<PAGE> 1
PROSPECTUS
THE AMERICAN HERITAGE FUND, INC. [AMERICAN HERITAGE 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
------------------------
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 quoted 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 10% of the Fund's net
assets on September 24, 1997 were not liquid. On such date, the Fund's
speculative investment in the securities of a small foreign company represented
approximately 59% of the Fund's net assets. 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 September 29, 1997 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 SEPTEMBER 29, 1997
<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............................ 17
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......................... 1.56%**
Total Fund operating expenses.......... 2.81%**
</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, 1997.
The fees and other expenses in the foregoing table are based upon those
incurred by the Fund during the fiscal year ended May 31, 1997.
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>
$ 30 $ 90 $ 154 $324
</TABLE>
The purpose of the table and the example 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."
3
<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>
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1. Net assets value,
beginning of year......... $.76 $.63 $1.19 $1.42 $1.15 $1.12
Income from Investment
Operations
2. Net investment income
(loss).................... (.03) (.02) .06 .19 (.01) 1.07
3. Net gains or (losses) on
securities (both realized
and unrealized)........... .10 .15 (.48) (.35) .36 (.66)
----------- ----------- ----------- ------------ ------------ -----------
4. Total from investment
operations................ .07 .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................... $.83 $.76 $.63 $1.19 $1.42 $1.15
=========== =========== =========== ============ =========== ===========
Total return............... 9.21% 20.63% (38.37%) (12.49%) 32.89% 42.49%
Net assets, end of
period.................... $18,126,591 $21,429,753 $30,779,569 $101,036,392 $68,498,156 $26,543,132
Ratio of expenses to
average net assets........ 6.42% 6.25% 3.69% 2.41% 2.1% 2.2%
Ratio of net income (loss)
to average net assets..... (4.97%) (3.53%) 6.55% 3.40% (.46%) 21.50%
Portfolio turnover rate.... 470% 606% 620% 434% 278% 776%
Average commission rate
paid...................... $.0879 $.0866 N/A N/A N/A N/A
<CAPTION>
1991 1990 1989 1988
---- ---- ---- ----
<S> <C> <C> <C> <C>
1. Net assets value,
beginning of year......... $1.03 $1.15 $1.14 $1.61
Income from Investment
Operations
2. Net investment income
(loss).................... (.02) (.10) (.08) (.12)
3. Net gains or (losses) on
securities (both realized
and unrealized)........... .11 (.02) .09 (.26)
---------- ---------- -------- --------
4. Total from investment
operations................ .09 (.12) .01 (.38)
Less Distributions
5. Dividends (from net
investment income)........ -- -- -- --
6. Distributions (from
capital gains)............ -- -- -- .09
7. Tax return capital
distribution.............. -- -- -- --
---------- ---------- -------- --------
8. Net assets value, end
of year................... $1.12 $1.03 $1.15 $1.14
========== ========== ======== ========
Total return............... 8.74% (10.43%) .88% (22.41%)
Net assets, end of
period.................... $2,287,446 $1,142,677 $630,006 $406,305
Ratio of expenses to
average net assets........ 6.79% 11.04% 13.02% 11.9%
Ratio of net income (loss)
to average net assets..... (3.72%) (5.80%) (8.00%) (8.70%)
Portfolio turnover rate.... 607% 76% 81% 189%
Average commission rate
paid...................... N/A N/A N/A N/A
</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, 1996 and 1997. The Fund did not issue
any senior securities during any other of its ten fiscal years ended May 31,
1997.
<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
1997 1,004,334 2,143,580 24,386,571 .0879
</TABLE>
The averages shown above were determined on a daily basis.
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 10% of the Fund's net
assets on September 24, 1997, 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 September 24, 1997, approximately 2% of the value of the Fund's
net assets was determined by the Fund's Board of Directors or such committee
which consisted of securities issued by companies whose securities were not
publicly quoted. 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.
8
<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. 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.
The Fund believes that securities representing approximately 10% of the
Fund's net assets on September 24, 1997, were not liquid.
