<PAGE> 1
THE AMERICAN HERITAGE FUND, INC.
[THE AMERICAN HERITAGE FUND LOGO]
1370 Avenue of the Americas
New York, N.Y. 10019
Tel: (212) 397-3900
Fax: (212) 397-4036
July 1997
To Our Valued Shareholders:
I am happy to report that The American Heritage Fund was the best
performing fund, on a total return basis, among all mutual funds in the
United States during the first six months of this year. While past
performance is no guarantee for future results, we will continue to do our
best to keep the momentum going.
The Fund is very focused. Only ten holdings presently make up 80% of the
portfolio. One investment represents more than half of the entire
portfolio. While such a concentrated asset allocation may change
periodically and depends on the performance of individual stocks,
volatility in the Fund's net asset value should not come as a surprise.
This is not a fund for investors faint of heart and those who are not
willing to take above-average risks.
The second half of this year will be shaped by volatility as well as
opportunity. The U.S. equity market is experiencing a bull market which is
unique in duration and altitude. While every good thing will eventually
come to an end, we do not think that the coming six months will present
risk without reward. Being the portfolio manager as well as a shareholder
of the Fund, I am willing to meet the challenges head on.
With kind regards.
Heiko Thieme
Chairman
<PAGE> 2
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
- ---------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at
value (cost $30,628,657)........ $ 17,507,408
Receivable for investment
securities sold................. 4,028,020
Receivable for capital stock
sold............................ 12,763
Receivable for dividends and
interest........................ 61,542
Receivable for legal fees......... 60,000
Other assets...................... 19,302
------------
TOTAL ASSETS.................... 21,689,035
------------
LIABILITIES
Payable for investment securities
purchased....................... 2,344,235
Demand loan payable to bank....... 1,004,334
Payable for capital stock
reacquired...................... 13,607
Accrued advisory fees............. 18,739
Accrued expenses and other
payables........................ 181,529
------------
TOTAL LIABILITIES............... 3,562,444
------------
Commitments & Contingencies --
NET ASSETS
Net assets (equivalent to $.83 per
share based on 21,875,043 shares
of capital stock outstanding)... $ 18,126,591
============
Composition of net assets:
Shares of capital stock........... 218,741
Paid in capital................... 64,790,498
Accumulated distributions in
excess of net investment
income.......................... (1,994,642)
Accumulated net realized loss on
investments..................... (31,766,757)
Net unrealized depreciation of
investments..................... (13,121,249)
------------
NET ASSETS, May 31, 1997..... $ 18,126,591
============
</TABLE>
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
MAY 31, 1997
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
- ------------------------------------------------------
COMMON STOCKS & WARRANTS - 96.46%
<S> <C> <C>
BANKS & FINANCE - 3.62%
Auer Von Welsbach Invest.
AG*(+) 6,500 $ 386,072
Dime Bancorp Inc. 10,000 170,000
Kouri Capital Group Inc.*+ 200 100,000
-----------
656,072
-----------
BIOTECHNOLOGY - 53.81%
Antivirals Inc.*+ 50,505 250,000
Direct Therapeutics, Inc.*+ 160,000 48,000
Pharma Patch PLC Cl A Wts*(+)+ 37,500 0
Pharma Patch PLC Cl B Wts*(+)+ 18,750 0
Pharma Patch PLC*(+)+ 52,500 6,563
Senetek PLC Sponsored ADR*(+) 2,903,000 9,344,030
Synthetic Blood International
Inc. Wts.*+ 150,000 0
Synthetic Blood International
Inc.*+ 750,000 106,313
-----------
9,754,906
-----------
CHEMICALS - 2.10%
Advanced Materials Group
Inc.*+ 200,000 381,250
Phoenix Energy Corporation*+ 480,000 0
-----------
381,250
-----------
COMMUNICATION & EQUIPMENT - 0.56%
American Satellite Network
Inc. Wts*+ 6,775 0
Fax Broadcasting Network
Corp.*+ 44 0
Future Communications Inc.*+ 60,000 0
The Henley Group, Inc.*+ 3,333 3,000
Intl. Telecommunication Data
Systems Inc.* 5,000 82,500
Millicom International
Cellular SA Rights*(+)+ 27,100 0
Spectrum Information
Technologies Inc.* 3,400 15,300
-----------
100,800
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 3
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THE AMERICAN HERITAGE FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
MAY 31, 1997
(Continued)
- ------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
- ------------------------------------------------------
<S> <C> <C>
COMPUTER EQUIPMENT &
SOFTWARE - 6.13%
Applied Magnetics Corp.* 6,400 $ 159,200
Cypress Semiconductor Corp. 10,000 142,500
Great Bear Technology Inc.
