STATEMENT OF ADDITIONAL INFORMATION
                                    HERITAGE
                           CAPITAL APPRECIATION TRUST
                      EAGLE INTERNATIONAL EQUITY PORTFOLIO
                               GROWTH EQUITY FUND
                               INCOME-GROWTH TRUST
                               MID CAP GROWTH FUND
                              SMALL CAP STOCK FUND
                                VALUE EQUITY FUND

      This Statement of Additional  Information ("SAI") dated January 2, 1998 as
supplemented  on  October  26,  1998,  should  be read in  conjunction  with the
Prospectus  dated  January 2, 1998  describing  the Class A, Class B and Class C
shares  of the  Capital  Appreciation  Trust,  the  Eagle  International  Equity
Portfolio,  the Growth Equity Fund, the Income-Growth  Trust, the Mid Cap Growth
Fund,  the Small Cap Stock Fund and the Value  Equity  Fund (each a "Fund"  and,
collectively, the "Funds"). The Eagle International Equity Portfolio also offers
an additional class of shares, which is not discussed in this SAI.

      This SAI is not a  prospectus  itself.  To  receive  a copy of the  Funds'
Prospectus, write to Heritage Asset Management, Inc. ("Heritage") at the address
below or call (800) 421-4184.

                       HERITAGE ASSET MANAGEMENT, INC.
             880 Carillon Parkway, St. Petersburg, Florida 33716
                              TABLE OF CONTENTS
                                                                            PAGE
GENERAL INFORMATION..........................................................1
INVESTMENT INFORMATION.......................................................1
      Investment Objectives..................................................1
      Investment Policies....................................................1
      Industry Classifications...............................................8
      Futures, Forwards and Hedging Transactions.............................8
INVESTMENT LIMITATIONS......................................................16
NET ASSET VALUE.............................................................20
PERFORMANCE INFORMATION.....................................................21
INVESTING IN THE FUNDS......................................................24
      Systematic Investment Options.........................................24
      Retirement Plans......................................................25
      Class A Combined Purchase Privilege (Right of Accumulation)...........25
      Class A Statement of Intention........................................26
REDEEMING SHARES............................................................27
      Systematic Withdrawal Plan............................................27
      Telephone Transactions................................................27
      Redemptions in Kind...................................................28
      Receiving Payment.....................................................28
EXCHANGE PRIVILEGE..........................................................28
CONVERSION OF CLASS B SHARES................................................29
TAXES ......................................................................29
FUND INFORMATION............................................................32
      Management of the Funds...............................................32
      Five Percent Shareholders.............................................35
      Investment Advisers and Administrator; Subadvisers....................36
      Brokerage Practices...................................................39
      Distribution of Shares................................................42
      Administration of the Funds...........................................43
      Potential Liability...................................................44
APPENDIX...................................................................A-1
REPORTS OF THE INDEPENDENT ACCOUNTANTS.....................................A-4
FINANCIAL STATEMENTS......................................................A-10






GENERAL INFORMATION

      The Heritage  Capital  Appreciation  Trust ("Capital  Appreciation"),  the
Heritage  Income-Growth Trust  ("Income-Growth"),  and the Heritage Series Trust
("Series Trust") each was established as a Massachusetts  business trust under a
Declaration  of Trust dated June 21, 1985,  July 25, 1986, and October 28, 1992,
respectively.  All are registered as open-end diversified  management investment
companies under the Investment Company Act of 1940, as amended (the "1940 Act").
Capital  Appreciation  and  Income-Growth  each  offer  shares  through a single
investment  portfolio.  Series Trust  currently  offers its shares  through five
separate investment portfolios: the Eagle International Equity Portfolio ("Eagle
International"),  the Growth Equity Fund ("Growth Equity"),  Mid Cap Growth Fund
("Mid Cap"),  the Small Cap Stock Fund  ("Small  Cap") and the Value Equity Fund
("Value Equity").  Each Fund offers three classes of shares, Class A shares sold
subject to a 4.75% maximum  front-end  sales load ("A  shares"),  Class B shares
sold subject to a 5% maximum contingent deferred sales load ("CDSL"),  declining
over an eight-year period ("B Shares"),  and Class C shares sold subject to a 1%
CDSL ("C shares"). Eagle International also offers Eagle Class shares, which are
not covered in this SAI. To obtain more  information  about Eagle Class  shares,
call (800) 237-3101.

INVESTMENT INFORMATION

      INVESTMENT OBJECTIVES

      The investment objective of each Fund is stated in the Prospectus.

      INVESTMENT POLICIES

      The following  information is in addition to and  supplements  each Fund's
investment policies set forth in the Prospectus.

      AMERICAN  DEPOSITORY  RECEIPTS  ("ADRS"),   EUROPEAN  DEPOSITORY  RECEIPTS
("EDRS"),  GLOBAL  DEPOSITORY  RECEIPTS  ("GDRS") AND  INTERNATIONAL  DEPOSITORY
RECEIPTS  ("IDRS").  Each  Fund,  except  Capital  Appreciation,  may  invest in
sponsored  and  unsponsored  ADRs.  Capital  Appreciation  may  invest  only  in
sponsored ADRs. ADRs, EDRs, GDRs and IDRs are receipts that represent  interests
in or are convertible  into,  securities of foreign issuers.  These receipts are
not  necessarily  denominated in the same currency as the underlying  securities
into which they may be converted.

      ADRs may be purchased through "sponsored" or "unsponsored"  facilities.  A
sponsored  facility  is  established  jointly  by the  issuer of the  underlying
security and a depository,  whereas a depository  may  establish an  unsponsored
facility without participation by the issuer of the depository security. Holders
of  unsponsored  depository  receipts  generally  bear  all  the  costs  of such
facilities and the depository of an unsponsored  facility frequently is under no
obligation to distribute shareholder  communications received from the issuer of
the deposited  security or to pass through  voting rights to the holders of such
receipts of the deposited  securities.  Generally,  ADRs in registered  form are
designed  for use in the U.S.  securities  market  and ADRs in  bearer  form are
designed for use outside the United States.  For purposes of certain  investment
limitations,   ADRs  are   considered  to  be  foreign   securities  by  Capital
Appreciation, Growth Equity, and Income-Growth.

      Eagle  International,  Growth Equity,  Income-Growth,  Small Cap and Value
Equity may invest in sponsored or unsponsored  EDRs, GDRs, IDRs or other similar
securities  representing  interests in or convertible into securities of foreign
issuers ("Depository Receipts").  EDRs and IDRs are receipts typically issued by
a European bank or trust company evidencing  ownership of the underlying foreign
securities.  GDRs are issued globally for trading in non-U.S. securities markets





and  evidence  a similar  ownership  arrangement.  Depository  Receipts  may not
necessarily be  denominated  in the same currency as the  underlying  securities
into which they may be converted.  As with ADRs,  the issuers of the  securities
underlying  unsponsored  Depository  Receipts  are  not  obligated  to  disclose
material  information  in the United  States and,  therefore,  there may be less
information  available regarding such issuers and there may not be a correlation
between  such  information  and the  market  value of the  Depository  Receipts.
Depository  Receipts  also  involve  the risks of other  investments  in foreign
securities,  as discussed below. For purposes of certain investment limitations,
EDRs, GDRs and IDRs are considered to be foreign securities by Income-Growth.

      BANKERS'  ACCEPTANCES.  A  Banker's  acceptance  is  a  short-term  credit
instrument used to finance commercial transactions.  Generally, an acceptance is
a time draft  drawn on a bank by an  exporter  or an importer to obtain a stated
amount of funds to pay for specific merchandise. The draft is then "accepted" by
a bank that, in effect,  unconditionally guarantees to pay the face value of the
instrument  on its  maturity  date.  The  acceptance  may  then  be  held by the
accepting  bank as an asset,  or it may be sold in the  secondary  market at the
going  rate of  interest  for a  specified  maturity.  Although  maturities  for
acceptances can be as long as 270 days, most  acceptances have maturities of six
months or less.

      Each Fund may  invest in  banker's  acceptances.  Income-Growth  Trust may
invest in banker's acceptances of domestic banks and savings and loans that have
assets of at least $1 billion and capital,  surplus,  and  undivided  profits of
over  $100  million  as of the  close of  their  most  recent  fiscal  year,  or
instruments  that  are  insured  by the  Bank  Insurance  Fund  or  the  Savings
Institution Insurance Fund of the Federal Deposit Insurance Corporation.

      CERTIFICATES  OF  DEPOSIT.  Each Fund may invest in bank  certificates  of
deposit  ("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  currently  must be limited to $100,000  per
insured bank or savings and loan association.

      COMMERCIAL  PAPER. Each Fund,  except Eagle  International,  may invest in
commercial  paper  that is limited to  obligations  rated  Prime-1 or Prime-2 by
Moody's Investors Service,  Inc.  ("Moody's") or A-1 or A-2 by Standard & Poor's
("S&P").  Eagle  International may invest in commercial paper that is limited to
obligations  rated Prime-1 by Moody's or A-1 by S&P.  Commercial  paper includes
notes,  drafts or similar  instruments payable on demand or having a maturity at
the time of issuance not  exceeding  nine months,  exclusive of days of grace or
any renewal  thereof.  See the Appendix for a description  of  commercial  paper
ratings.

      CONVERTIBLE  SECURITIES.  Each Fund may invest in convertible  securities.
While no securities investment is without some risk,  investments in convertible
securities  generally entail less risk than the issuer's common stock,  although
the  extent to which  such risk is reduced  depends  in large  measure  upon the
degree to which the convertible security sells above its value as a fixed income
security. Convertible securities in which each Fund may invest include corporate
bonds,  notes and  preferred  stock that can be  converted  into  common  stock.
Convertible  securities  combine the fixed-income  characteristics  of bonds and
preferred  stock with the potential for capital  appreciation.  As with all debt
securities,  the  market  value of  convertible  securities  tends to decline as
interest rates increase and, conversely,  to increase as interest rates decline.
While convertible  securities  generally offer lower interest or dividend yields
than  nonconvertible  debt  securities  of similar  quality,  they do enable the
investor to benefit from increases in the market price of the underlying  common
stock.



                                      -2-



      DEBT SECURITIES.  Each Fund except Capital Appreciation may invest in debt
securities.  The market  value of debt  securities  is  influenced  primarily by
changes in the level of interest rates.  Generally,  as interest rates rise, the
market value of debt securities decreases.  Conversely,  as interest rates fall,
the market value of debt  securities  increases.  Factors that could result in a
rise in interest rates,  and a decrease in the market value of debt  securities,
include an increase in inflation or inflation  expectations,  an increase in the
rate of U.S.  economic  growth,  an increase in the Federal budget deficit or an
increase in the price of commodities such as oil.

      EURO/YANKEE  BONDS.  Eagle  International may invest in dollar denominated
bonds  issued by foreign  branches of domestic  banks  ("Eurobonds")  and dollar
denominated  bonds  issued by a U.S.  branch  of a foreign  bank and sold in the
United States ("Yankee bonds"). Investment in Eurobonds and Yankee bonds entails
certain  risks similar to  investment  in foreign  securities in general.  These
risks are discussed below.

      EURODOLLAR CERTIFICATES.  Income-Growth may purchase CDs issued by foreign
branches  of  domestic  and  foreign  banks.  Domestic  and  foreign  Eurodollar
certificates,  such as CDs and time deposits,  may be general obligations of the
parent bank in addition to the issuing  branch or may be limited by the terms of
a specific  obligation  or  governmental  regulation.  Such  obligations  may be
subject to different risks than are those of domestic banks or domestic branches
of  foreign  banks.   These  risks  include   foreign   economic  and  political
developments,  foreign  governmental  restrictions  that  may  affect  adversely
payment of principal and interest on the obligations,  foreign exchange controls
and foreign withholding and other taxes on interest income.  Foreign branches of
foreign  banks are not  necessarily  subject to the same or  similar  regulatory
requirements,  loan  limitations,  and  accounting,  auditing and  recordkeeping
requirements  as are domestic banks or domestic  branches of foreign  banks.  In
addition, less information may be publicly available about a foreign branch of a
domestic bank or a foreign bank than a domestic bank.

      FOREIGN  SECURITIES.  Each Fund,  except  Small Cap, may invest in foreign
securities. It is anticipated that, in most cases, the best available market for
foreign securities will be on exchanges or in  over-the-counter  markets located
outside the United States.  Foreign stock  markets,  while growing in volume and
sophistication,  generally  are not as developed as those in the United  States,
and securities of some foreign issuers (particularly those located in developing
countries)  may be less liquid and more volatile  than  securities of comparable
U.S. companies. In addition,  foreign brokerage commissions generally are higher
than commissions on securities traded in the United States. In general, there is
less overall  governmental  supervision and regulation of securities  exchanges,
brokers and listed  companies than in the United States.  Investments in foreign
securities  also involve the risk of possible  adverse  changes in investment or
exchange control regulations, expropriation or confiscatory taxation, limitation
on or delays in the  removal of funds or other  assets of a Fund,  political  or
financial  instability  or diplomatic and other  developments  that could affect
such investments.  Further, the economies of some countries may differ favorably
or unfavorably from the economy of the United States.

      It is each Fund's  policy not to invest in foreign  securities  when there
are currency or trading  restrictions  in force or when,  in the judgment of its
subadviser,  such  restrictions  are  likely  to be  imposed.  However,  certain
currencies may become blocked  (I.E.,  not freely  available for transfer from a
foreign  country),  resulting in the  possible  inability of the Fund to convert
proceeds  realized  upon sale of portfolio  securities  of the affected  foreign
companies into U.S. currency.

      Because  investments in foreign companies usually will involve  currencies
of  foreign   countries  and  because  Capital   Appreciation,   Growth  Equity,
Income-Growth,  and Value Equity may temporarily  hold funds in bank deposits in
foreign  currencies during the completion of investment  programs,  the value of
any of the assets of these  Funds as  measured  in U.S.  dollars may be affected
favorably  or  unfavorably  by changes in foreign  currency  exchange  rates and
exchange  control  regulations,  and the Fund may incur costs in connection with
conversions  between  various  currencies.  Each Fund will  conduct  its foreign


                                      -3-


currency  exchange  transactions  on a spot (I.E.,  cash) basis at the spot rate
prevailing in the foreign  currency  exchange market.  In addition,  in order to
protect against  uncertainty in the level of future exchange rates, as described
below in the discussion of futures, forwards, and hedging transactions,  Capital
Appreciation,  Income-Growth,  Growth  Equity  and Value  Equity  may enter into
contracts  to  purchase or sell  foreign  currencies  at a future date (I.E.,  a
"forward currency contract" or "forward contract").

      FORWARD COMMITMENTS.  As described in the Prospectus,  Eagle International
and Income-Growth may make contracts to purchase securities for a fixed price at
a future date beyond customary settlement time ("forward commitments"). However,
Income-Growth  currently  has no intention of engaging in such  transactions  at
this time.  Each Fund 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 a Fund'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 Fund of an advantageous
yield or price.  Although a Fund generally  will enter into forward  commitments
with the intention of acquiring securities for its investment  portfolios,  each
Fund may dispose of a commitment prior to settlement and may realize  short-term
profits or losses upon such disposition.

      ILLIQUID SECURITIES.  Capital  Appreciation,  Eagle International,  Growth
Equity,  Income-Growth  and Value Equity 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.  Similarly, Mid Cap and Small Cap will not purchase or otherwise acquire
any illiquid security if, as a result, more than 15% 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. Small Cap presently has no intention of investing more than 5% of its
assets in illiquid securities.

      Over-the-counter  ("OTC")  options  and their  underlying  collateral  are
currently considered to be illiquid investments.  Growth Equity,  Income-Growth,
Mid Cap and Value  Equity may sell OTC  options  and, in  connection  therewith,
segregate assets or cover its obligations with respect to OTC options written by
these  Funds.  The  assets  used as cover  for OTC  options  will be  considered
illiquid unless OTC options are sold to qualified  dealers who agree that a Fund
may repurchase any OTC option it writes at a maximum price to be calculated by a
formula set forth in the option  agreement.  The cover for an OTC option written
subject to this procedure  would be considered  illiquid only to the extent that
the maximum  repurchase  price under the formula  exceeds the intrinsic value of
the option.

      LOANS OF PORTFOLIO  SECURITIES.  Mid Cap, Value Equity,  Growth Equity and
Income-Growth may loan portfolio securities to qualified  broker-dealers.  Eagle
International may loan portfolio securities to broker-dealers or other financial
institutions.  The  collateral  for each Fund's loans will be "marked to market"
daily so that the collateral at all times exceeds 100% of the value of the loan.
Each Fund may terminate such loans at any time and the market risk applicable to
any security  loaned  remains its risk.  Although  voting  rights,  or rights to
consent,  with respect to the loaned securities pass to the borrower,  each Fund
retains  the right to call the loans at any time on  reasonable  notice,  and it
will do so in order  that the  securities  may be voted by it if the  holders of
such  securities  are  asked  to vote  upon or  consent  to  matters  materially
affecting  the  investment.  Each Fund also may call such loans in order to sell
the securities  involved.  The borrower must add to the collateral  whenever the
market value of the securities  rises above the level of such  collateral.  Each


                                      -4-


Fund could incur a loss if the borrower  should fail  financially at a time when
the value of the loaned  securities is greater than the collateral.  The primary
objective of  securities  lending is to supplement  each Fund's  income  through
investment of the cash collateral in short-term interest bearing obligations.

      PREFERRED  STOCK.  Each Fund may invest in  preferred  stock.  A preferred
stock is a blend of the characteristics of a bond and common stock. It can offer
the  higher  yield of a bond  and has  priority  over  common  stock  in  equity
ownership,  but does not have the seniority of a bond and its  participation  in
the issuer's  growth may be limited.  Preferred stock has preference over common
stock in the receipt of dividends  and in any residual  assets after  payment to
creditors  should the issuer be  dissolved.  Although  the  dividend is set at a
fixed annual  rate,  in some  circumstances  it can be changed or omitted by the
issuer.

      REPURCHASE AGREEMENTS.  Each Fund may invest in repurchase agreements. The
period of these repurchase  agreements  usually will be short, from overnight to
one week, and at no time will the 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 Funds  always  will  receive  as  collateral
securities  whose market value,  including  accrued  interest,  will be at least
equal to 100% of the dollar amount invested by the Funds in each agreement,  and
the Funds will make payment for such securities  only upon physical  delivery or
evidence of book entry transfer to the account of the Fund's custodian bank.

      REVERSE  REPURCHASE  AGREEMENTS.  Growth Equity,  Small Cap Fund and Value
Equity may borrow by entering into reverse  repurchase  agreements with the same
parties  with  whom it may enter  into  repurchase  agreements.  Under a reverse
repurchase agreement, a Fund sells securities and agrees to repurchase them at a
mutually  agreed to price.  At the time a Fund enters into a reverse  repurchase
agreement,  it will establish and maintain a segregated account with an approved
custodian  containing  liquid  high-grade  securities,  marked-to-market  daily,
having a value not less than the repurchase price (including  accrued interest).
Reverse  repurchase  agreements  involve  the  risk  that  the  market  value of
securities retained in lieu of sale by a Fund may decline below the price of the
securities  the Fund has sold but is  obliged  to  repurchase.  In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes  insolvent,  such  buyer or its  trustee  or  receiver  may  receive  an
extension  of time to  determine  whether  to  enforce  a Fund's  obligation  to
repurchase  the  securities  and a Fund's  use of the  proceeds  of the  reverse
repurchase  agreement  effectively  may be  restricted  pending such  decisions.
Reverse  repurchase  agreements create leverage,  a speculative  factor, and are
considered borrowings for the purpose of a Fund's limitation on borrowing.

      RISK FACTORS OF HIGH-YIELD SECURITIES. Eagle International, Income-Growth,
Mid Cap and Small Cap 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 its  subadviser,  as
described in the Prospectus.  These types of securities are commonly referred to
as "junk bonds." These  securities  are subject to certain risks that may not be
present with investments of higher grade securities.  The following  supplements
the disclosure in the Prospectus.

      EFFECT OF INTEREST  RATE AND ECONOMIC  CHANGES.  The prices of  high-yield
securities  tend to be less sensitive to interest rate changes than higher rated
investments, but may be more sensitive to adverse economic changes or individual
corporate  developments.  Periods of economic  uncertainty and changes generally
result  in  increased  volatility  in market  prices  and  yields of  high-yield
securities and, thus, in a Fund's net asset value. A strong economic downturn or
a substantial  period of rising  interest rates could affect severely the market
for high-yield  securities.  In these circumstances,  highly leveraged companies
might  have  difficulty  in making  principal  and  interest  payments,  meeting
projected business goals, and obtaining additional financing.  Thus, there could
be a higher incidence of default. This would affect the value of such securities


                                      -5-


and, thus, a Fund's net asset value.  Further, if the issuer of a security owned
by the Fund defaults, it might incur additional expenses to seek recovery.

      Generally,  when  interest  rates  rise,  the  value  of  fixed-rate  debt
obligations,  including high-yield securities,  tends to decrease; when interest
rates fall, the value of fixed-rate debt  obligations  tends to increase.  If an
issuer of a  high-yield  security  containing  a  redemption  or call  provision
exercises  either  provision in a declining  interest rate market,  a Fund would
have to replace  the  security,  which could  result in a  decreased  return for
shareholders.  Conversely, if a Fund experiences unexpected net redemptions in a
rising  interest  rate market,  it might be forced to sell  certain  securities,
regardless of investment  merit.  This could result in decreasing  the assets to
which the Fund's expenses could be allocated and in a reduced rate of return for
it.   While  it  is   impossible   to  protect   entirely   against  this  risk,
diversification  of a Fund's investment  portfolio and its subadviser's  careful
analysis of prospective  investment  portfolio  securities  should  minimize the
impact of a decrease in value of a particular security or group of securities in
the Fund's investment portfolio.

      THE HIGH-YIELD  SECURITIES  MARKET.  The market for below investment grade
bonds expanded rapidly in the 1980s,  and its growth  paralleled a long economic
expansion.  During that period,  the yields on below investment grade bonds rose
dramatically.  Such higher yields did not reflect the value of the income stream
that  holders of such bonds  expected,  but rather the risk that holders of such
bonds  could  lose a  substantial  portion  of their  value  as a result  of the
issuers' financial restructuring or default. In fact, from 1989 to 1991 during a
period of  economic  recession,  the  percentage  of lower  quality  bonds  that
defaulted rose significantly,  although the default rate decreased in subsequent
years.  There can be no  assurance  that such  declines in the below  investment
grade  market  will not  reoccur.  The market for below  investment  grade bonds
generally is thinner and less active than that for higher quality  bonds,  which
may limit a Fund's ability to sell such  securities at fair value in response to
changes in the economy or  financial  markets.  Adverse  publicity  and investor
perceptions, whether or not based on fundamental analysis, also may decrease the
values and  liquidity of lower rated  securities,  especially in a thinly traded
market.

      CREDIT  RATINGS.  The credit ratings issued by credit rating  services may
not reflect fully the true risks of an investment.  For example,  credit ratings
typically  evaluate the safety of principal  and interest  payments,  not market
value risk, of high-yield  securities.  Also, credit rating agencies may fail to
change  timely a credit  rating  to  reflect  changes  in  economic  or  company
conditions that affect a security's  market value.  Although a Fund's subadviser
considers  ratings of  recognized  rating  services such as Moody's and S&P, the
subadviser primarily relies on its own credit analyses, which include a study of
existing debt, capital structure,  ability to service debt and to pay dividends,
the issuer's sensitivity to economic  conditions,  its operating history and the
current  trend  of  earnings.  A  Fund's  subadviser  continually  monitors  the
investments in its  respective  investment  portfolios  and carefully  evaluates
whether to dispose of or retain high-yield  securities whose credit ratings have
changed.  See the Appendix for a description of Moody's and S&P's corporate debt
ratings.

      LIQUIDITY AND  VALUATION.  Lower rated bonds  typically are traded among a
smaller number of broker-dealers than in a broad secondary market. Purchasers of
high-yield securities tend to be institutions, rather than individuals, which is
a factor  that  further  limits the  secondary  market.  To the  extent  that no
established retail secondary market exists,  many high-yield  securities may not
be as liquid as higher  grade  bonds.  A less  active  and  thinner  market  for
high-yield  securities  than that  available for higher  quality  securities may
limit a Fund's  ability to sell such  securities  at that fair  market  value in
response to changes in the economy or the  financial  markets.  The ability of a
Fund to value or sell high-yield  securities also will be affected  adversely to
the extent  that such  securities  are thinly  traded or  illiquid.  During such
periods, there may be less reliable objective information available and thus the
responsibility  of  the  Board  to  value  high-yield  securities  becomes  more
difficult,  with judgment  playing a greater role.  Further,  adverse  publicity


                                      -6-


about the  economy or a  particular  issuer may affect  adversely  the  public's
perception of the value, and thus liquidity of a high-yield security, whether or
not such perceptions are based on a fundamental analysis. See "Net Asset Value."

      STANDARD AND POOR'S DEPOSITORY RECEIPTS ("SPDRS").  Growth Equity, Mid Cap
and Value Equity may invest in SPDRs and other similar index securities  ("Index
Securities").  Index  Securities  represent  interests  in a fixed  portfolio of
common stocks  designed to track the price and dividend  yield  performance of a
broad-based  securities index, such as the Standard & Poor's 500 Composite Stock
Price Index  ("S&P 500  Index"),  but are traded on an  exchange  like shares of
common stock. The value of Index Securities fluctuates in relation to changes in
the value of the underlying  portfolio of securities.  However, the market price
of Index  Securities may not be equivalent to the pro rata value of the index it
tracks.  Index Securities are subject to the risks of an investment in a broadly
based portfolio of common stocks.

      U.S.  GOVERNMENT  SECURITIES.  Each  Fund may  invest  in U.S.  Government
securities,  including a variety of securities  that are issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agreements
secured thereby.  These securities  include  securities issued and guaranteed by
the full  faith  and  credit of the U.S.  Government,  such as  Treasury  bills,
Treasury notes,  and Treasury bonds;  obligations  supported by the right of the
issuer to borrow from the U.S. Treasury,  such as those of the Federal Home Loan
Banks; and obligations supported only by the credit of the issuer, such as those
of the Federal Intermediate Credit Banks.

      WARRANTS.   Each  Fund  may  purchase  rights  and  warrants,   which  are
instruments that permit a Fund to acquire, by subscription, the capital stock of
a  corporation  at a set price,  regardless  of the market price for such stock.
Eagle  International,  Growth  Equity,  Mid  Cap,  Small  Cap and  Value  Equity
currently do not intend to invest more than 5% of their respective net assets in
warrants.  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.  Eagle  International  also may invest in  warrants or rights
acquired by Eagle  International  as part of a unit or attached to securities at
the time of purchase without limitation.

      WHEN-ISSUED  AND  DELAYED  DELIVERY  TRANSACTIONS.  As  described  in  the
Prospectus,  Eagle  International  may  enter  into  agreements  with  banks  or
broker-dealers for the purchase or sale of securities at an agreed-upon price on
a specified  future date.  Such  agreements  might be entered into, for example,
when Eagle International  anticipates a decline in interest rates and is able to
obtain a more advantageous yield by committing  currently to purchase securities
to  be  issued  later.  When  Eagle  International  purchases  securities  on  a
when-issued or delayed  delivery  basis,  it is required  either (1) to create a
segregated account with Eagle International's  custodian and to maintain in that
account cash, U.S. Government securities or other high grade debt obligations in
an  amount  equal  on a daily  basis  to the  amount  of  Eagle  International's
when-issued or delayed  delivery  commitments or (2) to enter into an offsetting
forward  sale of  securities  it owns equal in value to those  purchased.  Eagle
International will only make commitments to purchase securities on a when-issued
or  delayed-delivery   basis  with  the  intention  of  actually  acquiring  the
securities.  However,  Eagle  International may sell these securities before the
settlement  date if it is deemed  advisable as a matter of investment  strategy.
When the time comes to pay for when-issued or delayed-delivery securities, Eagle
International  will meet its  obligations  from then  available cash flow or the
sale of securities, or, although it would not normally expect to do so, from the
sale of the when-issued or delayed  delivery  securities  themselves  (which may
have a value greater or less than Eagle International's payment obligation).

      ZERO  COUPON   SECURITIES.   Income-Growth   may  invest  in  zero  coupon
securities,  which are debt  obligations  that do not  entitle the holder to any
periodic  payment of interest  prior to  maturity  or a specified  date when the
securities begin paying current interest.  Zero coupon securities are issued and
traded at a discount  from their face amount or par value,  which  discount rate
varies  depending on the time remaining  until cash payments  begin,  prevailing


                                      -7-


interest rates,  liquidity of the security,  and the perceived credit quality of
the issuer.  The market  prices of zero  coupon  securities  generally  are more
volatile than the prices of securities  that pay interest  periodically  and are
likely to respond to changes in interest rates to a greater degree than do other
types of debt securities having similar maturities and credit value.

      INDUSTRY CLASSIFICATIONS

      For purposes of  determining  industry  classifications,  each Fund relies
upon  classifications  established  by each Fund's  adviser  that are based upon
classifications  contained in the Directory of Companies  Filing Annual  Reports
with the Securities and Exchange Commission ("SEC") and in the Standard & Poor's
Corporation Industry Classifications.

      FUTURES, FORWARDS AND HEDGING TRANSACTIONS

      GENERAL  DESCRIPTION.  A Fund may use a variety of  financial  instruments
("Hedging  Instruments"),  including futures contracts (sometimes referred to as
"futures"),  options,  options on futures and  forward  currency  contracts,  to
attempt to hedge the Fund's investment portfolio.  Capital Appreciation,  Growth
Equity,  Income-Growth and Value Equity also may use forward currency  contracts
to shift exposure from one foreign currency to another.

