HERITAGE CAPITAL APPRECIATION TRUST
HERITAGE GROWTH AND INCOME TRUST
HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
HERITAGE SERIES TRUST
CORE EQUITY FUND
DIVERSIFIED GROWTH FUND
INTERNATIONAL EQUITY FUND
MID CAP STOCK FUND
SMALL CAP STOCK FUND
880 Carillon Parkway
St. Petersburg, Florida 33716
________ __, 2006
Dear Shareholders:
You are being asked to vote on a number of proposals related to the above
Heritage Funds (each, a "Fund" and collectively, the "Funds") at a Special
Meeting of Shareholders ("Meeting") of the Funds, to be held at 880 Carillon
Parkway, St. Petersburg, Florida 33716 on November 6, 2006 at 10:00 a.m. Eastern
Time. The enclosed documents explain each proposal.
The Board of Trustees of each Fund ("Board") is unanimously recommending that
you approve a slate of board members that have backgrounds and experiences that
are diverse and relevant to the variety of tasks and issues that face a mutual
fund board.
In addition to voting for a board, you are being asked to vote on several
proposals that would standardize and simplify fund compliance and policies. We
are seeking your approval to re-classify each Fund's investment objective and
modernize its investment restrictions. Such action will standardize and
streamline each Fund's restrictions and facilitate the Funds' ability to respond
to changed market conditions or other circumstances in a timely manner without
the delay and expense of obtaining a shareholder vote.
We also are seeking your approval to update and modernize each Fund's investment
advisory agreement. No changes are being proposed to the level of services or
the advisory fee rates other than allocating between two agreements the advisory
and administrative services provided to the Funds. As a result of the proposal
for new investment advisory agreements, certain shareholders also are being
asked to re-approve the existing subadvisers.
Finally, certain of you are being asked to approve a proposal that will permit
your Fund's adviser to hire new subadvisers or modify subadvisory agreements for
that Fund with the approval of the Fund's Board, but without future shareholder
approval.
EACH FUND'S BOARD HAS UNANIMOUSLY APPROVED THE PROPOSALS AND RECOMMENDS THAT YOU
VOTE FOR THE PROPOSALS DESCRIBED IN THE PROXY STATEMENT.
We encourage you to read the attached Proxy Statement in full. Following this
letter are questions and answers regarding this proxy solicitation. The
information is designed to help you cast your vote as a shareholder of a Fund,
and is being provided as a supplement to, and not a substitute for, your proxy
materials.
The Notice of Special Meeting of Shareholders, the accompanying Proxy Statement,
and the proxy card for your Fund are enclosed. Please read them carefully. If
you are unable to attend the Meeting in person, we urge you to sign, date, and
return the proxy card (or vote by Internet or telephone) so that your shares may
be voted in accordance with your instructions. Voting your shares in a timely
manner helps the Funds avoid additional costs.
Your vote is important to us. Thank you for taking the time to consider these
important proposals.
Sincerely yours,
Stephen G. Hill
President
HERITAGE CAPITAL APPRECIATION TRUST
HERITAGE GROWTH AND INCOME TRUST
HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
HERITAGE SERIES TRUST
CORE EQUITY FUND
DIVERSIFIED GROWTH FUND
INTERNATIONAL EQUITY FUND
MID CAP STOCK FUND
SMALL CAP STOCK FUND
IMPORTANT INFORMATION TO HELP YOU UNDERSTAND
AND VOTE ON THE PROPOSALS
Please read the information in the proxy statement that follows the questions
and answers below. We appreciate you placing your trust in the Heritage Funds
and look forward to helping you achieve your financial goals.
WHY AM I RECEIVING THIS PROXY STATEMENT?
This proxy statement seeks your approval as a shareholder in some or all of the
above Heritage Funds (the "Funds') regarding a number of proposals aimed at
making the Funds operate more efficiently.
WHAT PROPOSALS AM I BEING ASKED TO VOTE ON?
You may be asked to vote on proposals that affect you and the Fund(s) in which
you own shares. The proposals in the proxy statement include proposals to:
o Elect Trustees to the Board of Trustees
o Re-classify the investment objective of each Fund as non-fundamental
o Modernize the investment restrictions of each Fund
o Approve a new investment advisory agreement and certain new
subadvisory agreements
o Approve a manager of manager's structure
The proxy statement includes a table that quickly allows you to see which
proposals affect you. The proxy statement also describes each proposal in
detail.
WHAT ROLE DOES THE BOARD PLAY?
The Trustees serve as your representatives. The Trustees are fiduciaries and
have an obligation to serve the best interests of shareholders. The Trustees
review fund performance, oversee Fund activities and review contractual
arrangements with companies that provide services to the Funds.
DO BOARD MEMBERS RECEIVE FEES FOR THEIR SERVICES?
Each Trustee who has no affiliation with management (an "Independent Trustee")
receives a fee for his or her service on the Board. Seven of the nine Nominees
are Independent Trustees for election to the Board of Income, Growth and Income
and Series. The remaining two are affiliated Trustees.
WHY ARE THE INVESTMENT OBJECTIVES BEING RE-CLASSIFIED?
Under current laws, shareholders must approve changes to fundamental investment
objectives. Your approval of this proposal will permit the Board to authorize
modifications in the Funds' investment objectives as necessary to respond to
changes in market conditions without the cost and time delay in seeking
shareholder approval.
WHY ARE YOU PROPOSING TO CHANGE THE FUNDS' FUNDAMENTAL RESTRICTIONS?
Your Board and the investment adviser has reviewed each Fund's fundamental
investment restrictions with the goal of simplifying and conforming the
fundamental investment restrictions among the Funds. The proposal seeks
shareholder approval of changes that are intended to further these goals and to
provide each Fund, consistent with its investment objectives and strategies,
with the flexibility to respond to changing markets, new investment
opportunities and future changes in applicable law.
WHAT EFFECT WOULD THE REVISIONS TO A FUND'S INVESTMENT OBJECTIVE AND FUNDAMENTAL
INVESTMENT RESTRICTIONS HAVE ON MY FUND?
The proposed revisions are not expected to affect the manner in which your Fund
is managed or the investment strategies of your Fund.
ARE THERE CHANGES TO THE INVESTMENT ADVISORY AGREEMENTS?
There are some changes to the investment advisory agreements. The primary change
to the investment advisory agreements are the transfer of administrative
services provided by the investment adviser to a separate administration
agreement. There are no changes to the fees charged to the Funds.
ARE THERE CHANGES TO THE SUBADVISORY AGREEMENTS?
There are no material changes to the subadvisory agreements. The fees are paid
by the investment adviser and not the Funds.
WHAT IS A MANAGER OF MANAGER'S STRUCTURE?
A manager of manager's structure permits the investment adviser to hire new
subadvisers or modify subadvisory agreements with existing subadvisers with the
approval of the Board.
2
HOW WILL A MANAGER OF MANAGER'S STRUCTURE HELP THE FUNDS?
Under current laws, shareholders normally must approve new subadvisory
agreements or changes to existing agreements. Your approval of this proposal
will permit the Board to authorize the Funds' investment adviser to hire new
subadvisers or change existing agreements. This will save the Funds money and
time since they will not need to seek shareholder approval in the future.
WHO IS PAYING FOR MY SHAREHOLDER MEETING AND PROXY STATEMENT?
The Funds and their investment adviser will pay for the expenses related to this
proxy statement.
HOW DOES THE BOARD SUGGEST I VOTE IN CONNECTION WITH THE PROPOSALS THAT AFFECT
ME?
After careful consideration, the Board unanimously recommends that you vote FOR
the approval of each proposal that affects you and your Fund.
HOW DO I VOTE MY SHARES?
You can vote in any of the following ways:
INTERNET: Have your proxy card available. Vote on the Internet by
accessing the website address on your proxy card. Enter
your control number from your proxy card. Follow the
instructions found on the website;
TELEPHONE: Have your proxy card available. You may vote by telephone
by calling the number on your proxy card. Enter the
control number on the proxy card and follow the
instructions provided. (A confirmation of your telephone
vote will be mailed to you.); or
MAIL: Vote, sign, date and return the enclosed proxy card in
the enclosed postage-paid envelope.
HOW DO I SIGN THE PROXY CARD?
The following general rules for signing proxy cards may be of assistance
to you and avoid the time and expense involved in validating your vote if you
fail to sign your proxy card properly.
INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the
registration on the proxy card.
JOINT ACCOUNTS: Both parties should sign, and the name(s) of the party
or parties signing should conform exactly to the name(s) shown in the
registration on the proxy card.
3
ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration.
For example:
WHOM SHOULD I CALL FOR MORE INFORMATION ABOUT THE PROXY STATEMENT?
4
HERITAGE CAPITAL APPRECIATION TRUST
HERITAGE GROWTH AND INCOME TRUST
HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
HERITAGE SERIES TRUST
CORE EQUITY FUND
DIVERSIFIED GROWTH FUND
INTERNATIONAL EQUITY FUND
MID CAP STOCK FUND
SMALL CAP STOCK FUND
880 Carillon Parkway, St. Petersburg, Florida 33716
(800) 421-4184
___________________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
___________ __, 2006
___________________________________
To the Shareholders:
A Special Meeting of Shareholders ("Meeting") of the above Heritage Funds
(each, a "Fund" and collectively, the "Funds") will be held at the offices of
Heritage Asset Management, Inc. ("Heritage"), 880 Carillon Parkway, St.
Petersburg, Florida 33716 on November 6, 2006 at 10:00 a.m. Eastern Time. The
Meeting is being held for the following purposes:
(1) To elect and re-elect Trustees to the Board of Trustees;
(2) To re-classify the investment objective of each Fund as non-
fundamental;
(3) To modernize the investment restrictions of each Fund;
(4) To approve an investment advisory agreement between the Funds and
Heritage;
(5) To approve the subadvisory agreements between Heritage and Goldman
Sachs Investment Management, L.P., Heritage and Eagle Asset
Management, Inc. and Heritage and Awad Asset Management, Inc.
(6) To approve a proposal that will permit Heritage to hire new
subadvisers or modify subadvisory agreements with respect to
Heritage Capital Appreciation Trust, Heritage Series Trust - Mid Cap
Stock Fund and Heritage Series Trust - Small Cap Stock Fund with the
approval of the Board, but without future shareholder approval; and
(7) To consider and act upon any other business that may properly come
before the meeting or any adjournments thereof.
Items (1) through (6) are discussed in greater detail in the attached
Proxy Statement (the "Proposals"). You are entitled to vote at the Meeting and
any adjournment thereof if you owned shares of one or more of the Funds at the
close of business on September 8, 2006. If you attend the Meeting, you may vote
your shares in person. Whether or not you intend to attend the Meeting in
person, you may vote in any of the following ways:
(1) INTERNET: Have your proxy card available. Vote on the Internet
by accessing the website address on your proxy card. Enter
your control number from your proxy card. Follow the
instructions found on the website;
(2) TELEPHONE: Have your proxy card available. You may vote by
telephone by calling the toll-free number on your proxy card.
Enter the control number on the proxy card and follow the
instructions provided. (A confirmation of your telephone vote
will be mailed to you.); or
(3) MAIL: Vote, sign, date and return the enclosed proxy card in
the enclosed postage-paid envelope.
By order of the Board of Trustees,
Andrea N. Mullins
Secretary
Heritage Capital Appreciation Trust
Heritage Growth and Income Trust
Heritage Income Trust
Heritage Series Trust
Dated: ________ __, 2006
St. Petersburg, Florida
2
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. PLEASE RETURN YOUR
PROXY CARD PROMPTLY.
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ANY SHAREHOLDER WHO
DOES NOT EXPECT TO ATTEND THE MEETING IS URGED TO INDICATE VOTING INSTRUCTIONS
ON THE ENCLOSED PROXY CARD, DATE AND SIGN IT, AND RETURN IT IN THE ENVELOPE
PROVIDED, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU SIGN,
DATE AND RETURN THE PROXY CARD BUT GIVE NO INSTRUCTIONS, YOUR SHARES WILL BE
VOTED "FOR" THE PROPOSALS DESCRIBED ABOVE AND "FOR" OR "AGAINST" ANY OTHER
MATTER ACTED UPON AT THE MEETING IN THE DISCRETION OF THE PERSONS NAMED AS
PROXIES. ALTERNATIVELY, YOU MAY VOTE YOUR PROXY ON THE INTERNET OR BY TELEPHONE
IN ACCORDANCE WITH THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD.
TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK YOUR COOPERATION
IN MAILING YOUR PROXY PROMPTLY, NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY
BE.
- --------------------------------------------------------------------------------
3
HERITAGE CAPITAL APPRECIATION TRUST
HERITAGE GROWTH AND INCOME TRUST
HERITAGE INCOME TRUST
HIGH YIELD BOND FUND
HERITAGE SERIES TRUST
CORE EQUITY FUND
DIVERSIFIED GROWTH FUND
INTERNATIONAL EQUITY FUND
MID CAP STOCK FUND
SMALL CAP STOCK FUND
880 Carillon Parkway, St. Petersburg, Florida 33716
(800) 421-4184
______________________________
PROXY STATEMENT
______________________________
Special Meeting of Shareholders
November 6, 2006
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of each of the
above Heritage Funds (each, a "Fund" and collectively, the "Funds") in
connection with the solicitation of shareholder votes by proxy to be voted at
the Special Meeting of Shareholders or any adjournments thereof ("Meeting") to
be held on November 6, 2006 at 10:00 a.m. Eastern Time at the offices of
Heritage Asset Management, Inc. ("Heritage"), 880 Carillon Parkway, St.
Petersburg, Florida 33716. It is expected that the Notice of Special Meeting,
Proxy Statement and proxy card will be first mailed to shareholders on or about
________ __, 2006.
As more fully described in this Proxy Statement, the purpose of the
Meeting is to consider the following matters:
(1) To elect and re-elect Trustees to the Board of Trustees (the
"Board");
(2) To re-classify the investment objective of each Fund as non-
fundamental;
(3) To modernize the investment restrictions of each Fund;
(4) To approve an investment advisory agreement between the Funds and
Heritage;
(5) To approve three subadvisory agreements between (a) Heritage and
Goldman Sachs Investment Management, L.P. ("GSAM"), (b) Heritage and
Eagle Asset Management, Inc. ("Eagle") and (c) Heritage and Awad
Asset Management, Inc. ("Awad")
1
(6) To approve a proposal that will permit Heritage to hire new
subadvisers or modify subadvisory agreements with respect to
Heritage Capital Appreciation Trust ("Capital Appreciation"),
Heritage Series Trust - Mid Cap Fund ("Mid Cap") and Heritage Series
Trust - Small Cap Fund ("Small Cap") with the approval of the Board,
but without future shareholder approval; and
(7) To consider and act upon any other business that may properly come
before the meeting or any adjournments thereof.
Summarized below are items (1) through (6) (the "Proposals"), which the
shareholders of certain Funds are being asked to consider:
2
CAPITAL GROWTH HIGH CORE DIVERSIFIED INTERNATIONAL MID SMALL
WHICH PROPOSAL AFFECTS MY FUND? APPRECIATION AND INCOME YIELD EQUITY GROWTH EQUITY CAP CAP
PROPOSAL 1: To elect and re-elect
Trustees to the Board of Trustees X(1) X X X X X X X
PROPOSAL 2: To re-classify the
investment objective as non-fundamental X X X X X X X X
PROPOSAL 3: To modernize the
fundamental investment policies of the
Funds X X X X X X X X
PROPOSAL 4: To approve an
Investment Advisory Agreement between
Heritage and the Funds X X X X X X X X
PROPOSAL 5-A: To approve a
Subadvisory Agreement between Heritage
and GSAM X
PROPOSAL 5-B: To approve a
Subadvisory Agreement between Heritage
and Eagle X X X X X X
PROPOSAL 5-C: To approve a
Subadvisory Agreement between Heritage
and Awad X
PROPOSAL 6: To approve a Manager
of Manager's structure, which would
allow Heritage and the Board to enter
into, terminate or materially amend
Subadvisory Agreements without obtaining
future shareholder approval X X X
(1) Mr. Kinnicutt is not a nominee to the Board of Capital Appreciation.
VOTING INFORMATION
If the enclosed proxy card is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the proxy. A proxy may nevertheless be revoked at any time
3
prior to its use by written notification received by the Funds, by the execution
of a subsequently dated proxy or by attending the Meeting and voting in person.
However, if no instructions are specified on a proxy, shares will be voted "FOR"
Proposals (1) through (6) listed above, and "FOR" or "AGAINST" any other matters
acted upon at the Meeting in the discretion of the persons named as proxies.
The close of business on September 8, 2006 has been established as the
record date for the determination of shareholders entitled to notice of and to
vote at the Meeting ("Record Date"). Each share will be entitled to one vote at
the Meeting and fractional shares will be entitled to proportionate fractional
votes.
QUORUM AND ADJOURNMENT: The presence at the Meeting, in person or by
proxy, of shareholders entitled to cast a majority of Capital Appreciation's,
Heritage Growth and Income Trust's ("Growth and Income"), Heritage Income
Trust's ("Income") and Heritage Series Trust's ("Series") (each, a "Trust")
outstanding shares is required for a quorum for Proposal 1. The presence at the
Meeting, in person or by proxy, of shareholders entitled to cast a majority of
each Fund's outstanding shares is required for a quorum for Proposals 2 through
6. In the event that a quorum is present at the Meeting but sufficient votes to
approve the new item are not received, the persons named as proxies may propose
one or more adjournments of such Meeting to permit further solicitation of
proxies. The affirmative vote of less than a majority of the votes entitled to
be cast represented in person or by proxy is sufficient for adjournments. In
such case, the persons named as proxies will vote those proxies, which they are
entitled to vote in favor of such item "FOR" such an adjournment, and will vote
those proxies required to be voted against such item "AGAINST" such an
adjournment. A shareholder vote may be taken on the proposals in this Proxy
Statement prior to any such adjournment if sufficient votes have been received
and it is otherwise appropriate.
REQUIRED VOTE: For Proposal 1, the affirmative vote of a plurality of the
votes of each Trust cast at the Meeting on the election of Trustees is required
to elect a Trustee. Each Trust will vote separately on Proposal 1.
Proposals 2 through 6 each require the approval by the lesser of (a) the
vote of 67% or more of the voting securities of each applicable Fund present at
a meeting, if the holders of more than 50% of the outstanding voting securities
are present, or (b) the vote of more than 50% of the outstanding voting
securities of each applicable Fund (referred to herein as a "1940 Act
Majority"). Each applicable Fund will vote separately on Proposals 2 through 6.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and with respect to which the broker does not
have discretionary voting authority. Abstentions and broker non-votes will be
counted as shares present for purposes of determining whether a quorum is
present but will not be counted as votes cast. Accordingly, abstentions and
broker non-votes effectively will be a vote against Proposals 2 through 6
because the required vote is a percentage of the shares present at the Meeting,
but will have no impact on Proposal 1 to elect Trustees because the required
vote is a plurality of the votes cast at the Meeting.
THE MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS FOR EACH FUND, INCLUDING
FINANCIAL STATEMENTS, PREVIOUSLY HAVE BEEN FURNISHED TO SHAREHOLDERS. IF YOU
WOULD LIKE TO RECEIVE ADDITIONAL COPIES OF THESE REPORTS FREE OF CHARGE, PLEASE
WRITE TO THE HERITAGE MUTUAL FUNDS, 880 CARILLON PARKWAY, ST. PETERSBURG,
4
FLORIDA 33716 OR CALL TOLL-FREE AT 1-800-421-4184. THE REPORTS ALSO ARE
AVAILABLE ON THE FUNDS' WEBSITE AT WWW.HERITAGEFUNDS.COM AND THE WEBSITE OF THE
SECURITIES AND EXCHANGE COMMISSION ("SEC") AT WWW.SEC.GOV.
___________________________________
PROPOSAL 1: ELECTION OF TRUSTEES
FUNDS AFFECTED: ALL
___________________________________
The Board of each Trust recommends that shareholders of each Trust elect
members for the Board. Accordingly, the Board is submitting for election or re-
election by shareholders of each Trust the slate of nine individuals listed
below (the "Nominees").
All Nominees except Mr. Kinnicutt currently serve as Trustees of each
Trust. Mr. Kinnicutt is being nominated to serve on the Board of each Trust
listed except Capital Appreciation. If elected, each Nominee would serve as a
Trustee for life or for a specified term as discussed below unless removed,
resigns or retires. The Trustees who are deemed not "interested" ("Independent
Trustees") as that term is defined in the Investment Company Act of 1940 (the
"1940 Act") have adopted a Board of Governance Policy that requires an
Independent Trustee to retire at age 72 for those Trustees in office prior to
August 2000 or age 70 for those Trustees in office after that date. In addition,
the Independent Trustees have a mandatory term limit of 15 years of service,
except those Independent Trustees who served as of August 28, 2000.
If elected, it is expected that Mr. Kinnicutt would serve as an
Independent Trustee. Currently, Mr. Kinnicutt would be deemed an "interested"
person ("Interested Trustee") as that term is defined in the 1940 Act due to his
family's affiliation with Raymond James & Associates, Inc. ("RJA"), a principal
underwriter to the Trusts. It is anticipated that RJA will no longer serve as
the Trusts' principal underwriter at the time Mr. Kinnicutt stands for election.
At which time, Mr. Kinnicutt would qualify to serve as an Independent Trustee.
Two other Nominees are Interested Trustee and would serve as such on the Board.
On August 15, 2006, the Board, including the Independent Trustees,
nominated each of the nine Nominees for election or re-election to the Board.
The Independent Trustees have sought to sustain a Board with members that have
backgrounds and experiences that are diverse and relevant to the variety of
tasks and issues that face a mutual fund board. Pertinent information about
each Nominee as of August 31, 2006 is set forth below.
The persons named as proxies on the enclosed proxy card will vote "FOR"
the election of each Nominee unless the shareholder specifically indicates on
his or her proxy card a desire to withhold authority to vote for any Nominee.
Each Nominee has consented to be named in this Proxy Statement and has indicated
a willingness to serve if elected. Neither the Board nor management has any
reason to believe that any Nominee will be unavailable for election. However,
if any of the Nominees should not be available for election, the persons named
as proxies (or their substitutes) may vote for other persons in their
discretion.
INFORMATION CONCERNING NOMINEES
Information is provided below for each Nominee for election at the
Meeting. The first two sections of the table list information for each Nominee
who would serve as an Independent Trustee. Information for each Nominee who
would be deemed an Interested Trustee by virtue of their positions with Heritage
or Raymond James Financial, Inc. ("RJF") appears in the third section of the
5
table. The address of each Nominee is 880 Carillon Parkway, St. Petersburg, FL
33716.
NUMBER OF
FUNDS
OVERSEEN
PRINCIPAL OCCUPATION DURING PAST OTHER IN FUND
NAME AND AGE FIVE YEARS DIRECTORSHIPS COMPLEX
POSITION, TERM OF OFFICE ---------- ------------- -------
AND LENGTH OF TIME
SERVED(a)
---------
INDEPENDENT TRUSTEE NOMINEES FOR EACH TRUST:
C. Andrew Graham (66) First Financial Advisors, Ltd. & Graham Financial Partners, None 10
TRUSTEE SINCE 1985 LLC (financial planning, insurance and investment services)
since 1999.
Keith Jarrett (57) President, KBJ, LLC (investment company) since 2001; Principal, Penn Virginia 10
TRUSTEE SINCE 2005 Rockport Funding, LLC (specialty finance), and Ajax Partners Resources, MLP
(investment partnership) since 2003; President and CEO,
TF Ventures (information technology), 1998-2001.
William J. Meurer (62) Private financial consultant since September 2000. Sykes 10
TRUSTEE SINCE 2003 Enterprises, Inc.
James L. Pappas (63) Lykes Professor of Banking and Finance University of South None 10
TRUSTEE SINCE 1989, Florida College of Business Administration 1986 - 2006;
LEAD INDEPENDENT President, Graduate School of Banking at the University of
TRUSTEE SINCE 2003 Wisconsin 1995 - 2005.
David M. Phillips (67) Chief Executive Officer, Evare LLC (information services) since Intersections 10
TRUSTEE SINCE 1985 2003. Corp. Information
Services
Deborah L. Talbot, PhD (55) Independent Consultant and Researcher; Founder and chairman of the None 10
TRUSTEE SINCE 2002 board, Creative Tampa Bay since 2003; Dean's Advisory Board,
College of Arts and Sciences, University of Memphis since 2002.
INTERESTED TRUSTEE NOMINEES FOR GROUP AND INCOME,
INCOME AND SERIES TRUSTS:
Lincoln Kinnicutt (61) Managing Director of Goldman Sachs 1997 - 2002. None N/A
6
INTERESTED TRUSTEE NOMINEES FOR GROUP AND INCOME,
INCOME AND SERIES TRUSTS:
Thomas A. James(b) (64) Chairman of the Board since 1985; Chief Executive Officer of RJF OSI Restaurant 10
TRUSTEE SINCE 1985 since 1969; Chairman of the Board of Raymond James Associates Partners, Inc.
("RJA") since 1986; Chairman of the Board of Eagle since 1984.
Richard K. Riess(b) (57) Executive Vice President and Managing Director for Asset None 10
TRUSTEE SINCE 1985 Management of RJF since 1998; Chief Executive Officer of Eagle
since 1996; Chief Executive Officer of Heritage since 2000.
(a) The date reflected in the table above is for Capital Appreciation, which was established in 1985. Each Trustee who was a member
of the Board in 1985 subsequently became a member of the Board of Growth and Income, Income and Series, which were established
in 1986, 1989 and 1992, respectively. Each Trustee became a member of each Trust established at the time it was established,
unless otherwise indicated. Each Trustee serves for life unless the Trustee is removed, resigns or retires.
(b) Messrs. James and Riess are "interested" persons of the Trusts, as that term is defined by the 1940 Act, by virtue of their
affiliations with Heritage, Eagle, RJA, and RJF. Further, Mr. James is also affiliated with Awad.
(c) Mr. Kinnicutt is not a nominee to the Board of Capital Appreciation.
As reported to the Trusts, the Nominees own shares of each Trust and the
Funds thereof as set forth in Exhibit __ to this Proxy Statement. In addition,
[no Independent Trustee owned shares of Heritage, RJA or their affiliates].
Exhibit __ sets forth the compensation paid to each Nominee by each Fund for the
calendar year 2005; and Exhibit __ sets forth information on the Trusts'
Officers.
