<PAGE> 1
File No. 2-11193
Rule 497(e)
PROSPECTUS
THE AMERICAN HERITAGE FUND, INC. LOGO
------------------------
A NO-LOAD LEVERAGED MUTUAL FUND
A NON-DIVERSIFIED, OPEN-END MANAGEMENT INVESTMENT COMPANY
HAVING AN INVESTMENT OBJECTIVE OF SEEKING MAXIMUM CAPITAL GROWTH
------------------------
1370 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 397-3900
(800) 828-5050
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THE AMERICAN HERITAGE FUND, INC. (the "Fund") is a no-load mutual fund. The
Fund is designed for investors who desire to participate in a carefully
supervised program of seeking maximum capital growth. The Fund may utilize the
investment techniques of short-term trading, hedging, leveraging through
borrowing, the purchase and sale of put and call options and warrants, the
writing of listed put and call options and the purchase of foreign securities.
Through the use of these and other investment techniques described in this
Prospectus, including the types of investments made and to be made by the Fund,
management hopes to take advantage of investment opportunities in both rising
and declining markets. These techniques involve greater than normal risk and
attainment of the Fund's investment objective cannot, of course, be assured.
Common stocks and securities convertible or exchangeable thereto, including
securities issued by small and virtually unknown companies, companies whose
securities are not publicly traded or are otherwise illiquid and companies that
have no history of operations, or for other reasons, have never earned a profit,
will normally constitute all or substantially all of the Fund's portfolio. The
Fund believes that securities representing approximately 22% of the Fund's net
assets on the date of this Prospectus were not liquid. The Fund and certain
others are defendants in a purported class action. See "Special Risk
Considerations," "The Fund's Investment Objective, Policies and Risk Factors"
and "Legal Proceedings."
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. A Statement of Additional
Information dated October 22, 1996 containing additional information about the
Fund, including the Fund's Financial Statements, Notes to Financial Statements
and Independent Auditors' Report, has been filed with the Securities and
Exchange Commission and is available upon request, without charge, by writing to
the Fund at the address set forth above or by calling the Fund at either of the
above telephone numbers. The Statement of Additional Information is incorporated
by reference into the Prospectus. The Securities and Exchange Commission
maintains a web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference, and other
information regarding registrants that file electronically with the Securities
and Exchange Commission.
THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS OCTOBER 22, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Expense Summary......................... 2
Highlights.............................. 3
Financial Highlights and Related Ratios/
Supplemental Data..................... 4
Senior Securities....................... 5
Special Risk Considerations............. 5
The Fund's Investment Objective,
Policies and Risk Factors............. 6
Management's Discussion of the Fund's
Performance........................... 12
Investment Restrictions................. 13
<CAPTION>
PAGE NO.
<S> <C>
Management.............................. 14
Determination of Net Asset Value........ 15
How to Become an Investor in the Fund... 15
How to Redeem Shares.................... 16
Distribution of Income Dividends and
Realized Capital Gains................ 17
Total Return............................ 18
Shareholder Services.................... 18
Legal Proceedings....................... 19
Additional Facts........................ 20
</TABLE>
EXPENSE SUMMARY
This table is designed to illustrate the various fees and expenses that
you, as an investor in the Fund, will incur.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales load imposed on purchases........ None
Sales load imposed on reinvested
dividends............................ None
Deferred sales load.................... None
Redemption fees........................ None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of Average Net
Assets)
Management fees........................ 1.25%*
12b-1 fees............................. None
Other expenses......................... 5.00%**
Total Fund operating expenses.......... 6.25%**
</TABLE>
* Represents the maximum annual rate of compensation payable by the Fund to its
investment advisor. The annual rate of compensation payable by the Fund to
its investment advisor is one and one-quarter percent (1.25%) of the first
$100,000,000 of average daily net assets and one percent (1%) of any
additional net assets.
** Based upon actual expenses incurred by the Fund during the fiscal year ended
May 31, 1996.
The fees and other expenses in the foregoing table are based upon those
incurred by the Fund during the fiscal year ended May 31, 1996.
EXAMPLE
The following example illustrates the expenses (which have been restated as
described above) that you would pay on a $1,000 investment assuming (1) a 5%
annual return and (2) redemption at the end of each time period. Since the Fund
charges no redemption fees of any kind, the expenses would be the same if no
redemption was made.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C>
$ 66 $ 194 $ 318 $612
</TABLE>
The purpose of the table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. THE EXAMPLES ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE> 3
HIGHLIGHTS
INVESTMENT
OBJECTIVE The investment objective of the Fund is to seek maximum
capital growth. Income from the Fund's investment portfolio
will be only an incidental consideration and entirely
subordinate to the Fund's investment objective. See "The
Fund's Investment Objective, Policies and Risk Factors."
NO SALES
CHARGE No sales charge or load will be deducted from the amount
invested. Accordingly, the Fund is a "no load" Fund. See
"How to Become an Investor in the Fund."
MINIMUM
INVESTMENTS The minimum initial investment is $2,500 (or, in the case of
an IRA account, $2,000). Subsequent investments may be made,
at the option of the investor, in amounts of $250 or more.
Shareholders may open additional accounts (e.g. custodian
accounts, IRA accounts, and Keogh accounts) with a minimum
investment of $1,000.
REDEMPTION Investors have the right to redeem their shares at the net
asset value next determined after receipt of a duly made
request. There is no redemption fee. The Fund reserves the
right to redeem in cash or in kind. See "How to Redeem
Shares."
DIVERSIFICATION The Fund is a non-diversified investment company. Since the
Fund is non-diversified, certain limitations with respect to
diversification of assets are applicable to only 50% of the
value of the Fund's total assets. To the extent that the Fund
invests a substantial portion of its assets in the securities
of relatively few issuers, the risks attendant to an
investment in the Fund may increase. See "The Fund's
Investment Objective, Policies and Risk Factors."
RISK FACTORS The Fund may utilize the investment techniques of short-term
trading, hedging, leveraging through borrowing, the purchase
and sale of put and call options and warrants, the writing of
listed put and call options, the purchase of foreign
securities, the purchase of securities issued by small and
virtually unknown companies, companies whose securities are
not publicly traded or are otherwise illiquid and companies
that have no history of operations, or for other reasons,
have never earned a profit, the purchase of high yield debt
securities and the purchase of restricted and other illiquid
securities. These techniques involve greater than normal risk
and attainment of the Fund's objective cannot, of course, be
assured. The Fund and certain others are defendants in a
purported class action. See "Special Risk Considerations,"
"The Fund's Investment Objective, Policies and Risk Factors"
and "Legal Proceedings."
INVESTMENT
ADVISOR American Heritage Management Corporation is the Fund's
Investment Advisor. The primary business of the Investment
Advisor is to provide investment advice to the Fund and
American Heritage Growth Fund, Inc. The Fund pays the
Investment Advisor a fee which, on an annual basis, amounts
to one and one-quarter percent (1.25%) of the first
$100,000,000 of average daily net assets and one percent (1%)
of additional net assets. See "Management."
CAPITAL STOCK This Prospectus relates to an offer for sale of shares of
capital stock, $.01 par value.
RETIREMENT
PLANS The Fund offers a prototype Individual Retirement Plan (IRA),
as well as a prototype Self-Employed Retirement Plan (KEOGH).
See "Shareholder Services."
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<PAGE> 4
FINANCIAL HIGHLIGHTS AND RELATED RATIOS/SUPPLEMENTAL DATA
The Fund's Financial Highlights and Related Ratios/Supplemental Data for
the fiscal years ended May 31 are reflected in the following table. Items 1
through 8 are expressed on a per share basis for a share outstanding throughout
the period. The information was derived from financial statements which have
been audited and reported upon by the Fund's Independent Certified Public
Accountants. Commencing December 16, 1993, pursuant to a new Investment Advisory
Agreement, the annual rate of the investment advisory fee payable to American
Heritage Management Corporation ("AHMC") was increased to one and one-quarter
percent (1.25%) of the first $100,000,000 of average daily net assets and one
percent (1%) of any additional net assets and the Fund began paying its own rent
for office space. The foregoing changes are not reflected in the historical data
prior to such date set forth in the following table. See "Management."
