<PAGE> 1
The
American
[LOGO] Heritage
Fund, Inc.
--------------------------------------
Annual
Report
May 31, 1996
This report and the financial statements contained herein are submitted for the
general information of shareholders and are not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
Nothing herein contained is to be considered an offer of sale or solicitation of
an offer to buy shares of The American Heritage Fund, Inc. Such offering is made
only by prospectus, which includes details as to offering price and other
material information.
<PAGE> 2
The American Heritage Fund, Inc. [LOGO]
Heiko H. Thieme 1370 Avenue of the Americas
Chairman New York, N.Y. 10019
Tel: (212) 397-3900
Fax: (212) 397-4036
July 1996
To Our Valued Shareholders:
The American Heritage Fund achieved a total return of almost 21% for the fiscal
year ended May 31, 1996. Over the past two years, our portfolio has been
restructured and presently 60 stocks represent more than 90% of the portfolio
while the top 10 holdings make up almost 60%.
We do not view the market sell-off in mid-July as the end of the bull market. It
is simply a reminder that investments in equities do not guarantee a steady
return but, historically, have rewarded investors over a longer time period.
Therefore, temporary market declines generally offer better buying
opportunities.
Thank you for your confidence and support.
/s/ Heiko H. Thieme
Heiko H. Thieme
<PAGE> 3
- --------------------------------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MAY 31. 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at value (cost $35,199,572) $20,964,595
Receivable for investment securities sold 636,961
Receivable for capital stock sold 6,018
Receivable for dividends and interest 21,041
Deposits with brokers for securities sold short 1,000,959
Other assets 29,921
-----------
TOTAL ASSETS 22,659,495
-----------
LIABILITIES
Payable for investment securities purchased 983,688
Payable for capital stock reacquired 14,099
Accrued advisory fees 22,438
Accrued expenses and other payables 209,517
-----------
TOTAL LIABILITIES 1,229,742
-----------
COMMITMENTS & CONTINGENCIES
NET ASSETS
Net assets (equivalent to $.76 per share based on
28,148,091 shares of capital stock outstanding) $21,429,753
===========
Composition of net assets:
Shares of common stock 281,474
Paid in capital 68,328,377
Accumulated distributions in excess
of net investment income (1,175,397)
Accumulated net realized loss on investments (31,769,724)
Net unrealized depreciation of investments (14,234,977)
-----------
NET ASSETS, May 31, 1996 $21,429,753
===========
</TABLE>
- --------------------------------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
shares or
principal
amount Value
------------- -------------
<S> <C> <C>
COMMON STOCKS & WARRANTS - 97.18%
BANKS & FINANCE - 4.91%
Auer Von Welsbach Invest AG*# 12,000 $ 634,342
Auer Von Welsbach Invest AG Put Wts*# 1 1
Credit Depot Corp.* 9,500 26,125
Kouri Capital Group Inc. (Restricted)*+ 200 100,000
Norwest Corp. 5,000 174,375
Olympic Financial Ltd.* 5,000 118,125
-------------
1,052,968
-------------
BIOTECHNOLOGY - 23.60%
Antivirals Inc. (Restricted)*+ 151,515 250,000
Antivirals Inc. Wts (Restricted)*+ 100,000 0
Direct Therapeutics, Inc. (Restricted)*+ 160,000 48,000
Organogenesis Inc.* 5,000 111,875
Pharma Patch PLC Cl B Wts (Restricted)*#+ 18,750 0
Pharma Patch PLC Cl A Wts (Restricted)*#+ 37,500 0
Pharma Patch PLC (Restricted)*#+ 52,500 6,563
Senetek PLC Sponsored ADR*# 2,903,000 4,445,219
Synthetic Blood International Inc.
(Restricted)*+ 750,000 195,750
Synthetic Blood International Inc.