BOARD OF TRUSTEES AND BOARD STRUCTURE
The Board is responsible for supervising the operation of each Trust. It
establishes the major policies, reviews investments, and provides guidelines to
Heritage and others who provide services to the Trusts. The Board met five times
during Capital Appreciation's last fiscal year, four times during Growth and
Income's last fiscal year, four times during Income's last fiscal year and four
times during Series' last fiscal year. The Board has a Nominating Committee, an
Audit Committee, a Compliance Committee and a Qualified Legal Compliance
Committee.
NOMINATING COMMITTEE
Each Trust has a Nominating Committee, consisting of Messrs. Jarrett,
Meurer, Graham, Pappas, and Phillips, and Ms. Talbot, each of whom is an
Independent Trustee. The primary responsibilities of the Nominating Committee
are to make recommendations to the Board on issues related to the composition
and operation of the Board, and communicate with management on those issues.
The Nominating Committee also evaluates and nominates Board member candidates.
The Nominating Committee met once during each Trust's respective last fiscal
year.
In proposing the Nominees, the Nominating Committee also considered
certain other factors, including but not limited to, the general knowledge,
background and experience of each Nominee. Specifically, the Nominating
Committee considered whether Nominees possess a very high level of integrity,
7
appropriate experience and a commitment to fulfill the fiduciary duties inherent
in Board membership. The Nominating Committee also considered the extent to
which a candidate possesses sufficiently diverse skill sets and diversity
characteristics that would contribute to the Board's overall effectiveness.
The Nominating Committee may consider recommendations for potential
candidates from any source, including Board members, Fund shareholders, legal
counsel to the Independent Trustees or other such sources as the Committee deems
appropriate. In determining potential candidates' qualifications for Board
membership, the Committee may consider all factors it may determine to be
relevant to fulfilling the role of being a member of the Board.
The Nominating Committee may consider potential candidates for nomination
identified by one or more shareholders of a Fund. Shareholders can submit
recommendations in writing to the attention of the Chairperson of the Committee
at an address to be maintained by Fund management for this purpose. In order
to be considered by the Committee, any shareholder recommendation must include
certain information, such as the candidate's name, date of birth, education,
business, professional or other relevant experience and areas of expertise,
current business, professional or other relevant experience and areas of
expertise, current business and home addresses and contact information, other
board positions or prior experience and any knowledge and experience relating
to investment companies and investment company governance. Successful
candidates must meet several other criteria as set forth in the Nominating
Committee charter, which is attached as Exhibit __ to this proxy statement.
AUDIT COMMITTEE
Each Trust has an Audit Committee, currently consisting of Messrs.
Jarrett, Meurer and Pappas, each of whom is an Independent Trustee. Mr. Meurer
serves as Chairman of the Audit Committee. The primary responsibilities of the
Audit Committee are, as set forth in its charter, to oversee and monitor: the
accounting and financial reporting and practices of each Trust; internal audit
controls and procedures relating to financial reporting; the Trusts' independent
public accountants, including their qualifications, independence and performance
(including the fees charged by accountants); the integrity, quality and
objectivity of the financial statements of each Trust; and the process for
reviewing the integrity and soundness of each Trust's internal controls relating
to financial reporting. The Audit Committee met four times during Capital
Appreciation's and Series' respective last fiscal year, and four times during
Growth and Income's and Income's last fiscal year.
COMPLIANCE COMMITTEE
Each Trust also has a Compliance Committee, consisting of Ms. Talbot and
Messrs. Graham and Phillips, each of whom is an Independent Trustee. Ms. Talbot
serves as Chairwoman of the Compliance Committee. The primary responsibilities
of the Compliance Committee are to oversee each Trust's compliance with all
regulatory obligations arising under the applicable federal securities law,
rules and regulations and oversee management's implementation and enforcement of
each Trust's compliance policies and procedures. The Compliance Committee met
four times during each Trust's last fiscal year.
8
QUALIFIED LEGAL COMPLIANCE COMMITTEE
Each Trust has a Qualified Legal Compliance Committee, consisting of
Messrs. Meurer and Pappas and Ms. Talbot, each of whom is an Independent
Trustee. The primary responsibility of each Trust's Qualified Legal Compliance
Committee is to receive, review and take appropriate action with respect to any
report made or referred to the Committee by an attorney of evidence of a
material violation of applicable U.S. federal or state securities law, material
breach of a fiduciary duty under U.S. federal or state law or a similar material
violation by any of the Trusts or by any officer, director, employee, or agent
of any of the Trusts. The Qualified Legal Compliance Committee did not meet
during the Trusts' last fiscal year.
REQUIRED VOTE AND RECOMMENDATION OF THE BOARD
Election of each Nominee as a Trustee requires the vote of a plurality of
the votes cast at the Meeting in person or by proxy by all shares of such Trust,
provided that a quorum is present. Shareholders who vote FOR Proposal 1 will
vote FOR each Nominee. THOSE SHAREHOLDERS WHO WISH TO WITHHOLD THEIR VOTE ON
ANY SPECIFIC NOMINEE(S) MAY DO SO ON THE PROXY CARD.
The Board unanimously recommends that shareholders vote "FOR" the election
of each Nominee as set forth in Proposal 1.
___________________________________
PROPOSAL 2: RE-CLASSIFY THE INVESTMENT OBJECTIVES AS NON-FUNDAMENTAL
FUNDS AFFECTED: ALL
___________________________________
INTRODUCTION
Each Fund's investment objective currently is a fundamental investment
objective. This means that the Fund would need to obtain shareholder approval
each time it determined that a change in its investment objective is necessary.
Under the 1940 Act, there is no requirement that a Fund's investment objective
be classified as fundamental. Accordingly, at its August 15, 2006 meeting, the
Board approved the re-classification of each Fund's investment objective as non-
fundamental, subject to shareholder approval.
WHAT YOU SHOULD CONSIDER
The Proposal to reclassify each Fund's investment objective as non-
fundamental is consistent with the changes proposed below, which are intended to
make each Fund operate more effectively. The proposed reclassifications would
give the Board the flexibility to revise a Fund's investment objective to
respond to changed market conditions or other circumstances in a timely manner
without the delay and expense of obtaining a shareholder vote. If reclassified
as a non-fundamental investment objective, the Board may change a Fund's
investment objective in the future without shareholder approval. The proposed
reclassification also will facilitate Heritage's ability to select and engage
new subadvisers under circumstances when, for example, a subadviser change would
be advantageous for a Fund but the proposed new subadviser has an investment
9
approach that differs sufficiently from that of the Fund's existing subadviser
to make appropriate a change in the Fund's stated investment objective. If a
Fund materially changes its investment objective, the Fund will inform
shareholders.
REQUIRED VOTE AND RECOMMENDATION OF THE BOARD
Approval of Proposal 2 with respect to each Fund requires an affirmative
1940 Act Majority of all shares of such Fund.
____________________________
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" PROPOSAL 2.
____________________________
___________________________________
PROPOSAL 3: MODERNIZE FUNDS' FUNDAMENTAL INVESTMENT RESTRICTIONS
FUNDS AFFECTED: ALL FUNDS AS NOTED BELOW
___________________________________
ABOUT THE FUNDS' INVESTMENT POLICIES
The Funds have adopted certain investment restrictions or policies that
are "fundamental," meaning that as a matter of law they cannot be changed
without shareholder approval. Restrictions and policies that the Funds have not
designated as being fundamental are considered to be non-fundamental and may be
changed by the Board without shareholder approval. All mutual funds are
required to adopt fundamental policies with respect to a limited number of
matters.
MODERNIZING THE FUNDS' INVESTMENT POLICIES
The Board, together with Heritage, has reviewed the Funds' current
fundamental restrictions and has concluded that certain restrictions should be
modified or eliminated based on the development of new practices and changes in
applicable law and to facilitate administration of the Funds. Over time, the
Funds have adopted fundamental restrictions to reflect certain regulatory,
business or industry conditions. Changes in applicable law now permit
investment companies like the Funds to eliminate certain of these restrictions.
Some of the Funds' current restrictions may also limit a Fund from investing in
a security that is both consistent with its investment objective and considered
by the portfolio manager to be a good investment for such Fund.
The revised restrictions maintain important investor protections while
providing flexibility to respond to changing markets, new investment
opportunities and future changes in applicable law. In some cases, only
technical changes are being made to simplify the language of the restriction or
standardize the language among the Funds. The proposed modifications are
expected to facilitate the management of the Funds' assets and simplify the
process of monitoring compliance with investment restrictions. With this
10
proposal, the Board intends to provide the Funds with a set of investment
restrictions that reflect the current legal and investment environments, and
will not unnecessarily restrict the Funds' investments.
NO CHANGE TO YOUR FUNDS' INVESTMENT OBJECTIVES
The revised restrictions do not affect the investment objectives of the
Funds, which remain unchanged, except with the proposed re-classification
discussed previously. The revised restrictions may give the Funds an increased
ability to engage in certain activities. However, the proposed modifications
are not expected to materially affect the manner in which the Funds are managed,
the investment program of the Funds or the investment performance of the Funds.
The Board does not anticipate that the changes, individually or in the
aggregate, will result in a material change in the level of investment risk
associated with an investment in the Funds, except where indicated below.
WHAT YOU SHOULD CONSIDER
You are being asked to vote on the changes recommended by the Board
because the restrictions are fundamental and may be changed only with
shareholder approval, as required by the 1940 Act. The Board expects that you
will benefit from the proposed changes to your Fund's fundamental investment
restrictions in several ways, including:
o The proposed changes expand the range of investment opportunities
and techniques available to manage the Fund's portfolio.
o The Board will have additional flexibility to respond more quickly
to new developments and changing trends in the marketplace when it
determines that a response is both appropriate and prudent.
o By minimizing the number of policies that can be changed only by
shareholder vote, the Board will have greater flexibility to modify
policies of the Fund, as appropriate, in response to changing
markets and in light of new investment opportunities and
instruments. The Fund will then be able to avoid the costs and
delays associated with holding a shareholder meeting when making
changes to investment policies that, at a future time, the Board
considers to be in the best interests of the Fund.
o The proposed changes to the Fund's investment restrictions are
designed to produce a clearer, more concise and streamlined set of
restrictions, which also will facilitate the compliance efforts of
the Fund.
A. TO MODIFY THE FUNDAMENTAL INVESTMENT RESTRICTION ON BORROWING.
-------------------------------------------------------------
FUNDS AFFECTED: ALL
If shareholders approve Proposal 3, the Funds' current fundamental
investment restriction on borrowing, set forth in Exhibit __ to this Proxy
Statement, would be modified to read as follows:
11
"The Fund may not borrow money, except to the extent permitted by
the 1940 Act, the rules and regulations thereunder and any
applicable exemptive relief."
DISCUSSION OF PROPOSED MODIFICATIONS. The 1940 Act requires every mutual
fund to set forth a fundamental investment restriction indicating the extent to
which the fund may borrow money. Under the 1940 Act, a fund may borrow money
from a bank for any purpose up to 33 1/3% of its total assets. Currently,
however, the Funds have different restrictions applicable to borrowing as
described in the chart in Exhibit __. For example, each Fund, except Capital
Appreciation, Core Equity and High Yield, limit additional investments when
borrowing to only 5% of the Fund's total assets. Growth and Income and
International Equity also have aggregate restrictions of 15% and 10% of each
Fund's respective total assets. The excepted Funds do not have any such stated
limitations. The current restriction also provides that certain Funds may
borrow only from banks and invest in reverse repurchase agreements, which
involve the sale of securities held by a fund pursuant to the fund's agreement
to repurchase the securities at an agreed upon date and price, which typically
reflects the current market rate of interest. In addition, Core Equity exempts
certain derivative instruments from the borrowing limits.
The proposed modifications would permit borrowing to the extent permitted
under the 1940 Act, including any exemptive relief uniformly among each Fund.
Under the 1940 Act, a fund may borrow from banks, provided that the net assets
of the fund plus the amount of all borrowings is no less than 300% of the amount
of such borrowings. The fund is required to be able to restore asset coverage
within three days, if it should decline to less than 300%. In addition, the 1940
Act permits a fund to borrow, on a temporary basis, up to 5% of its assets from
non-banks.
Each of the Funds is already permitted to borrow under its current
restrictions, and is thus currently subject to risks associated with borrowing.
Nonetheless, if this expanded authority were exercised, each Fund would be
subject to a greater degree of risk associated with borrowing, including the
risks of leveraging. Leverage exaggerates the effect of rises or falls in prices
of securities bought with borrowed money, and entails costs associated with
borrowing, including fees and interest.
B. TO MODIFY THE FUNDAMENTAL INVESTMENT RESTRICTION ON COMMODITIES.
---------------------------------------------------------------
FUNDS AFFECTED: ALL
If shareholders approve Proposal 3, the Funds' current fundamental
investment restriction on investments in commodities, set forth in Exhibit __ to
this Proxy Statement, would be modified to read as follows:
"The Fund may not purchase or sell commodities or commodity
contracts unless acquired as a result of ownership of securities or
other instruments issued by persons that purchase or sell
commodities or commodities contracts; but this shall not prevent the
Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities,
interest rates and currencies), options on financial futures
contracts (including futures contracts on indices of securities,
interest rates and currencies), warrants, swaps, forward contracts,
foreign currency spot and forward contracts or other derivative
instruments that are not related to physical commodities."
12
DISCUSSION OF PROPOSED MODIFICATIONS. The Act requires every mutual fund
to set forth a fundamental investment restriction indicating the extent to which
the fund may engage in the purchase and sale of commodities. Each Fund's
current restriction generally prohibits the purchase or sale of commodities as
noted in the chart in Exhibit __. Certain of the Fund's restrictions provide for
specific exceptions to this restriction. In addition, the current restriction
also includes prohibitions on investments in oil, gas or other mineral programs
for each Fund, except Diversified Growth.
The proposed modifications would clarify the types of commodity and
derivative transactions that are permissible uniformly among each Fund. If this
authority were exercised, however, the Funds would be subject to risks
associated with financial futures contracts, which entail leverage risks and the
risk that a Fund portfolio's position in a futures contract may be illiquid at
certain times. In addition, to the extent that each Fund would potentially make
equity investments in companies in the real estate, precious metals and natural
resources industries, it may be subject to risks relating to these commodities.
These risks include international political and economic developments,
inflation, and other factors. A Fund's portfolio securities may experience
substantial price fluctuations as a result of these factors.
C. TO MODIFY THE FUNDAMENTAL INVESTMENT RESTRICTION ON CONCENTRATION.
-----------------------------------------------------------------
FUNDS AFFECTED: ALL
If shareholders approve Proposal 3, the Funds' current fundamental
investment restriction on concentration, set forth in Exhibit __ to this Proxy
Statement, would be modified to read as follows:
"Except for any Fund that is `concentrated' in an industry or group
of industries within the meaning of the 1940 Act, the Fund may not
purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's
total assets would be invested in the securities of companies whose
principal business activities are in the same industry."
DISCUSSION OF PROPOSED MODIFICATIONS. The Act requires every mutual fund
to set forth a fundamental investment restriction indicating the extent to which
the fund may concentrate investments in a particular industry or group of
industries. As noted in the chart in Exhibit __, the Funds' current restriction
on concentration generally prohibits the purchase of any security if, as a
result, 25% or more of a Fund's assets would be invested in issuers in a single
industry. The Funds' current restriction also makes an exception for securities
issued or guaranteed by the U.S. government, its agencies, or instrumentalities.
There are no material differences among the current restriction and the proposed
new restriction.
The proposed modifications would clarify that the restriction would not
apply to any Fund that is "concentrated" in an industry or group of industries
within the meaning of the 1940 Act. Currently, there are no such Funds in the
complex.
13
D. TO MODIFY THE FUNDAMENTAL INVESTMENT RESTRICTION ON DIVERSIFICATION.
-------------------------------------------------------------------
FUNDS AFFECTED: ALL
If shareholders approve Proposal 3, the Funds' current fundamental
investment restriction on diversification, set forth in Exhibit __ to this Proxy
Statement, would be modified to read as follows:
"Except to the extent permitted by the 1940 Act, the rules and
regulations thereunder and any applicable exemptive relief, the Fund
may not with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. Government or any of its agencies or instrumentalities,
and securities of other investment companies) if, as a result, (a)
more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (b) the Fund would hold more than 10%
of the outstanding voting securities of that issuer."
DISCUSSION OF PROPOSED MODIFICATIONS. The Act requires every mutual fund
to state whether it is diversified or non-diversified. Each Fund has elected to
be classified as a diversified fund. This means that its assets are subject to
stricter limits on the amount of assets that can be invested in any one issuer.
The proposed modifications reflect the current diversification requirements of
the 1940 Act. As noted in the chart in Exhibit __, the current restrictions for
Capital Appreciation and High Yield apply the 5% test to all the assets of the
Funds. The proposed modifications are intended to apply the diversification
test uniformly to 75% of the Fund's total assets based on the current standards
of the 1940 Act.
E. TO MODIFY THE FUNDAMENTAL INVESTMENT RESTRICTION ON LOANS,
--------------------------------------------------------------------
REPURCHASE AGREEMENTS AND LOANS OF PORTFOLIO SECURITIES.
-------------------------------------------------------
FUNDS AFFECTED: ALL
If shareholders approve Proposal 3, the Funds' current fundamental
investment restriction on loans, set forth in Exhibit __ to this Proxy
Statement, would be modified to read as follows:
"The Fund may make loans only as permitted under the 1940 Act, the
rules and regulations thereunder and any applicable exemptive
relief."
DISCUSSION OF PROPOSED MODIFICATIONS. The Act requires every mutual fund
to set forth a fundamental investment restriction indicating the extent to which
the fund may lend. The Funds' current restriction prohibits loans, except in
certain circumstances as noted in the chart in Exhibit __. Each Fund, except
Growth and Income and High Yield, currently may purchase an issue of publicly
distributed notes, bonds or other debt. Growth and Income and High Yield may
purchase both publicly issued and privately placed securities. Each Fund also
specifically exempts repurchase agreements and certain Funds place percentage
limitations on the amount of any portfolio loans. A repurchase agreement is an
agreement to purchase a security, coupled with an agreement to sell that
security back to the original seller at an agreed upon date, at a price that
generally depends on current interest rates. The Act treats these agreements as
loans.
The proposed modifications would allow each Fund to lend to the extent
permitted under the 1940 Act. Each of the Funds is already permitted to lend
its portfolio securities under its current restrictions, and is thus currently
14
subject to risks associated with securities lending. The risks include the risk
of loss arising from the investment of collateral and/or the failure of a
borrower to return the borrowed securities at the end of the loan.
F. TO MODIFY THE FUNDAMENTAL INVESTMENT RESTRICTION ON REAL ESTATE.
---------------------------------------------------------------
FUNDS AFFECTED: ALL
If shareholders approve Proposal 3, the Funds' current fundamental
investment restriction on investing in real estate, set forth in Exhibit __ to
this Proxy Statement, would be
"The Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, the Fund may (a) invest in
securities or other instruments directly or indirectly secured by
real estate, and (b) invest in securities or other instruments
issued by issuers that invest in real estate."
DISCUSSION OF PROPOSED MODIFICATIONS. The Act requires every mutual fund
to set forth a fundamental investment restriction indicating the extent to which
the fund may engage in the purchase and sale of real estate. The Funds' current
restriction generally prohibits investments in real estate, except under certain
circumstances as noted in the chart in Exhibit __. These exceptions include
investments in securities issued by companies that invest in or sponsor such
interests and securities secured by interests in real estate. Further, Growth
and Income and International Equity Fund may invest in real estate limited
partnerships. The proposed modifications would prohibit investments in real
estate uniformly for each Fund, unless such securities are directly or
indirectly secured by real estate or issued by issuers that invest in real
estate.
G. TO MODIFY THE FUNDAMENTAL INVESTMENT RESTRICTION ON SENIOR
--------------------------------------------------------------------
SECURITIES.
----------
FUNDS AFFECTED: ALL
If shareholders approve Proposal 3, the current fundamental investment
restriction on senior securities set forth in Exhibit __ to this Proxy
Statement, would be modified to read as follows:
"The Fund may not issue senior securities, except to the extent
permitted by the 1940 Act, the rules and regulations thereunder and
any applicable exemptive relief."
DISCUSSION OF PROPOSED MODIFICATIONS. The Act requires every mutual fund
to set forth a fundamental investment restriction indicating the extent to which
the fund may issue "senior securities." The term "senior securities" generally
refers to evidence of indebtedness of fund obligations that have a priority over
a fund's common stock with respect to the distribution of fund assets or the
payment of dividends. Section 18 (f) (1) of the 1940 Act prohibits every mutual
fund from issuing any senior securities except for bank borrowings (which meet
the 300% coverage test discussed above in Proposal 3-A). The rules adopted by
the SEC also permit a fund to issue multiple classes of shares to be used in
different distribution channels each of which may be subject to different
expenses and, therefore, may pay different dividends.
15
The staff of the SEC has articulated certain guidelines under which it
will not treat certain leveraged transactions as senior securities. These
transactions include: reverse repurchase agreements, purchasing "when issued"
securities, selling securities short, buying and selling financial futures
contracts and selling put and call options. The SEC will not treat any of these
as senior securities provided the transaction is "covered" to limit the
potential leverage. Funds generally can cover its risk either by being "long"
with respect to the instrument underlying the transaction or by segregating or
earmarking on its books and records liquid securities equal in value to the
fund's potential exposure.
The Funds' current restriction prohibits the issuance of senior
securities, except to the extent permitted by the Fund's investment objective,
policies and investment limitations of the Fund. In addition, Growth and Income
may purchase and sell call options and forward contracts, while Diversified
Growth may engage in forward currency contracts or other financial instruments.
The proposed modifications would permit each Fund to issue senior
securities to the extent permitted by the 1940 Act, the rules and regulations
thereunder and applicable exemptive relief. Together with the restriction on
borrowing, the restriction proposed here would make clear that the Funds can
take full advantage of the latitude allowed by the 1940 Act in this area. If the
authority under the proposed restriction were exercised, each Fund would be
subject to a greater degree of risk associated with issuing senior securities,
such as risks associated with borrowing, as stated in Proposal 3.
H. TO MODIFY THE FUNDAMENTAL INVESTMENT RESTRICTION ON UNDERWRITING.
----------------------------------------------------------------
FUNDS AFFECTED: ALL
If shareholders approve Proposal 3, the Funds' current fundamental
investment restriction on underwriting, set forth in Exhibit __ to this Proxy
Statement, would be modified to read as follows:
"The Fund may not underwrite securities issued by others, except to
the extent that the Fund may be considered an underwriter within the
meaning of the 1933 Act in the disposition of restricted securities
or in connection with investments in other investment companies."
DISCUSSION OF PROPOSED MODIFICATIONS. The Act requires every mutual fund
to set forth a fundamental investment restriction indicating the extent to which
the fund may engage in the business of underwriting securities issued by other
persons. This requirement is in recognition of the fact that the business of
purchasing securities for the purpose of engaging in a distribution of the
securities to the public (i.e., the business of underwriting securities)
involves significantly different risks than the business of purchasing and
subsequently selling securities as part of the business of investing in
securities. Under the Federal securities laws, the term "underwriting" is
construed broadly and could include the purchase and resale of securities by a
fund in circumstances in which such securities were not registered under the
Federal securities laws when initially purchased by the fund. Similarly, in
circumstances in which a fund invests a substantial portion of its assets in the
securities of one or more other investment companies, the fund might be deemed
to be an underwriter of the securities of the other investment companies.
16
The Funds' current restriction generally states that the Funds may not
underwrite any issue of securities. Growth and Income and International Equity
provide an exception to the extent that the Fund may be deemed an underwriter in
connection with the disposition of portfolio securities. The exception in the
restriction refers to a technical provision of the Securities Act of 1933, as
amended, which deems certain persons to be "underwriters" if they purchase a
security from the issuer and later sell it to the public. Although none of the
Funds purchases securities with a view towards distribution of such securities,
a Fund may from time to time purchase and resell "restricted" securities or
invest in shares of other investment companies. The proposed changes to each
Fund's investment restriction on underwriting securities of others, as set forth
in Exhibit __, is intended to clarify that such activities will not violate the
Fund's fundamental restriction prohibiting the Fund from engaging in the
business of underwriting the securities issued by another person.
I. TO ELIMINATE THE FUNDAMENTAL INVESTMENT RESTRICTION ON INVESTMENTS
--------------------------------------------------------------------
IN OIL, GAS AND OTHER MINERAL PROGRAMS.
--------------------------------------
FUNDS AFFECTED:CAPITAL APPRECIATION, CORE EQUITY, GROWTH AND
INCOME, HIGH YIELD, INTERNATIONAL EQUITY AND SMALL
CAP
If shareholders approve Proposal 3, the current fundamental investment
restriction for Capital Appreciation, Core Equity, Growth and Income, High
Yield, International Equity and Small Cap on investing in oil, gas or other
mineral programs, set forth in Exhibit __ to this Proxy Statement, would be
eliminated.
DISCUSSION OF PROPOSED MODIFICATIONS. There is no federal requirement
that the Funds have an affirmative restriction on this subject. Moreover, there
is no requirement that any restriction that they do have regarding these
investments be categorized as fundamental. The fundamental policy was derived
from state laws that have been preempted by amendments of federal securities
laws. In order to maximize each Fund's investment flexibility, this restriction
should be eliminated.
J. TO ELIMINATE THE FUNDAMENTAL INVESTMENT RESTRICTION ON MARGIN
--------------------------------------------------------------------
PURCHASES.
---------
FUNDS AFFECTED: GROWTH AND INCOME, HIGH YIELD AND INTERNATIONAL
EQUITY
If shareholders approve Proposal 3, the current fundamental investment
restriction for Growth and Income, High Yield and International Equity on margin
purchases, set forth in Exhibit __ to this Proxy Statement, would be eliminated.
DISCUSSION OF PROPOSED MODIFICATIONS. There is no federal requirement
that the Funds have an affirmative restriction on this subject. Moreover, there
is no requirement that any restriction that they do have regarding these
investments be categorized as fundamental. The fundamental policy was derived
from state laws that have been preempted by amendments of federal securities
laws. In order to maximize the Fund's investment flexibility, this restriction
should be eliminated.