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
1. Net assets value,
beginning of year............................ $.63 $1.19 $1.42 $1.15 $1.12
Income from Investment
Operations
2. Net investment
income (loss)................................ (.02) .06 .19 (.01) 1.07
3. Net gains or (losses) on
securities (both realized and
unrealized).................................. .15 (.48) (.35) .36 (.66)
----------- ----------- ------------ ----------- -----------
4. Total from investment
operations................................... .13 (.42) (.16) .35 .41
Less Distributions
5. Dividends (from net
investment income)........................... -- .07 -- .08 .16
6. Distributions (from capital
gains)....................................... -- -- .07 -- .22
7. Tax return capital distribution.............. -- .07 -- -- --
----------- ----------- ------------ ----------- -----------
8. Net assets value, end
of year...................................... $.76 $.63 $1.19 $1.42 $1.15
=========== =========== ============ =========== ===========
Total return.................................... 20.63% (38.37%) (12.49%) 32.89% 42.49%
Net assets, end of period....................... $21,429,753 $30,779,569 $101,036,392 $68,498,156 $26,543,132
Ratio of expenses to average net
assets........................................ 6.25% 3.69% 2.41% 2.1% 2.2%
Ratio of net income (loss) to
average net assets............................ (3.53%) 6.55% 3.40% (.46%) 21.50%
Portfolio turnover rate......................... 606% 620% 434% 278% 776%
Average commission rate paid.................... $.0866 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
1. Net assets value,
beginning of year............................ $1.03 $1.15 $1.14 $1.61 $2.20
Income from Investment
Operations
2. Net investment
income (loss)................................ (.02) (.10) (.08) (.12) (.18)
3. Net gains or (losses) on
securities (both realized and
unrealized).................................. .11 (.02) .09 (.26) (.05)
----------- ----------- ------------ ----------- -----------
4. Total from investment
operations................................... .09 (.12) .01 (.38) (.23)
Less Distributions
5. Dividends (from net
investment income)........................... -- -- -- -- --
6. Distributions (from capital
gains)....................................... -- -- -- .09 .36
7. Tax return capital distribution.............. -- -- -- -- --
----------- ----------- ------------ ----------- -----------
8. Net assets value, end
of year...................................... $1.12 $1.03 $1.15 $1.14 $1.61
=========== =========== ============ =========== ===========
Total return.................................... 8.74% (10.43%) .88% (22.41%) (9.14%)
Net assets, end of period....................... $2,287,446 $1,142,677 $630,006 $406,305 $679,813
Ratio of expenses to average net
assets........................................ 6.79% 11.04% 13.02% 11.9% 11.8%
Ratio of net income (loss) to
average net assets............................ (3.72%) (5.80%) (8.00%) (8.70%) (9.30%)
Portfolio turnover rate......................... 607% 76% 81% 189% 287%
Average commission rate paid.................... -- -- -- -- --
</TABLE>
AHMC HAS BEEN THE FUND'S INVESTMENT ADVISOR SINCE DECEMBER 1985. BOTH A MAJORITY
OF THE FUND'S BOARD OF DIRECTORS AND CONTROL OF AHMC CHANGED ON FEBRUARY 1,
1990. SINCE THAT DATE, HEIKO H. THIEME HAS BEEN THE CHIEF EXECUTIVE OFFICER OF
THE FUND AND AHMC AND IN SUCH CAPACITIES, HAS BEEN PRIMARILY RESPONSIBLE FOR THE
FUND'S PORTFOLIO. ACCORDINGLY, TO THE EXTENT THAT THE TABLE REPRESENTS RESULTS
PRIOR TO THAT DATE, SUCH RESULTS OCCURRED PRIOR TO THE FOREGOING CHANGES.
4
<PAGE> 5
SENIOR SECURITIES
The following table provides certain information with respect to senior
securities (including bank loans) of the Fund during the fiscal years ended May
31, 1988, 1991, 1992, 1993, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
AMOUNT OF DEBT AVERAGE AMOUNT OF AVERAGE NUMBER OF AVERAGE AMOUNT OF
FISCAL YEAR OUTSTANDING AT DEBT OUTSTANDING SHARES OUTSTANDING DEBT PER SHARE
ENDED END OF FISCAL YEAR DURING FISCAL YEAR DURING THE FISCAL YEAR DURING THE FISCAL YEAR
- ----------- ------------------ ------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
1988 $ -0- $ 2,381 160,155 $.0148
1991 -0- 1,918 1,408,391 .0014
1992 -0- 84,464 8,712,891 .0097
1993 -0- 9,425 24,775,240 .0004
1994 921,563 910,271 81,520,942 .0112
1995 4,400,746 3,427,466 68,082,778 .0503
1996 -0- 1,834,051 36,781,350 .0499
</TABLE>
The averages shown above were determined on a daily basis.
The Fund did not issue any senior securities during any other of its ten
fiscal years ended May 31, 1996.
SPECIAL RISK CONSIDERATIONS
The Fund is not a complete investment program and is designed for investors
willing to assume risks inherent in the Fund's investment policies and practices
in order to seek achievement of the Fund's investment objective. No assurance
can be given that the Fund will be successful. See "The Fund's Investment
Objective, Policies and Risk Factors." By purchasing shares in the Fund,
however, an investor may receive advantages he would not readily obtain as an
individual investor, including professional management and continuous
supervision of investments. The Fund may not, at any particular time, engage in
all or any of the investment activities described in this Prospectus. Such
activities may be engaged in only periodically or not at all. In the opinion of
the Fund's management, however, the ability to engage in such activities
provides an opportunity for flexibility in the Fund's operation which it
believes is desirable in order to achieve the Fund's investment objective.
In view of its broad and flexible investment powers, the Fund's success or
failure may be more dependent upon the skill and ability of AHMC and less
dependent upon movement of the securities market in general, than is the case
with most mutual funds whose investment powers are not as broad or as flexible.
In addition to the payment of an investment advisory fee, the Fund bears all of
its other expenses. Because of the Fund's relatively small size and the amount
of the investment advisory fee payable to AHMC, the ratio of such expenses to
the Fund's net assets is higher than those of most larger management investment
companies. See "The Fund's Investment Objective, Policies and Risk Factors" and
"Financial Highlights and Related Ratios/Supplemental Data."
The Fund and certain others are defendants in a purported class action. See
"Legal Proceedings."
5
<PAGE> 6
THE FUND'S INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
The investment objective of the Fund is to seek maximum capital growth.
Income from the Fund's investment portfolio will be only an incidental
consideration entirely subordinate to the capital growth objective. It is
important that the Fund's objective match the investor's objective. There can be
no assurance that the Fund will, in fact, achieve its objective. The investment
objective of the Fund cannot be changed without shareholder approval.
In contrast to most mutual funds, the Fund, in addition to the usual
investment practices, may seek to obtain its investment objective through the
use of certain speculative investment techniques which entail greater than
average risks. For example, the Fund may increase its security holdings through
the use of money borrowed from banks ("leveraging"); it may engage in short
selling to profit from a decline in price of particular securities or to protect
against downward movement in the market; it may purchase puts, calls and
warrants and combinations thereof; it may purchase foreign securities; it may
purchase restricted and other illiquid securities and it may engage in
short-term trading. The Fund may make speculative investments such as the
purchase of securities issued by small and virtually unknown companies,
companies whose securities are not publicly traded or are otherwise illiquid and
companies that have no history of operations or, for other reasons, have never
earned a profit. Such companies are often extremely thinly capitalized and the
Fund bears the risk of a total loss of its investment in such companies. The
Fund believes that securities representing approximately 22% of the Fund's net
assets on the date of this Prospectus were not liquid. Put and call options
which may be purchased and written by the Fund, as well as options, warrants and
convertible securities which may be purchased by the Fund are derivative
securities.
In calculating net asset value, all portfolio securities are valued at
market value when there is a reliable quotation available for the securities.
All other portfolio securities are valued as the Board of Directors or a
committee composed of members of the Board of Directors in good faith
determines. On the date of this Prospectus, approximately 8% of the value of the
Fund's net assets was determined by the Fund's Board of Directors or such
committee. The foregoing includes approximately 8% of the value of the Fund's
net assets at that date which consisted of securities issued by companies whose
securities were not publicly traded. Because of the inherent uncertainty and
difficulty of the valuation process, and in some cases, because of limited
information available, values determined by the Board of Directors may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the differences could be material. See
"Determination of Net Asset Value" and the Fund's Financial Statements, Notes to
Financial Statements and Independent Auditors' Report which have been
incorporated by reference into the Fund's Statement of Additional Information.