Wts (Restricted)*+ 150,000 0
-------------
5,057,407
-------------
CHEMICALS - 2.65%
Advanced Materials Group Inc.*+ 200,000 225,000
Engelhard Corp. 5,000 122,500
I M C Global Inc. 2,500 91,562
Phoenix Energy Corporation (Restricted)*+ 480,000 0
Union Carbide Corp. 3,000 129,375
-------------
568,437
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 4
- --------------------------------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
MAY 31, 1996
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
shares or
principal
amount Value
------------- -------------
<S> <C> <C>
COMMUNICATION & EQUIPMENT- 8.50%
Amnex Inc.* 38,000 125,875
American Satellite Network Inc. Wts*+ 6,775 0
C D Radio Inc.* 60,000 720,000
Fax Broadcasting Network Corps*+ 44 0
Future Communications Inc.*+ 60,000 0
Glasgal Communications Inc.* 14,000 126,000
Glasgal Communications Inc. Wts* 10,000 52,500
Millicom International Cellular SA Rights*#+ 27,100 0
Millicom International Cellular SA*# 15,000 718,125
Spectrum Information Technologies Inc.* 280,000 78,400
-------------
1,820,900
-------------
COMPUTER EQUIPMENT & SOFTWARE - 8.23%
Advanced Micro Devices Inc. 5,000 88,125
Cypress Semiconductor Corp. 15,000 206,250
Digital Equipment Corp. 5,000 260,625
Evergreen International Technology Inc.*#+ 390,700 0
Great Bear Technology Inc.*+ 300,000 206,250
Great Bear Technology Inc. Wts*+ 90,000 0
Interdigital Communications Corp.* 8,000 75,500
Management Technologies Inc.* 95,238 83,333
Management Technologies Inc. C Wts.* 419,047 0
Micron Technology, Inc. 5,500 177,375
Quantum Corp.* 24,500 584,938
Unisys Corp. 10,000 81,250
-------------
1,763,646
-------------
CONSUMER PRODUCTS - 3.45%
Alternative Distributors Corp.*+ 110,000 0
Alternative Distributors Corp. Units
(Restricted)*+ 650,000 0
Alternative Distributors Corp. Units
(Restricted)*+ 1,250,000 0
Cone Mills Corp.* 10,000 116,250
Net/Tech International Inc.*+ 100,000 287,500
Stone Container Corp. 10,000 155,000
TSS Ltd. Wts 75,000 0
Veridian Corp.*+ 605,000 181,500
-------------
740,250
-------------
ELECTRONICS & ELECTRICAL EQUIPMENT - 1.59%
Simtek Corp.*+ 100,000 19,000
Westinghouse Electric Corp. 10,000 183,750
Three-Five Systems Inc.* 10,000 137,500
-------------
340,250
-------------
ENGINEERING & HOMEBUILDERS - 1.39%
Foster Wheeler Corp. 5,000 222,500
Kaufman & Broad Home Corp. 5,000 74,375
-------------
296,875
-------------
ENTERTAINMENT & LEISURE - 2.51%
BBH Exhibits Inc. (Restricted)*+ 166,000 300,000
Gold Star International Inc. Units (Restricted)*#+ 5,000 50,000
Hasbro, Inc. 5,000 188,750
-------------
538,750
-------------
FOOD & RESTAURANTS - 1.12%
McDonalds Corp. 5,000 240,625
-------------
240,625
-------------
GOLD - 1.00%
Aurtex Inc.*+ 332,500 124,687
Exall Resources Ltd.*#+ 231,100 89,413
-------------
214,100
-------------
HEALTHCARE - 2.48%
Advent Technologies Inc. (Restricted)*+ 333,333 18,333
Columbia/HCA Healthcare Corp. 5,000 269,375
Tenet Healthcare Corp.* 5,000 107,500
Value Health Inc.* 5,000 136,250
Work Recovery Services Inc. Cl B Wts* 100,000 0
-------------
531,458
-------------
INDUSTRIAL PRODUCTS - 3.89%
American Electromedics Corp.*+ 400,000 600,000
Carpenter Technology Corp. 2,500 90,937
Consorcio G. Grupo Dina SA de CV, ADR# 25,000 56,250
Helpmate Robotics Inc. 25,000 87,500
-------------
834,687
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 5
- --------------------------------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
MAY 31, 1996
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
shares or
principal
amount Value
------------- -------------
<S> <C> <C>
MEDICAL TECHNOLOGY - 25.84%
A D M Tronics Unlimited Inc.*+ 4,230,000 1,850,625
A D M Tronics Unlimited Inc. Wts*+ 3,750,000 0
Cryo-Cell International Inc.* 25,000 131,250
Life Medical Sciences Inc.* 100,000 950,000
Life Medical Sciences Inc. Cl A Wts* 100,000 475,000
Medtrack Inc. (Restricted)*+ 300,000 200,000
P D T Inc.* 27,500 1,299,375
Quantech Ltd. - Minn*+ 596,668 596,668
Quantech Ltd. - Minn B Wts*+ 40,000 0
Quantech Ltd. - Minn (Restricted) Wts*+ 250,000 0
Sunrise Technologies International Inc.* 20,000 35,000
-------------
5,537,918
-------------
MISCELLANEOUS - .56%
Coltec Industries Inc.* 2,500 33,125
I D M Environmental Corp.* 5,000 38,125
National Child Support Inc. (Restricted)*+ 20,000 0
Repap Enterprises Corp., Inc.* 12,500 48,438
-------------
119,688
-------------
OIL GAS & MINERALS - 1.17%
Kaiser Aluminum Corp.* 5,000 63,750
Nord Resources Corp.* 10,000 60,000
X C L Ltd.* 339,000 127,125
-------------
250,875