17
K. TO ELIMINATE THE FUNDAMENTAL INVESTMENT RESTRICTION ON SHORT SALES.
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FUNDS AFFECTED: HIGH YIELD AND INTERNATIONAL EQUITY
If shareholders approve Proposal 3, the current fundamental investment
restriction for High Yield and International Equity on short sales, set forth in
Exhibit __ to this Proxy Statement, would be eliminated.
DISCUSSION OF PROPOSED MODIFICATIONS. There is no federal requirement
that the Funds have an affirmative restriction on this subject. Moreover, there
is no requirement that any restriction that they do have regarding these
investments be categorized as fundamental. The fundamental policy was derived
from state laws that have been preempted by amendments of federal securities
laws. In order to maximize each Fund's investment flexibility, this restriction
should be eliminated.
L. TO ELIMINATE THE FUNDAMENTAL INVESTMENT RESTRICTION ON AFFILIATED
--------------------------------------------------------------------
TRANSACTIONS.
------------
FUNDS AFFECTED: HIGH YIELD
If shareholders approve Proposal 3, the current fundamental investment
restriction for High Yield on affiliated transactions, set forth in Exhibit __
to this Proxy Statement, would be eliminated.
DISCUSSION OF PROPOSED MODIFICATIONS. There is no federal requirement
that the Funds have an affirmative restriction on this subject. Moreover, there
is no requirement that any restriction that they do have regarding these
investments be categorized as fundamental. The fundamental policy is not
necessary since affiliated transactions are governed under Section 17 of the
1940 Act. In order to maximize the Fund's investment flexibility consistent
with applicable regulations on affiliated transactions, this restriction should
be eliminated.
REQUIRED VOTE. Approval of Proposal 3 requires an affirmative 1940 Act
Majority of all shares of High Yield.
____________________________
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" PROPOSAL 3
____________________________
18
___________________________________
PROPOSAL 4: APPROVE INVESTMENT ADVISORY AGREEMENT
FUNDS AFFECTED: ALL
___________________________________
INTRODUCTION
Each Trust presently has agreements with Heritage that cover both advisory
and administrative services provided by Heritage (collectively, the "Current
Agreements"). Management proposed to the Board at a meeting held on August 15,
2006 to separate Heritage's obligations to provide advisory services and
administrative services to the Funds into two different agreements. This move
will allow Heritage to allocate its management fees for each Fund between
advisory and administrative services. Accordingly, at its meeting, the Board
approved a new advisory agreement for all Funds (the "New Agreement"), which is
attached as Exhibit __. The Board also approved a separate administrative
services agreement, which you are not required to approve.
The New Agreement consolidates and standardizes the Current Agreements
into a single contractual arrangement among the Funds and Heritage. The New
Agreement also modernizes and updates the provisions and terms of the Current
Agreements, which were adopted originally more than ten years ago.
THE CURRENT AGREEMENTS
Heritage currently serves as the investment adviser and administrator
under the Current Agreements. Under the Current Agreements, Heritage provides a
continuous investment program for each Fund, including performing investment
research, determining what securities to purchase or sell for a Fund, placing
orders or delegating such duties to the Fund's investment subadviser. In
addition, Heritage provides administrative services, including supervising the
operations of each Trust, investigating and selecting necessary service
companies to the Funds, performing clerical services, maintaining books and
records, providing office services and responding to shareholder inquiries. The
services provided by Heritage are not exclusive and Heritage is free to furnish
similar services to others. The Current Agreements initially were approved by
the Board for a term of two years and have been approved annually thereafter in
accordance with the 1940 Act. The Board, including the Independent Trustees,
last approved the Current Agreements on August 15, 2006. Information concerning
the Current Agreements and compensation to Heritage are listed in the table in
Exhibit __.
THE NEW AGREEMENT
The terms of the New Agreement are similar to the terms of the Current
Agreements, except with respect to the transfer of administrative services
provided by Heritage into a separate agreement and as noted below. The New
Agreement, in contrast to the Current Agreements, also:
19
o makes Heritage responsible for preserving the confidentiality of
information concerning the holdings, transactions and business
activities of the Funds in accordance with applicable laws;
o permits Heritage to exercise all rights of shareholders, including
but not limited to proxy voting, converting, tendering, exchanging
or redeeming securities, acting as claimant in class action
litigation, responding to all legal and regulatory inquiries and
carrying out rights in bankruptcy or reorganization matters;
o clarifies that Heritage is responsible for effecting Fund portfolio
transactions and selecting broker-dealers to execute such
transactions;
o requires Heritage to maintain a compliance program, including
providing the Funds' Chief Compliance Officer with periodic reports
on compliance with applicable federal securities laws;
o explains that the delegation of certain services to third-parties
does not reduce Heritage's responsibilities and obligations;
o conforms the Trusts', Funds' and shareholders' liability to the
limitation of liability as specified in the Trusts' organizational
documents, including that Heritage may not seek to satisfy Trust or
Fund obligations from shareholders or Trustees;
o clarifies that the New Agreement is effective for two years from the
date noted in the agreement and for successive twelve month periods
thereafter, if the continuance of the agreement is approved under
applicable law;
o clarifies that the New Agreement may be terminated without penalty
and with respect to a given Fund without affecting the validity of
the agreement for any other Fund;
o provides the Board with the ability to amend the New Agreement
without shareholder approval;
o requires Heritage to maintain all accounts, books and records under
applicable federal law; and
o adds a provision limiting Heritage's liability in case of emergency,
disaster or circumstances beyond its control.
Both the Current Agreements and New Advisory Agreement provide that
Heritage is responsible for supervising and managing each Fund's investments and
effecting each Fund's portfolio transactions. Other than noted above, both
agreements maintain the same standard of care and indemnification provisions.
In addition, the compensation for advisory services under both agreements
remains the same, in that once the administrative services fee rate portion of
the management fee has been deducted, the advisory fee rate for each Fund
remains unchanged.
INFORMATION ON HERITAGE
Heritage, a wholly owned subsidiary of RJF, serves as investment adviser
and administrator for each Fund. Heritage manages, supervises and conducts the
business and administrative affairs of the Funds and other Heritage mutual funds
with net assets totaling approximately more than $9 billion as of August 31,
2006. Exhibit __ provides information on the principal executive officers and
directors of Heritage.
20
BOARD APPROVAL OF NEW AGREEMENT
At a meeting held on August 15, 2006, the Board, including the Independent
Trustees, approved the New Agreement with Heritage. The Board considered that
the nature of the investment advisory services to be provided by Heritage under
the New Agreement is similar to what has been provided previously to each Fund
under the Current Agreements by Heritage. In addition, the Board noted that the
extent and quality of the investment advisory services to be provided for each
Fund would not diminish under the New Agreement. The Board recognized that the
only material difference from the New Agreement and the Current Agreements is
the separation of the administrative services into a stand-alone agreement.
Heritage represented to the Board that it will continue to provide the same
level of administrative services pursuant to a separate administration agreement
with the Funds. In this regard, the Board evaluated the potential benefits from
including the administrative services in a separate agreement. These benefits
include the flexibility to offer a range of Fund classes targeted to different
investors, which may result in attracting additional assets to the Funds. The
Board considered that the other changes included in the New Agreement, which are
discussed above, are reasonable modifications or otherwise formalize existing
practices of Heritage, such as requiring Heritage to maintain a compliance
program.
The Board also considered that the investment advisory fees under the New
Agreement would not change and that Heritage would continue to maintain its
contractual expense limitations for each Fund's 2007 fiscal year (except Mid
Cap).
Based on the similarities between the New Agreement and Current Agreements
and considering Heritage has been the investment adviser to each Fund since its
inception, the Board relied on information related to its consideration with the
annual renewals of the Current Agreements. These considerations are discussed in
Exhibit __.
REQUIRED VOTE AND BOARD'S RECOMMENDATION
Approval of Proposal 4 requires an affirmative 1940 Act Majority of all
shares of each Fund.
____________________________
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" PROPOSAL 4
____________________________
___________________________________
PROPOSAL 5: APPROVE SUBADVISORY AGREEMENTS
FUNDS AFFECTED: CAPITAL APPRECIATION, GROWTH AND
INCOME, CORE EQUITY, DIVERSIFIED GROWTH,
MID CAP AND SMALL CAP
___________________________________
INTRODUCTION
At its Meeting on August 15, 2006, the Board approved new subadvisory
agreements between: (1) Heritage and GSAM with respect to Capital Appreciation
("New GSAM Agreement"); (2) Heritage and Eagle with respect to Capital
Appreciation, Growth and Income, Core Equity, Diversified Growth, Mid Cap, and
Small Cap ("New Eagle Agreements"); and (3) Heritage and Awad with respect to
Small Cap ("New Awad Agreement"). The New GSAM Agreement, New Eagle Agreements
and New Awad Agreement are collectively referred to as the "New Subadvisory
Agreements." Forms of the New Subadvisory Agreements are included in Exhibit __
to Exhibit __.
GSAM, Eagle and Awad currently subadvises the Funds noted above pursuant
to existing subadvisory agreements with Heritage ("Current GSAM Agreement,"
"Current Eagle Agreements" and "Current Awad Agreement," respectively and
collectively, the "Current Subadvisory Agreements"). The Current Subadvisory
Agreements are substantially similar to the New Subadvisory Agreements, except
with respect to the date of execution and the elimination of a technical
provision as discussed below.
Shareholders are being asked to approve the New Subadvisory Agreements due
to a technical provision in the each Current Subadvisory Agreement, which
results in the automatic termination of the Current Subadvisory Agreement upon
the termination of the current investment advisory agreement with Heritage. As
discussed previously, Heritage's Current Agreement will terminate upon
shareholder approval of the New Agreement (Proposal 4). If Proposal 4 is not
21
approved, then shareholders will not be asked to approve the New Subadvisory
Agreements. The approval of any one New Subadvisory Agreement is not contingent
on the approval of any other New Subadvisory Agreement.
COMPARISON OF THE CURRENT AND NEW SUBADVISORY AGREEMENTS
The terms of the Current and New Subadvisory Agreements are substantially
similar. A description of the material terms follows and the material
differences are noted below.
FEES. Under each New Subadvisory Agreement, Heritage is responsible for
paying the subadviser a subadvisory fee. The rates of compensation, which are
listed in each applicable proposal below, are identical under both the Current
and New Subadvisory Agreements.
SERVICES. Under each New Subadvisory Agreement, the subadviser, subject
to the supervision of Heritage and the Board, is responsible for making
investment decisions and placing orders for the purchase and sale of Fund
portfolio securities. Each subadviser also provides the portfolio managers for
its Fund(s) and compliance reports to Heritage and, as necessary, to the Board
as required under the New Subadvisory Agreements. Each Current Subadvisory
Agreement has the same provisions.
LIABILITY. Under each New Subadvisory Agreement, the subadviser is not
subject to any liability to Heritage, the applicable Fund or the Trustees,
officers or shareholders for its acts or omissions unless that subadviser acted
with willful misfeasance, gross negligence or reckless disregard or in bad
faith. Each Current Subadvisory Agreement has the same provisions.
AMENDMENTS. Each Current Subadvisory Agreement includes a provision that
requires shareholder approval for amendments to the agreements. Each New
Subadvisory Agreement will include a modified provision that requires
shareholder approval of material amendments to the extent compelled by the 1940
Act.
TERMINATION. Each New Subadvisory Agreement, if approved by shareholders,
will terminate after two years from its initial effectiveness unless its
continuance is specifically approved by a majority of the Independent Trustees
of the Board. Each New Subadvisory Agreement also will terminate automatically
in the event of its assignment as defined in the 1940 Act. Each Current
Subadvisory Agreement has the same provisions.
However, each Current Subadvisory Agreement includes a provision that
states it automatically terminates if the investment advisory agreement with
Heritage terminates for any reason. Each New Subadvisory Agreement will not
include this provisions as they are not required under the 1940 Act and to
reduce costs in case of future shareholder solicitations on this matter.
BOARD APPROVAL OF NEW SUBADVISORY AGREEMENTS
The Board considered that the terms of each New Subadvisory Agreement are
identical to each Current Subadvisory Agreement except as discussed above. The
Board also noted that there is no change in the nature, extent and quality of
services to be provided by GSAM, Eagle or Awad under the New Subadvisory
Agreements. In addition, the Board relied on relevant information regarding
GSAM, Eagle and Awad in its consideration of each Current Subadvisory Agreement
with Heritage. These considerations are discussed in Exhibit __.
22
PROPOSAL NO. 5-A: TO APPROVE A SUBADVISORY AGREEMENT BETWEEN HERITAGE AND GSAM
------------------------------------------------------------
FUNDS TO WHICH THIS PROPOSAL APPLIES: CAPITAL APPRECIATION
If shareholders approve Proposal 5-A, the New GSAM Agreement will become
effective. Under the New GSAM Agreement, Heritage will pay GSAM .25% of average
daily net assets, which is identical to the fee paid under the Current GSAM
Agreement.
INFORMATION ABOUT GSAM
GSAM, 2502 Rocky Point Drive, Tampa, Florida serves as the subadviser to
Capital Appreciation pursuant to the Current GSAM Agreement, which last was
approved by the Board on August 15, 2006. As of June 30, 2006, GSAM, a business
unit of the Investment Management Division and wholly-owned subsidiary of,
Goldman, Sachs & Co., had approximately $549.4 billion of assets under
management. Exhibit __ provides information on the principal executive officers
and directors of GSAM.
REQUIRED VOTE AND BOARD'S RECOMMENDATION
Approval of Proposal 5-A requires an affirmative 1940 Act Majority of all
shares of Capital Appreciation.
____________________________
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" PROPOSAL 5-A
____________________________
PROPOSAL NO. 5-B: TO APPROVE A SUBADVISORY AGREEMENT BETWEEN HERITAGE AND EAGLE
-------------------------------------------------------------
FUNDS TO WHICH THIS PROPOSAL APPLIES: CAPITAL APPRECIATION, GROWTH AND
INCOME, CORE EQUITY, DIVERSIFIED GROWTH, MID CAP AND SMALL CAP
Under the Current Eagle Agreements for Core Equity, Diversified
Growth, Mid Cap and Small Cap, Heritage pays Eagle a subadvisory fee based on
the level of assets in the Fund as noted in the table below. Under the Current
Eagle Agreements for Capital Appreciation and Growth and Income, Heritage
pays Eagle a subadvisory fee equal to 1/2 of Heritage's management fee, which is
set forth in the table below.
- ----------------------------------------------------------------------------
FUND CURRENT SUBADVISORY AGREEMENTS
---- ------------------------------
- ----------------------------------------------------------------------------
Capital Appreciation $0 to $1 billion - 0.375%
Over $ 1 billion - 0.35%
- ----------------------------------------------------------------------------
Growth and Income $0 to $100 million - 0.75%
$100 million to $500 million - 0.60%
Over $500 million - 0.55%
- ----------------------------------------------------------------------------
Core Equity All Assets 0.375%
- ----------------------------------------------------------------------------
23
- ----------------------------------------------------------------------------
Diversified Growth, Mid Cap, Small $0 to $500 million - 0.375%
Cap $500 million to $1 billion - 0.35%
Over $1 billion - 0.325%
- ----------------------------------------------------------------------------
Heritage's management fee includes a combined fee for both administrative
and advisory services as discussed in Proposal 4. The administrative services
provided under the Current Agreements with Heritage, however, are being moved
into a new separate agreement. Thus, the advisory fee paid to Heritage under
the New Agreement will be less than the advisory portion of the current combined
fee paid to Heritage under the Current Agreement.
Under the New Eagle Agreement for Capital Appreciation and Growth and
Income, Eagle will receive the same amounts as under the Current Eagle
Agreements for these Funds regardless of the advisory fees paid to Heritage
under the New Agreement. Eagle's fee will be paid directly by Heritage and not
the Funds. Shareholders will not pay higher advisory fees. With respect to the
other Funds subadvised by Eagle, Heritage will pay Eagle the same amount as
under the Current Eagle Agreements for these Funds. If shareholders approve
Proposal 5-B, the New Eagle Agreements will become effective.
INFORMATION ABOUT EAGLE
Eagle, 880 Carillon Parkway, St. Petersburg, Florida 33716, serves as the
subadviser to Capital Appreciation, Core Equity, Diversified Growth, Mid Cap and
Small Cap pursuant to the Current Eagle Agreement, which last was approved by
the Board on August 15, 2006. Heritage has not allocated any assets of Capital
Appreciation or Growth and Income to Eagle. As of August 31, 2006, Eagle had
approximately $12.5 billion of assets under management. Eagle is a wholly owned
subsidiary of RJF. Exhibit __ provides information on the principal executive
officers and directors of Eagle. Exhibit __ provides information on similar
mutual funds managed by Eagle.
REQUIRED VOTE AND BOARD'S RECOMMENDATION
Approval of Proposal 5-B requires an affirmative 1940 Act Majority of all
shares of each applicable Fund.
____________________________
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" PROPOSAL 5-B
____________________________
PROPOSAL NO. 5-C: TO APPROVE A SUBADVISORY AGREEMENT BETWEEN HERITAGE AND AWAD
------------------------------------------------------------
FUND TO WHICH THIS PROPOSAL APPLIES: SMALL CAP STOCK
If shareholders approve Proposal 5-C, the New Awad Agreement will become
effective. Under the New Awad Agreement, Heritage will pay Awad .375% of
average daily net assets on the first $500 million, .35% on the next $500
million and .325% on assets above $1 billion, which is identical to the fee paid
under the Current Awad Agreement.
24
INFORMATION ABOUT AWAD
Awad, 250 Park Avenue, New York, New York 10177, is a wholly owned
subsidiary of RJF. As of August 31, 2006, Awad had approximately $1 billion of
assets under management. Awad is owned 75% by RJF and 25% by James Awad. Exhibit
__ provides information on the principal executive officers and directors of
Awad.
REQUIRED VOTE AND BOARD'S RECOMMENDATION
Approval of Proposal 5-C requires an affirmative 1940 Act Majority of all
shares of Small Cap.
____________________________
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" PROPOSAL 5-C
____________________________
___________________________________
PROPOSAL 6: APPROVE MANAGER OF MANAGERS STRUCTURE
FUNDS AFFECTED: CAPITAL APPRECIATION, MID CAP, SMALL CAP
___________________________________
INTRODUCTION
Currently, Heritage serves as the investment adviser to Capital
Appreciation, Mid Cap and Small Cap. Heritage has delegated the day-to-day
management of each of these Funds to a subadviser as noted in the table below.
As such, Heritage does not make the day-to-day investment decisions for those
Funds. Instead, Heritage oversees the investment process and subadviser of each
Fund, establishes an investment program for each Fund and selects, compensates
and evaluates each Fund's subadvisers. The subadvisers, in turn, make the day-
to-day investment decisions for their relevant Fund. The current subadvisers
for these Funds are:
-----------------------------------------------
FUND INVESTMENT SUBADVISER(S)
-----------------------------------------------
Capital Appreciation Eagle*, GSAM
-----------------------------------------------
Mid Cap Eagle
-----------------------------------------------
Small Cap Awad, Eagle
-----------------------------------------------
* Heritage currently has not allocated any assets to Eagle.
Federal securities law generally requires that the shareholders of a Fund
approve its subadvisory agreement(s) and any amendments thereto. Thus, when a
new subadviser is retained on behalf of the Fund, shareholders typically are
required to approve the subadvisory agreement. Similarly, if an existing
subadvisory agreement is amended in any material respect (such as an increase in
the fee paid by Heritage - not by the Fund - to the subadviser), shareholder
approval is required. In addition, shareholder approval typically is required
in order to re-appoint a subadviser when there is a change in control of the
Fund's subadviser. In all of these cases, in order to obtain shareholder
25
approval, a Fund must call and conduct a shareholders' meeting, prepare and
distribute proxy materials, and solicit votes from Fund shareholders. The
process can be costly and time-consuming.
Each Fund received an order from the SEC on November 21, 2001, exempting
each Fund from the requirement described in the previous paragraph ("SEC
Order"). The SEC Order permits each Fund, without the prior approval of
shareholders, to hire new subadvisers, to rehire existing subadvisers that have
experienced a change in control and to modify subadvisory agreements except with
respect to affiliates. By eliminating shareholder approval in these matters, a
Fund would have greater flexibility in selecting and re-appointing investment
subadvisers and would save the considerable expenses involved in soliciting
shareholder proxies and conducting shareholder meetings. Changes in subadvisory
arrangements would still require Board approval and may be subject to certain
other conditions, as discussed below.
The Board and Heritage hereby seek shareholder approval of this proposed
arrangement for approval of subadvisory agreements. If Proposal 4 is not
approved by shareholders, shareholder approval of subadvisory agreements and
amendments thereto will continue to be required. If Proposal 6 is approved by
Fund shareholders, the Proposal will be effective immediately.
COMPARISON OF PRESENT AND PROPOSED SELECTION PROCESS FOR SUBADVISERS
Under both the current process for approval of subadvisory agreements and
under the proposed process, any change in a subadvisory agreement requires
approval by the Board. In considering whether to appoint a subadviser, the
Board will analyze the factors it considers relevant, including the nature,
quality and scope of services provided by a subadviser to investment companies
comparable to a Fund. The Board will review the ability of the subadviser to
provide its services to a Fund, as well as its personnel, operations, financial
condition or any other factor that would affect the provision of those services.
The Board will examine the performance of the subadviser with respect to
compliance and regulatory matters over the past fiscal year. It will review the
subadviser's investment performance with respect to accounts that are
comparable. Finally, the Board will consider other factors that it considers
relevant to the subadviser's performance as an investment adviser. The Board
believes that this review process provides appropriate shareholder protection in
the selection of subadvisers.
Under the current process for approval of subadvisory agreements, in
addition to Board approval, shareholders must approve any change in subadvisory
agreements. More particularly, a subadvisory agreement must receive an
affirmative 1940 Act Majority of all shares of a Fund. Such shareholder
approval would be eliminated for Capital Appreciation, Mid Cap and Small Cap
under the proposed process for approval of subadvisory agreements.
The SEC Order authorizing the proposed process for approval of subadvisory
agreements is subject to various conditions, including the following:
1. The operation of a Fund as described above must be approved by
holders of a 1940 Act Majority of all shares of that Fund.
2. A Fund must disclose in its prospectus the existence, substance and
effect of the SEC Order. In addition, a Fund must hold itself out to the public
as employing the management structure described above. The Fund's prospectus
must prominently disclose that Heritage has the ultimate responsibility (subject
26
to oversight by the Board) to oversee subadvisers and recommend their hiring,
termination and replacement.
3. Heritage must provide general management services to a Fund,
including overall supervisory responsibility for the general management and
investment of the Fund's assets and, subject to the review and approval of the
Board, must: (a) set the Fund's overall investment strategies; (b) evaluate,
select and recommend subadvisers; (c) allocate and, when appropriate, reallocate
the Fund's assets among subadvisers in those cases where the Fund has more than
one subadviser; (d) monitor and evaluate the investment performance of the
subadvisers; and (e) implement procedures reasonably designed to ensure that the
subadvisers comply with a Fund's investment objectives, policies and
restrictions.
4. At all times, each Trust's Board must be comprised of a majority of
Independent Trustees, and the nomination of new or additional Independent
Trustees must be placed within the discretion of the then existing Independent
Trustees.
5. Heritage must not enter into a subadvisory agreement with any
affiliated subadviser without the approval of the Fund shareholders of such
agreement, including the compensation to be paid thereunder.
6. When an affiliated subadviser is being proposed for a Fund, the
Board, including a majority of the Independent Trustees, must find, and be
reflected in the Board minutes of the Trust, that such change is in the best
interest of the Fund and its shareholders and does not involve a conflict of
interest from which Heritage or affiliated subadviser derives an inappropriate
advantage.
7. No Trustee or officer of a Fund or director or officer of Heritage
must own directly or indirectly (other than through a pooled investment vehicle
that is not controlled by any such person) any interest in a subadviser, except
for ownership of: (a) an interest in Heritage, or any entity that controls, is
controlled by or is under common control with Heritage, or (b) less than 1% of
the outstanding securities of any class of equity or debt of a publicly traded
company that is either a subadviser or an entity that controls, is controlled by
or is under common control with a subadviser.
8. Within 90 days of the retaining a new subadviser, Heritage must
furnish Fund shareholders all information about the new subadviser that would be
included in a proxy statement. Such information must include any change in such
disclosure as a result of the new subadviser. To meet this condition, Heritage
must provide shareholders with an information statement that meets the
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule 14A under
the Securities Exchange Act of 1934, as amended.
REQUIRED VOTE
Approval of Proposal 6 requires an affirmative 1940 Act Majority of all
shares of each applicable Fund.
____________________________
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" PROPOSAL 6
____________________________
27
OTHER MATTERS
No business, other than as set forth above, is expected to come before the
Meeting. Should any other matters requiring a vote of shareholders properly come
before the Meeting, the persons named in the enclosed proxy will vote thereon in
accordance with their best judgment in the interests of the Funds. Heritage Fund
Distributors, Inc. and RJA, P.O. Box 33022, St. Petersburg, Florida 33733 serve
as the Funds' principal underwriters.
INFORMATION ON THE FUNDS' INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP ("PwC"), 101 E. Kennedy Boulevard, Suite 1500,
Tampa, Florida 33602 serves as the independent registered certified public
accounting firm for the Funds. Representatives of PwC are not expected to be
present at the Meeting but have been given the opportunity to make a statement
if they so desire and will be available should any matter arise requiring their
presence. Exhibit __ provides additional information on audit and other fees
billed by PwC.
SOLICITATION OF PROXIES
The solicitation of proxies will be made primarily by mail but may also be
made by telephone by Heritage and Automatic Data Processing, Inc. ("ADP"),
professional proxy solicitors, who will be paid fees and expenses of
approximately $100,000 for soliciting services. All expenses in connection with
preparing this Proxy Statement and its enclosures and solicitation expenses that
relate to Proposal 1 will be borne by the Funds. The Funds also will bear the
cost of one-half the difference between the costs related to the remaining
Proposals and Proposal 1. Heritage will bear the remaining costs. However,
Heritage voluntarily or contractually has agreed to continue to limit each
Fund's current expense cap arrangement through each Fund's 2007 fiscal year,
except Mid Cap. In the event proxy expenses exceed the caps, then Heritage will
bear theses costs.