To the extent used, the Fund's investment techniques may result in greater
turnover of the Fund's portfolio and greater expense than is customary for most
mutual funds. The Fund anticipates that its annual portfolio turnover rate will
be 150% or more. Although it is difficult to predict the maximum rate, the Fund
does not believe that such rate will generally exceed 700%. A high rate of
portfolio turnover can be expected to result in the payment of a high volume of
brokerage commissions and the recognition of capital gains and losses. To the
extent that the Fund distributes short-term capital gains, such distributions
will be taxable as ordinary dividends to the investor upon declaration. See
"Financial Highlights," "Management" and "Distribution of Income Dividends and
Realized Capital Gains" in this Prospectus and "Brokerage Allocation and Other
Practices" in the Fund's Statement of Additional Information.
6
<PAGE> 7
Generally, more than 80% of the Fund's investments, other than cash and
cash equivalents, will consist of common stocks and securities convertible into
or exchangeable for common stocks, such as rights, warrants and options. To a
limited degree, the Fund may invest in preferred stocks and debt securities,
such as corporate bonds and debentures and securities issued by the United
States Government and its instrumentalities, when they are believed to offer
opportunities for growth of capital or are desirable in the light of prevailing
market or economic conditions. Any such debt securities so purchased by the Fund
may be either "investment grade" or speculative. Debt securities in the lowest
category of investment grade debt may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade debt securities. Speculative debt securities may include
obligations of issuers that are in default or in bankruptcy when Management
believes that the prospect of capital appreciation outweighs the risk of
investment therein. Naturally, the risk attendant to the investment in such
securities, as well as other debt securities, can be substantial inasmuch as the
value thereof is based upon the ability of the issuer to make all required
payments of interest and principal. Generally, debt securities which are
believed to offer opportunities for growth of capital, including securities
referred to as "junk bonds", may be purchased by the Fund when Management
believes (a) interest rates will decline and, therefore, the value of the debt
securities will increase, or (b) the market value thereof is likely to
appreciate due to factors affecting specific issuers. The Fund does not intend
to purchase any debt securities which are not investment grade, if as a result
of such purchase, more than five percent of the value of the Fund's net assets
will be represented by such securities. When Management believes that a
temporary defensive position is desirable, the Fund may invest in debt
securities, including securities of the United States Government and its
instrumentalities, or retain cash or cash equivalents, all without limitation.
Such debt securities and cash equivalents may include short-term commercial
paper, certificates of deposit and time deposits. The Fund will not acquire time
deposits if (a) at the time of such acquisition more than 10% of the value of
the Fund's net assets will be invested in such time deposits, or (b) the time
deposits cannot be liquidated within seven days. The Fund may also invest in
restricted and other illiquid securities as described herein.
The Fund may invest up to 25% of the value of its total assets at the time
of such investment in securities of companies engaged in a particular industry
if, in the judgment of the Fund, securities of companies in that industry afford
better than average prospects for growth.
The Fund is a non-diversified investment company since it is only with
respect to 50% of the value of the Fund's total assets, that (a) not more than
5% of the value of its total assets may be invested in the securities of any one
issuer (not including securities of the federal government or any
instrumentality thereof) and (b) not more than 10% of the outstanding voting
securities of any one issuer may be acquired by the Fund. To the extent that the
Fund invests a significant portion of the value of its total assets in the
securities of any one issuer, a decline in the value of such securities could
materially adversely affect the value of the Fund's assets.
The Fund and certain others are defendants in a purported class action. See
"Legal Proceedings."
LEVERAGING THROUGH BORROWING
The Fund may borrow money from banks and use the borrowed money principally
to purchase additional securities. This technique may be used in order to
increase the amount of money available to the Fund for investment in securities
believed to have appreciation potential and to increase the amount of money
available to secure short positions. So that the Fund does not have to have
specific securities which it sells released from
7
<PAGE> 8
pledge by a lender, all of the Fund's assets may be pledged as collateral for
such borrowings. The Fund may only borrow money from banks.
Any investment gains made on the borrowed money in excess of interest paid
will cause the per share net asset value of the Fund to rise faster than would
otherwise be the case. On the other hand, if the investment performance of the
securities purchased with the additional monies fails to cover the interest cost
to the Fund, the net asset value of the Fund will decrease faster than would
otherwise be the case.
The amount of money the Fund may borrow is limited by the Investment
Company Act of 1940. Immediately after such borrowing, the total amount borrowed
may not exceed 33 1/3% of the value of the Fund's assets (including the amount
of such borrowings), less its liabilities (not including any borrowings, but
including the fair market value at the time of computation of any securities
with respect to which there are open short positions). If for any reason,
including market fluctuations, the value of the Fund's assets falls below the
coverage requirement of the statute, the Fund will, within three business days,
reduce its borrowings to the extent necessary to again comply with the 33-1/3%
test. To do this, the Fund may have to sell a portion of its investments at a
time when it may be disadvantageous to do so. THE USE OF LEVERAGING, TO A
MATERIAL EXTENT, WILL SIGNIFICANTLY INCREASE THE LEVEL OF RISK OF AN INVESTMENT
IN THE FUND. See "Senior Securities."
SHORT SALES AND PUT AND CALL OPTIONS
A short sale is effected by selling a security which the seller does not
own in the hope of purchasing the same security at a later date at a lower
price. Accordingly, the Fund may engage in short sales in an attempt to protect
against downward market movement. In order to make delivery to the buyer and
thus effect a sale, the Fund must borrow the security and in so doing, the Fund
incurs the obligation to replace the security, whatever its price may be at the
time the Fund purchases it for delivery to the lender. The Fund will place in a
segregated account (not with the broker) cash or United States Government
securities equal to the difference between (a) the market value of the
securities sold short at the time they were sold short, and (b) any cash or
United States Government securities required to be deposited as collateral with
the broker in connection with the short sale (not including the proceeds from
the short sale). In addition, until the Fund replaces the borrowed securities,
it must daily maintain the segregated account at such level that (1) the amount
deposited in it plus the amount deposited with the broker as collateral will
equal the current market value of the securities sold short, and (2) the amount
deposited in it plus the amount deposited with the broker as collateral will not
be less than the market value of the securities at the time they were sold
short. Deposits to the segregated account do not diminish the risk of loss to
the Fund with respect to short sales. The foregoing requirements do not apply to
securities sold short "against the box," which is a short sale to the extent
that the Fund contemporaneously has or has the right to obtain at no added cost
securities identical to those sold short. The Fund will not make any short sales
during any time that the amount required to be deposited in the segregated
account exceeds 35% of the value of the Fund's net assets.
Generally, short sales will result in a gain if the price of the securities
declines between the date of the short sale and the date upon which the
securities are purchased to replace those borrowed; conversely, a loss will
result if the security increases in price during such period or if the security
becomes unavailable so that the Fund cannot cover its short position. Such gain
is decreased and loss is increased by the amount of any premium, dividends,
interest or brokerage commission the Fund may be required to pay with respect to
such short sale. Any income from short sales generally is, when distributed,
taxable to shareholders at ordinary income tax rates.
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<PAGE> 9
The Fund may purchase and sell put and call options without limitation for
purposes of hedging or to seek capital growth. The Fund may hedge its
investments by combining puts and calls with other investment techniques. For
example, the Fund may sell short securities for which it holds a call or the
Fund may purchase securities for which it holds a put. The puts and calls which
the Fund will purchase will be listed for trading on one or more domestic
securities exchanges. From time to time, the Fund may obtain a put option from
the seller of securities purchased by the Fund or an affiliate of such seller in
connection with a purchase of securities by the Fund. Generally, no market will
exist for any such option. The Fund intends to purchase put and call options
when Management believes that such purchase will result in an opportunity for
capital appreciation based upon specific facts and circumstances A call option
permits the holder thereof to purchase the securities of an issuer at a
predetermined price. Call options can be expected to increase in value if the
value of such securities increases, and, conversely, call options can be
expected to decrease in value if the value of such securities decreases. A put
option permits the holder to sell the securities of an issuer at a predetermined
price. Put options, can be expected to increase in value if the value of such
securities decreases. Put and call options can be purchased and sold by the Fund
without limitation. In order for the Fund to realize a profit from purchase of a
put option, the value of the security underlying such option must decrease below
the exercise price of the option by an amount which is greater than the option
premium paid by the Fund plus transaction costs. In order for the Fund to
realize a profit from purchase of a call option, the value of the security
underlying such option must increase above the exercise price of the option by
an amount which is greater than the option premium paid by the Fund plus
transaction costs.