      Hedging strategies can be broadly  categorized as "short hedges" and "long
hedges." A short hedge is the purchase or sale of a Hedging Instrument  intended
partially  or fully to  offset  potential  declines  in the value of one or more
investments  held in a Fund's  investment  portfolio.  Thus, in a short hedge, a
Fund takes a position in a Hedging Instrument whose price is expected to move in
the opposite direction of the price of the investment being hedged. A long hedge
is the purchase or sale of a Hedging  Instrument  intended partially or fully to
offset  potential  increases in the acquisition  cost of one or more investments
that the Fund intends to acquire. Thus, in a long hedge, a Fund takes a position
in a Hedging Instrument whose price is expected to move in the same direction as
the price of the prospective investment being hedged.

      Hedging  Instruments  on  securities  generally  are used to hedge against
price movements in one or more particular  securities positions that a Fund owns
or intends to acquire. Hedging Instruments on indices may be used to hedge broad
market sectors.

      The use of Hedging Instruments is subject to applicable regulations of the
SEC, the exchanges upon which they are traded, and the Commodity Futures Trading
Commission  ("CFTC").  In addition,  a Fund's ability to use Hedging Instruments
will be limited by tax considerations. See "Taxes."

      In addition to the  products and  strategies  described  below,  the Funds
expect to discover additional  opportunities in connection with options, futures
contracts,  forward currency contracts and other hedging  techniques.  These new
opportunities  may become  available  as each  Fund's  subadviser  develops  new
techniques,   as   regulatory   authorities   broaden  the  range  of  permitted
transactions and as new options,  futures contracts,  forward currency contracts
or other  techniques  are  developed.  A Fund's  subadviser  may  utilize  these
opportunities  to the  extent  that it is  consistent  with a Fund's  investment
objectives  and permitted by the Fund's  investment  limitations  and applicable
regulatory authorities.

      SPECIAL  RISKS  OF  HEDGING  STRATEGIES.  The use of  Hedging  Instruments
involves special  considerations and risks, as described below. Risks pertaining
to particular Hedging Instruments are described in the sections that follow.



                                      -8-


            (1) Successful use of most Hedging Instruments depends upon a Fund's
subadviser's  ability to predict movements of the overall  securities,  currency
and interest rate  markets,  which  requires  different  skills than  predicting
changes in the prices of individual  securities.  While each Fund's  subadvisers
are  experienced  in the use of Hedging  Instruments,  there can be no assurance
that any particular hedging strategy adopted will succeed.

            (2) There might be imperfect  correlation,  or even no  correlation,
between  price  movements  of a Hedging  Instrument  and price  movements of the
investments being hedged. For example, if the value of a Hedging Instrument used
in a short  hedge  increased  by less than the  decline  in value of the  hedged
investment, the hedge would not be fully successful.  Such a lack of correlation
might  occur due to  factors  unrelated  to the value of the  investments  being
hedged,  such as speculative or other  pressures on the markets in which Hedging
Instruments are traded. The effectiveness of hedges using Hedging Instruments on
indices will depend on the degree of correlation  between price movements in the
index and price movements in the securities being hedged.

            To compensate for imperfect correlation, a Fund may purchase or sell
Hedging  Instruments  in a greater  dollar amount than the hedged  securities or
currency if the volatility of the hedged  securities or currency is historically
greater than the volatility of the Hedging Instruments.  Conversely,  a Fund may
purchase or sell fewer  contracts if the  volatility  of the price of the hedged
securities  or  currency  is   historically   less  than  that  of  the  Hedging
Instruments.

            (3) Hedging  strategies,  if successful,  can reduce risk of loss by
wholly  or  partially  offsetting  the  negative  effect  of  unfavorable  price
movements in the investments being hedged. However,  hedging strategies also can
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund entered into a short
hedge because its  subadviser  projected a decline in the price of a security in
the  Fund's  investment  portfolio,  and the  price of that  security  increased
instead,  the gain from that increase  might be wholly or partially  offset by a
decline in the price of the Hedging  Instrument.  Moreover,  if the price of the
Hedging  Instrument  declined  by more  than the  increase  in the  price of the
security, the Fund could suffer a loss. In either such case, the Fund would have
been in a better position had it not hedged at all.

            (4) As  described  below,  each Fund might be  required  to maintain
assets as "cover," maintain  segregated accounts or make margin payments when it
takes positions in Hedging Instruments  involving  obligations to third parties.
If a Fund were unable to close out its positions in such Hedging Instruments, it
might be required  to continue to maintain  such assets or accounts or make such
payments until the position expired or matured.  These requirements might impair
a Fund's  ability to sell a portfolio  security or make an  investment at a time
when it would  otherwise  be favorable to do so, or require that the Fund sell a
portfolio  security at a  disadvantageous  time. A Fund's ability to close out a
position in a Hedging  Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market,  the
ability and willingness of the other party to the  transaction  ("counterparty")
to enter into a  transaction  closing out the position.  Therefore,  there is no
assurance  that any hedging  position can be closed out at a time and price that
is favorable to the Fund.

      COVER FOR HEDGING STRATEGIES. Some Hedging Instruments expose a Fund to an
obligation to another  party.  A Fund will not enter into any such  transactions
unless it owns either (1) an  offsetting  ("covered")  position  in  securities,
currencies, forward currency contracts, options or futures contracts or (2) cash
and  other  liquid  assets  with a value  sufficient  at all  times to cover its
potential  obligations to the extent not covered as provided in (1) above.  Each
Fund will comply with SEC guidelines  regarding  cover for instruments and will,
if the  guidelines  so  require,  set  aside  cash or other  liquid  assets in a
segregated  account with the Funds' custodian  ("Custodian"),  in the prescribed
amount.



                                      -9-


      Assets  used as cover or  otherwise  set aside  cannot  be sold  while the
position  in the  corresponding  Hedging  Instrument  is open,  unless  they are
replaced with other appropriate  assets. As a result,  the commitment of a large
portion of a Fund's  assets to cover in  segregated  accounts  could  impede its
ability to meet redemption requests or other current obligations.

      OPTIONS,   FUTURES  AND  OPTIONS  ON  FUTURES   TRADING.   Growth  Equity,
Income-Growth and Value Equity may engage in certain options  (including options
on securities,  equity and debt indices and  currencies,  futures and options on
futures  strategies)  in order  to hedge  their  respective  investments.  Eagle
International  may only  purchase  and sell  stock  index and  currency  futures
contracts.  Certain special  characteristics  of and risks with these strategies
are discussed below.

      CHARACTERISTICS  AND RISKS OF  OPTIONS  TRADING.  A Fund  effectively  may
terminate  its right or  obligation  under an option by entering  into a closing
transaction.  If the Fund wished to terminate its obligation to purchase or sell
securities  under a put or call option it has written,  it may purchase a put or
call option of the same series  (I.E.,  an option  identical in its terms to the
option  previously  written);  this is known as a closing purchase  transaction.
Conversely,  in order to terminate its right to purchase or sell under a call or
put option it has  purchased,  a Fund may write a call or put option of the same
series.  This is known  as a  closing  sale  transaction.  Closing  transactions
essentially  permit the Fund to realize  profits or limit  losses on its options
positions prior to the exercise or expiration of the option. Whether a profit or
loss is realized from a closing transaction depends on the price movement of the
underlying security, index, currency or futures contract and the market value of
the option.

      In  considering  the use of options to hedge,  particular  note  should be
taken of the following:

            (1) The  value of an  option  position  will  reflect,  among  other
things, the current market price of the underlying security,  index, currency or
futures contract,  the time remaining until expiration,  the relationship of the
exercise  price to the market  price,  the  historical  price  volatility of the
underlying  instrument  and general  market  conditions.  For this  reason,  the
successful  use  of  options  as  a  hedging  strategy  depends  upon  a  Fund's
subadviser's  ability to forecast  the  direction of price  fluctuations  in the
underlying instrument.

            (2) At any given time, the exercise price of an option may be below,
equal  to or above  the  current  market  value  of the  underlying  instrument.
Purchased  options  that  expire  unexercised  have no  value.  Unless an option
purchased  by a Fund is exercised  or unless a closing  transaction  is effected
with  respect to that  position,  a loss will be  realized  in the amount of the
premium paid.

            (3) A position in an  exchange-listed  option may be closed out only
on an exchange that  provides a secondary  market for  identical  options.  Most
exchange-listed options relate to futures contracts,  stocks and currencies. The
ability to establish  and close out positions on the exchanges is subject to the
maintenance of a liquid secondary market.  Closing  transactions may be effected
with respect to options traded in the OTC markets (currently the primary markets
of options on debt securities) only by negotiating directly with the other party
to the option  contract,  or in a secondary market for the option if such market
exists.  Although a Fund  intends to  purchase  or write only those  options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary  market will exist for any particular  option at any specific
time. In such event, it may not be possible to effect closing  transactions with
respect to certain options, with the result that the Fund would have to exercise
those options that it has purchased in order to realize any profit. With respect
to options written by a Fund, the inability to enter into a closing  transaction
may result in material losses to it. For example,  because a Fund may maintain a
covered position with respect to any call option it writes on a security, it may
not sell the underlying  security  during the period it is obligated  under such
option.  This  requirement  may impair the  Fund's  ability to sell a  portfolio


                                      -10-


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, a Fund also may
save on  commissions  by using  options as a hedge rather than buying or selling
individual securities in anticipation of market movements.

            (5) The risks of  investment  in options  on indices  may be greater
than options on securities or  currencies.  Because index options are settled in
cash, when a Fund writes a call on an index it cannot provide in advance for its
potential  settlement  obligations  by  acquiring  and  holding  the  underlying
securities. A Fund can offset some of the risk of writing a call index option by
holding a  diversified  portfolio  of  securities  similar to those on which the
underlying  index is based.  However,  the Fund cannot,  as a practical  matter,
acquire and hold an investment  portfolio containing exactly the same securities
as  underlie  the index  and,  as a  result,  bears a risk that the value of the
securities held will vary from the value of the index.

      Even  if a Fund  could  assemble  an  investment  portfolio  that  exactly
reproduced the composition of the underlying  index, it still would not be fully
covered from a risk standpoint  because of the "timing risk" inherent in writing
index  options.  When an index option is exercised,  the amount of cash that the
holder is  entitled  to receive is  determined  by the  difference  between  the
exercise  price  and the  closing  index  level on the date  when the  option is
exercised.  As with other kinds of  options,  a Fund as the call writer will not
learn that it has been assigned until the next business day at the earliest. The
time lag between  exercise and notice of assignment poses no risk for the writer
of a covered  call on a  specific  underlying  security,  such as common  stock,
because there the writer's obligation is to deliver the underlying security, not
to pay its value as of a fixed time in the past.  So long as the writer  already
owns the  underlying  security,  it can satisfy its  settlement  obligations  by
simply  delivering  it, and the risk that its value may have declined  since the
exercise date is borne by the exercising holder. In contrast, even if the writer
of an index call holds  securities  that exactly  match the  composition  of the
underlying  index, it will not be able to satisfy its assignment  obligations by
delivering those securities against payment of the exercise price.  Instead,  it
will be  required to pay cash in an amount  based on the closing  index value on
the exercise  date. By the time it learns that it has been  assigned,  the index
may have declined,  with a corresponding  decline in the value of its investment
portfolio.  This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding securities positions.

      If a Fund has  purchased  an index  option  and  exercises  it before  the
closing index value for that day is  available,  it runs the risk that the level
of the underlying  index  subsequently  may change.  If such a change causes the
exercised option to fall out-of-the-money,  the Fund will be required to pay the
difference  between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.

      COVERED CALL  OPTIONS.  Income-Growth  and Value Equity may write  covered
call options on securities to increase  income in the form of premiums  received
from the  purchasers  of the  options.  Because it can be  expected  that a call
option  will  be  exercised  if the  market  value  of the  underlying  security
increases to a level greater than the exercise  price, a Fund will write covered
call options on  securities  generally  when its  subadviser  believes  that the
premium  received by the Fund,  anticipated  appreciation in the market price of
the underlying  security up to the exercise price of the option, will be greater
than the total appreciation in the price of the security.

      The  strategy  also may be used to provide  limited  protection  against a
decrease in the market  price of the  security in an amount equal to the premium
received for writing the call option,  less any transaction  costs. Thus, if the
market price of the underlying  security held by a Fund declines,  the amount of
such  decline  will be  offset  wholly or in part by the  amount of the  premium
received by the Fund. If,  however,  there is an increase in the market price of


                                      -11-


the underlying security and the option is exercised,  the Fund will be obligated
to sell the  security  at less than its  market  value.  A Fund  would  lose the
ability to participate in the value of such securities  above the exercise price
of the call  option.  A Fund also  gives up the  ability  to sell the  portfolio
securities used to cover the call option while the call option is outstanding.

      GUIDELINES,  CHARACTERISTICS  AND RISKS OF FUTURES  AND OPTIONS ON 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.

      A Fund is  required to  maintain  margin  deposits  with  brokerage  firms
through  which it buys and sells futures  contracts or writes  options on future
contracts.  Initial  margin  deposits  vary from  contract to  contract  and are
subject to change.  Margin balances will be adjusted daily to reflect unrealized
gains and losses on open  contracts.  If the price of an open futures or written
option  position  declines so that a Fund has market  exposure on such contract,
the broker will require the Fund to deposit variation margin. If the value of an
open futures or written option  position  increases so that a Fund no longer has
market  exposure  on such  contract,  the broker  will pay any excess  variation
margin to the Fund.

      Most of the  exchanges on which  futures  contracts and options on futures
are traded  limit the amount of  fluctuation  permitted  in futures  and options
prices  during a single  trading  day.  The daily  price limit  establishes  the
maximum amount that the price of a futures contract or option may vary either up
or down  from  the  previous  day's  settlement  price  at the end of a  trading
session.  Once the daily price limit has been  reached in a  particular  type of
contract,  no trades may be made on that day at a price  beyond that limit.  The
daily price limit governs only price  movement  during a particular  trading day
and therefore does not limit potential  losses because the limit may prevent the
liquidation  of  unfavorable  positions.  Futures  contract  and options  prices
occasionally have moved to the daily limit for several  consecutive trading days
with little or no trading,  thereby  preventing prompt liquidation of futures or
options positions and subjecting some traders to substantial losses.

      Another risk in employing  futures contracts and options as a hedge is the
prospect that prices will correlate imperfectly with the behavior of cash prices
for the following reasons.  First, rather than meeting additional margin deposit
requirements,  investors may close contracts  through  offsetting  transactions.
Second, the liquidity of the futures and options markets depends on participants
entering into offsetting  transactions rather than making or taking delivery. To
the extent that participants  decide to make or take delivery,  liquidity in the
futures and options markets could be reduced, thus producing distortion.  Third,
from the point of view of speculators,  the deposit  requirements in the futures
and options markets are less onerous than margin  requirements in the securities
market.  Therefore,  increased  participation  by speculators in the futures and
options markets may cause temporary price distortions. Due to the possibility of
distortion,  a correct forecast of general interest rate, currency exchange rate
or security  price trends by a  subadviser  may still not result in a successful
transaction.

      In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures  contracts.  The ability to
establish and close out positions in such options is subject to the existence of
a  liquid  secondary  market.  Compared  to the  purchase  or  sale  of  futures


                                      -12-


contracts,  the  purchase of call or put options on futures  contracts  involves
less  potential risk to a Fund because the maximum amount at risk is the premium
paid  for  the  options  (plus  transaction  costs).   However,   there  may  be
circumstances  when the  purchase of a call or put option on a futures  contract
would result in a loss to a Fund when the purchase or sale of a futures contract
would not,  such as when  there is no  movement  in the price of the  underlying
investment.

      STOCK INDEX FUTURES.  A stock index assigns  relative values to the common
stocks  comprising  the index.  A stock  index  futures  contract is a bilateral
agreement  pursuant  to which two parties  agree to take or make  delivery of an
amount of cash equal to a specified  dollar amount times the difference  between
the stock index value at the close of the last  trading day of the  contract and
the price at which the  futures  contract  is  originally  struck.  No  physical
delivery of the underlying stocks in the index is made.

      The risk of  imperfect  correlation  between  movements  in the price of a
stock index futures  contract and movements in the price of the securities  that
are the subject of the hedge increases as the composition of a Fund's  portfolio
diverges from the securities  included in the applicable index. The price of the
stock index futures may move more than or less than the price of the  securities
being hedged.  If the price of the futures contract moves less than the price of
the  securities  that are the subject of the hedge,  the hedge will not be fully
effective  but,  if the price of the  securities  being  hedged  has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged  at all.  If the  price of the  securities  being  hedged  has moved in a
favorable  direction,  this  advantage  will be partially  offset by the futures
contract.  If the price of the futures contract moves more than the price of the
securities,  a Fund  will  experience  either  a loss or a gain  on the  futures
contract  that will not be  completely  offset by  movements in the price of the
securities  that are the subject of the hedge.  To compensate  for the imperfect
correlation  of  movements  in the  price of the  securities  being  hedged  and
movements in the price of the stock index futures  contracts,  a Fund may buy or
sell stock index  futures  contracts in a greater  dollar amount than the dollar
amount of securities being hedged if the historical  volatility of the prices of
such securities is more than the historical volatility of the stock index. It is
also  possible  that,  where a Fund  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 Fund may decline.  If this  occurred,  the Fund would
lose money on the futures contract and also experience a decline in value in its
portfolio securities. However, while this could occur for a very brief period or
to a very  small  degree,  over time the  value of a  diversified  portfolio  of
securities  will tend to move in the same  direction as the market  indices upon
which the futures contracts are based.

      Where stock index  futures  contracts  are  purchased  to hedge  against a
possible  increase in the price of securities before a Fund is able to invest in
securities  in an orderly  fashion,  it is possible  that the market may decline
instead.  If a Fund then  concludes  not to invest  in  securities  at that time
because of concern as to possible  further market decline for other reasons,  it
will realize a loss on the futures contract that is not offset by a reduction in
the price of the securities it had anticipated purchasing.

      LIMITATION  ON THE USE OF OPTIONS AND  FUTURES.  To the extent that a Fund
enters into  futures  contracts  and  commodity  options  (including  options on
futures  contracts and options on foreign  currencies traded on a CFTC-regulated
exchange)  other than for BONA FIDE  hedging  purposes (as defined by the CFTC),
the aggregate  initial margin and premiums required to establish those positions
(excluding  the  amount  by  which  options  are  "in-the-money"  at the time of
purchase) will not exceed 5% of the liquidation  value of the Fund's  investment
portfolio, after taking into account unrealized profits and unrealized losses on
any  contracts  the Fund has entered into.  This  limitation  does not limit the
percentage of the Fund's assets at risk to 5%.

      FOREIGN CURRENCY HEDGING STRATEGIES -- RISK FACTORS.  Value Equity may use
options  and  futures  on  foreign   currencies  and  Growth  Equity  and  Eagle
International  may only use futures on foreign  currencies,  as described above.
Capital Appreciation,  Eagle International,  Growth Equity,  Income-Growth,  and
Value Equity may use foreign currency forward contracts as described below.



                                      -13-


      Currency  hedges can protect  against price movements in a security that a
Fund owns or intends to acquire that are attributable to changes in the value of
the currency in which it is denominated.  Such hedges do not,  however,  protect
against price movements in the securities that are attributable to other causes.

      A Fund might seek to hedge  against  changes in the value of a  particular
currency  when no Hedging  Instruments  on that  currency are  available or such
Hedging  Instruments are more expensive than certain other Hedging  Instruments.
In such cases,  a Fund may hedge  against  price  movements in that  currency by
entering into  transactions  using Hedging  Instruments  on another  currency or
basket of currencies,  the values of which its  subadviser  believes will have a
high degree of positive  correlation  to the value of the currency being hedged.
The  risk  that  movements  in the  price  of the  Hedging  Instrument  will not
correlate  perfectly with movements in the price of the currency being hedged is
magnified when this strategy is used.

      The value of  Hedging  Instruments  on foreign  currencies  depends on the
value of the underlying  currency  relative to the U.S. dollar.  Because foreign
currency   transactions   occurring  in  the  interbank   market  might  involve
substantially  larger  amounts  than those  involved in the use of such  Hedging
Instruments,  a Fund  could be  disadvantaged  by having to deal in the  odd-lot
market  (generally  consisting of  transactions of less than $1 million) for the
underlying  foreign  currencies at prices that are less favorable than for round
lots.

      There is no  systematic  reporting  of last sale  information  for foreign
currencies or any  regulatory  requirement  that  quotations  available  through
dealers or other market sources be firm or revised on a timely basis.  Quotation
information  generally  is  representative  of very  large  transactions  in the
interbank  market and thus might not reflect  odd-lot  transactions  where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock  market. To the extent the U.S. futures markets are closed while
the markets for the underlying  currencies  remain open,  significant  price and
rate  movements  might  take  place in the  underlying  markets  that  cannot be
reflected in the markets for the Hedging Instruments until they reopen.

      Settlement of transactions  involving foreign currencies might be required
to take place within the country issuing the underlying  currency.  Thus, a Fund
might be required to accept or make delivery of the underlying  foreign currency
in accordance with any U.S. or foreign regulations  regarding the maintenance of
foreign banking  arrangements by U.S. residents and might be required to pay any
fees,  taxes and charges  associated with such delivery  assessed in the issuing
country.

      FORWARD  CURRENCY  CONTRACTS.  A forward  currency  contract  involves  an
obligation  of a Fund 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.  These  contracts are
traded in the interbank  market  conducted  directly  between  currency  traders
(usually large commercial banks) and their customers.

      Growth Equity and Value Equity may enter into forward  currency  contracts
to purchase or sell foreign  currencies  for a fixed  amount of U.S.  dollars or
another  foreign  currency,  in an amount  not to exceed 5% of their  respective
assets.  Capital  Appreciation  may enter into  contracts  to  purchase  or sell
foreign  currencies at a future date that is not more than 30 days from the date
of the contract.  Eagle  International  generally  will not enter into a forward
contract with a term of greater than one year.

      Forward currency  transactions  may serve as long hedges - for example,  a
Fund may purchase a forward  currency  contract to lock in the U.S. dollar price
of a security  denominated  in a foreign  currency  that it intends to  acquire.
Foreign  currency  contract  transactions  also may serve as short  hedges - for
example,  a Fund may sell a forward currency contract to lock in the U.S. dollar


                                      -14-




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.

      Income-Growth and Eagle International may enter into a forward contract to
sell the foreign currency for a fixed U.S. dollar amount approximating the value
of some or all of their  respective  portfolio  securities  denominated  in such
foreign  currency.  Eagle  may  enter  into  such a  forward  contract  when its
subadviser believes that the currency of a particular foreign country may suffer
a substantial decline against the U.S. dollar.

      In addition,  Eagle  International may use currency forward contracts when
its  subadviser  wishes to "lock in" the U.S.  dollar  price of a security  when
Eagle International is purchasing or selling a security denominated in a foreign
currency or anticipates  receiving a dividend or interest payment denominated in
a foreign currency.

      Income-Growth  may enter into forward currency  contracts for the purchase
or sale of a specified  currency at a specified  future date either with respect
to specific  transactions  or with  respect to  portfolio  positions in order to
minimize  the risk to  Income-Growth  from adverse  changes in the  relationship
between the U.S. dollar and foreign currencies.

      As noted above, Capital Appreciation,  Growth Equity,  Income-Growth,  and
Value  Equity may seek to hedge  against  changes  in the value of a  particular
currency by using forward  contracts on another foreign  currency or a basket of
currencies,  the  value of which  the  Fund's  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.

      In  addition,  Growth  Equity,  Income-Growth,  and Value  Equity  may use
foreign currency  contracts to shift exposure to foreign  currency  fluctuations
from one country to another. For example, if a Fund owned securities denominated
in a foreign  currency and its  subadviser  believed that currency would decline
relative to another currency,  it might enter into a forward contract to sell an
appropriate amount of the first foreign currency, with payment to be made in the
second  foreign  currency.  Transactions  that use two  foreign  currencies  are
sometimes  referred to as "cross  hedging." Use of a different  foreign currency
magnifies a Fund's exposure to foreign currency exchange rate fluctuations.

      The cost to a Fund of engaging in forward  currency  contracts varies with
factors such as the currency involved, the length of the contract period and the
market  conditions then prevailing.  Because forward currency  contracts usually
are entered into on a principal basis, no fees or commissions are involved. When
a Fund enters into a forward currency contract, it relies on the counterparty to
make  or  take  delivery  of the  underlying  currency  at the  maturity  of the
contract.  Failure by the  counterparty to do so would result in the loss of any
expected benefit of the transaction.

      As is the case with futures  contracts,  sellers or  purchasers of forward
currency  contracts can enter into offsetting closing  transactions,  similar to
closing  transactions  on futures,  by purchasing or selling,  respectively,  an
instrument  identical  to the  instrument  sold  or  bought.  Secondary  markets
generally  do not exist for  forward  currency  contracts,  with the result that
closing  transactions  generally can be made for forward currency contracts only
by negotiating  directly with the counterparty.  Thus, there can be no assurance
that a Fund will in fact be able to close out a forward  currency  contract at a
favorable  price prior to maturity.  In addition,  in the event of insolvency of
the  counterparty,  a Fund  might be  unable  to close  out a  forward  currency
contract at any time prior to maturity. In either event, the Fund would continue


                                      -15-




to be subject to market risk with respect to the position, and would continue to
be required to maintain a position in the securities or currencies  that are the
subject of the hedge or to maintain cash or securities.

      The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities,  measured in the  foreign  currency,  will change  after the foreign
currency contract has been  established.  Thus, a Fund might need to purchase or
sell  foreign  currencies  in the spot (cash)  market to the extent such foreign
currencies  are not covered by forward  contracts.  The projection of short-term
currency market movements is extremely  difficult,  and the successful execution
of a short-term hedging strategy is highly uncertain.

      COMBINED   TRANSACTIONS.   A  Fund  may  enter   into   multiple   futures
transactions,  instead of a single transaction,  as part of a single or combined
strategy when, in the opinion of its subadviser,  it is in the best interests of
a Fund to do so. A combined  transaction  usually will contain  elements of risk
that  are  present  in each of its  component  transactions.  Although  combined
transactions  normally are entered into based on its subadviser's  judgment that
the combined  strategies will reduce risk or otherwise more effectively  achieve
the desired  portfolio  management  goal,  it is possible  that the  combination
instead  will  increase  such  risks  or  hinder  achievement  of the  portfolio
management objective.

INVESTMENT LIMITATIONS

      FUNDAMENTAL INVESTMENT POLICIES

      In addition to the limits disclosed in "Investment Policies" above and the
investment limitations described in the Prospectus, the Funds are subject to the
following  investment  limitations that are fundamental  policies and may not be
changed without the vote of a majority of the outstanding  voting  securities of
the  applicable  Fund.  Under  the  1940  Act,  a  "vote  of a  majority  of the
outstanding  voting  securities"  of a Fund  means the  affirmative  vote of the
lesser of (1) more than 50% of the outstanding  shares of the Fund or (2) 67% or
more of the  shares  present at a  shareholders  meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.

      DIVERSIFICATION.  With  respect  to 100% of the total  assets  of  Capital
Appreciation  and  Income-Growth  and with respect to 75% of the total assets of
the other Funds,  no Fund may invest more than 5% of that Fund's assets  (valued
at market value) in securities of any one issuer other than the U.S.  Government
or its agencies and  instrumentalities,  or purchase more than 10% of the voting
securities of the voting securities of any one issuer.

      INDUSTRY  CONCENTRATION.  The Funds may not purchase  securities  if, as a
result of such purchase,  more than 25% of the value of each Fund's total assets
would be invested in any one industry;  however, this restriction does not apply
to U.S. Government securities.

      BORROWING  MONEY.  The Funds may not borrow  money except as a temporary
measure for  extraordinary  or emergency  purposes.  Such borrowing is limited
as follows:

      Income-Growth  may not borrow  money  except from banks.  Borrowing in the
aggregate  may not exceed 15%, and  borrowing  for  purposes  other than meeting
redemptions  may not  exceed 5% of the value of the Fund's  total  assets at the
time the borrowing is made. The Fund may not make  additional  investments  when
borrowings exceed 5% of the Fund's total assets.


                                      -16-




      Capital Appreciation may not borrow money except from banks and only if at
the time of such  borrowings the total loans to the Fund do not exceed 5% of the
Fund's total assets.

      Eagle  International,  Growth  Equity,  Mid Cap Fund,  Small Cap and Value
Equity may enter into reverse  repurchase  agreements in an amount up to 33 1/3%
of the value of its total assets in order to meet  redemption  requests  without
immediately  selling  portfolio  securities.  This  latter  practice  is not for
investment  leverage  but  solely to  facilitate  management  of the  investment
portfolio by enabling the Funds to meet redemption requests when the liquidation
of portfolio  instruments would be inconvenient or  disadvantageous.  However, a
Fund may not purchase  additional  portfolio  investments  once  borrowed  funds
exceed 5% of total assets.  When effecting reverse repurchase  agreements,  Fund
assets  in an  amount  sufficient  to make  payment  for the  obligations  to be
purchased  will be segregated  by the  Custodian and on the Funds'  records upon
execution of the trade and maintained  until the  transaction  has been settled.
During the period any reverse  repurchase  agreements  are  outstanding,  to the
extent necessary to assure completion of the reverse  repurchase  agreements,  a
Fund will  restrict  the  purchase  of  portfolio  instruments  to money  market
instruments  maturing on or before the expiration date of the reverse repurchase
agreements.   Interest  paid  on  borrowed  funds  will  not  be  available  for
investment. The Funds will liquidate any such borrowings as soon as possible and
may not purchase any portfolio  instruments while any borrowings are outstanding
(except as described above).