If votes are recorded by telephone, Heritage and/or ADP will use
procedures designed to authenticate shareholders' identities, to allow
shareholders to authorize the voting of their shares in accordance with their
instructions and to confirm that shareholders instructions have been properly
recorded. Shareholders also may vote through a secure Internet site or by mail.
Proxies by Internet or telephone may be revoked at any time before they are
voted in the same manner that proxies voted by mail may be revoked.
SHAREHOLDER PROPOSALS
As a general matter, the Funds do not hold regular annual or other
meetings of shareholders. Any shareholder who wishes to submit proposals to be
considered at a special meeting of the Fund's shareholders should send such
proposals to the Fund at 880 Carillon Parkway, St. Petersburg, Florida 33716, so
as to be received a reasonable time before the proxy solicitation for that
meeting is made. Shareholder proposals that are submitted in a timely manner
will be provided to Board members for their consideration but not necessarily be
included in the Fund's proxy materials. Inclusion of such proposals is subject
to limitations under the federal securities laws.
28
By order of the Board of Trustees,
Andrea N. Mullins
Secretary
Heritage Capital Appreciation Trust
Heritage Growth and Income Trust
Heritage Income Trust
Heritage Series Trust
Dated: September 8, 2006
St. Petersburg, Florida
29
EXHIBIT __
TRUSTEE SHARE OWNERSHIP
The following table sets forth the dollar range of equity securities
beneficially owned by each Nominee in the Trusts and Funds as of ______ __,
2006.
DOLLAR RANGE OF EQUITY SECURITIES INTERESTED INDEPENDENT
OWNED: NOMINEES: NOMINEES:
Thomas A. Richard C. Andrew Keith Lincoln William David M. James L. Deborah L.
James K. Riess Graham Jarrett(a) Kinnicutt(b) J. Phillips Pappas Talbot
Meurer
Capital Appreciation Over $0 $0 $0 $1- $50,001- $1- $10,001-
$100,000 $10,000 $100,000 $10,000 $50,000
Core Equity
Diversified Growth Over $0 $10,001- $0 $0 $10,001- $0 $0
$100,000 $50,000 $50,000
International Equity Over $0 $0 $0 $0 $0 $1- $0
$100,000 $10,000
Growth and Income $0 $0 $0 $0 $1- $0 $1- $0
$10,000 $10,000
High Yield $0 $0 $0 $0 $0 $0 $0 $0
Mid Cap Over $0 $0 $0 $0 $0 $1- $10,001-
$100,000 $10,000 $50,000
Small Cap Over $0 $0 $0 $0 $0 $1- $0
$100,000 $10,000
Aggregate Dollar Range of Over $0 $10,001- $0 $10,001- Over Over $10,001-
Securities in Heritage $100,000 $50,000 $50,000 $100,000 $100,000 $50,000
Mutual Funds(c)
(a) Mr. Jarrett was appointed to the Board on August 16, 2005.
(b) Mr. Kinnicutt currently does not serve on the Board.
-1
(c) The Heritage Mutual Funds consist of 10 funds, including those listed above
and Heritage Cash Trust - Money Market Fund and Heritage Cash Trust - Municipal
Money Market Fund.
-2
EXHIBIT __
NOMINEE COMPENSATION
The following table shows the compensation earned by each Trustee based on
each Trust's last fiscal year. No Trustee will receive any benefits upon
retirement. Thus, no pension or retirement benefits have accrued as part of any
of any Trust's expenses. No officer, director or employee of Heritage receives
any compensation from the Trusts for acting as a director or officer.
TOTAL
AGGREGATE AGGREGATE AGGREGATE AGGREGATE COMPENSATION
NAME OF COMPENSATION COMPENSATION COMPENSATION COMPENSATION FROM THE TRUSTS &
PERSON FROM CAPITAL FROM GROWTH FROM INCOME(a) FROM SERIES THE HERITAGE
APPRECIATION AND INCOME FUNDS(b)
NOMINEES FOR INDEPENDENT TRUSTEE FOR EACH TRUST:
C. Andrew $3,753.53 $3,040.06 $6,080.13 $18,634.62 $39,015.38
Graham
Keith $3,775.97 $0 $0 $269.23 $11,597.16
Jarrett
William $4,148.25 $3,327.72 $6,655.45 $20,427.88 $42,855.81
J. Meurer
James L. $4,073.25 $3,327.72 $6,655.45 $20,427.88 $42,630.81
Pappas
David M. $3,470.83 $2,780.45 $5,560.90 $16,817.31 $35,571.15
Phillips
Deborah $4,030.61 $3,244.39 $6,488.78 $19,908.65 $41,733.65
L. Talbot
NOMINEES FOR INDEPENDENT TRUSTEE FOR GROWTH AND INCOME, INCOME AND SERIES:
Lincoln $0 $0 $0 $0 $0
Kinnicutt
NOMINEES FOR INTERESTED TRUSTEES FOR EACH TRUST:
Thomas A. $0 $0 $0 $0 $0
James
Richard $0 $0 $0 $0 $0
K. Riess
_______________________________
(a)During the period, Income also offered shares of an additional portfolio to
which a portion of Trustee fees was allocated. That portfolio was liquidated
on October 31, 2005.
-1
(b)The Heritage Mutual Funds consist of five separate registered investment
companies, which are Capital Appreciation, Heritage Cash Trust, Growth and
Income, Income and Series, and 10 portfolios of those companies. During the
fiscal periods, two other portfolios were a part of Heritage Funds; however,
on December 23, 2005, those funds were reorganized into Capital Appreciation
and Growth and Income, respectively.
-2
EXHIBIT __
INFORMATION ABOUT FUND OFFICERS
NAME AND POSITION, TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
AGE AND LENGTH OF LENGTH OF TIME
SERVED(a)
Stephen G. President since 2005 President of Heritage since 2005; President and Chief Operating Officer of Eagle,
Hill (46) April 2000 to present.
K.C. Clark Executive Vice President Executive Vice President and Chief Operating Officer of Heritage since 2000.
(47) and Principal Executive
Officer since 2000
Andrea N. Treasurer since 2003; Treasurer and Vice President - Finance of Heritage since 2003; Vice President,
Mullins Principal Financial Officer Fund Accounting of Heritage 1996 to 2003.
(38) and Secretary since 2004
Matthew Senior Vice President Senior Vice President and Chief Compliance Officer of Heritage since 2005; Chief
Calabro and Chief Compliance Compliance Officer of Heritage Mutual Funds since 2005; Vice President of Heritage
(39) Officer since 2005 1996 - 2005
(a) Each officer serves for one year terms.
-1
EXHIBIT __
NOMINATING COMMITTEE CHARTER
HERITAGE CASH TRUST
HERITAGE CAPITAL APPRECIATION TRUST
HERITAGE GROWTH AND INCOME TRUST
HERITAGE INCOME TRUST
HERITAGE SERIES TRUST
A. PURPOSE
-------
The Boards of Trustees of the investment companies listed above (each a
"Trust" and, collectively, the "Trusts") have created a Nominating Committee
("Committee"). The purpose of the Committee is threefold:
1. Identify and recommend for nomination candidates to serve as Board
members who are not "interested persons" of the Trusts ("Independent
Trustees") as that term is defined in the Investment Company Act of
1940 ("1940 Act");
2. Evaluate and make recommendations to the full Board regarding
potential Board candidates who are "interested persons" of the
Trusts ("Interested Persons") as that term is defined by the 1940
Act; and
3. Review periodically the workload and capabilities of Independent
Trustees and, as the Committee deems appropriate, make
recommendations to the Board if such a review suggests that changes
to the size or composition of the Board are warranted.
B. COMMITTEE MEMBERSHIP
--------------------
1. COMPOSITION. The Committee shall be composed solely of Independent
Trustees.
2. COMPENSATION. The Board shall determine the compensation of
Committee members, including the Committee Chairperson.
3. SELECTION AND REMOVAL. The Board shall appoint members of the
Committee and a Chairperson of the Committee for one-year terms.
There is no limit on the number of consecutive terms that a
Committee member or a Chairperson can serve. By a majority vote,
the Board may remove or replace members of the Committee and
designate a different member as Chairperson for any reason at any
time.
C. MEETINGS AND PROCEDURES
-----------------------
-1
1. MEETINGS. The Committee shall meet on an as-needed basis to carry
out its duties under this Charter. Meetings may be called by the
Chairperson of the Committee or by a majority of the Committee
members. Meetings shall be chaired by the Chairperson or, in his or
her absence, by a member chosen by the Committee. Meetings may be
conducted with members present in person or by telephone or other
communications facilities that permit all persons participating in
the meeting to hear or communicate with each other. A majority of
the members of the Committee shall constitute a quorum for the
transaction of business. The act of a majority of the members
present at a meeting at which a quorum is present shall be the act
of the Committee.
2. MINUTES. The Committee shall keep minutes of its meetings and
provide copies of such minutes to each full Board for its review.
3. ANNUAL REVIEW. The Committee shall review this Charter at least
annually and recommend any necessary changes to the Board.
4. INVITATIONS TO MEETINGS. The Committee may request that a non-
member with information on a potential Board candidate attend a
meeting of the Committee or meet with any members of, or consultants
to, the Committee.
5. INDEPENDENT ADVISERS. The Committee shall have the authority, to
the extent it deems necessary or appropriate and without seeking
approval of each full Board, to retain special legal, accounting or
other advisers. Each Trust shall provide appropriate funding, as
determined by the Committee, for payment of ordinary administrative
Committee expenses, as well as for compensation to any advisers
retained by the Committee.
6. SELF-EVALUATION. The Committee shall periodically review the
effectiveness of the Committee and its members.
D. RESPONSIBILITY OF THE COMMITTEE
-------------------------------
1. CANDIDATE IDENTIFICATION AND RECOMMENDATION. The Committee shall
identify and recommend to the Board the selection and nomination of
candidates for Independent Trustee. The Committee shall consider
recommendations for potential candidates from any source it deems
appropriate - Board members, Fund shareholders, legal counsel to the
Independent Trustees or other such sources as the Committee deems
appropriate.
2. CANDIDATE EVALUATIONS. The Committee shall evaluate potential
candidates' qualifications for Board membership and their
independence from each Fund's investment adviser and other principal
service providers. The Committee shall consider the effect of any
relationships delineated in the 1940 Act or other types of
relationships, E.G., business, financial or family relationships
with the investment adviser(s) or other principal service providers,
which might impair independence. In determining potential
candidates' qualifications for Board membership, the Committee may
-2
consider all factors it may determine to be relevant to fulfilling
the role of being a member of the Board.
a. CRITERIA FOR SELECTING NOMINEES
-------------------------------
The Committee shall nominate candidates for new or vacant
Board positions based on its evaluation of which applicants or
potential candidates are most qualified to serve and protect
the interests of each Trust's shareholders and to promote the
effective operation of the Board. In order for the Committee
to consider an applicant or potential candidate, the Committee
initially must receive at least the following information
regarding such person: (1) name; (2) date of birth; (3)
education; (4) business, professional or other relevant
experience and areas of expertise; (5) current business,
professional or other relevant experience and areas of
expertise; (6) current business and home addresses and contact
information; (7) other board positions or prior experience;
and (8) any knowledge and experience relating to investment
companies and investment company governance (collectively,
"Preliminary Information").
A successful candidate must qualify as an Independent Trustee
under the 1940 Act and should have certain uniform
characteristics, such as a very high level of integrity,
appropriate experience, and a commitment to fulfill the
fiduciary duties inherent in Board membership. The Committee
also shall consider the extent to which potential candidates
possess sufficiently diverse skill sets and diversity
characteristics that would contribute to the Board's overall
effectiveness.
b. SUBMISSIONS BY SHAREHOLDERS OF POTENTIAL NOMINEES
-------------------------------------------------
The Committee shall consider potential candidates for
nomination identified by one or more shareholders of a Trust.
Shareholders can submit recommendations in writing to the
attention of the Chairperson of the Committee at an address to
be maintained by Trust management for this purpose. In order
to be considered by the Committee, any shareholder
recommendation must include the Preliminary Information set
forth in subsection 2.a above.
Following an initial evaluation by the Committee based on the
Preliminary Information, a successful candidate proposed by a
shareholder must:
(1) demonstrate the integrity, experience, sound business
judgment, talents and commitment necessary to fulfill the
fiduciary duties inherent in Board membership and to add value
to the Board's performance of its duties;
(2) be prepared to submit written answers to a
questionnaire seeking professional and personal information
that will assist the Committee to evaluate the candidate and
-3
to determine, among other matters, whether the candidate would
be an Independent Trustee under the 1940 Act or otherwise have
material relationships with key service providers to the
Trusts;
(3) submit character references and agree to appropriate
background checks;
(4) demonstrate the disposition to act independently from
management, but effectively within a Board composed of
numerous members;
(5) be willing to meet with one or more members of the
Committee at a time and location convenient to those Committee
members in order to discuss the candidate's qualifications;
and
(6) if nominated and elected, be able to prepare for and
attend in person Board and Committee meetings at various
locations in the United States.
3. EVALUATION OF CANDIDATES FOR NOMINATION AS INTERESTED TRUSTEES. The
Committee shall evaluate those Interested Persons who are proposed
by management of the Trusts to serve as Board members and then make
appropriate recommendations to the Board regarding such proposed
nominees. The Committee shall review such information as it deems
appropriate in order to make this evaluation. At its option, the
Committee also can seek to interview any such potential nominee.
4. BOARD COMPOSITION. The Committee shall periodically review the
composition of the Board and the backgrounds of the Board members to
determine whether it may be appropriate to recommend adding or
removing Trustees, and propose to the Board and the Independent
Trustees changes to the number of positions on the Board and the
addition or removal of Trustees.
August 31, 2004
-4
EXHIBIT __
COMPARISON OF THE CURRENT AND PROPOSED NEW FUNDAMENTAL INVESTMENT RESTRICTIONS
LISTED BELOW ARE THE CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS FOR CAPITAL APPRECIATION TRUST, CORE EQUITY FUND, DIVERSIFIED
GROWTH FUND, GROWTH AND INCOME TRUST, HIGH YIELD BOND FUND, INTERNATIONAL EQUITY FUND, MID CAP STOCK FUND AND SMALL CAP STOCK FUND
(EACH A FUND, AND COLLECTIVELY, THE "FUNDS") AND THE CHANGES PROPOSED FOR THE FUNDAMENTAL INVESTMENT RESTRICTIONS OF EACH FUND.
BORROWING
The table below compares the current fundamental investment restriction on borrowing for each Fund to the proposed new
fundamental investment restriction. The main difference between the existing and new restrictions is the ability of a Fund to borrow
only as permitted under applicable law as opposed to borrowing only a certain amount. One of the purposes of the new restriction is
to provide greater flexibility for the portfolio managers in managing the Funds. Further, the new restriction would simplify
compliance monitoring and make the restriction uniform among all Funds. There is no current intention for the Funds to have
different investment strategies as a result of a change to this restriction.
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW
FUNDAMENTAL
INVESTMENT RESTRICTION
FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME The Fund may not borrow money except as a temporary measure for extraordinary The Fund may not
TRUST or emergency purposes. The Fund may not borrow money except from banks. borrow money, except
Borrowing in the aggregate may not exceed 15%, and borrowing for purposes other to the extent
than meeting redemptions may not exceed 5% of the value of the Fund's total permitted by the 1940
assets at the time the borrowing is made. The Fund may not make additional Act, the rules and
investments when borrowings exceed 5% of the Fund's total assets. regulations thereunder
and any applicable
exemptive relief.
- --------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION The Fund may not borrow money except as a temporary measure for extraordinary
TRUST or emergency purposes. The Fund may not borrow money except from banks and only
if at the time of such borrowings the total loans to the Fund do not exceed 5%
of the Fund's total assets.
- --------------------------------------------------------------------------------------------------------------
DIVERSIFIED GROWTH The Fund may not borrow money except as a temporary measure for extraordinary
FUND, MID CAP STOCK or emergency purposes. The Fund may enter into reverse repurchase agreements in
FUND AND SMALL CAP an amount up to 33 1/3% of the value of its total assets in order to meet
STOCK FUND redemption requests without immediately selling portfolio securities. This
latter practice is not for investment leverage but solely to facilitate
management of the investment portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio instruments would be inconvenient or
disadvantageous. However, the Fund may not purchase additional portfolio
investments once borrowed obligations exceed 5% of total assets. When effecting
reverse repurchase agreements, Fund assets in an amount sufficient to make
payment for the obligations to be purchased will be segregated by the Custodian
and on the Funds' records upon execution of the trade and maintained until the
transaction has been settled. During the period any reverse repurchase
agreements are outstanding, to the extent necessary to assure completion of the
reverse repurchase agreements, the Fund will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the expiration
date of the reverse repurchase agreements. Interest paid on borrowed
obligations will not be available for investment. The Fund will liquidate any
such borrowings as soon as possible and may not purchase any portfolio
instruments while any borrowings are outstanding (except as described above).
- ------------------------------------------------------------------------------------------------------------------------------------
-1
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW
FUNDAMENTAL
INVESTMENT RESTRICTION
FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY The Fund may not borrow money except as a temporary measure for extraordinary
FUND or emergency purposes. The Fund may enter into reverse repurchase agreements in
an amount up to 33 1/3% of the value of its total assets in order to meet
redemption requests without immediately selling portfolio securities. This
latter practice is not for investment leverage but solely to facilitate
management of the investment portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio instruments would be inconvenient or
disadvantageous. However, the Fund may not purchase additional portfolio
investments once borrowed obligations exceed 5% of total assets. When effecting
reverse repurchase agreements, Fund assets in an amount sufficient to make
payment for the obligations to be purchased will be segregated by the Custodian
and on the Funds' records upon execution of the trade and maintained until the
transaction has been settled. During the period any reverse repurchase
agreements are outstanding, to the extent necessary to assure completion of the
reverse repurchase agreements, the Fund will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the expiration
date of the reverse repurchase agreements. Interest paid on borrowed
obligations will not be available for investment. The Fund will liquidate any
such borrowings as soon as possible and may not purchase any portfolio
instruments while any borrowings are outstanding (except as described above).
The Fund will not borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks as a
temporary measure, such as to facilitate the meeting of higher redemption
requests than anticipated (not for leverage) which might otherwise require the
untimely disposition of portfolio investments or for extraordinary or emergency
purposes.
- --------------------------------------------------------------------------------------------------------------
CORE EQUITY FUND The Fund may not borrow money except as a temporary measure for extraordinary
or emergency purposes. The Fund may not borrow money, except as otherwise
permitted under the 1940 Act or pursuant to a rule, order or interpretation
issued by the SEC or its staff, including as a temporary measure, by entering
into reverse repurchase agreements, and by lending portfolio securities. For
purposes of this investment limitation, the purchase or sale of options,
futures contracts, options on futures contracts, forward contracts, swaps,
caps, floors, collars and other financial instruments shall not constitute
borrowing.
- --------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND The Fund may not borrow money except as a temporary measure for extraordinary
FUND or emergency purposes. The Fund may borrow in certain limited circumstances as
indicated below in this section. Borrowing creates an opportunity for increased
return, but, at the same time, creates special risks. For example, borrowing
may exaggerate changes in the net asset value of a fund's shares and in the
return on the fund's investment portfolio. Although the principal of any
borrowing will be fixed, a fund's assets may change in value during the time
the borrowing is outstanding. A fund may be required to liquidate portfolio
securities at a time when it would be disadvantageous to do so in order to make
payments with respect to any borrowing, which could affect the investment
manager's strategy. Furthermore, if a fund were to engage in borrowing, an
increase in interest rates could reduce the value of the fund's shares by
increasing the fund's interest expense.
- ------------------------------------------------------------------------------------------------------------------------------------
-2
COMMODITIES AND REAL ESTATE
The table below compares the current fundamental investment restriction on real estate, commodities and minerals for each Fund
to the proposed new fundamental investment restrictions on real estate and commodities. There are no significant differences among
the existing and new restrictions. In each case, the restrictions do not permit any of the Funds to purchase or sell real estate or
commodities except under certain circumstances. The new restrictions on real estate and commodities consolidate and make the
restrictions uniform for each Fund. There is no current intention for the Funds to have different investment strategies as a result
of a change to this restriction.
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW FUNDAMENTAL
INVESTMENT RESTRICTION FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH AND The Fund may not invest in commodities, commodity contracts The Fund may not purchase or sell real
INCOME TRUST or real estate except that: estate, except that, to the extent
permitted by applicable law, the Fund
The Fund may purchase securities issued by companies that may (a) invest in securities or other
invest in or sponsor such interests; instruments directly or indirectly
secured by real estate, and (b) invest
The Fund may invest in real estate limited partnerships; in securities or other instruments
- ------------------------------------------------------------------------------------------------------------------------------------
-3
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW FUNDAMENTAL
INVESTMENT RESTRICTION FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
issued by issuers that invest in real
The Fund may purchase securities that are secured by estate.
interests in real estate; and
The Fund may not purchase or sell
The Fund may write and purchase call options, purchase and commodities or commodity contracts
sell forward contracts and engage in transactions in unless acquired as a result of
forward commitments. ownership of securities or other
instruments issued by persons that
The Fund may not invest in oil, gas, or other mineral purchase or sell commodities or
programs except that they may purchase securities issued by commodities contracts; but this shall
companies that invest in or sponsor such interests. not prevent the Fund from purchasing,
- ---------------------------------------------------------------------------------------------selling and entering into financial
MID CAP STOCK The Fund may not invest in commodities, commodity contracts futures contracts (including futures
FUND or real estate (including real estate limited partnerships) contracts on indices of securities,
except that: interest rates and currencies), options
on financial futures contracts
The Fund may purchase securities issued by companies that (including futures contracts on indices
invest in or sponsor such interests. of securities, interest rates and
- ---------------------------------------------------------------------------------------------currencies), warrants, swaps, forward
INTERNATIONAL The Fund may not invest in commodities, commodity contracts contracts, foreign currency spot and
EQUITY FUND or real estate except that: forward contracts or other derivative
instruments that are not related to
The Fund may purchase securities issued by companies that physical commodities.
invest in or sponsor such interests;
The Fund may invest in real estate limited partnerships;
The Fund may purchase securities that are secured by
interests in real estate; and
The Fund may purchase and sell forward contracts, futures
contracts, options and foreign currency.
The Fund may not invest in oil, gas, or other mineral
programs except that they may purchase securities issued by
companies that invest in or sponsor such interests.
- ---------------------------------------------------------------------------------------------
DIVERSIFIED The Fund may not invest in commodities, commodity contracts
GROWTH FUND or real estate (including real estate limited partnerships)
except that:
The Fund may purchase securities issued by companies that
invest in or sponsor such interests; and
The Fund may purchase and sell forward currency contracts
and other financial instruments.
- ---------------------------------------------------------------------------------------------
CORE EQUITY The Fund may not invest in commodities, commodity contracts
FUND or real estate (including real estate limited partnerships)
except that:
The Fund may purchase securities issued by companies that
invest in or sponsor such interests;
The Fund may purchase and sell options, futures contracts,
forward currency contracts and other financial instruments;
The Fund may purchase securities that are secured by
interests in real estate; and
The Fund may write and purchase call options, purchase and
sell forward contracts and engage in transactions in
forward commitments.
The Fund may not invest in oil, gas, or other mineral
programs except that they may purchase securities issued by
companies that invest in or sponsor such interests.
- ------------------------------------------------------------------------------------------------------------------------------------
-4
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW FUNDAMENTAL
INVESTMENT RESTRICTION FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD The Fund may not invest in commodities, commodity contracts
BOND FUND or real estate (including real estate limited partnerships)
except that:
The Fund may purchase securities issued by companies that
invest in or sponsor such interests;
The Fund may purchase securities that are secured by
interests in real estate; and
The Fund may purchase and sell futures contracts, options
and forward commitments and invest in oil, gas, and other
mineral programs.
- ---------------------------------------------------------------------------------------------
CAPITAL The Fund may not invest in commodities, commodity contracts
APPRECIATION or real estate (including real estate limited partnerships)
TRUST AND SMALL except that the Fund may purchase securities issued by
CAP STOCK FUND companies that invest in or sponsor such interests.
The Fund may not invest in oil, gas, or other mineral
programs except that they may purchase securities issued by
companies that invest in or sponsor such interests.
- ------------------------------------------------------------------------------------------------------------------------------------
CONCENTRATION
The table below compares the current fundamental investment restriction on concentration for each Fund to the proposed new
fundamental investment restriction. There is no substantial difference between the current investment restriction and the proposed
new restriction. The main purpose of the new restriction is to make it uniform among all the Funds, while still leaving flexibility
in the restriction for changes in the definition of "concentrated" under the 1940 Act. There is no current intention for the Funds
to have different investment strategies as a result of a change to this restriction.
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW FUNDAMENTAL
INVESTMENT RESTRICTION FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
No Fund may purchase securities if, as a result of such purchase, more than 25% of the Except for any Fund that is
value of such Fund's total assets would be invested in any one industry; however, this "concentrated" in an industry or group
restriction does not apply to U.S. Government securities that are issued or guaranteed by of industries within the meaning of the
the U.S. Government or its agencies or instrumentalities. 1940 Act, the Fund may not purchase the
securities of any issuer (other than
securities issued or guaranteed by the
U.S. Government or any of its agencies
or instrumentalities) if, as a result,
more than 25% of the Fund's total
assets would be invested in the
securities of companies whose principal
business activities are in the same
industry.
- ------------------------------------------------------------------------------------------------------------------------------------
-5
DIVERSIFICATION
The table below compares the current fundamental investment restriction on diversification for each Fund to the proposed new
fundamental investment restriction. The main differences among the old restrictions and the proposed new restrictions are that (i)
the current investment restriction applies to 100% of the assets of Capital Appreciation Trust and High Yield Bond Fund as opposed
to 75% of the assets proposed in the new restriction, and (ii) with respect to High Yield Bond Fund, the 10% limitation on the
purchase of securities of any one issuer currently applies to all securities of an issuer as opposed to being restricted to "voting"
securities proposed in the new restriction. The purpose of the new restriction is to provide uniformity in the diversification
restriction among all the Funds. There is no current intention for the Funds to have different investment strategies as a result of
a change to this restriction.
