<PAGE> 1
The American Heritage Fund, Inc. (LOGO)
Heiko H. Thieme
Chairman 1370 Avenue of the Americas
New York, N.Y. 10019
Tel: (212) 397-3900
Fax: (212) 397-4036
January 1997
To Our Valued Shareholders:
January has already proven to be an impressive month for the stock market,
suggesting another powerful year. At the same time, the volatility seen
indicates that whatever direction the market will ultimately take, it won't be
smooth sailing. The direction of interest rates is crucial. If yields on 30-year
Treasuries exceed the 7% level, I believe it will be highly unlikely if not
impossible that the Dow Jones index can surpass the 7000-mark. However, as long
as economic growth remains at a moderate pace of around 2.5% and the inflation
rate under 3%, my forecast should hold true that 1997 may indeed make
stock-market history whereby stock selection is key.
Our preference for The American Heritage Fund includes small and relatively
unknown companies. While this strategy hurt us over the last 3 years, hopefully
our patience will be rewarded. If January is any indication, 1997 should be a
good one for us. The American Heritage Fund has been one of the best performing
funds so far this year. However, as one swallow does not make a summer, one
month does not make a year. Having been humbled for three years, we look forward
to a more promising future. Being a shareholder as well as the portfolio
manager, I am excited about the prospects. Thank you for your continuing trust.
With kind regards.
/s/ Heiko H. Thieme
<PAGE> 2
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
(Unaudited)
- ---------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at
value (cost $31,203,104)........ $ 12,502,627
Receivable for investment
securities sold................. 285,835
Receivable for dividends and
interest........................ 7,461
Deposits with brokers for
securities sold short........... 950,002
Other assets...................... 28,394
------------
TOTAL ASSETS.................... $ 13,774,319
------------
LIABILITIES
Payable for investment securities
purchased....................... $ 312,438
Payable for capital stock
reacquired...................... 54,149
Accrued advisory fees............. 14,450
Accrued expenses and other
payables........................ 145,094
------------
TOTAL LIABILITIES............... $ 526,131
------------
Commitments & Contingencies
NET ASSETS
Net assets (equivalent to $.56 per
share based on 23,522,787 shares
of capital stock outstanding)... $ 13,248,188
============
Composition of net assets:
Shares of common stock............ $ 235,221
Paid in capital................... 64,318,524
Accumulated net investment loss... (390,240)
Accumulated net realized loss on
investments..................... (32,214,840)
Net unrealized depreciation of
investments..................... (18,700,477)
------------
NET ASSETS, November 30, 1996..... $ 13,248,188
============
</TABLE>
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1996
(Unaudited)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
- ------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 93.75%
BANKS & FINANCE - 5.88%
Auer Von Welsbach Invest
AG*(+) 10,000 $ 579,975
Auer Von Welsbach Invest AG
Put Wts*(+) 1 1
Credit Depot Corp* 9,500 29,688
Kouri Capital Group Inc.
(Restricted)*+ 200,000 100,000
Olympic Financial Ltd.* 5,000 69,375
-----------
779,039
-----------
BIOTECHNOLOGY - 32.53%
Antivirals Inc. (Restricted)*+ 151,515 250,000
Antivirals Inc. Wts
(Restricted)*+ 100,000 0
Direct Therapeutics Inc.
(Restricted)*+ 160,000 48,000
Pharma Patch PLC CLA Wts
(Restricted)*(+)+ 37,500 0
Pharma Patch PLC CLB Wts
(Restricted)*(+)+ 18,750 0
Pharma Patch PLC
(Restricted)*(+)+ 52,500 6,563
Senetek PLC Sponsored ADR*(+) 2,903,000 3,810,188
Synthetic Blood International
Inc. (Restricted)*+ 750,000 195,750
Synthetic Blood International
Inc. Wts (Restricted)*+ 150,000 0
-----------
4,310,501
-----------
CHEMICALS - 3.40%
Advanced Materials Group
Inc.*+ 200,000 450,000
Phoenix Energy Corporation
(Restricted)*+ 480,000 0
-----------
450,000
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1996
(Unaudited)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
- ------------------------------------------------------
<S> <C> <C>
COMMUNICATION & EQUIPMENT - 3.03%
American Satellite Network
Inc. Wts*+ 6,775 $ 0
C D Radio Inc.* 40,000 140,000
FAX Broadcasting Network
Corp*+ 44 0
Future Communications Inc.*+ 60,000 0
General Instrument Corp.* 10,000 221,250
Millicom International
Cellular S A Rights*(+)+ 27,100 0
Newreach Communications Inc.