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 (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
10
<PAGE> 11
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. On
September 24, 1997, the Fund's investment in the securities of Senetek PLC
("Senetek") represented approximately 59% of the Fund's net assets. Senetek is a
small foreign company and the Fund's investment therein is speculative.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION OF THE FUND'S PERFORMANCE
12
The Fund's performance during the fiscal year ended May 31, 1997 was
materially affected by the general upturn in securities markets and the
restructuring of the Fund's portfolio in order to focus on fewer investments.
<TABLE>
<CAPTION>
Average Annual Total Return
including reinvested dividends
- --------------------------------------------
<S> <C>
1 Year 9.21%
5 Year -1.14%
10 Year 0.22%
</TABLE>
<TABLE>
American S & P 500
Heritage Fund Index
<S> <C> <C>
May-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 10000 10000
10185 10505
10432 11037
10309 11449
10185 11198
7346 8542
6667 8063
7102 8676
7373 9041
7778 9461
7778 9169
7846 9270
May-88 7711 9349
7914 9778
7373 9741
7305 9410
7508 9811
7440 10084
7170 9940
7237 10113
7373 10852
7305 10582
7305 10829
7508 11390
May-89 7711 11795
7576 11783
7778 12846
7846 13096
7643 13043
7170 12740
7102 12999
7034 13311
6899 12418
6899 12579
6899 12912
6764 12590
May-90 6967 13815
7034 13722
6561 13678
5614 12443
5005 11839
4735 11789
4735 12549
4870 12898
4938 13459
6629 14420
7508 14769
7237 14804
May-91 7508 15441
7440 14734
7646 15420
8387 15784
8387 15520
8996 15728
8861 15096
9601 16820
10731 16506
11389 16720
11295 16395
10919 16876
May-92 10825 16959
10542 16706
10354 17389
9789 17033
9789 17233
10448 17293
11013 17880
11451 18099
11451 18250
12566 18499
13579 18889
12971 18432
May-93 14390 18924
14896 18979
14694 18903
15403 19619
15606 19468
16416 19871
15910 19682
16190 19920
16084 20597
14814 20038
13333 19166
12910 19412
May-94 12592 19729
11534 19246
11428 19878
11428 20691
11428 20186
11005 20638
10793 19888
10470 20182
10347 20705
9977 21511
9361 22145
8746 22797
May-95 7760 23706
8006 24256
8253 25060
8006 25123
8253 26183
7760 26089
7514 27233
7267 27758
7883 28701
8499 28968
8746 29247
9361 29678
May-96 9361 30442
8499 30558
7514 29209
7637 29826
7267 31503
7267 32372
6898 34816
6898 34127
8992 36258
9731 36542
10224 35044
10224 37134
May-97 10224 39393
</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.
16
<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 television 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, who controls 10% of the outstanding capital stock of
AHMC, is a Managing Director of Bear, Stearns & Co. Inc. 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.
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.
Messrs. Thieme and Parker receive compensation from TSI and Bear, Stearns &
Co. Inc., respectively, in connection with portfolio transactions allocated to
them by the Fund. Reference is made to the Fund's Statement of Additional
Information with respect to Mr. Parker's compensation and for a more complete
description of the Fund's policies with respect to portfolio transactions.
14
<PAGE> 15
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. The Fund's Directors also constitute the full Board of Directors of
AHGF. Mr. Thieme is the Chief Executive Officer of both AHGF and two foreign
investment companies and may hold similar positions with other foreign
investment companies (the "Foreign Companies") whose investment objective is
also to seek growth of capital, and the investment advisor of the Foreign
Companies. The Fund, AHGF and the Foreign Companies 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.
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
15
<PAGE> 16
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.
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 such shareholder's 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 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, 1997 which have been incorporated by reference into
the Fund's
16
<PAGE> 17
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 income dividends and capital gains
distributions, if any, be paid to such shareholder by check rather than
reinvested in Fund shares. A shareholder who requests in writing that his
dividends and distributions be paid to such shareholder 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
17
<PAGE> 18
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:
- AHGF and its shares 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.
- 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.
18
<PAGE> 19
LEGAL PROCEEDINGS
On October 5, 1994, a shareholder of the Fund on behalf of himself and a
purported class of others 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. On
September 24, 1997, the value of the Fund's net assets was approximately $23
million. The amount of outstanding shares of the Fund has generally rapidly
diminished 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 companies' 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.