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW FUNDAMENTAL
INVESTMENT RESTRICTION FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION TRUST With respect to 100% of the total assets of the Fund, the Except to the extent permitted by the
Fund may not invest more than 5% of its assets (valued at 1940 Act, the rules and regulations
market value) in securities of any one issuer other than thereunder and any applicable exemptive
the U.S. Government or its agencies and instrumentalities, relief, the Fund may not with respect
or purchase more than 10% of the voting securities of any to 75% of the Fund's total assets,
one issuer. purchase the securities of any issuer
- ---------------------------------------------------------------------------------------------(other than securities issued or
HIGH YIELD BOND FUND With respect to 100% of the total assets of the Fund, the guaranteed by the U.S. Government or
Fund may not invest more than 5% of its assets (valued at any of its agencies or
market value) in securities of any one issuer other than instrumentalities, and securities of
the U.S. Government or its agencies and instrumentalities, other investment companies) if, as a
or purchase more than 10% of the voting securities, or any result, (a) more than 5% of the Fund's
other class of securities, of any one issuer. total assets would be invested in the
- ---------------------------------------------------------------------------------------------securities of that issuer, or (b) the
CORE EQUITY FUND, DIVERSIFIED With respect to 75% of the total assets of the Fund, the Fund would hold more than 10% of the
GROWTH FUND, GROWTH AND Fund may not invest more than 5% of its assets (valued at outstanding voting securities of that
INCOME TRUST, INTERNATIONAL market value) in securities of any one issuer other than issuer.
EQUITY FUND, MID CAP STOCK the U.S. Government or its agencies and instrumentalities,
FUND AND SMALL CAP STOCK FUND or purchase more than 10% of the voting securities of any
one issuer.
- ------------------------------------------------------------------------------------------------------------------------------------
-6
LOANS, REPURCHASE AGREEMENTS AND LOANS OF PORTFOLIO SECURITIES
The table below compares the current fundamental investment restriction on loans, repurchase agreements and loans of portfolio
securities for each Fund to the proposed new fundamental investment restriction. The main difference among the existing and new
restrictions is that the new restriction permits a Fund to make loans to the extent permitted under applicable law as opposed to
limiting the Funds to certain transactions. The primary purpose of the change in this restriction is to consolidate the differences
among the restrictions, which would simplify compliance monitoring and portfolio management. There is no current intention for the
Funds to have different investment strategies as a result of a change to this restriction.
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW
FUNDAMENTAL
INVESTMENT RESTRICTION
FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME TRUST The Fund may not make loans, except to the extent that the purchase of a The Fund may make
portion of an issue of publicly distributed or privately placed notes, bonds, loans only as
or other evidences of indebtedness or deposits with banks and other financial permitted under the
institutions may be considered loans. 1940 Act, the rules
and regulations
The Fund may enter into repurchase agreements as permitted under the Fund's thereunder and any
investment policies. applicable exemptive
relief.
The Fund may not lend portfolio securities amounting to more than 25% of its
total assets.
- --------------------------------------------------------------------------------------------------------------
MID CAP STOCK The Fund may not make loans, except to the extent that the purchase of a
FUND portion of an issue of publicly distributed notes, bonds, or other evidences of
indebtedness or deposits with banks and other financial institutions may be
considered loans.
The Fund may enter into repurchase agreements as permitted under the Fund's
investment policies.
The Fund may make loans of portfolio securities as described in its statement
of additional information ("SAI").
- --------------------------------------------------------------------------------------------------------------
CORE EQUITY FUND The Fund may not make loans, except to the extent that the purchase of a
portion of an issue of publicly distributed notes, bonds, or other evidences of
indebtedness or deposits with banks and other financial institutions may be
considered loans.
The Fund may enter into repurchase agreements as permitted under the Fund's
investment policies.
The Fund may not lend any security or make any other loan except (a) as
otherwise permitted under the 1940 Act, (b) pursuant to a rule, order or
interpretation issued by the SEC or its staff, (c) through the purchase of a
portion of an issue of debt securities in accordance with the Fund's investment
objective, policies and limitations, or (d) by engaging in repurchase
agreements with respect to portfolio securities.
- --------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND FUND The Fund may not make loans, except to the extent that the purchase of a
portion of an issue of publicly distributed or privately placed notes, bonds,
or other evidences of indebtedness or deposits with banks and other financial
institutions may be considered loans.
The Fund may enter into repurchase agreements and securities loans as permitted
under the Fund's investment policies.
The Fund may not enter into repurchase agreements with respect to more than 20%
of its net assets or lend portfolio securities amounting to more than 25% of
its total assets.
- --------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND The Fund may not make loans, except to the extent that the purchase of a
portion of an issue of publicly distributed notes, bonds, or other evidences of
indebtedness or deposits with banks and other financial institutions may be
considered loans.
The Fund may enter into repurchase agreements as permitted under the Fund's
investment policies.
The Fund may not make any loans, except that it may make loans by purchase of
debt obligations or by entering into repurchase agreements or through lending
of its portfolio securities.
- ------------------------------------------------------------------------------------------------------------------------------------
-7
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW
FUNDAMENTAL
INVESTMENT RESTRICTION
FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL The Fund may not make loans, except to the extent that the purchase of a
APPRECIATION TRUST, portion of an issue of publicly distributed notes, bonds, or other evidences of
DIVERSIFIED GROWTH indebtedness or deposits with banks and other financial institutions may be
FUND AND SMALL considered loans.
CAP STOCK FUND
The Fund may enter into repurchase agreements as permitted under the Fund's
investment policies.
- ------------------------------------------------------------------------------------------------------------------------------------
SENIOR SECURITIES
The table below compares the current fundamental investment restriction on senior securities for each Fund to the proposed new
fundamental investment restriction. The main difference among the existing and new restrictions is that the new restriction permits
the issuance of senior securities to the extent permitted under applicable law as opposed to limiting the Funds to certain
transactions. The primary purpose of the change in this restriction is to consolidate the differences among the restrictions, which
would simplify compliance monitoring and portfolio management. There is no current intention for the Funds to have different
investment strategies as a result of a change to this restriction.
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW
FUNDAMENTAL
INVESTMENT RESTRICTION
FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED GROWTH FUND The Fund may not issue senior securities, except as permitted by the investment The Fund may not issue
objective, policies, and investment limitations of the Fund, except that the senior securities,
Fund may engage in transactions involving forward currency contracts or other except to the extent
financial instruments. permitted by the 1940
- --------------------------------------------------------------------------------------------------------------Act, the rules and
INTERNATIONAL EQUITY The Fund may not issue senior securities, except as permitted by the investment regulations thereunder
FUND AND MID CAP objective, policies, and investment limitations of the Fund, except that the and any applicable
STOCK FUND Fund may engage in transactions involving options, futures, forward currency exemptive relief.
contracts, or other financial instruments, as applicable.
- --------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME The Fund may not issue senior securities, except as permitted by the investment
TRUST objective, policies, and investment limitations of the Fund, except that the
Fund may purchase and sell call options and forward contracts.
- --------------------------------------------------------------------------------------------------------------
CORE EQUITY FUND The Fund may not issue any senior security except as otherwise permitted (1)
under the 1940 Act or (2) pursuant to a rule, order or in an interpretation
issued by the SEC or its staff.
- --------------------------------------------------------------------------------------------------------------
CAPITAL The Fund may not issue senior securities, except as permitted by the investment
APPRECIATION TRUST, objective, policies, and investment limitations of the Fund.
HIGH YIELD BOND
FUND AND SMALL
CAP STOCK FUND
- ------------------------------------------------------------------------------------------------------------------------------------
-8
UNDERWRITING
The table below compares the current fundamental investment restriction on underwriting for each Fund to the proposed new
fundamental investment restriction. The existing restrictions provide that certain Funds may underwrite securities issued by other
persons to the extent that it may be deemed an underwriter under applicable federal securities laws with respect to the disposition
of its portfolio securities and sets limitations for the percentage of restricted securities. The current restriction also provides
that certain Funds may not underwrite the securities of other issuers. The new restriction maintains this limitation as applicable
to the disposition of portfolio securities and eliminates the limitation on investments in restricted securities. The purpose of the
proposed change is to clarify the application of underwriter pursuant to the Securities Act of 1933 (the "1933 Act") and to make
uniform the restrictions among the Funds. There is no current intention for the Funds to have different investment strategies as a
result of a change to this restriction.
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW
FUNDAMENTAL
INVESTMENT RESTRICTION
FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED The Fund may not underwrite the securities of other issuers, except P to the The Fund may not
GROWTH FUND extent that, in connection with the disposition of portfolio securities, the underwrite securities
AND SMALL CAP Fund may be deemed to be an underwriter under federal securities laws. issued by others,
STOCK FUND except to the extent
The Fund may not invest more than 15% of its net assets (taken at cost that the Fund may be
immediately after making such investment) in securities that are not readily considered an
marketable without registration under the 1933 Act. underwriter within the
- --------------------------------------------------------------------------------------------------------------meaning of the 1933
CAPITAL The Fund may not underwrite the securities of other issuers. Act in the disposition
APPRECIATION of restricted
TRUST AND The Fund may not invest more than 5% of its net assets (taken at cost securities or in
GROWTH AND immediately after making such investment) in securities that are not readily connection with
INCOME TRUST marketable without registration under the 1933 Act. investments in other
- --------------------------------------------------------------------------------------------------------------investment companies.
HIGH YIELD The Fund may not underwrite the securities of other issuers.
BOND FUND
The Fund may invest in securities that are not readily marketable without
registration under the 1933 Act (restricted securities), as provided in its
Prospectus and SAI.
- --------------------------------------------------------------------------------------------------------------
MID CAP STOCK The Fund may not underwrite the securities of other issuers.
FUND
The Fund may not invest more than 15% of its net assets (taken at cost
immediately after making such investment) in securities that are not readily
marketable without registration under the 1933 Act.
- --------------------------------------------------------------------------------------------------------------
INTERNATIONAL The Fund may not underwrite the securities of other issuers, except to the
EQUITY FUND extent that, in connection with the disposition of portfolio securities, the
Fund may be deemed to be an underwriter under federal securities laws.
- --------------------------------------------------------------------------------------------------------------
CORE EQUITY The Fund may not underwrite the securities of other issuers.
FUND
- ------------------------------------------------------------------------------------------------------------------------------------
-9
OIL, GAS AND MINERAL PROGRAMS
The table below shows the current fundamental investment restriction on oil, gas and minerals for each Fund. It is proposed
that the restrictions on oil, gas and mineral programs be eliminated because these restrictions for the Funds originally were
included to meet certain state law requirements that no longer apply. There is no current intention for the Funds to have different
investment strategies as a result of a change to this restriction.
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW FUNDAMENTAL
INVESTMENT RESTRICTION FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME TRUST, The Fund may not invest in oil, gas, or other mineral None.
INTERNATIONAL EQUITY FUND, programs except that it may purchase securities issued by
CORE EQUITY FUND, CAPITAL companies that invest in or sponsor such interests.
APPRECIATION TRUST AND SMALL
CAP STOCK FUND
- ---------------------------------------------------------------------------------------------
HIGH YIELD BOND FUND The Fund may invest in oil, gas, and other mineral programs.
- ---------------------------------------------------------------------------------------------
DIVERSIFIED GROWTH FUND AND None.
MID CAP STOCK FUND
- ------------------------------------------------------------------------------------------------------------------------------------
-10
MARGIN PURCHASES
The table below shows the current fundamental investment restriction on margin purchases for each Fund. It is proposed that
this restriction be eliminated because these restrictions for the Funds originally were included to meet certain state law
requirements that no longer apply. There is no current intention for the Funds to have different investment strategies as a result
of the elimination of this restriction.
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW FUNDAMENTAL
INVESTMENT RESTRICTION FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND The Fund will not purchase securities on margin, except None.
such short-term credits as may be necessary for the
clearance of purchases and sales of securities. (For this
purpose, the deposit or payment by the Fund of initial or
variation margin in connection with futures contracts,
forward contracts or options are not considered the
purchase of a security on margin.)
- ---------------------------------------------------------------------------------------------
HIGH YIELD BOND FUND The Fund may not sell any securities short, purchase any
securities on margin or maintain a short position in any
security, but may obtain such short-term credits as may be
necessary for clearance of purchase and sales of
securities; provided, however, the Fund may make margin
deposits and may maintain short positions in connection
with the use of options, futures contracts and options on
futures contracts as described previously.
- ---------------------------------------------------------------------------------------------
GROWTH AND INCOME TRUST The Fund may not purchase securities on margin except to
obtain such short-term credits as may be necessary for the
clearance of transactions.
- ---------------------------------------------------------------------------------------------
CAPITAL APPRECIATION TRUST, None.
CORE EQUITY FUND, DIVERSIFIED
GROWTH FUND, MID CAP STOCK
FUND AND SMALL CAP STOCK FUND
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT SALES
The table below shows the current fundamental investment restriction on short sales for each Fund. It is proposed that this
restriction be eliminated because these restrictions for the Funds originally were included to meet certain state law requirements
that no longer apply. There is no current intention for the Funds to have different investment strategies as a result of the
elimination of this restriction.
-11
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW FUNDAMENTAL
INVESTMENT RESTRICTION FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND The Fund will not make short sales of securities or None.
maintain a short position, except that the Fund may
maintain short positions in connection with its use of
options, futures contracts, forward contracts and options
on futures contracts, and the Fund may sell short "against
the box."
- ---------------------------------------------------------------------------------------------
HIGH YIELD BOND FUND The Fund may not sell any securities short, purchase any
securities on margin or maintain a short position in any
security, but may obtain such short-term credits as may be
necessary for clearance of purchase and sales of
securities; provided, however, the Fund may make margin
deposits and may maintain short positions in connection
with the use of options, futures contracts and options on
futures contracts as described previously.
- ---------------------------------------------------------------------------------------------
CAPITAL APPRECIATION TRUST, None.
GROWTH AND INCOME TRUST, CORE
EQUITY FUND, DIVERSIFIED
GROWTH FUND, MID CAP STOCK
FUND AND SMALL CAP STOCK FUND
- ------------------------------------------------------------------------------------------------------------------------------------
AFFILIATED TRANSACTIONS
The table below shows the fundamental investment restrictions on affiliated transactions for each Fund. It is proposed that
this restriction be eliminated because the restriction merely restate a statutory prohibition under the 1940 Act. There is no
current intention for the Funds to have different investment strategies as a result of the elimination of this restriction.
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED NEW FUNDAMENTAL
INVESTMENT RESTRICTION FOR ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND FUND The Fund may not purchase or retain the securities of any None.
issuer if the officers and Trustees of the Trust or
Heritage or its Subadvisor, as applicable, own individually
more than 1/2 of 1% of the issuer's securities or together
own more than 5% of the issuer's securities.
- ---------------------------------------------------------------------------------------------
CAPITAL APPRECIATION TRUST, None.
GROWTH AND INCOME TRUST, CORE
EQUITY FUND, DIVERSIFIED
GROWTH FUND, INTERNATIONAL
EQUITY FUND, MID CAP STOCK
FUND AND SMALL CAP STOCK FUND
- ------------------------------------------------------------------------------------------------------------------------------------
-12
EXHIBIT __
FORM OF
HERITAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
This Agreement is made as of ________________, 2006, by and between
HERITAGE CAPITAL APPRECIATION TRUST, HERITAGE GROWTH AND INCOME TRUST, HERITAGE
INCOME TRUST AND HERITAGE SERIES TRUST, each a Massachusetts business trust
(each, the "Trust"), on behalf of each Series of the Trust listed on Schedule A
hereto, as may be amended from time to time ("Series"), and HERITAGE ASSET
MANAGEMENT, INC., a Florida corporation ("Adviser").
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end management investment company consisting
of one or more separate series of shares ("Series"), each having its own assets
and investment objective(s), policies and restrictions; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act"); and
WHEREAS, the Trust desires to retain the Adviser to provide investment
advisory and portfolio management services to each Series pursuant to the terms
and provisions of this Agreement, and the Adviser is willing to furnish such
services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints the Adviser to serve as the
investment adviser of the Trust and each Series for the period and on the terms
set forth in this Agreement. The Adviser accepts such appointment and agrees to
render the services herein set forth for compensation as set forth on Schedule
A. In the performance of its duties, the Adviser will act in the best interests
of the Trust and each Series and will manage the Trust and each Series in
conformity with (a) applicable laws and regulations, including, but not limited
to, the 1940 Act and the Advisers Act, (b) the terms of this Agreement, (c) the
investment objective(s), policies and restrictions of each applicable Series as
stated in the Trust's currently effective registration statement under the
Securities Act of 1933, as amended, and the 1940 Act, and (d) such other
guidelines as the Board of Trustees of the Trust (the "Board") reasonably may
establish or approve and provide to the Adviser. The Adviser will be an
independent contractor and will have no authority to act for or represent the
Trust or any Series in any way or otherwise be deemed to be an agent unless
expressly authorized in this Agreement or another writing between the Trust and
the Adviser.
2. DUTIES OF THE ADVISER.
(a) INVESTMENT PROGRAM. Subject to supervision by the Board, the
Adviser will provide a continuous investment program for each Series and shall
determine what securities and other investments will be purchased, retained,
sold or loaned by each Series and what portion of such assets will be invested
or held uninvested as cash. The Adviser will exercise full discretion and act
for each Series in the same manner and with the same force and effect as such
Series itself might or could do with respect to purchases, sales, or other
transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions. The Adviser will be responsible for preserving the
confidentiality of information concerning the holdings, transactions, and
business activities of the Trust and each Series in conformity with the
requirements of the 1940 Act, other applicable laws and regulations, and any
policies that are approved by the Board.
(b) EXERCISE OF RIGHTS. The Adviser, unless and until otherwise
directed by the Board, will exercise all rights of security holders with respect
to securities held by each Series, including, but not limited to: voting
proxies, converting, tendering, exchanging or redeeming securities;
participating as a claimant in class action litigation (including litigation
with respect to securities previously held) when provided notice of such
litigation, and exercising rights in the context of a bankruptcy or other
reorganization.
(c) EXECUTION OF TRANSACTIONS AND SELECTION OF BROKER DEALERS.
The Adviser shall be responsible for effecting transactions for each Series and
selecting brokers or dealers to execute such transactions for each Series. In
the selection of brokers or dealers and the placement of orders for the purchase
and sale of portfolio investments for each Series, the Adviser shall use its
best efforts to obtain for each Series the best execution available, except to
the extent that it may be permitted to pay higher brokerage commissions for
brokerage or research services as described below. In using its best efforts to
obtain the best execution available, the Adviser, bearing in mind each Series'
best interests at all times, shall consider all factors it deems relevant,
including by way of illustration, price, the size of the transaction, the nature
of the market for the security, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker or dealer involved and the
quality of execution and research services provided by the broker or dealer.
Subject to such policies as the Board may determine, the Adviser shall not be
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused a Series to pay a
broker or dealer that provides brokerage or research services to the Adviser an
amount of commission for effecting a portfolio investment transaction in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of the brokerage or
research services provided by such broker or dealer, viewed in terms of either
that particular transaction or the Adviser's overall responsibilities with
respect to such Series and to other clients of the Adviser as to which the
Adviser exercises investment discretion. The Trust agrees than any entity or
person associated with the Adviser that is a member of a national securities
exchange is authorized to effect any transaction on such exchange for the
account of the Trust, which is permitted by Section 11(a) of the Securities
Exchange Act of 1934, as amended, and Rule 11a2-2(T) thereunder, and the Trust
has consented to the retention of compensation for such transactions in
accordance with Rule 11a2-2(T)(a)(2)(iv).
(d) REPORTS TO THE BOARD. Upon reasonable request, the Adviser
shall provide to the Board such analyses and reports as may be required by law
or otherwise reasonably required to fulfill its responsibilities under this
Agreement.
-2
(e) DELEGATION OF AUTHORITY. Any of the duties specified in this
Paragraph 2 with respect to one or more Series may be delegated by the Adviser,
at the Adviser's expense, to an appropriate party, subject to such approval by
the Board and shareholders of the applicable Series to the extent required by
the 1940 Act. The Adviser shall oversee the performance of delegated duties by
any such other party and shall furnish the Board with periodic reports
concerning the performance of delegated responsibilities by such party. The
retention of any party by the Adviser pursuant to this Paragraph 2(e) shall in
no way reduce the responsibilities and obligations of the Adviser under this
Agreement and the Adviser shall be responsible to the Trust for all acts or
omissions of any such party in connection with the performance of the Adviser's
duties under this Agreement.
3. SERVICES NOT EXCLUSIVE. The services furnished by the Adviser
hereunder are not to be deemed exclusive. Nothing in this Agreement shall limit
or restrict the right of any director, officer or employee of the Adviser, who
may also be a Trustee, officer, or employee of the Trust, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar or dissimilar nature.
4. COMPLIANCE WITH RULE 38A-1. The Adviser shall maintain policies and
procedures relating to the services it provides to the Trust that are reasonably
designed to prevent violations of the federal securities laws, and shall employ
personnel to administer the policies and procedures who have the requisite level
of skill and competence required to effectively discharge its responsibilities.
The Adviser also shall provide the Trust's chief compliance officer with
periodic reports regarding its compliance with the federal securities laws, and
shall promptly provide special reports in the event of any material violation of
the federal securities laws.
5. BOOKS AND RECORDS. The Adviser will maintain all accounts, books
and records with respect to each Series as are required pursuant to the 1940 Act
and Advisers Act and the rules thereunder. In compliance with the requirements
of Rule 31a-3 under the 1940 Act, the Adviser hereby agrees that all records
which it maintains for the Trust are the property of the Trust and further
agrees to surrender promptly to the Trust any of such records upon the Trust's
request. The Adviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-
1 under the 1940 Act.
6. EXPENSES OF THE ADVISER AND THE TRUST. During the term of this
Agreement, each Series will bear all fees and expenses not specifically waived,
assumed or agreed to be paid by the Adviser and incurred in its operations and
the offering of its shares. Expenses borne by each Series will include, but not
be limited to, the following (or each Series' proportionate share of the
following): brokerage commissions and issue and transfer taxes relating to
securities purchased or sold by the Series or any losses incurred in connection
therewith; expenses of organizing the Series; filing fees and expenses relating
to the registration and qualification of the Series' shares under federal or
state securities laws and maintaining such registrations and qualifications;
distribution and service fees; taxes (including any income or franchise taxes)
and governmental fees; costs of any liability, any costs, expenses or losses
arising out of any liability of or claim for damage or other relief asserted
against the Trust or Series for violation of any law; charges of proxy voting
services; any expenses of the Adviser resulting from new services necessitated
by regulatory or legal changes affecting mutual funds occurring after the date
-3
of this Agreement; any extraordinary expenses (including fees and disbursements
of counsel) incurred by the Trust or Series.
7. COMPENSATION. For the services provided and the expenses assumed
pursuant to this Agreement with respect to each Series, the Trust will pay the
Adviser, effective from the date of this Agreement, a fee which is computed
daily and paid monthly from each Series' assets at the annual rates as
percentages of that Series' average daily net assets as set forth in the
attached Schedule A, which Schedule can be modified from time to time to reflect
changes in annual rates or the addition or deletion of a Series from the terms
of this Agreement, subject to appropriate approvals required by the 1940 Act.
If this Agreement becomes effective or terminates with respect to any Series
before the end of any month, the fee for the period from the effective date to
the end of the month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
that such period bears to the full month in which such effectiveness or
termination occurs.
8. LIMITATION OF LIABILITY OF THE ADVISER. The Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust or any Series in connection with the matters to which this Agreement
relate except a loss resulting from the willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, partner, employee, or agent of the Adviser, who may
be or become an officer, Board member, employee or agent of the Trust shall be
deemed, when rendering services to the Trust or acting in any business of the
Trust, to be rendering such services to or acting solely for the Trust and not
as an officer, partner, employee, or agent or one under the control or direction
of the Adviser even though paid by it.
9. DURATION AND TERMINATION.
(a) EFFECTIVENESS. This Agreement shall become effective upon the
date hereinabove written, provided that, with respect to a Series, this
Agreement shall not take effect unless it has first been approved, to the extent
required by the 1940 Act (i) by a vote of a majority of those members of the
Board who are not parties to this Agreement or interested persons of any such
party ("Independent Board Members") cast in person at a meeting called for the
purpose of voting on such approval, and (ii) by an affirmative vote of a
majority of the outstanding voting securities of such Series.
(b) RENEWAL. Unless sooner terminated as provided herein, this
Agreement shall continue in effect for two years from the above written date,
except that with respect to any new Series, this Agreement will continue in
effect for two years from the date the Series is added to this Agreement.
Thereafter, if not terminated, this Agreement shall continue automatically for
successive periods of twelve months each from the date of this Agreement, and
for new Series for successive periods of twelve months once the initial two year
term has passed, provided that such continuance is specifically approved at
least annually in conformity with the requirements of the 1940 Act.
-4
(c) TERMINATION. Notwithstanding the foregoing, with respect to
any Series, this Agreement may be terminated at any time by vote of the Board,
including a majority of the Independent Board Members, or by vote of a majority
of the outstanding voting securities of such Series on 60 days' written notice
delivered or mailed by registered mail, postage prepaid, to the Adviser. The
Adviser may at any time terminate this Agreement on 60 days' written notice
delivered or mailed by registered mail, postage prepaid, to the Trust. This
Agreement automatically and immediately will terminate in the event of its
assignment. Termination of this Agreement pursuant to this Paragraph 9(c) shall
be without the payment of any penalty. Termination of this Agreement with
respect to a given Series shall not affect the continued validity of this
Agreement or the performance thereunder with respect to any other Series.
10. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no material amendment of this Agreement as to a given
Series shall be effective until approved by the Board and such Series
shareholders to the extent required by the 1940 Act.
11. NAME OF TRUST. The Trust or any Series may use the name "Heritage"
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of the Adviser. At such time as such an
agreement shall no longer be in effect, the Trust and each Series will (to the
extent that it lawfully can) cease to use any name derived from Heritage Fund
Distributors, Inc., Heritage Asset Management, Inc. or any successor
organization.
12. TRUST AND SHAREHOLDER LIABILITY. The Adviser is hereby expressly
put on notice of the limitation of shareholder liability as set forth in the
Declaration of Trust and agrees that obligations assumed by the Trust pursuant
to this Agreement shall be limited in all cases to the Trust and its assets, and
if the liability relates to one or more Series, the obligations hereunder shall
be limited to the respective assets of that Series. The Adviser further agrees
that they shall not seek satisfaction of any such obligation from the
shareholders or any individual shareholder of the Series, nor from the Trustees
or any individual Trustee of the Trust.
13. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Florida, without giving effect to the conflicts of laws
principles thereof, and in accordance with the 1940 Act. To the extent that the
applicable laws of the State of Florida conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. DEFINITIONS. As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested person," and "assignment" shall have
the same meanings as such terms have in the 1940 Act.
15. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior amendments
and understandings relating to the subject matter hereof.
-5
16. NOTICES. All notices required to be given pursuant to this
Agreement shall be delivered or mailed to the last known business address of the
Trust (attn: [Secretary]) or the Adviser (attn: [President]) (or to such other
address or contact as shall be designated by the Trust or the Adviser in a
written notice to the other party) in person or by registered or certified mail
or a private mail or delivery service providing the sender with notice of
receipt. Notice shall be deemed given on the date delivered or mailed in
accordance with this Paragraph 16.
17. FORCE MAJEURE. The Adviser shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Adviser shall take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
18. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
19. THE 1940 ACT. Where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is altered by a rule, regulation or
order of the SEC, whether of special or general application, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
20. HEADINGS. The headings in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
-6
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
HERITAGE CAPITAL APPRECIATION TRUST
HERITAGE GROWTH AND INCOME TRUST
HERITAGE INCOME TRUST
HERITAGE SERIES TRUST
Attest:
By:________________________ By:_______________________________
HERITAGE ASSET MANAGEMENT, INC.
Attest:
By:________________________ By:_______________________________
-7
SCHEDULE A
TO
INVESTMENT ADVISORY AGREEMENT
HERITAGE CAPITAL APPRECIATION TRUST
HERITAGE GROWTH AND INCOME TRUST
HERITAGE INCOME TRUST
HERITAGE SERIES TRUST
Pursuant to Paragraph 7 of the Agreement, each Series shall pay the
following fees to the Adviser for rendering investment advisory services. These
fees shall be computed daily and paid monthly at the following annual rates as
percentages of the Series' average daily net assets:
HERITAGE CAPITAL APPRECIATION TRUST
- -----------------------------------
Advisory Fee as % of
Average Daily Net Assets Average Daily Net Assets
------------------------ ------------------------
First $1 billion...........................0.60%
Over $1 billion............................0.55%
HERITAGE GROWTH AND INCOME TRUST
- --------------------------------
Advisory Fee as % of
Average Daily Net Assets Average Daily Net Assets
------------------------ ------------------------
First $100 million.........................0.60%
Over $100 million to $500 million..........0.45%
Over $500 million..........................0.40%
HERITAGE INCOME TRUST - HIGH YIELD BOND FUND
- --------------------------------------------
Advisory Fee as % of
Average Daily Net Assets Average Daily Net Assets
------------------------ ------------------------
First $100 million.........................0.45%
Over $100 million to $500 million..........0.35%
In excess of $500 million..................0.30%
-8
HERITAGE SERIES TRUST
- ---------------------
A. FOR THE DIVERSIFIED GROWTH FUND:
-------------------------------
Advisory Fee as % of
Average Daily Net Assets Average Daily Net Assets
------------------------ ------------------------
Up to and including $500 million...........0.60%
In excess of $500 million up to
and including $1 billion...............0.55%
In excess of $1 billion....................0.50%
B. FOR SMALL CAP STOCK FUND:
------------------------
Advisory Fee as % of
Average Daily Net Assets Average Daily Net Assets
------------------------ ------------------------
Up to and including $500 million...........0.60%
In excess of $500 million up to
and including $1 billion...............0.55%
In excess of $1 billion....................0.50%
C. FOR MID CAP STOCK FUND:
----------------------
Advisory Fee as % of
Average Daily Net Assets Average Daily Net Assets
------------------------ ------------------------
Up to and including $500 million...........0.60%
In excess of $500 million up to
and including $1 billion...............0.55%
In excess of $1 billion....................0.50%
D. FOR THE INTERNATIONAL EQUITY FUND:
---------------------------------
Advisory Fee as % of
Average Daily Net Assets Average Daily Net Assets
------------------------ ------------------------
Up to and including $100 million...........0.85%
In excess of $100 million up to
and including $1 billion...............0.65%
In excess of $1 billion....................0.55%
E. FOR THE CORE EQUITY FUND:
------------------------
Advisory Fee as % of
Average Daily Net Assets Average Daily Net Assets
------------------------ ------------------------
All assets.................................0.60%
Dated: ___________________, 2006
-9
EXHIBIT __
INFORMATION ON CURRENT AGREEMENTS
AND COMPENSATION TO HERITAGE
Information concerning the Current Agreements and compensation to Heritage
are listed in the table below.
FUND CONTRACTUAL FEE RATE AGGREGATE AMOUNT OF DATE OF DATE LAST SUBMITTED TO
FEE TO HERITAGE* AGREEMENT SHAREHOLDERS
Capital $0 to $1 billion 0.75% $_______ [insert date] [insert date and purpose of
Appreciation Over $1 billion 0.70% submission]
Core Equity All assets 0.60% $_______ [insert date] [insert date and purpose of
submission]
Diversified $0 to $500 million 0.60% $_______ [insert date] [insert date and purpose of
Growth $500 million to $1 billion 0.55% submission]
Over $1 billion 0.50%
Growth and $0 to $100 million 0.75% $_______ [insert date] [insert date and purpose of
Income $100 million to $500 million 0.60% submission]
Over $500 million 0.55%
High Yield $0 to $100 million 0.45% $_______ [insert date] [insert date and purpose of
$100 million to $500 million 0.35% submission]
Over $500 million 0.30%
International $0 to $100 million 0.85% $_______ [insert date] [insert date and purpose of
Equity $100 million to $1 billion 0.65% submission]
Over $1 billion 0.55%
Mid Cap $0 to $500 million 0.60% $_______ [insert date] [insert date and purpose of
$500 million to $1 billion 0.55% submission]
Over $1 billion 0.50%
Small Cap $0 to $500 million 0.60% $_______ [insert date] [insert date and purpose of
$500 million to $1 billion 0.55% submission]
Over $1 billion 0.50%
* Represents amounts paid for the last fiscal year.
-1
EXHIBIT __
BOARD FACTORS
At a meeting held on August 15, 2006, the Board, including the Independent
Trustees (together, the "Board"), approved the renewal of the Current Agreements
with Heritage. The Board considered information specifically prepared for its
review in connection with the annual renewal process of the Current Agreements
(each, an "Agreement" and collectively, the "Agreements"). The Board, acting
directly or through its committees, also considered information furnished for
the Board's review throughout the year at regular Board meetings relating to the
Funds. Examples of the types of information the Board received include: reports
regarding the services and support provided to each Fund and its shareholders by
Heritage; reports on each Fund's performance and commentary on the reasons for
the performance; presentations by Fund portfolio managers addressing, as
applicable, Heritage's and the Fund's subadviser's investment philosophy,
investment strategy, personnel and operation; compliance and audit reports,
including Heritage's responses to issues raised therein; and information on
relevant developments in the mutual fund industry and how the Funds and/or
Heritage are responding to them.
In connection with the meeting to consider the Agreements, the Board, with the
assistance of legal counsel, requested and received additional reports
containing substantial and detailed information about each Fund and Heritage.
The Board also received information from GSAM, Eagle and Awad (each, a
"Subadviser" and collectively, the "Subadvisers") with respect to certain Funds
that the Subadvisers manage. These reports included information on: (1) the
nature and extent of the advisory and other services provided by Heritage and
the Subadvisers; (2) the personnel of Heritage and the Subadvisers; (3) the
financial condition of Heritage and the Subadvisers; (4) the compliance programs
and records of Heritage and the Subadvisers; (5) the performance of the Fund as
compared to its peer group and an appropriate benchmark; (6) the Fund's
expenses, including the advisory fee itself, the overall expense structure of
the Fund, both in absolute terms and relative to peer funds, and any applicable
contractual expense limitations; (7) the anticipated effect of growth and size
on the Fund's performance and expenses, where applicable; (8) benefits to be
realized by Heritage, the Subadvisers and each of their respective affiliates;
and (9) the estimated profitability of Heritage and the Subadvisers under their
respective agreements, when available.
With respect to the approval of the Agreements, the Board considered all factors
it believed relevant, including: (1) the nature, extent and quality of services
provided to each Fund; (2) the investment performance of each Fund; (3) the
costs of the services provided to each Fund and the profits realized or to be
realized by Heritage, the Subadvisers (to the extent such information was
provided by the Subadvisers) and their respective affiliates from their
relationship with the Fund; (4) the extent to which economies of scale have been
realized as the Fund grows; (5) whether the level of fees reflects those
economies of scale for the benefit of Fund investors; (6) comparisons of
services and fees with contracts entered into by Heritage and the subadviser
with other clients (such as pension funds and other institutional investors);
and (7) any other benefits derived or anticipated to be derived by Heritage or
the Subadviser from its relationship with the Fund. Because Heritage's fee is a
combined fee covering investment advisory and administration fees, the Board did
not consider a comparison of Heritage's advisory fee relative to other similar
funds.
ALL FUNDS. The following discussion sets forth key factors the Board should
consider with respect to the renewal of the Agreements for all Funds:
NATURE, EXTENT AND QUALITY OF SERVICES. The Board considered that Heritage and
the Subadvisers are experienced in serving as an investment adviser and
subadviser for the Funds and for accounts comparable to the Funds they advise.
In addition, the Board noted that Heritage provides investment management,
administration, transfer agent and fund accounting services to each Fund.
Heritage also is responsible for the selection and monitoring of subadvisers for
the Funds, oversight of compliance with Fund policies and objectives, review of
brokerage matters, oversight of Fund compliance with applicable law, and
implementation of Board directives as they relate to the Funds. Heritage
provides advisory services to one other non-investment company client. Finally,
the Board noted that shareholders in each Fund have a broad range of investment
choices available to them, including a wide choice among mutual funds offered by
competitors to Heritage, and that each Fund's shareholders, with the opportunity
to review and weigh the disclosure provided by the Fund in its prospectus and
other public disclosures, have chosen to invest in that Fund, managed by
Heritage.
With respect to the Subadvisers, each Subadviser is responsible for making
investment decisions on behalf of its Fund and placing all orders for the
purchase and sale of investments for the Fund with brokers or dealers.
INVESTMENT PERFORMANCE. The Board considered the short-, intermediate- and
long-term performance of each Fund Class A shares relative to the average
performance of its peer group based on Morningstar's average category
("Morningstar Average") and its benchmark index for the period ended June 30,
2006. The Board also considered the performance of the Subadviser relative to
its other accounts to the extent such information was available.
COSTS, PROFITABILITY AND ECONOMIES OF SCALE. The Board considered the fees
payable under each Agreement. In this connection, the Board evaluated
Heritage's and, to the extent information was available, each Subadviser's costs
and profitability in providing services to the applicable Funds. Based on the
fact that each Subadviser represented that its fee is competitive, the Board
determined that each Subadviser's costs and profitability generally are less
significant to the Board's evaluation of the fees and expenses paid by the Funds
than Heritage's management fee and profitability and the Fund's overall expense
ratios.
The Board also examined the advisory fees paid by each Fund in light of fees
paid by comparable mutual funds. In this connection, the Board considered the
management fee and the expense ratio for each Fund compared to the average
management fee and expense ratio of its peer group for the period ended June 30,
2006, as discussed further below with respect to each Fund.
The Board also considered that each Fund's management fee structure provides for
breakpoints, that is, a reduction of the applicable advisory fee rate as assets
-2
increase. The Board considered that Heritage had undertaken contractual expense
limitations with respect to each Fund (except Mid Cap?) 2007 fiscal year, which
are subject to renewal by the Board and Heritage on an annual basis.
The Board considered that each Fund may benefit from economies of scale, and
shareholders may realize such economies of scale, through (1) reduced advisory
and administration fees achieved when a Fund's asset size reaches breakpoints in
the fee schedules instituted by Heritage; (2) increased services to the Funds,
(3) the waivers and/or reimbursements Heritage provides as a result of the
contractual expense limitations on each Fund's total operating expenses, or (4)
fee or expense reductions that may result from the operation of the transfer
agent agreement.
BENEFITS. In evaluating Heritage's and each Subadviser's compensation, the
Board considered other benefits that may be realized by Heritage, each
Subadviser and their respective affiliates from their relationship with the
Funds. In this connection, the Board noted, among other things, that Heritage
also serves as the transfer agent and fund accountant for the Funds, receiving
compensation for acting in these capacities, and is responsible for, among other
things, coordinating the Funds' audits, financial statements and tax returns and
managing expenses and budgeting for the Funds.
In addition, the Board recognized that Eagle and Awad, affiliates of Heritage,
serve as subadvisers to certain Funds and, and as such, receive advisory fees
that are paid by Heritage out of the fees that it earns from the Funds.
The Board also recognized that RJA, another affiliate of Heritage, serves as the
principal underwriter and distributor for the Funds, and as such, receives Rule
12b-1 payments from the Funds to compensate them for providing service and
distribution activities, which could lead to growth in the Funds' assets and the
corresponding benefits of that growth, including economies of scale and greater
diversification. In addition, another Raymond James Financial Services, Inc.,
another affiliate of Heritage, has entered into an agreement with RJA to sell
fund shares and receives compensation from RJA.
FUND SPECIFIC. The following discussion sets forth key factors the Board
considered with respect to the renewal of the Agreement that is applicable to
the specific Fund noted below:
CAPITAL APPRECIATION. In considering the renewal of the Agreement as it relates
to Capital Appreciation, the Board considered the following additional factors:
(1) Heritage oversees and monitors the performance and services provided by the
Fund's Subadviser; (2) the Fund's expense ratio was less than the average for
its peer group; (3) the Fund's expense ratio has dropped over the last several
years due to increased economies of scale; (4) Heritage added "breakpoints" to
its advisory fees sufficient to pass on any economies of scale it realizes to
shareholders; (5) Heritage's commitment to continue the expense cap arrangement
through the Fund's 2007 fiscal year; and (6) Heritage's profits on the services
it provided to the Fund are reasonable in light of the fact that Heritage
provides quality services to investors, manages the Fund's assets, and provides
a comprehensive compliance program for the Fund.
-3
In considering the renewal of the Subadvisory Agreement with GSAM, the Board
considered the following additional factors: (1) the Fund outperformed its
Morningstar Average for the 1, 3, 5 and 10 year periods and outperformed its
benchmark index for the 1 and 10 year periods; (2) the Fund's 4-star Morningstar
rating; (3) GSAM has represented that the Fund's fee schedule is lower than
those standard fees charged to other institutional clients but does not have any
clients with similar investment objectives and asset levels; (4) the average
industry experience of GSAM's investment advisory team; and (5) Heritage's
recommendation to continue to retain GSAM to manage the Fund.
GROWTH AND INCOME. In considering the renewal of the Agreement, the Board
considered the following additional factors: (1) Heritage oversees and monitors
the performance and services provided by the Fund's Subadviser; (2) the Fund
outperformed its Morningstar Average and its benchmark index for the 1, 3 and 5
year periods; (3) the Fund's 3-star Morningstar rating; (4) the Fund's expense
ratio (including the cap) was competitive with the average for its peer group;
(5) Heritage added a "breakpoint" to its advisory fees sufficient to pass on any
economies of scale it realizes to shareholders; (6) Heritage's commitment to
continue the expense cap arrangement through the Fund's 2007 fiscal year; (7)
Heritage incurred losses on the operation of the Fund; and (8) Heritage provides
quality services to investors, manages the Fund's assets, monitors and evaluates
the performance of the subadviser, and provides a comprehensive compliance
program for the Fund.
DIVERSIFIED GROWTH. In considering the renewal of the Agreement, the Board
considered the following additional factors: (1) Heritage oversees and monitors
the performance and services provided by the Fund's Subadviser; (2) the Fund's
expense ratio is less than the average for its peer group; (3) Heritage added
two additional "breakpoints" to its advisory fees sufficient to pass on any
economies of scale it realizes to shareholders; (4) the Fund's expense ratio
continues to decline as the size of the Fund increases; (5) Heritage's
commitment to continue the expense cap arrangement through the Fund's 2007
fiscal year; and (6) Heritage's profit on the services it provided to the Fund
is reasonable in light of the fact that Heritage provides quality services to
investors, manages the Fund's assets, monitors and evaluates the performance of
the subadviser, and provides a comprehensive compliance program for the Fund.
In considering the renewal of the Subadvisory Agreement with Eagle, the Board
considered the following additional factors: (1) the Fund underperformed its
Morningstar Average and benchmark index for the 1 and 3 year periods but
outperformed both for the 5 year period; (2) the Fund's 3-star Morningstar
rating; (3) the Fund's performance was lower than the performance of other
accounts with similar objectives managed by Eagle for 2004, 2005 and the 6
months ended June 2006; (4) Eagle's representation that it has no mutual fund
clients with comparable investment objectives, however the fees paid by the Fund
are less than the fee charged for a standard institutional equity account; (5)
the average industry experience of Eagle's investment advisory team; and (6)
Heritage's recommendation to continue to retain Eagle in managing the Fund.
-4
INTERNATIONAL EQUITY. In considering the renewal of the Agreement, the Board
considered the following additional factors: (1) Heritage oversees and monitors
the performance and services provided by the Fund's Subadviser; (2) the Fund
outperformed its Morningstar Average for the 1, 3 and 5 year periods; (3) the
Fund outperformed its benchmark index for the 1 year period, matched for the 3
year period and underperformed for the 5 year period; (4) the Fund's 3-star
Morningstar rating; (5) the Fund's expense ratio (including the cap) is higher
than the average of its peer group, although when compared to other
international funds of similar asset size, the Fund's expense ratio appears
competitive; (6) Heritage added an additional "breakpoint" to its advisory fees
sufficient to pass on any economies of scale it realizes to shareholders; (7)
Heritage's commitment to continue the expense cap arrangement through the Fund's
2007 fiscal year; (8) until this year, Heritage incurred losses on the operation
of the Fund; and (9) Heritage provides quality services to investors, manages
the Fund's assets, monitors and evaluates the performance of the subadviser, and
provides a comprehensive compliance program for the Fund.
MID CAP. In considering the renewal of the Agreement, the Board considered the
following additional factors: (1) Heritage oversees and monitors the performance
and services provided by the Fund's Subadviser; (2) the Fund's expense ratio was
less than the average of its peer group; (3) Heritage added two additional
"breakpoints" to its advisory fees sufficient to pass on any economies of scale
it realizes to shareholders; (4) the Fund's expense ratio continues to decline
as the size of the Fund increases; and (5) Heritage's profit on the services it
provided to the Fund is reasonable in light of the fact that Heritage provides
quality services to investors, manages the Fund's assets, monitors and evaluates
the performance of the subadviser, and provides a comprehensive compliance
program for the Fund.
In considering the renewal of the Subadvisory Agreement with Eagle, the Board
considered the following additional factors: (1) the Fund outperformed its
Morningstar Average for the 1, 3 and 5 year periods and outperformed its
benchmark index for the 1 year period; (2) the Fund's 4-star Morningstar rating;
(3) the Fund's performance was similar to the performance of other accounts with
similar objectives managed by Eagle over the short-term periods; (4) Eagle's
representation that it has no mutual fund clients with comparable investment
objectives, however the fees paid by the Fund are less than the fee charged for
a standard institutional equity account; and (5) Heritage's recommendation to
continue to retain Eagle to manage the Fund.
SMALL CAP. In considering the renewal of the Agreement, the Board should
consider the following additional factors: (1) Heritage oversees and monitors
the performance and services provided by the Fund's subadvisers; (2) the Fund's
expense ratio was less than the average of its peer group; (3) the Fund's
expense ratio continues to decline as the asset size of the Fund increases; (4)
Heritage's commitment to continue the expense cap arrangement through the Fund's
2007 fiscal year; and (5) Heritage's profit on the services it provided to the
Fund is reasonable in light of the fact that Heritage provides quality services
to investors, manages the Fund's assets, monitors and evaluates the performance
of the subadviser, and provides a comprehensive compliance program for the Fund.
-5
In considering the renewal of the Subadvisory Agreement with Awad and Eagle, the
Board considered the following additional factors: (1) the Fund outperformed its
Morningstar Average for the 3, 5 and 10 year periods but underperformed its
benchmark index for the 1, 3, 5 and 10 year periods; (2) the Fund's 4-star
Morningstar rating; (3) the Fund's performance was lower than the performance of
other accounts with similar objectives managed by Eagle over shorter term
periods but slightly higher in longer periods; (4) the Fund's performance was
better than the performance of other accounts with similar objectives managed by
Awad over a shorter period but trailed those accounts over the longer periods;
(5) Eagle's representation that the Fund pays a lower fee than Eagle's other
institutional clients with comparable investment objective; (6) Awad has
represented that the Fund pays less fees than other institutional clients with
the exception of one client which pays Awad a base fee lower than the Fund's
fee, but Awad is eligible to earn an incentive fee from this account which could
raise the fee above the Fund's fee; (7) the average industry experience of
Eagle's investment advisory team; and (8) Heritage's recommendation to continue
to retain Awad and Eagle to manage the Fund.
HIGH YIELD. In considering the renewal of the Agreement, the Board considered
the following additional factors: (1) Heritage oversees and monitors the
performance and services provided by the Fund's subadviser; (2) the Fund
underperformed its Morningstar Average for the 1, 3 and 5 year periods but
outperformed for the 10 year period; (3) the Fund underperformed its benchmark
index for the 3, 5 and 10 year periods but outperformed for the 1 year period;
(4) the Fund's 3-star Morningstar rating; (4) the Fund's expense ratio
(including the cap) was less than the average of its peer group; (5) Heritage
added a "breakpoint" to its advisory fees sufficient to pass on any economies of
scale it realizes to shareholders; (6) Heritage's commitment to continue the
expense cap arrangement through the Fund's 2007 fiscal year; (7) Heritage
incurred losses on the operation of the Fund; and (8) Heritage provides quality
services to investors, manages the Fund's assets, monitors and evaluates the
performance of the subadviser, and provides a comprehensive compliance program
for the Fund.
CORE EQUITY FUND. In considering the renewal of the Agreement, the Board
considered the following additional factors: (1) Heritage oversees and monitors
the performance and services provided by the Fund's subadviser; (2) Heritage has
agreed to a cap on the expense ratio in an effort to bring it closer to the
ratios of its peer funds; (3) the relatively new status of this Fund and the
aggressive marketing undertaken by Heritage; (4) the Fund's expense ratio has
shown a trend toward declining as the size of the Fund increases; (5) Heritage's
commitment to continue the expense cap arrangement through the Fund's 2007
fiscal year; (6) Heritage incurred losses on the operation of the Fund; and (7)
Heritage provides quality services to investors, manages the Fund's assets,
monitors and evaluates the performance of the subadviser, and provides a
comprehensive compliance program for the Fund.
In considering the renewal of the Subadvisory Agreement with Eagle, the Board
considered the following additional factors: (1) the Fund underperformed its
Morningstar Average and its benchmark index for the 1 year period; (2) the
-6
Fund's performance was lower than the performance of other accounts with similar
objectives managed by Eagle for the relatively short life of the Fund; (3) the
Fund's relatively short-track record; (4) Eagle's representation that no mutual
fund clients with comparable investment objectives pay a lower fee; (5) the
average industry experience of Eagle's investment advisory team; and (6)
Heritage's recommendation to continue to retain Eagle to manage the Fund.
CONCLUSIONS. Based on these considerations, the Board concluded with respect to
each Fund that: (1) the Fund was reasonably likely to benefit from the nature,
quality and extent of Heritage's and each Subadviser's services, as applicable
to a Fund; (2) the Fund's performance was satisfactory in light of all the
factors considered by the Board; (3) the profits and fees payable under the
Agreement to Heritage were reasonable in the context of all the factors
considered by the Board; (4) each Subadviser's fee rate was reasonable in the
context of all the factors considered by the Board; (5) the advisory fee
structure provides Fund shareholders with reasonable benefits associated with
economies of scale; (6) the Fund is reasonably likely to benefit from Heritage's
and, as applicable, the Subadviser's investment process, personnel and
operations; (7) Heritage and each Subadviser each have the resources to provide
the services and to carry out their responsibilities under their respective
Agreements; and (8) Heritage and each Subadviser have adequate compliance
programs.
-7
EXHIBIT __
HERITAGE
DIRECTORS AND PRINCIPAL EXECUTIVE OFFICERS
The table below lists the name, address and principal occupation of the
principal executive officers and each director or general partner of Heritage,
as well as the Fund officers and Trustees who have a position with Heritage.
- ----------------------------------------------------------------------------------------------------------------
Name and Address Principal Occupation
- ----------------------------------------------------------------------------------------------------------------
Stephen G. Hill Heritage Asset Management, Inc.
880 Carillon Parkway, St. Petersburg, President, April 1989-March 2000 and November 2005-
Florida 33716 present
Director, December 1994-present
Heritage Mutual Funds
President, November 2005-present
Eagle Asset Management, Inc.
President and Chief Operating Officer, April 2000-present
Director, January 1995-present
Awad Asset Management, Inc.
President and Chief Executive Officer, December 1999-
April 2001 and August 2004-present
Director, October 1998-present
Heritage Fund Distributors, Inc.
Director, November 2005-present
- ----------------------------------------------------------------------------------------------------------------
Kenneth C. Clark Heritage Asset Management, Inc.
880 Carillon Parkway, St. Petersburg, Executive Vice President and Chief Operating Officer,
Florida 33716 October 2000-present
Director, November 2005-present
Chief Compliance Officer, October 2004-September 2005
Heritage Mutual Funds
Executive Vice President and Principal Executive Officer,
October 2000-present
Chief Compliance Officer, October 2004-September 2005
- ----------------------------------------------------------------------------------------------------------------
-1
- ----------------------------------------------------------------------------------------------------------------
Richard J. Rossi Heritage Asset Management, Inc.
880 Carillon Parkway, St. Petersburg, Executive Vice President, November 2005-present
Florida 33716 Director, November 2005-present
Heritage Fund Distributors, Inc.
President, November 2005-present
Director, November 2005-present
Eagle Asset Management, Inc.
Executive Vice President, October 2000-present
- ----------------------------------------------------------------------------------------------------------------
Andrea N. Mullins Heritage Asset Management, Inc.
