As filed with the Securities and Exchange Commission on February 28, 2000
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. 24 [ X ]
------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 25
-----
(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: (727) 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, 2000
-------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[x] on March 1, pursuant to paragraph (b)
[ ] 60 days after filing pursuant to (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to (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
CONTENTS OF REGISTRATION STATEMENT
This registration document is comprised of the following:
Cover Sheet
Contents of Registration Statement
Prospectus for the Eagle Class shares of the Eagle International
Equity Portfolio
Statement of Additional Information for the Eagle Class shares of
the Eagle International Equity Portfolio
Part C of Form N-1A
Signature Page
Exhibits
The purpose of this filing is to update the prospectus and statement of
additional information for the Eagle Class shares of the Equity
International Equity Portfolio ("Portfolio"). This filing does not affect
the prospectus or statement of additional information for the Class A,
Class B and Class C shares of the Portfolio, or any other series of the
Registrant.
<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, 2000
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
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 7
......................................................................
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, under normal market
conditions, at least 65% of its total assets in equity securities of foreign
issuers and depository receipts representing the securities of foreign issuers.
The Portfolio will invest primarily in equity securities of foreign companies
that the subadviser believes have the potential to capitalize on worldwide
growth trends and global changes. Equity securities include common and
preferred stocks, warrants or rights exercisable into common or preferred
stock, securities convertible into common or preferred stock and depository
receipts.
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 or 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.
FOREIGN SECURITIES. 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
/large bullet/ 1 P R O S P E C T U S
<PAGE>
than investing in domestic securities. As a result, the Portfolio's returns and
net asset value may be affected to a large degree by 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 United States, 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.
DERIVATIVES. 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.
FIXED-INCOME SECURITIES. 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, 1999. 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.
[Bar chart omitted. Bar chart shows the Eagle Class shares performance from 1996
to 1999 on a yearly basis. The y-axis ranges from 0% to 40%.]
10.59% 8.47% 14.99% 35.33%
1996 1997 1998 1999
/large bullet/ 2 P R O S P E C T U S
<PAGE>
From its inception on May 1, 1995 through December 31, 1999, the Eagle Class
shares' highest quarterly return was 25.2% for the quarter ended December 31,
1999 and the lowest quarterly return was -15.28% for the quarter ended
September 30, 1998.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS (FOR THE PERIODS ENDED DECEMBER 31, 1999):*
- --------------------------------------------------------------------------------
PERIOD EAGLE CLASS EAFE INDEX**
- --------------------------------------------------------------------------------
1 Year 35.33% 26.99%
- --------------------------------------------------------------------------------
Life of Class 16.10% 12.46%
- --------------------------------------------------------------------------------
* 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, 1999.
- --------------------------------------------------------------------------------
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)* $ 10.00
- --------------------------------------------------------------------------------
* Effective after March 31, 2000. Prior to that date, the Portfolio will charge
$5.00 for each wire redemption.
- --------------------------------------------------------------------------------
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 0.65%
- --------------------------------------------------------------------------------
Total Annual Portfolio Operating Expenses 2.65%
- --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement* 0.05%
- --------------------------------------------------------------------------------
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, 2000. 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.
/large bullet/ 3 P R O S P E C T U S
<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 for year 1 are net of fee waivers and/or expense
reimbursement. 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 $819 $1,401 $2,980
- --------------------------------------------------------------------------------
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 $6.3 billion for these
clients as of December 31, 1999. Eagle's investment advisory fee charged to the
Portfolio for its 1999 fiscal year was 0.95% 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 $11.1
billion under management as of December 31, 1999.
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.
/large bullet/ 4 P R O S P E C T U S
<PAGE>
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 has approved a proposed distribution agreement with Heritage
Fund Distributors, Inc. The Distributor may compensate other broker/dealers to
promote sales of Eagle Class shares.
Eagle pays a service fee based on average daily net assets to broker/dealers,
including the Distributor, who have services agreements with Eagle. Eagle pays
these service fees out of amounts received for investment advisory and
administrative services to the Portfolio.
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
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.
/large bullet/ 5 P R O S P E C T U S
<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. Drafts or ACH transactions initiated by a third-party are not acceptable
redemption instructions and will not be honored. 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. Effective after March 31, 2000, the Portfolio will charge a
$10.00 wire fee.
/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.
/large bullet/ 6 P R O S P E C T U S
<PAGE>
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
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 as of 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 received 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.
/large bullet/ 7 P R O S P E C T U S
<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 Long-term capital gains or
losses (capital gains rate)
- --------------------------------------------------------------------------------
Sales of shares owned for one year or less Gains are taxed at the same rate
as ordinary income; losses are
subject to special rules
- --------------------------------------------------------------------------------
TAX REPORTING. If you are a non-retirement account holder, then 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 you are a non-corporate shareholder and 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.
/large bullet/ 8 P R O S P E C T U S
<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,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995/dagger/
----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE YEAR ......... $ 25.17 $ 23.83 $ 22.14 $ 20.79 $ 20.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss ........................... ( 0.27) ( 0.17) ( 0.11) ( 0.01) ( 0.03)
Net realized and unrealized gain on
investments (a) ............................. 6.26 2.13 2.28 1.84 0.82
-------- -------- -------- -------- --------
Total from Investment Operations .............. 5.99 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 ................................. ( 0.12) ( 0.62) ( 0.17) ( 0.47) --
-------- -------- -------- -------- --------
Total Distributions ........................... ( 0.12) ( 0.62) ( 0.48) ( 0.48) --
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR ................... $ 31.04 $ 25.17 $ 23.83 $ 22.14 $ 20.79
======== ======== ======== ======== ========
TOTAL RETURN (%) ............................... 23.85 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 2.60 (b)
Net investment income to average daily net
assets ...................................... ( 0.95) ( 0.67) ( 0.47) ( 0.02) ( 0.33)(b)
Portfolio turnover rate (c) ................... 78 71 50 59 61
Net assets, end of year ($ millions) .......... 32 33 32 22 10
</TABLE>
- ----------
* Per share amounts have been calculated using the monthly average
share method, which more appropriately presents per share data for
the year since use of the undistributed income method does not
correspond with results of operations.
