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497 (e)
File No. 33-75874
AMERICAN HERITAGE GROWTH 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 May 31, 1996.
A copy of the Fund's Prospectus may be obtained from the Fund without charge at
the address set forth above.
May 31, 1996, as supplemented on August 8, 1996
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TABLE OF CONTENTS
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Brokerage Allocation and Other Practices B-3
Purchase of Certain Debt Securities B-4
Investment Restrictions B-4
Management B-6
Control Persons and Principal Holders of Securities B-7
Investment Advisory and Other Services B-7
Total Return B-8
Custodian B-8
Independent Accountants B-8
Transfer Agent B-8
Financial Statements B-8
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BROKERAGE ALLOCATIONS AND OTHER PRACTICES
American Heritage Management Corporation ("AHMC") places orders with
brokers and dealers for the purchase and sale of securities for the Fund's
portfolio. In performing this service, AHMC is required to place orders with
the primary objective of obtaining the most favorable price and a reasonable
execution for the Fund. Normally, over-the-counter transactions will be
executed on a principal basis with a broker-dealer who makes a market in or is
otherwise a traditional source of the security traded except in those cases in
which the Fund can obtain a better price or execution on an agency basis.
Transactions executed on an agency basis involve the payment of a brokerage
commission.
In selecting brokers and dealers to execute the Fund's portfolio
transactions, AHMC may consider research, statistical and quotation services
received by the Fund or AHMC from such other brokers. If such information is
received and if it is, in fact, useful to AHMC, the information may tend to
reduce its costs of providing investment advice to the Fund.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)
permits an investment advisor, under certain circumstances, to cause an account
to pay a broker or dealer which supplies brokerage and research services a
commission for effecting a securities transaction in excess of the amount of
the commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services include (a) furnishing advice as
to the value of securities and the availability of securities or purchasers or
sellers of securities, (b) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts, and (c) effecting securities transactions and
performing functions incidental thereto, such as clearance, settlement and
custody.
AHMC may cause the Fund to incur brokerage commissions in an amount
higher than the lowest available rate in return for such services. Research
services so received by AHMC may be used by AHMC for the benefit of the Fund or
any other client of 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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It is anticipated that a substantial portion of the Fund's portfolio
transactions will be allocated to Bear, Stearns & Co. Inc. ("Bear Stearns") and
Thieme Securities, Inc. ("TSI"). Richard K. Parker is a Managing Director of
Bear Stearns. Heiko H. Thieme is the Chief Executive Officer and sole
shareholder of TSI. 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 Mr. Parker or Mr. Thieme personally or AHMC. See "Management" in the
Fund's Prospectus
During the fiscal year ended January 31, 1996, the Fund paid an
aggregate of approximately $228,000 in brokerage commissions of which
approximately $142,000 was paid to Bear Stearns which represented approximately
62% of the total brokerage commissions paid by the Fund during such year.
During the same year, approximately 49% of the Fund's aggregate dollar
transactions involving the payment of brokerage commissions were effected
through Bear Stearns. The difference in the percentage of brokerage commissions
paid to and the percentage of the dollar amount of transactions effected
through Bear Stearns is primarily a result of lower commission rates negotiated
by the Fund on certain high volume short term trades executed by another
brokerage firm. Richard K. Parker received compensation of approximately
$47,000 from Bear Stearns in connection with brokerage commissions paid to it
by the Fund during the fiscal year ended January 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 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
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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 other than real estate limited
partnerships.
(6) Make short sales;
(7) Underwrite securities issued by others; or
(8) Issue bonds or other class of securities preferred over shares of
the Fund in respect to the Fund's assets or earnings, except that the Fund may
establish additional series of shares;
The following investment limitations are not fundamental and may be
changed without shareholder approval:
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(1) The Fund may not purchase warrants.
(2) The Fund will not purchase securities of other investment
companies unless purchased without the payment of any fee or charge other than
regular brokerage commissions. Included as part of the foregoing restriction,
the Fund will not purchase securities of any other open-end investment company
other than for the purpose of seeking a return on the Fund's uninvested cash
balance.
(3) The Fund will not purchase securities (other than securities
issued or guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result of such purchase, more than 5% of the
value of the Fund's total assets would be represented by issuers that,
including predecessors, have then been in continuous operation for less than
three years.
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.
