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497(e)
File No. 2-11193
THE AMERICAN HERITAGE FUND, INC.
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A NO-LOAD MUTUAL FUND
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1370 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 397-3900
(800) 828-5050
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STATEMENT OF ADDITIONAL INFORMATION
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This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Fund's Prospectus dated October 19,
1995. A copy of the Fund's Prospectus may be obtained from the Fund without
charge at the address set forth above.
October 19, 1995, as supplemented on August 9, 1996
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TABLE OF CONTENTS
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Brokerage Allocation and Other Practices B-3
Purchase of Certain Debt Securities B-4
Investment Restrictions B-4
Management B-6
Control Persons and Principal Holders of
Securities B-7
Investment Advisory and Other Services B-7
Total Return B-8
Custodian B-8
Independent Accountants B-8
Transfer Agent B-8
Financial Statements B-9
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BROKERAGE ALLOCATIONS AND OTHER PRACTICES
American Heritage Management Corporation ("AHMC") places orders with
brokers and dealers for the purchase and sale of securities for the Fund's
portfolio. In performing this service, AHMC is required to place orders with
the primary objective of obtaining the most favorable price and a reasonable
execution for the Fund. Normally, over-the-counter transactions will be
executed on a principal basis with a broker-dealer who makes a market in or is
otherwise a traditional source of the security traded except in those cases in
which the Fund can obtain a better price or execution on an agency basis.
Transactions executed on an agency basis involve the payment of a brokerage
commission.
In selecting brokers and dealers to execute the Fund's portfolio
transactions, AHMC may consider research, statistical and quotation services
received by the Fund or AHMC from such other brokers. If such information is
received and if it is, in fact, useful to AHMC, the information may tend to
reduce its costs of providing investment advice to the Fund.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment advisor, under certain circumstances, to cause an account
to pay a broker or dealer which supplies brokerage and research services a
commission for effecting a securities transaction in excess of the amount of
the commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services include (a) furnishing advice as
to the value of securities and the availability of securities or purchasers or
sellers of securities, (b) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts, and (c) effecting securities transactions and
performing functions incidental thereto, such as clearance, settlement and
custody.
AHMC may cause the Fund to incur brokerage commissions in an amount
higher than the lowest available rate in return for such services provided to
AHMC. AHMC is of the opinion that the continued receipt of supplemental
investment research services from broker-dealers will be essential to its
provision of portfolio management services to the Fund. AHMC has represented
that such commissions will not be paid by the Fund unless (a) AHMC determines
in good faith that the amount is reasonable in relation to the services in
terms of the particular transaction, (b) such payment is made in compliance
with Section 28(e) and other applicable state and federal laws, and (c) in the
opinion of AHMC, the total commissions paid by the Fund are reasonable in
relation to the benefits to the Fund over the long term.
It is anticipated that a substantial portion of the Fund's portfolio
transactions will be allocated to Bear, Stearns & Co. Inc. Richard K. Parker
is a Managing Director of Bear, Stearns & Co. Inc. See "Management". Except for
executing portfolio transactions, Bear, Stearns & Co. Inc. is in no other
respect associated with the Fund or in any way responsible for any investment
advice or other service provided to the Fund by either Mr. Parker personally or
AHMC.
During the fiscal year ended May 31, 1995, the Fund paid an aggregate
of approximately $1,895,000 in brokerage commissions. Brokerage commissions
paid by the Fund for its fiscal year
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ended May 31, 1995 were significantly different than those paid during the
fiscal years ended May 31, 1993 and 1994 because of substantial changes in the
amount of the Fund's assets and rates of portfolio turnover. During the three
fiscal years ended May 31, 1995 the Fund paid aggregate brokerage commissions
to Bear, Stearns & Co. Inc. ("Bear Stearns") of approximately $1,911,000.