/dagger/ For the period May 1, 1995 (commencement of operations) to
October 31, 1995.
(a) Excludes management fees waived and expenses reimbursed by Eagle in
the amount of $.01, $.03, $.06, $.16 and $.17 per Eagle Class share,
respectively. The operating expense ratios including such items
would have been 2.65%, 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.
/large bullet/ 9 P R O S P E C T U S
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More information on the Portfolio is available free upon request:
By mail: P.O. Box 10520
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).
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, by writing, the Public Reference Room of the
Securities and Exchange Commission in Washington, D.C. 20549-6009. Information
on the operation of the public reference room may be obtained 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.
To eliminate unnecessary duplication, only one copy of the prospectus or other
shareholder reports may be sent to shareholders with the same mailing address.
However, if you wish to receive a copy of the prospectus or other shareholder
reports for each shareholder with the same mailing address, you should call
(800) 237-3101 or send an e-mail to [email protected].
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,
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.
EAGLE INTERNATIONAL EQUITY
PORTFOLIO
EAGLE CLASS OF SHARES
PROSPECTUS
March 1, 2000
[/TEXT]
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STATEMENT OF ADDITIONAL INFORMATION
EAGLE INTERNATIONAL EQUITY PORTFOLIO
EAGLE CLASS
This Statement of Additional Information ("SAI") dated March 1, 2000
should be read with the Prospectus of Eagle International Equity Portfolio Eagle
Class dated March 1, 2000. 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
I. GENERAL INFORMATION.....................................................1
A. History..............................................................1
B. Classification and Structure.........................................1
C. Investment Process...................................................1
II. INVESTMENT INFORMATION..................................................1
A. Investment Policies and Strategies...................................1
B. Industry Classifications............................................17
III. INVESTMENT LIMITATIONS.................................................18
A. Fundamental Investment Policies.....................................18
B. Non-Fundamental Investment Policies.................................19
IV. NET ASSET VALUE........................................................19
V. PERFORMANCE INFORMATION................................................20
VI. INVESTING IN THE EAGLE CLASS...........................................21
VII. REDEEMING SHARES.......................................................21
A. Systematic Withdrawal Plan..........................................22
B. Redemptions in Kind.................................................22
C. Receiving Payment...................................................22
VIII. TAXES..................................................................23
IX. SHAREHOLDER INFORMATION................................................27
X. PORTFOLIO INFORMATION..................................................27
A. Management of the Portfolio.........................................27
B. Five Percent Shareholders...........................................29
C. Investment Adviser; Subadviser......................................29
D.Brokerage Practices..................................................31
E. Distribution of Shares..............................................32
F. Administration of the Portfolio.....................................33
G. Potential Liability.................................................34
APPENDIX A..................................................................A-1
APPENDIX B..................................................................B-1
REPORT OF THE INDEPENDENT ACCOUNTANTS
& FINANCIAL STATEMENTS....................................................C-1
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I. GENERAL INFORMATION
A. HISTORY
Heritage Series Trust (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated October 28, 1992.
B. CLASSIFICATION AND STRUCTURE
The Trust is registered as an open-end diversified management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
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.
C. INVESTMENT PROCESS
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 $11.1 billion in investors' assets as of December 31, 1999.
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.
II. INVESTMENT INFORMATION
A. INVESTMENT POLICIES AND STRATEGIES
This section provides a detailed description of the securities in which
the Portfolio may invest to achieve its investment objective, the strategies it
may employ and the corresponding risks of such securities and strategies. In
general, the Portfolio invests at least 65% of its total assets in equity
securities of foreign issuers and depository receipts representing the
securities of foreign issuers. The remainder of the Portfolio's assets may be
invested in the securities specified below. At APPENDIX A you will find a
PORTFOLIO INVESTMENT TABLE that provides information regarding the extent to
which the Portfolio may invest in a specific security or instrument. For more
information on the Portfolio's principal strategies and risks, please see the
prospectus.
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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.
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.
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" 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.
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.
REAL ESTATE INVESTMENT TRUSTS ("REITS"). The Portfolio may invest in
REITs. REITs include equity, mortgage and hybrid REITs. Equity REITs own real
estate properties, and their revenue comes principally from rent. Mortgage REITs
loan money to real estate owners, and their revenue comes principally from
interest earned on their mortgage loans. Hybrid REITs combine characteristics of
both equity and mortgage REITs. 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
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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.
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. See Appendix A for a description of corporate debt ratings.
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:
INTEREST RATE AND ECONOMIC RISK. As with all debt securities, the market
prices of high yield securities tend to decrease when interest rates rise and
increase when interest rates rise. The prices of high yield securities also will
fluctuate greatly during periods of economic uncertainty and changes and, thus,
in the Portfolio's net asset value. During these periods, some highly leveraged
high yield securities issuers may experience a higher incidence of default due
to their inability to meet principal and interest payments, projected business
goals or additional financing. In addition, the Portfolio may need to replace or
sell a junk bond that it owns at unfavorable prices or returns. Accordingly,
those high yield securities held by a fund may affect its net asset value and
performance adversely during such times.
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In a declining interest rate market, if an issuer of a high-yield security
containing a redemption or call provision exercises either provision, the
Portfolio would have to replace the security, which could result in a decreased
return for shareholders. Conversely, if a fund experiences unexpected net
redemptions in a rising interest rate market, it might be forced to sell certain
securities, regardless of investment merit. This could result in decreasing the
assets to which the Portfolio's expenses could be allocated and in a reduced
rate of return for it. While it is impossible to protect entirely against this
risk, diversification of a fund's investment portfolio and the Subadviser's
careful analysis of prospective investment portfolio securities should minimize
the impact of a decrease in value of a particular security or group of
securities in the fund's investment portfolio.