      Eagle  International  will not borrow  money in excess of 10% of the value
(taken at the lower of cost or  current  value) of Eagle  International's  total
assets (not  including  the amount  borrowed) at the time 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,  Eagle  International  may  not  make  any  additional  investments  if,
immediately after such investments, outstanding borrowings of money would exceed
5% of the currency value of Eagle International's total assets.

      ISSUING  SENIOR  SECURITIES.  The Funds may not issue  senior  securities,
except as  permitted  by the  investment  objective,  policies,  and  investment
limitations of the Fund, except that (1) Eagle International, Growth Equity, Mid
Cap and Value  Equity may engage in  transactions  involving  options,  futures,
forward   currency   contracts,   or  other  financial   instruments,   and  (2)
Income-Growth may purchase and sell call options and forward contracts.

      UNDERWRITING.  Subject to the following exceptions, no Fund may underwrite
the  securities of other  issuers:  (1) Eagle  International,  Growth Equity and
Small Cap Fund may underwrite  securities to the extent that, in connection with
the  disposition  of  portfolio  securities,  that  Fund may be  deemed to be an
underwriter  under federal  securities  laws, and (2) Capital  Appreciation  and
Income-Growth  may invest not more than 5% and Mid Cap, and Small Cap may invest
not more than 15% of their  respective  net  assets  (taken at cost  immediately
after making such  investment)  in  securities  that are not readily  marketable
without registration under the 1933 Act.

      INVESTING  IN  COMMODITIES,  MINERALS OR REAL ESTATE.  With the  following
exceptions, the Funds may not invest in commodities, commodity contracts or real
estate (including real estate limited partnerships, in the case of all the Funds
except  Income-Growth  and  Capital  Appreciation):  (1) The Funds may  purchase
securities  issued by companies  that invest in or sponsor such  interests,  (2)
Value Equity may purchase and sell options, futures contracts,  forward currency
contracts and other financial instruments,  (3) Eagle International may purchase
and sell forward contracts, futures contracts, options and foreign currency, (4)
Eagle  International and Income-Growth may purchase  securities that are secured
by interests  in real  estate,  (5)  Income-Growth  may write and purchase  call
options,   sell  forward   contracts  and  engage  in  transactions  in  forward
commitments,  and (6) Capital  Appreciation and  Income-Growth may not invest in


                                      -17-




oil, gas, or other  mineral  programs  except that they may purchase  securities
issued by companies that invest in or sponsor such interests.

      LOANS.  The Funds may not make loans,  except that all Funds  except Eagle
International  may make  loans  under the  following  circumstances:  (1) to the
extent that the purchase of a portion of an issue of publicly  distributed (and,
in the case of Income-Growth, privately placed) notes, bonds, or other evidences
of indebtedness or deposits with banks and other financial  institutions  may be
considered  loans;  (2) where the Fund may enter into  repurchase  agreements as
permitted  under that Fund's  investment  policies;  (3) Mid Cap,  Value Equity,
Income-Growth,  and  Growth  Equity may make loans of  portfolio  securities  as
described in this SAI.  Eagle  International  may make loans by purchase of debt
obligations  or by entering into  repurchase  agreements  or through  lending of
Eagle International's portfolio securities.

      FUNDAMENTAL POLICIES UNIQUE TO EAGLE INTERNATIONAL

      Eagle  International has adopted the following  fundamental  policies that
can be changed only by shareholder vote:

      MARGINS.  Eagle  International  will not  purchase  securities  on margin,
except  such  short-term  credits  as may be  necessary  for  the  clearance  of
purchases and sales of securities.  (For this purpose, the deposit or payment by
Eagle  International  of initial or variation  margin in connection with futures
contracts,  forward  contracts  or options is not  considered  the purchase of a
security on margin.)

      SHORT SALES.  Eagle  International will not make short sales of securities
or maintain a short position, except that Eagle International may maintain short
positions in  connection  with its use of options,  futures  contracts,  forward
contracts and options on futures  contracts,  and Eagle  International  may sell
short "against the box." As a matter of nonfundamental  investment policy, Eagle
will not sell securities short "against the box."

      FUNDAMENTAL POLICIES UNIQUE TO INCOME-GROWTH

      Income-Growth has adopted the following  fundamental  policies that can be
changed only by shareholder vote:

      INVESTING IN ISSUERS WHOSE  SECURITIES  ARE OWNED BY OFFICERS AND TRUSTEES
OF THE TRUST.  The Trust may not purchase or retain the securities of any issuer
if the officers and  Trustees of the Fund or Heritage or its  subadviser  owning
individually  more than 1/2 of 1% of the issuer's  securities  together own more
than 5% of the issuer's securities.

      REPURCHASE AGREEMENTS AND LOANS TO PORTFOLIO SECURITIES.  The Fund may not
enter  into  repurchase  agreements  with  respect to more than 25% of its total
assets and may not lend portfolio  securities  amounting to more than 25% of its
total assets.

      MARGIN PURCHASES. The Fund may not purchase securities on margin except to
obtain  such  short-term  credits  as may be  necessary  for  the  clearance  of
transactions.

      RESTRICTED SECURITIES.  The Fund may not invest more than 5% of the Fund's
total  assets  (taken at cost) in  securities  that are not  readily  marketable
without registration under the 1933 Act (restricted securities).


                                      -18-




      NON-FUNDAMENTAL INVESTMENT POLICIES

      Each  Fund  has  adopted  the  following  additional  restrictions  which,
together with certain limits described in the Prospectus,  may be changed by the
Board of Trustees  without  shareholder  approval in compliance  with applicable
law, regulation or regulatory policy.

      INVESTING IN ILLIQUID  SECURITIES.  Small Cap may not invest more than 15%
and Capital  Appreciation,  Income-Growth  and Value  Equity may not invest more
than 10% of their net  assets in  repurchase  agreements  maturing  in more than
seven  days or in  other  illiquid  securities,  including  securities  that are
illiquid  by virtue of the  absence  of a readily  available  market or legal or
contractual   restrictions   as  to  resale  and  including,   in  the  case  of
Income-Growth, privately placed securities.

      Growth  Equity and Eagle  International  may not invest more than 10%, and
Mid Cap may not invest more than 15% of their net assets in securities  that are
subject  to  restrictions  on  resale  or are  not  readily  marketable  without
registration  under the 1933 Act and in repurchase  agreements  maturing in more
than seven days.

      SELLING SHORT AND BUYING ON MARGIN.  Capital Appreciation,  Growth Equity,
Mid Cap,  Small  Cap,  and Value  Equity  may not sell any  securities  short or
purchase any securities on margin but may obtain such short-term  credits as may
be  necessary  for  clearance  of  purchases  and sales of  securities;  and, in
addition,  Growth Equity,  Mid Cap, and Value Equity may make margin deposits in
connection with the Fund's use of options,  futures contracts,  forward currency
contracts in the case of Value  Equity and Growth  Equity,  and other  financial
instruments.

      INVESTING IN INVESTMENT COMPANIES.  Income-Growth,  Mid Cap, Small Cap and
Value Equity may not invest in securities  issued by other investment  companies
except as  permitted  by the 1940 Act,  and with  respect to Small Cap and Value
Equity,  except in connection with the merger,  consolidation  or acquisition of
all the securities or assets of such an issuer.

      Capital  Appreciation  may  not  invest  in  securities  issued  by  other
investment  companies,  except  in  connection  with  a  merger,  consolidation,
acquisition  or  reorganization  by purchase in the open market of securities of
closed-end  investment  companies  where no underwriter or dealer  commission or
profit,  other than a customary  brokerage  commission  is involved  and only if
immediately  thereafter not more than 5% of Capital  Appreciation's total assets
(taken at market value) would be invested in such securities.

      Growth  Equity  may not  invest  in the  securities  of  other  investment
companies,  except by purchase in the open market where no  commission or profit
to a sponsor  or dealer  results  from the  purchase  other  than the  customary
broker's  commission,  or except when the  purchase is part of a plan of merger,
consolidation, reorganization or acquisition.

      Eagle  International  may not invest more than 10% of its total  assets in
securities  of other  investment  companies.  For purposes of this  restriction,
foreign  banks and foreign  insurance  companies or their  respective  agents or
subsidiaries  are  not  considered  investment  companies.  In  addition,  Eagle
International  may invest in the  securities  of other  investment  companies in
connection  with a  merger,  consolidation  or  acquisition  of  assets or other
reorganization   approved   by   Eagle   International's   shareholders.   Eagle
International may incur duplicate  advisory or management fees when investing in
another mutual fund.




                                      -19-





      NON-FUNDAMENTAL POLICIES UNIQUE TO CAPITAL APPRECIATION

      Capital Appreciation has adopted the following non-fundamental policies:

      OPTION WRITING.  The Trust may not write put or call options.

      PLEDGING.  The Trust may not  pledge  any  securities  except  that it may
pledge  assets having a value of not more than 10% of its total assets to secure
permitted borrowing from banks.

      Except with respect to borrowing  money,  if a  percentage  limitation  is
adhered to at the time of the  investment,  a later  increase or decrease in the
percentage resulting from any change in value of net assets will not result in a
violation of such restriction.

NET ASSET VALUE

      The net  asset  value  per  share of A  shares,  B shares  and C shares is
determined  separately  daily as of the close of regular trading on the New York
Stock Exchange (the "Exchange") each day the Exchange is open for business.

      A security listed or traded on the Exchange,  or other domestic or foreign
stock exchanges,  is valued at its last sales price on the principal exchange on
which it is  traded  prior to the time when  assets  are  valued.  If no sale is
reported  at that time or the  security  is traded  in the OTC  market  the most
recent quoted bid price is used. When market  quotations for options and futures
positions held by Value Equity,  Growth Equity, Mid Cap and Eagle  International
are  readily  available,   those  positions  will  be  valued  based  upon  such
quotations. Market quotations generally will not be available for options traded
in the OTC market.  Securities and other assets for which market  quotations are
not readily available, or for which market quotes are not deemed to be reliable,
are valued at fair value as  determined  in good faith by the Board of Trustees.
Securities and other assets in foreign currency and foreign  currency  contracts
will be valued  daily in U.S.  dollars at the foreign  currency  exchange  rates
prevailing  at the time a Fund  calculates  the daily  net  asset  value of each
class. Short-term investments having a maturity of 60 days or less are valued at
cost with accrued interest or discount earned included in interest receivable.

      All  securities  and other assets  quoted in foreign  currency and forward
currency  contracts are valued daily in U.S. dollars on the basis of the foreign
currency  exchange rate  prevailing at the time such  valuation is determined by
the Fund's  custodian.  Foreign currency exchange rates generally are determined
prior to the close of the Exchange. Occasionally,  events affecting the value of
foreign  securities and such exchange rates occur between the time at which they
are determined and the close of the Exchange, which events will not be reflected
in a computation of the Fund's net asset value. If events  materially  affecting
the value of such  securities  or assets or  currency  exchange  rates  occurred
during such time period,  the securities or assets would be valued at their fair
value as determined in good faith under procedures  established by and under the
general  supervision and  responsibility  of the Board of Trustees.  The foreign
currency exchange transactions of a Fund conducted on a spot basis are valued at
the spot rate for  purchasing  or selling  currency  prevailing  on the  foreign
exchange market.

      The Funds are open for  business  on days on which  the  Exchange  is open
(each a "Business  Day").  Trading in  securities  on  European  and Far Eastern
securities  exchanges  and OTC  markets  normally is  completed  well before the
Funds'  close of business on each  Business  Day. In  addition,  European or Far
Eastern securities trading may not take place on all Business Days. Furthermore,
trading  takes  place in various  foreign  capital  markets on days that are not
Business  Days  and on which  the  Funds'  net  asset  value is not  calculated.


                                      -20-




Calculation  of net asset  value of A shares  and C shares  does not take  place
contemporaneously  with the  determination  of the prices of the majority of the
portfolio  securities  used in such  calculation.  The Funds calculate net asset
value per share and, therefore, effect sales and redemptions, as of the close of
regular  trading  on the  Exchange  each  Business  Day.  If  events  materially
affecting  the value of such  securities  or other assets occur between the time
when their  prices are  determined  (including  their  value in U.S.  dollars by
reference to foreign  currency  exchange rates) and the time when the Funds' net
asset value is  calculated,  such  securities and other assets will be valued at
fair value by methods as  determined  in good faith by or under the direction of
the Board of Trustees.

      The Board of  Trustees  may suspend  the right of  redemption  or postpone
payment  for more than  seven  days at times (1) during  which the  Exchange  is
closed other than for the  customary  weekend and holiday  closings,  (2) during
which trading on the Exchange is restricted as determined by the SEC, (3) during
which  an  emergency  exists  as a  result  of which  disposal  by the  Funds of
securities  owned by them is not reasonably  practicable or it is not reasonably
practical  for the Funds fairly to determine  the value of their net assets,  or
(4) for such other periods as the SEC may by order permit for the  protection of
the holders of A shares and C shares.

PERFORMANCE INFORMATION

      The Funds'  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 according to
the following formula:

                           P(1+T)n(SUPERSCRIPT) = ERV
            where:P     =     a hypothetical initial payment of $1,000
                  T     =     average annual total return
                  n     =     number of years
                  ERV   =     ending   redeemable   value  of  a  hypothetical
                              $1,000  payment  made  at the  beginning  of the
                              period at the end of that period

      In  calculating  the ending  redeemable  value for A shares,  each  Fund's
current  maximum sales load of 4.75% is deducted from the initial $1,000 payment
and, for B shares and C shares, the applicable CDSL imposed on a redemption of B
shares or C shares  held for the period is  deducted.  All  dividends  and other
distributions  by a Fund are assumed to have been  reinvested at net asset value
on the reinvestment  dates during the period.  Based on this formula,  the total
return,  or "T" in the formula above,  is computed by finding the average annual
compounded  rates of return over the period that would equate the initial amount
invested to the ending redeemable value.

      In  connection  with   communicating   its  total  return  to  current  or
prospective  shareholders,  each  Fund also may  compare  these  figures  to the
performance  of other mutual funds tracked by mutual fund rating  services or to
other unmanaged indexes that may assume  reinvestment of dividends but generally
do not reflect  deductions for administrative and management costs. In addition,
each Fund may from time to time include in advertising and promotional materials
total return figures that are not calculated  according to the formula set forth
above for each class of shares.  For example,  in  comparing a Fund's  aggregate
total  return with data  published  by Lipper  Analytical  Services,  Inc.,  CDA
Investment  Technologies,  Inc.,  or with such  market  indices as the Dow Jones
Industrial  Average,  and the S&P 500 Index, each Fund calculates its cumulative
total  return for each class for the  specified  periods of time by  assuming an
investment of $10,000 in that class of shares and assuming the  reinvestment  of
each dividend or other distribution at net asset value on the reinvestment date.
Percentage  increases  are  determined by  subtracting  the initial value of the


                                      -21-




investment  from the ending value and by dividing the remainder by the beginning
value.  The Funds do not,  for these  purposes,  deduct from the  initial  value
invested any amount  representing  front-end  sales loads charged on A shares or
CDSLs charged on B shares and C shares.  By not  annualizing the performance and
excluding the effect of the  front-end  sales load on A shares and the CDSL on B
shares and C shares,  the total  return  calculated  in this manner  simply will
reflect  the  increase  in net  asset  value  per  share  over a period of time,
adjusted for dividends and other distributions. Calculating total return without
taking into  account  the sales load or CDSL  results in a higher rate of return
than calculating total return net of the front-end sales load.

      The average  annualized total return and cumulative  return are as follows
for each period of each Fund below.  Return information is not available for Mid
Cap because  Mid Cap did not  commence  operations  until  November 2, 1997.  In
addition, return information is not available for B shares because they were not
offered prior to the date of this SAI.

                                                         Average
                                                        Annualized        Total
    Fund      Shares               Period              Total Return       Return
    ----      ------               ------              ------------       ------
                                                                          
Capital      A shares     One-year period ended
Appreciation              August 31, 1997                 27.27%

                          Five-year period ended
                          August 31, 1997                 16.45%        124.89%

                          Ten-year period ended
                          August 31, 1997                 11.35%        207.82%

                          December 12, 1985
                          (commencement of                12.68%        325.87%
                          operations) to August 31,
                          1997

             C shares     One-year period ended
                          August 31, 1997                 32.91%

                          April 3, 1995 (initial
                          offering of shares) to          22.43%        62.96%
                          August 31, 1997

Eagle        A shares     One-year period ended
Inter-                    October 31, 1997                9.98%
national
                          December 27, 1995 (initial
                          offering of A shares) to        5.89%         16.68%
                          October 31, 1997

             C shares     One-year period ended
                          October 31, 1997                9.79%

                          December 27 1995 (initial
                          offering of C shares) to        7.87%         15.04%
                          October 31, 1997



                                      -22-




                                                         Average
                                                        Annualized       Total
    Fund      Shares               Period              Total Return      Return 
    ----      ------               ------              ------------      ------ 
                                                                                
Growth       A shares     One-year period ended
Equity                    October 31, 1997                27.63%

                          November 16, 1995
                          (commencement of                26.48%        66.34%
                          operations) to October 31,
                          1997

             C shares     One-year period ended
                          October 31, 1997                32.99%

                          November 16, 1995
                          (commencement of                28.68%        63.89%
                          operations) to October 31,
                          1997

Income-      A Shares     One-year period ended
Growth                    September 30, 1997              23.30%

                          Five-year period ended
                          September 30, 1997              16.39%        124.32%

                          Ten-year period ended
                          September 30, 1997              11.57%        214.18%

                          December 15, 1986
                          (commencement of                11.36%        235.51%
                          operations) to September
                          30, 1997

             C shares     One-year period ended
                          September 30, 1997              28.49%

                          April 3, 1995 (initial
                          offering of shares) to          25.55%        76.49%
                          September 30, 1997

Small Cap    A shares     One-year period ended
                          October 31, 1997                30.18%

                          May 7, 1993 (commencement
                          of operations) to               21.95%       155.80%
                          October 31, 1997
 
            C shares      One-year period ended
                          October 31, 1997                35.63%

                          April 3, 1995 (initial
                          offering of C shares) to        34.54%       115.03%
                          October 31, 1997

                                      -23-




                                                         Average
                                                        Annualized        Total
    Fund      Shares               Period              Total Return       Return
    ----      ------               ------              ------------       ------
                                                                          
Value Equity A shares     One-year period ended
                          October 31, 1997                22.57%

                          December 30, 1994
                          (commencement of                23.01%        88.99%
                          operations) to October 31,
                          1997

             C shares     One-year period ended
                          October 31, 1997                27.79%

                          April 3, 1995 (initial
                          offering of C shares) to        23.79%        73.45%
                          October 31, 1997


INVESTING IN THE FUNDS

      A shares,  B shares  and C shares are sold at their  next  determined  net
asset value on Business Days. The procedures for purchasing shares of a Fund are
explained in the Prospectus under "Purchase Procedures."

      SYSTEMATIC INVESTMENT OPTIONS

      The options below allow you to invest  continually in one or more Funds at
regular intervals.

      1. Systematic Investing -- You may authorize Heritage to process a monthly
draft from your personal  checking account for investment into a Fund. The draft
is returned by your bank the same way a canceled check is returned.

      2. Payroll  Direct  Deposit -- If your employer  participates  in a direct
deposit  program  (also known as ACH  Deposits) you may have all or a portion of
your payroll directed to a Fund. This will generate a purchase  transaction each
time you are paid by your employer.  Your employer will report to you the amount
sent from each paycheck.

      3.  Government  Direct  Deposit -- If you  receive a  qualifying  periodic
payment from the U.S.  Government  or other agency that  participates  in Direct
Deposit, you may have all or a part of each check directed to purchase shares of
a Fund. The U.S. Government or agency will report to you all payments made.

      4. Automatic Exchange -- If you own shares of another Heritage mutual fund
advised or administered by Heritage  ("Heritage Mutual Fund"),  you may elect to
have  a  preset  amount   redeemed  from  that  fund  and  exchanged   into  the
corresponding  class of shares of a Fund.  You will receive a statement from the
other Heritage Mutual Fund confirming the redemption.

      You may change or terminate any of the above options at any time.


                                      -24-





      RETIREMENT PLANS

      HERITAGE IRA.  Individuals who earn  compensation and who have not reached
age 70 1/2  before  the close of the year  generally  may  establish  a Heritage
Individual   Retirement   Account  ("IRA").   An  individual  may  make  limited
contributions  to a Heritage IRA through the purchase of shares of a Fund and/or
other Heritage Mutual Funds.  The Internal Revenue Code of 1986, as amended (the
"Code"),  limits the deductibility of IRA contributions to taxpayers who are not
active  participants  (and  whose  spouses  are  not  active   participants)  in
employer-provided  retirement  plans or who have  adjusted  gross  income  below
certain  levels.  Nevertheless,  the  Code  permits  other  individuals  to make
nondeductible  IRA  contributions  up to  $2,000  per year (or  $4,000,  if such
contributions  also are made  for a  nonworking  spouse  and a joint  return  is
filed). In addition,  individuals  whose earnings  (together with their spouse's
earnings) do not exceed a certain level may establish an "education  IRA" and/or
a "Roth IRA"; although  contributions to these new types of IRAs (established by
the Taxpayer Relief Act of 1997 ("Tax Act")) are nondeductible, withdrawals from
them will not be taxable under certain circumstances. A Heritage IRA also may be
used for certain  "rollovers"  from  qualified  benefit  plans and from  Section
403(b) annuity plans. For more detailed  information on the Heritage IRA, please
contact Heritage.

      Fund shares also may be used as the investment  medium for qualified plans
(defined  benefit or defined  contribution  plans  established by  corporations,
partnerships or sole  proprietorships).  Contributions to qualified plans may be
made   (within   certain   limits)  on  behalf  of  the   employees,   including
owner-employees, of the sponsoring entity.

      OTHER RETIREMENT PLANS.  Multiple participant payroll deduction retirement
plans also may purchase A shares of any Heritage  Mutual Fund at a reduced sales
load on a monthly  basis  during the  13-month  period  following  such a plan's
initial  purchase.  The sales load applicable to an initial purchase of A shares
will be that normally  applicable under the schedule of sales loads set forth in
the Prospectus to an investment 13 times larger than the initial  purchase.  The
sales load  applicable to each succeeding  monthly  purchase of A shares will be
that normally applicable,  under the schedule, to an investment equal to the sum
of (1) the total purchase previously made during the 13-month period and (2) the
current  month's  purchase  multiplied  by the number of months  (including  the
current month)  remaining in the 13-month  period.  Sales loads  previously paid
during  such period  will not be  adjusted  retroactively  on the basis of later
purchases.  Multiple participant payroll deduction retirement plans may purchase
C shares at any time.

      CLASS A COMBINED PURCHASE PRIVILEGE (RIGHT OF ACCUMULATION)

      Certain  investors  may  qualify  for the  Class A sales  load  reductions
indicated in the sales load schedule in the Prospectus by combining purchases of
A shares into a single  "purchase,"  if the resulting  purchase  totals at least
$25,000. The term "purchase" refers to a single purchase by an individual, or to
concurrent  purchases  that,  in  the  aggregate,  are  at  least  equal  to the
prescribed  amounts,  by an individual,  his spouse and their children under the
age of 21 years  purchasing  A shares  for his or their  own  account;  a single
purchase by a trustee or other fiduciary purchasing A shares for a single trust,
estate  or single  fiduciary  account  although  more  than one  beneficiary  is
involved;  or a  single  purchase  for the  employee  benefit  plans of a single
employer.  The term  "purchase"  also includes  purchases by a "company," as the
term is  defined in the 1940 Act,  but does not  include  purchases  by any such
company  that has not been in  existence  for at least six months or that has no
purpose  other  than the  purchase  of A shares or  shares  of other  registered
investment companies at a discount; provided, however, that it shall not include
purchases by any group of individuals  whose sole  organizational  nexus is that
the participants therein are credit card holders of a company, policy holders of
an insurance company, customers of either a bank or broker-dealer, or clients of
an investment  adviser.  A "purchase" also may include A shares purchased at the


                                      -25-





same time through a single  selected  dealer of any other  Heritage  Mutual Fund
that distributes its shares subject to a sales load.

      The applicable A shares initial sales load will be based on the total of:

            (i)    the investor's current purchase;

            (ii) the net asset value (at the close of  business on the  previous
day) of (a) all A shares of a Fund held by the  investor and (b) all A shares of
any other Heritage Mutual Fund held by the investor and purchased at a time when
A shares of such other fund were distributed  subject to a sales load (including
Heritage Cash Trust shares acquired by exchange); and

            (iii) the net asset  value of all A shares  described  in  paragraph
(ii) owned by another shareholder  eligible to combine his purchase with that of
the investor into a single "purchase."

      A  shares  of   Heritage   Income   Trust-Intermediate   Government   Fund
("Intermediate  Government")  purchased  from  February 1, 1992 through July 31,
1992,  without  payment  of a sales  load  will be  deemed  to  fall  under  the
provisions  of  paragraph  (ii) as if they had been  distributed  without  being
subject to a sales load,  unless those shares were acquired  through an exchange
of other shares that were subject to a sales load.

      To qualify for the Combined  Purchase  Privilege  on a purchase  through a
selected  dealer,  the investor or selected  dealer must provide the Distributor
with  sufficient  information  to verify that each  purchase  qualifies  for the
privilege or discount.

      CLASS A STATEMENT OF INTENTION

      Investors  also may obtain the reduced sales loads shown in the Prospectus
by means of a written  Statement of Intention,  which  expresses the  investor's
intention  to  invest  not less than  $25,000  within a period of 13 months in A
shares of a Fund or any other  Heritage  Mutual Fund.  Each purchase of A shares
under a Statement  of  Intention  will be made at the public  offering  price or
prices  applicable at the time of such purchase to a single  transaction  of the
dollar amount indicated in the Statement. In addition, if you own Class A shares
of any other Heritage Mutual Fund subject to a sales load, you may include those
shares in computing the amount necessary to qualify for a sales load reduction.

      The Statement of Intention is not a binding  obligation  upon the investor
to purchase the full amount  indicated.  The minimum initial  investment under a
Statement of Intention is 5% of such amount.  A shares  purchased with the first
5% of such amount will be held in escrow (while remaining registered in the name
of the  investor) to secure  payment of the higher sales load  applicable to the
shares  actually  purchased if the full amount  indicated is not purchased,  and
such  escrowed A shares will be  redeemed  involuntarily  to pay the  additional
sales load, if necessary. When the full amount indicated has been purchased, the
escrow  will be  released.  To the extent an  investor  purchases  more than the
dollar  amount  indicated  on the  Statement of Intention  and  qualifies  for a
further  reduced  sales  load,  the sales load will be  adjusted  for the entire
amount purchased at the end of the 13-month period. The difference in sales load
will be used to purchase  additional  A shares of a Fund  subject to the rate of
sales  load  applicable  to the actual  amount of the  aggregate  purchases.  An
investor may amend  his/her  Statement  of  Intention to increase the  indicated
dollar amount and begin a new 13-month  period.  In that case,  all  investments
subsequent  to the  amendment  will be made at the sales  load in effect for the
higher amount. The escrow procedures discussed above will apply.


                                      -26-





REDEEMING SHARES

      The methods of redemption  are described in the section of the  Prospectus
entitled "How to Redeem Shares."

      SYSTEMATIC WITHDRAWAL PLAN

      Shareholders may elect to make systematic  withdrawals from a Fund account
of a minimum  of $50 on a  periodic  basis.  The  amounts  paid each  period are
obtained  by  redeeming  sufficient  shares  from  an  account  to  provide  the
withdrawal  amount  specified.  The Systematic  Withdrawal Plan currently is not
available for shares held in an individual  retirement  account,  Section 403(b)
annuity plan, defined  contribution plan,  simplified  employee pension plan, or
other  retirement  plans,  unless  the  shareholder  establishes  to  Heritage's
satisfaction  that  withdrawals  from  such  an  account  may  be  made  without
imposition of a penalty.  Shareholders  may change the amount to be paid without
charge  not more  than  once a year by  written  notice  to the  Distributor  or
Heritage.

      Redemptions  will be made at net asset value determined as of the close of
regular  trading  on  the  Exchange  on a  day  of  each  month  chosen  by  the
shareholders  or a  day  of  the  last  month  of  each  period  chosen  by  the
shareholders,  whichever is applicable.  Systematic  withdrawals of C shares, if
made in less than one year of the date of  purchase,  will be  charged a CDSL of
1%. If the  Exchange is not open for  business  on that day,  the shares will be
redeemed at net asset value determined as of the close of regular trading on the
Exchange on the preceding  Business Day, minus any applicable  CDSL for B shares
and  C  shares.  If a  shareholder  elects  to  participate  in  the  Systematic
Withdrawal Plan,  dividends and other distributions on all shares in the account
must be reinvested automatically in Fund shares. A shareholder may terminate the
Systematic  Withdrawal  Plan at any time  without  charge or  penalty  by giving
written notice to Heritage or the Distributor. The Funds, and the transfer agent
and  Distributor  also reserve the right to modify or terminate  the  Systematic
Withdrawal Plan at any time.

      Withdrawal  payments  are  treated  as a sale of shares  rather  than as a
dividend  or a capital  gain  distribution.  These  payments  are taxable to the
extent that the total amount of the payments exceeds the tax basis of the shares
sold.  If  the  periodic  withdrawals  exceed  reinvested  dividends  and  other
distributions,  the amount of the  original  investment  may be  correspondingly
reduced.

      Ordinarily,  a  shareholder  should not purchase  additional A shares of a
Fund if  maintaining  a  Systematic  Withdrawal  Plan of A  shares  because  the
shareholder  may incur tax  liabilities  in connection  with such  purchases and
withdrawals.  A Fund will not knowingly accept purchase orders from shareholders
for additional A shares if they maintain a Systematic Withdrawal Plan unless the
purchase is equal to at least one year's scheduled  withdrawals.  In addition, a
shareholder  who maintains such a Plan may not make periodic  investments  under
each Fund's Automatic Investment Plan.

