N-30D 1 formn30d_37416.txt SEMIANNUAL REPORT FOR APRIL 30, 2001 Heritage Series Trust [GRAPHIC] From Our Family to Yours: The Intelligent Creation of Wealth. Aggressive Growth Fund Eagle International Equity Portfolio Growth Equity Fund Mid Cap Stock Fund Small Cap Stock Fund Technology Fund Value Equity Fund Semiannual Report (Unaudited) and Investment Performance Review for the Six-Month Period Ended April 30, 2001 [HERITAGE LOGO] ---------------- Series Trust(TM) ---------------- Heritage Series Trust Semiannual Report Table of Contents President's Letter ........................... 1 Portfolio Commentary and Investment Portfolio: Aggressive Growth Fund Portfolio Management Letter ............ 3 Investment Portfolio ................... 4 Eagle International Equity Portfolio Investment Commentary .................. 6 Investment Portfolio ................... 8 Growth Equity Fund Portfolio Management Letter ............ 11 Investment Portfolio ................... 14 Mid Cap Stock Fund Portfolio Management Letter ............ 16 Investment Portfolio ................... 18 Small Cap Stock Fund Portfolio Management Letters ........... 20 Investment Portfolio ................... 23 Technology Fund Portfolio Management Letter ............ 26 Investment Portfolio ................... 32 Value Equity Fund Portfolio Management Letter ............ 34 Investment Portfolio ................... 36 Statements of Assets and Liabilities ......... 38 Statements of Operations ..................... 40 Statements of Changes in Net Assets .......... 41 Financial Highlights ......................... 45 Notes to Financial Statements ................ 53
May 15, 2001 Dear Valued Shareholders: I am pleased to provide you with the semiannual report for the seven portfolios (the "Funds") of the Heritage Series Trust for the six-month period ended April 30, 2001. The investment and financial information for each Fund is provided in this report. Because many of you have investments in more than one Fund in our Series Trust, this combined report allows us to provide you with the relevant information for each of your Funds in one easy-reference format. For the six-month period ended April 30, 2001, performance* for the Class A Shares of each Fund was as follows: Aggressive Growth Fund -12.49%; Eagle International Equity Portfolio -13.56%; Growth Equity Fund -20.86%; Mid Cap Stock Fund +4.49%; Small Cap Stock Fund +0.81%; Technology Fund -41.79%; and Value Equity Fund +7.43%. In this very difficult environment, value, small and mid cap stocks strongly outperformed growth stocks, including technology. The chart below shows the Funds' Class A Shares performance and reflects the current maximum front-end sales load for the 1-, 3-, 5-year and life of each fund for the period ending April 30, 2001.
Heritage Series Trust Class A Shares Average Annual Return (Periods ended 4/30/01)(a) -------------- ---------------------------------------------------------- 1-Year 3-Year 5-Year Life of Fund(b) ----------- ----------- ----------- ---------------- Aggressive Growth Fund -7.37% -- -- +23.27% Eagle International Equity Portfolio -26.87% -2.04% +3.71% +4.87% Growth Equity Fund -28.27% +14.69% +22.69% +22.61% Mid Cap Stock Fund +3.03% +12.19% -- +15.29% Small Cap Stock Fund -2.95% -3.55% +6.26% +12.18% Technology Fund -44.59% -- -- -23.65% Value Equity Fund +9.66% +1.23% +8.57% +12.87%
The period ended April 30, 2001 was marked by a sharp decline in the growth areas of equity markets, led primarily by technology and healthcare. Energy, though volatile with movements in oil and gas prices, did well during the period, as did financial stocks. Generally the economy continues to slow along with corporate earnings, though the Fed has continued to cut interest rates to battle the slowdown and we expect that will continue. We continue to expect an economic recovery by the first part of 2002 and believe the equity markets have already begun a choppy upward movement. ---------------- * These returns are calculated without the imposition of front- or contingent deferred sales charges. (a) Performance numbers reflect the current maximum front-end sales load for Class A Shares of 4.75%. Performance data quoted represents past performance and 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 the original cost. Past performance does not guarantee future results. (b) The inception dates for the Funds' Class A Shares are as follows: Aggressive Growth Fund, 08/20/98; Eagle International Equity Portfolio, 12/27/95; Growth Equity Fund, 11/16/95; Mid Cap Stock Fund, 11/06/97; Small Cap Stock Fund, 05/07/93; Technology Fund, 11/18/99; Value Equity Fund, 12/30/94. 1 Individual portfolio manager commentaries for each of the seven Funds included in the Heritage Series Trust follow. These detailed commentaries provide information about the individual performance of these Funds, synopses of market events, and mention of specific sectors and/or holdings that may have significantly impacted fund performance during this semiannual reporting period. We hope that you will find the portfolio managers' reviews and outlooks helpful. Investment portfolios and other important information for all of the Funds follow the managers' commentaries. On behalf of Heritage, I thank you for your continuing support of the Heritage Family of Funds and for your investment in the Heritage Series Trust. Please call your financial advisor or Heritage at (800) 421-4184 if you have any questions. Sincerely, /s/ RICHARD K. RIESS Richard K. Riess President 2 May 21, 2001 Dear Fellow Shareholders: For the six-month period ended April 30, 2001, the Heritage Series Trust--Aggressive Growth Fund (the "Fund") Class A Shares fell 12.5%*, outperforming the Russell 2000 Growth Index, which was down 17.4%, and the Russell 2500 Growth Index, which was down 20.7% for the same period. While we never like to see negative performance, I am pleased that the Fund continues to outperform its benchmarks. Growth stocks, led by the Technology sector, declined sharply during the six months ended April 30th. Healthcare was also weak. The Energy and Financial Services sectors, with more traditional value stocks, were strong during the period. However, during the month of April, there were some signs of strength in growth stocks. Year-to-date through April 30, 2001, the Russell 2500 Value Index is up 3.61%, while the Russell 2500 Growth Index is down 7.71%. However, in April, the Russell 2500 Growth Index was up 15.2%, substantially better than the Russell 2500 Value Index, which was up 5.69%. The Federal Reserve's interest rate cuts have helped increase investor confidence in growth stocks, which tend to perform relatively well when the Fed is cutting rates. Research from Bear Stearns shows that growth stocks generally outperform the general market for 12 months following a cut in rates. Our best performer over the past six months was Astropower, a fairly recent addition to the portfolio that produces solar cells, which are semiconductor devices that convert sunlight into electricity. With a strong presence in California, we expect the company to see an increase in demand on the heels of the state's energy crisis. Metlife, a leading provider of insurance and other financial services, continued to perform well; however, we saw signs of slowing growth and sold the stock. Another good performer was ESC Medical Systems, a leading manufacturer of medical laser devices used mostly for aesthetic purposes, as ESCM's recent acquisition of Coherent's medical group combines two leading players in the industry. Finally, Aeroflex, another recent addition, a manufacturer of microelectronics for fiber optic communications and test systems, stands to benefit from the outsourcing trend for fiber optic modules by systems original equipment manufacturers (OEMs) such as Nortel and Lucent. Our worst performer is Avocent which provides connectivity solutions enabling remote management of multiple network servers. The stock sold off following a poor earnings report by a substantial customer. Our analysis indicated concerns that AVCT could be impacted with a decline in demand, so we sold the position. Informax, which provides software used by biotech researchers, was weak in line with negative sentiment in biotechs. However, there were some management changes announced at the company, which we believe indicates the potential for concerns in a company with a recent IPO, so we sold the stock. New Focus, which makes fiber-optic components for next generation optical networks and test systems, was down with a general weakening in technology demand. Led by a sharp downturn in technology capital equipment spending, economic growth continues to slow. The Fed has continued to cut interest rates to battle the slowing economy, and may do so again very soon. While the near term earnings outlook is cloudy, we anticipate an earnings recovery and believe that the stock market has begun what will prove to be a choppy recovery. With this in mind we have increased our technology exposure from a low of about 15% at the end of March to 24% on April 30th. We have also purchased the stocks of several gaming equipment providers, which we believe stand to benefit from a replacement cycle currently underway in the industry. After a sharp run up in energy stocks, we have reduced our exposure to this sector, as we believe it could be hurt by an economic slowdown. However, should prices in this sector pull back sharply, we would look to increase our exposure again. As always, we will continue to do our best for Heritage shareholders. Sincerely, /s/ BERT BOKSEN Bert Boksen Senior Vice President Eagle Asset Management, Inc. Portfolio Manager, Aggressive Growth Fund ---------- * Calculated without the imposition of front-end or contingent deferred sales charges. 3 -------------------------------------------------------------------------------- Heritage Series Trust - Aggressive Growth Fund Investment Portfolio April 30, 2001 (unaudited) --------------------------------------------------------------------------------
Market Shares Value ------ ----- Common Stocks--90.9%(a) ----------------------- Advertising -- 0.6% ------------------- 1,000,000 Telespectrum Worldwide Inc.* ........... $ 620,000 ---------- Airlines -- 0.7% ---------------- 30,000 Atlantic Coast Airlines Holdings, Inc.* ................................. 726,000 ---------- Analog Semiconductors -- 5.2% ----------------------------- 97,500 AstroPower, Inc.* ...................... 4,083,300 35,000 Triquint Semiconductor, Inc.* .......... 1,016,050 ---------- 5,099,350 ---------- Banks -- 0.7% ------------- 25,000 North Fork Bancorporation .............. 663,750 ---------- Biotechnology -- 0.7% --------------------- 79,100 Collateral Therapeutics, Inc.* ......... 653,366 ---------- Commercial Services -- 5.3% --------------------------- 150,000 Cendant Corporation* ................... 2,661,000 80,000 Moody's Corporation .................... 2,512,000 ---------- 5,173,000 ---------- Electric -- 1.5% ---------------- 25,000 Calpine Corporation* ................... 1,424,750 ---------- Electrical Components & Equipment -- 1.7% ----------------------------------------- 107,000 Artesyn Technologies, Inc.* ............ 1,622,120 ---------- Electronics -- 13.0% -------------------- 112,500 Coherent, Inc.* ........................ 4,443,750 100,000 DDi Corporation* ....................... 2,457,000 70,000 Gentex Corporation* .................... 1,890,000 40,000 Rockford Corporation* .................. 282,400 80,000 Sawtek, Inc.* .......................... 1,968,000 50,000 Varian, Inc.* .......................... 1,616,000 ---------- 12,657,150 ---------- Entertainment -- 5.7% --------------------- 100,000 Alliance Gaming Corporation* ........... 2,308,000 32,000 International Game Technology........... 1,789,760 50,000 Shuffle Master, Inc.* .................. 1,485,000 ---------- 5,582,760 ---------- Healthcare Products -- 9.5% --------------------------- 25,000 Baxter International, Inc. ............. 2,278,750 70,000 Dentsply International Inc. ............ 2,742,600 155,000 ESC Medical Systems Ltd.* .............. 4,223,750 ---------- 9,245,100 ----------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Healthcare Services -- 2.2% --------------------------- 120,000 Health Management Associates, Inc., Class "A" .........;............. 2,150,400 ---------- Insurance -- 2.2% ----------------- 39,500 AMBAC Financial Group, Inc. ............ 2,125,495 ---------- Leisure Time -- 4.4% -------------------- 40,000 Carnival Corporation, Class "A" ........ 1,060,000 260,000 Multimedia Games, Inc.* ................ 3,237,000 ---------- 4,297,000 ---------- Memory & Commodity Semiconductors -- 2.2% ----------------------------------------- 55,000 Integrated Device Technology Inc.* 2,154,350 ---------- Oil & Gas -- 2.2% ----------------- 25,000 Ensco International Inc. ............... 972,500 25,000 Spinnaker Exploration Company* ......... 1,137,500 ---------- 2,110,000 ---------- Oil & Gas Services -- 5.2% -------------------------- 38,200 Oceaneering International Inc.* ........ 909,160 130,000 Veritas DGC Inc.* ...................... 4,225,000 ---------- 5,134,160 ---------- Pharmaceuticals -- 3.4% ----------------------- 150,000 Praecis Pharmaceuticals, Inc.* ......... 3,291,000 ---------- Printing & Publishing -- 3.3% ----------------------------- 70,000 Houghton Miffin Company ................ 3,185,700 ---------- Real Estate -- 1.6% ------------------- 55,000 LNR Property Corporation ............... 1,567,500 ---------- Retail -- 5.4% -------------- 80,000 Circuit City Stores-Circuit City Group ................................. 1,204,000 70,000 Gadzooks, Inc.* ........................ 1,417,500 275,000 Office Depot, Inc.* .................... 2,612,500 ---------- 5,234,000 ---------- Software -- 6.6% ---------------- 30,000 Adobe Systems Inc. ..................... 1,347,600 40,000 Barra Inc* ............................. 1,841,600 130,000 Datastream Systems, Inc.* .............. 1,176,500 135,000 InforMax, Inc.* ........................ 506,250 560,000 INSpire Insurance Solutions, Inc.* ..... 302,400 25,000 Micromuse, Inc.* ....................... 1,237,500 ---------- 6,411,850 ----------
The accompanying notes are an integral part of the financial statements. 4 -------------------------------------------------------------------------------- Heritage Series Trust - Aggressive Growth Fund Investment Portfolio April 30, 2001 (unaudited) (continued) --------------------------------------------------------------------------------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Telecommunications -- 7.6% -------------------------- 130,000 Acterna Corporation* ................... $ 1,435,200 170,000 Aeroflex, Inc.* ........................ 2,534,700 100,000 Corvis Corporation* .................... 685,000 100,000 EMS Technologies, Inc.* ................ 1,451,000 200,000 Telefonakliebolaget LM Ericsson, Sponsored ADR ......................... 1,286,000 ---------- 7,391,900 ---------- Total Common Stocks (cost $79,429,509).................................... 88,520,701 ---------- Repurchase Agreement--11.1%(a) ------------------------------ Repurchase Agreement with State Street Bank and Trust Company, dated April 30, 2001 @ 4.42% to be repurchased at $10,864,334 on May 1, 2001, collateralized by $9,765,000 United States Treasury Bonds, 6.87% due August 15, 2025, (market value $11,080,139 including interest) (cost $10,863,000)................. 10,863,000 ---------- Total Investment Portfolio (cost $90,292,509) (b), 102.0% (a).................... 99,383,701 Other Assets and Liabilities, net, (2.0%) (a) ......... (1,934,890) ---------- Net Assets, 100.0% .................................... $97,448,811 ==========
---------------------- * Non-income-producing security. (a) Percentages indicated are based on net assets. (b) The aggregate identified cost for federal income tax purposes is substantially the same. Market value includes net unrealized appreciation of $9,091,192 which consists of aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost of $13,668,838 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value of $4,577,646. ADR -- American Depository Receipt. The accompanying notes are an integral part of the financial statements. 5 May 21, 2001 INVESTMENT COMMENTARY from MARTIN CURRIE, INC. Eagle International Equity Portfolio (the "Fund") For the period under review, international markets have remained under pressure from the weakness in the technology, media and telecom ("TMT stocks") sectors, related profit warnings and volatility in Nasdaq. Increasing nervousness over the extent of the slowdown in the U.S. economy has spilled over into other markets, emphasised by the change in the interest rate cycle. The end of 2000 saw a sharp sell down of Japanese securities and the yen as the economy showed signs of slowing again. While markets rallied in January as technology bounced, February and March were again weak as the first quarter reporting season in the U.S. impacted on forecasts for international stocks. It took the surprise half point cut by the Federal Reserve in April to restore some confidence. Most significantly, Japanese stocks have started to outperform, year to date, reflecting dramatic political changes and a real impetus for restructuring. The Yen, however, has weakened, and the Euro, despite some strengthening earlier in the period, has remained volatile. The Morgan Stanley Capital International Europe, Australia, Far East Index (the "MSCI EAFE Index" or "Index") fell by 7.9% over the six-months to April 30, 2001, while the Fund's Class A shares fell by 13.56%*. This underperformance reflects a difficult fourth quarter 2000 for the Fund, with our overweight position in Japan, relative to the Index, and holdings in European global technology plays impacting returns. The period under review has also seen a change in number of stocks held within the Fund, moving from a broader list of 120 stocks to a shorter more concentrated portfolio of 40 holdings in early January. The Fund continues to reflect the asset allocation and sector bias of Martin Currie, and all stocks are chosen from the broader Martin Currie Europe, Australia and Far East universe. The high volume of transactions results from this change to the portfolio. Japan (23.8% of net assets at April 30, 2001) performed poorly over the early part of the period, beset by gloomy economic news and a weak currency. It took substantial pressure on the government and a new prime minister to push the MSCI Japan Index higher in April, with expectation of real change in the structure of government, the economy and, importantly, the financial system now likely. Additions were made to existing quality holdings, while a number of holdings were sold in January - in line with a general reduction of risk across the whole of the portfolio. Sales included Daiwa House, Secom, Canon, Fuji Photo Film and Fujitsu, and some smaller companies, Toppan Printing and Benesse. Despite the sales, the Fund remains overweight relative to its peer group. We are attracted to tangible signs of corporate change, the unwinding of cross share ownership, and the relative value now found in Japanese equities. The portfolio is hedged, with 30% of its Japanese assets protected against a weakening Yen. Part of the proceeds of the Japanese reduction funded additions to the Pan European (UK and Continental Europe) portfolio (60.3% of net assets at April 30, 2001). But with increasing uncertainty over earnings in TMT related sectors, risk was reduced at the sector level, with switches into more defensive stocks. Sales included Sema, Energis, Marconi, Sage, Cable and Wireless (UK), Alcatel (France), Ericsson (Sweden) and Telefonica (Spain). Purchases included Man Group and Shell (UK), Deutsche Post (Germany) and Eni Spa (Italy) - a move away from technology and telecoms into interest rate sensitives and energy. While the European economies have remained relatively resilient to the U.S. downturn, corporate profits have been affected, leaving markets and valuations vulnerable in the short term to news on the U.S. economy and corporate profits. In this environment, we remain underweight the MSCI EAFE Index. Asia (6.9% of net assets at April 30, 2001) also received funds from the sale of Japanese assets, leaving the Fund overweight to the Index. However, with a more limited stock list, the focus was on Hong Kong, and interest rate sensitive stocks. Holdings were built up in Hong Kong Exchanges, Henderson Land, and Wharf Holdings. ---------------- * Calculated without the imposition of front-end or contingent deferred sales charges. 6 Asia, as with Emerging Markets (4.4% of net assets as of April 30, 2001), is a beneficiary of falling U.S. interest rates, and in general has performed well. Our focus in smaller markets has been on Mexico, (America Movil) and South Africa (Barloworld). Outlook International markets are not immune to the slowdown in the U.S. economy and its impact on corporate profits. But much is now reflected in market levels. Falling interest rates in the U.S. have been followed by a number of cuts around the world, with Asia and smaller markets reacting positively. With a new and vigorous government in place in Japan, there is growing momentum for radical change, and a chance to really restructure the banking system and uncompetitive industries such as construction and transport. Any revaluation of the Japanese equity market will help the Index decouple from the U.S. market. On behalf of all of us at Martin Currie, Inc., thank you for your continuing confidence in us. We look forward to reporting to you again after the end of the Fund's fiscal year. 7 -------------------------------------------------------------------------------- Heritage Series Trust - Eagle International Equity Portfolio Investment Portfolio April 30, 2001 (unaudited) --------------------------------------------------------------------------------
Market Shares Value ------ ----- Common Stocks--92.8%(a) ----------------------- Denmark -- 2.5% --------------- 15,000 ISS A/S* ............................... $ 873,587 ---------- France -- 8.0% -------------- 13,378 Aventis SA ............................. 1,036,219 7,021 AXA Societe Anonyme .................... 828,508 13,709 Vivendi Universal ...................... 949,346 ---------- 2,814,073 ---------- Germany -- 6.9% --------------- 45,993 Deutsche Post AG* ...................... 784,316 5,934 Ergo-Versicherungsgruppe AG ............ 858,449 30,847 IM Internationalmedia AG* .............. 792,089 ---------- 2,434,854 ---------- Hong Kong -- 6.9% ----------------- 170,000 Henderson Land Development Ltd. .................................. 780,356 430,000 Hong Kong Exchanges and Clearing Ltd. .................................. 771,894 380,000 Wharf Holdings Ltd. .................... 896,525 ---------- 2,448,775 ---------- Ireland -- 2.5% --------------- 17,100 Elan Corporation PLC, Sponsored ADR* .................................. 857,565 ---------- Italy -- 5.9% ------------- 10,987 Autogrill SPA .......................... 123,802 151,930 ENI - Ente Nazionale Idrocarburi........ 1,040,655 150,254 Telecom Italia SPA ..................... 937,189 ---------- 2,101,646 ---------- Japan -- 21.2% -------------- 174,000 Asahi Kasei Corporation ................ 895,593 21,000 Honda Motor Company, Ltd. .............. 844,657 226,000 Mitsubishi Heavy Industries Ltd ........ 923,643 118 Nippon Telegraph and Telephone Corporation ........................... 749,646 46,000 Nomura Securities Company, Ltd.......... 971,634 5,000 Rohm Company Ltd. ...................... 882,127 10,500 Sony Corporation ....................... 785,174 69,000 Sumitomo Electric Industries, Ltd....... 853,251 21,000 Yamanouchi Pharmaceutical Company Ltd. .......................... 581,233 ---------- 7,486,958 ---------- Mexico -- 2.1% -------------- 40,000 America Movil SA de CV, Series "L", Sponsored ADR* ................... 736,000 ----------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Netherlands -- 13.0% -------------------- 41,634 ASM Lithography Holding NV* ............ 1,100,805 13,312 Buhrmann NV ............................ 220,749 27,420 Koninklijke Philips Electronics NV ..... 805,513 46,895 Ordina NV* ............................. 934,090 39,539 TNT Post Group NV ...................... 931,400 14,158 VNU NV ................................. 588,515 ---------- 4,581,072 ---------- South Africa -- 2.3% -------------------- 120,000 Barloworld Ltd ......................... 829,390 ---------- Spain -- 2.6% ------------- 65,705 Banco Bilbao Vizcaya Argentaria, S.A. .. 933,914 ---------- Sweden -- 1.1% -------------- 42,425 Skandinaviska Enskilda Banken AB ....... 392,977 ---------- Switzerland -- 1.7% ------------------- 1,000 Synthes-Stratec Inc. ................... 596,017 ---------- UK -- 16.1% ----------- 76,000 3i Group PLC ........................... 1,367,673 23,984 GlaxoSmithKline PLC* ................... 633,690 27,000 HSBC Holdings PLC ...................... 355,723 87,000 MAN Group PLC .......................... 1,058,378 110,000 Shell Transport & Trading Company, PLC .................. 918,167 449,333 Vodafone Group PLC ..................... 1,364,282 ---------- 5,697,913 ---------- Total Common Stocks (cost $33,336,582).................................... 32,784,741 ---------- Principal Market Amount Value ------ ----- Convertible Preferred Shares -- 2.6%(a) --------------------------------------- Japan -- 2.6% ------------- 105,000,000 Sanwa International Finance (Bermuda), 1.25%, 01/08/05(b)*......... 926,233 ---------- Total Convertible Preferred Shares (cost $902,233)....................................... 926,233 ---------- Total Investment Portfolio excluding repurchase agreement (cost $34,238,815)............... 33,710,974 ----------
The accompanying notes are an integral part of the financial statements. 8 -------------------------------------------------------------------------------- Heritage Series Trust - Eagle International Equity Portfolio Investment Portfolio April 30, 2001 (unaudited) (continued) --------------------------------------------------------------------------------
Market Value ------------- Repurchase Agreement--2.9%(a) ----------------------------- Repurchase Agreement with State Street Bank and Trust Company, dated April 30, 2001 @ 4.42% to be repurchased at $1,022,125 on May 1, 2001, collateralized by $1,030,000 United States Treasury Notes, 5.50% due August 31, 2001, (market value $1,046,989 including interest) (cost $1,022,000)...................................... $ 1,022,000 ---------- Total Investment Portfolio (cost $35,260,815) (c), 98.3% (a) .................... 34,732,974 Other Assets and Liabilities, net, 1.7% (a) ........... 618,032 ---------- Net Assets, 100.0% ....................... $35,351,006 ==========
---------------------- * Non-income producing security. (a) Percentages indicated are based on net assets. (b) Principal amount is stated in Japanese Yen. (c) The aggregate identified cost for federal income tax purposes is substantially the same. Market value includes net unrealized depreciation of $527,841 which consists of aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost of $1,780,811 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value of $2,308,652. ADR -- American Depository Receipt The accompanying notes are an integral part of the financial statements. 9 -------------------------------------------------------------------------------- Heritage Series Trust - Eagle International Equity Portfolio Investment Portfolio April 30, 2001 (unaudited) (continued) --------------------------------------------------------------------------------
Market % of Net Industry Diversification Value Assets ------------------------ ----- ------ Common Stocks Auto Manufacturers ....................... $ 844,656 2.4% Banks .................................... 1,682,612 4.8% Broadcasting ............................. 794,322 2.2% Chemicals ................................ 895,595 2.5% Commercial Services ...................... 873,585 2.4% Distribution/Wholesale ................... 220,749 0.6% Diversified Manufacturer ................. 923,639 2.6% Electrical Components & Equipment ........ 853,254 2.4% Electronics .............................. 805,512 2.3% Financial Services ....................... 5,461,927 15.5% Healthcare Products ...................... 596,017 1.7% Home Furnishings ......................... 785,174 2.2% Insurance ................................ 1,686,957 4.8% Memory & Commodity Semiconductors ........ 882,127 2.5% Multimedia ............................... 949,347 2.7% Oil & Gas ................................ 1,958,830 5.5% Pharmaceuticals .......................... 3,108,704 8.8% Printing & Publishing .................... 588,515 1.7% Real Estate .............................. 780,351 2.2% Retail ................................... 121,569 0.4% Semiconductor Equipment .................. 1,100,807 3.1% Telecommunications ....................... 3,787,105 10.7% Transportation ........................... 1,715,714 4.9% Venture Capital .......................... 1,367,673 3.9% Convertible Preferred Shares ............... Banks .................................... 926,233 2.6% Repurchase Agreement ....................... 1,022,000 2.9% ----------- ----- Total Investments .......................... $34,732,974 98.3% =========== =====
-------------------------------------------------------------------------------- Open Forward Foreign Currency Contracts April 30, 2001 (unaudited) --------------------------------------------------------------------------------
Contract In Delivery Gross Unrealized To Deliver Exchange For Date Depreciation -------------------------- --------------------- --------- ---------------- JPY 314,387,920 USD 2,565,706 07/10/01 $ (29,706) ---------- Net Unrealized Depreciation $ (29,706) ========== ------------------------ JPY -- Japanese Yen USD -- United States Dollar
The accompanying notes are an integral part of the financial statements. 10 May 23, 2001 Dear Fellow Shareholders: The Heritage Series Trust - Growth Equity Fund (the "Fund") has held up well relative to the comparable market Indices given the current market volatility. For the six-month period ending April 30, 2001, the Fund's Class A shares returned -20.86%(a). On a relative basis, the performance of the Fund has been solid. The Class A Shares of the Fund outperformed the Standard & Poor's Barra Growth (S&P Barra Growth) and Russell 1000 Growth Indices on a year-to-date, trailing six-month and trailing one-year basis.