880 Carillon Parkway, St. Petersburg, Vice President, December 1996-present
Florida 33716 Treasurer, May 2003-present
Heritage Mutual Funds
Treasurer, May 2003-present
Secretary, May 2004-present
- ----------------------------------------------------------------------------------------------------------------
Mathew J. Calabro Heritage Asset Management, Inc.
880 Carillon Parkway, St. Petersburg, Senior Vice President, June 2005-present
Florida 33716 Chief Compliance Officer, October 2005-present
Vice President, December 1996-May 2005
Heritage Mutual Funds
Chief Compliance Officer, October 2005-present
- ----------------------------------------------------------------------------------------------------------------
Richard K. Riess Heritage Asset Management, Inc.
880 Carillon Parkway, St. Petersburg, Chief Executive Officer, April 2000-present
Florida 33716 Director, June 1985-present
Eagle Asset Management, Inc.
Chief Executive Officer, October 1996-present
Director, July 1988-present
Raymond James Financial, Inc.
Executive Vice President, Managing Director Asset Management
Group, May 1998-present
Heritage Mutual Funds
Trustee, June 1985-present
President, October 2000-November 2005
- ----------------------------------------------------------------------------------------------------------------
Jeffrey P. Julien Heritage Asset Management, Inc.
880 Carillon Parkway, St. Petersburg, Director, June 1985-present
Florida 33716
Raymond James Financial, Inc.
Senior V.P./Finance and Chief Financial Officer,
August 1983-present
- ----------------------------------------------------------------------------------------------------------------
-2
EXHIBIT __
HERITAGE CAPITAL APPRECIATION TRUST
SUBADVISORY AGREEMENT
This Subadvisory Agreement is made as of ________ __, ____, between
Heritage Asset Management, Inc., a Florida corporation (the "Manager"), and
Goldman, Sachs & Co. ("Goldman"), a New York limited partnership, on behalf of
Goldman Sachs Asset Management L.P., a business unit of the Investment
Management Division of Goldman (the "Subadviser").
WHEREAS, the Manager has by separate contract agreed to serve as the
investment adviser and administrator to Heritage Capital Appreciation Trust
("Trust"), a Massachusetts business trust registered under the Investment
Company Act of 1940, as amended ("1940 Act"), as an open-end diversified
management investment company consisting of one or more investment portfolios,
each having its own assets and investment policies;
WHEREAS, the Manager's contract with the Trust allows it to delegate
certain investment advisory services for the Trust to other parties; and
WHEREAS, the Manager desires to retain the Subadviser to perform
certain investment advisory services for the Trust with respect to its existing
portfolio and such other portfolios as the Trust and the Manager; shall agree
upon and so specify from time to time in one or more Schedules attached hereto
(collectively, the "Portfolios"), and the Subadviser is willing to perform such
services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST.
------------------------------------------------------
(a) INVESTMENT PROGRAM. Subject to the control and supervision
of the Board of Trustees of the Trust and the Manager, the Subadviser
shall, at its expense, continuously furnish to the Portfolios an
investment program for such portion, if any, of Portfolio assets which
is allocated to it by the Manager from time to time. With respect to
such assets, the Subadviser will make investment decisions and will
place all orders for the purchase and sale of portfolio securities. In
the performance of its duties, the Subadviser will act in the best
interests of the Portfolios and will comply with (i) applicable laws
and regulations, including, but not limited to, the 1940 Act, (ii) the
terms of this Agreement, (iii) the stated investment objective,
policies and restrictions of the Portfolios, as stated in the
then-current Registration Statement of the Trust, and (iv) such other
guidelines as the Trustees or Manager may establish. The Manager shall
be responsible for providing the Subadviser with current copies of the
materials specified in Subsections (a)(iii) and (iv) of this Section 1.
At such time as will be reasonably requested by the Board or
the Manager, the Subadviser will provide them with economic and
investment analysis and reports, and make available to the Board any
economical, statistical of investment services normally available to
similar investment company clients of the Subadviser.
(b) AVAILABILITY OF PERSONNEL. The Subadviser, at its expense,
will make available to the Trustees and the Manager at reasonable times
its portfolio managers and other appropriate personnel in order to
review investment policies of the Portfolios and to consult with the
Trustees and the Manager regarding the investment affairs of the
Portfolios, including economic, statistical and investment matters
relevant to the Subadviser's duties hereunder, and will provide
periodic reports to the Manager relating to the portfolio strategies it
employs.
(c) SALARIES AND FACILITIES. The Subadviser, at its expense,
will pay for all salaries of personnel and facilities required for it
to execute its duties under this Agreement.
(d) COMPLIANCE REPORTS. The Subadviser, at its expense, will
provide the Manager with such compliance reports relating to its duties
under this Agreement as may be agreed upon by such parties from time to
time.
(e) VALUATION. The Subadviser, at its expense, will provide
the Trust's fund accountant or custodian, as the case may be, with
market price information relating to the assets of the Portfolios for
which the Subadviser has responsibility at such times as the parties
hereto may agree upon from time to time.
(f) EXECUTING PORTFOLIO TRANSACTIONS. The Subadviser will
place orders pursuant to its investment determinations for each.
Portfolio either directly with the issuer or through other brokers. In
the selection of brokers and the placement of orders for the purchase
and sale of portfolio investments for the Portfolios, the Subadviser
shall use its best efforts to obtain for the Portfolios the most
favorable price and execution available, except to the extent it may be
permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to
obtain the most favorable price and execution available, the
Subadviser, bearing in mind the Trust's best interests at all times,
shall consider all factors it deems relevant, including by way of
illustration, price, the size of the transaction, the nature of the
market for the security, the amount of the commission, the timing of
the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker involved
and the quality of service rendered by the broker in other
transactions. Subject to such policies as the Board of Trustees may
determine, the Subadviser shall not be deemed to have acted unlawfully
or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused a Portfolio to pay a broker that
provides brokerage and research services to the Subadviser an amount of
commission for effecting a portfolio investment transaction in excess
of the amount of commission another broker would have charged for
effecting that transaction if the Subadviser determines in good faith
that such amount of commission was reasonable in relation to the value
of the brokerage and research services provided by such broker, viewed
in terms of either that particular transaction or the Subadviser's
overall responsibilities with respect to the Trust and to other clients
of the Subadviser as to which the Subadviser exercises investment
discretion. In no instance will portfolio securities of any Portfolio
be purchased from or sold to the Subadviser or any affiliated person of
the Subadviser. The Trust agrees that any entity or person associated
-2
with the Manager or the Subadviser that is a member of a national
securities exchange is authorized to effect any transaction on such
exchange for the account of the Trust that is permitted by Section
11(a) of the Securities Exchange Act of 1934, as amended, and the Trust
consents to the retention of compensation for such transactions.
(g) EXPENSES. The Subadviser shall not be obligated to pay any
expenses of or for the Trust not expressly assumed by the Subadviser
pursuant to this Agreement.
2. BOOKS AND RECORDS. Pursuant to Rule 3la-3 under the 1940 Act,
the Subadviser agrees that: (a) all records it maintains for the Trust are the
property of the Trust; (b) it will surrender promptly to the Trust or the
Manager any such records upon the Trust's or Manager's request; (c) it will
maintain for the Trust the records that the Trust is required to maintain
pursuant to Rule 3la-1 insofar as such records relate to the investment affairs
of the Portfolios for which the Subadviser has responsibility under this
Agreement; and (d) it will preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records it maintains for the Trust.
3. OTHER AGREEMENTS. The Subadviser and persons controlled by or
under common control with the Subadviser have and may have advisory, management
service or other agreements with other organizations and persons, and may have
other interests and businesses. Nothing in this Agreement is intended to
preclude such other business relationships.
4. COMPENSATION. The Manager will pay to the Subadviser as
compensation for the Subadviser's services rendered pursuant to this Agreement a
subadvisory fee as set forth in Schedule A, which schedule can be modified from
time to time to reflect changes in annual rates or the addition or deletion of a
Portfolio from this Agreement, subject to appropriate approvals required by the
1940 Act. Such fees shall be paid by the Manager (and not by the Trust). Such
fees shall be payable for each month within 15 business days after the end of
such month. If the Subadviser shall serve for less than the whole of a month,
the compensation as specified shall be prorated.
5. ASSIGNMENT AND AMENDMENT OF AGREEMENT. This Agreement
automatically shall terminate without the payment of any penalty in the event of
its assignment. No material amendment of this Agreement shall be effective until
approved by the majority of the members of the Board who are not interested
persons of the Trust ("Independent Trustee", the Manager or the Subadviser and
the shareholders of the affected Portfolio(s) to the extent required by the 1940
Act. The Subadviser agrees to notify the Manager of any change in control of the
Subadviser before such change.
6. DURATION AND TERMINATION OF THE AGREEMENT. This Agreement
shall become effective upon its execution; provided, however, that this
Agreement shall not become effective with respect to any Portfolio now existing
or hereafter created unless it has first been approved (a) by a vote of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by an affirmative vote of a majority of the
outstanding voting shares of that Portfolio. This Agreement shall remain in full
force and effect continuously thereafter without the payment of any penalty as
follows:
-3
(a) By vote of a majority of the (i) Independent Trustees, or
(ii) outstanding voting shares of the applicable Portfolios, the Trust
may at any time terminate this Agreement with respect to any or all
Portfolios by providing not less than 60 days' written notice delivered
or mailed by registered mail, postage prepaid, to the Manager and the
Subadviser.
(b) This Agreement will terminate automatically with respect
to a Portfolio unless, within one year after its initial effectiveness
with respect to such Portfolio and at least annually thereafter, the
continuance of the Agreement is specifically approved by (i) the Board
of Trustees or the shareholders of such Portfolio by the affirmative
vote of a majority of the outstanding shares of such Portfolio, and
(ii) a majority of the Independent Trustees, by vote cast in person at
a meeting called for the purpose of voting on such approval. If the
continuance of this Agreement is submitted to the shareholders of any
Portfolio for their approval and such shareholders fail to approve such
continuance as provided herein, the Subadviser may continue to serve
hereunder in a manner consistent with the 1940 Act and the rules and
regulations thereunder.
(c) The Manager may at any time terminate this Agreement with
respect to any or all Portfolios by not less than 60 days' written
notice delivered or mailed by registered mail, postage prepaid, to the
Subadviser, and the Subadviser may at any time terminate this Agreement
with respect to any or all Portfolios by not less than 90 days' written
notice delivered or mailed by registered mail, postage prepaid, to the
Manager.
(d) This Agreement automatically and immediately will
terminate in the event of its assignment.
Upon termination of this Agreement with respect to any Portfolio, the
duties of the Manager delegated to the Subadviser under this Agreement with
respect to such Portfolio automatically shall revert to the Manager.
7. NOTIFICATION OF THE MANAGER. The Subadviser promptly shall
notify the Manager in writing of the occurrence of any of the following events:
(a) the Subadviser shall fail to be registered as an
investment adviser under the Investment Advisers Act of 1940, as
amended, and under the laws of any jurisdiction in which the Subadviser
is required to be registered as an investment adviser in order to
perform its obligations under this Agreement;
(b) the Subadviser shall have been served or otherwise have
notice of any action, suit, proceeding, inquiry or investigation, at
law or in equity, before or by any court, public board or body,
involving the affairs of the Trust or any Portfolio; or
(c) any other occurrence that might affect the ability of the
Subadviser to provide the services provided for under this Agreement.
8. DEFINITIONS. For the purposes of this Agreement, the terms
"vote of a majority of the outstanding shares," "affiliated person," "control,"
"interested person" and "assignment" shall have their respective meanings as
defined in the 1940 Act and the rules and regulations thereunder subject,
-4
however, to such exemptions as may be granted by the Securities and Exchange
Commission under said Act; and references to annual approvals by the Board of
Trustees shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder.
9. LIABILITY OF THE SUBADVISER. In the absence of its willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties hereunder, the Subadviser shall not be subject to any
liability to the Manager, the Trust or their directors, Trustees, officers or
shareholders, for any act or omission in the course of, or connected with,
rendering services hereunder. However, the Subadviser shall indemnify and hold
harmless such parties from any and all claims, losses, expenses, obligations and
liabilities (including reasonable attorneys fees) which arise or result from
Subadviser's willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties hereunder.
10. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Florida, without giving effect to the conflicts of
laws principles thereof, and in accordance with the 1940 Act. To the extent that
the applicable laws of the State of Florida conflict with the applicable
provisions of the 1940 Act, the latter shall control.
11. MASSACHUSETTS BUSINESS TRUST. Subadviser hereby acknowledges
that, although this Agreement is executed by an officer and/or trustee of the
Trust, the obligations of this Agreement are not binding upon any of them
individually or upon the Trust's shareholders individually; rather, these
obligations are binding only upon the assets and property of the Trust.
12. SEVERABILITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors.
13. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. Where the
effect of a requirement of the 1940 Act reflected in any provision of this
Agreement is made less restrictive by a rule, regulation or order of the
Securities and Exchange Commission, whether special or general application, such
provision shall be deemed to incorporate the effect of such rule regulation or
order.
IN WITNESS WHEREOF, Heritage Asset Management, Inc. and Goldman, Sachs
& Co., on behalf of Goldman Sachs Asset Management L.P. have each caused this
instrument to be signed in duplicate on its behalf by its duly authorized
representative, all as of the day and year first above written.
Attest: HERITAGE ASSET MANAGEMENT, INC.
By:_____________________________ By: _______________________________
Attest: GOLDMAN, SACHS & Co., on behalf of
GOLDMAN SACHS ASSET MANAGEMENT L.P.
By:_____________________________ By: _______________________________
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SCHEDULE A
TO THE
HERITAGE CAPITAL APPRECIATION TRUST
SUBADVISORY AGREEMENT
BETWEEN
HERITAGE ASSET MANAGEMENT, INC.
AND
GOLDMAN, SACHS & CO.
As compensation pursuant to section 4 of the Subadvisory Agreement
between Heritage Asset Management, Inc. (the "Manager") and Goldman, Sachs & Co.
("Goldman"), on behalf of Goldman Sachs Asset Management L.P., a business unit
of the Investment Management Division a division of Goldman (the "Subadviser"),
the Manager shall pay the Subadviser a subadvisory fee, computed and paid
monthly, at the following percentage rates of the Trust's average daily net
assets under management by the Subadviser:
(1) For the Heritage Capital Appreciation Trust: ___%
Dated: _________ __, _______
EXHIBIT __
SUBADVISORY AGREEMENT
FOR
HERITAGE _________ TRUST
Agreement made as of _________ __, ___ between Heritage Asset
Management, Inc., a Florida corporation (the "Manager"), and Eagle Asset
Management, Inc., a Florida corporation (the "Subadviser").
WHEREAS, the Manager has by separate contract agreed to serve as the
investment adviser and administrator to the Heritage ___________ Trust
("Trust"), a Massachusetts business trust engaged in business as an open-end
diversified management investment company that is so registered under the
Investment Company Act of 1940 ("1940 Act");
WHEREAS, the Manager's contract with the Trust allows it to delegate
certain investment advisory services for the Trust to other parties; and
WHEREAS, the Manager desires to retain the Subadviser to perform
certain investment advisory services for the Trust and the Subadviser is willing
to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. SERVICES TO BE RENDERED BY SUBADVISER TO THE TRUST
(a) Subject always to the control of the Trustees and Manager of the
Trust, the Subadviser, at its expense, will furnish continuously an investment
program for the Trust. The Subadviser will make investment decisions on behalf
of the Trust and place all orders for the purchase and sale of portfolio
securities. In the performance of its duties, the Subadviser will comply with
the provisions of this Agreement and the Trust's Declaration of Trust, Bylaws
and Registration Statement as from time to time amended, any relevant
undertakings provided to State securities regulators, and the stated investment
objective, policies and restrictions of the Trust, and will use its best efforts
to safeguard and promote the welfare of the Trust, and to comply with other
policies which the Trustees or the Manager, as the case may be, may from time to
time determine, and shall exercise the same care and diligence as are expected
of the Trustees.
(b) The Subadviser, at its expense, will make available its officers
and advisory and other personnel, particularly portfolio managers and research
analysts to the Trustees and Manager at reasonable times, to review investment
policies of the Trust and to consult with the Trustees and Manager regarding the
investment affairs of the Trust and economic, statistical and investment matters
relevant to the Subadviser's duties hereunder and will provide periodic reports
to the Manager relating to the portfolio strategies it employs.
(c) The Subadviser, at its expense, will furnish all salaries of
personnel and facilities to provide for the efficient conduct of the investment
affairs of the Trust, such affairs to include the monitoring of the portfolio
accounting services provided by the Trust's custodian.
(d) The Subadviser, at its expense, also will provide the Manager with
compliance reports relating to the Trust's investment operations, including
regular, periodic reports which monitor investment restrictions and other
guidelines of the Trust's prospectus and statement of additional information,
and such other compliance reports as may be agreed upon from time to time.
(e) The Subadviser, at its expense, also will provide the Trust's
custodian bank with market price information relating to portfolio instruments
on a daily basis.
(f) In the selection of brokers or dealers and the placement of orders
for the purchase and sale of portfolio investments for the Trust, the Subadviser
shall use its best efforts to obtain for the Trust the most favorable price and
execution available, except to the extent it may be permitted to pay higher
brokerage commissions for brokerage and research services as described below. In
using its best efforts to obtain the most favorable price and execution
available, the Subadviser, bearing in mind the Trust's best interests at all
-2
times, shall consider all factors it deems relevant, including by way of
illustration, price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the transaction taking
into account market prices and trends, the reputation, experience and financial
stability of the broker or dealer involved and the quality of service rendered
by the broker or dealer in other transactions. Subject to such policies as the
Trustees of the Trust may determine, the Subadviser shall not be deemed to have
acted unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of its having caused the Trust to pay a broker or
dealer that provides brokerage and research services to the Subadviser an amount
of commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if the Subadviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Subadviser's overall responsibilities with respect
to the Trust and to other clients of the Subadviser as to which the Subadviser
exercises investment discretion. As provided in the Investment Advisory and
Administration Agreement between the Manager and the Trust referred to in
Section 4 below, the Trust agrees that any entity or person associated with the
Manager which is a member of a national securities exchange is authorized to
effect any transaction on such exchange for the account of the Trust which is
permitted by Section 11(a) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and Rule 11a2-2(T) thereunder, and the Trust has consented to
the retention of compensation for such transactions in accordance with Rule
11a2-2(T)(a)(2)(iv).
(g) The Subadviser shall not be obligated to pay any expenses of or for
the Trust not expressly assumed by the Subadviser pursuant to this Section 1 and
Section 2 hereafter.
2. BOOKS AND RECORDS
In compliance with the requirements of Rule 31a-3 under the Investment
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Company Act of 1940 (the "1940 Act"), the Subadviser agrees that all records it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust or Manager any such records upon the Trust's or
Manager's request. The Subadviser further agrees to maintain for the Trust the
records the Trust is required to maintain under Rule 31a-l(b) insofar as such
records relate to the investment affairs of the Trust. The Subadviser further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records it maintains for the Trust.
3. OTHER AGREEMENTS
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a shareholder, director, officer or employee of,
or be otherwise interested in the Subadviser and in any person controlled by or
under common control with the Subadviser, and that the Subadviser and any Person
controlled by or under common control with the Subadviser may have an interest
in the Trust. It is also understood that the Subadviser and persons controlled
by or under common control with the Subadviser have and may have advisory,
management service or other contracts with other organizations and persons, and
may have other interests and businesses; provided, however, that neither the
Subadviser nor any of its investment adviser affiliates shall undertake to act
as investment adviser or subadviser for any other registered investment company
offered to the general public that is not sponsored by the Subadviser or an
affiliate of the Subadviser except upon not less than 60 days' notice in writing
to the Manager and the Trust.
4. COMPENSATION TO BE PAID BY THE MANAGER TO THE SUBADVISER
The Manager will pay to the Subadviser as compensation for the
Subadviser's services rendered and for the expenses borne by the Subadviser
pursuant to Sections 1 and 2, a fee, computed and paid monthly at an annual rate
equal to 50% of fees payable by the Trust to the Manager under the Investment
Advisory and Administration Agreement between the Manager and the Trust. Such
fee shall be paid by the Manager and not by the Trust without regard to any
reduction in the fees paid to the Manager as a result of any statutory or
regulatory limitation on investment company expenses. Such fee shall be payable
for each month within 10 business days after the end of such month. If the
Subadviser shall serve for less than the whole of a month, the foregoing
compensation shall be prorated.
5. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENT OF THIS AGREEMENT
This Agreement shall automatically terminate, without the payment of
any penalty, in the event of its assignment. No material amendment of this
Agreement shall be effective until approved by the majority of the members of
the Board who are not interested persons of the Trust, the Manager or the
Subadviser and the shareholders of the affected Portfolio(s) to the extent
required by the 1940 Act. The Subadviser agrees to notify the Manager of any
change in control of the Subadviser within a reasonable time after such change.
-4
6. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 5) until terminated as follows:
(a) The Trust may at any time terminate this Agreement by
providing not more than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and the Subadviser; or
(b) If (i) the Trustees of the Trust or the shareholders by
the affirmative vote of a majority of the outstanding shares of the
Trust, and (ii) a majority of the Trustees of the Trust who are not
interested persons of the Trust or of the Manager or of the Subadviser,
by vote cast in person at a meeting called for the purpose of voting on
such approval, do not specifically approve at least annually the
continuance of this Agreement, then this Agreement shall automatically
terminate at the close of business on the second anniversary of its
execution, or upon the expiration of one year from the effective date
of the last such continuance, whichever is later; provided, however,
that if the continuance of this Agreement is submitted to the
shareholders of the Trust for their approval and such shareholders fail
to approve such continuance of this Agreement as provided herein, the
Subadviser may continue to serve hereunder in a manner consistent with
the 1940 Act and the rules and regulations thereunder; or
(c) The Manager may at any time terminate this Agreement by
not less than 60 days' written notice delivered or mailed by registered
mail, postage prepaid, to the Subadviser, and the Subadviser may at any
time terminate this Agreement by not less than 90 days' written notice
delivered or mailed by registered mail, postage prepaid, to the
Manager.
-5
Action by the Trust under paragraph (a) above may be taken either (i)
by vote of a majority of its Trustees, or (ii) by the affirmative vote of a
majority of the outstanding Shares of the Trust.
Termination of this Agreement pursuant to this Section 6 shall be
without the payment of any penalty. Upon termination of this Agreement, the
duties of the Manager delegated to the Subadviser under this Agreement
automatically revert to the Manager.
7. CERTAIN INFORMATION
The Subadviser shall promptly notify the Manager in writing of the
occurrence of any of the following events: (a) the Subadviser shall fail to be
registered as an investment adviser under the 1940 Act, as amended from time to
time, and under the laws of any jurisdiction in which the Subadviser is required
to be registered as an investment adviser in order to perform its obligations
under this Agreement; (b) the Subadviser shall have been served or otherwise
have notice of any action, suit, proceeding, inquiry or investigation, at law or
in equity, before or by any court, public board or body, involving the affairs
of the Trust; or (c) any other occurrence that might affect the ability of the
Subadviser to provide the services provided for under this Agreement.
8. CERTAIN DEFINITIONS
For the purposes of this Agreement, the "affirmative vote of a majority
of the outstanding Shares" means the affirmative vote, at a duly called and held
meeting of shareholders, of the lesser of: (a) the holders of 67% or more of the
Shares present (in person or by proxy) and entitled to vote at such meeting if
the holders of more than 50% of the Shares entitled to vote at such meeting are
present in person or by proxy, or (b) the holders of more than 50% of Shares
entitled to vote at such meeting.
For the purposes of this Agreement, the terms "affiliated person,"
-6
"control," "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder; and the term "brokerage and research services"
shall have the meaning given in the 1934 Act and the rules and regulations
thereunder.
9. NONLIABILITY OF SUBADVISER
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Subadviser, or reckless disregard of its obligations and duties
hereunder, the Subadviser shall not be subject to any liability to the Trust, or
to any shareholder of the Trust, for any act or omission in the course of, or
connected with, rendering services hereunder.
IN WITNESS WHEREOF, Heritage Asset Management, Inc. and Eagle Asset
Management, Inc. have each caused this instrument to be signed in duplicate on
its behalf by its duly authorized representative, all as of the day and year
first above written.
Dated: _________ __
Attest: Heritage Asset MANAGEMENT, INC.
By: By:
-------------------------------- --------------------------------
Attest: EAGLE ASSET MANAGEMENT, INC.
By: By:
-------------------------------- --------------------------------
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EXHIBIT __
HERITAGE SERIES TRUST
SUBADVISORY AGREEMENT
This Subadvisory Agreement is made as of _________ __, ____, between
Heritage Asset Management, Inc., a Florida corporation (the "Manager"), and
____________________, a division of Raymond James & Associates, Inc., a Florida
corporation (the "Subadviser").
WHEREAS, the Manager has by separate contract agreed to serve as the
investment adviser and administrator to the Heritage Series Trust ("Trust"), a
Massachusetts business trust registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end diversified management investment
company consisting of one or more investment series of shares, each having its
own assets and investment policies;
WHEREAS, the Manager's contract with the Trust allows it to delegate
certain investment advisory services for the Trust to other parties; and
WHEREAS, the Manager desires to retain the Subadviser to perform certain
investment advisory services for the Trust with respect to its existing
portfolio and such other portfolios as the Trust and the Manager shall agree
upon and so specify from time to time in one or more Schedules attached hereto
(collectively, the "Portfolios"), and the Subadviser is willing to perform such
services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST.
(a) INVESTMENT PROGRAM. Subject to the control and supervision of
the Board of Trustees of the Trust and the Manager, the Subadviser shall,
at its expense, continuously furnish to the Portfolios an investment
program for such portion, if any, of Portfolio assets which is allocated
to it by the Manager from time to time. With respect to such assets, the
Subadviser will make investment decisions and will place all orders for
the purchase and sale of portfolio securities. In the performance of its
duties, the Subadviser will act in the best interests of the Portfolios
and will comply with (i) applicable laws and regulations, including, but
not limited to, the 1940 Act, (ii) the terms of this Agreement, (iii) the
stated investment objective, policies and restrictions of the Portfolios,
and (iv) such other guidelines as the Trustees or Manager may establish.
The Manager shall be responsible for providing the Subadviser with current
copies of the materials specified in Subsections (a)(iii) and (iv) of this
Section 1.