      TELEPHONE TRANSACTIONS

      Shareholders may redeem shares by placing a telephone request to a Fund. A
Fund, Heritage, Eagle, the Distributor and their Trustees,  directors,  officers
and employees are not liable for any loss arising out of telephone  instructions
they reasonably  believe are authentic.  In acting upon telephone  instructions,
these parties use procedures  that are  reasonably  designed to ensure that such
instructions  are genuine,  such as (1)  obtaining  some or all of the following
information:  account number,  name(s) and social security number  registered to
the  account,   and  personal   identification;   (2)  recording  all  telephone
transactions;  and (3) sending written  confirmation of each  transaction to the
registered  owner.  If a  Fund,  Heritage,  Eagle,  the  Distributor  and  their


                                      -27-




Trustees, directors, officers and employees do not follow reasonable procedures,
some or all of them may be liable for any such losses.

      REDEMPTIONS IN KIND

      A Fund is obligated to redeem shares for any  shareholder  for cash during
any 90-day period up to $250,000 or 1% of that Fund's net asset value, whichever
is less. Any redemption beyond this amount also will be in cash unless the Board
of Trustees  determine  that further cash payments will have a material  adverse
effect  on  remaining  shareholders.  In such a case,  a Fund  will pay all or a
portion of the remainder of the redemption in portfolio  instruments,  valued in
the same way as each Fund determines net asset value. The portfolio  instruments
will be selected in a manner that the Board of Trustees deem fair and equitable.
A redemption in kind is not as liquid as a cash  redemption.  If a redemption is
made in kind, a shareholder  receiving portfolio  instruments could receive less
than the redemption value thereof and could incur certain transaction costs.

      RECEIVING PAYMENT

      If shares of a Fund are redeemed by a shareholder  through the Distributor
or a participating  dealer, the redemption is settled with the shareholder as an
ordinary  transaction.  If a request for redemption is received before the close
of regular  trading on the  Exchange,  shares  will be redeemed at the net asset
value per share  determined on that day, minus any applicable  CDSL for B shares
and C shares.  Requests  for  redemption  received  after  the close of  regular
trading on the Exchange  will be executed on the next  trading day.  Payment for
shares  redeemed  normally  will  be  made  by a Fund  to the  Distributor  or a
participating  dealer by the  third  business  day after the day the  redemption
request was made,  provided that  certificates for shares have been delivered in
proper form for transfer to the Fund, or if no certificates  have been issued, a
written  request signed by the  shareholder has been provided to the Distributor
or a participating dealer prior to settlement date.

      Other  supporting  legal  documents may be required from  corporations  or
other organizations, fiduciaries or persons other than the shareholder of record
making the request for redemption.  Questions  concerning the redemption of Fund
shares can be directed to registered  representatives  of the  Distributor  or a
participating dealer, or to Heritage.

EXCHANGE PRIVILEGE

      An exchange is effected  through the redemption of the shares tendered for
exchange and the purchase of shares being acquired at their respective net asset
values as next  determined  following  receipt by the Heritage Mutual Fund whose
shares  are  being  exchanged  of (1)  proper  instructions  and  all  necessary
supporting documents as described in such fund's Prospectus,  or (2) a telephone
request for such exchange in  accordance  with the  procedures  set forth in the
Prospectus and below. Telephone or telegram requests for an exchange received by
a Fund before the close of regular  trading on the Exchange  will be effected at
the close of regular  trading on that day.  Requests  for an  exchange  received
after the close of regular  trading  will be  effected  on the  Exchange's  next
trading day.

      A shares  of  Intermediate  Government  purchased  from  February  1, 1992
through July 31, 1992, without payment of an initial sales load may be exchanged
into A  shares  of a Fund  without  payment  of any  sales  load.  A  shares  of
Intermediate  Government  purchased after July 31, 1992 without an initial sales
load will be  subject to a sales  load when  exchanged  into A shares of a Fund,
unless  those  shares were  acquired  through an exchange of other A shares that
were subject to an initial sales load.



                                      -28-





CONVERSION OF CLASS B SHARES

      B shares of the Funds automatically will convert to A shares, based on the
relative net asset  values per share of the two  classes,  eight years after the
end of the  calendar  month in which the  shareholder's  order to  purchase  was
accepted.  For the  purpose of  calculating  the  holding  period  required  for
conversion of B shares,  the date of initial issuance shall mean (i) the date on
which  such B  shares  were  issued  or (ii) for B shares  obtained  through  an
exchange, or a series of exchanges, the date on which the original B shares were
issued.  For purposes of conversion to A shares, B shares purchased  through the
reinvestment  of dividends and other  distributions  paid in respect of B shares
will  be  held  in a  separate  sub-account.  Each  time  any B  shares  in  the
shareholder's regular account (other than those in the sub-account) convert to A
shares,  a pro rata portion of the B shares in the sub-account will also convert
to A shares.  The portion will be determined by the ratio that the shareholder's
B shares  converting to A shares bears to the  shareholder's  total B shares not
acquired through dividends and other distributions.

      The  availability  of the conversion  feature is subject to the continuing
availability of an opinion of counsel to the effect that the dividends and other
distributions  paid on A shares and B shares  will not  result in  "preferential
dividends"  under the Code and the  conversion  of shares does not  constitute a
taxable event.  If the conversion  feature ceased to be available,  the B shares
would not be converted  and would  continue to be subject to the higher  ongoing
expenses of the B shares beyond eight years from the date of purchase.  Heritage
and Eagle have no reason to believe that this condition for the  availability of
the conversion feature will not be met.


TAXES

      GENERAL. Each Fund is treated as a separate corporation for Federal income
tax  purposes.  In order to qualify or to continue to qualify for the  favorable
tax treatment as a regulated  investment  company  ("RIC") under the Code,  each
Fund must distribute annually to its shareholders at least 90% of its investment
company  taxable  income  (generally  consisting of net investment  income,  net
short-term   capital   gain  and  net  gains  from  certain   foreign   currency
transactions)  ("Distribution  Requirement")  and must meet  several  additional
requirements.  With  respect  to  each  Fund,  these  requirements  include  the
following:  (1) the Fund  must  derive at least  90% of its  gross  income  each
taxable year from dividends, interest, payments with respect to securities loans
and  gains  from  the  sale  or  other  disposition  of  securities  or  foreign
currencies,  or other income  (including gains from options,  futures or forward
currency  contracts)  derived  with  respect to its  business  of  investing  in
securities or those currencies ("Income Requirement");  (2) at the close of each
quarter  of the  Fund's  taxable  year,  at least  50% of the value of its total
assets must be represented by cash and cash items, U.S.  Government  securities,
securities  of other  RICs and other  securities,  with those  other  securities
limited,  in respect of any one issuer,  to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not  represent  more than 10%
of the  issuer's  outstanding  voting  securities;  and (3) at the close of each
quarter of the Fund's  taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S.  Government  securities or
the securities of other RICs) of any one issuer.

      Each Fund will be subject to a nondeductible  4% excise tax ("Excise Tax")
to the  extent  it  fails  to  distribute  by  the  end  of  any  calendar  year
substantially  all of its ordinary income for that year and its capital gain net
income for the one-year  period ending on October 31 of that year,  plus certain
other amounts.

      A  redemption  of Fund shares will result in a taxable gain or loss to the
redeeming shareholder,  depending on whether the redemption proceeds are more or
less than the  shareholder's  adjusted  basis  for the  redeemed  shares  (which


                                      -29-


normally includes any sales load paid on A shares). An exchange of shares of any
Fund for  shares of  another  Heritage  Mutual  Fund  (including  another  Fund)
generally will have similar tax consequences.  However, special rules apply when
a  shareholder  disposes of A shares of a Fund through a redemption  or exchange
within 90 days after purchase  thereof and  subsequently  reacquires A shares of
that Fund or acquires A shares of another  Heritage Mutual Fund without paying a
sales load due to the  90-day  reinstatement  or  exchange  privilege.  In these
cases,  any gain on the  disposition of the original A shares will be increased,
or loss  decreased,  by the amount of the sales load paid when those shares were
acquired,  and that  amount  will  increase  the  adjusted  basis of the  shares
subsequently  acquired.  In addition, if shares of a Fund are purchased (whether
pursuant to the  reinstatement  privilege or otherwise) within 30 days before or
after redeeming  other shares of that Fund  (regardless of class) at a loss, all
or a portion of that loss will not be deductible  and will increase the basis of
the newly purchased shares.

      If shares of a Fund are sold at a loss after  being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the  extent of any  capital  gain  distributions  received  on those  shares.
Investors  also should be aware that if shares are purchased  shortly before the
record date for a dividend or other distribution,  the shareholder will pay full
price for the shares  and  receive  some  portion of the price back as a taxable
distribution.

      INCOME FROM FOREIGN  SECURITIES.  Dividends and interest  received by each
Fund (other than Small Cap) may be subject to income, withholding or other taxes
imposed by foreign countries and U.S.  possessions  ("foreign taxes") that would
reduce the yield on its securities.  Tax conventions  between 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 a Fund's
total assets at the close of any taxable year  consists of securities of foreign
corporations,  it will be  eligible  to,  and  may,  file an  election  with the
Internal  Revenue  Service that 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,  each Fund would treat those taxes as
dividends paid to its shareholders and each shareholder would be required to (1)
include in gross income, and treat as paid by the shareholder, the shareholder's
proportionate  share of those taxes, (2) treat the shareholder's  share of those
taxes and of any dividend paid by the Fund that  represents  income from foreign
or U.S.  possessions sources as the shareholder's own income from those sources,
and (3) either deduct the taxes deemed paid by the  shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against the shareholder's Federal income tax.
Each Fund will report to its shareholders  shortly after each taxable year their
respective shares of the Fund's income from sources within foreign countries and
U.S.  possessions  and  foreign  taxes  paid by it if it  makes  this  election.
Pursuant  to the Tax Act,  individuals  who have no more  than  $300  ($600  for
married  persons filing  jointly) of creditable  foreign taxes included on Forms
1099 and  have no  foreign  source  non-passive  income  will be able to claim a
foreign tax credit  without having to file the detailed Form 1116 that otherwise
is required.

      Each Fund,  except Small Cap, may invest in the stock of "passive  foreign
investment companies" ("PFICs"). A PFIC is a foreign corporation -- other than a
"controlled  foreign  corporation" (I.E., a foreign corporation in which, on any
day during its  taxable  year,  more than 50% of the total  voting  power of all
voting stock therein or the total value of all stock therein is owned, directly,
indirectly,  or constructively,  by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly, or constructively,  at least 10% of
that voting power) as to which a Fund is a U.S. shareholder -- that, in general,
meets  either of the  following  tests:  (1) at least 75% of its gross income is
passive or (2) an average of at least 50% of its assets produce, or are held for
the production of, passive income. Under certain  circumstances,  a Fund will be
subject to Federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of the stock  (collectively
"PFIC income"),  plus interest  thereon,  even if the Fund  distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income


                                      -30-





will  be  included  in  the  Fund's  investment   company  taxable  income  and,
accordingly,  will not be taxable to it to the extent that income is distributed
to its shareholders.

      If a Fund  invests in a PFIC and elects to treat the PFIC as a  "qualified
electing  fund"  ("QEF"),  then  in  lieu  of the  foregoing  tax  and  interest
obligation,  the Fund will be  required  to include in income  each year its pro
rata share of the QEF's  annual  ordinary  earnings  and net  capital  gain (the
excess of net long-term capital gain over net short-term  capital loss) -- which
most likely would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not  distributed  to the Fund by the QEF. In most instances it will be
very  difficult,  if not  impossible,  to make this election  because of certain
requirements thereof.

      Each  Fund  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
a Fund's  adjusted  basis  therein as of the end of that year.  Pursuant  to the
election,  a Fund 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 Fund for
prior taxable years.  A Fund's  adjusted basis in each PFIC's stock with respect
to which it makes this  election  will be  adjusted  to reflect  the  amounts of
income included and deductions taken under the election. Regulations proposed in
1992  would  provide a similar  election  with  respect  to the stock of certain
PFICs.

      Gains or losses (1) from the disposition of foreign  currencies,  (2) from
the  disposition of debt  securities  denominated  in foreign  currency that are
attributable to fluctuations  in the value of the foreign  currency  between the
dates  of  acquisition  and  disposition  of the  securities  and (3)  that  are
attributable  to  fluctuations  in exchange  rates that occur between the time a
Fund accrues  dividends,  interest or other  receivables or accrues  expenses or
other  liabilities  denominated  in a  foreign  currency  and the  time the Fund
actually  collects the  receivables or pays the  liabilities,  generally will be
treated as ordinary income or loss. These gains or losses, referred to under the
Code as "section 988" gains or losses,  may increase or decrease the amount of a
Fund's investment company taxable income to be distributed to its shareholders.

      HEDGING  STRATEGIES.  The  use of  hedging  strategies,  such  as  selling
(writing) and purchasing options and futures contracts and entering into forward
currency  contracts,  involves  complex rules that will determine for income tax
purposes the amount, character and timing of recognition of the gains and losses
a Fund realizes in connection  therewith.  Gains from the disposition of foreign
currencies  (except  certain gains that may be excluded by future  regulations),
and gains from options, futures and forward currency contracts derived by a Fund
with respect to its business of investing in securities  or foreign  currencies,
will qualify as permissible income under the Income Requirement.

      Certain  options  and  futures in which a Fund may invest will be "section
1256  contracts."  Section  1256  contracts  held  by a Fund  at the end of each
taxable  year,  other  than  section  1256  contracts  that are part of a "mixed
straddle"  with  respect  to  which  it has  made an  election  not to have  the
following rules apply, must be "marked-to-market"  (that is, treated as sold for
their fair market value) for Federal  income tax purposes,  with the result that
unrealized  gains or losses will be treated as though they were realized.  Sixty
percent of any net gain or loss recognized on these deemed sales, and 60% of any
net realized gain or loss from any actual sales of section 1256 contracts,  will
be treated as long-term capital gain or loss, and the balance will be treated as
short-term  capital  gain or loss.  The 60% portion of that capital gain that is
treated as long-term capital gain will qualify for the reduced maximum tax rates
on net capital  gain of 20% (10% for  taxpayers in the 15% marginal tax bracket)
on capital assets held for more than 18 months.  Section 1256 contracts also may
be marked-to-market for purposes of the Excise Tax.



                                      -31-





      Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which a Fund may invest. Section 1092 defines a
"straddle" as offsetting positions with respect to personal property;  for these
purposes,  options and futures  contracts  are personal  property.  Section 1092
generally  provides  that  any loss  from the  disposition  of a  position  in a
straddle may be deducted only to the extent the loss exceeds the unrealized gain
on the  offsetting  position(s)  of the  straddle.  Section  1092 also  provides
certain "wash sale" rules,  which apply to transactions where a position is sold
at a loss and a new offsetting  position is acquired within a prescribed period,
and  "short  sale"  rules  applicable  to  straddles.  If a Fund  makes  certain
elections,  the amount,  character  and timing of the  recognition  of gains and
losses from the affected straddle positions would be determined under rules that
vary  according to the  elections  made.  Because only a few of the  regulations
implementing the straddle rules have been promulgated, the tax consequences to a
Fund of straddle transactions are not entirely clear.

      If a  Fund  has an  "appreciated  financial  position"  --  generally,  an
interest (including an interest through an option,  futures or forward contract,
or short sale) with respect to any stock,  debt instrument (other than "straight
debt"),  or  partnership  interest  the fair market  value of which  exceeds its
adjusted  basis  -- and  enters  into a  "constructive  sale"  of  the  same  or
substantially  similar  property,  the Fund will be  treated  as having  made an
actual sale thereof,  with the result that gain will be recognized at that time.
A constructive sale generally  consists of a short sale, an offsetting  notional
principal  contract or futures or forward contract entered into by the Fund or a
related person with respect to the same or substantially  similar  property.  In
addition, if the appreciated financial position is itself a short sale or such a
contract,  acquisition  of the  underlying  property  or  substantially  similar
property will be deemed a constructive sale.

      ORIGINAL ISSUE DISCOUNT SECURITIES.  Income-Growth may acquire zero coupon
or other securities issued with original issue discount ("OID").  As a holder of
those securities,  Income-Growth must include in its income the OID that accrues
on them during the taxable year, even if it receives no corresponding payment on
them  during  the  year.   Because   Income-Growth   annually  must   distribute
substantially all of its investment  company taxable income,  including any OID,
to satisfy the Distribution  Requirement and avoid imposition of the Excise Tax,
Income-Growth  may be required in a particular  year to distribute as a dividend
an amount that is greater  than the total  amount of cash it actually  receives.
Those  distributions will be made from  Income-Growth's  cash assets or from the
proceeds of sales of  portfolio  securities,  if  necessary.  Income-Growth  may
realize  capital  gains or losses  from those  sales,  which  would  increase or
decrease its investment company taxable income and/or net capital gain.

      Investors  are advised to consult  their own tax  advisers  regarding  the
status of an investment in the Funds under state and local tax laws.

FUND INFORMATION

      MANAGEMENT OF THE FUNDS

      TRUSTEES  AND  OFFICERS.  Each Fund'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,
Heritage and Eagle.

                                Position With       Principal Occupation
              Name              Each Trust         During Past Five Years
              ----              ----------         ----------------------

Thomas A. James* (55)             Trustee      Chairman  of  the  Board  since
880 Carillon Parkway                           1986   and   Chief    Executive
St. Petersburg, FL                             Officer   since  1969  of  RJF;
33716                                          Chairman  of the  Board  of RJA
                                               since 1986;  Chairman of the
                                               Board  of Eagle  since  1984
                                               and Chief Executive  Officer
                                               of Eagle, 1994 to 1996.

                                      -32-




                                Position With        Principal Occupation
              Name              Each Trust         During Past Five Years
              ----              ----------         ----------------------

Richard K. Riess* (48)            Trustee      Chief   Executive   Officer  of
880 Carillon Parkway                           Eagle  since  1996,  President,
St. Petersburg, FL                             1995    to    present,    Chief
33716                                          Operating   Officer,   1988  to
                                               1996,       Executive      Vice
                                               President, 1988 to 1993.


Donald W. Burton*  (53)           Trustee      President  of  South   Atlantic
614 W. Bay Street                              Capital  Corporation   (venture
Suite 200                                      capital) since 1981.
Tampa, FL  33606

C. Andrew Graham (57)             Trustee      Vice   President  of  Financial
Financial Designs, Ltd.                        Designs   Ltd.    since   1992;
1775 Sherman Street                            Executive   Vice  President  of
Suite 1900                                     the Madison Group,  Inc.,  1991
Denver, CO  80203                              to  1992;  Principal  of  First
                                               Denver  Financial   Corporation
                                               (investment    banking)   since
                                               1987.

David M. Phillips (58)            Trustee      Chairman  and  Chief  Executive
World Trade Center                             Officer   of  CCC   Information
  Chicago                                      Services,  Inc.  since 1994 and
444 Merchandise Mart                           of     InfoVest     Corporation
Chicago, IL  60654                             (information  services  to  the
                                               insurance  and auto  industries
                                               and consumer  households) since
                                               1982.

Eric Stattin (64)                              Trustee Litigation  Consultant/ 
1975 Evening Star Drive                        Expert Witness and private 
Park City, UT 84060                            investor since 1988.

James L. Pappas (54)              Trustee      Lykes  Professor of Banking and
University of South                            Finance     since    1986    at
  Florida                                      University  of  South  Florida;
College of Business                            Dean  of  College  of  Business
  Administration                               Administration 1987 to 1996.
Tampa, FL  33620

Stephen G. Hill (38)              President    Chief  Executive   Officer  and
880 Carillon Parkway                           President  of  Heritage   since
St. Petersburg, FL                             1989 and  Director  since 1994;
33716                                          Director of Eagle since 1995.


                                      -33-




                                Position With        Principal Occupation
              Name              Each Trust         During Past Five Years
              ----              ----------         ----------------------

Donald H. Glassman (40)           Treasurer    Treasurer  of  Heritage   since
880 Carillon Parkway                           1989;   Treasurer  of  Heritage
St. Petersburg, FL                             Mutual Funds since 1989.
33716

Clifford J. Alexander (53)        Secretary    Partner,      Kirkpatrick     &
1800 Massachusetts                             Lockhart LLP (law firm).
   Ave., NW
Washington, DC  20036

Patricia Schneider (56)           Assistant    Compliance   Administrator   of
880 Carillon Parkway              Secretary    Heritage.
St. Petersburg, FL
33716

Robert J. Zutz (44)               Assistant    Partner,      Kirkpatrick     &
1800 Massachusetts                Secretary    Lockhart LLP (law firm).
  Ave., NW
Washington, DC  20036

      *     These  Trustees  are  "interested  persons"  as defined in section
2(a)(19) of the 1940 Act.

      The Trustees and  officers of the Trust,  as a group,  own less than 1% of
each class of each Fund's shares outstanding.  Each 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 Series Trust  currently  pays  Trustees  who are not  employees of the
Manager or its affiliates $3,333 annually and $1,250 per meeting of the Board of
Trustees.  Income-Growth  and Capital  Appreciation  each pay such Trustees $667
annually  and $250 per  meeting  of the  Board of  Trustees.  Trustees  also are
reimbursed for any expenses incurred in attending meetings.  Because Heritage or
Eagle, as applicable,  performs  substantially all of the services necessary for
the  operation  of each Fund,  each Fund  requires  no  employees.  No  officer,
director or employee of Heritage or Eagle receives any compensation  from either
Fund for  acting  as a  director  or  officer.  The  following  table  shows the
compensation earned by each Trustee for each Trust's prior fiscal year ended.


                                      -34-



                               COMPENSATION TABLE

                                                                      Total
                                                                   Compensation
                                                                  From the Trust
                   Aggregate       Aggregate                    and the Heritage
                  Compensation   Compensation      Aggregate     Family of Funds
                  From Capital       From        Compensation          Paid
Name of Person,   Appreciation   Income-growth     From the             to
     Position        Trust(1)      Trust(2)      Series Trust(3)     Trustees(4)
     --------        --------      --------      ---------------     -----------

Donald W.             $1,454         $1,454          $5,820           $16,000
Burton, Trustee

C. Andrew             $1,454         $1,454          $5,820           $16,000
Graham, Trustee

David M.              $1,091         $1,091          $4,364           $12,000
Phillips,
Trustee

Eric Stattin,         $1,454         $1,454          $5,820           $16,000
Trustee

James L.              $1,272         $1,272          $5,092           $14,000
Pappas,
Trustee

Richard K.                $0             $0              $0                $0
Riess,
Trustee

Thomas A. James,          $0             $0              $0                $0
Trustee
- -------------------------

(1) For the fiscal year ended August 31, 1997.

(2) For the fiscal year ended September 30, 1997.

(3) For the fiscal year ended October 31, 1997.

(4)The Heritage  Mutual  Funds  consist of six  separate  registered  investment
   companies, including Capital Appreciation, Income-Trust and Series Trust.

      No Trustee will receive any benefits upon retirement.  Thus, no pension or
retirement benefits have accrued as part of any of any Trust's expenses.

      FIVE PERCENT SHAREHOLDERS

      Listed  below are  shareholders  who owned of record or were  known by the
Funds to own beneficially five percent or more of the outstanding Class C shares
of the Capital Appreciation Trust as of November 30, 1997.


                                      -35-



         Name and Address           Percent Owned
         ----------------           -------------

William J. Gamble                       7.825%
2101 Cantu Court
Sarasota, FL 34232-6240

Raymond James & Assoc. Inc.             6.494%
Cust. Jerry Harris
P.O. Box 12749
St. Petersburg, FL 33733-2749



      INVESTMENT ADVISERS AND ADMINISTRATOR; SUBADVISERS

      The  investment  adviser  and  administrator  for each Fund  except  Eagle
International  is Heritage Asset  Management,  Inc.  Heritage was organized as a
Florida  corporation in 1985. The investment adviser for Eagle  International is
Eagle Asset  Management,  Inc.  Eagle was organized as a Florida  corporation in
1976. All the capital stock of both Heritage and Eagle is owned by Raymond James
Financial,   Inc.  ("RJF").   RJF  is  a  holding  company  that,   through  its
subsidiaries, is engaged primarily in providing customers with a wide variety of
financial services in connection with securities, limited partnerships, options,
investment banking and related fields.

      With  respect  to  each  Fund  except  Eagle  International,  Heritage  is
responsible  for overseeing the Fund's  investment  and  noninvestment  affairs,
subject to the control and direction of the Fund's Board.  The Series Trust,  on
behalf of Growth  Equity,  Mid Cap,  Small Cap and Value Equity  entered into an
Investment  Advisory and Administration  Agreement with Heritage dated March 29,
1993 and last  supplemented  on September  29, 1997.  Capital  Appreciation  and
Income-Growth  entered into Investment  Advisory and  Administration  Agreements
dated November 13, 1985 and October 31, 1986,  respectively  and, in the case of
Capital Appreciation,  amended on November 19, 1996. The Investment Advisory and
Administration  Agreements require that Heritage review and establish investment
policies for each Fund and administer the Funds' noninvestment affairs.

      On behalf of Eagle  International,  the Series  Trust also entered into an
Investment Advisory and Administration Agreement (collectively with the Advisory
Agreements discussed above,  "Advisory Agreements") dated February 14, 1995 with
Eagle to provide oversight of Eagle International's investment and noninvestment
affairs, subject to the control and direction of the Board.

      Under  separate  Subadvisory  Agreements,  Eagle  and  Liberty  Investment
Management, a division of Goldman Sachs Asset Management ("Liberty"), subject to
the direction and control of Capital  Appreciation's Board of Trustees,  provide
investment advice and portfolio  management services to Capital Appreciation for
a fee payable by Heritage.  None of Capital  Appreciation's assets currently are
allocated to Eagle.  Under  separate  Subadvisory  Agreements,  Eagle and Awad &
Associates  ("Awad") each provide  investment  advice and  portfolio  management
services,  subject to  direction  by Heritage  and the Series  Trust's  Board of
Trustees,  to Small  Cap for a fee  payable  by  Heritage.  Under a  Subadvisory
Agreement,  Eagle provides investment advice and portfolio  management services,
subject  to the  direction  of  Heritage  and the Board of  Trustees,  to Growth
Equity,  Income-Growth,  Mid Cap and Value Equity for a fee payable by Heritage.
Under a Subadvisory  Agreement,  Martin Currie Inc.  ("Martin  Currie") provides
investment advice and portfolio management services, subject to the direction of
Eagle and the Board of  Trustees,  to Eagle  International  for a fee payable by
Eagle (collectively, the "Subadvisory Agreements").


                                      -36-




      Heritage and Eagle, as applicable, also are obligated to furnish each Fund
with  office  space,  administrative,  and  certain  other  services  as well as
executive and other  personnel  necessary for the operation of a Fund.  Heritage
and Eagle, as applicable,  and their affiliates also pay all the compensation of
Trustees  of the  Trust  who are  employees  of  Heritage  or  Eagle  and  their
affiliates.  Each Fund  pays all its  other  expenses  that are not  assumed  by
Heritage or Eagle, as applicable. Each Fund also is liable for such nonrecurring
expenses as may arise, including litigation to which a Fund may be a party. Each
Fund also may have an  obligation  to indemnify  its Trustees and officers  with
respect to any such litigation.

      The Advisory Agreements and the Subadvisory  Agreements each were approved
by the Board of Trustees  (including all of the Trustees who are not "interested
persons" of Heritage  and Eagle or the  subadvisers,  as defined  under the 1940
Act) and by the shareholders of the applicable Funds 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 Heritage,  Eagle, the subadvisers or the Trust,
and by (2) the majority vote of either the full Board of Trustees or the vote of
a majority of the  outstanding  shares of a Fund.  The Advisory and  Subadvisory
Agreements each automatically  terminates on assignment,  and each is terminable
on not more  than 60 days'  written  notice by the  Trust to  either  party.  In
addition,  the Advisory  Agreements  may be terminated on not less than 60 days'
written  notice  by  Heritage  or  Eagle,  as  applicable,  to a  Fund  and  the
Subadvisory  Agreements  may be  terminated  on not less  than 60 days'  written
notice by Heritage or Eagle,  as  applicable,  or 90 days' written notice by the
subadvisers.  Under  the terms of the  Advisory  Agreement,  Heritage  and Eagle
automatically  become  responsible for the  obligations of the subadvisers  upon
termination of the  Subadvisory  Agreements.  In the event Heritage or Eagle, as
applicable,  ceases to be the  investment  adviser of a Fund or the  Distributor
ceases to be principal  distributor  of shares of a Fund, the right of a Fund to
use the identifying name of "Heritage" may be withdrawn.

      Heritage,  Eagle and the subadvisers shall not be liable to either Fund or
any shareholder  for anything done or omitted by them,  except acts or omissions
involving willful misfeasance, bad faith, gross negligence or reckless disregard
of the  duties  imposed  upon  them by their  agreements  with a Fund or for any
losses that may be sustained in the purchase, holding or sale of any security.

      All of the officers of each Fund except for Messrs. Alexander and Zutz are
officers  or   directors  of  Heritage,   Eagle  or  their   affiliates.   These
relationships are described under "Management of the Funds."

      ADVISORY AND ADMINISTRATION  FEE. The annual investment  advisory fee paid
monthly  by each Fund to  Heritage  or  Eagle,  as  applicable,  is based on the
applicable Fund's average daily net assets as listed in the Prospectus.