Wts*+ 90,000 0
Interdigital Communications
Corp.* 10,000 66,250
Iomega Corp.* 5,000 86,875
Jot-It Inc.*(+) 390,700 430,542
Management Technologies Inc.* 95,238 2,976
Management Technologies Inc. C
Wts* 419,047 0
Sentech EAS Common*+ 40,334 61,682
Sun Microsystems Inc.* 5,000 161,250
-----------
1,111,275
-----------
CONSUMER PRODUCTS - 2.67%
Alternative Distributors
Corp.*+ 110,000 0
Alternative Distributors Corp.
Units*+ 650,000 0
Alternative Distributors Corp.
Units*+ 1,250,000 0
Net/Tech International Inc.* 25,900 69,606
Philip Morris Companies Inc. 6,000 264,000
Veridian Corp.*+ 517,500 150,075
-----------
483,681
-----------
ELECTRONICS & ELECTRICAL
EQUIPMENT - 0.31%
Simtek Corp.* 100,000 57,000
-----------
57,000
-----------
ENTERTAINMENT & LEISURE - 2.00%
Atlantic Central Entertainment 5,250 1,969
BBH Exhibits Inc.*+ 166,000 300,000
Gold Star International Inc.
Units*(+)+ 5,000 50,000
Graphix Zone Inc.* 43,998 11,000
-----------
362,969
-----------
<CAPTION>
- ------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
MAY 31, 1997
(Continued)
- ------------------------------------------------------
Number of
Shares Value
- ------------------------------------------------------
<S> <C> <C>
GOLD - 1.58%
Echo Bay Mines Ltd.(+) 20,000 $ 122,500
Exall Resources Ltd.*(+)+ 231,100 115,604
Sector Communications Inc.* 126,594 47,473
-----------
285,577
-----------
HEALTHCARE - 0.88%
Medaphis Corp.* 20,000 158,750
Work Recovery Services Inc. Cl
B Wts* 100,000 0
-----------
158,750
-----------
INDUSTRIAL PRODUCTS - 0.55%
American Electromedics Corp.*+ 75,000 75,000
Mark Solutions Inc.* 20,000 25,000
-----------
100,000
-----------
MEDICAL TECHNOLOGY/
EQUIPMENT - 15.79%
A D M Tronics Unlimited
Inc.*+ 4,230,000 1,189,688
Life Medical Sciences Inc.* 54,500 262,281
Life Medical Sciences Inc. Cl
A Wts* 60,000 120,000
Medtrack Inc.*+ 300,000 200,000
P D T Inc.* 25,000 700,000
Photelectron Corp.* 10,000 52,500
Quantech Ltd. - Minn*+ 250,000 0
U S Surgical Corp. 10,000 337,500
-----------
2,861,969
-----------
MISCELLANEOUS - 0.20%
American Eco Corp.* 5,000 36,094
Morrison Knudsen New Warrants* 63 402
National Child Support Inc.*+ 20,000 0
-----------
36,496
-----------
OIL, GAS & MINERALS - 0.29%
X C L Ltd.* 239,000 52,281
-----------
52,281
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 4
<TABLE>
<CAPTION>
- ------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
MAY 31, 1997
(Continued)
- ------------------------------------------------------
Number of
Shares Value
- ------------------------------------------------------
<S> <C> <C>
PHARMACEUTICALS - 3.62%
Elan Energy Inc. ADR* 5,000 $ 203,750
Interactive Medical
Technologies Ltd.* 380,000 36,100
Polydex Pharmaceuticals
Ltd.*(+) 315,000 206,719
U.S. Bioscience* 20,000 210,000
-----------
656,569
-----------
RETAIL - 1.30%
Nautica Enterprises Inc.* 10,000 235,000
-----------
235,000
-----------
STEEL & HEAVY MACHINERY - 0.41%
Bethlehem Steel Corp.* 7,500 75,000
-----------
75,000
-----------
TRANSPORTATION &
EQUIPMENT - 0.64%
American West Airlines Inc.* 7,500 115,313
-----------
115,313
-----------
TOTAL COMMON STOCKS AND WARRANTS
(Cost $29,808,657) $17,484,908
-----------
<CAPTION>
- ------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
MAY 31, 1997
(Continued)
- ------------------------------------------------------