The Fund may write listed put and call options. The Fund will not write a
call option unless, at the time of the sale, the Fund:
(1) owns the securities (or securities convertible into the securities
without additional consideration) against which the call option is written and
will continue to own such securities during the time that the Fund is obligated
under the option; or
(2) purchases a call option on the same securities upon the same terms; or
(3) establishes and maintains for the term of the option a segregated
account consisting of cash, U.S. Government securities or high-grade debt
securities, equal to the fluctuating market value of the optioned securities.
Such account will be adjusted at least once daily to reflect changes in the
market value of the optioned securities.
The Fund will not write a put option unless, at the time of the sale, the
Fund:
(1) purchases a put option on the same securities upon the same terms; or
(2) establishes a segregated account consisting of cash, U.S. Government
securities or high-grade debt securities equal to the option price, i.e., the
price at which the securities underlying the option may be sold to the Fund; or
(3) makes a corresponding short sale, although, if the short position is
closed out before the put option expires, then the requirements of (1) or (2)
above must be met.
The Fund anticipates that most of the options written by it will be for a
duration of not exceeding nine months. The Fund will not write any options with
respect to which it is required to maintain a segregated account or make any
short sales (except short sales against the box) during any time that the total
of (a) the amount required to be deposited in any such segregated account, and
(b) the amount required to be deposited
9
<PAGE> 10
in a segregated account in connection with any short sales made by the Fund,
exceeds 35% of the value of the Fund's net assets. All the options written by
the Fund will be listed for trading on one or more domestic securities
exchanges. The writing of options by the Fund may be deemed to be inconsistent
with its investment objective.
RESTRICTED AND OTHER ILLIQUID SECURITIES
The Fund may acquire portfolio securities called restricted securities,
which can be sold only pursuant to an effective registration statement under the
Securities Act of 1933 or an exemption from such registration. In addition,
other securities held by the Fund may be illiquid which means they can not be
sold or disposed in seven days at their approximate carrying value.
The Fund will not invest in restricted and other illiquid securities if, as
a result of such investment, the value of the Fund's illiquid assets would
exceed 15% of the value of the Fund's net assets. In the event that the Fund's
portfolio or other external events cause the Fund's illiquid assets to exceed
15% of the value of the Fund's net assets, the Fund will take steps to reduce
the aggregate amount of its illiquid assets to an amount not in excess of 15% of
the value of its net assets on an orderly basis.
The Fund believes that the value of the Fund's illiquid securities
represented approximately 22% of the value of the Fund's net assets on the date
of this Prospectus. The Fund has taken steps and will continue to take steps to
reduce the amount of its illiquid securities.
Restricted securities eligible for resale under Rule 144A under the
Securities Act of 1933 that have been determined to be liquid by the Fund's
Board of Directors based upon trading markets for the securities and any other
restricted securities that become registered under the Securities Act of 1933 or
that may be otherwise freely sold without registration thereunder are not
subject to the foregoing limitation, unless they are otherwise illiquid.
The Fund normally will be able to purchase restricted securities at a
substantial discount from the market value of similar unrestricted securities,
but there are certain risks which the Fund will necessarily assume in acquiring
restricted securities. The principal risk is that the Fund may have difficulty
in disposing of such securities without registration under the Securities Act of
1933 and the Fund will have to bear the risk of market conditions prior to such
registration. In the absence of an agreement obtained at the time of purchase of
such securities, there can be no assurance that the issuer will register the
restricted securities. Furthermore, if the Fund disposes of restricted
securities without registration, it may be necessary to sell such shares at a
discount similar to or greater than that at which the Fund purchased the shares.
For purposes of determining the Fund's net asset value, restricted
securities are valued at fair value as determined in good faith by the Board of
Directors of the Fund or a committee composed of members of the Board of
Directors.
FOREIGN SECURITIES
The Fund may purchase securities issued by companies organized in foreign
countries, provided that, as a result of any such purchase, not more than 35% of
the value of the Fund's total assets will be represented by such securities.
Although the Fund intends to invest in foreign companies located in nations
which it considers to have relatively stable governments, there is the
possibility of expropriation, nationalization or confiscatory taxation, taxation
of income earned in a foreign country and other foreign taxes, foreign exchange
controls
10
<PAGE> 11
(which may include suspension of the ability to transfer currency from a
country), default in foreign government securities, political or social
instability or diplomatic developments which could adversely affect investments
in securities of foreign issuers. In addition, in many countries there is less
publicly available information about issuers than is generally available with
respect to domestic companies. Furthermore, foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards, and
auditing practices and requirements may not be comparable to those applicable to
domestic companies. In many foreign countries, there is less government
supervision and regulation of business and industry practices, stock exchanges,
brokers and listed companies than in the United States. Foreign securities
transactions may be subject to higher brokerage costs than domestic securities
transactions. In addition, the foreign securities markets of many of the
countries in which the Fund may invest may also be smaller, less liquid, and
subject to greater price volatility than those in the United States.
Transactions in foreign securities may involve greater time from the trade date
until settlement than for domestic securities transactions and involve the risk
of possible losses through holding of securities by custodian and securities
depositories in foreign countries. Changes in foreign exchange rates will affect
the value of those securities which are denominated or quoted in currencies
other than the U.S. dollar.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION OF THE FUND'S PERFORMANCE
During the fiscal year ended May 31, 1996, the Fund's performance was
materially affected by the strength in the biotechnology sector in which the
Fund was aggressively positioned. In addition, the Fund's short term trading
strategies yielded favorable results.
COMPARISON OF ACCOUNT VALUE ASSUMING $10,000 INVESTMENT
IN THE FUND TO THE SAME IN THE S&P 500 INDEX
<TABLE>
<S> <C> <C> <C> <C>
AHERX SPX 500
May 31, 86 10000 10000
9444 10169
8565 9600
8704 10312
8611 9460
8611 10005
8565 10248
8166 9987
8971 11332
9776 11779
9776 12119
9316 12012
May-87 9316 12116
9489 12728
9719 13372
9604 13871
9489 13567
6843 10349
6211 9769
6616 10512
6868 10954
7246 11462
7246 11109
7309 11231
May-88 7183 11327
7372 11847
6868 11802
6805 11401
6994 11887
6931 12217
6679 12043
6742 12253
6868 13148
6805 12821
6805 13120
6994 13800
May-89 7183 14291
7057 14276
7246 15564
7309 15867
7120 15802
6679 15436
6616 15749
6553 16127
6427 15045
6427 15240
6427 15644
6301 15254
May-90 6490 16738
6553 16625
6112 16572
5230 15076
4663 14343
4411 14283
4411 15204
4537 15627
4600 16306
6175 17471
6994 17894
6742 17936
May-91 6994 18707
6931 17851
7309 18682
7814 19124
7814 18803
8381 19055
8255 18290
8944 20378
9997 19998
10611 20258
10523 19864
10172 20447
May-92 10084 20547
9821 20241
9646 21068
9120 20637
9120 20880
9734 20951
10260 21663
10668 21928
10668 22112
11706 22413
12650 22885
12084 22332
May-93 13406 22928
13878 22995
13689 22902
14350 23769
14538 23587
15294 24075
14822 23846
15083 24135
14984 24954
13801 24278
12421 23221
12027 23519
May-94 11731 23904
10745 23318
10647 24083
10647 25069
10647 24457
10252 25005
10055 24095
9754 24452
9639 25086
9295 26063
8721 26830
8147 27620
May-95 7229 28722
7459 29388
7688 30362
7459 30438
7688 31722
7229 31609
7000 32995
6770 33631
7344 34774
7918 35097
8147 35435
8721 35957
May 31, 96 8721 36883
</TABLE>
On February 1, 1990, Heiko H. Thieme became the chief executive officer of
the Fund and AHMC. In such capacities, Mr. Thieme has been primarily responsible
for the Fund's portfolio. Past performance is not predictive of future
performance.
12
<PAGE> 13
INVESTMENT RESTRICTIONS
The Fund operates under certain investment policies and restrictions.