CREDIT RISK. Credit ratings usually evaluate the safety of principal and
interest payment of debt securities, such as high yield securities but may not
reflect the true risks of an investment in such securities. A reduction in an
issuer's credit rating may cause that issuer's high yield securities to decrease
in market value. The Subadviser continually monitors the investments in its
respective investment portfolio and carefully evaluates whether to dispose of or
retain high yield securities whose credit ratings have changed. The Subadviser
primarily relies on its own credit analysis, including a study of existing debt,
capital structure, ability to service debt and pay dividends, sensitivity to
economic conditions and other factors in its determination.
LIQUIDITY RISK. The market for high yield securities tends to be less
active and primarily dominated by institutional investors compared to the market
for high-quality debt securities. During periods of economic uncertainty or
adverse economic changes, the market may be further restricted. In these
conditions, the Portfolio may have to dispose of its high yield securities at
unfavorable prices or below fair market value. In addition, during such times,
reliable objective information may be limited or unavailable and negative
publicity may affect adversely the public's perception of the junk bond market.
A Trust's Board of Trustees ("Board") or subadviser may have difficulty
assessing the value of high yield securities during these times. Consequently,
any of these factors may reduce the market value of high yield securities held
by the Portfolio.
SHORT-TERM MONEY MARKET INSTRUMENTS:
BANKERS' ACCEPTANCES. The Portfolio may invest in bankers' acceptances.
Bankers' acceptances generally are negotiable instruments (time drafts) drawn to
finance the export, import, domestic shipment or storage of goods. They are
termed "accepted" when a bank writes on the draft its agreement to pay it at
maturity, using the word "accepted." The bank is, in effect, unconditionally
guaranteeing 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.
Maturities on bankers' acceptances that are eligible for purchase at times
extend to nine months, but more commonly range from 30 to 180 days.
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
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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. In accordance with the guidelines and procedures
established by the Board, the Portfolio may enter into repurchase agreements
with member banks of the Federal Reserve System, securities dealers who are
members of a national securities exchange or market makers in U.S. Government
securities. A repurchase agreement is a transaction in which the Portfolio
purchases securities and commits to resell the securities to the original seller
at an agreed upon date. The resale price reflects a market rate of interest that
is 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.
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 Portfolio in each
agreement, and the fund will make payment for such securities only upon physical
delivery or evidence of book entry transfer to the account of its custodian,
State Street Bank and Trust Company ("Custodian").
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:
The Portfolio may invest in U.S. Government securities. U.S. Government
securities include Treasury bills, Treasury notes and Treasury bonds, Federal
Home Loan Banks obligations, Federal Intermediate Credit Banks obligations, U.S.
Government agency obligations and repurchase agreements secured thereby. U.S.
Government securities are issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, supported by the issuer's right to borrow from
the U.S. Treasury or supported by the issuer's credit.
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FOREIGN SECURITIES EXPOSURE:
DEPOSITORY RECEIPTS. The Portfolio may invest in sponsored or unsponsored
European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and
International Depository Receipts ("IDRs") or other similar securities
representing the interests in or convertible into securities of foreign issuers
(collectively "Depository Receipts"). Depository receipts are not necessarily
denominated in the same currency as the underlying securities into which they
may be converted and are subject to foreign securities risks, as discussed
below.
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.
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.
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. Their markets
and economies may react differently to specific or global events that the U.S.
market and economy. 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.
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.
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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").
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.
HEDGING INSTRUMENTS - FUTURES, FORWARDS, OPTIONS AND HEDGING TRANSACTIONS:
GENERAL DESCRIPTION. The Portfolio may use a variety of financial
instruments ("Hedging Instruments"), including futures contracts (sometimes
referred to as "futures"), options, and forward currency contracts to attempt to
hedge the Portfolio's investments as discussed below.
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.
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 options, futures
contracts, forward currency contracts and other hedging techniques. These new
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opportunities may become available as the Subadviser develops new techniques, as
regulatory authorities broaden the range of permitted transactions and as new
options, futures contracts, forward currency contracts or other techniques are
developed. 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.
Although the Portfolio may use a variety of Hedging Instruments, it intends to
purchase and sell and use for hedging or investment purposes those Hedging
Instruments as specified and discussed in the sections that follow.
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.
(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
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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, options, or
futures contracts or (2) cash and other liquid assets with a value sufficient at
all times to cover its potential obligations to the extent not covered as
provided in (1) above. 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.
OPTIONS
The Portfolio may use for hedging or investment purposes, certain options,
including options on securities, equity and debt indices and currencies. Certain
special characteristics of and risks with these strategies are discussed below.
CHARACTERISTICS AND RISKS OF OPTIONS TRADING. A call option gives the
purchaser the right to buy, and obligates the writer to sell, the underlying
investment at the agreed-upon price during the option period. A put option gives
the purchaser the right to sell, and obligates the writer to buy, the underlying
investment at the agreed-upon price during the option period. Purchasers of
options pay an amount, known as a premium, to the option writer in exchange for
the right under the option contract.
The purchase of call options can serve as a long hedge, and the purchase
of put options can serve as a short hedge. Writing put or call options can
enable the fund to enhance income or yield by reason of the premiums paid by the
purchasers of such options. However, if the market price of the security
underlying a put option declines to less than the exercise price of the option,
minus the premium received, the fund would expect to suffer a loss.
Writing call options can serve as a limited short hedge, because declines
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security or currency
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Portfolio will be
obligated to sell the security or currency at less than its market value.
Writing put options can serve as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the Portfolio will be
obligated to purchase the security or currency at more than its market value.