      CAPITAL APPRECIATION.  For Capital Appreciation,  Heritage has voluntarily
agreed to waive  management  fees to the  extent  that  total  annual  operating
expenses  attributable  to A shares exceed 1.45% of the average daily net assets
or to the extent that total annual operating  expenses  attributable to C shares
exceed  2.20% of average  daily net  assets.  For the three  fiscal  years ended
August 31, 1995, 1996 and 1997, Heritage earned $711,510,  $736,180 and $585,991
(of which $177,878, $184,045 and $0 was waived), respectively.

      Heritage  has entered  into  agreements  with Eagle and Liberty to provide
investment advice and portfolio  management services to Capital Appreciation for
an  annual  fee  to  be  paid  by   Heritage  to  Liberty  of  .25%  of  Capital
Appreciation's  average  daily net assets and for an annual fee paid by Heritage
to Eagle of 50% of the fees payable to Heritage by Capital Appreciation, without
regard to any reduction in fees actually paid to Heritage as a result of expense
limitations.  Eagle currently does not have any of Capital Appreciation's assets


                                      -37-




under management,  and, therefore, does not receive a fee from Heritage. For the
three fiscal years ended August 31, 1997,  Heritage paid $221,041,  $184,045 and
$195,330, respectively.

      EAGLE INTERNATIONAL. For Eagle International, Eagle has voluntarily agreed
to waive management fees to the extent that Class A annual  operating  expenses,
exclusive of foreign taxes paid,  exceed 1.97% or to the extent that Class B and
Class C annual  operating  expenses  exceed  2.72% of  average  daily net assets
attributable  to that class during this fiscal year.  For the period May 1, 1995
(commencement  of  operations)  to October 31, 1995 and for the two fiscal years
ended  October 31,  1997,  management  fees  amounted to $32,303,  $189,777  and
$351,913,  respectively.  For the same  periods,  Eagle  waived  its fees in the
amounts of $32,303,  $134,735  and  $91,433,  respectively,  and was  reimbursed
expenses in the amount of $48,001 for the period ended October 31, 1995.

      Eagle  has  entered  into an  agreement  with  Martin  Currie  to  provide
investment   advisory  advice  and  portfolio   management   services  to  Eagle
International for a fee based on Eagle International's  average daily net assets
paid by Eagle to Martin Currie equal to .50% on the first $100 million of assets
and .40%  thereafter,  without  regard to any reduction in fees actually paid to
Eagle  as  a  result  of  expense  limitations.  For  the  period  May  1,  1995
(commencement  of operations) to October 31, 1995 and the two fiscal years ended
October 31, 1997, Eagle paid Martin Currie subadvisory fees of $16,152,  $94,888
and $175,957, respectively.

      GROWTH EQUITY. For Growth Equity, Heritage has voluntarily agreed to waive
management  fees to the extent  that Class A annual  operating  expenses  exceed
1.60% or to the extent that Class C annual  operating  expenses  exceed 2.35% of
average daily net assets attributable to that class during this fiscal year. For
the period  November 16, 1995  (commencement  of operations) to October 31, 1996
and the fiscal year ended October 31, 1997,  management fees amounted to $77,137
and $240,084. For the first period Heritage waived $76,210 of its fees.

      Heritage has entered into an  agreement  with Eagle to provide  investment
advisory  advice and  portfolio  management  services to Growth Equity for a fee
paid by  Heritage to Eagle  equal to 50% of the fees paid to  Heritage,  without
regard to any reduction in fees actually paid to Heritage as a result of expense
limitations.  For the period November 16, 1995  (commencement  of operations) to
October 31, 1996 and the fiscal year ended October 31, 1997, Heritage paid Eagle
subadvisory fees of $38,568 and $110,273.

      INCOME-GROWTH. For Income-Growth, Heritage has voluntarily agreed to waive
management fees to the extent that total annual operating expenses  attributable
to A shares  exceed 1.60% of the average  daily net assets or to the extent that
total annual operating expenses attributable to C shares exceed 2.35% of average
daily net assets.  For the fiscal years ended September 30, 1995, 1996 and 1997,
Heritage earned approximately $242,000, $294,000 and $483,882, respectively.

      Heritage has entered into an  agreement  with Eagle to provide  investment
advice and  portfolio  management  services to  Income-Growth  for a fee paid by
Heritage equal to 50% of the fees payable to Heritage by Income-Growth,  without
regard to any reduction in fees actually paid to Heritage as a result of expense
limitations. For the three fiscal years ended September 30, 1995, 1996 and 1997,
Heritage paid Eagle approximately $121,000, $147,000 and $241,941 respectively.

      MID  CAP.  For Mid Cap,  Heritage  has  voluntarily  agreed  to waive  its
management fees to the extent that annual operating  expenses  attributable to A
shares  exceed  1.60 % of the  average  daily net assets or to the  extent  that
annual operating expenses attributable to C shares exceed 2.35% of average daily
net assets  attributable  to that class  during this fiscal  year.  Heritage has
entered into an agreement with Eagle to provide  investment advice and portfolio
management  services to Mid Cap for a fee paid by Heritage to Eagle equal to 50%


                                      -38-




of the fees payable to Heritage by the Fund,  without regard to any reduction in
fees actually paid to Heritage as a result of voluntary fee waivers by Heritage.
Because Mid Cap did not commence  operations  until this fiscal  year,  Heritage
Eagle has not received any fees relating to Mid Cap.

      SMALL CAP.  For Small Cap,  Heritage has  voluntarily  agreed to waive its
management fees to the extent that annual operating  expenses  attributable to A
shares exceed 1.60% of the average daily net assets or to the extent that annual
operating expenses attributable to B shares and C shares exceed 2.35% of average
daily net assets  attributable  to that class during this fiscal  year.  For the
three years ended  October  31,  1997,  management  fees  amounted to  $465,132,
$827,233 and $1,609,998, respectively.

      Heritage  has  entered  into an  agreement  with Eagle and Awad to provide
investment advice and portfolio  management services to Small Cap for a fee paid
by Heritage to each  subadviser  with  respect to the amount of Small Cap assets
under  management  equal to 50% of the fees  payable to  Heritage  by Small Cap,
without regard to any reduction in fees actually paid to Heritage as a result of
expense limitations. The Research Department of Raymond James & Associates, Inc.
("Research"), a former subadviser of Small Cap who resigned as its subadviser on
November 20, 1995,  received  from Heritage for the November 1, 1995 to November
20, 1995 (when Research  resigned as subadviser),  subadvisory  fees of $74,583.
Eagle  began  as  subadviser  to  Small  Cap on  August  7,  1995  and  received
subadvisory fees from Heritage for the period August 7, 1995 to October 31, 1995
and the two fiscal  years  ended  October  31,  1997 in the  amount of  $30,725,
$203,492 and  $427,907,  respectively.  For the three fiscal years ended October
31,  1997,  Heritage  paid  Awad  subadvisory  fees of  $127,866,  $210,124  and
$377,092, respectively.

      VALUE  EQUITY.  For  Value  Equity,  effective  March  1,  1997,  Heritage
voluntarily  has  agreed to waive  management  fees to the  extent  that  annual
operating  expenses  attributable  to A shares exceed 1.60% of average daily net
assets or to the extent that annual operating expenses  attributable to B shares
and C shares exceed 2.35% of average daily net assets attributable to that class
during this fiscal  year.  For the period  December  30, 1994  (commencement  of
operations) to October 31, 1995 and the two fiscal years ended October 31, 1997,
management fees amounted to $47,250,  $168,020 and $263,164,  respectively.  For
the first two  periods,  Heritage  waived its fees in the amount of $47,250  and
$76,062,  respectively, and reimbursed expenses in the amount of $68,724 for the
period ended October 31, 1995.

      Heritage has entered into an  agreement  with Eagle to provide  investment
advice  and  portfolio  management  services  to Value  Equity for a fee paid by
Heritage to Eagle,  as  applicable,  equal to 50% of the fees paid to  Heritage,
without regard to any reduction in fees actually paid to Heritage as a result of
expense  limitations.   For  the  period  December  30,  1994  (commencement  of
operations)  to October 31, 1995 and the fiscal  years ended  October 31,  1997,
Heritage  paid  Eagle  subadvisory  fees  of  $23,625,   $45,947  and  $111,334,
respectively.  Dreman Value Advisor,  Inc.  ("Dreman"),  a former  subadviser of
Value  Equity,  received from Heritage for the periods June 1, 1996 (when Dreman
began managing  Value Equity's  assets) to October 31, 1996 and November 1, 1996
to October 1, 1997 (when Heritage  allocated  Value  Equity's  assets to Eagle),
subadvisory fees of $38,063 and $99,243, respectively.

      CLASS-SPECIFIC  EXPENSES.  Each Fund may determine to allocate  certain of
its  expenses (in addition to  distribution  fees) to the specific  classes of a
Fund's shares to which those expenses are attributable.

      BROKERAGE PRACTICES

      While each Fund  generally  purchases  securities  for  long-term  capital
gains,  each Fund may engage in short-term  transactions  under  various  market
conditions  to a greater  extent than  certain  other  mutual funds with similar
investment  objectives.  Thus,  the turnover  rate may vary greatly from year to
year or  during  periods  within a year.  A Fund's  portfolio  turnover  rate is


                                      -39-


computed by dividing  the lesser of  purchases  or sales of  securities  for the
period by the average  value of portfolio  securities  for that period.  Capital
Appreciation's  portfolio  turnover rate was 54% and 42% for the two years ended
August 31, 1997.  Eagle  International's  portfolio  turnover  rates for the two
years  ended  October  31,  1997  were 59% and 50%.  Growth  Equity's  portfolio
turnover rate for the period November 16, 1995  (commencement  of operations) to
October  31,  1997 and the fiscal  year  ended  October  31,  1997 were 23% (not
annualized) and 50%. Income-Growth's  portfolio turnover rates for the two years
ended  September  1997, were 75% and 75%. Mid Cap's turnover rate is expected to
be 100%.  Small Cap's  portfolio  turnover rates for the two years ended October
31, 1997 were 80% and 54%. Value Equity's  portfolio turnover rate for two years
ended October 31, 1997, were 129% and 155%.

      The subadvisers are responsible for the execution of each Fund's portfolio
transactions  and must  seek the most  favorable  price and  execution  for such
transactions.  Best execution,  however,  does not mean that a Fund  necessarily
will be paying the lowest commission or spread available. Rather, each Fund also
will  take  into  account  such  factors  as size of the  order,  difficulty  of
execution, efficiency of the executing broker's facilities, and any risk assumed
by the executing broker.

      It is a common practice in the investment  advisory  business for advisers
of investment  companies and other institutional  investors to receive research,
statistical and quotation  services from  broker-dealers  who execute  portfolio
transactions  for the clients of such  advisers.  Consistent  with the policy of
most favorable price and execution,  the subadvisers may give  consideration  to
research,  statistical  and other services  furnished by brokers or dealers.  In
addition, the subadvisers may place orders with brokers who provide supplemental
investment and market research and securities and economic  analysis and may pay
to these brokers a higher brokerage  commission or spread than may be charged by
other brokers,  provided that the subadvisers  determine in good faith that such
commission  is  reasonable  in relation to the value of  brokerage  and research
services  provided.  Such research and analysis may be useful to the subadvisers
in connection with services to clients other than the Funds. Eagle International
also may purchase and sell portfolio  securities to and from dealers who provide
it with research services.  However, portfolio transactions will not be directed
by Eagle International to dealers on the basis of such research services.

      Capital Appreciation,  Eagle International,  Growth Equity, Income-Growth,
Mid Cap and Value  Equity may use the  Distributor,  its  affiliates  or certain
affiliates of Heritage and Eagle as a broker for agency  transactions  in listed
and OTC securities at commission rates and under  circumstances  consistent with
the  policy  of  best  execution.  Commissions  paid  to  the  Distributor,  its
affiliates  or certain  affiliates  of Heritage and Eagle will not exceed "usual
and  customary  brokerage  commissions."  Rule l7e-1  under the 1940 Act defines
"usual and customary"  commissions to include  amounts that are  "reasonable and
fair compared to the  commission,  fee or other  remuneration  received or to be
received by other brokers in connection with comparable  transactions  involving
similar  securities  being  purchased or sold on a securities  exchange during a
comparable period of time."

      Although  it  currently  does not  intend to do so,  Small Cap may use the
Distributor  as broker for agency  transactions  in listed and OTC securities at
commission  rates and under  circumstances  consistent  with the  policy of best
execution.  Provided,  however,  that if Small Cap does use the Distributor as a
broker, commissions paid to the Distributor will not exceed "usual and customary
brokerage commissions" as defined above.

      The  subadvisers  also may  select  other  brokers  to  execute  portfolio
transactions.  In the OTC market,  each Fund generally deals with primary market
makers unless a more favorable execution can otherwise be obtained.

      Aggregate brokerage commissions paid by Capital Appreciation for the three
fiscal years ended August 31, 1997  amounted to $125,563,  $108,010 and $93,760,


                                      -40-




respectively.  Those  commissions  were  paid on  brokerage  transactions  worth
$84,219,558,  $80,918,168 and  $60,754,010,  respectively.  Aggregate  brokerage
commissions  paid by Capital  Appreciation  to the  Distributor,  an  affiliated
broker-dealer,   for  the  same  periods  amounted  to  $3,090,   $0  and  $168,
respectively,  or 2.5%,  0% and  less  than 1%,  respectively  of the  aggregate
commissions  paid.  These  commissions to the Distributor were paid on aggregate
brokerage transactions of $1,911,784, $0 and $133,398,  respectively or 2.3%, 0%
and less than 1%, respectively of the total aggregate brokerage transactions.

      Aggregate  brokerage  commissions  paid by Growth  Equity  for the  period
November  26,  1995  (commencement  of  operations)  to October 31, 1996 and the
fiscal  year  ended   October  31,  1997   amounted  to  $18,075  and   $36,721,
respectively.  Those  commissions  were  paid on  brokerage  transactions  worth
$33,451,360  for  the  period  ended  October  31,  1997.   Aggregate  brokerage
commissions  paid by Growth Equity to the Distributor  for the periods  November
26,  1995 to October  31,  1996 and the year ended  October 31, 1997 were $0 and
$1,560,  respectively,  or 4.2% of the aggregate  commissions  paid for the most
recent period.  The  commissions to the Distributor for the period ended October
31, 1997 were paid on aggregate brokerage  transactions of $1,300,764 or 3.9% of
total aggregate brokerage transactions.

      Aggregate brokerage commissions paid by Income-Growth for the three fiscal
years ended  September  30, 1997  amounted  to  $53,748,  $61,278 and  $141,722,
respectively.  Those  commissions  were  paid on  brokerage  transactions  worth
$28,057,262,  $56,150,173 and  $76,915,866,  respectively.  Aggregate  brokerage
commissions  paid by  Income-Growth  to the  Distributor  amounted  to $7,852 or
14.6%,  $12,370 or 16.80% and $30,879 or 21.8%,  respectively,  of the aggregate
commissions  paid.  These  commissions to the Distributor were paid on aggregate
brokerage  transactions  of  $1,830,625  (or  6.5%),  $2,535,393  (or 4.52%) and
$3,498,292  (or  4.5%),   respectively,   of  the  total   aggregate   brokerage
transactions.

      Aggregate  brokerage  commissions  paid by Small Cap for the  three  years
ended   October  31,  1997   amounted  to  $196,353,   $297,557  and   $490,512,
respectively.  These  commissions  were  paid on  brokerage  transactions  worth
$149,629,636  for the period ended  October 31, 1997.  For the three years ended
October 31, 1997, the  Distributor was paid by Small Cap commissions of $13,416,
$59,591 and $114,416,  respectively,  or 7%, 25% and 23%,  respectively,  of the
total aggregate commissions paid. These commissions to the Distributor were paid
on aggregate  brokerage  transactions for the most recent period of $40,533,126,
or 27% of the total aggregate brokerage transactions.

      Aggregate  brokerage  commissions  paid by  Value  Equity  for the  period
December 30, 1994  (commencement  of operations) to October 31, 1995 and the two
fiscal years ended October 31, 1997  amounted to $43,552,  $71,566 and $100,688,
respectively.  These  commissions  were  paid on  brokerage  transactions  worth
$85,464,424  for the period ended  October 31,  1997.  For the three years ended
October 31,  1997,  the  Distributor  was paid by Value  Equity  commissions  of
$8,596, $60 and $0, respectively,  or 20%, less than 1% and 0%, respectively, of
the total aggregate  commissions paid. These commissions to the Distributor were
paid on aggregate brokerage  transactions for the most recent period of $0 or 0%
of the total aggregate brokerage transactions.

      Each  Fund  may not  buy  securities  from,  or sell  securities  to,  the
Distributor as principal.  However, the Board of Trustees has adopted procedures
in conformity  with Rule 10f-3 under the 1940 Act whereby each Fund may purchase
securities  that are  offered in  underwritings  in which the  Distributor  is a
participant. The Board of Trustees will consider the possibilities of seeking to
recapture  for the  benefit  of  expenses  to each  Fund  of  certain  portfolio


                                      -41-




transactions,  such as underwriting  commissions  and tender offer  solicitation
fees, by conducting such portfolio  transactions  through  affiliated  entities,
including  the  Distributor,  but only to the  extent  such  recapture  would be
permissible  under applicable  regulations,  including the rules of the National
Association of Securities Dealers, Inc.
and other self-regulatory organizations.

      Pursuant  to Section  11(a) of the  Securities  Exchange  Act of 1934,  as
amended,  each  Fund  has  expressly  consented  to  the  Distributor  executing
transactions on an exchange on its behalf.

      DISTRIBUTION OF SHARES

      The Distributor and Representatives  with whom the Distributor has entered
into dealer  agreements  offer  shares of each Fund as agents on a best  efforts
basis and are not  obligated  to sell any  specific  amount of  shares.  In this
connection,  the  Distributor  makes  distribution  and  servicing  payments  to
participating  dealers in connection with the sale of shares of a Fund. Pursuant
to the Distribution  Agreements with respect to A shares, B shares and C shares,
the Distributor  bears the cost of making  information about each Fund available
through advertising,  sales literature and other means, the cost of printing and
mailing prospectuses to persons other than shareholders,  and salaries and other
expenses relating to selling efforts.  The Distributor also pays service fees to
dealers for providing personal services to Class A, B and C shareholders and for
maintaining  shareholder  accounts.  Each Fund pays the cost of registering  and
qualifying its shares under state and federal securities laws and typesetting of
its  prospectuses  and  printing  and  distributing   prospectuses  to  existing
shareholders.

      Each Fund has adopted a Distribution Plan for each class of shares (each a
"Plan" and  collectively  the  "Plans").  These  Plans  permit a Fund to pay the
Distributor  the  monthly  distribution  and  service  fee out of the Fund's net
assets to finance  activity that is intended to result in the sale and retention
of A shares, B shares and C shares. The Funds used all Class A and Class C 12b-1
fees to pay the Distributor.  The Distributor, on C shares, may retain the first
12  months   distribution   fee  for   reimbursement  of  amounts  paid  to  the
broker-dealer  at the time of  purchase.  Each Plan was approved by the Board of
Trustees, including a majority of the Trustees who are not interested persons of
a Fund (as defined in the 1940 Act) and who have no direct or indirect financial
interest  in the  operation  of the  Plan  or the  Distribution  Agreement  (the
"Independent  Trustees").  In approving such Plans,  the Board  determined  that
there is a  reasonable  likelihood  that  each  Fund and its  shareholders  will
benefit from each Plan.

      Each Plan each may be terminated by vote of a majority of the  Independent
Trustees,  or by vote of a majority of the  outstanding  voting  securities of a
class of a Fund.  The Board of Trustees  reviews  quarterly a written  report of
Plan costs and the purposes for which such costs have been incurred.  A Plan may
be  amended  by vote of the  Board,  including  a  majority  of the  Independent
Trustees,  cast in person at a meeting called for such purpose.  Any change in a
Plan that would increase  materially the  distribution  cost to a class requires
shareholder approval of that class.

      For Capital Appreciation,  for the two fiscal years ended August 31, 1997,
the  Distributor  received  Class A 12b-1  fees in the  amount of  $344,067  and
$335,468. For Eagle International, for the period ended December 27, 1995 (first
offering of A shares) to October 31, 1996 and the fiscal year ended  October 31,
1997,  the  Distributor  received Class A 12b-1 fees in the amount of $3,934 and
$12,772.  For Growth Equity,  for the period November 16, 1995  (commencement of
operations)  to October 31, 1996 and the fiscal year ended October 31, 1997, the
Distributor  received  Class A 12b-1 fees in the amount of $19,287 and  $47,584.
For  Income-Growth,  for the two fiscal  years ended  September  30,  1997,  the
Distributor  received  Class A 12b-1 fees in the amount of $94,590 and $130,805.
For  Small  Cap,  for the  three  fiscal  years  ended  October  31,  1997,  the
Distributor received Class A 12b-1 fees in the amount of $115,551,  $197,076 and
$369,980,  respectively.  For Value  Equity,  for the period  December  30, 1994
(commencement  of operations) to October 31, 1995 and the two fiscal years ended
October 31. 1997, the  Distributor  received Class A 12b-1 fees for Value Equity
in the amount of $13,040, $36,710 and $46,759, respectively.



                                      -42-




      For Capital Appreciation,  for the two fiscal years ended August 31, 1997,
the  Distributor  received  Class C 12b-1  fees in the  amount  of  $10,838  and
$19,834.  For Eagle  International,  for the period  December  27,  1995  (first
offering of C shares) to October 31, 1996 and the fiscal year ended  October 31,
1997,  the  Distributor  received Class C 12b-1 fees in the amount of $5,404 and
$25,783.  For Growth Equity,  for the period November 16, 1995  (commencement of
operations)  to October 31, 1996 and the fiscal year ended October 31, 1997, the
Distributor  received  Class C 12b-1 fees in the amount of $25,704 and $103,726,
respectively.  For  Income-Growth,  for the two fiscal years ended September 30,
1997, the  Distributor  received Class C 12b-1 fees in the amount of $13,604 and
$121,957.  For the period April 3, 1995 (first  offering of C shares) to October
31,  1995 and the two fiscal  years  ended  October 31,  1997,  the  Distributor
received $9,098,  $146,179 and $500,078,  respectively in fees for Small Cap and
$10,848, $77,187 and $130,243, respectively in fees for Value Equity.

      B shares were not offered for sale prior to the date of this SAI.

      The  Distribution  Agreements  may be  terminated  at any time on 60 days'
written  notice  without  payment of any penalty by either party.  Each Fund may
effect  such  termination  by  vote  of a  majority  of the  outstanding  voting
securities of a Fund or by vote of a majority of the Independent  Trustees.  For
so long as either Plan is in effect, selection and nomination of the Independent
Trustees shall be committed to the discretion of such disinterested persons.

      The  Distribution  Agreements  and each Plan will  continue  in effect for
successive one-year periods, provided that each such continuance is specifically
approved  (1) by the vote of a majority of the  Independent  Trustees and (2) by
the vote of a  majority  of the  entire  Board of  Trustees  cast in person at a
meeting called for that purpose.

ADMINISTRATION OF THE FUNDS

      ADMINISTRATIVE,  FUND ACCOUNTING AND TRANSFER AGENT SERVICES.  Heritage or
Eagle,  as  applicable,  subject to the control of the Board of  Trustees,  will
manage,  supervise and conduct the  administrative  and business affairs of each
Fund;  furnish  office  space  and  equipment;  oversee  the  activities  of the
subadvisers  and the  Custodian;  and pay all  salaries,  fees and  expenses  of
officers and Trustees of each Fund who are affiliated with Heritage or Eagle, as
applicable.  In  addition,   Heritage  provides  certain  shareholder  servicing
activities for customers of the Funds.

      Under a separate  Administration  Agreement  between  Eagle and  Heritage,
Heritage provides certain  noninvestment  services to Eagle  International for a
fee  payable by Eagle equal to .10% on the first $100  million of average  daily
net assets, and .05% thereafter.

      Heritage also is the transfer and dividend reimbursing agent for each Fund
and serves as fund  accountant  for each Fund except Eagle  International.  Each
Fund pays  Heritage  its cost plus 10% for its services as fund  accountant  and
transfer and dividend disbursing agent.

      For the three fiscal years ended August 31, 1997, Heritage earned $32,742,
$36,261 and $36,310, respectively, from Capital Appreciation for its services as
fund  accountant.  For the period  November 16, 1995 to October 31, 1996 and the
fiscal year ended October 31, 1997,  Heritage earned  approximately  $24,797 and
$29,782 from Growth  Equity for its services as fund  accountant.  For the three
fiscal years ended  September 30, 1997,  Heritage  earned  $28,932,  $31,011 and
$34,570,  respectively,  from Income-Growth for its services as fund accountant.
For the period November 1, 1994  (commencement of engagement as fund accountant)


                                      -43-




to October 31, 1995 and the two fiscal years ended  October 31,  1997,  Heritage
earned approximately $29,311, $38,378 and $38,822, respectively,  from Small Cap
for  its  services  as  fund  accountant.  For  the  period  December  30,  1994
(commencement  of operations) to October 31, 1995 and the two fiscal years ended
October 31, 1997, Heritage earned  approximately  $20,509,  $30,208 and $29,795,
respectively, from Value Equity for its services as fund accountant.

      CUSTODIAN.  State Street Bank and Trust Company,  P.0. Box 1912, Boston,
Massachusetts   02105,   serves  as  custodian  of  each  Fund's  assets.  The
Custodian  also provides  portfolio  accounting and certain other services for
the Funds.

      LEGAL COUNSEL.  Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, NW,
2nd Floor, Washington, D.C. 20036, serves as counsel to the Funds.

     INDEPENDENT  ACCOUNTANTS.  PricewaterhouseCoopers  LLP,  400  North  Ashley
Street, Suite 2800, Tampa, Florida 33602, is the independent  accountant for the
Funds.  The Financial  Statements and Financial  Highlights of Heritage  Capital
Appreciation Trust,  Heritage  Income-Growth Trust and Heritage Series Trust for
the fiscal years ended August 31, 1997, September 30, 1997 and October 31, 1997,
respectively, that appear in this SAI have been audited by Price Waterhouse LLP,
and are  included  herein  in  reliance  upon  their  authority  as  experts  in
accounting and auditing. The Financial Highlights for the fiscal years ended
August 31,  1995,  September  30, 1995 and October 31, 1995,  respectively,  and
years prior thereto were audited by other independent accountants.

POTENTIAL LIABILITY

      Under certain circumstances, shareholders may be held personally liable as
partners  under  Massachusetts  law for  obligations  of a Fund.  To protect its
shareholders,  each Fund has  filed  legal  documents  with  Massachusetts  that
expressly  disclaim the liability of its shareholders for acts or obligations of
a Fund.  These  documents  require notice of this disclaimer to be given in each
agreement,  obligation  or  instrument  each Fund or its Trustees  enter into or
sign. In the unlikely event a shareholder is held personally liable for a Fund's
obligations,  that Fund is required to use its property to protect or compensate
the  shareholder.  On  request,  a Fund will  defend  any claim made and pay any
judgment  against a shareholder for any act or obligation of a Fund.  Therefore,
financial loss  resulting  from liability as a shareholder  will occur only if a
Fund itself  cannot  meet its  obligations  to  indemnify  shareholders  and pay
judgments against them.



                                      -44-



                                    APPENDIX

COMMERCIAL PAPER RATINGS

The rating services'  descriptions of commercial paper ratings in which the Fund
may invest are:

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER DEBT RATINGS

PRIME-L.  Issuers  (or  supporting  institutions)  rated  PRIME-1  (P-1)  have a
superior  ability for  repayment  of senior  short-term  debt  obligations.  P-1
repayment   ability  will  often  be   evidenced   by  many  of  the   following
characteristics:  leading market positions in well-established  industries; high
rates of return on funds employed;  conservative  capitalization  structure with
moderate reliance on debt and ample asset protection;  broad margins in earnings
coverage  of  fixed  financial   charges  and  high  internal  cash  generation;
well-established  access to a range of financial  markets and assured sources of
alternate liquidity.

PRIME-2.  Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong
ability for repayment of senior short-term debt obligations.  This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings  trends  and  coverage  ratios,  while  sound,  may be more  subject to
variation. Capitalization characteristics,  while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS

A-1.  This  designation  indicates  that the degree of safety  regarding  timely
payment is very strong.  Those issues  determined  to possess  extremely  strong
characteristics are denoted with a plus sign (+) designation.

A-2.   Capacity  for  timely   payment  of  issues  with  this   designation  is
satisfactory.  However,  the  relative  degree  of  safety is not as high as for
issues designated "A-1".

CORPORATE DEBT RATINGS

The rating  services'  descriptions  of corporate debt ratings in which the Fund
may invest are:

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.



                                      A-1




Baa- Bonds that are rated Baa are considered  medium grade  obligations,  I.E.,
they are neither  highly  protected nor poorly  secured.  Interest  payments and
principal  security  appear  adequate  for the present  but  certain  protective
elements may be lacking or may be  characteristically  unreliable over any great
length of time. Such bonds lack outstanding  investment  characteristics  and in
fact have speculative characteristics as well.

Ba - Bonds  that are rated Ba are  judged to have  speculative  elements;  their
future cannot be considered as  well-assured.  Often the  protection of interest
and principal  payments may be very moderate,  and thereby not well  safeguarded
during  both  good  and bad  times  over the  future.  Uncertainty  of  position
characterizes bonds in this class.

B - Bonds  that are rated B  generally  lack  characteristics  of the  desirable
investment.  Assurance of interest and principal  payments or of  maintenance of
other terms of the contract over any long period of time may be small.

Caa - Bonds  that are  rated Caa are of poor  standing.  Such  issues  may be in
default or there may be present  elements of danger with respect to principal or
interest.

Ca - Bonds that are rated Ca represent  obligations  that are  speculative  in a
high degree. Such issues are often in default or have other marked shortcomings.

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


                                      A-2




characteristics,  these are  outweighed  by large  uncertainties  or major  risk
exposures to adverse conditions.