Year to Date* Trailing 6 Months* Trailing 1-Year* ------------- ------------------ ---------------- Growth Equity Fund(a) -9.27% -20.86% -24.69% S&P 500 Composite -5.01% -12.07% -12.98% Russell 1000 Growth -10.89% -26.43% -32.25% S&P Barra Growth -10.03% -23.07% -29.15%
---------------- * All periods ending April 30, 2001. The Fund has compared very favorably among its mutual fund peers as well. The Fund's Class A shares were rated five stars(b) by Morningstar Inc., based on 4,363 domestic equity funds for the overall period ending April 30, 2001. On a three-year basis, Morningstar(c) ranks the Fund's Class A shares in the top six percentile out of 582 large growth funds for the period ending April 30, 2001. For the five-year period ending April 30, 2001, Morningstar(c) ranks the Fund's Class A shares in the first percentile of its large growth peer group (370 funds). In addition, Lipper Analytic Services(c) ranked the Fund's Class A shares in the first percentile out of 568 large-cap, growth equity funds for the two-year period ending April 30, 2001. Over the past two years, we are pleased to have outperformed in up markets and to have properly managed our downside risk. We continue to focus on risk-adjusted returns, i.e. - providing higher upside returns with a minimum of downside risk. We seek to control the risk in the portfolio through careful stock selection and disciplined industry exposure. As part of this risk control strategy, the Fund consists of large-cap, blue chip companies. While our investing philosophy may not be as aggressive on the upside (when compared to those who normally overweight certain sectors, e.g., technology), it is in challenging markets where we have demonstrated its inherent value. Market Environment ------------------ The global macroeconomic environment is worse today than it was six months ago. In the U.S., what started out as a trickle has turned into a torrent as a number of companies across all sectors report earnings/ revenues that are declining, noticeable cutbacks in orders, and/or layoffs of employees. Japan continues to face an economic crisis, especially with the reluctance of the Japanese consumer to increase spending and ---------------- (a) Calculated without the imposition of front-end or contingent deferred sales charges. Please see the initial letter by Richard K. Riess for a full statement of returns. (b) Morningstar, Inc. brings both performance and risk together into one evaluation. These ratings are subject to change every month. The top 10% of domestic equity funds receive five stars. The Fund's Class A shares also received a five star rating from Morningstar for the three- and five-year periods ending April 30, 2001 out of 4,363 and 2,683 domestic equity funds, respectively. The performance numbers used for the rating did take into account front-end sales charges. Past performance is no guarantee of future results. (c) Rankings from Morningstar and Lipper Analytic Services are based strictly on performance and do not take into account the imposition of either front-end or contingent deferred sales charges. Lipper Analytic Services ranked the Fund in the 44th, 4th and 1st percentile for the 1-, 3- and 5-year periods ending April 30, 2001 out of 740, 466 and 285 large-cap growth funds, respectively. For the one year period ended April 30, 2001, Morningstar ranked the Fund's Class A shares in the 45th percentile out of 854 large growth funds. Past performance is no guarantee of future results. 11 a weakened banking system. Although growth in Europe is projected to be in the range of two percent, it is by no means clear that Europe can pick up the slack for any prolonged global weakness. In addition, the U.S. dollar has been surprisingly strong in 2001. A strong U.S. dollar makes American goods more expensive overseas. Many of the best-known U.S. multi-nationals may find growth in overseas markets to be much weaker than expected, and as a result, their earnings may be hobbled even further in 2001. Energy has been an especially hot topic in the news media over the past six months. The recent events in California with rolling electricity blackouts across the state have caused a public outcry and created an atmosphere of uncertainty among individuals, private businesses, and investors. While California is working to rectify the situation, its economy is by no means assured smooth sailing without increasing electricity rates, improving conservation efforts, and building more power plants. Until some (or all) of these actions occur, California's situation will probably remain unstable for some time. When one considers the importance and size of California's economy (if separated from the U.S., it would rank approximately sixth on a list of the world's largest economies), the rest of the U.S. economy has good reason to be concerned about any disruption in California's economic and electricity status. Higher energy costs continue to have an effect on the country at large in 2001. Both crude oil and natural gas continue to act as a drag on the overall economy. A colder and more severe winter in the U.S. exacerbated this situation. Higher costs for energy act as an indirect tax that cuts across all areas of the economy. Portfolio Review ---------------- While technology remains the single largest sector weighting in the Fund, we continued to trim this weighting to reduce the portfolio's risk exposure. We remain firm believers in the long-term growth prospects of technology and continue to hold EMC, Intel, Texas Instruments, Cisco Systems, and Celestica. Microsoft and Dell were positive for the Fund. With so many dot-coms crashing in the marketplace, the steadiness and reliability of Microsoft's business and increased traction of its Windows 2000 platform proved attractive to many investors. Dell has demonstrated new signs of life. The company, which had been punished by investors throughout much of the latter half of 2000, has held up remarkably well. The firm has done a much better job of meeting Wall Street's expectations in recent months. The financial sector was not immune to recent market events. In the case of Goldman Sachs and Citigroup, these companies revised their earnings downward to reflect the recent slowdown in capital markets activities. For American Express, estimates were revised downward for two reasons. First, its travel division began to experience a slowdown in the charge card business. Second, AMEX's financial advisor division suffered from lower equity asset valuations and a charge due to a deterioration in its high yield portfolio. Despite the lack of negative news about AIG's fundamental story and earnings outlook, the company has been caught up in investors' overall pessimism on the financial sector. In health care, we increased our weighting in this sector to lower the overall risk profile of the Fund. Companies such as Medtronic, Merck, Pfizer, Pharmacia, and Genentech all declined without any fundamental change in their businesses. However, Baxter and Johnson & Johnson were positive for the portfolio. A number of our consumer/retail holdings, including Anheuser-Busch, Kroger, and Procter & Gamble, were off just slightly for the past six months. Gannett, International Game Technology, Waste Management, Home Depot, and Wal-Mart were positive for the Fund. The Fund's AOL Time Warner weighting was a flat performer for the portfolio as the merger finally received the blessing of the federal regulators. The firm has announced stepped up efforts to cut costs and to cross-market products to AOL Time Warner subscribers. 12 Conclusion ---------- We continue to look favorably upon the cuts in interest rates by the Federal Reserve (the "Fed"). Since January, the Fed has cut rates by 2.5%. The Fed recognizes the seriousness of any potential economic slowdown in the U.S. economy. While the Fed has been aggressive in cutting interest rates, it is important to remember that these actions will take time to work their way through the overall economy. Our view remains that it may not be until later this year, perhaps in the late third quarter or fourth quarter, before we see a change in business fundamentals. In the meantime, the reduction in interest rates should eventually benefit growth stocks in general. At the same time, we believe the market will continue to readjust expectations and valuations in the equity markets. Our investment philosophy and process remains unchanged - to invest in those companies with the stronger-than-average revenue and earnings growth. Also, we remain convinced that the real risk to individual investors is attempting to "time" the best period to invest in the market. We thank you for investing with us and look forward to working with you in the years to come. Sincerely, /s/ ASHI PARIKH Ashi Parikh Managing Director Eagle Asset Management, Inc. Portfolio Manager, Growth Equity Fund 13 -------------------------------------------------------------------------------- Heritage Series Trust - Growth Equity Fund Investment Portfolio April 30, 2001 (unaudited) -------------------------------------------------------------------------------- Market Shares Value ------ ----- Common Stocks--99.6%(a) ----------------------- Analog Semiconductors -- 2.2% ----------------------------- 34,600 Maximum Integrated Products* ........... $1,768,060 141,000 National Semiconductor Corporation* .......................... 4,060,800 ---------- 5,828,860 ---------- Beverages -- 3.7% ----------------- 34,750 Adolph Coors Company, Class "B"......... 1,807,000 198,700 Anheuser-Busch Companies, Inc. ......... 7,946,013 ---------- 9,753,013 ---------- Biotechnology -- 1.8% --------------------- 17,500 Amgen Inc.* ............................ 1,069,950 55,700 Genentech Inc.* ........................ 2,924,250 14,000 IDEC Pharmaceuticals Corporation* .......................... 688,800 ---------- 4,683,000 ---------- Broadcasting -- 2.8% -------------------- 102,900 AT&T - Liberty Media Group, Class "A" ............................. 1,646,400 35,700 Clear Channel Communications, Inc.* ................................. 1,992,060 86,900 Comcast Corporation, Class "A" ......... 3,815,779 ---------- 7,454,239 ---------- Computers -- 5.4% ----------------- 273,150 Dell Computer Corporation* ............. 7,181,114 179,200 EMC Corporation ........................ 7,096,320 ---------- 14,277,434 ---------- Cosmetics/Personal Care -- 1.4% ------------------------------- 62,500 Procter & Gamble Company ............... 3,753,125 ---------- Diversified Manufacturer -- 2.3% -------------------------------- 89,800 General Electric Company ............... 4,357,994 13,700 Minnesota Mining & Manufacturing Company ................. 1,630,437 ---------- 5,988,431 ---------- Electronics -- 2.3% ------------------- 23,700 Applied Biosystems Group- Applera Corporation ................... 759,822 59,900 Celestica, Inc.* ....................... 3,060,890 85,150 Solectron Corporation* ................. 2,167,068 ---------- 5,987,780 ---------- Entertainment -- 1.5% --------------------- 67,500 International Game Technology .......... 3,775,275 ----------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Financial Services -- 7.4% -------------------------- 47,900 American Express Company ............... 2,032,876 169,833 Citigroup Inc. ......................... 8,347,292 13,200 Freddie Mac ............................ 868,560 26,300 Goldman Sachs Group, Inc ............... 2,395,930 49,900 Lehman Brothers Holdings, Inc. ......... 3,630,225 34,700 Merrill Lynch & Company, Inc. .......... 2,140,990 ---------- 19,415,873 ---------- Food -- 1.6% ------------ 189,600 Kroger Company ......................... 4,283,064 ---------- Healthcare Products -- 6.4% --------------------------- 46,800 Baxter International, Inc. ............. 4,265,820 86,000 Guidant Corporation .................... 3,526,000 63,350 Johnson & Johnson ...................... 6,112,008 67,700 Medtronic, Inc. ........................ 3,019,420 ---------- 16,923,248 ---------- Insurance -- 2.4% ----------------- 77,787 American International Group, Inc. ........................... 6,362,977 ---------- Internet -- 1.1% ---------------- 178,200 DoubleClick Inc.* ...................... 2,198,988 38,550 YAHOO! Inc.* ........................... 777,939 ---------- 2,976,927 ---------- Leisure Time -- 0.2% -------------------- 13,500 Harley-Davidson, Inc. .................. 622,215 ---------- Lodging -- 0.6% --------------- 46,400 Harrah's Entertainment, Inc.* .......... 1,600,800 ---------- Logic Semiconductors -- 9.3% ---------------------------- 46,800 Advanced Micro Devices, Inc.* .......... 1,450,800 57,750 Altera Corporation* .................... 1,460,498 319,200 Intel Corporation ...................... 9,866,472 206,600 LSI Logic Corporation* ................. 4,229,102 125,850 Texas Instruments Inc. ................. 4,870,395 55,200 Xilinx, Inc.* .......................... 2,620,344 ---------- 24,497,611 ---------- Memory & Commodity Semiconductors -- 1.9% ----------------------------------------- 131,650 Cypress Semiconductor Corporation* .......................... 2,975,290 108,300 Fairchild Semiconductor International Inc., Class "A" ......... 1,960,230 ---------- 4,935,520 ----------
The accompanying notes are an integral part of the financial statements. 14 -------------------------------------------------------------------------------- Heritage Series Trust - Growth Equity Fund Investment Portfolio April 30, 2001 (unaudited) (continued) --------------------------------------------------------------------------------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Multimedia -- 6.2% ------------------ 248,750 AOL Time Warner Inc.* .................. $12,561,875 39,800 Gannett Company ........................ 2,569,090 30,000 Gemstar-TV Guide International, Inc.* ................................. 1,245,600 ---------- 16,376,565 ---------- Pharmaceuticals -- 13.8% ------------------------ 23,650 Allergan, Inc. ......................... 1,797,400 56,400 American Home Products Corporation ........................... 3,257,100 43,800 Bristol-Myers Squibb Company............ 2,452,800 26,000 Forest Laboratories, Inc. Class "A" ............................. 1,589,900 96,100 Merck & Company, Inc. .................. 7,300,716 224,400 Pfizer, Inc. ........................... 9,716,520 125,800 Pharmacia Corporation .................. 6,574,308 91,500 Praecis Pharmaceuticals, Inc.* ......... 2,007,510 11,300 Protein Design Labs, Inc.* ............. 726,025 21,700 Schering-Plough Corporation ............ 836,318 ---------- 36,258,597 ---------- Printing & Publishing -- 0.3% ----------------------------- 17,500 Tribune Company ........................ 737,450 ---------- Retail -- 6.6% -------------- 32,700 Costco Wholesale Corporation ........... 1,142,211 179,150 Home Depot, Inc. ....................... 8,437,965 147,900 Wal-Mart Stores, Inc. .................. 7,652,346 ---------- 17,232,522 ---------- Semiconductor Equipment -- 3.8% ------------------------------- 40,900 Applied Materials Inc.* ................ 2,233,140 27,700 KLA-Tencor Corporation* ................ 1,522,391 234,050 Mattson Technology Inc.* ............... 4,112,258 37,000 Novellus Systems Inc.* ................. 2,040,550 ---------- 9,908,339 ---------- Software -- 8.2% ---------------- 296,850 Microsoft Corporation* ................. 20,111,588 82,200 Oracle Corporation* .................... 1,328,352 ---------- 21,439,940 ----------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Telecommunications -- 4.5% -------------------------- 219,650 Cisco Systems, Inc.*.................... 3,729,657 317,850 Corvis Corporation*..................... 2,177,273 174,900 Nokia Corporation, Sponsored ADR, Class "A" ........................ 5,979,831 ---------- 11,886,761 ---------- Transportation -- 1.9% ---------------------- 82,300 United Parcel Service, Inc., Class "B" ............................. 4,728,135 ---------- Total Common Stocks (cost $239,295,163) .................................. 261,687,701 ----------- Repurchase Agreement -- 3.1%(a) ------------------------------- Repurchase Agreement with State Street Bank and Trust Company, dated April 30, 2001 @ 4.42% to be repurchased at $8,242,012 on May 1, 2001, collateralized by $7,410,000 United States Treasury Bonds, 6.875% due August 15, 2025, (market value $8,407,970 including interest) (cost $8,241,000) ..................................... 8,241,000 ---------- Total Investment Portfolio (cost $247,536,163) (b), 102.7% (a) .................. 269,928,701 Other Assets and Liabilities, net, (2.7%) (a).......... (7,122,874) ---------- Net Assets, 100.0% .................................... $262,805,827 ========== ---------------------- * Non-income producing security. (a) Percentages indicated are based on net assets. (b) The aggregate identified cost for federal income tax purposes is $256,503,196. Market value includes net unrealized appreciation of $13,425,505 which consists of aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost of $27,004,260 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value of $13,578,755. ADR -- American Depository Receipt
The accompanying notes are an integral part of the financial statements. 15 May 10, 2001 Dear Fellow Shareholders: We are pleased to present the semi-annual report for the Heritage Series Trust-Mid Cap Stock Fund (the "Fund") for the six-month period ended April 30, 2001. For this period, the Fund's Class A shares returned 4.49%*. Thus, as shown below, the Fund outperformed the Russell-Mid Cap Index and the Standard & Poor's 400 Mid Cap Index ("S&P 400 Mid Cap Index") by over 9.35% and 5.90%, respectively.
6 Months ended 4/30/01 -------------- Heritage Mid Cap Stock Fund ......... 4.49% S&P 400 Mid Cap Index ............... -1.41% Russell Mid Cap Index ............... -4.86%
We are extremely pleased with the Fund's performance, especially in light of the market conditions we have faced over the last six months. We believe that the market has shown investors the importance of diversification. Our balanced approach plays very well into this theme due to its diversification of growth and value stocks. We have mentioned in past letters that the Fund's rating agencies placed us in either the pure growth (Morningstar) or pure value (Lipper) categories**. Since that time, Lipper Inc. has moved the Fund into the Midcap Core peer group while Morningstar Inc. continues to place us in the Midcap Growth category. Regardless, the Fund continues to perform well in both style categories. For the 1-year period ended April 30, 2001, the Fund's Class A shares were ranked by Morningstar Inc. in the top 4th percentile out of 485 MidCap Growth funds. For the same period, Lipper Analytical Services, Inc. ranked our Fund in the top 15th percentile out of 152 Midcap Core Equity funds. We are also proud to announce that for the period ended April 30, 2001 the Fund has received Morningstar's highest honor of an overall 5-star rating. While Morningstar's and Lipper's ranking is strictly based on performance in a specific peer group and does not take into account front- and contingent deferred sales charges, the Morningstar star rating was based on 4,363 domestic equity funds, includes front- and contingent deferred sales charges and takes into account both performance and risks. Only the top 10% of domestic equity funds receive a five star rating. Volatility in the market has caused us to make some changes to our management style. As we mentioned in October, the Fund's turnover has exceeded 150%. We believe that our trading style is a prudent one in that we take advantage of over-exaggerated short-term moves in our holdings. We have found that often times moves in stocks outweigh the fundamentals. Our fundamental approach to stock-picking allows us to step in and out of stocks with confidence in times of volatility. Our top performing stocks over the last six months fell into four sectors: technology, health care, capital goods, and consumer cyclicals. In technology, we benefited from strong performance in our software picks, including Epiq Systems, Synopsys, and Advent Software. We believe these companies outperformed their software peers because of their niche businesses. Epiq, for example, sells software that automates the bankruptcy filing process. We have already seen evidence that bankruptcy filings have risen due to the weakening economy. In health care, our biggest winner was Varian Medical, which manufactures medical equipment used in the treatment of cancer with radiation. We also benefited from strong performance by our health care companies, including Manor Care, Lincare and Apogent. Our negative performing stocks were spread across all sectors. They included Penton Media, SBA Communications, Amphenol, and Avocent. Both Amphenol and Avocent fell victim to the sell-off in technology stocks, although Avocent was hit particularly hard because of customer concentration with Sun Microsystems. We sold Avocent, but kept Amphenol which we continue to like. ---------------- * Calculated without the imposition of front-end or contingent deferred sales charges. ** Past performance does not guarantee future results. 16 Since our annual letter in October of last year, we have witnessed some dramatic changes in the market. The economy continues to show signs of weakness and corporate earnings growth continues to slow. Investors still seem to prefer value over growth, although we have witnessed recent signs of renewed interest in growth stocks. We believe that investors will be extremely selective in the future, gravitating towards companies with favorable risk-reward characteristics. This strategy should benefit our approach of investing in companies with solid balance sheets, strong competitive positions within an industry, and reasonable valuations. We continue to believe that diversification is most important in this volatile market. Our approach has been to barbell the portfolio. We continue to own stable stocks that served us well in 2000. Most of our health care (Lincare, Labcorp, Patterson Dental, Apogent), business services (Iron Mountain, Factset, Corporate Executive Board, Barra), capital goods (Moog, Alliant Techsystems) and financial (Federated, Radian, Ambac) holdings fall into this category. On the other side of the bell we own some cyclical stocks - most of which are beaten down technology stocks (DDI, Amphenol, Vishay.) On the one hand, we are paying reasonable valuations for good earnings visibility (stable stocks). On the other hand, we are paying low valuations for low visibility (cyclical stocks). We believe that it is quite possible that both stable stocks, as well as cyclical stocks will do well in the current environment. Therefore, we believe our approach is a prudent one. As always, we strive to produce strong results for our shareholders. Thank you for your support. Sincerely, /s/ TODD L. MCCALLISTER Todd L. McCallister Senior Vice President Eagle Asset Management, Inc. Portfolio Manager, Mid Cap Stock Fund 17 -------------------------------------------------------------------------------- Heritage Series Trust - Mid Cap Stock Fund Investment Portfolio April 30, 2001 (unaudited) --------------------------------------------------------------------------------
Market Shares Value ------ ----- Common Stocks -- 93.6%(a) ------------------------- Advertising -- 2.1% ------------------- 19,000 Catalina Marketing Corporation* $ 664,240 11,300 Lamar Advertising Company* ............ 436,745 ---------- 1,100,985 ---------- Aerospace/Defense -- 6.2% ------------------------- 9,800 Alliant Techsystems, Inc.* ............. 923,160 16,000 Embraer Empresa Brasileira de Aeronautica SA, Sponsored ADR .......... 716,960 10,500 L-3 Communications Holdings, Inc.* ..... 811,125 16,000 Moog Inc., Class "A" ................... 545,600 15,500 Titan Corporation* ..................... 258,850 ---------- 3,255,695 ---------- Biotechnology -- 2.0% --------------------- 30,000 Diversa Corporation* ................... 508,500 8,000 Invitrogen Corporation* ................ 564,080 ---------- 1,072,580 ---------- Broadcasting -- 4.3% -------------------- 30,000 Charter Communications, Inc., Class "A"* ............................ 642,300 10,000 Insight Communications Company, Inc.* ........................ 277,500 30,800 Lodgenet Entertainment Corporation* .......................... 593,515 29,200 USA Networks, Inc.* .................... 731,460 ---------- 2,244,775 ---------- Commercial Services -- 6.4% --------------------------- 20,000 Corporate Executive Board Company* .............................. 664,800 22,750 Iron Mountain Inc.* .................... 822,412 21,000 ITT Educational Services, Inc. ......... 747,600 19,000 Moody's Corporation .................... 596,600 15,000 Valassis Communications, Inc. .......... 530,250 ---------- 3,361,662 ---------- Computers -- 5.2% ----------------- 14,000 FactSet Research Systems Inc. .......... 497,000 26,000 Jack Henry & Associates, Inc. .......... 732,940 13,500 SunGard Data Systems Inc.* ............. 746,145 13,000 Synopsys, Inc.* ........................ 746,590 ---------- 2,722,675 ---------- Cosmetics/Personal Care -- 1.0% ------------------------------- 30,000 Elizabeth Arden, Inc.* ................. 549,000 ----------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Distribution/Wholesale -- 1.3% ------------------------------ 21,000 SCP Pool Corporation* .................. 661,500 ---------- Diversified Manufacturer -- 0.5% -------------------------------- 6,500 Roper Industries Inc. .................. 271,700 ---------- Electronics -- 7.4% ------------------- 16,600 Amphenol Corporation Class "A"* ........ 698,860 22,350 DDi Corporation* ....................... 549,140 18,000 Orbotech Ltd. .......................... 619,920 14,500 PerkinElmer, Inc. ...................... 970,195 25,500 Tektronix, Inc. ........................ 617,100 18,500 Vishay Intertechnology, Inc.* .......... 461,575 ------- 3,916,790 --------- Entertainment -- 5.8% --------------------- 19,000 Argosy Gaming Company* ................. 530,100 21,000 GTECH Holdings Corporation*............. 684,600 9,000 International Game Technology .......... 503,370 16,500 Shuffle Master, Inc.* .................. 490,050 39,000 Six Flags, Inc. ........................ 855,660 ---------- 3,063,780 ---------- Financial Services -- 1.1% -------------------------- 20,000 Federated Investors, Inc., Class "B" ............................. 583,000 ---------- Healthcare Products -- 7.3% --------------------------- 36,000 Apogent Technologies, Inc.* ............ 828,000 29,000 Edwards Lifesciences Corporation* ...... 627,850 53,300 Kensey Nash Corporation* ............... 678,509 15,500 Patterson Dental Company* .............. 473,680 23,333 Sybron Dental Specialties, Inc.*........ 466,660 10,800 Varian Medical Systems Inc. ............ 744,120 ---------- 3,818,819 ---------- Healthcare Services -- 6.0% --------------------------- 16,000 Horizon Health Corporation* ............ 136,800 3,500 Laboratory Corporation of America Holdings* ..................... 493,500 9,000 Lincare Holdings, Inc.* ................ 448,830 49,000 Manor Care Inc.* ....................... 1,136,800 6,500 RightChoice Managed Care, Inc.*......... 263,900 7,800 Universal Health Services, Inc., Class "B"* ............................ 700,128 ---------- 3,179,958 ---------- Insurance -- 10.4% ------------------ 15,750 AMBAC Financial Group, Inc. ............ 847,508 20,500 Brown & Brown, Inc. .................... 869,200
The accompanying notes are an integral part of the financial statements. 18 -------------------------------------------------------------------------------- Heritage Series Trust - Mid Cap Stock Fund Investment Portfolio April 30, 2001 (unaudited) (continued) --------------------------------------------------------------------------------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Insurance -- (continued) ------------------------ 35,000 CNA Surety Corporation ................. $ 477,750 5,600 Everest Re Group, Ltd. ................. 357,560 11,000 PartnerRe Ltd. ......................... 539,330 7,500 Protective Life Corporation ............ 224,400 14,000 Radian Group Inc. ...................... 1,085,000 8,500 RenaissanceRe Holdings Ltd. ............ 543,150 12,000 Stancorp Financial Group ............... 548,760 ---------- 5,492,658 ---------- Leisure Time -- 1.2% -------------------- 51,000 Multimedia Games, Inc.* ................ 634,950 ---------- Miscellaneous Manufacturer -- 2.3% ---------------------------------- 15,500 Aptargroup Inc. ........................ 489,490 28,150 Quixote Corporation .................... 702,906 ---------- 1,192,396 ---------- Multimedia -- 1.0% ------------------ 22,000 Corus Entertainment Inc., Class Class "B"* ............................ 510,180 ---------- Oil & Gas -- 0.9% ----------------- 13,000 Newfield Exploration Company* .......... 468,000 ---------- Oil & Gas Services -- 2.8% -------------------------- 24,000 Core Laboratories N.V., Sponsored ADR* ........................ 573,120 25,000 Universal Compression Holdings, Inc.* .. 900,000 ---------- 1,473,120 ---------- Pharmaceuticals -- 2.4% ----------------------- 20,500 Medicis Pharmaceutical* ................ 1,018,850 7,000 Syncor International Corporation*....... 246,820 ---------- 1,265,670 ---------- Printing & Publishing -- 1.8% ----------------------------- 18,000 Information Holdings Inc.* ............. 388,800 31,000 John Wiley & Sons, Inc., Class "A" ............................. 578,150 ---------- 966,950 ---------- Retail -- 0.9% -------------- 10,000 BJ's Wholesale Club, Inc.* ............. 453,000 ---------- Savings & Loans -- 1.6% ----------------------- 14,000 Golden West Financial Corporation ...... 821,800 ----------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Software -- 7.4% ---------------- 14,900 Advent Software, Inc.* ................. 834,102 9,500 Barra Inc.* ............................ 437,380 24,950 EPIQ Systems, Inc.* .................... 609,030 20,000 JDA Software Group, Inc.* .............. 299,400 28,000 National Data Corporation .............. 802,200 14,500 National Instruments Corporation* .......................... 507,500 18,200 ProBusiness Services, Inc.* ............ 410,410 ---------- 3,900,022 ---------- Telecommunications -- 3.1% -------------------------- 17,000 Aeroflex, Inc.* ........................ 253,470 22,000 Commonwealth Telephone Enterprises Inc. ...................... 744,480 14,000 Western Wireless Corporation, Class "A"* ............................ 623,420 ---------- 1,621,370 ---------- Transportation -- 1.2% ---------------------- 12,500 Teekay Shipping Corporation ............ 634,250 ---------- Total Common Stocks (cost $42,400,346).................................... 49,237,285 ---------- Repurchase Agreement -- 6.5%(a) ------------------------------- Repurchase Agreement with State Street Bank and Trust Company, dated April 30, 2001 @ 4.42% to be repurchased at $3,437,422 on May 1, 2001, collateralized by $3,090,000 United States Treasury Bonds, 6.875% due August 15, 2025, (market value $3,506,158 including interest) (cost $3,437,000) ................. 3,437,000 ---------- Total Investment Portfolio (cost $45,837,346) (b), 100.1% (a).................... 52,674,285 Other Assets and Liabilities, net, (0.1%) (a) ......... (32,946) ---------- Net Assets, 100.0% .................................... $52,641,339 ========== ---------------------- * Non-income producing security. (a) Percentages indicated are based on net assets. (b) The aggregate identified cost for federal income tax purposes is substantially the same. Market value includes net unrealized appreciation of $6,836,939 which consists of aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost of $7,342,853 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value of $505,914. ADR -- American Depository Receipt.