(Restricted)*+ 3,333 17,500
Spectrum Information
Technologies Inc.* 255,000 22,950
-----------
401,700
-----------
COMPUTER EQUIPMENT & SOFTWARE - 7.13%
Cypress Semiconductor Corp. 20,000 245,000
Evergreen International
Technology Inc.*(+)+ 390,700 63,822
Great Bear Technology Inc.
Wts*+ 90,000 0
Interdigital Communications
Corp.* 10,000 72,500
Iomega Corp.* 7,500 169,688
Management Technologies Inc.* 95,238 5,952
Management Technologies Inc. C
Wts* 419,047 0
Quantum Corp.* 14,500 387,875
-----------
944,837
-----------
</TABLE>
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1996
(Unaudited)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
- ------------------------------------------------------
<S> <C> <C>
CONSUMER PRODUCTS - 3.52%
Alternative Distributors
Corp.*+ 110,000 $ 0
Alternative Distributors Corp.
Units (Restricted)*+ 650,000 0
Alternative Distributors Corp.
Units (Restricted)*+ 1,250,000 0
K Mart Corp.* 5,000 55,625
Net/Tech International Inc.*+ 92,500 213,906
Oakley Inc.* 1,500 20,813
Tag Heuer International SA
Sponsored ADR* 1,500 21,000
TSS Ltd. Wts* 75,000 0
Veridian Corp.*+ 517,500 155,250
-----------
466,594
-----------
ELECTRONICS & ELECTRICAL EQUIPMENT - 4.31%
International Rectifier Corp.* 10,000 153,750
LSI Logic Corp.* 7,500 225,938
Simtek Corp.*+ 100,000 24,000
Three-Five Systems Inc.* 13,800 167,325
-----------
571,013
-----------
ENTERTAINMENT & LEISURE - 3.85%
B B H Exhibits Inc.
(Restricted)*+ 166,000 300,000
Gold Star International Inc.
Units (Restricted)*(+)+ 5,000 50,000
Graphix Zone Inc.* 43,998 159,493
-----------
509,493
-----------
GOLD - 1.60%
Echo Bay Mines Ltd.(+) 5,000 30,938
Exall Resources Ltd.*(+)+ 231,100 97,809
Sector Communications Inc.* 126,594 83,077
-----------
211,824
-----------
HEALTHCARE - 0.00%
Work Recovery Services Inc CL
B Wts* 100,000 0
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1996
(Unaudited)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
- ------------------------------------------------------
<S> <C> <C>
INDUSTRIAL PRODUCTS - 1.72%
American Electromedics Corp*+ 80,000 $ 180,000
Helpmate Robotics Inc.* 15,000 11,250
Mark Solutions Inc.* 20,000 36,250
-----------
227,500
-----------
MEDICAL TECHNOLOGY - 18.28%
A D M Tronics Unlimited
Inc.*+ 4,230,000 660,938
A D M Tronics Unlimited Inc.
Wts*+ 3,750,000 0
Life Medical Sciences Inc.* 74,500 409,750
Life Medical Sciences Inc. CL
A Wts* 87,000 168,563
Medtrak Inc. (Restricted)*+ 300,000 200,001
P D T Inc.* 27,500 804,375
Quantech Ltd.-Minn*+ 270,000 168,750
Quantech Ltd.-Minn Wts
(Restricted)*+ 250,000 0
Substance Abuse Technologies
Inc.* 5,000 9,371
-----------
2,421,748
-----------
MISCELLANEOUS - 0.47%
National Child Support Inc.