BB - Debt  rated "BB" has less  near-term  vulnerability  to default  than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse  business,   financial,  or  economic  conditions  that  could  lead  to
inadequate  capacity to meet timely  interest and principal  payments.  The "BB"
rating  category  is also  used for debt  subordinated  to  senior  debt that is
assigned an actual or implied "BBB-" rating.

B - Debt rated "B" has a greater  vulnerability to default but currently has the
capacity to meet interest payments and principal  repayments.  Adverse business,
financial,  or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.  The "B" rating category is also used for debt
subordinated  to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.

CCC - Debt rated "CCC" has a currently  identifiable  vulnerability  to default,
and is dependent upon favorable business,  financial, and economic conditions to
meet timely  payment of interest  and  repayment of  principal.  In the event of
adverse business,  financial,  or economic conditions,  it is not likely to have
the capacity to pay interest and repay  principal.  The "CCC" rating category is
also used for debt  subordinated  to senior  debt that is  assigned an actual or
implied "B" or "B-" rating.

CC - The rating "CC" is typically  applied to debt  subordinated  to senior debt
that is assigned an actual or implied "CCC" rating.

C - The rating "C" is typically applied to debt subordinated to senior debt that
is assigned an actual or implied "CCC-" debt rating.  The "C" rating may be used
to cover a  situation  where a  bankruptcy  petition  has been  filed,  but debt
service payments are continued.

CI - The rating "CI" is reserved  for income bonds on which no interest is being
paid.

D - Debt rated "D" is in payment  default.  The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired,  unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

PLUS (+) OR MINUS (-) - The  ratings  from "AA" to "CCC" may be  modified by the
addition  of a plus or minus  sign to show  relative  standing  within the major
categories.

NR -  Indicates  that no  public  rating  has  been  requested,  that  there  is
insufficient  information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.




                                      A-3



      The  Report of the  Independent  Accounts  and  Financial  Statements  are
incorporated  herein by reference from the Capital  Appreciation  Trust's Annual
Report to Shareholders for the fiscal year ended August 31, 1997, filed with the
Securities  and  Exchange   Commission  on  October  29,  1997,   Accession  No.
0000950144-97-011302,  the  Income-Growth  Trust's Annual Report to Shareholders
for the fiscal year ended  September  30, 1997,  filed with the  Securities  and
Exchange  Commission on November 26, 1997,  Accession No.  0000950144-97-012870,
and the Series Trust's Annual Report to  Shareholders  for the fiscal year ended
October 31, 1997, filed with the Securities and Exchange  Commission on December
29, 1997, Accession No. 0000950144-97-013671.


















                                      A-4







                     STATEMENT OF ADDITIONAL INFORMATION

                     EAGLE INTERNATIONAL EQUITY PORTFOLIO
                                 EAGLE CLASS

      This  Statement of Additional  Information  ("SAI") dated March 2, 1998 as
supplemented  on October 26, 1998,  should be read with the  Prospectus of Eagle
International  Equity  Portfolio  Eagle  Class  dated  March 2, 1998.  The Eagle
International  Equity Portfolio also offers additional classes of shares,  which
are not discussed in this SAI. This SAI is not a prospectus itself. To receive a
copy of the Eagle Class Prospectus, write to Eagle Asset Management, Inc. at the
address below, or call (800) 237-3101.

                         Eagle Asset Management, Inc.
                                P.O. Box 10520
                             880 Carillon Parkway
                        St. Petersburg, Florida 33733

                              TABLE OF CONTENTS
                                                                            PAGE
GENERAL INFORMATION..........................................................1
INVESTMENT INFORMATION.......................................................1
      Investment Objective...................................................1
      Investment Policies....................................................1
      Industry Classifications..............................................12
INVESTMENT RESTRICTIONS.....................................................12
NET ASSET VALUE.............................................................14
PERFORMANCE INFORMATION.....................................................15
INVESTING IN THE EAGLE CLASS................................................16
REDEEMING SHARES............................................................16
      Systematic Withdrawal Plan............................................16
      Redemptions in Kind...................................................17
TAXES.......................................................................17
PORTFOLIO INFORMATION.......................................................20
      Trustees and Officers.................................................20
      Five Percent Shareholders.............................................23
      Investment Adviser; Subadviser........................................23
      Brokerage Practices...................................................25
      Distribution of Shares................................................26
      Administration of the Portfolio.......................................27
      Potential Liability...................................................28
APPENDIX...................................................................A-1
REPORT OF THE INDEPENDENT ACCOUNTANTS......................................A-5
FINANCIAL STATEMENTS.......................................................A-6






GENERAL INFORMATION

      Heritage  Series Trust (the "Trust") was  established  as a  Massachusetts
business  trust under a  Declaration  of Trust dated  October  28,  1992.  Eagle
International  Equity Portfolio (the "Portfolio") is one of the Trust's separate
investment  portfolios.  The  Portfolio  offers the Eagle Class of shares,  sold
without a sales load ("Eagle Class"). The Portfolio offers additional classes of
shares  not  covered in this SAI.  To obtain  more  information  about the other
classes of shares, call (800) 421-4184.

      The Portfolio is structured to combine the regional and global presence of
larger,  well-known  companies in established markets with the potentially rapid
growth of companies in the expanding economies of many emerging countries.

      Eagle  Asset  Management,   Inc.,  the  Portfolio's   investment   adviser
("Eagle"),  has  retained  Martin  Currie  Inc.  as the  Portfolio's  investment
subadviser (the "Subadviser").  The Subadviser's  parent company,  Martin Currie
Limited, is a privately owned  international  advisory firm that was established
in 1881. Martin Currie Limited,  coupled with the Subadviser,  employs more than
30 investment  professionals  who comprise six geographic  investment teams that
service more than $10.2 billion in investors' assets.

      The  Subadviser  uses a top down country  allocation and a bottom up stock
selection  process.  In  choosing  countries  in which  to  invest  assets,  the
Subadviser  considers the major economic  trends in that country,  any political
and economic changes in the country and the country's capital flows. In choosing
individual  companies,  the  Subadviser,  based on a growth  style  with a value
component,  considers  the  company's  business  strategy,  relative  value  and
earnings momentum.

INVESTMENT INFORMATION

      INVESTMENT OBJECTIVE

      The Portfolio's investment objective,  as described in the Prospectus,  is
capital appreciation. Income is an incidental consideration. The Portfolio seeks
to achieve this objective  principally  through  investment in an  international
portfolio of equity securities.

      INVESTMENT POLICIES

AMERICAN  DEPOSITORY  RECEIPTS ("ADRS"),  EUROPEAN DEPOSITORY RECEIPTS ("EDRS"),
GLOBAL  DEPOSITORY  RECEIPTS  ("GDRS")  AND  INTERNATIONAL  DEPOSITORY  RECEIPTS
("IDRS")

      The Portfolio may invest in sponsored or  unsponsored  ADRs,  EDRs,  GDRs,
IDRs or other similar securities  representing  interests in or convertible into
securities of foreign issuers ("Depository Receipts"). ADRs, EDRs, GDRs and IDRs
are receipts that represent  interests in or are convertible  into securities of
foreign  issuers.  These  receipts are not  necessarily  denominated in the same
currency as the underlying securities into which they may be converted.






      ADRs may be purchased through "sponsored" or "unsponsored"  facilities.  A
sponsored  facility  is  established  jointly  by the  issuer of the  underlying
security and a depository,  whereas a depository  may  establish an  unsponsored
facility without participation by the issuer of the depository security. Holders
of  unsponsored  depository  receipts  generally  bear  all  the  costs  of such
facilities and the depository of an unsponsored  facility frequently is under no
obligation to distribute shareholder  communications received from the issuer of
the deposited  security or to pass through  voting rights to the holders of such
receipts of the deposited  securities.  Generally,  ADRs in registered  form are
designed  for use in the U.S.  securities  market  and ADRs in  bearer  form are
designed for use outside the United States.

      EDRs and IDRs are receipts  typically  issued by a European  bank or trust
company  evidencing  ownership of the underlying  foreign  securities.  GDRs are
issued  globally  for trading in  non-U.S.  securities  markets  and  evidence a
similar  ownership  arrangement.  Depository  Receipts  may not  necessarily  be
denominated  in the same currency as the underlying  securities  into which they
may be  converted.  As with  ADRs,  the  issuers  of the  securities  underlying
unsponsored   Depository   Receipts  are  not  obligated  to  disclose  material
information in the United States and,  therefore,  there may be less information
available regarding such issuers and there may not be a correlation between such
information and the market value of the Depository Receipts. Depository Receipts
also involve the risks of other investments in foreign securities,  as discussed
below.

CONVERTIBLE SECURITIES

      The  Portfolio  may invest in  convertible  securities as described in the
Prospectus.  While no securities investment is without some risk, investments in
convertible  securities  generally  entail  less risk than the  issuer's  common
stock,  although  the  extent to which  such risk is  reduced  depends  in large
measure upon the degree to which the convertible  security sells above its value
as a fixed income  security.  The Subadviser,  on behalf of the Portfolio,  will
decide  to  invest  based  upon  a   fundamental   analysis  of  the   long-term
attractiveness  of the issuer and the underlying  common stock, 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.  Convertible  securities  in which the  Portfolio  may
invest include corporate bonds,  notes and preferred stock that can be converted
into  (exchanged  for)  common  stock.   Convertible   securities   combine  the
fixed-income characteristics of bonds and preferred stock with the potential for
capital  appreciation.  The  market  value of  convertible  securities  tends to
decline as interest  rates  increase  and,  conversely,  to increase as interest
rates decline.  While convertible  securities  generally offer lower interest or
dividend yields than nonconvertible debt securities of similar quality,  they do
enable  the  investor  to benefit  from  increases  in the  market  price of the
underlying common stock.

FORWARD COMMITMENTS

      As  described  in the  Prospectus  under  the  caption  "Other  Investment
Policies  and Risk  Factors - Forward  Commitments,  When-  Issued  and  Delayed
Delivery  Transactions," the Portfolio may make contracts to purchase securities
for a fixed price at a future date beyond  customary  settlement  time ("forward
commitments"),  if the  Portfolio  either (1)  holds,  and  maintains  until the
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


                                      -2-


contract for the forward sale of securities of equal value that it owns. Forward
commitments may be considered  securities in themselves.  They involve a risk of
loss  if the  value  of the  security  to be  purchased  declines  prior  to the
settlement  date,  which risk is in  addition to the risk of decline in value of
the Portfolio's other assets. When such purchases are made through dealers,  the
Portfolio  relies on the dealer to consummate the sale. The dealer's  failure to
do so may result in a loss to the Portfolio of an  advantageous  yield or price.
Although the Portfolio  generally will enter into forward  commitments  with the
intention of acquiring securities for its investment  portfolios,  the Portfolio
may dispose of a  commitment  prior to  settlement  and may  realize  short-term
profits or losses upon such disposition.

FUTURES AND FORWARD TRANSACTIONS

      The  Prospectus  describes the  Portfolio's  use of forward  contracts and
futures  contracts.  See "Other  Investment  Policies and Risk Factors - Futures
Transactions;  Foreign Currency Transactions," in the Prospectus.  The following
discussion relates to the use of such strategies by the Portfolio.

      COVER.  Transactions  using forward contracts and futures contracts expose
the Portfolio to an obligation to another  party.  The Portfolio  will not enter
into any such transactions  unless it owns either (1) an offsetting  ("covered")
position  in  securities,  currencies,  or other  forward  contracts  or futures
contracts or (2) cash or liquid  assets with a value  sufficient at all times to
cover its  potential  obligations  not  covered as  provided  in (1) above.  The
Portfolio will comply with SEC guidelines  regarding cover for these instruments
and,  if the  guidelines  so  require,  set  aside  cash or  liquid  assets in a
segregated account in the prescribed amount.

      Assets used as cover or held in a segregated  account cannot be sold while
the position in the corresponding  forward contract or futures contract is open,
unless they are replaced with similar assets.  As a result,  the commitment of a
large portion of the  Portfolio's  assets to cover or segregated  accounts could
impede  portfolio  management  or the  Portfolio's  ability  to meet  redemption
requests or other current obligations.

      FORWARD CONTRACTS.  A forward foreign currency exchange contract ("forward
contract")  involves an obligation to purchase or sell a specific  currency at a
future  date,  which may be any fixed  number of days  (term)  from the date the
forward  contract is agreed upon by the parties,  at a price set at the time the
forward contract is entered into.  Forward contracts are traded directly between
the  Portfolio and a contra party  (usually a large  commercial  bank).  Because
forward  contracts  are usually  entered into on a principal  basis,  no fees or
commissions are involved.  When the Portfolio enters into a forward contract, it
relies on its contra party to make or take delivery of the  underlying  currency
at the  maturity  of the  contract.  Failure by the contra  party to do so would
result in the loss of any expected benefit of the transaction.

      The Portfolio may enter into forward contracts in order to protect against
uncertainty in the level of future foreign  exchange rates.  Since investment in
foreign  companies  will  usually  involve  foreign  currencies,  and  since the
Portfolio  may  temporarily  hold funds in bank  deposits in foreign  currencies
during  the  course  of  investment  programs,  the  value of the  assets of the
Portfolio  as  measured  in U.S.  dollars  may be affected by changes in foreign
currency exchange rates and exchange control regulations,  and the Portfolio may


                                      -3-


incur  costs  in  connection   with  conversion   between  various   currencies.
Accordingly, the Portfolio may use currency forward contracts:

      1.    When the Subadviser  wishes to "lock in" the U.S.  dollar price of a
            security  when the  Portfolio  is  purchasing  or selling a security
            denominated  in  a  foreign  currency  or  anticipates  receiving  a
            dividend or interest payment denominated in a foreign currency; or

      2.    When the  Subadviser  believes  that the  currency  of a  particular
            foreign  country may suffer a substantial  decline  against the U.S.
            dollar,  the Portfolio may enter into a forward contract to sell the
            foreign  currency for a fixed U.S. dollar amount  approximating  the
            value  of  some  or  all  of the  Portfolio's  portfolio  securities
            denominated in such foreign currency.

      As to the first  circumstance,  when the Portfolio enters into a trade for
the  purchase  or  sale of a  security  denominated  in a  foreign  currency  or
anticipates  receiving a dividend or interest payment in a foreign currency,  it
may be  desirable to establish  (lock in) the U.S.  dollar cost or proceeds.  By
entering  into forward  contracts in U.S.  dollars for the purchase or sale of a
foreign currency involved in an underlying securities transaction, the Portfolio
will be able to  protect  itself  against  a  possible  loss  between  trade and
settlement dates resulting from the adverse change in the  relationship  between
the U.S. dollar and the subject foreign currency.

      Under the  second  circumstance,  when the  Subadviser  believes  that the
currency of a particular country may suffer a substantial decline, the Portfolio
could enter into a forward  contract to sell for a fixed U.S.  dollar amount the
amount of the  foreign  currency  approximating  the value of some or all of its
portfolio securities denominated in such foreign currency.

      The cost to the Portfolio of engaging in forward currency contracts varies
with factors such as the currency  involved,  the length of the contract  period
and the market  conditions then prevailing.  Because forward currency  contracts
usually  are entered  into on a  principal  basis,  no fees or  commissions  are
involved.  When the Portfolio enters into a forward currency contract, it relies
on the  counterparty to make or take delivery of the underlying  currency at the
maturity of the contract.  Failure by the  counterparty to do so would result in
the loss of any expected benefit of the transaction.

      As is the case with futures  contracts,  sellers or  purchasers of forward
currency  contracts can enter into offsetting closing  transactions,  similar to
closing  transactions  on futures,  by purchasing or selling,  respectively,  an
instrument  identical  to the  instrument  sold  or  bought.  Secondary  markets
generally  do not exist for  forward  currency  contracts,  with the result that
closing  transactions  generally can be made for forward currency contracts only
by negotiating  directly with the counterparty.  Thus, there can be no assurance
that the Portfolio will in fact be able to close out a forward currency contract
at a favorable price prior to maturity.  In addition, in the event of insolvency
of the  counterparty,  the  Portfolio  might be  unable  to close  out a forward
currency contract at any time prior to maturity.  In either event, the Portfolio
would  continue to be subject to market risk with respect to the  position,  and
would  continue  to be required  to  maintain a position  in the  securities  or
currencies that are the subject of the hedge or to maintain cash or securities.


                                      -4-


      The precise  matching of the forward contract amounts and the value of the
securities  involved  will not  generally be possible  since the future value of
such  securities in foreign  currencies  will change as a consequence  of market
movements  in the  value  of those  investments  between  the  date the  forward
contract is entered into and the date it matures.

      Of course,  the Portfolio is not required to enter into forward  contracts
and will not do so unless deemed  appropriate by the  Subadviser.  The Portfolio
generally will not enter into a forward contract with a term of greater than one
year. The Portfolio's  ability to engage in forward  contracts may be limited by
tax considerations.

      FUTURES CONTRACTS.  The Portfolio may only purchase or sell stock index or
currency futures contracts. A futures contract sale creates an obligation by the
seller to deliver the type of commodity, currency or financial instrument called
for in the contract in a specified  delivery month for a stated price. A futures
contract purchase creates an obligation by the purchaser to take delivery of the
underlying security or currency in a specified delivery month at a stated price.
A stock index futures  contract is similar except that the parties agree to take
or make  delivery of an amount of cash equal to a specified  dollar amount times
the  difference  between the stock index value at the close of the last  trading
day of the  contract and the price at which the futures  contract is  originally
struck.  Futures  contracts  are traded only on commodity  exchanges -- known as
"contract markets" -- approved for such trading by the Commodity Futures Trading
Commission ("CFTC"),  and must be executed through a futures commission merchant
or brokerage firm that is a member of a contract market.

      Although  futures  contracts  by their  terms call for actual  delivery or
acceptance of currencies or financial  instruments,  in most cases the contracts
are  closed  out  before the  settlement  date  without  the making or taking of
delivery.  Closing  out a futures  contract  sale is effected  by  purchasing  a
futures contract for the same aggregate amount of the specific type of financial
instrument or currency and the same  delivery  date. If the price of the initial
sale of the futures contract exceeds the price of the offsetting  purchase,  the
seller is paid the difference and realizes a gain.  Conversely,  if the price of
the  offsetting  purchase  exceeds  the price of the  initial  sale,  the seller
realizes a loss.  Similarly,  the closing out of a futures contract  purchase is
effected  by  the  purchaser  entering  into a  futures  contract  sale.  If the
offsetting sale price exceeds the purchase price, the purchaser realizes a gain,
and if the purchase price exceeds the offsetting sale price, he realizes a loss.

      The  purchase  (that  is,  a long  position)  or sale  (that  is,  a short
position) of a futures  contract differs from the purchase or sale of a security
in that no price or premium is paid or received.  Instead,  an amount of cash or
U.S.  Treasury bills  generally not exceeding 5% of the contract  amount must be
deposited with the broker.  This amount is known as initial  margin.  Subsequent
payments to and from the broker,  known as variation margin, are made on a daily



                                      -5-



basis as the price of the underlying futures contract fluctuates making the long
and short  positions in the futures  contract more or less  valuable,  a process
known as "marking to  market." At any time prior to the  settlement  date of the
futures contract,  the position may be closed out by taking an opposite position
that will operate to terminate  the  position in the futures  contract.  A final
determination of variation  margin is then made,  additional cash is required to
be paid to or released by the broker,  and the  purchaser  or seller  realizes a
loss or gain. In addition,  a commission is paid on each completed  purchase and
sale transaction.

start here
      The  Portfolio  may engage in  transactions  in futures  contracts for the
purpose  of hedging  against  changes  in the  values of  securities  it owns or
intends to acquire.  The  Portfolio  may sell stock index  futures  contracts in
anticipation  of a decline in the value of its  investments.  The risk of such a
decline  can  be  reduced  without  employing  futures  as a  hedge  by  selling
securities.  This strategy,  however, entails increased transaction costs in the
form of brokerage  commissions and dealer spreads. The sale of futures contracts
provides an alternative  means of hedging the Portfolio against a decline in the
value of its investments.  As such values decline,  the value of the Portfolio's
position in the futures contracts will tend to increase,  thus offsetting all or
a portion of the depreciation in the market value of the Portfolio's  securities
that are being hedged.  While the Portfolio  will incur  commission  expenses in
establishing  and  closing  out  futures   positions,   commissions  on  futures
transactions may be significantly  lower than transaction  costs incurred in the
sale of securities.  Employing  futures as a hedge may also permit the Portfolio
to assume a defensive posture without selling securities.

      CURRENCY  FUTURES.  A currency futures contract sale creates an obligation
by the Portfolio, as seller, to deliver the amount of currency called for in the
contract  at a  specified  future time for a stated  price.  A currency  futures
contract purchase creates an obligation by the Portfolio,  as purchaser, to take
delivery of an amount of currency at a specified  future time at a stated price.
Although the terms of currency  futures  contracts  specify  actual  delivery or
receipt,  in most  instances the contracts are closed out before the  settlement
date  without the making or taking of delivery of the  currency.  Closing out of
the  currency  futures  contract  is effected  by  entering  into an  offsetting
purchase or sale transaction.

      STOCK INDEX FUTURES.  A stock index assigns  relative values to the common
stocks  comprising  the index.  A stock  index  futures  contract is a bilateral
agreement  pursuant  to which two parties  agree to take or make  delivery of an
amount of cash equal to a specified  dollar amount times the difference  between
the stock index value at the close of the last  trading day of the  contract and
the price at which the  futures  contract  is  originally  struck.  No  physical
delivery of the underlying stocks in the index is made.

      The Portfolio may engage in transactions in stock index futures  contracts
as a hedge against  changes  resulting  from market  conditions in the values of
securities  held in the Portfolio's  portfolio or that the Portfolio  intends to
purchase.

      The risk of  imperfect  correlation  between  movements  in the price of a
stock index futures  contract and movements in the price of the securities  that
are the subject of the hedge  increases as the  composition  of the  Portfolio's
portfolio  diverges from the securities  included in the applicable  index.  The

                                      -6-



price of the stock  index  futures  may move more than or less than the price of
the  securities  being hedged.  If the price of the futures  contract moves less
than the price of the  securities  that are the subject of the hedge,  the hedge
will not be fully effective but, if the price of the securities being hedged has
moved in an unfavorable  direction,  the Portfolio would be in a better position
than if it had not hedged at all. If the price of the  securities  being  hedged
has moved in a favorable  direction,  this advantage will be partially offset by
the futures  contract.  If the price of the futures contract moves more than the
price of the securities,  the Portfolio will experience  either a loss or a gain
on the futures  contract that will not be completely  offset by movements in the
price of the securities that are the subject of the hedge. To compensate for the
imperfect  correlation of movements in the price of the securities  being hedged
and movements in the price of the stock index futures  contracts,  the Portfolio
may buy or sell stock index  futures  contracts in a greater  dollar amount than
the dollar amount of securities being hedged if the historical volatility of the
prices of such  securities is more than the  historical  volatility of the stock
index. It is also possible that,  where the Portfolio has sold futures  contacts
to hedge its securities  against  decline in the market,  the market may advance
and the value of securities held in the portfolio may decline. If this occurred,
the  Portfolio  would lose money on the futures  contract and also  experience a
decline in value in its portfolio  securities.  However,  while this could occur
for a very  brief  period or to a very  small  degree,  over time the value of a
diversified  portfolio of securities  will tend to move in the same direction as
the market indices upon which the futures contracts are based.

      Where stock index  futures  contracts  are  purchased  to hedge  against a
possible  increase in the price of  securities  before the  Portfolio is able to
invest in securities in an orderly  fashion,  it is possible that the market may
decline instead.  If the Portfolio then concludes not to invest in securities at
that time  because of concern as to possible  further  market  decline for other
reasons,  it will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities it had anticipated purchasing.

      LIMITATIONS ON THE USE OF FUTURES PORTFOLIO  STRATEGIES.  If the Portfolio
enters into  futures  contracts  for other than BONA FIDE  hedging  purposes (as
defined by the CFTC),  the aggregate  initial margin required to establish these
positions  may  not  exceed  5% of the  liquidation  value  of  the  Portfolio's
portfolio,  after  taking into  account any  unrealized  profits and  unrealized
losses on any such contracts it has entered into. This limitation does not limit
the percentage of the Portfolio's assets at risk to 5%.

      The  Portfolio's  ability to engage in the  futures  strategies  described
above will depend on the  availability  of liquid  markets in such  instruments.
Markets  in certain  futures  are  relatively  new and still  developing.  It is
impossible  to predict the amount of trading  interest that may exist in various
types of futures.  Therefore,  no assurance can be given that the Portfolio will
be able to utilize  these  instruments  effectively  for the  purpose  set forth
above.  Furthermore,  the Portfolio's ability to engage in futures  transactions
may be limited by tax considerations.

FUTURES AND FORWARD TRANSACTIONS - RISK FACTORS

      FUTURES AND FORWARD CONTRACTS.  Investment by the Portfolio in futures and
forward contracts  (collectively  "Hedging  Instruments") involves risk. Some of
that risk may be caused by an  imperfect  correlation  between  movements in the


                                      -7-


price of the  futures  or  forward  contract  and the price of the  security  or
currency being hedged. The hedge will not be fully effective where there is such
imperfect  correlation.  For  example,  if the price of the  futures  or forward
contract  moves  more than the price of the hedged  security  or  currency,  the
Portfolio would  experience  either a loss or gain on the future or forward that
is not completely  offset by movements in the price of the hedged  securities or
currency. To compensate for imperfect correlation, the Portfolio may purchase or
sell  futures or forward  contracts in a greater  dollar  amount than the hedged
securities or currency if the volatility of the hedged securities or currency is
historically  greater than the  volatility of the futures or forward  contracts.
Conversely, the Portfolio may purchase or sell fewer contracts if the volatility
of the price of the hedged securities or currency is historically less than that
of the futures or forward contracts.

      Futures  or  forward  contracts  may be used to hedge  against a  possible
increase in the price of securities or currencies that the Portfolio anticipates
purchasing.  In such  instances,  it is  possible  that the market  may  instead
decline.  If the Portfolio does not then invest in such securities or currencies
because of concern as to possible  further  market decline or for other reasons,
the Portfolio may realize a loss on the futures or forward  contract that is not
offset by a reduction in the price of the securities or currencies purchased.

      The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by commodity exchanges,
which  limit the amount of  fluctuation  in a futures  contract  price  during a
single  trading day. Once the daily limit has been reached in the  contract,  no
trades may be entered  into at a price  beyond the limit,  thus  preventing  the
liquidation of open positions.  Prices have in the past exceeded the daily limit
on a number of consecutive trading days.

      The successful use of transactions  in futures and forward  contracts also
depends on the ability of the Subadviser to forecast correctly the direction and
extent of stock market and currency  exchange rate movements within a given time
frame.  To the extent prices or rates remain stable during the period in which a
futures or forward  contract  is held by the  Portfolio  or such prices or rates
move in a direction  opposite to that  anticipated,  the Portfolio may realize a
loss on the  hedging  transaction  that is not fully or  partially  offset by an
increase in the value of portfolio securities or currency position. As a result,
the  Portfolio's  total  return  for such  period may be less than if it had not
engaged in the hedging transaction.

      FOREIGN  CURRENCY  STRATEGIES.  The  Portfolio  may use futures on foreign
currencies and forward contracts to hedge against movements in the values of the
foreign  currencies in which the Portfolio's  securities are  denominated.  Such
currency  hedges can protect  against  price  movements  in a security  that the
Portfolio  owns or intends to acquire  that are  attributable  to changes in the
value of the currency in which it is denominated.  Such hedges do not,  however,
protect against price movements in the securities that are attributable to other
causes.

      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


                                      -8-


that currency by entering into transactions using Hedging Instruments on another
currency or basket of currencies,  the values of which its  Subadviser  believes
will have a high degree of  positive  correlation  to the value of the  currency
being  hedged.  The risk that  movements in the price of the Hedging  Instrument
will not correlate  perfectly  with movements in the price of the currency being
hedged is magnified when this strategy is used.

      The value of futures  contracts and forward contracts depends on the value
of the underlying currency relative to the U.S. dollar. Because foreign currency
transactions  occurring  in the  interbank  market might  involve  substantially
larger  amounts than those  involved in the use of futures  contracts or forward
contracts, the Portfolio could be disadvantaged by having to deal in the odd lot
market  (generally  consisting of  transactions of less than $1 million) for the
underlying  foreign  currencies at prices that are less favorable than for round
lots.

      There is no  systematic  reporting  of last sale  information  for foreign
currencies or any regulatory  requirements  that  quotations  available  through
dealers or other market sources be firm or revised on a timely basis.  Quotation
information  generally  is  representative  of very  large  transactions  in the
interbank  market and thus might not  reflect odd lot  transactions  where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock  market. To the extent the U.S. futures markets are closed while
the markets for the underlying  currencies  remain open,  significant  price and
rate  movements  might  take  place in the  underlying  markets  that  cannot be
reflected in the markets for the futures contracts until they reopen.

      Settlement of futures  contracts and forward  contracts  involving foreign
currencies  might be  required  to take place  within the  country  issuing  the
underlying  currency.  Thus,  the Portfolio  might be required to accept or make
delivery  of the  underlying  foreign  currency in  accordance  with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S.  residents  and  might be  required  to pay any  fees,  taxes  and  charges
associated with such delivery assessed in the issuing country.

ILLIQUID SECURITIES

      As stated in the Prospectus,  the Portfolio will not purchase or otherwise
acquire any security if, as a result,  more than 10% of its net assets (taken at
current  value) would be invested in  securities  that are illiquid by virtue of
the absence of a readily  available market or legal or contractual  restrictions
on resale.  This policy  includes  repurchase  agreements  maturing in more than
seven days.