The accompanying notes are an integral part of the financial statements. 19 May 22, 2001 Dear Fellow Shareholders: For the six-month period ending April 30, 2001, the Heritage Series Trust - Small Cap Stock Fund (the "Fund") Class A shares were up 0.8%*, outperforming the Russell 2000, which was down 1.8%, for the same period. In general, stocks have been weak in the six months ended April 30, 2001, particularly in growth sectors such as Technology and Healthcare, although the Energy and Financial Services sectors, with more traditional value stocks, were strong during the period. However, during the month of April, stocks rebounded, with growth stocks posting better returns. Year-to-date through April 30, 2001, the Russell 2000 Value Index is up 5.65%, while the Russell 2000 Growth Index is down 4.82%. In April, however, the Russell 2000 Growth Index was up 12.2%, substantially better than the Russell 2000 Value Index, which was up 4.63%. The Federal Reserve's interest rate cuts have helped to ease fears of a slowing economy, boosting the stock market in the process. Our "Growth At A Reasonable Price" philosophy has worked, and we have, for the most part, avoided the relatively expensive growth stocks that have been hurt particularly badly. We also saw three of our companies acquired: Citadel Communications, Xircom and Sunglass Hut, Citadel being our best performer for the period. Strayer Education was up, benefiting from a new management team and a new growth strategy, as well as strong demand for education, particularly in technical fields. Edwards Lifesciences has performed well, with strong sales growth in its products to treat late-stage cardiovascular disease. Pawnshop operator Cash America was strong, seeing solid growth in its countercyclical lending operations. Our worst performer was Artesyn Technologies, a leading producer of electronic products and power systems, which lowered expectations for forward revenues and earnings. However, we believe this was due to short-term issues, and we expect the company's growth to resume by the fourth calendar quarter. Gene therapy firm Collateral Therapeutics was down in a weak biotech market, even though clinical trial and research results for the company's products continue to be excellent. Informax, which provides software used by biotech researchers, was also weak in line with negative sentiment in biotechs. However, there were some management changes announced at the company, which we believe indicates the potential for concerns in a company with a recent IPO, so we sold the stock. We continue to see signs of slowing economic growth, but the Federal Reserve has been aggressively cutting interest rates to battle the trend. We believe the stock market has begun to recover in advance of an earnings recovery, which will likely come in the next 2-3 quarters. We continue to look for bargains in beaten-up technology names. We have also purchased securities of several gaming equipment providers, which we believe stand to benefit from a replacement cycle currently underway in the industry. In addition, research from Prudential Securities suggests that small cap stocks tend to outperform large cap stocks for two to three years after outperforming them in a down year, which we saw happen in 2000. As economic conditions improve, we expect to see small caps continue to perform relatively well. Remember, the big correction in small caps occurred in 1998-99. As always we will endeavor to do our best for our shareholders. Sincerely, /s/ BERT BOKSEN Bert Boksen Senior Vice President Eagle Asset Management, Inc. Portfolio Manager, Small Cap Stock Fund ---------------- * Calculated without the imposition of front-end or contingent deferred sales charges. 20 May 14, 2001 Dear Fellow Shareholders: During the six-month period ended April 30, 2001, the Heritage Series Trust-Small Cap Stock Fund (the "Fund") Class A Shares returned 0.8%* versus -1.8% for the Russell 2000 Index. It is with great determination that we face the remainder of the year. While the environment remains challenging, we believe that opportunities and values exist to make a good year for our portfolios realistically possible. The economy is apparently lumbering along in a slow growth mode. The picture for corporate profits is not great, as the economy is strong enough to put cost pressures on corporate income statements but weak enough so that companies cannot offset the cost increases with volume gains. Thus, we are likely to have a year of no-growth in corporate profits. Interestingly, many of the more popular "new economy" technology companies that offered terrific growth potential as we approached the new millennium are reporting earnings disappointments and lowering forward looking guidance. Alas, investors are learning that these companies are also vulnerable to economic slowdowns. So, it will be a difficult economic year. In our opinion, it does not pay to be too bearish on the U.S. economy. We are the economic powerhouse of the world and the current slow-down is likely to be measured in months, not years. Thus, as we look back several years from now, this period should be a short term "blip" in the long term growth of our economy and those who used this period to pick stocks in sound companies selling at sensible valuations will have been rewarded. The important point, though, is that we believe the universe of attractive stocks is not to be found in technology, communications or NASDAQ. Although these stocks are down a lot, they are still not absolutely cheap. In addition, many of the companies are reporting disappointing earnings and one could make the case that these stocks and the NASDAQ should never have been at the levels they were at in March of 2000. The fact of the matter is that funds flowed into these stocks simply because they were going up. Now, most investors are overweighted in these stocks, they are losing money and they will want to reduce exposure during rallies. So, NASDAQ could be affected by mutual fund and wrap program redemptions for years to come. When one looks outside technology, though, one finds a whole universe of stocks that are attractively priced and which have been performing well since March of 1999. What is happening is that quietly, but consistently, fund flows are going out of technology into the rest of the stock market. In 2000, more stocks were up then down and the S&P Midcap Index, S&P Small Cap Index and Russell Value Index were all up double digits. Money is flowing to where the relative value is. Many of these stocks went down as NASDAQ soared, with investors selling them to feed the NASDAQ rally. Now the reverse is happening. Investors are buying these stocks because they are attractively priced and they have been the better performers over the last two years. ---------------- * Calculated without the imposition of front-end or contingent deferred sales charges. 21 So relative value is back. Buy low/sell high is back. It is a sane, rational market. Value is competitive with growth. Growth at a reasonable price makes more sense than growth at any price. Generally, stocks of companies that make money are going up while stocks of companies that lose money are going down. Of course, past performance is no guarantee of future results. Our firm's research oriented approach to investing is rewarded in this environment. Specifically, our Fund was rewarded for investments in the financial sector, which included shares of Capital Crossing Bank, Investors Financial Services, Doral Financial Corp., and Investment Technology Group Inc. Although these stocks were great performers for the Fund, we have begun to divest some of our positions as we believe that they are reaching their market highs. Previously related to the financial sector was Kansas City Southern Industries, who spun off its financial services division in July 2000 to concentrate on its core business as a transportation company. We are pleased with our continued investment in Kansas City Southern Industries as it's performance turned around very nicely during this reporting period reflecting the markets perceived success of their new strategy. Our research also led us to an investment in Sola International Inc., a manufacturer and international distributor of eyeglass lenses, whose market value has more then tripled since we acquired it in early December. Like many other funds, our Fund was not spared from the effects of the dot-com crash, which has plagued the Nasdaq Stock Market for the last year. While we kept our distance from investing directly in dot-com companies, some of our holdings were battered in the crash. A good example is Penton Media, while their revenues grew by 49% for the quarter ended March 31, 2001, the stock suffered due to their investments in Internet companies. Teletech Holdings is another investment that lost value even with improving revenues due to its indirect ties with Internet commerce. Startek Inc., on the other hand, was hurt because many of its customers are technology companies whose valuations have been greatly reduced and in turn have cut spending. Even though these securities have exhibited negative performance during the period, we continue to maintain our positions as we believe that their valuations will improve. In this vein, during April we have taken the opportunity to increase our position in American Tower, a wireless infrastructure company, who we believe will rally and return to its previous valuation. We will continue to work hard to deliver prudent risk-adjusted returns for the Fund. Sincerely, /s/ JAMES D. AWAD James D. Awad Chairman Awad Asset Management, Inc. Portfolio Manager, Small Cap Stock Fund 22 -------------------------------------------------------------------------------- Heritage Series Trust - Small Cap Stock Fund Investment Portfolio April 30, 2001 (unaudited) --------------------------------------------------------------------------------
Market Shares Value ------ ----- Common Stocks--90.9%(a) ----------------------- Advertising -- 1.2% ------------------- 100,500 Penton Media Inc. ...................... $ 1,979,850 ---------- Analog Semiconductors -- 1.2% ----------------------------- 45,000 AstroPower, Inc.* ...................... 1,884,600 ---------- Banks -- 6.5% ------------- 110,900 Capital Crossing Bank* ................. 1,746,675 30,000 Colonial BancGroup, Inc. ............... 373,500 75,500 Investors Financial Services Corporation ........................... 5,401,270 85,000 North Fork Bancorporation .............. 2,256,750 70,000 TrustCo Bank Corporation NY ............ 857,500 ---------- 10,635,695 ---------- Beverages -- 1.3% ----------------- 32,500 Constellation Brands, Inc.* ............ 2,120,625 ---------- Biotechnology -- 0.4% --------------------- 61,000 Collateral Therapeutics, Inc.* ......... 503,860 35,800 Variagenics, Inc.* ..................... 171,840 ---------- 675,700 ---------- Broadcasting -- 1.2% -------------------- 316,400 Spanish Broadcasting System, Class "A" ............................. 1,936,368 ---------- Building Materials -- 1.6% -------------------------- 55,800 Martin Marietta Materials, Inc. ........ 2,565,125 ---------- Chemicals -- 0.5% ----------------- 14,000 OM Group, Inc. ......................... 765,800 ---------- Commercial Services -- 12.8% ---------------------------- 142,500 Hall Kinion & Associates Inc.* ......... 1,161,375 215,000 Hooper Holmes, Inc. .................... 2,203,750 60,000 Iron Mountain Inc.* .................... 2,169,000 89,900 Korn/Ferry International* .............. 1,618,200 121,400 Nova Corporation* ...................... 2,750,924 160,000 Spherion Corporation* .................. 1,307,200 114,800 StarTek, Inc.* ......................... 1,901,088 22,000 Steiner Leisure, Ltd.* ................. 306,240 34,000 Strayer Education, Inc. ................ 1,417,800 126,000 Teletech Holdings Inc.* ................ 859,320 60,000 Valassis Communications, Inc. .......... 2,121,000 90,000 Viad Corporation ....................... 2,237,400 65,000 Wackenhut Corporation, Class "B" .............................. 786,500 ---------- 20,839,797 ---------- Computers -- 1.6% ----------------- 51,000 FactSet Research Systems Inc. .......... 1,810,500 138,875 Printronix, Inc.* ...................... 736,038 ---------- 2,546,538 ----------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Distribution/Wholesale -- 2.6% ------------------------------ 90,000 Hughes Supply, Inc. .................... 1,360,800 100,000 United Stationers Inc. ................. 2,847,000 ---------- 4,207,800 ---------- Diversified Manufacturer -- 0.6% -------------------------------- 30,000 Aptargroup Inc. ........................ 947,400 ---------- Electric -- 2.9% ---------------- 69,900 Allete ................................. 1,703,463 88,000 Avista Corporation ..................... 1,751,200 76,500 Sierra Pacific Resources ............... 1,224,765 ---------- 4,679,428 ---------- Electrical Components & Equipment -- 1.0% ----------------------------------------- 110,000 Artesyn Technologies, Inc.* ............ 1,667,600 ---------- Electronics -- 8.9% ------------------- 77,200 Coherent, Inc.* ........................ 3,049,400 65,500 DDi Corporation* ....................... 1,609,335 203,000 Gentex Corporation* .................... 5,481,000 13,500 OYO Geospace Corporation* .............. 305,100 45,800 Sawtek, Inc.* .......................... 1,126,680 90,000 Universal Electronics, Inc.* ........... 1,724,400 39,000 Varian, Inc.* .......................... 1,260,480 ---------- 14,556,395 ---------- Entertainment -- 2.6% --------------------- 30,800 Alliance Gaming Corporation* ........... 710,864 42,500 Anchor Gaming* ......................... 2,316,250 44,500 Shuffle Master, Inc.* .................. 1,321,650 ---------- 4,348,764 ---------- Environmental Control -- 0.2% ----------------------------- 70,800 IMCO Recycling, Inc. ................... 407,100 ---------- Financial Services -- 4.7% -------------------------- 91,000 Doral Financial Corporation ............ 2,948,400 70,000 Investment Technology Group Inc. ....... 3,412,500 30,000 Jefferies Group Inc. ................... 964,500 100,000 Wit Soundview Group, Inc.* ............. 298,000 ---------- 7,623,400 ---------- Food -- 1.3% ------------ 80,000 Corn Products International, Inc. 1,960,000 28,900 Del Monte Foods Company* ............... 239,870 ---------- 2,199,870 ----------
The accompanying notes are an integral part of the financial statements. 23 -------------------------------------------------------------------------------- Heritage Series Trust - Small Cap Stock Fund Investment Portfolio April 30, 2001 (unaudited) (continued) --------------------------------------------------------------------------------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Healthcare Products -- 4.9% --------------------------- 123,456 Angiosonics, Inc. (b) .................. $ 14,815 100,000 Edwards Lifesciences Corporation* .......................... 2,165,000 62,000 ESC Medical Systems Ltd.* .............. 1,689,500 38,000 Novoste Corporation* ................... 772,540 330,000 Sola International Inc.* ............... 3,296,700 ---------- 7,938,555 ---------- Healthcare Services -- 0.7% --------------------------- 90,000 Horizon Health Corporation* ............ 769,500 11,300 IMPATH, Inc.* .......................... 353,464 ---------- 1,122,964 ---------- Home Furnishings -- 0.5% ------------------------ 110,000 Applica Incorporated ................... 737,000 ---------- Insurance -- 2.7% ----------------- 89,375 Annuity And Life Re (Holdings), Ltd. ... 2,667,844 105,000 Presidential Life Corporation .......... 1,812,300 ---------- 4,480,144 ---------- Machinery -- 0.6% ----------------- 32,000 Cognex Corporation* .................... 944,320 ---------- Metal Fabricate/Hardware -- 1.4% -------------------------------- 88,000 Kaydon Corporation ..................... 2,254,560 ---------- Mining -- 0.4% -------------- 20,000 Stillwater Mining Company* ............. 611,400 ---------- Oil & Gas -- 1.8% ----------------- 47,500 Patterson Energy Inc.* ................. 1,637,325 27,000 Spinnaker Exploration Company* ......... 1,228,500 ---------- 2,865,825 ---------- Oil & Gas Services -- 1.2% -------------------------- 60,000 Veritas DGC Inc.* ...................... 1,950,000 ---------- Pharmaceuticals -- 1.5% ----------------------- 23,000 Medicis Pharmaceutical* ................ 1,143,100 58,000 Praecis Pharmaceuticals, Inc.* ......... 1,272,520 44,444 SurVivaLink Corporation (b) ............ 58,666 ---------- 2,474,286 ----------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Printing & Publishing -- 3.6% ----------------------------- 49,500 Houghton Mifflin Company ............... 2,252,745 198,200 John Wiley & Sons, Inc., Class "A" ............................. 3,696,430 ---------- 5,949,175 ---------- REITS -- 0.3% ------------- 25,000 Meristar Hospitality Corporation........ 502,500 ---------- Retail -- 4.3% -------------- 255,000 Cash America International, Inc......... 2,040,000 60,000 Genesco Inc.* .......................... 1,716,000 55,400 MSC Industrial Direct Company, Inc. .... 889,170 131,000 Regis Corporation ...................... 2,423,500 ---------- 7,068,670 ---------- Savings & Loans -- 1.0% ----------------------- 35,000 Commercial Federal Corporation.......... 766,500 20,000 ITLA Capital Corporation* .............. 360,000 50,000 Waypoint Financial Corporation ......... 513,000 ---------- 1,639,500 ---------- Semiconductor Equipment -- 0.8% ------------------------------- 85,500 Axcelis Technologies, Inc.* ............ 1,283,355 ---------- Software -- 3.6% ---------------- 67,500 Avid Technology, Inc.* ................. 1,171,125 36,000 Barra Inc* ............................. 1,657,440 16,500 Cerner Corporation* .................... 742,995 135,000 Datastream Systems, Inc.* .............. 1,221,750 15,500 Fair, Isaac and Company, Inc. .......... 1,076,010 ---------- 5,869,320 ---------- Telecommunications -- 5.7% -------------------------- 66,000 Aeroflex, Inc.* ........................ 984,060 80,000 American Tower Corporation, Class "A" ............................. 2,144,000 96,000 Commscope, Inc.* ....................... 1,812,480 120,000 EMS Technologies Inc* .................. 1,741,200 25,000 MasTec, Inc.* .......................... 366,500 100,000 Plantronics, Inc.* ..................... 1,956,000 30,000 REMEC, Inc.* ........................... 328,800 ---------- 9,333,040 ---------- Transportation -- 2.8% ---------------------- 82,000 EGL, Inc.* ............................. 1,944,220 210,000 Kansas City Southern Industries, Inc. .. 2,690,100 ---------- 4,634,320 ---------- Total Common Stocks (cost $129,847,320) 148,246,789 -----------
The accompanying notes are an integral part of the financial statements. 24 -------------------------------------------------------------------------------- Heritage Series Trust - Small Cap Stock Fund Investment Portfolio April 30, 2001 (unaudited) (continued) --------------------------------------------------------------------------------
Principal Market Amount Value ------ ----- Convertible Bonds -- 0.1%(a) ---------------------------- Healthcare Products -- 0.1% --------------------------- 1,000,000 Angeion Corporation, 7.5%, 04/15/03(b) ........................... $ 100,000 ------------ Total Convertible Bonds (cost $1,000,000) 100,000 ------------ Total Investment Portfolio excluding repurchase agreement (cost $130,847,320) .................................. 148,346,789 ------------ Repurchase Agreement -- 7.7%(a) ------------------------------- Repurchase Agreement with State Street Bank and Trust Company, dated April 30, 2001 @ 4.42% to be repurchased at $12,523,537 on May 1, 2001, collateralized by $11,255,000 United States Treasury Bonds, 6.875% due August 15, 2025, (market value $12,776,086 including interest) (cost $12,522,000)........................................... 12,522,000 ------------ Total Investment Portfolio (cost $143,369,320) (c), 98.7% (a).................... 160,868,789 Other Assets and Liabilities, net, 1.3% (a) ........... 2,151,517 ------------ Net Assets,100.0% ..................................... $163,020,306 ============
---------------------- * Non-income producing security. (a) Percentages indicated are based on net assets. (b) Private placement and illiquid securities are fair valued according to procedures adopted by the Board of Trustees. (c) The aggregate identified cost for federal income tax purposes is substantially the same. Market value includes net unrealized appreciation of $17,499,469, which consists of aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost of $33,229,012 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value of $15,729,543. REITS -- Real Estate Investment Trusts. The accompanying notes are an integral part of the financial statements. 25 May 23, 2001 Dear Fellow Shareholders: The Heritage Series Trust - Technology Fund (the "Fund") has not escaped the extreme market volatility in the technology sector. The Fund's Class A Shares produced a total return of -41.79%* for the six-month period ending April 30, 2001. Over this same time period, the Goldman Sachs Technology Index (the "GSTI") declined -39.18%, while the NASDAQ Composite ("NASDAQ") was down -37.19%, and the Standard & Poor's 500 Composite Price Index ("S&P 500") returned -12.07%. On a year-to-date basis ending April 30, 2001, the Fund's Class A shares returned -13.30%* while the GSTI has declined -13.72%. The NASDAQ finished down -14.34% and the S&P 500 declined -5.01% over the same period. While the performance of the Fund was off during the past six months, we are pleased to have outperformed most of our technology fund competitors on a relative basis over the past year. On a one-year basis, Morningstar(a) ranks the Fund's Class A shares in the 23rd percentile out of 231 specialty-technology funds for the period ending April 30, 2001. According to Lipper Analytics(a), the Class A shares also outperformed most of our peers in the Science and Technology objective, ranking in the 24th percentile out of 234 funds for the one-year period ending April 30, 2001. Market Overview Several events have occurred to bring us to the present situation. First, the end of the Internet-driven valuation bubble continues to negatively affect the investing mood and environment of the wider public. Second, there has been a gradual slowdown of the global economy. While the U.S. economy may not technically be in a recession, the effects of this overall weakness have had a noticeable impact on spending levels in the technology sector. Third, we are now clearly investing in an environment where technology capital budgets are being more rigorously scrutinized at every level. Finally, we are progressing through an inventory digestion period in the technology sector following excess technology component overbuilding in 2000. End-demand fundamentals simply do not change overnight; thus, a sudden reduction in orders in many technology sub-sectors reinforces our conviction that key purchasers are reducing internal inventory levels as parts become more readily available. The decline in business activity has been exaggerated because it comes in the aftermath of severe parts shortages that existed only six months ago. These shortages drove excessive ordering in anticipation of demand that did not materialize in the face of the economic slowdown. These developments drive us to be more cautious on companies with difficult year-over-year growth comparisons (a byproduct of what now appears to be above-trend line growth in information technology spending in 2000), high expectations, and high relative valuations. In this market environment, we are focused on building positions in companies with significantly lowered expectations, reasonable valuations, and good downside support based on traditional balance sheet measures such as Price/Book and Price/Cash. As many of the negative factors we mentioned are transitory, we believe now is the time to take a more aggressive investment approach with regard to technology stocks. Expectations have been taken down to very low levels for both forward earnings and forward-looking fundamentals, especially in cyclically depressed areas of technology such as semiconductors, personal computers, PC software, and Internet-related advertising. It is our strong belief that technology investors have the best opportunity for upside when both expectations and valuations are at low or reasonable levels. We believe this accurately describes the state of many technology stocks today. ---------------- * Calculated without the imposition of front-end or contingent deferred sales charges. Please see the initial letter by Richard K. Riess for a full statement of returns. (a) Rankings from Morningstar and Lipper Analytic Services are based strictly on performance and do not take into account the imposition of either front-end or contingent deferred sales charges. Past performance is no guarantee of future results. 26 Portfolio Performance During the past six months, a few dominant themes emerged and allowed us to take advantage of market conditions to implement several moves in the Fund. 1. Reducing exposure to companies most vulnerable to a prolonged IT spending slowdown. We believe many hardware-focused companies and some diversified, large-cap technology companies will remain most vulnerable to this impending slowdown - especially those with difficult growth comparisons after an unusually strong performance over the last 12-18 months. 2. Avoiding diversified providers of communications infrastructure equipment. We believe the rationalization of capacity in the communications service provider industry will take longer than most observers expect, and we would only invest in focused companies with a dominant position in critical niche technologies. 3. Increasing exposure to semiconductors, Internet media, and niche-driven technology companies. We believe these three groups should be less vulnerable to macroeconomic and IT spending concerns, especially at current valuation levels. In addition, these groups should be some of the first to benefit as the economy recovers. 4. Focusing on technology products and services that are likely to consume an increasing share of corporate IT capital budgets - especially niche technologies that may evolve to a position of mainstream adoption. Examples include data storage, network security, and wireless networking. One effect of these portfolio adjustments has been our shift toward selected mid-cap technology stocks and away from some large-cap technology holdings. This shift is reflective of a more aggressive posture in the face of substantially reduced expectations. In our view, many smaller technology firms have the potential to grow more rapidly than larger, more diversified technology companies over the next 18-24 months. Over the past six months, declines in technology stocks occurred across the board affecting the hardware, software, communications, Internet, and semiconductor industries. One sub-sector that contributed positively to the Fund's performance was the business services segment. Hardware proved to be a difficult area in which to invest. Over the past six months, we sold Solectron and Sun Microsystems from the portfolio. These sales were designed primarily to reduce our overall hardware weighting and to reposition the Fund. We added to our existing positions in EMC and Brocade Communications, however. It is our belief that storage spending will be among the first areas of technology capital investment to recover later in 2001 as the macroeconomic climate improves or simply stops deteriorating. In our view, EMC has a 20%-25% revenue and earnings growth opportunity over the next three to five years as spending on storage hardware and software continues to consume an increasing share of corporate technology budgets. EMC's stable of Global 1000 customers will likely resume aggressive storage-related spending to support the management of continued strong growth in data and transaction volumes. If this thesis holds true, EMC shares should prove to represent an excellent value at current levels. EMC remains one of our favorite large-cap technology stocks. With respect to Brocade, the firm's fiber channel switches should continue to dominate corporations' Storage Area Network (SAN) architectures for the foreseeable future. At current valuation levels, we do not believe the stock price appropriately reflects the 40%-50% annual revenue and earnings growth opportunity available to Brocade over the next several years. Consequently, we have added to our exposure in the midst of general market weakness. Our position in the software industry hurt us since our last update. We experienced declines in E.piphany, Veritas Software, and i2 Technologies. We exited our position in Veritas. With difficult growth comparisons 27 and a potential near-term recession in IT spending, we believe high valuation levels present a further potential downside risk. Another name that we sold from the Fund was i2 Technologies. Although the company's long-term revenue opportunity in e-business infrastructure and supply chain management tools remains substantial, its competitive environment continues to evolve rapidly in a direction that we believe may lead to more aggressive pricing and subsequent margin pressure for all market participants. With i2's recent acquisition of RightWorks, we believe the company has made a deliberate move to compete directly with Ariba and CommerceOne in the market for automated procurement software. In the near term, this move is likely to extend selling cycles as the customer base has a wider variety of more complex software solutions to evaluate. Longer evaluation cycles usually lead to more discounting, especially in today's environment of slowing IT spending. We believe these conditions put i2's earnings estimates at risk for the foreseeable future. While many technology stocks declined dramatically over the past six months, Microsoft has held up remarkably well. Microsoft's healthy core business, continuing strong cash flow, and increased traction of its Windows 2000 and Windows XP platforms continue to make it an attractive investment. We believe the stock still has material upside potential from current levels. Elsewhere in software, we established a position in Intuit. This company is the dominant leader in the market for personal and small business finance software and sells leading products for tax planning and filing, personal financial management, and small business accounting. We believe the company has an opportunity for continued strong earnings-per-share (EPS) growth of 20%-25% in 2002 as operating margins expand and new business initiatives gain traction in the marketplace. Intuit has a seasoned management team and a healthy balance sheet with nearly $7.00 per share in cash and investments. We believe current valuation levels provide investors with the opportunity for meaningful upside over the next 12-24 months. Symantec is another software name we recently purchased in the Fund. The company is a leading provider of anti-virus, network security, and system optimization software for