Number of
Shares Value
- ------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS - 0.00%
Medtrack Inc. Pf B+ (Cost $0) 30,000 $ 0
-----------
BONDS AND NOTES - 0.12%
Alternative Distributors Corp.
6% Convertible Bond, due
12/17/94+ 65,000 $ 0
Alternative Distributors Corp.
6% Promissory Notes due
11/30/94+ 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
-----------
TOTAL SECURITIES
(Cost $30,628,657) $17,507,408
===========
* Non-income producing property
(+) Foreign security
+ Illiquid Security
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 5
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1997
- ---------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................... $ 61,850
Dividends.......................... 157,588
Miscellaneous...................... 19,654
---------
TOTAL INVESTMENT INCOME............ 239,092
---------
EXPENSES:
Investment advisory fees........... 206,091
Transfer agent fees................ 67,642
Legal fees......................... 160,670
Audit fees......................... 30,000
Custodian fees..................... 25,035
Administrative fees................ 188,266
Fund accounting fees............... 42,756
Insurance.......................... 31,078
Postage and printing expense....... 77,541
Registration fees and expenses..... 25,000
Directors' fees.................... 21,922
Interest expense................... 23,081
Consulting and professional fees... 50,048
Rent............................... 91,279
Telephone.......................... 11,432
Miscellaneous...................... 6,496
---------
TOTAL EXPENSES..................... 1,058,337
---------
Investment loss -- net............. (819,245)
---------
Net realized gain on securities
transactions..................... 2,967
Net change in unrealized
depreciation of investments...... 1,113,728
---------
Net gain on investments............ 1,116,695
---------
Net increase in net assets
resulting from operations........ $ 297,450
=========
</TABLE>
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MAY 31,
1997 1996
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Investment loss -- net...... $ (819,245) $ (855,806)
Net realized gain (loss) on
securities transactions... 2,967 (8,172,888)
Net change in unrealized
appreciation of
investments............... 1,113,728 13,187,053
----------- -----------
Net increase in net assets
resulting from
operations................ 297,450 4,158,359
Distributions to
shareholders from --
Investment
income -- net........... 0 0
Net realized gains on
investments............. 0 0
Return of capital......... 0 0
Capital share
transactions.............. (3,600,612) (13,508,175)
----------- -----------
Net decrease in net
assets.................. (3,303,162) (9,349,816)
NET ASSETS:
Beginning of year........... 21,429,753 30,779,569
----------- -----------
End of year................. $18,126,591 $21,429,753
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 6
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1997
- ---------------------------------------------------------
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.
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1997
(Continued)
- ---------------------------------------------------------
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.