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 Plaintiff made a motion to permit the action to proceed as a class
action and in which the Plaintiff would serve as the sole class representative
of all persons who acquired shares of the Fund from July 1, 1993 through August
31, 1994. On August 1, 1997, the Court denied the Plaintiff's motion.
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 was based upon a Stock Purchase Agreement between
the Fund and KCG pursuant to which KCG agreed to repurchase
19
<PAGE> 20
certain shares issued thereby and sold to the Fund for $4,400,000. Such
obligation of KCG was personally guaranteed by Mr. Kouri. Neither KCG nor Mr.
Kouri has honored its or his obligation to the Fund. The Fund sought a recovery
in the amount of $4,400,000 plus interest. The defendants denied the substantive
allegations of the Complaint and 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,
concluded that the substantive allegations of the counterclaims were without
merit. Although there could be no assurance of the outcome of the action, based
upon the Fund's belief, the Fund did not establish a reserve for potential
losses other than the expense of its defense of the counterclaims. Upon
agreement of the parties, the action has been dismissed without prejudice. In
the event that the Fund is unable to reach a settlement of its claims acceptable
to the Fund, the Fund intends to bring another action against KCG and Mr. Kouri.
In such event, it can be expected that they will again assert counterclaims
against the Fund.
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.
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.
20
<PAGE> 21
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 (only 1 permitted) Name of Minor (only 1 permitted)
UNDER THE UNIFORM GIFT TO MINORS
------------------
State
[ ] Corporations, ------------------------------------------------------------------------------------------
Trusts & Name of corporation or partnership. If a trust, Others include the name(s) of 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 or, in the case of an IRA account, $2,000. 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> 22
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 ------------------------------------
Identification Number Citizenship--If other than U.S.A.
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 your 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?
--------------------
- --------------------------------------------------------------------------------
0997
<PAGE> 23
======================================================
THE AMERICAN
HERITAGE FUND, INC.
1370 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
BOARD OF DIRECTORS
JOHN O. KOEHLER
EUGENE SARVER
HEIKO H. THIEME
INVESTMENT ADVISOR
AMERICAN HERITAGE MANAGEMENT CORPORATION
======================================================
======================================================
THE AMERICAN
HERITAGE FUND, INC.
[AMERICAN HERITAGE LOGO]
PROSPECTUS
SEPTEMBER 29, 1997
======================================================
<PAGE> 24
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 September 29, 1997. A
copy of the Fund's Prospectus may be obtained from the Fund without charge at
the address set forth above.
September 29, 1997
B-1
<PAGE> 25
TABLE OF CONTENTS
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-6
Investment Advisory and Other Services B-6
Total Return B-7
Custodian B-7
Independent Accountants B-7
Transfer Agent B-7
Financial Statements B-8
<PAGE> 26
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.
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. 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. See "Management" and "Investment
Advisory and Other
B-3
<PAGE> 27
Services."
During the fiscal year ended May 31, 1997, the Fund paid an aggregate
of approximately $465,000 in brokerage commissions. Brokerage commissions paid
by the Fund for its fiscal year ended May 31, 1997 were significantly lower than
those paid during the fiscal years ended May 31, 1995 and 1996 because of
substantial changes in the amount of the Fund's assets. During the three fiscal
years ended May 31, 1997, the Fund paid aggregate brokerage commissions to Bear,
Stearns and TSI of approximately $861,000 and $578,000, respectively. During the
fiscal year ended May 31, 1997, Bear, Stearns and TSI received approximately
$63,000 and $380,000 in brokerage commissions from the Fund, respectively, or
approximately 14% and 82% of the total brokerage commissions paid by the
Fund during such year, respectively. During the same year, approximately 23%
and 73% 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 primarily the result of relatively lower commission rates charged
on certain transactions by certain brokerage firms including Bear, Stearns.
Mr. Parker received compensation of approximately $20,000 from Bear, Stearns
in connection with brokerage commissions paid to such firm by the Fund during
the fiscal year ended May 31, 1997.
PURCHASE OF CERTAIN DEBT SECURITIES
The Fund may purchase high yield debt securities which are not
investment grade, including securities referred to as "junk bonds", if as a
result of such purchase, no more than 5% of the value of the Fund's net assets
will be represented by such securities.