-------------
PHARMACEUTICALS - 1.79%
Interactive Medical Technologies Ltd.*+ 380,000 68,400
Polydex Pharmaceuticals Ltd.*# 360,000 315,000
-------------
383,400
-------------
STEEL - .89%
Bethlehem Steel Corp.* 15,000 191,250
-------------
191,250
-------------
TRANSPORTATION & EQUIPMENT - 1.24%
Southern Pacific Rail Corporation* 2,500 60,938
Trans World Airlines, Inc.* 5,000 100,000
Navistar International Corp.* 10,000 103,750
-------------
264,688
-------------
UTILITIES - .36%
Niagara Mohawk Power Corp. 10,000 76,250
-------------
76,250
-------------
TOTAL COMMON STOCKS AND WARRANTS
(Cost $34,261,899) $ 20,824,422
-------------
PREFERRED STOCKS - 0.00%
Medtrack Electronics Inc. (Restricted)+
(Cost $0) 30,000 $ 0
-------------
BONDS AND NOTES - .34%
Alternative Distributors Corp. 6%
Convertible Bond, due 12/17/94
(Restricted)+ 65,000 $ 0
Alternative Distributors Corp. 6%
Promissory Notes due 11/30/94
(Restricted)+ 605,000 0
Intemational Fast Food G-Bond 9%
due 12/15/2007 150,000 22,500
Sentech EAS Corp. 8% Convertible
Notes, due 6/30/96 (Restricted)#+ 50,000 50,000
-------------
TOTAL BONDS AND NOTES
(Cost $870,000) $ 72,500
-------------
SHORT TERM INVESTMENT - .32%
Star Treasury Fund - 4.57%
(Cost $67,673) 67,673 $ 67,673
-------------
TOTAL SECURITIES (Cost $35,199,572) $ 20,964,595
=============
</TABLE>
* Non-income producing property
# Foreign security
+ Illiquid security
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 6
- --------------------------------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
STATEMENT OF OPERATIONS
For the year ended May 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest $ 232,111
Dividends 423,660
Miscellaneous 5,128
------------
TOTAL INVESTMENT INCOME 660,899
------------
EXPENSES:
Investment advisory fees 303,534
Transfer agent fees 93,968
Legal fees 217,972
Audit fees 52,000
Custodian fees 28,384
Administrative fees 255,378
Fund accounting fees 49,482
Insurance 30,193
Postage and printing expense 74,808
Registration fees and expenses 59,828
Directors' fees 21,763
Interest expense 166,613
Consulting fees 16,004
Rent 91,347
Miscellaneous 55,431
------------
TOTAL EXPENSES 1,516,705
------------
Investment loss - net (855,806)
------------
Net realized loss on securities transactions (8,172,888)
Net change in unrealized depreciation of investments 13,187,053
------------
Net gain on investments 5,014,165
------------
Net increase in net assets resulting from operations $ 4,158,359
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the years ended
May 31,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Investment income-net $ (855,806) $ 4,290,359
Net realized loss on
securitics transactions (8,172,888) (18,955,039)
Net change in unrealized
depreciation of investments 13,187,053 (13,236,305)
------------ ------------
Net increase (decrease) in net
assets resulting from operations 4,158,359 (27,900,985)
Distributions to shareholders from -
Investment income - net 0 (4,290,359)
Net realized gain on investments 0 0
Return of capital 0 (4,133,454)
Capital share transactions (13,508,175) (33,932,025)
------------ ------------
Net decrease in net assets (9,349,816) (70,256,823)
NET ASSETS:
Beginning of year 30,779,569 101,036,392
------------ ------------
End of year $ 21,429,753 $ 30,779,569
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 7
- --------------------------------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
May 31, 1996
- --------------------------------------------------------------------------------
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING
POLICIES
Organization
The American Heritage Fund, Inc. ("the Fund") is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, open-end management
investment company. The following is a summary of the significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles. Significant accounting policies of the Fund are as follows:
Security valuations
The Fund values its securities, where market quotations are readily available,
at market value based on the last recorded sales price as reported by the
principal securities exchange on which the security is traded, or if the
security is not traded on an exchange, market value is based on the latest bid
price. Foreign securities are converted to U.S. dollars using exchange rates at
the close of the trading day. Securities for which market quotations are not
readily available are valued as the Board of Directors, or a committee composed
of members of the Board of Directors, in good faith determines.