consumers and corporations. Symantec has a strong balance sheet (with over $9 per share in cash and no debt) and what we believe is a healthy product pipeline with significant product upgrade momentum possible in the second half of 2001. Notably, security software remains a high priority of most corporate software purchasers even in a slowing macroeconomic environment. On the consumer side, the release of Microsoft's Windows XP operating system in the latter part of this year should help drive Symantec's growth in this customer segment. We believe the risk/reward profile is quite favorable in Symantec shares at current valuation levels of 18x forward EPS estimates and approximately 11x trailing cash flow (EBITDA - earnings before interest, taxes, depreciation, and amortization). We also recently began building a position in software provider Vignette. We believe Vignette will be a long-term winner in the market for e-commerce enabling software. The company has superior technology, the right industry partnerships, an extremely strong balance sheet, and a healthy installed base of high quality corporate customers. We also strongly believe the recent addition of Tom Hogan--former SVP of worldwide sales and operation at Siebel Systems and an 18-year veteran of IBM--as President and COO significantly deepens the company's management team and validates the market opportunity. In our opinion, the recent downdraft in the stock presents an excellent entry point for long term investors. Over the past six months, the Fund experienced negative performance in the communications space. In the face of a worsening environment affecting the telecommunications carriers (tight capital markets, capital spending reductions, delay of network deployments, forthcoming bankruptcies), we trimmed our exposure to the networking/communications sector. With regard to Cisco Systems and JDS Uniphase, we decided to exit these positions and re-visit these names later as revenue and earnings visibility becomes more transparent. We recently increased our Nokia position in the Fund. In our opinion, Nokia's handset business continues to benefit from market share gains at the expense of competitors (such as Motorola and Ericsson) who 28 continue to execute poorly on the manufacturing front. Similar to Dell Computer, Nokia simply manufactures its products much more quickly and at much lower cost than its competitors, allowing the company to simultaneously preserve attractive profit margins and gain market share. Growth in the handset market overall has temporarily stalled in the face of a slowing global economy and the lack of a compelling reason to upgrade. However, we believe the construction of wireless networks that accommodate high-speed data transmissions (2.5G and 3G networks) will drive a strong replacement cycle that should re-ignite unit growth. We believe Nokia's ability to gain market share during the current downturn will serve it well as this replacement cycle unfolds. As a leading provider of wireless infrastructure equipment, Nokia will also benefit from the construction of wireless networks in front of this replacement cycle. At approximately 30x EPS estimates, we believe now is the time for long-term investors to aggressively accumulate Nokia shares. In addition, we recently purchased Qualcomm for the Fund. We believe Qualcomm's long-term revenue opportunities in CDMA chipsets for next generation wireless handsets and base stations are substantially greater than is reflected in the current stock price. Many large wireless carriers and handset manufacturers have adopted Qualcomm's standard design, and royalty revenues associated with these arrangements should help generate strong growth for several years to come. On a P/E basis, Qualcomm is not a cheap stock in the absolute sense. However, we believe the company's growth opportunity and operating model (high margin royalty revenue streams are the dominant earnings driver) make the stock a relative bargain for long term investors. The Internet area did not perform as well as we would have liked. One name that we eliminated from the Fund was Verisign. We believed there was substantial risk of negative structural changes to the company's Internet registration business (to be mandated by the Internet Corp. for Assigned Names and Numbers [ICANN]). At current valuation levels, we believe there is further risk to Verisign's stock price if any negative fundamental developments emerge. Another Internet name we exited from was OpenWave. The primary driver behind this transaction was our belief that deployment of mobile data services by wireless communications carriers is likely to be significantly delayed due to a slowing economy and consequent declines in wireless subscriber growth rates. We will revisit the stock once we believe the valuation fully reflects these conditions, as we remain confident that OpenWave will take a significant share of the market for wireless data infrastructure software once this segment resumes a normal growth trajectory. During this past six-month period, we added to our position in AOL Time Warner in the Fund. AOL Time Warner finally received the blessing of federal regulators. The company has announced stepped up efforts to cut costs and to cross-market products to its subscribers. We think the value of this global media franchise remains woefully underestimated by investors. AOL's powerful brand has demonstrated strong pricing power in its online services business, and the company's media divisions should benefit greatly from a cyclical upturn in the general economy. We also added DoubleClick to our Internet industry weighting. In our opinion, the fundamental outlook for DoubleClick is likely to improve substantially by the end of 2001 as the Internet ad spending environment gradually recovers. The Internet ad delivery market is often said to be composed of "AOL, Yahoo!, Microsoft, and everyone else". DoubleClick represents "everyone else" and claims nearly half of the Fortune 500 as customers. With lowered expectations, a strong management team, a healthy balance sheet, and a highly profitable economic model, we believe the current stock price levels represent attractive entry points for long-term investors. The semiconductor sector did not perform well since our last update. Our major semiconductor holding here, Intersil, contributed negatively. In the case of PMC-Sierra, we sold this holding as there was no apparent near-term valuation floor based on traditional Price/Book and Price/Cash metrics. With year-over-year growth potentially turning negative, we believe significant risk remains in the stock if the macroeconomic climate does not improve in the very near term. The company is also heavily exposed to the worsening fundamentals in the telecommunications industry. 29 Overall, we have added to our exposure in the semiconductor space. For example, we established positions in Adaptec and Chartered Semiconductor. Adaptec is a leading supplier of low-end storage components for small and mid-sized local area networks. The company's traditional Small Computer Systems Interface (SCSI) business can be characterized as a slow growing cash flow generator. Key future growth drivers include Fibre Channel Host Bus Adapter (HBA) products, where the company will compete with Emulex and QLogic. Adaptec has a significant market share opportunity as the industry makes the transition to a higher transport speed (from 1 gigabit to 2 gigabit). Another likely catalyst is the spin-off of the company's Roxio CD Read/Write software unit, which we expect to occur some time in the June quarter. Finally, the company has a very healthy balance sheet with approximately $6.25 per share in cash as of December 31, 2000. The company has a very experienced management team, and we fully expect them to exploit this healthy capital position through the current downturn. Chartered Semiconductor is a leading semiconductor foundry; as such, its core business is manufacturing chips for companies that do not choose to build and operate their own semiconductor manufacturing facilities. The firm's primary industry focus is telecommunications-related semiconductors, and top customers include Agere Systems, Agilent, Broadcom, Conexant, Intel, and PMC-Sierra. Although Chartered Semiconductor's business remains weak in the near term, we believe orders and factory utilization rates will bottom in the next three-to-six months. With Chartered Semiconductor trading at less than 6x trailing operating cash flow (as approximated by EBITDA), we believe the stock offers a very attractive risk/reward profile at current levels. We also added to our position in Intersil. This firm is a leading semiconductor company with solid businesses in analog/mixed signal components (focused on communications end markets) and discrete power management products (focused on PCs, mobile phones, and other handheld devices). Intersil's industry-leading PRISM chipset for wireless networking represents the greatest upside potential for the company. With PRISM, Intersil has become the leading supplier of chipsets that support Wireless Local Area Networking (WLAN) applications. Key Intersil customers include Cisco, Compaq, Dell, Intel, Nokia, and Siemens. We believe WLAN technology will proliferate dramatically over the next 2-3 years. With its industry-leading product portfolio, Intersil has the potential to dominate this market from a semiconductor perspective. We believe accelerating growth in Intersil's potential WLAN market opportunity would more than offset the company's exposure to a potentially maturing semiconductor cycle. The business services area was the sole positive performing sub-sector for the Fund over the past six months. The majority of the solid performance came from one holding, Sabre Group. Sabre's primary business is distributing travel reservations and travel-related information electronically. Using Sabre's computer reservation system, travel agencies, corporate travel departments, and individual subscribers can access information about and book reservations with airlines and other providers of travel services. Sabre is the clear leader in this business with a global market share in excess of 40%. We believe Sabre is attractively valued, trading at less than 9X 2001 cash flow and 17X 2001 EPS. In our view, Sabre's management is capable of integrating GetThere (an Internet marketplace company focused on business-to-business travel services) with the rest of its operations. Once the acquisition is completed, we believe Sabre is capable of meeting or exceeding its revenue and earnings-per-share growth targets. In addition to Sabre, we have built positions in EDS and Computer Sciences in the computer services space. We believe both offer attractive valuations and good prospects for continued revenue, earnings, and cash flow growth. Outlook The Fund's recent shift toward a more aggressive investment posture - including a migration toward selected mid-cap technology stocks and away from some large-cap technology holdings - is reflective of our belief in an eventual healthy fundamental recovery in the technology sector. 30 Nonetheless, there is no question that the technology sector faces substantially reduced expectations and earnings performance in the near term. In our view, now is the time to be optimistic when the consensus is on the other side of the boat. It is our belief that Wall Street's 2002 earnings estimates for many technology companies have been reduced too far, especially given the increasingly critical role technology will play in enhancing the productivity and growth of the global economy. With cuts in interest rates by the Federal Reserve (2.5% thus far in 2001), the passage of a stimulative tax package in Congress, an increasingly accommodative European central bank, a coming end to the inventory correction in many technology product markets, and an anticipated resumption of normal IT spending patterns by corporations, we believe the current downturn in the technology space will correct itself in due time like many spending pauses of the past. Subsequently, we expect a return to more reasonable earnings estimates and valuation levels that more appropriately reflect the attractive growth prospects of some (but not all) industries within the technology sector. With this in mind, we remain as committed as ever to selecting those securities we believe have the best potential for capital appreciation over the intermediate and longer term. Sincerely, /s/ DUANE A. EATHERLY Duane A. Eatherly, CFA Eagle Asset Management, Inc. Portfolio Manager, Technology Fund 31 -------------------------------------------------------------------------------- Heritage Series Trust - Technology Fund Investment Portfolio April 30, 2001 (unaudited) --------------------------------------------------------------------------------
Market Shares Value ------ ----- Common Stocks--99.7%(a) ----------------------- Analog Semiconductors -- 3.6% ----------------------------- 20,000 Cirrus Logic, Inc.* .................... $ 325,200 20,000 Maxim Integrated Products* ............. 1,022,000 10,000 Microtune, Inc.* ....................... 120,500 86,100 Virata Corporation* .................... 1,170,960 ---------- 2,638,660 ---------- Broadcasting -- 0.7% -------------------- 10,000 Charter Communications, Inc., Class "A"* ............................ 214,100 5,000 Clear Channel Communications, Inc.* ................................. 279,000 ---------- 493,100 ---------- Commercial Services -- 0.8% --------------------------- 20,000 Plexus Corporation* .................... 614,400 ---------- Communication Semiconductors -- 4.8% ------------------------------------ 45,000 ANADIGICS, Inc.* ....................... 798,750 54,500 Broadcom Corporation, Class "A" ........ 2,265,020 40,000 Conexant Systems Inc.* ................. 430,000 ---------- 3,493,770 ---------- Computers -- 18.4% ------------------ 15,500 Apple Computer, Inc. ................... 395,095 75,000 Brocade Communications Systems Inc.* ......................... 2,849,250 15,000 Computer Sciences Corporation*.......... 534,450 20,000 Electronic Data Systems Corporation ........................... 1,290,000 60,000 EMC Corporation ........................ 2,376,000 40,000 Gateway Inc* ........................... 760,000 24,500 International Business Machines Corporation ........................... 2,820,930 125,000 Palm, Inc.* ............................ 1,001,250 52,500 Sandisk Corporation* ................... 1,410,150 ---------- 13,437,125 ---------- Electrical Components & Equipment -- 0.8% ----------------------------------------- 40,000 American Power Conversion Corporation* .......................... 566,000 ---------- Electronics -- 2.5% ------------------- 15,000 Celestica, Inc.* ....................... 766,500 25,000 Jabil Circuit, Inc.* ................... 726,000 10,000 Orbotech Ltd. .......................... 344,400 ---------- 1,836,900 ----------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Financial Services -- 0.6% -------------------------- 50,000 E*TRADE Group, Inc.* ................... 470,000 ---------- Internet -- 11.0% ----------------- 95,000 CNET Networks, Inc.* ................... 1,165,650 125,000 DoubleClick Inc.* ...................... 1,542,500 111,800 E.piphany, Inc.* ....................... 1,015,144 100,000 RealNetworks, Inc.* .................... 920,000 35,000 Symantec Corporation* .................. 2,268,350 170,000 Vignette Corporation* .................. 1,139,000 ---------- 8,050,644 ---------- Leisure Time -- 4.9% -------------------- 70,400 Sabre Holdings Corporation* ............ 3,510,144 ---------- Logic Semiconductors -- 4.7% ---------------------------- 82,500 Intersil Holding Corporation* .......... 2,659,800 20,000 Texas Instruments Inc. ................. 774,000 ---------- 3,433,800 ---------- Memory & Commodity Semiconductors -- 6.4% ----------------------------------------- 90,000 Chartered Semiconductor, Sponsored ADR* ........................ 2,879,100 20,000 Cypress Semiconductor Corporation* ..... 452,000 27,500 Fairchild Semiconductor International Inc., Class "A"* ........ 497,750 15,000 International Rectifier Corporation* ... 832,500 ---------- 4,661,350 ---------- Multimedia -- 7.3% ------------------ 105,000 AOL Time Warner Inc.* .................. 5,302,500 ---------- Semiconductor Equipment -- 7.3% ------------------------------- 17,500 Applied Materials Inc.* ................ 955,500 10,000 Axcelis Technologies, Inc.* ............ 150,100 15,000 KLA-Tencor Corporation* ................ 824,400 35,000 Lam Research Corporation* .............. 1,036,000 45,000 Mattson Technology Inc.* ............... 790,650 90,000 Therma-Wave, Inc.* ..................... 1,523,700 ---------- 5,280,350 ---------- Software -- 11.6% ----------------- 35,000 Cadence Design Systems, Inc.* .......... 724,500 30,000 Intuit, Inc.* .......................... 961,200 100,400 Microsoft Corporation* ................. 6,802,100 ---------- 8,487,800 ----------
The accompanying notes are an integral part of the financial statements. 32 -------------------------------------------------------------------------------- Heritage Series Trust - Technology Fund Investment Portfolio April 30, 2001 (unaudited) (continued) --------------------------------------------------------------------------------
Market Shares Value ------ ----- Common Stocks (continued) ------------------------- Telecommunications -- 14.3% --------------------------- 173,400 Adaptec, Inc.* ......................... $ 1,949,016 45,000 ADTRAN, Inc.* .......................... 1,230,750 77,000 Cabletron Systems, Inc.* ............... 1,207,360 30,000 Foundry Networks, Inc.* ................ 445,500 105,000 Nokia Corporation, Sponsored ADR, Class "A" ........................ 3,589,950 35,000 QUALCOMM, Inc.* ........................ 2,007,600 ---------- 10,430,176 ---------- Total Common Stocks (cost $62,943,381).................................... 72,706,719 ---------- Put Options -- 0.5% (a)* ------------------------ 15,000 GSTI Multimed Network Index, May 2001 @ $200........................ 165,000 15,000 GSTI Software Index, May 2001 @ $200 ... 73,500 7,500 Philadelphia Semiconductor Index, May 2001 @ $600 ................ 123,750 ---------- 362,250 ---------- Total Put Options (cost $618,125) ..................... 362,250 ---------- Total Investment Portfolio excluding repurchase agreement (cost $63,561,506)............... 73,068,969 ---------- Repurchase Agreement -- 0.9%(a) ------------------------------- Repurchase Agreement with State Street Bank and Trust Company, dated April 30, 2001 @ 4.42% to be repurchased at $677,083 on May 1, 2001, collateralized by $610,000 United States Treasury Bonds, 6.87% due August 15, 2025 (market value $692,154 including interest) (cost $677,000)........................................ 677,000 ---------- Total Investment Portfolio (cost $64,238,506) (b), 101.1% (a)................... 73,745,969 Other Assets and Liabilities, net, (1.1%) (a) ......... (791,984) ---------- Net Assets, 100.0% .................................... $72,953,985 ===========
---------------------- * Non-income producing security. (a) Percentages indicated are based on net assets. (b) The aggregate identified cost for federal income tax purposes is $79,808,808. Market value includes net unrealized depreciation of $6,062,839 which consists of aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost of $5,982,986 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value of $12,045,825. ADR -- American Depository Receipt The accompanying notes are an integral part of the financial statements. 33 May 18, 2001 Dear Fellow Shareholders: In just one year's time, $5 trillion dollars of shareholder wealth - money that might easily have been used to pay for new homes, new cars or children's education - has been obliterated. This represents an enormous sum of money considering that the value of the entire stock market in 1980 was only roughly $1 trillion or one fifth of the recent loss of wealth. Although the stock market has been swift and severe in punishing those investors who brazenly ignored its past lessons about overspeculation, we have been fortunate to have thus far escaped its wrath having achieved solid positive returns for our clients in the same one-year downward spiral of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"). We are very pleased to report that the Value Equity Fund's (the "Fund") Class A shares outperformed the indexes by a wide margin. Its performance for the six-month and latest twelve-month periods ended April 30, 2001 was +7.43%* and +15.13%*, respectively. This compares to returns of -0.14% and +6.42% for the Russell 1000 Value Index for the same periods. The S&P 500 declined -12.07% and -12.98% while the Dow Jones Industrial Average declined -1.31% and gained 1.7% for the comparable periods. All told, our Fund outperformed the popular stock market averages during this very difficult period. Large-Cap Equity Review Our above-index performance over the past six months was the result of good relative performance in several sectors such as consumer durables, energy, finance and retailers, in addition to avoiding several poorly performing groups such as health services and health technology. We continued to increase our exposure to financials in the past quarter with the addition of MBNA, a leading credit card company that we believe is the gold standard in underwriting, based on the creditworthiness of its loan portfolio. Also purchased was American General, a diversified financial company with strong positions in annuity sales and life insurance. Apparently, we were not the only ones to recognize the underlying value of this company since it is now the subject of a bidding war between AIG and Prudential Insurance of the UK. In addition, we recently purchased Mellon Financial, a leading bank in Pennsylvania that generates over 65% of its income from fee-based businesses, including asset management, and is selling at an unusually large discount to the market and its banking industry peer group. Energy stocks have been extremely volatile in the past quarter, fluctuating with the prices of oil and gas. We currently own both Phillips Petroleum and Tosco, (which is being purchased by Phillips). We think the deal is a plus for both companies. It will add Tosco's excellent management team to the combined refining operations of the two companies. Baker Hughes, an oil and gas drilling services company, was sold after recording a large gain and replaced with Transocean Sedco, a leading drilling company. Recent reports by most international energy companies point towards significant increases in exploration and production budgets which we believe will have a huge impact on the earnings of the drillers. Several stocks reached our price targets and were sold this past quarter. They include Computer Associates, Lexmark, and Staples. In addition we sold several stocks whose fundamentals did not meet our expectations: Dana, an auto parts supplier, continues to have operating problems; and Millennium Chemicals has restructuring issues that we do not believe will be resolved quickly. We recently sold Sherwin-Williams stock when it became a defendant in a lawsuit filed by the State of Rhode Island based on the hazards of paint containing lead and the costs for removal. ---------------- * Calculated without the imposition of front-end or contingent deferred sales charges. Please see the initial letter by Richard K. Riess for a full statement of returns. 34 We added several other new positions this quarter based upon attractive fundamentals and depressed prices. Clear Channel, the largest radio station and outdoor advertising company, was selling at a very low price/book and a relatively attractive price/earnings multiple based on its 'cash earnings' and potential earnings growth. Boeing, one of the leading defense contractors and the leading passenger jet manufacturer, should benefit from the likelihood that the Bush administration will be increasing defense expenditures over the next several years. In addition, we purchased Constellation Energy Group, a Baltimore based utility that is planning to spin off its non-regulated operations later this year. Also, we purchased TJX Companies, the world's largest retailer of off-priced soft goods. We believe that the slowdown in the economy should drive consumers to lower-priced goods and TJX's purchasing expertise should be enhanced by a slowdown at traditional retailers and a subsequent inventory buildup. The slaughter of most technology stocks over the past year has brought a number of these companies into our radar screen. We recently purchased Corning, a major participant in the fiber optic and optical cable industry. Investors are shunning anything to do with telecommunications manufacturing, but we believe that the long-term outlook for this industry will be quite good once the current consolidation and fallout has been completed. And we believe that strong companies such as Corning typically use these rough periods to improve their product lines and competitive position. As we pointed out in our last report, we continue to expect several quarters of difficult earnings comparisons. However, we are focusing on the latter part of this year when we believe the economy and earnings will begin to recover and comparisons will be easier. We will continue to fine tune the portfolio in the months ahead as we look for signs that the economy has bottomed and that we should take a more aggressive tack. We trust that our fellow shareholders are pleased with the results of the Fund over the past year as we continue to follow our strict investment process and discipline. The portfolio, in our opinion, is well-positioned to take advantage of the market recovery that we envision as an economic recovery begins to take shape. Plus, we continue to research new investment opportunities to enhance future performance. Sincerely, Sincerely, /s/ JEROME D. FISCHER /s/ RUSSELL S. TOMPKINS Jerome D. Fischer Russell S. Tompkins Managing Partner Managing Partner Director of Equity Research Chief Operating Officer Osprey Partners Investment Osprey Partners Investment Management, LLC Management, LLC Portfolio Manager, Value Equity Fund Portfolio Manager, Value Equity Fund 35 -------------------------------------------------------------------------------- Heritage Series Trust - Value Equity Fund Investment Portfolio April 30, 2001 (unaudited) --------------------------------------------------------------------------------
Market Shares Value ------ ----- Common Stocks--93.5%(a) ----------------------- Aerospace/Defense -- 2.0% ------------------------- 10,300 Boeing Company ......................... $ 636,540 ---------- Auto Manufacturers -- 1.9% -------------------------- 20,600 Ford Motor Company ..................... 607,288 ---------- Banks -- 11.7% -------------- 16,500 FleetBoston Financial Corporation ...... 633,105 15,200 Mellon Financial Corporation ........... 622,136 22,900 National City Corporation .............. 623,109 20,700 Regions Financial Corporation........... 630,315 16,400 Union Planters Corporation ............. 623,364 13,300 Wells Fargo & Company .................. 624,701 ---------- 3,756,730 ---------- Broadcasting -- 1.9% -------------------- 10,700 Clear Channel Communications, Inc.* ................. 597,060 ---------- Chemicals -- 3.9% ----------------- 14,000 E.I. du Pont de Nemours & Company ...... 632,660 17,700 Rohm & Haas Company .................... 608,349 --------- 1,241,009 ---------- Computers -- 5.3% ----------------- 23,400 Compaq Computer Corporation ............ 409,500 20,200 Hewlett-Packard Company ................ 574,286 15,400 NCR Corporation* ....................... 723,954 ---------- 1,707,740 ---------- Cosmetics/Personal Care -- 2.0% ------------------------------- 10,700 Kimberly-Clark Corporation ............. 635,580 ---------- Distribution/Wholesale -- 0.9% ------------------------------ 11,200 Genuine Parts Company .................. 302,400 ---------- Electric -- 4.4% ---------------- 14,700 Constellation Energy Group, Inc. ....... 701,778 16,100 TXU Corporation ........................ 707,756 ---------- 1,409,534 ---------- Electronics -- 6.3% ------------------- 25,600 Arrow Electronics Inc. ................. 716,800 21,200 Koninklijke Philips Electronics N.V. ... 652,960 14,300 Parker Hannifin Corporation ............ 666,666 ---------- 2,036,426 ----------
Market Shares Value ------ ------ Common Stocks (continued) ------------------------- Financial Services -- 10.7% --------------------------- 19,500 Citigroup Inc. ......................... 958,425 9,900 Freddie Mac ............................ 651,420 19,000 MBNA Corporation ....................... 677,350 10,400 Merrill Lynch & Company, Inc. .......... 641,680 8,400 Morgan Stanley Dean Witter & Company ... 527,436 ---------- 3,456,311 ---------- Food -- 3.2% ------------ 31,500 ConAgra Foods, Inc. .................... 655,515 20,000 Sensient Technologies Corporation ...... 360,000 ---------- 1,015,515 ---------- Housewares -- 2.3% ------------------ 27,000 Newell Rubbermaid Inc. ................. 727,920 ---------- Insurance -- 2.2% ----------------- 16,500 American General Corporation ........... 719,565 ---------- Machinery -- 2.0% ----------------- 16,000 Deere & Company ........................ 657,120 ---------- Mining -- 4.1% -------------- 15,600 Alcoa Inc. ............................. 645,840 8,300 Rio Tinto PLC, Sponsored ADR ........... 670,640 ---------- 1,316,480 ---------- Oil & Gas -- 11.0% ------------------ 5,500 Chevron Corporation .................... 531,080 22,340 Conoco Inc., Class "B" ................. 679,583 8,200 Phillips Petroleum Company ............. 488,720 21,000 Tosco Corporation ...................... 967,050 16,800 Transocean Sedco Forex Inc. ............ 911,904 ---------- 3,578,337 ---------- Pipelines -- 0.2% ----------------- 13,734 Williams Communications Group* ......... 62,078 ---------- Retail -- 4.0% ------------- 22,500 McDonald's Corporation ................. 618,750 21,000 TJX Companies, Inc. .................... 657,930 ---------- 1,276,680 ----------
The accompanying notes are an integral part of the financial statements. 36 -------------------------------------------------------------------------------- Heritage Series Trust - Value Equity Fund Investment Portfolio April 30, 2001 (unaudited) (continued) --------------------------------------------------------------------------------
Market Shares Value ------ ----- Telecommunications -- 11.4% --------------------------- 15,600 BellSouth Corporation ........... $ 654,576 ---------- 31,000 Cable & Wireless PLC, Sponsored ADR .... 680,450 14,100 Corning, Inc. ................... 309,777 16,200 SBC Communications, Inc. ........ 668,250 11,848 Verizon Communications Inc....... 652,469 16,700 Williams Companies, Inc. ........ 704,239 ---------- 3,669,761 ---------- Transportation -- 2.1% ---------------------- 22,100 CNF, Inc. .............................. 677,586 ---------- Total Common Stocks (cost $27,751,516)................. 30,087,660 ---------- Repurchase Agreement--8.0%(a) ----------------------------- Repurchase Agreement with State Street Bank and Trust Company, dated April 30, 2001 @ 4.42% to be repurchased at $2,564,315 on May 1, 2001, collateralized by $2,305,000 United States Treasury Bonds, 6.875% due August 15, 2025, (market value $2,616,515 including interest) (cost $2,564,000)............................................ 2,564,000 ---------- Total Investment Portfolio (cost $30,315,516) (b), 101.5% (a).................... 32,651,660 Other Assets and Liabilities, net, (1.5%) (a).......... (498,022) ---------- Net Assets, 100.0% .................................... $32,153,638 ==========