(Restricted)*+ 20,000 0
Sentech EAS Common* 40,334 61,682
-----------
61,682
-----------
OIL, GAS AND MINERALS - 1.44%
Kaiser Aluminum Corp.* 6,000 63,750
Nord Resources Corp.* 10,000 42,500
X C L Ltd.* 339,000 84,750
-----------
191,000
-----------
PHARMACEUTICALS - 4.08%
Interactive Medical
Technologies Ltd.*+ 380,000 45,600
Polydex Pharmaceuticals
Ltd.*(+) 360,000 315,000
US Bioscience Inc.* 15,000 180,000
-----------
540,600
-----------
</TABLE>
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1996
(Unaudited)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
- ------------------------------------------------------
<S> <C> <C>
RETAILERS - 0.68%
Limited Inc. 5,000 $ 90,000
-----------
STEEL - 0.51%
Bethlehem Steel Corp.* 7,500 67,500
-----------
TRANSPORTATION AND EQUIPMENT - 1.32%
American West Airlines Inc.* 4,000 58,500
Trans World Airlines Inc.* 15,000 116,250
-----------
174,750
-----------
TOTAL COMMON STOCKS
(Cost $30,322,758) $12,419,781
-----------
PREFERRED STOCKS - 0.00%
Medtrak Electronics Inc.
(Restricted)+ (Cost $0) 30,000 $ 0
-----------
<CAPTION>
Principal
Amount Value
<S> <C> <C>
BONDS AND NOTES - 0.17%
Alternative Dist. Corp. 6%
Convertible Bond, due
12/17/94 (Restricted)+ 65,000 0
Alternative Dist. Corp. 6%
Promissory Notes, due
11/30/94 (Restricted)+ 605,000 0
International Fast Food G-Bond
9%, due 12/15/2007 150,000 22,500
-----------
TOTAL BONDS AND NOTES (Cost $820,000)
$ 22,500
-----------
SHORT TERM INVESTMENTS - 0.46%
Star Treasury Fund - 4.97%
(Cost $60,346) 60,346 $ 60,346
-----------
TOTAL SECURITIES (Cost
$31,203,104) $12,502,627
===========
* Non-income producing
(+) Foreign security
+ Illiquid security
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1996
(Unaudited)
- ---------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.......................... $ 32,691
Dividends......................... 101,077
-----------
TOTAL INVESTMENT INCOME........... 133,768
-----------
EXPENSES:
Investment advisory fees.......... 103,780
Transfer agent fees............... 39,091
Legal fees........................ 45,908
Audit fees........................ 39,089
Administrative fees............... 94,621
Custodian fees.................... 15,842
Fund accounting fees.............. 24,742
Insurance......................... 15,910
Postage and printing expenses..... 42,335
Registration fees and expenses.... 12,690
Directors' fees................... 10,000
Interest expense.................. 19,031
Consulting fees................... 4,360
Rent.............................. 43,647
Telephone......................... 8,772
Miscellaneous..................... 4,190
-----------
TOTAL EXPENSES.................... 524,008
-----------
Investment loss -- net............ (390,240)
-----------
Net realized loss on securities
transactions.................... (445,116)
Net change in unrealized
depreciation of investments..... (4,465,500)
-----------
Net loss on investments........... (4,910,616)
-----------
Net decrease in net assets
resulting from operations....... $(5,300,856)
===========
</TABLE>
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE
NOVEMBER 30. 1996 YEAR ENDED
(UNAUDITED) MAY 31, 1996
----------------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Investment income
(loss) -- net.......... $ (390,240) $ (855,806)
Net realized loss on
securities
transactions........... (445,116) (8,172,888)
Net change in unrealized
depreciation of
investments............ (4,465,500) 13,187,053
----------- -----------
Net increase/(decrease)
in net assets resulting
from operations........ (5,300,856) 4,158,359
Distribution to shareholders from:
Investment income -- net... 0 0
Net realized gain on
investments.......... 0 0
Return of capital...... 0 0
Capital share
transactions........... (2,880,709) (13,508,175)
----------- -----------
Net decrease in net
assets............... (8,181,565) (9,349,816)
NET ASSETS:
Beginning of period...... 21,429,753 30,779,569
----------- -----------
End of period............ $13,248,188 $ 21,429,753
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1996
(Unaudited)
- ---------------------------------------------------------
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.
6
<PAGE> 7
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1996
(Continued) - (Unaudited)
- ---------------------------------------------------------
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 six months ended November
30, 1996 AHMC received $103,780 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 six months ended November 30, 1996, the Fund paid brokerage
commissions of $39,831 to Bear, Stearns & Co. Inc. During the six months ended
November 30, 1996, the Fund paid brokerage commissions of $194,084 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 six months ended November 30, 1996 the Fund reimbursed AHMC $43,647
for the use of its office space.