Federal income taxes
The Fund's policy is to comply with the requirements of the Internal Revenue
Code that are applicable to regulated investment companies and to distribute all
its taxable income to its shareholders. Therefore, no federal income tax
provision is required.
Distributions to shareholders
The Fund intends to distribute to shareholders substantially all of its net
investment income, and net realized and long-term capital gains, after provision
for carryover losses, if any, after the end of the fiscal year.
Option writing
When the Fund sells an option, an amount equal to the premium received by the
Fund is recorded as a liability and is subsequently adjusted to the current
market value of the option written. Premiums received from writing options which
expire unexercised are treated by the Fund on the expiration date as realized
gains from the sales of securities. The difference between the premium and the
amount paid on effecting a closing purchase transaction, including brokerage
commissions, are also treated as a realized gain, or if the premium is less than
the amount paid for the closing purchase transaction, as a realized loss. If a
call option is exercised, the premium is added to the proceeds from the sale of
the underlying security in determining whether the Fund has realized a gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities purchased by the Fund.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
Other
The Fund follows industry practice and records security transactions on the
trade date. The specific identification method is used for determining gains or
losses for financial statements and income tax purposes. Dividend income is
recorded on the ex-dividend date and interest income is recorded on an accrued
basis.
NOTE 2 INVESTMENT ADVISORY AGREEMENT AND OTHER RELATED
TRANSACTIONS
The Fund has an investment advisory agreement with American Heritage Management
Corporation (AHMC), whereby AHMC receives a fee of 1.25% of the Fund's first
$100,000,000 average net asset value and 1% of such value on any additional net
assets, computed daily and payable monthly. For the year ended May 31, 1996 AHMC
received $303,534 in investment advisory fees. Heiko H. Thieme is the fund's
Chairman of the Board of Directors and Chief Executive Officer. Heiko H. Thieme
is the Chairman of the Board of Directors and Chief Executive Officer of AHMC,
of which he owns 90% of the outstanding shares. Richard K. Parker is the Fund's
President and a Director and also owns 10% of the outstanding shares of AHMC and
is its President and a Director. In addition, Mr. Parker is a Managing Director
of Bear, Stearns & Co. Inc.
During the year ended May 31, 1996, the Fund paid brokerage commissions of
$ 200,401 to Bear, Stearns & Co. Inc. During the year ended May 31, 1996, the
Fund paid brokerage commissions of $ 197,640 to Thieme Securities, Inc. of which
Mr. Thieme is the owner. Bear Stearns & Co., Inc. and Thieme Securities, Inc.
are not otherwise associated with AHMC and are not responsible for any of the
investment advice rendered to the Fund by AHMC, Mr. Parker, or Mr. Thieme.
The Fund has agreed to reimburse AHMC for office space utilized by the Fund.
During the year ended May 31, 1996, the Fund reimbursed AHMC $91,347 for the use
of its office space.
AHMC is also reimbursed for administrative personnel utilized by the Fund. Total
reimbursement was $255.378 for the year ended May 31, 1996.
8
<PAGE> 8
- --------------------------------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
May 31, 1996
- --------------------------------------------------------------------------------
(Continued)
NOTE 3 INVESTMENTS
For the year ended May 31, 1996, purchases and sales of investment securities
other than short-term investments aggregated $147,793,080 and $ 163,747,944,
respectively. The gross unrealized appreciation for all securities totaled
$4,625,749 and the gross unrealized depreciation for all securities totaled
$18,860,726, or a net unrealized depreciation of $14,234,977. The aggregate cost
of securities for federal income tax purposes at May 31, 1996 was $ 35,199,572.