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
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underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
The Portfolio effectively may terminate its right or obligation under an
option by entering into a closing transaction. If the Portfolio wished to
terminate its obligation to purchase or sell securities or currencies under a
put or call option it has written, it may purchase a put or call option of the
same series (I.E., an option identical in its terms to the option previously
written); this is known as a closing purchase transaction. Conversely, in order
to terminate its right to purchase or sell under a call or put option it has
purchased, the Portfolio may write a call or put option of the same series; this
is known as a closing sale transaction. Closing transactions essentially permit
the fund to realize profits or limit losses on its options positions prior to
the exercise or expiration of the option. Whether a profit or loss is realized
from a closing transaction depends on the price movement of the underlying
security, index, currency or futures contract and the market value of the
option.
In considering the use of options, particular note should be taken of the
following:
(1) The value of an option position will reflect, among other things,
the current market price of the underlying security, index, currency or futures
contract, the time remaining until expiration, the relationship of the exercise
price to the market price, the historical price volatility of the underlying
instrument and general market conditions. For this reason, the successful use of
options depends upon the Subadviser's ability to forecast the direction of price
fluctuations in the underlying instrument.
(2) At any given time, the exercise price of an option may be below,
equal to or above the current market value of the underlying instrument.
Purchased options that expire unexercised have no value. Unless an option
purchased by a fund is exercised or unless a closing transaction is effected
with respect to that position, a loss will be realized in the amount of the
premium paid.
(3) A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Most
exchange-listed options relate to futures contracts, stocks and currencies. The
ability to establish and close out positions on the exchanges is subject to the
maintenance of a liquid secondary market. Although a fund intends to purchase or
write only those options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market will exist for any
particular option at any specific time. In such event, it may not be possible to
effect closing transactions with respect to certain options, with the result
that the fund would have to exercise those options that it has purchased in
order to realize any profit.
With respect to options written by the Portfolio, the inability to enter
into a closing transaction may result in material losses to it. For example,
because the Portfolio may maintain a covered position with respect to any call
option it writes on a security, it may not sell the underlying security during
the period it is obligated under such option. This requirement may impair the
fund's ability to sell a portfolio security or make an investment at a time when
such a sale or investment might be advantageous.
(4) Activities in the options market may result in a higher portfolio
turnover rate and additional brokerage costs; however, the Portfolio also may
save on commissions by using options as a hedge rather than buying or selling
individual securities in anticipation of market movements.
(5) The risks of investment in options on indices may be greater than
options on securities or currencies. Because index options are settled in cash,
when a fund writes a call on an index it cannot provide in advance for its
potential settlement obligations by acquiring and holding the underlying
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securities. The Portfolio can offset some of the risk of writing a call index
option by holding a diversified portfolio of securities similar to those on
which the underlying index is based. However, the Portfolio cannot, as a
practical matter, acquire and hold an investment portfolio containing exactly
the same securities as underlie the index and, as a result, bears a risk that
the value of the securities held will vary from the value of the index.
Even if the Portfolio could assemble an investment portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the Portfolio as the call writer will
not learn that it has been assigned until the next business day at the earliest.
The time lag between exercise and notice of assignment poses no risk for the
writer of a covered call on a specific underlying security, such as common
stock, because there the writer's obligation is to deliver the underlying
security, not to pay its value as of a fixed time in the past. So long as the
writer already owns the underlying security, it can satisfy its settlement
obligations by simply delivering it, and the risk that its value may have
declined since the exercise date is borne by the exercising holder. In contrast,
even if the writer of an index call holds securities that exactly match the
composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those securities against payment of the
exercise price. Instead, it will be required to pay cash in an amount based on
the closing index value on the exercise date. By the time it learns that it has
been assigned, the index may have declined, with a corresponding decline in the
value of its investment portfolio. This "timing risk" is an inherent limitation
on the ability of index call writers to cover their risk exposure by holding
securities positions.
If the Portfolio has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index subsequently may change. If such a change causes the
exercised option to fall out-of-the-money, the fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
FUTURES
Eagle International may purchase and sell only currency and stock index
futures for hedging or investment purposes.
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
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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.
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 Portfolio is required to maintain margin deposits through which it
buys and sells futures contracts. Initial margin deposits vary from contract to
contract and are subject to change. Margin balances are 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.
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
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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. A stock index assigns relative values to the common
stocks comprising the index. A stock index futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of the last trading day of the contract and
the price at which the futures contract is originally struck. No physical
delivery of the underlying stocks in the index is made.
The risk of imperfect correlation between movements in the price of a
stock index futures contract and movements in the price of the securities that
are the subject of the hedge increases as the composition of 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%.
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
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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,
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. Also, the Portfolio
may seek to hedge against changes in the value of a particular currency by using
forward contracts on another foreign currency or a basket of currencies, the
value of which the Subadviser believes will have a positive correlation to the
values of the currency being hedged. Use of a different foreign currency
magnifies the risk that movements in the price of the forward contract will not
correlate or will correlate unfavorably with the foreign currency being hedged.
The Portfolio may use forward currency contracts to shift exposure of
foreign currency fluctuations from one country to another. For example, if the
Portfolio owned securities denominated in a foreign currency and the Subadviser
believed the currency would decline relative to another currency, it might enter
into a forward contract to sell an appropriate amount of the first foreign
currency, with payment to be made in the second foreign currency. Transactions
that use two foreign currencies are sometimes referred to as "cross hedging."
Use of a different foreign currency magnifies the Portfolio's exposure to
foreign currency exchange rate fluctuations.
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
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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
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.
Rule 144A under the Securities Act of 1933, as amended ("1933 Act"),
establishes a "safe harbor" from the registration requirements of the 1933 Act
for resales of certain securities to qualified institutional buyers.