---------------------- * Non-income producing security. (a) Percentages indicated are based on net assets. (b) The aggregate identified cost for federal income tax purposes is substantially the same. Market value includes net unrealized appreciation of $2,336,144, which consists of aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost of $3,151,534 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value of $815,390. ADR -- American Depository Receipt The accompanying notes are an integral part of the financial statements. 37 -------------------------------------------------------------------------------- Heritage Series Trust Statements of Assets and Liabilities April 30, 2001 (unaudited) --------------------------------------------------------------------------------
Aggressive Growth Fund ---------------- Assets ------ Investments, at market value (identified cost $79,429,509, $34,238,815, $239,295,163 and $42,400,346, respectively) (Note 1) ...... $ 88,520,701 Repurchase agreement, at market value (identified cost is the same as market value) (Note 1) ................................................. 10,863,000 Cash .................................................................... 13 Foreign Currency (Cost $75,275) ......................................... -- Receivables: Investments sold ....................................................... 1,874,912 Fund shares sold ....................................................... 262,587 Dividends and interest ................................................. 6,584 Foreign taxes recoverable .............................................. -- Deferred organization expenses (Note 1) ................................. -- Deferred state qualification expenses (Note 1) .......................... 11,752 Prepaid insurance ....................................................... 2,846 ------------ Total assets ........................................................ $101,542,395 ============ Liabilities ----------- Payables (Note 4): Investments purchased .................................................. $ 3,785,484 Fund shares redeemed ................................................... 117,693 Accrued management fee .................................................. 66,121 Accrued distribution fees ............................................... 49,161 Accrued shareholder servicing fee (Note 4) .............................. 32,400 Accrued fund accounting fee (Note 4) .................................... 18,000 Unrealized depreciation of forward currency contracts ................... -- Other accrued expenses .................................................. 24,725 ------------ Total liabilities ................................................... $ 4,093,584 ------------ Net assets, at market value ............................................. $ 97,448,811 ============ Net Assets ---------- Net assets consist of: Paid-in capital (Note 5) ............................................... $ 96,140,898 Undistributed net investment loss (Notes 1 and 5) ...................... (352,192) Accumulated net realized gain (loss) (Notes 1 and 5) ................... (7,431,087) Net unrealized appreciation (depreciation) on investments and other assets and liabilities denominated in foreign currencies .............. 9,091,192 ------------ Net assets, at market value ............................................. $ 97,448,811 ============ Net assets, at market value Class A Shares ......................................................... $ 44,105,109 Class B Shares ......................................................... 17,087,496 Class C Shares ......................................................... 36,256,206 Eagle Shares ........................................................... -- ------------ Total ............................................................... $ 97,448,811 ============ Shares of beneficial interest outstanding Class A Shares ......................................................... 2,139,532 Class B Shares ......................................................... 849,287 Class C Shares ......................................................... 1,801,876 Eagle Shares ........................................................... -- ------------ Total ............................................................... 4,790,695 ============ Net Asset Value -- offering and redemption price per share (Notes 1 and 2) Class A Shares ......................................... $ 20.61 ============ Maximum offering price per share (100/95.25 of $20.61, $21.58, $32.77 and $19.79)..................................................... $ 21.64 ============ Class B Shares ......................................................... $ 20.12 ============ Class C Shares ......................................................... $ 20.12 ============ Eagle Shares ........................................................... Eagle International Growth Mid Cap Equity Equity Stock Portfolio Fund Fund -------------- --------------- -------------- Assets ------ Investments, at market value (identified cost $79,429,509, $34,238,815, $239,295,163 and $42,400,346, respectively) (Note 1) ...... $33,710,974 $ 261,687,701 $49,237,285 Repurchase agreement, at market value (identified cost is the same as market value) (Note 1) ................................................. 1,022,000 8,241,000 3,437,000 Cash .................................................................... 47 663 575 Foreign Currency (Cost $75,275) ......................................... 75,275 -- -- Receivables: Investments sold ....................................................... 3,992,412 10,051,185 1,236,235 Fund shares sold ....................................................... 125,708 863,152 624,668 Dividends and interest ................................................. 63,951 54,939 4,921 Foreign taxes recoverable .............................................. 39,034 -- -- Deferred organization expenses (Note 1) ................................. -- -- 7,754 Deferred state qualification expenses (Note 1) .......................... 24,135 10,865 14,134 Prepaid insurance ....................................................... 1,601 4,269 2,134 ----------- ------------- ----------- Total assets ........................................................ $39,055,137 $ 280,913,774 $54,564,706 =========== ============= =========== Liabilities ----------- Payables (Note 4): Investments purchased .................................................. $ 3,307,572 $ 16,655,993 $ 1,674,381 Fund shares redeemed ................................................... 251,978 1,008,964 150,815 Accrued management fee .................................................. 48,444 151,692 21,797 Accrued distribution fees ............................................... 23,567 139,995 22,294 Accrued shareholder servicing fee (Note 4) .............................. 12,945 90,051 17,000 Accrued fund accounting fee (Note 4) .................................... 9,500 18,400 15,200 Unrealized depreciation of forward currency contracts ................... 29,706 -- -- Other accrued expenses .................................................. 20,419 42,852 21,880 ----------- ------------- ----------- Total liabilities ................................................... $ 3,704,131 $ 18,107,947 $ 1,923,367 ----------- ------------- ----------- Net assets, at market value ............................................. $35,351,006 $ 262,805,827 $52,641,339 =========== ============= =========== Net Assets ---------- Net assets consist of: Paid-in capital (Note 5) ............................................... $36,608,456 $ 297,485,333 $43,994,271 Undistributed net investment loss (Notes 1 and 5) ...................... (342,828) (1,269,224) (281,723) Accumulated net realized gain (loss) (Notes 1 and 5) ................... (352,986) (55,802,820) 2,091,852 Net unrealized appreciation (depreciation) on investments and other assets and liabilities denominated in foreign currencies .............. (561,636) 22,392,538 6,836,939 ----------- ------------- ----------- Net assets, at market value ............................................. $35,351,006 $ 262,805,827 $52,641,339 =========== ============= =========== Net assets, at market value Class A Shares ......................................................... $ 7,718,852 $ 107,974,556 $30,477,210 Class B Shares ......................................................... 662,976 39,493,134 5,883,989 Class C Shares ......................................................... 6,945,044 115,338,137 16,280,140 Eagle Shares ........................................................... 20,024,134 -- -- ----------- ------------- ----------- Total ............................................................... $35,351,006 $ 262,805,827 $52,641,339 =========== ============= =========== Shares of beneficial interest outstanding Class A Shares ......................................................... 357,612 3,295,233 1,539,661 Class B Shares ......................................................... 31,999 1,272,631 306,904 Class C Shares ......................................................... 335,257 3,717,803 848,997 Eagle Shares ........................................................... 956,222 -- -- ----------- ------------- ----------- Total ............................................................... 1,681,090 8,285,667 2,695,562 =========== ============= =========== Net Asset Value -- offering and redemption price per share (Notes 1 and 2) Class A Shares ......................................... $ 21.58 $ 32.77 $ 19.79 =========== ============= =========== Maximum offering price per share (100/95.25 of $20.61, $21.58, $32.77 and $19.79)..................................................... $ 22.66 $ 34.40 $ 20.78 =========== ============= =========== Class B Shares ......................................................... $ 20.72 $ 31.03 $ 19.17 =========== ============= =========== Class C Shares ......................................................... $ 20.72 $ 31.02 $ 19.18 =========== ============= =========== Eagle Shares ........................................................... $ 20.94 ===========
The accompanying notes are an integral part of the financial statements. 38 -------------------------------------------------------------------------------- Heritage Series Trust Statements of Assets and Liabilities April 30, 2001 (unaudited) (continued) --------------------------------------------------------------------------------
Small Cap Value Stock Technology Equity Fund Fund Fund --------------- ---------------- -------------- Assets ------ Investments, at market value (identified cost $130,847,320, $63,561,506 and $27,751,516, respectively) (Note 1) ...................................... $148,346,789 $ 73,068,969 $30,087,660 Repurchase agreement, at market value (identified cost is the same as market value) (Note 1) ................................................... 12,522,000 677,000 2,564,000 Cash ...................................................................... 549 951 11 Receivables: Investments sold ......................................................... 3,386,284 3,772,084 -- Fund shares sold ......................................................... 57,383 88,324 198,658 Dividends and interest ................................................... 29,331 699 42,591 Deferred state qualification expenses (Note 1) ............................ 25,044 17,215 15,870 Prepaid insurance ......................................................... 4,269 2,846 2,134 ------------ ------------- ----------- Total assets .......................................................... $164,371,649 $ 77,628,088 $32,910,924 ============ ============= =========== Liabilities ----------- Payables (Note 4): Investments purchased .................................................... $ 714,556 $ 4,402,313 $ 645,251 Fund shares redeemed ..................................................... 371,270 104,395 31,101 Accrued management fee .................................................... 105,395 39,559 21,640 Accrued distribution fees ................................................. 66,549 33,550 15,954 Accrued shareholder servicing fee (Note 4) ................................ 51,200 49,200 11,000 Accrued fund accounting fee (Note 4) ...................................... 18,359 17,600 14,400 Other accrued expenses .................................................... 24,014 27,486 17,940 ------------ ------------- ----------- Total liabilities ..................................................... $ 1,351,343 $ 4,674,103 $ 757,286 ------------ ------------- ----------- Net assets, at market value ............................................... $163,020,306 $ 72,953,985 $32,153,638 ============ ============= =========== Net Assets ---------- Net assets consist of: Paid-in capital (Note 5) ................................................. $135,240,239 $ 127,777,806 $28,889,189 Undistributed net investment loss (Notes 1 and 5) ........................ (473,375) (679,254) (14,124) Accumulated net realized gain (loss) (Notes 1 and 5) ......................................................... 10,753,973 (63,652,030) 942,429 Net unrealized appreciation on investments ............................... 17,499,469 9,507,463 2,336,144 ------------ ------------- ----------- Net assets, at market value ............................................... $163,020,306 $ 72,953,985 $32,153,638 ============ ============= =========== Net assets, at market value Class A Shares ........................................................... $103,317,111 $ 35,923,271 $15,310,809 Class B Shares ........................................................... 10,372,526 14,034,161 2,099,895 Class C Shares ........................................................... 49,330,669 22,996,553 14,742,934 ------------ ------------- ----------- Total ................................................................. $163,020,306 $ 72,953,985 $32,153,638 ============ ============= =========== Shares of beneficial interest outstanding Class A Shares ........................................................... 3,929,184 3,825,988 741,800 Class B Shares ........................................................... 415,205 1,511,735 103,124 Class C Shares ........................................................... 1,973,711 2,476,858 724,090 ------------ ------------- ----------- Total ................................................................. 6,318,100 7,814,581 1,569,014 ============ ============= =========== Net Asset Value -- offering and redemption price per share (Notes 1 and 2) Class A Shares ........................................... $ 26.29 $ 9.39 $ 20.64 ============ ============= =========== Maximum offering price per share (100/95.25 of $26.29, $9.39 and $20.64).................................................................. $ 27.60 $ 9.86 $ 21.67 ============ ============= =========== Class B Shares ........................................................... $ 24.98 $ 9.28 $ 20.36 ============ ============= =========== Class C Shares ........................................................... $ 24.99 $ 9.28 $ 20.36 ============ ============= ===========
The accompanying notes are an integral part of the financial statements. 39 -------------------------------------------------------------------------------- Heritage Series Trust Statements of Operations For the Six-Month Period Ended April 30, 2001 (unaudited) --------------------------------------------------------------------------------
Eagle Aggressive International Growth Growth Equity Equity Fund Portfolio Fund ----------------- ----------------- ----------------- Investment Income ----------------- Income: Dividends .............................. $ 180,174 $ 165,931(a) $ 686,480 Interest ............................... 347,173 23,786 289,480 ------------- ----------- ------------- Total income ........................ 527,347 189,717 975,960 Expenses (Notes 1 and 4): Management fee ......................... 421,095 191,952 1,025,705 Distribution fee (Class A Shares) ...... 54,821 9,146 140,550 Distribution fee (Class B Shares) ...... 85,052 3,486 200,078 Distribution fee (Class C Shares) ...... 174,475 36,574 605,330 Distribution fee (Eagle Shares) ........ -- 115,310 -- Shareholder servicing fees ............. 35,328 -- 116,669 Shareholder servicing fees (Class A Shares) ...................... -- 4,756 -- Shareholder servicing fees (Class B Shares) ...................... -- 453 -- Shareholder servicing fees (Class C Shares) ...................... -- 4,755 -- Shareholder servicing fees (Eagle Shares) ........................ -- 1,153 -- Custodian fee .......................... 14,759 68,376(b) 28,586 Fund accounting fee (Note 4) ........... 27,212 --(b) 27,520 Professional fees ...................... 19,970 22,022 21,847 Amortization of state qualification expenses .............................. 25,238 25,933 35,502 Federal registration expenses .......... 4,374 -- 15,718 Organization expenses .................. -- -- -- Reports to shareholders ................ 9,673 18,145 18,709 Trustees' fees and expenses ............ 5,605 3,105 5,605 Other .................................. 1,937 1,088 3,365 ------------- ----------- ------------- Total expenses before waiver......... 879,539 506,254 2,245,184 Fees waived by Manager (Note 4) .......................... -- (38,855) -- ------------- ----------- ------------- Total expenses after waiver ......... 879,539 467,399 2,245,184 ------------- ----------- ------------- Net investment income (loss) ............ (352,192) (277,682) (1,269,224) ------------- ----------- ------------- Realized and Unrealized Gain (Loss) ----------------------------------- on Investments -------------- Net realized gain (loss) from investment transactions ................ (4,030,303) (306,890) (46,037,098) Net realized gain from covered call options written (Note 1) ............... -- -- 304,989 Net realized gain from foreign currency transactions .................. -- 149,775 -- Net unrealized appreciation (depreciation) of investments during the period ............................. (9,318,412) (5,365,597) (21,990,291) Net unrealized depreciation from foreign currency during the period ..... -- (32,851) -- ------------- ----------- ------------- Net gain (loss) on investments .......... (13,348,715) (5,555,563) (67,722,400) ------------- ----------- ------------- Net increase (decrease) in net assets resulting from operations .............. $ (13,700,907) $(5,833,245) $ (68,991,624) ============= =========== ============= Mid Cap Small Cap Value Stock Stock Technology Equity Fund Fund Fund Fund ------------- ---------------- ---------------- ------------- Investment Income ----------------- Income: Dividends .............................. $ 49,471 $ 362,835 $ 14,537 $ 299,651 Interest ............................... 67,366 423,083 164,823 47,924 ---------- -------------- ------------- ---------- Total income ........................ 116,837 785,918 179,360 347,575 Expenses (Notes 1 and 4): Management fee ......................... 160,077 661,991 420,987 103,504 Distribution fee (Class A Shares) ...... 30,781 126,907 52,552 16,866 Distribution fee (Class B Shares) ...... 23,867 50,196 80,300 6,778 Distribution fee (Class C Shares) ...... 66,444 242,183 133,161 63,765 Distribution fee (Eagle Shares) ........ -- -- -- -- Shareholder servicing fees ............. 23,468 70,569 55,494 14,591 Shareholder servicing fees (Class A Shares) ...................... -- -- -- -- Shareholder servicing fees (Class B Shares) ...................... -- -- -- -- Shareholder servicing fees (Class C Shares) ...................... -- -- -- -- Shareholder servicing fees (Eagle Shares) ........................ -- -- -- -- Custodian fee .......................... 13,748 17,099 30,321 7,529 Fund accounting fee (Note 4) ........... 22,817 27,527 26,350 21,565 Professional fees ...................... 22,735 22,664 20,495 14,889 Amortization of state qualification expenses .............................. 21,000 19,022 27,500 21,000 Federal registration expenses .......... 4,600 2,677 508 1,552 Organization expenses .................. 2,585 -- -- -- Reports to shareholders ................ 7,287 9,654 17,068 6,550 Trustees' fees and expenses ............ 5,605 5,605 5,606 5,605 Other .................................. 1,335 3,199 1,957 1,317 ---------- -------------- ------------- ---------- Total expenses before waiver......... 406,349 1,259,293 872,299 285,511 Fees waived by Manager (Note 4) .......................... (7,789) -- (13,685) (32,496) ---------- -------------- ------------- ---------- Total expenses after waiver ......... 398,560 1,259,293 858,614 253,015 ---------- -------------- ------------- ---------- Net investment income (loss) ............ (281,723) (473,375) (679,254) 94,560 ---------- -------------- ------------- ---------- Realized and Unrealized Gain (Loss) ----------------------------------- on Investments -------------- Net realized gain (loss) from investment transactions ................ 2,461,083 11,364,724 (51,586,586) 1,059,555 Net realized gain from covered call options written (Note 1) ............... -- -- -- -- Net realized gain from foreign currency transactions .................. -- -- -- -- Net unrealized appreciation (depreciation) of investments during the period ............................. 99,487 (10,048,092) (2,216,026) 785,638 Net unrealized depreciation from foreign currency during the period ..... -- -- -- -- ---------- -------------- ------------- ---------- Net gain (loss) on investments .......... 2,560,570 1,316,632 (53,802,612) 1,845,193 ---------- -------------- ------------- ---------- Net increase (decrease) in net assets resulting from operations .............. $2,278,847 $ 843,257 $ (54,481,866) $1,939,753 ========== ============== ============= ==========
---------- (a) Net of $29,642 foreign withholding taxes. (b) State Street Bank is the custodian and fund accountant for the Eagle International Equity Portfolio. The accompanying notes are an integral part of the financial statements. 40 -------------------------------------------------------------------------------- Heritage Series Trust Statements of Changes in Net Assets --------------------------------------------------------------------------------
For the Six-Month Period Ended For the April 30, 2001 Year Ended (unaudited) October 31, 2000 ------------------ ----------------- Aggressive Growth Fund ---------------------- Increase (decrease) in net assets: Operations: Net investment loss .............................................................. $ (352,192) $ (1,121,676) Net realized gain (loss) from investment transactions ............................ (4,030,303) 11,714,422 Net unrealized appreciation (depreciation) of investments during the period ...... (9,318,412) 13,699,690 ------------- ------------ Net increase (decrease) in net assets resulting from operations .................. (13,700,907) 24,292,436 Distributions to shareholders from: Net realized gains Class A Shares, ($3.53 and $2.20 per share, respectively) ..... (6,420,571) (2,919,240) Net realized gains Class B Shares, ($3.53 and $2.20 per share, respectively)...... (2,513,198) (1,121,963) Net realized gains Class C Shares, ($3.53 and $2.20 per share, respectively) ..... (5,059,533) (1,813,382) Increase in net assets from Fund share transactions (Note 2) ...................... 18,590,838 34,361,964 ------------- ------------ Increase (decrease) in net assets ................................................. (9,103,371) 52,799,815 Net assets, beginning of period ................................................... 106,552,182 53,752,367 ------------- ------------ Net assets, end of period (including accumulated net investment loss of $352,192 for the period ended April 30, 2001) ................................. $ 97,448,811 $106,552,182 ============= ============
For the Six-Month Period Ended For the April 30, 2001 Year Ended (unaudited) October 31, 2000 ------------------ ----------------- Eagle International Equity Portfolio ------------------------------------ Decrease in net assets: Operations: Net investment loss ......................................................... $ (277,682) $ (631,763) Net realized gain (loss) from investment transactions ....................... (306,890) 4,449,780 Net realized gain (loss) from foreign currency transactions ................. 149,775 (279,483) Net unrealized depreciation from foreign currrency during the period ........ (5,365,597) (4,184,164) Net unrealized appreciation (depreciation) of investments during the period . (32,851) 176,989 ------------- ------------ Net decrease in net assets resulting from operations ........................ (5,833,245) (468,641) Distributions to shareholders from: Net realized gains Class A Shares, ($2.31 and $4.44 per share, respectively). (663,491) (1,110,521) Net realized gains Class B Shares, ($2.31 and $4.44 per share, respectively). (66,547) (67,144) Net realized gains Class C Shares, ($2.31 and $4.44 per share, respectively). (701,434) (1,095,583) Net realized gains Eagle Shares, ($2.31 and $4.44 per share, respectively)... (2,255,643) (4,404,983) Increase (decrease) in net assets from Fund share transactions (Note 2) ...... (1,076,340) 5,220,312 ------------- ------------ Decrease in net assets ....................................................... (10,596,700) (1,926,560) Net assets, beginning of period .............................................. 45,947,706 47,874,266 ------------- ------------ Net assets, end of period (including accumulated net investment loss of $342,828 and $65,145, respectively) ...................................... $ 35,351,006 $ 45,947,706 ============= ============
The accompanying notes are an integral part of the financial statements. 41 -------------------------------------------------------------------------------- Heritage Series Trust Statements of Changes in Net Assets (continued) --------------------------------------------------------------------------------
For the Six-Month Period Ended For the April 30, 2001 Year Ended (unaudited) October 31, 2000 ------------------ ------------------ Growth Equity Fund ------------------ Increase (decrease) in net assets: Operations: Net investment loss .............................................................. $ (1,269,224) $ (3,087,876) Net realized gain (loss) from investment transactions ............................ (46,037,098) 49,464,565 Net realized gain from covered call options written .............................. 304,989 -- Net unrealized depreciation of investments during the period ..................... (21,990,291) (4,678,344) ------------- ------------ Net increase (decrease) in net assets resulting from operations .................. (68,991,624) 41,698,345 Distributions to shareholders from: Net realized gains Class A Shares, ($8.61 and $5.47 per share, respectively) ..... (22,458,987) (8,589,182) Net realized gains Class B Shares, ($8.61 and $5.47 per share, respectively) ..... (8,155,442) (2,275,911) Net realized gains Class C Shares, ($8.61 and $5.47 per share, respectively) ..... (25,200,057) (9,939,165) Increase in net assets from Fund share transactions (Note 2) ...................... 67,152,724 141,146,719 ------------- ------------ Increase (decrease) in net assets ................................................. (57,653,386) 162,040,806 Net assets, beginning of period ................................................... 320,459,213 158,418,407 ------------- ------------ Net assets, end of period (including accumulated net investment loss of $1,269,224 for the period ended April 30, 2001) ............................... $ 262,805,827 $320,459,213 ============= ============
For the Six-Month Period Ended For the April 30, 2001 Year Ended (unaudited) October 31, 2000 ------------------ ----------------- Mid Cap Stock Fund ------------------ Increase in net assets: Operations: Net investment loss ........................................................... $ (281,723) $ (458,220) Net realized gain from investment transactions . .............................. 2,461,083 7,368,412 Net unrealized appreciation of investments during the period .................. 99,487 3,331,490 ------------ ----------- Net increase in net assets resulting from operations .......................... 2,278,847 10,241,682 Distributions to shareholders from: Net realized gains Class A Shares, ($4.11 and $0.30 per share, respectively) .. (4,133,049) (254,362) Net realized gains Class B Shares, ($4.11 and $0.30 per share, respectively) .. (818,470) (37,315) Net realized gains Class C Shares, ($4.11 and $0.30 per share, respectively) .. (2,277,241) (146,539) Increase in net assets from Fund share transactions (Note 2) ................... 18,413,604 3,505,422 ------------ ----------- Increase in net assets ......................................................... 13,463,691 13,308,888 Net assets, beginning of period ................................................ 39,177,648 25,868,760 ------------ ----------- Net assets, end of period (including accumulated net investment loss of $281,723 for the period ended April 30, 2001) .............................. $ 52,641,339 $39,177,648 ============ ===========
The accompanying notes are an integral part of the financial statements. 42 -------------------------------------------------------------------------------- Heritage Series Trust Statements of Changes in Net Assets (continued) --------------------------------------------------------------------------------
For the Six-Month Period Ended For the April 30, 2001 Year Ended (unaudited) October 31, 2000 ------------------ ----------------- Small Cap Stock Fund -------------------- Decrease in net assets: Operations: Net investment loss ........................................................ $ (473,375) $ (1,297,449) Net realized gain from investment transactions ............................. 11,364,724 22,917,935 Net unrealized appreciation (depreciation) of investments during the period (10,048,092) 21,875,342 ------------- ------------- Net increase in net assets resulting from operations ....................... 843,257 43,495,828 Distributions to shareholders from: Net realized gains Class A Shares, ($2.95 per share)........................ (10,637,933) -- Net realized gains Class B Shares, ($2.95 per share)........................ (1,102,174) -- Net realized gains Class C Shares, ($2.95 per share)........................ (5,296,167) -- Increase (decrease) in net assets from Fund share transactions (Note 2) . ... 10,707,247 (69,954,120) ------------- ------------- Decrease in net assets ...................................................... (5,485,770) (26,458,292) Net assets, beginning of period ............................................. 168,506,076 194,964,368 ------------- ------------- Net assets, end of period (including accumulated net investment loss of $473,375 for the period ended April 30, 2001)............................ $ 163,020,306 $ 168,506,076 ============= =============