Positions Held With Principal Occupation(s)
Name and Address the Fund During the Past Five Years
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Heiko H. Thieme* Chairman of the Board of Chairman of the Board of Directors,
1370 Avenue of the Americas Directors, Chief Executive Chief Executive Officer and Secretary
New York, NY Officer and Secretary of the Fund and The American Heritage
Fund, Inc. ("AHF") 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 Securities, Inc. and Thieme
Consulting, Inc. since 1996 and 1995,
respectively. Chief Executive Officer
of The Thieme Fonds since May 1994.
Consultant/Strategist for
Deutsche Bank A.G. from 1989 until
December 1993. Prior thereto,
Executive Vice President of Deutsche
Bank Capital Corp.
Richard K. Parker* President, Treasurer and President and Treasurer of the Fund
245 Park Avenue Director since May 1994 and of AHF and AHMC
New York, NY since February 1990. A Managing
Director and Registered Representative
of Bear, Stearns & Co. Inc.
John Gilbert Director Member of Parliament of the United
7 Redfield Lane London, Kingdom. Chairman of John Gilbert &
England Associates (a political and economic
consultancy).
Eugene Sarver Director Associate Professor of Finance of
241 W. 97th St. Lubin School of Business - Graduate
New York, NY Division, Pace University.
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* An "Interested person" as defined in the Investment Company Act of 1940.
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Each of the foregoing has held his respective positions with the Fund since
February 1994 and is a member of the Board of Directors of AHF.
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 January 31, 1996, no cash compensation
was paid by the Fund to its executive officers or Directors.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On May 10, 1996, Richard K. Parker owned of record and beneficially
269,965 shares of the Fund's capital stock which represented approximately 10%
of the Fund's outstanding shares on that date. In addition, on such date Mr.
Parker was the record owner of 168,345 such shares as custodian for his
children and Mr. Parker's spouse owned of record and beneficially 24,543 such
shares which represented approximately 6% and 1% of the Fund's outstanding
shares on such date, respectively. Furthermore, on such date, Mr. Parker was
the executor of an estate owning 41,873 such shares of which Mr. Parker's
spouse has a 20% interest. Mr. Parker disclaims any beneficial interest in any
shares not held by him of record. No other person owned of record or is known
by the Fund to have owned beneficially more than 5% of the shares of the Fund's
outstanding capital stock on May 10, 1996.
INVESTMENT ADVISORY AND OTHER SERVICES
Heiko H. Thieme may be deemed to control AHMC by virtue of his record
and beneficial ownership of 90% of the outstanding capital stock thereof. Mr.
Thieme acquired such stock on February 1, 1990. Mr. Thieme is the Chairman of
the Board of Directors and the Chief Executive Officer of AHMC and Richard K.
Parker is the President and a member of the Board of Directors of AHMC. Mr.
Parker is the record and beneficial owner of 10% of the outstanding capital
stock of AHMC. See "Management".
AHMC became the Fund's investment advisor on May 25, 1994. In
connection with the Investment Advisory Agreement with AHMC, AHMC bears the
expenses of the Fund's trading operations. Except as set forth below, all
other expenses are borne by the Fund.
During the fiscal years ended January 31, 1995 and January 31, 1996,
the Fund incurred investment advisory fees to AHMC of $15,189 and $59,258,
respectively. Such fees were not paid, however, pursuant to the agreement by
AHMC to decrease the investment advisory fee or, if necessary, to reimburse the
Fund if and to the extent that the Fund's aggregate annual operating expenses
exceed specified percentages of the Fund's net assets as described in the
Fund's Prospectus. In addition, AHMC reimbursed the Fund $7,270 and $3,278,
for the respective fiscal years ended January 31, 1995 and 1996 in connection
with such agreement.
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During the Fund's fiscal year ended January 31, 1996, AHMC provided
office space and administrative personnel utilized by the Fund for which it
will not be reimbursed. AHMC is under no obligation to provide offices space or
personnel in the future without reimbursement.
TOTAL RETURN
The Fund's average annual total return from May 25, 1994 until January
31, 1996 and for the fiscal year ended January 31, 1996 was approximately
30.47% and 29.48%, respectively. 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 is the Fund's
Custodian. In such capacity, the Custodian maintains custody of the Fund's
cash and securities.
INDEPENDENT ACCOUNTANTS
Landsburg Platt Raschiatore & Dalton are the Fund's independent
certified public accountants. The financial statements included herein have
been examined by such firm to the extent set forth in their report.
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 Report for the fiscal years ended January 31, 1995
and 1996 are being furnished with this Statement of Additional Information and
is hereby incorporated by reference.
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