LOANS OF PORTFOLIO SECURITIES

      The Portfolio may loan its securities to broker-dealers or other financial
institutions.  The  collateral  for the  Portfolio's  loans  will be  "marked to
market"  daily so that the  collateral at all times exceeds 100% of the value of
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


                                      -9-


materially  affecting the investment.  The Portfolio also may call such loans in
order to sell the securities  involved.  The borrower must add to the collateral
whenever  the  market  value of the  securities  rises  above  the level of such
collateral.  The  Portfolio  could  incur a loss  if the  borrower  should  fail
financially  at a time when the value of the loaned  securities  is greater than
the collateral. The primary objective of securities lending is to supplement the
Portfolio's  income  through  investment  of the cash  collateral  in short-term
interest bearing obligations.

LOWER RATED SECURITIES-RISK FACTORS

      The Portfolio may invest in  convertible  securities  that are rated below
BBB by  Standard & Poor's  Ratings  Group  ("S&P")  or Baa by Moody's  Investors
Service, Inc. ("Moody's"), or if unrated, are considered by the Subadviser to be
below investment grade  (sometimes  referred to as "junk bonds").  The prices of
these lower rated  securities tend to be less sensitive to interest rate changes
than higher rated investments, but more sensitive to adverse economic changes or
individual  corporate  developments.  During  economic  downturns  or periods of
rising interest rates, highly leveraged issuers may experience  financial stress
that adversely  affects their ability to service  principal and interest payment
obligations,   to  meet  projected  business  goals,  or  to  obtain  additional
financing,  and the markets for their  securities  may be more  volatile.  If an
issuer defaults,  the Portfolio may incur additional  expenses to seek recovery.
In addition,  lower rated securities may contain  redemption or call provisions.
If an issuer exercises these provisions in a declining interest rate market, the
Portfolio would have to replace the security with a lower yielding security.

      To the extent that there is no established retail secondary market,  there
may be thin trading of lower rated  securities.  This may lessen the Portfolio's
ability to accurately value these securities and its ability to dispose of these
securities. Additionally, adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of high
yielding securities,  especially in a thinly-traded market.  Certain lower rated
securities may involve special  registration  responsibilities,  liabilities and
costs, and liquidity and valuation  difficulties;  thus, the responsibilities of
the Board of Trustees to value lower rated  securities in the Portfolio  becomes
more difficult with judgment playing a greater role.

      Frequently,  the higher yields of lower rated  securities  may not reflect
the value of the income stream that holders of such  securities may expect,  but
rather the risk that such  securities  may lose a  substantial  portion of their
value  as a  result  of  their  issuer's  financial  restructuring  or  default.
Additionally, an economic downturn or an increase in interest rates could have a
negative effect on the lower rated securities  market and on the market value of
the lower rated  securities held by the Portfolio,  as well as on the ability of
the  issuers  of such  securities  to  repay  principal  and  interest  on their
borrowings. Proposed new laws may impact the market for lower rated fixed income
securities.

PREFERRED STOCK

      Preferred  stock  has  preference  over  common  stock in the  receipt  of
dividends  and in any  residual  assets after  payment to  creditors  should the
issuer be dissolved.  A preferred stock is a blend of the  characteristics  of a


                                      -10-


bond and common stock.  It can offer the higher yield of a bond and has priority
over common stock in equity ownership, but does not have the seniority of a bond
and its  participation  in the issuer's  growth is limited.  Preferred stock has
preference  over common  stock in the receipt of  dividends  and in any residual
assets after payment to creditors  should the issuer be dissolved.  Although the
dividend is set at a fixed annual rate, in some circumstances, it can be changed
or omitted by the issuer at any time.

REPURCHASE AGREEMENTS

      The  Portfolio may invest in  repurchase  agreements.  The period of these
repurchase  agreements usually will be short, from overnight to one week, and at
no time will the  Portfolio  invest in  repurchase  agreements  of more than one
year. The securities  that are subject to repurchase  agreements,  however,  may
have  maturity  dates in  excess  of one year  from  the  effective  date of the
repurchase agreement. The Portfolio always will receive as collateral securities
whose market value,  including accrued interest,  will be at least equal to 100%
of the dollar  amount  invested  by the  Portfolio  in each  agreement,  and the
Portfolio will make payment for such securities  only upon physical  delivery or
evidence  of book entry  transfer to the  account of the  Portfolio's  custodian
bank.

SHORT-TERM INVESTMENTS

      EURO/YANKEE  BONDS. The Portfolio may invest in dollar  denominated  bonds
issued  by  foreign  branches  of  domestic  banks   ("Eurobonds")   and  dollar
denominated  bonds  issued by a U.S.  branch  of a foreign  bank and sold in the
United States ("Yankee bonds").  Investment in Eurobonds and Yankee bonds entail
certain  risks  similar to  investment  in foreign  securities  in  general,  as
discussed in the Prospectus.

      MONEY MARKET  INSTRUMENTS.  Investments in commercial paper are limited to
obligations  rated Prime-1 by Moody's or A-1 by S&P.  Commercial  paper includes
notes,  drafts, or similar instruments payable on demand or having a maturity at
the time of issuance not  exceeding  nine months,  exclusive of days of grace or
any renewal  thereof.  Investments in certificates of deposit are made only with
domestic  institutions  with assets in excess of $1.0 billion.  See the Appendix
for a description of commercial paper ratings.

WARRANTS AND RIGHTS

      The Portfolio may purchase rights and warrants, which are instruments that
permit a Fund to acquire, by subscription, the capital stock of a corporation at
a set  price,  regardless  of the market  price for such  stock.  The  Portfolio
currently  does not intend to invest more than 5% of its net assets in warrants.
However,  the  Portfolio  also 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.  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.



                                      -11-


WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

      As described in the Prospectus under "Other  Investment  Policies and Risk
Factors--Forward  Commitments,  When-Issued and Delayed Delivery  Transactions,"
the Portfolio may enter into  agreements  with banks or  broker-dealers  for the
purchase or sale of securities  at an  agreed-upon  price on a specified  future
date.  Such  agreements  might be entered into, for example,  when the Portfolio
anticipates  a  decline  in  interest  rates  and  is  able  to  obtain  a  more
advantageous yield by committing  currently to purchase  securities to be issued
later.  When the Portfolio  purchases  securities  on a  when-issued  or delayed
delivery basis,  it is required  either (1) to create a segregated  account with
the Portfolio's  custodian and to maintain in that account cash, U.S. Government
securities  or other high grade debt  obligations  in an amount equal on a daily
basis  to  the  amount  of  the  Portfolio's  when-issued  or  delayed  delivery
commitments  or (2) to enter into an  offsetting  forward sale of  securities it
owns equal in value to those purchased. The Portfolio will only make commitments
to purchase  securities  on a  when-issued  or  delayed-delivery  basis with the
intention of actually acquiring the securities.  However, the Portfolio may sell
these  securities  before the  settlement  date if it is deemed  advisable  as a
matter of investment  strategy.  When the time comes to pay for  when-issued  or
delayed-delivery  securities,  the Portfolio will meet its obligations from then
available  cash  flow or the sale of  securities,  or,  although  it  would  not
normally expect to do so, from the sale of the  when-issued or delayed  delivery
securities  themselves  (which  may  have a  value  greater  or  less  than  the
Portfolio's payment obligation).

NOTE ON SHAREHOLDER APPROVAL

      Unless otherwise  indicated,  the investment policies of the Portfolio may
be changed without shareholder approval.

INDUSTRY CLASSIFICATIONS

      For purposes of determining  industry  classifications,  the Portfolio may
rely  upon   classifications   established   by  Eagle   that  are  based   upon
classifications  contained in the Directory of Companies  Filing Annual  Reports
with the Securities and Exchange  Commission ("SEC") and in the Standard & Poors
Industry  Classifications.  The  Portfolio  also may rely  upon  classifications
established by the Subadviser.

INVESTMENT RESTRICTIONS

      In addition to the limits disclosed in "Investment Policies" above and the
investment limitations described in the Prospectus,  the Portfolio is subject to
the following  investment  limitations,  which are  fundamental  policies of the
Portfolio  and  may  not be  changed  without  the  vote  of a  majority  of the
outstanding voting securities of the Portfolio. Under the Investment Company Act
of 1940, as amended (the "1940 Act"),  a "vote of a majority of the  outstanding
voting  securities" of the Portfolio means the affirmative vote of the lesser of
(1) more than 50% of the outstanding  shares of the Portfolio or (2) 67% or more
of the  shares  present  at a  shareholders  meeting  if  more  than  50% of the
outstanding  shares are  represented  at the meeting in person or by proxy.  The
Portfolio will not:


                                      -12-


      (1) Borrow money in excess of 10% of the value (taken at the lower of cost
or current  value) of the  Portfolio's  total assets (not  including  the amount
borrowed)  at the time the  borrowing  is made,  and then only  from  banks as a
temporary  measure,  such as to  facilitate  the  meeting  of higher  redemption
requests than anticipated  (not for leverage) which might otherwise  require the
untimely disposition of portfolio  investments or for extraordinary or emergency
purposes. As a matter of nonfundamental investment policy, the Portfolio may not
make  any  additional   investments  if,  immediately  after  such  investments,
outstanding  borrowings  of money would  exceed 5% of the  current  value of the
Portfolio's total assets.

      (2) Purchase  securities on margin,  except such short-term credits as may
be necessary for the clearance of purchases and sales of  securities.  (For this
purpose,  the deposit or payment by the Portfolio of initial or variation margin
in  connection  with  futures  contracts,  forward  contracts  or options is not
considered the purchase of a security on margin.)

      (3) Make short sales of  securities or maintain a short  position,  except
that the Portfolio may maintain  short  positions in connection  with its use of
options, futures contracts,  forward contracts and options on futures contracts,
and the Portfolio may sell short "against the box."

      (4)  Underwrite  securities  issued by other persons  except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws.

      (5) Purchase or sell real estate,  although it may purchase  securities of
issuers  which  deal  in  real  estate,  including  securities  of  real  estate
investment trusts, and may purchase securities which are secured by interests in
real estate.

      (6)  Purchase  or sell  commodities  or  commodity  contracts,  except the
Portfolio may purchase and sell forward contracts,  futures  contracts,  options
and foreign currency.

      (7) Make loans, except by purchase of debt obligations or by entering into
repurchase  agreements  or  through  the  lending of the  Portfolio's  portfolio
securities.

      (8) With respect to 75% of its total  assets,  invest in securities of any
issuer if,  immediately after such investment,  more than 5% of the total assets
of the Portfolio (taken at current value) would be invested in the securities of
such issuer;  provided that this limitation does not apply to obligations issued
or  guaranteed  as to  interest  and  principal  by the U.S.  Government  or its
agencies or instrumentalities.

      (9) With respect to 75% of its total assets,  acquire more than 10% of the
voting securities of any issuer.

      (10) Concentrate more than 25% of the value of its total assets in any one
industry.


                                      -13-


      (11) The Portfolio may not issue senior securities, except as permitted by
the  investment  objective  and  policies  and  investment  limitations  of  the
Portfolio or with respect to transactions  involving options,  futures,  forward
currency contracts or other financial instruments.

      It is  contrary  to  the  Trust's  present  policy  with  respect  to  the
Portfolio,  which may be changed by the Trustees without  shareholder  approval,
to:

       (1)  Invest  more than 10% of its total  assets  in  securities  of other
investment  companies.  For  purposes  of this  restriction,  foreign  banks and
foreign  insurance  companies or their respective agents or subsidiaries are not
considered investment  companies.  (Under the 1940 Act, no registered investment
company  may (a)  invest  more than 10% of its total  assets  (taken at  current
value) in securities of other  investment  companies,  (b) own securities of any
one investment company having a value in excess of 5% of its total assets (taken
at current value),  or (c) own more than 3% of the  outstanding  voting stock of
any one  investment  company.)  In  addition,  the  Portfolio  may invest in the
securities  of  other   investment   companies  in  connection  with  a  merger,
consolidation or acquisition of assets or other  reorganization  approved by the
Portfolio's  shareholders.   The  Portfolio  may  incur  duplicate  advisory  or
management fees when investing in another mutual fund.

      All  percentage  limitations  on  investments  set forth herein and in the
Prospectus  will apply at the time of the making of an investment  and shall not
be  considered  violated  unless  an  excess  or  deficiency  occurs  or  exists
immediately after and as a result of such investment.

NET ASSET VALUE

      Net asset value per  Portfolio  share is determined  daily Monday  through
Friday, except for New Year's Day, Martin Luther King Day, Presidents' Day, Good
Friday,  Memorial  Day,  Independence  Day,  Labor  Day,  Thanksgiving  Day  and
Christmas Day as of the close of regular  trading on the New York Stock Exchange
(the  "Exchange") by dividing the value of the  Portfolio's  securities plus any
cash or  other  assets  (including  accrued  dividends  and  interest)  less all
liabilities  (including  accrued expenses) by the number of shares  outstanding,
the result being adjusted to the nearest whole cent.

      A  security  listed or traded on an  exchange  is valued at its last sales
price on the  principal  exchange  on which it is traded  prior to the time when
assets are valued.  If no sale is reported at that time,  the last  reported bid
price is used. All other securities for which over-the-counter market quotations
are readily  available  are valued at the last  reported bid price.  When market
quotations for futures  positions  held by the Portfolio are readily  available,
those positions will be valued based upon such quotations.  Securities and other
assets for which  market  quotations  are not  readily  available,  or for which
market  quotes  are not  deemed to be  reliable,  are  valued  at fair  value as
determined in good faith by the Board of Trustees. Short-term investments having
a  maturity  of 60 days or less are  valued at cost  with  accrued  interest  or
discount earned included in interest receivable.

      All  securities  and other assets  quoted in foreign  currency and forward
currency  contracts are valued daily in U.S. dollars on the basis of the foreign


                                      -14-


currency  exchange rate  prevailing at the time such  valuation is determined by
the  Portfolio's  custodian.  Foreign  currency  exchange  rates  generally  are
determined  prior to the close of the Exchange.  Occasionally,  events affecting
the value of foreign  securities  and such exchange rates occur between the time
at which they are  determined  and the close of the Exchange,  which events will
not be reflected in a computation of the  Portfolio's net asset value. If events
materially affecting the value of such securities or assets or currency exchange
rates occurred during such time period, the securities or assets would be valued
at their fair value as determined in good faith under procedures  established by
and under the general  supervision and  responsibility of the Board of Trustees.
The foreign currency exchange  transactions of the Portfolio conducted on a spot
basis are valued at the spot rate for purchasing or selling currency  prevailing
on the foreign exchange market.

      The  Portfolio  is open for business on days on which the Exchange is open
for business ("Business Day"). Trading in securities on European and Far Eastern
securities  exchanges and  over-the-counter  markets is normally  completed well
before the  Portfolio's  close of business on each  Business  Day. In  addition,
European or Far Eastern  securities trading generally or in a particular country
or countries may not take place on all Business Days. Furthermore, trading takes
place in Japanese  markets on certain  Saturdays and in various  foreign capital
markets  on days that are not  Business  Days and on which the  Portfolio's  net
asset value is not  calculated.  Calculation of the  Portfolio's net asset value
does not take place  contemporaneously  with the  determination of the prices of
the majority of the portfolio  securities  used in such  calculation.  If events
materially  affecting the value of such  securities  occur between the time when
their price is determined and the time when the  Portfolio's  net asset value is
calculated, such securities are valued at fair value as determined in good faith
by or under the direction of the Board of Trustees.

      The Board of  Trustees  may suspend  the right of  redemption  or postpone
payment  for more than  seven  days at times (1) during  which the  Exchange  is
closed other than for customary weekend and holiday  closings,  (2) during which
trading on the Exchange is restricted as determined by the SEC, (3) during which
an emergency exists as a result of which disposal by the Portfolio of securities
owned by it is not reasonably  practicable or it is not reasonably practical for
the Portfolio  fairly to determine the value of its net assets,  or (4) for such
other  periods as the SEC may by order permit for the  protection of the holders
of the shares.

PERFORMANCE INFORMATION

      The  Eagle  Class's  performance  data  quoted  in  advertising  and other
promotional  materials  represents  past  performance  and  is not  intended  to
indicate  future  performance.  The investment  return and principal  value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their  original  cost.  Average  annual  total  return  quotes  used in the
Portfolio's  advertising and promotional  materials are calculated  according to
the following formula:

                                      -15-


                           P(1+T)n(SUPERSCRIPT) = ERV

            where:P     =     a hypothetical initial payment of $1,000
                  T     =     average annual total return
                  n     =     number of years
                  ERV   =     ending   redeemable   value  of  a  hypothetical
                              $1,000  payment  made  at the  beginning  of the
                              period at the end of that period.

      Total  return,  or "T" in the  formula  above,  is computed by finding the
average annual  compounded rates of return over the period that would equate the
initial amount invested to the ending redeemable  value. The average  annualized
total  return for the Eagle  Class of the  Portfolio  for the period May 1, 1995
(commencement  of  operation) to October 31, 1997 and for the year ended October
31, 1997 was 9.16% and 9.98%, respectively.

      In  connection  with   communicating   its  total  return  to  current  or
prospective shareholders,  the Eagle Class also may compare these figures to the
performance  of other mutual funds tracked by mutual fund rating  services or to
other unmanaged indexes that may assume  reinvestment of dividends but generally
do not reflect  deductions for  administrative  and management  costs. The Eagle
Class may compare  its return to relevant  global,  international  and  domestic
indices.  Examples  include,  but are 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), the Morgan Stanley Capital International Europe,  Australia, Far East
Index (containing over 1,000 companies representing the stock markets of Europe,
Australia,  and the Far East),  and the  Standard & Poor's 500  Composite  Stock
Price Index ("S&P 500")  (containing 500 of the largest U.S.  companies).  These
indices are widely followed,  capitalization weighted indexes of publicly traded
stocks. All index returns are translated into U.S. dollars.

      The Eagle  Class  also may from time to time  include in  advertising  and
promotional  materials total return figures that are not calculated according to
the formula set forth above.  For example,  in comparing the Eagle Class's total
return with data published by Lipper Analytical  Services,  Inc., CDA Investment
Technologies,  Inc.  or with such  market  indices  as the Dow Jones  Industrial
Average and the S&P 500, the Eagle Class  calculates its aggregate  total return
for the specified  periods of time by assuming an investment of $10,000 in Eagle
Class  shares  and  assuming  the   reinvestment   of  each  dividend  or  other
distribution at net asset value on the reinvestment date.  Percentage  increases
are  determined  by  subtracting  the initial value of the  investment  from the
ending value and by dividing the  remainder by the  beginning  value.  The Eagle
Class  cumulative  return  using  this  formula  for  the  period  May  1,  1995
(commencement  of operations) to October 31, 1997 and for the year ended October
31, 1997 was 24.54% and 9.98%, respectively.


                                      -16-


INVESTING IN THE EAGLE CLASS

      Shares  are sold at their  next  determined  net  asset  value on days the
Exchange is open for business.  The procedure for purchasing shares of the Eagle
Class is explained in the Prospectus  under "How to Buy Shares." The Portfolio's
distributor,  Raymond James & Associates,  Inc. ("RJA" or the "Distributor") has
agreed that it will hold the Portfolio harmless in the event of loss as a result
of cancellation of trades in Portfolio shares by the Distributor, its affiliates
or its customers.

REDEEMING SHARES

      The methods of redemption  are described in the section of the  Prospectus
entitled "How to Sell Shares."

      Signatures  on written  redemption  requests  exceeding  $100,000,  on any
certificates for shares (or an accompanying  stock power), and on any redemption
requests  to be sent to an address  other than the  account's  address of record
must be  guaranteed  by a  national  bank,  a state  bank that is insured by the
Federal Deposit Insurance Corporation, a trust company, or by any member firm of
the  New  York,  American,   Boston,  Chicago,  Pacific  or  Philadelphia  Stock
Exchanges.  Signature  guarantees  also will be accepted  from savings banks and
certain other  financial  institutions  which are deemed  acceptable by Heritage
Asset  Management,  Inc., the Portfolio's  transfer agent  ("Transfer  Agent" or
"Heritage"), under its current signature guarantee program.

      SYSTEMATIC WITHDRAWAL PLAN

      Shareholders  may also  elect to make  systematic  withdrawals  from their
Eagle Class account of a minimum of $250 on a periodic  basis.  The amounts paid
each period are obtained by redeeming  sufficient  shares from the shareholder's
account to provide the withdrawal  amount specified.  The Systematic  Withdrawal
Plan is not currently  available for shares held in an IRA,  simplified employee
pension plan or other retirement plan.  Shareholders may change the amount to be
paid  without  charge  not  more  than  once a year  by  written  notice  to the
Distributor  or  Transfer  Agent.  Redemptions  will be made at net asset  value
determined as of the close of regular trading on the Exchange on the 5th or 20th
day of each month,  whichever is applicable  based upon the date the Shareholder
elects to receive  payments.  If the  Exchange is not open for  business on that
day, the shares will be redeemed at net asset value  determined  as of the close
of regular trading on the Exchange on the preceding  business day. The check for
the withdrawal payment will usually be mailed on the next business day following
redemption.  If shareholders  elect to participate in the Systematic  Withdrawal
Plan,  dividends  and other  distributions  on all shares in the account must be
automatically  reinvested in Eagle Class shares.  Shareholders may terminate the
Systematic  Withdrawal  Plan at any time  without  charge or  penalty  by giving
written notice to the  Distributor or the Transfer Agent.  The Eagle Class,  the
Transfer  Agent,  and the  Distributor  also  reserve  the  right to  modify  or
terminate the Systematic Withdrawal Plan at any time.

      Withdrawal  payments  are  treated  as a sale of shares  rather  than as a
dividend  or a capital  gain  distribution.  These  payments  are taxable to the


                                      -17-


extent that the total amount of the payments exceeds the tax basis of the shares
sold. If the periodic withdrawals exceed reinvested dividends and distributions,
the amount of the original investment may be correspondingly reduced.

      Ordinarily,  shareholders  should not  purchase  additional  shares of the
Eagle Class if maintaining a Systematic  Withdrawal  Plan because they may incur
tax  liabilities in connection  with such purchases and  withdrawals.  The Eagle
Class will not knowingly accept purchase orders from shareholders for additional
shares if they  maintain a  Systematic  Withdrawal  Plan unless the  purchase is
equal to at least one year's scheduled withdrawals.

      REDEMPTIONS IN KIND

      The  Portfolio is  obligated  to redeem  shares of the Eagle Class for any
shareholder  for cash during any 90-day period up to $250,000 or 1% of the Eagle
Class's net asset value,  whichever is less. Any  redemption  beyond this amount
will also be in cash unless the Trustees  determine  that further cash  payments
will have a material adverse effect on remaining  shareholders.  In such a case,
the Portfolio  will pay all or a portion of the  remainder of the  redemption in
portfolio  instruments,  valued in the same way as a  Portfolio  determines  net
asset value.  The  portfolio  instruments  will be selected in a manner that the
Trustees deem fair and equitable.  Redemption in kind is not as liquid as a cash
redemption.  If redemption  is made in kind,  shareholders  receiving  portfolio
instruments could receive less than the redemption value of their securities and
could incur certain transaction costs.

TAXES

      GENERAL.  In order to  continue to qualify  for  treatment  as a regulated
investment  company ("RIC") under the Internal  Revenue Code of 1986, as amended
("Code"),  the Portfolio -- which is treated as a separate corporation for these
purposes -- must distribute to its  shareholders  for each taxable year at least
90% of its  investment  company  taxable  income  (consisting  generally  of net
investment  income,  net  short-term  capital  gain and net gains  from  certain
foreign  currency  transactions)  ("Distribution  Requirement")  and  must  meet
several additional  requirements.  These requirements include the following: (1)
the  Portfolio  must derive at least 90% of its gross  income each  taxable year
from dividends,  interest,  payments with respect to securities  loans and gains
from the sale or other disposition of securities or foreign currencies, or other
income (including gains from futures or forward  contracts) derived with respect
to its  business  of  investing  in  securities  or  those  currencies  ("Income
Requirement"); (2) at the close of each quarter of the Portfolio's taxable year,
at least 50% of the value of its total  assets must be  represented  by cash and
cash  items,  U.S.  Government  securities,  securities  of other RICs and other
securities,  with those other securities  limited, in respect of any one issuer,
to an amount  that does not  exceed  5% of the  value of the  Portfolio's  total
assets and that does not  represent  more than 10% of the  issuer's  outstanding
voting  securities;  and (3) at the  close of each  quarter  of the  Portfolio's
taxable year, not more than 25% of the value of its total assets may be invested
in securities (other than U.S. Government  securities or the securities of other
RICs) of any one issuer.

      If Portfolio  shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss


                                      -18-



to the  extent of any  capital  gain  distributions  received  on those  shares.
Investors  also should be aware that if shares are purchased  shortly before the
record date for any  distribution,  the shareholder  will pay full price for the
shares and receive some portion of the purchase price back as a taxable dividend
or capital gain distribution.

      The Portfolio  will be subject to a  nondeductible  4% excise tax ("Excise
Tax") to the  extent  it fails to  distribute  by the end of any  calendar  year
substantially  all of its  ordinary  income for that year and  capital  gain net
income for the one-year  period ending on October 31 of that year,  plus certain
other amounts.

      INCOME FROM FOREIGN  SECURITIES.  Dividends  and interest  received by the
Portfolio  may be subject  to  income,  withholding  or other  taxes  imposed by
foreign  countries  and U.S.  possessions  that  would  reduce  the yield on its
securities.  Tax conventions between certain countries and the United States may
reduce or eliminate these foreign taxes,  however, and many foreign countries do
not  impose  taxes on  capital  gains  in  respect  of  investments  by  foreign
investors.  If more than 50% of the value of the Portfolio's total assets at the
close of any taxable year consists of securities  of foreign  corporations,  the
Portfolio  will be  eligible  to, and may,  file an election  with the  Internal
Revenue Service that would enable its  shareholders,  in effect,  to receive the
benefit  of the  foreign  tax  credit  with  respect  to any  foreign  and  U.S.
possessions  income  taxes  paid  by it.  Pursuant  to any  such  election,  the
Portfolio would treat those taxes as dividends paid to its shareholders and each
shareholder would be required to (1) include in gross income,  and treat as paid
by the shareholder,  the shareholder's  proportionate  share of those taxes, (2)
treat the  shareholder's  share of those taxes and of any  dividend  paid by the
Portfolio that represents income from foreign or U.S. possessions sources as the
shareholder's  own income from those  sources,  and (3) either  deduct the taxes
deemed paid by the shareholder in computing the shareholder's taxable income or,
alternatively,  use the foregoing  information  in  calculating  the foreign tax
credit against the  shareholder's  federal income tax. The Portfolio will report
to its shareholders  shortly after each taxable year their respective  shares of
the Portfolio's income from sources within, and taxes paid to, foreign countries
and  U.S.  possessions  if it  makes  this  election.  Pursuant  to the Tax Act,
individuals who have no more than $300 ($600 for married persons filing jointly)
of creditable  foreign taxes  included on Forms 1099 and have no foreign  source
non-passive  income will be able to claim a foreign tax credit without having to
file the detailed Form 1116 that otherwise is required.

      The  Portfolio  may  invest in the stock of  "passive  foreign  investment
companies"  ("PFICs").  A  PFIC  is  a  foreign  corporation  --  other  than  a
"controlled  foreign  corporation" (I.E., a foreign corporation in which, on any
day during its  taxable  year,  more than 50% of the total  voting  power of all
voting stock therein or the total value of all stock therein is owned, directly,
indirectly,  or constructively,  by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly, or constructively,  at least 10% of
that voting power) as to which the Portfolio is a U.S.  shareholder  -- that, in
general,  meets  either of the  following  tests:  (1) at least 75% of its gross
income is passive or (2) an  average of at least 50% of its assets  produce,  or
are held for the production of, passive income. Under certain circumstances, the
Portfolio  will be  subject to  Federal  income tax on a portion of any  "excess
distribution"  received on the stock of a PFIC or of any gain on  disposition of
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

                                      -19-


company taxable income and, accordingly, will not be taxable to it to the extent
that income is distributed to its shareholders.

      If the  Portfolio  invests  in a PFIC and  elects  to treat  the PFIC as a
"qualified  electing  fund,"  then  in lieu of the  foregoing  tax and  interest
obligation,  the Portfolio  would be required to include in income each year its
pro rata share of the qualified electing fund's annual ordinary earnings and net
capital  gain (the  excess of net  long-term  capital  gain over net  short-term
capital loss) -- which would have to be distributed to satisfy the  Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not  received  by the  Portfolio.  In most  instances  it will be very
difficult,  if  not  impossible,  to  make  this  election  because  of  certain
requirements thereof.

      The  Portfolio  may  elect to  "mark-to-market"  its  stock  in any  PFIC.
"Marking-to-market,"  in this context,  means  including in ordinary income each
taxable year the excess, if any, of a PFIC's stock over the Portfolio's adjusted
basis  therein  as of the  end of  that  year.  Pursuant  to the  election,  the
Portfolio  also would be allowed to deduct (as an ordinary,  not capital,  loss)
the  excess,  if any, of its  adjusted  basis in PFIC stock over the fair market
value  thereof  as of the  taxable  year-end,  but only to the extent of any net
mark-to-market  gains with respect to that stock  included by the  Portfolio for
prior taxable years.  The  Portfolio's  adjusted basis in each PFIC's stock with
respect to which it makes this  election will be adjusted to reflect the amounts
of income included and deductions taken under the election. Regulations proposed
in 1992 would  provide a similar  election  with respect to the stock of certain
PFICs.