For the Six-Month For the Period Period Ended November 18, 1999 April 30, 2001 (commencement of operations) (unaudited) to October 31, 2000 ------------------ ----------------------------- Technology Fund --------------- Increase (decrease) in net assets: Operations: Net investment loss ................................................ $ (679,254) $ (1,869,207) Net realized loss from investment transactions ..................... (51,586,586) (3,051,342) Net unrealized appreciation (depreciation) of investments during the period ............................................................ (2,216,026) 11,723,489 ------------- ------------ Net increase (decrease) in net assets resulting from operations .... (54,481,866) 6,802,940 Distributions to shareholders from: Net realized gains Class A Shares, ($0.96 per share)................ (3,529,304) -- Net realized gains Class B Shares, ($0.96 per share)................ (1,341,566) -- Net realized gains Class C Shares, ($0.96 per share)................ (2,274,025) -- Increase in net assets from Fund share transactions (Note 2) . ...... 5,764,727 122,013,079 ------------- ------------ Increase (decrease) in net assets ................................... (55,862,034) 128,816,019 Net assets, beginning of period ..................................... 128,816,019 -- ------------- ------------ Net assets, end of period (including accumulated net investment loss of $679,254 for the period ended April 30, 2001).................... $ 72,953,985 $128,816,019 ============= ============
The accompanying notes are an integral part of the financial statements. 43 -------------------------------------------------------------------------------- Heritage Series Trust Statements of Changes in Net Assets (continued) --------------------------------------------------------------------------------
For the Six-Month Period Ended For the April 30, 2001 Year Ended (unaudited) October 31, 2000 ------------------ ----------------- Value Equity Fund ----------------- Increase (decrease) in net assets: Operations: Net investment income ............................................................... $ 94,560 $ 202,532 Net realized gain from investment transactions ...................................... 1,059,555 1,099,301 Net unrealized appreciation of investments during the period ........................ 785,638 2,162,807 ----------- ------------ Net increase in net assets resulting from operations ................................ 1,939,753 3,464,640 Distributions to shareholders from: Net investment income Class A Shares, ($0.30 and $0.11 per share, respectively) ..... (182,887) (83,002) Net investment income Class B Shares, ($0.16 per share) ............................. (7,769) -- Net investment income Class C Shares, ($0.16 per share) ............................. (92,328) -- Net realized gains Class A Shares, ($0.97 and $0.42 per share, respectively) ........ (594,015) (329,738) Net realized gains Class B Shares, ($0.97 and $0.42 per share, respectively) ........ (47,926) (22,188) Net realized gains Class C Shares, ($0.97 and $0.42 per share, respectively) ........ (569,562) (270,040) Increase (decrease) in net assets from Fund share transactions (Note 2) .............. 6,206,491 (4,819,930) ----------- ------------ Increase (decrease) in net assets .................................................... 6,651,757 (2,060,258) Net assets, beginning of period ...................................................... 25,501,881 27,562,139 ----------- ------------ Net assets, end of period (including accumulated net investment loss of $14,124 and net investment income of $174,300, respectively) ..................... $32,153,638 $ 25,501,881 =========== ============
The accompanying notes are an integral part of the financial statements. 44 -------------------------------------------------------------------------------- Heritage Series Trust - Aggressive Growth Fund Financial Highlights -------------------------------------------------------------------------------- The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Class A Shares* ----------------------------------------------------------------- For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 --------------------------------------------- (unaudited) 2000 1999 1998(+) ------------------- ---- ---- ------ Net asset value, beginning of period ............. $ 27.46 $ 20.80 $ 15.35 $ 14.29 ----------- -------- -------- ------------ Income from Investment Operations: Net investment loss ............................. (0.03) (0.24)(a) (0.15) -- Net realized and unrealized gain (loss) on investments .................................... (3.29) 9.10 5.60 1.06 ----------- -------- -------- ------------ Total from Investment Operations ................ (3.32) 8.86 5.45 1.06 ----------- -------- -------- ------------ Less Distributions: Distributions from net realized gains ........... (3.53) (2.20) -- -- ----------- -------- -------- ------------ Net asset value, end of period ................... $ 20.61 $ 27.46 $ 20.80 $ 15.35 =========== ======== ======== ============ Total Return (%) (b) ............................. (12.49)(c) 44.87 35.50 7.42 (c) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) ............. 1.43 (d) 1.57 (a) 1.65 1.65 (d) Without expenses waived/recovered (%) .......... -- 1.48 1.79 3.64 (d) Net investment income (loss) to average daily net assets (%) ................................. (.32)(d) (.88) (.78) .08 (d) Portfolio turnover rate (%) ..................... 134 (c) 252 195 34 (c) Net assets, end of period ($ millions) .......... 44 50 27 11 Class B Shares* ----------------------------------------------------------------- For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 --------------------------------------------- (unaudited) 2000 1999 1998(+) ------------------- ---- ---- ------ Net asset value, beginning of period ............. $ 26.98 $ 20.61 $ 15.33 $ 14.29 ----------- -------- -------- ---------- Income from Investment Operations: Net investment loss ............................. (0.11) (0.43)(a) (0.29) (0.03) Net realized and unrealized gain (loss) on investments .................................... (3.22) 9.00 5.57 1.07 ----------- -------- -------- ---------- Total from Investment Operations ................ (3.33) 8.57 5.28 1.04 ----------- -------- -------- ---------- Less Distributions: Distributions from net realized gains ........... (3.53) (2.20) -- -- ----------- -------- -------- ---------- Net asset value, end of period ................... $ 20.12 $ 26.98 $ 20.61 $ 15.33 =========== ======== ======== ========== Total Return (%) (b) ............................. (12.78)(c) 43.80 34.44 7.28 (c) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) ............. 2.18 (d) 2.32 (a) 2.40 2.40 (d) Without expenses waived/recovered (%) .......... -- 2.23 2.54 4.39 (d) Net investment income (loss) to average daily net assets (%) ................................. (1.08)(d) (1.64) (1.53) (.77)(d) Portfolio turnover rate (%) ..................... 134 (c) 252 195 34 (c) Net assets, end of period ($ millions) .......... 17 19 10 4 Class C Shares* ----------------------------------------------------------------- For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 --------------------------------------------- (unaudited) 2000 1999 1998(+) ------------------- ---- ---- ------- Net asset value, beginning of period ............. $ 26.98 $ 20.61 $ 15.33 $ 14.29 ----------- -------- -------- ---------- Income from Investment Operations: Net investment loss ............................. (0.11) (0.43)(a) (0.29) (0.03) Net realized and unrealized gain (loss) on investments .................................... (3.22) 9.00 5.57 1.07 ----------- -------- -------- ---------- Total from Investment Operations ................ (3.33) 8.57 5.28 1.04 ----------- -------- -------- ---------- Less Distributions: Distributions from net realized gains ........... (3.53) (2.20) -- -- ----------- -------- -------- ---------- Net asset value, end of period ................... $ 20.12 $ 26.98 $ 20.61 $ 15.33 =========== ======== ======== ========== Total Return (%) (b) ............................. (12.78)(c) 43.80 34.44 7.28 (c) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) ............. 2.18 (d) 2.32 (a) 2.40 2.40 (d) Without expenses waived/recovered (%) .......... -- 2.22 2.54 4.39 (d) Net investment income (loss) to average daily net assets (%) ................................. (1.08)(d) (1.62) (1.53) (.71)(d) Portfolio turnover rate (%) ..................... 134 (c) 252 195 34 (c) Net assets, end of period ($ millions) .......... 36 38 16 3
------- * Per share amounts have been calculated using the monthly average share method. + For the period August 20, 1998 (commencement of operations) to October 31, 1998. (a) The year ended October 31, 2000 includes payment of previously waived management fees to the Manager for Class A, B and C Shares. (b) These returns are calculated without the imposition of either front-end or contingent deferred sales charges. (c) Not annualized. (d) Annualized. The accompanying notes are an integral part of the financial statements. 45 -------------------------------------------------------------------------------- Heritage Series Trust - Eagle International Equity Portfolio Financial Highlights -------------------------------------------------------------------------------- The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Class A Shares* ------------------------------------------- For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 ----------------------- (unaudited) 2000 1999 ------------------- ---- ---- Net asset value, beginning of period ....................... $ 27.41 $ 31.56 $ 25.43 ----------- -------- -------- Income from Investment Operations: Net investment income (loss) .............................. (0.10) (0.22) (0.09) Net realized and unrealized gain (loss) on investments..... (3.42) 0.51 6.34 ----------- -------- -------- Total from Investment Operations .......................... (3.52) 0.29 6.25 ----------- -------- -------- Less Distributions: Dividends from net investment income ...................... -- -- -- Distributions from net realized gains ..................... (2.31) (4.44) (0.12) ----------- -------- -------- Total Distributions ....................................... (2.31) (4.44) (0.12) ----------- -------- -------- Net asset value, end of period ............................. $ 21.58 $ 27.41 $ 31.56 =========== ======== ======== Total Return (%) (a) ....................................... (13.56)(b) (1.31) 24.68 Ratios and Supplemental Data Expenses to average daily net assets With expenses waived (%) ................................. 1.90 (d) 1.97 1.97 Without expenses waived (%) .............................. 2.10 (d) -- 2.02 Net investment income (loss) to average daily net assets (%) ........................................... (.88)(d) (.71) (.32) Portfolio turnover rate (%) ............................... 93 (b) 67 78 Net assets, end of period ($ millions)..................... 8 10 8 Class A Shares* Class B -------------------------------------------- ------------------- For the Six-Month Period For the Years Ended Ended October 31, April 30, -------------------------------------------- 2001 1998 1997 1996(+) (unaudited) -------------------------------------------- ------------------- Net asset value, beginning of period ....................... $ 23.97 $ 22.25 $ 21.11 $ 26.49 ------------ ------------ ------------ ----------- Income from Investment Operations: Net investment income (loss) .............................. (0.01) 0.05 0.10 (0.19) Net realized and unrealized gain (loss) on investments..... 2.14 2.28 1.04 (3.27) ------------ ------------ ------------ ----------- Total from Investment Operations .......................... 2.13 2.33 1.14 (3.46) ------------ ------------ ------------ ----------- Less Distributions: Dividends from net investment income ...................... (0.05) (0.44) -- -- Distributions from net realized gains ..................... (0.62) (0.17) -- (2.31) ------------ ------------ ------------ ----------- Total Distributions ....................................... (0.67) (0.61) -- (2.31) ------------ ------------ ------------ ----------- Net asset value, end of period ............................. $ 25.43 $ 23.97 $ 22.25 $ 20.72 ============ ============ ============ =========== Total Return (%) (a) ....................................... 9.04 (c) 10.71 (c) 5.40 (b) (13.86)(b) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived (%) ................................. 1.97 1.97 1.97 (d) 2.65 (d) Without expenses waived (%) .............................. 2.08 2.23 2.69 (d) 2.85 (d) Net investment income (loss) to average daily net assets (%) ........................................... (.02) .22 .44 (d) (1.65)(d) Portfolio turnover rate (%) ............................... 71 50 59 (b) 93 (b) Net assets, end of period ($ millions)..................... 7 6 3 1 Class B Shares* ----------------------------------------- For the Years Ended October 31, ----------------------------------------- 2000 1999 1998(++) ---- ---- -------- Net asset value, beginning of period ....................... $ 30.83 $ 25.03 $ 23.95 -------- -------- ---------- Income from Investment Operations: Net investment income (loss) .............................. (0.43) (0.30) (0.16) Net realized and unrealized gain (loss) on investments..... 0.53 6.22 1.24 -------- -------- ---------- Total from Investment Operations .......................... 0.10 5.92 1.08 -------- -------- ---------- Less Distributions: Dividends from net investment income ...................... -- -- -- Distributions from net realized gains ..................... (4.44) (0.12) -- -------- -------- ---------- Total Distributions ....................................... (4.44) (0.12) -- -------- -------- ---------- Net asset value, end of period ............................. $ 26.49 $ 30.83 $ 25.03 ======== ======== ========== Total Return (%) (a) ....................................... (2.00) 23.70 4.51 (b) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived (%) ................................. 2.72 2.72 2.72 (d) Without expenses waived (%) .............................. -- 2.77 2.83 (d) Net investment income (loss) to average daily net assets (%) ........................................... (1.46) (1.04) 0.71 (d) Portfolio turnover rate (%) ............................... 67 78 71 (b) Net assets, end of period ($ millions)..................... 1 0.5 0.2
------- * Per share amounts have been calculated using the monthly average share method. + For the period December 27, 1995 (commencement of Class A Shares) to October 31, 1996. ++ For the period January 2, 1998 (commencement of Class B Shares) to October 31, 1998. (a) These returns are calculated without the imposition of either front-end or contingent deferred sales charges. (b) Not annualized. (c) These returns are calculated based on the published net asset value at October 31, 1997. (d) Annualized. The accompanying notes are an integral part of the financial statements. 46 -------------------------------------------------------------------------------- Heritage Series Trust - Eagle International Equity Portfolio Financial Highlights -------------------------------------------------------------------------------- The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Class C Shares* ---------------------------------------------------------- For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 -------------------------------------- (unaudited) 2000 1999 1998 ------------------- ----------- ----------- -------------- Net asset value, beginning of period .................... $ 26.48 $ 30.83 $ 25.03 $ 23.73 ----------- -------- -------- ------------ Income from Investment Operations: Net investment loss .................................... (0.18) (0.44) (0.30) (0.20) Net realized and unrealized gain (loss) on investments ........................................... (3.27) 0.53 6.22 2.12 ----------- -------- -------- ------------ Total from Investment Operations ....................... (3.45) 0.09 5.92 1.92 ----------- -------- -------- ------------ Less Distributions: Dividends from net investment income ................... -- -- -- -- Distributions from net realized gains .................. (2.31) (4.44) (0.12) (0.62) ----------- -------- -------- ------------ Total Distributions .................................... (2.31) (4.44) (0.12) (0.62) ----------- -------- -------- ------------ Net asset value, end of period .......................... $ 20.72 $ 26.48 $ 30.83 $ 25.03 =========== ======== ======== ============ Total Return (%) (a) .................................... (13.86)(b) (2.04) 23.70 8.24 (c) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived (%) .............................. 2.65 (d) 2.72 2.72 2.72 Without expenses waived (%) ........................... 2.85 (d) -- 2.77 2.83 Net investment loss to average daily net assets (%) .... (1.62)(d) (1.45) (1.06) (.79) Portfolio turnover rate (%) ............................ 93 (b) 67 78 78 Net assets, end of period ($ millions).................. 7 8 7 6 Class C Shares* --------------------------------- For the Years Ended October 31, --------------------------------- 1997 1996(+) -------------- ------------------ Net asset value, beginning of period .................... $ 22.12 $ 21.11 ------------ ---------- Income from Investment Operations: Net investment loss .................................... (0.13) (0.07) Net realized and unrealized gain (loss) on investments ........................................... 2.25 1.08 ------------ ---------- Total from Investment Operations ....................... 2.12 1.01 ------------ ---------- Less Distributions: Dividends from net investment income ................... (0.34) -- Distributions from net realized gains .................. (0.17) -- ------------ ---------- Total Distributions .................................... (0.51) -- ------------ ---------- Net asset value, end of period .......................... $ 23.73 $ 22.12 ============ ========== Total Return (%) (a) .................................... 9.79 (c) 4.78 (b) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived (%) .............................. 2.72 2.72 (d) Without expenses waived (%) ........................... 0.03 0.03 (d) Net investment loss to average daily net assets (%) .... (.52) (.32)(d) Portfolio turnover rate (%) ............................ 71 59 (b) Net assets, end of period ($ millions).................. 4 1 Eagle Shares* ---------------------------------------------------------- For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 -------------------------------------- (unaudited) 2000 1999 1998 ------------------- ----------- ----------- -------------- Net asset value, beginning of period .................... $ 26.72 $ 31.04 $ 25.17 $ 23.83 ----------- -------- -------- ------------ Income from Investment Operations: Net investment loss .................................... (0.18) (0.41) (0.27) (0.17) Net realized and unrealized gain (loss) on investments ........................................... (3.29) 0.53 6.26 2.13 ----------- -------- -------- ------------ Total from Investment Operations ....................... (3.47) 0.12 5.99 1.96 ----------- -------- -------- ------------ Less Distributions: Dividends from net investment income ................... -- -- -- -- Distributions from net realized gains .................. (2.31) (4.44) (0.12) (0.62) ----------- -------- -------- ------------ Total Distributions .................................... (2.31) (4.44) (0.12) (0.62) ----------- -------- -------- ------------ Net asset value, end of period .......................... $ 20.94 $ 26.72 $ 31.04 $ 25.17 =========== ======== ======== ============ Total Return (%) (a) .................................... (13.77)(b) (1.91) 23.85 8.38 (c) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived (%) .............................. 2.53 (d) 2.60 2.60 2.60 Without expenses waived (%) ........................... 2.73 (d) -- 2.65 2.71 Net investment loss to average daily net assets (%) .... (1.57)(d) (1.35) (.95) (.67) Portfolio turnover rate (%) ............................ 93 (b) 67 78 71 Net assets, end of period ($ millions).................. 20 27 32 33 Eagle Shares* -------------------------- For the Years Ended October 31, -------------------------- 1997 1996 -------------- ----------- Net asset value, beginning of period .................... $ 22.14 $ 20.79 ------------ -------- Income from Investment Operations: Net investment loss .................................... (0.11) (0.01) Net realized and unrealized gain (loss) on investments ........................................... 2.28 1.84 ------------ -------- Total from Investment Operations ....................... 2.17 1.83 ------------ -------- Less Distributions: Dividends from net investment income ................... (0.31) (0.01) Distributions from net realized gains .................. (0.17) (0.47) ------------ -------- Total Distributions .................................... (0.48) (0.48) ------------ -------- Net asset value, end of period .......................... $ 23.83 $ 22.14 ============ ======== Total Return (%) (a) .................................... 9.98 (c) 8.93 Ratios and Supplemental Data Expenses to average daily net assets With expenses waived (%) .............................. 2.60 2.60 Without expenses waived (%) ........................... 2.86 3.31 Net investment loss to average daily net assets (%) .... (.47) (.02) Portfolio turnover rate (%) ............................ 50 59 Net assets, end of period ($ millions).................. 32 22
------- * Per share amounts have been calculated using the monthly average share method. + For the period December 27, 1995 (commencement of Class C Shares) to October 31, 1996. (a) These returns are calculated without the imposition of either front-end or contingent deferred sales charges. (b) Not annualized. (c) These returns are calculated based on the published net asset value at October 31, 1997. (d) Annualized. The accompanying notes are an integral part of the financial statements. 47 -------------------------------------------------------------------------------- Heritage Series Trust - Growth Equity Fund Financial Highlights -------------------------------------------------------------------------------- The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Class A Shares* -------------------------------------------------------------------------- For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 ------------------------------------------------------ (unaudited) 2000 1999 1998 1997 ------------------- ---- ---- ---- ---- Net asset value, beginning of period ......................... $ 50.91 $ 43.44 $ 28.82 $ 23.77 $ 17.74 ----------- -------- -------- -------- ---------- Income from Investment Operations: Net investment loss ............... (0.09) (0.39) (0.20) (0.11) (0.07)(a) Net realized and unrealized gain (loss) on investments........ (9.44) 13.33 14.82 5.48 6.10 ----------- -------- -------- -------- ---------- Total from Investment Operations ....................... (9.53) 12.94 14.62 5.37 6.03 ----------- -------- -------- -------- ---------- Less Distributions: Distributions from net realized gains ................... (8.61) (5.47) -- (0.32) -- ----------- -------- -------- -------- ---------- Net asset value, end of period ..... $ 32.77 $ 50.91 $ 43.44 $ 28.82 $ 23.77 =========== ======== ======== ======== ========== Total Return (%) (b) ............... (20.86)(c) 31.04 50.73 22.84 33.99 Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) ............. 1.20 (d) 1.19 1.24 1.38 1.61 (a) Without expenses waived/recovered (%) ............. -- -- -- -- 1.54 Net investment loss to average daily net assets (%) ....................... (.49)(d) (.73) (.56) (.40) (.35) Portfolio turnover rate (%) ....... 116 (c) 392 160 54 50 Net assets, end of period ($ millions)...................... 108 135 67 40 24 Class B Shares* ------------------------------------------------------------- For the Class A Shares* Six-Month ------------------ Period For the Years Ended Ended October 31, April 30, For the Years Ended October 31, ------------------- 2001 ------------------------------------- 1996(+) (unaudited) 2000 1999 1998(++) ------- ----------- ---- ---- -------- Net asset value, beginning of period ......................... $ 14.29 $ 48.87 $ 42.17 $ 28.18 $ 24.33 ---------- ----------- -------- -------- ---------- Income from Investment Operations: Net investment loss ............... (0.03) (0.21) (0.77) (0.47) (0.23) Net realized and unrealized gain (loss) on investments........ 3.48 (9.02) 12.94 14.46 4.08 ---------- ----------- -------- -------- ---------- Total from Investment Operations ....................... 3.45 (9.23) 12.17 13.99 3.85 ---------- ----------- -------- -------- ---------- Less Distributions: Distributions from net realized gains ................... -- (8.61) (5.47) -- -- ---------- ----------- -------- -------- ---------- Net asset value, end of period ..... $ 17.74 $ 31.03 $ 48.87 $ 42.17 $ 28.18 ========== =========== ======== ======== ========== Total Return (%) (b) ............... 24.14 (c) (21.16)(c) 30.05 49.65 15.82 (c) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) ............. 1.65 (d) 1.95 (d) 1.94 1.98 2.11 (d) Without expenses waived/recovered (%) ............. 2.39 (d) -- -- -- -- Net investment loss to average daily net assets (%) ....................... (.19)(d) (1.24)(d) (1.48) (1.30) (1.10)(d) Portfolio turnover rate (%) ....... 23 (c) 116 (c) 392 160 54 (c) Net assets, end of period ($ millions)...................... 12 39 45 16 5 Class C Shares* ---------------------------------------------------------------------------- For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 ------------------------------------------------------ (unaudited) 2000 1999 1998 1997 --------------------- ---- ---- ---- ---- Net asset value, beginning of period ......................... $ 48.86 $ 42.15 $ 28.18 $ 23.42 $ 17.61 ----------- -------- -------- -------- ---------- Income from Investment Operations: Net investment loss ............... (0.21) (0.76) (0.47) (0.31) (0.24)(a) Net realized and unrealized gain (loss) on investments........ (9.02) 12.94 14.44 5.39 6.05 ----------- -------- -------- -------- ---------- Total from Investment Operations ....................... (9.23) 12.18 13.97 5.08 5.81 ----------- -------- -------- -------- ---------- Less Distributions: Distributions from net realized gains ................... (8.61) (5.47) -- (0.32) -- ----------- -------- -------- -------- ---------- Net asset value, end of period ..... $ 31.02 $ 48.86 $ 42.15 $ 28.18 $ 23.42 =========== ======== ======== ======== ========== Total Return (%) (b) ............... (21.17)(c) 30.09 49.57 21.93 32.99 Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) ............. 1.95 (d) 1.94 1.99 2.13 2.36 (a) Without expenses waived/recovered (%) ............. -- -- -- -- 2.29 Net investment loss to average daily net assets (%) ....................... (1.24)(d) (1.48) (1.31) (1.15) (1.14) Portfolio turnover rate (%) ....... 116 (c) 392 160 54 50 Net assets, end of period ($ millions)...................... 115 141 75 39 18 Class C Shares* ------------------ For the Years Ended October 31, ------------------ 1996+ ---- Net asset value, beginning of period ......................... $ 14.29 ---------- Income from Investment Operations: Net investment loss ............... (0.15) Net realized and unrealized gain (loss) on investments........ 3.47 ---------- Total from Investment Operations ....................... 3.32 ---------- Less Distributions: Distributions from net realized gains ................... -- ---------- Net asset value, end of period ..... $ 17.61 ========== Total Return (%) (b) ............... 23.23 (c) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) ............. 2.40 (d) Without expenses waived/recovered (%) ............. 3.14 (d) Net investment loss to average daily net assets (%) ....................... (.96)(d) Portfolio turnover rate (%) ....... 23 (c) Net assets, end of period ($ millions)...................... 5