During the Fund's fiscal year ended May 31, 1995, Bear Stearns received
approximately $597,670 or approximately 32% of the total brokerage commissions
paid by the Fund during such year. During the same year, approximately 39% of
the Fund's aggregate dollar transactions involving the payment of brokerage
commissions were effected through Bear Stearns. The difference in the
percentage of brokerage commissions paid to and the percentage of the dollar
amount of transactions effected through Bear Stearns is a result of lower
commission rates charged on certain transactions by Bear Stearns. Richard K.
Parker received compensation of approximately $240,000 from Bear Stearns in
connection with brokerage commissions paid to it by the Fund during the fiscal
year ended May 31, 1995.
PURCHASE OF CERTAIN DEBT SECURITIES
The Fund may purchase high yield debt securities which are not
investment grade, including securities referred to as "junk bonds", if as a
result of such purchase, no more than 5% of the value of the Fund's net assets
will be represented by such securities.
An economic downturn or increase in interest rates is likely to have
an adverse effect on the high yield securities market. The widespread
expansion of government, consumer and corporate debt within the United States
economy has made the corporate sector, especially cyclically sensitive
industries, more vulnerable to economic downturns or increased interest rates.
The prices of high yield securities have been found to be less sensitive to
interest rate changes than are those of higher rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect the ability to service their principal and interest payment obligations,
to meet projected business goals, and to obtain additional financing. In
periods of economic uncertainty and change, increased volatility of market
prices of high yield securities can be expected. To the extent that there is no
established retail secondary market, there may be thin trading of high yield
securities. In the absence of readily available market quotations, the
valuation of high yield securities held by the Fund will be determined by the
Fund's Board of Directors. The fulfillment of such responsibility may become
difficult and judgment will play a greater role in valuation because there may
be less reliable, objective data available.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions described in the Fund's
Prospectus, the Fund operates under the following fundamental investment
policies and restrictions which cannot be changed or eliminated without the
approval of the lesser of (a) 67% or more of the voting securities of the Fund
present at a meeting if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy, or (b) more than
50% of the
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outstanding voting securities of the Fund. These policies and restrictions
provide, in part, that the Fund may not:
(1) Issue any of its securities (a) for services, or (b) for property
other than cash or securities (including securities of which the Fund is the
issuer), except as a dividend or distribution to its security holders or in
connection with a reorganization;
(2) Invest in companies for the purpose of exercising control or
management;
(3) Purchase or sell commodities or commodity contracts, including
futures contracts;
(4) Invest in oil, gas and other mineral leases, but the Fund shall
not be prohibited from investing in marketable securities of companies
investing in such leases;
(5) Invest in real estate or real estate mortgage loans, but the Fund
shall not be prohibited from investing in marketable securities of companies
engaged in real estate activities or investments.
(6) Issue any senior securities except that the Fund may borrow from
any bank as set forth in the Fund's Prospectus.
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MANAGEMENT
The following table sets forth certain information with respect to
each member of the Fund's Board of Directors and each officer of the Fund. The
Fund does not have any advisory board.
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Positions Held With the Principal Occupation(s) During
Name and Address Fund the Past Five Years
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Heiko H. Thieme* Chairman of the Board of Chairman of the Board of Directors,
1370 Avenue of the Americas Directors, Chief Executive Chief Executive Officer and Secretary
New York, NY Officer and Secretary of the Fund since February 1990.
Chairman of the Board of Directors and
Chief Executive Officer of American
Heritage Growth Fund, Inc. ("AHGF")
since February 1994 and Chief
Executive Officer of The Thieme Fonds
since May 1994. Chief Executive
Officer of AHMC and Thieme Associates,
Inc. (investment advisors) since 1990
and Thieme Consulting, Inc. since
January 1995. Consultant/Strategist
for Deutsche Bank A.G. from 1989 to
1993.
Richard K. Parker* President, Treasurer and President and Treasurer of the Fund
245 Park Avenue Director since February 1990. President and
New York, NY Treasurer of AHGF since February 1994.
A Managing Director and an Associate
Director and Registered Representative
of Bear, Stearns & Co. Inc.