AHMC is also reimbursed for administrative personnel utilized by the Fund. Total
reimbursement was $94,621 for the six months ended November 30, 1996.
NOTE 3. INVESTMENTS
For the six months ended November 30, 1996, purchases and sales of investment
securities other than short-term investments aggregated $36,552,973 and
$40,108,679, respectively. The gross unrealized appreciation for all securities
totaled $853,066 and the gross unrealized depreciation for all securities
totaled $19,553,543 or a net unrealized depreciation of $18,700,477. The
aggregate cost of securities for federal income tax purposes at November 30,
1996 was $31,242,876.
Net loss on investments for the six months ended November 30, 1996 was $445,116.
That amount represents the net decrease in value of investments held during the
period. The components are as follows:
<TABLE>
<S> <C>
Long transactions $(400,338)
Short sale transactions (44,778)
---------
$(445,116)
=========
</TABLE>
There were no option transactions during the six months ended November 30, 1996.
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
7
<PAGE> 8
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1996
(Continued) - (Unaudited)
- ---------------------------------------------------------
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 November 30, 1996 securities representing
approximately 23% of the Fund's net assets were not liquid.
The Fund's restricted securities as of November 30, 1996 consisted of the
following:
<TABLE>
<CAPTION>
ACQUISITION NUMBER OF TOTAL COST OF CARRYING
NAME OF ISSUE DATE SHARES HELD HOLDINGS VALUE
- ---------------------- --- -------- ------ ---
<S> <C> <C> <C> <C>
Alternative
Distributors Corp.
Units 11/22/93 1,250,000 250,000 $ 0
Alternative
Distributors Corp.
Units 9/10/93 650,000 65,000 0
Alternative
Distributors Corp. 6%
Conv. Bond 12/16/93 65,000 65,000 0
Alternative
Distributors Corp. 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. 5/12/93 160,000 48,000 48,000
Gold Star Int'l Inc. -
Units 12/31/93 5,000 500,000 50,000
Kouri Capital Group
Inc. 7/30/93 200 4,000,000 100,000
Medtrak Inc. 2/25/94 300,000 500,000 200,000
Medtrak Inc. Pf. 2/25/94 30,000 0 0
National Child Support
Inc. 6/09/93 20,000 100,000 0
Newreach
Communications Inc 4/28/93 3,333 100,000 17,500
Pharma Patch PLC 7/14/93 52,500 210,000 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. 6/03/93 480,000 400,000 0
Quantech Ltd. - Minn
Wts 7/01/93 250,000 0 125,000
Synthetic Blood
International, Inc. 2/28/94 750,000 187,500 195,750
Synthetic Blood
International, Inc. -
Wts 2/28/94 150,000 0 0
----------
TOTAL AGGREGATE CARRYING VALUE $1,292,813
==========
PERCENT OF FUND'S NET ASSETS 9.8%
</TABLE>
8
<PAGE> 9
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1996
(Continued) - (Unaudited)
- ---------------------------------------------------------
NOTE 5. CAPITAL SHARE TRANSACTIONS
As of November 30, 1996, the total par value and paid in capital totaled
$64,553,745.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FISCAL YEAR ENDED
ENDED NOVEMBER 30, 1996 MAY 31, 1996
------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 420,628 $ 255,030 4,786,024 $ 3,229,030
Shares issued
in
reinvestment
of dividends 0 0 0 0
Shares redeemed (5,045,932) (3,135,739) (25,649,612) (16,737,205)
---------- ----------- ------------ -------------
Net decrease (4,625,304) $(2,880,709) (20,863,588) $(13,508,175)
========== =========== ============ =============
</TABLE>
NOTE 6. 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 November 30, 1996,
there was no outstanding balance. Total interest paid on the credit line during
the six months ended November 30, 1996 totaled $19,031.
NOTE 7. 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 21.6 million outstanding shares as of January 14, 1997. The amount
of outstanding shares of the Fund has been rapidly diminishing since early 1994.