Institutional markets for restricted securities that have developed as a result
of Rule 144A provide both readily ascertainable values for certain restricted
securities and the ability to liquidate an investment to satisfy share
redemption orders. An insufficient number of qualified institutional buyers
interested in purchasing Rule 144A-eligible securities held by a fund, however,
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could affect adversely the marketability of such portfolio securities and a fund
may be unable to dispose of such securities promptly or at reasonable prices.
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.
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.
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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.
B. INDUSTRY CLASSIFICATIONS
For purposes of determining industry classifications, each fund relies
upon classifications contained in the DIRECTORY OF COMPANIES FILING ANNUAL
REPORTS WITH THE SECURITIES AND EXCHANGE COMMISSION, except with respect to
investments in companies that produce or manufacture semiconductors. Investments
in those companies will be classified as one of the following four industry
groups: logic semiconductors (semiconductors that perform a processing or
controlling function); analog semiconductors (semiconductors that manipulate
unprocessed data, such as movement, temperature and sound); memory
semiconductors (semiconductors that hold programs and data); and communications
semiconductors (semiconductors used primarily in the transmission, amplification
and switching of voice, data and video signals).
III. INVESTMENT LIMITATIONS
A. 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.
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.
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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."
B. 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.
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.
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IV. NET ASSET VALUE
The net asset value per share of Eagle Class 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 (each a "Business Day"). 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 securities or assets held in their portfolios as
follows:
LISTED SECURITIES. A security listed or traded on the Exchange, or on The
Nasdaq Stock Market, is valued at its last sales price on the principal exchange
or 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.
OPTIONS AND FUTURES. Options and futures positions are valued based on
market quotations when readily available. Market quotations generally will not
be available for options traded in the OTC market.
FOREIGN ASSETS. Securities and other assets in foreign currency and
foreign currency contracts will be valued daily in U.S. dollars at the foreign
currency exchange rates prevailing at the time a fund calculates the daily net
asset value of each class. 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. If events materially affecting the value of such
securities or assets or currency exchange rates occurred during such time
period, the securities or assets would be valued at their fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the Board. 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.
SHORT-TERM SECURITIES. 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.
FAIR VALUE ESTIMATES. 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 their fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the Board.
The Portfolio is open each 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,
trading in various foreign markets may not take place on all Business Days or
may take place on days that are not Business Days and on which the Portfolio's
net asset values per share are 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,
effect sales and redemptions, as of the close of regular trading on the Exchange
each Business Day. If events materially affecting the value of such securities
or other assets occur between the time when their prices are determined
(including their value in U.S. dollars by reference to foreign currency exchange
rates) and the time when the funds' net asset value is calculated, such
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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 funds of securities owned by them is
not reasonably practicable or it is not reasonably practicable for the funds
fairly to determine the value of their net assets or (4) for such other periods
as the SEC may by order permit for the protection of the holders of Eagle Class
shares.
V. 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 = 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
investment from the ending value and by dividing the remainder by the beginning
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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 returns for the period May 1,
1995 (commencement of operations) to October 31, 1999 and for the year ended
October 31, 1999 were 12.08% and 23.85%, respectively. The Eagle Class'
cumulative total returns for the same periods were 66.78% and 23.85%,
respectively.
VI. 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.
VII. REDEEMING SHARES
The methods of redemption are described in the section of the prospectus
entitled "How to Sell Shares."
A. 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.
A withdrawal payment is treated as proceeds from 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
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shares sold. If the periodic withdrawals exceed reinvested dividends and
distributions, the amount of the original investment may be correspondingly
reduced.
Ordinarily, a shareholder 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.
B. 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.
C. 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
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Deposit Insurance Corporation, a trust company or by any member firm of the
New York, American, Boston, Chicago, Pacific or Philadelphia Stock Exchanges.
Signature guarantees also will be accepted from savings banks and certain
other financial institutions that are deemed acceptable by the 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.
VIII. 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. In addition, the Portfolio could be required
to recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying for RIC treatment.
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.
DISTRIBUTION OF EAGLE CLASS SHARES; DISTRIBUTIONS. 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
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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.
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 any foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, the Portfolio will
be subject to Federal income tax on a portion of any "excess distribution"
received on the stock of a PFIC or of any gain on disposition of the stock
(collectively "PFIC income"), plus interest thereon, even if the Portfolio
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Portfolio's investment
company taxable income and, accordingly, will not be taxable to it to the extent
it distributes that income to its shareholders.
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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 the Portfolio did not receive those earnings and gain were not
distributed to the Portfolio by the 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 under the election (and under regulations
proposed in 1992 that provided a similar election with respect to the stock of
certain PFICs). The Portfolio's adjusted basis in each PFIC's stock subject to
the election would be adjusted to reflect the amounts of income included and
deductions taken thereunder.
Gains or losses (1) from the disposition of foreign currencies, including
forward currency contracts, (2) on the disposition of foreign currency
denominated debt security that are attributable to fluctuations in the value of
the foreign currency between the dates of acquisition and disposition of the
security and (3) that are attributable to exchange rate fluctuations that occur
between the time the Portfolio accrues dividends, interest or other receivables
or 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 as ordinary income, rather than affecting the amount of its net
capital gain.
HEDGING STRATEGIES. The use of hedging strategies, such as purchasing and
selling options or 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 gains from
options, futures and forward currency 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 and foreign currency contracts in which the Portfolio may
invest will be "section 1256 contracts." Section 1256 contracts the Portfolio
holds at the end of each taxable year, other than section 1256 contracts that
are part of a "mixed straddle" with respect to which it has made an election not
to have the following rules apply, must be "marked-to-market" (that is, treated
as sold for their fair market value) for Federal income tax purposes, with the
result that unrealized gains or losses will be treated as though they were
realized. Sixty percent of any net gain or loss recognized on these deemed
sales, and 60% of any net realized gain or loss from any actual sales of section
1256 contracts, will be treated as long-term capital gain or loss, and the
balance will be treated as short-term capital gain or loss. Section 1256
contracts also may be marked-to-market for purposes of the Excise Tax. These
rules may operate to increase the amount that the Portfolio must distribute to
satisfy the Distribution Requirement (i.e., with respect to the portion treated
as short-term capital gain), which will be taxable to the shareholders as
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<PAGE>
ordinary income, and to increase the net capital gain the Portfolio recognizes,
without in either case increasing the cash available to the Portfolio.