Restrictions (1) through (7) 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
securities of the Fund are present or represented by proxy, or (b) more than 50%
of the outstanding voting securities of the Fund. These policies and
restrictions provide, in part, that the Fund may not:
(1) Borrow money in excess of 33 1/3% of the value of the Fund's assets
(including the amount of such borrowing), less its liabilities (not including
any borrowings, but including the fair market value at the time of computation
of any securities with respect to which there are open short positions);
(2) With respect to at least 50% of the Fund's total assets, invest more
than 5% of the value of its total assets in securities of any one issuer (except
securities of the United States Government or any instrumentality thereof) or
purchase more than 10% of the outstanding voting securities of any issuer;
(3) Invest 25% or more of the value of its total assets in securities of
companies in any one industry;
(4) Effect a short sale transaction which will, at the time of making such
short sale transaction and giving effect thereto, cause the aggregate dollar
amount of the total deposits and deferred charges on short sales to exceed 35%
of the value of the Fund's net assets;
(5) Purchase securities of other investment companies unless purchased on
the open market without the payment of any fee or charge other than regular
brokerage commissions;
(6) Underwrite securities of other issuers or participate in any
underwriting or selling group in connection with the public distribution of
other's securities except that it may acquire "restricted securities." See
"Restricted and other Illiquid Securities;"
(7) Loan money to other persons, except that the Fund may (a) invest up to
15% of the value of its total assets in debentures, bonds or similar
governmental or corporate obligations of types commonly distributed publicly or
privately to financial institutions and (b) purchase debt securities which are
convertible into equity securities of an issuer without regard to whether such
debt securities are types commonly distributed publicly or privately to
financial institutions. Any debt securities which are "restricted securities"
would be included in the limitation set forth under "Restricted and other
Illiquid Securities;"
(8) Invest more than 5% of the value of its assets in debt securities which
are not "investment grade" or which are not convertible into equity securities;
(9) Invest more than 10% of the value of its net assets in warrants.
The percentage limitations contained in the investment restrictions
described above are all applied solely at the time of any proposed transaction
on the basis of values or amounts determined at that time. Unless otherwise
specifically stated, a restriction would not apply if a percentage limitation
were exceeded only as a result of changes in values or amounts not resulting
from a subsequent transaction subject to the restriction.
13
<PAGE> 14
MANAGEMENT
The business of the Fund is managed under the direction of its Board of
Directors. The Fund has retained AHMC, 1370 Avenue of the Americas, New York,
New York 10019 to provide the Fund with investment research advice and to
continuously furnish an investment program for the Fund's portfolio. AHMC
recommends securities to be purchased and sold by the Fund and the portion of
the Fund's assets which is to be held uninvested. AHMC advises and assists the
officers of the Fund in carrying out policy decisions of the Fund's Board of
Directors. The role of AHMC is advisory only. All investment decisions are made
by the Fund. Although, as set forth below, control of AHMC changed on February
1, 1990, AHMC has been the Fund's Investment Advisor since December 1985.
Both a majority of the Fund's Board of Directors and control of AHMC
changed on February 1, 1990. Since that date, Heiko H. Thieme has been the Chief
Executive Officer of the Fund and its Investment Advisor and in such capacities,
has been primarily responsible for the day-to-day management of the Fund's
portfolio. Mr. Thieme has been a Consultant/Strategist to Deutsche Bank A.G. and
previously had been the Executive Vice President in charge of U.S. equity of its
wholly-owned subsidiary, Deutsche Bank Capital Corp. Mr. Thieme began his career
at the British brokerage firm of Wood & McKenzie of Edinburgh and London. In
1976 Mr. Thieme joined White Weld & Co. in London as Vice President in charge of
marketing for Germany and Austria. Mr. Thieme publishes an investment newsletter
in both English and German which is distributed worldwide. In addition, Mr.
Thieme writes a weekly column for one of the major German newspapers,
Frankfurter Allgemeine Zeitung, and appears frequently on German television as
well as on numerous American T.V. stations with commentaries on the U.S. markets
and global issues. In May 1989, Mr. Thieme was chosen as "Best Investment
Advisor" of 1988 in West Germany at the International Investment Congress held
in Frankfurt. Further, Mr. Thieme regularly makes presentations to institutional
investors in Europe, Asia, the United States and Canada. Mr. Thieme is known
worldwide for his undaunted optimism and frequently contrarian views and has
been the author of "The Viewpoint" for more than 16 years. Mr. Thieme is the
beneficial owner of 90% of the outstanding capital stock of AHMC.
Richard K. Parker, the President of AHMC and the Fund, is a Managing
Director of Bear, Stearns & Co. Inc. where he provides investment advice and
brokerage services for portfolios of substantial individuals, institutions,
corporations and pension funds. Except for executing portfolio transactions as
described below, Bear, Stearns & Co. Inc. is not otherwise associated with AHMC
or the Fund and is not responsible for any of the investment advice rendered to
the Fund by AHMC or Mr. Parker. Mr. Parker is listed in the Directory of
Exceptional Stockbrokers published by the Hirsch Organization. Mr. Parker is the
beneficial owner of 10% of the outstanding capital stock of AHMC.
AHMC is compensated for the investment advisory services it renders by the
payment of a fee at the annual rate of one and one-quarter percent (1.25%) of
the first $100,000,000 of average daily net assets and one percent (1%) of
additional net assets of the Fund, payable monthly. Such fee is substantially
higher than the fee paid by most other management investment companies to their
investment advisors.
The Fund anticipates that a substantial portion of its portfolio
transactions will be allocated to Bear, Stearns & Co. Inc. and Thieme
Securities, Inc. ("TSI"). Mr. Thieme is the Chief Executive Officer and sole
shareholder of TSI. The Fund may also allocate portfolio transactions to brokers
who provide research or recommendations for the benefit of the Fund or who are
instrumental in sales of shares of the Fund. Mr. Parker receives compensation
from Bear, Stearns & Co. Inc. in connection with portfolio transactions
14
<PAGE> 15
allocated to it by the Fund. Reference is made to the Fund's Statement of
Additional Information with respect to such compensation and for a more complete
description of the Fund's policies with respect to portfolio transactions.
AHMC is also the investment advisor to American Heritage Growth Fund, Inc.
("AHGF"), an investment company whose investment objective is to seek growth of
capital. Four of the Fund's five Directors constitute the full Board of
Directors of AHGF. Mr. Thieme is the Chief Executive Officer of both AHGF and a
foreign investment company (the "Foreign Company"), whose investment objective
is also to seek growth of capital, and the investment advisor of the Foreign
Company. The Fund, AHGF and the Foreign Company may, from time to time, hold
securities issued by the same company. When the Fund and such other investment
companies are engaged in the purchase or sale of the same security, the prices
and amounts will be allocated in a manner considered by Management to be fair to
each of them.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share for the purpose of pricing purchase
and redemption orders is determined as of the close of business of the New York
Stock Exchange on each day such Exchange is open for trading. The Fund's net
asset value will not be determined on New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas,
on which days the New York Stock Exchange is not presently open for trading. In
the event, however, that the New York Stock Exchange is open for trading on any
of such days, the Fund's net asset value will be determined thereon. The net
asset value per share is computed by dividing the value of the net assets of the
Fund (i.e., the value of total assets less liabilities) by the total number of
the Fund's shares outstanding. In calculating net asset value, all portfolio
securities will be valued at market value when there is a reliable quotation
available for the securities and otherwise as the Board of Directors or a
committee composed of members of the Board of Directors in good faith
determines.
HOW TO BECOME AN INVESTOR IN THE FUND
An investor may purchase shares of the Fund by submitting a completed
application with a check made payable to The American Heritage Fund, Inc. and
mailing it to The American Heritage Fund, Inc., Location 0637, Cincinnati, Ohio
45264-0637. Applications and checks which are sent by courier should be sent to
The American Heritage Fund, Inc., c/o Star Bank, N.A., 425 Walnut Street, Mutual
Fund Custody Department, Cincinnati, Ohio 45202. An application is included in
this Prospectus. All investments are made at the net asset value next computed
after receipt of an order accompanied by payment without the imposition of any
sales charge.
Initial investments must be at least $2,500 (or, in the case of an IRA
account, $2,000). Subsequent investments may be made in amounts of $250 or more.