Net gain on investments for the year ended May 31, 1996 was $5,014,165. That
amount represents the net increase in value of investments held during the year.
The components are as follows:
Long transactions $ 5,302,168
Short sales transactions (247,901)
Covered call options written (40,102)
------------
$ 5.014,165
===========
Transactions for all options written during the year ended May 31, 1996, were as
follows:
<TABLE>
<CAPTION>
Number of Contracts Premiums
------------------- --------
<S> <C> <C>
Options outstanding at May 31 1995 350 $ 51,948
Options written 10 2,575
Option terminated in closing
purchase transactions (210) (45,523)
Options expired (150) (9,000)
------- -------
Options outstanding at May 31, 1996 0 $ O
======= =======
</TABLE>
NOTE 4 RESTRICTED AND OTHER ILLIQUID SECURITIES
Investments in restricted securities are valued at fair value as determined in
good faith by the Board of Directors or a committee composed of members of the
Board of Directors of the Fund.
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 cannot be
sold or disposed of in the ordinary course of business at approximately the
quoted market value of such securities, or in the absence of such quoted market
value, the price at which the Fund has valued such securities. 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.
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 at May 31, 1996 securities representing approximately 25%
of the Fund's net assets were not liquid.
9
<PAGE> 9
- --------------------------------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
May 31, 1996
- --------------------------------------------------------------------------------
(Continued)
NOTE 4 RESTRICTED AND OTHER ILLIQUID SECURITIES - CONTINUED
The Fund's restricted securities as of May 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
Number
Of Total
Acquisition shares cost of Carrying
Name of issue date held holding value
- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Advent Technologies, Inc. 4/28/93 333,333 100,000 $18,333
Altemative Distributors
Corp. Units 11/22/93 1,250,000 250,000 0
Alternative Distributors
Corp. Units 9/10/93 650,000 65,000 0
Altemative Distributors
Corp. 6% Conv. Bond 12/16/93 65,000 65,000 0
Alternative Distributors
Carp 6% Promissory Note 1/14/94 605,000 605,000 0
Antivirals Inc. 7/29/93 151,515 250,000 250,000
Antivirals Inc. - Wts 7/29/93 100,000 0 0
BBH Exhibits, Inc. 1/28/94 166,000 300,000 300,000
Direct Therapeutics Inc. 5/21/93 160,000 48,000 48,000
Gold Star Int'l. Inc. - Units 12/31/93 5,000 500,000 50,000
Koun Capital Group Inc. 7/30/93 200 4,000,000 100,000
Medtrack Inc. 2/25/94 300,000 500,000 200,000
Medtrack Inc. Pf 2/25/94 30,000 0 0
National Child Support Inc. 8/9/93 20,000 100,000 0
Pharma Patch PLC 7/14/93 52,500 210,00 6,563
Pharma Patch PLC - Cl A Wts 7/14/93 37,500 0 0
Pharma Patch PLC - Cl B Wts 7/14/93 18,750 0 0
Phoenix Energy Corp. 6/3/93 480,000 400,000 0
Quantech Ltd. - Minn Wts 7/1/93 250,000 0 0
Synthetic Blood International, Inc. 2/28/94 750,000 187,500 195,750
Synthetic Blood Intemational, Inc.
- Wts. 2/28/94 150,000 0 0
Sentech EAS Corp.
8% Conv. Notes 7/29/93 50,000 50,000 50,000
----------
TOTAL AGGREGATE CARRYING VALUE $1,218,646
==========
PERCENT OF FUND'S NET ASSETS 5.7%
</TABLE>
NOTE 5 DISTRIBUTION TO SHAREHOLDERS
On December 16, 1994 a distribution of $.1378 per share aggregating $8,423,813
was paid to shareholders of record on December 15, 1994 from net investment
income and paid in capital ($.0702 per share is treated as ordinary income and
$.0676 per share as return of capital for federal tax purposes).
At May 31, 1996, the Fund had net capital loss carryforwards of approximately
$31,690,000 expiring in 2003 and 2004 and net operating loss carryforwards of
approximately $1,175,000, which begin to expire in 1997 through 2012.