------- * Per share amounts have been calculated using the monthly average share method. + For the period November 16, 1995 (commencement of operations) to October 31, 1996. ++ For the period January 2, 1998 (commencement of Class B Shares) to October 31, 1998. (a) The year ended October 31, 1997 includes payment of previously waived management fees to the Manager for Class A and C Shares. (b) These returns are calculated without the imposition of either front-end or contingent deferred sales charges. (c) Not annualized. (d) Annualized. The accompanying notes are an integral part of the financial statements. 48 -------------------------------------------------------------------------------- Heritage Series Trust - Mid Cap Stock Fund Financial Highlights -------------------------------------------------------------------------------- The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Class A Shares* -------------------------------------------------------------- For the Six-Month Period Ended October 31, April 30, 2001 ------------------------------------------ (unaudited) 2000 1999 1998(+) ------------------ ----- ---- ------- Net asset value, beginning of period .................................. $ 23.19 $ 16.56 $ 14.28 $ 14.29 ------- -------- -------- ------- Income from Investment Operations: Net investment loss ........................ (0.10) (0.24) (0.18) (0.15) Net realized and unrealized gain (loss) on investments ............................... 0.81 7.17 2.46 0.14 ------- -------- -------- ------- Total from Investment Operations ........... 0.71 6.93 2.28 (0.01) ------- -------- -------- ------- Less Distributions: Distributions from net realized gains ...... (4.11) (0.30) -- -- ------- -------- -------- ------- Net asset value, end of period .............. $ 19.79 $ 23.19 $ 16.56 $ 14.28 ======= ======== ======== ======= Total Return (%) (a) ........................ 4.49 (b) 42.30 15.97 (0.07)(b) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) ........ 1.55 (c) 1.55 1.60 1.60 (c) Without expenses waived/recovered (%) ..... 1.59 (c) 1.63 1.70 1.86 (c) Net investment loss to average daily net assets (%) ................................ (1.00)(c) (1.13) (1.19) (.99)(c) Portfolio turnover rate (%) ................ 124 (b) 265 192 129 (b) Net assets, end of period ($ millions)...... 30 23 15 16 Class B Shares* Class C Shares* ------------------------------------------------------------- ------------------ For the For the Six-Month Six-Month Period Ended Period Ended April 30, 2001 For the Years Ended April 30, 2001 (unaudited) October 31, (unaudited) ------------------ ----------------------------------------- ------------------- 2000 1999 1998(++) ---- ---- -------- Net asset value, beginning of period .................................. $ 22.66 $ 16.32 $ 14.17 $ 14.42 $ 22.67 ------- --------- -------- ------- ------- Income from Investment Operations: Net investment loss ........................ (0.16) (0.39) (0.30) (0.23) (0.16) Net realized and unrealized gain (loss) on investments ............................... 0.78 7.03 2.45 (0.02) 0.78 ------- --------- -------- ------- ------- Total from Investment Operations ........... 0.62 6.64 2.15 (0.25) 0.62 ------- --------- -------- ------- ------- Less Distributions: Distributions from net realized gains ...... (4.11) (0.30) -- -- (4.11) ------- --------- -------- ------- ------- Net asset value, end of period .............. $ 19.17 $ 22.66 $ 16.32 $ 14.17 $ 19.18 ======= ========= ======== ======= ======= Total Return (%) (a) ........................ 4.15 (b) 41.13 15.17 (1.73)(b) 4.14 (b) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) ........ 2.30 (c) 2.30 2.35 2.35 (c) 2.30 (c) Without expenses waived/recovered (%) ..... 2.34 (c) 2.38 2.45 2.61 (c) 2.34 (c) Net investment loss to average daily net assets (%) ................................ (1.75)(c) (1.87) (1.94) (1.85)(c) (1.75)(c) Portfolio turnover rate (%) ................ 124 (b) 265 192 129 (b) 124 (b) Net assets, end of period ($ millions)...... 6 4 2 2 16 Class C Shares* ------------------------------------------ For the Years Ended October 31, ------------------------------------------ 2000 1999 1998(+) ---- ---- ------- Net asset value, beginning of period .................................. $ 16.32 $ 14.18 $ 14.29 -------- -------- ------- Income from Investment Operations: Net investment loss ........................ (0.39) (0.30) (0.25) Net realized and unrealized gain (loss) on investments ............................... 7.04 2.44 0.14 -------- -------- ------- Total from Investment Operations ........... 6.65 2.14 (0.11) -------- -------- ------- Less Distributions: Distributions from net realized gains ...... (0.30) -- -- -------- -------- ------- Net asset value, end of period .............. $ 22.67 $ 16.32 $ 14.18 ======== ======== ======= Total Return (%) (a) ........................ 41.19 15.09 (0.77)(b) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) ........ 2.30 2.35 2.35 (c) Without expenses waived/recovered (%) ..... 2.38 2.45 2.61 (c) Net investment loss to average daily net assets (%) ................................ (1.88) (1.95) (1.75)(c) Portfolio turnover rate (%) ................ 265 192 129 (b) Net assets, end of period ($ millions)...... 12 9 9
------- * Per share amounts have been calculated using the monthly average share method. + For the period November 6, 1997 (commencement of operations) to October 31, 1998. ++ For the period January 2, 1998 (commencement of Class B Shares) to October 31, 1998. (a)These returns are calculated without the imposition of either front-end or contingent deferred sales charges. (b)Not annualized. (c)Annualized. The accompanying notes are an integral part of the financial statements. 49 -------------------------------------------------------------------------------- Heritage Series Trust - Small Cap Stock Fund Financial Highlights -------------------------------------------------------------------------------- The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Class A Shares* ------------------------------------------------------------------------------ For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 ----------------------------------------------------------- (unaudited) 2000 1999 1998 1997 1996 ------------------ ---- ---- ---- ---- ---- Net asset value, beginning of period ................... $ 29.17 $ 23.21 $ 22.62 $ 30.39 $ 24.08 $ 18.86 ---------- -------- -------- --------- -------- -------- Income from Investment Operations: Net investment loss (a) ..... (0.04) (0.12) (0.04) (0.06) (0.02) (0.05) Net realized and unrealized gain (loss) on investments ............. 0.11 6.08 0.63 (5.98) 8.21 6.12 ---------- -------- -------- --------- -------- -------- Total from Investment Operations ................. 0.07 5.96 0.59 (6.04) 8.19 6.07 ---------- -------- -------- --------- -------- -------- Less Distributions: Dividends from net investment income .......... -- -- -- -- -- (0.01) Distributions from net realized gains ............. (2.95) -- -- (1.73) (1.88) (0.84) ---------- -------- -------- --------- -------- -------- Total Distributions ......... (2.95) -- -- (1.73) (1.88) (0.85) ---------- -------- -------- --------- -------- -------- Net asset value, end of period ...................... $ 26.29 $ 29.17 $ 23.21 $ 22.62 $ 30.39 $ 24.08 ========== ======== ======== ========= ======== ======== Total Return (%) (a) ......... 0.81 (b) 25.68 2.61 (20.96) 36.68 33.18 Ratios and Supplemental Data Expenses to average daily net assets (%) ............. 1.30 (c) 1.30 1.26 1.22 1.25 1.41 Net investment loss to average daily net assets (%) ................. (.32)(c) (.44) (.18) (.22) (.09) (.21) Portfolio turnover rate (%) ................... 45 (b) 85 42 52 54 80 Net assets, end of period ($ millions) ............... 103 107 125 174 222 96 Class B Shares* -------------------------------------------------------------- For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 ------------------------------------------- (unaudited) 2000 1999 1998(+) ------------------ ---- ---- ------- Net asset value, beginning of period ................... $ 27.97 $ 22.41 $ 22.00 $ 27.98 ---------- -------- -------- ----------- Income from Investment Operations: Net investment loss (a) ..... (0.13) (0.33) (0.22) (0.20) Net realized and unrealized gain (loss) on investments ............. 0.09 5.89 0.63 (5.78) ---------- -------- -------- ----------- Total from Investment Operations ................. (0.04) 5.56 0.41 (5.98) ---------- -------- -------- ----------- Less Distributions: Dividends from net investment income .......... -- -- -- -- Distributions from net realized gains ............. (2.95) -- -- -- ---------- -------- -------- ----------- Total Distributions ......... (2.95) -- -- -- ---------- -------- -------- ----------- Net asset value, end of period ...................... $ 24.98 $ 27.97 $ 22.41 $ 22.00 ========== ======== ======== =========== Total Return (%) (a) ......... 0.42 (b) 24.81 1.86 (21.37)(b) Ratios and Supplemental Data Expenses to average daily net assets (%) ............. 2.05 (c) 2.05 2.01 1.98 (c) Net investment loss to average daily net assets (%) ................. (1.07)(c) (1.19) (.95) (.93)(c) Portfolio turnover rate (%) ................... 45 (b) 85 42 52 (b) Net assets, end of period ($ millions) ............... 10 10 9 9 Class C Shares* ------------------------------------------------------------------------------ For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 ----------------------------------------------------------- (unaudited) 2000 1999 1998 1997 1996 ------------------ ---- ---- ---- ---- ---- Net asset value, beginning of period ................... $ 27.98 $ 22.42 $ 22.01 $ 29.83 $ 23.84 $ 18.79 ---------- -------- -------- --------- -------- -------- Income from Investment Operations: Net investment loss (a) ..... (0.13) (0.32) (0.22) (0.26) (0.23) (0.22) Net realized and unrealized gain (loss) on investments ............. 0.09 5.88 0.63 (5.83) 8.10 6.11 ---------- -------- -------- --------- -------- -------- Total from Investment Operations ................. (0.04) 5.56 0.41 (6.09) 7.87 5.89 ---------- -------- -------- --------- -------- -------- Less Distributions: Dividends from net investment income .......... -- -- -- -- -- -- Distributions from net realized gains ............. (2.95) -- -- (1.73) (1.88) (0.84) ---------- -------- -------- --------- -------- -------- Total Distributions ......... (2.95) -- -- (1.73) (1.88) (0.84) ---------- -------- -------- --------- -------- -------- Net asset value, end of period ...................... $ 24.99 $ 27.98 $ 22.42 $ 22.01 $ 29.83 $ 23.84 ========== ======== ======== ========= ======== ======== Total Return (%) (a) ......... 0.42 (b) 24.80 1.86 (21.55) 35.63 32.22 Ratios and Supplemental Data Expenses to average daily net assets (%) ............. 2.05 (c) 2.05 2.01 1.97 2.00 2.13 Net investment loss to average daily net assets (%) ................. (1.07)(c) (1.18) (.94) (.96) (.85) (.94) Portfolio turnover rate (%) ................... 45 (b) 85 42 52 54 80 Net assets, end of period ($ millions) ............... 49 51 61 84 90 25
------- * Per share amounts have been calculated using the monthly average share method. + For the period January 2, 1998 (commencement of Class B Shares) to October 31, 1998. (a) These returns are calculated without the imposition of either front-end or contingent deferred sales charges. (b) Not annualized. (c) Annualized. The accompanying notes are an integral part of the financial statements. 50 -------------------------------------------------------------------------------- Heritage Series Trust - Technology Fund Financial Highlights -------------------------------------------------------------------------------- The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Class A Shares* ----------------------------- For the Six-Month For the Period Ended Period Ended April 30, 2001 October 31, (unaudited) 2000(+) --------------- ------------- $ 17.43 $14.29 Net asset value, beginning of period ........................ ---------- -------- Income from Investment Operations: Net investment loss ........................................ (0.07) (0.26) Net realized and unrealized gain (loss) on investments ..... (7.01) 3.40 ------ ------ Total from Investment Operations ........................... (7.08) 3.14 ------ ------ Less Distributions: Distributions from net realized gains ...................... (0.96) -- ------ ------ Net asset value, end of period . ............................ $ 9.39 $ 17.43 ========= ======= Total Return (%) (a) (b) .................................... (41.79) 21.97 Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) (c) .................... 1.65 1.62 Without expenses waived/recovered (%) (c) ................. 1.68 -- Net investment loss to average daily net assets (%) (c) ............................................ (1.23) (1.37) Portfolio turnover rate (%) (b) ............................ 332 441 Net assets, end of period ($ millions) ..................... 36 65 Class B Shares* Class C Shares* ----------------------------- ----------------------------- For the For the Six-Month For the Six-Month For the Period Ended Period Ended Period Ended Period Ended April 30, 2001 October 31, April 30, 2001 October 31, (unaudited) 2000(+) (unaudited) 2000(+) --------------- ------------- --------------- ------------- $ 17.31 $14.29 $17.30 $14.29 Net asset value, beginning of period ........................ ---------- ------ -------- ------ Income from Investment Operations: Net investment loss ........................................ (0.11) (0.40) (0.11) (0.40) Net realized and unrealized gain (loss) on investments ..... (6.96) 3.42 (6.95) 3.41 ------ ------ ------ ------ Total from Investment Operations ........................... (7.07) 3.02 (7.06) 3.01 ------ ------ ------ ------ Less Distributions: Distributions from net realized gains ...................... (0.96) -- (0.96) -- ------ ------ ------ ------ Net asset value, end of period . ............................ $ 9.28 $ 17.31 $ 9.28 $ 17.30 ========= ======= ========= ======= Total Return (%) (a) (b) .................................... (42.04) 21.13 (42.00) 21.06 Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) (c) .................... 2.40 2.37 2.40 2.37 Without expenses waived/recovered (%) (c) ................. 2.43 -- 2.43 -- Net investment loss to average daily net assets (%) (c) ............................................ (1.98) (2.12) (1.98) (2.12) Portfolio turnover rate (%) (b) ............................ 332 441 332 441 Net assets, end of period ($ millions) ..................... 14 24 23 40
------- * Per share amounts have been calculated using the monthly average share method. + For the period November 18, 1999 (commencement of operations) to October 31, 2000. (a) These returns are calculated without the imposition of either front-end or contingent deferred sales charges. (b) Not annualized. (c) Annualized. The accompanying notes are an integral part of the financial statements. 51 -------------------------------------------------------------------------------- Heritage Series Trust - Value Equity Fund Financial Highlights -------------------------------------------------------------------------------- The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Class A Shares* -------------------------------------------------------------------------------- For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 -------------------------------------------------------------- (unaudited) 2000 1999 1998 1997 1996 ----------------- ---- ---- ---- ---- ---- Net asset value, beginning of period ..... $ 20.49 $ 18.33 $ 18.56 $ 24.27 $ 20.27 $ 18.00 ---------- -------- -------- -------- ------------ -------- Income from Investment Operations: Net investment income (loss) ................................. 0.11 0.21 0.12 0.15 0.22 (a) 0.17 Net realized and unrealized gain (loss) on investments .................. 1.31 2.48 (0.07) (0.76) 5.23 2.76 ---------- -------- -------- -------- ------------ -------- Total from Investment Operations......... 1.42 2.69 0.05 (0.61) 5.45 2.93 ---------- -------- -------- -------- ------------ -------- Less Distributions: Dividends from net investment income ................................. (0.30) (0.11) (0.16) (0.20) (0.15) (0.11) Distributions from net realized gains .................................. (0.97) (0.42) (0.12) (4.90) (1.30) (0.55) ---------- -------- -------- -------- ------------ -------- Total Distributions ..................... (1.27) (0.53) (0.28) (5.10) (1.45) (0.66) ---------- -------- -------- -------- ------------ -------- Net asset value, end of period ........... $ 20.64 $ 20.49 $ 18.33 $ 18.56 $ 24.27 $ 20.27 ========== ======== ======== ======== ============ ======== Total Return (%) (b) ..................... 7.43 (c) 15.13 0.24 (3.52) 28.69 16.59 Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) ................... 1.45 (d) 1.45 1.45 1.45 1.61 (a) 1.65 Without expenses waived/recovered (%) ................... 1.69 (d) 1.72 1.70 1.58 1.53 1.99 Net investment income (loss) to average daily net assets (%) ........... 1.08 (d) 1.14 0.63 0.74 0.96 0.89 Portfolio turnover rate (%) ............. 52 (c) 95 137 132 155 129 Net assets, end of period ($ millions)............................ 15 13 15 18 19 15 Class B Shares* --------------------------------------------------------- For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 ------------------------------------------ (unaudited) 2000 1999 1998(+) -------------- ---- ---- ------- Net asset value, beginning of period ..... $ 20.16 $ 18.06 $ 18.29 $ 19.60 ------------ -------- -------- ---------- Income from Investment Operations: Net investment income (loss) ................................. 0.02 0.07 (0.02) 0.02 Net realized and unrealized gain (loss) on investments .................. 1.31 2.45 (0.08) (1.33) ------------ -------- -------- ---------- Total from Investment Operations......... 1.33 2.52 (0.10) (1.31) ------------ -------- -------- ---------- Less Distributions: Dividends from net investment income ................................. (0.16) -- (0.01) -- Distributions from net realized gains .................................. (0.97) (0.42) (0.12) -- ------------ -------- -------- ---------- Total Distributions ..................... (1.13) (0.42) (0.13) -- ------------ -------- -------- ---------- Net asset value, end of period ........... $ 20.36 $ 20.16 $ 18.06 $ 18.29 ============ ======== ======== ========== Total Return (%) (b) ..................... 7.03 (c) 14.28 (0.56) (6.68)(c) Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) ................... 2.20 (d) 2.20 2.20 2.20 (d) Without expenses waived/recovered (%) ................... 2.44 (d) 2.47 2.45 2.33 (d) Net investment income (loss) to average daily net assets (%) ........... 0.23 (d) 0.40 (0.13) 0.15 (d) Portfolio turnover rate (%) ............. 52 (c) 95 137 132 (c) Net assets, end of period ($ millions)............................ 2 1 1 1 Class C Shares* ----------------------------------------------------------------------------- For the Six-Month Period Ended For the Years Ended April 30, October 31, 2001 -------------------------------------------------------------- (unaudited) 2000 1999 1998 1997 1996 -------------- ---- ---- ---- ---- ---- Net asset value, beginning of period ..... $ 20.16 $ 18.06 $ 18.28 $ 23.98 $ 20.06 $ 17.92 ------------ -------- -------- -------- ------------ -------- Income from Investment Operations: Net investment income (loss) ................................. 0.03 0.07 (0.02) -- 0.05 (a) 0.02 Net realized and unrealized gain (loss) on investments .................. 1.30 2.45 (0.07) (0.75) 5.20 2.74 ------------ -------- -------- -------- ------------ -------- Total from Investment Operations......... 1.33 2.52 (0.09) (0.75) 5.25 2.76 ------------ -------- -------- -------- ------------ -------- Less Distributions: Dividends from net investment income ................................. (0.16) -- (0.01) (0.05) (0.03) (0.07) Distributions from net realized gains .................................. (0.97) (0.42) (0.12) (4.90) (1.30) (0.55) ------------ -------- -------- -------- ------------ -------- Total Distributions ..................... (1.13) (0.42) (0.13) (4.95) (1.33) (0.62) ------------ -------- -------- -------- ------------ -------- Net asset value, end of period ........... $ 20.36 $ 20.16 $ 18.06 $ 18.28 $ 23.98 $ 20.06 ============ ======== ======== ======== ============ ======== Total Return (%) (b) ..................... 7.03 (c) 14.28 (0.50) (4.27) 27.79 15.65 Ratios and Supplemental Data Expenses to average daily net assets With expenses waived/recovered (%) ................... 2.20 (d) 2.20 2.20 2.20 2.36 (a) 2.40 Without expenses waived/recovered (%) ................... 2.44 (d) 2.47 2.45 2.33 2.28 2.74 Net investment income (loss) to average daily net assets (%) ........... 0.32 (d) 0.40 (0.12) (0.01) 0.21 0.13 Portfolio turnover rate (%) ............. 52 (c) 95 137 132 155 129 Net assets, end of period ($ millions)............................ 15 12 12 14 13 10
------- * Per share amounts have been calculated using the monthly average share method. + For the period January 2, 1998 (commencement of Class B Shares) to October 31, 1998. (a) The year ended October 31, 1997 includes payment of previously waived management fees to the Manager for Class A and C Shares. (b) These returns are calculated without the imposition of either front-end or contingent deferred sales charges. (c) Not annualized. (d) Annualized. The accompanying notes are an integral part of the financial statements. 52 -------------------------------------------------------------------------------- Heritage Series Trust Notes to Financial Statements (unaudited) -------------------------------------------------------------------------------- Note 1: Significant Accounting Policies. Heritage Series Trust (the "Trust") is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company and presently offers shares in seven series, the Aggressive Growth Fund, the Eagle International Equity Portfolio, the Growth Equity Fund, the Mid Cap Stock Fund, the Small Cap Stock Fund, the Technology Fund and the Value Equity Fund (each, a "Fund" and collectively, the "Funds"). The Aggressive Growth Fund primarily seeks long-term capital appreciation by investing in equity securities of companies that may have significant growth potential. The Eagle International Equity Portfolio primarily seeks capital appreciation through investments in a portfolio of international equity securities. The Growth Equity Fund primarily seeks growth through long-term capital appreciation. The Mid Cap Stock Fund primarily seeks long-term appreciation by investing primarily in equity securities of companies with medium market capitalization that are believed to have above average growth potential. The Small Cap Stock Fund seeks long-term capital appreciation by investing principally in the equity securities of companies with small market capitalization. The Technology Fund primarily seeks long-term capital appreciation through equity investments in companies that rely extensively on technology in their processes, products or services. The Value Equity Fund primarily seeks long-term capital appreciation and, secondarily, seeks current income. The Funds currently offer Class A, Class B and Class C Shares. Class A Shares are sold subject to a maximum sales charge of 4.75% of the amount invested payable at the time of purchase. Additionally, for investments greater than $1 million, those Class A Shares may be subject to a maximum contingent deferred sales charge of 1% upon redemptions made in less than 18 months of purchase. Class B Shares are sold subject to a 5% maximum contingent deferred sales load (based on the lower of purchase price or redemption price), declining over a six-year period. Class C Shares are sold subject to a contingent deferred sales charge of 1% of the lower of net asset value or purchase price payable upon any redemptions made in less than one year of purchase. The Eagle International Equity Portfolio also offers Eagle Class Shares, which are subject to certain minimum investment requirements and are sold without any sales charge. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of significant accounting policies: Security Valuation: Each Fund values investment securities at market value based on the last quoted sales price as reported by the principal securities exchange on which the security is traded or the Nasdaq Stock Market. If no sale is reported, the last bid price is used and in the absence of a market quote, securities are valued using such methods as the Board of Trustees believes would reflect fair market value. Securities that are quoted in a foreign currency will be valued daily in U.S. dollars at the foreign currency exchange rates prevailing at the time the Eagle International Equity Portfolio calculates its daily net asset value per share. Although the Eagle International Equity Portfolio values its assets in U.S. dollars on a daily basis, it does not intend to convert holdings of foreign currencies into U.S. dollars on a daily basis. Short term investments having a maturity of 60 days or less are valued at amortized cost, which approximates market. Foreign Currency Transactions: The books and records of the Eagle International Equity Portfolio are maintained in U.S. dollars. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, other assets and other liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. The Eagle International Equity Portfolio does not isolate that portion of gains and losses on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains and losses from investments. Net realized gain (loss) and unrealized appreciation (depreciation) from foreign currency transactions include gains and losses between trade and settlement date on securities transactions, gains and losses arising from the sales of foreign currency and gains and losses between the ex and payment dates on dividends, interest, and foreign withholding taxes. Forward Foreign Currency Contracts: The Eagle International Equity Portfolio may enter into forward foreign currency contracts which are valued daily at the appropriate exchange rates. The resultant unrealized exchange gains and losses are included in the Statement of Operations as unrealized appreciation (depreciation) from foreign currency. The Eagle International Equity Portfolio records realized gains or losses on delivery of the currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery. Repurchase Agreements: Each Fund enters into repurchase agreements whereby a Fund, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount of at least 100% of the resale price. Repurchase agreements involve the risk that the seller will fail to repurchase the security, as agreed. In that case, the Fund will bear the risk of market value fluctuations until the security can be sold and may encounter delays and incur costs in liquidating the security. In the event of bankruptcy or insolvency of the seller, delays and costs may be incurred. Federal Income Taxes: Each Fund is treated as a single corporate taxpayer as provided for in the Tax Reform Act of 1986, as amended. Each Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, which are applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no provision has been made for federal income and excise taxes. 53 -------------------------------------------------------------------------------- Heritage Series Trust Notes to Financial Statements (unaudited) (continued) -------------------------------------------------------------------------------- Distribution of Net Realized Gains: Net realized gains from investment transactions during any particular year in excess of available capital loss carryforwards, which, if not distributed, would be taxable to each Fund, will be distributed to shareholders in the following fiscal year. Each Fund uses the identified cost method for determining realized gain or loss on investments for both financial and federal income tax reporting purposes. State Qualification Expenses: State qualification expenses are amortized based either on the time period covered by the qualification or as related shares are sold, whichever is appropriate for each state. Option Accounting Principles: When a Fund writes a covered call option, an amount equal to the premium received by the Fund is included in the Fund's Statement of Assets and Liabilities as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. The current market value of a written option is based on the last offering price on the principal exchange on which such option is traded. The Fund receives a premium on the sale of an option, but gives up the opportunity to profit from any increase in stock value above the exercise price of the option. If an option that a Fund has written either expires on its stipulated expiration date or the Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was sold) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a call option that a Fund has written is exercised, the Fund realizes a capital gain or loss from the sale of the underlying security, and the proceeds from such sale are increased by the premium originally received. Purchased Options: Certain Funds of the Trust are authorized to enter into options contracts to manage exposure to market, interest rate or currency fluctuations. Contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. The primary risks associated with the use of options is imperfect correlation between the change in the value of the options and the market value of the security held, possibility of an illiquid market and the inability of the counter-party to meet the terms of their contracts. Expenses: Each Fund is charged for those expenses that are directly attributable to it, such as management fee, custodian fee, distribution fees, etc., while other expenses such as insurance expense, are allocated proportionately among the Trust. Expenses of each Fund are allocated to each class of shares based upon their relative percentage of net assets. All expenses that are directly attributable to a specific class of shares, such as distribution fees and shareholders service fees with respect to Eagle International Equity Portfolio, are charged directly to that class. Organization Expenses: Expenses incurred in connection with the formation of each Fund, except the Aggressive Growth Fund and Technology Fund, were deferred and are being amortized on a straight-line basis over 60 months from the date of commencement of operations for the respective Funds. As of April 30, 2001, all such expenses have been amortized except for $7,754 related to the Mid Cap Stock Fund. Capital Accounts: Each Fund reports the undistributed net investment income and accumulated net realized gain (loss) accounts on a basis approximating amounts available for future tax distributions (or to offset future taxable realized gains when a capital loss carryforward is available). Accordingly, each Fund may periodically make reclassifications among certain capital accounts without impacting the net asset value of the Fund. Other: For purposes of these financial statements, investment security transactions are accounted for on a trade date basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Note 2: Fund Shares. At April 30, 2001, there were an unlimited number of shares of beneficial interest of no par value authorized. Aggressive Growth Fund ---------------------- Transactions in Class A, B and C Shares of the Fund during the six-month period ended April 30, 2001, were as follows:
Class A Shares Class B Shares Class C Shares ----------------------------- ---------------------------- ---------------------------- Shares Amount Shares Amount Shares Amount ------------- --------------- ------------ --------------- ------------ --------------- Shares sold .................... 181,847 $ 3,830,227 110,432 $ 2,399,027 243,920 $ 5,154,766 Shares issued on reinvestment of distributions ................. 291,143 6,185,709 117,802 2,450,114 241,071 5,014,142 Shares redeemed ................ (150,667) (3,143,041) (66,744) (1,333,259) (94,836) (1,966,847) -------- ------------ ------- ------------ ------- ------------ Net increase ................... 322,323 $ 6,872,895 161,490 $ 3,515,882 390,155 $ 8,202,061 ============ ============ ============ Shares outstanding: Beginning of period ........... 1,817,209 687,797 1,411,721 --------- ------- --------- End of period ................. 2,139,532 849,287 1,801,876 ========= ======= =========
54 -------------------------------------------------------------------------------- Heritage Series Trust Notes to Financial Statements (unaudited) (continued) -------------------------------------------------------------------------------- Aggressive Growth Fund (continued) ---------------------------------- Transactions in Class A, B and C Shares of the Fund during the year ended October 31, 2000 were as follows:
Class A Shares Class B Shares Class C Shares ---------------------------- ---------------------------- ---------------------------- Shares Amount Shares Amount Shares Amount ------------- -------------- ------------ --------------- ------------- -------------- Shares sold ................. 639,136 $ 17,007,197 201,298 $ 5,354,736 702,692 $ 18,619,612 Shares issued on reinvestment of distributions ........... 124,031 2,804,337 49,580 1,108,598 80,252 1,794,442 Shares redeemed ............. (263,680) (6,806,236) (68,542) (1,749,056) (144,514) (3,771,666) -------- ------------ ------- ------------ -------- ------------ Net increase ................ 499,487 $ 13,005,298 182,336 $ 4,714,278 638,430 $ 16,642,388 ============ ============ ============ Shares outstanding: Beginning of year .......... 1,317,722 505,461 773,291 --------- ------- -------- End of year ................ 1,817,209 687,797 1,411,721 ========= ======= =========