An open account is automatically created for each new investor so that
additional investments may be made at any time without completing a new
application. The above-stated minimums are applicable to all accounts although
the minimums may be waived for persons purchasing in a group if the total
payment received from the group exceeds the stated minimum. In addition,
shareholders may open additional accounts (e.g. custodian accounts, IRA
accounts, Trusts, and Keogh accounts) with a minimum of $1,000.
15
<PAGE> 16
Investors may, if they so desire, purchase shares of the Fund through
certain registered broker-dealers. The Fund imposes no sales load or service
charge, but such broker-dealers may make a charge to investors for their
services. The charge and services may vary in amount among broker-dealers, some
of which may impose higher initial or subsequent investment requirements than
those established by the Fund.
CALIFORNIA AND IOWA INVESTORS
The offering made by the Prospectus to California and Iowa residents is
limited to persons who meet any one or more of the following descriptions at the
time of the sale by the Fund of its securities to that person:
1. Any person whose income during the most recent year was at least $65,000
and together with such person's spouse has a net worth, exclusive of
home, furnishings and automobiles ("Adjusted Net Worth") of not less
than $250,000.
2. Any person who together with such person's spouse has an Adjusted Net
Worth of not less than $500,000.
3. Any person who together with such person's spouse has a net worth of not
less than $1,000,000, inclusive of home, furnishings and automobiles.
4. Any person whose income during the most recent year or joint income with
that person's spouse was at least $200,000.
MISSOURI AND TEXAS INVESTORS
The offering made by the Prospectus to residents of Missouri and Texas is
limited to any person who together with such person's spouse had a gross annual
income during the most recent year of at least $60,000 plus a net worth of
$60,000 or together with such spouse has a net worth, exclusive of home, home
furnishings and automobiles of not less than $225,000.
HOW TO REDEEM SHARES
ALL REQUESTS FOR REDEMPTION OF SHARES, WHETHER OR NOT REPRESENTED BY
CERTIFICATES, MUST BE SIGNED BY ALL REGISTERED OWNERS EXACTLY AS REGISTERED,
INCLUDING FIDUCIARY TITLES, IF ANY, WITH SIGNATURES GUARANTEED BY A MEMBER OF A
NATIONAL SECURITIES EXCHANGE OR A UNITED STATES COMMERCIAL BANK OR A FOREIGN
BANK HAVING A NEW YORK CITY CORRESPONDENT.
Any shareholder may require the Fund to redeem his shares by making a
written request directly to American Data Services, Inc., 24 West Carver Street,
Huntington, New York 11743, the Fund's Transfer Agent. When certificates for
shares are held by the shareholder, they may be mailed to or deposited with the
Transfer Agent, duly endorsed and accompanied by a written request for
redemption. Redemptions may be made by telephone upon the request of certain
financial institutions who are holders of record of shares issued by the Fund,
within the sole discretion of the Fund. The Fund has instructed its Transfer
Agent to confirm the authenticity of any such request for redemption by
telecopier and telephone. Proceeds of redemptions made by telephone will be sent
only to the respective financial institution making the request. In the event
that a
16
<PAGE> 17
telephone redemption which is honored by the Fund is unauthorized or fraudulent,
the Fund could sustain losses.
The redemption price will be the net asset value next determined by the
Fund following receipt of the request accompanied by any issued certificates in
form for transfer. There is no redemption charge imposed by the Fund.
The value of shareholder's shares on redemption may be more or less than
the shareholder's cost depending upon the net asset value at the time of
redemption.
Payment for shares redeemed will normally be made within seven days after
receipt of the certificates, duly endorsed, or in the case of shares where no
certificate has been issued, a written request duly executed. Payment for shares
redeemed which have been purchased by check will not be mailed prior to the time
that the Fund reasonably believes that such check has cleared, usually within
fifteen days of the Fund's receipt. Investors who anticipate that they will
redeem their shares prior to the expiration of such fifteen day period, should
pay for their shares by means of Federal Funds or bank wire transfer. The
determination of the net asset value of the Fund's shares may be suspended and
the right of redemption may be suspended or the payment date postponed when: (i)
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission or such Exchange is closed for other than
customary weekend and holiday closings; (ii) when an emergency exists, as
determined by the Securities and Exchange Commission, as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable, or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets; or (iii) when the Securities and Exchange Commission by Order so
permits for the protection of the shareholders of the Fund.
The Fund intends to make payment for shares redeemed in cash to the extent
that it is reasonably able to do so. The Fund, however, reserves the right to
make such payment in kind. See Notes to the Fund's Financial Statements for the
fiscal year ended May 31, 1996 which have been incorporated by reference into
the Fund's Statement of Additional Information. If the Fund makes payment for
shares redeemed in kind, such payment may be in the form of securities which are
illiquid. Any shareholders to whom redemptions in kind are made will likely
incur brokerage commissions upon disposition of the securities acquired from the
Fund. Shareholders who receive illiquid securities in connection with a
redemption in kind may incur difficulty in disposing of such securities.
DISTRIBUTION OF INCOME DIVIDENDS AND REALIZED CAPITAL GAINS
Dividend income will be incidental to the investment objective of maximum
capital growth. The Fund will, at the end of each fiscal year, consider the
declaration of a cash dividend from net investment income, if earned, and the
distribution of net capital gains, if any, realized on investments. The Fund
intends to distribute to its shareholders, at least annually, substantially all
of its net investment income and realized capital gains. There will be no such
distribution, however, until the Fund has taken advantage of any capital loss
carryovers available to it.
At the time a shareholder applies to purchase Fund shares, he automatically
gives written authority to the Fund to receive as the shareholder's agent,
income dividends and capital gains distributions, if any, and to cause them to
be reinvested for his account in additional Fund shares at net asset value.
However, a shareholder may, either at the time of purchase or at a later time,
request in writing to the Fund that his
17
<PAGE> 18
income dividends and capital gains distributions, if any, be paid to him by
check rather than reinvested in Fund shares. A shareholder who requests in
writing that his dividends and distributions be paid to him by check may, at any
time prior to a record date, elect to have subsequent dividends and
distributions reinvested in Fund shares at net asset value.
The Fund intends to qualify for treatment under Subchapter M of the
Internal Revenue Code. In such case, the Fund will distribute any of its net
income and gains to shareholders and shareholders may be proportionately liable
for taxes on any income and gains of the Fund although shareholders not subject
to taxes on their income will not be required to pay tax on any amounts
distributed to them. Any distribution of net income or short-term capital gains
will be taxed as ordinary dividends and any distribution of long-term capital
gains will be taxed as long-term capital gains. The Fund will inform
shareholders of the amount and nature of any such income or gains. If an
investor purchases shares of the Fund immediately prior to the declaration of a
dividend by the Fund, the investor will pay the full price per share and then
receive a portion of the price back as a taxable distribution. The Fund's net
asset value is reduced by the amount of any distribution.
TOTAL RETURN
From time to time the Fund may advertise total return. Total return is
based on historical results and is not intended to predict future performance.
Total return is the change in value of an investment in the Fund over a
given period of time, assuming reinvestment of any dividends and capital gains
distributions. Average annual return is a hypothetical rate of return that, if
achieved annually, would produce a cumulative total return if performance had
been constant over the entire period of time. The Fund also may advertise a
return which is calculated in a different manner (a "nonstandardized
quotation"). A non-standardized quotation of return measures the change in value
of a hypothetical account between the beginning and end of a period, assuming no
activity in the account other than reinvestment of dividends and capital gains
distributions. In the event the Fund incurs any non-recurring charges, the
reported total return for a period during which such charges were incurred would
be higher than it would otherwise be if non-recurring charges were reflected.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services. For further details
about such services write to or call the Fund.
EXCHANGE PRIVILEGE
A shareholder of the Fund has the privilege of exchanging shares of the
Fund for shares of AHGF subject to the following:
- Shares of AHGF must be registered for sale or exempt from registration
in the state of residence of the shareholder.
- Shareholders may only exchange between accounts that are registered in
the same name, address, and have the same taxpayer identification
number.
18
<PAGE> 19
- A shareholder must have received a current Prospectus of AHGF before
the exchange.
- Both the Fund and AHGF reserve the right to temporarily or permanently
terminate the exchange privilege.
Exchanges may have tax consequences. Accordingly, you may wish to consult
with your tax advisor before making any exchange.
AUTOMATIC INVESTMENT PLAN
The Fund has an Automatic Investment Plan which enables shareholders to
make regular monthly investments in shares through automatic charges to their
bank checking accounts. The Fund's minimum investments shall be waived for
Automatic Investment Plan participants making regular monthly payments of not
less than $100 per month.