      Gains or losses (1) from the disposition of foreign  currencies,  (2) from
the  disposition of debt  securities  denominated  in foreign  currency that are
attributable to fluctuations  in the value of the foreign  currency  between the
date of acquisition of each security and the date of  disposition,  and (3) that
are  attributable  to fluctuations in exchange rates that occur between the time
the  Portfolio  accrues  interest,  dividends  or other  receivables  or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Portfolio  actually collects the receivables or pays the liabilities,  generally
will be treated as ordinary income or loss.  These gains or losses,  referred to
under the Code as "section  988" gains or losses,  may  increase or decrease the
amount of the Portfolio's investment company taxable income to be distributed to
its shareholders.

      HEDGING STRATEGIES. The use of hedging strategies,  such as purchasing and
selling futures contracts and entering into forward contracts,  involves complex
rules that will  determine  for income tax  purposes the amount,  character  and
timing  of  recognition  of the gains  and  losses  the  Portfolio  realizes  in
connection  therewith.  Income from foreign  currencies  (except  certain  gains
therefrom  that  may  be  excluded  by  future  regulations),  and  income  from
transactions  in futures and forward  contracts  derived by the  Portfolio  with
respect to its business of investing in securities or foreign  currencies,  will
qualify as permissible income under the Income Requirement.

      Certain  futures in which the  Portfolio  may invest will be "section 1256
contracts."  Section  1256  contracts  held by the  Portfolio at the end of each
taxable year must be "marked-to-market" (that is, treated as sold for their fair
market value) for Federal income tax purposes,  with the result that  unrealized


                                      -20-


gains or losses will be treated as though they were  realized.  Sixty percent of
any net  gain or loss  recognized  on  these  deemed  sales,  and 60% of any net
realized gain or loss from any actual sales of section 1256  contracts,  will be
treated as long-term  capital  gain or loss,  and the balance will be treated as
short-term  capital  gain or loss.  The 60% portion of that capital gain that is
treated as long-term capital gain will qualify for the reduced maximum tax rates
on net capital  gain of 20% (10% for  taxpayers in the 15% marginal tax bracket)
on capital assets held for more than 18 months.  Section 1256 contracts also may
be  marked-to-market  for purposes of the Excise Tax. Code section 1092 (dealing
with straddles)  also may affect the taxation of futures  contracts in which the
Portfolio may invest.  Section 1092 defines a "straddle" as offsetting positions
with  respect to  personal  property;  for these  purposes,  options and futures
contracts are personal  property.  Section 1092 generally provides that any loss
from the  disposition  of a position in a straddle  may be deducted  only to the
extent the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle.  Section 1092 also provides certain "wash sale" rules,  which apply to
transactions where a position is sold at a loss and a new offsetting position is
acquired  within a  prescribed  period,  and "short  sale" rules  applicable  to
straddles. If the Portfolio makes certain elections,  the amount,  character and
timing  of the  recognition  of gains  and  losses  from the  affected  straddle
positions  would be determined  under rules that vary according to the elections
made. Because only a few of the regulations implementing the straddle rules have
been promulgated, the tax consequences to the Portfolio of straddle transactions
are not entirely clear.

      If the Portfolio has an "appreciated  financial position" - generally,  an
interest (including an interest through an option,  futures or forward contract,
or short sale) with respect to any stock,  debt instrument (other than "straight
debt"),  or  partnership  interest  the fair market  value of which  exceeds its
adjusted  basis  - and  enters  into  a  "constructive  sale"  of  the  same  or
substantially similar property,  the Portfolio will be treated as having made an
actual sale thereof,  with the result that gain will be recognized at that time.
A constructive sale generally  consists of a short sale, an offsetting  notional
principal  contract or futures or forward contract entered into by the Portfolio
or a related person with respect to the same or substantially  similar property.
In addition,  if the  appreciated  financial  position is itself a short sale or
such a contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.

PORTFOLIO INFORMATION

      TRUSTEES  AND  OFFICERS.  Trustees  and  officers  are  listed  with their
addresses,  principal  occupations,  ages and present  positions,  including any
affiliation with Raymond James Financial, Inc. ("RJF"), RJA, Eagle and Heritage.


                                      -21-



                             POSITION WITH          PRINCIPAL OCCUPATION
              NAME              THE TRUST          DURING PAST FIVE YEARS
              ----              ---------          ----------------------

 Thomas A. James (55)*          Trustee      Chairman  of the Board  since  1986
 880 Carillon Parkway                        and Chief  Executive  Officer since
 St. Petersburg, FL                          1969 of RJF;  Chairman of the Board
 33716                                       of RJA since 1986;  Chairman of the
                                             Board of Eagle  since  1984 and
                                             Chief   Executive   Officer  of
                                             Eagle, 1994 to 1996.

 Richard K. Riess (48)*         Trustee      Chief  Executive  Officer  of Eagle
 880 Carillon Parkway                        since  1996,  President,   1995  to
 St. Petersburg, FL                          present,  Chief Operating  Officer,
 33716                                       1988  to   1996,   Executive   Vice
                                             President, 1988 to 1993.

 Donald W. Burton *(53)         Trustee      President    of   South    Atlantic
 614 W. Bay Street                           Capital    Corporation     (venture
 Suite 200                                   capital) since 1981.
 Tampa, FL  33606

 C. Andrew Graham (57)          Trustee      Vice    President    of   Financial
 Financial Designs, Ltd.                     Designs Ltd. since 1992;  Executive
 1775 Sherman Street                         Vice   President   of  the  Madison
 Suite 1900                                  Group,    Inc.,   1991   to   1992;
 Denver, CO  80203                           Principal     of    First    Denver
                                             Financial  Corporation  (investment
                                             banking) since 1987.

 David M. Phillips (58)         Trustee      Chairman   and   Chief    Executive
 World Trade Center                          Officer    of    CCC    Information
   Chicago                                   Services,  Inc.  since  1994 and of
 444 Merchandise Mart                        InfoVest  Corporation  (information
 Chicago, IL  60654                          services to the  insurance and auto
                                             industries and consumer households)
                                             since 1982.

 Eric Stattin (64)              Trustee      Litigation        Consultant/Expert
 2587 Fairway Village                        Witness and private  investor since
   Drive                                     1988.
 Park City, UT  84060

 James L. Pappas (54)           Trustee      Lykes   Professor  of  Banking  and
 University of South                         Finance  since  1986 at  University
   Florida                                   of South  Florida;  Dean of College
 College of Business                         of Business  Administration 1987 to
   Administration                            1996.
 Tampa, FL  33620


                                      -22-


                             POSITION WITH          PRINCIPAL OCCUPATION
              NAME              THE TRUST          DURING PAST FIVE YEARS
              ----           -------------         ----------------------

 Stephen G. Hill (38)          President     Chief    Executive    Officer   and
 880 Carillon Parkway                        President  of  Heritage  since 1989
 St. Petersburg, FL                          and Director  since 1994;  Director
 33716                                       of Eagle since 1995.

 Donald H. Glassman (40)       Treasurer     Treasurer  of Heritage  since 1989;
 880 Carillon Parkway                        Treasurer of Heritage  Mutual Funds
 St. Petersburg, FL                          since 1989.
 33716

 Clifford J. Alexander (53)    Secretary     Partner,   Kirkpatrick  &  Lockhart
 1800 Massachusetts                          LLP (law firm).
    Ave., NW
 Washington, DC  20036

 Patricia Schneider (56)       Assistant     Compliance     Administrator     of
 880 Carillon Parkway          Secretary     Heritage.
 St. Petersburg, FL
 33716

 Robert J. Zutz (44)           Assistant     Partner,   Kirkpatrick  &  Lockhart
 1800 Massachusetts            Secretary     LLP (law firm).
   Ave., NW
 Washington, DC  20036

- ------------------

* These Trustees are "interested persons" as such term is defined under the 1940
Act.

      The Trustees and  officers of the Trust,  as a group,  own less than 1% of
Eagle Class shares. The Trust's  Declaration of Trust provides that the Trustees
will not be liable for errors of judgment  or mistakes of fact or law.  However,
they are not protected  against any  liability to which they would  otherwise be
subject  by reason of  willful  misfeasance,  bad  faith,  gross  negligence  or
reckless disregard of the duties involved in the conduct of their office.

      The Portfolio currently pays Trustees who are not employees of the Manager
or its affiliates $666.66 annually and $250 for each regular meeting attended in
person,  $41.66 for each  meeting  attended  by  telephone  and a minimum fee of
$1,000 for each  special  meeting  attended  (to be divided  among the Funds for
which the meeting was called).  Trustees  also are  reimbursed  for any expenses
incurred  in  attending  meetings.  Because  Heritage or Eagle,  as  applicable,
performs  substantially  all of the services  necessary for the operation of the
Portfolio, the Portfolio requires no employees. No officer, director or employee
of Heritage or Eagle receives any compensation  from the Portfolio for acting as
a director or officer. The following table shows the compensation earned by each
Trustee for the fiscal year ended October 31, 1997.



                                      -23-



                               COMPENSATION TABLE




                                                                                      Total
                                            Pension or                             Compensation
                                            Retirement                            From the Trust
                                             Benefits             Estimated          and the
                         Aggregate        Accrued as Part           Annual        Heritage Family
Name of Persons,        Compensation           of the              Benefits        of Funds Paid
Position               From the Trust     Trust's Expenses     Upon Retirement      to Trustees
- --------               --------------     ----------------     ---------------      -----------

                                                                        


Donald W. Burton,       $5,820            $0                     $0                 $16,000
Trustee


C. Andrew Graham,       $5,820            $0                     $0                 $16,000
Trustee


David M. Phillips,      $4,364            $0                     $0                 $12,000
Trustee


Eric Stattin,           $5,820            $0                     $0                 $16,000
Trustee


James L. Pappas,        $5,092            $0                     $0                 $14,000
Trustee


Richard K. Riess,         $0              $0                     $0                 $0
Trustee


Thomas A. James,          $0              $0                     $0                 $0
Trustee



      FIVE PERCENT SHAREHOLDERS

      As of January 31, 1998, no persons owned of record or  beneficially  5% or
more of the Portfolio's Eagle Class of shares.

      INVESTMENT ADVISER; SUBADVISER

      The Portfolio's  investment  adviser,  Eagle Asset  Management,  Inc., was
organized as a Florida  corporation  in 1976.  All the capital stock of Eagle is
owned by RJF.  RJF is a holding  company  that,  through  its  subsidiaries,  is
engaged  primarily  in  providing  customers  with a wide  variety of  financial
services  in  connection  with  securities,   limited   partnerships,   options,
investment banking and related fields.


                                      -24-


      Under an  Investment  Advisory  and  Administration  Agreement  ("Advisory
Agreement")  dated  February  14,  1995,  between  the  Trust,  on behalf of the
Portfolio,  and Eagle, and subject to the control and direction of the Trustees,
Eagle is responsible for overseeing the Portfolio's investment and noninvestment
affairs. Under a Subadvisory Agreement, the Subadviser,  subject to direction by
Eagle and the Board of Trustees,  will provide  investment  advice and portfolio
management services to the Portfolio for a fee payable by Eagle.

      Eagle also is  obligated  to furnish  the  Portfolio  with  office  space,
administrative,  and  certain  other  services  as well as  executive  and other
personnel  necessary  for  the  operation  of  the  Portfolios.  Eagle  and  its
affiliates  also pay all the  compensation  of  Trustees  of the  Trust  who are
employees of Eagle and its affiliates. The Portfolio pays all its other expenses
that are not assumed by Eagle as described in the Prospectus. The Portfolio also
is liable for such nonrecurring  expenses as may arise,  including litigation to
which the Portfolio may be a party. The Portfolio also may have an obligation to
indemnify its Trustees and officers with respect to any such litigation.

      The Advisory Agreement and the Subadvisory Agreement each were approved by
the Trustees (including all of the Trustees who are not "interested  persons" of
Eagle or the  Subadviser) and Eagle,  as sole  shareholder of the Portfolio,  in
compliance  with the 1940 Act. Each Agreement  provides that it will be in force
for an initial  two-year  period and it must be approved each year thereafter by
(1) a vote,  cast in person at a meeting called for that purpose,  of a majority
of those Trustees who are not "interested  persons" of Eagle,  the Subadviser or
the Trust,  and by (2) the majority vote of either the full Board of Trustees or
the vote of a majority of the outstanding shares of the Portfolio.  The Advisory
and Subadvisory Agreement each automatically terminates on assignment,  and each
is terminable  on not more than 60 days'  written  notice by the Trust to either
party. In addition, the Advisory Agreement may be terminated on not less than 60
days' written notice by Eagle to the Portfolio and the Subadvisory Agreement may
be  terminated  on not less  than 60 days'  written  notice by Eagle or 90 days'
written  notice by the  Subadviser.  Under the terms of the Advisory  Agreement,
Eagle  automatically  becomes  responsible for the obligations of the Subadviser
upon termination of the Subadvisory  Agreement.  In the event Eagle ceases to be
the  adviser  of  the  Portfolio  or  the  Distributor  ceases  to be  principal
distributor  of the  Portfolio's  shares,  the right of the Portfolio to use the
identifying name of "Eagle" may be withdrawn.

      Eagle and the  Subadviser  shall not be  liable  to the  Portfolio  or any
shareholder  for  anything  done or omitted by them,  except  acts or  omissions
involving willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties  imposed upon them by their  agreements  with the Portfolio or for
any  losses  that  may be  sustained  in the  purchase,  holding  or sale of any
security.

      All of the officers of the Portfolio except for Messrs. Alexander and Zutz
are  officers  or  directors  of  Heritage,  Eagle  or their  affiliates.  These
relationships are described under "Trustees and Officers."

      ADVISORY  FEE.  The annual  investment  advisory  fee paid  monthly by the
Portfolio to Eagle is set forth in the Prospectus.  Eagle has voluntarily agreed
to waive  management  fees to the extent that the  Portfolio's  total  operating
expenses,  exclusive of foreign  taxes paid,  exceed 2.60% of average  daily net
assets during the fiscal year ending October 31, 1998.


                                      -25-



      For the period May 1, 1995  (commencement  of  operations)  to October 31,
1995 and for the two fiscal  years  ended  October  31,  1997,  management  fees
amounted to $32,303, $189,777 and $351,913,  respectively,  and Eagle waived its
fees in the amount of  $32,303,  $134,735  and  $91,433,  respectively,  and was
reimbursed  expenses in the amount of $48,001 for the period  ended  October 31,
1995.

      Eagle  has  entered  into an  agreement  with  Martin  Currie  to  provide
investment  advisory advice and portfolio  management  services to 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 period  May 1, 1995  (commencement  of
operations) to October 31, 1995 and the two fiscal years ended October 31, 1997,
Eagle paid subadvisory fees of $16,152, $94,888 and $175,957, respectively.

      BROKERAGE PRACTICES

      While the Portfolio generally  purchases  securities for long-term capital
gains, the Portfolio may engage in short-term  transactions under various market
conditions  to a greater  extent than  certain  other  mutual funds with similar
investment  objectives.  Thus,  the turnover  rate may vary greatly from year to
year or during periods within a year. The Portfolio turnover rate is computed by
dividing the lesser of purchases  or sales of  securities  for the period by the
average value of portfolio  securities for that period. The Portfolio's turnover
rates for the two years ended October 31, 1997 were 59% and 50%.

      Eagle  and  the  Subadviser  are  responsible  for  the  execution  of the
Portfolio's  portfolio  transactions  and must seek the most favorable price and
execution for such transactions. Best execution, however, does not mean that the
Portfolio  necessarily will be paying the lowest commission or spread available.
Rather,  the  Portfolio  also will take into account such factors as size of the
order, difficulty of execution, efficiency of the executing broker's facilities,
and any risk assumed by the executing broker.

      It is a common practice in the investment  advisory  business for advisers
of investment  companies and other institutional  investors to receive research,
statistical and quotation  services from  broker-dealers  who execute  portfolio
transactions  for the clients of such  advisers.  Consistent  with the policy of
most  favorable   price  and  execution,   Eagle  or  the  Subadviser  may  give
consideration to research,  statistical and other services  furnished by brokers
to them for their use. In  addition,  Eagle or the  Subadviser  may place orders
with  brokers  who  provide  supplemental  investment  and market  research  and
securities and economic analysis and may pay to these brokers a higher brokerage
commission  or spread than may be charged by other  brokers,  provided that they
determine in good faith that such  commission  is  reasonable in relation to the
value of brokerage and research  services  provided.  Such research and analysis
may be useful to Eagle or the Subadviser in connection  with services to clients
other than the  Portfolio.  The Portfolio  also may purchase and sell  portfolio
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.



                                      -26-


      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 period May
1, 1995  (commencement  of  operations)  to October  31, 1995 and the two fiscal
years ended  October  31, 1997  amounted  to  $31,027,  $96,619,  and  $111,523,
respectively.

      The  Portfolio  may not buy  securities  from,  or sell  securities to the
Distributor or its affiliates as principal.  However,  the Board of Trustees has
adopted  procedures in conformity with Rule 10f-3 under the 1940 Act whereby the
Portfolio may purchase securities that are offered in underwritings in which the
Distributor  or its  affiliates  are  participants.  The Board of Trustees  will
consider  the  possibilities  of seeking  to  recapture  for the  benefit of the
Portfolio  expenses  of certain  portfolio  transactions,  such as  underwriting
commissions  and tender offer  solicitation  fees, by conducting  such portfolio
transactions  through  affiliated  entities,   including  the  Distributor,  its
affiliates or certain affiliates of the Subadviser,  but only to the extent such
recapture would be permissible under applicable regulations, including the rules
of  the   National   Association   of   Securities   Dealers,   Inc.  and  other
self-regulatory organizations.

      Section  11(a)  of the  Securities  Exchange  Act  of  1934,  as  amended,
prohibits the  Distributor  from executing  transactions  on an exchange for the
Portfolio except pursuant to written consent by the Portfolio.

      DISTRIBUTION OF SHARES

      The Distributor and participating dealers or participating banks with whom
it has entered into dealer agreements offer shares of the Portfolio as agents on
a best  efforts  basis  and are not  obligated  to sell any  specific  amount of
shares.  Pursuant to its Distribution  Agreement with the Trust on behalf of the
Portfolio,  the  Distributor  bears  the cost of  making  information  about the
Portfolio available through  advertising,  sales literature and other means, the
cost of printing and mailing  prospectuses  to persons other than  shareholders,
and salaries and other expenses  relating to selling or servicing  efforts.  The
Portfolio pays the cost of registering and qualifying its shares under state and
federal  securities  laws and typesetting of its  prospectuses  and printing and
distributing prospectuses to existing shareholders.

      As  compensation  for the  services  provided  and  expenses  borne by the
Distributor  pursuant to the  Distribution  Agreement,  the  Portfolio  pays the


                                      -27-


Distributor  a  distribution  fee in an  amount  up to 1.00% of the  Portfolio's
average  daily net assets in accordance  with the  Distribution  Plan  described
below. The  distribution fee is accrued daily and paid monthly.  The Distributor
intends  to  use  .25  of  1%  of  this  fee  as a  service  fee  to  compensate
participating  dealers  or  participating  banks  including,  for this  purpose,
certain  financial  institutions  for services  provided in connection  with the
maintenance of shareholder accounts.

      The Portfolio  has adopted a  Distribution  Plan (the "Plan") that,  among
other things, permits it to pay the Distributor the monthly distribution fee out
of its net assets to finance activity that is intended to result in the sale and
retention of Eagle Class  shares.  As required by Rule l2b-1 under the 1940 Act,
the Plan was approved by Eagle,  as the sole  shareholder of the Portfolio,  and
the  Board  of  Trustees,  including  a  majority  of the  Trustees  who are not
interested persons of the Portfolio (as defined in the 1940 Act) and who have no
direct  or  indirect  financial  interest  in the  operation  of the Plan or the
Distribution Agreement (the "Independent Trustees") after determining that there
is a reasonable  likelihood that the Portfolio and its shareholders will benefit
from the Plan.

      The  Plan  may be  terminated  by vote of a  majority  of the  Independent
Trustees,  or by vote of a majority of the outstanding  voting securities of the
Eagle Class of the Portfolio.  The Trustees review quarterly a written report of
Plan costs and the  purposes for which such costs have been  incurred.  The Plan
may be amended by vote of the Trustees,  including a majority of the Independent
Trustees, cast in person at a meeting called for such purpose. Any change in the
Plan that would  materially  increase  the  distribution  cost to the  Portfolio
requires  shareholder  approval.  For the period May 1, 1995 to October 31, 1995
and the two fiscal years ended October 31, 1997 the  Distributor  received Eagle
Class 12b-1 fees of $32,303, $168,639, and $275,084, respectively.

      The  Distribution  Agreement  may be  terminated  at any  time on 60 days'
written notice without payment of any penalty by either party. The Portfolio may
effect  such  termination  by  vote  of a  majority  of the  outstanding  voting
securities  of the  Portfolio  or by  vote  of a  majority  of  the  Independent
Trustees.  For so long as the Plan is in effect,  selection  and  nomination  of
those  Trustees  who  are not  interested  persons  of the  Portfolio  shall  be
committed to the discretion of such disinterested persons.

      The  Distribution  Agreement  and the Plan will  continue  in  effect  for
successive one-year periods, provided that each such continuance is specifically
approved  (1) by the vote of a majority of the  Independent  Trustees and (2) by
the vote of a  majority  of the  entire  Board of  Trustees  cast in person at a
meeting called for that purpose.

      ADMINISTRATION OF THE PORTFOLIO

      ADMINISTRATIVE AND TRANSFER AGENT SERVICES.  Eagle, subject to the control
of the  Trustees,  will manage,  supervise  and conduct the  administrative  and
business affairs of the Portfolio;  furnish office space and equipment;  oversee
the  activities  of the  Subadviser  and  the  Portfolio's  custodian  and  fund
accountant;  and pay all salaries, fees and expenses of officers and Trustees of
the Trust who are  affiliated  with  Eagle and its  affiliates.  Eagle will also
provide certain shareholder servicing activities for customers of the Portfolio.
Heritage is the transfer and dividend  disbursing  agent for the Portfolio.  The
Portfolio  pays  Heritage  a fee  equal to its cost  plus  ten  percent  for its
services as transfer and dividend  disbursing  agent. For the period May 1, 1995
(commencement  of operations) to October 31, 1995 and the two fiscal years ended


                                      -28-


October 31,  1997,  Heritage  earned  approximately  $1,016,  $7,745 and $8,242,
respectively, for providing these services.

      Under a separate  Administration  Agreement  between  Eagle and  Heritage,
Heritage will provide certain noninvestment  services to the Portfolio for a fee
payable by Eagle  equal to .10% on the first $100  million of average  daily net
assets,  and .05%  thereafter.  For the  period  May 1,  1995  (commencement  of
operations)  to October 31, 1995 and for the two fiscal years ended  October 31,
1997, Heritage received from Eagle $10,417, $25,000, and $28,145,  respectively,
for these services.

      CUSTODIAN.  State Street Bank and Trust Company,  P. 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,  400 North Ashley Street,
Suite 2800, Tampa, Florida 33602, are the independent public accountants for the
Trust.  The Financial  Statements and Financial  Highlights of the Trust for the
fiscal year ended  October 31, 1997 that appear in this SAI have been audited by
Price  Waterhouse  LLP, and are included  herein in reliance  upon the report of
said firm of  accountants,  which is given  upon their  authority  as experts in
accounting and auditing.  The Financial  Highlights and the Statement of Changes
in Net Assets for the fiscal year ended October 31, 1995, and prior thereto were
audited by other independent public accountants.

      POTENTIAL LIABILITY.

      Under certain circumstances, shareholders may be held personally liable as
partners under  Massachusetts  law for obligations of the Portfolio.  To protect
its shareholders,  the Trust has filed legal documents with  Massachusetts  that
expressly  disclaim the liability of its shareholders for acts or obligations of
the Portfolio.  These documents require notice of this disclaimer to be given in
each  agreement,  obligation or instrument  the Portfolio or its Trustees  enter
into or sign. In the unlikely event a shareholder is held personally  liable for
the  Portfolio's  obligations,  the Portfolio is required to use its property to
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.




                                      -29-



                                   APPENDIX

CORPORATE BOND RATINGS

STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS

      AAA Debt rated "AAA" has the highest rating  assigned by S&P.  Capacity to
pay interest and repay principal is extremely strong.

      AA Debt rated "AA" has a very strong  capacity to pay  interest  and repay
principal and differs from the higher rated issues only in small degree.

      A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more  susceptible  to the adverse  effects of changes in
circumstances and economic conditions than debt in higher rated categories.

      BBB Debt rated "BBB" is  regarded  as having an  adequate  capacity to pay
interest and repay principal.  Whereas it normally exhibits adequate  protection
parameters,  adverse  economic  conditions  or changing  circumstances  are more
likely to lead to a weakened  capacity to pay interest and repay  principal  for
debt in this category than in higher rated categories.

      BB, B, CCC Debt rated  "BB," "B" and "CCC" is  regarded,  on  balance,  as
predominantly  speculative  with  respect to capacity to pay  interest and repay
principal in accordance  with the terms of the  obligation.  "BB"  indicates the
lowest degree of speculation.  While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

      BB Debt rated "BB" has less near-term  vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse  business,   financial  or  economic  conditions  which  could  lead  to
inadequate  capacity to meet timely  interest and principal  payments.  The "BB"
rating  category  is also  used for debt  subordinated  to  senior  debt that is
assigned an actual or implied "BBB-" rating.

      B Debt rated "B" has a greater  vulnerability to default but currently has
the  capacity  to meet  interest  payments  and  principal  repayments.  Adverse
business,  financial  or  economic  conditions  will likely  impair  capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt  subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.

      CCC Debt rated "CCC" has a currently identifiable vulnerability to default
and is dependent upon favorable  business,  financial and economic conditions to
meet timely  payment of interest  and  repayment of  principal.  In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.  The "CCC" rating category is also
used for debt  subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.



                                      A-1


      CC The rating "CC" is  typically  applied to debt  subordinated  to senior
debt that is assigned an actual or implied "CCC" rating.

      C The rating "C" is typically  applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy  petition has been filed,  but debt
service payments are continued.

      CI The rating  "CI" is reserved  for income  bonds on which no interest is
being paid.

      D Debt rated "D" is in payment  default.  The "D" rating  category is used
when interest  payments or principal  payments are not made on the date due even
if the  applicable  grace period has not expired,  unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon  the  filing  of  a  bankruptcy  petition  if  debt  service  payments  are
jeopardized.

      PLUS (+) OR MINUS (-):  The ratings  from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative  standing within the major
categories.

      NR  indicates  that no public  rating  has been  requested,  that there is
insufficient  information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.

MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS

      AAA Bonds which are rated Aaa are judged to be of the best  quality.  They
carry the smallest  degree of investment  risk and are generally  referred to as
"gilt edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change,  such changes as can be  visualized  are most  unlikely to impair the
fundamentally strong position of such issues.

      AA Bonds  which  are  rated Aa are  judged  to be of high  quality  by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds.  They are rated lower than the best bonds  because  margins of
protection may not be as large as in Aaa  securities,  fluctuation of protective
elements  may be of greater  amplitude  or there may be other  elements  present
which make the long-term risk appear somewhat greater than in Aaa securities.

      A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations.  Factors giving security
to principal  and interest are  considered  adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.

      Baa Bonds which are rated Baa are  considered as medium grade  obligations
(i.e., they are neither highly protected nor poorly secured).  Interest payments
and principal  security appear  adequate for the present but certain  protective
elements may be lacking or  characteristically  unreliable over any great length


                                      A-2


of time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

      BA Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered  as well assured.  Often the  protection of interest
and  principal  payments may be very  moderate and thereby not well  safeguarded
during  both  good  and bad  times  over the  future.  Uncertainty  of  position
characterizes bonds in this class.

      B Bonds which are rated B generally lack  characteristics of the desirable
investment.  Assurance of interest and principal  payments or of  maintenance of
other terms of the contract over any long period of time may be small.

      CAA Bonds which are rated Caa are of poor standing.  Such issues may be in
default or there may be present  elements of danger with respect to principal or
interest.

      CA Bonds which are rated Ca represent obligations which are speculative in
a  high  degree.  Such  issues  are  often  in  default  or  have  other  marked
shortcomings.

      C Bonds which are rated C are the lowest rated class of bonds,  and issues
so rated can be regarded as having  extremely  poor  prospects of ever attaining
any real investment standing.

      Moody's  applies  numerical  modifiers,  1, 2 and 3 in each generic rating
classification  from Aa  through B in its  corporate  bond  rating  system.  The
modifier 1  indicates  that the  company  ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking and the modifier 3
indicates  that  the  company  ranks  in the  lower  end of its  generic  rating
category.




                                      A-3


COMMERCIAL PAPER RATINGS

The rating  services'  descriptions  of  commercial  paper  ratings in which the
Portfolios may invest are:

DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S COMMERCIAL PAPER RATINGS

A-1.  This  designation  indicates  that the degree of safety  regarding  timely
payment is very strong.  Those issues  determined  to possess  extremely  strong
characteristics are denoted with a plus sign (+) designation.

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS

Prime-l.  Issuers  (or  supporting  institutions)  rated  PRIME-1  (P-1)  have a
superior  ability for  repayment  of senior  short-term  debt  obligations.  P-1
repayment   ability  will  often  be   evidenced   by  many  of  the   following
characteristics:  leading market positions in well-established  industries; high
rates of return on funds employed;  conservative  capitalization  structure with
moderate reliance on debt and ample asset protection;  broad margins in earnings
coverage  of  fixed  financial   charges  and  high  internal  cash  generation;
well-established  access to a range of financial  markets and assured sources of
alternate liquidity.





                                      A-4





      The  Report of the  Independent  Accounts  and  Financial  Statements  are
incorporated herein by reference from the Eagle International Equity Portfolio's
Annual Report to Shareholders  for the fiscal year ended October 31, 1997, filed
with the Securities and Exchange Commission on December 29, 1997,  Accession No.
0000.











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