - none
(d)(i)(A) Investment Advisory and Administration Agreement*
(i)(B) Amended Schedule A relating to the addition of the Value Equity Fund*
(i)(C) Amended Schedule A relating to the addition of the Growth Equity
Fund*
(i)(D) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund***
(i)(E) Amended Schedule A relating to the addition of the Aggressive
Growth Fund^
(ii) Investment Advisory and Administration Agreement between Eagle
Asset Management, Inc. and Eagle International Equity Portfolio*
(iii)(A)Subadvisory Agreement between Heritage Asset Management, Inc. and
Eagle Asset Management, Inc. relating to Small Cap Stock Fund*
(iii)(B)Subadvisory Agreement between Heritage Asset Management, Inc.
and Awad & Associates, a division of Raymond James and Associates,
Inc. relating to Small Cap Stock Fund*
(iv)(A) Subadvisory Agreement between Heritage Asset Management, Inc. and
Eagle Asset Management, Inc. relating to Value Equity Fund*
(iv)(B) Amended Schedule A relating to the addition of the Small Cap Stock
Fund*
(iv)(C) Amended Schedule A relating to the addition of the Growth Equity
Fund*
(iv)(D) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund***
(iv)(E) Amended Schedule A relating to the addition of the Aggressive Growt
Fund^
(v) Subadvisory Agreement between Eagle Asset Management, Inc. and Martin
Currie Inc. relating to Eagle International Equity Portfolio*
(e) Distribution Agreement*
(f) Bonus, profit sharing or pension plans - none
(g) Form of Custodian Agreement*
(h)(i) Form of Transfer Agency and Service Agreement*
(ii)(A) Form of Fund Accounting and Pricing Service Agreement*
(ii)(B) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund***
<PAGE>
Exhibit
Number Description Page
- ------ ----------- ----
(ii)(C) Amended Schedule A relating to the addition of the Aggressive Growth
Fund^
(i) Opinion and consent of counsel (filed herewith)
(j) Consent of Independent Auditors (filed herewith)
(k) Financial statements omitted from prospectus - none
(l) Letter of investment intent*
(m)(i)(A) Class A Plan pursuant to Rule 12b-1*
(i)(B) Amended Schedule A relating to the addition of the Value Equity Fund*
(i)(C) Amended Schedule A relating to the addition of the Growth Equity
Fund*
(i)(D) Amended Schedule A relating to the addition of the Eagle
International Equity Portfolio*
(i)(E) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund and Aggressive Growth Fund^
(ii)(A) Class C Plan pursuant to Rule 12b-1*
(ii)(B) Amended Schedule A relating to the addition of the Growth Equity
Fund*
(ii)(C) Amended Schedule A relating to the addition of the Eagle
International Equity Portfolio*
(ii)(D) Amended Schedule A relating to the addition of the Mid Cap Growth
Fund and Aggressive Growth Fund^
(iii) Eagle Class Plan pursuant to Rule 12b-1*
(iv)(A) Class B Plan pursuant to Rule 12b-1***
(iv)(B) Amended Schedule A relating to the addition of the Aggressive Growth
Fund^
(n) Financial Data Schedules for Electronic Filers (filed herewith)
(o)(i) Plan pursuant to Rule 18f-3*
(ii) Amended Plan pursuant to Rule 18f-3**
(iii) Amended Plan pursuant to Rule 18f-3^
- --------------------
* Incorporated by reference from the Post-Effective Amendment No. 10 to the
Registration Statement of the Trust, SEC File No. 33-57986, filed
previously via EDGAR on December 1, 1995.
** Incorporated by reference from the Trust's Post-Effective Amendment No. 13
to the Trust's Registration Statement on Form N-1A, File No. 33-57986,
filed previously via EDGAR on February 28, 1997.
*** Incorporated by reference from the Trust's Post-Effective Amendment No. 15
to the Trust's Registration Statement on Form N-1A, File No. 33-57986,
filed previously via EDGAR on October 31, 1997.
2
<PAGE>
^ Incorporated by reference from the Trust's Post-Effective Amendment No. 16
to the Trust's Registration Statement on Form N-1A, File No. 33-57986
filed previously via EDGAR on October 30, 1998.