The Complaint alleged that certain registration statements and prospectuses of
the Fund did not disclose certain risks involving the Fund's investments in
restricted securities and companies having small capitalizations and which
lack significant operating histories or established products and that the Fund
invests significant amounts of money in such companies based "merely" on an
interview between the company's executives and Mr. Thieme and a review of the
companies' financial statements or products. The Complaint also alleged that
certain assets of the Fund were overvalued. On September 11, 1995, the Court, in
ruling on the Fund's Motion to Dismiss, dismissed the Complaint. The Court's
Order permitted the Plaintiff to move the Court for leave to file an amended
complaint limited to claims relating to the Fund's investments in restricted and
other illiquid securities.
On July 11, 1996, the Court issued an Order permitting the Plaintiff to file an
amended complaint. The amended complaint alleges that certain registration
statements and prospectuses of the Fund failed to disclose certain risks
regarding the Fund's investments in illiquid securities and that the Fund
invested in illiquid securities in concentrations which exceeded the Fund's own
investment restrictions and that the Fund improperly valued its illiquid
securities. The amended complaint also alleges that the other defendants
breached their fiduciary duties in connection with the Fund's investments in and
valuation of illiquid securities and by the receipt of AHMC of substantial
compensation for investment advice and that the Fund breached its own
limitations with respect to illiquid securities and that the Fund changed
investment policies without obtaining a shareholder vote.
The Fund, after conferring with its special counsel, has 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 pre-judgment
interest thereon and the costs
9
<PAGE> 10
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1996
(Continued) - (Unaudited)
- ---------------------------------------------------------
and expense of the litigation and such other and further relief as the Court may
deem just and proper. The Fund's officers and directors are entitled to be
indemnified by the Fund to the full extent permitted by law.
On August 4, 1995 the Fund commenced an action against Kouri Capital Group, Inc.
("KCG") and Pentti Kouri in the Supreme Court of the State of New York, County
of New York. The action is based upon a Stock Purchase Agreement between the
Fund and KCG pursuant to which KCG agreed to repurchase certain shares issued
thereby and sold to the Fund for $4,400,000 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 at
November 30, 1996 totaled $194,237.
NOTE 8. OTHER
At November 30, 1996, the Fund had net capital loss carryforward 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 9. SUBSEQUENT EVENTS
The Fund has continued to experience significant net redemptions of its
outstanding shares subsequent to November 30, 1996. The total of net redemptions
from December 1, 1996 to January 20, 1997 was approximately $1,086,000.
10
<PAGE> 11
- --------------------------------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
FINANCIAL HIGHLIGHTS AND RELATED RATIOS/SUPPLEMENTAL DATA
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL YEARS ENDED MAY 31,
NOVEMBER 30, 1996 --------------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
----------------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ .76 $ .63 $ 1.19 $ 1.42 $ 1.15 $ 1.12
Income from investment
operations:
Net investment income
(loss).................... (.01) (.02) .06 .19 (.01) 1.07
Net gains or (losses) on
securities (both realized
and unrealized)........... (.19) .15 (.48) (.35) .36 (.66)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations.............. (.20) .13 (.42) (.16) .35 .41
Less distributions:
Dividends (from net
investment income)........ -- -- .07 -- .08 .16
Distributions (from capital
gains).................... -- -- -- .07 -- .22
Tax return of capital
distribution.............. -- -- .07 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of
period.................. $ .56 $ .76 $ .63 $ 1.19 $ 1.42 $ 1.15
=========== =========== =========== =========== =========== ===========
Total return.............. (45.62)%* 20.63% (38.37)% (12.49)% 32.89% 42.49%
Net assets, end of period... $13,248,188 $21,429,753 $30,779,569 $101,036,392 $69,498,156 $26,543,132
Ratio of expenses to average
net assets................ 6.33%* 6.25% 3.69% 2.41% 2.1% 2.2%
Ratio of net income (loss)
to average net assets..... (4.71)%* (3.53)% 6.55% 3.40% (.46)% 21.50%
Portfolio turnover rate..... 229% 606% 620% 434% 278% 776%
Average commission per
share..................... $ .0911 .0866 N/A N/A N/A N/A
</TABLE>
* Annualized
N/A - Disclosure not applicable to prior periods
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 12
LOGO
THE
AMERICAN
HERITAGE
FUND, INC.
- -------------------------------------------------------------------
SEMI-ANNUAL
REPORT
November 30, 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> 13
THE AMERICAN HERITAGE FUND, INC.
1370 Avenue of the Americas
New York, NY 10019
ADDRESS CORRECTION REQUESTED