AUTOMATIC WITHDRAWAL PLAN
With an Automatic Withdrawal Plan, a shareholder can arrange for automatic
distributions to be made monthly or quarterly in amounts not less than $1,000.
An Automatic Withdrawal Plan may neither be opened nor maintained by a
shareholder holding shares of the Fund having a total net asset value of less
than $50,000.
IRA AND KEOGH PLANS
A prototype defined contribution retirement plan and individual retirement
account is available. Certain charges are imposed by Star Bank, N.A. and
American Data Services, Inc. and shareholders should carefully review all
documents provided in connection with such plan or account.
LEGAL PROCEEDINGS
On October 5, 1994, a shareholder of the Fund on behalf of himself and a
purported class of others who acquired the Fund's shares from July 1, 1993
through July 30, 1994 brought an action against the Fund, AHMC, Heiko H. Thieme
and Richard K. Parker in the United States District Court for the Southern
District of New York. Although the Fund cannot now determine the exact amount of
the losses incurred by members of the purported class, the Fund believes that
such losses do not exceed $25 million and could be less. As of the date of this
Prospectus, the value of the Fund's net assets was approximately $16 million.
The amount of outstanding shares of the Fund has been rapidly diminishing since
early 1994.
The Complaint alleged that certain registration statements and prospectuses
of the Fund did not disclose certain risks involving the Fund's investments in
restricted securities and companies having small capitalizations and which lack
significant operating histories or established products and that the Fund
invests significant amounts of money in such companies based "merely" on an
interview between the company's executives and Mr. Thieme and a review of the
companies' financial statements or products. The Complaint also alleged that
certain assets of the Fund were overvalued. On September 11, 1995, the Court, in
ruling on the Fund's Motion to Dismiss, dismissed the Complaint. The Court's
Order permitted the Plaintiff to move the Court for leave to file an amended
complaint limited to claims relating to the Fund's investments in restricted and
other illiquid securities.
19
<PAGE> 20
On July 11, 1996, the Court issued an Order permitting the Plaintiff to
file an amended complaint. The amended complaint alleges that certain
registration statements and prospectuses of the Fund failed to disclose certain
risks regarding the Fund's investments in illiquid securities and that the Fund
invested in illiquid securities in concentrations which exceeded the Fund's own
investment restrictions and that the Fund improperly valued its illiquid
securities. The amended complaint also alleges that the other defendants
breached their fiduciary duties in connection with the Fund's investments in and
valuation of illiquid securities and by the receipt of AHMC of substantial
compensation for investment advice and that the Fund breached its own
limitations with respect to illiquid securities and that the Fund changed
investment policies without obtaining a shareholder vote.
The Fund, after conferring with its special counsel, has concluded that the
substantive allegations of the amended compliant are without merit. Although
there can be no assurance of the outcome of the action, based upon the Fund's
belief, the Fund has not established a reserve for potential losses other than
the expense of its defense. The Fund intends to vigorously defend the action.
The Plaintiff is seeking rescission or compensatory damages and
pre-judgment interest thereon and the costs and expense of the litigation and
such other and further relief as the Court may deem just and proper. The Fund's
officers and directors are entitled to be indemnified by the Fund to the full
extent permitted by law.
On August 4, 1995 the Fund commenced an action against Kouri Capital Group,
Inc. ("KCG") and Pentti Kouri in the Supreme Court of the State of New York,
County of New York. The action is based upon a Stock Purchase Agreement between
the Fund and KCG pursuant to which KCG agreed to repurchase certain shares
issued thereby and sold to the Fund for $4,400,000. Such obligation of KCG was
personally guaranteed by Pentti Kouri. Neither KCG nor Mr. Kouri has honored its
or his obligation to the Fund. The Fund is seeking a recovery in the amount of
$4,400,000 plus interest. The defendants have denied the substantive allegations
of the Complaint and have asserted counterclaims which would declare their
obligations to the Fund to have been terminated and to obtain damages in excess
of $4,400,000. The Fund, after conferring with its special counsel, has
concluded that the substantive allegations of the counterclaims are without
merit. Although there can be no assurance of the outcome of the action, based
upon the Fund's belief, the Fund has not established a reserve for potential
losses other than the expense of its defense of the counterclaims.
ADDITIONAL FACTS
ORGANIZATION
The American Heritage Fund, Inc., a New York corporation organized on
December 28, 1951, is a non-diversified, open-end management investment company.
CUSTODIAN
Star Bank, N.A. 425 Walnut Street, Cincinnati, Ohio 45202 is the Custodian
of the portfolio securities and monies of the Fund. The Custodian performs no
managerial or policy-making functions for the Fund.
20
<PAGE> 21
CAPITALIZATION
The authorized capital stock of the Fund consists of 1,000,000,000 shares
of capital stock, $.01 par value per share. Each share has equal voting,
dividend and liquidation rights.
TRANSFER AGENT
American Data Services, Inc. ("ADS") 24 West Carver Street, Huntington, New
York 11743 is the Fund's Transfer Agent.
ADMINISTRATIVE SERVICES
The Fund has entered into an agreement with ADS whereby ADS maintains
certain books, records and other documents that the Fund is required to keep and
calculates the Fund's daily net asset value. The Fund has agreed to pay ADS a
monthly fee of 1/12th of 1% of the first $25,000,000 of the Fund's average
monthly net assets, plus 1/12th of .05% of the next $25,000,000 of the Fund's
average monthly net assets, plus 1/12th of .02% of any additional average
monthly net assets.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be made by writing to American Data Services,
Inc. at 24 West Carver Street, Huntington, New York 11743.
21
<PAGE> 22
SUPPLEMENTAL APPLICATION
FOR CALIFORNIA AND IOWA RESIDENTS
What is your occupation?
- ---------------------------------------------------------
1. Was your income during the most recent year at least $65,000, and
together with your spouse do you have a net worth, exclusive of home,
furnishings and automobiles ("Adjusted Net Worth") of not less than
$250,000?
YES NO
---------------- ----------------
2. Do you together with your spouse have an Adjusted Net Worth of not less
than $500,000?
YES NO
---------------- ----------------
3. Do you together with your spouse have a net worth of not less than
$1,000,000 inclusive of home, furnishings, and automobiles?
YES NO
---------------- ----------------
4. Was your income during the most recent year or joint income with your
spouse at least $200,000?
YES NO
---------------- ----------------
If your answer to all four of the above questions is "No", and you are a
resident of California or Iowa, no offer can be made to you, and you are
not eligible to purchase shares of The American Heritage Fund, Inc.
- --------------------------- -----------------------------------------
DATE SIGNATURE
22
<PAGE> 23
THE AMERICAN HERITAGE FUND, INC.
- --------------------------------------------------------------------------------
Mail to: The American Heritage Fund, Inc., Location 0637, Cincinnati, Ohio
45264-0637
(DO NOT USE THIS FORM FOR IRA PLANS. Please request separate forms)
================================================================================
Complete only the applicable sections which will tell us how your account should
be registered.
<TABLE>
<S> <C> <C>
ACCOUNT / / Individual
REGISTRATION ----------------------------------------------------------------------
First Name Middle Name Last Name
/ / Joint Tenant
----------------------------------------------------------------------
First Name Middle Name Last Name
/ / Gifts to
Minors -------------------------- As Custodian For --------------------------
Name of Custodian Name of Minor
(only 1 permitted) (only 1 permitted)
UNDER THE ------------------------------------- UNIFORM GIFT TO MINORS
State
/ / Corporations, ----------------------------------------------------------------------
Trusts & Name of corporation or partnership. If a trust, include the name(s) of
Others trustees in which account will be registered and the date of the trust
investment. An account for a pension or profit sharing plan or trust
may be registered in the name of the plan or trust itself.
- -----------------------------------------------------------------------------------------------------------
ADDRESS
----------------------------------------------------------------------
Street
( )
----------------------------------------------------------------------
City Home Phone Number
( )
----------------------------------------------------------------------
State Zip Code Business Phone Number
- -----------------------------------------------------------------------------------------------------------
INVESTMENT $_________________ (Minimum initial $2,500. Subsequent Investments of
$250 or more.) Make checks payable to The American Heritage Fund, Inc.
Application is not needed for subsequent investments.