NOTE 6 REDEMPTIONS
The Fund reserves the right to make payments for shares redeemed in cash or in
kind.
NOTE 7 CAPITAL SHARE TRANSACTIONS
As of May 31, 1996 the total par value and paid in capital totaled $68,609,851.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
May 31, 1996 May 31, 1995
Shares Amount Shares Amount
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 4,827,260 $ 3,229,030 7,742,792 $ 7,736,747
Shares issued in
reinvestment of
dividends 0 0 9,309,553 7,819,954
Shares redeemed (25,649,612) (16,737,205) (52,731,137) (49,488,726)
----------- ----------- ----------- ----------
Net decrease (20,822,352)$(13,508,175) (35,678,792) $(33,932,025)
=========== =========== ========== ==========
</TABLE>
NOTE 8 BANK LOANS
The Fund has a demand secured $10,000,000 bank line of credit; borrowings under
this arrangement bear interest at the bank's prime rate. On May 31, 1996 there
was no outstanding balance. Total interest paid on the credit line during the
year ended May 31, 1996 totaled $166,613.
NOTE 9 CONTINGENCIES
On October 5, 1994, a shareholder of the Fund on behalf of himself and a
purported class of others who acquired the Fund's shares from July 1, 1993
through July 30, 1994 brought an action against the Fund, AHMC, Heiko H. Thieme
and Richard K. Parker in the United States District Court for the Southern
District of New York. Although the Fund cannot now determine the exact amount of
the losses incurred by members of the purported class, the Fund believes that
such losses do not exceed $25 million and could be less. The Fund had
approximately 27 million outstanding shares as of Juty 17, 1996. The amount of
outstanding shares of the Fund has been rapidly diminishing since early 1994.
10
<PAGE> 10
- --------------------------------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
May 31, 1996
- --------------------------------------------------------------------------------
(Continued)
NOTE 9 CONTINGENCIES - CONTINUED
The Complaint alleged that certain registration statements and prospectuses of
the Fund did not disclose certain risks involving the Fund's investments in
restricted securities and companies having small capitalizations and which lack
significant operating histories or established products and that the Fund
invests significant amounts of money in such companies based "merely" on an
interview between the company's executives and Mr. Thieme and a review of the
companies' financial statements or products. The Complaint also alleged that
certain assets of the Fund were overvalued. On September 11, 1995, the Court, in
ruling on the Fund's Motion to Dismiss, dismissed the Complaint. The Court's
Order permitted the Plaintiff to move the Court for leave to file an amended
complaint limited to claims relating to the Fund's investments in restricted and
other illiquid securities.
In October 1995, the Plaintiff moved the Court for an Order permitting the
Plaintiff to file an amended complaint. The amended complaint proposed to be
filed by the Plaintiff alleges that certain registration statements and
prospectuses of the Fund were fraudulent in that they did not disclose certain
risks regarding the Fund's investments in illiquid "small-cap stocks, risks
regarding the Fund's investments in illiquid foreign securities; that the Fund
could invest in illiquid securities in concentrations which ultimately exceeded
"SEC Guidelines" and allowed by the Fund's own investment restrictions and the
risks entailed in the Fund's "excessive" investments in illiquid securities.
The proposed amended complaint further alleges that the Fund changed investment
policies without obtaining a shareholder vote; the receipt by AHMC of
substantial compensation for investment advise constitutes a breach of
fiduciary duty and that the defendants breached the fiduciary duties of loyalty
and due care.
On July 11, 1996, the Court issued an Order permitting the Plaintiff to file an
amended complaint to allege 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
Court also permitted the plaintiff to amend the complaint to allege that the
other defendants breached their fiduciary duties in connection with the Fund's
investments in and valuation of illiquid securities and by the receipt of AHMC
of substantial compensation for investment advice and that the Fund breached its
own limitations with respect to illiquid securities and that the Fund changed
investment policies without obtaining a shareholder vote.
The Fund, after conferring with its special counsel, has continued to conclude
that the substantive allegations of the amended complaint 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 recision or compensatory damages and prejudgment
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.
The Fund has borne all expenses related to the above litigation which for the
year ended May 31, 1996 totaled $61,372.
On August 4, 1995 the Fund commenced an action against Kouri Capital Group, Inc.