Code section 1092 (dealing with straddles) also may affect the taxation of
certain Hedging Instruments in which the Portfolio may invest. Section 1092
defines a "straddle" as offsetting positions with respect to actively traded
personal property; for these purposes, options, futures contracts and forward
currency are personal property. Under that section, any loss from the
disposition of a position in a straddle generally may be deducted only to the
extent the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle. In addition, these rules may postpone the recognition of loss that
otherwise would be recognized under the mark-to-market rules discussed above.
The regulations under section 1092 also provides certain "wash sale" rules,
which apply to transactions where a position is sold at a loss and a new
offsetting position is acquired within a prescribed period, and "short sale"
rules applicable to straddles. If the Portfolio makes certain elections, the
amount, character and timing of the recognition of gains and losses from the
affected straddle positions would be determined under rules that vary according
to the elections made. Because only a few of the regulations implementing the
straddle rules have been promulgated, the tax consequences to the Portfolio of
straddle transactions are not entirely clear.
If the Portfolio has an "appreciated financial position" - generally, an
interest (including an interest through an option, futures or forward currency
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 position, 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 a futures
or forward currency 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 identical property will
be deemed a constructive sale. The foregoing will not apply, however, to any
transaction by a fund during any taxable year that otherwise would be treated as
a constructive sale if the transaction is closed within 30 days after the end of
that year and the fund holds the appreciated financial position unhedged for 60
days after that closing (I.E., at no time during that 60-day period is the
fund's risk of loss regarding that position reduced by reason of certain
specified transactions with respect to substantially identical or related
property, such as having an option to sell, being contractually obligated to
sell, making a short sale, or granting an option to buy substantially identical
stock or securities).
Investors are advised to consult their own tax advisers regarding the
status of an investment in the Portfolio under state and local tax laws.
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<PAGE>
IX. 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.
X. PORTFOLIO INFORMATION
A. 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* (57) 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* (50) 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 (55) Trustee President of South Atlantic Capital Corporation
614 W. Bay Street, Suite 200 (venture capital) since 1981.
Tampa, FL 33606
C. Andrew Graham (59) 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 (60) 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.
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<PAGE>
Eric Stattin (66) Trustee Litigation Consultant/Expert Witness and private
1975 Evening Star Drive investor since 1988.
Park City, UT 84060
James L. Pappas (56) 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 (40) 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 (42) Treasurer Treasurer of Heritage since 1989; Treasurer of
880 Carillon Parkway Heritage Mutual Funds since 1989.
St. Petersburg, FL 33716
Clifford J. Alexander (56) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm).
1800 Massachusetts Ave., N.W.
Washington, DC 20036
Robert J. Zutz (47) Assistant Partner, Kirkpatrick & Lockhart LLP (law firm).
1800 Massachusetts Secretary
Ave., N.W.
Washington, DC 20036
</TABLE>
- -----------
* These Trustees are "interested persons" as such term is defined in section
2(a)(19) of the 1940 Act.
The Trustees and officers of the Trust, as a group, own less than 1% of
Eagle Class shares. The Trust's Declaration of Trust provides that the Trustees
will not be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of their office.
The Trust currently pays Trustees who are not employees of Heritage or its
affiliates $4,669 annually and $1,750 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,
1999.
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<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Total Compensation From
Aggregate Pension or the Trust and the
Compensation From Retirement Benefits Estimated Annual Heritage Family of
Name of Person, the Accrued as Part of Benefits UPON Funds Paid
Position Trust the Trust's Expenses Retirement to Trustees(1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald W. Burton, Trustee $10,000 $0 $0 $21,666
C. Andrew Graham, Trustee $10,000 $0 $0 $21,666
Thomas A. James, $0 $0 $0 $0
Trustee
James L. Pappas, $10,000 $0 $0 $21,666
Trustee
David M. Phillips, $8,577 $0 $0 $18,583
Trustee
Richard K. Riess, $0 $0 $0 $0
Trustee
Eric Stattin, $10,000 $0 $0 $21,666
Trustee
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
(1) The Heritage Mutual Funds consist of five separate registered investment
companies, including the Trust.
B. FIVE PERCENT SHAREHOLDERS
As of January 31, 2000, no persons owned of record or beneficially 5% or
more of the Portfolio's Eagle Class of shares.
C. 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
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.
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<PAGE>
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 average daily net assets
and .80% of average daily net assets thereafter.
Eagle has contractually agreed to waive through the Portfolio's 2000
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, 1999, management fees
amounted to $351,913, $453,725 and $477,822, respectively. For the same periods,
Eagle waived its fees in the amounts of $91,433, $52,276 and $24,049,
respectively.
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,
1999, Eagle paid the Subadviser, fees of $175,957, $226,862 and $238,911,
respectively.
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<PAGE>
D. 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, 1999 were 71% and 78%, respectively.
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.
Aggregate brokerage commissions paid by the Portfolio for the three fiscal
years ended October 31, 1999 amounted to $111,523, $134,334 and $191,194,
respectively.
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<PAGE>
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.