An economic downturn or increase in interest rates is likely to have an
adverse effect on the high yield securities market. The widespread expansion of
government, consumer and corporate debt within the United States economy has
made the corporate sector, especially cyclically sensitive industries, more
vulnerable to economic downturns or increased interest rates. The prices of high
yield securities have been found to be less sensitive to interest rate changes
than are those of higher rated investments, but more sensitive to adverse
economic changes or individual corporate developments. During an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress which would adversely affect the ability
to service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. In periods of economic
uncertainty and change, increased volatility of market prices of high yield
securities can be expected. To the extent that there is no established retail
secondary market, there may be thin trading of high yield securities. In the
absence of readily available market quotations, the valuation of high yield
securities held by the Fund will be determined by the Fund's Board of Directors.
The fulfillment of such responsibility may become difficult and judgment will
play a greater role in valuation because there may be less reliable, objective
data available.
B-4
<PAGE> 28
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 bank as set forth in the Fund's Prospectus.
B-5
<PAGE> 29
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)
Name and Address the Fund During the Past Five Years
- ---------------- -------- --------------------
<S> <C> <C>
Heiko H. Thieme* Chairman of the Chairman of the Board
1370 Avenue of the Board of Directors, of Directors, Chief
Americas Chief Executive Executive Officer and
New York, NY Officer and Secretary of the Fund
Secretary and American Heritage
Growth Fund, Inc.
("AHGF") since February
1990 and May 1994,
respectively. Chief
Executive Officer of
AHMC and Thieme
Associates, Inc.
(investment advisor)
since 1990. Chief
executive officer of
Thieme Consulting, Inc.
and Thieme Securities, Inc.
since 1995 and 1996,
respectively. Chief
Executive Officer of
The Thieme Fonds since
May 1994.
Consultant/Strategist
for Deutsche Bank A.G.
from 1989 to 1993.
John O. Koehler Director Chief Executive Officer
One Strawberry of Koehler
Hill Avenue - 14H International, Ltd.
Stamford, CT (consultant on public
affairs, risk analysis,
communications,
planning and crisis
management)
Eugene Sarver Director Sole proprietor of Sarver
241 W. 97th St. International (financial
New York, NY and economic consulting)
and Associate of Intercap
Investments, Inc. since
October 1966. Prior
thereto, Associate
Professor of Finance of
Lubin School of Business
-- Graduate Division,
Pace University.
</TABLE>
* "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 certain companies whose securities are held by the Fund
and receives compensation therefor.
During the fiscal year ended May 31, 1997, 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
On July 21, 1997, Charles Schwab & Co. Inc., 101 Montgomery Street,
San Francisco, CA 94104 owned of record shares of the Fund's capital stock which
represented approximately 11% of the Fund's outstanding capital stock on
that date and National Financial Services, Corp., P.O. Box 3908, New York, NY
10008 owned approximately 8% of the Fund's outstanding capital stock. As of
such date, no other person owned of record or was known to the Fund to own
beneficially 5% or more of the Fund's outstanding capital stock and the Fund's
officers and directors as a group owned less than 1% of such capital stock.
INVESTMENT ADVISORY AND OTHER SERVICES
Heiko H. Thieme may be deemed to control AHMC by virtue of his record
and beneficial ownership of 90% of the outstanding capital stock thereof. Mr.
Thieme acquired such stock on February 1, 1990. Mr. Thieme is the Chairman of
the Board of Directors and the Chief Executive Officer of AHMC. 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".
B-6
<PAGE> 30
AHMC became the Fund's investment advisor on December 27, 1985. During
the Fund's fiscal years ended May 31, 1995, 1996 and 1997, AHMC received
investment advisory fees from the Fund of $824,115, $303,534 and $206,091,
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, 1997.
TOTAL RETURN
The Fund's average annual total returns for the one, five and ten year
periods ended May 31, 1997 are set forth below:
<TABLE>
<CAPTION>
<S> <C>
One Year ................... 9.21%
Five Years.................. -1.14%
Ten Years................... .22%
</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.
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.
B-7
<PAGE> 31
FINANCIAL STATEMENTS
The Fund's Annual Reports for the fiscal years ended May 31, 1996 and
1997 are hereby incorporated by reference.
B-8