(b) AVAILABILITY OF PERSONNEL. The Subadviser, at its expense,
will make available to the Trustees and the Manager at reasonable times
its portfolio managers and other appropriate personnel in order to review
investment policies of the Portfolios and to consult with the Trustees and
the Manager regarding the investment affairs of the Portfolios, including
economic, statistical and investment matters relevant to the Subadviser's
duties hereunder, and will provide periodic reports to the Manager
relating to the portfolio strategies it employs.
(c) SALARIES AND FACILITIES. The Subadviser, at its expense, will
pay for all salaries of personnel and facilities required for it to
execute its duties under this Agreement.
(d) COMPLIANCE REPORTS. The Subadviser, at its expense will,
provide the Manager with such compliance reports relating to its duties
under this Agreement as may be agreed upon by such parties from time to
time.
(e) VALUATION. The Subadviser, at its expense, will provide the
Trust's custodian with market price information relating to the assets of
the Portfolios for which the Subadviser has responsibility at such times
as the parties hereto may agree upon from time to time.
(f) EXECUTING PORTFOLIO TRANSACTIONS. The Subadviser will place
orders pursuant to its investment determinations for each Portfolio either
directly with the issuer or through other brokers. In the selection of
brokers and the placement of orders for the purchase and sale of portfolio
investments for the Portfolios, the Subadviser shall use its best efforts
to obtain for the Portfolios the most favorable price and execution
available, except to the extent it may be permitted to pay higher
brokerage commissions for brokerage and research services as described
below. In using its best efforts to obtain the most favorable price and
execution available, the Subadviser, bearing in mind the Trust's best
interests at all times, shall consider all factors it deems relevant,
including by way of illustration, price, the size of the transaction, the
nature of the market for the security, the amount of the commission, the
timing of the transaction taking into account market prices and trends,
the reputation, experience and financial stability of the broker involved
and the quality of service rendered by the broker in other transactions.
Subject to such policies as the Board of Trustees may determine, the
Subadviser shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason
of its having caused a Portfolio to pay a broker that provides brokerage
and research services to the Subadviser an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker would have charged for effecting that
transaction if the Subadviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker, viewed in terms of either that
particular transaction or the Subadviser's overall responsibilities with
respect to the Trust and to other clients of the Subadviser as to which
the Subadviser exercises investment discretion. In no instance will
portfolio securities of any Portfolio be purchased from or sold to the
Subadviser or any affiliated person of the Subadviser. The Trust agrees
that any entity or person associated with the Manager or the Subadviser
which is a member of a national securities exchange is authorized to
effect any transaction on such exchange for the account of the Trust which
is permitted by Section 11(a) of the Securities Exchange Act of 1934, as
-2
amended, and Rule lla2-2(T) thereunder, and the Trust has consented to the
retention of compensation for such transactions in accordance with Rule
lla2-2(T)(a)(2)(iv).
(g) EXPENSES. The Subadviser shall not be obligated to pay any
expenses of or for the Trust not expressly assumed by the Subadviser
pursuant to this Agreement.
2. BOOKS AND RECORDS. Pursuant to Rule 31a-3 under the 1940 Act, the
Subadviser agrees that: (a) all records it maintains for the Trust are the
property of the Trust; (b) it will surrender promptly to the Trust or the
Manager any such records upon the Trust's or Manager's request; (c) it will
maintain for the Trust the records that the Trust is required to maintain
pursuant to Rule 31a-1 insofar as such records relate to the investment affairs
of the Portfolios for which the Subadviser has responsibility under this
Agreement; and (d) it will preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records it maintains for the Trust.
3. OTHER AGREEMENTS. The Subadviser and persons controlled by or under
common control with the Subadviser have and may have advisory, management
service or other agreements with other organizations and persons, and may have
other interests and businesses. Nothing in this Agreement is intended to
preclude such other business relationships.
4. COMPENSATION. The Manager will pay to the Subadviser as
compensation for the Subadviser's services rendered pursuant to this Agreement a
subadvisory fee as set forth in Schedule A, which schedule can be modified from
time to time to reflect changes in annual rates or the addition or deletion of a
Portfolio from this Agreement, subject to appropriate approvals required by the
1940 Act. Such fees shall be paid by the Manager (and not by the Trust) without
regard to any reduction in the fees paid to the Manager as a result of any
statutory or regulatory limitation on investment company expenses. Such fees
shall be payable for each month within 15 business days after the end of such
month. If the Subadviser shall serve for less than the whole of a month, the
compensation as specified shall be prorated.
5. ASSIGNMENT AND AMENDMENT OF AGREEMENT. This Agreement automatically
shall terminate without the payment of any penalty in the event of its
assignment. No material amendment of this Agreement shall be effective until
approved by the majority of the members of the Board who are not interested
persons of the Trust, the Manager or the Subadviser and the shareholders of the
affected Portfolio(s) to the extent required by the 1940 Act. The Subadviser
agrees to notify the Manager of any change in control of the Subadviser within a
reasonable time after such change.
6. DURATION AND TERMINATION OF THE AGREEMENT. This Agreement shall
become effective upon its execution; provided, however, that this Agreement
shall not become effective with respect to any Portfolio now existing or
hereafter created unless it has first been approved (a) by a vote of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by an affirmative vote of a majority of the
outstanding voting shares of that Portfolio. This Agreement shall remain in
full force and effect continuously thereafter without the payment of any penalty
as follows:
-3
(a) By vote of a majority of the (i) Independent Trustees, or (ii)
outstanding voting shares of the applicable Portfolios, the Trust may at
any time terminate this Agreement with respect to any or all Portfolios by
providing not more than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and the Subadviser.
(b) This Agreement will terminate automatically with respect to a
Portfolio unless, within two years after its initial effectiveness with
respect to such Portfolio and at least annually thereafter, the
continuance of the Agreement is specifically approved by (i) the Board of
Trustees or the shareholders of such Portfolio by the affirmative vote of
a majority of the outstanding shares of such Portfolio, and (ii) a
majority of the Independent Trustees, by vote cast in person at a meeting
called for the purpose of voting on such approval. If the continuance of
this Agreement is submitted to the shareholders of any Portfolio for their
approval and such shareholders fail to approve such continuance as
provided herein, the Subadviser may continue to serve hereunder in a
manner consistent with the 1940 Act and the rules and regulations
thereunder.
(c) The Manager may at any time terminate this Agreement with
respect to any or all Portfolios by not less than 60 days' written notice
delivered or mailed by registered mail, postage prepaid, to the
Subadviser, and the Subadviser may at any time terminate this Agreement
with respect to any or all Portfolios by not less than 90 days' written
notice delivered or mailed by registered mail, postage prepaid, to the
Manager.
(d) This Agreement automatically and immediately will terminate in
the event of its assignment.
Upon termination of this Agreement with respect to any Portfolio, the
duties of the Manager delegated to the Subadviser under this Agreement with
respect to such Portfolio automatically shall revert to the Manager.
7. NOTIFICATION OF THE MANAGER. The Subadviser promptly shall notify
the Manager in writing of the occurrence of any of the following events:
(a) the Subadviser shall fail to be registered as an investment
adviser under the Investment Advisers Act of 1940, as amended, and under
the laws of any jurisdiction in which the Subadviser is required to be
registered as an investment adviser in order to perform its obligations
under this Agreement;
(b) the Subadviser shall have been served or otherwise have notice
of any action, suit, proceeding, inquiry or investigation, at law or in
equity, before or by any court, public board or body, involving the
affairs of the Trust or any Portfolio; or
(c) any other occurrence that might affect the ability of the
Subadviser to provide the services provided for under this Agreement.
-4
8. DEFINITIONS. For the purposes of this Agreement, the terms "vote of
a majority of the outstanding shares," "affiliated person," "control,"
"interested person" and "assignment" shall have their respective meanings as
defined in the 1940 Act and the rules and regulations thereunder subject,
however, to such exemptions as may be granted by the Securities and Exchange
Commission under said Act; and references to annual approvals by the Board of
Trustees shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder.
9. LIABILITY OF THE SUBADVISER. In the absence of its willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties hereunder, the Subadviser shall not be subject to any
liability to the Manager, the Trust or their directors, Trustees, officers or
shareholders, for any act or omission in the course of, or connected with,
rendering services hereunder. However, the Subadviser shall indemnify and hold
harmless such parties from any and all claims, losses, expenses, obligations and
liabilities (including reasonable attorneys fees) which arise or result from
Subadviser's willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties hereunder.
10. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Florida, without giving effect to the conflicts of laws
principles thereof, and in accordance with the 1940 Act. To the extent that the
applicable laws of the State of Florida conflict with the applicable provisions
of the 1940 Act, the latter shall control.
11. MASSACHUSETTS BUSINESS TRUST. Subadviser hereby acknowledges that,
although this Agreement is executed by an officer and/or trustee of the Trust,
the obligations of this Agreement are not binding upon any of them individually
or upon the Trust's shareholders individually; rather, these obligations are
binding only upon the assets and property of the Trust.
12. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
13. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, Heritage Asset Management, Inc. and _________________
have each caused this instrument to be signed in duplicate on its behalf by its
duly authorized representative, all as of the day and year first above written.
-5
Attest: HERITAGE ASSET MANAGEMENT, INC.
By:__________________________ By______________________________
______________________________________
Attest:
By:__________________________ By_____________________________
SCHEDULE A
TO THE
HERITAGE SERIES TRUST
SUBADVISORY AGREEMENT
BETWEEN
HERITAGE ASSET MANAGEMENT, INC.
AND
________________________________
________________________________
As compensation pursuant to section 4 of the Subadvisory Agreement between
Heritage Asset Management, Inc. (the "Manager") and ______________________ (the
"Subadviser"), the Manager shall pay the Subadviser a subadvisory fee, computed
and paid monthly, at the following percentage rates of each Portfolio's average
daily net assets under management by the Subadviser:
(1) For the ________________________________
Advisory Fee as % of
Average Daily Net Assets Average Daily Net
of the Entire Portfolio: Assets Under Management
________________________ _______________________
Up to and including $__ million .___%
In excess of $__ million .___%
Dated:_________ __, _______
EXHIBIT __
INFORMATION ON CURRENT SUBADVISORY AGREEMENTS
AND COMPENSATION TO GSAM, EAGLE AND AWAD
Information concerning the Current Subadvisory Agreements and compensation
to GSAM, Eagle and Awad are listed in the table below.
AGGREGATE DATE OF DATE LAST
AMOUNT OF AGREEMENT SUBMITTED TO
FEE TO THE SHAREHOLDERS
SUBADVISER FUND SUBADVISER*
Awad Small Cap $_______ [insert date] [insert date and
purpose of
submission]
Eagle Capital $_______ [insert date] [insert date and
Appreciation purpose of
submission]
Mid Cap $_______ [insert date] [insert date and
purpose of
submission]
Small Cap $_______ [insert date] [insert date and
purpose of
submission]
GSAM Capital $_______ [insert date] [insert date and
Appreciation purpose of
submission]
* Represents amounts paid for each Fund's last fiscal year.
-1
EXHIBIT __
SUBADVISERS
DIRECTORS AND PRINCIPAL EXECUTIVE OFFICERS
The table below lists the name, address and principal occupation of the
principal executive officers and each director or general partner of GSAM, Eagle
and Awad as well as the Fund officers and Trustees who have a position with the
Subadvisers.
The general partner of Goldman Sachs Asset Management, L.P. is The Goldman
Sachs Group, Inc.
-1
EXHIBIT __
OUTSTANDING SHARES
As of the Record Date, the following numbers of shares were outstanding
with respect to each class of each Fund:
NAME OF FUND NUMBER OF SHARES OUTSTANDING
CLASS A CLASS B CLASS C INSTITUTIONAL - I RETIREMENT - R
SHARES SHARES SHARES SHARES SHARES
CAPITAL
APPRECIATION
CORE EQUITY
DIVERSIFIED
GROWTH
GROWTH AND
INCOME
HIGH YIELD
INTERNATIONAL
EQUITY
MID CAP
SMALL CAP
-1
EXHIBIT __
PRINCIPAL SHAREHOLDERS
The following shareholders are shown on the Funds' records as owning,
beneficially or of record, more than 5% of the outstanding shares of any class
of a Fund:
- -------------------------------------------------------------------------------
FUND AND CLASS NAME AND ADDRESS OF NUMBER OF PERCENTAGE OF CLASS
BENEFICIAL OWNER SHARES OWNED OF FUND OWNED
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
To the best knowledge of the Funds' management, as of the Record Date, the
Trustees and officers of each Fund, as a group, beneficially or of record, owned
less than 1% of the outstanding shares of each class of each Fund.
-1
EXHIBIT __
AFFILIATED BROKERS
The table below shows the aggregate commissions and the percentage of a
Fund's brokerage commissions paid to affiliated brokers for each Fund's
respective fiscal year ends.
- -------------------------------------------------------------------------------
NAME OF FUND AGGREGATE COMMISSIONS PAID % OF AGGREGATE COMMISSIONS
- -------------------------------------------------------------------------------
Capital Appreciation $ %
- -------------------------------------------------------------------------------
Core Equity $ %
- -------------------------------------------------------------------------------
Diversified Growth $ %
- -------------------------------------------------------------------------------
Growth and Income $ %
- -------------------------------------------------------------------------------
High Yield $ %
- -------------------------------------------------------------------------------
International Equity
- -------------------------------------------------------------------------------
Mid Cap
- -------------------------------------------------------------------------------
Small Cap
- -------------------------------------------------------------------------------
-1
EXIHBIT __
INFORMATION ABOUT AUDIT AND OTHER FEES
AUDIT FEES
- ----------
CAPITAL APPRECIATION: The aggregate fees billed by PwC for each of the
last two fiscal years for professional services rendered in connection with the
audit of Capital Appreciation's annual financial statements or services that are
normally provided by PwC in connection with statutory and regulatory filings or
engagements were $21,000 for the year ended August 31, 2004, and $24,000 for the
year ended August 31, 2005.
GROWTH AND INCOME: The aggregate fees billed by PwC for each of the last
two fiscal years for professional services rendered in connection with the audit
of Growth and Income's annual financial statements or services that are normally
provided by PwC in connection with statutory and regulatory filings or
engagements were $23, 000 for the year ended September 30, 2004, and $22,000 for
the year ended September 30, 2005.
INCOME: The aggregate fees billed by PwC for each of the last two fiscal
years for professional services rendered in connection with the audit of
Income's annual financial statements or services that are normally provided by
PwC in connection with statutory and regulatory filings or engagements were
$44,000 for the year ended September 30, 2004, and $52,000 for the year ended
September 30, 2005.
SERIES: The aggregate fees billed by PwC for each of the last two fiscal
years for professional services rendered in connection with the audit of the
Series' annual financial statements or services that are normally provided by
the accountant in connection with statutory and regulatory filings or
engagements were $142,000 for the year ended October 31, 2004, and $164,000 for
the year ended October 31, 2005.
AUDIT-RELATED FEES
- ------------------
CAPITAL APPRECIATION: The aggregate fees PwC billed to Capital
Appreciation for each of the last two fiscal years for assurance and other
services which are reasonably related to the performance of Capital
Appreciation's audit and are not reported as audit fees were $0 and $0 for the
years ended August 31, 2004 and August 31, 2005, respectively. The aggregate
fees PwC billed to the Heritage and any entity controlling, controlled by, or
under common control with Heritage for assurance and other services directly
related to the operations and financial reporting of registrant were $34,000 for
the year ended August 31, 2004, and $33,000 for the year ended August 31, 2005.
GROWTH AND INCOME: The aggregate fees PwC billed to Growth and Income for
each of the last two fiscal years for assurance and other services which are
reasonably related to the performance of Growth and Income's audit and are not
reported as audit fees were $0 and $0 for the years ended September 30, 2004 and
September 30, 2005, respectively. The aggregate fees PwC billed to Heritage and
any entity controlling, controlled by, or under common control with Heritage for
assurance and other services directly related to the operations and financial
reporting of Growth and Income were $31,000 for the year ended September 30,
2004, and $33,000 for the year ended September 30, 2005.
INCOME: The aggregate fees PwC billed to Income for each of the last two
fiscal years for assurance and other services which are reasonably related to
the performance of Income's audit and are not reported as audit fees were $0 and
$0 for the years ended September 30, 2004 and September 30, 2005, respectively.
The aggregate fees PwC billed to Heritage and any entity controlling, controlled
by, or under common control with Heritage for assurance and other services
directly related to the operations and financial reporting of Income were
$31,000 for the year ended September 30, 2004, and $33,000 for the year ended
September 30, 2005.
SERIES TRUST: The aggregate fees PwC billed to Series for each of the
last two fiscal years for assurance and other services which are reasonably
related to the performance of Series' audit and are not reported as audit fees
were $0 for the year ended October 31, 2004 and $18,000 for the year ended
October 31, 2005. The aggregate fees PwC billed to Heritage and any entity
controlling, controlled by, or under common control with Heritage for assurance
and other services directly related to the operations and financial reporting of
Series were $31,000 for the year ended October 31, 2004, and $51,000 for the
year ended October 31, 2005.
TAX FEES
- --------
CAPITAL APPRECIATION: The aggregate tax fees PwC billed to Capital
Appreciation for each of the last two fiscal years for tax compliance, tax
advice, and tax planning services were $3,000 for the year ended August 31,
2004, and $3,000 for the year ended August 31, 2005. The aggregate tax fees PwC
billed to Heritage and any entity controlling, controlled by, or under common
control with Heritage for services directly related to the operations and
financial reporting of Capital Appreciation were $0 for the year ended
August 31, 2004, and $0 for the year ended August 31, 2005.
GROWTH AND INCOME: The aggregate tax fees PwC billed to Growth and Income
for each of the last two fiscal years for tax compliance, tax advice, and tax
planning services were $3,000 for the year ended September 30, 2004, and $3,000
for the year ended September 30, 2005. The aggregate tax fees PwC billed to
Heritage and any entity controlling, controlled by, or under common control with
Heritage for services directly related to the operations and financial reporting
of Growth and Income were $0 for the year ended September 30, 2004, and $0 for
the year ended September 30, 2005.
INCOME: The aggregate tax fees PwC billed to Income for each of the last
two fiscal years for tax compliance, tax advice, and tax planning services were
$6,000 for the year ended September 30, 2004, and $6,000 for the year ended
September 30, 2005. The aggregate tax fees PwC billed to Heritage and any
entity controlling, controlled by, or under common control with Heritage for
-2
services directly related to the operations and financial reporting of Income
were $0 for the year ended September 30, 2004, and $0 for the year ended
September 30, 2005.
SERIES: The aggregate tax fees PwC billed to Series for each of the last
two fiscal years for tax compliance, tax advice, and tax planning services were
$18,000 for the year ended October 31, 2004, and $21,000 for the year ended
October 31, 2005. The aggregate tax fees PwC billed to Heritage and any entity
controlling, controlled by, or under common control with Heritage for services
directly related to the operations and financial reporting of Series were $0 for
the year ended October 31, 2004, and $0 for the year ended October 31, 2005.
ALL OTHER FEES
- --------------
ALL TRUSTS: For each Trust's last two respective fiscal years, the Trust
paid PwC no other fees. The aggregate fees PwC billed to the Adviser and any
entity controlling, controlled by, or under common control with the Adviser for
any other services directly related to the operations and financial reporting of
the Trust registrant were $0 for each Trust's last two respective fiscal years.
AUDIT COMMITTEE'S PRE-APPROVAL POLICIES AND PROCEDURES
ALL TRUSTS. The Audit Committee Charter of the Trusts provides that the
Audit Committee (comprised of the Independent Trustees of registrant) is
responsible for pre-approval of all auditing services performed for each Trust.
The Audit Committee reports to the Board regarding its approval of the
engagement of the auditor and the proposed fees for the engagement, and the
majority of the Board (including the members of the Board who are Independent
Trustees) must approve the auditor at an in-person meeting. The Audit Committee
also is responsible for pre-approval (subject to the DE MINIMUS exception for
non-audit services described in the Securities Exchange Act of 1934, as amended,
and applicable rule thereunder and not expecting to exceed $5,000) of all non-
auditing services performed for the registrant or for any service affiliate of
registrant. The Trusts' Audit Committee Charter also permits a designated
member of the audit committee to pre-approve, between meetings, one or more non-
audit service projects, subject to ratification by the Audit Committee at the
next meeting of the Audit Committee. The Trusts' Audit Committee pre-approved
all fees described above which PwC billed to registrant.
Less than 50% of the hours billed by PwC for auditing services to
registrant for each Trust's respective most recent fiscal year end, were for
work performed by persons other than full-time, permanent employees of PwC. The
aggregate non-audit fees billed by PwC to each Trust and the Adviser and any
entity controlling, controlled by, or under common control with registrant's
investment adviser for each Trust last two respective fiscal years, were $0 and
$0.
The Trusts' Audit Committee has considered the non-audit services provided
to the Trusts and their investment adviser and any entity controlling,
controlled by, or under common control with the Trusts' investment adviser as
described above and determined that these services do not compromise PwC's
independence.
-3
LABEL BELOW FOR MIS USE ONLY!
[HERITAGE LOGO] PO#
P.O. BOX 9112 HERITAGE FUNDS
FARMINGDALE, NY 11735 ORIGINAL 1UP 9-01-06 KD
PATTI (HERITAGE FUNDS 2006 PK)
REVISION #1 9-06-06 JM
REVISION #2 9-06-06 JM
MIS EDITS: # OF CHANGES ___/___PRF 1___ PRF 2____ OK
TO PRINT AS IS* ____________ *By signing this form
you are authorizing MIS to print this form in its
current state.
SIGNATURE OF PERSON AUTHORIZING PRINTING DATE
------------------------------------------------------
YOUR VOTE IS IMPORTANT!
VOTE TODAY BY THE INTERNET,
BY MAIL OR TOUCH-TONE PHONE
LOG ON TO WWW.PROXYWEB.COM OR
CALL TOLL FREE 1-888-221-0697
- -------------------------- PROXY
999 999 999 999 99
- --------------------------
FUND NAME PRINTS HERE SPECIAL MEETING OF SHAREHOLDERS - NOVEMBER 6, 2006
The undersigned hereby appoints XXXXXXXXXXXX, XXXXXXXXXXXXXXXXX, and each of
them, the proxies of the undersigned, with full power of substitution to each of
them, to vote all shares of the above-referenced fund (the "Fund") which the
undersigned is entitled to vote at the Special Meeting of Shareholders of the
Fund to be held at the offices of Heritage Funds, 880 Carillon Parkway, St.
Petersburg, Florida 33716 on November 6, 2006, at 10:00 a.m., Eastern time, and
at any adjournments thereof.
ALL PROPERLY EXECUTED PROXIES WILL BE VOTED AS DIRECTED. IF NO INSTRUCTIONS ARE
INDICATED ON A PROPERLY EXECUTED PROXY, THE PROXY WILL BE VOTED FOR ELECTION OF
ALL NOMINEES AND, IN THE CASE OF ALL OTHER PROPOSALS, FOR APPROVAL OF THE
PROPOSALS.
PLEASE SIGN AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED.
Dated __________________, 2006
------------------------------------------------------
------------------------------------------------------
SIGNATURE(S) OF SHAREHOLDER(S) (SIGN IN THE BOX)
PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR. WHEN
SIGNING AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE YOUR FULL TITLE AS
SUCH.
Heritage pk
PLEASE REFER TO PROXY STATEMENT TO SEE WHICH PROPOSAL
IS APPLICABLE TO YOUR FUND(S).
THE PROXY IS SOLICITED ON BEHALF OF EACH FUND'S BOARD OF TRUSTEES. THE BOARD
UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF ALL PROPOSALS.
PLEASE FILL IN BOX AS SHOWN USING BLACK OR BLUE INK OR NUMBER 2 PENCIL.
PLEASE DO NOT USE FINE POINT PENS.
FOR ALL WITHHOLD
NOMINEES AUTHORITY
PROPOSAL 1: To elect and re-elect Trustees to the Board of Trustees: LISTED TO VOTE
- ---------- (EXCEPT FOR ALL
AS NOTED NOMINEES
AT LEFT) LISTED
NOMINEES: (01) C. Andrew Graham (04) James L. Pappas (07) Lincoln Kinnicutt*
(02) Keith Jarrett (05) David M. Phillips (08) Thomas A. James
(03) William J. Meurer (06) Deborah L. Talbot, PhD (09) Richard K. Riess 0 0 1.
* (all except Heritage Capital Appreciation Trust)
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THE NUMBER(S) ON
THE LINE IMMEDIATELY BELOW.
- -------------------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
- ----------
PROPOSAL 2: To re-classify the Investment objective as non-fundamental. 0 0 0 2.
- ----------
PROPOSAL 3: To approve the modernized fundamental investment restrictions. 0 0 0 3.
- ----------
PROPOSAL 4: To approve an Investment Advisory Agreement between Heritage Asset Management, Inc. 0 0 0 4.
- ---------- and the Funds.
PROPOSAL 5-A: To approve a Subadvisory Agreement between Heritage Asset Management, Inc. and 0 0 0 5-A.
- ------------ Goldman Sachs Investment Management, L.P. (Heritage Capital Appreciation Trust
only)
PROPOSAL 5-B: To approve a Subadvisory Agreement between Heritage Asset Management, Inc. 0 0 0 5-B.
- ------------ and Eagle Asset Management, Inc. (All Funds except Heritage High Yield Bond and
Heritage International Equity)
PROPOSAL 5-C: To approve a Subadvisory Agreement between Heritage Asset Management, Inc. and 0 0 0 5-C.
- ------------ Awad Asset Management, Inc. (Small Cap Stock Fund only)
- -------------------------------------------------------------------------------------------------
PROPOSAL 6: To approve a Manager of Manager's structure, which would allow Heritage Asset 0 0 0 6.
- ---------- Management, Inc., the Funds' investment adviser, and the Board of Trustees to
enter into, terminate or materially amend Sub-Advisory Agreements without shareholder
approval. (Heritage Capital Appreciation Trust, Mid Cap Stock Fund and Small Cap
Stock Fund only)
THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION ON ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING AND ANY
ADJOURNMENTS THEREOF.
LABEL BELOW FOR MIS USE ONLY!
PO#
HERITAGE FUNDS PLEASE SIGN ON REVERSE SIDE.
ORIGINAL 1UP 9-01-06 KD
PATTI (HERITAGE FUNDS 2006 PK)
REVISION #1 9-06-06 JM Heritage pk