3
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 034
<NAME> Eagle International Equity Portfoliio - Eagle
Class
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> OCT-31-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 37,004,289
<INVESTMENTS-AT-VALUE> 42,244,233
<RECEIVABLES> 7,087,852
<ASSETS-OTHER> 1,548,154
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,880,239
<PAYABLE-FOR-SECURITIES> 4,594,369
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 547,293
<TOTAL-LIABILITIES> 5,141,662
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,320,043
<SHARES-COMMON-STOCK> 1,815,787
<SHARES-COMMON-PRIOR> 1,745,457
<ACCUMULATED-NII-CURRENT> (113,865)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 196,692
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,335,707
<NET-ASSETS> 45,738,577
<DIVIDEND-INCOME> 789,656
<INTEREST-INCOME> 86,630
<OTHER-INCOME> 0
<EXPENSES-NET> 1,141,157
<NET-INVESTMENT-INCOME> (264,871)
<REALIZED-GAINS-CURRENT> 165,436
<APPREC-INCREASE-CURRENT> 3,389,435
<NET-CHANGE-FROM-OPS> 3,290,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,340
<DISTRIBUTIONS-OF-GAINS> 1,066,677
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 367,236
<NUMBER-OF-SHARES-REDEEMED> 342,210
<SHARES-REINVESTED> 45,304
<NET-CHANGE-IN-ASSETS> 4,123,654
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,049,917
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 401,449
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 868,422
<AVERAGE-NET-ASSETS> 33,448,640
<PER-SHARE-NAV-BEGIN> 23.83
<PER-SHARE-NII> (0.17)
<PER-SHARE-GAIN-APPREC> 2.13
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.62
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 25.17
<EXPENSE-RATIO> 2.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036-1800
TELEPHONE: (202) 778-9000
FACSIMILE: (202) 778-9100
www.kl.com
February 25, 1999
Heritage Series Trust
880 Carillon Parkway
St. Petersburg, Florida 33716
Ladies and Gentlemen:
You have requested our opinion, as counsel to Heritage Series Trust (the
"Trust"), as to certain matters regarding the issuance of Shares of the Trust.
As used in this letter, the term "Shares" means the Eagle Class shares of
beneficial interest of the Eagle International Equity Portfolio, a series of the
Trust.
As such counsel, we have examined certified or other copies, believed by
us to be genuine, of the Trust's Declaration of Trust and by-laws and such
resolutions and minutes of meetings of the Trust's Board of Trustees as we have
deemed relevant to our opinion, as set forth herein. Our opinion is limited to
the laws and facts in existence on the date hereof, and it is further limited to
the laws (other than the conflict of law rules) in the Commonwealth of
Massachusetts that in our experience are normally applicable to the issuance of
shares by unincorporated voluntary associations and to the Securities Act of
1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and the
regulations of the Securities and Exchange Commission ("SEC") thereunder.
Based on present laws and facts, we are of the opinion that the issuance
of the Shares has been duly authorized by the Trust and that, when sold in
accordance with the terms contemplated by the Post-Effective Amendment No. 21 to
the Trust's Registration Statement on Form N-1A ("PEA"), including receipt by
the Trust of full payment for the Shares and compliance with the 1933 Act and
the 1940 Act, the Shares will have been validly issued, fully paid and
non-assessable.
We note, however, that the Trust is an entity of the type commonly known
as a "Massachusetts business trust." Under Massachusetts law, shareholders
could, under certain circumstances, be held personally liable for the
obligations of the Trust. The Declaration of Trust states that all persons
extending credit to, contracting with or having any claim against the Trust or
the Trustees shall look only to the assets of the Trust for payment under such
credit, contract or claim; and neither the Shareholders nor the Trustees, nor
any of their agents, whether past, present or future, shall be personally liable
therefor. It also requires that every note, bond, contract or other undertaking
issued by or on behalf of the Trust or the Trustees relating to the Trust shall
include a recitation limiting the obligation represented thereby to the Trust
and its assets. The Declaration of Trust further provides: (1) for
indemnification from the assets of the Trust for all loss and expense of any
shareholder held personally liable for the obligations of the Trust by virtue of
ownership of shares of the Trust; and (2) for the Trust to assume the defense of
any claim against the shareholder for any act or obligation of the Trust. Thus,
<PAGE>
Heritage Series Trust
February 25, 1999
Page 2
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust or series would be
unable to meet its obligations.
We hereby consent to this opinion being filed as an exhibit to the PEA
when it is filed with the SEC and to the reference to our firm in the PEA.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
/s/ Robert J. Zutz
By -----------------------
Robert J. Zutz
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 21 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
December 17, 1998, relating to the financial statements and financial highlights
of the Heritage Series Trust-Eagle International Equity Portfolio, which appears
in such Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectus which constitutes part of this
Registration Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statement of Additional Information and to the
reference to us under the heading "Financial Highlights" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
400 North Ashley Street, Suite 2800
Tampa, Florida 33602
February 25, 1999