E. DISTRIBUTION OF SHARES
DISTRIBUTION. Shares of the Portfolio are offered continuously through the
funds' principal underwriter, Raymond James & Associates, Inc. (the
"Distributor"), and through other participating dealers or banks that have
dealer agreements with the Distributor. The Distributor receives commissions
consisting of that portion of the sales load remaining after the dealer
concession is paid to participating dealers or banks. Such dealers may be deemed
to be underwriters pursuant to the 1933 Act. The Distributor and Financial
Advisors or banks with whom the Distributor has entered into dealer agreements
offer Eagle Class shares as agents on a best efforts basis and are not obligated
to sell any specific amount of shares. In this connection, the Distributor makes
distribution and servicing payments to participating dealers.
DISTRIBUTION AGREEMENT. The Portfolio has adopted a Distribution Agreement
pursuant to which the Distributor bears the cost of making information about the
Eagle Class shares available through advertising, sales literature and other
means, the cost of printing and mailing prospectuses to persons other than
shareholders, and salaries and other expenses relating to selling efforts. The
Distributor also pays service fees to dealers for providing personal services to
Eagle Class shareholders and for maintaining shareholder accounts. The Portfolio
pays the cost of registering and qualifying its shares under state and federal
securities laws and typesetting of its prospectuses and printing and
distributing prospectuses to existing shareholders.
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 a fund or by vote of a majority of the Independent Trustees. For
so long as the Distribution Plan is in effect, selection and nomination of the
Independent Trustees shall be committed to the discretion of such disinterested
persons.
RULE 12B-1 DISTRIBUTION PLAN. The Portfolio has adopted a Distribution
Plan under Rule 12b-1 for the Eagle Class shares ("Plan"). The Plan permits the
Portfolio to pay the Distributor the monthly distribution and service fee out of
its net assets to finance activity that is intended to result in the sale and
retention of Eagle Class shares.
As compensation for services rendered and expenses borne by the
Distributor in connection with the distribution of Eagle Class shares and in
connection with personal services rendered to Eagle Class shareholders and the
Eagle Class shareholder accounts, the Portfolio pays the Distributor
distribution and service fees of up to 1.00 % of the Portfolio's average daily
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<PAGE>
net assets. The Distributor intends to use 0.25% of those fees 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. These fees are computed daily and paid
monthly. For the 1999 fiscal year, the Distributor received 12b-1 fees of
$332,966. All 12b-1 fees are paid to the Distributor.
The Plan was approved by the Board, including a majority of the Trustees
who are not interested persons of the Portfolio (as defined in the 1940 Act) and
who have no direct or indirect financial interest in the operation of the Plan
or the Distribution Agreement (the "Independent Trustees"). In approving the
Plan, the Board determined that there is a reasonable likelihood that the
Portfolio and its shareholders will benefit from the Plan. The Plan may be
terminated by vote of a majority of the Independent Trustees, or by vote of a
majority of the outstanding voting securities of the Eagle Class shares of the
Portfolio. The Board reviews 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 Board, including a majority of the Independent Trustees, cast in
person at a meeting called for such purpose. Any change in the Plan that would
increase materially the distribution cost to a class requires shareholder
approval of the Eagle Class.
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 cast in person at a meeting called
for that purpose. If the Plan is terminated, the obligation of the Portfolio to
make payments to the Distributor pursuant to the Plan will cease and the
Portfolio will not be required to make any payment past the date the Plan
terminates.
F. 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
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<PAGE>
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.
G. POTENTIAL LIABILITY
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Portfolio. To protect
its shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Portfolio. These documents require notice of this disclaimer to be given in
each agreement, obligation or instrument the Portfolio or its Trustees enter
into or sign. In the unlikely event a shareholder is held personally liable for
the Portfolio's obligations, the Portfolio is required to use its property to
protect or compensate the shareholder. On request, the Portfolio will defend any
claim made and pay any judgment against a shareholder for any act or obligation
of the Portfolio. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Portfolio itself cannot meet its obligations
to indemnify shareholders and pay judgments against them.
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<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)[i]
10 no more than specified percent of assets (Roman type)
^ no policy limitation on usage
/ / permitted, but typically has not been used
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
o Equity Securities 65[i] o Foreign Securities Exposure 65[i]
o Convertible Securities: o ADRs ^
- Investment Grade ^ o Hedging Instruments:
- Below Investment 5 - Futures Contracts ^
Grade - Options ^
o Corporate Debt 35(1) - Forward Contracts ^
(including foreign currency
transactions)
o Short-Term Money Market Instruments 35(2) o Forward Commitments ^
o Illiquid Securities 10 o Index Securities and Other 10
Investment Companies
o Repurchase Agreements 35 o When-issued and Delayed Delivery ^
Transactions
o Reverse Repurchase Agreements 33 1/3 o Loans of Portfolio Securities / /
o U.S. Government Securities 35 o Temporary Defensive Measures 10
------------------------------------------------------------------------------------------------------------------
</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.
B - 1
<PAGE>
Ba - Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the company ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking and the modifier 3
indicates that the company ranks in the lower end of its generic rating
category.
Description of Standard & Poor's Corporate Debt Ratings
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - 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"
B - 2
<PAGE>
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B - Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC - Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC - The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C - The rating "C" is typically applied to debt subordinated to senior debt that
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI - The rating "CI" is reserved for income bonds on which no interest is being
paid.
D - Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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, 1999, filed
with the Securities and Exchange Commission on December 27, 1999, Accession No.
0001016843-99-001271.
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+
(i)(F) Amended Schedule A relating to the addition of the
Information Technology 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***
<PAGE>
(iv)(E) Amended Schedule A relating to the addition of the
Aggressive Growth Fund++
(iv)(F) Amended Schedule A relating to the addition of the
Technology 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***
(ii)(C) Amended Schedule A relating to the addition of the
Aggressive Growth Fund+
(ii)(D) Amended Schedule A relating to the addition of the
Technology 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+
(i)(F) Amended Schedule A relating to the addition of the
Technology Fund++
(ii)(A) Class C Plan pursuant to Rule 12b-1*
C-2
<PAGE>
(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
(ii)(E) Amended Schedule A relating to the addition of the
Technology 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+
(iv)(C) Amended Schedule A relating to the addition of the
Technology Fund++
(n)(i) Plan pursuant to Rule 18f-3*
(ii) Amended Plan pursuant to Rule 18f-3**
(iii) Amended Plan pursuant to Rule 18f-3+
(iv) Amended Plan pursuant to Rule 18f-3 relating to the
addition of the Technology Fund++
- ---------------------------
* 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.