7
<PAGE> 7
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1997
(Continued)
- ---------------------------------------------------------
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, 1997 AHMC
received $206,091 in investment advisory fees. Heiko H. Thieme is the Fund's
Chairman of the Board of Directors, Chief Executive Officer and Secretary. Heiko
H. Thieme is also the Chairman of the Board of Directors, Chief Executive
Officer and Secretary of AHMC, of which he owns 90% of the outstanding shares.
Mr. Parker is a Managing Director of Bear, Stearns & Co., Inc.
Richard K. Parker has resigned as the President, Treasurer and as a Director of
the Fund and AHMC. Mr. Parker has transferred his equity ownership in AHMC to
Northern Westchester Industries, Inc., a newly organized corporation all of the
outstanding shares of which are owned by him.
During the year ended May 31, 1997, the Fund paid brokerage commissions of
$62,510 to Bear, Stearns & Co. Inc. During the year ended May 31, 1997, the Fund
paid brokerage commissions of $379,644 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, 1997, the Fund reimbursed AHMC $90,420 for the use
of its office space.
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1997
(Continued)
- ---------------------------------------------------------
AHMC is also reimbursed for administrative personnel utilized by the Fund. Total
reimbursement was $188,266 for the year ended May 31, 1997.
NOTE 3. INVESTMENTS
For the year ended May 31, 1997, purchases and sales of investment securities
other than short-term investments aggregated $76,430,538 and $80,936,747,
respectively. The gross unrealized appreciation for all securities totaled
$2,972,003 and the gross unrealized depreciation for all securities totaled
$16,093,252, or a net unrealized depreciation of $13,121,249. The aggregate cost
of securities for federal income tax purposes at May 31, 1997 was $30,628,657.
Net realized gain on investments for the year ended May 31, 1997 was $2,967. The
components are as follows:
<TABLE>
<S> <C>
Long transactions $ 49,948
Short sales transactions (46,981)
-------
$ 2,967
=======
</TABLE>
There were no option transactions during the year ended May 31,1997.
NOTE 4. RESTRICTED AND OTHER ILLIQUID SECURITIES
Investments in restricted securities and investments, where market quotations
are not available, 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
8
<PAGE> 8
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1997
(Continued)
- ---------------------------------------------------------
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 144(a) of 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.
Certain securities held by the Fund, which were restricted at the time of their
acquisition, have been deemed to no longer be restricted pursuant to Rule 144
under the Securities Act of 1933.
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, 1997 securities representing approximately
16.8% of the Fund's net assets were not liquid.
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1997
(Continued)
- ---------------------------------------------------------
NOTE 5. CARRYOVERS
At May 31, 1997, the Fund had net capital loss carryforwards of approximately
$31,504,000 expiring in 2003 through 2005 and net operating loss carryforwards
of approximately $1,995,000, which begin to expire in 1998 through 2013.
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, 1997 the total par value and paid in capital totaled $65,009,239.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, FOR THE YEAR ENDED MAY 31,
1997 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 8,704,545 $ 6,830,024 4,827,260 $ 3,229,030
Shares issued in
reinvestment of
dividends 0 0 0 0
Shares redeemed (14,977,593) (10,430,636) (25,649,612) (16,737,205)
----------- ------------ ----------- ------------
Net decrease (6,273,048) $ (3,600,612) (20,822,352) $(13,508,175)
=========== ============ =========== ============
</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. The outstanding balance
as of May 31, 1997 was $1,004,334. Total interest paid on the credit line during
the year ended May 31, 1997 totaled $23,081.
NOTE 9. CONTINGENCIES
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
9
<PAGE> 9
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1997
(Continued)
- ---------------------------------------------------------
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
amount of the outstanding shares of the Fund has been rapidly diminishing since
early 1994. The Fund had approximately 22 million outstanding shares as of June
27, 1997.
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 AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1997
(Continued)
- ---------------------------------------------------------
The Plaintiff has 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.