("KCG") and Pentti Kouri in the Supreme Court of the State of New York, County
of New York. The action is based upon a Stock Purchase Agreement between the
Fund and KCG pursuant to which KCG agreed to repurchase certain shares issued
thereby and sold to the Fund for $4,400,000 plus interest. Such obligation of
KCG was personally guaranteed by Pentti Kouri. Neither KCG nor Mr. Kouri has
honored its or his obligation to the Fund. The Fund is seeking a recovery in the
amount of $4,400,000 plus interest. The defendants have denied the substantive
allegations of the Complaint and have asserted counterclaims which would declare
their obligations to the Fund to have been terminated and to obtain damages in
excess of $4,400,000. The Fund, after conferring with its special counsel, has
concluded that the substantive allegations of the counterclaims are without
merit. Although there can be no assurance of the outcome of the action, based
upon the Fund's belief, the Fund has not established a reserve for potential
losses other than the expense of its defense of the counterclaims.
The Fund has borne all expenses related to the above litigation which for the
year ended May 31, 1996 totaled $55,120.
NOTE 10 SUBSEQUENT EVENTS
The Fund has continued to experience significant net redemptions of its
outstanding shares subsequent to May 31, 1996. The total of net redemptions from
June 1, 1996 to July 18, 1996 was approximately, $732,000.
The Fund believes that at July 12, 1996 securities representing approximately
25% of the Fund's net asset of approximately $17,178,000 were not liquid.
11
<PAGE> 11
- --------------------------------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
FINANCIAL HIGHLIGHTS AND RELATED
RATIOS/SUPPLEMENTAL DATA
For a share outstanding throughout
each fiscal year ending May 31st
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, begining of year $ .63 $1.19 $1.42 $1.15 $1.12
Income from investment operations
Net investment income (loss) (.02) .06 .19 (.01) 1.07
Net gains or losses) on securities
(both realized and unrealized) .15 (.48) (.35) .36 (.66)
----- ---- ---- ---- -----
Total from investment operations .13 (.42) (.16) .35 .41
Less distributions
Dividends (from net investment income) -- .07 -- .08 .16
Distributions (from capital gains) -- -- .07 -- .22
Return of capital distribution -- .07 -- -- --
----- ----- ----- ----- -----
Net asset value, end of year $ .76 $ .63 $1.19 $1.42 $1.15
===== ===== ===== ===== =====
Total return 20.63% (38.37)% (12.49)% 32.89% 42.49%
Net assets, end of year $21,429,753 $30,779,569 $101,036,392 $69,498,156 $26,543,132
Ratio of expenses to average net assets 6.25% 3.69% 2.41% 2.1% 2.2%
Ratio of net income (loss)
to average net assets (3.53)% 6.55% 3.40% (.46)% 21.50%
Portfolio turnover rate 606% 620% 434% 278% 776%
Average commission per share $ .0866 N/A N/A N/A N/A
</TABLE>
N/A - Disclosure not applicable to prior periods.
The accompanying notes are an integral part of these financial statements
12
<PAGE> 12
Landsburg Platt Raschiatore & Dalton
Certified Public Accountants
117 South 17th Street 13th Floor Phildelphia, PA 19103
215-561-6633 FAX 215-561-2070
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
The American Heritage Fund, Inc.
We have audited the accompanying statement of assets and liabilities of The
American Heritage Fund, Inc., including the schedule of investments in
securities, as of May 31, 1996, the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights and related
ratios/supplemental data for each of the five years in the period then ended.
These financial statements, and financial highlights and related
ratios/supplemental data are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements, and the
financial highlights and related ratios/supplemental data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights and related ratios/supplemental data are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of May 31, 1996, by correspondence
with the custodian and brokers and the application of alternative auditing
procedures for unsettled security transactions. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights and
related ratios/supplemental data referred to above present fairly, in all
material respects, the financial position of The American Heritage Fund, Inc. as
of May 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights and related ratios/supplemental data for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
As explained in Note 4, the financial statements include securities valued at
$1,218,646 (5.7% of net assets), whose values have been estimated by the Board
of Directors in the absence of readily ascertainable market values. We have
reviewed the procedures used by the Board of Directors in arriving at its
estimate of value of such securities and have inspected underlying
documentation, and, in the circumstances, we believe the procedures are
reasonable and the documentation appropriate. However, because of the inherent
uncertainty of valuation, those estimated values 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.
/s/ Landsburg Platt Raschiatore & Dalton
JULY 18, 1996