++ Incorporated by reference from the Trust's Post-Effective Amendment
No. 22 to the Trust's Registration Statement on Form N-1A, File No.
33-57986 filed previously via EDGAR on September 3, 1999.
C-3
<PAGE>
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.
(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-4
<PAGE>
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not
be exclusive of or affect any other rights to which any Covered Person may
now or hereafter be entitled, shall continue as to a person who has ceased
to be such Trustee or officer and shall inure to the benefit of the heirs,
executors and administrators of such a person. Nothing contained herein
shall affect any rights to indemnification to which Trust personnel, other
than Trustees and officers, and other persons may be entitled by contract
or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit, or proceeding of the character
described in paragraph (a) of this Section 2 may be paid by the applicable
Portfolio from time to time prior to final disposition thereof upon receipt
of an undertaking by or on behalf of such Covered Person that such amount
will be paid over by him to the Trust if it is ultimately determined that
he is not entitled to indemnification under this Section 2; provided,
however, that:
(i) such Covered Person shall have provided appropriate
security for such undertaking;
(ii) the Trust is insured against losses arising out of any
such advance payments; or
(iii) either a majority of the Trustees who are neither
interested persons of the Trust nor parties to the matter, or independent
legal counsel in a written opinion, shall have determined, based upon a
review of readily available facts (as opposed to a trial-type inquiry or
full investigation), that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Section 2.
According to Article XII, Section 1 of the Declaration of Trust, the
Trust is a trust, not a partnership. Trustees are not liable personally to
any person extending credit to, contracting with or having any claim
against the Trust, a particular Portfolio or the Trustees. A Trustee,
however, is not protected from liability due to willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
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.
C-5
<PAGE>
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 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.
C-6
<PAGE>
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
Stock, Aggressive Growth and Technology 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 provides
subadvisory services to the Eagle International Portfolio. 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 investment advisory business. Awad provides subadvisory
services to the Small Cap Stock Fund. 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. Eagle
provides subadvisory services to the Aggressive Growth, Growth Equity, Mid
Cap Stock, Small Cap Stock, Technology and Value Equity Funds. 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.
Osprey Partners Investment Management, LLC, Shrewsbury Executive
Center II, 1040 Broad Street, Shrewsbury, New Jersey 077702, is a
registered investment adviser. Osprey is primarily engaged in the
investment advisory business. Osprey provides advisory services to the
C-7
<PAGE>
Value Equity Fund. Information as to the officers and directors of Osprey
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 Stock Fund, the Value
Equity Fund, the Growth Equity Fund, the Aggressive Growth Fund and the
Technology 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 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.
C-8
<PAGE>
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-9
<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. 24 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 25, 2000. 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. 24 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 25, 2000
- ---------------
Stephen G. Hill
Thomas A. James* Trustee February 25, 2000
- ----------------
Thomas A. James
Richard K. Riess* Trustee February 25, 2000
- -----------------
Richard K. Riess
C. Andrew Graham* Trustee February 25, 2000
- -----------------
C. Andrew Graham
David M. Phillips* Trustee February 25, 2000
- ------------------
David M. Phillips
<PAGE>
James L. Pappas* Trustee February 25, 2000
- ----------------
James L. Pappas
Donald W. Burton* Trustee February 25, 2000
- -----------------
Donald W. Burton
Eric Stattin* Trustee February 25, 2000
- -------------
Eric Stattin
/s/ Donald H. Glassman Treasurer February 25, 2000
- -----------------------
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^^
(i)(F) Amended Schedule A relating to the addition of the
Technology 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^
<PAGE>
(iv)(F) Amended Schedule A relating to the addition of the
Technology 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***
(ii)(C) Amended Schedule A relating to the addition of the
Aggressive Growth Fund^
(ii)(D) Amended Schedule A relating to the addition of the
Technology 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^
(i)(F) Amended Schedule A relating to the addition of the
Technology 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*
2
<PAGE>
(ii)(D) Amended Schedule A relating to the addition of the Mid
Cap Growth Fund and Aggressive Growth Fund^
(ii)(E) Amended Schedule A relating to the addition of the
Technology 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^
(iv)(C) Amended Schedule A relating to the addition of the
Technology Fund^^
(n)(i) Plan pursuant to Rule 18f-3*
(ii) Amended Plan pursuant to Rule 18f-3**
(iii) Amended Plan pursuant to Rule 18f-3^
(iv) Amended Plan pursuant to Rule 18f-3 relating to the
addition of the Technology Fund^^
- ---------------------------
* 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.
^^ Incorporated by reference from the Trust's Post-Effective Amendment
No. 22 to the Trust's Registration Statement on Form N-1A, File No.
33-57986 filed previously via EDGAR on September 3, 1999.
3
KIRKPATRICK & LOCKHART LLP 1800 Massachusetts Avenue, NW
Second Floor
Washington, DC 20036-1800
202.778.9000
www.kl.com
February 28, 2000
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. 24 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,
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.
<PAGE>
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
By /s/ Robert J. Zutz
--------------------
Robert J. Zutz
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form N-1A of our
report dated December 15, 1999, relating to the financial statements and
financial highlights of the Heritage Series Trust - Eagle International Equity
Portfolio, which appear in such Registration Statement. We also consent to the
references to us under the headings "Financial Highlights" and "Independent
Accountants" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tampa, Florida
February 25, 2000