The Fund, after conferring with its special counsel, has concluded 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 Funds
belief, the Fund has not established a reserve for potential losses other than
the expenses 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.
The Fund has borne all expenses related to the above litigation which for the
year ended May 31, 1997 totaled $116,488. This amount does not reflect any
potential recovery of legal fees from the Fund's insurance carrier.
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 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
10
<PAGE> 10
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1997
(Continued)
- ---------------------------------------------------------
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 again KCG and
Mr. Kouri. In such event, it can be expected that they will again assert
counterclaims against the Fund.
The Fund has borne all expenses related to the above litigation which for the
year ended May 31, 1997 totaled $118,809.
NOTE 10. SUBSEQUENT EVENTS
The Fund believes that at June 27, 1997 securities representing approximately
12.8% of the Fund's net asset (totaling approximately $2,649,000) were not
liquid.
- ---------------------------------------------------------
THE AMERICAN HERITAGE FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1997
(Continued)
- ---------------------------------------------------------
On June 27, 1997, the Funds investment in the securities of Senetek PLC
(Senetek) represented approximately 58% of the Funds net assets. The Funds last
purchase of securities of Senetek occurred in 1994. As set forth in the Funds
Prospectus, the restriction limiting investments of more than 50% of the value
of total assets in the securities of any one issuer is applied solely at the
time of any proposed transaction. Senetek is a small foreign company and the
Funds investment therein is speculative.
The Board of Directors has determined that the Fund may recover certain of its
legal expenses related to the action brought against the Fund, AHMC, Heiko H.
Thieme and Richard Parker referred to in Note 9. The Board of Directors have
estimated that the value of this recovery is $60,000.
The Fund has renewed its insurance policy for indemnification of its Directors
and Officers. The annual premium which runs from July 20, 1996 to July 20, 1997,
totals $24,000. The Funds insurance carrier is American International Surplus
Lines Insurance Company.
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>
1997 1996 1995 1994 1993
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year..... $ .76 $ .63 $ 1.19 $ 1.42 $ 1.15
Income from investment operations:
Net investment income (loss)......... (.03) (.02) .06 .19 (.01)
Net gains or (losses) on securities
(both realized and unrealized)..... .10 .15 (.48) (.35) .36
----------- ----------- ----------- ------------ -----------
Total from investment operations....... .07 .13 (.42) (.16) .35
Less distributions
Dividends (from net investment
income)............................ -- -- .07 -- .08
Distributions (from capital gains)... -- -- -- .07 --
Return of capital distribution....... -- -- .07 -- --
----------- ----------- ----------- ------------ -----------
Net asset value, end of year........... $ .83 $ .76 $ .63 $ 1.19 $ 1.42
=========== =========== =========== ============ ===========
Total return........................... 9.21% 20.63% (38.37)% (12.49)% 32.89%
Net assets, end of year................ $18,126,591 $21,429,753 $30,779,569 $101,036,392 $69,498,156
Ratio of expenses to average net
assets............................... 6.42% 6.25% 3.69% 2.41% 2.1%
Ratio of net income (loss) to average
net assets........................... (4.97)% (3.53)% 6.55% 3.40% (.46)%
Portfolio turnover rate................ 470% 606% 620% 434% 278%
Average commission per share........... $ .0879 $ .0866 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 Philadelphia, 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, 1997, 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, 1997, 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, 1997, 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
$1,125,558 (6.2% 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
June 27, 1997
13
<PAGE> 13
THE AMERICAN HERITAGE FUND, INC. BULK RATE
1370 Avenue of the Americas U.S. POSTAGE
New York, NY 10019 PAID
HACKENSACK, NJ
ADDRESS CORRECTION REQUESTED
THE
AMERICAN
[THE AMERICAN HERITAGE
HERITAGE FUND LOGO] FUND, INC.
- --------------------------------------
ANNUAL
REPORT
May 31, 1997
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.