- -----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS Reinvest all income and capital gain distributions in additional shares of the Fund unless
this box is checked.
/ / Pay dividends and capital gain distributions in cash. If any dividend or capital gain
distribution check addressed and sent to (me)(us) is returned to you, you hereby are
authorized to invest the proceeds of that check in Fund shares at the net asset value next
determined after receipt by you of the returned check. In such event (I)(we) understand
and agree that all subsequent dividend and capital gain distributions automatically will be
reinvested in Fund shares unless and until (I)(we) have signed and filed with you a new
request to receive dividends and capital gain distributions in cash.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
TAX IDENTIFICATION CERTIFICATION
Because of important changes made to the Internal Revenue Code in 1983, we
must be certain that we have a record of your correct Social Security or
other Taxpayer Identification Number. If you have not certified that you
have provided us with the correct number, your account will be subject to
special Federal income tax withholding of 20% of dividends and other
payments. To avoid this, please fill in your Social Security or Taxpayer
Identification Number.
/ / / / / / / / / / ---------------------------------------
Social Security or Taxpayer Citizenship--If other than U.S.A.
Identification Number
If appropriate, check one of the following boxes:
/ / I have been notified by the IRS that I am subject to backup withholding
for failure to report all interest or dividends.
/ / I do not have a Social Security Number or Taxpayer Identification
Number, but I have applied for or intend to apply for one. I understand
that if I do not provide this number within 60 days, the required 20%
withholding will begin.
/ / I am exempt because I am a Non-Resident Alien (not a U.S. citizen or
U.S. resident), a foreign corporation, partnership, estate or trust,
and, as a result, I am not required to submit a number.
/ / I am an exempt recipient (see explanation below)
If you are an exempt recipient, you must certify your Tax Identification
Number as well as your exempt status to prevent withholding. A partial
listing of exempt recipients follows. For further information, see Internal
Revenue Code Sec. 3452 or consult you tax advisor.
<TABLE>
<S> <C>
- Retirement Plans - Common Trust Funds
- Corporations - Financial Institutions
- Colleges, Churches, Charitable Organizations - Registered Securities Dealers
- Agents, Fiduciaries, Middlemen
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SIGNATURE I understand and agree that:
(1) This application is subject to your acceptance or rejection.
(2) All shares will be purchased at the net asset value next determined
after receipt and acceptance.
(3) The Fund has the right to redeem shares held in my account to reimburse
the Fund for any loss it has sustained if my check for the purchase of
or subscription for the Fund shares is dishonored, regardless of whether
the undersigned was already an existing shareholder at the time of such
purchase or subscription.
(4) Under penalties of perjury, I certify that the information I have
provided in this application under the caption TAX IDENTIFICATION
CERTIFICATION is true, correct, and complete.
I acknowledge receipt of your Prospectus and I understand that all of its
terms and provisions are incorporated herein by reference.
</TABLE>
X
- --------------------------------------------------------------------------------
Signature of Individual and Joint Tenant or Custodian, Corporate Officer or
Trustee.
- ------------------------------------------------------ ------------
Title of Corporate Officer or Trustee Date
WHERE DID YOU FIRST LEARN ABOUT THE AMERICAN HERITAGE FUND?
-------------------
- -------------------------------------------------------------------------------
1096
<PAGE> 25
=====================================================
THE AMERICAN
HERITAGE FUND, INC.
1370 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
BOARD OF DIRECTORS
JOHN GILBERT
RICHARD K. PARKER
JONATHAN B. REISMAN
EUGENE SARVER
HEIKO H. THIEME
INVESTMENT ADVISOR
AMERICAN HERITAGE MANAGEMENT CORPORATION
======================================================
======================================================
THE AMERICAN
HERITAGE FUND, INC.
[LOGO]
PROSPECTUS
OCTOBER 22, 1996
======================================================
<PAGE> 26
File No. 2-11193
Rule 497 (e)
THE AMERICAN HERITAGE FUND, INC.
------------
A NO-LOAD MUTUAL FUND
------------
1370 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 397-3900
(800) 828-5050
------------
STATEMENT OF ADDITIONAL INFORMATION
------------
This Statement of Additional Information is not a prospectus
and should be read in conjunction with the Fund's Prospectus dated October
22, 1996. A copy of the Fund's Prospectus may be obtained from the Fund
without charge at the address set forth above.
October 22, 1996
<PAGE> 27
TABLE OF CONTENTS
<TABLE>
<S> <C>
Brokerage Allocation and Other Practices B-3
Purchase of Certain Debt Securities B-4
Investment Restrictions B-5
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
</TABLE>
B-2
<PAGE> 28
BROKERAGE ALLOCATIONS AND OTHER PRACTICES
American Heritage Management Corporation ("AHMC") or the Fund 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.
B-3
<PAGE> 29
The Fund anticipates that a substantial portion of its portfolio
transactions will be allocated to Bear, Stearns & Co. Inc. ("Bear, Stearns")
and Thieme Securities, Inc. ("TSI"). Heiko H. Thieme is the Chief Executive
Officer and sole shareholder of TSI. Richard K. Parker is a Managing Director
of Bear, Stearns. See "Management." Except for executing portfolio
transactions, neither Bear, Stearns nor TSI is in any other respect associated
with the Fund or in any way responsible for any investment advice or other
service provided to the Fund by either of Messrs. Thieme or Parker personally
or AHMC.
During the fiscal year ended May 31, 1996, the Fund paid an aggregate
of approximately $717,000 in brokerage commissions. Brokerage commissions paid
by the Fund for its fiscal year ended May 31, 1996 were significantly lower
than those paid during the fiscal years ended May 31, 1994 and 1995 because of
substantial changes in the amount of the Fund's assets. During the three fiscal
years ended May 31, 1996, the Fund paid aggregate brokerage commissions to
Bear, Stearns of approximately $1,873,000. During the Fund's fiscal year ended
May 31, 1996, Bear, Stearns and TSI received approximately $200,000 and
$198,000 in brokerage commissions from the Fund, respectively, or approximately
27.8% and 27.6% of the total brokerage commissions paid by the Fund during such
year, respectively. During the same year, approximately 25.1% and 24.8% of the
Fund's aggregate dollar transactions involving the payment of brokerage
commissions were effected through Bear, Stearns and TSI, respectively. The
difference in the percentage of brokerage commissions paid to and the
percentage of the dollar amount of transactions effected through Bear, Stearns
and TSI is a result of lower commission rates charged on certain transactions
by other brokerage firms. Mr. Parker received compensation of approximately
$60,000 from Bear, Stearns in connection with brokerage commissions paid to
such firm by the Fund during the fiscal year ended May 31, 1996.
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
B-4
<PAGE> 30
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 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
B-5
<PAGE> 31
bank as set forth in the Fund's Prospectus.
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.
<TABLE>
<CAPTION>
Positions Held With Principal Occupation(s) During the
Name and Address the Fund Past Five Years
---------------- ------------------- ----------------------------------
<S> <C> <C>
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,
Thieme Consulting, Inc. since January
1995 and Thieme Securities since
February 1996. 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.
</TABLE>
B-6
<PAGE> 32
<TABLE>
<S> <C> <C>
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
Eugene Sarver Director President of Sarver International
241 W. 97th St. (financial commercial consultancy)
New York, NY and President of Global Finance
Library, Inc. (financial software
marketing) since October 1996.
Prior thereto, Professor of Finance
of Lubin School of Business - Graduate
Division, Pace University
</TABLE>
* "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, 1996, 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 September 30, 1996, Charles Schwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104 owned of record shares of the Fund's capital
stock which represented approximately 9% 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.
B-7
<PAGE> 33
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, 1994, 1995 and 1996, AHMC received
investment advisory fees from the Fund of $1,166,297, $824,115 and $303,534,
respectively. In connection with the Investment Advisory Agreement with AHMC,
AHMC bears the expenses of certain 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, 1996.
TOTAL RETURN
The Fund's average annual total returns for the one, five and ten year
periods ended May 31, 1996 are set forth below:
<TABLE>
<S> <C>
One Year ................... 20.63%
Five Years.................. 4.51%
Ten Years................... -1.36%
</TABLE>
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.
F B-8
<PAGE> 34
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.
FINANCIAL STATEMENTS
The Fund's Annual Reports for the fiscal years ended May 31, 1995 and
1996 are hereby incorporated by reference.
B-9