Eagle International Equity Portfolio ------------------------------------ Transactions in Class A, B and C Shares and Eagle Shares of the Fund during the six-month period ended April 30, 2001, were as follows:
Class A Shares Class B Shares ----------------------------- ------------------------- Shares Amount Shares Amount ------------- --------------- ----------- ------------- Shares sold ..................... 189,583 $ 4,114,416 5,765 $ 143,510 Shares issued on reinvestment of distributions .............. 26,389 624,360 2,715 61,801 Shares redeemed ................. (216,231) (5,111,395) (5,446) (133,782) -------- ------------- ------ ----------- Net increase (decrease) ......... (259) $ (372,619) 3,034 $ 71,529 ============= =========== Shares outstanding: Beginning of period ............ 357,871 28,965 -------- ------ End of period .................. 357,612 31,999 ======== ====== Class C Shares Eagle Shares ---------------------------- ----------------------------- Shares Amount Shares Amount ------------ --------------- ------------- --------------- Shares sold ..................... 78,532 $ 1,659,568 61,109 $ 1,566,212 Shares issued on reinvestment of distributions .............. 30,550 695,007 97,141 2,233,272 Shares redeemed ................. (75,186) (1,584,284) (226,964) (5,345,025) ------- ------------- -------- ------------ Net increase (decrease) ......... 33,896 $ 770,291 (68,714) $ (1,545,541) ============= ============ Shares outstanding: Beginning of period ............ 301,361 1,024,936 ------- --------- End of period .................. 335,257 956,222 ======= =========
Transactions in Class A, B and C Shares and Eagle Shares of the Fund during the year ended October 31, 2000, were as follows:
Class A Shares Class B Shares ----------------------------- -------------------------- Shares Amount Shares Amount ------------- --------------- ------------ ------------- Shares sold ..................... 206,405 $ 5,863,989 23,729 $ 694,286 Shares issued on reinvestment of distributions ............... 31,859 1,034,768 2,120 66,936 Shares redeemed ................. (131,052) (3,772,192) (11,765) (356,139) -------- ------------- ------- ----------- Net increase (decrease) ......... 107,212 $ 3,126,565 14,084 $ 405,083 ============= =========== Shares outstanding: Beginning of year .............. 250,659 14,881 -------- ------- End of year .................... 357,871 28,965 ======== ======= Class C Shares Eagle Shares ---------------------------- ------------------------------ Shares Amount Shares Amount ------------ --------------- ------------- ---------------- Shares sold ..................... 110,927 $ 3,436,460 328,037 $ 9,734,259 Shares issued on reinvestment of distributions ............... 34,473 1,089,009 137,365 4,373,714 Shares redeemed ................. (80,798) (2,392,813) (477,947) (14,551,965) ------- ------------- -------- -------------- Net increase (decrease) ......... 64,602 $ 2,132,656 (12,545) $ (443,992) ============= ============== Shares outstanding: Beginning of year .............. 236,759 1,037,481 ------- --------- End of year .................... 301,361 1,024,936 ======= =========
55 -------------------------------------------------------------------------------- Heritage Series Trust Notes to Financial Statements (unaudited) (continued) -------------------------------------------------------------------------------- Growth Equity Fund ------------------ Transactions in Class A, B and C Shares of the Fund during the six-month period ended April 30, 2001, were as follows:
Class A Shares Class B Shares Class C Shares ------------------------------ ----------------------------- ------------------------------ Shares Amount Shares Amount Shares Amount ------------- ---------------- ------------- --------------- ------------- ---------------- Shares sold .................. 535,549 $ 19,588,233 254,842 $ 8,959,221 547,078 $ 19,249,497 Shares issued on reinvestment of distributions ........... 574,383 21,538,131 220,269 7,842,489 684,654 24,381,666 Shares redeemed .............. (458,484) (17,123,195) (128,855) (4,487,061) (391,354) (12,796,257) -------- ------------- -------- ------------ -------- ------------- Net increase ................. 651,448 $ 24,003,169 346,256 $ 12,314,649 840,378 $ 30,834,906 ============= ============ ============= Shares outstanding: Beginning of period ......... 2,643,785 926,375 2,877,425 --------- -------- --------- End of period ............... 3,295,233 1,272,631 3,717,803 ========= ========= =========
Transactions in Class A, B and C Shares of the Fund during the year ended October 31, 2000, were as follows:
Class A Shares Class B Shares Class C Shares ------------------------------ --------------------------- ------------------------------ Shares Amount Shares Amount Shares Amount ------------- ---------------- ------------ -------------- ------------- ---------------- Shares sold ................. 1,293,573 $ 69,416,965 544,321 $ 28,305,082 1,260,325 $ 64,867,647 Shares issued on reinvestment of distributions .......... 178,368 8,265,553 49,275 2,206,529 215,528 9,649,178 Shares redeemed ............. (374,630) (19,701,921) (51,768) (2,703,279) (378,389) (19,159,035) --------- ------------- ------- ------------ --------- ------------- Net increase ................ 1,097,311 $ 57,980,597 541,828 $ 27,808,332 1,097,464 $ 55,357,790 ============= ============ ============= Shares outstanding: Beginning of year .......... 1,546,474 384,547 1,779,961 --------- ------- --------- End of year ................ 2,643,785 926,375 2,877,425 ========= ======== =========
Mid Cap Stock Fund ------------------ Transactions in Class A, B and C Shares of the Fund during the six-month period ended April 30, 2001, were as follows:
Class A Shares Class B Shares Class C Shares ---------------------------- -------------------------- ---------------------------- Shares Amount Shares Amount Shares Amount ------------ --------------- ------------ ------------- ------------ --------------- Shares sold .................. 402,312 $ 7,640,586 95,559 $1,805,177 255,519 $ 4,784,662 Shares issued on reinvestment of distributions ........... 216,098 3,956,094 45,031 801,108 122,713 2,183,194 Shares redeemed .............. (65,057) (1,221,552) (17,473) (319,842) (64,982) (1,215,823) ------- ------------ ------- ---------- ------- ------------ Net increase ................. 553,353 $ 10,375,128 123,117 $2,286,443 313,250 $ 5,752,033 ============ ========== ============ Shares outstanding: Beginning of period ......... 986,308 183,787 535,747 ------- ------- ------- End of period ............... 1,539,661 306,904 848,997 ========= ======== ========
56 -------------------------------------------------------------------------------- Heritage Series Trust Notes to Financial Statements (unaudited) (continued) -------------------------------------------------------------------------------- Mid Cap Stock Fund (continued) ------------------------------ Transactions in Class A, B and C Shares of the Fund during the year ended October 31, 2000, were as follows:
Class A Shares Class B Shares Class C Shares ----------------------------- -------------------------- ----------------------------- Shares Amount Shares Amount Shares Amount ------------- --------------- ------------ ------------- ------------- --------------- Shares sold ..................... 230,081 $ 5,097,074 69,580 $1,501,317 188,079 $ 4,086,557 Shares issued on reinvestment of distributions ............... 13,219 243,221 2,056 37,227 7,859 142,331 Shares redeemed ................. (135,421) (2,822,617) (14,970) (295,802) (226,689) (4,483,886) -------- ------------ ------- ---------- -------- ------------ Net increase (decrease) ......... 107,879 $ 2,517,678 56,666 $1,242,742 (30,751) $ (254,998) ============ ========== ============ Shares outstanding: Beginning of year .............. 878,429 127,121 566,498 -------- ------- -------- End of year .................... 986,308 183,787 535,747 ======== ======= ========
Small Cap Stock Fund -------------------- Transactions in Class A, B and C Shares of the Fund during the six-month period ended April 30, 2001, were as follows:
Class A Shares Class B Shares Class C Shares ----------------------------- -------------------------- ----------------------------- Shares Amount Shares Amount Shares Amount ------------- --------------- ------------ ------------- ------------- --------------- Shares sold ..................... 195,247 $ 5,085,011 28,331 $ 718,756 92,096 $ 2,295,182 Shares issued on reinvestment of distributions ............... 413,206 10,264,679 45,094 1,068,087 218,535 5,179,139 Shares redeemed ................. (346,960) (9,047,296) (30,566) (749,486) (162,980) (4,106,825) -------- ------------ ------- ---------- -------- ------------ Net increase .................... 261,493 $ 6,302,394 42,859 $1,037,357 147,651 $ 3,367,496 ============ ========== ============ Shares outstanding: Beginning of period ............ 3,667,691 372,346 1,826,060 --------- ------- --------- End of period .................. 3,929,184 415,205 1,973,711 ========= ======= =========
Transactions in Class A, B and C Shares of the Fund during the year ended October 31, 2000, were as follows:
Class A Shares Class B Shares Class C Shares -------------------------------- ----------------------------- -------------------------------- Shares Amount Shares Amount Shares Amount --------------- ---------------- ------------- --------------- --------------- ---------------- Shares sold ................ 367,323 $ 10,644,600 70,583 $ 1,948,329 238,220 $ 6,484,063 Shares redeemed ............ (2,079,709) (56,624,018) (121,772) (3,299,715) (1,114,878) (29,107,379) ---------- ------------- -------- ------------ ---------- ------------- Net decrease ............... (1,712,386) $ (45,979,418) (51,189) $ (1,351,386) (876,658) $ (22,623,316) ============= ============ ============= Shares outstanding: Beginning of year ......... 5,380,077 423,535 2,702,718 ---------- -------- ---------- End of year ............... 3,667,691 372,346 1,826,060 ========== ======== ==========
57 -------------------------------------------------------------------------------- Heritage Series Trust Notes to Financial Statements (unaudited) (continued) -------------------------------------------------------------------------------- Technology Fund --------------- Transactions in Class A, B and C Shares of the Fund during the six-month period ended April 30, 2001, were as follows:
Class A Shares Class B Shares Class C Shares ----------------------------- ----------------------------- ----------------------------- Shares Amount Shares Amount Shares Amount ------------- --------------- ------------- --------------- ------------- --------------- Shares sold .................. 620,022 $ 6,818,255 185,955 $ 2,079,439 329,656 $ 3,747,100 Shares issued on reinvestment of distributions ........... 285,623 3,410,892 110,016 1,303,686 189,764 2,245,762 Shares redeemed .............. (795,996) (8,417,607) (178,903) (1,937,437) (348,904) (3,485,363) -------- ------------ -------- ------------ -------- ------------ Net increase ................. 109,649 $ 1,811,540 117,068 $ 1,445,688 170,516 $ 2,507,499 ============ ============ ============ Shares outstanding: Beginning of period ......... 3,716,339 1,394,667 2,306,342 --------- --------- --------- End of period ............... 3,825,988 1,511,735 2,476,858 ========= ========= =========
Transactions in Class A, B and C Shares of the Fund during the period November 18, 1999 (commencement of operations) to October 31, 2000, were as follows:
Class A Shares Class B Shares Class C Shares ------------------------------ ---------------------------- ---------------------------- Shares Amount Shares Amount Shares Amount ------------- ---------------- ------------- -------------- ------------- -------------- Shares sold .................. 4,324,750 $ 71,956,124 1,536,844 $ 25,836,044 2,569,147 $ 42,685,629 Shares redeemed .............. (608,411) (10,961,163) (142,177) (2,663,961) (262,805) (4,839,594) --------- ------------- --------- ------------ --------- ------------ Net increase ................. 3,716,339 $ 60,994,961 1,394,667 $ 23,172,083 2,306,342 $ 37,846,035 ============= ============ ============ Shares outstanding: Beginning of period ......... -- -- -- --------- --------- --------- End of period ............... 3,716,339 1,394,667 2,306,342 ========= ========= =========
Value Equity Fund ----------------- Transactions in Class A, B and C Shares of the Fund during the six-month period ended April 30, 2001 were as follows:
Class A Shares Class B Shares Class C Shares -------------------------- ------------------------- ---------------------------- Shares Amount Shares Amount Shares Amount ------------ ------------- ----------- ------------- ------------ --------------- Shares sold .................. 124,089 $2,516,690 58,011 $1,137,169 172,627 $ 3,449,614 Shares issued on reinvestment of distributions ........... 38,975 741,601 2,860 53,825 34,336 646,202 Shares redeemed .............. (42,306) (855,817) (5,746) (112,326) (68,526) (1,370,467) ------- ---------- ------ ---------- ------- ------------ Net increase ................. 120,758 $2,402,474 55,125 $1,078,668 138,437 $ 2,725,349 ========== ========== ============ Shares outstanding: Beginning of period ......... 621,042 47,999 585,653 ------- ------ ------- End of period ............... 741,800 103,124 724,090 ======== ======== ========
58 -------------------------------------------------------------------------------- Heritage Series Trust Notes to Financial Statements (unaudited) (continued) -------------------------------------------------------------------------------- Value Equity Fund (continued) ----------------------------- Transactions in Class A, B and C Shares of the Fund during the year ended October 31, 2000, were as follows:
Class A Shares Class B Shares Class C Shares ----------------------------- -------------------------- ----------------------------- Shares Amount Shares Amount Shares Amount ------------- --------------- ------------ ------------- ------------- --------------- Shares sold ................. 119,887 $ 2,251,289 12,632 $ 237,000 152,307 $ 2,821,869 Shares issued on reinvestment of distributions ........... 22,076 397,144 1,213 21,621 14,812 263,944 Shares redeemed ............. (323,868) (6,046,861) (22,103) (413,233) (236,407) (4,352,703) -------- ------------ ------- ---------- -------- ------------ Net decrease ................ (181,905) $ (3,398,428) (8,258) $ (154,612) (69,288) $ (1,266,890) ============ ========== ============ Shares outstanding: Beginning of year .......... 802,947 56,257 654,941 -------- ------- -------- End of year ................ 621,042 47,999 585,653 ======== ======= ========
Note 3: Purchases and Sales of Securities. For the six-month period ended April 30, 2001, purchases and sales of investment securities (excluding repurchase agreements and short term obligations) were as follows:
Investment Securities --------------------------------- Purchases Sales --------------- --------------- Aggressive Growth Fund ....................... $135,924,311 $128,788,385 Eagle International Equity Portfolio ......... 35,500,732 39,278,323 Growth Equity Fund ........................... 391,012,173 341,419,668 Mid Cap Stock Fund ........................... 60,912,306 50,471,789 Small Cap Stock Fund ......................... 67,834,701 70,205,400 Technology Fund .............................. 326,494,869 320,891,748 Value Equity Fund ............................ 19,575,452 11,773,301
Transactions in covered call options written on equity securities for the Growth Equity Fund were as follows:
Number of Premiums Contracts Received --------------- ---------------- Outstanding October 31, 1999 ......... -- $ -- Open ................................ 1,233,000 12,932,486 Closed .............................. (1,233,000) (12,932,486) ---------- ------------- Outstanding October 31, 2000 ......... -- $ -- ========== =============
Note 4: Management, Subadvisory, Distribution, Shareholder Servicing Agent, Fund Accounting and Trustees' Fees. Under the Trust's Investment Advisory and Administrative Agreements with Heritage Asset Management, Inc. (the "Manager") the Funds, with the exception of the Eagle International Equity Portfolio, agree to pay to the Manager the following annual fee as a percentage of each Fund's average daily net assets, which is computed daily and payable monthly. Under the Trust's Investment Advisory and Administrative Agreement for the Eagle International Equity Portfolio, the following management fee is payable to Eagle Asset Management, Inc. ("Eagle"). 59 -------------------------------------------------------------------------------- Heritage Series Trust Notes to Financial Statements (unaudited) (continued) --------------------------------------------------------------------------------
Initial Subsequent Management Break Management Fee Point Fee ----------- -------------- ----------- Aggressive Growth Fund (1) ....................... 1.00% $50 million 0.75% Eagle International Equity Portfolio (1) ......... 1.00% $100 million 0.80% Growth Equity Fund ............................... 0.75% None -- Mid Cap Stock Fund ............................... 0.75% None -- Small Cap Stock Fund (1) ......................... 1.00% $50 million 0.75% Technology Fund (1) .............................. 1.00% $100 million 0.75% Value Equity Fund ................................ 0.75% None --
(1) The Aggressive Growth Fund, Eagle International Equity Portfolio, Small Cap Stock Fund and Technology Fund have a management fee break point. When average daily net assets exceed the Fund's respective break point, the management fee is reduced to the subsequent management fee on those assets greater then the breakpoint. The Manager and/or Eagle contractually waived their management fees and, if necessary, reimbursed each Fund to the extent that Class A, B and C Shares annual operating expenses exceeded that Fund's average daily net assets attributable to that class for the 2001 fiscal year as follows:
Class B and Class A Shares Class C Shares ---------------- --------------- Aggressive Growth Fund ........................... 1.60% 2.35% Eagle International Equity Portfolio (2) ......... 1.90% 2.65% Growth Equity Fund ............................... 1.35% 2.10% Mid Cap Stock Fund ............................... 1.55% 2.30% Small Cap Stock Fund ............................. 1.30% 2.05% Technology Fund .................................. 1.65% 2.40% Value Equity Fund ................................ 1.45% 2.20%
(2) Eagle Shares for the Eagle International Equity Portfolio have an expense limit of 2.53% for the 2001 fiscal year. Based on the above agreements, the Manager and Eagle waived management fees as follows:
For the Years Ended Six-Month October 31, Period Ended ---------------------- April 30, 2001 2000 1999 ---------------- --------- ---------- Eagle International Equity Portfolio ......... $41,855 $ -- $24,049 Mid Cap Stock Fund ........................... 7,789 24,899 27,644 Technology Fund .............................. 13,685 -- -- Value Equity Fund ............................ 32,496 69,913 76,169
If total Fund expenses fall below the expense limitation agreed to by the Manager and/or Eagle before the end of the years ending October 31, 2002 and 2001, respectively, each Fund may be required to pay the Manager and/or Eagle a portion or all of the waived management fees. Eagle has entered into an agreement with Martin Currie, Inc., a New York Corporation, to provide the Eagle International Equity Portfolio investment advice, portfolio management services including the placement of brokerage orders, and certain compliance and other services for an annualized fee payable by Eagle equal to .50% of the average daily net assets on the first $100 million of net assets and .40% thereafter without regard to any reduction due to the imposition of expense limitations. For the six-month period ended April 30, 2001 the Subadviser earned $95,976 for Subadviser fees, which were paid by Eagle. The Manager, an affiliate of Eagle, provides certain administrative services for the Eagle International Equity Portfolio. The Manager receives a fee in the amount of 0.10% from Eagle for performing these administrative services. The Manager has entered into agreements with Eagle (with respect to the Aggressive Growth Fund, Growth Equity Fund, Mid Cap Stock Fund and the Technology Fund) and with Eagle and Awad Asset Management, Inc. (with respect to the Small Cap Stock Fund) to provide investment advice, portfolio management services including the placement of brokerage orders and certain compliance and other services for a fee payable by the Manager equal to 50% of the fees payable by the Fund to the Manager without regard to any reduction due to the imposition of expense limitations. For the six-month period ended April 30, 2001, the total fees the Subadvisers earned were $210,547, $512,853, $80,039, $330,996 and $210,494 for the 60 -------------------------------------------------------------------------------- Heritage Series Trust Notes to Financial Statements (unaudited) (continued) -------------------------------------------------------------------------------- Aggressive Growth Fund, Growth Equity Fund, Mid Cap Stock Fund, Small Cap Stock Fund and Technology Fund, respectively. The Manager has entered into an agreement with Osprey Partners Investment Management, LLC ("Osprey") to provide to the Value Equity Fund investment advice, portfolio management services including the placement of brokerage orders, and certain compliance and other services for a fee payable by the Manager equal to .32% of the Value Equity Fund's average daily net assets. Effective May 18, 1999, all of the assets of the Value Equity Fund were allocated to Osprey. Prior to May 18, 1999, the assets of the Fund were managed by Eagle. Eagle will continue to serve as subadviser to the Fund, although there are no assets currently allocated to them. For the six-month period ended April 30, 2001 Osprey earned $44,162 for Subadviser fees, which was paid by the Manager. Total front end and contingent deferred sales charges received by Raymond James & Associates, Inc. (the "Distributor") for the six-month period ended April 30, 2001.
Front-end Sales Charge Contingent Deferred Sales Charge ---------------- ----------------------------------------------------- Class A Shares Class A Shares Class B Shares Class C Shares ---------------- ---------------- ---------------- --------------- Aggressive Growth Fund ......... $ 51,516 $ -- $12,605 $ 2,932 Eagle International Equity Portfolio .................... 18,779 -- 754 9,960 Growth Equity Fund ............. 292,713 -- 44,012 13,240 Mid Cap Stock Fund ............. 106,024 -- 3,596 1,310 Small Cap Stock Fund ........... 77,920 174 14,885 1,541 Technology Fund ................ 101,882 204 27,759 3,401 Value Equity Fund .............. 34,279 2,243 2,213 1,292
The Distributor paid sales commission to salespersons from these fees and incurred other distribution costs. Total agency brokerage commissions paid by the Funds and agency brokers commissions paid directly to Raymond James & Associates, Inc., for the six-month period ended April 30, 2001 were as follows:
Total Agency Paid To Brokerage Raymond James Commissions & Associates, Inc. ------------- ------------------- Aggressive Growth Fund ....................... $231,480 $15,000 Eagle International Equity Portfolio ......... 103,003 -- Growth Equity Fund ........................... 622,588 -- Mid Cap Stock Fund ........................... 94,845 Small Cap Stock Fund ......................... 116,618 16,580 Technology Fund .............................. 385,119 600 Value Equity Fund ............................ 46,170 --
Pursuant to a plan in accordance with Rule 12b-1 of the Investment Company Act of 1940, as amended, the Trust is authorized to pay the Distributor a fee pursuant to the Class A Shares Distribution Plan of up to .35% of the average daily net assets for the services it provides in connection with the promotion and distribution of Fund shares. However, at the present time the Board of Trustees has authorized payments of only .25% of average daily net assets. Under the Class B Shares and Class C Shares Distribution Plans, the Trust may pay the Distributor a fee equal to 1.00% of the average daily net assets. Such fees are accrued daily and payable monthly. Class B Shares will convert to Class A Shares eight years after the end of the calendar month in which the shareholder's order to purchase the Class B Shares was accepted. The Manager, Eagle, Awad Asset Management, Inc. and the Distributor are all wholly owned subsidiaries of Raymond James Financial, Inc. The Manager also is the Fund Accountant, Dividend Paying and Shareholder Servicing Agent for the Aggressive Growth Fund, the Growth Equity Fund, the Mid Cap Stock Fund, the Small Cap Stock Fund, the Technology Fund and the Value Equity Fund. In addition, the Manager is the Dividend Paying and Shareholder Servicing Agent for the Eagle International Equity Portfolio. Trustees of the Trust also serve as Trustees for Heritage Cash Trust, Heritage Capital Appreciation Trust, Heritage Income-Growth Trust and Heritage Income Trust, investment companies that also are advised by the Manager (collectively referred to as the Heritage funds). Each Trustee of the Heritage funds that is not an employee of the Manager or employee 61 -------------------------------------------------------------------------------- Heritage Series Trust Notes to Financial Statements (unaudited) (continued) -------------------------------------------------------------------------------- of an affiliate of the Manager receives an annual fee of $18,000 and an additional fee of $3,000 for each combined quarterly meeting of the Heritage funds attended. Trustees' fees and expenses are paid equally by each of the Heritage funds. Note 5: Federal Income Taxes. Aggressive Growth Fund: ----------------------- For the year ended October 31, 2000, to reflect reclassifications arising from permanent book/tax differences primarily attributable to a net operating loss, the Fund credited undistributed net investment income and debited accumulated net realized gain $1,121,676. Eagle International Equity Portfolio: ------------------------------------- For the year ended October 31, 2000, to reflect reclassifications arising from permanent book/tax differences primarily attributable to foreign currency losses, a net operating loss and basis difference in passive foreign investment companies (PFICs), the Fund credited undistributed net investment loss and debited accumulated net realized gain $488,140. Growth Equity Fund: ------------------- For the year ended October 31, 2000, to reflect reclassifications arising from permanent book/tax differences primarily attributable to a net operating loss, the Fund credited undistributed net investment income and debited accumulated net realized gain $3,087,876. Mid Cap Stock Fund: ------------------- For the year ended October 31, 2000, to reflect reclassifications arising from permanent book/tax differences primarily attributable to a net operating loss, the Fund credited undistributed net investment income and debited accumulated net realized gain $458,220. Small Cap Stock Fund: --------------------- For the year ended October 31, 2000, to reflect reclassifications arising from permanent book/tax differences primarily attributable to a net operating loss and REIT distributions, the Fund credited undistributed net investment income and debited accumulated net realized gain $1,266,371. The Fund utilized $5,057,448 of net tax basis capital losses during the current year against net realized gains from investment transactions. Technology Fund: ---------------- For the period ended October 31, 2000, to reflect reclassifications arising from permanent book/tax differences primarily attributable to a net operating loss, the Fund credited undistributed net investment income and debited accumulated net realized loss $1,869,207. 62 -------------------------------------------------------------------------------- Heritage Series Trust Notes to Financial Statements (unaudited) (continued) -------------------------------------------------------------------------------- Note 6: Financial Investment With Off-Balance Sheet Risk. Eagle International Equity Portfolio: ------------------------------------- The Fund may enter into forward foreign currency contracts ("forward contracts") to facilitate settlement of foreign currency denominated portfolio transactions, to manage its foreign currency exposure or to sell for a fixed amount of U.S. dollars or other currency, the amount of foreign currency approximating the value of some or all of its holdings denominated in such foreign currency or an amount of foreign currency other than the currency in which the securities to be hedged are denominated approximating the value of some or all of its holding to be hedged. Additionally, when the Subadviser anticipates purchasing securities at some time in the future, the Fund may enter into a forward contract to purchase an amount of currency equal to some or all of the value of the anticipated purchase for a fixed amount of U.S. dollars or other currency. The Fund may enter into forward contracts to hedge against changes to future foreign exchange rates and enhance return. Forward contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward contract. Risks may also arise upon entering into these contracts from the potential inability of these parties to meet the terms of their contracts. 63 Heritage Family of Funds(TM) From Our Family to Yours: The Intelligent Creation of Wealth. Heritage Stock Funds Aggressive Growth Capital Appreciation Eagle International Growth Equity Income-Growth Mid Cap Small Cap Technology Value Equity Heritage Bond Funds High Yield Intermediate Government Heritage Money Market Funds Money Market Municipal Money Market We are pleased that many of you are also investors in these funds. For more information and a prospectus for any of these mutual funds, please contact your financial advisor. Please read the prospectus carefully before you invest in any of the funds. This report is for the information of shareholders of Heritage Series Trust-Aggressive Growth Fund, Eagle International Equity Portfolio, Growth Equity Fund, Mid Cap Stock Fund, Small Cap Stock Fund, Technology Fund and Value Equity Fund. It may also be used as sales literature when preceded or accompanied by a prospectus. (C) 2001 Heritage Asset Management, Inc. 60M 04/01 AR53415S-HST [HERITAGE LOGO] Heritage Series Trust P.O. Box 33022 St. Petersburg, FL 33733 -------------------------------------------------------------------------------- Return Service Requested