John Gilbert Director Member of Parliament of the United
7 Redfield Lane Kingdom. Chairman of John Gilbert &
London, England Associates (a political and economic
consultancy).
Jonathan B. Reisman* Director President of Reisman & Associates,
5100 Town Center Circle P.A., the Fund's general counsel.
Boca Raton, FL
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Eugene Sarver Director Professor of Finance of Lubin School
241 W. 97th St. of Business - Graduate Division, Pace
New York, NY University.
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* "Interested person" as defined in the Investment Company Act of 1940.
Mr. Parker has served as a member of the Board of Directors since
1985. Drs. Gilbert and Sarver and Mr. Thieme have served as such since February
1990. Mr. Reisman became a member of the Board of Directors in June 1996. Other
than Mr. Reisman, each of the Fund's Directors is also a member of the Board of
Directors of AHGF.
Thieme Consulting, Inc., which is wholly owned by Mr. Thieme, provides
consulting services to several companies whose securities are held by the Fund
and receives compensation therefor.
During the fiscal year ended May 31, 1995, no cash compensation was
paid by the Fund to its executive officers in such capacity. Each Director who
is not an "Interested Person" of the Fund receives annual compensation from the
Fund of $10,000.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of August 1, 1995, Charles Schwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104 owned of record shares of the Fund's capital
stock which represented approximately 10% of the Fund's outstanding capital
stock on that date. As of such date, no other person owned of record or was
known to the Fund to own beneficially 5% or more of the Fund's outstanding
capital stock and the Fund's officers and directors as a group owned less than
1% of such capital stock.
INVESTMENT ADVISORY AND OTHER SERVICES
Heiko H. Thieme may be deemed to control AHMC by virtue of his record
and beneficial ownership of 90% of the outstanding capital stock thereof. Mr.
Thieme acquired such stock on February 1, 1990. Mr. Thieme is the Chairman of
the Board of Directors and the Chief Executive Officer of AHMC and Richard K.
Parker is the President and a member of the Board of Directors of AHMC. Mr.
Parker is the record and beneficial owner of 10% of the outstanding capital
stock of AHMC. See "Management".
AHMC became the Fund's investment advisor on December 27, 1985. During
the Fund's fiscal years ended May 31, 1993, 1994 and 1995, AHMC received
investment advisory fees of $216,492, $1,166,297 and $824,115, respectively. In
connection with the Investment Advisory
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Agreement with AHMC, AHMC bears the expenses of the Fund's trading operations.
All other expenses of the Fund are borne by the Fund.
The Fund reimburses AHMC for office space and administrative personnel
utilized by the Fund. See Notes to the Financial Statements in the Fund's
Annual Report for the fiscal year ended May 31, 1995.
TOTAL RETURN
The Fund's average annual total returns for the one, five and ten year
periods ended May 31, 1995 are set forth below:
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One Year ................... -38.37%
Five Years.................. 2.18%
Ten Years................... -5.57%
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See "Total Return" in the Fund's Prospectus for a description of the
method by which total return is computed.
CUSTODIAN
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202 is the
Fund's Custodian. In such capacity, the Custodian maintains custody of the
Fund's cash and securities and delivers securities which are purchased and sold
by the Fund.
INDEPENDENT ACCOUNTANTS
Landsburg Platt Raschiatore & Dalton are the Fund's independent
certified public accountants. The financial statements incorporated herein by
reference have been examined by such firm to the extent set forth in their
respective reports included herein by reference. See Financial Statements.
TRANSFER AGENT
American Data Services, Inc., 24 West Carver Street, Huntington, New
York 11743 ("ADS") is the Fund's Transfer Agent. In such capacity, ADS
maintains the Fund's capital stock records, effects issuances and transfers of
capital stock, handles all correspondence with respect to shareholder accounts
and processes redemptions.
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FINANCIAL STATEMENTS
The Fund's Annual Reports for the fiscal years ended May 31, 1994 and
1995 are hereby incorporated by reference.
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