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File No. 2-11193
Rule 497 (e)
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
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, as supplemented on May 20, 1997
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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-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-9
Transfer Agent B-9
Financial Statements B-9
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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.
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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
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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
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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.
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Positions Held With Principal Occupation(s) During the
Name and Address the Fund 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,
Thieme Consulting, Inc. since January
1995 and Thieme Securities since
February 1996. Consultant/Strategist
for Deutsche Bank A.G. from 1989 to
1993.
John O. Koehler Director Chief Executive Officer of Koehler
One Strawberry Hill Avenue-14H International, Ltd. (consultant on
Stamford, CT 06902 public affairs, risk analysis,
communications, planning and crisis
management)
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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
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* "Interested person" as defined in the Investment Company Act of 1940.
Dr. Sarver and Mr. Thieme have served as members of the Board of
Directors since February 1990. Mr. Koehler became a member of the Board of
Directors in May 1997. 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.
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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. Northern
Westchester Industries, Inc., a corporation which is wholly owned by Richard K.
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:
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One Year ................... 20.63%
Five Years.................. 4.51%
Ten Years................... -1.36%
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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.
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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.
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